Submitted by Ilene of Phil's Stock World
J.S. Kim is the founder of SmartKnowledgeU™, an independent investment research and wealth consulting firm. J.S. accurately called the recent global financial crisis, sharing his thoughts on his investment blog, to his subscribers, and in a series of YouTube videos. His articles have been reprinted online by Reuters, the New York Times, USA Today, the Wall Street Journal, the Financial Times and the International Business Times. He recently authored the timely book, “Confessions of a Wall Street Insider, a Zen approach to making a fortune from the coming global economic crisis.”
Recently, J.S. Kim and I have been speaking via Skype and email about the banking industry, the Federal Reserve, fixes for the economy, and current investment trends.
Ilene: Hi J.S., thanks for speaking with me and showing me how to use Skype; this is pretty easy. Can you tell me a little about your background and what led you into the financial field?
J.S.: I studied neurobiology at University of Pennsylvania and then earned two masters at the University of Texas, in Public Policy and Business Administration. After graduating, I began working in the Private Wealth Management division of Wells Fargo. Subsequently, I worked for several years at Smith Barney. In 2005, I launched my company, SmartKnowledgeU™.
Ilene: What did you learn while working in the banking industry?
J.S.: I was seeing an unsettling picture of industry excesses. I saw problems developing, for example, with mortgages – no document loans or liar loans. If the loan application didn’t support a mortgage, the loan might be denied at first, but then it was sent through a special process to convert it to a no document loan. Every bank did it. This was not specific to Wells Fargo. All the major U.S. banks had this “don’t ask, don’t tell” policy, so they could say they didn’t know. They either should have known from the start that the mortgages couldn’t be paid back, or they didn’t care because they were making huge commissions up front. So they would make the loans and then slice and dice them up and quickly sell them off.
Ilene: The banks knew what they were doing and knew they’d be bailed out as well?
J.S.: Yes, this happened before in the 1920s and I believe they knew it would happen again. The process of taking the clients’ money and making loans that are gambles (heads I win, tails the taxpayer pays) has a history that goes back to the Great Depression. They have the best of both worlds. The reward for risks stays with the banks top executives, but losses are shifted to the taxpayers.
This is a pattern that happens over and over again – the robbing of a nation’s wealth for the benefit of the elite banking oligarchs. This is nothing new, and nobody should have been surprised by ex-Goldman Sachs CEO and then US Treasury Secretary’s bait and switch with the $700+ billion bailout plan in which he promised to use the money to help American homeowners stay in their homes. Paulson promptly reneged on the deal as soon as Congress passed the bill and gave the money to his banking buddies.
Ilene: So do you believe it was a conspiracy to rid the population of wealth and transfer it to the bankers?
J.S.: I really don’t subscribe to conspiracy theories. Rather the system enables the bankers to do what they do. The banking industry and the media take the tactic of calling people who believe that cycles of boom and bust are intentional, “conspiracy theorists.” It’s the simplest way for the bankers to keep their power by calling everyone that exposes their immorality and greed as crazy conspiracy loonies. As Simon Johnson said in his article, “The Quiet Coup” (The Atlantic, May 2009), the bankers have taken over all major world governments so the public never receives the truth. Instead, we have to look for it.
Education has been taken over by the moneyed elites as well. Keynesian economics, not the Austrian theory, is the predominantly accepted theory and the one taught in every major economics school today. I graduated from the University of Texas at Austin with my MBA, but in that time, I hadn’t learned anything truthful about economics. What I learned since is in almost direct opposition to what my school taught.
The central bankers’ reach extends to academia and permeates the field. There was a good article on this recently in Huffington Post. This is not conspiracy. This is stifling of an opposing viewpoint, the one that would enlighten the world to the fraud of our global monetary system and our global banking system.
Ilene: Was the article by Ryan Grim, “How the Federal Reserve bought the economics profession?”
J.S.: Yes, that’s the one. A journalism professor of mine, Professor Mercedes Lynn de Uriarte from the University of Texas, once told me that if I only read the mainstream newspapers or watched the mainstream TV news channels, I would never understand the truth about any major political event. When I asked her what she meant by this, she told me that all major media outlets frame stories by excluding relevant facts. Therefore, one must dig for these relevant facts that would be reported through independent media channels.
Our education about the economy, the monetary system and the banking system is the same. Government and academic officials continually exclude and withhold relevant facts from us. If one truly wants to consider oneself “educated” in matters of our monetary system, one must dig for the truth. I guarantee what one discovers would be shocking to most people.
Ilene: When you say “they,” who do you mean?
J.S.: The government officials that have allegiances to bankers and the private individuals that control the world’s most important central banks.
Ilene: What do you see as the source of the problems caused by the banking system?
J.S.: Central banks are the original creators of the collapse. For instance, the bankers have caused problems inherent in a fractional reserve lending system by allowing much less than 10% to be kept in reserve. A ten percent reserve was way too much for the bankers, and over time, the member banks of the Federal Reserve system lobbied the U.S. Federal Reserve (through Chairman Alan Greenspan back then) to ensure that today, the real requirement is less than 2%, and in many cases, incredibly, zero percent. The central bankers run the economy, not the government.
Ilene: They lobby the Federal Reserve?
J.S.: Yes, that’s correct, Ilene. The banks lobbied the Fed chairman directly.
Ilene: So you’re saying that those who control the banks have enormous political power, due to controlling so much of the world’s wealth?
J.S.: Yes, look at how U.S. Congressmen Mel Watt (NC-Dem) has recently tried to gut Ron Paul’s bill to audit the Fed and its monetary policy. The bankers have people in their back pocket throughout government that work for their own interests and against the rights of the people.
The owners of the central banks direct policy decisions. Men like Ben Bernanke and Alan Greenspan are just the face of the U.S. Fed but ultimately not the real decision makers. The owners of the central banks influence global economic policy at meetings such as the G-8, G-20 and Bilderberg group meetings. They get together and make decisions that affect the entire global monetary system. Collectively, the original founders of the U.S. Federal Reserve held 20% to 25% of the world’s wealth in the early 1900’s. I believe their wealth is greater now.
In fact, I loathe using the term the U.S. Federal Reserve, because the founders of the US Federal Reserve purposefully placed the word “Federal” in the name of the U.S. Central Bank to fool the people into believing that the U.S. government is running this institution. It’s actually a public-private hybrid. They felt that the people would trust a government monetary institution but not a privately held one. And they were right. So they misrepresented themselves in the assignment of this name. A more accurate name for the U.S. Federal Reserve would be something like “The Most Powerful Private Bank in the World.”
Ilene: I’ve read that no one owns the Fed, on its website, but entities have stock in the Fed and get 6% in dividends. So what does “ownership” mean? It’s not clear. It would be interesting to have an audit of the Fed to get a better idea of what it is doing and why. It also says on the website that the Fed is regularly audited. If this were true, why do we need Ron Paul’s audit the Fed bill?
J.S.: It’s audited, but not by an outside independent auditor. Not worth much in my opinion. It hasn’t been audited by an outside independent auditor since it was founded in 1913.
They say the twelve regional Federal Reserve Banks control the Fed because they issue stock to member banks, but the stock is stock in word only because it carries no weight normally assigned to stock – no voting rights, no ownership rights. The only regional bank with true power is the NY reserve bank.
Ilene: Do you believe these bankers, or groups, control the elections and ultimately the politicians?
J.S.: Yes. President Obama owes the central bankers because they contributed to his campaign and they were responsible for his present position. Obama pulled his cabinet members from Wall Street. His cabinet consists of more power players from Wall Street than any administration in the past several decades. That’s how the political system is built. If you’re backed by a certain element, you have to do favors for them. It’s also hard to get factual information out because the moneyed elites also control the media.
Ilene: Why do you believe there’s no free market?
J.S. It’s impossible to have free markets and central banks at the same time. The free market will dictate what the interest rate should be, but central banks keep altering it and causing boom bust cycles. They created the housing bubble because interest rates were so low for too long. Whenever central banks artificially suppress interest rates to serve their purposes, a real estate or stock market bubble is inevitable. And a bubble always bursts. Without a central bank, the fed-induced cycles would be very much muted. Artificially set interest rates cause bubbles and are clearly not consistent with a free market. When we put an end to the central banks, people will have a chance to have free markets. In my mind, the greatest gift in the world would be to have a free market and to shut down all of the world’s central banks.
Ilene: How can some of the problems with our economy get fixed?
J.S.: Implement sound money again. All people, no matter where in the world we live, are debt slaves to the central banks. If you have strong moral opposition to the concept of slavery, then you should be strongly opposed to the very idea of central banks. We have little power in retaining our wealth, since the banks devalue our wealth at will. Alan Greenspan himself stated in 1967 that “gold and economic freedom are inseparable,” and that “under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade.” Of course today, a dual bi-metal gold/silver standard is probably more realistic to implement as a sustainable solution than a gold standard. But Alan Greenspan’s former comments grant a narrow window into the mentality of central banker’s today. This is why the U.S. and the U.K. are always denigrating gold. Gold is the anti-US dollar, the kryptonite to central bankers per se. In order to keep people slaves to a fraudulent monetary system, people must not own gold or silver, for it is the only means people have to protect themselves against the theft of their wealth by central banks through inflation and devaluation of paper currencies.
Ilene: Can you tell me about the Worldwide Initiative to Prevent Financial Fraud?
J.S.: This is a collective project run by various people of different ages and professions, running the gamut of students to professional career men and women. I’ve agreed to participate in it and contribute articles but those that run the project wish to remain anonymous and I respect their wish.
Often the greatest most truthful dissent in history has originated under conditions of anonymity. For example, the Federalist papers, a series of 85 articles advocating the ratification of the US Constitution were written under anonymity by Alexander Hamilton, James Madison and John Jay. Writing under conditions of anonymity spared Hamilton, Madison and Jay from acts of retaliation from the intolerant elites currently in power at the time. The same can be said of Subcomandante Marcos, or Zero Delegado, in his struggle to reinstate the property rights of the poor in Mexico, of his decision to never show his face in public.
Thus, I have no problem with the fact that the Worldwide Initiative to Prevent Financial Fraud is run by people wishing to remain anonymous. Some of history’s most important changes critical to freedom were only possible due to the cloak of security and assurances against retribution by those in power that can only be afforded through anonymous dissent.
Ilene: From the site:
As truth is always censored from the top down, this unique initiative to educate the world’s population about the true roots of this global financial crisis must originate momentum from the bottom up in an organic fashion. The inspiration for this project is the deafening silence that exists in the mainstream media regarding the true originators and the real story behind this global economic crisis. The fact that global stock markets can rise at the same time when the world’s leading economies are deathly ill is a symptom of this fraud, and this situation will not end well for the world’s citizens unless we take action now…
In our estimation, less than 1% of the world understands the central role central bankers have played in our current global economic crisis.
In your estimation, less than 1% of the population understands the role the central bankers have played. Can you tell me what you wish people understood about the central bankers that they don’t understand? What do we need to understand?
J.S. Sure. But I want to be clear that I am answering this question not on behalf of the Worldwide Initiative to Permanently End Financial Fraud but as JS Kim, Chief Investment Strategist for SmartKnowledgeU, LLC.
In a free market, market forces would dictate interest rates, as the forces of supply and demand would dictate the flow of money into various investment opportunities. When a central bank continuously interferes in this process by artificially cutting or increasing interest rates, it disrupts free market forces and creates artificial bubbles and collapses.
In a sound money system (i.e. money backed by silver or gold, or best yet, one backed by a dual gold and silver standard) there would be no need for central banks. Though this is a complex process that could take 10 pages to explain, I’ll try to explain it in as simple terms as possible. If money supply becomes too great, the people turn in their paper money for gold and silver, and interest rates naturally increase as bankers do not wish to give up commodities of value (silver and gold) for commodities with zero intrinsic value (paper). If money supply is too small and is stifling economic growth, interest rates would naturally fall to stimulate growth. Thus gold (or gold and silver) naturally regulates the monetary supply to provide sustainable economic growth and to regulate interest rates. In the absence of central banks, there would also be an absence of capital bubbles and bursting bubbles. However, the purpose of a central bank is to allow its owners to manipulate currency supplies, valuations, and to control the wealth of a nation at the worst possible outcome to its citizens.
The U.S. Central Bank, the U.S. Federal Reserve, states on its website that one of its primary missions is price stability. Since the U.S. Federal Reserve was formed in 1913, the US dollar has lost 98% if its value. Price stability would mean that the U.S. dollar would have lost 5% or less of its value since 1913. People do not understand that central banks are formed solely to enrich its owners and that they cause great harm to all citizens of the nations in which they operate. Central banks are a scam a million times greater than Bernard Madoff’s ponzi scheme.
Ilene: Can you tell me a little about your innovative, proprietary system in managing money?
J.S.: Today, people analyze opportunities in the stock market through two primary means of analysis – fundamental analysis and technical analysis. Fundamental analysis in certain industries, such as the banking industry, is practically useless, since mark to market principles have been suspended and banks are allowed to hide bad assets that literally would expose many of them as bankrupt off-balance sheet. Under honest financial reporting conditions, fundamental analysis, of course is useful, but requires a lot of forensic accounting analysis to really get to the core of a corporation’s true economic condition and growth prospects.
Technical analysis is definitely useful, but in my opinion, only as an auxiliary tool and in conjunction with other analysis. Alone, technical analysis will cause many wrong decisions.
I start with “fraud analysis” to decide what assets offer the best low-risk, high-reward opportunities. I look for strong connections that exist among corporations, banking, and governments to understand which companies and assets are best primed for growth. Then I look for legislative support as well, to narrow down these opportunities. Finally, I’ve studied the mechanisms by which central banks and governments rig capital markets, to determine the best times to enter and exit certain investments. Once identifying a narrow core of investment industries, I use technical analysis, or conduct deeper forensic fundamental analysis, to decide which investments should perform the best.
I use this system to build investment portfolios that should not only rise regardless of whether the major global stock markets are rising OR falling, but that should also outperform developed stock markets. I have proven the benefits of selecting investment opportunities this way with my investment newsletter, the Crisis Investment Opportunities newsletter. My newsletter has aptly demonstrated the validity of my system. For example, in 2008, when the Australia ASX 200 lost 41.29% and the US S&P 500 lost 38.50%, my newsletter returned +3.21%. Not outstanding, but still a 40%+ outperformance of these indexes. Most people, I imagine, would have been happy to have stayed even that year. This year, when the US S&P 500 was up YTD 22.84% as of December 3, 2009, my investment newsletter had returned 73.69% over the same time period.
Ilene: What is your system saying now for current investment opportunities?
J.S.: With my fee services, we stay aggressive. By aggressive I don’t mean risky. You can be aggressive yet make large returns with relatively little risk as long as you truly understand the economy. A lot of people, most people in fact, have listened to the junk their investment advisors have told them for the past 30 years. They believe that diversification is safe, when diversification will ruin you. Concentration is a much better strategy as only a few assets will perform well over the next several years. They believe that the dollar or the Euro or the pound is safe and gold is speculative, when gold is safe and all fiat currencies are truly speculative. Currently, I’d look at commodities, oil, agriculture, precious metals. But again, there are many ways to buy all of these items, and some are risky and some are safe, though usually Wall Street tells you all the wrong things about these investment areas. I think junior gold and silver stocks are going to make a lot of people rich in the coming years, but probably nine out of 10 junior resource stocks are junk. If you don’t know what you are doing, you will destroy, rather than create, capital.
The single best thing people can do at this point to preserve their wealth against future shocks is to buy physical gold and silver and to stay away from the gold and silver ETFs. You might be surprised in a couple of years how difficult it will be to get ANY physical gold and silver. Own it outside the United States and the UK, if at all possible. And finally, when looking for guidance of how and when to buy physical gold and silver, find someone that has a track record of specializing in gold and silver for at least five years. Don’t go with an advisor that has just jumped on the gold/silver bandwagon because it is hot. The gold/silver markets experience great volatility due to the price suppression schemes of the US Treasury and US Federal Reserve. Someone that just entered these markets within the last year cannot fully understand the complexities of price behavior in this area.
Ilene: Thank you, J.S.