Friday, March 22, 2013

Reality Bites

FDIC gives us comfort, but does not function in a systemic crisis  - Jim Sinclair
Given the track record of our Government and Wall Street working hand-in-hand to lie, cheat and steal from us, Americans are sure giving the Government/financial system a lot of leeway on what is being promoted about the economy and the safety of bank deposits in the banking system.

As for the economy, the initial reading on Q4 GDP for 2012 was that it went negative.  The first revision, after some questionable "adjustments," turned the GDP reading barely positive.  This is IF you really believe inflation is as low as the Government says it it.  I do not.  Based on all the presented evidence, plus my own personal spending experience, inflation is significantly higher than we're being told.  Therefore, on a real inflation-adjusted basis, the real GDP is negative and probably was negative for all of 2012.  Just because a unit of food costs more than it did last year, doesn't mean that anything happened to incrementally increase GDP.  If anything, higher prices reduce demand.

As for the supposed "economic recovery."  Let's look at some company earnings reports this week - companies that are directly related to and contribute to the GDP.   First, AK Steel released earnings and warned of a weak first quarter today:  AK Steel  AK Steel produces steel products for the auto,  infrastructure (bridges, roads, housing) and manufacturing industries.  If pricing and demand is weak, so are the basic GDP-contributing industries.

How about Caterpillar?  Earlier this week it announced that it's retail machine sales were dropping globally, including a 12% in drop in North America (i.e. the U.S.):  LINK  How about the restaurant industry?  Earlier this week it was announced that casual dining spending fell 5.4% in February:  LINK  If there's any business segment that reflects the mood of the consumer and the amount of discretionary/disposable income of the middle class, it is the restaurant business.

Finally, there was a full-page ad in today's Denver Post in which a large furniture retailer here is offering 5 years, 4 months (64 months) of no-interest/no down payment financing.  Free money for over 5 years.  There is obviously a bank behind this scheme, but it's certainly consistent with the drop in furniture sales that were reported in the last Census Bureau retail sales report.  How can the housing industry truly be seeing any strength if the banks have to finance a new furniture "give-away?"  Stay tuned on housing, I will writing an extensive post soon that outlines in detail why the housing market is rolling over and the next leg down could be very painful.

Turning to the safety of your money in the banking system.  The situation in Cyprus is not getting a lot of mainstream media airplay other than superficial reporting.  To really follow what's going on, the significance and implications of what's going on, requires accessing good news blogs and international news websites.

Essentially the proposed bailout of the Cypriot banking system involves annexing some percentage of money sitting in Cyprus bank accounts.  Now, people in the United States are being told that the Cyprus situation is a small little irritation in a far off island country and not relevant to the U.S.  If it's not relevant, then why did the U.S. Government, via the IMF, join the EU in raising funds and in leading the proposed restructuring, which includes taking depositor accounts?

Here's Ben Bernanke's response to a question yesterday about the Cyprus situation:   "As someone mentioned Cyprus is a tiny economy. I don’t think these issues as worrisome as they are and as concerned as we would be for the Cyprus people, I don’t think that they have a direct implications for the U.S. economy."  I recommend reading this entire analysis:  LINK  If this is true, Ben, then why did the Federal Reserve print up $100 billion last week and move into the excess reserve accounts of the U.S. subsidiaries of European banks?  Why is 50% of the entire $1.9 trillion in excess reserves - U.S. taxpayer guaranteed money - sitting in EU bank U.S. subsidiaries?  Something smells rotten in the State of DC, where the IMF is headquartered, by the way.

My point on this is that, for some insane reason, the average U.S. citizen places a high degree of trust in the idea that the U.S. Government will always protect bank accounts.  That's just not true.  I bet 98% of you reading this do not even realize that a deposit into a bank is a loan from you to the bank.  How many understand this?  If you go to any bank balance sheet, you'll see that "deposits" are a liability account - a debt obligation from the bank to the depositor.

What this means is that in times of crisis, a bank depositor is just as exposed to a restructuring "haircut" or even full loss of money "loaned."  Ultimately a depositor is nothing more than another creditor in a bankruptcy.  The U.S. Government hides this risk by implementation of FDIC insurance.  But the amount of FDIC liquidity available to cover a major crisis is minuscule.  In 2008, the Fed and the U.S. Treasury printed up a couple trillion dollars and gave it to the banks to head off a bank run by depositors.  If you think this can't happen in this country, ask anyone who was around in March 1933, when U.S. banks had either closed down or place restrictions on money being kept in banks....

When reality bites the average U.S. citizen, it is going to be extremely painful. The Cyprus bank crisis is a lot more significant that most people realize.  It's also been the entire focus of the EU/IMF for the last week.   It is also very significant for gold - gold vs. fiat currency and physical gold vs. paper gold (ETFs, futures):
Confidence in the banking system and trust in policy makers has been shattered and, regardless of what happens in the tiny Mediterranean nation, this will drive more investors around the world to seek safety in precious metals.  LINK
Have a great weekend!


  1. Don't think they know exactly what they're doing, and it's ALL going according to plan?

    You didn't mention that in addition to the FDIC being basically an empty pocket, the FDIC insured account limit was lowered Jan1/2013 to I believe $250K but now per person, not account.

    1. There's a lot I didn't go into about the FDIC. The post was too long as it was. The disastrous truth about the big banks is worth several separate posts. I just wanted to paint paint a broad stroke.

      The big banks per the latest COT report took their dollar short position up by 46% last week thru Tuesday. They don't take extreme positions like that unless they know it's a good bet.

  2. Great aticle, Dave! Unlike other sites that make statements, you back yours with facts and links.

    PM's need to come back as currency instead of (like now) having to convert it back to USD funny-money (if one decides to sell it). you still have to worry about confiscation of PM's just as you do with your bank accounts. So whether you have funny-money or PM's, you're still screwed. I can see the elite top surviving this but everyone underneath are going to get clobbered like a mass herd literally rolling down off a gigantic mountain. Whoever hits bottom first will get crushed by those behind them while cushioning those same people from the blows but everyone gets injured in the end.

    "As we head into the spring home buying and selling season, the housing comeback is showing signs of accelerating more rapidly than most anybody had thought at this point, David Stevens, president and CEO of Mortgage Bankers Association, told CNBC on Friday.

    "The peak housing era of 2005 through 2007, those couple years produced some very dangerous characteristics we can't allow to ever come back," the former Obama Federal Housing Administration commissioner said in a "Squawk Box" interview. "But the market is clearly improving [now]" and could weather rising interest rates should the Federal Reserve start tightening at some point."

    (housing can weather rising interest rates? what are these guys smoking??)

    1. These are the same guys who said "housing Always goes up, buy now or be priced out forever" and the like. These were the same real estate know it alls who didn't see the housing bubble in the first place and wouldn't admit there was one until it was too painfully obvious to ignore anymore. These know nothing shills are the reason I don't watch or read the website of CNBS (and I do mean BS)

  3. Its Time to Collapse the System

    So what are you going to do? Are you going to place your faith in the "authorities" like Mr. Drake did? Will you wait for them to rape and pillage you? Or are you going to take matters into your own hands. It's time to take responsibility for yourself and your loved ones. The Government and the Banksters ain't gonna save you. And if you think what happened in Cyprus this weekend is a "one-off" and it can't happen to you - even if you're outside the Eurozone - think again. The fact of the matter is that this was THEFT of private property - pure and simple. And just because it was performed by mafia dressed up in Government regalia and bearing authoritative three letter acronyms (ECB, IMF et. al. - all banker fronts) doesn't mean it wasn't one. This shows us that the Government and the bankster mafia who control them are willing to go to any length to have the public reimburse their “losses” and transfer public wealth into their own pockets. And they just declared outright war against the public.

  4. I'm a mariner and like using the ocean as an example for things - have you ever observed the dynamics of big waves traveling in different directions followed by bashing into each other ? It leaves quite an impression , believe me ! This kind of activity regarding the world financial arena is playing out like that of the cresting wave. This overall effect is destroying the underlying economic structure of the middleclass. Unfortunately most of the damage that's going on cannot be observed at present. It's mostly under the surface right now.
    Consider you're family security, both financially and health related to be a dynamic like that of a ship. Operating on your own with the need for self sufficiency will become a reality. One very important focus will be making sure that you have well provisioned lifeboats on board . Start stowing precious metals , dehydrated foods , and other creature comfort needs that can withstand a decent shelf life. You won't be sorry !

  5. Former US Treasury Official - Banks Move To Enslave Humanity

    Eric King: “You talked about the Cypriot government standing up against the arm-twisting from the IMF and the ECB, if they stand strong and this starts to spread to other countries, what does that mean for the European Union?”

    Dr. Roberts: “It saves it from being privatized by a handful of banks. So it would be a good thing. If the banks have to write down the loans, that’s what they are supposed to do. They are already damaged from buying all of the toxic Wall Street waste, all of the junk that we marketed to them.

    So if they have to write down European sovereign debt on top of that, they may be damaged. But in that case the European Central Bank should focus directly on saving the banks, and not on destroying democracy in order to have power concentrated in the EU.

    You see this crisis is being used by the EU bureaucracy in Brussels to destroy the financial sovereignty of the individual countries....

    It’s the same here (in the US). Who runs the Treasury? Who runs the financial regulatory agencies? Who runs the Fed? It’s all of the executives of the banks that are ‘too big to fail.’ That’s exactly who they are. So the various CEO’s who got the banks in trouble are now running economic policy in the United States. That’s essentially where it is headed in Europe.”

  6. Stop Whining About Privacy, Bloomberg Says

    New York Mayor Michael Bloomberg thinks your concerns about privacy in a world of city- and drone-mounted surveillance cameras are unimportant. His advice to radio audiences Friday morning? “Get used to it!”

    Bloomberg’s tough-guy, fatalistic attitude is well and fine for a man with $27 billion. He can buy all the privacy he wants. But you can’t. And he doesn’t care.

    “You wait, in five years, the technology is getting better, ther’ll be cameras everyplace ... whether you like it or not,” Bloomberg said.

    “The argument against using automation is just this craziness that ‘Oh, it’s Big Brother,’ ” he continued. “Get used to it!”

  7. In the end all these psychopaths care about is control.

    1. yup..

      Why Cyprus 2013 Is Worse Than The KreditAnstalt (1931) And Argentina 2001 Crises

      Economic analysis: Confiscation and two broken promises

      Cyprus 2013 is worse than the KreditAnstalt and Argentina 2001 crises because it has an element of confiscation and two broken promises that were absent in the latter.


      Neither in 1931 or in 2001 were the depositors in Austria or Argentina subject to an explicit and arbitrary confiscation of their savings by their fellow representatives, meeting at a Parliament. This is a totally new element of violence in the drama. Back in 1931 and in 2001, depositors simply run against their banks for price discovery: to discover the true value of holding US dollar bills –physical- vs. their respective fiat currencies (shillings and pesos). That was all what these exercises (i.e. runs) were about. The governments did not intervene to distort the final discovery. In the ‘30s, through contagion to the US, such discovery allowed depositors to realize that their US dollars were worth a lot less than 1/20.67th of an ounce of gold. In the 21st century, the final act of the same game will see holders of fiat gold realizing that there is a premium for physical gold.

      Both in 1931 and 2001, governments intervened only to slow down the process of price discovery. But could not change the outcome of the same. In the case of Argentina, with a credit multiplier for US dollars of 1/0.3 (30% was the reserve ratio), the US dollar ended trading at 3 pesos by 2003. Nobody should have been surprised in Argentina therefore, that the peso lost 2/3rds of its value vs. the US dollar. The devaluation was not a confiscation. Depositors did not bail out their banks or the government. Depositors simply suffer a market priced transfer of wealth that benefited those who held physical US dollars. And neither the banks nor the government had physical US dollars. That’s why they both went bankrupt.

      In Cyprus 2013, depositors have no clue as to what the final recovery of their capital will be. The expected losses have no connection with a public credit multiplier (In Argentina everyone and their grandmothers knew that as of March 1995, by regulation of the central bank, for every three fiat US dollars circulating there was only 1 real US dollar as backup). In Cyprus, the final recovery is being “debated” at this moment by members of Parliament and is consulted to powers outside the country, in Brussels, in Berlin, in Washington DC and in Moscow. This is far worse. This will bring an element of social conflict, of resentment, that will not be easy to appease.

  8. Currency Wars: ‘Race to Debase’ spurs central banks’ gold-buying spree

    Today's unbacked fiat currencies are at the root of an emerging global monetary problem. While the talk of "recovery" in recent months now populates headlines, the desperate actions of politicians and central bankers show the contrary.

    The Federal Reserve (Fed), European Central Bank (ECB) and the Bank of Japan (BOJ), cannot stop creating new base money. Central Banks want to present confidence to the markets. Where the risk lies for monetary policymakers is in the value of the debt on bank balance sheets, and the value of the debt across the broader economy. This debt is being held at par because interest rates should be much higher. All of this has led to a situation where interest rates do not reflect true inflation.

    There is a saying "the further back you look into the past, the more certain you can be about the future." History has shown that currency debasement ALWAYS leads to inflation and ultimately hyperinflation. This happened to the Roman Empire, the Weimar Republic in Germany, Argentina and most recently Zimbabwe where inflation peaked at 7.96 billion percent.

    You would think that people would learn from history. Well, apparently not. -

    See more at:

  9. Big Money 2 - Jim Sinclair 0 in many instances. Gold will never go below 1600 again. What about his 1650 level for gold. That is two years behind - doesn't really count when you reach 1900 and then go below 1650 again and having a hard time to get above it and stay there.

    I have said many times someone else is in charge and that is the Fed and the Commercials - no one else. Once they want it to go up again they will let it go up.

    What anyone else says is plain soup.

    1. "Gold will never go below 1600 again."

      I don't recall Sinclair ever saying that. I believe the quote is "Once Gold breaks $1600, we may never see sub $1600 again". There is a significant difference between the words "may" and "never".

      Secondly, since gold recently broke $1600 it has closed above $1600 everyday. Great job to those lucky enough to catch the 1min. flash crash to $1592. If you blinked, you missed it.

      Regarding Sinclair's $1650 projection. . . You do realize Sinclair made that prediction years in advance when gold was trading at a small fraction of $1650. His prediction seemed so absurd that he was dismissed and ridiculed. Jim was right and nailed it within a month or two. He was years ahead of the times.

      If someone predicted gold hits $8,950 in January 2016, it would seem like an absurd prediction right now to many. If gold first printed $8,950 in February 2016, I would be very impressed. I wouldn't call the guy a loser because his prediction was two weeks off. It's much easier for someone to make a short term prediction than to a long-term prediction. If gold closes above $1600 everyday from here on out, I will be very impressed with Sinclair's prediction. Years from now, I won't look back and say "Yea, but gold traded intraday at $1592 for 1min.". I mean c'mon.

    2. Gold squeaked out a a $1601 close today and has closed above $1600 every day since Sinclair made his comment. We will see what happens, but so far Sinclair has essentially been right on this call.

  10. Euro Bailouts: Savers Be Warned - Your Money's Not Safe

    Nearly half of all Germans fear for their savings -- and with good reason. At times like these, the only thing that is certain is that nothing is certain.

    Not even savings accounts are safe, as was recently seen in Cyprus. Such deposits are actually guaranteed to up to €100,000, but the euro rescuers cared little about this as they desperately searched for funds. Cypriot small savers may have escaped this time around, but the realization remains, even beyond Cyprus, that a state teetering on the edge of bankruptcy will resort to all available means to raise money -- and a guarantee is only worth something as long as the entity that stands behind it remains solvent.

    Nothing is safe from being seized by the state, no savings account, but also no house or apartment. The Germans experienced this after World War II, when they were charged an extra real estate tax in the form of compulsory mortgages. Governments have even banned the possession of gold during currency crises, forcing citizens to exchange the precious metal for the national currency.

    So far, people in the debt-ridden countries of the euro zone haven't had such levies imposed on them. But why not? According to a recent study by Germany's central bank, the Bundesbank, for instance, Spaniards hold more wealth, on average, than Germans.

    Greece and Cyprus have millionaires and billionaires of whom many profited from the artificial boom fueled by low interest rates after the introduction of the euro -- a boom that subsequently went bust. Why shouldn't they help finance efforts to deal with the aftermath? Is it fairer to place the burden on the euro bailout fund, and thus distribute it among the taxpayers of other countries?

    The outlook is grim for savers, who are caught in a trap. Only genuinely wealthy individuals can place their money in the hands of a fund manager, who can spread the risk and find safe havens by investing on different continents and in different types of assets.

    Not surprisingly, some people will emerge from the euro crisis having increased their assets, or at least maintained them -- while the vast majority will be significantly poorer.


  11. Richard Russell - Cyprus, Gold, & The World’s Money Masters

    Those who control the money make the rules, and their main aim is to remain in power. Currently, the various central banks control the creation and the issuance of money. To ensure that they remain in power, the central banks are spewing forth a veritable avalanche of fiat currency, money created out of a computer -- money that has been created out of “thin air.” In turn, we are supposed to bow down and thank the money creators, those who are saving us from a new world depression.

    At this time, although no banker will admit it, we are experiencing an international currency war. Every nation wants a cheap, competitive currency. It's a system better known as “beggar thy neighbor.” Further, here in the US, the Federal Reserve has driven interest rates down to almost zero.

    The zero interest rates are calculated to force people into equities, or better still, into housing. The average man has little or no savings, and if he does have any savings, he can't find any place that will take his money and produce an income.

    In this whole process, debt has been created to an extent never seen before in history. So far, the debt has been managed with super-low interest rates and borrowing. But the compounding process goes on, and the debt mountain continues to grow. So, to be brief, I see the theme of today as the “haves” doing whatever they have to -- to remain in power.

    The dangers in the background for the haves are the possibilities that (1) interest rates will begin to advance, and (2) inflation will rise and be so visible that even the common man will recognize it, and begin to protest, or even revolt and (3) the whole debt structure will rise so high that it will topple over of its own weight and take down the entire world economy with it.

    So to sum up my search for a THEME, the theme of today is the “haves” remaining in power, and in doing so, also keeping the “have-nots” content and happy. Everything we are dealing with now, including stocks, bonds, real estate and possible sources of income revolves around the central theme that I have presented.

    One further comment. The key to control by the “haves” is the production of fiat, unbacked money. Gold is the enemy of money created out of a computer. When gold was removed as a discipline behind money, those who could create money out of thin air discovered the path to riches and control. And they developed a hatred towards gold that was understandable.,_Gold,_%26_The_Worlds_Money_Masters.html

  12. A Message From the Banking and Brokerage System

    Paper currency held in a bank is not a 'risk free' asset. To the contrary, it is like walking around with a very large and willfully powerful counterparty that has one hand in your pocket.

    And in the case of 'digital money' they do not even have to have a hand in your pocket. They hold everything, all your savings, up front, and you have to apply for your money at a window, where they determine how much you may have. And that window can be closed anytime at will.

    They take your wealth, pay you almost nothing for it, and then offer you protection, with limits, from themselves.

    The deregulation of banks and the overturn of Glass-Steagall was intended to create a license to steal, by design. Hundreds of millions were spent in a decade long effort lobbying for it. These were the protections that were given to us, and fought for by our fathers and grandfathers. And we squandered away that wisdom, having unlearned the lessons of the past.

    This is predatory financial capitalism and modern monetary theory unrestrained by the rule of law and transparency. This is the lesson from Cyprus, and of MF Global. And it is no different in the US or UK, except in the matter of time and degree. None are safe.

    And the financial sociopaths and their enablers have no limit to their greed, no sense of boundaries, and certainly no shame.

    ...nice system, eh?

  13. Twilight of Justice

    The List

    We all know the HSBC isn’t the only bank too large to prosecute. There is in fact a list.

    The list is decided upon by the FSB. It is updated every year.

    The FBS (Financial Stability Board) is a new international body. It is made of representatives from the central banks, financial regulator and Treasury from each of the 25 member nations plus representatives from:

    The Bank for International Settlements (BIS), the ECB, the European Commission, the IMF, OECD and World Bank, plus representatives from the Basel Committee on Banking Supervision (part of the BIS), the Committee on the Global Financial System (another part of the BIS), the Committee on Payment and Settlement Systems (another part of the BIS), the International Association of Insurance Supervisors, the International Accounting Standards Board, and the International Organization of Securities Commissions.

    Guess which institutions provide the membership of ALL for the above international bodies? Yes, you got it – the big banks. And how many Central banks can you think of that are staffed or even headed by people formerly from one of the Big Banks?

    You tell me who is really staffs the FSB and whose world view and interests does the FSB actually represent?

  14. 55-1; 16-1 right around the corner; your pussy