Why Gold, (instead of anything else)?

If you lack understanding about what money is and what it does, you cannot begin to understand why gold is historically the best money. All good money will ideally posses these qualities:

  1. Durability – does it rust? rot? corrode? melt?
  2. Divisibility – does its value change when divided into smaller units? Two halves of one cow is not nearly as valuable as one whole cow.
  3. Portability – Can it be easily transported?
  4. Non-counterfeit-ability – the reason for this attribute should be obvious
  5. Homogeneity – are different units of the same size essentially identical? Not all oranges are identical, nor are all cows. OTOH, gold is gold is gold is gold.

Gold has been the preferred form of money for 5000 years because it is a commodity that possesses all of these qualities.

All fiat currencies are portable, homogenous and divisible. But they are easily counterfeit-able, (just crank up the printing press and make more!), and not remotely durable.

If you look at the list of hard commodities traded on the Chicago Mercantile Exchange, you will see various commodities that have been used as money over the millenia. For use as money, though, they all have drawbacks of one sort or another. All except for gold.

Silver is closest to gold in usefulness as money, but its main use is industrial which actually dilutes its value as money. Platinum is similar to silver, but much rarer than gold. In fact, all the industrial and rare-earth metals share gold’s qualities, but they all have significant industrial uses. Strangely, because Gold is nearly useless as an industrial metal, it is actually more useful as money.

Oil has most of the properties of “good” money as well. It doesn’t degrade over time, is very easily divisible, and impossible to counterfeit. But because it is a liquid, it tends to be difficult to transport. And of course, like silver, it also has great industrial use.

Salt was used as money in the past, but it lacks durability. A good rainstorm or flood makes your money literally dissolve before your eyes. Livestock and agricultural commodities have also been used as money, but they all lack one or more of the monetary qualities that gold possesses.
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Commodity-based monies impose fiscal discipline on governments. If a government wants to run a deficit, they have to come up with a way to collect actual money. They can take it from the people by force, but they cannot create it out of thin air.

Imagination-based monies, (fiat), impose no such discipline. With a fiat money, government is free to run up huge debts, and then pay them off with even more money they create out of thin air. (In other words, exactly what modern governments are doing.) This makes it much easier to do incredibly stupid things, like start crazy wars, support military excursions around the globe, and bail out giant banks that make crazy, risky bets and lose.

How To Steal Trillions: A Game Plan

Here’s the  step-by-step game plan the Wall Street Bankers followed to steal money, homes and hope from the American middle class.

  1. 2B2F Banks assures Local Banks they will purchase any and every mortgage they can originate
  2. Local Banks make loans to people who clearly cannot pay
  3. Local Banks sell all mortgages to 2B2F Banks, make easy money on fees and take zero risk
  4. 2B2F Banks package all those loans up into pools (Mortgage Backed Securities) for sale to Pension Funds and commercial investors
  5. 2B2F Banks pay Rating Companies, (Fitch, S&P, Moody’s), to rate these MBS as AAA – in other words – every bit as secure as US Treasury Bonds
  6. Rating Companies intentionally avoid performing due diligence on MBS packages so that they can rate them AAA and thus get paid by the 2B2F Banks
  7. 2B2F Banks sell MBS  to Pension Funds which – by charter – can only buy AAA-rated debt
  8. 2B2F Banks buy CDS’s on MBSs from Insurance Companies (AIG).
  9. When mortgages in MBS became overdue, 2B2F Banks ran to Uncle Sam, threatened the end of the world, and got Congress to buy the mortgages using taxpayer money
  10. 2B2F Banks foreclose on homes they don’t own. They don’t own the homes because they destroyed the original documents because those documents would prove the loans were fraudulent, the MBS were fraudulent and the CDS’s were essentially a guaranteed sure-fire bet.

My question for you, dear readers, is this: Now that you know that Banks intentionally, willfully and deliberately set about defrauding you, and now that you know that the Federal Goverment was their willing accomplices, what are YOU going to do about it? Are you gonna bend over and take it, or are you going to resist?

As for me, my strategy is to starve them out.

KEY:

2B2F = Too Big To Fail – these are the banks, insurance companies and car companies that the government decided were too big to fail and thus “deserved” to be have their debts paid by the American middle class. Note that the bankers who are employed by these banks have taken somewhere in the neighborhood of $200 billion in bonuses since they got their bailout money. These include, but are not limited to: Fannie Mae, Freddie Mac, Goldman Sachs, JPMorgan-Chase, Morgan-Stanley, Wells Fargo, Bank of America, Citibank, GMAC Finance, GE Financial, Deutsche Bank, UBS, RBS, etcetera, etcetera.

MBS = Mortgage Backed Security – A commercial bond that is backed by a pool of mortgages. Compare this to a municipal bond that is backed by the citizens of a city, or a treasury bond that is backed by the government.

CDS = Credit Default Swap – An insurance policy on a financial instrument, in this case, Mortgage Backed Securities. If the MBS fails, then the holder of the CDS is paid off.

The reason AIG was considered 2B2F is because they had sold trillions of dollars worth of CDS’s to the 2B2Fs. When Lehman Brothers went bankrupt, they were obligated to pay the holders of CDS’s written against Lehman Brothers. Note that the 2B2Fs knew that the mortgages in the MBS were junk. They made money when they sold the MBS to the pension funds, they made money on the mortgages, they made money when the mortgages in the MBS went bad because of the CDS’s they bought, they got money for free from the government because they were 2B2F, they made money by foreclosing properties they did not own and then selling them, and they will likely make more money in other devious ways which are not yet public.

QE=Hope+Change

In our never-ending quest to enlighten, inform and educate, we present today’s lesson on that elusive creature known by the common name “Quantitative Easing”. (Its scientific name is Monetary Inflation.)

Q. What is Quantitative Easing, colloquially referred to as QE?

A. QE is the name for what a Central Bank (CB) does when it creates money out of thin air.

Q. What do you mean by this phrase “creates money out of thin air”?

A. The best way to understand this is to compare it with something you already know about.

When you or I want to buy stuff, we give money to the seller in exchange for his stuff. We get our money by trading our stuff to someone else for their money. That’s how the money system works for everyone but the Federal Reserve. When the Federal Reserve wants to buy stuff, they just create the money out of thin air rather than earning  it like everyone else has to. Its a pretty sweet gig, but you gotta be connected to get that job. And you’re not connected.

Q. What limits the amount of money the Fed can create?

A. Nothing.

Q. Is it legal to buy stuff with money you create out of thin air?

A. Only if the Fed does it. If anyone else tries to do it, it is called “counterfitting” and they put you in jail.

Q. That sounds like a pretty sweet deal. Why is it legal for the Fed to do it and not me?

A. Because the people who own the Fed are morally, intellectually and spiritually superior to all the rest of us.

Q. So how much Quantitative Easing has the Fed done?

A. Since September 2008, the Federal Reserve has created about 1.2 trillion dollars out of thin air. Prior to that date, they had created a total of $800 billion in total since the bank came into existence in 1913. This chart of “QE” is from the St. Louis Fed.

Adjusted Monetary Base

Q. You mean it took them 95 years to create $800 billion and less than 2 years to create another $1.2 trillion?

A. Yep. That’s what we mean.

Q. So what are they using all that money for?

A. To buy stuff from the government and from the big banks that the government bailed out in 2008.

Q. Huh?

A. The government “loaned” money to the banks because they banks had billions in crappy investments like sub-prime mortgages and CDOs. The banks took that money and put it into the stock market. The market went up because there was so much “free” money from the government sloshing around. The bankers paid themselves big bonuses because they made so much money in the stock market using money the government “loaned them”. Then they sold their crappy investments to the Federal Reserve for 100 cents on the dollar.  The Fed didn’t care how much it cost because they can create money out of thin air. The bankers are rich, safe and free to continue being criminals. The government is deeper and debt, the Fed owns the title to trillions of dollars worth of land and buildings and Joe Six-pack is so confused that just hope it all changes for the better. That’s what we call “Hope and Change”.

Q. That seems like a scam. Is that a scam?

A. That’s a scam

Sincere Ignorance and Conscientious Stupidity

Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity.  –Martin Luther King Jr.

Nobody wants to believe that there are a handful of Wall Street bankers so intractably evil that they would rather destroy the entire world economy than give up their vacation home in the Hamptons.  Nobody wants to believe that there are a handful of Washington politicians so intractably evil that they would steal the life savings of millions of people just to preserve their government perks and pensions. Nobody wanted to believe that the Weimar Republic could devolve into National Socialism in only four years – but it did.

I understand why some would think I’m a conspiracy nut. Had I not seen it with my own eyes, heard it with my own ears, touched it with my own hands and lived it every day for the last 25+ months, I would think I was kooky, too. But the facts are right out in the open for anyone who cares to read a balance sheet.

The financial establishment, (which funds Washington through political donations and funds the mainstream financial media through advertising), love to say “nobody saw this coming” but they are either liars or idiots. Lots of people have been warning that the world is heading for a credit crisis for at least the last 3 years. I can name several right off the top of my head: Karl Denninger, Mish Shedlock, Bill Fleckenstein, Reggie Middleton, Peter Schiff, Nouriel Roubini, Gary North and Marc Faber have all written extensively about it for years.  Their record is both long and public.

These guys deal in hard facts. Not conjecture, not theories, not “interpretations” – mathematics. And the mathematics were there in the publicly posted balance sheets of every major bank on Wall Street for all to see. The mathematics were there in the balance sheets of Fannie Mae and Freddie Mac, there in the balance sheets of AIG. The balance sheets said these organizations were all doomed when the loans they made to people who couldn’t pay all went bad.

The loans went bad. The money dried up. The banks are technically insolvent. The only reason they haven’t been shuttered is because they own the regulators, they own the Congress, they own the executive branch and they own the Federal Reserve.

Their “profits” are illusions, but the debts are real. There are only two ways to deal with debt: pay it off or default. The banks won’t default, and they can’t pay it off, so here’s what they have done – they stole the money from the US Taxpayer.

How did they do it? Let’s look:

The S&P 500, which is a proxy for the entire market, has been trading at over 140 times earnings since last summer. What that means for you non-financial types is that the price of the stock market is 140 times the value of the profit the combined companies made. (I would post a link to this statistic, but Standard & Poors removed the link from their website in October.) For comparison, the long term, (80+ year) historical average of the S&P 500 is 15 times earnings. In other words, in an economy with “official” unemployment hovering at 10%, “official” underemployment over 20%, a housing market that has crashed, major banks, insurance companies and auto makers that would be bankrupt if not for the injection of literally trillions of dollars in taxpayer money, plummeting tax receipts, states struggling with historic budget deficits and the largest financial bubble in history – the stock market is trading ten times higher than it’s historical average. Is this economy ten times better than average?

How is that possible?

Follow the money:

March 16 2008 – The Fed & Treasury give JPMorgan a $29B gift if they agree to buy Bear Stearns for $2/share. (When the stock closed on Friday, March 14, it was trading at $22/share. The final purchase price was later negotiated to $10/share.)

July 2008 – Congress gives Fannie Mae & Freddie Mac $800B to keep them from bankruptcy.

Early September 2008 – Lehman goes bankrupt. This event triggers the payment of credit default swaps AIG has sold to various banks around the world. They don’t have the money to pay. Congress authorized an $85b payment to AIG, (later increased to $145b), to keep AIG from BKing. Most of the money that goes in the front door of AIG went right out the back door into the pockets of banks such as Goldman, Morgan-Stanley, Deutsche Bank, UBS, Citibank – the usual suspects.

Late September 2008 – The Big Banks are in fact insolvent, so Hank Paulson, (ex-CEO of Goldman Sachs and current SecTreas), goes to Congress and threatens global apocalypse if Congress doesn’t cough up the dough to bail them out. Congress caves. Hundreds of billions are funneled to the banks through the Federal Reserve. Blomberg files a FOIA request with the Fed to see where the money went. The Fed ignores it. Bloomberg takes ’em to court. The judge rules in Bloomberg’s favor. The Fed ignores them. To date, the Fed still hasn’t turned over the information.

February 2009 – Obama demands another $800b to help goose the economy. Most of it goes to banks.

March 2009 – the S&P500 hits an intraday low of 666, almost a thousand points below the all time high it hit in October 2007.

Since then, unemployment continues to rise, housing defaults rise, commercial real-estate tanks, sovereign debt crises spread around the globe. Where did ALL THAT MONEY we gave to the banks go?

Look at the stock market. We are currently trading right at 1200 on the S&P, a rise of a little less than 100% in a year. Only one sector of the market has profits consistent with a 100% rise in just over 12 months: Financials. One sector of the market has shown the biggest increase in price in the last year: Financials. One sector of the market makes more donations to Washington than any other: Financials. One sector of the market got hundreds of billions in taxpayer dollars: Financials.

Conclusion: The Wall Street banks took the money that they were supposed to be loaning out to Main Street, and used it to drive up the price of their shares.

How’d they do that?

Front-running, co-located servers and high-frequency trading.

Why Greece Matters to You-the American Taxpayer

First, Bear Stearns made a bunch of stupid bets on sub-prime mortgages, and you – the American Taxpayer – bailed them out to the tune of $29 billion in guarantees to JPMorgan, (who bought Bear Stearns only on the condition that the government assume that debt.)

Then, Fannie Mae & Freddie Mac made a bunch of stupid bets on subprime mortgages and you – the American Taxpayer – bailed them out to the tune of $800 billion.

The Lehman Brothers went belly up, which forced AIG to pay billions of dollars in claims on credit default swaps – claims they were unable to pay, so you – the American Taxpayer – bailed out AIG to the tune of $145 billion.

Then the Big Wall Street Banks went kablooie, because they made stupid bets and you – The American Taxpayer – bailed them out with $800 billion in loans. (No, you will not see any return on that “investment”, other than the comfort of watching Goldman Sachs give out $14 billion in bonuses last year.)

Then, Chrysler and GM both came to Washington with their hands out because they made stupid agreements with the UAW and stupid inverstment decisions, and you – the American Taxpayer – bailed them out with “only” about $20 billion.

What have you – the American Taxpayer – received for all this largess doled into the laps of these idiot gamblers? You have the worst economy since the great depression. You have over 22% of the population “under-employed”. You have plummeting home values. You have more tax. You have known tax cheats heading Treasury and the IRS.

Now Greece is going to go bankrupt, and guess who is going to bailout that government? The IMF gives money to Greece. 20% of the IMF’s funding comes from the US Taxpayer, so you – the American Taxpayer – are now sending $7 billion to the Greek government so it can pay its bills.

Spain, Portugal, Ireland, Italy, France and the UK are in line for the same thing.

What can you do about it?

You could start by re-reading the US Declaration of Independence and contemplating this phrase:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.

When the colonists determined that the government of Great Britain – their government – had become destructive to the very people it was supposed to protect, they moved to “alter or abolish” that government and establish a new one that would be most likely to secure their life, liberty and happiness.