Congressional oversight of the Fed? - It's non-existent.

Elizabeth Coleman worked for 20 years in the Office of the Inspector General of the US Federal Reserve Bank before becoming Inspector General herself. She's no Rookie in other words. In that capacity she was questioned at a the House Oversight Committee session by - among others - Rep. Alan Grayson (D-Fla.) about the Fed's dispersal of bailout monies.

Just watch this amazing exchange.



A revelation eh? - or perhaps not to those who clearly understand just how crooked the whole system is. As a perceptive contributor to a list I follow observed:

"Even tricky Dickie Nixon was never as obviously corrupt in his stonewalling. It couldn't be more clear that the Federal Reserve is hiding trillions of dollars of corrupt off-balance-sheet gaming and providing funds for corrupt institutions somewhere. this is not a comedy, nor incompetence. This lady has worked 20 years in the office of inspector general of the fed. She has been told to say absolutely nothing. I think she does a terrible job of it. A smarter actor might have sounded like they were going to do something or had some information. But it's pretty clear that the Congress doesn't want to point out the corruption and cans of worms at the fed cause they're all in it together. Scumbags!"

The mind-numbing vastness of our economic woes - Some numbers and context

The total size of Tax-Payer funded Banking, financial services and other industry 'bailouts' world-wide to date are so mind-numbingly vast as to defy comprehension when expressed in terms of monetary units . The words 'Billion' and 'Trillion' roll off the tongue easily enough but realistic comparisons with anything encountered in the daily lives of most individuals? - forget it.

So, a few months back, I found some work by Barry Ritholtz useful in getting a handle on this vastness. US-centric but no less applicable to the UK and the wider world - as of December 2008 total committed tax-payer funded 'bailout' monies to US companies was nudging $4.7 TRILLION. Today it is substantially more and rising. Barry Ritholtz takes up the story:

Crunching the inflation adjusted numbers, we find 'the bailout' has cost more than all of the following big budget government expenditures – COMBINED!:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• Savings & Loans Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: Just $3.92 trillion

But wait! - as if all that were not 'mind-numbing' enough, - there's more: The unfunded liabilities of the US Government now exceed - wait for it - $65 TRILLION. That's the 'Net Present Value' of those liabilities which is the standard accounting method of valuing future cash-flows. The biggest items are pension, medical and social security promises to an ageing population. Proportionally the situation is very similar here in the UK. All of which means that, if these promises are to be kept then the poor bloody taxpayer is on the hook for them too.

But, The Coup de Grace, the number which pretty much guarantees that these obligations will NOT be met and that the sovereign debt of the USA, the UK and a good few more 'developed' countries will be either defaulted or devalued to 'manageable proportions' by resort to the monetary printing presses, is this:

$700 TRILLION.

That is the notional value of financial derivative contracts currently outstanding (ie financial bets on financial bets to maybe the 3rd or 4th power made with margin loans of anywhere from 5-100:1) and which governments are desperate to protect with all these bailouts. (For context again, the total value of ALL the worlds stock markets is currently around $50 trillion).

Apologists for the system and the talking head financial entertainers of Bloomberg, CNBC et al will tell you that the $700 trillion figure is indeed 'notional' and that in fact it nets down close to zero when open interest positions are offset against each other. The BIG problem with this whistling past the graveyard is that, if it really did net down to zero (or even 10-15% of notional value) in terms of the risk it is alleged to 'spread', then there would be no need for continuing bailouts which are little more than desperate attempts to hide what the markets suspect is their true net value in the event of cascading defaults, together with the identity of the household name companies that would be on the hook for the resulting tsunami of bankrupting losses. Those with the best handle on their true net value are governments and their Central Banks. They are scared witless by that insight and therefore not telling.

The whole OTC derivatives market is really nothing more than an enormous, unregulated casino run on vastly leveraged credit. Amazingly it is STILL operating, but The House (in the persona of its major contract providers) is now broke. It knows it, governments know it, the markets suspect it - but the poor bloody taxpayer is still just frightened, confused, angry and largely ignorant of the true extent of the epoch-defining shit storm that really has only just started.

Brutal, but utterly hilarious.

The name 'Rick Santelli' will be familiar to anyone following the shenanigans in America over the Obama proposals on the economic meltdown. He is a resident CNBC 'reporter/analyst' at the Chicago Mercantile Exchange. A talking head in other words and a guy imbued with the mores of the Pit Trader, augmented by a certain bombastic motor-mouth style.

Last week he made quite a name for himself by tearing into proposals to help domestic mortgage payers in danger of forclosure. He finished his piece with a loud, pointed and widely reported question that went 'President Obama, are you listening? '. Then, after agreeing to appear on MSNBC's 'The Daily Show' to further air his views with Jon Stewart, he quickly changed his mind and cancelled. BIG MISTAKE.

As Jason Linkins at Alternet puts it:

"So, lesson learned: do not cancel on The Daily Show. Or at least do not do whatever CNBC and/or Rick Santelli did, in the way they canceled on The Daily Show, because last night, Jon Stewart basically said, "I'll see your canceling on me and RAISE you a thorough evisceration of the faux-populist bilge you've been pumping and a complete blasting of your network's credibility."

This is a MUST Watch - Very VERY funny and right on the button.

OK - so it's the U.S, - but try substituting 'Northern Rock', 'RBS' and 'HBOS' for 'Bear Stearns', 'Lehman Bros' and 'Bank of America' and you've got a pretty good match for the UK too.

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

Who will save the Savers?

Here is ANOTHER comment inspired post - from ConservativeHome again too. Oh dear!

As explained in other comments and IMHO our economic system, based on fractional reserve banking and the necessity for perpetual exponential growth that underpins it, does not HAVE a future. A total re-think that recognises 'Limits to Growth' so-to-speak is what is required and I see precious little sign of that happening short of the cataclysmic force majeur that I judge will occur sooner or later anyway.

Be that as it may, on the assumption that the whole creaking edifice CAN be resurrected and propped up one more time, here is my personal experience of government actions and bailouts to date:

Over a 40 year, mainly self-employed business career, I have built up a modest pension fund (actually by the standards of the Fred Goodwins of this world, 'minuscule' would be a more accurate description). Back in 2004 I could clearly see the storm clouds gathering and moved the lot into deposit-based funds. With the Footsie then nudging 5,000, that turned out to be a little premature although at current levels I am comparatively better placed than most. Anyway, at that time the going rate for annuities at my chosen retirement date was around 7% (A few years earlier nearer 10%). Today it is about 4% - a 43% haircut! Had I not moved to cash, the value of my pot would now be about 30% less, implying a total haircut on the prospective pension of around 70%. That is probably typical of anyone relying on a personal pension whose fund is invested in equities and, given the incessant urgings of government about private pension provision and the obscene levels of such provision enjoyed by those doing the urging, it is nothing short of scandalous.

As if that is not bad enough, when taking benefits I am required to use 75% of the fund to purchase an annuity. From whom? - why an 'Approved Annuity Provider' of course, which in practice means a private Life Assurance Company. Can ANYONE have confidence that those 'approved providers' will be around long enough to pay my pension? I certainly can't and fully expect most of the balance of my little pot to vanish down another 'Black Hole' accompanied by yet more weasel words, crocodile tears and gross incompetence from those ultimately responsible - whilst they continue to draw their own tax-payer funded, protected and indexed pensions. This is the stuff of which revolutions are made.

So, who indeed will save the savers? - Because 'saving' appears to have become a dirty word doesn't it? Saving is anti-social (if not treasonable) when what is needed to save us all is SPENDING. 'Borrow and spend - BORROW AND SPEND' is the mantra - as though the actions that precipitated this whole sorry mess, can now be used to get us out of it. It really is Alice in Wonderland stuff.

When all this permeates through to the consciousness of the average Jo(e), He(She) is going to be as angry as I am - which means pretty damned angry. More weasel words are then likely to be the trigger for riots - as I think TPTB are only too well aware.

Four (futile) policies to kickstart the economy

Yet another post prompted by one of my comments on another blog. This time 'ConservativeHome'. It was in reply to a prospective parliamentary candidate's recipe for fixing our economic woes. Kid's stuff really but what else can you expect from wide-eyed eager to please youngsters with a juicy parliamentary career beckoning? It (my comment that is) went something like this:

Understanding the importance of staying 'on message' is pretty fundamental to the career prospects a PPC so a gold star to Kwasi Kwarteng for pushing all the right buttons in that regard. What I find so depressing though, is the apparent failure of politicians of ALL parties to recognise the real nature of the problem, let alone say anything sensible about addressing it. (I say 'apparent' because, at senior levels, it most certainly IS recognised and clearly understood too).

That 'real nature' is summed up by one stark fact: The 'perpetual' exponential growth on which our globalised economic system (or more accurately 'Ponzi Scheme') depends is NOT perpetual at all; it is in fact over, Finito, Kaput. As Ken Boulding so eloquently puts it:

"Anyone who believes exponential growth can go on forever on a finite planet is either a madman or an economist"

The last decade has witnessed production peaks in many of the resources that fuel the global economy, particularly oil. It is the dawning realisation among those who control the worlds principle concentration of power and wealth that those peaks are never going to be exceeded that is the root cause of what we euphemistically insist on calling 'the economic slowdown' and similar anodyne absurdities. Cascading surreptitious actions - largely hidden from public view - to protect power and wealth as much as possible in a beggar-my-neighbour fashion are still proceeding apace and all our representatives can do is talk about printing money - sorry 'quantitative easing' - sounds better doesn't it?

At Privy Council level all this is known only too well. Can't admit as much to the lower orders and Joe Public though. Don't want to precipitate the civil unrest that is in any event nigh on inevitable. Best to keep talking the talk whilst beefing up the Surveillance/Security State the better to maintain law and order when the same realisation finally dawns on Jo P - and the S really does HTF

Addendum to the earlier precious metals piece

Here is another piece on pm price suppression shenanigans. It's by Rob Kirby who inspired my piece on Peak Oil and dollar hegemony on 15th June.

Some thought provoking insights into what those who believe our financial markets are 'free and fair' are up against.

Gold/Silver investors beware - Part II

Updating my 2nd June piece

Well, we duly got those COMEX price movements beyond the fluctuation limits that were scrapped effective 4th June. In my opinion it won't be the last time either, not by a long chalk. On 12th June Gold - $42 (7%), silver -$1.69 (13%!!) ranges - practically all of it to the downside. Enough to scare the pants off most weak longs and panic them out of leveraged positions. Bet there were more than a few margin liquidation sales too.

Arch derivatives player Henry K Paulson - latterly CEO of Goldman Sachs has since been appointed US Treasury Secretary (Like other GS execs before him). One clear message this sends (among others) is that the the US monetary authorities - and by extension their sidekicks at the BOE are deadly serious about keeping some sort of cap on PM's prices - and particularly gold. It is the creative use of derivatives that is Goldman and Paulson's real forte and you can be sure both will be put to good use by the US government.

Couldn't possibly go into the detail of why; far too archane, murky and conspiricy theory sounding. But for anyone interested in the u-t-d position regarding pm's market price manipulation and its motovation - widely acknowledged to be self-evident among the pm's pros, here are are two must-read articles:

1. On Gold Price suppression
2. On Silver & gold open interest at the COMEX

Among the more startling facts about the pm's: 4 or fewer institutions (could therefore be just one) hold a COMEX net short position in silver greater than the entire annual global production and similarly 45% of annual global gold production. That's totally unheard of until very recently. How could they possibly deliver if all longs required delivery? A rhetorical question of course; they couldn't; but hundreds of thousands of longs on the other side WON'T seek delivery, leveraged at 100-1, they haven't got the money and those (that) big officially backed institution KNOWS they haven't.

Bottom line: If you get involved in pm trading believing that all market participants are there to enter and exit contracts in pursuit of profit, then you are a lamb to the slaughter. The BIGGEST players (by definition those with both the ear of Government and Official -ie Central Banking - interests at heart) do not give a toss about profiting from rising pm prices, it is price suppression/capping/rise-slowing - at almost any cost that they are there for.

I personally still regard gold as a solid investment on an 18 month view - should at least break the 4 figure dollar barrier by then. However, it is only a total collapse of the dollar, and with it probably the entire global monetary system currently based on it, that will 'send gold to the moon'. You can bet your last penny that TPTB will use every trick in the book to prevent that happening. High on that list of tricks is action which will punish anyone foolish enough to go blindly into leveraged long positions in the pm's.

You have been warned.

A licence to do 'whatever is necessary' - but necessary for what???

Last night John Reid, the Home Secretary, said:

“The police are acting in the best interests of the whole community in order to protect the whole community and therefore deserve the support of the whole community in doing what is often a very dangerous job often involving difficult decisions.”

Well, that does rather depend on how you define 'the whole community' doesn't it?

Unless there are consequences for the police for the type of gross over-reactions to dodgy 'intelligence' illustrated by the shooting of the Brazilian electrician and this latest fiasco, then we can expect more of the same. 'The war on terror' has been hyped to such an extent that the police, it seems, can get away with pretty much anything to 'protect the whole community'

How many more innocent people can the police shoot and subject to gross intrusions into their personal lives and destruction of property in 'the interests of the whole community' before they are made accountable for their actions?

And we are STILL waiting for the report into the Stockwell Tube shooting that was scheduled for publication in April. There is clearly some fancy footwork going on behind the scenes on that one.

Some solid background on the latest police anti-terror overkill here in the Guardian

Gold/Silver investors beware

Gold, silver, copper or aluminium investor? Think you've seen major price action already this past 12 months?

Well, you ain't seen nuthin yet!

Why? - because NYMEX has just announced that, effective Sunday 4th June for electronic trading and Monday 5th June for the pit-traded contracts, the COMEX division will operate WITHOUT price fluctuation limits. That's right WITHOUT PRICE FLUCTUATION LIMITS!

The NYMEX statement went on to say:

"This change was made in order to better facilitate the core functions of price discovery and hedging provided by COMEX products,"

Oh! is THAT what it's for? I see.

Hmmm. After 3 no-notice increases to margin requirements for silver this year, together with startling physical inventory movements in both silver and gold - plus price increases which are hurting - I mean REALLY hurting the enormous 'establishment' short position in the PM's. Something is clearly afoot. TPTB are clearing the decks; so if you dabble in PM futures, you'd better watch out.

Call me a cynic but the most likely reason that I can see is to facilitate further 'orderly' unwinding of the Silver/Gold carry trades with a little coordinated help from TPTB. Expect wondges of selling (backed by offical physical holdings materialising from wherever), resulting in collapsing prices, allowing the shorts to buy back at bearable losses; pushing prices back up again - and so on.

If you like trading volatility, that IMHO is what you're going to get from next week on - for a while - and there's likely to be serious coordination between London, Tokio (remember that rule change on naming open interests a couple of months back?) and NY too.

Novices beware!