Financial Holocaust, Zero
Bound and the Next Leg Down
by Ty Andros, Editor, Tedbits Newsletter| October 19, 2009
PrintThe demise of the G7 financial systems, currencies and economies continues to march along as incomes collapse. The social welfare states and their banking system’s Ponzi finance-based economies are BROKE, their obligations and promises irredeemable and unpayable.
A debt spiral is in full view, irreversible with policymakers unable or unwilling and opposed to making the changes required to CREATE PRIVATE SECTOR INCOME GROWTH and control SPENDING, and which must be done to avert the final CALAMITY.
The greatest transfer of wealth from those who store it in paper to those who don’t is unfolding. A Crack-up Boom approaches…
Awash upon a sea of trillions of Dollars, Yen, Pounds, Swiss Francs and Euros, FIAT currencies are flying off the printing presses, printed out of thin air! Markets are doing things which have never been seen before in HISTORY, and it has only begun. Within as little as a year or as long as a decade, the G7 currencies will go to the
intrinsic value of the paper and ink in which they are constructed, as all the fiat currency and credit systems which preceded them have done. This is a currency extinction event. A Crack-up Boom looms…
Everything is mispriced because NO ONE knows what the G7 currencies are worth in purchasing power except as measured in GOLD. Volatility is expanding, and volatility is opportunity for the prepared investor. Buy and hold is DEAD. Absolute return investments with the potential to thrive in up and down markets are the order of the day, as all markets (stocks, bombs, er … bonds, currencies, commodities, energy, natural resources, etc.) price in the new realities of UNLIMITED money printing to substitute for expanding income and economies in the developed world of the G7. Restoring the functions of money combined with diversification into Absolute Return sInvestments are the order of the day and the most important things to do.
Stocks and bonds are priced for a boom, but buying them at this time for anything but a trade is hazardous to your investing health. In many instances, they are repricing to reflect the lower purchasing power of the currencies in which they are denominated. To illustrate this fact, look at the adjusted monetary base which has now BROKEN OUT higher, signaling why FINANCIAL ASSETS are GOING HIGHER AT THE SAME TIME:
Helicopter Ben has just hit the PANIC button AGAIN (in the week ending Oct 16th they dropped 70.69 Billion of , illustrating the next leg up in reserves as Fed Presidents Bullard and Dudley have told us it will do (up to 3 trillion dollars by early next year.) Banks are hemorrhaging $300 billion per quarter in losses and covering them up with ACCOUNTING gimmicks, with the express help of the FDIC, the Treasury and regulators at the Federal Reserve. This graphic from David Rosenberg of www.gluskinsheff.com illustrates how M2, 3 and all lending to the private sector is in freefall:
And this is only the beginning since the BIG banks can no longer make money from banking because the mounting losses are daunting. They may not tell you and me about them, but they are fully aware that at some point, they WILL BE RESOLVED, and they need all those reserves they refuse to lend against to COVER THEM.
With the Debt-to-GDP ratio at over 350% (over a thousand percent if unfunded liabilities are added) and incomes PLUMMETING, defaults have only one way to go, so it is off to the printing press to cover the lender’s INDISCRETIONS. Read this quote from 1930, during the rally which was a prelude to the next leg down:
“Cheap money is a stimulant, also an intoxicant. If the dose is large enough, a substantial temporary effect can be brought about, but headaches follow. If the matter really were that simple, everybody could be an economist, and only the perversity of central banks would keep us from endless prosperity. Merchants and manufacturers will not be induced to increase borrowings, since interest on money borrowed is only one small factor in total costs. But if merchants and manufacturers will not use cheap money, speculators will”. Benjamin Anderson, Chief Economist of Chase National Bank, New York Times, April 1930
This could have been written YESTERDAY. Goldman, er Government Sachs, JPMorgan Chase and Citigroup have now all reported earnings, and guess what? Profits and revenues from core banking activities are almost non-existent; profits now come from speculation using GOVERNMENT money at zero interest rates. The markets for securitized lending are closed so the banks can no longer pass consumer and small business lending to third-party INVESTORS. They must hold the loans on their books and for the most part they are REFUSING to do so. So, instead of lending to Main Street, the big banks are borrowing overnight from the Federal Reserve and buying Treasuries to absorb the huge budget deficits and put a bid into the bond market with a wink and a nod from the Central Bank. Take a look at the revenue streams from JPMorgan Chase.
Core Banking lending revenues DECLINED by one-third, and are set to fall further as DEFAULTS mount, and more revenues come from trading-fixed income.
A close look at Government Sachs earnings is SHOCKING! Core businesses such as Debt and equity underwriting, financial advising and M&A yielded a total of $899 million dollars profits while trading and principal investments yielded $10 Billion! They are now almost completely a hedge fund. The financial crisis and close call with death was a blessing in disguise as now they are a COMMERCIAL BANK, guaranteed by the federal government and the US taxpayer. Profits of $17 billion year to date for a government sponsored enterprise. If only the other GSE’s could do the same. At the end of the earnings statement Goldie CFO noted: “We operate as an independent financial institution that stands on it own two feet. We don’t have a guarantee.” What a laugh, as reader of this newsletter KNOW; 10’s of billions of dollars were shuttled thru AIG to rescue Government er Goldman Sachs. If they fail in the future they are in the “To big to fail” category. Obviously they have ramped up the leverage for huge trading gains as they are now backstopped by YOU! OBSCENE, now you know why Goldman runs the regulators and the US TREASURY.
At Citigroup, the highly profitable Phibro group (oil traders), which produced average profits of $400 to $700 million per year after expenses (the Fed chief poured a net $54 billion into the system in the week ended October 14th; no wonder the asset market jerked higher,) was sold for a pittance because the managers were OVERPAID according to the PAY czar (Phibro is POLITICALLY incorrect, meaning you and I don’t have to cover losses through government support). Now you and I will pony up that money to cover unfolding losses, rather than having it come from internal profits. ABSURD.
Governments DO NOT know how to run banks, but in retrospect, NEITHER do the bankers. I would like to laugh, but it is a tragedy! The BIG banks are now hedge funds or mortgage lenders with GUARANTEES from Uncle Sam. The BANKS are taking very little or no risks (look at the plummeting lending to the private sector), unless the risks are socialized and unloaded on the public. NOW WE KNOW HOW THE FEDERAL GOVERNMENT IS GOING TO FINANCE THE DEFICITS…
Borrow from The Federal Reserve at ZERO and lend to the treasury or federally-guaranteed mortgage borrowers for a profit, What a great RACKET, with the bills sent to the public if it BLOWS UP!!! IT IS A GUARANTEED CARRY TRADE courtesy of Helicopter Ben and the US Treasury. Who’s the patsy? You and I….
Got gold? Gold is interesting since it has broken out of a 1.5 year consolidation pattern, up 15% since August in dollars (a loss of purchasing power and value of every bond and dollar since that time). First, we shall show gold in dollars (courtesy of James Turk and http://www.fgmr.com/index.html), which is just breaking out after a year and a
half of consolidation, base building and restraint by those people who wish to KILL the canary in the coal mine of dollar debasement:
Gold should now work higher, and extend as high as the pullback during the consolidation. Whoopee… Now let’s look at the gold chart in the top 10 currencies, courtesy of Adrian Ash of the www.bullionvault.com :
What have we here? A completely different picture which is much more BULLISH. A solid move higher and the head-and-shoulder bottom disappears. This is because gold is higher in those currencies where the central banks are too busy to cover their money printing (they do this by selling short their best reserve asset- Gold - for a soon-to-be worthless asset, i.e., paper money.)
The competitive devaluation raceway has been in HIGH gear since the financial crisis accelerated in September 2008. Keep in mind this quote from my good friend Clyde Harrison: “Currencies don’t float; they just sink at different rates.” And they are IN UNISON, sinking in purchasing power at a rate which boggles the mind, forcing FINANCIAL assets higher and providing HEADLINE illusions for the paper pushers in Washington (serial counterfeiters) and Wall Street (selling paper returns, not REAL returns.) The stock and bond market rallies are just repricing in the deflation of the purchasing power of the paper currencies in which they are denominated.
Just as the wealth of the world has rotated to those economies that produce more than they consume (BRICs: Brazil, Russia, India, China and the rest of the emerging world), from those that don’t (G7), now the political power is doing the same. The demise of the G7 and the ascension of the G20 is a testament to this REALITY. The G7 economies and the purchasing power of their FIAT currencies are IMPLODING under the iron fist of public serpents, crony capitalists, unpayable obligations and their bankster masters (serial money printing to MONETIZE deficits and fix bank balance sheets), who REFUSE to embrace the teachings of Darwin and Nature: You must produce more than you consume, and let’s not forget ‘survival of the fittest’.
In order to thrive in life, politicians and financial systems must provide the FISCAL (regulatory and taxes) and monetary policies which will allow their countries and their citizens to do so. Failure to keep the economic fields well-tended and fertilized will result in poor economic harvests in the future. In the G7 today, locusts RULE the day and are allowed to FEED on the economies in which they reside, increasingly destroying the private sectors in which ALL WEALTH is produced. They will learn these lessons the HARD WAY and G7 constituents will fall with them as well.
Many economists and public serpents believe Economics is NOT CONNECTED to HUMAN behavior. The Austrian School believes they are inextricably linked.
In today’s missive, we are going to explore why a deepening depression is unavoidable. The current political and financial leaders are DELIBERATELY driving the US economy off the cliff to precipitate the crisis which will allow them to SEIZE what freedoms we have left, to SAVE you and pay for the ESSENTIAL services they are providing you. It is right out of the SAUL ALINSKY playbook for SOCIALIZING an economy and IMPOSING MARXISM. He was Ob@ma’s mentor, and may he ROT in his grave… The public servants in the beltway hate and loathe the American people, and capitalism in general, because they cannot control it, so they will extinguish it… Freedom and independence from government is something they love to OPPOSE.
The Ab@mination of the US continues. The US Congress has gone on RECORD violating their oaths of office to uphold the constitution, and to provide oversight to the executive branch which is operating in an UNCONSTITUTIONAL manner. An amendment was voted on to require oversight of the CZARS (over three dozen socialist cowboys operating within the executive branch). The amendment was voted down on a PARTY line vote, going on record to NOT DO THEIR SWORN DUTY TO PROTECT THE CONSTITUTION. It is a brazen ‘in your FACE’ to the people who elected them to do their sworn duty. These people work for someone, but it is certainly NOT their constituents.
To add insult to injury, they voted down another amendment which required that all legislation be posted online in its entirety for 72 hours, with a full scoring of the costs. NO, they said, you should not know what your representatives are doing, in your name and on your behalf, BEFORE THEY THEMSELVES VOTE ON IT.
Look no further than today’s vote on the Senate Healthcare Bill just passed: a vague outline based upon absurd assumptions as to costs. They assume they can cut waste fraud and abuse of Medicare by $60 billion OVERNIGHT. If this was so, why hasn’t it been done by now? They assume that doctors will lower their fees by 25% in one year. Can you say ABSURD? Take a look at this chart which exposes the TRUTH versus politically correct LIES, and shows true scoring of the President’s and Congress’ nefarious SPENDING plans (above.)
Those deficits are the future earnings of you and your children. As Alan Greenspan once wrote in 1996:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.”
That passage is from a time when Alan was still intellectually honest and only partially in the grip of public serpents and Wall Street. What he describes is directly in our futures and throughout the G7….
The Congressional Budget Office says the healthcare bill will save $89 billion over 10 years and be revenue neutral. An absurd claim. PLEASE TELL ME JUST ONE ENTITLEMENT or government-run program where budget projections have come within 8% of projections over a 10-year period? Show me one that did not EXCEED 100% cost overruns.
From where is the money for this going to come? YOUR POCKET and your bank account, as they PRINT the MONEY out of thin AIR and steal the purchasing power out of your cash and bonds by DEBASEMENT! This is the definition of SOCIALISM, misery spread widely and redistribution, while they PRETEND the dollar, yen, euro, Swiss franc, and sterling are money. As Margaret Thatcher said, “Socialism works until you run out of other people’s money.” They have, and now it’s hi ho, hi ho, off to the printing press they go …
Upon close inspection: This is a tax bill, not healthcare reform. It is a politically correct but practically incorrect solution which serves no one but politicians, who can then sell favors to those affected in exchange for shelter. The taxes start immediately, and benefits don’t start until 2016. Anything that does not REFORM torts is a SHAM.
Of course, revenue neutral for them means a deficit in the accounts of the public, private enterprise, small business, insurance companies, medical device makers, Medicare, Medicaid, etc. They say they will tax Cadillac health plans over $21,000, but fail to tell you that as a result of this legislation, estimates of higher costs for families runs $5,000 over the next ten years, and that they have not indexed the trigger level to inflation (not that it would do any good, because OFFICIAL inflation and economic estimates are politically correct and practically incorrect GARBAGE, see www.shadowstats.com .)
Thus, they are VIRTUALLY GUARANTEEING that today’s healthcare plans will all be CADILLAC PLANS when the legislation goes into effect, just as the alternative minimum tax has ensnarled millions of small businesses because it was not indexed to inflation. These serpents then passed much of the new costs to states that voted REPUBLICAN, so they can subsidize Democratic states such as Michigan and New York. From the web:
Let me get this straight. We're going to pass a health care plan written by a committee whose head says he doesn't understand it, passed by a Congress that hasn't read it but exempts themselves from it, signed by a president that also hasn't read it, and who smokes, with funding administered by a treasury chief who didn't pay his taxes, overseen by a surgeon general who is obese, and financed by a country that's nearly broke. What possibly could go wrong?
Just like Chrysler and government motors CLOSED all Republican-leaning dealers and left the Democratic-affiliated dealers open; we are witnessing political corruption and Chicago GANGSTER politics on a grand, nationwide scale.
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Copyright © 2009 Ty Andros
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Tedbits is authored by Theodore "Ty" Andros, and is registered with TraderView, a registered CTA (Commodity Trading Advisor) and Global Asset Advisors (Introducing Broker). TraderView is a managed futures and alternative investment boutique. Mr. Andros began his commodity career in the early 1980's and became a managed futures specialist beginning in 1985. Mr. Andros' duties include marketing, sales, and portfolio selection and monitoring, customer relations and all aspects required in building a successful managed futures and alternative investment brokerage service. Mr. Andros attended the University of San Diego, and the University of Miami, majoring in Marketing, Economics and Business Administration. He began his career as a broker in 1983, and has worked his way to the creation of TraderView. Mr. Andros is active in Economic analysis and brings this information and analysis to his clients on a regular basis, creating investment portfolios designed to capture these unfolding opportunities as the emerge. Ty prides himself on his personal preparation for the markets as they unfold and his ability to take this information and build professionally managed portfolios and developing a loyal clientele.
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