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Gold, The Fed, Exter’s Pyramid – When John Exter Met Paul Volcker

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Submitted by GoldCore

Gold, The Fed, Exter’s Pyramid – When John Exter Met Paul Volcker

We have a fascinating dialogue with many readers. One of our readers living in the U.S. has first hand experience of people involved at the highest levels of the Federal Reserve. He is very concerned about the astronomical levels of debt in the U.S. and internationally and the fact that this debt continues to balloon in a completely unsustainable way.

With his permission, we are publishing his recent email to me (mark.obyrne at goldcore.com) in its entirety. It is about a private meeting between ex-New York Fed Vice President John Exter and ex Fed Chairman Paul Volcker. We have added a few images in order to help understand the gravity of the building financial and monetary risks of today.

Hi Mark,

 

While reading your piece last week on the US Federal debt having reached $18 trillion, it brought back my memory of a visit John Exter and I had with Fed Chairman Paul Volcker, back in 1981.  It was a instance I’ll never forget!

 

John and I had a mutual billionaire widow client whose husband had been a Washington DC real estate magnet. He had died suddenly and she decided she wanted to have a part of her assets in physical gold and mining stocks. I recall she set the allocation at $50 million.

 

The widow had us travel to DC for a morning consultation followed by a luncheon. It was early April 1981 and 91 day US Treasury Bill rates were near 18%.

 

Our luncheon ended around 1:30 PM and we had a few hours to kill before our flight back to New York.

 

John Exter and Paul Volcker knew each other having been at the New York Fed as Vice Presidents and John decided he’d phone Volcker to see if he could see us before our return flight. Volcker took the call, said he would cancel his afternoon engagements and to come right over to the Fed. We got to the Fed and there were 36? high lumber piles of one foot long 2?X4? pieces all around Volcker’s office and the offices of his staff. Sky high interest rates had turned the construction industry down and the masses of unemployed construction workers were mailing Volcker the 2X4 pieces with nasty messages written on them in protest of the high rates.

 

John and I were at the Fed in a private conversation with Volcker for nearly three hours and in fact we nearly missed our flight because we stayed so long.

 

US Federal debt, in 1981 was rising through the $1 trillion level and I remember Volcker lamenting over the situation and asking John what he would recommend to get a handle on Federal spending. John gave Volcker a stern lecture on the Fed’s expansionary policies and told him the Fed would eventually end up destroying the whole American economy and the dollar because the Fed had become a prisoner of it’s own expansionism and it was something it couldn’t stop. John and Volcker discussed all the pitfalls of Keynesian and monetarism and Volcker didn’t rule out an eventual collapse of the dollar and second deflationary depression. I remember Volcker asking John when he would begin dropping short term rates and John commented that rates would have to drop soon or else the economy would fall off a cliff. It’s interesting that it wasn’t long after our session that rates started to come down.

 

The meeting was an experience of a lifetime for me to be sitting there in Volcker’s office listening to one gold standard economist central banker conversing with a Keynesian economist central banker. John Exter spelled out his scenario for Volcker and warned him of how badly the Keynesian experiment would end if it went on for an extended period of time. Volcker just sat there and listened and showed his concern.

 

Here we are 33 years later with US Federal Debt of $18 trillion with the country’s GDP at $17 trillion. A pretty disturbing situation, to say the least!

 

 

Volcker has joined my old club The Pilgrims of the United States which is based out of New York. I’ve been a member for nearly 40 years but don’t get back for meetings and events because of the travel distance. I hear Volcker goes to all the events and a fellow Pilgrim friend has approached him at meetings and when the late John Exter’s name is mentioned Volcker stops and has nothing but kind things to say about him.

 

Thought you’d be interested in learning of my anecdotal experience.

 

Best regards,

—————-

When reading this, some will say that this was in the past and these are different times and may not understand this warning from our recent history. However, it offers a lesson from the past that has significant relevance for today. The debasement of currency has ended in economic debacles in every single country, in every single instance throughout history.

Today, we see currency debasement internationally on a global scale – this has never happened before and has never been seen throughout history. The uber Keynesians attack those who warn about monetary risks and proclaim that none of the ‘goldbugs’ warnings have come to pass. Except of course, possibly the worst financial crisis that the world has ever seen and meager, unsustainable recovery.

We would caution that ‘yet’ may be the appropriate word here and we should all be vigilant and focus on the long terms risks – not the short term panaceas, tentative recoveries and massive asset bubbles of today.

 

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Thu, 08/13/2015 - 19:53 | 6424266 38BWD22
38BWD22's picture

 

 

Much of the gold that I own I bought at a higher price.  But, my wife has told me not to buy anymore.  I do have enough, and I will keep my promise.

Anyone who does NOT own any physical gold has a wonderful opportunity to join the small group (1% - 2% of Americans) who own gold.  And at a good price.

Thu, 08/13/2015 - 20:04 | 6424299 Captain Debtcrash
Captain Debtcrash's picture

A move back toward sound money without upsetting the fiat apple care is possible!  Explained here. 

Thu, 08/13/2015 - 21:17 | 6424582 Uncle Sugar
Uncle Sugar's picture

It would require honest men in Washington to get back to sound money.  Never going to happen. 

Thu, 08/13/2015 - 23:02 | 6424864 BC6
BC6's picture

The debt thankfully has been stopped at ~18.2T or at least it has for the last 150+ days. Thank goodness they solved the growing debt problem! 

Fri, 08/14/2015 - 00:18 | 6424981 SafelyGraze
SafelyGraze's picture

1) "John and I had a mutual billionaire widow client"

a lot of us did.

she was ok, but could be kinda whiny

2) "... whose husband had been a Washington DC real estate magnet"

magnet.

well. that's how he attracted his billions.

Fri, 08/14/2015 - 01:02 | 6425035 e_goldstein
e_goldstein's picture

steel pennies

Thu, 08/13/2015 - 23:37 | 6424931 Reichstag Fire Dept.
Reichstag Fire Dept.'s picture

The Fedsters will never give up their opportunity to manipulate their fiat rubbish. 

Thu, 08/13/2015 - 20:03 | 6424309 JC-BI
JC-BI's picture

The FED is what went wrong with MONEY in America. All our woes are at the FED's feet>>

https://biblicisminstitute.wordpress.com/2015/08/14/when-money-is-the-pr...

Thu, 08/13/2015 - 20:38 | 6424435 logicalman
logicalman's picture

Based on the world's population and the amount of Au on earth, each person should have about 25g.

Best to be above average!

 

Thu, 08/13/2015 - 20:46 | 6424468 Latitude25
Latitude25's picture

The world could go on a gold standard if needed although I prefer freegold instead but:

World Population 1900 , 1.8B, total gold in existence - 24,000 mt or about .42oz per person

World population 2000 , 6.0B, total gold in existence - 165,000 mt or about .88oz per person

Most of the world was on a gold standard in 1900 but in 2000 there was over 2X as much gold per person with no gold standard.

 

Conclusion:  With twice as much gold available per person there is no reason we could not use gold again as a standard, with silver also of course. 

Thu, 08/13/2015 - 21:09 | 6424553 Marco
Marco's picture

Bimetallism didn't work very well before silver became an industrial metal with small bullion stocks. I doubt people would want daily repricing of products in their silver "currency" based on its swings relative to money.

Only after a global SHTF scenario and technological collapse would bimetallism again make a little sense. Since then trades to abuse mispricing take a little more effort and time.

Thu, 08/13/2015 - 21:14 | 6424575 Latitude25
Latitude25's picture

Funny.  I have gold and silver coins from the same years that were in circulation in the US.  Why didn't that "work"?

Thu, 08/13/2015 - 21:37 | 6424636 Marco
Marco's picture

Unless you make the silver coin nothing more than shiny fiat with a face value very much greater than it's melt value you get carry trades if you try to artificially fix the exchange rate between gold money and silver. If the US had tried to continue to make silver coins in the 60s it would have just been minting them to be melted during the Hunt corner.

If you make the silver coin little more than fiat, why use silver at all?

Thu, 08/13/2015 - 21:55 | 6424692 Latitude25
Latitude25's picture

The Hunt corner occured as a speculative bubble after sound money was abandoned.  Silver was rising in price because sound money was abandoned and central bankers wanted inflation.  You have picked an era in history where fiat money was created without control.  If you go back when gold and silver were used as money you will see that for the most part the value of money was very stable unless of course some bankers tried to create too many receipts for it when on deposit.  You assume that Keynsian credit expansion is the normal and only way to use money.  History has shown otherwise.

Thu, 08/13/2015 - 22:16 | 6424768 Marco
Marco's picture

Britain was forced completely off silver by using a fixed ratio long before fiat happened, after which the rest of the world was forced to follow.

Fri, 08/14/2015 - 00:22 | 6424964 Latitude25
Latitude25's picture

Following the discovery in the 16th century of large deposits of silver at the Cerro Rico in PotosiBolivia, an international silver standard came into existence in conjunction with the Spanish pieces of eight. These silver dollar coins played the role of an international trading currency for nearly four hundred years.

https://en.wikipedia.org/wiki/Silver_standard

Imagine that.  A stable monetary system for nearly 400 years.

However, in 1158, King Henry II introduced Tealby penny. English currency was almost exclusively silver until 1344, when the gold noble was put into circulation. However, silver remained the legal basis for sterling until 1816.

So that makes more than 600 years on a silver standard.  Which fiat reserve currency even comes close?

Fri, 08/14/2015 - 18:44 | 6427678 Marco
Marco's picture

I don't think the straw man will answer.

So can we get back to fixed rate bimetallism? Which had significantly less time in Britain before blowing up.

Thu, 08/13/2015 - 22:26 | 6424791 logicalman
logicalman's picture

Are you suggesting that daily re-pricing doesn't happen in the present system?

 

Thu, 08/13/2015 - 21:13 | 6424571 38BWD22
38BWD22's picture

 

 

My arithmetic:

170,000 tonnes worldwide works out to approx. 1 toz per capita worldwide.

Typical family of three should have 3 oz then.

Americans are, perhaps, 10 x as "rich" as average world citizen...

So, a typical American family should own 30 toz of gold.   (1 * 3 * 10)

[How many do?]

Fri, 08/14/2015 - 00:18 | 6424982 Johnny Caine
Johnny Caine's picture

Lololo gold is owned by the banks, so what's the difference between fiat and being broke and gold and being uber broke?  Does anybody on Zerohedge actually understand money??

Thu, 08/13/2015 - 21:14 | 6424576 lasvegaspersona
lasvegaspersona's picture

Gold is for savers, it is a savings vehicle. Your number is correct but not everyone 'needs' gold. It makes its way to saversmand to those who understand its function.

Thu, 08/13/2015 - 21:40 | 6424658 Vlad the Inhaler
Vlad the Inhaler's picture

People who have lived through the rise of totalitarian governments know - gold is laughably easy to confiscate.  

Thu, 08/13/2015 - 22:33 | 6424805 Tall Tom
Tall Tom's picture

People who escaped the totalitarian governments knew that Gold was the vehicle used as the means to escape the oppression.

Fri, 08/14/2015 - 01:16 | 6425057 Vlad the Inhaler
Vlad the Inhaler's picture

Oh and not just confiscation; in those times, trading in gold was made a capital offense.

Thu, 08/13/2015 - 19:54 | 6424278 GMadScientist
GMadScientist's picture

Can someone explain why RE and businesses are farther from gold than paper products in Exter's little pyramid there?

Thu, 08/13/2015 - 19:59 | 6424289 38BWD22
38BWD22's picture

 

 

My *guess* would be liquidity.  The closer to gold, the more liquid (easier to sell) the holding in a crunch.

Thu, 08/13/2015 - 20:28 | 6424409 Amish Hacker
Amish Hacker's picture

Agreed. The other thing about Exter's Pyramid is that as the slow-motion train wreck unfolds, investors will move down the pyramid. Right now, a lot of money is still in stocks and corporate bonds, but an equities swoon would have them running to the perceived safety of Treasuries, maybe sending the 10-year to 1%. Then, when people wise up to the UST grift, physical greenbacks will seem safer (which explains the recent media trial balloons about banning cash). Finally, gold will be recognized as the ultimate safe asset, as it has been for thousands of years. 

Thu, 08/13/2015 - 22:11 | 6424730 daveO
daveO's picture

Then there's the debt that eventually crushes paper asset prices. 

This guy says it doesn't matter. Sure, so long as interest rates never rise. Good chart, anyway.

http://www.marketoracle.co.uk/Article51725.html

http://3.bp.blogspot.com/-I-yH4yewVcY/UMDV9JV4JuI/AAAAAAAAWto/c5nUqyuDos...

Gold is money, all else is credit.

Fri, 08/14/2015 - 18:20 | 6427635 GMadScientist
GMadScientist's picture

Thanks, but isn't there a big diff between being able to unload something and being able to get what ya paid for it back? :)

Fri, 08/14/2015 - 18:18 | 6427630 GMadScientist
GMadScientist's picture

Strange definition for 'help', Earle. ;)

Thu, 08/13/2015 - 20:01 | 6424297 indygo55
indygo55's picture

I have silver that cost 11, 14, 21, 30, 34, 28, 24, 19, 16. What a ride!! I still good but dont need any more. Weeeellllll unless it goes to 11 again.

 

Thu, 08/13/2015 - 20:42 | 6424449 logicalman
logicalman's picture

Got most of mine at about 18, but that's compared to useless paper.

Unfortunately, metal sinks - paper floats.

Lake wins!

 

Thu, 08/13/2015 - 20:44 | 6424458 jakesdad
jakesdad's picture

silver is insurance, not investment.  if we get to the point of transacting in it it'll be priceless, otherwise it's just a paperweight.  I HOPE when I die my kids find it & say "why in the hell did he buy this much of this stuff?" but I don't see it going down that way...

Thu, 08/13/2015 - 21:15 | 6424567 logicalman
logicalman's picture

I try to diversify.

The first thing I invest in is myself, physically.

My healthcare program is to be healthy - Good food and physical fitness.

60 and good for 60 miles on a bike any day - ride every day - -40ºC - +40ºC.

Useful skills and knowledge are the ultimate currency.

Go from there.

 

Thu, 08/13/2015 - 20:01 | 6424298 Chief Wonder Bread
Chief Wonder Bread's picture

We are in a world of irredeemable hurt.

Thu, 08/13/2015 - 20:08 | 6424327 Inbetween is pain
Inbetween is pain's picture

Did I miss something, or why is it I don't know who wrote that letter?

Thu, 08/13/2015 - 20:09 | 6424328 OC Sure
OC Sure's picture

 

 

 

No way, man!

Dictionary.com says money is any "medium of exchange."

Wikopedia says that the Federal Reserve oversees a system of "Banks."

ZH, contrary to their own Manifesto, says that "banks" "print money!"

So like, what the fuck?

Thu, 08/13/2015 - 20:27 | 6424402 thecondor
thecondor's picture

Banks "print" money through the creation of credit. The more credit extended the bigger the money supply. The more credit paid off or writen off the smaller the money supply. So yes, banks print money. 

Thu, 08/13/2015 - 20:44 | 6424457 dojufitz
dojufitz's picture

If Banks could print money they would not need deposits.

Thu, 08/13/2015 - 20:49 | 6424491 thecondor
thecondor's picture

So loaning out $0.90 for every dollar in deposits is not money creation?

Thu, 08/13/2015 - 22:26 | 6424790 dojufitz
dojufitz's picture

Its called leverage....not money printing.

Thu, 08/13/2015 - 22:03 | 6424716 logicalman
logicalman's picture

You need to do some research - lots of it.

 

Thu, 08/13/2015 - 22:18 | 6424772 daveO
Thu, 08/13/2015 - 20:46 | 6424462 OC Sure
OC Sure's picture

 

 

I "believe" you.

Thu, 08/13/2015 - 23:06 | 6424871 FIAT CON
FIAT CON's picture

Banks Print Currency ie debt

 Money is alltogether different

Thu, 08/13/2015 - 20:29 | 6424403 thecondor
thecondor's picture

Thu, 08/13/2015 - 20:31 | 6424418 Winston Churchill
Winston Churchill's picture

Legal definition,according to Blacks Legal Dictionary:
Money =is a store of value.
Currency=a medium of exchange.
I'd suggest you exchange your medium for money,
or get a real dictionary to start.

Thu, 08/13/2015 - 20:51 | 6424497 OC Sure
OC Sure's picture

Why refer to another book/author for the "definition?"

How about your own wits?

If you agree that money is a store of value, then please explain to the class why money is introduced as a medium of exchange.

Then, please explain to the class what determines value as it relates to the necessity of a medium of exchange.

Then, please explain to the class if currency is a MOE, then how can counterfeit be a store of value.

30 mins, then I log. 

Go.

Thu, 08/13/2015 - 22:09 | 6424737 logicalman
logicalman's picture

To quote...

If you agree that money is a store of value, then please explain to the class why money is introduced as a medium of exchange.

You kill your own argument.

Money IS a store of value and CAN act as a medium of exchange.

Currency is a convenience and ONLY a medium of exchange, unless backed by something tangible.

Only currency can be counterfiet, real money can't be.

 

Thu, 08/13/2015 - 23:19 | 6424895 CapnJackDaniel
CapnJackDaniel's picture

1. Skillsets. Absolutely.

2. Y'all are getting mixed up. Money is whatever you're prepared to give someone in order to get something back, without stabbing each other for it instead. (Or whatever they'll give you to not get stabbed.) EVERYTHING - gold, cash, beads, lines of credit, bonds - everything that you call money is reducible to this. 

Thu, 08/13/2015 - 21:13 | 6424572 EINSILVERGUY
EINSILVERGUY's picture

I think that true money has 6 charateristics.

Store of Value

Medium of Exchange

Fungible

Divisible

Unit of Count

Rare

Only Gold and Silver meet all charateristics.

Bit coin is a currency/medium of exchange but is not moeny because it is not a store of wealth. it satisfies 5 but not all 6 of the required charateristics

 

Thu, 08/13/2015 - 21:22 | 6424590 OC Sure
OC Sure's picture

 

 

So then when a "bank" introduces new currency, this is money because the recipient then uses is to "store value?"

Please affirm or deny the premise.

Thu, 08/13/2015 - 23:11 | 6424877 FIAT CON
FIAT CON's picture

"Hidden secrets of money" explains it all very well. this is a very good series about money and currency.

 Money cannot be created out of thin air as in with currency

https://www.youtube.com/watch?v=DyV0OfU3-FU

 

 

Fri, 08/14/2015 - 01:15 | 6425053 Dsyno
Dsyno's picture

The U.S. government created Bitcoin. Think about it. It mysteriously appeared. No one knows who created it. People that would normally buy gold, are putting their wealth in digital 1s and 0s that, unbeknownst to you, the government can easily confiscate. You've been warned.

Thu, 08/13/2015 - 21:25 | 6424602 OC Sure
OC Sure's picture

 

 

...didn't think so. 

But I do like those Little Turks!

 

Thu, 08/13/2015 - 20:21 | 6424375 TomJoad
TomJoad's picture

Magnet?

Thu, 08/13/2015 - 20:24 | 6424382 Yen Cross
Yen Cross's picture

    Has anyone noticed how gold ,silver , and credit have diverged from Treasury yields over the last couple of weeks?

  Sure the 10 year auction(this week) was ugly, but that pointed to more serious problems.

 FAITH. Or lack thereof in U.S. equity markets. Even if bond yields move lower in the .gov markets, the spreads are getting pretty wide in other lending markets.

  Why do I want U.S debt for nothing, when I can get higher yield in other markets?

  Why do I want higher yield in those markets, if they're U.S. based, and the "risk premium" is higher?

  Just because a sovereign is overloaded with debt and choses to print, doesn't mean they have control over the consumer, and small business debt markets.

 Why is it that a credit card is aprox 13-14%, and APPL buybacks are 25 basis points?

 You can clearly see the divergence, and that yield doesn't mean demand. As a matter of fact, with such disparity, yield is bad on the short end of lending. (buying~borrowed time)

Thu, 08/13/2015 - 20:32 | 6424420 logicalman
logicalman's picture

Sometimes I just want to stand in the street and scream!

It's all bullshit.

I just wish it didn't affect my life so much.

Only those who create something useful, that others want, have any right to wealth.

Eliminate the middle man AND the tax man.

 

 

 

 

 

Thu, 08/13/2015 - 20:26 | 6424393 logicalman
logicalman's picture

Volker has benefitted hugely from the system we suffer under.

I reckon he thought he'd be dead before the debt had to be paid.

Maybe he will be.

Depends how fast things come apart.

 

Thu, 08/13/2015 - 20:26 | 6424394 eddiebe
eddiebe's picture

To me money is that instrument with which you can buy what you want in a particular time and place. Generally, in the USA for example, that would be dollars. It's as simple as that. If you stop at the convenience store and flash a gold coin you may or may not be able to buy a beer with it depending on the person at the counter. More often than not, that person would say sorry, but I can only take dollars. So while gold and silver may be excellent stores of value ( at least historically they have been), I can't call them money, at least not in the sense that the vast majority of people think of as money.

Thu, 08/13/2015 - 20:44 | 6424453 thecondor
thecondor's picture

Dollars are a medium of exchange backed by the full faith and credit of the US government (lol). Gold is money. USD Used to be backed by gold, which is money. The little green pieces of paper most people call money is not money. Plus you would buy beer with a gold coin,you would use silver coins for that. You would buy the store with gold./p>

Thu, 08/13/2015 - 22:44 | 6424835 daveO
daveO's picture

Unbacked dollars, aka Greenbacks, AND the IRS were created by Lincoln. So, the limits of printing are limited only by the taxing ability (directly via IRS, indirectly via the FED) of the Federal plantation owners. This guarantees consistently less freedom until honest money is restored.

Thu, 08/13/2015 - 20:45 | 6424454 thecondor
thecondor's picture

H

Fri, 08/14/2015 - 01:37 | 6425066 OldPhart
OldPhart's picture

"More often than not, that person would say sorry, but I can only take dollars."

Throw gold at most and they'll throw it right back.

https://www.youtube.com/watch?v=Ef0VG1WEP10

Or have no clue what so ever

https://www.youtube.com/watch?v=WAaVK5AkZzI

 

Thu, 08/13/2015 - 20:42 | 6424447 dojufitz
dojufitz's picture

I know that in Melbourne Australia I can sell any Gold or Silve for up to $5000 - no ID required......

I asked the guy what if I wanted to sell $100,000?

He said I would have to come in 20 times.

However moving Gold O/S on a plane is different now due to scanners etc......

 

So although Gold is liquid it is losing its movability.

Thu, 08/13/2015 - 20:53 | 6424502 Latitude25
Latitude25's picture

You need to move in small amounts.  Have a nice stash in S America that way.  Also 22k Indian jewelry is dead easy but you should buy at the right price.  Having an ocean going sailing vessel is a huge advantage.

Thu, 08/13/2015 - 23:26 | 6424913 CapnJackDaniel
CapnJackDaniel's picture

Some Oz  dealers will transact locally, with the physical 'elsewhere'.

Thu, 08/13/2015 - 20:42 | 6424448 Marco
Marco's picture

"Today, we see currency debasement internationally on a global scale – this has never happened before and has never been seen throughout history."

Except after the great depression, it was just a little harder back then.

The problem is debt, not fiat.

Thu, 08/13/2015 - 23:22 | 6424890 FIAT CON
FIAT CON's picture

Fiat is DEBT and nothing more every piece of FRN is owed ie debt.

 Once again watch "Hidden Secrets of Money" Very informative.

https://www.youtube.com/watch?v=DyV0OfU3-FU

 

Fri, 08/14/2015 - 18:52 | 6427684 Marco
Marco's picture

Fiat is debt, gold doesn't preclude debt. Nor does it preclude debt being used as a money substitute, either through fractional reserves or simply through the use of debt as collateral in the financial system.

Thu, 08/13/2015 - 20:50 | 6424493 Saucy-Jack
Saucy-Jack's picture

Printing is not the problem. The problem lies in the fact that the medium of exchange is the same as the store of wealth function for the world reserve currency. Wealth is stored as debt.

When Freegold happens, that problem is solved and the printers can print while the savers save and the savers won't be punished for doing so.

 

Thu, 08/13/2015 - 21:00 | 6424531 KashNCarry
KashNCarry's picture

Remember 2008...That was a cake walk compared to what's coming.

Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, professor of economics at the University of Missouri, Kansas City, and author of Super-Imperialism was interviewed the day stocks and the market went belly up in 2008...

'...Without any of the media knowing, the Federal Reserve over the last few months has given $850 billion of cash for trash already. This is what the $700 billion discussion in Congress was supposed to be about, but the Fed, without anyone knowing, has already been exchanging these securities. And the securities essentially have been swapped by the US bankers to their pals and not done anything at all to write down the actual subprime debts. There’s a big attempt to blame the victim now. And if you add up all of the subprime bad loans and defaults, that’s altogether $1 trillion. So far, the government has given away $6 trillion already to Wall Street. That’s much more than any of the subprime debt. And the volume of derivative trade has been estimated at $450 trillion, an unbelievable amount. So nobody has any idea about how much money is at stake.

And what really triggered a lot of this was the way in which Lehman went bankrupt. The day—and this has not been discussed either in America, but it’s all over the European press. The day before Lehman went bankrupt, it basically looted all of its foreign offices. For instance, in England, it emptied out the English account of a few billion dollars, leaving the English employees only with the money they—the little cards they had to use in the vending machines. No salaries were paid. The London office was closed down immediately. And the next day, Lehman used the money that it took from London to pay its closest associates to redeem the derivative trades that it had done. So the English bankers came out and said, in England, we have an ethic: it’s lend to the person, not against the asset. And they’ve come to the conclusion that the American bankers—well, we won’t say “crooks,” but let’s say they’re cronies who deal among themselves and are willing to screw the foreigner.

And this has created such a mistrust abroad that Europeans and Asians and OPEC country investors are simply pulling their money out of the US, because they don’t have a clue as to the solvency of the banks. We’re seeing the end result of the Alan Greenspan deregulatory revolution, where he said markets are all self-regulating. Right now, you’re seeing the markets self-regulate themselves. And the result is a wipeout of the American pyramiding...'

History may not repeat itself, but it certainly rhymes...

Thu, 08/13/2015 - 21:13 | 6424568 Imagery
Imagery's picture

I'm totally confused.  Can someone pls explain why the Hard Asset Class is at the most leveraged and hypothecated top of pyramid, beneath only the most recent pile of steaming shit derivatives, instead of just above phyz? 

Thu, 08/13/2015 - 21:24 | 6424598 Yen Cross
Yen Cross's picture

 When you've disposed of all monetary policy choices, there's only one finite option to store your wealth in.

 Commodities. Please don't call cars, houses, and paintings, figurines, ect... commodities.

Fri, 08/14/2015 - 06:45 | 6425298 Latitude25
Latitude25's picture

I'll call them refined commodities.

Thu, 08/13/2015 - 21:52 | 6424693 quasi_verbatim
quasi_verbatim's picture

Yes, 'this was in the past and these are different times'.

The quality of the men has deteriorated.

Thu, 08/13/2015 - 22:04 | 6424721 YakTrader
YakTrader's picture

This was in the past and these are different times.

Thu, 08/13/2015 - 22:14 | 6424761 GRDguy
GRDguy's picture

John Exter was a central bankster.  Do you really think his "pyramid" was literally the structure for the "world of finance?" It is only a small sliver of a sphere, explained at http://GreatRedDragon.com : 05/12/2014 - From Exter's Pyramid To World of Finance : (No ads, no pop-ups, etc.)   

Thu, 08/13/2015 - 22:26 | 6424793 tool
tool's picture

Think of life like an arcade pinball machine you put in some money(gold) in exchange for some credits(currency) then you play. Obviously you don't dump all your money in exchange for credits.

Thu, 08/13/2015 - 23:38 | 6424932 JOHNLGALT
JOHNLGALT's picture

This article goes back to a time when real people knew the difference between PET ROCKS and PET PAPER.  Anyone who is still holding  PET PAPER will get what they deserve for supporting the WORLD WIDE PONZI PAPER SCHEME (WWPPS) designed to enslave billions of people. The doors to get out of this enslavement are going to close very fast, once the U.S., Japanese, E.U., Chinese and every other citizen realizes that devaluation steals years of value from their savings. JOHNLGALT

Fri, 08/14/2015 - 05:37 | 6424992 FeelinFine
FeelinFine's picture

It's a game of definitions. Most people don't know that there's a difference between money and currency. The terms are used interchangably by design to confuse. Money is a store of value. Currency is a medium of exchange. Gold/Silver are money because they function as a store of value (and have done so throughout history) mostly because they cannot be debased. Gold/Silver can sometimes act as a medium of exchange or currency but they are not by definition since they are money. Fiat "money" (which is twisted irony) is not money. It is a currency system. The problem with a fiat system is that inflation goes hand in hand with it due to fractional reserve banking. Debt erodes the value of the currency. There's not one fiat system in the history of man whose value has not eventually been debased.

So it's a game being played. With fiat money you hold promises in your hand that will have to be eventually be turned into tangible goods or services. When someone tells you they are invested in stocks, bonds or hold cash (currency) remember that these are credit instuments because they are denominated in a currency. They will never be money or a store of value until they are turned into something tangible. If you hold currency the game is to turn these credits into real things before you lose the value equation. If you wait too long under a fiat system you lose purchasing power (in food, energy, money, land, safety, bits of data representing artificial things on a computer hard drive,physical/emotional experiences- things that are REAL). People clamor for returns that will outpace inflation but the result is just more fiat. Do they not realize eventually it must be exchanged? It is madness.

The wealthy families of our world have designed this game over thousands of years. Unfortunately hyperinflation is the last part of the fiat game. Nobody knows for certain when the game will end but it's a certainty that it will. So how do you move your current wealth into whatever system will take prominence in the future? Look to the rich. They hold arable land, food production, physical commodoties, they hold businesses with real and intellectual assets, they own governments/people, they own gold and silver, they own rarified goods that they can exchange amongst themselves.

It's sickening if you think about it. Slavery by any other name.  The wealthy skim the fat off production and turn it into wealth while the bones, sinew and muscle of people grind togeather.  All the people who exchange their time and energy for currency with no real value. The last phase of every hyperinflation is like a mania with people realizing with horror they have been tricked in the game and lamenting to no one but  the echoes of the cries around them.

 

Fri, 08/14/2015 - 01:36 | 6425070 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

I 'almost' got arrested while panning for gold in a Wisconsin stream located in a metro area. Cops tried to tell me I was Krazy - no gold there!  USGS survey said otherwise. I did not get arrested, but the cops thought I was nuts. Hell, it was fun! Didn't find any gold. But it was worth a try. Why the cops had to get involved, I don't know. Somebody must have made a call. Right now, I'm in Nevada. I can find gold/silver bearing ore every day! Problem is, the minerals are on already pattented claims.

Oh well, I love walking in the desert. No rattlers - so far on this trip.

""In the desert you can remember your name
'Cause there ain't no one for to give you no pain"

TRUE! TRUE! TRUE! TRUE! TRUE! TRUE!  TRUE! TRUE! TRUE! TRUE! TRUE! TRUE!

GOLD in them sewers? Don't know. Love to know the rest of this story.

http://newyork.cbslocal.com/2015/08/13/sewer-treasure-hunt-flatbush/

Fri, 08/14/2015 - 05:34 | 6425243 falak pema
falak pema's picture

1981 situation...and Keynesianism is a contradiction.

Keynes was against unlimited printing. The Monetarists were for it. BW revoke and what followed was a concoction of Friedmanite mantra of Chicago school. Keynes would NEVER have said QE ZIRP is good! He would never have said we gotta do whatever it takes. He would have said : SHut down that Casino and nationalise the banks. Then having reinstated Glass Steagall lets start with a CLEAN SHEET, using government spending to prime infrastructure and private intiative.

Volcker was acting in a situation where "our money your problem" concocted by Nixon was generating HUGE inflation in the western world as a result of tWO OIL SHOCKS.

Whence the solution of Reaganomics to push that inflation out of salaries and into WS assets via "supply side, no holds barred" capitalism. Kill the social welfare state first and then let the Gordon Gekkos sing "greed is good" and print "junk bonds". And it spawned the current model like a peeled onion over 35 years!

Now go wash your mouths and change the blame game away from Keynes who DID NOT WANT the $ to be reserve in the 1944 construct of gold exchange but the Bancor a basket of currencies.

WHen you lie about the time line and History you need to go look at Medusa's head! 

 

Fri, 08/14/2015 - 17:21 | 6427465 MEFOBILLS
MEFOBILLS's picture

Falak, the bancor was to be a basket of commodities.  Keynes identified 61 commodities that he wanted.  

The SDR is a basket of currencies, Dollar, Yen, Euro and Pound.

Yes, a lot of knuckle heads impute to Keynes things that he never would have approved of.  In fact, if Keynes had not been overturned by Dexter White and other banksters at Bretton Woods, the world would have stable currencies now.  

National currencies would be able to anchor to a stable bancor.  Said bancor would relate to commodities.   A stable exchange rate system would have helped world trade stabilize.

Gold sort of did this balance trade function between Bretton Woods and 1971, but it failed obviously.  A fixed volume of Gold cannot change its volume to match trade.  That economists engage is such wishful thinking is always amazing to behold. 

 

 

Fri, 08/14/2015 - 17:24 | 6427475 MEFOBILLS
MEFOBILLS's picture

Nixon deficit spent on Vietnam, which put dollars in overseas central banks.  These dollars then represented new demand that could have been spent on American goods.

Instead, the dollars bought gold.  FRance in particular called Nixons bluff, and demanded physical gold for their dollars.

NOTE: IF it was a basket of international goods, the Nixon could not have deficit spent on Vietnam, thus the inpetus for War would have been much less.  How to finance it without sneaky inflation deficit spending?

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