Monday, August 30, 2010

Metal Trading Group LLC is new front for bankrupt Global Bullion Exchange

This is a headline post to help those interested in Metals Trading Group LLC, that they can find information on its previous and now bankrupt incarnation, Global Bullion Exchange, lest they invest with this latest creation of Mr Campany and lose everything like the others.

click here for the post about MTG owner Jamie Campany and his explanation of how he lost $500,000 in silver bars after parking and abandoning a U-Haul full of his customer's bullion on a desolate, unlit gravel road in Florida. And no, this is not a joke.

Dealer claims $500,000 in silver bars stolen from U-Haul van safely parked on secure, desolate unlit gravel road

The Gold and Silver Crash Course post covers the importance of steering clear of paper bullion, and stresses the importance of taking delivery. However, though not expressly mentioned in that post, storing bullion in a moving van parked along a desolate unlit gravel road would not qualify as safe storage.

Also, hopefully after reading this post, you already know one place where not to buy gold, despite the advice of talking head Glenn Beck. Well, here's another place where not to buy gold, silver, or even soda pops, and certainly not a place to trust to "store" even the empty soda cans: Global Bullion Exchange.

Global Bullion Exchange is running out of states in which to do "business," business which, according to documents obtained by various investigators, apparently includes losing their clients $29.5 million in Florida alone. Yet what is bizarre about this company is that despite having "closed overnight" in December of last year and filing for bankruptcy in Florida court, the operation continues to take investments through to this month, in at least one other state. From a May 12, 2010 article in the Sun Sentinel:

"Hundreds of customers from North Pole, Alaska, to Miami — many seeking a safe investment harbor in uncertain economic times — sent the company money so an advertised "team of experts" could guide them through the gold and silver markets. But when the Lake Worth-based company closed overnight, its books showed that at least 1,400 clients were out about $29.5 million. Some people saw their retirement nest eggs wiped out.

"It was 40 years of investment I lost," said social worker David Gruber, 72, who lost about $400,000 he put into precious metals. "It was 40 years of scrimping and saving. … Nothing has been the same since."

Amid the company's rubble, attorneys are scrambling to figure out what happened to customers' money and if there may literally be a pile of gold somewhere. A former company accountant has said in a sworn statement that the company's owner, Jamie Campany, once had more than $1 million in gold bars stashed in the trunk of his Mercedes."

(Trunks of Mercedes are also heretofore added to the list of places where not to store bullion.)

Yet, somehow Global Bullion Exchange continued operating in other states. The company's owner, Jamie Campany, is now facing lawsuits to recover the money. In addition to the $1 million in gold bars in his Mercedes, Mr Campany apparently found rental trucks, preferably parked on unlit gravel roads, to be proper bullion storage facilities. From a June 2010 Sun Sentinel article:

"Campany has told deputies from the Palm Beach County Sheriff's Office that the day after Global Bullion Exchange closed, up to $500,000 in silver bars were stolen from a moving truck he had parked along an unlit gravel road off South Military Trail in Delray Beach."

Well, Mr Campany would have put them in the Benz, put they just wouldn't fit! For visualization purposes, $500,000 in silver bars (at December 2009 prices, when the bars were said to have been "stolen") would weigh about a ton. But I can't be so hard on Mr Campany, because believe it or not, I can sympathize with him: I, for one, routinely leave that extra $1 million in gold bars that I have laying around in the truck of my Toyota--I mean, where else am I gonna put it? It doesn't fit in my purse? I also confess that have even forgetfully left the garage door open, exposing my 18 tons of shining silver bars to the whole neighborhood!


Oh, and I'll never forgot the time I accidentally put my 1907 High Relief Saint Gaudens into the vending machine at the stadium, thinking it was a quarter! You should have seen me--I kept trying to jam it in there, wondering why the brilliant and incredibly rare, super-fat, one-ounce gold coin wouldn't fit in the slot! I eventually got frustrated and threw it into a nearby koi pond. Oh, silly me . . . Mr Campany is quite right--this kind of thing happens all the time!

According to another article, a local business man from Sodfather Sod discovered the U-Haul, and as the back door was open, peeked inside only to see silver bars strewn about the floor. He called the police, and that's apparently when Mr Campany explained that he'd parked the U-Haul filled with over half a million dollars in silver there for safe-keeping, and that--oh my!--most of the bars were missing.

And now, 8 months later, Missouri Secretary of State Robin Carnahan is intervening with her authority in an attempt to stop this still-slithering "investment" scheme, which is continuing in Missouri. Last week, Mrs Carnahan ordered Global Bullion Exchange to "cease and desist", claiming that the scheme had defrauded Missourians of $100,000. According to Carnahan, Global Bullion Exchange was misrepresenting investment oppurtunities in silver as safe, while they were actually highly risky levered margin accounts.*** It is not the first time Mr Campany has been subjected to cease and desist orders or other censures. As the Saint Louis Business Journal reports:

"Global Bullion Exchange has been subject to cease and desist orders in other states, including California and Maryland. Jamie Campany, who ran several of the companies associated with Global Bullion, was the subject of a 1999 complaint by the National Futures Association for “deceptive and misleading sales solicitations,” and filed Chapter 7 bankruptcy in 2001."

According to this pdf from the FTC's "Operation Short Change," the State of California has issued this cease and desist order against Global Bullion Exchange and Mr Campany in January 2009, and yet here is a Rip-off report from January 2010, apparently from an Alabama resident who claims that the company is refusing to return $7,818. This poster also mentions that in his phone conversations with Global Bullion Exchange, he has detected that the company it "trying to change its name" to Metals Trading Group, LLC. Thanks to that tip, we can confirm it is true!

Metals Trading Group LLC is the new front for Global Bullion Exchange.

Check out the flashy new website, complete with lots of smiling, attractive professionals. Click on "
Our Company" and you won't get much information, and you won't see any mention of Mr Campany's name or Global Bullion Exchange (indeed, this ridiculously incomplete "Our Company" page should be an immediate tip-off for any company with which you're even thinking about doing business: this page is a joke!). Pretty much all you'll learn about the company from their site is that Metals Trading Group LLC alo goes by the shorted name MGT.

So, how can we see that MGT is, indeed, the new front for Mr Campany and his Global Bullion Exchange?
Astounishingly, the very Metals Trading Group account application (proving, perhaps, again that people never read these things) clearly states that the "principal" of Metals Trading Group LLC is no other than the above-mentioned Jamie Campany, and even describes his previous illegal behavior and failures!

"Metals Trading Group, LLC’s Chief Officer has settled a proceeding with the National Futures Association in May, 2000. There additionally have been State Cease and Desist or Injunctive Orders entered under state laws. On January 19, 2010 an assignment for the benefit of creditors was filed in Dade County, Florida under Florida law bearing Case No. 10-3077 CA 40 by Global Bullion Exchange, LLC, and Case No. 10-03076 CA 40 by Diversified Investment Group, Inc., companys which were wholly owed by the current principle of Metals Trading Group, LLC, Mr. Jamie Campany because they could not meet their financial obligations to customers."

I feel very sorry and sympathetic for those people who have lost so much to these "investment opportunities," mostly because they are usually old people with no means through which to recover what they lose. That said, the very fact that this above paragraph is included in the application for a new account--that fact that people are literally signing a document that clearly states that the owner of the company to whom they about to send thousands of dollar has had cease and desist orders and injunctions against him, and even lost two companies " because they could not meet their financial obligations to customers", this fact is a statement also on those who do sign. You should not have to sign any contract to buy bullion with any dealer, period. Nevermind a dealer like this one!

So, we can therefore add another bad bullion dealer to the list:

Metals Trading Group, LLC
Metals Trading Group LLC
333 Arthur Godfrey Rd.
Miami Beach FL 33140

I cannot confirm whether this front is currently operating, because when I attempted to call the phone number listed on the contact page (1-877-361-1110), the call "could not be completed as dialed." Imagine the feeling you would have if you heard that message when trying to collect your money.

You have been warned.

***(Bankster Report opinion: NO ONE should engage in margin investment of ANY kind unless he is utterly familiar with the very high risks and has the capital to lose and the funds to cover changes in prices. Margin investment in commodities is much more levered than in stocks, where leverage is restricted to 50%. Margin investment in commodities futures can be seeded with as little as 5%, hence both the upside and downside are extremely large. Also, commodities contracts held by margin are bought and sold on the futures market, like all other commodities contracts. Buying commodities on margin is not a game.)

Thursday, August 26, 2010

Top Economists explain "How We Ended the Great Recession," but they were just kidding

As best covered by Zero Hedge in two parts (part one and part two), nearly one month ago, two "top" economists, Mark Zandi, chief economist at Moody's, and Alan Blinder, professor of economics at Princeton and former Federal Reserve vice chairman, released a paper along with op-eds in periodicals including the Wall Street Journal. Now, presumably this paper was preceded by several months of research and was originally formulated on an observation linked to the final conclusions which it presents. So, considering your own perspective and experience over these same several months, you might be a little surprised at the titles of this paper, never mind the content. Now, before disclosing the title, please note, this is not a Bankster Report satire piece or an exaggeration, and its not April Fools' Day. No, this one is just too good to make up, even for the Onion:

Their paper--the paper of these top economists: "How We Ended the Great Recession."

Hey! Wait--what?

Well, whatever--its over! That's right! Yeah! Oh c'mon--what do you mean you haven't heard!? Duh, the worst "recession" since the Great Depression is, like, totally over, yo! Two top economists from Moody's and Princeton/the Fed say so, so it must be true! And not only that, but "we" (read: "Keynesians") ended it!


Why are you being so skeptical? Seriously, you should totally show some more respect for your Federal Reserve officials and other bankster masters. You might be surprised to hear that the Great Recession is over, and, in fact, that Mr Blinder and Mr Zandi were announcing this development almost a month ago, but indeed, there was actually rejoicing in the streets just today as the DJIA closed under 10,000, and the S&P came within one measly point of the apparently vital super critical 1040 support level. Yeah, no signs of trouble there, and certainly no recession.

Haven't you noticed all the sighs of relief in the air, as the Great Recession is finally over? Bankster Report witnesses overheard several individuals brown-baggin' it in the streets, stating, "S&P at 1041? Ah, no sweat, baby--the Great Recession is oh-vaaa!" Clearly, I'm pretty sure I saw a bunch of unemployed people--some few dozens of the nearly 15 million unemployed officially recorded according to the BLS's manipulated low estimates--I'm pretty sure I saw them dancing and frolicking in wide circles, while holding hands and singing Simba's "The Circle of Life," as they heard the wonderful news from Princeton's Blinder and Moody's Zandi that the recession is over! "Yeah!", they chirped. "All hail Bernanke!"



Wrong: Give me break--do you think we are we that stupid? The "Great Recession" is not over. Its hardly over: there are millions of jobs that have evaporated and will never return; there are trillions in "wealth" that has evaporated and will never return; as much of that "wealth" was digital entries in the retirements accounts of millions of Americans, that savings will not return either.

Even more audacious than the headline declaration of an economic "Mission Accomplished" is the paper's utterly unsustainable use of Orwellian un-evidence that is completely made up out of thin air and absolutely impossible to prove or disprove. This is not an unfairly harsh statement to make: since when can an economist offer a 4-year projection based on "No Policy Response" as the criterion? How can "No Policy Response" be offered as a basis for projecting an economic response?

It cannot: it is the economic equivalent of logic's fallacy of affirming the consequent:

A: "If there is no policy response, the system will fall apart!"
B: "There is no policy response!"
Then: "The system will fall apart!"

Of course, Messrs Blinder and Zandi are only perpetuating a completely evidence-free creation first paraded by Mr Bush, et al, in October 2008, when we first heard the completely unsubstantiated, fear-based assertions that unless the almighty government intervenes with massive, multi-trillion dollar bailouts, the whole entire world was bound to disintegrate into fine powder and be sucked into the closest black hole, leaving no trace of human existence whatsoever, oh, if the economic system failed!

But the claim of ending the "Great Recession" is not Mr Blinder's first audacious--and evidence-free--claim of the last few months: no, indeed, the former Fed vice chairman also penned an WSJ editorial titled "Government to the Economic Rescue," which determined, as suggested by the title, that the government saved the day. In response to the 64% of Americans who think the policies have failed, Mr Blinder's response is simple:

"The 64% are wrong."


He continues to explain that only $400 Billion or so "went to the banks," and even somehow manages to reduce the $23.7 Trillion -- or $23,700 Billion--in crisis-related taxpayer-funding bailout to $50 Billion. Now that is skill: dropping $23.650 Trillion just like that? .

Too bad its not true. Let us take heed of a few facts not mentioned by our Fed front Mr Blinder and Mr Zandi in "How We Ended the Great Recession."

Unemployment is still a nightmare
Unemployment is still over 9.7% (non-seasonally adjusted; 9.5% if SA). Unemployment has increased in the several months since the above-mentioned paper was ostensibly started: it was 9.3% in May. "Real unemployment" (U6) stands at 16.8%, up from 16.7% since the spring, and showing no improvement whatsoever since last years' 16.8% (July 2009, NSA). Of the over 14.6 million unemployed, 45% of these individuals, or 6.6 million people, have been without work for 27 weeks or more. For those lucky enough to hold onto their jobs, the average work week is at 34.2 hours--not even full time for those people with jobs--and the BLS reports 8.5 million people who are not included in the baseline unemployment rate are "involuntary part time" due to their hours having been cut from full-time to part-time. The BLS also reported that 1,609 Mass Layoffs (a layoff of 50 or more employees at a single employer) wiped out 143,703 jobs in July alone. Does this sound like the recession has ended to you?

Gross Domestic Product is weak
In perhaps the most glaringly wrong projection of this pipe-dream paper, the authors Blinder and Zandi state that, thanks to the massive policy intervention and Mr Bernanke's helicopter, they can confidently state that US GDP will end 2010 at a recovery-esque 2.9% increase. Well guess what? With all these TRILLIONS in "Policy Response," we'll be lucky if the GDP nudges 2%: Goldman Sachs is predicting US GDP to drop to half this estimate, or 1.5%, and that's with an unexpected massive oil spill and Iranian saber-rattling to help bolster the flailing GDP. Next year is not looking too good either: Goldman has likewise cut 2011 GDP projections to a meager 1.9% from a previous 2.5%. Recession over?

Housing is still in free-fall
One of the biggest manipulation of the inflation data is obtained through the Fed's/CPI overweighting of housing prices (rental and purchase, and particularly the ridiculous "owner's equivalent rent") and complimentary exclusion of food and energy in the so-called "core inflation" statistic. Honestly, I don't know in which world the Fed economists live, but food and energy prices are rather quite important to the inflationary experience of the rest of us. This, in my opinion, is a huge part of the current inflation-deflation debate: do not rely on the Fed so-called inflation numbers unless you are willing to account for the huge skew (nearly 30%) embedded within these statistics because of the overweighting of housing: as housing prices fall, inflation "falls," regardless of the real price data because of this overweighting. Hence the deflation issue: prices have fallen so much (33% from the peak, or more), and "wealth" is disintegrating with this fall, leaving less money in the hands of the homeowners (loanowners) and thus allowing less money to enter this consumer-based economy. This stat from the July housing numbers discussed yesterday stands out: 13% decrease YOY--that is, a 13% average decrease in money values, and inflation is stagnant. If prices were not increasing, then inflation should be negative (that is, deflation), and we should have a staggering -12% number, or something along that line. Prices are increasing, but the difference is being cancelled out by that huge housing weight as it continues to slide down. (The manipulated CPI's role in TIPS is another story altogether.)

That said, here's a repeat of yesterday's data: new home sales down 32% from last year; median home price at the lowest level since 2003 ($204,000); July new home sales down 12% from June; average sales price plunged 13.2% since July. Markets down almost 8% in the last thirteen trading days. So tell us, how exactly did "we" end it, this recession, dear authors of "How We Ended the Great Recession"?

OH, that--yeah, uh. Yeah. They were just kidding. Ha. The recession's...uh...back.

Today, the recession has apparently rematerialized at Princeton and Moody's, but at least Mr Zandi is admitting it. As Bloomberg reports, Mr Zandi has apparently had second thoughts on the "Mission Accomplished:" after one month ago having declared the recession "end," Mr Zandi has now placed the likelihood of a "double dip recession" at 33%--1 in 3 odds. Nouriel Roubini is booking the dark horse at 40% odds.

Me--I'm on Black Swan, to Place. or Win.

Then we all lose.

Wednesday, August 25, 2010

Market Observations: Where's my helmet?

Market Trouble
Today we saw the DJIA returning to four digits and touching 9,937 before staging, perhaps with the aid of the Working Group, an afternoon recovery to 10,060. We also saw the S&P well below 1050 for most of the day, and as low as 1042. Please note, that these numbers are coming off 1122 on August 10 for the S&P and from 10,719 on August 9 for the DJIA. In other words, these twelve trading days have shaved off over 7% in either market.

The worst news today is that July new homes sales absolutely plummeted to a new record low:

"New home purchases fell 12 percent from June to an annual pace of 276,000, the weakest since data began in 1963," reports Bloomberg.

The Commerce Department also reported that the average sales price has plunged 13.2% since July 2009. Median home price of $204,000 is the lowest since 2003.

New homes sales are down over 32% compared to a year ago. Considering that we are experiencing record-low mortgage rates, this is very, very, very bad news. Seriously, think about it: homes are the cheapest they've been in seven years and rates are practically the lowest ever, and yet new home sales are off 32% year-over-year. Either banks aren't lending or people aren't asking, or both.

Other news:
Gold is up nearly $90 in the last 30 days, and the dollar is strengthening too. That's a pop to the face of those who still call gold a "commodity." As for the real commodities, the usual mysteriousness is summarized nicely here, where you'll also see mention of the over 6% move in silver in the past two sessions, including a solid 3% silver rally today that pushed prices to $19.07/oz. Both metals are at two-month highs today. I say "mysterious silver" because you never know what to expect with that one, even more so than gold, which is mysterious enough on its own.

The Bankster Report offers no investment advice other than the obvious observation that when it comes to fiat money, history has spoken only in repetition and never in contradiction: fiat fails. But, for those interested in some technicals and opinions on these precious metals, here are some links:

There's gonna be a big metals rally starting in the fall!
There's gonna be a big metals crash starting in the fall!

Silver technicals look good.
Silver technicals look bad.

Silver is a mystery.

Gold technicals look good.
Gold technicals look bad.

Gold is going through the roof!
Gold is going to crash and burn!

And, of course, here's an article found by our like-fellows over at Zero Hedge, to whom this Bankster Report is permanently linked on the left hand side: Gold Bubble? What Bubble? Also, from la contra costa, we have this: "Investors warn about gold bubble burst."

Some analysts are calling for a short-term upside in silver to $21.50. This is would a rather big move, as silver over $20 is the psychological equivalent of gold over $1000. That's also a very hefty 13% from the current price. Not everyone shares this opinion.

This is what a market is made of, lot of opinions. Excluding, of course, the gold market, which happens to have lots of opinions and then about 33 central banks, too. But never mind that! New short-term (6 month) calls on gold range from $1300 to $1365 from the so-called serious market makers such as Goldman Sachs and others. In my opinion, short term should not be one's concern.

However, probably in the shorter-rather-than-later term, the commerical and residential real estate bubble in China will be coming to some moment of truth. As legendary investor Jim Chanos has called since last year, this one's gonna be bloody. If you don't know anything about what's happening in China, check out these videos:

Empty Skyscrapers
The World's Biggest Mall
Empty Cities


Morgan Stanley says the D-word is "Inevitable;" Can the US ever default?

Citing the obvious aging populations and difficulties in collecting adequate revenue for the various massive social welfare programs in nations worldwide, former zombie-investment-bank-turned-zombie-"commercial"-bank Morgan Stanley today resurrected the d-word--default! Simply seeing the word "default" in a Bloomberg headline is encouraging in our fight against the banksters...but don't get too excited.

According to a article by Bloomberg, the Morgan Stanley has rendered a prediction that default by certain nations on the debt owed to their bondholders is "inevitable." The bank's debt analysts cite the overwhelming burden on future generations, including even the current generation who is now paying into but not receiving full social welfare benefits: they find that these generations will simply be unable to foot the multi-trillion dollar bill. As more and more workers leave the workforce for retirement and working families have fewer and fewer children--children who would increase the tax base once working themselves--the simple rules of arithmetic are catching up to the pipe dreams of government-funded checks in the dozens of social welfare-based nations worldwide.

On the top of this list are, of course, many European nations. It is mathematically inescapable (a "mathematical tautology") that some nations will be forced to default on the huge amounts of debt outstanding, debts which they acquired largely to fund their current and future entitlement liabilities. Morgan Stanley cites Greece as an example. But there is one little complication that develops when applying this same conclusion to all governments, because some governments need not subject themselves to that silly math stuff. Why, when the principles of mathematics are accepted by humanity worldwide, and when everyone know that you can't get blood from a turnip? Well, easy, silly--because some nations have printing presses! Ah yes, you might not be able to get blood from a turnip, but you can get trillions from a printing press, and if you do it electronically, you don't even have to pay for ink!

Those with well-lubricated national printing presses--including that of US--will always have the magical option of currency dilution and devaluation before outright default. You'll get your dollars, alright, and good luck using them. Morgan Stanley's assessment, therefore, applies most aptly to those nations without the power of the press, and most specifically, to those nations of the European Union. As evidenced by the ongoing Greek debt crisis (see Greek bailout V1 and Greek bailout V2), a nation (ah-em, Greece) without control of the currency in which its debt is repaid (ah-choo! euros) has, basically, three options when the revenue spigot runs dry:

1.) Raise taxes and cut services in an attempt to collect more money, in an attempt to pay off your debtholders, in an attempt to keep them from taking over your nation.
2.) Beg your bankster masters, especially your currency-issuing central bank, to please, please, please print you up some money, and quick!
3.) Call Morgan Stanley. Default.

Greece has tried options 1 and 2, and though like any good drug, these measures worked quite well--for a very short period of time. Also like a drug, of course, the high has diminished rapidly. Today, less than four months since the €110 Billion ($146 Billion) bailout of Greek bondholders, the spread between German bunds and Greek paper is back to its crisis-like spread of over 900 basis points (that's a stunning 9%; during the depths of the crisis just before the bailout was announced, the spread was over 14%). Morgan Stanley is suggesting that the likelihood of option 3 is, well, more than a likelihood for Greece and others, and is apparently an inevitability. The d-word might become a widespread reality.

Our response: we can only hope so!

Default is a good thing. Repeat: default is a good thing! Default is how a real market prevents overzealous financiers from financing ridiculous overexpenditures--particularly from governments who have no money to make promises they cannot possibly satisfy. One of the many reasons the ECB and its bizarre child, the euro, was sold to member nations in Europe as the panacea to economic instability was that both the ECB and euro would end the manipulation of national currencies by each country, manipulations that were usually devaluations. This is ridiculous, of course, because the ECB itself has a printing press, and its bizarre child euro creation itself is the first-ever purely fiat currency on the planet, so if devaluation has ever seen a body, it is the euro. Printing presses, and their electronic incarnations, are all the euro has ever had as parents. The euro itself is a default of the original currencies that were surrendered to it, in the opinion of many skeptics (Bankster Report included). It is a very untrustworthy currency, even among a group of utterly untrustworthy fiats.

And evidence of this untrustworthiness appeared this year. The ECB effectively allowed/precipitated the devaluation of the euro to save the Greek bondholders: check out the euro's move from over US$1.36 in April to $1.19 by June (and no, I'm not blaming this all on the ECB, I'm just pointing out that the ECB, like all central banks, will happily devalue their euro before it lets it reckless shareholder banks get burned). The ECB should have let Greece default in May. Instead, it extended loans to the nation of Greece, and direct bailouts to the bondholders (read: banks) holding the paper, because the ECB cannot stand to have a single investor bank punished for its stupid, stupid, stupid decisions.

You see, if you are a bank in, say Greece, and you're standing next to a Greek politician who is, say, lighting his cigar with a couple of rolled up thousand-euro notes, and you're listening to him promise to provide every Greek citizen with free healthcare and 14 months per year of pension payouts and free this and free that, and he asks you for another couple of k-notes to light another stogie because that first one "didn't taste right," and you open up your billfold and give him three k-notes instead (just to be sure), then, according to the ECB, you were taken advantage of!

ECB: "How dare that Greek son-of-biscuit act so fiscally conservative right before your eyes when he was really a spendthrift crook! Why, we'll teach him to be so reckless with money--we'll steal a bunch of money from other people who aren't even Greeks, and give you more money to give that Greek rascal for his stogie-smoking spending sprees! Yes, we'll teach him!"

Which is why, again, default is good. Had Greek defaulted in May, then their stogie-smokin'-Mediterranean spending spree would have come to a close, and the idiotic financiers of it would have been duly burned. Instead, it continues. So the next question is, what about these United States and our instrinsically anti-parsimonious federal government? Can the US ever default?

The answer is we already have. The United States government official defaulted on debt domestically when Roosevelt signed the Gold Confiscation executive order in 1933 and subsequent legislation in 1934 which magically "relieved" the US government from fronting gold species in return for its issued paper notes. Internationally, the same default happened in 1971 when Nixon ended the dollar-gold peg. So, the US has a history of default, though like any good druggie, we'll deny it. But this, I understand, is not what people mean when they ask the question, "Can the US default?" The question is whether or not the United States federal government will ever be unable to meet the minimum interest payments (debt financing) of outstanding debt, that is usually what people are asking. The answer to this is more difficult to define.

Since the Federal Reserve prints up money at its own prerogative, then technically the US government could always get the Fed to print up more money to lend to Congress to pay off debt holders--even if the Fed itself is the debtholder to be paid off (the Fed currently owns nearly a trillion in US Treasuries--that they admit to owning). Since US debt is quelled in US dollars, as long as something is printing up dollars, then technically the debt can be quelled in. But, of course, only in perpetuity, and only at the cost of issuing more debt, as it is a go-nowhere treadmill because every time the Fed makes up new money out of thin air, it is charging the US Treasury for it. So, since 1913, the US has been an inevitable state of default. If the US took over the Fed and printed up trillions of dollars to pay off all the debt in a year or whatever, then it would be a total tanking of the dollar--a tanking which is, clearly, also an inevitability. So, the United States and other nations that still have quasi-independent currencies under sort-of their own control are in a very different position than the euro nations like Greece. Devaluation, not default, will be the tool of choice for the US.

It is almost pointless to have this conservation, however, because its all made-up money at any rate and by any cut. We can only wish that the future response to national bankruptcy is actual bankruptcy, or default. Only then will financiers take the pain that they helped cause, and only then will this worldwide bankster debt-based fascist-socialism hybrid be discredited and disabled. Even allowing individual banks to default and crumble into bankruptcy would be a nice start, but Congress, at the direct expense of taxpayers and complete benefit of reckless banksters, has been preventing this for years. Debt is now and has always been a poisoned field, and nothing grows of it but more and more debt.

So have a nice day, now!

Tuesday, August 10, 2010

Plan B: Bernanke sets sail on QE2, leaves US drowning in debt

Today, at 2:15pm, the Federal Reserve officially reversed course from "exit" to "full steam ahead."

If you heard a loud fog horn today at about 2:15pm Eastern, you were not hallucinating. No, in fact, I and other Bankster Report witnesses are quite sure that at this exact moment today, while diligently tuned into Bloomberg radio to hear Vinny Del Giudice hit us with latest FOMC statement at the instant it was unembargoed, the faint sound of an ocean liner horn could be distinctly detected in the background. Indeed, as Mr Del Giudice read the following statement, we are quite sure that it sounded again!

Reports described it something like this, "Baaaaaaa...!," right when Mr Del Giudice starts the following paragraph from today's short FOMC Statement:

"To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature."


Indeed, Bankster Report observers were right: that loud horn at 2:15pm today was the mighty QE2 arriving in the US!

QE2, or Quantitative Easing Round 2, officially docked today, having acquired the permission of Mr Bernanke and his co-conspirators at the Federal Reserve to enter US waters. What you see above is from the short FOMC statement. If you don't quite understand what it says, here is the translation--with some added parts in italics:

"To help support the economic recovery in a context of price stability, the dictatorial monetary-policy manipulating Federal Open Market Committee will keep constant the Federal Reserve's holdings of securities, which we purchased, of course, with money made out of thin air and for which we are, of course, currently charging the US taxpayer 6%, at their current excessively and ridiculously large $1,277,010,000,000 level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities, or in other words, by buying more debt with the "interest" we earn on the debt we originally bought with made-up money, including "interest" that we are, effectively, paying ourselves, and of course, paying the shareholder banks which own this Federal Reserve system. The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature, thus ensuring that our dictatorial body will remain in utter control of the monetary policy of the United States, because, baby, if we stop your buying government debt, you're toast. No, no, no--you don't understand, sweetheart--we said TOAST. So shut up with your "End the Fed" crap and get back in your place, because you do NOT want us to get mad, and you do NOT want us to stop buying US debt."

And then it sounded again, "Baaaaaa.....!"

So there you have it, Bankster Report style: the Fed will henceforth commence sailing on the QE2, and loading it up with yet more Treasuries. According to the FOMC, the Fed will "reinvest" returns earned from their original agency and MBS paper "investments" back into the purchase of more Treasuries. The exact amount of "reinvestment," of course, is unknown, as the Fed will not disclose the returns of their investments, as not all of their "investments" are performing. At any rate and by whatever means, today's statement means that the Fed's balance sheet will get bigger, and stealth quasi-monetization will begin.

Currently, the Federal Reserve's balance sheet (also, for your convenience, permanently linked on the left, under "Charts and Data"), sits at an utterly amazing, super incredibly immense $2,368,781,000,000, with some $1,277,010,000,000 of this jaw-dropping total in agency paper (GSE, Fannie, Freddie paper) and other asset-backed debt, including, of course, defunct AIG CDO's, auto loans, student loans, and buckets of AIA, ALICO, and Bear Sterns ever-toxic paper. Remember that the previous Fed purchases of Treasuries have been, de facto, monetization ever since the Fed adopted the practice in 2008. However, in analysis of this latest announcement, the Fed will surely declare that these new purchases are different:

"After all," will say Mr Bernanke, "we're buying these Treasuries with money we earned from that other money we created up out of thin air and charged the US Treasury for! That's totally different!"

This will be, admittedly, true. However, only by degrees, as, again, the original money used to purchase the "performing" assets was magic glitter unicorn money, and, of course, a big hunk of that magic glitter unicorn money was used to purchase "assets" which are not performing and hence not returning any new magic glitter unicorn money to "reinvest." The Fed's announcement to embark upon QE2 and continue further down this path of artificially supporting these insanely low interest rates is, in a nutshell, not exactly good news for the economic outlook. But it feels good now: it is another dose of morphine, and as our disease worsens, only our opiate tolerance is strengthening.

As mentioned above, the Fed will not state what the sum of this reinvestment will be, though theoretically it may soon be extrapolated from balance sheet changes. Economists questioned by Bloomberg estimate the Fed to be earning between $15 Billion and $20 Billion a month on performing agency debt, and this will now be reinvested in Treasuries. Therefore, assuming a continued performance of the underlying interest-bearing assets, this new tactic stands to introduce $180 Billion to $240 Billion in support intended to hold down Treasury rates.

By the way, if the Fed's income of $15 Billion to $20 Billion per month seems startling, imagine what the shareholder bank-owned Federal Reserve System is collecting in interest rates from the US Treasuries it "owns"--the over $820 Billion in Treasuries and other direct government liabilities upon which the US taxpayer is paying interest. You'd better get another nine zero's.

But back to today's announcement, there was a predictable afternoon rally in gold as the 2:15pm statement and the blaring sound of QE2's horn reached the pits in New York, prompting about a $15 spike post-announcement. I would guess that much of this was short covering, but the gold market is very fickle and, if you haven't noticed, quite easily spooked, not to mention highly manipulated. Also, as Mr Bernanke prepares for QE2, many new cries erupted for Stimulus 2, including suggestions from Morgan Stanley and many in Congress that we might have a possible August Surprise. Clearly on the table is that special Treasury spending tool which Mr Geithner inherited from former Treasury head Mr Paulson, who himself was given the device by the 2008 Congress and Mr Bush (Demopublicans and Republocrats). If you can't remember the shape of this apparatus, it looks something (read: exactly) like a blank check. That's correct: the Treasury, in Mr Geithner's bankster-molded hands, has effectively been given a blank check to remedy the GSE issue and its behemoth closet monsters, Fannie Mae and Freddie Mac. Some estimates for the August Surprise are casually throwing around a number of $800 Billion. What's tragic is that not even $800 Billion will fix the problem.

The Fed is obviously rather desperately trying to keep interest rates on Treasuries down, and there is strong pressure from Congress to do so. The reason for this obsession is simple: the Fed knows that an increase in rates, either by the FOMC through the means of a Fed funds rate increase, or by the market through the means of domestic and international Treasury dumping, will directly impact the mortgage market. Mortgage rates are set by interest rates, particularly the 10-yr and 30-yr Treasury rate (see the post on yield curve for more about this). Even at these currently all-time low rates, due to decreases in home value, more than 1 in 5 (21.5%) of all mortgages in the US are underwater. Higher rates only add to this situation. In some areas, such as Phoenix, the statistic is a staggering 2 of every 3 mortgages underwater. For those with adjustable rate mortgages (ARMs), a rate increase means a mortgage payment increase: if the house is already underwater, the water just gets deeper; if you're already fighting to make your payment, your fight just got harder. ARMs are disproportionately more common for low-income borrowers, as even the FHA admits that ARMs are designed for and targeted to low-income loan owners. When rates adjust, people will--literally--be out of their loans and out of "their" homes.

The Fed has maintained a near-zero Fed funds rate for 21 months, and has purchased at least $300 Billion in Treasury debt to hold down rates (that's the official number, but many suspect the real number is much higher). This latest announcement is another attempt at $180 Billion to $240 Billion worth of bricks to hold down rates. Meanwhile, savers and those on fixed income are getting killed by these low rates, Congress is continuing to spend, and the Fed's balance sheet is ever-expanding.

Welcome abroad the QE2: this ship has no lifeboats. Enjoy the ride.

Thursday, August 5, 2010

Be careful what you wish for: push for Fed to support $5,000/oz gold

If you don't know about Mr Chris Whalen and Institutional Risk Analytics, you really, really should. You'll see a link on every page of the Bankster Report (left side, under the half dollar) to two of Mr Whalen's sites: anyone interested in the down-and-dirty of the banking world will do well to visits these sites regularly and perhaps subscribe to IRA's publications.

Mr Whalen is a frequent guest on Bloomberg, contributor to the Financial Times, The International Economy, American Banker, Barrons, and many other publications, and even recently gave a speech at the Ludwig von Mises Institute (which earns him double-points at the Bankster Report!). He vehemently protested against the ridiculous Basel II capital requirements at least as early as 2004, and predicted the amazing risk-taking it would encourage; he was one of the most vocal prognosticators of the 2008 credit crash; he warned of the "Wall Street Derivatives Casino" at least as early as 2006. I'm stating all of this as an introduction to make it very clear that Mr Whalen is not a "tin-foil-hat wearin', anti-guv'ment gold bug"--not that there's anything wrong with being one of us "tin-foil-hat wearin', anti-guv'ment gold bugs," of course. Mr Whalen is a researcher and an analyst who calls it as he sees it--but only after having researching whatever it is extensively. That said, if you caught the July 19 interview between Mr Whalen and Mr Lee Quaintance of QB Asset Management, you couldn't be blamed for thinking you were reading something that was more-than-a-little-outside the mainstream.

So, how far outside that mainstream?

Well, how about $5,000 an ounce gold?

You read that right, and you can check it out for yourself: "Deflation: Should the Fed be buying Gold?" Be aware that the fellows over at QB Asset Management are, obviously, rather big fans of gold: last year, they took on Nouriel Roubini's now-famous "barbaric relic" statement point-by-point in a statement of their own. Mr Quaintance's conversation, therefore, with Mr Whalen is very, very interesting, and with hoovering $1200/oz gold, timely. Here are some pertinent excerpts, emphasis added:

"The IRA: So Lee, we see deflation as far as the eye can see but also rising costs. What's your view of the inflation/deflation debate amongst the chattering classes?

Quaintance: Credit inflations create asset bubbles that destroy the organic equilibrium mix between the factors of production. The deflation process curtails production and shrinks overall wealth but, ironically enough, redistributes a vast portion of the wealth that's left to the privileged few, mostly banks and government.

The IRA: We have created quite a mess.

Quaintance: A mess, yes, but, a predictable one nonetheless. Inflation and deflation are two sides of the same coin. Fiat currency and unreserved lending privileges are the root causes of all these imbalances. Throw in a bit of greed and malice too no doubt. The Austrians modeled it and predicted it. The Keynesians make excuses for it."

Boy, if that's not the truth: if Keynesians are good at anything, its making excuses for their consistently failing hypothesis that debt creates wealth. The almighty Deflation Monster has been the ubiquitous boogie-man since 2008, and has served as the justification for the $24.7 Trillion in various federal debt-based spending to prop up the zombie banks or "stimulate" the backwards and unsustainable debt-based--err, I mean "credit based"--American economy. Mr Quaintance hits this on the head perfectly in the interview with the following statement:

"Have you asked yourself why most people have come to believe that deflation is to be avoided at all costs? It's painfully obvious to us -- because it destroys the banks and handcuffs the politicians. For everyone else, it's seemingly a zero sum game. Why all the fuss?

Repeat: "because it destroys the banks and handcuffs the politicians." Oh, some handcuffs would be rather useful right about now, considering, as Mr Whalen points out, the trillions of dollars in spending (borrowing) currently underway to quell the boogie Deflation Monster. Mr Quaintance's startling solution, therefore, is to introduce some serious handcuffs. . . some $5,000/oz handcuffs. He states:

"We have some basic views on what should be done and it comes in two steps. First, there needs to be a coordinated global currency devaluation. We argue for the Fed to tender for private gold holdings at something like $5,000 per ounce and to maintain that bid/offer. This would be the true economic/regulatory function of a central bank and/or monetary authority."

But as we know, the Fed is hardly concerned with "true economic/regulatory function," and that was even more firmly made clear with the latest Bank Bill. As Mr Whalen points out:

"The IRA: The U.S. central bank has not had any gold holdings since FDR's expropriation of the private banking industry's gold in the 1930s. All of the gold in the Fed's vaults belongs to somebody else. We have a reserve bank with no reserves. So you would have the Fed buy gold rather than purchase more crap assets from the large dealer banks via a second round of quantitative easing (QE II)?

Quaintance: Precisely. The second step would be a major policy-mandated contraction in unreserved bank lending. These two simple steps would not only rebalance the financial books globally but would prevent leverage from over-inflating asset prices going forward, in turn creating another non-sustainable bubble economy. This isn't just theory. Let's look back. Employment trends in developed economies are being strangled presently by prior asset price inflation. As an admittedly crude example, the cost of shops on Main Street are overvalued and require artificially high rents to service debts. The average would-be shop owner can choose to pay his inflated lease or choose to pay workers - but not both. So, asset price inflation due to excessive unreserved credit expansion is not wealth enhancing but, rather, productivity destroying."

As Mr Quaintance states another way: "The system yearns for more money, not more credit."

"In the end, credit inflation historically leads to asset inflation while base money inflation leads to wage and basic goods/consumables inflation. No matter how you slice it, the ratio of outstanding global debts to global base money is irreconcilable. This is a mathematical tautology. From this imbalance flow many of the imbalances you cite, in my mind. Chris, as I said, we think this is as simple a problem as too little "money" in existence attempting to service and ultimately reconcile too much debt."

As you can see, and will see more if you read the whole interview in context, this exchange between two serious professionals was a just a little more technical that most "gold bug" conversations (and lacked any reference to AK-47's and storable food, unfortunately), but otherwise the theme from Mr Whalen, Mr Quaintance, Alex Jones, Rollye James, or the Bankster Report is pretty much the same: you can't get blood from a turnip. Or, as Mr Quaintance states thrice:

1.) "No matter how you slice it, the ratio of outstanding global debts to global base money is irreconcilable."

2.) "...this is as simple a problem as too little "money" in existence attempting to service and ultimately reconcile too much debt."

3.) "It's all about excessive unreserved credit having created real economic distortions that can't be reconciled through further debt creation."

The message is clear, and Mr Quaintance is by no means the first to speak it: debt-based money is inherently incapable of producing surplus, and is formulaically destined to irreconcilability--"a mathematical tautology," as he puts it--even if you turn up the magical printing presses to pump out an endless amount of worthless paper "money" backed by not even thin air. This observation is nothing new, as every single example of fiat money ever attempted in the history of the world has eventually failed. Which, interestingly, brings us to the several historical references offered by Mr Whalen and Mr Quaintance in the interview. Specifically, those references are to President Franklin Roosevelt and his attempts at "reinflation" of the busted fiat dollar. You'll notice that what's missing in this short conversation is a reiteration of exactly what happened when FDR "reinflated" the money supply through a revaluation of gold, the likes of which Mr Quaintance is suggesting the Fed should consider. In case you need a refresher, the process went something like this:

Step 1: Head to the East Portico and get inaugurated on March 4, 1933.

Step 2: Get to work quick! Issue the fantastically-unconstitutional-nationwide-gold-seizure-order on April 5, dictatorially authorizing and mandating immediate confiscation of the personal property of millions of Americans, and call it Executive Order 6102 (pdf version).

Step 3: Whoops--correct that little mistake about prohibiting the export of gold to allow for an exception to--who?--the Bank for International Settlements, of course! Issue another Executive Order, EO# 6111, on April 20 to set this little issue straight--by name.

Step 4: Get most of the American people's gold under your control by May 1. Hey, this is working out great! Give those patriotic, law-abiding dopes $20.67 in worthless Federal Reserve notes for every one ounce they surrender, and remind them not to touch that dirty gold again, lest they be jailed for a decade and fined $10-grand.

Step 5: Pursuant to Executive Order 6102, give all the gold to the Federal Reserve Banks!

Step 6: Sign the Gold Reserve Act of 1934, and magically re-value gold by nearly 70%--from $20.67/oz to $35/oz--now that the banksters have it, and maintain the illegalization of gold ownership for the worthless citizens, occasionally throwing a few defiant gold bugs in jail for ten years or so. Turn on the printing presses to "extend credit." Claim that the US Treasury "owns" the gold, but admit simultaneously that the US Treasury is enslaved to the Federal Reserve, thus effectively neutralizing the value of this American wealth and limiting its use to operations to support the paper dollar Federal Reserve note instead.

Step 7: Engage the paper dollar support mechanism, also known as the Exchange Stabilization Fund, to execute massive debt-funded currency interventions on the behalf of the legislatively-enslaved-to-the-Federal-Reserve Treasury in pursuit of a hopeless and mathematically impossible goal of creating wealth out of debt.

Step 8: Claim the operation, and subsequent programs, to be a huge success, as the banks get richer, the government dives into massive debt, and the American people plunge into another decade of Depression that will only eventually be ended with the "help" of the most destructive war in human history.

Sounds like a plan?


Why do I bring this up? Well, if $5,000 an ounce gold actually sounds good to you and me and our tin-foil hat gold bug buddies, we might consider our history a little more carefully: do you actually think that a simultaneous global currency devaluation coupled with a Fed-supported $5,000/oz gold support operation would be executed with more gold in the hands of private individuals than in the hands of banks?

Such is currently the situation: of the estimated 150,000 tonnes of above-ground gold on the planet, less than 22%, or about 30,000 tonnes, are in the hands of central banks. With a $5,000/oz revaluation, this supply would be worth about $5.29 Trillion. This leaves a 120,000 tonnes, or $21.16 Trillion at the $5,000/oz peg, in the hands of "others." That's a big change from the current ownership of monies in the fiat system, were 100% of the "money" is owned by the issuing central banks and 100% of the debt is held by the people.

Would you now like to re-read that Executive Order 6102?

My point: $5,000/oz Fed-supported gold would be another anti-free market disaster, and you can bet every last coin that you won't be allowed to participate, anyway. We got into the mess by obeying non-sense spewing fiatists and their apparatus of control, the central bank. We will not get out of it by rendering ourselves further subject to these same banks by giving them the power to peg gold to $35, $50, or $5,000/oz--after, of course, they confiscate it anyway. There's no such thing as a free lunch--and there's no such thing as freedom under central banks. Not even with $5,000/oz gold.