More Lies - Bernanke Says Fed Will Act as Needed

If you’ve ever listened to statements made by the Federal Reserve (Reports to Congressional committees, speeches, official statements, etc.), you’ve probably noticed that the Fed will use language that is almost impossible to interpret. Alan Greenspan was the master at this – most economists had no idea what he was saying most of the time – never mind the average American. Most of us haven’t really been concerned by this because it all seemed too complicated – better to let the ‘experts’ handle all of this economic stuff. The problem is that the ‘experts’ are lying to us.

When times were good – nobody cared much about what the Fed had to say – we were too busy leading our lives – and for most of us – life was relatively good. Now – things are much different. People are paying attention. It’s much easier to cut through the rhetoric and see what’s actually happening – now that the economy is in freefall. Things are now getting so bad, so quickly – that there’s not a whole lot the Fed can say – or do differently to give the appearance that they’re helping. This is why Bernanke’s statements below are so telling. He is repeating the Fed mantra of lowering interest rates and adding liquidity to the financial system – and is selling these actions as something that will help the present situation. If we ignore ‘official’ statements and look at the data – it’s very easy to see that cutting interest rates – or providing liquidity – will do nothing to help the situation. Let’s look at what Bernanke is saying and compare his comments to actual data and what’s actually happening within the world’s economy. This will allow us to translate ‘Fed Speak’ into English.

‘While Mr. Bernanke pointed to "tentative improvements in credit market functioning," he also warned "markets remain under severe strain."’

Mr. Bernanke is trying to present us with some good news here – while also giving us the warning that credit markets are still strained. Are credit markets actually improving? No. ‘Strained’ isn’t the word I would use. The following are excerpts from an article this week by Michael Pollick.

“While the Federal Reserve and, most recently, the European Union and Bank of England are pushing down hard on the interest rates they control, many borrowers are still finding themselves in the credit-crunched situation of trying to talk a lender into making a loan.”

“Despite pulling out nearly every weapon in their arsenals -- on Thursday, a bold 1.5 percentage point cut by the Bank of England that was the biggest trim in 27 years -- central banks have yet to thaw the fairly frigid lifeblood of the world's economies.”

‘"The credit markets are still a nightmare," said Carl Ritter, chief executive of Carbiz Inc., a "buy-here, pay-here" dealership chain based in Sarasota. "If they do have money, they are holding onto it. "Everybody is very nervous," Ritter said. From Ritter's tote-the-note car lots to homeowners with equity lines to county governments, the news is pretty much the same.’

"If we had to go out into the market right now, absolutely we are going to face higher costs," said Dan Wolfson, finance director for Manatee County's Clerk of Circuit Court and Controller. "What the Treasury is trying to do is, they are trying to restart the credit market, put some liquidity back into the market, but it still hasn't worked."

I see nothing out there that tells me credit markets are improving. Borrowing at the Fed Discount Window is setting records.

After a relatively calm July and August – borrowing skyrocketed in September and October was even worse.

“According to DJNewswires, with interbank lending markets barely functioning and commercial paper markets nearly paralyzed, a Federal Reserve report released Thursday showed record borrowing at the discount window. Depository institutions and primary dealers, combined, averaged $367.80 billion per day in the week of October 1, nearly double the previous record daily average of $187.75 billion last week. Total borrowing increased by more than 50% to $409.52 billion Wednesday from $262.34 billion in the prior week.”

“In addition, lending through the primary credit facility, used by commercial banks, also set a record by averaging $44.46 billion per day in the latest week, versus $39.36 billion the previous week.”

We also have the added ‘problem’ that consumers are not taking on as much debt (those that still qualify) - with the economy contracting over the past few months. Everyone is now very worried about the economy – their jobs, their investments – their retirement funds – so most people now realize that taking on more debt is a bad idea in a contracting economy. What most people don’t realize – is that debt creation is required for our economy to continue to function. This is the dirty little secret that the Fed is hiding from the world.

Let’s continue reviewing Bernanke’s statements.

“U.S. Federal Reserve Chairman Ben Bernanke said Friday officials stand ready to "take additional steps" if needed to calm roiled financial markets, suggesting liquidity measures and interest rate cuts remain on the table.”

Let’s first take a look at what the Fed can do with interest rates to help this crisis. When the Fed says ‘interest rates’ – it’s talking about the Federal Funds Rate. This is the interest rate that banks charge each other for ‘overnight’ loans (from reserves at the Fed) to each other. The Fed sets a ‘target’ for this interest rate – by increasing/decreasing reserve levels (open market operations). The current ‘target’ is 1% - which means that there’s not a whole lot more that it can do. You can’t reduce the rate below zero – but this doesn’t tell the whole story. In ‘normal’ times – it’s not difficult for the Fed to maintain this rate. As you know – we’re not in ‘normal’ times – and the Fed has lost control of the actual Fed Funds Rate. The following graph shows the the actual Fed Funds Rate.

The blue line shows the actual (Effective) Fed Funds Rate. When financial markets began to get really crazy in September, the Federal Reserve lost control of this interest rate (due to all of the additional liquidity ‘actions’ by the Fed). You can see that the current Fed Funds Rate is almost 0% - not its target of 1%. So, when Bernanke tells us that the Fed is prepared to lower interest rates to help the current financial crisis – will this actually help anything? Of course not. The only thing they could do would be to lower the Fed Funds Rate to 0% - which would effectively reduce it by .11%. This would have exactly zero impact on financial markets. If you remember, Japan’s Central Bank reduced their Fed Funds Rate to 0% for five years earlier this decade (2001 – 2006) to fight deflation – and it had little impact on their economy. They are currently battling deflation again – just like the rest of the world.

Is this a mystery to Bernanke? No – he’s certainly aware of what the actual rate is – so the question becomes – why isn’t he being honest with this information? The truth is - he’s simply putting on a show until things really head south.

As I mentioned in earlier posts – while credit markets are certainly impacting the overall problem (since lending has been dramatically reduced), debt the world over is crushing the world’s ability to sustain this economic system. All the liquidity in the world doesn’t mean anything if no one wants to (or can) borrow. That’s why the following comments are nothing more than fluff. He’s trying to reassure everyone on the Titanic that we can help this by shuffling the deck chairs around a little faster. Absolutely ridiculous.

‘"For this reason, policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," he said.’

‘In his speech Friday, Mr. Bernanke called the coordinated action taken on Oct. 8, "a strong signal to the public and to markets of our resolve to act together to address global economic challenges."’

Mr. Bernanke also said the "credit squeeze" is a "principal cause of the economic slowdown now taking place in many countries."

‘Unlike some of his Fed colleagues, including Richmond Fed President Jeffrey Lacker and San Francisco Fed President Janet Yellen, Bernanke has declined to characterize the current U.S. economic downturn as a recession.’

This is really getting ludicrous. There’s no other word for his statements. The leader of the most powerful financial institution on earth is either delusional or he’s simply lying to us. He doesn’t seem delusional to me – which leaves us with our answer. Take a look at recent economic indicators – and you tell me the current state of the economy.

Let’s start by looking at something that affects all of us – unemployment. Unemployment is up – payrolls are down - and the trends are definitely not good.

Since the retail sales/service sector makes up about 70% of our economy (GDP) – let’s review how this segment of the economy is doing. If you’ve been paying attention to the news recently – then you know the answer is – not good.

Auto Sales have dropped off a cliff:

Retail Sales (Non-Auto) haven’t faired much better:

Deflation still rules the day across the board.

Prices for U.S. imports and exports are falling dramatically.

Commodity prices continue to slide.

Manufacturing has fallen off a cliff.

Since consumers drive 70% of our economy – how are they doing? Again – everything is heading in the wrong direction. Consumers are worried – and they’re not spending as a result.


The median price of an existing home in the U.S. is now below $200K and declining. I’ve seen no indication that the housing market is recovering.

Economic growth is falling off a cliff – around the world…..

……and our Federal Deficit is growing dramatically as we borrow to pay for the ‘bailouts’.

Let’s do a quick review – the economy is contracting, job losses are increasing to record numbers, few people can get loans, even fewer people have the ability (or desire) to borrow any additional money, banks are failing, deflation is running rampant throughout the world’s economy, corporate earnings are declining at an alarming rate, our Federal debt is out of control due to increased ‘bailout’ spending and nations around the world see the need to implement billion dollar ‘stimulus’ plans. I’m not an economist or the chairman of the Federal Reserve – but I’d say we are in a recession – at the very least. At the very worst – we are staring into an economic abyss. Every economic indicator I can find is pointing in the wrong direction – yet Bernanke doesn’t see us in a recession. To him – things are simply ‘strained’.

All of this bad news continues to roil our stock markets. The DJIA traded in a 900 point range yesterday and the volatility continued today with the DJIA losing 5% this week.

If this doesn’t make you question the leadership we are receiving from our political and financial leaders – I’m not sure what will.

Bernanke and Paulson continue to give the impression that the Fed (and the Treasury) remain in control and ready to help with additional measures – when the truth is that the Fed and the Treasury don’t have any real weapons left to fight this worldwide economic decline – which is why we are seeing world leaders call for additional, coordinated ‘stimulus’ packages. Again, this doesn’t solve anything – at best, it only delays the inevitable. It will be interesting to see what comes out of the G-20 conference this weekend. Get ready for more proposals and debates on a global solution to the crisis.

jg – Nov 14, 2008
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NOVEMBER 14, 2008, 8:40 A.M. ET
Bernanke Says Fed Will Act as Needed
By BRIAN BLACKSTONE
Wall St. Journal

WASHINGTON -- U.S. Federal Reserve Chairman Ben Bernanke said Friday officials stand ready to "take additional steps" if needed to calm roiled financial markets, suggesting liquidity measures and interest rate cuts remain on the table.

While Mr. Bernanke pointed to "tentative improvements in credit market functioning," he also warned "markets remain under severe strain."

Speaking to a European Central Bank conference marking the 10th anniversary of the euro, Mr. Bernanke said "the continuing volatility of markets and recent indicators of economic performance confirm that challenges remain." (Read the full remarks.)

"For this reason, policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," he said.

Since the subprime mortgage meltdown started gripping financial markets in the summer of 2007, Fed officials have responded aggressively with a massive reduction in the federal-funds target rate from 5.25% in September 2007 to just 1% now.

Many economists expect the Fed to lower the fed-funds rate again when it meets next month, particularly in light of a government report last week showing a 240,000 decline in nonfarm payrolls and 0.4-percentage-point jump in the unemployment rate to 6.5%.

Fed officials have also greatly expanded the Fed's balance sheet through credit initiatives and lending programs. Weekly data released Thursday pegged the Fed's balance sheet at $2.2 trillion.

Last month in an unprecedented joint action, central banks around the world including the Fed, ECB, Bank of England and others lowered policy rates by one-half percentage point each. Many of those central banks have followed the reductions with additional rate cuts in the past three weeks.

In his speech Friday, Mr. Bernanke called the coordinated action taken on Oct. 8, "a strong signal to the public and to markets of our resolve to act together to address global economic challenges."

Mr. Bernanke also said the "credit squeeze" is a "principal cause of the economic slowdown now taking place in many countries."

Unlike some of his Fed colleagues, including Richmond Fed President Jeffrey Lacker and San Francisco Fed President Janet Yellen, Bernanke has declined to characterize the current U.S. economic downturn as a recession.

Still, the evidence is mounting that the U.S. is in a serious recession along the lines of the early 1980s. Gross domestic product slid 0.3%, at an annual rate, in the third quarter, and economists say GDP could plummet more than 3% this quarter.

The popular rule of thumb for a recession is two-straight quarterly GDP contractions. The National Bureau of Economic Research, an academic research group, makes the official call based on a series of indicators.

Write to Brian Blackstone at brian.blackstone@dowjones.com

G-20 Leaders Tighten Grip on Banks

Basically, the G-20 Summit was a nice photo opportunity. The only real item to come out of this summit is that they are going to require banks to tighten lending standards. Of course, it’s a little late in the game for this. The following comments say it all.

“The question now is whether, in their haste to address a future crisis, the leaders of the Group of 20 may have inadvertently taken steps that could worsen the current one.”

"The last thing you want to do in a global credit crunch is go around and basically tell people to tighten, tighten, tighten."

As you now know, ever-increasing debt is required in our current economic system – when debt decreases (either because it is paid-off or the system reduces taking on more debt) – our money supply decreases – causing further pain in the system. Banks around the world are already ‘clamping down’ on lending to individuals and small companies due to increasing loan default rates. Loan defaults are skyrocketing for everything – homes, cars, credit cards, etc. Again, this shouldn’t surprise anyone – since banks must maintain capital levels - it’s only logical for them to tighten lending standards. You don’t want to use what capital you do have – on risky loans.
So, for the G-20 leaders to issue statements that governments are going to require tighter lending standards – doesn’t really make much sense at this point in the crisis. It would have made much more sense for Central Banks and governments to do something like this back in 2002-2005 – when lending was out of control. Now – it will only cause more pain in the world’s financial system.

If you study the numbers – you’ll notice that the total dollar amount of bank lending has actually increased – but not in the way you would expect. The increase in lending is due to large corporations tapping existing credit lines – because all other sources of funding are disappearing (short term debt markets). The number of new loans to individuals and small businesses is plummeting.

The question everyone should be asking is – why is so much debt required for the world’s financial system to function – short term, long term, corporate, personal, etc.? We’re starting to realize just how unstable this system really is.

The next questions are – do you really believe that the world’s leaders are unaware of the cause of all of this? Why are they only treating the symptoms and not the disease?

Of course they are aware of what is really happening – the truth is that they are lying to us – about a great many things.

jg – Nov 17, 2008
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NOVEMBER 17, 2008
G-20 Leaders Tighten Grip on Banks
After Weekend Summit, Economists Say Emphasis on Lending Restrictions Threatens a Quick Recovery

WASHINGTON -- In a weekend summit, leaders from the world's biggest economic powers ordered a clampdown on reckless market behavior, including steps they said would help prevent the next credit crisis.

President Bush says summit leaders have agreed to a number of terms to coordinate and modernize their financial systems in the hopes of keeping the global economic crisis from getting worse.

The question now is whether, in their haste to address a future crisis, the leaders of the Group of 20 may have inadvertently taken steps that could worsen the current one. "This is a big signal to everybody to clamp down on their banks to tighten lending standards," said Simon Johnson, a former chief economist at the International Monetary Fund. "The last thing you want to do in a global credit crunch is go around and basically tell people to tighten, tighten, tighten."

As part of a lengthy to-do list, G-20 leaders told financial regulators to demand that banks create bigger liquidity cushions, assess their risk-management practices and boost capital requirements for certain risky investing practices. The group set a March 31 deadline for the measures, while putting off major regulatory decisions.

Mr. Johnson, now a business professor at the Massachusetts Institute of Technology, said such moves would encourage banks to hoard capital and would make sense once the crisis has passed. But leaders, he noted, were eager to take action.

President George W. Bush, U.K. Prime Minister Gordon Brown, Chinese President Hu Jintao, French President Nicolas Sarkozy and the other G-20 leaders vowed to take the necessary steps -- government spending programs, tax cuts or interest-rate reductions -- to restart a global economy teetering on the edge of recession.

The leaders embraced a renewed effort to unblock global trade talks and promised they will refrain from using commercial barriers to protect their own industries. "We agreed on the importance of rejecting protectionism," Mr. Brown said. "It is the first time that a meeting of world leaders has instructed ministers to come to an agreement and I think we will see an agreement in the next few weeks."

The initiative could provide an early test for President-elect Barack Obama, who has campaigned as a trade skeptic, but may be reluctant to reject a major round of international trade talks as one of his first moves in the international stage.

The meeting also underscored a split Mr. Obama will have to reconcile. The U.S., China and Canada, among others, have been more cautious about new cross-border regulations than their European counterparts, especially the French.

Mr. Obama didn't attend the G-20 summit. He sent former Iowa Rep. Jim Leach, a Republican, and former Secretary of State Madeleine Albright to meet with G-20 representatives.
Much of the communiqué, released on Saturday, focused on steps to prevent a recurrence of the world-wide crisis that sprang from the collapse of trillions of dollars in securities backed by high-risk U.S. subprime mortgages. Most of Europe is now in recession, while the U.S. economy shrank at an annualized 0.3% in the third quarter.

World leaders pose for a group photo at the opening of the G-20 summit hosted by President George W. Bush.

"I'm a free-market person until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression," Mr. Bush told reporters after the summit ended. The G-20 leaders endorsed a series of principles for action, such as promoting financial-market transparency. They also assigned finance ministers a number of immediate steps before their next summit in April, such as establishing "colleges" that bring together supervisors from different countries to swap notes on the institutions they oversee.

The communiqué itself reflected the underlying tension between reducing risk and increasing lending. "Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries," the leaders said.

Some London bankers are already up in arms over a European Union proposal, similar in outline to that of the G-20, that would force banks to hold on to extra cash to cover certain losses. Banks say that will make raising cash more expensive and discourage lending. U.S. officials share the concern that too much regulation might worsen the credit shortage, White House spokesman Tony Fratto said on Sunday. But, Mr. Fratto said, "given the current psychology in the financial sector, better supervision and transparency could instead have the effect of reducing fears about counterparty risk and so increase the appetite for risk-taking."

—John W. Miller in Brussels and Sudeep Reddy in Washington contributed to this article.
Write to Michael M. Phillips at michael.phillips@wsj.com, Alistair MacDonald at alistair.macdonald@wsj.com and Kara Scannell at kara.scannell@wsj.com

Don't Bailout My State

It’s nice to see someone in a leadership position state the obvious and take a stand – you cannot borrow your way out of debt. Impossible. Sooner or later – you either pay it all back – or default.

jg – Nov 18, 2008
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Don't Bail Out My State
South Carolina's governor says more debt isn't the answer.
By MARK SANFORD
Wall St. Journal

I find myself in a lonely position. While many states and local governments are lining up for a bailout from Congress, I went to Washington recently to oppose such bailouts. I may be the only governor to do so.

But I suspect I'm not entirely alone, as there are a lot of taxpayers who aren't pleased with Christmas coming early for politicians. And I hope these taxpayers make their voices heard before Democrats load up the next bailout train for states with budget deficits.
Several questions led me to oppose bailing out the states. They are worth asking, even if you supported bailing out Wall Street.

Who bails out the "bail-outor"?

Washington is short on cash these days and will borrow every dime of the $150 billion to $300 billion for the "stimulus" bill now being worked on. Federal appetites may know no bounds. But the federal government's ability to borrow is not limitless. Already, our nation's unfunded liabilities total $52 trillion -- about $450,000 per household. There's something very strange about issuing debt to solve a problem caused by too much debt.

Do you now have to be a financial "bad boy" to win?

Community bankers tell me that they are now at a competitive disadvantage for being careful about who to lend to, because others that were less disciplined will get a federal bailout. This is also true for states. Those that have been fiscally responsible will pay for or lose out to the big spenders. California increased spending 95% over the past 10 years (federal spending went up 71% over the same period). To bail out California now seems unfair to fiscally prudent states.
Was the economist Herb Stein wrong when he said that if something cannot go on forever, it won't?

Medicaid grew 9.5% annually over the past 10 years. That's unsustainable. But if Congress opens the checkbook now, there will be no reform.

Isn't government intervention supposed to be the last resort and come only when it can make a difference?

In 2008 bailouts became the first resort. Over the past year the federal government has committed itself to $2.3 trillion (including the tax rebate "stimulus" checks of last February) to "improve" the economy. I don't see how another $150 billion now will make a difference in a global slowdown. We've already unloaded truckloads of sugar in a vain attempt to sweeten a lake. Tossing in a Twinkie will not make the difference.

However, there is something Congress can do: free states from federal mandates. South Carolina will spend about $425 million next year meeting federal unfunded mandates. The increase in the minimum wage alone will cost the state $2.6 million and meeting Homeland Security's REAL ID requirements will cost $8.9 million.

Based on what I saw in Washington, the bailout train is being loaded up. Taxpayers will have to speak up now to change its freight, tab or departure.

Mr. Sanford, a Republican, is the governor of South Carolina.

To Prevent Bubbles, Restrain the Fed

It’s nice to see something that makes sense printed in the mainstream press. I don’t agree with everything Mr. O’Driscoll mentions below – but I certainly agree that the Fed (and all other Central Banks) have created the current crisis.

jg – Nov 19, 2008

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NOVEMBER 17, 2008

To Prevent Bubbles, Restrain the Fed
Obama would be a fool to trust his economy to the discretion of central bankers.
By GERALD P. O'DRISCOLL JR.
Wall St. Journal

On Nov. 14, 2008, the Dow Jones Industrial Average closed at 8497.31. On Nov. 13, 1998, the adjusted (for dividends and split) close was 8919.59. There has been great volatility, but no net capital accumulation as measured by the Dow in a decade. Other indexes, such as the Nasdaq, tell a similar story. Capital has been invested but as much value has been destroyed as created.

The U.S. cannot afford to have another lost decade. Or to see the dreams of another generation of Americans who had been told to take responsibility for their financial health by investing in the stock market dashed by failed monetary and fiscal polices.

Today, the most urgent task facing President-elect Barack Obama is stabilizing financial markets by instituting policies that foster economic growth and prevent the type of boom and bust cycle that has just wiped out a decade's worth of wealth accumulation.

Mr. Obama's task is made all the more difficult because there has been a perfect storm of bad policies and practices. Laudable goals, such as fostering more homeownership, went terribly awry. Financial services regulation has failed at its most basic task, protecting the soundness of the system. And a dysfunctional compensation system has given corporate managers incentives to take excessive risks with investors' money.

None of the policies and practices that are now widely criticized suddenly appeared in the past decade. But they were kindling for a financial firestorm that needed only an accelerant and a spark. Both were provided by a policy of easy money that came in response to the bursting of the dot-com bubble in 2000-01, the ensuing recession, and the Sept. 11 attacks.

At first Fed easing was in order. The central bank needed to counter the "irrational exuberance" of the dot-com bubble. And by May of 2000 the Fed had done that by raising the fed-funds target to 6.5%. That needed to come down when the bubble burst. Aggressive cutting brought it to 2% in November 2001.

The problem is the rate remained at 2% or less for three years (for a year it was at 1%). During most of this period, the real (inflation-adjusted) fed-funds rate was negative. People were being paid to borrow and they responded by often borrowing irresponsibly.

Consider subprime mortgages. In 2001, there was $190 billion worth of subprime loan originations -- 8.6% of total mortgage originations. In 2005, there was $625 billion worth of subprime originations -- 20% of the total. In the same period, the percentage of subprime mortgages securitized -- loans that were packaged and sold to investors -- rose from just about 50% to a little more than 81%. (These numbers all trailed off slightly in 2006.) The great easing in monetary policy ended (with a lag) when the Fed began raising rates in June 2004.

The subprime saga follows a familiar pattern. Easy credit begets a boom and then the inevitable tightening of credit bursts the bubble. What is not familiar is the scale of the devastation wrought in this boom-bust cycle.

Never before had financial markets evolved such a complex superstructure of interlinked securities, derivatives of all kinds, and special-purpose investment vehicles. Professor Gary Gorton of the Yale School of Management has best described that complexity in his paper "The Panic of 2007," published by the National Bureau of Economic Research. He makes clear that as this system evolved there was not a sufficient guard against systemic risk.

No president could want these events to repeat themselves on his watch. But they could be repeated.

The economy now confronts deflationary forces. If past is prologue the Fed will concentrate on those deflationary forces for too long and rekindle an asset boom of some kind. The fiscal "stimulus" being contemplated by Congress could be another economic accelerant. If both the fiscal and money stimulus efforts kick in just as market forces also kick in, we're likely to see another unsustainable boom that will be followed by a bust.

The incoming administration must think about that possibility because the timing of boom and bust cycles seems to be shortening. The next bust could come five or six years from now -- or about in the middle of an Obama second term. Should that happen, Mr. Obama would be unable to blame Republicans for the mess and would be tagged as the second coming of Jimmy Charter.
To avoid such a fate, Mr. Obama needs to stop the next asset bubble from being inflated by imposing a commodity standard on the Fed. A commodity standard (such as a gold standard) imposes discipline on a central bank because it forces it to acquire commodity reserves in order to increase the money supply. Today the government can inflate asset bubbles without paying a cost for it because the currency isn't linked to the price of a commodity.

With a commodity standard in place, the government would also have price signals that would alert it to the formation of a bubble. Why? Because the price of the commodity would be continuously traded in spot and futures markets. Excessive easing by the Fed would be signaled by rising prices for the commodity. In recent years, Fed officials have claimed that they cannot know when an asset bubble is developing. With a commodity standard in place, it would be clear to anyone watching spot markets whether a bubble is forming. What's more, if Fed officials ignored price signals, outflows of commodity reserves would force them to act against the bubble.

The point is not to deflate asset bubbles, but to avoid them in the first place. Imposing a commodity standard is a practical response to the repeated failures of central banks to maintain sound money and financial stability. What would be impractical is to believe that the next time central banks will get it right on their own.

Mr. O'Driscoll, a senior fellow at the Cato Institute, was formerly a vice president at the Federal Reserve Bank of Dallas.

The Art of Deception: Hank Paulson Speaks

A few days ago I posted an article on Ben Bernanke’s recent comments regarding the economy and what the Federal Reserve was prepared to do to ‘help’ the situation. We looked at what Mr. Bernanke had to say and compared it to actual data. The data clearly shows that we’re not being told the truth.

Mr. Bernanke’s partner in crime – Hank Paulson – has been a willing participant in this continued deception. Mr. Paulson wrote a letter to the Editor of the NY Times yesterday. I started to write a commentary on his comments and then noticed that Chris Martenson has already dissected Paulson’s comments – in much more detail. I have attached Chris’ blog post below. Take careful note of what Paulson has said in the past – and what he is saying today.

jg – Nov 19, 2008
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The art of deception: Hank Paulson speaks
Tuesday, November 18, 2008, 2:22 pm, by cmartenson

The key problems that we face are all expressions of the fact that our monetary system is based on debt, and this enforces an exceptionally short-term investing and planning horizon, along with the need for continuous exponential expansion.

Thus our primary ailment today is a failure of our money system. Practically everything else that we read about today – bank failures, foreclosures, rapidly depleting resources, etc – are merely symptoms of this failure.

We are facing a money crisis, not a banking crisis. We are not experiencing a failure of our credit markets, but a failure of our money system. The apparent inability of our policy makers to understand this crucial distinction all but assures that their attempts to “fix things” will do more harm than good.

This OpEd piece by Hank Paulson, published today by the NYT, is a monument to wasteful, off-target thinking.

“Fighting the Financial Crisis, One Challenge at a Time”By Secretary Henry M. Paulson, Jr. The New York Times November 18, 2008

We are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

My Comment: So far so good, but all he’s done here is describe a few symptoms. No recognition of the causes of the problems yet (let alone assigning culpability). But this is just his opening paragraph; perhaps he’ll get to the causes later.

By September, the government faced a systemwide crisis. After months of making the most of the authority we already had, we asked Congress for a comprehensive rescue package so we could stabilize our financial system and minimize further damage to our economy.

My Comment: Actually, the crisis was fully recognized by many observers several years back, but was obvious to everyone in the industry a full year earlier than September 2008, and Hank knows it. The August 17th, 2007 event (a credit dislocation and stock market swoon) was a full-blown systemic crisis that kicked off everything we are seeing today. Astute observers of financial markets know that every warning bell in the engine room went off on that day.

Hank is avoiding raising that uncomfortable fact because it puts the lie to the “emergency” bailout bill, which was rammed through Congress and which has subsequently enriched many of his closest personal associates. So he is trying to reshape history by implying that the crisis erupted in September of 2008. It did not. It had been in the offing long enough that I remain confident that Ben Bernanke was handpicked in 2002 based on his recipes for fighting this exact sort of a battle. If this isn’t true, then I have to believe that one guy in Western MA with an Internet connection was able to diagnose and predict a set of ailments that eluded professionals with access to far better information. It’s possible, but not very likely.

There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis, always keeping focused on our goal: to stabilize a financial system that is integral to the everyday lives of all Americans.

My Comment: The goal here, while laudable, is very much directed at the symptoms and offers us no insights as to whether the cause has been identified. After all, is it worth “stabilizing” a system that is inherently unstable? Do we know why it was unstable? Will providing massive funds help, or hurt? How can we know unless we know that the cause of the instability has been identified? What if the cause was “too much debt?” How will going deeper into debt help? These are all valid questions and they are left unasked and unanswered, probably because confidence in our economic system would be eroded by any such introspection.

As we assessed how best to use the remaining money for the Troubled Asset Relief Program, we carefully considered the uncertainties around the deteriorating economic situation in the United States and globally. The latest economic reports underscore the challenges we are facing. The gross domestic product for the third quarter (which ended Sept. 30, three days before the bill passed) shrank by 0.3 percent. The unemployment rate rose in October to a level not seen since the mid-1990s. Home prices in 10 major cities have fallen 18 percent over the previous year. Auto sales numbers plummeted in October and were more than a third lower than one year ago.
My Comment: Here Hank is connecting the bailout money to fixing the economy. He explicitly draws that connection and maintains it throughout the editorial. The application of TARP money, he implies, is the same as aiding the economy. But what this mechanism might be is never stated, and I’ve not yet seen any mention of it anywhere. For the millions out of work, new capital in a big bank is not helpful in the least. For an ailing company addicted to selling to overly indebted consumers, the TARP money provides no relief.

I have always said that the decline in the housing market is at the root of the economic downturn and our financial market stress. And the economy, as it slows further, threatens to prolong this decline, as well as the stress on our financial institutions and financial markets.
My Comment: Um, no, Hank, sorry, this is not true. Here are some recent quotes from you:
April 20, 2007 — “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.”

July 26, 2007 — “I don't think it [the subprime mess] poses any threat to the overall economy.”
Perhaps “always” and “root” mean different things to Hank than to me, but when I say “I have always maintained,” I generally mean for a much longer period of time than, say, last year.
The current $250 billion capital purchase program is strong medicine for our financial institutions. More capital enables banks to take losses as they write down or sell troubled assets. And stronger capitalization is essential to increasing lending, which is vital to economic recovery.
My Comment: This is technically true, but in a very, very slippery way. What Hank is leaving unsaid is that the banks are not really taking losses to anywhere near their true extent, because the Federal Reserve is buying their assets at prices far above fair market value. So you’ve got Hank shoveling taxpayer money into the capital/equity side of banks (at very unfavorable terms to the taxpayers, especially compared to European efforts), while on the other side of the balance sheet you’ve got the Fed lifting damaged assets off their books at above-market rates so that the banks can avoid an honest appraisal of their true condition. So the slippery part was for Hank to mysteriously leave out the Fed's efforts in describing the scope of the bailout help.
Worse, this paragraph displays the pro debt-growth bias that will lead to our eventual ruin as a nation. Hank is parroting a thoroughly unquestioned premise on Wall Street, which is that “stronger capitalization is essential to increasing lending, which is vital to economic recovery,” but you and I might reasonably question whether this is true. Increased lending has brought us to the highest levels of debt ever and is the precise cause of the current mess. So, clearly there is a type of lending that is not good and should be avoided at all costs. Instead we need to actively begin paying down our debts, not increasing them. But as a creature of the banking system, Hank only knows one thing: more debt.

Recently I've been asked two questions. First, Congress gave you the authority you requested, and the economy has only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties, why aren't you addressing those problems?
My Comment: These straw-man questions are ducking the main issues. The continued espousing of the myth that mortgages are “at the root of” our problems either displays an appalling lack of awareness or a deliberate attempt to deceive. The root of our problems is primarily composed of excess leverage and a reckless disregard for risk by big financial institutions. It was Hank himself who oversaw the dangerous accumulation of leverage during his tenure as the captain at the helm of the flagship Wall Street firm Goldman Sachs. Reckless lending was the cause, mortgage foreclosures are the symptom. This utter failure to distinguish between cause and effect is what worries me most about our chances of pulling through all this with minimal pain.

The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending.

My Comment: Given that Hank cannot spot the cause of the disease, it is unsurprising that he’s decided to treat the symptom. Here he advocates “access to lower-cost mortgage lending” as the solution to the housing crisis, delightfully unaware that he is prescribing more of the very toxin that caused the sickness in the first place. No, we do not need more low-cost lending. Yes, we do need to wring out the excesses of the past and have house prices fall back into a lower equilibrium with incomes. With this one statement, Hank Paulson is effectively saying, “We’ve decided to treat the alcoholic with a fifth of scotch.” Perhaps it’s time to get a new doctor?
The rest of the article closes with three paragraphs of gratuitous self-congratulation for operating boldly in an uncertain market environment. There’s nothing to gain from parsing that out, so I’ll stop here.

In summary, these are the things that are not helped, but rather hurt, by the actions of the US government going deeper into debt to repair failed banks:

1. Insolvent entitlement programs. Our government is already fully insolvent with regard to the entitlement programs. Going deeper into debt at this time only exacerbates that problem, which is no longer far off into the future, but only a decade away from being a full-blown crisis of its own. Instead, a program of saving and cutting government spending needs to be implemented immediately.

2. Lack of readiness for a new energy future. We need to make trillions of dollars in investments into preparing for a very different energy future. A smart grid, electric high speed railroads, reforming our ‘exurb’ living/work arrangement, and the complete replacement of our auto fleet are all essential components of arriving at the future gracefully. To use this recent weakness in oil prices to encourage people to borrow more to buy SUVs is about the most cynical and shortsighted policy I can imagine.

3. A deficit and crumbling infrastructure. To be a first-world nation, you need an elegant and modern infrastructure. Drive from JFK to NYC with this in mind, and you will know the meaning of ‘embarrassing.’ Have you heard about any major bridges falling into rivers in any major country besides the US recently? We have vast investment needs just in rebuilding and maintaining our current infrastructure. Going into debt to bail out Wall Street does nothing to help in this regard, and very likely sabotages our future ability to borrow, should we ever decide that investing in ourselves is a priority.

4. A national failure to save. Ending our raw-consumptive spending and rebuilding savings (the only way to support true capital formation) is an absolute must if we want a future of prosperity. By showing zero willingness to do anything other than spend whatever it takes to return to a zero-saving society, the federal government is setting a bad example. Instead we should be exploring ways to cut spending where possible and redirect funds to places where some investment could yield a decent return. Green energy comes to mind.

Bernanke - the Lies Continue

People who understand economics are saying the same thing – it would be nice if someone at the Fed or the Treasury would tell us the truth. The problem is that you’re not going to get the truth from people who are consumed by lying. This is really getting old – the same rhetoric – day after day – until the financial markets suffer a catastrophic meltdown. Then, I suppose, the story will change. It will change to something like - ‘we tried everything possible’, ‘things were just too messed up’, etc. ,etc. Of course, we’ll then be told about a new financial ‘system’ that will probably work much better. I wonder if Bush, Bernanke, Paulson, etc….are actually given a script about what to say or not to say. It wouldn’t surprise me.

Not everyone in the world is so easily deceived. I’m watching and waiting – for the script to change.

The following is a blog post by Chris Martenson.

jg – Dec 1, 2008
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Bernanke - Still speaking as though to children

Monday, December 1, 2008, 3:45 pm, by cmartenson

Bernanke's remarks today did little to soothe this ruffled observer. His remarks struck me as practically dishonest in their inability to speak directly to our actual problems.

Bernanke says Fed still has arrows in quiverWASHINGTON (MarketWatch) - The Federal Reserve has lowered interest rates just about as far as they can go, but the U.S. central bank still has plenty of available firepower it could deploy to restore financial markets to normal, Fed Chairman Ben Bernanke said Monday.

I wish that we could just get some straight talk about our actual condition instead of this weird insistence on "restoring our financial markets to normal." This ignores the fact that they were completely abnormal. Why would we want to return there? I guess it's this strange insistence on continually repeating the mantra that things can be "restored to normal" that's got me unsettled.

The way I see it, there's no "normal" to return to. Things were hopelessly out of whack before and now they will settle into some new, different level of activity.

George Soros refers to this same process in his Theory of Reflexivity arguing that the mainstream economic insistence that there is some sort of magic equilibrium is utterly without merit. Instead markets reflect the interplay between human perceptions and reality. Hence, there's no such thing as "equilibrium". Everything is constantly in flux.

Hence, any efforts to "restore normality" are destined to fail because there's really nothing to return to. "Normal" doesn't exist. If you ascribe to this theory, as I do, then Bernanke's efforts are not just destined to be fruitless, but horribly expensive mistakes that are compounding the prior mistakes.

The Fed could buy Treasury notes and bonds or agency bonds in a bid to drive yields lower and "spur aggregate demand," Bernanke said. Many analysts refer to such a policy as "quantitative easing," because the Fed would target a specific amount of money to flood into the economy.

"Could"? The Fed balance sheet is already loaded with both agency and Treasury debt and they just announced a $600 billion program for more agency debt last week. So I guess what they meant to say here was that the Fed could buy more government debt than usual.

The U.S. economy is under "considerable stress," Bernanke said, and is likely to remain weak for some time. The economy "downshifted further" after the financial crisis of September, he said.
The economy won't be able to fully recover unless and until financial markets resume normal functioning, he said. The economic outlook is unusually uncertain, he said, because it's difficult to know when financial markets will be healthy again. He noted some tentative signs of improvement, but other signs were worsening.

Again, this economic talk is so far wide of the mark that it makes me feel like I am being talked down to, as though I were a small child. This is not "considerable stress". 9/11 was "considerable stress". This is the worst economic crisis ever in our history if the record breaking and record setting across-the-board declines are any indication.

I advocate a bit of honesty and truth. We can handle it. In fact, it might even be refreshing and in an odd sort of way allow some people to conclude that we've turned a critical corner. As long as we attempt to sugar-coat every bit of language in an attempt to "soothe the markets" I think we will continue to find a real bottom to be elusive.

Bernanke spoke at the Greater Austin Chamber of Commerce in the Texas capital, just hours after the private National Bureau of Economic Affairs announced that the economy had entered a recession nearly a year ago.

Thanks NBER! Right on top of things, as usual. That's a very helpful service you've got there telling us we started a recession a year ago. Perhaps GM can use that information in their planning process.

Further rate cuts are "certainly feasible," but the ability of traditional monetary policy to further stimulate the economy is limited, the Fed chairman said.

Additional rate cuts? To what? 3 month T-bills are yielding 0.00% currently. Hard to imagine going much lower than that. The Fed has a long history of following the market on rates and the market is already at 0.00%.

The Fed could also expand its efforts to supply liquidity directly to markets and investors, bypassing banks and other reluctant institutions, he said.

Uh oh. This is a very ominous statement. Let's imagine what mechanisms he might be envisioning to "supply liquidity directly to markets and investors". All I can think of is a wire transfer or check directly from the Fed to these "markets and investors". In the case of "markets" I suspect Bernanke is talking about buying stocks. The Fed granted itself the right to perform this function about 3 months ago and I guess Bernanke is reminding us that they may yet directly buy equities in an effort to support stock prices.

But directly to investors? All I can say there is that if you receive a check from the Fed spend it as fast as you possibly can as that will mark a turning point for our currency. If you don't believe me, then we should take a road trip to Zimbabwe together because that is exactly what their Central Bank did early on in their current inflationary crisis.

Looting America: Treasury Secretary Paulson Threatened Senators with Martial Law

This type of behavior from our leaders should no longer surprise us. We’ve watched Bush, Cheney and Bernanke use the same tactics in recent years to push their policies through Congress. We should take notice, however, of the types of threats now being thrown around. Martial law is not an idle threat. When a top official starts using this type of language – it would be wise for us to pay very close attention to what is happening. This is not some low level government employee making these threats – this is the Treasury Secretary of the United States.

There are two very big pieces of information to take away from Paulson’s statements. The first is that this financial crisis is, in fact, a crisis. This is not some mild recession that we will come out of in a few months. The financial system itself is collapsing. A Treasury Secretary would not threaten martial law if this were a minor hiccup in the system. This is a major, systemic problem – and it’s going to get worse. He’s saying that if the system collapses – there’s going to be widespread panic – and the government will need to maintain control.

The second item we should think about is this – why would the Treasury Secretary even mention martial law? Why would he even think about this? I suppose that it’s a combination of things. The obvious reason is that he’s strong-arming the legislative branch of our government to get what he wants. This isn’t the first time this administration has used these tactics. We also need to remember that the system is going to collapse at some point – and Paulson certainly knows this. Government bailouts are only delaying the inevitable while placing additional strain on our nation’s finances. From what I’ve seen, it doesn’t appear that the vast majority of our leaders in Congress understand economics and what is happening to our economy. Their lack of knowledge is being exploited by Paulson and Bernanke – so when they’re told that the U.S. Government needs to ‘bailout’ the system – they don’t have economic/monetary knowledge that would tell them this is not going to fix the problem. There will come a time in the future when our nation’s finances collapse – maybe then they will take the time to understand what is happening to us.

I believe that Paulson’s comments are foreshadowing our future. When the system collapses – we’re going to see our government’s true face.

jg – Dec 3, 2008
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Looting America: Treasury Secretary Paulson Threatened Senators with Martial Law
Tuesday, December 2, 2008, 9:04 am, by cmartenson

Some people think of Hank Paulson as our Treasury Secretary. I think of him as a 19 year veteran of Wall Street banking.

At every turn of this entire bailout he has specifically advantaged banks over taxpayers, banks over industry, banks over homeowners, and banks over the future health and prosperity of this country.

Is this surprising for a banking veteran? No, not really.

But the tactics he used certainly are. Consider this:

Sen. James Inhofe (R-Ok.) said yesterday that it was Treasury Secretary Henry Paulson who personally told Congressmen that there would be martial law in America if they did not pass the bailout of the banks as demanded by the Bush Administration.

On Oct. 2, Rep. Brad Sherman (D-Calif.) said on the House floor that "Many of us were told in private conversations that if we voted against this bill on Monday the sky would fall, the market would drop two or three thousand points the first day, another couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no."

Now, Senator Inhofe, speaking on KFAQ radio station in Tulsa, has confirmed who it was that issued this threat.

The interview host Pat Campbell asked Infhofe, "Somebody in D.C. was feeding you guys quite a story prior to the bailout, a story that if we didn't do this we were going to see something on the scale of the depression, there were people talking about martial law being instituted, civil unrest. Who was feeding you guys this stuff?"

Inhofe replied, "That's Henry Paulson. We had a conference call early on, it was on a Friday I think--a week and half before the vote on Oct. 1. So it would have been ... the 19th of September, we had a conference call. In this conference call and I guess there's no reason for me not to repeat what he said, but he said, he painted this picture you just described. He said, This is serious. This is the most serious thing that we faced."

I want you to consider that these threats of martial law were being bandied about in the final weeks before a national election. So the implied threat was that the elections themselves could have been jeopardized as a result. This is exceptionally serious. Paulson deserves to be brought up on charges of some sort.

Even leaving aside the implied election threats, such tactics were heavy-handed and unnecessary.This level of arm-twisting speaks of a certain desperation and I think the one hundred-to-one public opposition against the bailout was the impetus for raising the rhetorical stakes to such hysterical levels.

I'm just disappointed that our representatives were swayed by an administration that has proved itself over the years to be willing to use any and all methods to achieve its political aims, including lying and violating the public trust.

Speaking of which, yesterday Bush said this:

As he leaves office, Bush said he felt responsible for the economic downturn because it's occurring on his watch, but he added: "I think when the history of this period is written, people will realize a lot of the decisions that were made on Wall Street took place over a decade or so" before he became president.

But, of course and as always, reality is a different beast. This next bit is also from an article printed yesterday:

WASHINGTON - The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

“Expect fallout, expect foreclosures, expect horror stories,” California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

· Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

· Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

· Regulators proposed a cap on risky mortgages so a string of defaults wouldn’t be crippling.

· Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

· Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president’s signature.

What we are experiencing now was not some random accident. Plenty of people, myself included, could clearly see where this was all headed. But the entrenched interests, primarily bankers and their bought and paid for representatives, did not want any limits on their obscene profits and they got everything they desired.

We can draw two conclusions:

1. Banks have way too much power over our legislative process and have abused that power. Badly.

2. If it looks like, smells like and acts like a looting operation, it is a looting operation.
Folks, there's really no kind way to put this. Not only have we been subjected to the greatest theft of our wealth ever seen, but that looting operation is continuing today.
What can be done about a banking industry that has so thoroughly violated and abused the public trust?

1. Have banks return all profits from the period in question including claw-backs on all bonuses and dividends paid.

2. Eliminate all funding and lobbying money from financial institutions. Make it a felony with automatic, mandatory jail time for any person or organization found in violation of this stricture.

3. Immediately nationalize enough banks to allow our society to carry on and let the rest go under. We can no longer afford for 40% of all corporate profits to be earned by the essentially non-productive industry that is finance.

4. Begin directly issuing non-interest bearing money from the Treasury. Why pay the Federal Reserve interest on our own money?

5. Allow competing currencies to exist in parallel with Federal Reserve Notes. If the Fed wants to ruin its balance sheet by supporting its broken network of morally and economically ruined banks, we the people should be allowed to choose whether we prefer to conduct our affairs using promise notes from the Fed or some other currency. Competition is the only known way to assure that businesses remain honest and fair. Why should the business of money be any different?

6. Return accountability to our landscape. Obama needs to immediately distance himself from the Wall Street led looting operation and do so by announcing that mistakes were made and laws were broken and that accountability will be part of his solution set. We the people need to see that laws are not just for us. If our system operates on trust (and it does) then we need to trust that the system is capable of policing itself. Right now there is zero evidence of that and its absence is rapidly eroding our social contract.

UN Panel Touts New Global Currency Reserve System

I’ve mentioned a couple of times in recent weeks that global leaders are now telling us that the world’s currency system has become unstable and should be replaced. We’re told that this instability is caused by the current global financial crisis – which is pressuring the value of the world’s reserve currency – the U.S. Dollar (if we also consider the Fed’s recent decision to print another $1.5 trillion dollars – it’s easy to understand the concern). We’re beginning to see these same leaders propose a new global currency to replace the U.S. Dollar as the world’s reserve currency.

It now appears that the United Nations is also proposing that the world move to a new reserve currency (article below). This shouldn’t be a surprise to anyone.

I’m not going to go into any additional details about the plans of the global elite – because I don’t really need to convince you myself. I’m going to let the world’s leaders confirm in coming months what I’m telling you. I’m simply going to tell you exactly what is happening and why – and let world events confirm the truth.

This global financial crisis has been orchestrated for one purpose – absolute control of the world’s monetary and economic system. You and I are told things on the surface through mainstream media – while the truth is hidden in the shadows. Here is the truth. Here’s what you and I are going to see in coming months/years:

1. More and more rhetoric from world leaders and global organizations (CFR, United Nations, etc.) touting a new global financial/monetary system that will ‘solve’ the problems inherent in the current system. The current economic ‘problems’ are - unsustainable debt and money growth, deflation, hyper-inflation, etc. – problems that we now know are caused by the current system itself.
2. The world’s existing monetary/economic system will continue to deteriorate and eventually collapse.
3. When the current system collapses – things will become very chaotic for a time. Civil unrest will become much worse across the globe.
4. After the collapse – you and I will quickly see the ‘solution’ appear – a new monetary system with a new global currency.
5. Much of the world will embrace the ‘solution’ – because they do not see or understand the danger (no true biblical knowledge or understanding).
6. Once the global elite institute a new global monetary system with one currency – we’ll begin to then see world leaders speak about joining governments into one interconnected global governing body.
7. We should expect future ‘events’ – similar to September 11, 2001 – false flag operations that will strike fear among the world’s population – and many will agree to give up their freedom for security – falling into Satan’s snare.
8. From the world’s perspective – the new global government will eventually have 10 leaders representing 10 regions of the earth. These leaders will receive their orders and direction from the global elite (the ‘beast out of the earth’ of Revelation chapter 13).
9. There is no way to know a timeframe for the events mentioned above – but I believe our world is about to deteriorate rapidly in the coming months.

So – how can you know what I’m telling you is true? If I’m wrong – then President Obama’s ‘stimulus’ packages will revive the economy. The U.S. recession will end and our economy will begin growing again. The Federal Reserve’s actions will not destroy the value of the dollar and inflation will remain stable. The world’s economy will also recover – and every nation will somehow figure out a way to keep an exponential monetary system functioning in a finite world. There will be no future global currency or global monetary/economic system.

However, if I’m right – then the economy of the United States and the world will collapse in coming months and you will begin to see the things mentioned above. The many government ‘stimulus’ packages will fail to revive the U.S./World economies – while bankrupting the world’s governments. The Federal Reserve’s actions will destroy the value of the dollar and interest rates and inflation will sky-rocket. Our private banking system will fail under the weight of decades of exponential debt growth. We will begin hearing world leaders mention a new ‘system’ to replace the world’s shattered economy - a ‘system’ that will be heavily regulated by the world’s government – eventually leading the world into bondage.

You’ve seen me reference certain quotes or scenes from the movie ‘The Matrix’. The reason is because so many of us are living in a fantasy world very similar to the computer simulation in that movie. In the movie – billions of people live their lives as if they are free – but in reality – they are living in complete bondage – and they don’t know it. You now understand how this is taking place in our world.

“You have to understand, most of these people are not ready to be unplugged. And many of them are so inert, so hopelessly dependent on the system that they will fight to protect it." –Morpheus (The Matrix)

We want to believe that everything is A-OK in this little fantasy world that we’ve created for ourselves – as if we deserve to be the wealthiest, most powerful nation on Earth. We believe, in the world we’ve created for ourselves, that we are the masters of our universe – that we control what’s going to happen by our strength alone. We want to believe that in this world our leaders will do what’s best for us and we ignore the quiet warnings in our minds telling us something different. What you’ve discovered in this blog is that you’ve been living in a world that has been pulled over your eyes to blind you to the Truth.

From a spiritual standpoint – you have probably wondered why God would allow the world’s economy to collapse. It’s a simple answer – much of the world has turned away from Him – and as a result – the world is being tested. His true warriors will emerge – in preparation for the end of this age.

“Since you have kept my command to endure patiently, I will also keep you from the hour of trial that is going to come upon the whole world to test those who live on the earth. I am coming soon. Hold on to what you have, so that no one will take your crown. Him who overcomes I will make a pillar in the temple of my God. Never again will he leave it. I will write on him the name of my God and the name of the city of my God, the new Jerusalem, which is coming down out of heaven from my God; and I will also write on him my new name. He who has an ear, let him hear what the Spirit says to the churches.” (Revelation 3:10-13)

You’ve probably also wondered how I knew many of these things would happen. I assure you – I could not have understood these things on my own nor could I have done these things on my own. For the first 34 years of my life, my focus was elsewhere – my focus was on myself and my world. I was living in the Matrix. We like to proclaim the same message as Agent Smith in the movie – and if we never change – we will suffer the same fate as him.
“This is my world! MY WORLD!” –Agent Smith (The Matrix Revolutions)
In May of 2005, the Lord called to me, asked me to give up my worldly pursuits and follow Him. I took a brief look at my life and the world around me – and I dropped my selfish pursuits – walked away from the world - and started following the Lord. The past four years have been what I would call a spiritual boot camp – as I have learned the Truth about God, His ways, His character, His prophecies – and what His enemy is doing in the world. I am no longer living in the Matrix – I’m now living in the real world – and I can see and understand clearly. If there is one point in the movie that relates to each one of us – it’s the scene below. God offers each one of us the chance to overcome the world and be with Him – and each of us must choose.

"This is your last chance. After this, there is no turning back. You take the blue pill -- the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill -- you stay in Wonderland and I show you how deep the rabbit-hole goes." –Morpheus (The Matrix)

With all of the information you have been given on this blog - you have now been armed with the knowledge to see through Satan’s lies. Get yourself ready – our battle is just beginning.

"There is a difference between knowing the path and walking the path." -Morpheus (The Matrix)

jg – March 29, 2009
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UN Panel Touts New Global Currency Reserve System
AFP 2008
Mar 26 04:09 PM US/Eastern

A UN panel of expert economists pressed Thursday for a new global currency reserve scheme to replace the volatile, dollar-based system and for coordinated steps by rich countries to stimulate their economies.
"A new Global Reserve System -- what may be viewed as a greatly expanded SDR (Special Drawing Rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity," the panel said.
As part of several recommendations to tackle the global financial crisis, the panel also noted recovery would require all developed countries, in the short term, to take "strong, coordinated and effective actions to stimulate their economies."
And it stressed the need to "lay the basis for the long-run reforms that will be necessary if we are to have a more stable and more prosperous global economy and avoid future global crises."
The commission, led by US economist Joseph Stiglitz, a frequent critic of globalization and unbridled free markets, is primarily aimed at finding solutions for developing countries.
On the monetary front, Stiglitz, the 2001 Nobel economics laureate, told a press conference here there was "a growing consensus that there are problems with the dollar reserve system.
He noted that such a system was "relatively volatile, deflationary, unstable and (had) inequity associated with it."
"Developing countries are lending the United States trillions dollars at almost zero interest rates when they have huge needs themselves," Stiglitz noted. "It's indicative of the nature of the problem. It's a net transfer, in a sense, to the United States, a form of foreign aid."
This week, China's central bank chief Zhou Xiaochuan suggested the dollar could be replaced as a reserve currency by an International Monetary Fund (IMF) basket comprising dollars, euros, sterling and yen, saying it would not be easily influenced by individual countries.
But the UN panel warned that a two (or three) country reserve system "may be equally unstable."
It said a new Global Reserve "is feasible, non-inflationary and could be easily implemented, including in ways which mitigate the difficulties caused by asymmetric adjustment between surplus and deficit countries."
Stiglitz said his panel's experts were currently trying "to lay out the conceptual framework of how this might be done."
The issue of the world currency reserve is expected to be raised at the April 2 summit of the G20 club of developed and emerging economies.
On Wednesday IMF managing director Dominique Strauss-Kahn said that talks on a new global reserve currency to replace the US dollar were "legitimate" and could take place "in the coming months."
But US Treasury Secretary Timothy Geithner earlier defended the dollar as a key global reserve currency.
"I think the dollar remains the world's standard reserve currency, I think that's likely to continue for a long period of time," he said.
Among other recommendations, the Stiglitz panel proposed western aid to help developing nations out of the crisis, better market regulation, a reform of central bank practices and of international financial institutions, as well as the creation of a new structure such as a United Nations economic council.
It specifically called for immediate, additional funding for developing countries "just to offset the imbalances and inequities created by the massive stimulus and bail-out measures introduced by advanced industrialized countries."
It said the funds could come through the issuance of SDRs approved by the IMF board in 1997.
SDRs are an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries and support the Bretton Woods fixed exchange rate system.
They are allocated to member countries in proportion to their IMF quotas.

We're Governed by Callous Children

My personal belief is that we (Americans) are beginning to wake up to many truths. We are beginning to question many of the things that are being told to us by political and financial leaders.


“The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers.”

We no longer believe the lies that are being told to us on a daily basis.

“No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008.”

The article below by Peggy Noonan speaks to many truths today. I encourage you to read the entire article - but I’m adding it to this blog mainly for the following passage.

“The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.”

I am posting this – because the words above are true. This is something that the global elite want to happen. They want you to become disheartened. They want you to accept a world monetary system and a world government. They want to control you – every aspect of your life. They want total control of the world’s population. They want you to believe that they are too powerful. They want you to ask – ‘how can I stand against them?’ They want you - to give up.

I will admit here – that when I first began to look into the world’s monetary system and the global elite – I could not see anyway out of our predicament. It became clear that our economy was doomed and that the people controlling the world’s central banking system were much too powerful to overcome. They have infiltrated our government and they own/manipulate the world’s financial system. How can we possibly overcome this?

I won’t lie to you – when you begin to understand the magnitude of what we face – fear will begin to creep into your consciousness.

So – how do we overcome this fear and find the faith required to stand against such overwhelming odds? The only way for us to overcome our enemies and to succeed in saving our nation – is by recognizing what we have become and seeking forgiveness from our Creator. If we will seek Him and His plan for us – if we will allow Him to strengthen us – then we will be able to stand. Without Him – we fail and the United States of America will cease to exist as a sovereign nation. There will be many who ridicule this – but it’s the truth.

I do not know how this ends. I do not know the choice our nation will make.  I only know how it will start. It will start with a severe economic crash in the United States – and the world.

We will get one more chance to choose God and his way. What will we choose?

jg – November 3, 2009
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OCTOBER 31, 2009

We're Governed by Callous Children

By PEGGY NOONAN

Wall St. Journal

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers.

Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren't rising, they're bobbing, and will settle. No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008.

Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They'll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.

It is a story in two parts. The first: "They do not think they can make it better."

I talked this week with a guy from Big Pharma, which we used to call "the drug companies" until we decided that didn't sound menacing enough. He is middle-aged, works in a significant position, and our conversation turned to the last great recession, in the late mid- to late 1970s and early '80s. We talked about how, in terms of numbers, that recession was in some ways worse than the one we're experiencing now. Interest rates were over 20%, and inflation and unemployment hit double digits. America was in what might be called a functional depression, yet there was still a prevalent feeling of hope.

Here's why. Everyone thought they could figure a way through. We knew we could find a path through the mess. In 1982 there were people saying, "If only we get rid of this guy Reagan, we can make it better!" Others said, "If we follow Reagan, he'll squeeze out inflation and lower taxes and we'll be America again, we'll be acting like Americans again." Everyone had a path through.

Now they don't. The most sophisticated Americans, experienced in how the country works on the ground, can't figure a way out. Have you heard, "If only we follow Obama and the Democrats, it will all get better"? Or, "If only we follow the Republicans, they'll make it all work again"? I bet you haven't, or not much.

This is historic. This is something new in modern political history, and I'm not sure we're fully noticing it. Americans are starting to think the problems we are facing cannot be solved.

Part of the reason is that the problems—debt, spending, war—seem too big. But a larger part is that our government, from the White House through Congress and so many state and local governments, seems to be demonstrating every day that they cannot make things better. They are not offering a new path, they are only offering old paths—spend more, regulate more, tax more in an attempt to make us more healthy locally and nationally. And in the long term everyone—well, not those in government, but most everyone else—seems to know that won't work. It's not a way out. It's not a path through.

And so the disheartenedness of the leadership class, of those in business, of those who have something. This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.)

***

And here is the second part of the story. While Americans feel increasingly disheartened, their leaders evince a mindless . . . one almost calls it optimism, but it is not that.

It is a curious thing that those who feel most mistily affectionate toward America, and most protective toward it, are the most aware of its vulnerabilities, the most aware that it can be harmed. They don't see it as all-powerful, impregnable, unharmable. The loving have a sense of its limits.

When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they've never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don't have the habit of worry. They talk about their "concerns"—they're big on that word. But they're not really concerned. They think America is the goose that lays the golden egg. Why not? She laid it in their laps. She laid it in grandpa's lap.

They don't feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—"strongest nation in the world," "indispensable nation," "unipolar power," "highest standard of living"—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists—they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.

Printed in The Wall Street Journal, page A19