Investors in droves are pulling their money out of funds and banks to buy government securities even at near-zero interest rates - also buying gold an

Investors Flood Out of Money Markets and Banks to T-Bills

As new evidence emerges that major money market funds have significant exposure to the collateralized debt obligation (CDO) crisis, worried investors are withdrawing billions from their banks and money market funds and pouring them into government-backed Treasury Bills, or T-Bills.
As news spread today that the Reserve Primary Fund fell below $1 a share in net asset value because of its losses on debt issued by Lehman Brothers Holdings, cash depositors across the banking and investment sector have been flocking to safer havens.
Early Wednesday, the rate on U.S. Treasurys had fallen to as low as 0.23 percent on three-month T-bills, the lowest since 1954, reports Bloomberg News.
And 30 day T-bills on Wednesday dipped briefly to a zero percent return.
Editor's Note: Monster Financial Disaster. We Warned You First! Read More
Just over a week ago the 90-day T-bill rate stood at 1.71 percent. But huge demand is driving investors into the vehicle, even if the interest rate paid is close to nil.
"The panic going round the money market world is what they've been investing in is not as safe as they thought it would be,'' Dominic Konstam, the head of interest-rate strategy in New York at Credit Suisse Securities, told Reuters.
"If the banks don't want to lend to each other they don't want to lend to the banks. That means where else are they going to put their money — they're going to put it in T-bills for safety.''
As Moneynews.com reported more than a year ago, many major market funds are vulnerable to the CDO crisis and it would be doubtful they could hold their value at $1 per share.
Though many money markets hold their $2.5 trillion under management in super-safe T-bills, a number of major funds had veered off into exotic, credit-backed securities.
Bloomberg magazine first detailed an alarming number of big-name funds that had been investing in collateralized debt obligations backed by subprime mortgage loans.
At the time, subprime had grown to represent $11 billion worth of supposedly safe money market funds.
Bloomberg cited Bank of America, Credit Suisse, Fidelity, and Morgan Stanley among such funds, noting they had more than $6 billion worth of subprime debt as of June 2007.
Now comes the news that Reserve Primary Fund, a money-market mutual fund in New York, has "broken the buck," falling to 97 cents a share Tuesday afternoon. The fund is reportedly making investors wait a week to take out money.
Primary Fund assets have fallen to $23 billion, down from $65 billion just a few weeks ago, reports Reuters.
Although the fund was not necessarily directly invested in CDOs, it held debts from Lehman Brothers Holdings, which went into bankruptcy due to subprime lending problems.
Bruce Bent, the chairman and founder of Reserve Primary Fund and the "father" of the money market mutual fund industry, warned the wire service a year ago that too many funds were being managed like stock and bond funds, not as safe cash havens.
"The people who have been managing many of these funds are not money fund managers, not cash managers," Bent said then.
"They are asset managers of different classes of assets, and they have imposed the psychology of managing stocks and bonds on money funds, and they are wrong," Bent said.
But Bent also claimed that his funds had not gone down that track and were immune to the credit crisis.
Bent in 1970 created the first money market fund, The Reserve Fund. No money market fund should invest in subprime debt, he said a year ago.
"It's inappropriate," he said. "It doesn't have a place in money market funds.”
Now, Bent’s Reserve Primary Fund is the first domino to fall.

List Of bailouts, Educate Yourself!

List of government bailouts in past century
By The Associated Press
September 21, 2008

A look at some U.S. government interventions and bailouts in the past century:

1932 -- The Hoover administration creates the Reconstruction Finance Corp. to facilitate economic activity by lending money in the Great Depression.

1933 -- The Roosevelt administration creates the Home Owners' Loan Corp. to buy $3 billion in bad mortgages from banks and refinance them to homeowners to stem a rise in foreclosures. The government makes a small profit.

1971 -- Congress saves Lockheed Aircraft Corp., the nation's biggest defense contractor, from bankruptcy by guaranteeing the repayment of $250 million in bank loans.

1979 -- Congress and the Carter administration arrange for $1.2 billion in subsidized loans to bail out automaker Chrysler Corp., then the nation's 10th-largest company. There ultimately was no significant cost to the government, since the loans were repaid.

1984 -- Congress effectively takes over the ailing Continental Illinois National Bank and Trust, which failed with $40 billion of assets. The Federal Deposit Insurance Corp. injects $4.5 billion to buy bad loans.

1989 -- Congress establishes the Resolution Trust Corp. to take over bad assets and make depositors whole. Resolving the S&L crisis takes six years and $125 billion in taxpayer money -- roughly equal to $200 billion in today's dollars.

1998 -- The government brokers a $3.6 billion private bailout in the collapse of the Long-Term Capital Management hedge fund, although no government money is involved.

2001 -- Congress authorizes $5 billion in cash after the Sept. 11 terror attacks to help shore up the airline industry and follows up with $10 billion in loan guarantees.

2008:

March 16 -- The Federal Reserve agrees to guarantee $29 billion of Bear Stearns' assets in connection with the government-sponsored sale of the investment bank to JPMorgan Chase & Co.

July 11 -- Federal regulators seize IndyMac Bank's assets after the mortgage lender succumbs to the pressures of tighter credit, falling home prices and rising foreclosures. The Federal Deposit Insurance Corp. says it will cost about $8.9 billion out of its $53 billion insurance fund.

Sept. 7 -- The Treasury Department seizes teetering mortgage finance institutions Fannie Mae and Freddie Mac, temporarily putting them in a government conservatorship with plans to inject up to $100 billion into each.

Sept. 16 -- The government announces an $85 billion emergency loan to rescue American International Group Inc., the world's largest insurance company, in return for a 79.9 percent stake in AIG.

Sept. 19 -- The Bush administration announces a plan to let the government buy hundreds of billions of dollars of bad mortgages and other forms of toxic debt that have been weighing down U.S. financial companies.

No Hosing Out The Great Lakes.........

While the Senate is stressing over the bailout today, the House is quietly waging early skirmishes in the water war. The House began debate yesterday on a bill that would outlaw any diversion of water from the Great Lakes’ natural basin.
Nearly 20% of the world’s fresh surface water rests in the region. The states surrounding the lakes are growing concerned that other states -- maybe other nations -- might soon be interested in nabbing their precious commodity. Under the new measure, no water would be diverted from the basin without approval from all eight states bordering the lakes.

$50 Million To Mint $36 Million In Change...No Wonder We're Screwed

Ugh… and what the hell is this?

The U.S. Mint proudly unveiled designs for four new pennies that will be minted in 2009. To “honor” Abe Lincoln’s 200th birthday, the U.S. government has opted to spend millions of dollars redesigning a coin that is -- literally -- no longer worth the metal it’s minted on. Poor Honest Abe, a man born in poverty and champion of social innovation, must be tumbling in his dusty grave.
According to the Treasury, 3.6 billion pennies have been minted so far this year -- $36 million in pocket change that cost $50 million to mint.

Doug Casey On Gold

“Gold is grossly undervalued compared to the stock market,” notes our colleague Doug Casey. Doug sent over this chart today -- a startling example of the potential upside for gold:

“Since 1975, the ratio between the 1-ounce price of gold and the S&P 500 has averaged just over 1.3. Even at today’s $900 gold price, the ratio remains beneath its historical average, and exponentially below the levels of the last major gold bull run, in 1980, when rampant inflation and a declining dollar plagued the U.S. economy. Sound familiar?”

Gold Run? We'll See....................

FROM THE GOLD PAN...INFLATION, DEFLATION AND PRECIOUS METALS

by Byron King
Have you followed the recent rise in value of the U.S. dollar? Through late summer, the dollar increased in value against the euro, as well as the yen and numerous other currencies.
Also, as August rolled on, gold fell from a price over $900 to under $800 per ounce. And oil tumbled from a price point near $145 to $111-115 per barrel. This is quite a drop. And a lot of observers credit the drop to the strengthening dollar. So what’s going on?
Usually, a currency strengthens when there is some sort of good news about the underlying economy. But is this the case for the U.S. and the dollar?
The banking crisis is still with us, as is the ongoing housing meltdown. And many insiders say that there are still more tough innings in this game. So where is the good news?
Indeed, Kenneth Rogoff, an economics professor at Harvard and the former chief economist of the International Monetary Fund, recently predicted that there is still more bad news to come from the worldwide credit crunch and financial turmoil. According to Rogoff, “The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come.”
Rogoff added an ominous prediction, stating, “We’re not just going to see mid-sized banks go under in the next few months. We’re going to see a whopper. We’re going to see a big one - one of the big investment banks or big banks.”
So if the U.S. financial system is in such a precarious state, is the rise in value of the dollar really justified? Will it be good for the U.S. economy to have a major bank failure? Or on the other hand, will it be good for the economy if the U.S. government has to step in to bail out a large bank? It all seems like a “lose-lose” proposition.
Another well-respected commentator, Richard Russell, who has published Dow Theory Letters since 1958, believes that we are on the eve of world deflation.
According to Russell, the big problem facing the world economy is not inflation, but deflation:
“From what I see, the markets are telling us to prepare for hard times, and a global spate of the worst deflation to be seen in generations. This is why gold has been sinking, this is why stocks have been falling - big money, sophisticated money, is cashing out, raising cash, preparing for world deflation.”
According to Russell, “Smart money is selling into the stock market, day after day.” People and institutions are raising cash. When deflation rules, this will usher in a strong dollar.
Russell offers an illustration for why people are raising cash:
“Look, if you have $5 million and you are receiving only 2% in interest on your money, that’s only an income of $100,000 on your $5 million. Big money realizes that in a deflation, you need a mountain of cash to keep up your lifestyle.”
So Russell anticipates an era of deflation, accompanied by low interest rates. Hence the need to raise cash to support an income stream over time.
Then again, what if the markets are anticipating an increase in interest rates over the medium to long term? Could this be prompting a rise in the value of the dollar? Think of how much new “money” is floating around out in the world due to just the recent creation of credit as the Fed has bailed out insolvent banks and investment houses.
Where has all that newly created money gone? It’s lurking out there, somewhere in this world. And that new money could show up at any moment, bidding up the prices of whatever happens to be the “big thing” on any given day. Thus, while Richard Russell thinks we are on the eve of deflation, we are also confronting the specter of inflation.
The last historical experience the world market has had with high inflation rates and stagnant growth was back in the late 1970s and early 1980s. To combat inflation, then-Fed Chairman Paul Volcker increased interest rates to double-digit levels. High interest rates hit the economy like a ton of bricks, but that was the idea. High interest rates broke the back of inflation for a generation.
You have to look back even further, to the 1930s and the time of the Great Depression, to find the last long-term era of deflation. What do you see? The price of gold and gold mining shares actually increased during the 1930s.
The key to the rising price for gold in the 1930s was the effort by President Franklin D. Roosevelt to raise the nominal price of gold from $20 to $35 per ounce. It was still - in many respects - a gold standard world back then. But in raising the gold price, FDR also indirectly spurred the market capitalization of much of the mining industry.
One thing to keep in mind is this. We know a few things about inflation, both practically and from economic theory. We don’t know nearly as much about deflation. If deflation shows up at the door, will anyone really know what to do about it?
So this prompts the question. Where are prices for precious metals headed? If we encounter deflation, will we just retrace the run-up of the past six years or so? Will we see gold back at $300 per ounce, and silver at $3 per ounce? I doubt it.
I think that we will look back at the summer of 2008 as a time when precious metals had a correction after a relatively quick move upward. To put it in terms of technical analysis, the prices “outran their support.” It’s like the tanks of Gen. George Patton outrunning the fuel trucks in the closing days of World War II. Patton had to stop advancing, while the trucks caught up.
When the dollar strengthened in mid-2008 - for a variety of reasons - it prompted a pullback in prices for precious metals and the related mining shares. If you are cautious, you will hold cash and sit it out. If you are bold, you’ll look for bargains and buy shares.
Long term, I don’t think you will get hurt by buying into share price weakness. Over the long term, precious metals and the mining shares should still continue to rise in a market in which dollars are getting cheaper and things of real value are becoming scarcer.

Is this "Socialism for Wall Street" or Something Far More Sinister?

Not far from America's financial epicenter, universally known as "Wall Street," is a huge, empty crater where the Twin Towers of the World Trade Center once stood.
Within weeks of the disaster that annihilated those once-glorious free market icons, fear served as the justification for a panicked U.S. Congress to enact the so-called PATRIOT Act.
Without even seeing the text of the bill, the congressional herd mentality to "do something!" produced one of the greatest assaults on the American Constitution ever passed into law. Its odious impact on our liberties still remains today. And barring the miracle of a new Congress emerging with both courage and common sense, it will continue on for years to come.
And now we find ourselves 7 Septembers after 9-11, in a different yet all too familiar national media "panic."
"The experts" are telling us that the Congress must act immediately to bailout Wall Street, adding nearly a trillion dollars to the national debt. (The existing public debt alone figures out to be US$31,600 for every man, women and child in America, and this new demand will add another estimated US$2,300 for every American).
But wouldn't hindsight prompt us to think before acting this time around?
Welfare on Wall Street
I am not going to review here the immediate and past history that TV talking heads recite ad nauseum that leads to a media-induced national migraine. Instead, let's go back to the beginning.
Wall Street's name is a direct reference to a defensive wall that Dutch settlers erected on the southern tip of Manhattan Island in the 17th century. The area didn't become famous as America's financial center until the end of the 18th century, when 24 of America's most prominent brokers signed an agreement that created the New York Stock Exchange.
But now, in my humble opinion, it is time to resurrect that wall, at least figuratively, and certainly politically and legislatively - in order to defend America against Wall Street.
The garrulous Senator from Delaware, Joe (The Mouth) Biden made the news last week in saying that paying greater taxes was wealthy Americans' "patriotic duty." But even he could not foresee the dimensions of what would come next...
Yes, the "panic" came quickly. Lehman Brothers Holdings Inc. filed for bankruptcy protection. The government took control of AIG. Liquidity froze up. They're saying this could be the most dire market malfunction since the crashes of 1987 - or even 1929.
But the crash was not a surprise to everyone. Here at The Sovereign Society we have long been warning you individually and collectively for quite some time. We told you that the House of Cards was going to collapse - it was just a matter of when. And we have been offering sound investment alternatives to avoid the disaster.
What Lies Beyond the "End of an Empire" Closeout Sale?
"The financial market crisis of 2007 may be remembered as the beginning of the nationalization of a large part of the financial system." So wrote Floyd Norris in The New York Times. (Dec. 14: A Worrisome New Wrinkle in Bailouts).
Norris also noted that it was foreign governments' billion dollar "sovereign wealth funds" that came to the rescue last year: "It took a [Singapore] government bailout to shore up UBS...it was Citigroup that got [Abu Dhabi] government aid to help recover from its bad investments."
Now we are told that the United States government, headed by a Republican president, must create its own US$700 billion sovereign wealth fund (or sovereign debt fund) to rescue us once again. This fund must buy up an untold amount of investment vehicles gone bad - home and other real estate mortgages, sub-prime derivatives, exotic instruments few understand and no one seems able to evaluate - except by calling it "junk."
And all this, only weeks after Congress adopted a US$300 billion housing bill that was supposed to solve the crisis!
If It Looks Like a Duck and It Quacks Like a Duck...
Bank bailouts may or may not be necessary to avoid a major economic recession, but government owning private businesses and banks smacks of fascism.
Yes, dear readers, if you enjoy reality TV shows, you'll love the reality of the same kind economic fascism once promoted by Mussolini, Hitler and Juan Peron, among other economic crackpots. Hugo Chavez, anyone?
America, welcome to "backdoor fascism."
Added to all their other horrors, these fascist leaders put their national economies under government control without outright confiscating the means of production.
Fascist governments nationalized key industries - especially banks - managed currencies and made massive state investments. True, fascist economies were based on private property and private initiative. But these were contingent upon agreement with and service to the state.
The industrial and business aristocracy of a fascist nation often put the government leaders into power. In doing so, they created a mutually beneficial business/government relationship and power elite.
Have you checked how much Wall Street has donated to both Democrats and Republicans in Congress who are now writing the new emergency bailout laws?
Fascist regimes were governed by groups of friends and associates who appointed each other to government positions. They then used power and authority to protect their friends from accountability. Fascist governments instituted state-regulated allocation of resources, especially in the financial sectors.
"Oh, but that can't happen here," you protest.
Hey, folks, just look around. Isn't any of this beginning to appear sickeningly familiar? What is past is prologue!
At Least Someone Out There is Making Sense
Newt Gingrich is one of the few urging Congress to step on the brakes in this US$700 billion bailout plan,
In National Review online, former speaker of the U.S. House of Representatives, Gingrich writes: "Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess."
In an NPR radio interview, Gingrich said he thinks the bailout plan is "just wrong," and that "it's likely to fail, and it's likely to make the situation worse over time."
Will America ever Wake Up and Smell the Totalitarianism?
Wouldn't it be unusual - even heroic - if the two current candidates for the U.S. presidency stopped their irrelevant hollering at each other? If they dropped their absurd daily nostrums that even they know will never become law?
Isn't it about time that they cancel their campaign whistle stops and return to the U.S. Senate Chamber, (where, after all, they are both still members), and participated in a real debate? Perhaps about where America and the national economy truly should be headed - and what they would do about it?
If ever there has been a point in modern times when true leadership was needed, that time is now.

Nicely Said....................

"No nation ever can or did make itself prosperous by taxation. Taxes prey upon national wealth and industry. Governments do not produce wealth. They consume it." -Ashton C. Shallenberger

Let's Examine The Numbers............

Let’s scribble on the back of our proverbial envelope for a moment:
$700 billion bailout package for Wall Street$438 billion projected deficit in the federal budget for FY 2008$200 billion for Fannie Mae and Freddie Mac$150 billion in rebate checks under the guise of “stimulus”$85 billion for AIG$29 billion for Bear Stearns
Hmnn… $1,602 billion…. that’s quite a bill for the year… not to mention the nearly $1.6 trillion in Treasury swaps and short-term paper the Federal Reserve has lent out during its auction facilities.
Who’s going to pay for all this?
The national debt ceiling will have to be raised for the second time in as many months to accommodate the request… this time to $11.3 trillion… boosting the national debt to over 70% of GDP. The highest the national debt got during the Great Depression was 44% of GDP.

McCain & Obama Support This Bailout Plan......We're Doomed

Like most Americans, I'm sure you were glued to the news about the "financial crisis" and the government's "fix" for the problem. You probably heard that the government was going to come in and save the mortgage industry by bailing out failing corporations. And, you probably heard both Barack Obama and John McCain say that this bailout was necessary, and good for the economy. What you probably didn't hear was that it was going to cost up to $1 trillion dollars, and you were responsible for this money. "American taxpayers will come up with the money," says the New York Times. Such a number is hard to conceptualize if you're not the government. So, in order to show you just how much $1 trillion dollars really is, we've put together these figures:One trillion dollars ($1,000,000,000,000) is enough money:
~To buy everybody living in Los Angeles at least one Lamborghini Gallardo.
~To buy 88,052, 394' custom mega yachts; enough to stretch around ¼ of the world.
~To buy everyone living in Belize and Malta a Manhattan apartment.
~To get half of the Democratic Party into a fundraiser for Barack Obama at the $28,500 admission price.
~To give one out of every two men in the United States a Men's Presidential Rolex watch.
~To buy every woman in the United States a Tiffany Diamond Starfish Pendant.
~To get two Mitsubishi 73" HDTVs for every household in America.
~To buy four copies of The Office: Season Four on DVD, to every person on earth.
~To send everybody in America on an all-inclusive vacation to Tahiti (and some people can stay a few extra days). AND…$1 trillion is enough money for everyone in Buffalo, NY to buy their own 65-acre island in Panama. This is how much the government is going to cost you (roughly $3,278 for every man, woman and child in the United States). Barack Obama is for it. John McCain is for it.

The Silver Boys...................

FACT VERSUS SPECULATION
By Theodore Butler
Mid September 2008
(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
What’s happening in the silver and gold markets is, without a doubt, the most sordid scheme in the history of finance. It makes a mockery of financial regulation and the rule of law. It allows a large financial entity, or entities, to rip off the investing public and gouge them for obscene profits.
It is cronyism, back-room dealing, market fixing and inside information at its worst. I am terribly disappointed and dismayed that such a thing could happen in our great country. In the following paragraphs I will outline and explain how a major bank or banks, in likely concert with the U.S. government, pulled off financial shenanigans that will literally take your breath away. This is an outrage that should not be allowed to stand.
The recent revelations in the CFTC’s Bank Participation Report for August provided stunning proof of concentration and manipulation in the COMEX silver and gold futures markets. Two U.S. banks held a short position in COMEX silver futures, as of August 5, of 33,805 contracts, or almost 170 million ounces, an increase of 138 million ounces in one month. That increase is equal to 20% of the world mine production. If one or two entities bought or sold 20% of the annual world production of oil or wheat in a month, it would bring about a congressional feeding frenzy.
In gold, no more than 3 U.S. banks sold short in one month more than 10% of world annual mine production. This was the largest short position in gold and silver ever recorded by U.S. banks. After the massive and concentrated silver and gold short position was established by these U.S. banks, the markets experienced a historic decline in price. It all took place during the first widespread retail silver shortage in history. It is completely at odds with how the law of supply and demand works.
The facts are so clear that the CFTC should have provided an immediate explanation as to why this doesn’t constitute manipulation. They should move against the manipulators just as promptly. Silence is not an option. The U.S. banks (or bank) in question are at the top of the financial food chain when it comes to size, power and importance. They are publicly owned by millions of investors. These banks are generally open about their financial dealings, which are closely scrutinized. There is an archaic rule that prevents the CFTC from revealing the identity of these banks. But there is no rule preventing these banks acknowledging they were responsible for these silver and gold short sales and explaining the economic justification behind them. These are material transactions that should be disclosed to their shareholders. Apparently transparency does not apply to manipulative transactions.
One U.S. Bank?
While the report lists two U.S. banks in silver and three in gold, it may be that only one bank, and perhaps the same bank, held the greatest amount of the total short position in silver and gold. The published data is not specific enough, but objective analysis raises the strong probability that just one bank held 30,000 or more short silver contracts (150 million ounces), and 75,000 gold contracts in the current report. What are the odds of two or three banks suddenly deciding to short unprecedented amounts of silver and gold contracts spontaneously? If it were two or three banks it would raise the issue of collusion. If it was just one U.S. bank, it would mean that bank held 34% of the entire COMEX silver market and 30% of the gold market. Such a concentration would be manipulation to any reasonable person.
The Bank Participation Report is a monthly snapshot on a predetermined single date. Therefore, it is unlikely to capture the extreme high or low holdings of participants. Based upon the weekly Commitment of Traders Report (COT) for positions as of July 22, the 4 largest traders, including the big U.S. banks, held a record net short position of 63,740 silver contracts, or 7,779 more contracts than they held for the COT and Bank Participation Reports of 8/5. Thus, it is almost certain that the big U.S. bank(s) held a substantially larger position on 7/22 than it held in the Bank Participation Report of August 5. That would mean the true net percentage of the entire market possibly held by one U.S. bank could be even higher than 34%, and may in fact, exceed 40%. That is truly shocking.
I have a simple solution to determine if what I am suggesting is true. Let the CFTC tell us. I’m not asking them to violate the rule that they and the big traders hide behind, the one that protects the identity of the traders. I’m asking they tell us what the one largest trader held in silver and gold. That will settle the matter. Let them protect the identity, just tell us how many contracts the big U.S. bank held on July 22 and August 5.
This is a perfectly reasonable request. There is no taxpayer cost involved. It will take one employee only a few minutes to determine this. There is no valid reason why the CFTC, in the interest of monitoring concentration and preventing manipulation, should not disclose what the very largest trader in every market held. The CFTC should answer forthwith. If they don’t, we must make them, through our elected representatives. They will try to weasel out of this reasonable request. We can’t let them.
A U.S. Government Silver Intervention?
For many years, I have openly alleged an ongoing manipulation in the silver (and gold) market. As that message became more believable to growing numbers of readers, their feedback indicated that their most popular motive behind the manipulation was some type of U.S. Government involvement. I rejected these "conspiracy" theories, preferring instead my simple explanation of control by big financial firms.
There were a few things I didn’t report on in my previous article, "The Smoking Gun" (By the way, since so many have referred to that article, let me acknowledge and thank Carl Loeb for his valuable contributions to that article.) It wasn’t just that 2 U.S. banks were short almost 34,000 silver futures contracts, as of August 5. It was also that they replaced what the other big financial entities had been short. The key here is the replacement angle. The data in the weekly COTs, and in the monthly Bank Participation Report, confirm this. What does this data mean?
I am going to speculate based upon the known facts. Maybe I will be proven correct, maybe not. The nature of this speculation is so disturbing, that I hope I am wrong. But I need to state it because if I am close to the mark, the implications for the silver market are profound.
I think the data in the COT and the Bank Participation Reports indicate that the U.S. Government may have bailed out the biggest COMEX silver short by arranging for a U.S. bank to take over their position. This coincides with JP Morgan’s takeover of Bear Stearns. In fact, it would not surprise me if the bailout was JP Morgan taking over Bear Stearns‘ short silver position, at the government‘s request. While this silver bailout (if it happened) was no doubt undertaken with financial system stability in mind, it has disturbing implications of legality and equity.
JP Morgan has been mentioned as a possible big silver and gold short. If it’s not them, it is someone like them. How many big U.S. banks fit the profile? Certainly, if JP Morgan isn’t one of the big silver or gold shorts, they can instantly dismiss such talk by stating so.
Logically, there would appear to be no way that a big money center U.S. bank would choose this time and place to suddenly decide to short 150 million ounces of silver and 7 million ounces of gold voluntarily. The banks are hemorrhaging losses due to poor quality mortgages and other ill-advised bets. They’ve cut back credit and are circling the wagons. A CEO, like Jamie Dimon, is not going to risk the wrath of shareholders with a massive and dangerous impromptu bet on the short side of precious metals. No bank CEO would, as it is too reckless to contemplate. And no CEO would do it without prior approval from the regulators.
I believe the bank involved did not seek approval, but merely followed the request of the U.S. Government to sell quantities of silver and gold to bailout the former big short. If that former big short bought back this position, we would have seen $50 or $100 silver in a flash. If my speculation is correct, someone in the government wished to prevent that. Worse, the government (most likely Treasury and the Federal Reserve) allowed the new short to further rig the market to the downside with a variety of dirty tricks.
In other words, it was the U.S. Government that arranged and sanctioned the sell-off. That the government might undermine confidence in our markets and sanction manipulation and illegal market behavior for any reason is beyond my understanding. I love this country. But I certainly don’t love our government. Nor do I trust them. What to do about it?
Well, a start is to insist that the CFTC disclose how many contracts the largest trader held short in COMEX silver and gold futures on 7/22 and 8/5. Ask them and ask your elected officials to ask them. I’m including the e-mail addresses of the commissioners and the Inspector General.
Wlukken@cftc.gov Mdunn@cftc,gov Bchilton@cftc.gov Jsommers@cftc.gov Alavik@cftc.gov
Now that the Chicago Mercantile Exchange Group is the new owner of the NYMEX/COMEX, they should be notified of the alleged manipulation and also asked to provide the number of contracts held net short by the largest short position holder on 7/22 and 8/5. I’m including the e-mail address of the Chief Regulatory Officer. Dean.payton@cmegroup.com
If my speculation is close to the mark that the U.S. Government is now involved in the silver manipulation, does this mean the manipulation can be extended indefinitely? In my opinion, the answer is no. In the end, what will terminate the manipulation will be a lack of adequate wholesale supplies of silver to the industrial users. It’s similar to what is now happening in the retail market. Uncle Sam does not have any silver, and is powerless to secretly subsidize the users. Additionally, the government is more subject to scrutiny than others. The single inevitable solution to this manipulation is higher prices; sharply higher prices.
What I’ve explained here, if true, cannot be condoned for any reason. It’s illegal and contrary to everything that America stands for.
SILVER STATUS
On September 3, Ted Butler wrote the following memo to our staff of 40 brokers:
Jim Cook asked me to write something for you. He did not have to twist my arm. In yesterday’s Internet commentary, I confined my remarks to the growing evidence of the silver manipulation and what people could do about it. I intentionally chose not to highlight the bullish price aspects of silver, and why this is a particularly great time to buy. Let me do that now.
What I left out yesterday was that the market structure has improved dramatically. In fact, we have the best market structure in silver and gold, as defined by the COTs, than we have had in a year. In other words, the speculative longs (tech funds and others) have been sold off and have a smaller long position and the total commercial short position is lower than in a year. That’s what the intent is behind these sell-offs - to allow the dealers to clear the decks for the next move up. That’s the only intent and the only reason ever.
The fact that this last sell-off was a Lu-Lu, the most severe sell-off ever by many objective measures, tells us the next move up is likely to be just as dramatic or more. The pain of these sell-offs is directly proportionate to the gain of the resultant rallies. Forget the COTs, trust your own eyes. Go back and look at any chart for the past 5 years and see what great buys were presented after every dramatic sell-off.
This sell-off occurred because the dealers know the price is about to explode and are doing everything they can do to get the last leveraged speculators to sell, so the dealers can buy every contract they can get their hands on. You should be mimicking the dealers step for step. The fact that we are oversold and at historic amounts below the moving averages suggest that we could have a sudden jump in price and the opportunity to buy at these depressed levels will be gone in a heartbeat.
If the price of silver is manipulated as I contend, not only should we be outraged, we should also be thrilled at the opportunity the artificially depressed price represents. That so much paper silver has been sold and not yet delivered or bought back, guarantees that the price is lower than it should be. Anything artificially depressed in price is "on sale" or marked down. This is sale that won’t last for long.
This is the time you earn your pay and your reputation and the respect of your clients. They don’t need to be convinced to buy when prices are high and rising. They need to be convinced when prices are low and falling. Like now. Yes, it’s harder to convince them at times like this. It’s also better, for you and them.
Finally, the combination of lower prices and current availability of product is not something that may last indefinitely. You know that there are many reports of unavailability at too many retail dealers to assume you will always have the current ideal set-up of having good quantities of product to sell. This, in spite of the great job your company does at securing supply. You have to make hay while the sun is shining. For the professional salesman, good pricing and product to sell is the sun shining.
(This memo was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
WHAT THE SILVER MANIPULATION MEANS TO ME
By Israel Friedman
(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)
I don’t think that any intelligent investor can now argue that the metals market, especially silver, isn’t manipulated as Mr. Butler claims. While I tried to be quiet about it, I always questioned the manipulation and tended to side with the authorities who said no manipulation existed. I changed my mind totally with Mr. Butler’s discovery that two U.S. banks sold 140 million ounces of silver and 8 million ounces of gold in one month, followed by the collapse in prices.
I am surprised that the miners who live and die to get a price above their real production costs of $16.50 for silver and $850 for gold, are not the ones complaining. Why are they letting Mr. Butler do their dirty work for them?
I asked Mr. Butler why he is the front runner, carrying the manipulation flag? His answer was simple - it was the right thing to do and there was no one else doing it. He sees the big danger that the silver market manipulation can bring catastrophic consequences to the U.S. When the shortage of silver comes, it may force the COMEX to close, a scandal that would bring great shame to our country.
Plus, silver is a vital and strategic metal. The U.S. has a reliance on silver imports more extreme than it does on oil. I would not be surprised in the time of a silver shortage, that a big producing country might restrict exports of silver to get even higher prices. What will the U.S. do without silver, let factories close down and send their workers home? When you look far ahead, you see the danger the silver short manipulators are putting our country in.
In my opinion only a shortage will bring truly higher prices for silver. The current retail shortage is a good sign. The premium on my favorite form of silver, U.S. Silver Eagles, is the highest in history and demand has never been greater. I think you know that I am not too surprised at that. I think this is just the start. Wait until you see the premium when the U.S. Mint stops producing them one day.
There are now 440 million ounces of silver in the world’s inventory. I mean COMEX stocks, the ETFs and other silver investment vehicles. There are also large holdings of silver held personally by many individuals. But we know those personal holdings are not available up to at least $20 or higher, otherwise there wouldn’t be this tightness in the retail market.
Against this 440 million ounce world stockpile owned by investors, we have almost one billion ounces held short. Isn’t that crazy? It is this short position that represents a danger to everyone. The 440 million ounces is worth only $5.3 billion. One oil Sheik could pay that. We are lucky they buy gold, not silver. I hope silver stays at home and you who believe in silver will benefit. I think 20 to 30 years from now someone holding 100 ounces of silver will be considered wealthy and a genius investor. If I am not here to witness your good fortune, maybe you will offer a kind word about me.
One day in the future this 440 million ounce visible inventory will stop growing and begin to decline. This will be the ultimate signal for shortage and that the industrial users are now drawing down these inventories. The biggest question is will we be able to act on this signal and buy silver. I have discussed this with Mr. Butler endlessly over the years. He says the short sellers will understand what is happening before any of us and will have bid up the price in their hunt to get as much silver as possible. He says you must buy before that day, when it looks like there will never be a shortage.
When the silver inventory starts to go down and the price explodes, the shorts and the users and the CME directors will scream to the CFTC to stop the upward manipulation. It will be the reverse of now. But who will help them? Who can help them? Not the U.S. Government as they gave up their billions of silver ounces decades ago. Maybe you and I will help them a little at some crazy high prices. Others around the world will be learning how rare silver really is and may be anxious to buy. These manipulators who kept prices artificially low for so long will pay the price.
It is hard to look ahead to sunny days when a hurricane is upon you. But this down draft will not last forever. Soon there will be an even stronger force pushing silver prices much higher and for longer than any of us can imagine.
FANNIE & FREDDIE
Analyst, Jim Sinclair wrote, "A cursory look at the takeover suggests to me that the National Debt could rise by more than $5 trillion. Not even the government can be that stupid – or can they be?"
James McShirley wrote, "These trillions of derivatives, which in likelihood have already failed, can now be whitewashed with the able assistance of the U.S. taxpayer. Also, the true values of their mortgage portfolios gets deep-sixed. This is no doubt the single largest financial failure in the history of the world…. Can you imagine what is about to happen to the dollar supply once this catastrophe starts getting paid for?… The inflationary implications will become VERY evident."
Michael Berry asks, "How many large financial entities can be saved? Can we tax and print enough fiat money?"
Newsletter author, John Williams, wrote, "All factors considered, the broad outlook remains the same: further intensification of the inflationary recession and a deepening systemic and banking solvency crisis…. Despite continuing softness in oil prices, current levels (anything above $90 a barrel) remain highly inflationary. Over the longer term, U.S. equities, bonds and the greenback should suffer terribly, while gold and silver prices should boom.
Economist Bud Conrad writes, "While some level of government deficits may be acceptable over modest periods of time, the U.S. deficit is now well past the point of being acceptable…. the government is faced with hard choices. The easy path of just letting the dollar fall is the most likely…. The result of this is that the inflation rate, interest rate, food, energy and precious metals are heading higher as the dollar is debased."
INDIAN SILVER
Financial Analyst, Chris Powell wrote about silver in India on September 6: "The last closing price of the silver contract was Rupees 18800 Rs. 18900. But the people who have opted for deliveries, the exchange has imposed a closing price of Rs. 20,040. To me, it implied a backwardation on the closing price. Also in the physical spot market, silver is selling at a 10% premium to the exchange price. That in the largest retail silver consumer market. It’s puzzling."
SILVER WARNINGS
By James R. Cook
The silver shortage continues. We’ve been able to get very few Silver Eagles. We don’t sell what we don’t have. It appears that many dealers are selling Silver Eagles based on a promise of future delivery from a supply source. This could be dangerous. One major supplier has warned us not to sell them. Only buy silver coins or bars where timely delivery is assured. In this kind of volatile market anything can happen. Most dealers have little money and a couple of bad decisions could spell ruin. Those with tiny margins are inevitably doomed. The failure rate in the gold and silver business is amazingly high. Sooner or later a lot of people are not going to get the coins or bars they ordered. Their money will be gone.
Those who refused to follow our advice on margin buying have been decimated. Those who ignore our advice on pool accounts are at risk of losing everything. Those who chase the lowest buck on the Internet are taking a chance on a dealer who may not survive. Often ridiculously low prices are a come-on for leverage, pool accounts, rare coins or some other trick. It always amazes me to see someone sending a wire for six figures across the country to an unknown dealer who could be using the money to make his car payment. Some of these dealers have failed and reopened several times.
Recently, the economist, best-selling author and newsletter writer, Mark Skousen, recommended Investment Rarities to his readers. Mark and I go back many years to the old Howard Ruff conferences. Mark has started a great new monetary conference in Las Vegas. He thought our reports on silver were worth reading. We pay him nothing for this kindness. That’s not always the case with newsletters who recommend their favorite coin dealer. Sometimes there is a kickback. This practice is highly unethical. If a newsletter recommends a dealer, and they’re getting a part of the commission, they need to disclose this fact to their readers. Otherwise it’s sleazy and could even be illegal.

Nicely Said.................

"We pass a law and consider a problem solved. That's as naïve as electing a Republican Congress and thinking government is going to get smaller." -Harry Browne

The Calvary............?

Good thing Congress is making “tremendous progress” and the bailout is “almost a done deal.” According to Pennsylvania Rep. Paul Kanjorski, a senior member of the House Financial Services Committee, the “votes are there” for a passage from both chambers.
“Tell the American people the cavalry has arrived,” Kanjorski said, without cracking a smile. Just what we were afraid of.
For their own enjoyment, the House also quietly approved a $630 billion spending bill, ostensibly to keep the government’s doors open through March. The 2009 spending bill, passed by a vote of 370-58, greased along with over 2,300 “pet projects” for individual representatives.
The spending bill includes a $25 billion loan to U.S. automakers, which they’ll have to pay back over 25 years at an interest rate of 5%. Yeah, that’s a free market. They’re also giving a record $488 billion to the Department of Defense.

Will the American people be guillable enough to buy Paulson's plan? Heh...............

Will the American people be guillable enough to buy Paulson's plan? Without a doubt.
There might be some tweaking here and there but the basic plan will pass. It's just the next chapter in the socialization of our country. I am reminded of Frederick Hyack's "The Road to Serfdom". As you look at what has happened to this country since Woodrow Wilson passed the Federal Reserve Act and the Income Tax we have steadfastly progressed along the lines of Karl Marx's plan. This is but another gigantic step in that direction.
Unfortunately, I do not believe it is possible to turn this supertanker around. The direction is established. Reagan was able to turn it around for a short time but I think that time has passed. Democracy doesn't work. Were it possible to go back to the original intent of our Founders and return to a Republic we might have a chance, but I think only a revolution will do that and that would likely turn into a dictatorship.

There's A Little Problem With The Bailout Plan....

The bailout plan, though it may be modified during the week, was originally written to include some very disturbing language.

As the bailout bill was originally written, it authorizes the Secretary of the Treasury "to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States," and "to take such actions as the Secretary deems necessary to carry out the authorities in this Act".

"Mortgage related assets" are defined as "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008."

Finally, near the end of the bill, one section reads "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

The biggest concerns I see here are threefold: The proposed legislation, in its original wording would (a) put a huge some of money (nearly three quarters of a trillion dollars) under the control of one person, who (b) is answerable to no one except the President, and (c) who could, with a good team of lawyers, twist the meaning of "other instruments that are based on or related to such mortgages" to mean things as far removed as stock in a global fast-food franchise owning many retail outlets, or shares in a real estate investment trust owned by the President's favorite lobbyist. With no recourse to regulatory agencies or the courts, the Secretary need not be concerned about consequences of ineffective or even corrupt decision making.

This strikes me as a really bad idea.

Maybe, before the members of Congress adjourn at the end of this week, they'll pass a version of this bill that has some safeguards and constraints. Maybe they'll go with a smaller-scale interim bill for now, to buy some time until they can design a more suitable long-term solution. Less likely but still possible is a decision to let the markets control things from here on out, with the chips falling where they may.

But given the history of the Presidency and the Congress over the last two years, I will not be a bit surprised if after a lot of steam and rhetoric, the Paulson/Bernanke bill passes in essentially its original form. And then Henry Paulsen will become the most powerful man in America. That's Henry Paulsen, Secretary of the Treasury, former CEO of Goldman Sachs, and the man who just this past July said "It's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."

The Bailout Breakdown

How Buffett Saved Paulson's Bacon (And Made a Killing, Too)by Justice Litle, Editorial Director, Taipan Publishing Group
“You know, it's not like Pearl Harbor where you could look at what happened with your own eyes and decide you had to do something that day. But this is sort of an economic Pearl Harbor we're going through. And I think most of [congress] will get it. And I do believe they will do what's right for the country. They may vent their spleen a little bit by getting mad about the people that brought us into that, and I don't blame them for that. I might do that privately, too. But in the end, you know, Republican, Democrat, I think they've got the interest of the country at heart and I think they will do the right thing. But I hope they do it soon.”
- Warren Buffett, CNBC interview transcript, in defense of the Paulson bailout plan
And the wild swings continue... The Dow is up 250 points as I write, on sweetened odds that a bailout deal will come through. Round and round and she goes; where she stops, nobody knows.

It would be more accurate to say we're all damned furious. As is colleague, Adam Lass.
On Thursday Adam wrote, “I do not think that we should be handing the keys to the vault to the same group who robbed it in the first place. And we certainly should not give away our right to ask them what the hell they are doing with our money. Or to put them in jail if they lie about it.”
If my inbox is a fair judge, most of you would not quibble with Adam’s view.
I have to admit, from a personal standpoint, I’m not nearly as angry about all this as many of you. It’s not that I’m OK with it. Far from it. More that this kind of thing has been going on for so long, my internal rage-o-matic has run out of gas. (That’s why I gave up cable news a long time ago.)
We are in this predicament because of human nature... and human nature is old as the hills. The greed-hubris-crisis cycle has been rising and falling with the tides for thousands of years. (It probably kicked in when the Lydians invented money, back in the sixth or seventh century B.C.) As long as empires have been around to rise, they have been around to fall. And this is simply how it happens.
I like to talk about the von Mises prophecy -- the “Austrian Endgame” that foresaw this decades ago -- but the predictability of human nature stretches back even further than that.
In fact, one could argue that Scottish historian Alexander Frasier Tytler saw all this coming centuries ago. These are the words of a man born in 1747 -- 29 years before America was born:
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.The average age of the world's greatest civilizations has been two hundred years. These nations have progressed through this sequence. From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance, from abundance to complacency; from complacency to apathy, from apathy to dependence, from dependence back into bondage.
Doesn’t make for fun reading. But it does help explain a few things, no?
The Real Reason Congress Is Upset
As you have no doubt seen if you’ve turned on the news, Congress is hopping mad about the sweeping nature of the Paulson plan. Some of them are livid over the unchecked power grab (as my colleague Adam is).
But you know what the politicians on Capitol Hill were really upset about ? The fact that they weren’t getting their fair share.
In other words, with all this loot being handed out for Wall Street, where is the loot for Main Street? If we’re going to ransack the Treasury, shouldn’t everyone get a cut?
Shouldn’t the voters of this great nation have their misery eased and their pain soothed? And should those voters not be eternally grateful for the wise and caring stewardship of their elected officials, gently but firmly steering the cash spigot their way?
Bailouts for fat cats? Boooo! Bailouts for all the voters of the land? Hooray! That’s why this thing is going to get bigger, not smaller. (And bigger, and bigger, and bigger...)
Maybe the government will wind up making money on the Paulson deal, as some (like Warren Buffett) now argue. But in the long run, does it really make a difference? In terms of the grand sweeping cycles, we know how these movies all end.
Tytler saw it coming. So did Walt Kelly, the creator of Pogo, who wrote, “We have met the enemy and he is us.”
Buffett to the Rescue?
But anyway, back to the topic at hand... When this whole thing gets written up in the history books, Warren Buffett will have a noted role in the drama.
The “Oracle of Omaha” has built an image of folksy credibility over the years. It’s a neat trick, really. The richest man in the world (give or take a few billion, according to official tallies) has managed to portray himself as a sort of “everyman.”
And so when Buffett told Congress to “WAKE UP!” in a telephone interview with CNBC on Thursday, Wall Street breathed a sigh of relief.
The details are a little complex, so here is my quick and dirty take on what happened:
Buffett puts together a fantastically, amazingly great deal for a piece of Goldman Sachs... a deal that is set to earn Berkshire billions in profit at near zero risk. (Barry Ritholtz has a great take on this.)
The risk on the Goldman deal was zero, or close to zero, because Buffett likely got a federal guarantee that Goldman would not be allowed to fail. That was Buffett’s reward for stepping up, knowing he could lend stability with his mere presence.
Treasury Secretary Hank Paulson (who used to run Goldman Sachs and put this whole thing together) then pulled Buffett aside and said something like “OK, Warren. You’re going to make out like a bandit here... How about you help out Ben (Bernanke) and me a little, too? If you could get Congress to put up or shut up, that would be swell.”
Buffett says “OK, Hank. I’m your man,” and agrees to be interviewed on CNBC... where he states loudly and clearly that the bailout deal must get done, that Paulson is a good man doing a necessary thing, and that we will face “economic Pearl Harbor” if Congress doesn’t approve the whole shebang pronto. (You can read the transcript for yourself.)
So the Oracle of Omaha locks in another killer deal (the kind that only he could pull off)... burnishes his image as the wise man who keeps his head while others lose theirs all around him... maintains his folksy “aw shucks” style by voicing his belief that Republicans and Democrats will “do the right thing”... and gets credit for helping save the system to boot.
Neat trick, huh? No wonder the markets rallied...
And by the way, for those of you who might be wondering (or assuming): I’m no Buffett hater. I think the guy is brilliant. For anyone who wants to learn more about him, I highly recommend The Making of an American Capitalist by Roger Lowenstein. It’s a great story.
But the fact that Buffett is a brilliant investor and a first-rate mind doesn’t change the fact that he’s deep in the game... and that he’s happy to exploit every edge he can get. It’s that old Chicago motto: Ubi Est Mea (Where’s Mine?)

A Lot of Levers Left to Pull
It wasn’t just Buffett who got a great deal in the Goldman quid pro quo. Paulson did, too. Having the smartest investor in the world in your corner is always a nice thing. On the subject of “who will be the next Treasury Secretary,” Buffett had this to say:
… if I were running things, Republican or Democrat, I would ask Hank to stay on. I mean, you don't get talent like that very often in any administrative job. And the guy pays an enormous price to do it. He's probably sleeping three or four hours a night. He knows the market. He's got the interests of the country at heart. So I think if I were either Barack Obama or John McCain and found myself in the White House in January, I would go down there and say, 'Hank, do me a favor, stick around another year.'
“Hammerin’ Hank” will never again get an endorsement quite like that one.
So what does this mean to you and me? I think it’s a good reminder of how powerful the system still is, even now, after all that’s happened.
They’ve got “a lot of levers left to pull,” as a friend of mine likes to say.
Central banks all around the world have trillions in cash reserves... Uncle Sam has a printing press that chugs out the world’s reserve currency at the touch of a button... and there are plenty of influential “super investors” like Buffett out there, not to mention deep-pocketed sovereign wealth funds, which are willing to step up to the plate when asked.
This is why I think we’re headed up -- maybe way, way up -- in the short to intermediate term. I don’t take a Pollyanna view of how all this will play out long term. I just think we’ve gotten a taste of how good these guys are, and how well they play the game.
For what it’s worth, Marc Faber (aka “Dr. Doom”) agrees... sort of.
In a Q&A session with reporters in Hong Kong, Faber said the $700 billion rescue plan won’t be enough. He thinks homeowners should be bailed out, too... that this whole mess will take longer than six months to a year to solve... and that the S&P could rally as much as 14% on news of a bailout plan being finalized. That’s a pretty big pop.
Faber then thinks things will get ugly again sometime in 2009. (He could well be right on that. We’ll see...)

Bonners Take On The Bailout

TOO BIG TO BAIL

by Bill Bonner
“Bankruptcy of Neo-Capitalism,” shouted a headline in Wednesday’s Paris press. Scarcely since Hitler blew his brains out has the type been bigger or the contentment broader.
Almost everyone everywhere is enjoying the show. Each headline brings more laughs. The financial markets give people neither what they expect nor what they want, but what they deserve. What a treat to see people getting it – good and hard.
Near to home, that galling “millionaire next door” – many will take pleasure in seeing his portfolio of stocks marked down. “Stocks for the long run,” he used to say, smugly; the silly old coot will be dead before his stocks come back! He’ll have to work until he drops dead, just like the rest of us.
On Wall Street, the masters of the universe – who had the pay slips to prove it! – are now getting blown up by their own debt bombs. The top five firms on Wall Street were thought to be “too big to fail.” But Bear Stearns has been blown to smithereens. Lehman is exploding into small pieces. Merrill ducked and missed the blast. Then, the last big capitalist desperadoes – J.P. Morgan and Goldman – waved the white flag. They petitioned the government to allow them to become regulated, deposit taking banks!
And George Bush will leave behind the biggest nationalization program in history. Surely, that’s worth a snide chuckle. The takeover of Fannie and Freddie alone leaves half the country living in what are effectively, government-subsidized housing projects. Meanwhile, the coordinated takeover of Wall Street, put together by his apparatchiks, left even the hardened lefties at France’s Liberation in shock and awe: “This enormous statist intervention...is the work of the most ideological and extremist administration that the US has ever had.”
How heartwarming to see that the meddlers and world-improvers get a second wind. It’s like driving around in a ’33 Lincoln...or throwing rocks at the gendarmes in ’68. The old, gray Bolshies feel young again! Impetuous! Brainless!
And every capitalist is behind the bail out program too. All over the world, markets are out – state-sponsored meddling is in. Free market principles are fine – until prices start going down!
And there’s the breathtaking chutzpah of it! After proposing a $700 billion program, in which the government buys up Wall Street’s mistakes – otherwise known as “cash for trash” – Henry Paulson says he had no choice: “We did this to protect the taxpayer,” said the former Goldman chief.
Even Russia got into the act. New to counterfeit capitalism, it’s getting the hang of it fast, pledging $20 billion in the fight to keep stock prices from falling to what they are really worth.
Then, not be left behind in general hysterical absurdity, SEC honcho Christopher Cox announced a list of 799 financial stocks on which shorting is banned until Oct. 2nd. In Britain, the FSA’s ban on shorting financial shares lasts until Jan 16. But Pakistan gets the King Canute Memorial Prize; by law in that benighted land, stocks can’t go below their August 27th close.
And what a bunch of numbskulls – Greenspan, Paulson and Bernanke! Every word they’ve said so far has been financial poison. “Greenspan relaxed about house prices...” reported the Financial Times in 2005. “Most negatives in housing are probably behind us...” said the same sage in October 2006. “We believe the effect of the troubles in the subprime sector...will be likely limited...” said Bernanke in March 2007. It’s “not a serious problem...I think it’s going to be largely contained,” added Paulson in April 2007.
But these are the same numbskulls who now say they are saving capitalism from itself. Ah, there’s the rub...amid all this giddy merriment is a serious threat. The feds have bailed out the bankers, the insurers, the mortgage lenders, and half of Wall Street. But who will bail out the feds?
Since 1971, the world’s money system rests on the dollar. And the dollar rests on nothing but faith, hope and the kindness of strangers. And while the full faith and credit of the United States of America is elastic, it can snap.
Last week, the price of gold popped up $120 in two days. Then, on Monday, it added another $43. Oil gushed up 44% in the space of barely a week. Investors felt the geyser of liquidity coming from Washington and beat a retreat from the dollar.
For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. As a result, the USA now has more financial obligations than assets. It is, effectively, broke. Nevertheless, the debit side of its ledgers grow heavier and heavier. This year’s US government deficit will add about half a trillion. The US trade deficit is about $700 billion. The U.S. bailout plan will probably cost at least $1 trillion more.
Where will the government get that kind of money? There are only two possibilities – one honest and depressing, the other corrupt and alarming. Whether it borrows the money, or prints it up, the world enjoys no net increase in financial resources. Borrowing takes resources from projects that might have been worthwhile and diverts them to the losers. Interest rates rise, as a consequence of the extra borrowing; higher rates generally worsen the economic picture. And while the U.S. borrows, long term, at almost 5%, it lends at barely 2%. It’s like a bank that has gotten its business model badly mixed up. The more it borrows and lends, the faster it goes broke.
If, on the other hand, it merely prints the money – or if it creates it “out of thin air,” to use Lord Keynes’ handy phrase – the results are even worse. Inflating the money supply with new currency, a la Argentina or Zimbabwe, wipes out debts. But it destroys faith in the dollar and brings down the whole world’s money system.
Sooner or later, this is just what will probably happen. Not because capitalism doesn’t work – but because it does. Capitalism is doing just what it should do – it is separating fools from their money. But the fools vote. After a big bubble, there are more fools than sages...and, in the United States of America, more debtors than creditors. Sooner or later, Americans will realize that they are better off destroying their own money than preserving it...and that they would prefer to stiff their creditors rather than pay their bills. That is when deflation will gives way to inflation...and the world’s post-’71 dollar-based money system comes to an end.

Precious Metals On The Rise

The War on Terror Meets the War on Risk
Why are precious metals moving upwards? After all, the market smashed them down all summer as the dollar strengthened. The short answer is that right now gold and silver are the only decent game in town.
Yes, there are a few other asset and income plays as well in the market. After all, there’s still an economy to run out there. There are 303 million Americans, and 6.2 billion other people in this world, who want to eat every day. But much of the stock market is a crapshoot. If you love pain, then the broad stock market is the place for you. While gold and silver represent the flight to safety and quality.

The U.K. Telegraph put it nicely: “As investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable — the U.S. dollar will have to take another major fall. The dollar rally that began in July and pushed the pound’s value against the greenback significantly lower has come to an abrupt end as markets face up to the fact that the currency will have to absorb the effects of a sudden shocking increase in America’s budget deficit.”
So we see lots of bad news for the dollar. But when you own gold, it’s your asset. With a specific gravity of 19.3, gold is dense, non-reactive and otherwise immutable. Gold is nobody’s liability. As one of my old professors at Harvard used to say, “That’s physics.”
Gloomy News from Wall Street
Speaking of physics, I’ve looked east of the sun and west of the moon. I can’t see much good news for the U.S. dollar on any horizon. Really, what’s gloomier than the news from Wall Street? The investment model of the modern era (borrow short, lend long, pay big bonuses) is dying before our eyes. “And it’s about time,” some might say. But it’s happening on our watch. So we had better suit up in battle-rattle.
Wall Street’s losses are in the range of hundreds of billions, maybe trillions. Which prompts me to inquire, where are Bonnie and Clyde when you need them? At least the Barrow couple knew who they were and what they did for a living. To their credit, on their last foray the dynamic duet had the guts to shoot it out with the cops and go out in tragic style.
But now the modern bank robbers are talking about how they should get big bonuses for all the good work they put in right until things blew up. Really, I’m serious. Lehman Brothers wants to pay $2.5 billion in bonuses to 10,000 employees. That’s an average of $250,000 per person. (Except I think the office runners and secretaries will get less than $250K and a select few will rake in a lot more.) What has anyone there done to deserve $250,000? Did I miss the news about somebody at Lehman discovering a cure for cancer? It’s all just so… Baby Boomer.
At the end of the day — and the clock is ticking fast — it’s too bad that the wrong people are going to get paid. And bonuses? Oh, if only I could be a bankruptcy judge for just one hour.
The War on Risk
Do you recall the $700 billion of borrowed money that the U.S. paid over the past seven years to fight the War on Terror? Well now, with the stroke of a pen the U.S. taxpayers will pay another $700 billion (and probably more) for the “War on Risk” in the next year or so.
War on risk? It seems that way to me. Let’s back up. In the past few years — seven or so, coincidentally — a lot of people gambled and lost. People bought houses they couldn’t afford. Brokers arranged the loans. Bankers lent the money. Other bankers bundled-up the mortgages and sold them as “asset-backed securities.” Rating agencies sprinkled their holy water on the transaction. Insurance companies insured everything against default and loss.
A lot of people were making a darn good living for a while. But it was all a farce based on cheap credit and an abiding faith in a “something-for-nothing” way of life. And it’s too bad that a lot of people bought — as the saying goes — “as much house as they could afford.” Except they couldn’t afford it.

So now the whole mess is falling apart. And in true Baby Boomer fashion, the key perps on Wall Street want to change the rules and stick the house with the bill. That is, the White House and the House of Representatives, and your household as well.
The advertised number of $700 billion for the Wall Street bailout is just the posted price — the “loss leader” to get the American people into the store, so to speak. But get set for a bad case of sticker shock as events unfold. A group of business reporters at Bloomberg tallied up the raw numbers and came up with their own number of $1.8 trillion.
$700 billion? $1.8 trillion? When the numbers are that big, does it even matter? It’s the inflation-adjusted equivalent of fighting World War II again. Except who is the enemy?
Whatever the final tally may be, it cannot be good for the U.S. dollar. So buy gold and silver. If you can’t acquire the metal in the form of coins or bars, then buy precious metal stocks of companies with ore in the ground.

Head of Homeland Security admits Real ID card will not deter terrorists. So why have it?

DHS Secretary Admits Real ID Fraud-->
Friday, September 19, 2008, 5:08 pm, by BeatTheChip

The excuse given by the proponents of Real ID - America's first national ID card and its accompanying non-secure national database of personal information - was that it would prevent terrorists from entering the country. Now, in an August 13th speech at the University of Southern California, the Secretary of Homeland Security, Michael Chertoff says well ... it's really not going to do that.
by Buddy Logan - RestoreTheRepublic.com
James Sensenbrenner (R-WI), the instigator of the bill back in 2005 stated the following reason for tracking and maintaining data on each and every American citizen: "The goal of the Real ID Act is straightforward: it seeks to prevent another 9/11-type attack by disrupting terrorist travel."
Experts in the electronic security field said implementation of the act would only increase identity theft and would do little to prevent terrorists from entering and motivating within our borders.
Bruce Schneider, internationally renowned security technologist, said "All the 9/11 terrorists had photo IDs. Some of the IDs were real. Some were fake. Some were real IDs in fake names, bought from a crooked DMV employee in Virginia for $1,000 each." He goes on to say, "Harder-to-forge IDs only help marginally, because the problem is not making sure the ID is valid. Our goal is to somehow identify the few bad guys scattered in the sea of good guys. In an ideal world, what we'd want is some kind of ID that denotes intention. We'd want all terrorists to carry a card that says "evildoer" and everyone else to carry a card that said 'honest person who won't try to hijack or blow up anything.' Then, security would be easy."
These points were strongly argued against by Sensenbrenner, DHS and other proponents of the Real ID act. Now, three years later, the Secretary of Homeland Security himself admits the card will really do little to prevent terrorists from entering the country.
In a speech before the University of Southern California National Center for Risk and Economic Analysis of Terrorism Events, Chertoff stated “The first thing we do, using again traditional 20th Century methods, is we try to make it harder to counterfeit a card and this is a pretty good approach if you're going to use a card-based identifying method by itself. We've put chips in passports. We've created pass cards. We've put bar codes in. We've embedded certain kinds of holograms, all of which are designed to make it more difficult for people to fabricate these cards, and we've required higher standards through things like our Western Hemisphere Travel Initiative which governs what people need to show when they cross a land border or our Transportation Worker Identity Card or even the Real ID Initiative to strengthen the security of our driver's licenses.
"But while this has done something to deal with the issue of forgery and counterfeiting, it's certainly not a complete solution because time and again, I certainly have seen intelligence that tells me that sophisticated criminals and sophisticated terrorists spend a great deal of time learning to fabricate and forge even these improved cards. The net effect of this may be that it's going to be harder for people on campus here to get a drink when they're under 21, but unfortunately it's not going to be that much harder for the most sophisticated dangerous people to counterfeit an identity card.”
Now that Real ID has begun to be implemented in most states, is the DHS secretary beginning to pave the road toward bio-chipping?
This information, brought to my attention by our Pennsylvania State Coordinator, Jim Compton, is strong evidence of a hidden agenda regarding Real ID.
Make sure your state legislators understand these points. If the Real ID card is not going to prevent terrorists from entering the country, then why are we accumulating a national database of U.S. citizens, and why is the Real ID card being touted to the stockholders of manufacturer L1 Identity Solutions, as soon to be used for identity in a whole range of commercial applications?
Read the full speech given by DHS Secretary Michael Chertoff.

US: Army brigade assigned to Iraq for controlling resistance of local population now is being deployed in the United States to quell riots and rebelli

Brigade homeland tours start Oct. 1
3rd Infantry’s 1st BCT trains for a new dwell-time mission. Helping ‘people at home’ may become a permanent part of the active Army
By Gina Cavallaro - Staff writerPosted : Monday Sep 8, 2008 6:15:06 EDT

The 3rd Infantry Division’s 1st Brigade Combat Team has spent 35 of the last 60 months in Iraq patrolling in full battle rattle, helping restore essential services and escorting supply convoys.
Now they’re training for the same mission — with a twist — at home.
Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks.
It is not the first time an active-duty unit has been tapped to help at home. In August 2005, for example, when Hurricane Katrina unleashed hell in Mississippi and Louisiana, several active-duty units were pulled from various posts and mobilized to those areas.
But this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.
After 1st BCT finishes its dwell-time mission, expectations are that another, as yet unnamed, active-duty brigade will take over and that the mission will be a permanent one.
“Right now, the response force requirement will be an enduring mission. How the [Defense Department] chooses to source that and whether or not they continue to assign them to NorthCom, that could change in the future,” said Army Col. Louis Vogler, chief of NorthCom future operations. “Now, the plan is to assign a force every year.”
The command is at Peterson Air Force Base in Colorado Springs, Colo., but the soldiers with 1st BCT, who returned in April after 15 months in Iraq, will operate out of their home post at Fort Stewart, Ga., where they’ll be able to go to school, spend time with their families and train for their new homeland mission as well as the counterinsurgency mission in the war zones.
Stop-loss will not be in effect, so soldiers will be able to leave the Army or move to new assignments during the mission, and the operational tempo will be variable.
Don’t look for any extra time off, though. The at-home mission does not take the place of scheduled combat-zone deployments and will take place during the so-called dwell time a unit gets to reset and regenerate after a deployment.
The 1st of the 3rd is still scheduled to deploy to either Iraq or Afghanistan in early 2010, which means the soldiers will have been home a minimum of 20 months by the time they ship out.
In the meantime, they’ll learn new skills, use some of the ones they acquired in the war zone and more than likely will not be shot at while doing any of it.
They may be called upon to help with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack.
Training for homeland scenarios has already begun at Fort Stewart and includes specialty tasks such as knowing how to use the “jaws of life” to extract a person from a mangled vehicle; extra medical training for a CBRNE incident; and working with U.S. Forestry Service experts on how to go in with chainsaws and cut and clear trees to clear a road or area.
The 1st BCT’s soldiers also will learn how to use “the first ever nonlethal package that the Army has fielded,” 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.
“It’s a new modular package of nonlethal capabilities that they’re fielding. They’ve been using pieces of it in Iraq, but this is the first time that these modules were consolidated and this package fielded, and because of this mission we’re undertaking we were the first to get it.”
The package includes equipment to stand up a hasty road block; spike strips for slowing, stopping or controlling traffic; shields and batons; and, beanbag bullets.
“I was the first guy in the brigade to get Tasered,” said Cloutier, describing the experience as “your worst muscle cramp ever — times 10 throughout your whole body.
“I’m not a small guy, I weigh 230 pounds ... it put me on my knees in seconds.”
The brigade will not change its name, but the force will be known for the next year as a CBRNE Consequence Management Response Force, or CCMRF (pronounced “sea-smurf”).
“I can’t think of a more noble mission than this,” said Cloutier, who took command in July. “We’ve been all over the world during this time of conflict, but now our mission is to take care of citizens at home ... and depending on where an event occurred, you’re going home to take care of your home town, your loved ones.”
While soldiers’ combat training is applicable, he said, some nuances don’t apply.
“If we go in, we’re going in to help American citizens on American soil, to save lives, provide critical life support, help clear debris, restore normalcy and support whatever local agencies need us to do, so it’s kind of a different role,” said Cloutier, who, as the division operations officer on the last rotation, learned of the homeland mission a few months ago while they were still in Iraq.
Some brigade elements will be on call around the clock, during which time they’ll do their regular marksmanship, gunnery and other deployment training. That’s because the unit will continue to train and reset for the next deployment, even as it serves in its CCMRF mission.
Should personnel be needed at an earthquake in California, for example, all or part of the brigade could be scrambled there, depending on the extent of the need and the specialties involved.
Other branches included
The active Army’s new dwell-time mission is part of a NorthCom and DOD response package.
Active-duty soldiers will be part of a force that includes elements from other military branches and dedicated National Guard Weapons of Mass Destruction-Civil Support Teams.
A final mission rehearsal exercise is scheduled for mid-September at Fort Stewart and will be run by Joint Task Force Civil Support, a unit based out of Fort Monroe, Va., that will coordinate and evaluate the interservice event.
In addition to 1st BCT, other Army units will take part in the two-week training exercise, including elements of the 1st Medical Brigade out of Fort Hood, Texas, and the 82nd Combat Aviation Brigade from Fort Bragg, N.C.
There also will be Air Force engineer and medical units, the Marine Corps Chemical, Biological Initial Reaction Force, a Navy weather team and members of the Defense Logistics Agency and the Defense Threat Reduction Agency.
One of the things Vogler said they’ll be looking at is communications capabilities between the services.
“It is a concern, and we’re trying to check that and one of the ways we do that is by having these sorts of exercises. Leading up to this, we are going to rehearse and set up some of the communications systems to make sure we have interoperability,” he said.
“I don’t know what America’s overall plan is — I just know that 24 hours a day, seven days a week, there are soldiers, sailors, airmen and Marines that are standing by to come and help if they’re called,” Cloutier said. “It makes me feel good as an American to know that my country has dedicated a force to come in and help the people at home.”

US: Senate boosts budget for laser weapons for combat and to control crowds.

Gee, it's almost like they're planning for a large civiliam control effort...........maybe brought about by a manufactured Depression?(Ed~SOC)

Senate Boosts Funding for Laser Weapons
By Walter PincusMonday, September 22, 2008; A13
The Senate has embraced last year's Defense Science Board conclusion that directed-energy weapons -- such as high-, medium- and low-power lasers -- hold great potential and should be developed as soon as possible.
In the fiscal 2009 defense authorization bill, which was approved Wednesday, the Senate included additional funds for laser programs and a provision requiring Defense Secretary Robert M. Gates to accelerate work that would make directed-energy weapons operational in the near future.
Low-power lasers known as "dazzlers" are being used in Iraq, mounted on M-4 rifles, "to warn or temporarily incapacitate individuals," according to the Defense Science Board's report. Army, Special Forces and more recently Marine units are using them to warn or deter drivers approaching checkpoints and to "defuse potential escalation of force incidents," according to the report.
Marines were given approval to use a green laser whose beam can temporarily reduce a person's vision when aimed from a distance of 1,000 yards, according to the report. These "laser optical incapacitation devices" were being procured on a case-by-case basis.
Laser use remains controversial because a protocol of the Geneva Conventions bans their use in combat when they are designed to cause permanent blindness.
Two years ago, when the lasers were introduced in Iraq, Army Lt. Col. Barry Venable, a Pentagon spokesman, said the devices were legal. "They don't blind people," he told reporters. "It's like shining a big light in your eyes," he said, adding that he did not know how long the "optical incapacitation" lasted.
The Senate Armed Services Committee, in its report on the fiscal 2009 authorization bill, asked about the progress of lasers. "Years of investment have not resulted in any current operational high-energy laser capability," the committee noted in its report.
The science board said tactical laser systems could be developed for broader use because they "enable precision ground attack to minimize collateral damage in urban conflicts." The report suggested, for example, that "future gunships could provide extended precision lethality and sensing."
The board also proposed using lasers to protect against rockets, artillery, mortars and unmanned airborne vehicles by blasting them out of the sky. Last month, the Army awarded Boeing $36 million to continue development of a high-energy laser mounted on a truck that could hit overhead targets. But deployment is not expected until 2016, even if all goes well.
The Senate committee was critical of the "airborne laser" program, a first-generation missile defense system. It held back $30 million from next year's budget and said funds for a second version would not be authorized until the first shoot-down test from a 747 aircraft is conducted at the end of 2009. More information is needed to determine whether the system "could eventually provide a militarily useful, operationally effective and affordable missile defense capability," the panel's report said.
Past Defense Science Board studies have had impact. A 2004 report recommended a "Manhattan Project" approach to take "available and emerging technologies . . . to identify objects or people of interest from surveillance data and to verify a specific individual's identification." It suggested that "biometrics, tags, object recognition and identification tokens" be harnessed with sensors and databases "to overcome the shortcomings of conventional intelligence, surveillance, and reconnaissance systems."
Tags allow distant tracking or detection. Some tags are active, emitting radio waves that can be collected. Others are passive, including chemicals that give off a color when hit by an infrared beam. The board said these "represent a very important area for research and technology development."
Four years later, Washington Post Assistant Managing Editor Bob Woodward, discussing his new book, "The War Within," on CBS's "60 Minutes," attributed part of the success of the troop buildup in Iraq to "secret operational capabilities that have been developed by the military to locate, target and kill leaders of al-Qaeda in Iraq, insurgent leaders, renegade militia leaders. That is one of the true breakthroughs."
A recent congressional report said Special Forces in Iraq are using newly developed "sophisticated capabilities to identify, find, track, and kill or capture high-value individuals."