American Bankster

Welcome to American Bankster, the blogsite that examines current events in finance and banking as they devolve into losses of personal liberties and individual freedoms.

"Give me the right to issue and control a nation’s money and I care not who governs the country.” Meyer Amschal Rothschild, International Banker

"Those that create and issue the money and credit, direct the policies of government and hold in their hands the destiny of the people." Richard McKenna, former president of the Midlands Bank of England

"We have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. Some people think the Federal Reserve Banks are U.S. government institutions. They are private credit monopolies; domestic swindlers, rich and predatory money lenders which prey upon the people of the United States for the benefit of themselves and their foreign customers. The Federal Reserve banks are the agents of the foreign central banks. The truth is the Federal Reserve Board has usurped the Government of the United States by the arrogant credit monopoly which operates the Federal Reserve Board. Congressman Louis T. McFadden, Chairman of the House Banking and Currency Committee, addressed the House on June 10, 1932. 75 Congressional Record 12595-12603

Tuesday, June 30, 2009

Independence Day

As the fourth of July approaches, it's important to consider the results of the latest Rasmussen poll. Fifty-four percent of Americans surveyed said they believe the U.S. is the land of the free with liberty and justice for all. It is nothing short of a tragedy that only (roughly) half of Americans recognize their country for the land of liberty intended by its founding fathers. It is a tragedy that the U.S. government believes its job is to overtake private institutions, engage in job creation and stiff taxpayers with the bill(s) for all of its misdeeds. It is tragic that American freedoms disappear with the swipe of a pen on Capitol Hill as new taxes and laws repeal economic and practical liberties. As the fourth of July approaches, reconsider the value of the constitution and vow to vote against ANYONE whose policies or practices violate that sacred document. America didn't win her freedom from the British in the 1770s to lose it to Washington and Wall Street elites in the 2000s.

Thursday, June 25, 2009


Bob Chapman’s influential International Forecaster is reporting on the possibility of a so-called “bank holiday” planned for late August or early September. According to Chapman’s sources, U.S. embassies around the world are selling dollars and stockpiling money from respective countries where they operate.

FDR imposed a "bank holiday" soon after taking office. It resulted in the government stealing gold from the American people and giving them useless fiat paper money in return.

“Some US embassies worldwide are being advised to purchase massive amounts of local currencies,” writes Harry Schultz, “enough to last them a year.” Schultz publishes the Harry Schultz Letter, an international investment, financial, economic, and geopolitical newsletter named as “Newsletter of the Year” by Peter Brimelow of Market Watch in 2005 and 2008.

Schultz believes the global elite are in the process of engineering an FDR-style “bank holiday” of undetermined length in order to “sort-out the bank mess” and impose new bank rules.

On March 5, 1933, in the depths of the banker engineered “Great Depression,” newly elected Franklin Roosevelt declared a “bank holiday” that forced banks closed for four days. Roosevelt then rammed the Emergency Banking Act through the legislature. Passed by Congress on March 9, the act granted FDR near dictatorial control over the dealings of banks. It also allowed the Secretary of the Treasury the power to compel every person and business in the country to relinquish their gold and accept paper currency in exchange.

On March 10, Roosevelt issued Executive Order No. 6073, forbidding people from sending gold overseas and forbidding banks from paying out gold. A few weeks later, on April 5, Roosevelt issued Executive Order No. 6102 ordering Americans to deliver their gold and gold certificates to the Federal Reserve bank in exchange for paper fiat money.

In other words, FDR engaged in one of history’s greatest rip-offs — that is until now.

FDR not only ripped-off the American people, but foreigners holding dollars as well, thus ensuring the “Great Depression” would spread around the world like a bankster engineered contagion.

As Schultz notes, another forced “bank holiday” will likely lead to a formal devaluation of the already broadsided U.S. dollar. “But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies,” which he feels is more likely.

In fact, this is precisely what the globalist have in mind. In March, the media reported the IMF was poised print billions of “global quantitative easing” dollars to be dubbed global “super-currency” to address the (bankster engineered) economic crisis. “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them,” declared Simon Johnson, former chief economist at the IMF.

Can you say inflation?

It is no secret the elite have envisioned a global currency for some time now. In 2007, the director of international economics at the Council on Foreign Relations stated that the dollar and the euro are but temporary currencies. “It is the market that made the dollar into global money – and what the market giveth, the market can taketh away. If the tailors balk and the dollar falls, the market may privatize money on its own,” Benn Steil pontificated.

More like the banksters taketh away — and not only money but national sovereignty as well because a global currency will demand an end to “monetary nationalism.”

Or as Richard N. Haass, president of the Council on Foreign Relations, has said, “states must be prepared to cede some sovereignty to world bodies if the international system is to function.”

Mr. Schultz believes a “bank holiday” would suit the burning desires of the international bankster elite. It will lead to “nationalization,” which is a polite word for brazen thievery. It will allow the government — owned lock, stock and barrel by the global elite and run by their corrupt whores and cronies — to rape secured creditors and bondholders. Nationalization is the unfettered process of grabbing up of insurance companies, mortgage companies, banks, medical care, and car companies and handing them over to the monopoly men.

During the FDR “bank holiday,” Schulz notes, “thousands of banks never reopened; it was a face-saving way of shutting them down. I would guess the same would occur today; thousands have little or no net value, loaded with debt, bad mortgages.”

In order soften the nation up for the coming pillage, the Obama administration has proposed a plan to give the privately-owned and unaccountable Federal Reserve complete regulatory oversight across the entire U.S. economy. The new rules would see the Fed given the authority to “regulate” any company whose activity it believes could threaten the economy and the markets — that is to say if it “threatens” the monopolistic interests of the bankers.

“Obama’s regulatory ‘reform’ plan is nothing less than a green light for the complete and total takeover of the United States by a private banking cartel that will usurp the power of existing regulatory bodies, who are now being blamed for the financial crisis in order that their status can be abolished and their roles handed over to the all-powerful Fed,” write Paul Joseph and Steve Watson. “The government is ready to hand over everything to a monolithic private corporation and a gaggle of bastard banker offspring, that have gobbled up an amount close to the entire GDP of the country in taxpayers’ money and figuratively stuck the middle finger up regarding questions over where that money has gone.”

A “bank holiday” would work wonders for any “regulation” the Fed and the bankers have in mind. It would compliment the criminal consolidation now underway. It would allow them to finally and formally devalue the dollar and usher in a global “super currency” of control and enslavement.

A Bob Chapman subscriber added a little dinger to the prospect of the banks going dark. The subscriber claims to have overheard two men in FEMA jackets talking with a police chief in California, all who agreed that the federalization of police around the country — a process largely complete — will be required if the banks are shuttered in late August or early September because it will get “ugly” out there.

No doubt. Because the sort of enduring and polite American who weathered the “Great Depression” is now in seriously short supply.

If Mr. Schultz’s prediction is correct, we can expect riots in bank foyers and ultimately martial law to be imposed.

Sunday, May 31, 2009

On Thursday 21 May, federal regulators in the U.S. closed Florida’s BankUnited. That closure represented the largest bank failure this year and the second-largest failure in U.S. history. It will cost the FDIC nearly $5.0 billion. On Friday, regulators closed two Illinois banks located in farm country. Total U.S. bank closures, thus far in 2009, number thirty-six; eleven more than in 2008 and nearly four times more than in 2007. Last week’s bank closures encompassed both extremes of the spectrum – from the largest of the year to two small farm-community banks – suggesting the worst is not over for the industry. On Thursday of last week, S&P lowered its outlook for the UK economy, saying that government debt may increase to 100% of GDP in the next few years and the UK could, therefore, lose its AAA credit rating. The comment was barely printed on the wires before U.S. Treasuries – which had been showing signs of sickness well ahead of the S&P comments – confirmed the unwell state of American affairs by losing more than two full points on the day. Prior to Thursday’s news, FOMC meeting notes indicated the Fed was/is considering the purchase of more U.S. bonds; code for efforts to inflate/reflate the economy through quantitative easing. The U.S. has maintained a triple-A credit rating since 1917 but that is sure to end with reckless fiscal policies which, adding insult to injury, result in no meaningful economic improvement. GM may become “Government Motors” as early as this week as the company drives toward bankruptcy court. And, as if alienating international partners holds some sort of advantage, the Obama administration is so desperate to encumber American taxpayers, it has ‘requested’ British banks to act as “qualified intermediaries” for the purpose of collecting taxes on U.S. depositors in that country. The request puts British banks – already reeling from their own liquidity crisis – under a cloud of higher costs – in the untenable position of being accountable to the IRS. Banks have responded by suggesting they may refuse to accept American clients. A meeting between banking representatives, British brokerage houses and the Obama administration is slated for mid-June when banks say they will tell the IRS they’re not interested and both the administration and its taxing body should back off. Of course, neither the administration nor the IRS can make quid-pro-quo promises because no overseas depositor in their right mind would invest in the U.S. Last Friday, the dollar index hit its lowest level in more than two months in what appears to be an acceleration of U.S. economic devolution. The media has referred to loosening up in the money markets as ‘signs of recovery’. We call it the start of unbearable inflation. It is interesting that the Obama administration is attempting to enlist the aid of UK banks to corral U.S. taxpayers and, equally interesting, that U.S. federal growth has become so onerous the government feels comfortable taking over corporations, firing executives, developing plans to dictate executives’ compensation in private industry, and individual states teeter on the verge of bankruptcy even as Washington’s spending threatens to engulf the whole of national GDP. It is no coincidence America is witnessing a growing movement to restore the country to norms set forth in its Constitution. The political and economic blob that has become the federal government is in direct opposition to the precepts set forth in the document which, for the most part until about 1963, served as the law of the land. The final draft of the U.S. Constitution was delivered in 1782 – one year after the conclusion of the Revolutionary War – and, ironically, America has never been closer to disintegration than in the twelve months following its victory over the British. When the war ended, the economy was in a shambles. The country’s ‘army’ was in effect a relatively well-organized militia made up of farmers rather than the professional soldiers against which it fought. After the war, patriot-farmers returned to their land only to find, in many cases, government expropriation for back taxes. Inflation was rampant. Supplies of the most basic necessities had dried up. Civil unrest against the system they’d fought to establish became so pervasive it was, in many places, as if the war had never ended. The federal government, bound only by the Articles of Confederation, had no authority to levy taxes, establish policy or regulate trade. It operated completely at the ‘mercy’ of the states. And because the states were in such devastated condition, allocating resources and power to a centralized system was impossible in the absence of a formal agreement that served to clearly define the role of federal governance while preserving states’ sovereign rights. Over the course of the past 223 years, the Constitution has been interpreted, re-interpreted and misinterpreted more times than could ever be justified by Constitutional purists and, in the process, the federal government has grown into an unsustainable monster growing fat off the wealth and resources of the states. Representatives who were intended to be part-time employees of a system that would cause them to remain contributory individuals beyond the scope of their political duties have, over the life of the republic, come to establish dynasties of ‘public service’ which, in many cases, involve multiple generations of redundant family names. Representatives vote-in their own pay raises. Because they no longer work beyond the political realm, and because they are not responsible for insuring their own financial well-being within the confines of the general economy, they were long ago stripped of any identification with the common man they are purported to represent. The Articles of Confederation which hamstrung federal government gave way to the Constitution which was designed to preserve individual liberties and states’ rights. But through legal maneuvering and slow but steady efforts to garner more power, the federal government has become virtually everything it was never intended to be. After decades of unfunded mandates, federal intrusion into states’ affairs and the erosion of civil liberties on the corporate and individual levels, states have mounted a movement to reinstate their sovereignty. The movement which now involves 34 of the 50 states seeks to reassert tenth amendment rights , thereby reducing Washington’s ability to interfere; effectively seeking to curtail Washington’s power. It is, therefore, interesting, if not ironic, that 223 years after the first formal efforts to secure freedom from England, the current U.S. administration is attempting to harness its assistance – at the expense of English banks – in pursuing American taxpayers. It is interesting, if not ironic, that such efforts are undertaken at a time when, not unlike the late-1780s, the U.S. faces an unprecedented economic crisis which promises a repeat of (albeit far more dilatory) war-time debts, worsening raw material shortages due to reduced capital expenditures, raging inflation and tax revolts. The financial crisis which came to the fore in late-2006 is routinely compared to the Great Depression but we think that’s a mischaracterization. It is our view that, perhaps most ironically of all, the crisis underway will ultimately prove to be a more accurate reflection of conditions in post-Revolutionary War America. Government has become everything it was never intended to be and states and individuals are embarking on yet another quest for their freedom. The tyrant is not a monarch across the ocean, but a domestic federal government so ignorant of its boundaries, so possessed of hubris and so uneducated in its own purpose and responsibilities that it poses a threat to the very nation it was created to serve. In our view, the U.S. is entering a period wherein efforts to dismantle or retract federal power will result in its socio-political and economic demise. Practices and policies to date by the Obama administration, including the president’s comment Saturday in a public interview that the U.S. is “out of money” represent acts of self-sabotage (in the collective sense) so perverse they border on treason. Government securities of nations in turmoil are not good investments. Currencies of nations in conflict with themselves represent poor stores of value. There is only one hedge against the sort of instability we see escalating in the months and years to come: BUY GOLD.

Sunday, May 17, 2009

The Westsound Bank in Bremerton, WA proved to be less than sound when, on Friday, FDIC regulators closed the institution, making it the U.S. 33rd bank failure this year. It was another week of discouraging economic news. Eurostat said that real GDP in the EU-27 was down 2.5% in the first quarter and down 4.4% from a year ago, weaker than expected and the worst quarterly drop since records began in 1995. Consumer prices were up 1.2% in April from a year ago in the region. StatsCan said manufacturing was off 2.7% in March to the lowest level in nearly ten years. Real GDP in Germany was down 3.8% in the first quarter, weaker than expected. Real GDP in France was down 1.2% in the first quarter. Real GDP in Hong Kong was down 4.3% in the first quarter and down 7.8% from a year ago. Corporate bankruptcies in Japan increased 15.4% in April relative to a year ago. The Federal Reserve said U.S. industrial production was down 0.5% in April – the 15th decline in the past 16 months – and that’s a number due to contract further as the sting from Chrysler and GM plant closings sets in. The Labor Department said U.S. consumer prices were unchanged in April but down 0.7% from a year for the biggest decline in 53 years. The core CPI, which excludes food and energy prices, jumped 0.3% last month, the largest increase since June 2008 and well above economist expectations for a 0.1% increase. Hogwash, we say. We are compelled to comment that U.S. inflation data is a pack of lies. That has been known for a very long while. But there are more lies on the way. The Obama administration has initiated rule changes for federal deficit reporting. The changes only reduce the reported level of the federal deficit; they do not impact the Treasury’s excessive funding needs. The twelve-month moving deficit through April 2009 rose to $1,278.6 billion from $1098.8 billion in March, based on last month’s accounting rules. Based on the new rules, the April number was $1,103.6 billion in April, versus $923.4 billion in March. Lies, damned lies and statistics, as the old saying goes portray perfectly the conundrum facing economists and analysts, consumers and producers who attempt to rectify their experiences with information imparted in official data releases. Despite official data to the contrary, sharp rallies in crude oil and gasoline during May are, in concert with rising agricultural commodity prices and crumbling bond values, evidence of the bottom in deflationary concerns. Stocks rallied over the past eight weeks on fictitious bank profits founded on the same fairy tale accounting employed in government data; economic data that – while still dour – came out better than expected; and notions that – among other things – sharp declines in U.S. business inventories are good things. All the while, un- and under-employment continue to grow; home prices in the U.S. dropped by the greatest amount ever recorded in the first quarter; and the U.S. auto industry has entered a full-fledged death spiral. The dollar index hit an intraday high of 90.31 on 6 March and, after posting a key reversal lower, has trended down since. If the dollar is going to correct in the short-term, it could rally back to about 86.00 on the index but we don’t expect a short-term recovery is the start of anything sustainable in the long-term. A correction from the dollar’s intact downtrend would presumably pressure energies and agricultural commodities and hold back stocks. It might last about six weeks, crossing the threshold into the second-half of the year. It will not help businesses, reinvigorate employment, bolster manufacturing or inspire confidence. And when the rally comes to an end, it may have something to do with the recognition that government rule changes (for deficit reporting, banks’ toxic asset valuations and whatever else is changed between now and then) do nothing to bring about an improvement in underlying conditions. That, among other things, reductions in business inventories, is the set-up for full-blown shortages. That a government which can’t keep its own accounting rules straight is in no position to run banks or car companies. That 500,000 job losses per month is still a helluva lot of jobs to lose and not counting those who’ve been unemployed for more than a year doesn’t mean there are fewer jobless. If the dollar is able to rally for the next little while, we see it as the greenback’s last rally opportunity for a long while.

Tuesday, May 5, 2009

Picking & Choosing

The U.S. government has said it is ‘saddened’ and ‘concerned’ over the prospect of bankruptcies in the newspaper industry but, unlike the generosity extended to the insurance and banking sectors, it will not bailout print media or automakers. It appears that unless the underlying business is Fed-related, there is no chance for assistance from Washington. Congressional democrats are, however, willing to support the military-industrial complex.
On Monday, democrats said they will seek the addition of $94.2 billion in spending for the wars in Afghanistan and Iraq. Because Congress is slated to recess at end-May and, because they say the funding is a matter of great priority, democrats will attempt to push through spending plans prior to the upcoming sabbatical.
We vehemently disapprove of government involvement in the private sector, particularly pseudo-government involvement such as that enjoyed by the Fed. Policies undertaken by Washington relative to which industries will be bailed out and which will not has concentrated on a ‘too big to fail’ approach. That means, by default, non-banking related businesses such as the whole of manufacturing are too small to save.

Wednesday, April 29, 2009

The Promise of Recovery, The Reality of Decline

Stocks, crude oil, grains and metals improved on Wednesday despite news that U.S. first quarter GDP declined by an unexpectedly large 6.1%. Analysts had been expecting a decline of 4.3%. The rally in stocks - against continued news of dismal housing results, poor corporate earnings and rising unemployment - is completely unjustified. Equally unjustified is strength in the U.S. dollar. And it is the eventual crash of the latter that will have the greatest impact on both the U.S. and global economies. The promise of recovery is senseless against the reality of ongoing decline.

Monday, April 27, 2009

COMEX gold gained $46.20 last week to settle at $913.60. On Friday, the FDIC closed four more U.S. banks taking the year’s total of failed institutions to 29 – not including two savings and loans. Also on Friday, the government informed 19 U.S. banks of their stress test results. Banks have been sworn to secrecy on their test results until the Treasury makes them public on 4 May. Over the course of last week, media covered the story that Bank of America’s Ken Lewis was essentially forced – by the Fed and Treasury – into buying Citigroup or (be responsible for) greater systemic weakness. Both the Fed and Treasury denied the claims, but some news sources actually came up with transcripts of meetings that leave little doubt Lewis had little choice in the matter. There was also news that federal regulators are preparing for Chrysler’s bankruptcy. It seems the government can’t get enough of corporate America. We are often questioned about our hyperinflationary forecast for the U.S. economy and, among other things, the main argument seems to be that – short of an interest in consumer borrowing – hyperinflation cannot ensue. We beg to differ. Inflation results from three events, all of which boil down to monetary phenomena. Inflation can gain traction with wage growth; with rising commodity prices; and/or with currency devaluation. Since joblessness continues to grow across the U.S., it doesn’t seem that wage-pull inflation will be a problem anytime soon. Those left with jobs work fewer hours and some retain hours, for lower wages. This is precisely the opposite of what happened during the 1970s, when skilled workers shipped off to Vietnam throughout the 1960s left employers in the position of raising wages to attract qualified help. By the early-1970s, contractions in global commodity production began to result in higher prices that escalated from the markets (exchanges) to wholesale levels and, ultimately to the retail level. It is worth noting that by 1981, when U.S. inflation averaged 13% per annum, neither China nor India were demand factors. Concomitant with rising wages and increasing commodity prices, the U.S. was involved in the Vietnam War, the War on Poverty and had just embarked on the War on Drugs. Globally, faith in governments was folding, adding to pressures on currencies’ values that eventually led to the floating exchange rate system. Today, the Fed and Treasury jawbone a great deal about the threat of deflation but the real threat facing the U.S. and world economies is inflation. While it may not commence with wage-growth, there is little reason to believe it cannot begin with commodity price inflation. Interest rates are, for instance, a major driver of commodity prices. When the Fed decides to get out of the interest rate manipulation business, we believe rates will turn higher in earnest, virtually overnight as a reflection of risk premium for the U.S.’ worsening fiscal position. Of course, physical supplies are critical to prices for staple commodities such as wheat, corn and soybeans. Strength in soybean prices over approximately the past two months is tied to gradually declining U.S. stocks and reduced output from South America. Despite price stabilization in recent months, relative to the July 2008 highs, there is little to indicate commodities in general – but perhaps agriculture in particular – have experienced resurgence in capacity utilization to offset the impact of peak demand. Subsidies in developed economies continue to reward non-productivity while the developing world still struggles to reach consistent levels of output. Subsidization also prevents the transfer of technology from industrialized economies to those in need of it most; those area s The ‘new economy’ made up of technological software and state-of-the-art hardware displaced capital from ‘old economy’ drivers such as agriculture. But since 2001, analysts, consumers, economists and traders have been witness to the resurgent old economy as gold, crude oil, industrial metals and agriculturals experienced supply declines and price rallies. As for agriculture, rising input costs and market volatility have done much to discourage what had been routine crop-year planning. And what input costs and volatility have failed to contribute to farmers’ uncertainties, a lack of available credit has supplied. In short, the reasons that agricultural commodities prices rallied to new highs in 2008 are no closer to being resolved than they were in 2001 at the bottom of the cycle. Given the existence of the credit crisis and the extreme likelihood the U.S. government will burden agriculture with additional climate change regulations the conditions that reignited the commodities bull in 2001 were less dire then, than they are now. Inflation is purely a monetary phenomenon. But that doesn’t necessarily mean money can only flow, for instance, from banks to borrowers as a means of stimulating the economy. Higher commodity prices – particularly higher agricultural commodity prices – can accomplish the same end. As CPI and PPI data (lame as it is) came out from end-2008 through most of the first quarter of 2009, declines in the indices were primarily a result of lower energy prices. Since consumers’ net incomes in the U.S. are stalled at about 1990 levels, heightened inflationary pressure over the past year or more has been the result of rising commodity values as banks began cutting credit lines reducing consumers’ access to cash. The dollar turned decidedly lower last week and, barring unforeseen government interference designed to prop it up, the greenback appears to be headed lower, adding to inflationary pressures already in place from commodity prices.

Tuesday, April 21, 2009

Banking: The New Con Game

The FDIC closed two more failing banks on Friday (American Sterling Bank in Missouri and Great Basin Bank in Nevada), taking total U.S. bank failures – less than one month into the second quarter of 2009 – to 25, on par with total bank failures in all of 2008. That number is set to grow. Coral Gables-based BankUnited, the largest bank headquartered in Florida, could be taken over by federal regulators if it doesn't boost its capital by merging or finding a buyer within 20 days, under an order last week from the Office of Thrift Supervision. The order issued on Tuesday gives BankUnited 15 days to submit a binding merger or acquisition agreement to regulators. Banks reported earnings last week and, along with the previous week’s reporting of greater than expected results from Wells Fargo, JPMorganChase and Citigroup stunned the investing world with astounding results (relative to where banks have been financially over the past eighteen months). Defaults on credit cards were, for JPMorganChase, up very substantially over the reporting period and that is nothing for them to take in stride. Job losses (reportedly down 53,000 over the past week – but still indicative of more than 600,000 per week losing their main sources of income) are projected to grow, which means banks can look forward to increases in credit card defaults going forward. But the real issue that allowed banks to tender better than expected earnings results rests with the fact accounting rules have been changed. Banks now can, as we disclosed in last week’s letter, assess their value of their toxic waste assets themselves. There is no oversight as banks make grandiose assumptions about the value of mortgages that are not being repaid and properties that are not being sold. At some point, banks’ valuations of toxic waste will have to be reassessed; perhaps only when foreclosures make the market, which they’ve not yet begun to do. And at that point, banks will look far uglier than the picture they now portray. On 4 May, the U.S. Treasury will reveal results of its bank stress tests and, at this point, there is much concern about how and how much of the results to make public. The tests were supposedly designed to determine if banks have sufficient capital to make it through losses over the next two years if the economic downturn worsens. The Treasury issued the tests to the nation’s top 19 banks and it withheld the results prior to first quarter earnings releases in order to prevent test results from impacting first quarter earnings. But the delay in releasing those results could prove to be a two-edged sword. If the results are positive, there isn’t a thinking person on the planet who won’t wonder about the validity of the tests. At the same time, offering evidence of continued deterioration in banks’ solvency could lay the groundwork for further punishment by investors. First, there is a problem in that such tests had to be administered at all. That should be the primary consideration by (potential) investors. Second, it is more than fair warning, in our view, that since the tests covered the potential for losses over the next two years there is an inherent suggestion that economic conditions will continue to deteriorate. It is more than a little telling that first quarter macroeconomic data shows growth, unemployment and falling prices alone are worse than those in the FDIC’s baseline scenario for 2009 and even worse than those for the more adverse stressed scenario for 2009. The "pessimistic scenario" used in stress tests for banks represents a crucial factor going forward. In it, unemployment rises to 8.9% by the end of 2009, and home prices fall an additional 22% for the same period. It's glaringly obvious that the pessimistic scenario is far too optimistic. Unemployment is over 8.5% officially and more than double that level via other reporting means. Home prices lost 19% of value y-o-y in January. Clearly, worse still scenarios are needed to arrive at a test that has any value at all. But the resistance from the banks against such scenarios means anything meaningful won't even be considered. Increasingly economists and analysts are coming to the same conclusion: Fraud between collaborative corporations and government officials has created the banking nightmare that has unfolded over the past year. Banks’ worsening positions are being covered up by U.S. policymakers but they can’t hide the results that have come to light to date relative to the economy as a whole:
1. World economies are plummeting at depression-level speed by all key measures; production, consumption, trade, profits, asset values, capital flows and more;
2. Unemployment is soaring. In the U.S. it is close to 20% when all excluded and understated categories are included;
3. Pensions and benefits have been lost;
4. Homelessness is rising sharply, the result of more than six million U.S. foreclosures as tent cities pop up across the nation;
5. U.S. foreclosures increased 24% in the first quarter of this year while increasing 46% year-over-year in March alone.
The devastated state of the U.S. economy should be sufficient to make it clear that banks cannot possibly be in better shape than there were a few months ago. It should be enough to indicate that, in the absence of widespread recovery, banks don’t stand a chance of getting better anytime soon – let alone over the next two years. Conditions for the non-Wall Streeter of appreciable means or those uninvolved in high level politics grow more distressing each day. Government involvement in the banking crisis in particular and the economy in general assures that a worse outcome is not far off as Washington contrives new schemes to keep the public’s eyes off its slights of hand. If the U.S. government were a business, its management would have been brought up on criminal charges by now. The Obama White House – and Bush before him – has consistently rewarded failure, provided the failing business is a bank. More incredibly, it had done so without much public outcry – until last week. The fifteenth of April is tax day in the U.S. and protestors gathered in more than 500 cities to convey their disgust with government intervention for which private citizens continue to pay the price. There is no previous time at which we can recall such an orchestrated coming together of the American public to make contact with its government. The big issue is whether government was listening. We will guess it was not. While the domestic economy continues its collapse Obama visits hostile governments in the Middle East and South America, apparently pursuing his “we hope they like us” foreign policy. Lackeys in Washington are busy coming up with new tax schemes and other programs to lure the private sector into their bank rescue plans. The last issue left for the private sector is whether it can retain any semblance of confidence in its government. Tea party protests across the nation represented stress test results the government didn’t anticipate: Protests were symptomatic of the low threshold for continued government interference, spending and lack of accountability, reflecting the public’s waning confidence in all levels of government. The American public is taking notice of the schemes designed to salvage crooked banks, enrich politicians and soak taxpayers for the cost. Irrespective of the results of bank stress tests, we expect they – as further Treasury efforts at economic rescue – will be viewed with skepticism and disbelief due to sharply contracting confidence and, as confidence goes, so goes the currency. In the latest lunacy from Washington, banks will be allowed to repay TARP funds, but only if they meet certain requirements that prove repayment is in the public interest. Frankly, we don’t understand how the repayment of private sector funds could ever be anything but in the public interest. But this latest scam from Washington is supposed to be in the public interest by preventing some ‘shaky’ banks from returning TARP funds as (according to statements made by Obama on Sunday) “…they are going need different levels of assistance of taxpayers”. Last week’s tea parties suggest taxpayers are about ‘full-up’ on government intervention and running on empty in terms of wanting to bailout the banks.

Monday, April 20, 2009

Fascist America

The issue of high flying Washington spending as the balance of the economy crashes and burns is one which is only just beginning to speak to the issue of confidence. If the dollar broke to record lows between 2002 and mid-2008 (with the exception of 2005) on an abundance of supply, then the next source of disruption for currency value – when it hits – will be abundant supply and plummeting confidence. The promises made by Obama are going up in smoke and the wreckage he’s about to leave behind will result in greater carnage than if the credit cycle bust were allowed to fulfill its economic function without federal interference. In fact, we’d go so far as to say Obama’s spending is so perverse and extensive; his foreign policy so amateurish; his economic policies so fascist[1]; his staff and cabinet so filled with jaded political hacks; his acts, policies and colleagues represent, in real and figurative terms, terrorist acts of an economic nature against American and global citizens alike. The future of the American economy could not be bleaker than if Osama bin Laden was chairman of the SEC, secretary of the Treasury and chief economic advisor all rolled into one. But the U.S. doesn’t need a high profile terrorist such as bin Laden when it has Barak Hussein Obama. It is more than a little interesting to note that, while most people (particularly Obama) like to compare his reaction to the credit crisis as something akin to FDR’s less than constructive reaction to the Great Depression[2], in reality Obama’s work more closely mirrors Mussolini’s fascist Italy. Mussolini rose to power by convincing the masses he had all the answers to their socio-economic and political ills in the wake of WWI. There are some basic tenets of fascism that deserve address: Belief in violence; disbelief in the legal process; and rabid nationalism but, perhaps primarily, a complete and utter lack of respect for the individual, among other things. Mussolini’s reaction to the post-WWI depression was to halt the involvement of national syndicates in the domestic economy and to expand the direct role of the state[3]; “…rationalization, reorganization and cartelization were encouraged in industry.”[4] “The first major instrument of state intervention was creation of the [Italian Assets Institute] in 1931 as a state corporation to buy up shares of failing banks, beginning a process by which the state would directly or indirectly control most Italian banking assets.”[5] Mussolini’s government was equally fond of large-scale infrastructure projects. They were one of the first initiatives introduced coincident with bank takeovers. By 1933, the government had created a state-run entity that infused capital into failing industrial enterprises. The state came to control the banking system. This should all be starting to seem eerily familiar for Americans. By the mid-30s, Mussolini was given to saying Italians should prepare for the coming struggles and learn to eat and sleep less. By 1939, the government had acquired 21.5% of all the capital in every joint-stock company in Italy resulting in the government owning a controlling interest in every major economic sector and a greater ownership interest in the national economy than any other government west of Moscow. The lira was de-coupled from the gold standard in 1936. The currency plummeted in value. Taxes rose precipitously, and price controls were pervasive. Mussolini’s tactics sound a lot more like those employed by Washington today, than anything FDR undertook, though we have no great respect for the latter’s efforts either. Because there has been no link between gold and the dollar since 1971, the U.S. is far more vulnerable to currency collapse than Mussolini’s Italy was in the 1930s. The U.S. has had more than a generation in which to engage in unfettered money supply growth. It has had far more than a generation to accustom people to the sense of growing wealth, even as their purchasing power declined, making resistance to unreasonable and empty promises that much more difficult to muster. The end of Italian fascism came only when the people rose up against consequences that included rising unemployment, the resurrection of a truthful and trustworthy media amid growing resentment toward the wealthy and powerful few. It came as confidence in the fascist ‘ideal’ was shattered along with the value of the currency. Confidence in the U.S. government is growing so thin that, prior to Hilary Clinton's recent trip to China, unconfirmed reports posited that Clinton planned to offer China the right of eminent domain over U.S. real assets in a bid to get the Asian giant to continue investing in U.S. debt. In advance of, and subsequent to, Clinton’s trip China made noise about its desire for some sort of guarantee relative to returns on its investments in U.S. securities; China doesn’t want to get repaid with worthless dollars. If reports of Clinton’s proposal proved accurate, there would be no further room for debate over Washington’s view of the value of the individual. It would, as if more evidence were required, offer proof positive that individual rights have no place in the Obama administration. It would be an enormous blow to the already shaky confidence of Americans and those nations which still exhibit some degree of belief in the country. It would, presumably, hasten the decline in the dollar which is ultimately doomed due to excessive money supply growth and an industrial infrastructure so bereft of capital investment that price inflation, as a consequence of shortages in the supplies of everything from basic raw materials to finished products, is insured in the years to come whether economic recovery takes place or not. (We are of the position that Obama will eventually impose price controls. They will prove to be as fruitless as those imposed by Nixon and the ultimate lifting of price caps will result in volcanic price explosions.) Because of the incredibly shrinking U.S. manufacturing base (accounting for no more than 11% of U.S. GDP in 2008 and a number sure to decline substantially in 2009) and government’s insistence on the freeing up of credit markets (to further the debt standard under which the U.S. economy has operated for the past forty years) there can be no economic recovery. Even communist China has figured out that production is critical to economic growth. Production is the means by which China emerged from the dark, economic shadow of Mao, making slow but steady progress over the past thirty years. A country that makes nothing and has nothing of value to sell to interior or exterior markets cannot realize employment growth, cannot fund its deficits without excessive taxation and borrowing (and at current levels, even with excessive taxation, U.S. deficit reductions are impossible despite Obama’s claims to the contrary) and cannot hope to avoid the wrath of the governed once confidence has been shattered. What’s more, Americans live in a culture which, with the speed of advancement having accelerated over the past generation, has become an instant gratification society. Following Obama’s speech to Congress, 41% of Americans said they were more confident about the future of the economy. All things being equal, that still means 59% of Americans – more than half – are not confident. In other words, Obama’s exorbitant spending better yield quick results or the 41% who helped boost his ratings from their post-inauguration low (in advance of the address) will be tipping the scales even farther in favor of the pessimists. As indicated somewhere (way) back at the beginning of this commentary, we noted that the banking crisis is intensifying. There is more than growth in FDIC takeovers to substantiate that comment. In recent reporting of bank reserves and the monetary base, both total reserves and the monetary base rose, but the growth was in excess reserves, while required reserves fell. In the two weeks ended 25 February, year-to-year change in the St. Louis Fed’s Adjusted Monetary Base (seasonally adjusted) rose to 88.4%, versus 81.9% in the prior two-week period. Annual growth in required reserves (not seasonally adjusted), however, slowed to 27.8% from 58.7% in the prior period.[6] Decreases in required reserves suggest more bank failures are on the way. Between dismal (at best) economic news relative to jobs, housing, the auto sector and banking and government’s extreme over-reach in making promises and spending capital that defy reason the confidence of U.S. consumers – already having exhibited record-breaking declines vis-à-vis Census Bureau data – is on the brink of wholesale collapse. Since confidence is the only thing holding up the value of the currency, the U.S. can no more afford deteriorating confidence than it can Obama’s nearly $4.0 trillion budget. We see April as critical in terms of timing for a resumption of the disastrous 2007 debt market peak (represented by the top in the S&P/Case-Schiller home price index). The U.S. dollar has been hinting at efforts to turn lower of late, only to turn around and rally against the euro. It’s worth mentioning, however, that only the EU was slow to match interest rate cuts imposed by the Fed, the BOE and other central banks. We are not fans of fiat currencies, but do believe fiscal restraint – even if only in relative terms – not to mention the likelihood for growth in interest rate risk premiums will ultimately support the euro over the dollar. If the greenback manages to maintain rally mode into April, we suspect mid-month could mark its peak. In the end, however, we believe that nothing will fare better than gold. The market recently declined on profit-taking after a rally to record highs. It appears set, at present, to move into more sustainable bull territory.
[1] In the words of Benito Mussolini, ”Another word for fascism is corporatism”. Make no mistake: Obama is not interested in socializing America as many would claim, neither is he the ‘communist’ Alan Keyes recently accused him of being. His interest is in corporate-government alliances; the partial and/or controlling interest in corporations by government.
[2] We happen to agree with the argument that FDR’s intervention in the economy prolonged the depression, worsened people’s economic prospects and did little to lift the country out of its catastrophic state. It was, instead, the onset of WWII that caused the economy to resume some degree of growth and that was wholly the result of the restarting of factories for the production of armaments, ammunition, equipment, etc.
[3] “A History of Fascism 1919-1945” by Stanley G. Payne p225, pp1
[4] IBID
[5] IBID
[6] Shadow Government Statistics, John Williams, 27 February 2009