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What the End Result of the Fed’s Cancerous Policies Will Be and When It Will Hit

Phoenix Capital Research's picture




 

Yesterday I noted that the “addict/ dealer” metaphor for the Fed’s intervention in the markets was in fact not accurate and that the Fed’s actions would be more appropriately described as permitted cancerous beliefs to spread throughout the financial system, thereby killing Democratic Capitalism which is the basis of the capital markets.

 

Today I’m going to explain what the “final outcome” for this process will be. The short version is what happens to a cancer patient who allows the disease to spread unchecked (death).

 

In the case of the Fed’s actions we will see a similar “death” of Democratic Capitalism and the subsequent death of the capital markets. I am, of course, talking in metaphors here: the world will not end, and commerce and business will continue, but the form of capital markets and Capitalism we are experiencing today will cease to exist as the Fed’s policies result in the market and economy eventually collapsing in such a fashion that what follows will bear little resemblance to that which we are experiencing now.

 

The focus of this “death” will not be stocks, but bonds, particularly sovereign bonds: the asset class against which all monetary policy and investment theory has been based for the last 80+ years.

 

Indeed, basic financial theory has proposed that sovereign bonds are essentially the only true “risk-free” investment in the world. While history shows this theory to be false (sovereign defaults have occurred throughout the 20th century) this has been the basic tenant for all investment models and indeed the financial system at large going back for 80 some odd years.

 

The reason for this is that the Treasury (US sovereign bond) market is the basis of the entire monetary system in the US and the Global financial system in general. Indeed, US Treasuries are the senior most assets on the Primary Dealers’ (world’s largest banks) balance sheets. To understand why this is as well as why the Fed’s policies will ultimately destroy this system, you first need to understand the Primary Dealer system that is the basis for the US banking system at large.

 

If you’re unfamiliar with the Primary Dealers, these are the 18 banks at the top of the US private banking system. They’re in charge of handling US Treasury Debt auctions and as such they have unprecedented access to US debt both in terms of pricing and monetary control.

 

The Primary Dealers are:

 

  1. Bank of America
  2. Barclays Capital Inc.
  3. BNP Paribas Securities Corp.
  4. Cantor Fitzgerald & Co.
  5. Citigroup Global Markets Inc.
  6. Credit Suisse Securities (USA) LLC
  7. Daiwa Securities America Inc.
  8. Deutsche Bank Securities Inc.
  9. Goldman, Sachs & Co.
  10. HSBC Securities (USA) Inc.
  11. J. P. Morgan Securities Inc.
  12. Jefferies & Company Inc.
  13. Mizuho Securities USA Inc.
  14. Morgan Stanley & Co. Incorporated
  15. Nomura Securities International Inc.
  16. RBC Capital Markets
  17. RBS Securities Inc.
  18. UBS Securities LLC.

 

I’m you’ll sure you’ll recognize these names by the mere fact that they are the exact banks that the Fed focused on “saving” thereby removing their “risk of failure” during the Financial Crisis.

 

These banks are also the largest beneficiaries of the Fed’s largest monetary policies: QE 1, QE lite, QE 2, etc. Indeed, we now know that QE 2 was in fact was meant to benefit those Primary Dealers in Europe, not the US housing market.

 

The Primary Dealers are the firms that buy US Treasuries during debt auctions. Once the Treasury debt is acquired by the Primary Dealer, it’s parked on their balance sheet as an asset. The Primary Dealer can then leverage up that asset and also fractionally lend on it, i.e. create more debt and issue more loans, mortgages, corporate bonds, or what have you.

 

Put another way, Treasuries are not only the primary asset on the large banks’ balance sheets, they are in fact the asset against which these banks lend/ extend additional debt into the monetary system, thereby controlling the amount of money in circulation in the economy.

 

When the Financial Crisis hit in 2007-2008, the Fed responded in several ways, but the most important for the point of today’s discussion is the Fed removing the “risk of failure” for the Primary Dealers by spreading these firms’ toxic debts onto the public’s balance sheet and funneling trillions of dollars into them via various lending windows.

 

In simple terms, the Fed took what was killing the Primary Dealers (toxic debts) and then spread it onto the US’s balance sheet (which was already sickly due to our excessive debt levels). This again ties in with my “cancer” metaphor, much as cancer spreads by infecting healthy cells.

 

When the Fed did this it did not save capitalism or the Capital Markets. What it did was allow the “cancer” of excessive leverage, toxic debts, and moral hazard to spread to the very basis of the US, indeed the entire world’s, financial system: the US balance sheet/ Sovereign Bond market.

 

These actions have already resulted in the US losing its AAA credit rating. But that is just the beginning. Indeed, few if any understand the real risk of what the Fed has done.

 

The reality is that the Fed has done the following:

 

  1. Set itself up for a collapse: at $2.8 trillion, the Fed’s balance sheet is now larger that the economies of Brazil, the UK, or France. And with capital of only $54 billion, the Fed is leveraged at 51 to 1 (Lehman was at 30 to 1 when it failed).

 

  1. Called the risk profile of US sovereign debt into question: foreign investors, now fully aware that the US’s balance sheet is suspect (the US has lost its AAA credit rating), are dumping Treasuries (see China and Russia). This has resulted in the Fed now being responsible for the purchase of up to 91% of all new long-term (20+ years) US debt issuance.

 

  1. Put the entire Financial System (not just the private banks) at risk.

 

The Financial System requires trust to operate. Having changed the risk profile of US sovereign debt, the Fed has undermined the very basis of the US banking system (remember Treasuries are the senior most asset against which all banks lend).

 

Moreover, the Fed has undermined investor confidence in the capital markets as most now perceive the markets to be a “rigged game” in which certain participants, namely the large banks, are favored, while the rest of us (including even smaller banks) are still subject to the basic tenants of Democratic Capitalism: risk of failure.

 

This has resulted in retail investors fleeing the markets while institutional investors and those forced to participate in the markets for professional reasons now invest based on either the hope of more intervention from the Fed or simply front-running those Fed policies that have already been announced.

 

Put another way, the financial system and capital markets are no longer a healthy, thriving system of Democratic Capitalism in which a multitude of participants pursue different strategies. Instead they are an environment fraught with risk in which there is essentially “one trade,” and that trade is based on cancerous policies and beliefs that undermine the very basis of Democratic Capitalism, which in the end, is the foundation of the capital markets.

 

In simple terms, by damaging trust and permitting Wall Street to dump its toxic debts on the public’s balance sheet, the Fed has taken the Financial System from a status of extremely unhealthy to terminal.

 

The end result will be a Crisis that makes 2008 look like a joke. It will be a Crisis in which the US Treasury market implodes, taking down much of the US banking system with it (remember, Treasuries are the senior most assets on US bank balance sheets).

 

I cannot say when this will happen. But it will happen. It might be next week, next month, or several years from now. But we’ve crossed the point of no return. The Treasury market is almost entirely dependent on the Fed to continue to function. That alone should make it clear that we are heading for a period of systemic risk that is far greater than anything we’ve seen in 80+ years (including 2008).

 

The Fed is not a “dealer” giving “hits” of monetary morphine to an “addict”… the Fed has permitted cancerous beliefs to spread throughout the financial system. And the end result is going to be the same as that of a patient who ignores cancer and simply acts as though everything is fine.

 

That patient is now past the point of no return. There can be no return to health. Instead the system will eventually collapse and then be replaced by a new one.

 

For more market insights and economic commentary, swing by www.gainspainscapital.com. We offer a number of FREE Special Reports designed to help investors prepare for the inevitable collapse I’ve described above.

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

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Sun, 03/18/2012 - 14:17 | 2266952 dander53
dander53's picture

I'd appreciate some help with "the basics" here. I'm not quarreling with anyone - just trying to understand two bits of the initial post.

 

(a) What do those primary banks use to purchase US treasuries ? I don't understand how their calling the treasuries an asset , once purchased, is a problem. I would have thought they had "asset X" in some form which they used to purchase the treasuries. So then they no longer have asset X and instead have the treasuries. The main post seems to imply that there is some sort of bogus increase in the assets of the bank due to purchasing the treasuries... I guess I don't see it. What does a primary dealer actually do to purchase a treasury? 

(b) What does it mean that the Fed is "responsible for the purchase" of up to 91% of long term treasuries? How would the Fed purchase a treasury when they are also issuing them? 

I get the underlying notion that there is a bunch of chicanery at the base of this system and vast amounts of toxic assets and also how banks leveraging at high levels inserts a big element of risk into the system. It is just when the big picture is painted with specifics I don't really understand that I get a little blank.

Appreciate anyone who can explain either (a) or (b) or both.

thanks

 

Sun, 03/18/2012 - 14:19 | 2267403 Setarcos
Setarcos's picture

I think we all get "a little blank".

Even the Bernank - perhaps especially he - goes blank when attempting to explain the mysterious world of etheric derivatives, dirivatives of dirivatives and the strange alchemy by which digits in a computer are turned into trillions of dollars more than was ever traded throughout history.

Oh ye of little faith.  Just believe debt is credit (or vice versa?).  Just believe monies owed by governments - to private banks - are assets of the Greek (any) variety.

Attend the altar on which dogma gets transmuted into a cornucopia ... water into wine; a few loaves and fishes into a feast for thousands.  There is nothing too crazy, it seems, for the great mass of humanity to get fooled by.

I don't think that any real explanation is possible dander.

Sun, 03/18/2012 - 03:05 | 2266695 Setarcos
Setarcos's picture

Thanks for such a clear run-down of what's coming down the line.

Though I was aware of leveraging and fractional reserve banking - which always struck me as somewhat bizarre - until about 2006-7 I still had the quaint idea that, basically, banks took in deposits and then took rational risks by lending my/our deposits to vetted borrowers.

Even though I knew that the repeal of the Glass-Stegal Act was in some way ominous and even though I suspected - from 1986 - that the introduction of 401k (Superannuation in Australia) was untenable, I could not join the dots of impending Financialism, which has now completely replaced whatever Capitalism really was, or Mercantilism, for that matter ... but both were grounded in the production and transportation of tangibles, out of which a profit might be made, dividends shared and re-investment made from a surplus, e.g. a new factory or ship.

Those were the days when those lucky enough to have pension funds - always a minority - could depend on their fund managers seeking the best return on stocks, shares and real estate, for instance, but back around 1986 I realized that by including 'everyone' in this "honey pot", it was doomed to fail ... after all it was based on at least two fallacies, e.g. everyone can make a profit and that there could be exponential endless growth.

What I did not anticipate was that it could all be "financialized" and totally divorced from the real world of products, in which it might have been marginally possible (for a while) to "grow" industries, etc and thus generate a sufficient surplus to pay wages, fund pensions, pay dividends AND pay compounding interest on loans taken out to keep up the expansion of industries.

In my view tipping points came when such as Ford ceased being self-funding and turned to bank loans to combat competition, from other vehicle manufacturers also taking out loans.

So far so good(?) until these days when factories, farms and all else productive, are at the whim of banksters who only deal in notionals ... derivatives generally.

It has been a steep learning curve for me.

Who amongst us has not been naive?

Gerald Celente got shafted.  Max Keisers silver campaign has foundered, so far.

The "system" from Wall Street to the City of London is FAR more corrupt than any reasonably decent person could imagine.

Anyhow:  Thanks Graham for helping me to join a few more dots, in this matrix of designed chaos (see PNAC, for anyone to go a bit deeper ... or AIPAC).

PS  At the risk of getting trashed by some remote controller of words allowed to be used on the internet - yes it has happened to me several times now - ain't odd that a small minority of humans totally control finance, the media and Washington!

It reminds me of Fawlty Towers, when Basil warned others not to mention "the war", except that the unmentionable now are not Germans, but another "chosen people" with a "right" to dominate the world.  Guess who?

Sun, 03/18/2012 - 11:30 | 2267061 chemystical
chemystical's picture

"PS At the risk of getting trashed by some remote controller of words allowed to be used on the internet - yes it has happened to me several times now - ain't odd that a small minority of humans totally control finance, the media and Washington!"

(...and controls anything else that smells like a way to steal a dollar or to addlepate medicate and fornicate the masses)."

Spot on.   Several times over the last 10 years I've proven my theory that the chosen people scan the Net to look for anything remotely anti-"Semitic".  ("Semitic" in quotes because these usurpers in general have less Semitic DNA than my dog).  To test the hypothesis I've posted duplicate comments into various blogs of the type that count view, and those comments were duplicates with one exception: into one of them either the word "Jew" or "Israel" was inserted in a random place. 

The posts might about something as innocuous as lawn and gardening or as volatile as the Occupation of Palestine.

Care to hazard a guess as to which of the two posts within each set garnered an average of 4 times more views than the other?  Why is that?   Simple, the chosen people use their networks (by their own recent admissions) to place counter-replies (to the facts).   They do this by scouring the Net blogs for posts that dare to use the verboten words and that stray from Newspeak or Newthink. 

P.S. this morning on C-SPAN's Wahsington Jouranl the last guest was a young lady (a policy analyst no less)  from the Center for Democracy and Technology.  That group is a spin off of the Electronic Frontier Foundation.  This young lady was going on about how her organization acts to protect Jane and Joe computer user from all sorts of pernicious characters and organizations who use less than above board methods to ferret out and collate data about Jane and Joe and to then use that data in all sorts of unscrupulous and nefarious ways.

The listeners/viewers gobbled up the spoonfed bs.  This organization supposedly takes on the Goliaths who are out there to harm you.  This is NOTHING more than the same good cop : bad cop theater that we see (or more often than not fail to see) played out every day.  A company controlled by Jews is going to save you from .... a company controlled by....Jews.  

The Center's board?  Jerry Berman, Bill Bernstein, Fred Epstein, Doug Lowenstein, Ira Rubenstein..

Oy ain't that a coinkidink?   Kinda like having Sheila Bair keep an eye on your savings, or Gary Gensler keeping an eye on commodity trading,  ad nauseum. 

There won't be enough rope when the day comes, and that rope isn't going to be kosher.  Their great great great......great grandfather will be happy no matter who swings.  Satan wants war and doesn't care who wins.  And please don't give me any crap about the good Jews and the bad Jews.  That tribe circles the wagons like no other.  Fuck them all.  Sorry for the 0.000001% who get caught in the crossfire.  Collateral damage and a public service to humanity.

Sun, 03/18/2012 - 11:05 | 2267035 tsx500
tsx500's picture

terrorist !             <sarc off>

Sun, 03/18/2012 - 11:59 | 2267079 chemystical
chemystical's picture

Well of course the poster is a terrorist.  Just ask the Southern Poverty Law Center who helped Commisar Jean write the definitions.  You remember those:  veterans, Constitutionalists, people who believe in border control, people who believe in auditing the Fed, ....your grandmother, Girl Scouts, etc.

By the way, wtf does the SPLC have to do with poverty?   Just one more Jew organization dressed up in obfuscating language.  (See: People for the American Way, National Association for the - ahem - Advancement of Colored People, the Americal Civil Liberties Union, Planned Parenthood,,,ad nauseum).

Up is down and down is up when it comes to info disseminated (inseminated?) by the tribe to the goyim.   Always has been and always will be.  Remember that, unless you're told not to. 

Sun, 03/18/2012 - 00:56 | 2266601 hairball48
hairball48's picture

I'm not a sophisticated/educated investor like many of you on here....just a simple redneck.

All my meager assets are in gold, silver, food, and other "necessities" of life. I feel confident I will survive the interim period of absolute chaos after the shit hits the fan...beginning with the bond market collapse.

My question regarding the bond market is: What happens when a sufficient number of the "traditional" ( if that's the right term) investors completely lose confidence in the bond market?

"Real capital" originates as the result of individual people working, producing, and saving. The "real savings" of individuals collectively being set aside is the source of future "real investment". In a true capitalist economy these real savings and investment would be would be the source of the "real wealth" required to build new plant/equipment, and so on and so forth.

So if the sheeple collectively are out of work(20% unemployment) and can't/don't/won't save...How can "real savings" occur? Where does real future investment capital come from? Printing, whatever the short term benefit, eventually just creates massive price inflation at some point.

I don't see any way of avoiding a total collpase of the current monetary system...but then as I said, I'm just a uneducated redneck. What the fuck do I know? 

Sun, 03/18/2012 - 03:16 | 2266714 Setarcos
Setarcos's picture

Please do not put yourself down so much!

Redneck?

You DO not come across that way to me.

You have thought about issues.

For the fact that I have done hard physical labour too, I am a "redneck" who, like you, has questioned and self-educated.

Do yourself a favour man, you stand head and shoulders above "Harvard experts" who are blind to what you clearly see.

Sun, 03/18/2012 - 01:12 | 2266629 StychoKiller
StychoKiller's picture

The circle may have no end, but 360° of rotation brings you back to where you started.

Sun, 03/18/2012 - 00:15 | 2266521 Carp Flounderson
Carp Flounderson's picture

This always seems odd to me... discussing the "leveraging" of the fed... its always made to sound like there is some limit to the amount of "losses" they can sustain.  Its just nonsense to compare them even to a primary dealer.  Their assets are essentially unlimited, which makes their leverage approximately 0.  If you don't like what the fed does, at least understand what they do.

Sun, 03/18/2012 - 01:07 | 2266618 StychoKiller
StychoKiller's picture

Sorry, but FRNs are NOT nutritious -- there are REAL limits to teh Fed's power(s).

Sun, 03/18/2012 - 12:04 | 2267127 Carp Flounderson
Carp Flounderson's picture

I think you guys suffer from gold dust inhalation or something... what liabilities does the fed have that are NOT in FRNs?

Sun, 03/18/2012 - 00:15 | 2266520 yabs
yabs's picture

we all know it cannot last but in what way will it collapse?
I think equities may be better than cash
is that what he is saying?

Sat, 03/17/2012 - 16:04 | 2265389 mind_imminst
mind_imminst's picture

The FED will print and buy bonds (to infinity if needed). They will not let UST yields spiral upward and out of control. So what is the knock-on effect. What is the secondary trade when the FED buys bonds in volume like never seen before? I wouldn't want to short bonds, obviously, even though that is what some people are thinking right now (ie, bond bubble). Holding real commodities is certainly good for wealth preservation and survival, but not good for growth or wealth creation. Just buy AAPL? (or other multinational bank/corp stock). Start a business in the developing world?

Sun, 03/18/2012 - 09:52 | 2266933 azzhatter
azzhatter's picture

Japan has done this for 20 years now. Does this mean we have 16 years minimum to go?

Sun, 03/18/2012 - 00:26 | 2266537 bigkahuna
bigkahuna's picture

I think you are right. i believe the next step is that the fed tries to lay claim on all encumbered (mortgaged) assets everywhere. The fed will say that it has absorbed all of the toxic debt backing these instruments, and therefore has some claim on the real assets tied to them. That is the elephant in the room that no one is talking about. Heck, I am guessing the elephant is so nasty that people selective choose to ignore it whatever the cost. Sheep to the slaughter.

Sun, 03/18/2012 - 11:56 | 2267109 chemystical
chemystical's picture

Already occuring.  Uncle then sells them for a dime on the dollar.   Ok, "auctions" them, but to a self-defined and very limited list of buyers whose names we all recognize as the same Squid & Co whom we directly or indirectly bailed out so that they can now buy our forfeited assets by using the debt that the Fed saddled us with.  Chutzpah.  Would be even more brazen if Joe and Jane could tear themselves away from Dancing With The Stars long enough to have a fucking clue

Same thing we saw with the Resolution Trust Corporation that took in the assets of the failed S&L's 2 decades ago, but on a scale one or more orders of magnitude higher (depending on the bundled package they are/were bidding on).

 

Sun, 03/18/2012 - 12:19 | 2267108 chemystical
chemystical's picture

argh the dual post

Sat, 03/17/2012 - 14:40 | 2265166 Dermasolarapate...
Dermasolarapaterraphatrima's picture

Cypher Stroke will soon affect us all:

 

From Wikipedia, the free encyclopedia

"Zero stroke or cipher stroke was a term used to describe a mental disorder reportedly diagnosed by physicians in Germany under the Weimar Republic during the period of hyperinflation in the early 1920s. The disorder was primarily characterized by patients' desire to write endless rows of zeros."


And from The Lords of Finance, The Bankers Who Broke the World:

"Perfectly sensible people would say they were ten billion years old or had forty trillion children.  Apparently cashiers, bankers and bookkeepers were particularly prone to this bizarra disease."

Sat, 03/17/2012 - 15:15 | 2265243 LowProfile
LowProfile's picture

Only if you don't hold real assets.

Sat, 03/17/2012 - 15:57 | 2265362 Dermasolarapate...
Dermasolarapaterraphatrima's picture

Low, I'm ok, I have eighty trillion quarters....

Sun, 03/18/2012 - 10:27 | 2266978 hamurobby
hamurobby's picture

That may only matter if the are pre 1965, then you would have eighty gazillion dollars.

Sat, 03/17/2012 - 14:07 | 2265112 essence
essence's picture

The very creation and continued existence of the Fed was on impetus of a select few ultra wealthy banking families, several of which were European based.  Consider that the Fed is after all, a Private corporation with stock. Stripping away all the obfuscating byzantine layers hiding ownership, I suspect the Fed stock is still controlled by the elite banking families. These interests are likely the "shadow government" that many of us feel is actually in control of western governments.

Surely these folks can see the potential of their debt based fiat currency system imploding and have plans for what comes next. The ol'   "never let a crisis go to waste" thing. Judging by the way they have their governmental/regulator minions implementing Capital Controls and shepherding the masses toward electronic money, it appears their intent is a one world, invasive, electronic money scheme in which ALL activities are recorded and they/government get a cut.  Call it Fed 2.0,  only world wide in scope.

Control of the money supply is the ultimate 'high ground' from which power over society is based.
A systemic "reset" presents an opportunity to institute a new money paradigm. If we lose this battle then there'll be no escaping an Orwellian nightmare anywhere on the planet.

Sun, 03/18/2012 - 02:45 | 2266699 Questan1913
Questan1913's picture

"If we lose this battle then there will be no escaping an Orwellian nightmare....."

I don't see any "we" engaged in "battle" anywhere, am I missing something here? 

The pace of movement to the Orwellian nightmare is accellerating.  Absent any resistance to this trend it appears the only hope is that something similar to the fate of the Invaders in "War of the Worlds" befalls the "elites".  Possible, yes.....but how likely?

 

Sat, 03/17/2012 - 14:23 | 2265138 LowProfile
LowProfile's picture

Meh.

w/o Asia, Russia and the ME on board, it ain't happenin'.

Tyrants always overplay their hand.  Delusions of grandure and whatnot.

Sun, 03/18/2012 - 02:00 | 2266670 i-dog
i-dog's picture

Asia is already "on board" ... Japan since WWII and China since shortly thereafter. Nixon's visit to China in 1972 was the signal for China to pick up the baton from Japan and keep running for "the team".

Russia is already "on board". The "fall" of the Soviet Union was planned back in the mid-50s (after Stalin's death and a re-assessment of where they were heading...or not heading!) to re-integrate Russia with Europe, since Lenin's approach to "global communism by force" was such an abject failure.

The ME has been "on board" since the fall of the Ottoman Empire, when Britain installed the puppet regimes to manage the people and resources on their behalf. Certain flies which landed in the ointment are being progressively removed as we speak. Iran is the next one (and basically the last).

There is no "tyrant" ... it is a very old ideology that is identical to a corporation (behind the scenes, it IS a corporation) -- where a CEO, or some board members, or a whole division, can be removed with little or no impact on the corporate mission or progress.

Only a major competitor (eg. free market capitalism) can stop it.

Sun, 03/18/2012 - 03:42 | 2266729 Liberty2012
Liberty2012's picture

We the People create the world we live in with every choice we make ;)

Sat, 03/17/2012 - 14:59 | 2265187 essence
essence's picture

The ME is currently in the process of being put onboard.

Note how the bankers cut Iran out of the SWIFT system and have the U.S. goonsquad on scene with it's big stick. Oh yes, the ME will be brought under BIS/central bank control.

As for Asia and Russia,  I bet the elite are working on them, bring them into the fold so to speak. It's just going on behind-the-scenes as those two are too large to directly overpower.

Sun, 03/18/2012 - 12:17 | 2267153 chemystical
chemystical's picture

The USS Enterprise is nearly in position.  And what a conveniently-named ship against which to launch yet another false flag attack! 

And conveniently aged as well, seeing as how it's about to be decommissioned.  Joe Sixpack will be spoonfed the 24/7 propaganda and then lather himself into a frenzy about nukin' them towel-headed Arabs (oblivious to the distinction between Persians and Arabs).

(Wonder whether Obama will then vow to the American public that he'll find out who profitted by shorting the airline stocks.  No, wait, that was GW, and, hey, wait a minute - how did that investigation end up?  Traced back to a bank fronted by former CIA execs?   Nevermind, nothing to see here.  Move on)

http://english.ruvr.ru/2012_03_12/68245725/

Maybe they can set it up as a permanent memorial like the USS Arizona.

 

Sat, 03/17/2012 - 15:14 | 2265238 LowProfile
LowProfile's picture

Meh.

Iran is now trading directly with Russia, China and India. Trades will be settled in their respective currencies, or gold.

Game over.

Sat, 03/17/2012 - 15:25 | 2265268 essence
essence's picture

Iran will shortly be 'Iraq'ed'.

India was recently 'warned' by the U.S. about attemting to circumvent it's wishes and trading with Iran outside the USD.

The proposed PAGE (i.e. Far East gold exchange meant to exclude paper gold trading) was scuddled as it poised a threat to the PTB and their current control of the price of gold.

There's a battle going on for control and the western bankers have the odds in their favor.

Sat, 03/17/2012 - 15:35 | 2265295 LowProfile
LowProfile's picture

Meh.

So what's next on the docket:  Invade Iran?  Then India?  Please.  The Spartans managed to impose iron money only 40 years.

We will beat that by a year or two.

Game over.

Sat, 03/17/2012 - 15:57 | 2265366 essence
essence's picture

The Fed has been around for 100 years now. However the banking families behind it "infected" England back in the late 1600's when they gained control of money/credit issuance there.

The current system has been running far longer than you suggest and the people behind it have generations of experience in keeping their heel on society's throat. All this going on behind the scenes so that the sheeple can continue to live their matrix-like facade.

We need a reset, however my fear is that it will be merely the wolf releasing it's bite for a moment only to get a better grip with its next.

 

 

Sat, 03/17/2012 - 14:05 | 2265105 eddiebe
eddiebe's picture

Obviously no one can predict the future, not even the author, but in this case I tend to agree with him. It will be the bond market that will be the next super bubble to burst.

Sat, 03/17/2012 - 14:12 | 2265116 rufusbird
rufusbird's picture

It is good to get a nice concise summary and explaination. I copied it, cleaned it up and reformatted it, to send to a few friends etc. There are a huge number of people who don't understand this process, and the implications. I also think that this is a bubble to be burst. The big lie is that it can be contained. That is the true elephant in the room. It is more like a gigantic elephant walking all over the Earth!

Sat, 03/17/2012 - 13:28 | 2265035 MrSteve
MrSteve's picture

All inflations end in a deflation and new currencies are defined in a measure against the gold standard, how many ounces of gold equals how many new currency units. It really is that simple, over all the time of recorded history.

Whether the deflationary outcome is called a reset, a new currency, a currency revaluation, a devaluation, a reissue, whatever; the currency holders are stripped of purchasing power which is transfered to the issuer in order to give the new currency validity and acceptance in the market.

A reading of FDR's speeches will show you his references to good backing for new bank underwritings, loans and bond issues. Gold is always a AAA asset which is why central banks hold so much of it, except the Greeks!

ZH folks know to be their own central bank, or be owned by austerity. Make no mistake that this round of gasoline surtax will kill any pretense the Fed has maintained an economic recovery. The household cash flow is what counts and it is not growing in this environment. The falloff in gasoline volume usage and electrical generating usage shows the economy to be in a real decline, as was seen in the former Soviet Union before the ruble went KABLOOEY.

Is Apple this market's "Radio"? In "Only Yesterday", history is recorded how the world changed after 1929, recognizing after the fact that real wealth production had been replaced by trusts of trusts, etc in the market. Is that function of excessive speculation what the FED's money printing and the creation of so many ETFs parallels today?

Note that even insurance and annuity contracts have currency escape clauses. Enough said.

Sun, 03/18/2012 - 09:49 | 2266924 DanDaley
DanDaley's picture

Part of the reset/devaluation/new currency may be the simple requirement that all transactions be done electronically, with everyone being required to have a currency card from some bank.  Voila, instant tracking of all transactions, and therefore control, over everybody -gold, silver, and other items of value being relegated to the black market.  Just a thought.

Sun, 03/18/2012 - 00:04 | 2266501 Uber Vandal
Uber Vandal's picture

Great Reference to Frederick Lewis Allen's "Only Yesterday".

The more I read, and re-read that book, it could very well have been written today.

The links below are for some of what I feel are the best chapters in the book.

http://xroads.virginia.edu/~hyper/allen/ch11.html

http://xroads.virginia.edu/~hyper/allen/ch12.html

http://xroads.virginia.edu/~hyper/allen/ch13.html

http://xroads.virginia.edu/~hyper/allen/ch14.html

 

Sun, 03/18/2012 - 02:29 | 2266687 Questan1913
Questan1913's picture

"Same as it ever was...."

TH

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