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This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied

Tyler Durden's picture


When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury's recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable... plus we doubt it will be a major topic of discussion in Hank's book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing "run on the electronic bank" was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Geat Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity's $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one's money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law.

A brief primer on money markets

A very succinct explanation of what money markets are was provided by none other than SEC's Luis Aguilar on June 24, 2009, when he was presenting the case for making even the possibility of money market runs a thing of the past. To wit:

Money market funds were founded nearly 40 years ago. And, as is well
known, one of the hallmarks of money market funds is their ability to
maintain a stable net asset value — typically at a dollar per share.

In the time they have been around, money market funds have grown
enormously — from $180 billion in 1983 (when Rule 2a-7 was first
adopted), to $1.4 trillion at the end of 1998, to approximately $3.8
trillion at the end of 2008, just ten years later.
The Release in front
of us sets forth a number of informative statistics but a few that are
of particular interest are the following: today, money market funds
account for approximately 39% of all investment company assets; about
80% of all U.S. companies use money market funds in managing their cash
balances; and about 20% of the cash balances of all U.S. households are
held in money market funds.
Clearly, money market funds have become
part of the fabric by which families, and companies manage their
financial affairs.

When the Reserve fund broke the buck, and it seemed like an all-out rout of money markets was inevitable, the result would have been a virtual elimination of capital access by everyone: from households to companies. This reverberated for months, as the also presumably extremely safe Commercial Paper market was the next to freeze up, side by side with all traditional forms of credit. Only after the Fed stepped in an guaranteed money markets, and turned on the liquidity stabilization first, then quantitative easing spigot second, did things go back to some sort of new normal. However, it is only a matter of time before the patchwork of band aids holding the dam together is once again exposed, and a new, stronger and, well, "improved" run on the electronic bank materializes. It is precisely this contingency that the SEC and the administration are preparing for by "empowering money market fund boards of directors to suspend redemptions in extraordinary circumstances to protect the interests of fund shareholders."

A little more on money markets:

Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds, in the United States, are regulated by the Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts investments in money market funds by quality, maturity and diversity. Under this act, a money fund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 90 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.

Ironically, the proposed change to Rule 2a-7 seeks to make dramatic changes to the composition of MMs: from 90 days, the WAM would get shortened to 60 days. And this is occurring at a time when the government is desperately seeking to find ways of extending maturities and durations of short-term debt instruments: by reverse rolling the $3.2 trillion industry, the impetus will be precisely the reverse of what should be happening, as more ultra-short maturity instruments are horded up, leaving a dead zone in the 60-90 day maturity window. Some other proposed changes to 2a-7 include "prohibiting the funds from investing in Second Tier securities, as defined in Rule 2a-7. Eligible securities would be redefined as securities receiving only the highest, rather than the highest two, short-term debt ratings from a requisite nationally recognized securities rating  organization. Further, money market funds would be permitted to acquire long-term unrated securities only if they have received long-term ratings in the highest two, rather than the highest three, ratings categories." In other words, let's make them so safe, that when the time comes, nobody will have access to them. Brilliant.

The utility of money market funds has long been questioned by such systemically-embedded financial luminaries as Paul Volcker (more on this in a minute). After all, what are money markets if merely an easy, and 401(k)-eligible option to not invest in equity or bonds, but in "paper" which is cash in all but name (maybe not so much after the proposed Rule change passes). And as money markets account for a huge portion of the $11 trillion of mutual fund assets as of November (per ICI, whose opinion, incidentally, was instrumental in shaping future money market policy), $3.3 trillion to be precise, and second only to stock funds at $4.8 trillion, one can see why an administration, hell bent on recreating a stock-price bubble, would do all it can to make money markets extremely unattractive. In fact, the current administration has been on a roll on this regard: i) keeping money market rates at record lows, ii) removing money market fund guarantees and iii) and even allowing reverse repos to use money markets as sources of liquidity (because we all know that the collateral behind the banks shadow banking arrangement with the Fed are literally crap; as we have noted before, we will continue claiming this until the Fed disproves us by opening up their books for full inspection. Until then, yes, the Fed has lent out hundreds of billions against bankrupt company equity, as we have pointed out in the past).  Money Markets are the easiest recourse that idiotic class of Americans known as "savers" has to give the big bank oligarchs, the Fed and the bubble-inflating Administration the middle finger. As you will recall, recently Arianna Huffington has been soliciting all Americans do just that: to move their money out of the tentacles of the TBTFs. In essence, the money market optionality is precisely the equivalent of moving physical money from TBTFs to community banks in the "shadow economy." Because where there is $3.3 trillion out of $11, there could easily be $11 trillion out of $11, which would destroy the whole concept of Fed-spearheaded asset-price inflation, and would destroy overnight the TBTFs, as equities would once again find their fair value. It is no surprise then, that the current financial system, and its political cronies loathe the concept of Money Markets, and have done all they could to make them as unattractive as possible. Below is a chart of the Net Assets held by all US money market funds and the number of money market mutual funds since January 2008:

Obviously, attempts to push capital out of MMs have succeeded: after peaking at $3.9 trillion, currently money markets hold a two year low of $3.27 trillion. Furthermore, the number of actual money market fund operations has been substantially hit: from 2,078 in the days after the Lehman implosion, this is now down to 1,828, a 12% reduction. At this rate soon there won't be all that many money market funds to chose from. While the AUM reduction is explicable through the previously mentioned three factors, the actual reduction in number of funds is on the surface not quite a straightforward, and will likely be the topic a future Zero Hedge post. Although, the impetus of managing money when one can return at most 0.6% annually, and charge fees on this "return" may be missing - the answer may be far simpler than we think. Why run a money market, when the Fed will be happy to issue you a bank charter, and you can collect much more, risk free, courtesy of the vertical yield curve.

Yet what is strange is that even with all the adverse consequences of holding cash in Money Markets, the total AUM of this "safest" investment option is still substantial, at nearly $3.3 trillion as of December 30, a big decline yes, but a decline that should have been much greater considering even the president since March 3 has been beckoning his daily viewership to invest in cheap stocks courtesy of low "profit and earning ratios" (that, and the specter of President's Working Group on Financial Markets). Could this action, whereby investors will no longer have access to money that historically has been sacrosanct and reachable and disposable on a moment's notice, be the last nail in the coffin of money markets? We believe so, however, we are not sure if it will attain the desired effect. With an aging baby boomer population, which would rather burn their money than invest in the stock market again and relive the roller-coaster days of late 2008 and early 2009, the plan may well backfire, and result in even more money leaving the shadow system and entering such tangible objects as deposit accounts (at community banks, of course), mattresses and socks. And speaking of the President's Working Group...

The Group of Thirty

When discussing the shadow economy, it is only fitting to discuss the shadow decision-makers. In this regard, the Group of 30, is to the traditional economic decision-making process as the President's Working Group is to capital markets. Taken from the website, the self-description reads innocently enough:

The Group of Thirty, established
in 1978, is a private, nonprofit, international body composed of very senior
representatives of the private and public sectors and academia. It aims to
deepen understanding of international economic and financial issues, to explore
the international repercussions of decisions taken in the public and private
sectors, and to examine the choices available to market practitioners and policymakers.

The Group's members meet in plenary sessions twice a year with select guests
to discuss important economic, financial and policy developments. They reach
out to a wider audience in seminars and symposia.  Of most importance
to our membership and supporters is the annual International
Banking Seminar.

Sounds like any old D.C.-based think tank... until one looks at the roster of members:

  • Paul A. Volcker, Chairman of the Board of Trustees, Group of Thirty, Former Chairman, Board of Governors of the Federal Reserve System
  • Jacob A. Frenkel, Chairman, Group of Thirty, Vice Chairman, American International Group, Former Governor, Bank of Israel
  • Jean-Claude Trichet, President, European Central Bank, Former Governor, Banque de France
  • Zhou Xiaochuan, Governor, People’s Bank of China, Former President, China Construction Bank, Former Asst. Minister of Foreign Trade
  • Yutaka Yamaguchi, Former Deputy Governor, Bank of Japan, Former Chairman, Euro Currency Standing Commission
  • William McDonough, Vice Chairman and Special Advisor to the Chairman, Merrill Lynch, Former Chairman, Public Company Accounting Oversight Board, Former President, Federal Reserve Bank of New York
  • Richard A. Debs, Advisory Director, Morgan Stanley, Former President, Morgan Stanley International, Former COO, Federal Reserve Bank of New York
  • Abdulatif Al-Hamad, Chairman, Arab Fund for Economic and Social Development, Former Minister of Finance and Minister of Planning, Kuwait
  • William R. Rhodes, Senior Vice Chairman, Citigroup, Chairman, President and CEO, Citicorp and Citibank
  • Ernest Stern, Partner and Senior Advisor, The Rohatyn Group, Former Managing Director, JPMorgan Chase, Former Managing Director, World Bank
  • Jaime Caruana, Financial Counsellor, International Monetary Fund, Former Governor, Banco de España, Former Chairman, Basel Committee on Banking Supervision
  • E. Gerald Corrigan, Managing Director, Goldman Sachs Group, Inc., Former President, Federal Reserve Bank of New York
  • Andrew D. Crockett, President, JPMorgan Chase International, Former General Manager, Bank for International Settlements
  • Guillermo de la Dehesa Romero, Director and Member of the Executive Committee, Grupo Santander, Former Deputy Managing Director, Banco de España, Former Secretary of State, Ministry of Economy and Finance, Spain
  • Mario Draghi, Governor, Banca d’Italia, Chairman, Financial Stability Forum, Member of the Governing and General Councils, European Central Bank, Former Vice Chairman and Managing Director, Goldman Sachs International
  • Martin Feldstein, Professor of Economics, Harvard University, President Emeritus, National Bureau of Economic Research, Former Chairman, Council of Economic Advisers
  • Roger W. Ferguson, Jr., Chief Executive, TIAA-CREF, Former Chairman, Swiss Re America Holding Corporation, Former Vice Chairman, Board of Governors of the Federal Reserve System
  • Stanley Fischer, Governor, Bank of Israel, Former First Managing Director, International Monetary Fund
  • Philipp Hildebrand, Vice Chairman of the Governing Board, Swiss National Bank, Former Partner, Moore Capital Management
  • Paul Krugman, Professor of Economics, Woodrow Wilson School, Princeton University, Former Member, Council of Economic Advisors
  • Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Economics, Harvard University, Former Chief Economist and Director of Research, IMF

and, of course:

  • Timothy F. Geithner, President and Chief Executive Officer, Federal Reserve Bank of New York, Former U.S. Undersecretary of Treasury for International Affairs
  • Lawrence Summers, Charles W. Eliot University Professor, Harvard University, Former President, Harvard University, Former U.S. Secretary of the Treasury

and many more. Given the choice of being a fly on the wall at a G7 meeting or that of the "Group of 30", we would be very curious to see who would pick the former over the latter. These are the people, whose "reports" and groupthink determines the financial fate of the world: their vested interest in perpetuating the status quo is second to none. Which is why we read with great interest a recent paper from the Group of 30: Financial Reform, A Framework for Financial Stability, released on January 15, 2009, deep in the heart of the crisis. While the paper has enough insight for many, non-related posts (we are already working on several), we will focus on the policy recommendations presented for money market funds.

Money Market Mutual Funds and Supervision

Recommendation 3:

a. Money market mutual funds wishing to continue to offer bank-like services, such as transaction account services, withdrawals on demand at par, and assurances of maintaining a stable net asset value (NAV) at par should be required to reorganize as special-purpose banks, with appropriate prudential regulation and supervision, government insurance, and access to central bank lender-of-last-resort facilities.

b. Those institutions remaining as money market mutual funds should only offer a conservative investment option with modest upside potential at relatively low risk. The vehicles should be clearly differentiated from federally insured instruments offered by banks, such as money market deposit funds, with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV. Money market mutual funds should not be permitted to use amortized cost pricing, with the implication that they carry a fluctuating NAV rather than one that is pegged at US$1.00 per share.

The phrasing of "with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV" should be sufficient to whiten the hairs of every proponent of money markets as a "safe" investment alternative. Yet what the SEC has done, is to take the Group of 30 recommendation, and take it to the next level: not only will funds not have explicit assurance of any kind vis-a-vis funding, but in fact, the redemption of said funds would be legally barred upon "extraordinary circumstances."

Rule 22e-3

From the SEC:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share; (ii) its board of directors, including a majority of directors who are not interested  persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus, the proposed conditions, which are similar to those of the temporary rule, are designed to limit the availability of the rule to circumstances that present a significant risk of a run on the fund. Moreover, the exemption would require action of the fund board (including the independent directors), which would be acting in its capacity as a fiduciary. The proposed rule contains an additional provision that would permit us to take steps to protect investors. Specifically, the proposed rule would permit us to rescind or modify the relief provided by the rule (and thus require the fund to resume honoring redemptions) if, for example, a liquidating fund has not devised, or is not properly executing, a plan of liquidation that protects fund shareholders. Under this provision, the Commission may modify the relief ‘‘after appropriate notice and opportunity for hearing,’’ in accordance with section 40 of the Act.

Lots of keywords there: "fiduciary", "impose hardships" but most notably "permit us to take steps to protect investors." Uh, SEC, no thanks. We can protect ourselves. Your protection so far has resulted in the Madoff scandal, the BofA fiasco, billions in insider trading profits and not one guilty person, who did not manage to escape unscathed with merely a wrist slap in the form of some pathetic fine. With all due respect, SEC, any proposal that involves you acting to "protect" us should be immediately banned and any further discussion ended.

Especially in this case: what the SEC is proposing is simple - the entire market structure has been converted to a hedge fund. When investors hear the word "suspend redemptions" they envisioned a battered, pro-cyclical, leveraged, permabullish hedge fund, that suddenly "found itself" down 30, 40, 50 or more percent, and to avoid instantaneous liquidation, had to bar redemptions. Forgive us, but is the SEC confirming that the entire market is now one big casino, one big government subsidized hedge fund, where as long as things go up, all is good, but the second things take a leg down, just like any ponzi, nobody will be allowed to pull their money? Maybe Madoff should have created the same redemption suspension: his fund would still be alive and thriving, now that the government has become the biggest ponzi conductor of all time. And nobody would have been the wiser. But instead, the Securities and Exchange Commission, in discussions with the Group of 30, Barney Frank, and any other conflicted individuals who only care about protecting their own money for one more year, has decided, in its infinite wisdom, to make money markets a complete scam. And this is the gist of regulatory reform in America.


At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution - prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that "price discovery" occurs all at once, and at the very same time. And all too often, investors "discover" they were lied to, as the emperor, in any fiat system, always has no clothes. Just like in September 2008, when the banks were forced to look at each-others' balance sheet and realize that there are no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs are the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman's FICC trading axes would have resulted in the "Ice-Nine'ing" (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman's EPS. But we will never know. What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of "last fool in", holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.

h/t Geoffrey Batt


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Sun, 01/03/2010 - 12:20 | 181139 bugs_
bugs_'s picture

Way to go TD.

Our dollars in MMF have been "virtualized"

and are no longer really ours.

Sun, 01/03/2010 - 12:44 | 181154 Rainman
Rainman's picture

Our Masters have concluded that puny returns are insufficient to unwind the sheeple's newly found cash saving habits. Therefore, it is necessary to impose risk on the timid and skeptical.

Get out there and buy a Kindle, a house or a car.....or else.  

Sun, 01/03/2010 - 13:40 | 181191 Anonymous
Anonymous's picture

Would this play to AU's advantage?

I know of wealthy people who are disposing of assets, closing businesses and patriating all their $$$ to gold. They plan to live very simply, travel, declare their income to the IRS at what it is (just barely below the taxable rate which extracts from them), and live on savings until this thing either collapses or sorts out.

This gov't doesn't regard your hard-earned savings as your sacrosanct possession, and mandates that it be put at risk. However there are few acceptable risks anymore, and the currency really can't be trusted.

We are in a financial no-mans-land, and only a fool would layer on greater chains to bind him down by playing by THEIR rules anymore.

Sun, 01/03/2010 - 14:06 | 181213 ATG
ATG's picture

Try getting gold through a metal detector,

or suffer the haircuts and frauds on paper gold.

Non starters both.

Cash just beginning to awaken as king...


Sun, 01/03/2010 - 14:23 | 181230 Anonymous
Anonymous's picture

Not everybody is an idiot enough to be living in the United States. And just in case you didn't know, GOLD IS AVAILABLE ALL OVER THE FUCKING WORLD.

Mon, 01/04/2010 - 12:49 | 182029 Ripped Chunk
Ripped Chunk's picture


Must be watching one of those "limited edition gold coin" infomercials at 3:00 AM. (personally, I was tuned into "riches in real estate" myself)


Mon, 01/04/2010 - 21:56 | 182592 Anonymous
Anonymous's picture


Lehman never rivalled goldies in FI trading....the world is not a giant conspiracy theory, son

Sun, 01/03/2010 - 14:26 | 181232 Gordon_Gekko
Gordon_Gekko's picture

You're an idiot.

Sun, 01/03/2010 - 17:57 | 181449 nicholsong
nicholsong's picture

I agree. But there are interesting stories out there regarding gold. Like this one: Pak has gold reserves worth trillions of dollars

Sun, 01/03/2010 - 18:11 | 181465 Careless Whisper
Careless Whisper's picture


@ATG  The Federal Reserve was created in 1913 and one of its "missions" is to influence monetary conditions in order to stabilize prices.


Compute for yourself, inflation since 1913; 

Mon, 01/04/2010 - 14:32 | 182147 DosZap
DosZap's picture

This was a bit of a shocker, the comment...............

Trillions?, how about using some of it to come out of the Stone Age.

In HIS times,

"Silver, was as plentiful as stones in the streets"..............similar sounding.

On the Topic, are these dudes TRYING to start a RUN?.

Personally TD, I appreciate the heads up................

Anyone here????, your opinons on Perth, as a vehicle to offshore it, legally, allocated only.

Sun, 01/03/2010 - 19:16 | 181521 Anonymous
Anonymous's picture

I agree with you but those new body scanners sure do look convenient to preventing you flying (for now restricted to airports) with anything substantive...

Sun, 01/03/2010 - 23:14 | 181693 MsCreant
MsCreant's picture

It's like they are hemming us in and corraling us, isn't it?

Fri, 06/17/2011 - 20:13 | 182278 carbonmutant
carbonmutant's picture

I'm reminded of the Aesop's fable of the Lion and the Lamb.

"I see many tracks going in, I see none coming out"

Sun, 01/03/2010 - 14:41 | 181252 chumbawamba
chumbawamba's picture

Another bullshit FUD turd.  You seem to drop a lot of them around any discussion of gold.  You're so obvious it's painful.

Have fun wiping your ass with your paper monetary instruments when your heroes pull the plug.

I am Chumbawamba.

Tue, 01/12/2010 - 22:54 | 191932 Anonymous
Anonymous's picture

Could not have said it better.

Sun, 01/03/2010 - 15:30 | 181314 Rusty Shorts
Rusty Shorts's picture



Try getting cash through a metal detector dip-shit... it has to do with the metalic filament in the security strip inbedded in the larger bills, get enough of them together in one spot and the signal that is returned from the detector can be picked up.


I am not Chumbawamba.

Sun, 01/03/2010 - 23:42 | 181720 Anonymous
Anonymous's picture

The fact that Goldman Sachs re released their book, one year after it’s original copyright date of Sept of 2008, in response to conspiracy theories, proves that the theories have some validity. It’s suspicious enough that the book, a 100 years in the making, was released just one month before the stock market crash. Yes, in the newly revised “Introduction” chapter, Goldman Sachs uses the word conspiracy. I am thrilled that the few of use that wrote on the subject had such an impact that Goldman Sachs found it nesscecary to re release their book.
They also added a last chapter entitled “A Perfect Storm” of course after they could see how Paulson’s inspired plot to crash the markets, and then loot the US Treasury played out. This new last chapter (released one year later) is preceeded by a chapter entitled “Before the Storm.” How cute is that? “Before the Storm” and a “Perfect Storm.” Well get this.
The 1st version came out one month before the stock market crash, and so them using the title “Before the Storm” many months before the crash, making Goldman look a hell of a lot smarter than anyone else. And the fact that they used the word “Before” in the heading of the last chapter of the book, insinuates that they are planning to re release their book after the crash?
“The Partnership,” 1st version in 2008, released months before the market crash, is Goldman Sachs feeble attempt to rewrite history, and to prime us on what to believe about the upcoming crash, and lastly to paint a fabulous picture of the last 100 years of Wall Street with Goldman Sachs as King.
One only needs to read the last chapter “Paulson’s Disciplines” to get a feeling of the idea of how this man could of went to the White House to be Treasury under Bush with a pre meditated plan to loot America for $700 billion.
Or read the following chapter “Before the Storm,”on Lloyd Blankflien, Paulson’s successor, where they confess their profits of 3 billion dollars betting against sub prime in 2007, while their main man Paulson is at the White House, as Treasury under Bush, acting like he didn’t see the real estate thing coming? I guess if sub prime loans, were to be the scapegoat, might as well get heir side of the story out in print first.

Mon, 01/04/2010 - 11:34 | 181965 WaterWings
WaterWings's picture

Very interesting.

Mon, 01/04/2010 - 14:40 | 182162 Anonymous
Anonymous's picture

The people have the power to stop the FED dead in it's tracks.

We need to organize our OWN banking holiday.

Maybe the last business day of the quarter or on $th of July,

We all show up at the bank and demand our money.

The concept of de-leverage really packs punch at Wall Street.

Lets force the issue now, thereby hopefully having more control over the out come of the situation.

Because the people are "Too Small To Fail" we will over comer the money men some day. It is profitzied.

TD, why are you still in the game?

Patrick the Painter

Mon, 01/04/2010 - 11:37 | 181967 Anonymous
Anonymous's picture

RE: The fact that Goldman Sachs re released their book, one year after it’s original copyright date of Sept of 2008, in response to conspiracy theories.......

As I was trying to say above:
Goldman Sachs uses the word "Before" in the title "Before the Storm" for the last chapter in the book "The Partnership: The Making of Goldman Sachs.

The stock market crashes one month after the release date of the first version. One year later, Goldman Sachs re releases the book, except they add a new last chapter, entitled "The Perfect Storm."

It makes it seem as though they knew the stock market was going to crash. The new version is in paper back and is only $20 versus the $40 for the first version. They realy want you to own a copy of this "new history."

ViVi Goldman Sachs

Mon, 01/04/2010 - 15:50 | 182252 Anonymous
Anonymous's picture

Bravo. Further to that dissect the events. A money market fund with 750 million in Lehman commercial paper broke
the buck when Lehman couldn't make good on the loan.
At that point the Fed could of stepped in to backstop
the trade they chose not to letting Lehman go. Bernanke claimed they had no authority to step in that's a lie. They had the authority the argument is Bernanke and Paulson needed to create a sense of urgency in Washington to get them to pass the bailout. Only it backfired it cost us much more in the long run. Barclays claims they passed
on buying Lehman because the fed wouldn't guarantee the
risk like they did with the shotgun marriage of Bear and
JP Morgan Chase. I have been in the debt capital markets
for over two decades and I have never seen anything like
what has gone on in this country in the last two years
it is a disgrace.

Mon, 01/04/2010 - 14:39 | 182159 DosZap
DosZap's picture

Just don't try getting anything close to 10 Lge thru............

Their is a legal way to get Gld out  anyone noticed how hard it is to find Krugs of late?.

They are not legal, I see no reason / way they can stop you from carrying out what you want.(if I am incorrect, pls correct me).

Sun, 01/03/2010 - 15:48 | 181325 mnevins2
mnevins2's picture

ATG, I see that "the usual suspects" are irate and attacking whenever their "holy grail" of G-O-L-D is questioned.

I've given up with this crew in regard to this subject. They never provide "light," just heat, profanities and insults.

In truth, I indeed enjoy their wits and comments. They are a bright group of individuals. But the rage and personal attacks upon those that question the deity of gold leaves me shaking my head and cold.

Perhaps my comments will engender the typical reply, but I hope not. I'd appreciate, from them, their using words and intellect to enlighten and educate.

I'd REALLY appreciate a "how-to" on their plans. Who are they (I don't want names, but generalities regarding age, family structure, income, geographic region, employment, approx holdings in pm) and how/why, in their specific predicament, they believe that their "plan" would benefit all of us.

Me? 50, two teen-age children, $100,00+, midwest suburb, finance - and have more than a little in regard to assets.

ZH provides me (and thousands more) with provocative, extremely intelligent and informative information. I am grateful. I then turn to the comments and find a lot of trash.

Sun, 01/03/2010 - 16:11 | 181351 MsCreant
MsCreant's picture

I am having a hard time behaving, but you are right, I should. Curious, is that your income, or you and your significant other. For instance you ask me and I am 60+, but then, I would not think to answer my husband's income as my own, but if I did, that jacks "us" up some. He earns his, I earn mine, I don't need him for that. Maybe some day. Hope not.

Here is the other one. Are you better than me if you earn 100+ and I only earn 60+? Is that the point of getting this info? Does that mean you have some greater authority than I do in thinking about these things?

What if I have benefits too? Should I go over to the side and calculate those too and scurry back over here with that total? And will you then go to the side and do the same?

I bet I sound ugly, and this seems to be some of the trash you don't like. But I am honestly curious. What if I am unemployed and living off my PMs? Am I not entitled to have a voice in this conversation?

I mean to confront you like I'd confront a friend.

And I am open to it that I have missed something and that you are not acting classist with this post.

Sun, 01/03/2010 - 17:43 | 181434 mnevins2
mnevins2's picture

Dear MsCreant, I believe that age is important because it provides a lot of perspective and context.

For instance, if one is 28, with kids, works at a major bank - versus someone at 60+, no kids, then, yes, I think that comments regarding "heading for the hills" (as a silly example) or "refusing to pay the mortgage" or whatever - then the difference in circumstances is important.

Regarding income, to simplify, my wife and I are indeed one unit. Always have been and, I presume, always will be. This maximizes efficiencies and simplicities.

Income in this thread can also relate to pm holdings - sort of. Many posters say "buy gold" and then talk about taking the next paycheck and picking up a couple of more ounces. This differs from someone who has personally stockpiled hundreds of ounces (or more).

I don't personally care about the "next paycheck" person and their ideas and motivations (no offense), but I absolutely wish to know what "Chumbawamba" or GK. They appear to have a serious conviction about pm's and I'd very much like to know their thoughts and plans - with some context.

Bottom line, we benefit (I believe) from the wonderful research, insight and prose of ZH. Many of us are quite concerned with what we perceive to be a financial house of cards - which, we believe, is benefiting a few over the many. I know finance and I know history, but my ignorance is also vast. I wish for enlightenment from ZH and the many posters, who, collectively (and, of course, individually), are at level much higher than mine.

We truly DO NOT know what the future will bring, but let's challenge and educate rather than insult and trash. Thanks. MsCreant - I WANT your voice - and others.




Sun, 01/03/2010 - 17:49 | 181443 Anonymous
Anonymous's picture

" let's challenge and educate rather than insult and trash."

Fuck off, asshat.

Sun, 01/03/2010 - 22:11 | 181660 hayleecomet
hayleecomet's picture

good grief

Mon, 01/04/2010 - 23:43 | 182659 Anonymous
Anonymous's picture

Please, oh please, make the math problems harder. It's gettin all Yahoo up in here!

Sat, 01/23/2010 - 12:46 | 203792 dark pools of soros
dark pools of soros's picture

+ 42/6^[(766*45-(87+9+(-9/88))/9222)+.2255*666]


Sun, 01/03/2010 - 18:52 | 181505 chumbawamba
chumbawamba's picture

In a nutshell (because my education took years, so you can't expect me to give you the important background to my argument in one posting, or even several) this system is fucked.  Our debt-to-GDP ration is well beyond what other empires experienced just before their collapse.  Our central bank is monetizing thin air to pay off the financial blackholes created by unregulated/out-of-control over-the-counter derivatives that are valued at well over $600 trillion globally, and our government is planning to borrow every last unit of currency under the moon in order to keep from falling into a fiscal abyss.  How the hell does anyone expect this is going to turn out anything but very, very badly?

There are now literally tens of trillions of dollars of liabilities stretching from here on decades into the future.  Our debt-based monetary system means these liabilities will only increase in cost and interest as time goes on.  From where are the revenues going to come?  The pace of productivity and wealth creation in this nation will have to inflate accordingly.  How is this going to be accomplished?  Do you have any answers?  Does anyone?

We took a quantum leap from billions to trillions--a thousand-fold increase--in our economic discourse.  It follows then that our GDP will have track this increase to keep up with the new normal.  Again, from where are the revenues going to come?  Are they going to be conjured up again like magic, so that we go from trillions to quadrillions as the new new normal?  Or are you going to be expected to magically increase your productive output 1000 times to make up the difference, along with every other American (including children 1 and older, since we’ll also be needing more manpower for the job, way more than we have even if you include the illegals)?


The answer never comes.  Oh yeah, this is simple to solve, they say.  They'll just "add liquidity" to the market, then "drain it", as if this was just a matter of doing the dishes, and all the complaining and fussing and fearing and loathing and hemming and hawing was all just a matter of no one wanting to pony up to the sink to actually do the deed.  But no, that’s just a cheap distraction.  So the question remains:


I’ll tell you who: Us.  As in you.  And I.  And MsCreant.  Or at least those of us that are silly enough to file and pay taxes (I don't know about you two, but I do not submit to extortion, otherwise known by the letters I-R-S).  And how many people like me do you think there are now?  Probably just a relative few.  We're the "out there" nutballs.  We're the ones that make wild-eye predictions of economic collapse and social chaos to follow.  We're the ones who get pooh-poohed.  Until the government keeps pulling shit like this.  Then we grow in numbers.  The disgusted; the disenfranchised; the disaffected.  We find each other, learn from each other, and spread the wisdom.  We watch as the government creeps upon our God-given freedoms like a depraved predator, one after the other, picking them off until one day we’ll be left naked and defenseless.  But we prepare, and in the meantime we keep introducing new people to the mouth of the rabbit hole.  And if you’re courageous, and intelligent, you’ll go in.  And the deeper down the rabbit hole you go, the more you realize that real money—gold and silver—is the answer.

As more people discover the answer, the dollar takes one step closer to irrelevancy.  Once it reaches that point, you have hyperinflation.  Once the dollar enters hyperinflation the game is over; or rather, it just begins.  But then that's a matter of perspective :)

Will the dollar cross that line of confidence?  After all of my study, I sincerely believe it will and am convinced beyond a shadow of doubt about that conviction.  I’ve been waiting for someone to come along and explain how I’m wrong about this.  Despite my rhetoric, my eyes and mind are open.  Convince me.  Anyone?

In short: follow Austrian school of economics.  I'm not saying they have ALL the answers, but so far it seems they have pretty damn nearly all of them.

I am Chumbawamba.

Sun, 01/03/2010 - 19:33 | 181538 dogbreath
dogbreath's picture



In regard to other failed empires:

I noticed that all of them; Rome, Byzantium, China(1910) had bloated, disobedient, corrupt bureaucracies of eunuchs. Thios contributed to their downfall.   Britian(1945) differed perhaps in that it was broke and could not maintain it extensive colonies.  I have never gotten the impression they were corrupt but if they aren't eunuchs they are queer. 

Sun, 01/03/2010 - 22:17 | 181664 David449420
David449420's picture

Eloquent, and said far more concisely than I could.  And I am not an American, but a close neighbor.

The only thing that I am not 100% clear about is if precious metals are the be all & end all solution to weather the coming GLOBAL storm.  And it IS going to be GLOBAL, not just the US.




Mon, 01/04/2010 - 10:22 | 181896 chumbawamba
chumbawamba's picture

Gold, Guns, Garden.

Self-sufficiency.  Self-respect.

Self, Family, Community.

Damn, it's almost a haiku, but not :)

I am Chumbawamba.

Tue, 01/05/2010 - 15:03 | 183213 WaterWings
Sun, 02/06/2011 - 21:24 | 939612 web dizajn
web dizajn's picture

Democracy legitimizes this government aggression because the violence is sanctioned by a majority of voters web dizajn

Sun, 01/03/2010 - 22:28 | 181670 merehuman
merehuman's picture

Damn it CHUMBAWAMBA,   you write nice. Good flow, like straight from the heart.   Meanwhile we wait

for the shoe to drop , and the axe to fall

and i know its gonna hurt us all. Already has. At 59,this grown man has tears in his eyes. Empathy so sucks


Sun, 01/03/2010 - 23:21 | 181696 MsCreant
MsCreant's picture

merehuman rocks!

Sun, 01/03/2010 - 23:36 | 181711 Anonymous
Anonymous's picture

How much of this perspective is just you getting old? YOu're 59, after all. There isn't much "future" left for you old boomers, so maybe, just maybe, you are confusing your narcissistic tendencies with the end of the world when really it is just the end of a generation? Let go, for crissakes. Grow up (finally) and realize that the world cannot revolve around YOU forever.

Mon, 01/04/2010 - 02:46 | 181824 MsCreant
MsCreant's picture

Projecting some issues ya got with mom and dad?

Mon, 01/04/2010 - 12:23 | 182007 merehuman
merehuman's picture

Let go he says, having no idea who I am . I let go years ago. 

By the way, growing up is the ability to encompass a larger view. From my perch i see many tent cities and a people with little hope of a positive future.

I see hunger amongst many and recall how ones teeth chatter uncontrollably.  At night many keep walking as they literally cannot sleep.  Been there, done that and well remembered it is.

Having been poor repeatedly I have a ton of sympathy. This is not about us old fucks. We had ours and our glad of it. But age has taught us and so has  suffering. Its not for us we cry ,fear or worry, its our children and you and yours.

If, at our advanced age we have no sympathy or empathy then we havent lived

Mon, 01/04/2010 - 16:39 | 182322 Anonymous
Anonymous's picture

Hey hey you guys I'm getting out the firehose to break
up the fight. Remember something ideas are essentially
genderless and ageless a good idea is a good idea. This
is meant to be a forum for everyone to voice their
opinions #181711 remark can only be construed as a cheap
immature shot. If you in reality are younger be patient
you to will be older soon enough. Meanwhile where were
you raised in a barn? If you set forth something intelligent rather than insulting people maybe they would listen rather than rolling their eyes and deleting you.
Trades on gone against you today putting you in a cranky

Sun, 01/03/2010 - 23:38 | 181712 Anonymous
Anonymous's picture

You write well, but you sound just like my father, who is all doom and gloom and no answers. BTW, how do we achieve hyperinflation when we're in the midst of a massive credit de-leveraging cycle? Or are you talking a decade from now?

Mon, 01/04/2010 - 10:49 | 181875 SWRichmond
SWRichmond's picture

You and anon181711 just above (you?) sound just like my best friend's son, who is all sniping from the shadows, intergenerational bitching, and no answers.  Chumba has answers in his post(s), you just don't see them.   

As for the hyperinflation, try this: what happens to the currency when the credit deleveraging is so massive that it takes the sovereign debt with it?

Mon, 01/04/2010 - 15:57 | 182266 WaterWings
WaterWings's picture

Funny thing about most critics! It's easy to take swipes when you have nothing unique to contribute to the conversation.

Mon, 01/04/2010 - 10:25 | 181901 chumbawamba
chumbawamba's picture

Hyperinflation is a psychological event.  Credit de-leveraging is a derivation of the direct cause of hyperinflation, which is confidence--or rather a lack of it--in a currency.

I am Chumbawamba.

Mon, 01/04/2010 - 17:23 | 182361 Arco
Arco's picture

So you ignore the excess capacity argument? 10% + unemployment. And rather than gold, wouldn't you suggest we just leverage up on fixed debt to purchase inflation adjusting assets? I mean isn't that going to help us more than gold which you really can't do much with but store somewhere...

Mon, 01/04/2010 - 21:54 | 182591 dark pools of soros
dark pools of soros's picture

if everything goes to hell then the wasteland will be all gold guns and garden - but there still will be very rich enclaves that will keep the game going.  You can see it now..  the Detroit's will spread and the Silicon Valley's will shrink and become even more inclusive.


This game can go on a while but we all know from history that this stuff usually leads to wars but now seems a bit different.. it seems that there is a chance that it will be a global oppression where the people are not cast versus each other but rather all cast off together into their own country's abyss 

Mon, 01/04/2010 - 10:51 | 181915 iinthesky
iinthesky's picture


Mon, 01/04/2010 - 20:13 | 182518 Anonymous
Anonymous's picture

Just out of curiosity what did you study? For how long
and where? Could you give me a back of the envelope
explanation of the Austrian school of economics and how it
will solve the present dilemma in this country? I am a
graduate of UCLA began my university career at 16 years of age. Studied Political Science Theory. That's my background your turn.

Wed, 01/06/2010 - 14:00 | 184582 Anonymous
Anonymous's picture

This is probably a dead thread but you might like this anyway: a list of Things that will Disappear First:

If you've already seen it then I guess a reminder is always good.

Sun, 01/03/2010 - 19:06 | 181513 WaterWings
WaterWings's picture

Here is a hardcore view:

If you have that much gold to protect I suggest you move to Wyoming. If you have a lot of wealth to protect, you have to decide if relocation to protect your life is part of your plan. This isn't paranoia, this is preparing for the worst. All it takes is for one person to ruin your day; strength in like-minded numbers.

Think of silver as your checking account and gold as your long-term savings. Many believe that silver is historically undervalued in relation to gold, so loading up on silver shouldn't be a mistake - there are many that recommend silver over gold. And find a place to stash the majority of it without any other human being the wiser - you will not be needing it anytime soon after a crash anyway - focus on sustaining life and adjusting to a new reality.

If you store your precious metals under the watch of someone else don't count on it being there. The old school method of burying it in the woods is the only way to be sure of 'guaranteed safety' if it gets real chaotic. Safety-deposit box raids are common in the US. Nothing is sacred, and really, nothing is guaranteed. What have human beings always done when they find out about gold?

Have 1 - 3 years of storable food, get weapons training, learn gardening and small farm animal care - and get to know which neighbors you can rely on, in Wyoming. Seriously. With society potentially coming off its hinges you can never be too prepared. "You can't eat your gold." If you don't have a lot of money move to Idaho. In my opinion, your location is the most important part of a plan X investment scheme.

Sun, 01/03/2010 - 23:23 | 181699 MsCreant
MsCreant's picture

I have looked into chickens and rabbits a little (you know how surfing can go, shopping is more like it). I had not considered that I need to get the info somewhere since I am not yet doing it.


Mon, 01/04/2010 - 00:33 | 181766 milbank
milbank's picture

So it's safe to assume you live in Wyoming?

Mon, 01/04/2010 - 11:40 | 181971 WaterWings
WaterWings's picture

If you look at a rack and stack of all states for relative security, availability of wildlife, lack of population density, 'pro-freedom laws', etc, Wyoming is at the top of the list, if you can afford it. I do not live there, although it would be ideal to live in the western portion if my resources allow it in the future.

Mon, 01/04/2010 - 12:03 | 181991 SWRichmond
SWRichmond's picture

I wish Wyoming had a deep water port.

Mon, 01/04/2010 - 14:13 | 182120 WaterWings
WaterWings's picture

Plus, if they ever tried to go independent they would be invaded for their coal, if not just for the sake of usual control. "No one leaves the party!"

Mon, 01/04/2010 - 14:28 | 182140 chumbawamba
chumbawamba's picture

The only problem with Wyoming is that when they come to get Cheney it's going to be one hell of a firefight.  Make sure you add "Level III (or better) ballistic vest" to your inventory list.

I am Chumbawamba.

Mon, 01/04/2010 - 15:23 | 182202 WaterWings
WaterWings's picture

He better have a couple of these, because you can bet there are more than a couple Cowboys with one:

Raufoss rounds turn just about everything into concealment instead of cover. But you already know this Chums.

I can't think of a better example a 'domestic enemy', as our oathkeepers have promised to eliminate. Maybe Rahm. Cheney's a real good one. So many of the others are clueless, like the free drugs more than the job, or just too narcissistic to accept the reality of their actions.

Mon, 01/04/2010 - 16:59 | 182337 cougar_w
cougar_w's picture

Indeed, all the sustained action for 8,000 years past is on or near the water. I live in the Calif Bay Area. Piracy will likely be our largest industry in 20 years, and I don't mean music piracy but the maritime kind. Perhaps I'll open an ocean-side pub around then, though I'll have to learn Chinese or Korean to make any sense of the conversation at the bar.

Drink up ye hearties yo ho!


Tue, 01/05/2010 - 07:50 | 182838 Anonymous
Anonymous's picture


Mon, 01/04/2010 - 14:39 | 182158 tomdub_1024
tomdub_1024's picture

Excellent post! btw, why Idaho if you are "not so endowed financially", so to speak?...just curious as to your reasoning...I moved to Idaho 6 years ago from SoCal for some very specific reasons, Montana was my first choice (lived there before, love it and the liberty attitude), Wyoming and Idaho were close seconds in consideration.

Mon, 01/04/2010 - 15:34 | 182233 WaterWings
WaterWings's picture

I'll let this old duffer explain:

Wyoming is not recommended for a survivalist with a small to moderate budget. However, if you are someone who is wealthy and who can stand the cold, Wyoming should be bumped up to your top choice. Taxes will be a big issue for you—and Wyoming has no income tax. As someone “of means” you will be able to afford lots of food storage, voluminous fuel storage, and a large greenhouse to make up for the severe climate.

Scroll all the way to the bottom:

I prefer Idaho because of the more obvious qualites over many other states, plus I have family there now. I miss it - and as someone else posted further down in the comments, [I'm ready for the next stage so this everyday misery can end.] I 'heart' Idaho.

Mon, 01/04/2010 - 15:54 | 182260 tomdub_1024
tomdub_1024's picture

I love it as well, and haven't ever looked back on my decision to move the family here...:)

Sun, 01/03/2010 - 20:08 | 181574 Anonymous
Anonymous's picture

Refusing to pay a mortgage is, at present, an option. That will not be an option available within a few years as the money supply/velocity "starves out" the former high rollers. Default will be imposed by the system.

Since the necessary curative process is antithetical to central bankers' mission, they will oppose it using whatever tools they must, legal or extralegal. Since the firmament which their financial structure is founded upon the fiat currency, it will be their weapon of choice.

They can wield it to affect macro- and micro-economic choices and impose their will. Those outcomes may not comport with the desires of money bearers. Since the system can withstand only so much state intervention which strains economic actors confidence, once that threshhold is surpassed, the actors look for other repositories whether gold, farmland, or other physical commodities.

Without complete enslavement of economic actors, you can only force their hand so much with policy until they effectively strike.

Then the state must bare its teeth and enforce its commands. End of enterprise, enter the virtual gulags.

This is why we choose gold. It would not be so had the masters of the universe more wisely stewarded their powers, and considered the longer-term wealth and weal of their ruled.

Mon, 01/04/2010 - 01:39 | 181794 Anonymous
Anonymous's picture

Why would inflation lead to a situation where one can no longer refuse to pay a mortgage? A non-recourse loan is a non-recourse loan. Are you saying they'll start going for default judgments against those who default on recourse loans?

Mon, 01/04/2010 - 22:30 | 182616 dark pools of soros
dark pools of soros's picture

i guess they could property tax everyone outta their homes but a fixed loan stays fixed.. 

Mon, 01/04/2010 - 15:02 | 182190 tomdub_1024
tomdub_1024's picture

"I don't personally care about the "next paycheck" person and their ideas and motivations (no offense)" a "next paycheck person (po' white trash (PWT))" by choice (starve the beast), none taken. I can assure you that there may be a thing or two you could learn from those not so endowed as you, but you aren't interested...that's fine, we'll save our precious time for someone who is. Everyone has some wisdom, I try to learn whatever I can from whoever. But then again, I talk with homeless people and learned how to placer mine from an unemployed what do I know.

Mon, 01/04/2010 - 14:42 | 182167 Anonymous
Anonymous's picture

"Am I not entitled to have a voice in this conversation?"

Everyone one is entitled to have and express an opinion.
However, all ideas are not equal -- not equally valid or equally valuable.

Many times a proven track record of making the best bets over time is demonstrated by meaningful net worth. I guess there are unemployed folks with no net worth that might know precisely what is going on, but.......maybe not.

Sun, 01/03/2010 - 16:29 | 181375 chumbawamba
chumbawamba's picture

You may not realize or even understand, but we're trying to save peoples' live.  In time it'll all make sense.

In the meantime: lead, follow, or get out of the way.

I am Chumbawamba.

Sun, 01/03/2010 - 16:39 | 181381 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture



Fight, Fuck, or hit the Fence.

Sun, 01/03/2010 - 23:14 | 181692 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Heh, heh, I got junked by someone who never read a Sidney Sheldon novel I guess. (thats where that line is from). sigh ;)

Sun, 01/03/2010 - 23:24 | 181701 MsCreant
MsCreant's picture

Getting junked can be a badge of honor. I get honored all the time!!

Mon, 01/04/2010 - 02:26 | 181819 theadr
theadr's picture

Agreed.  Junk = antiJunk

Mon, 01/04/2010 - 10:31 | 181904 chumbawamba
chumbawamba's picture

I junked you because you deserve all the honor you can get :)

I am Chumbawamba.

Mon, 01/04/2010 - 14:16 | 182127 WaterWings
WaterWings's picture

I junk thee, because I love thee.

Mon, 01/04/2010 - 18:29 | 182433 Amish Rake Fighter
Amish Rake Fighter's picture

nothing wrong with a little junk in the trunk

Tue, 01/05/2010 - 13:49 | 183136 MsCreant
MsCreant's picture

From you, I had this coming, you and your rakier whit!! :-)

Sat, 01/23/2010 - 05:13 | 203611 Hephasteus
Hephasteus's picture

From the heart of hell I junk at thee!!!!

Sun, 01/03/2010 - 16:57 | 181395 merehuman
merehuman's picture

True. Reading Zerohedge has saved me and mine. Because of all of your inputs to the conversation, I learned and prepared.  Food, seeds,silver.

Did a reverse mortgage just in time! No rent to pay at a time when my business died. Very good. Am educating neighbors and relatives, the guy at the store, and i even ask the customers if they are ready for the dollar to fail?

I have convinced some to buy silver and food. It means to me that I wont have to feed them, and our country has some collateral (silver) to rebuild after the fall. I also relay info over Utube and reccomend this site steadily as the very best source of truth.

Truth and honesty is like gold. A good base.

Sun, 01/03/2010 - 19:08 | 181516 WaterWings
WaterWings's picture

I can add nothing. You complete me, Chummers.

Sun, 01/03/2010 - 21:46 | 181649 anarkst
anarkst's picture

Once you get yourself "saved," let the rest of us know how it went.

Mon, 01/04/2010 - 21:01 | 182550 Anonymous
Anonymous's picture

You haven't answered my question where did you go to
school? How long did you study and where? Tell me why
you think Austrian school has the answers. How are
you saving lives? Do you work at a multi-lateral
development such as the African Dev Bank? Perhaps
you work at Cascade Investments. Thanks ever so much
but I'll pass on the lead, follow happy horseshit. By
the way you seem to know so much did Tyler write this

Tue, 05/17/2011 - 01:54 | 1282095 Karston1234
Karston1234's picture

Thanks for sharing quality content and interesting facts!
bachelor degree
master degree
associate degree

Sun, 01/03/2010 - 17:38 | 181425 Anonymous
Anonymous's picture

The obvious solution, Einstein, would be to avoid the comments but like some feminist who can't stand that other women are getting dates, you are compelled to talk down to the rest of us. That makes you a loser, pal, regardless of how many zeros you have in your money market account.

One more thing....your behavior is peculiarly Minnesotan, so I'm guessing (from your handle as well as this uncanny desire Minnesoduhns have to be referred to as "Midwestern" that you're chiming in from Eden Prairie or Wayzata.

If you don't like the comments, it's okay if you head out to the ice house with whatever brain deadening alcoholic beverage you prefer and prattle on endlessly to the perch about how smart you are. I am so fucking glad I found my way out of the gulag you call home, big MMF and all.

Sun, 01/03/2010 - 18:36 | 181497 mnevins2
mnevins2's picture

Dear ANON #181425,

Thanks for the laugh. You have three paragraphs of absolute nonsense in attempting to "profile" me!!!

First, I'm considered to be quite conservative and athletic. "Loser?" Interesting.

Minnesota? Guilty of a little projection here? I'm 50 years in Cook County, IL. I'm fairly certain that "Minnesota Nice" would not describe my upbringing nor my outlook.

I DO like MOST of the comments, but desire that they a bit more civil and informative. I started this thought in defense of someone being trashed because he was not in the "Gold is King" camp and I wish to know why many bright and articulate people (rhetorically speaking) trash and profane those not of this belief? I figured that I had nothing to lose by TRYING to establish a dialogue.

I guess that I failed with a certain former resident of MN - ya betcha?

BTW, I don't drink, don't eat fish, no brat's, either (referring to the MN/WI food groups!). I'm a city boy from Chicawgo and prefer pizza and beef sandwiches! I even have a scar or two to prove it!!!

Again, thanks for the unintentional humor!

PS - FYI, my wife ALSO escaped from MN (Burnsville - hardly Eden Prairie or whatever hamlet you despise. How about Edina, too?) in 1988 and fell for "down in the boondocks" boy. I guess that I didn't fail with every "former MN resident."

Sun, 01/03/2010 - 18:56 | 181509 chumbawamba
chumbawamba's picture

I will be the first to proclaim my guilt in opening up the gas valve for full flamage, and being a hypocrite in lieu of my recent calls for civility on another posting, but it's because this ATG douche has a long history of posting ridiculously misinformative messages about gold and the dollar and he's going to cause people lots of pain and misery if he isn't checked forcefully.

Anyone who knows what they're talking about knows that what he says is complete tripe, and I feel it's important to sufficiently point this out.

I am Chumbawamba.

Sun, 01/03/2010 - 21:54 | 181656 WaterWings
WaterWings's picture

Just watch this guy every once in a while:

Mon, 01/04/2010 - 01:59 | 181805 TheGoodDoctor
TheGoodDoctor's picture

Good old Bob. I forgot how truly funny his rants are.

Mon, 01/04/2010 - 10:36 | 181907 chumbawamba
chumbawamba's picture

The best part is the pro-obama comments.


This guy is great.  This is basically my words in video form.  Always wanted to do my own rage videos.  Hmm...

I am Chumbawamba.

Mon, 01/04/2010 - 18:48 | 182291 WaterWings
WaterWings's picture

We should get Bob and walstreetpro2 together.

If you want another laugh turn on four different tabs of Bob at the same time at work, or at home, or the public library, and crank up the volume. That's the sound you hear in America when you turn off the printing pre$$.

Here, try it today. Hold CTRL and click on each link once:

Just don't do it at an airport kiosk. You'll get tackled by TSA sadists.


Mon, 01/04/2010 - 13:47 | 182082 Ripped Chunk
Ripped Chunk's picture

Fucking right on. Put this through a 1 trillion watt PA system (we only deal in trillions these days right)

People need to wake up.




Mon, 01/04/2010 - 16:04 | 182274 Shocker
Shocker's picture

That guy is too much, Definately worth a watch.

Sun, 01/03/2010 - 23:50 | 181729 mnevins2
mnevins2's picture


Thanks. We ARE on the same team!

Mon, 01/04/2010 - 14:49 | 182176 tomdub_1024
tomdub_1024's picture

"you're chiming in from Eden Prairie or Wayzata" ...ROFLMAO !!! PS, you forgot Minnetonka....:)

Mon, 01/04/2010 - 23:40 | 182657 Anonymous
Anonymous's picture

Who are you referring to?

Sun, 01/03/2010 - 18:01 | 181455 pikledbill
pikledbill's picture

I rarely post...but this is good.  I am $110k, two household salary (split nearly perfectly between myself and wife).  I am not sure what to do...I have cash on hand, no savings in TBTF (recently moved to a local bank), actively trade the market (short/long hedge right now, own stocks in a few companies, SKF, SRS, and SDS as hedge against long positions - this has taken considerable effort to average down (and stay even) over the last 3 months).  We own five retirement accounts - my Roth, my IRA, Wife's IRA, my 403b, wife's 401k.  Recently moved my IRA and Roth, and my wife's IRA into an account where I have more control - currently all sitting in money fund.  Living with a $180k mortgage, no other debt.  we were paying off the house with my salary, but starting in 2008, we put my entire salary into savings, hence, living off a single income (wife's) for past three years.  We have a lot in money I am now concerned.  I am now considering taking the tax hit on cashing out IRAs, Roth, and hide the cash...what the hell are honest hard-working Americans that live well within their means supposed to do?

I have been angry...recently told a friend that voting is a waste of time, and that I would get involved again when the pitchforks and torches come out.  I do not hold physical gold...but intend to begin buying sometime over the next 1-2 years.  I am currently in the deflation camp, looking for inflation maybe 2-5 years from now...hoping to begin buying gold well before then.  Admittedly, I have been behind the curve with PM's...however, I think there is credence to the idea that cash is king...if/when the whole BS system collapses, will Gold, or beer/scotch be worth more money?  Will anyone with 10k in dollars be "wealthy" or able to buy what they need to get by?

I don't pretend to know the answers, but I enjoy the conversation very much.

If my timing regarding deflation/inflation is way off, I brew my own beer, garden and preserve, bow and rifle hunt, can work leather, build furniture, and make just about anything...hopefully, I can provide for my family when TSHTF.


average middle-class guy trying to traverse the obstacle-course of life...for now anyway.

Sun, 01/03/2010 - 19:13 | 181519 chumbawamba
chumbawamba's picture


Ask yourself these questions:

1) What system is collapsing?  The one in the US?  I.E. the dollar?

1a) If the dollar collapses, what does that mean domestically?

1b) What does it mean internationally?

2) If the FDIC solvent?

2a) If not, how safe are your bank accounts?

3) Are the firms in which you have your various retirement accounts solvent?

3a) Really?  Are you sure?  Did you check their balance sheet?

3b) Including all their hidden liabilities?

3c) If not, how safe are you accounts with them?

4) Does America strike you as a financially strong country?

4a) If not, do you think America will remain the world's sole superpower indefinitely under these conditions?

4b) If not, what does that mean for the dollar, the world's reserve currency, and the unit of account upon which all other world currencies (except gold) are based (again, domestically and internationally)?

Mull that over.

But here's a spoiler.  The answer to all the above is:

Buy gold.  Buy silver.  Buy guns.  Don't forget the bullets.  Buy seeds.  Store food and water.  Buy tools.  Good ones.  Not the cheap Chinese shit.  Learn practical skills.  Buy a safe.  A good one.  And bolt it to a concrete slab.  Put all your valuables in there.

You have most of this covered.  You are woefully deficient in the precious metals department.  Do not wait "1-2 years".  Supply is limited.  Sure, anyone can buy shares of GLD, but GLD is not gold.  You want to buy physical metal, and you want to store it yourself.  Do not put it in a bank safety deposit box.  Do not put it in a bank safety deposit box.  Do not put it in a bank safety deposit box.  This is partly why you buy guns (don't forget the bullets).

Don't wait until inflation eats away your savings.  Every day you wait is like an ounce of silver slipping out of your hands, lost forever.

History is your teacher.  All others are substitutes.  Including me.

I am Chumbawamba.

Sun, 01/03/2010 - 21:51 | 181652 pikledbill
pikledbill's picture

Pondering rhetorical list...thanks.

Sun, 01/03/2010 - 23:46 | 181725 Anonymous
Anonymous's picture

Don't forget to stock up on soap and toothpaste.

Mon, 01/04/2010 - 15:29 | 182228 DosZap
DosZap's picture


As one who (in your words) evidently am to be considered Soylent Green by your age group..........I agree w/100% of what you have laid out.

Why?, because of my age, because of my view, and knowledge of our History as a country. And by the absolute dead nuts facts, that we are screwed as a nation.

We have a 650% Debt to GDP Ratio, and we have a NEW style government easing in at a brisk clip.( I call it Fascism). As for the PM sector.................Gld & Slvr, have BEEN money for over 6000 yrs. Always has been , always will be.

Paper assets...............are in our scenario,worth what their printed on.Personally, I plan/am far into process of liquidating paper, all kinds (except TP).

You cannot eat it, but in light of it's history, compared to fiat has no equal.

And the Nations that have traveled the road we are, also are  FAR along, what has lasted?.For those that choose to sit and fiddle when Rome II burns, and have not INSURED themselves, woe unto them.

We have an obligation, and a duty, to take care of our own, and as many other numb nuts, as we can.

When the Ball goes up.

 Another point, that's stopping people here from our views,WE, some of us older, dumber,wiser, etc., have been used to our country as THE best on the planet ( because as the rest of the world has gone,during our lifetimes, it IS, and has been).

We physcologically, cannot, do not, want to believe what has happened, what is happening right before our eyes. But, Denial, is not a river in Egypt.

They speak about pandemics...............the one coming is truly THE Pandemic.

When you have done all you can, and boxed yourself ( and the rest of the world into a corner),there is NO way out.Over a lifetime of living, one learns at an early age, that sooner or later you WILL have to man up, and pay the piper, face the demons, fight or die.

We are closing in on that point.........

There is nothing hidden that will not be known.In light of life NOW, how's your plan to handle it?.

You had best have one (better to have one, and never need it, than to need one, and never planned)............Pray to God, you/we never need it, and PM's go back to $4.00/$256.00 an oz.( Uh Huh).

Because that would mean a miracle had occured, and we time warped back, to a place where there was some  stability,and honesty, and the thought WE had a great future ahead..........

Sadly, I do not see it, and the evidence to the contrary is overwhelming.

Sun, 01/03/2010 - 19:26 | 181530 WaterWings
WaterWings's picture

If my timing regarding deflation/inflation is way off, I brew my own beer, garden and preserve, bow and rifle hunt, can work leather, build furniture, and make just about anything...hopefully, I can provide for my family when TSHTF.

You sound like someone I will be trading with. Most folks don't realize they need to guarantee the important parts of the survival hierarchy of needs (food, shelter, force-protection) long before transferring funds into the most guaranteed form of wealth protection: precious metals.

I say guaranteed as if we are in a vacuum and our plans hold together perfectly.

if/when the whole BS system collapses, will Gold, or beer/scotch be worth more money?

They will be worth more 'value'. That is, you will receive more value if you find the person most desperate to buy what you have. If you offer a shot of scotch to a Mormon that has run out of food storage it is worthless. But to a guy that has an addiction and values the flavor of scotch over feeding his family you have a winner. I will let you decide what the moral context is. Tampons will make you quite popular in the second month after a hard crash. It's more important that you know what they want in barter. Once you are on the 'need' side you'll be ready to hand over your gold for services and big-ticket items like a hunting rifle (if you were stupid enough to not research and purchase at least one beforehand). To readers that don't envision themselves tracking down Bambi and Thumper I ask you, "You or them? How exactly do you plan on fighting the calorie-deficit battle each day?"

Good luck!

Sun, 01/03/2010 - 18:23 | 181479 janchup
janchup's picture

The "Holy Grail of Gold." Uttered with sarcasm which dents not a whit my 300%+ gain this decade.

Yes, I know, there is a 28% collectables tax.

Sun, 01/03/2010 - 20:06 | 181571 MagicHandPuppet
MagicHandPuppet's picture

mnevins2, I made 100K+ in 2009 on my gold holdings alone.  I am not encouraging you to buy gold every month, and if you don't, as the dollar continues to fall, it is you and the wealth of all holders of fiat whose wealth gets transferred to, amoung the friends of the fed, those who own gold and silver.

Sun, 01/03/2010 - 16:06 | 181347 Anonymous
Anonymous's picture

cash is king?

keep telling yourself that....

Sun, 01/03/2010 - 17:58 | 181452 tewkatz
tewkatz's picture

Worth noting too: Every HELOC since the housing bubble began is 'printed money' as the value of the house (and thus, the HELOC) is false.  This is inflation that has already happened, and as those mtg/heloc's go bust, that money disappears...

Just noting need to waste time hurling insults at me...I am an unwashed mass.


Sun, 01/03/2010 - 19:18 | 181523 chumbawamba
chumbawamba's picture

The money used to build that house came from wealth.  That wealth is now in the house (the house itself).  The money used to buy that house came from wealth.  That wealth went to someone else.

Someone got paid for it.  That money is out there.  It's in the system.

I am Chumbawamba.

Sun, 01/03/2010 - 23:53 | 181732 MsCreant
MsCreant's picture

I keep thinking about this. Have not had the guts to bring it up, ego did not want to look stupid (I may still anyway but here goes). The banks are holding money so that they have reserves, and while they are lying about the value of the loans they hold (ie assets) the loaned money for the house is still in the system. Some one experiences being "under water" on their house. The bank experiences a depreciated asset. But the money the bank loaned the homeowner is out there, NOT LOST.

The asset is deflated, no doubt. Until the house is sold, or walked away from, defaulted on, etc. the devaluation has not happened for those folks. When it happens, everyone loses and this is the point of mark to fantasy rather than mark to market. But the money is still out there, the one who sold the house (got the money from the homeowner who got the loan) put it into the economy-- invested, bought stuff, or saved it somewhere in a mattress.

I guess what I am trying to say is that it seems like deflation is a local or individual level event and inflation is systemic and macro because the so called "lost" money is dispersed somewhere in the system.

You know how money changes hands and there is a multiplier effect? I wonder if there is a reverse thing, not just that it slows down and we do not have the multiplier, multipling as fast.

My ignorance of terms is showing but here goes again. The bank counts it as a devalued asset once the loan stops performing. The home owner counts the same default as a loss on their balance sheet too. If the home equity was put up as collateral for something, say a second mortgage, they count the event of the default as a loss too.

Do you see what I am getting at? It is like a negative multiplier or something. Not just that the exchange of money is slowing.

So I guess this post has two issues I am wondering about:

1. The so called lost money is not lost, but in the system. This says inflation.

2. The defaulted assets (house, commercial real estate building) seems to have a negative multiplier effect.

What I really want to say is the system failed by allowing too many entities to call this house, building, whatever, on their list of assets.

Try this, it is a double, triple, quadruple, exponential, globe wide, counting/claiming of money THAT NEVER WAS REALLY THERE.

Am I lost? Or found? And what have I found?

Mon, 01/04/2010 - 10:55 | 181920 Anonymous
Anonymous's picture

"I guess what I am trying to say is that it seems like deflation is a local or individual level event and inflation is systemic and macro because the so called "lost" money is dispersed somewhere in the system."

Ahh another curious mind has stumbled upon the inflation/deflation paradox! Intriguing isn't it?

See, money lent into existence stays in existence; and this money does have value, as long as the economic system remains functional. Now in a normal banking system, the real estate collapse will result in bank bankruptcies - real equity (from depositors, shareholders) will be wiped out to compensate for the losses; this mechanism provides a counterbalance to the money created from the defunct loans which are now in circulation. To what degree the compensation depends on what fractional reserve level the country has (ie, how leveraged the govt wants its economy to be).

In the US(and UK/SWZ?) you have this curious (aka. unnatural) situation where deposits are guaranteed (through debt issuance, no less) and major banks are not allowed to fail. So what followed was that the Fed and GSEs now possess assets on their balance sheets with nominal values far exceeding true value. This major economic segment cannot normalise until the 2 twains meet.

True value can be raised by either decreasing (or in this case, artificially restricting) supply or increasing demand (credit loosening, cash incentives, job creation) - all of which have been tried but with little success. Another solution, then, is the devaluation of currency - true value priced in cheap dollars goes up, while nominal value remains constant.

Oh, and not forgetting the US economy is very generous with welfare. Thus i still maintain that despite the reduction in wages, and obvious deflationary pressure on selected segments (property/capital goods/luxury items etc.), the foreseeable near-term is likely to (continue to?) be inflationary in general.

As for money velocity, i believe it is decelerating. It may move from the end-consumer up through the supply chain and end up in corporate wallets. Capital investments seem to be out of flavour for the time being, so i'll leave it to more informed sources to account for the monies' whereabouts. Inflation can also partially arise from the cost increase due to a weakened currency;

Mon, 01/04/2010 - 22:54 | 182632 MsCreant
MsCreant's picture

Thanks for your answer and sorry I did not see it sooner. I think posting Anon, they show up a little later.

So it sounds like some of my head scratching is I am trying to apply rules for a free flowing system to a system that has been "intervened in" and I will suffer until I give that up.  Check!

I keep hearing people say money is "disappearing" from the system, but it is not. A poster below was helpful in this regard. Monetized objects (houses, CRE) are losing their monetization. But even as that happens, other objects are being monetized in response to this (the vehicles that held those mortgages) by fiat (mark to fantasy), but corralled outside the system, where their value will not be debated.  Intervention like the planet has never seen before. Computers made this level of both mistake and intervention possible. No price discovery, no healing.

I've not thought about the effect of welfare before. Does welfare thin out the value of a dollar? At first blush it seems obvious it would. But I am not confident in this. Being on a seperate "track" and only usable for food...would this drive up food prices only? Or thin out all dollars?

Then again, don't they act like a "commodity" in the underground economy when they are exchanged for cash or other barter items?

We don't know their exchange rate in the underground economy... no published exchange rate... :-)

This looks like an interesting question that gets complicated quick (or I don't have a solid understanding of certain structures firmly in place, yet, to track this one to the next logical place).

Tue, 01/05/2010 - 15:36 | 183235 Anonymous
Anonymous's picture

Hi MsCreant,
Thanks for walking through your thought process here, if nothing else it's fun to watch smart minds grind through this stuff...

Have you ever read any of Steve Keen's work? The fact that USD debt to U.S. GDP ratio is tracing an exponential curve is the best way to quantify the process you're describing. Keen emphasizes this point, contesting that prices reflect the total amount of debt outstanding rather than any base money measure. Every time the government saves the banking industry, the debt cannot clear and price mismatches remain in the system.

Here's a good article summarizing his work, I think you'll like it:


Wed, 01/06/2010 - 02:38 | 183985 Anonymous
Anonymous's picture

Of course, extended benefits could potentially amount to an extraordinary sum. Up to US$274 bil* in fact; but that's assuming this is a jobless recovery ongoing. If my memory serves, that's roughly a 34% increase in the monetary base over 1.4 years, or 10% inflation every 6 months.

This great pool of cash will drive up prices for all the necessities of life, eg. food, clothing, household items, utilities, petrol, public transport (the last 3 also attributed to rising oil price which in a large part is also due to dollar devaluation), and possibly even rent (in theory). This is what i feel makes this phenomenon particularly insidious.

* 10% U/E = 15 mil x $250/wk * 73 weeks = $273.75 bil
The estimate is based on a conservative inputs (15 mil persons/$250 a week); the final figure may end up too low, or too high, contingent on i) subsequent waves of claimants get reemployed as econ improves; ii) the first 26 weeks of co-paid insurance manages without federal aid.

Also, other federal entitlement programs are not taken into account (being a foreigner and all).

Thu, 01/07/2010 - 13:48 | 185650 Anonymous
Anonymous's picture

Despite this article being way past its shelf life, there is still a need for self-correction out of principle: just read that the actual figure is ~10 mil recipients, not 15 as assumed (serves me right for not verifying something so verifiable). So numbers above need to be discounted by 1/3.

Disclaimer: i drink cheap coffee.

Mon, 01/04/2010 - 11:16 | 181941 chumbawamba
chumbawamba's picture

You were lost but then you found yourself :)

This financial stuff is easy.  But like any language, knowing the vocabulary is 90% of the game.

In the second scenario, the money of the original selling price is still in the system.

But why should the house be necessarily devalued?  If the price has gone down and the bank repos the house then yes, they "lost" money.  And the buyer lost their down payment and all the payments they made on the loan (which the bank got).  But that money or (wealth) is still out there in the system.  It might be circulating as currency (inflation) or being stored as wealth (deflation).

This is the stuff that inflation and deflation are made of.  Hyperinflation is a whole different bask of eggs.

I am Chumbawamba.

Mon, 01/04/2010 - 13:58 | 182096 bruiserND
bruiserND's picture

"counting/claiming of money THAT NEVER WAS REALLY THERE."

You are mostly correct on this excellent post.

There was an attempt to monetize real-estate.It worked for a while creating temporary wealth based on a universally acceped paradigm that the collatteral would always  go up or at least not go down.

Things changed, not only did realestate go down and destroy the monetization game but it took the system with it.

Time to adapt or die.


As I've been saying for 15 months , sheer evil has deliberately destroyed America.,+Michael+Dell,+Steven+Mnuchin&spell=1
Mon, 01/04/2010 - 18:18 | 182417 MsCreant
MsCreant's picture

The concept that real estate was monetized helps with the flow of money traffic as I try to map it in my head.

Your One West link has me speechless.

IndyMac is a Zombie that won't die because the mad banksters keep reanimating it.

That word you used, deliberate...when enough people figure this out (IF)...

How can I discover something new that makes me speechless every day?

Why I just visit ZeroHedge of course!

Thanks for your post (and the validation too!).

Wed, 01/06/2010 - 02:22 | 183977 Anonymous
Anonymous's picture

When you build a house you use output from the economy to construct something of "value". If you don't have to borrow money to build the house then you must have accumulated enough productive output (savings) from your past efforts to draw an output from the system that the system "owes you".

ie If the "system" was just you a carpenter and a tree then, if you had "saved" enough to build a house, doing whatever you do, then the money in circulation would be what the carpenter owed you and it would be equal to the effort of building the house. By building the house the money in circulation is extinguished, money is only ever a demand on labor.

By building a house you are placing a bet that in the future it will retain it's value and that it's a good thing to do with your savings, a better thing than leaving it invested as an unrealized demand on the carpenter's labor (or in the real economy, as opposed to the simple two person example, an unrealized demand on the time and skills of anyone who is prepared to work for it).

When you spend your saved money on the house, money in circulation is extinguished, and it is replaced by a debt free asset.

If you don't have accumulated savings and borrow money to build, ultimately someone else with savings takes a bet (on you) that the investment is worth something of value. But now there is money created in circulation based on the future demand of your time and effort for the duration of the mortgage. Someone purchases a bond the value of which depends on your ongoing payment of the mortgage (or the bank has an asset if it hasn't onsold it).

This investor has an expectation that they can demand from the system, at some time, an output equal to the face value of their investment. Which ultimately means a demand on someone's skill and labour and output (or in the two person model you now have to work for the carpenter).

But notice something else. Because of interest (the carpenter thinks like a banker), and the wonder of the table mortgage over 25 years or so you end up working for the carpenter 2, 3 or 4 times the equivalent effort that the carpenter would have owed you if you had saved up. Also, when you pay the loan back the money is extinguished and there is no outstanding demand on anyone's labor.

Now add in the fractional reserve banking system. By using leverage, the banks create additional credit (and it's still only demand on labor) and instead of you working for the carpenter by the multiple demanded by the interest, this additional effort is now owed to the banking system. All the money in circulation is ultimately a future demand on labor that has to be extinguished at some point, and clearly given the amount of money created means that it can never be.

The fractional banking system allows an outstanding future demand on labor to be created far in excess of what is capable of being supplied. The money is there, it's been created and it is real, it's a real demand on future output. But because of the multiplier effect of the table mortgage and the leverage of fractional banking the system can only sustain the failure of very small number of the total bets on the mortgagees ability to pay.

Sun, 01/03/2010 - 20:50 | 181593 Rusty_Shackleford
Rusty_Shackleford's picture

If the person who took out the HELOC put the money in an account, and then decided to use it to now pay off the HELOC, yes, it would then "disappear". 

However, this NEVER happened.  Every HELOC that was taken out was then SPENT in the economy buying PS3's, iPhones, etc. 


It's out there.

Sun, 01/03/2010 - 20:37 | 181588 Rusty_Shackleford
Rusty_Shackleford's picture

Not to pile on, but what would getting gold through a metal detector have to do with anything?


If you can't figure out a way to secure and transport your gold you suffer from a real lack of imagination.




Mon, 01/04/2010 - 02:25 | 181818 Anonymous
Anonymous's picture

Gold doesn't set off airport metal detectors. In any case, there's nothing (currently) illegal about hauling a suitcase full of gold out of the US.

Mon, 01/04/2010 - 11:17 | 181945 chumbawamba
chumbawamba's picture

Not yet at least.

But what about this gold not setting off airport metal detectors thing?  Source?

I am Chumbawamba.

Mon, 01/04/2010 - 12:46 | 182027 trav777
trav777's picture

I walked through the last metal detector, in a high-security airport, one of the ones most likely to be the "victim of a terrorist attack" with 5 krugerrands in my pocket, one on a chain around my neck and a gold Rolex daydate with the President band and did not hear a beep.

Cash is a talk about paper gold, wtf is cash, paper paper?

Do you HONESTLY think they cannot seize your eDollars, dude?  WTF is cash other than electronic paper?  And wtf is paper other than something that could be revalued with the stroke on a pen.  Your FRNs can be rendered utterly worthless at any time.


Mon, 01/04/2010 - 16:07 | 182280 sethstorm
sethstorm's picture

That problem can be fixed.

Tue, 01/05/2010 - 19:47 | 183593 Anonymous
Anonymous's picture

I have twice carried five Krugerrands through airport metal detectors with no alarm. In one instance, eight Kugerrands set off the alarm. Subsequently, three went into the x-ray tray and the remaining five got through in my pocket with no alarm. Kruggerands are 22k with 9.2% copper alloy. I suspect 24k coins (99.99% pure gold) may not set off the detector in any amount.

At present, one must declare $10k or more in cash and negotiable financial instruments upon leaving USA. Gold is not a negotiable instrument and is not subject to declaration upon leaving. However, it is considered dutiable when entering most countries and is required to be declared and have duty paid when being taken into another country. An exception is that India does not require duty on personal gold jewelry.

Mon, 01/04/2010 - 17:03 | 182341 Anonymous
Anonymous's picture

"Try getting gold through a metal detector"

I have (400g) and it was a non-issue.

Mon, 01/04/2010 - 20:18 | 182522 Anonymous
Anonymous's picture

Carried gold lots of times through airports. It is still NOT illegal to do so.
So why the paranoia about metal detectors ?

Wed, 01/13/2010 - 07:25 | 192128 MarketTruth
MarketTruth's picture

Cash as King? Tell that to the folks in Korea who suddenly saw their cash devalued by a factor of 10 or the guys in South America who had their currency value cut in half overnight by Chavez.

Cash is king, what a maroon! Gold is King and i bet you the above two country's citizens wished they had gold instead of FIAT paper currency.

Mon, 01/04/2010 - 11:01 | 181927 Anonymous
Anonymous's picture

I have a dark suspicion this is also meant to prevent the same political shenanigans from possibly occurring back on democrats that was the setup before the elections in Fall of '08 in that huge run on MMs. Only these same thugs in office, in a nervous look-back over the shoulder, could think this necessary for cover in the next election cycle.

Mon, 01/04/2010 - 16:08 | 182279 sethstorm
sethstorm's picture

I know of wealthy people who are disposing of assets, closing businesses and patriating all their $$$ to gold. They plan to live very simply, travel, declare their income to the IRS at what it is (just barely below the taxable rate which extracts from them), and live on savings until this thing either collapses or sorts out.

Fine, act as if you're beyond the reach of the government, and create the unintended consequence of killing a nation.

Do not think that ordinary people will not know who you are and what damage you have done.

Tue, 01/05/2010 - 01:18 | 182721 Seer
Seer's picture

And what of a corrupt and evil nation?

Sun, 01/03/2010 - 17:17 | 181406 darkpool2
darkpool2's picture

and if they dont go out and purchase more unwanted "things", they will inflate away the value of the remaining "savings" of the recalcitrants.

Mon, 01/04/2010 - 00:15 | 181751 Anonymous
Anonymous's picture

Great reporting, TD. Am wondering if this will apply to bank and credit union (federally insured) money markets as well as mutual-fund money markets?

Mon, 01/04/2010 - 20:45 | 182537 Anonymous
Anonymous's picture

Who wrote this article?

Mon, 01/04/2010 - 19:50 | 182498 DosZap
DosZap's picture

Agreed, great info.............Danka.

If there was one thing on which to hang your hat, that this entire fiasco was/is not contrived it's the Head Knocker, not listening to, and slapping this dog down........

  • Paul A. Volcker, Chairman of the Board of Trustees, Group of Thirty, Former Chairman, Board of Governors of the Federal Reserve System.
  • He knows how to turn a crap economy around.

    If it was supposed to be turned, then Big Hoss would not have stepped on him.

    Shut him down, does not take his advice,...............but still keeps him  around.

    Tue, 01/05/2010 - 01:28 | 182729 Seer
    Seer's picture

    Volker is like a broken clock, he was correct once.  Not sure if he could be correct again... this is a whole different ball game today.  He didn't have the mortgage situation back then.  Raising interest rates today would be instant death to the system (which is why they aren't raising rates).


    Sun, 01/03/2010 - 12:23 | 181141 Cindy_Dies_In_T...
    Cindy_Dies_In_The_End's picture

    Thats why I don't have one frickin "cent" invested in this shitinfested country.

    Sun, 01/03/2010 - 18:17 | 181476 Anonymous
    Anonymous's picture

    Why don't you pack up your shit and leave this "shitinvested" country yerself sister?

    Sun, 01/03/2010 - 19:08 | 181517 DoChenRollingBearing
    DoChenRollingBearing's picture

    Diversification is smart.  You are wise to have some dough quietly overseas.  Gold is smart too.

    But, if you live here in our shitinfested country, you should also have assets here.  You might need them in a hurry!  And having something here is diversification as well.

    Sun, 01/03/2010 - 19:55 | 181563 Cindy_Dies_In_T...
    Cindy_Dies_In_The_End's picture

    Indeed, DoChen, I am a Rawles fan and am reasonably okay in that department.



    Why don't you go invest in GM and anywhere else where the Obamabots don't grasp the concept of the rule of law you brainless flagwaver? Have fun with that, clownfuck. 

    They really need to make these captcha questions more difficult.

    Mon, 01/04/2010 - 04:34 | 181834 Anonymous
    Anonymous's picture

    Sin 2112 is just a stargate, which is a measure of absence. You shall not invest and be unmarked, not now, any longer. Shall you rise, having a measure of wheat for a penny? No! There is no nation that has not been given strong delusion; for having accepted the offer of temptation then consumed by the seal of the wine of wrath in the cup of fornication, where the barren womb of labor is entombed, baring the wages of inversion and death, having been aborted for the sake of a claim of dominion, which is the spirit of contempt in possession of corruption. See that you are not bound as the fool my friend, time is no more than the sealing at hand. Pray your name is not sealed among the numbered that are fallen. Stand fast my friend, and not naked before the gate of the fallen star, the bottomless pit of judgment. Divest from the black hole now and forever.

    Mon, 01/04/2010 - 16:11 | 182285 sethstorm
    sethstorm's picture

    If that's what you call China, so be it.

    But the military can find you nonetheless no matter what part of the globe you and yours are.  Don't give them any motivation to pursue.

    Tue, 01/05/2010 - 01:32 | 182730 Seer
    Seer's picture

    The US military?  The same one that cannot beat its way out of a paper bag? (thanks to its horrible mission/leadership)?  The one that relies on funding from defaulting US taxpayers?  LOL!  I'm sure that Romans once thought the same way...

    Tue, 01/05/2010 - 03:22 | 182777 Anonymous
    Anonymous's picture

    Wisdom is The Truth among the numbered Saints. The Seer is the declaration and revelation of The Holy Spirit and The Host of The Law...

    A measure of wheat for a penny is fallen, the field is risen, Chauncey Gardner witnesses the reflection of innocence upon the waters of life.
    There is no choice, only agreement.

    Sun, 01/03/2010 - 12:25 | 181143 Rainman
    Rainman's picture

    Bank runs become illegal and the ultimate government takeover begins.

    The makings of the Great Revolution, for sure. 

    Sun, 01/03/2010 - 14:33 | 181243 Anonymous
    Anonymous's picture

    It may not be "FIRE" screamed at the top of the lungs in a crowded theater, but this is decidedly an urgent whisper.

    Short-sighted and avaricious, cospiratorial men have hollowed out and honeycombed this economy with fraud and lies; the least of which is virtually unlimited ability to leverage throught the removal of Glass-Stegall restrictions and banks ability to fractionalize funds without regulation and without effective controls.

    Can anyone fully conceive of our financial landscape once these errors are corrected? What will the terrain look like world-wide once the balance sheets are eventually reconciled and un-serviceable debt is driven from the system?

    I suspect PMs will be bought and hoarded to exhaustion, as the people (sick of the perpetual manipulations and silent depredations), hoard away wealth and become severe misers for a generation or two. With all the implications that entails.

    Sun, 01/03/2010 - 20:54 | 181596 Rusty_Shackleford
    Rusty_Shackleford's picture

    Sniff... Sniff..


    Do you smell something burning?

    Sun, 01/03/2010 - 23:56 | 181735 MsCreant
    MsCreant's picture

    I like the hollowed out honeycomb metaphor. Ever play Jenga?

    Sun, 01/03/2010 - 18:05 | 181459 SWRichmond
    SWRichmond's picture

    Yep.  Wait and see what happens when people are told they can't have their money.

    Blackwaterredrum is hired to do security in the Hamptons (if they haven't been already).

    Mon, 01/04/2010 - 16:17 | 182297 sethstorm
    sethstorm's picture

    There are only so many Blackwater/Xe employees and contractors.  There are many more pissed-off citizens for whom have no moral issues with taking them on.

    Their few numbers would guarantee a bloodbath followed by Xe's defeat(and any further objectives in the Hamptons taken care of).

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