Friday, January 25, 2013

The Government's War On The Truth

The classical or orthodox gold standard alone is a truly effective check on the power of the government to inflate the currency. Without such a check all other constitutional safeguards can be rendered vain. - Ludwig Von Mises, "The Theory of Money and Credit"
Well, we saw evidence last week that Von Mises was right about fiat currency and constitutional safeguards when nearly every Congressman voted in affirmation - and Obama immediately signed - a law which makes it illegal to have an organized protest in any location where Secret Service personnel are going to be hanging out:  LINK  Punishable by up to 10 years in prison. Think about this Occupy and Teabag people, if the Government knows in advance of one of your protest gatherings, they'll send some Secret Service people to that location and this law says the local police can arrest you if you show up to have your gathering.  I guess in the course of his Constitutional Law studies, Obama forgot to study the 1st Bill of Right - aka the 1st Amendment.  Bush referred to the Constitution as merely a piece of paper, Obama has waged a serious war against the Constitution.

(Note:  subsequent to my writing this, new home sales for December were reported:  plunged nearly 8% and the seasonally adjusted annualized number missed expectations by nearly 20,000 homes)

The housing market has been highly promoted by the media, the Government and Wall Street as "in recovery mode."  I've been working on an in-depth piece on the housing market but it's taking more time than I expected.  In the course of my research, I've come up with some interesting tidbits that I'll share now.  First, it was reported yesterday that Robert Shiller, regarded for some reason as the foremost housing market expert (I guess in the same vein that Bernanke is considered the leading expert on Depression avoidance), stated that the housing market decline could resume:  LINK Ya no kidding.  In fact, without the help of $100's of billions of Government and Fed subsidies since 2009, it's likely that housing would already be a lot lower.

I want to present just one chart that refutes the notion that the average person in this country is in any kind of position to help support any kind of meaningful housing recovery:

Consumer Debt (click on chart to enlarge)

Hmmm...what happened to the idea that consumer was "deleveraging?"  This chart - from the Fed database, seems to refute that notion.  We know that the size of the labor force continues to shrink.  We also know that on an inflation-adjusted basis, real income is declining.  Now we see that consumer debt levels are rising quickly.   Let me ask this simple rhetorical question:  how on earth can there possibly be any kind of real housing market recovery given the above facts? 

One more quick note on yesterday's jobless claims number.  The Government report noted that the data included "estimates" of the jobless claims filings in California, Virginia and Hawaii.  There's no way in hell that yesterday's supposedly "good" report had any kind of statistical validity.  It's just another example of the media spin and an increasingly Orwellian Government.

Before I finish for the weekend, I thought I'd leave you all with some Friday chart porn:

(click on chart to enlarge)

 In other words, don't sweat this latest attempt by the Government/Fed to knock down the price of gold and silver, the trend is your friend and this is nothing but another in the long line of tremendous buying opportunities.  Unlike the extreme hubris exhibited by Obama/Bernanke, we all should be a little grateful that these attacks on honest money occur because it enables us all to exchange our increasingly devalued fiat dollars for true money.  Have a great weekend.


  1. Making the case for negative interest rates

    FORTUNE -- The nation's biggest banks have been nursed by the Federal Reserve way too long, former Federal Reserve Vice Chairman Alan S. Blinder said Thursday as he kicked off the tour for his new book, After The Music Stopped: The Financial Crisis, The Response and the Work Ahead.

    The Federal Reserve, says Blinder, should stop paying interest to banks for their overnight deposits and should move to charge them for parking money. He says if the Fed set negative interest rates for overnight deposits – in effect charging a fee – banks would have to figure out better ways to make money and one obvious alternative would be to lend more to customers.

    Sparing no sitting ducks, Blinder blasts former President George W. Bush, former Treasury Secretary (and Goldman Sachs (GS) co-CEO) Henry "Hank" Paulson and their successors – President Barack Obama and Treasury Secretary Timothy Geithner - as communications failures whose collective silence about what was really going on amounted to public disservice.

    While citizens fail to understand the positive role the Federal Reserve played, Blinder also says people have a right to be angry about the ongoing practice that encourages banks to keep their deposits out of general circulation.

    "I have been advocating – and have not yet quite convinced (Federal Reserve Chairman) Ben Bernanke, although I am still working on it - that the Fed should lower, first to zero and then probably to negative, the interest rate it pays banks for holding reserves at the Fed," Blinder said Thursday. "When I want to be polemical about it, I say things like: 'My bank pays me one basis point on my checking account. Why are you paying my bank 25 basis points on their checking account?'"

    this should help....

    1. Only morons would think this to be bad idea. Let's fix this shit. Al

  2. RE: Consumer Deleveraging.
    Dave, Check out a chart which show consumer debt with and without including student loans. In all other categories debt is going down. Its just the unemployed returning to school which has the total debt increasing. I think I saw the chart on ZH.

    Thanks for all your good work,

    1. Auto loans are going up. Mortgage debt is increasing. In fact, I don't have time prove it now, but I would bet my dog's life that if you broke out consumer debt into the amount of debt that has been written off/forgiven by the banks and monetized by the Government, I bet if you add that back in, consumer debt is off the chain.

      In fact, I know for a fact that most of the so-called systemic deleveraging, especially at the banks, has been nothing but a transfer of that debt to Government and the Fed. The Fed portion has been guaranteed by the Treasury, so it's yet another source of off-balance-sheet Govt debt that NO ONE talks about.

    2. The Consumer, the Debt, and Competitive Devaluations

      In summary, because the U.S. consumer is over burdened with debt we don't believe there will be enough consumer demand to spark business spending or hiring. The consumer had increased household (H/H) debt every single quarter since World War II (including the severe recessions of the early 1970s and 1980s). H/H debt averaged around 65% of Personal Disposable Income (PDI) and 50% of GDP for decades (50s, 60s, 70s and 80s) before taking off in the 1990s to double this average by 2008 (130% and 100%). However, in 2008 when the Great Recession hit the U.S. and because H/H debt rose so much, H/H debt declined for 15 out of the last 17 quarters. Some would think this deleveraging would be a positive for the U.S. economy and stock market, but because the H/H debt to PDI is still 110% and 100% of GDP, the total H/H debt is still close to $13 tn and would have to drop by another $3 tn or so to get back to the normal relationships to PDI and GDP (Ned Davis Charts are attached). This continued deleveraging will dampen consumer borrowing and spending which, in turn, will effect business spending and hiring not only in the U.S. but globally. If we are correct, the U.S. and global economies will contract and there will be a race to the bottom with "competitive devaluations" rampant. All the countries that need exports for economic growth will be very aggressive in the race to the bottom, as the global economy struggles, and drives these same countries into the next stage of the "Cycle of Deflation" ---"Beggar-thy-Neighbor."

      good charts on
      Household Debt Percent Of GDP
      Household Debt Percent of Personal Income

  3. An Open Letter to Mary Jo White

    Dear Mary Jo,

    Congratulations on your nomination for SEC Chairman. As you may know, we at Themis Trading are, and have been, very critical of the current US equity market structure. We believe that a series of rule changes begun under the stewardship of one of your predecessors, Arthur Levitt, are largely responsible for turning deep, centralized, and diverse pools of liquidity into our current fragmented mess of a market, which includes thirteen stock exchanges and dozens of dark pools. These fragmented trading venues are shallow and non-diverse in their participation, have non-uniform matching rules, and in many cases are extremely non-transparent. And in times of market stress, this current fragmented system has an Achilles heel, which has been exposed in the May 6th Flash Crash, as well as in the countless mini-flash-crashes, botched IPOs, and algo-glitches.

    While markets are currently near historic highs, there exists a temptation to ignore problems as complex as market structure. However, we think it is precisely at this point in time that we need to fix our capital-raising system’s plumbing. We think that you have a great opportunity as the new Chairman to take a holistic approach to market reform. We hope you will seriously consider:

    - Banning payment for order flow at all levels.

    - Eliminating the maker-taker exchange pricing model.

    - Mandating that exchanges route to each other when fragmented markets become “locked”.

    - Simplifying/eliminating complex and unnecessary exchange and dark pool order types.

    - Instituting dark pool regulation.

    - Changing the SRO rulemaking process so as to include input from investors, and not just traders.

    The time has come to recognize that the Frankenstein market that has been created, perhaps unintentionally, does not possess a sound foundation. While technology has been a crucial and cherished driver of good for investors, the SEC must make sure technology is leveraged in alignment with the goals of investors, and not traders – no matter how fast they are.

    As you settle in, be prepared to be bombarded with self-interested industry participants and their lobbyists who want to sway your opinion. You are likely to hear from:

  4. Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen House

    I was shocked when I heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.

    I thought to myself: Couldn't they have found someone who wasn't a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn't they have found someone who isn't a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?

    I'll leave it to others to chronicle the other highlights and lowlights of Mary Jo White's career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre's investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode.

    If Barack Obama wanted to send a signal that he's getting tougher on Wall Street, he sure picked a funny way to do it, nominating the woman who helped John Mack get off on the slam-dunkiest insider trading case ever to cross an SEC investigator's desk.

    When I contacted Gary today, his take on it was simple. "Obama is not going to clean up financial corruption," he said, "by pinning a sheriff's badge on Wall Street's protector-in-chief."

    Read more:

  5. Dave, this is one place I come to get relief from the MSM "science fiction" that they puke up everyday. Thanks,

    Juels Verne

  6. What the hell is happening to the USA?

    Kill lists, or murder by Presidential opinion,
    Indefinite detention without representation (NDAA),

    now possibility of 10 years inside for saying something to an official which could be perceived as a protest when a "person of importance" may in the vicinity. Even if you have no knowledge of this individual's movements it's still a crime?

    Some evidence that Sandy Hook could be a false flag attacking your rights to own guns?

    THE USA country is fast becoming the fascist capital of the world. Seems you need to either start organising your rebellion now, give up your citizenship, or move abroad, and even then your unborn kids will still have a liability to pay taxes to the IRS!

    Frankly I do not want to even visit the US anymore with all the potential legal pitfalls facing the ignorant tourist.

    .. Current law makes it illegal to enter or remain in an area where certain government officials (more particularly, those with Secret Service protection) will be visiting temporarily if and only if the person knows it's illegal to enter the restricted area but does so anyway. The bill expands current law to make it a crime to enter or remain in an area where an official is visiting even if the person does not know it's illegal to be in that area and has no reason to suspect its illegal. (It expands the law by changing "willfully and knowingly" to just "knowingly" with respect to the mental state required to be charged with a crime.

    Amash is correct in noting that the omission of the word "willfully" represents an unfair burden to the citizen. In legalese, this omission creates a situation where anyone can be charged with a federal felony for 'trespassing' on grounds shared by a person or group receiving Secret Service protection (including NSSE's); EVEN IF THE 'TRESPASSER' HAD NO KNOWLEDGE OF SUCH PROTECTED PERSONS BEING PRESENT. In theory, anyplace where there is a protest could also be the setting for mass felony charges against constitutionally protected behavior such as the right to protest.

    How can your representatives vote this crap in? More importantly

    WHY DO YOU LET THEM?????????????????????????????????

    1. Why?..they're above the law...

      Bill Black: Why the World Economic Forum and Goldman Sachs are Capitalism’s Worst Enemies

      By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City.

      It is fitting that Goldman Sachs is the recipient of this year’s “Public Eye” designation, but it is even more fitting that it is being announced during the World Economic Forum (WEF) at Davos. Goldman Sachs exemplifies the travesty that WEF has created. It is not the worst of the worst. It is representative of the financial world of systemically dangerous institutions (SDIs) that are spreading crony capitalism through the West. The SDIs are the so-called “too big to fail (or prosecute)” banks.

      The ability of the SDIs to commit fraud with impunity from the criminal laws is a defining element of crony capitalism. The impunity and implicit national subsidies to SDIs combine to make “free markets” an oxymoron. The SDIs’ economic power translates easily into dominant political power. Crony capitalism cripples markets and democracy.

  7. In the second half of the show, Max Keiser talks to Professor Steven A. Ramirez, a former Enforcement Attorney at the US Securities and Exchange Commission, about the broken social contract, when that contract got broken and how to mend it.

  8. Liquidity Bubble

    Mr. Dalio believes we’re at some risk of a “liquidity bubble.” “Money” seems to play an important role in his analytical framework. But Dalio, like many of us, ponders the question “what is money?” The role of “money” is fundamental to my analytical framework and Bubble thesis.

    Contemporary “money” and Credit are essentially electronic-based. Outside of currency, what we think of as “money,” Credit and “finance” are electronic debit and Credit entries in a complex global accounting system. It’s essentially a comprehensive system of liabilities and corresponding assets – one person’s IOU is another’s financial asset; one institution’s…; one government’s…; and so on.

    “Money” is special – always has been. It’s “precious.” But, importantly, contemporary money is made precious in a much different manner than had been the case historically. Money traditionally enjoyed preciousness because it was “backed” – it was a claim supported by either gold, precious metals or other forms of tangible economic wealth. Trust in money was maintained only when it was issued in limited quantities. Importantly, money is dangerous specifically because of its preciousness – faith that it won’t be over-issued and conspicuously debased. To a point, demand for money is almost insatiable. And too many times throughout history the government printing press has been used as a political expedient.

    There is today seemingly little that differentiates “money” from Credit. They’re all just electronic entries. Contemporary “money” is Credit – but it’s special Credit. It’s special because of the perception that it’s a safe and liquid store of nominal purchasing power. It’s precious these days specifically because of the perception that policymakers – especially central bankers – will ensure that it maintains its essentially “risk free” attributes. It has indeed enjoyed insatiable demand – and this has allowed Trillions of “money” to be issued in the post-2008 crisis environment. And this “money” inflation has been absolutely instrumental in sustaining the global Credit expansion – in the process reflating markets, economies and animal spirits. It has again proved invaluable as an “expedient.”

    Dalio is calling 2013 a “transition year” and a “game changer.” I’m sticking with my “Bubble Year.” From Dalio: “There’s a lot of money in a place that’s getting a very bad return and in this particular year there’s going to be, in my opinion, a shift. The complexion of the world will change as that money goes from cash into other things. The landscape will change particularly later in the year and beyond.”

  9. The Real Currency, Gold and Energy War in Mali

    EXCLUSIVE INTERVIEW: Have you heard lately of the meme of a currency war that’s going on? Well, Pepe Escobar, the “roving eye” correspondent of Asia Times, tells you about the real currency, gold and energy war that is now raging in Mali, as the overall Global War on Terror needs new battlefields to perpetuate itself as “The Long War.”


  10. Bank probes find manipulation in Singapore's offshore FX market - source

    SINGAPORE (Reuters) - Internal reviews by banks in Singapore have found evidence that traders colluded to manipulate rates in the offshore foreign exchange market, according to a source with knowledge of the inquiries.

    The discovery widens a global lending rate scandal into new markets, as fallout from the Libor case puts banks under added scrutiny and spurs both regulators and institutions to reconsider how certain key interest and currency rates are set.

    The probes found evidence showing that traders from several banks communicated with each other over electronic messaging about what rates they were going to submit for the local banking association's fixings for non-deliverable foreign exchange forwards (NDFs), aiming to benefit their trading books.

    "Traders were talking to traders, saying: 'I need you to help me today, I need to fix low,'" said the bank source, who asked not to be identified due to the confidential nature of the reviews.

    NDFs are derivatives that let companies and investors hedge or speculate on emerging market currencies when exchange controls make it difficult for foreigners to participate directly in the spot market.

    The contracts are settled in dollars, so there is no exchange of the underlying currency, but they can affect spot exchange rates.

    The Singapore bank probes show that the focus is now turning to other benchmarks, amid concern that they too were manipulated.

    The biggest banks in the Asian NDF markets include UBS, JPMorgan Chase & Co (JPM), DBS Group Holdings Ltd (D05.SI) and HSBC Holdings Plc (HSBA.L).

    The source did not make specific comments about possible wrongdoing by individual banks or traders and Reuters has no independent evidence of such wrongdoing.

    UBS, JPMorgan, DBS and HSBC declined to comment. Reuters also contacted the other 14 banks involved in setting NDF rates. Twelve said they had no comment while two did not respond to repeated telephone and e-mail requests for comment.

  11. New York City cop imprisons college student without ID for two days

    The whole ordeal began with a trip to Riverside Park, as Zucker recounts to New York Times columnist James Dwyer. Zucker is enrolled in a design program at Pittsburgh's Carnegie-Mellon University; together with 80 of her colleagues, she spent a long day on Oct. 21 scouting out prospective employment scenarios in New York's sprawling fashion industry. After pounding the pavement, she dropped off her bags at her West Harlem hotel. From there, she and fellow student Alex Fischer decided to stroll over to Riverside Park, to gaze out on the Hudson.

    There was just one problem: The two park visitors arrived at around 3 a.m. on Oct. 22, and the park is officially closed to visitors as of 1 a.m. A police car pulled up, and the officers in it informed the two students of their trespass. Zucker and Fischer explained that they hadn't known of the park's curfew, and turned around to leave. By then, however, another NYPD car appeared, and the officer driving it announced he was citing them for trespassing, and demanded their IDs. Fischer produced his driver's license and was let go--but Zucker had left her identification back at the hotel, two blocks away. She apologized, and told the officer that she could have Fischer or another friend fetch it.

    But no dice. "He said it was too late for that, I should have thought of it earlier," she told Dwyer. At that point, as Dwyer writes, the wheels of justice locked grimly into gear; Zucker was handcuffed and led into a surreal maze of detention:

    For the next 36 hours, she was moved from a cell in the 26th Precinct station house on West 126th Street to central booking in Lower Manhattan and then — because one of the officers was ending his shift before Ms. Zucker could be photographed for her court appearance, and you didn't think he was going to take the subway uptown while his partner stayed with her at booking, did you? — she was brought back to Harlem.

    It's not against the law, of course, to be out on New York's streets without identification--but the courts can detain people without identification in jail until their arraignment in lieu of issuing them a summons.