I’ve been waiting for someone in power to say this – and here we are.
As things continue to get worse economically – we’ll see more and more world leaders propose a new global monetary system to replace the current one that is collapsing. This rhetoric regarding a new monetary system started in 2007/2008 during the financial crisis (see previous blog posts) – but the rhetoric has waned over the past two years as government and Federal Reserve ‘stimulus’ has propped up the system. Now that we’re nearing the inevitable collapse of the system – expect the rhetoric for a new system to increase.
As you’ve seen me say before – this is not random – it is planned. Our current system requires debt and money to grow exponentially forever – which is mathematically impossible in a finite world.
I feel certain that the governor of the Bank of England knows this. You and I are being conditioned for the next phase of the plan. A phase that I believe will start with a significant global stock market crash.
jg – November 1, 2010
__________________________
Bank of England Head Mervyn King Proposes Eliminating Fractional Reserve Banking
Mervyn King, the governor of the Bank of England, has tonight made a big intervention into the debate on banking reform. In a speech at Buttonwood, New York, he [listed] much more radical proposals.
1. Forcing the riskiest banks to hold capital "several times the magnitude" of requirements at present.
2. The Volcker rule-style enforced breakup of banks into speculative and non-speculative arms.
3. The "Kotlikoff proposal", which forces banks to match each pool of risks with a requisite amount of capital, preventing losses in one spilling over into another.
4. Stunningly, Mervyn King imagines the "abolition of fractional reserve banking":
"Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets."
King does not advocate any of these radical plans - but the fact that he goes out of his way to list them, and to place them on the agenda of the UK's Independent Commission on Banking, means that we are not yet at the end of the debate about long-term reform of the banks.
***
Beyond the technicalities, the fact that a central banker in a G7 country is prepared to imagine such outcomes is itself significant.
You suggest that banks should be forced to conform to the underlying purpose of the 1844 Bank Reform Act. You might be aware that I have said publicly that I think ideas in this spirit - such as those advocated by John Kay - certainly merit serious consideration in the debate as to how we reform our financial system. I remain sympathetic to these views. But as I said in my previous letter, I do not want to prejudice the outcome of the Banking commission's deliberations. Now the Commission has been set up, I think we all should wait to see its conclusions."
The 1844 Bank Charter Act ('Reform' is a typo) was a piece of legislation that prohibited commercial banks from printing paper notes (£1, £5, £10 and so on). Before this law was passed, banks were permitted to print as many paper notes as they wanted, up to the point where they printed too many and went bankrupt (as everyone cashed in their paper notes at once).
That situation should sound very similar to the situation that we have today - we currently allow commercial banks to 'print' money in the form of digital bank deposits (the numbers in your bank account). In the years up to 2007, the banks 'printed' far too much of this digital money, to the extent that they - and the economy - started to collapse.
The 'underlying purpose' of the 1844 Bank Charter Act was to prevent the commercial banks creating money and to restore that privilege to the state. It had become obvious to the government of the day that if banks were allowed to create money, they would keep creating money up until the point where it destabilized the economy, so they could not be trusted with this responsibility.
So, in plain English, Mervyn King appears to be saying:
"I agree that banks should probably be stopped from creating money, and recommend John Kay (or Laurence Kotlikoff's) proposals. But it's not for me to say - let's leave it to the Banking Commission."
It's very reassuring to know that the top guy at the Bank of England understands the root of the issue and is promoting solutions that would go a long way to addressing it. Both John Kay and Laurence Kotlikoff's proposals would prevent commercial banks from creating money (or 'issuing credit') for their own benefit at the expense of the wider economy and the public.
Ironically, while King is proposing the potential elimination of fractional reserve banking (i.e. a return to 100% reserves), Ben Bernanke has proposed the elimination of all reserve requirements (i.e. requiring no reserves):
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.
If you are a Christian and have had discussions on the ‘mark of the beast’ and how only those with the ‘mark’ will be able to buy and sell at some point in the future, you have probably wondered how this could happen. How could anyone really gain financial control of the entire world? If you are not a Christian, chances are that you have heard about this ‘mark’ and its control over the world’s financial system and have rejected this as being completely ridiculous – how could anyone control the world’s financial system? If you throw in the popular Christian interpretations of end time prophecies – that one future ruler of the world will somehow unite the world’s government, the world’s religion and the world’s financial system – all within a period of 7 years – it becomes almost unbelievable. How could someone – anyone – do all of this within a 7 year time period? If I were not a Christian and had never heard about these things and someone told me that all of these things will happen within 7 years – I would find it very difficult to believe – if not impossible – the world simply does not cooperate this easily. As you’ve seen in previous posts, Satan’s control of the world’s government and religion is not taking place during 7 years – and financial control of the world is no different. What you will find as you read this post, is that a few men have already gained worldwide financial control – and they did it before you and I were born. It didn’t take 7 years – it took hundreds of years. You and I rely on an economic system that has placed us in financial bondage – and most of us don’t even know it. What you will find, once again, is that our spiritual enemy is much more cunning and deceptive than you have been led to believe.
Let’s start this with a simple question – do you know how our money is created? Whether you are wealthy or poor, highly educated or not – chances are this question causes you some concern – because you really don’t know the answer. Most people (and I was included) would say that the United States creates our own money through the U.S. Treasury – correct? No. It did until the early 20th Century. It is correct that the U.S. Mint and the Bureau of Engraving and Printing (agencies of the U.S. Government) create the hard currency we use, but the U.S. Treasury is not responsible for creating and managing our money supply. Who then, is responsible for creating and managing our money supply? A private corporation - The Federal Reserve Banking System.
If the U.S. Government needs $20 billion in hard currency (paper and coins), the Federal Reserve creates this $20 billion out of nothing (there is nothing of value that backs our currency), the U.S. Mint and the Bureau of Engraving and Printing creates the paper and coin currency and the U.S. Government gives the Federal Reserve an IOU for $20 billion in exchange. The U.S. Government then pays interest on this $20 billion. On the surface, it may seem to you that this is logical – what’s wrong with the U.S. Government paying a private bank/corporation to print our money? Actually, there is a whole lot wrong with it. This is what I’m going to explain in this post.
We’ve seen how physical currency is created and added to our economy, but physical currency – coins and paper – makes up less than 5% of the overall dollars in circulation in the world. The other 95% is made up of all of the electronic dollars in checking accounts, savings accounts, CD’s, money market accounts, etc. How is this money created? The majority of our money is created by private banks. This is where things get interesting.
If you have purchased a home, then you know that you apply for and receive a mortgage to pay for your home. The question then becomes – where does the bank get the money to pay for your home? If you are like most Americans (and I was certainly included in this group), you assume that this money somehow comes out of the bank’s profits or from deposits made at the bank. It seems logical, but this isn’t what happens. By authority of the bank’s charter, it has the ability to create the dollars needed for your home. In the same manner that the Federal Reserve creates money out of nothing, your bank once again creates money out of nothing and places the dollars needed into your account. The funds are then used to pay for your home. I know what you’re thinking – this is the most ridiculous thing you’ve ever heard, there’s no way this is what happens. You’d be wrong. In our current monetary system (commonly referred to as a Fractional Reserve System), your act of signing for debt - creates money. Every time someone signs for an auto loan, home loan, home equity loan, etc. – money is created. This is how money is created in our system. In our current monetary system, money is not created from value, money is created from debt. It doesn’t matter if our money is created because the U.S. Government needs hard currency or if it is created through bank loans, the only way money is created in our current system is through debt. Get ready - because this leads to some very interesting analysis.
If you’re thinking this through, then you’re beginning to feel very uncomfortable – and you should. Even though it may seem strange to you that our money is created by debt, it might initially seem like this could work – that our economy has – and will continue to – function under this system. There’s one very big problem inherent in this system. If you’ve seen the movie ‘The Matrix’, then you remember that the massive computer simulation in the movie had a flaw in the program – an anomaly that over a long period of time would eventually crash the system. We have the same type of ‘anomaly’ in our current economic system that over time – will have the same result. What is the ‘anomaly’ in our system? Interest. When you take out a loan for $200,000 to pay for your home, is this all you need to pay back? Of course not. You must pay the $200,000 plus interest. The total amount of money you will pay back with interest will be more than $400,000 if you have a 30 year fixed rate (around 6%) and don’t pay it off early. Remember, our money is created from the principle, not the principle plus interest. So, you bought a house for $200,000, and as a result, added $200,000 to our total money supply of dollars. Do you see the problem? If our money is only created from the principle payment, where do we get the money to pay interest? This is where things really start to get interesting.
Let’s look at another example. Let’s say that the total debt (new debt – retired debt) created in a given year in the United States is $1 trillion dollars. Based on our current system, $1 trillion dollars would then be added to our money supply. As I mentioned above, because this is debt, the total actually owed is much higher – let’s say the total debt actually owed is $2 trillion. So, we have created $2 trillion in liabilities that must be repaid, but we’ve only created $1 trillion dollars in the system to pay this debt. Do you see the problem? We never add enough money into our economy to pay for the debt.Our debt continues to rise and our money supply continues to rise – but the money supply can never equal the total amount owed. What this means is that we can never pay off our debt under our current monetary system.
Let’s make it really simple. If you and I each owe $100 and there’s only $150 in currency available to us – one of us isn’t going to have enough to pay our debts. It’s a catch-22 that we cannot get out of. In our current system, there will always be a certain percentage of people and businesses that cannot get enough money to pay their bills, debts, etc. It’s mathematically impossible for everyone to have enough money to pay what they owe. We can talk all day about why certain businesses fail (poor management, supply and demand, changing markets, etc), why businesses and people go bankrupt, but the bottom line is this - if there’s not enough money in our economy to pay for all outstanding debts, it doesn’t matter what we do, how we manage our budgets, we will never pay off our debts as a nation – never. Of course I’m talking about our nation as a whole. Individually, we can make good financial decisions and manage our money in a prudent manner, but on a national level, we are in a never ending cycle of ever increasing debt – personal debt, corporate debt, government debt, etc. If our system never changes, it is mathematically impossible for us to ever pay off our national debt.
I now find it interesting when I hear our President or members of Congress debating ‘fiscal irresponsibility’ or when I hear our leaders talking about reducing our national debt. The truth is that all of us – our Government included – must continue to create debt in order to keep our economy from crashing. The meter is always running on the current interest (which is now enormous). In order to keep creating additional money to pay for our ever increasing debt, we must create more debt to create more money. I know what you’re thinking – this has to be the most ridiculous economic system ever devised. It’s actually quite ingenious – when you realize why it exists. We’ll examine this more later.
Since our money is created from debt, as our debts increase – our money supply increases. The only thing that has prevented this system from collapsing years ago is due to the lag time we have to pay back the interest on our loans. We are not required to immediately pay back the principle plus interest. Although this system seems to have worked for a very long time, we’re going to see that it cannot continue forever. You will see that it’s mathematically impossible for our economic system to continue without eventually collapsing.
If this hasn’t blown your mind yet, consider what would happen if we paid off all of our debt – personal debt (home loans, auto loans, etc), corporate debt and Government debt. Since debt equals money in our system, if there is no debt, there would be no money! I know – it keeps getting more ridiculous. Your mind wants to reject this outright. This is crazy! Unfortunately, it’s the truth. Our entire economy is based on the creation of debt. Without debt, our economy would crash completely. You now know the real reasons why we are all always fighting to get enough money to pay our bills and debts (there’s not enough money in the system for all of us). You now know why we consistently have a steady stream of people and businesses that file for bankruptcy (there’s never enough money in our economy), why inflation has dramatically reduced the buying power of the dollar in the past few decades (our money supply is always increasing – it never stabilizes), why the total volume of dollars in the world economy has sky-rocketed in recent decades (leading to a decline in the value of the dollar – worldwide) and why we’re always being bombarded with loan offers (home, auto, home equity, etc), credit cards, etc. Without debt, we have no economy. How is this possible you ask? Why would anyone allow this to happen? How did this happen? The most important question that you should be asking yourself is this – if we are creating so much debt, who are we indebted to? What you will find later in this post is that this is all very deliberate – it’s not by chance. There is a plan at work here – and it’s evil. The honest truth is that every person in the United States has been placed in financial bondage since 1913 – and most don’t even know it. Have I mentioned how deceptive our spiritual enemy is? Keep reading.
I mentioned earlier that our current banking system is referred to as a Fractional Reserve System. Basically, this means that banks can issue loans for much more money than they have on hand. It depends on the type of account, but as an example, let’s say that the Federal Reserve sets the reserve requirement at 9:1 (or a 10% reserve ratio). The Federal Reserve Board of Governors also has the power to change this ratio within limits set by law. This means that for every dollar that a bank has held in ‘reserve’ at the Federal Reserve, it can lend out 9 times that amount. Let’s say that a new bank holds approximately $1,111 dollars at the Federal Reserve. It can then lend up to $10,000 dollars (9 x $1111 = $10,000). Money on reserve at the Fed is sometimes referred to as ‘super’ money – since the banks get to multiply its volume. The bank then loans this $10,000 to you for a new car. You pay the car seller who then deposits the money in their checking account. Their bank (this is a closed loop system – it doesn’t matter which bank receives the deposit) then takes the $10,000 – adds $1,000 of it to their reserves (the same 9:1 reserve ratio – reversed) – and loans out $9,000 to someone else who then deposits the money in their checking account. Their bank takes the $9,000 – adds $900 to their reserves (9:1 reserve ratio) – and loans out $8,100 to someone else. At this point, the original reserve of $1,111 has generated $27,100 in new money ($10,000 + $9,000 + $8,100). If we do the math and continue to carry this through (and everyone deposits their money in a bank – not in a mattress), then this original reserve of $1,111 generates just under $100,000 of currency in our economy. It’s like a huge game of musical chairs – as long as we’re creating money from debt, the music doesn’t stop playing. Also remember – the original reserve deposit at the Fed ($1,111) was money created by debt – it has no value. Some types of accounts in this system only require a 20:1 or 30:1 reserve ratio and some accounts do not require a reserve at all. Should anyone be surprised that we always have inflation?
What happens when the Federal Reserve changes the reserve ratio? Is this significant? Absolutely. Let’s examine this more closely. If the current ratio is 9:1 and the Fed changes this to 5:1 – what impact does this have? If you’re a bank that has loaned millions of dollars at a ratio of 9:1, and have planned future loans around this ratio, what happens to you if the ratio changes to 5:1 (the reserve requirement increases)? If you don’t have additional reserves to meet the new requirement - you instantly become under-capitalized. Here’s a simple example: if a bank has a reserve of $1,000 and plans to make a loan of $9,000 – it can no longer make the loan if the reserve ratio is reduced to 5:1. At 5:1, the reserve requirement on $9,000 would be $1800. The real world result is – the bank must generate significantly more capital to increase its reserves or stop lending in order to meet the new reserve requirement.
What should we learn from this? Most of us know that the Federal Reserve has the power to raise and lower interest rates and therefore, has the power to raise and lower overall prices within our economy. What most people don’t realize is that they also have the power to raise and lower the total volume of dollars in our economy. If they raise the reserve requirement (requiring banks to have more reserves at the Fed), banks will lend less money and since our money is based on the creation of debt, less money is created. If this happens, the gap between the amount owed within our economy (interest never stops accumulating) and the amount of money to pay the debt – widens. We are often told that this is used to fight inflation – inflation that is caused by this system of money creation through debt. The truth is that an increase in the reserve requirement results in even less money in the overall economy to pay back debt – which could easily lead to a recession or depression. This is the continual game central banks around the world play every day – more money in the economy means economic growth, but higher inflation – reducing the money supply reduces inflation, but will also cause economic growth to slow or contract.
The following chart shows the impact of the reserve ratio on our money supply. It’s easy to see that as the reserve amount required is lowered, the amount of money generated increases significantly. The reverse is also true – as the reserve required by the Fed is raised, the amount of money generated decreases.
(Source: wikipedia.org)
What really happens when our money supply contracts? Periods of recession or depression. What we’re consistently told is that periods of economic growth and periods of economic contraction are unavoidable, when the truth tells us something different. The Federal Reserve has the power to create periods of growth (increased money supply coupled with low interest rates) and periods of contraction (reduced money supply coupled with higher interest rates). How are we told to categorize these periods of growth and contraction? This is the ‘business cycle’. While everyday business transactions certainly affect our overall economy – there is nothing that private business or individuals can do that will overcome the debt based economic system we’ve been placed under.
You have also learned why the current credit ‘crunch’ is being referred to as a ‘crisis’. What happens if banks reduce lending and consumers reduce taking on more debt? Less money is created in the system – and a vicious cycle starts. Wall Street refers to this as ‘de-leveraging’. We’re going to explore the real reasons this happens. Before we look closely at what is going on today, let’s examine another problem with our current economic system. We have discussed how our economy must continue to grow in order for debt creation to continue in order to create additional money in order to pay the debt – a never-ending cycle of debt creation. The question becomes – can this continue forever?
If you were to ask people about economic growth, some will know that our economic (GDP – Gross Domestic Product) growth rate typically averages about 3% (annually) in recent years. Most of us assume this is a linear growth rate. A linear growth rate looks like this:
The problem is that our economic growth is not linear. As an example, let’s assume that the current overall value of our economy is $100. If our economy grows 3% this year, then the overall value at the end of this year is $103. If our economy grows an additional 3% next year, will the overall value of our economy be $106 at the end of next year? No. Since we grew our economy 3% this year, next year’s growth will be 3% of $103 and the total value of our economy at the end of next year will be $106.09 ($103*.03 + $103). Our economy does not grow linearly, it grows exponentially. What this means is that 3% growth this year is actually more growth than 3% last year since our growth is compounded annually. This is what exponential growth looks like:
You are probably starting to feel uncomfortable, because you are beginning to see where this is going. In theory, exponential growth remains relatively low for a given period of time – but as you can see, as each year’s growth compounds on the previous year, overall growth begins to accelerate rapidly at a given point in time. A simple example of this phenomenon can be seen in the growth of a company. A company that plans to grow 10% with annual revenues of $10 million only needs to grow $1 million. A company that plans to grow 10% with annual revenues of $10 billion needs to grow $1 billion. As growth compounds upon itself, the system requires ever more resources to grow the same amount (%).
In our current economic system that relies on continual growth to stave off a collapse, we must continually burn through more and more natural resources to keep the system going. In a theoretical world, this exponential curve continues on to infinity. Is this possible in a finite world with finite resources? Of course not. If we take a logical look at our economic system, mathematics tells us one of two things must happen to our current system. The first scenario is that we burn through all of our resources and the system collapses. We can certainly see the beginning of this from a global perspective. As more economies around the world have instituted the same economic system as ours, we are seeing more and more concern that natural resources (oil, forests, water, etc.) are being depleted at an alarming rate – demand is outstripping supply – adding to inflationary pressures. Although this is certainly possible in our distant future, since we are much farther along the exponential curve than other economies in the world, there is a much more likely scenario for the United States.
The second scenario is that our current system collapses under the weight of the debt it has created. If the rate of debt increases much more quickly than the rate of the supply of money in the system, eventually the amount of money in the system will not be able to support the increased debt. There will not be enough money to make interest payments, pay utilities, buy consumer goods and create additional money. As the exponential curve gets steeper and steeper – it will be more and more difficult to grow our economy, while supporting the existing debt in the system. At some point, since we live in the real world, our monetary system will collapse under the weight of its debt – long before we burn through all of our resources.
Before we get too far into this – let’s ask a question. Where are we on this exponential curve? If we look at trends of some of the most widely used economic indicators, can we determine if we should be worried about imminent collapse? As you will see, we have reason to be concerned.
Let’s start by looking at our debt. The following is a graph of our nation’s federal debt:
Does this look linear or exponential? You don’t have to be a mathematician to see the answer.
The following is a different look at our national debt that calculates the debt as a percentage of GDP:
(Source: U.S. White House)
We hear politicians and economists talk about how there’s nothing to worry about since our debt remains in line with past years - as a percentage of GDP. The problem is that they are only focusing on the amount of debt as a % of GDP in a given year and not the effect of our cumulative debt. As we’ll soon see, what is even more important is the ratio of debt to the money supply.
We also have much more debt than just the federal debt. The following chart shows total debt over time (state, federal, personal, corporate). Once again, we see an exponential curve.
(Source: Michael Hodges, Federal Reserve, U.S. Treasury)
What about our money supply? We should expect to see the same trend – and we do.
Hard currency appears to be somewhat linear, but it’s an illusion. If we reduce the scale (since hard currency is such a small percentage of the total money supply), we see the same trend:
(Source: wikipedia.org)
Since the Federal Reserve stopped publishing M3 (total amount of dollars in circulation) money supply data in 2006, a couple of economists have worked to re-create it. The next graph was created by John Williams at shadowstats.com. Take note of how the year over year growth of our money supply has steadily increased since early 2005. Also note how the rate of growth is beginning to slow since the beginning of 2008. (I originally wrote this post in early 2008 - I have updated the graph below to show money supply growth through July 2010 - you can see how the current credit 'crisis' is now causing our money supply to contract).
I believe we’re going to see our money supply growth continue to slow since we are now at the point that we cannot create enough new money (through debt) to support the existing debt. If we’re not able to create enough new money (through debt) each year to service the interest on the existing debt – the system begins to collapse (loan defaults & bankruptcies begin to increase). The world tells us that our economy is ‘maturing’, which is why our economy’s growth is slowing. The truth, as you see, is much different. We are beginning to see the very real signs of an economy on the brink of collapse under the weight of its monetary system. We’ll talk about these signs later in this post.
Let’s continue by viewing inflation. Once again, we hear the world tell us that inflation is running at a rate of 3% a year and we all accept this as normal – and we forget that this rate is compounded year after year. If we see our money supply increase at such a fast pace, we should expect to see inflation also rise at an exponential rate – and we do.
(Source: Federal Reserve)
Now you know why cars that once cost $3,000 now cost $30,000 or a loaf of bread that once cost $0.25 now costs $2.50. Prices increase within the system if the
volume of money increases at a higher rate than economic activity (goods &
services).
More people with more money to spend places upward pressure on prices for everything – cars, fuel, food, natural resources, etc. As money supplies throughout the world increase at an exponential rate, we see inflation skyrocketing across the globe. More on this below.
What about other economic indicators? We see the same trend.
Government Spending:
(Source: wikipedia.org)
Government Revenues:
(Source: Mark Wieczorek)
Commercial Bank Credit:
(Source: Federal Reserve)
Total Revolving Credit:
(Source: Federal Reserve)
Total Consumer Credit:
(Source: Federal Reserve)
These are all interesting, but the most
important graph will show us the rate of increase of our debt and the rate of
increase of our income. If we see a widening gap between the two, then we know
that the system is beginning to break down as the rate of increase in debt (new
debt – retired debt + interest) is outpacing our ability to service the debt
and keep the system from collapsing.
(Source: Michael Hodges, Federal Reserve, U.S. Treasury)
Sobering isn’t it? What you are seeing is a system on the brink of total collapse. With no way to ultimately pay off our debts
(since money is created by debt), this was inevitable at some point.
Even though our money supply is also on an exponential curve, it cannot (mathematically) keep up with the runaway debt. We are nearing the end of an inevitable cycle. A cycle that ends with the economic collapse of the United States. As I mentioned earlier, this would not be a surprise to the men who created the system in the U.S. in 1913, nor is it a surprise to the men who are controlling the system today.
What about the rest of the world? Can’t they continue to finance our debt? Won’t this help delay our collapse? What you are about to see is that every major world economy also has a Central Bank – and therefore is on the same exponential curve as us. At some point, the entire world system will be unable to sustain itself unless the entire system changes. We’ll just take a look at money supplies of some of the world’s biggest economies. As you view these graphs, also take note of the total amount of Euros (European Union) in circulation compared to the amount of dollars in circulation. If you consider that there are trillions more dollars in circulation throughout the world compared to pounds and euros and also consider the massive amount of U.S. debt – it shouldn’t surprise anyone that the overall value of the dollar is declining against the world’s major currencies.
Global Money Supply:
(Source: Dollardaze.org)
European Union:
(Source: wikipedia.org)
Australia:
(Source: wikipedia.org)
New Zealand:
(Source: wikipedia.org)
India:
(Source: wikipedia.org)
In addition, in recent months China’s money supply (M1+M2) has been growing at a 16-18% annualized rate. So, it’s easy to see that the same insane economic/monetary system has been instituted the world over. The question is – why? Before we answer this, let’s take a look at what is going on in the U.S. economy today.
Let’s think about what we would expect to see if the economic system of the United States begins to collapse due to this monetary system. As the amount of total debt continues to increase faster than the money supply, we would expect the number of personal and corporate bankruptcies to continue to increase. As global inflation also continues to increase prices on a broad range of products and commodities (due to increases in money supplies the world over), we would expect this to also negatively affect individuals and corporations in America. We would also expect to see those of us with the lowest cash reserves to be affected first. Are we seeing these things? Absolutely. We see them everyday in our news. The current ‘credit crisis’ began when subprime borrowers began defaulting on their home loans. Now, we see that the number of Alt-A and Prime borrowers falling behind on their mortgages is also increasing. Home prices are now decreasing across the nation as a result. How does this affect the money supply? If a homeowner defaults on a loan, the bank must ‘foreclose’ and take a loss on its books. The bank then must sell the home – but sell it in a depressed housing market. If the home was originally purchased for $100,000; and the bank can only get $75,000 now - based on what we now know about how money is created - you can see how the money supply will begin to be affected in a very big way. As home prices decline, the amount of money generated from the home loans from consumers also declines. As banks tighten credit due to the rising defaults, the vicious cycle continues – fewer loans and lower prices equals less money created (thanks to this debt based monetary system). Less money created means less money to loan and less money to buy things – and the exponential money creation cycle from debt begins to reverse itself. It’s also easy to see that falling housing prices and falling housing sales are not the only problem here – all of the suppliers, subcontractors, etc. are also affected. The rapid increase in the money supply generated by private banks that we’ve seen over the past decade is beginning to slow significantly. But as you know, this isn’t all that’s happening.
You’ve watched as the value of CDO’s (Collateralized Debt Obligations), CLO’s (Collateralized Loan Obligations), SIV’s (Structured Investment Vehicles) and other derivatives are now plunging in value resulting in huge write-offs for banks. As foreclosures have risen, the value of the bonds created from these mortgages have plunged in value – even those bonds based on ‘prime’ mortgages. All of these things are reducing the money supply. If you have an investment that you thought was worth $100, but now is only worth $60 on the open market, your access to money has been substantially reduced. Auction rate securities, once thought as safe as cash, now can’t be sold – there are no buyers. What you are seeing are the cracks beginning to form in the dam.
What is the Federal Reserve doing? Basically, they are trying to plug the holes by injecting money into our economy to delay the inevitable. Money creation through the private banking system is faltering, so someone has to step in or something catastrophic is going to happen. As the process has accelerated, not only are banks slowing their lending to consumers, they have also significantly reduced lending to each other. In order to get the capital they need, many banks are now borrowing more money directly from the Federal Reserve discount window. Remember, the Fed isn’t giving the money away; banks are borrowing this money from a private corporation. We can see the impact from the current credit crisis from the graph below.
(Source: Bloomberg)
We see this problem developing with the money supply, but there is one area of our financial system that has yet to suffer a significant drop in value – the stock market. It’s been very volatile, but has not really suffered a prolonged decrease in value. Think about this – what happens when financial conditions worsen, people can’t pay their bills/debts, all other investments have significantly declined in value and there’s only one remaining large source of wealth remaining? People will sell their stocks to survive. There’s an obvious problem with this – if a large number of people start selling – what happens? Prices drop significantly. Since stocks are one of the most volatile investments in the world, the coming decline in the stock market will, in all probability, be much worse than the current decline in value of CDOs/SIVs, Auction Rate Securities and other bonds. One thing is for certain, it’s not a matter of if, but when this will happen. Dow Jones Industrial Average (1970 - 2008):
(Source: Wall St. Journal Online)
Take a look at the above graph of the Dow Jones Industrial Average (Share volume is also shown). Look familiar? Once again, we see an exponential curve. The DJIA is shadowing both our debt and our money supply. Why? Think about how the world tells us to invest. We’re constantly told that stocks offer the best long term returns. If you only look at stock returns over the past 30 years – this would appear to be good advice (if you ignore the possibility of something negative happening tomorrow). The problem is that there are two very good reasons why the stock market has continued to increase over this time period – and they have nothing to do with the stock market itself. As money has increased exponentially over the past 30 years – more and more liquidity has been placed in the hands of investors. What is another consequence of this exponential money growth? Inflation has also increased exponentially. We have more and more money in a system where inflation is eroding the value of this money. In this situation, everyone is trying to at least maintain the value of their money – by trying to earn a return higher than the inflation rate. So, we see more and more people investing more and more money into risky investments (stocks, hedge funds, CDO’s, SIV’s, Auction-Rate Securities, etc.) in an attempt to outrun the inflation rate.
There’s also another problem that no one in the mainstream media is discussing. We assume that our inflation rate has been approximately 1%-5% in recent years because this is what our government tells us. The problem is that since the early 1980’s, the government has changed the way it measures inflation. I won’t go into details here (please watch Chris Martenson’s video for further information on how our government has changed how it calculates inflation and other economic data: http://www.chrismartenson.com/fuzzy_numbers). The truth is that the actual annual consumer inflation rate has been between 8%-12% over the past 10 years – which means that you would need to average an annual return of around 10% over the past 10 years just to break even. The current rate of inflation is closer to 13% and increasing - not 5% as we’ve been told (I have updated the graph in 2009 to show how the current crisis is causing deflationary pressures).
(Source: Shadowstats.com)
If we also consider the impact that the actual inflation rate has on real GDP (inflation is subtracted from nominal GDP to calculate real GDP) – we see why businesses and consumers are telling us that we’re in a recession – while our government tells us that our economy is still growing. The current state of our economy starts to make sense when we see inflation in double digits and negative GDP for several quarters.
(Source: Shadowstats.com)
Do you know people who have lost their jobs recently? Wonder why it’s difficult to find a job right now? It’s because the current unemployment rate is closer to 13% - not the 5% that we’ve been told (I have updated the graph in 2009 to show the continuing impact of the current recession/depression - real unemployment is now approaching 20%). The government selectively removes ‘discouraged workers’ from total unemployment in order to calculate the lower rate. It’s simply a way for our government to manipulate the data to show more favorable percentages.
(Source: Shadowstats.com)
What is going to happen to the stock market as our money supply growth continues to slow, GDP continues to contract, inflation continues to increase, housing prices continue to fall and more people lose their jobs? The stock market will, once again, shadow our money supply straight down as the system collapses. We’re beginning to see how this is affecting the stock market today. The market has been extremely volatile as earnings reports from companies seem to contradict government economic data. When it becomes clear to everyone that we’re in serious trouble – we’re going to see a mass exodus from stock markets worldwide.
If you’re wealthy, you may feel somewhat secure that you’ve got a nice nest egg to see this through. Where is your money? It’s most likely in dollar currency in the system – checking/savings accounts, money market funds, stocks, bonds, 401(k)’s, retirement accounts, etc. What happens if it’s not just a segment of the system that collapses, but the entire system? It won’t matter what you have - $5 or $5 million – your wealth will vanish before your eyes. We are facing a far worse scenario than 1929. From 1929 through 1933, our money supply contracted approximately 30% after a period of money supply expansion in the 1920’s. As you can see from the money supply trends in previous charts, we have also been through a period of significant money supply expansion from 1995 until 2007. It appears that 1929 was a trial run for what will happen in the near future to us.
Was wealth destroyed during the Great Depression? No. Wealth was transferred. If you read the biographies of some of the great bankers of that era (J.P. Morgan and others), you will see that the majority of them did not have their money in stocks. Earlier in 1929, they moved their investment holdings to cash and gold. For them, the crash of 1929 was not a catastrophe, it was a buying opportunity. A buying opportunity they created. The price of assets dropped dramatically during this time - and guess who happened to have the cash on hand to buy assets at depressed values?
Until now, you’ve probably thought that we’re all playing by the same rules – we’re not. This really isn’t about money – it’s about power and control of the world. It’s about a ruling elite enslaving humanity on a worldwide scale. A ruling elite given power by the world’s spiritual ruler. Now you know a little more about why the Lord has warned us. He warned us that this beast would be deceptive and would deceive the whole world – and you’re beginning to see why. When God tells us in His Word that something in our future will be deceptive on a worldwide scale – it’s a warning we should heed.
This leads us to why our monetary system exists. In 1913, the battle for the control of the United States banking system was lost – and the Federal Reserve Bank was created. The name of this private corporation should tell us all we need to know – it’s a lie. It’s a bank that is not Federal and there are no reserves. The truth is that this ingenious monetary system was created by some highly intelligent men for one purpose – global power. Whoever controls interest rates and the volume of money in a nation controls the nation (and ultimately the world). In a world focused on money and the pursuit of money, whoever controls our money has the power – absolute power. These men created a monetary system that forever places our nation in debt and one that can be manipulated by them for their purposes. What is going to happen when markets collapse? Guess who, once again, will be there to acquire depressed assets?
As I’ve said before, this was inevitable. If you give a banking system, in our evil world, the ability to control the money supply and the ability to charge interest on the money they create, the bankers will slowly, over time, exchange worthless money (paper and electronic fiat currency) for real assets – gold, silver, land and property. If you view this from a spiritual standpoint, you begin to understand why Jesus told us that building the foundation of your life on the things of this world is not wise. As has happened before, and will happen again, wealthy people of this world will see the foundation of their lives (money) slowly sift away through their fingers. Our wealth is an illusion. Satan has offered wealth and power to many in this nation and they have gladly accepted. They are about to witness what happens when you do a deal with the devil. Take him on by yourself and sooner or later – he’s going to find a way to get his tentacles into you. What happens when wealth is taken away from people who are focused on wealth? It’s not pretty. How do we overcome? As I’ve said before, and will continue to say until I leave this world – you will not overcome this world and its ruler until you humbly ask forgiveness from God. Until you acknowledge your sins and truly believe the Lord’s promise of salvation through His Son, you will never get free of the world. You will always be susceptible to the world’s many disappointments. When you truly repent and are born again, what happens in the world no longer matters because you know the Lord and the Lord stands with you – until the end.
At some point you’ve probably wondered how on earth this monetary system has survived until now. If you read the many quotes throughout recent history from bankers, world leaders, economists and tycoons about central banks – and really pay attention to what they’re saying - it’s no secret that those in power knew what was happening (I have listed many of these quotes on my website). Why hasn’t anyone stopped this madness? It’s not hard to figure out – fear. If you attain a position of power and are told to look the other way or face the consequences – what do you do? Most people in the world will gladly take the money and power….and look the other way. Why place my life at risk when I can continue living this nice lifestyle by not rocking the boat? Yes – I said that by standing against this beast – you place your life at risk. I’m not saying this merely to make a hypothetical point. Take a look at this list. These men had three things in common.
Abraham Lincoln
James Garfield
John F. Kennedy
All were Presidents of the United States. Each man spoke out against the issuance of money by anyone other than our Government and made it clear who they were targeting with these comments – and all were assassinated. Lincoln refused to attain loans from the European banks to finance the Civil War (he was offered loans at 24%+ interest) and instead had the U.S. Treasury issue its own money. JFK gave a speech in 1961 about a worldwide ‘monolithic and ruthless conspiracy’ which is ‘a system that has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific and political operations’. I have added a link to the speech on my website. (Here’s the link: http://www.youtube.com/watch?v=QeYgLLahHv8) JFK even had the audacity in the summer of 1963 to give the U.S. Government the authority to, once again, create its own money via Executive Order 11110 (based on a Silver standard). The U.S. Treasury actually began to print its own money in 1963….but as we all know, this didn’t last long.
As you read the quotes below, notice carefully what these men are telling us. They didn’t realize it at the time they made these statements, but each one of them learned about and then commented on – one of the beasts of Revelation 13. Some of them paid the ultimate price for doing so. The Lord doesn’t arbitrarily label something a ‘beast’ without reason. He uses the term ‘beast’ to tell us who and what we’re dealing with – an organization that will kill, steal and destroy anyone and anything in its path – anything that opposes it. This beast obeys its father – the father of lies and deceit who walks in complete darkness. There is only one way in this world that you and I can oppose this beast and survive – by standing with and obeying the Lord.
“The very word secrecy is repugnant in a free and open society – and we are, as a people, inherently and historically, opposed to secret societies, to secret oaths and to secret proceedings.” –JFK
“We are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covet means for expanding its sphere of influence – on infiltration instead of invasion – on subversion instead of elections – on intimidation instead of free choice. It is a system that has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine - that combines military, diplomatic, intelligence, economic, scientific and political operations. Its preparations are concealed, not published. Its mistakes are buried, not headlined. Its dissenters are silenced, not praised. No expenditure is questioned, no secret is revealed.” -JFK
“I am asking your help in the tremendous task of informing and alerting the American people.” –JFK referring to the worldwide conspiracy mentioned above
“Whoever controls the volume of money in our country is absolute master of all industry and commerce….and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” -James A. Garfield
“The Government should create, issue and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity.” -Abraham Lincoln
“We are grateful to the Washington Post, the New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected the promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the National auto-determination practiced in past centuries.” –David Rockefeller in an address to Trilateral Commission Meeting, 1991
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that willgrow up around them (around the banks), will deprive the people of their propertyuntil their children will wake up homeless on the continent their fathers conquered." –Thomas Jefferson
"Capital must protect itself in every way... Debts must be collected and loans and mortgages foreclosed as soon as possible. When, through a process of law, the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd." -J.P. Morgan
"We shall have World Government, whether or not we like it. The only question is whether World Government will be achieved by conquest or consent." –James Paul Warburg (Chairman of the Council on Foreign Relations, speaking before the U.S. Senate, 1950)
"The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson. History depicts Andrew Jackson as the last truly honorable and incorruptible American president." –Franklin D. Roosevelt
"[The task is to] covertly lower the standard of living, the whole socialstructure, of America so that we can be merged with all other nations." –Rowan Gaither (President of the Ford Foundation, 1954)
“I am myself persuaded, on the basis of extensive study of the historical evidence, that... the severity of each of the contractions - 1920-21, 1929-33, and 1937-38 - is directly attributable to acts of commission and omission by the Reserve authorities and would not have occurred under earlier monetary and banking arrangements.'' –Milton Friedman (Nobel Prize-winning economist, economic advisor to President Ronald Reagan)
"Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the U.S., in the field of commerce and manufacturing, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it." –Woodrow Wilson
"A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men who, even if their action be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who necessarily, by very reason of their own limitations, chill and check and destroy genuine economic freedom." -Woodrow Wilson
"We have restricted credit, we have restricted opportunity, we have controlled development, and we have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world--no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men." –Woodrow Wilson
"This Act (the Federal Reserve Act, Dec. 23rd 1913) establishes the most gigantic trust on earth. When the President (Woodrow Wilson) signs the Bill, the invisible government of the Monetary Power will be legalized... The worst legislative crime of the ages is perpetrated by this banking and currency Bill." –Charles A. Lindbergh Sr. (Congressman and father of the famous aviator)
"The most wonderful thing of all is that the distinguished Lutheran andCalvinist theologians who belong to our order really believe that they see in it (Illuminati) the true and genuine sense of Christian Religion. Oh mortal man, is there anything you cannot be made to believe?" - Adam Weishophf upon establishing his "Order of the Illuminati", on May 1, 1776
"It is ironical that the only nation which affirmatively expresses a dependence upon and belief in Almighty God in its birth certificate, should now be in mortal combat for its very existence with a godless conspiracy intent upon conquering the world, and reverting human society to the hazards and indignities of the Dark Ages." –Loyd Wright (Former President of the American Bar Association, 1961)
"From the days of Spartacus, Weishophf, Karl Marx, Trotski, Belacoon, Rosa Luxenburg, and Ema Goldman, this world conspiracy has been steadily growing. This conspiracy played a definite recognizable role in the tragedy of the French revolution. It has been the mainspring of every subversive movement during the 19th Century. And now at last this band of extraordinary personalities from the underworld of the great cities of Europe and America have gripped the Russian people by the hair of their head and have become the undisputed masters of that enormous empire." –Winston Churchill, 1920
"The real menace of our Republic is the invisible government which like a giant octopus sprawls its slimy legs over our cities, states and nation. At the head is a small group of banking houses generally referred to as 'international bankers.' This little coterie... run our government for their own selfish ends. It operates under cover of a self-created screen...[and] seizes...our executive officers... legislative bodies... schools... courts... newspapers and every agency created for the public protection." –John Hylan (Mayor of New York, 1918-1925)
"The sovereignty fetish is still so strong in the public mind, that there would appear to be little chance of winning popular assent to American membership in anything approaching a super-state organization. Much will depend on the kind of approach which is used in further popular education." (Council on Foreign Relations, 1944) If you spend some time studying these international bankers who have instituted this debt based monetary system worldwide, you will find that at the top echelon of power there are approximately 300 names. These are the same 300 families who own stock in the Federal Reserve of the United States and all of the other central banks the world over. These are the people who wield the world’s real power from the shadows and provide the wealth and power needed to infiltrate the world’s monetary and political systems. These are the people the Lord describes in Revelation 13 – this ‘beast out of the earth’.
If you continue to study how they have gained this power, you will be led back in time to the early 1690’s to the founding of the Bank of England – the world’s first central bank. And if you continue to search for the truth, you will find that all roads on this journey eventually lead to one name – Rothschild. The world will tell you that the Rothschild’s banking empire has been reduced to a ‘niche’ bank – catering mainly to very wealthy investors. The truth is that they control approximately 70%-80% of the world’s wealth from the shadows. If I had told you this at the beginning of this post, you would have probably rejected this statement outright. Now you know how it’s possible – they print the world’s money and exchange it for the world’s real assets. As I mentioned at the beginning, it’s really an ingenious plan – when you realize why it was created. It’s evil, but ingenious. The Rothschilds and every member of these ‘elite’ families would tell you that this plan was devised by them for their purposes – but we know the truth. The Lord has told us Satan’s plans – they’re simply obeying the one they serve.
We now see how the world’s financial system has been overtaken by a few very powerful men. If we take what we know and think about the ‘mark of the beast’, we realize that control of the world’s financial system isn’t enough to satisfy the prophecies about the ‘mark’. Controlling the world’s financial system is one piece of the puzzle, but something else is needed – enforcement. Everyone throughout the world will be ‘forced’ to accept the mark. These powerful men need a way in which to deceive us into believing that humanity needs protecting – and now we know why the Lord tells us in the book of Revelation about ‘miraculous signs’ used by this beast. The beast creates these ‘signs’ to strike fear among us – fear that will eventually drive humanity to give over its freedom to the beast – and Satan. We’ve seen many of these ‘signs’ already, but they are only the beginning.
When it comes to spiritual deception, you are beginning to see just how blind we really are in this world when we walk away from our Creator. We focus on the things in the world – money, careers, cars, houses, addictions, stuff, etc. – and we forget about the subtle things that are missing from our lives. Some of these things are big picture – How did we come into being? Why are we here? Does God really exist? If He exists, why can’t I see Him? Can I really know God - personally? Where do I go when I die? Am I really alone in this fallen world? How can I get free of this mess? Other questions are smaller picture, but would also lead us to the truth if we would just slow down for awhile and think about what we’re consistently told in this world and compare it to God’s truth – could someone really consolidate the world’s government, world’s religion and world’s financial system within 7 years? If God has allowed His children to experience pain and suffering throughout human history in order to strengthen them in this world, why would He change now? Sometimes it’s a very simple question that leads us to some very important answers – how is our money created? Think about how many times in your life – friends, parents, teachers, professors – someone has explained our monetary system to you. Never? You’re not alone – and there’s a reason it’s being hidden. If I were to ask 1000 Americans today what is the greatest threat to our nation’s sovereignty – how many do you think would respond - ‘the war on terror’? My guess is that 99% of us would agree that ‘the war on terror’ is our greatest threat. Our spiritual enemy has created a perceived threat – while his true ‘beasts’ gain control of the world through deceptive means – subversion, infiltration and intimidation. Again, an ingenious plan – and not of this world. The only way to overcome it is to obey the One spiritual being that Satan cannot deceive, intimidate or overcome – our Father in heaven.
The truth is that never before, in the history of the United States, have we faced a greater threat to our national sovereignty as we do now – never. We are facing an enemy that is much more intelligent and powerful than you and I - an enemy that has not used brute force against us, but works in the shadows to deceive and infiltrate. At times in the past I would think about the book of Revelation and wonder how the people of the world could ever allow themselves to be subjected to an evil world government. I simply didn’t want to believe it was possible and I, like most people today, disregarded the Lord’s warnings about how this beast would deceive the whole world. Now that I’ve humbled myself and know the truth, I listen to this beast talk to us everyday through corporate, governmental, banking and religious leaders – leaders of the United States. It’s no longer a mystery. Their plan has almost come to fruition. At some point, you might think that all hope is lost – that they are too powerful and the plan is too far along. How can we possible stop this? I’m not fearful of these things because I know that God could see this coming since the creation of the world – and I don’t need to figure out what to do on my own. I will simply continue to seek the Lord’s will for me – His plan, not mine. What you are about to see throughout the world is that God is going to go on the offensive – and he’s going to do it with you and me. Now is not the time for weak people with weak ministries to proclaim a weak message. Now is the time to allow ourselves to be strengthened spiritually. Now is the time to stand in the face of overwhelming odds – and succeed.
At different times in your life you have probably felt that something wasn’t quite right. You could ‘sense’ it, but you couldn’t ‘see’ it. You couldn’t really explain it, but you knew that there was something not quite right about the world you live in. The economy is up – the economy is down. Life is good – life is not so good. Chaos seems to rule the world. It’s like we’re walking on very thin ice that is constantly cracking – about to give way. You are now beginning to understand that there is a method to the madness. When the world chose death over life, sin over righteousness – when we chose to believe lies instead of the Truth – this was the inevitable result. What gets the true Christian through all of this is that this isn’t the end – it’s only the beginning – and we’re not alone. The end is glorious for us – end of story.
You’ve seen me reference the movie ‘The Matrix’ and how many aspects of the movie are similar to the spiritual battle being waged in the world. I’m going to end this post with some dialog from the movie because it certainly relates to most of us. The following scene takes place right before Neo learns the truth about his world.
Morpheus: I imagine that right now, you're feeling a bit like Alice. Hmm? Tumbling down the rabbit hole? Neo: You could say that. Morpheus: I see it in your eyes. You have the look of a man who accepts what he sees because he is expecting to wake up. Ironically, that's not far from the truth. Do you believe in fate, Neo? Neo: No. Morpheus: Why not? Neo: Because I don't like the idea that I'm not in control of my life. Morpheus: I know *exactly* what you mean. Let me tell you why you're here. You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about? Neo: The Matrix. Morpheus: Do you want to know what it is? Neo: Yes. Morpheus: The Matrix is everywhere. It is all around us. Even now, in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work... when you go to church... when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth. Neo: What truth? Morpheus: That you are a slave, Neo. Like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind.
I finally found a video that does an excellent job of explaining our monetary system in simple terms. I recommend that you watch it to get a better understanding of what I have discussed here. The video was created by Paul Grignon and is only 47 minutes long. Money as Debt I have used a couple of Paul’s examples in this post.
It's been about eight months since I wrote the post on our monetary system (Our Monetary System – How Central Banks Control the World’s Economy). Obviously, a lot has happened since that first article. Over the past two months (September and October), we’ve seen the U.S. economy begin to contract and we’ve also seen extreme volatility in stock markets around the world. In this post, we’re going to review how our monetary system is currently impacting the world’s financial system and why we are seeing such extreme volatility in the world’s markets.
Let’s start by reviewing the Chicago Board Options Exchange Volatility Index (VIX). This is a widely used measure of stock market volatility. It is a measure of the implied volatility of S&P 500 index options. A higher VIX value reflects more volatility in the market. As a baseline to what we’re seeing today – the VIX index briefly moved above 40 a couple of times in 2001 and 2002 during the dot com bust – reflecting high volatility as technology stocks declined. From 2003 through 2007, a value of 30 indicated a fairly volatile market – it typically moved in a range between 10 and 20. High volatility typically corresponds with stocks moving significantly lower as many investors issue sell orders. As you can see from the chart below, the index has not moved below 30 since the middle of September (2008) and briefly moved above 80 around October 27th. Obviously, it’s not hard to see that stock markets have been extremely volatile. It hasn’t been uncommon for the Dow Jones Industrial Average to swing 500, 600, 700 – even 1000 points in one day. I’m guessing that there are stock traders around the world eating a lot of antacid these days.
So, the 64,000 dollar question is – what is causing this volatility? Is it just the economy showing signs of weakness or is something more ominous at work here? Before we answer this question, let’s take a look at a couple of other things happening within the world’s financial system.
VIX: 6 Months
(Source: Yahoo! Finance)
As in previous years where volatility has been high, we again see that stocks are also showing significant declines. As we see from the chart below – the Dow Jones Industrial Average (DJIA) has declined as volatility has increased. This really shouldn’t be surprising – as prices become more volatile, people begin to lose confidence that their investments are stable/safe – so they move more of their money into investments that are perceived to be safer and less volatile – leading stocks lower. As we’re going to see – what the world perceives as ‘stable’ or ‘safe’ – isn’t safe at all. Take note of what the DJIA chart of the past 2 months looks like (below) – because you’re going to see the same pattern again and again.
Also note that the DJIA tracks 30 ‘blue-chip’ stocks – large companies like American Express and Bank of America (Banking & Finance), IBM and Intel (Technology) and Chevron and ExxonMobil (Energy) – a wide range of companies and industries.
DJIA – 2 Months (includes Volume & Volatility)
(Source: Wall St. Journal Online)
Let’s now look at the NASDAQ composite index. This is an index of all the stocks listed on the NASDAQ stock market. These are typically technology companies - companies like Apple Computer, Microsoft and Oracle. As you view the graph below – notice anything similar to the DJIA graph above? Although the values are different – they are both moving in the same direction, by approximately the same percentage - at the same time. So, an index that encompasses a wide range of large companies in many different industries (DJIA) is moving in tandem with an index (NASDAQ Composite) that is comprised of almost 3,000 technology companies. Is this a coincidence or will we see the same pattern continue across other stock markets?
NASDAQ Composite – 2 Months (includes Volatility)
(Source: Wall St. Journal Online)
Let’s take a look at the S&P 500 stock index. The S&P 500 includes 500 large cap U.S. stocks – and like the DJIA – includes companies across many different industries. 3M, AllState, Amazon, Monsanto are a few of the companies included in the S&P 500.
S&P 500 Index – 2 Months (includes Volatility)
(Source: Wall St. Journal Online)
At first glance, it appears that I’ve copied either the DJIA or NASDAQ graph above – because all three look almost exactly the same. The values of each index are different (reflecting the different overall dollar values of each index), but they are all moving in the same direction, by the same percentage – at the same time. You’ve probably noticed this yourself at times, but didn’t think much about it. We should pay close attention – because this is indicating another fundamental flaw inherent in the world’s financial system. We’ll get to this after a few more graphs.
Let’s look at the NIKKEI Index – an index that tracks the Tokyo Stock Exchange. Once again we see that although the values are different – Japanese stocks are moving in the same direction, by approximately the same percentage – at the same time as their American counterparts.
NIKKEI Index – 2 Months (includes Volatility)
(Source: Wall St. Journal Online)
We see the same trends in European stocks. The following is a Dow Jones stock index for European companies.
DJ Stoxx 50 – 2 Months (Europe – includes Volatility)
(Source: Wall St. Journal Online)
….and the same trends in Australia.
Australia ASX Index – 2 Months (includes Volatility)
(Source: Wall St. Journal Online)
The Dow Jones World Index (a composite of the world’s stock markets) looks almost identical to all of the stock indexes above. What do these graphs show you? Are you diversifying your portfolio by investing in different stock markets around the world? No – you’re not. The world’s financial system is now so closely interconnected – that all of the world’s stock exchanges are moving in tandem - acting like one big stock exchange. Stocks around the world are moving up together and moving down together - and are all very volatile and declining in value. Is stock market volatility a good thing? Absolutely not. Stocks are the most volatile investments on the planet and continued volatility can cause panics – which we’ve already seen in October. When the stampede out of stocks begins sometime in the near future – it’s going to be a worldwide stampede.
DJ World Index – 2 Months (includes Volatility)
(Source: Wall St. Journal Online)
If stocks are going to significantly decline in value, where do we invest our money? The next investment option is usually bonds. Bonds are less volatile – right? Not in this current crisis. Let’s look at one of the most widely purchased bonds – the 10 year U.S. Treasury bond.
The graph below shows the yield on the 10 year T-bill over the past 2 months.
10 Year Treasury Yield – 2 Months
(Source: Wall St. Journal Online)
Stock market volatility is spilling over into bonds (even bonds considered safe – U.S. T-bills) because investors have gotten into and out of bonds as stock markets have gone on a rollercoaster ride. When stock market volatility rises – investors will tend to move to ‘safer’ investments – which is why you see the swings in the 10 year t-bill above. Prices for T-bills have also been volatile – they move inversely to yields.
10 year Treasury Yields over the past year look just as volatile.
10 Year Treasury Yield – 1 Year
(Source: Wall St. Journal Online)
Look at the 3 month Treasury yield below. When stock market volatility began to rise significantly in September, investors fled to T-bills – driving the yields to almost nothing. This means that investors were willing to buy t-bills with no yield in exchange for safety. Investors were investing their money in something that paid them nothing in return. This would be like parking all of your money in a checking account with no interest – simply because you trust the bank and fear any of the alternatives. What would cause the world’s investors to do such a thing? One word – fear. Not a good thing for financial/stock markets.
3 Month Treasury Yield – 3 Months
(Source: Wall St. Journal Online)
The index below tracks municipal bond prices (comprised of 40 municipal bonds rated A or better). Once again, we see more volatility.
Bond Buyer Muni Index – 3 Months
(Source: Wall St. Journal Online)
The Dow Jones Corporate Bond Index is an equally weighted basket of 96 investment grade corporate bonds. Do you see any stability here? Nope.
DJ Corporate Bond – 3 Months
(Source: Wall St. Journal Online)
The Dow Jones Chicago Board of Trade Treasury Index (DJ CBOT) is made up of CBOT 5-year, 10-year and bond futures contracts. See any stability here? Again, the answer is no.
DJ CBOT Corporate Treasury – 3 Months
(Source: Wall St. Journal Online)
What about the convertible bond market? You may have heard about convertible bonds recently in the news – corporations and hedge funds often use this market for short term financing needs. What is a convertible bond? As stated by the Wall St. Journal:
“Convertible bonds are part stocks, part bonds. They act like bonds and usually pay interest. But, as an added kicker, they give holders the right to convert the securities into stocks at a certain price. The market is normally less volatile than stocks, but the securities can have the same upside if a company rebounds.”
How has this market fared this year? The following excerpt from the Wall St. Journal says it all.
“Overall, the $200 billion convertible-bond market has lost 36% so far this year, a bit more than the stock market, according to Merrill Lynch. But the average convertible-bond hedge fund has lost about 50% in that time, including a 35% plunge in October, according to Hedge Fund Research Inc.”
We see more volatility and more wealth evaporating.
So, we now see that both stocks and bonds have been extremely volatile and we see both stocks and bonds declining significantly in value. If you add up the declines in the graphs above – you see trillions of dollars vanishing.
Until the recent crisis – money market funds have been considered as safe as cash. Not now – the following excerpt from an article on CNN sums up the risks with money market funds:
“A soured investment in Lehman Brothers Holdings Inc. debt slashed two-thirds of the asset value of the oldest money-market fund in the United States, exposing clients to losses despite investments in a financial product seen as a safe haven even in volatile markets.
The sudden setback at the Reserve Primary Fund caused it to "break the buck" -- leaving investors unlikely to get back all the cash they put in because the fund failed to maintain assets of at least $1 for every dollar invested.”
In a previous post I discussed how the market for Auction Rate securities has also collapsed – commercial and investment banks have recently agreed to pay billions to investors who felt they were misled into believing these securities were as safe as cash.
If we also consider that banks are struggling with rising loan defaults (17 U.S. banks have failed to date this year), it is becoming clear that even our checking and savings accounts are at risk. You may think that the FDIC will insure your deposits – but the FDIC has funding for approximately 1% of current bank deposits. Not exactly reassuring.
It is becoming increasingly clear that there are no safe havens in the world’s financial system – except maybe your mattress – and it’s not really part of the financial system.
The next stop on this journey is commodities. Let’s take a look at prices of some of the most widely traded commodities. Let’s start with oil. The following shows the price of oil over the past 3 months. After climbing above $140 a barrel this summer, the price has now dropped rapidly below $70. In approximately two weeks, the price of a gallon of gasoline in Atlanta has dropped from $4 to $2. It’s easy to cheer such a drop in gas prices – until you study why it’s dropping so dramatically.
Crude Oil – 3 Months
(Source: Wall St. Journal Online)
It’s easy to see that market volatility is not isolated to stocks, bonds and financial derivatives – it’s also present within commodity prices. We’re going to see that this volatility and price deflation present in oil also exists across all types of commodities. The question we’re going to explore is – why?
Let’s take a look at metals. Copper prices have dropped over 40% in three months as demand has declined dramatically.
Copper – 3 Months
(Source: Wall St. Journal Online)
Even gold has been volatile – as investors buy and sell gold to cover margins in other investments and diversify their holdings. I believe that although gold has been somewhat volatile – it’s still the best investment in an uncertain financial system since its value is not tied to interest rates and it can always be used as money. Try buying some actual gold – it’s hard to find. The U.S. mint has even stopped minting certain gold coins since demand is far exceeding supply.
Gold – 3 months
(Source: Wall St. Journal Online)
What about agriculture? We see the same trends. Corn prices have declined over 30% in three months.
Corn – 3 Months
(Source: Wall St. Journal Online)
Same situation with Soybeans – prices have declined over 30% in three months.
Soybeans – 3 Months
(Source: Wall St. Journal Online)
Wheat prices are down almost 40% in three months.
Wheat – 3 Months
(Source: Wall St. Journal Online)
What about livestock? The same trends are present everywhere. Hog prices are down over 25% in three months.
Lean Hogs – 3 Months
(Source: Wall St. Journal Online)
Cattle prices are down over 15% in three months.
Live Cattle – 3 Months
(Source: Wall St. Journal Online)
The obvious question is – why are we seeing such widespread price deflation in the world’s financial markets? If you read my first article on our monetary system, then you know that I initially believed we would probably see some type of hyper-inflation as Central Banks pumped more and more money into the system. If you’ve been following the crisis – then you know that inflation has been a concern for Central Banks for some time as prices increased dramatically for a wide range of products and services. We can see this in the chart below. If we measure inflation using the standard measure used by our government until the early 80’s – we see inflation approached almost 14% before beginning to decline recently.
(Source: Shadowstats.com)
So, what is happening to tame inflation? Why are prices declining at such a rapid pace? The biggest pieces of the puzzle are (once again) our money supply and debt. Take a look at our money supply growth rates.
(Source: Shadowstats.com)
We are seeing money supply growth slow considerably. Why is this happening? Because the world’s private banking system is failing. Banks have dramatically reduced lending due to rising defaults and borrowers have dramatically reduced taking on more debt – because their debt levels are already at unmanageable levels. The current debt of governments, corporations and individuals is crushing the world’s economy. Central banks are now attempting to revive the world’s economy by lowering interest rates (again), lowering reserve requirements and recommending that governments continue with economic ‘stimulus’ packages. Someone must continue creating debt (and therefore – money) or the system will begin a freefall collapse. As I’ve said before – they are only delaying the inevitable. You can only service debt at these levels for so long – before something catastrophic happens.
What happens when a debt-based monetary system begins to collapse? You’re watching it happen everyday now – extreme volatility ripples throughout the financial system as the entire system shudders under the weight of the debt it has created. The world simply can’t sustain the debt creation necessary to keep the system going. Very few people understand what is happening – so we’re seeing wild swings in prices and volumes as people are blindly looking to somehow save their money from vanishing.
Prices for everything are now rapidly declining because we don’t have the money – or access to needed credit - to buy things. Our economy actually began contracting in 2004 (when viewing real data) – but as you can see – it appears that we are now falling off the cliff.
(Source: Shadowstats.com)
This is why auto-makers the world over are now reporting drastically reduced sales numbers (and financial results) and why 3rd quarter earnings from all kinds of companies in all kinds of industries around the world are showing serious declines and/or issuing guidance warnings. We simply don’t have the money and/or access to credit to keep the system running.
This is why we see abysmal economic data like this:
We hear economists talk a lot about ‘bubbles’ – asset bubbles, stock bubbles, housing bubbles, etc. As you will see below – the world’s financial system has created one, very big bubble across the entire system – and it’s about to pop.
It’s easy to see that stocks are on the way down from the top of the mountain.
World Stock Index (DJ World Index):
(Source: Wall St. Journal Online)
U.S. Stocks (DJIA):
(Source: Wall St. Journal Online)
European Stocks (DJ Stoxx 50) :
(Source: Wall St. Journal Online)
Japanese Stocks (NIKKEI):
(Source: Wall St. Journal Online)
Latin America (DJ Americas):
(Source: Wall St. Journal Online)
Much of the blame for the current crisis has been placed on the U.S. and U.K. housing market collapse. A housing bubble has certainly been created in both countries, but as you will see – this is a worldwide problem.
(Source: MarketOracle.co.uk)
The following excerpt is taken from the Economist.com website:
(Source: IMF)
“WHERE are house prices most overvalued? As the rest of the world watches the bursting of America's housing bubble, that question should be at the top of everyone's mind. The answer is not comforting: many countries have had far hotter housing markets than America and are also suffering from tightening lending conditions thanks to the credit crisis.
In the latest World Economic Outlook, Roberto Cardarelli of the IMF calculates the share of the increase in real house prices between 1997 and 2007 that cannot be accounted for by fundamental factors such as lower interest rates and rising incomes. This “house-price gap” is greatest for Ireland, the Netherlands and Britain, where prices are about 30% higher than can be justified by fundamentals. France, Australia and Spain have house-price gaps of around 20%. In America, where prices were already falling in 2007, the gap is just over 10%.” –Economist.com
Energy prices have certainly been through a bubble:
Crude Oil:
(Source: Wall St. Journal Online)
Natural Gas Henry Hub Pit (Nymex):
(Source: Wall St. Journal Online)
Food prices across the board have gone through a bubble:
Corn:
(Source: Wall St. Journal Online)
Wheat:
(Source: Wall St. Journal Online)
Cattle:
(Source: Wall St. Journal Online)
Let’s look again at what is behind all of this: our money supply.
(Source: NowandFutures.com)
Our total money supply (M3 - dollars) is now approximately $14 trillion, but the rate of growth is now slowing. If we see a dramatic decrease in lending from banks, what is sustaining the money supply growth? Here’s the answer:
The total amount of money (dollars) controlled by the Fed & Treasury has more than doubled in 2008 to over $4 trillion dollars. As I’ve said before – someone has to keep the supply of money growing – which is why we see Central Banks pumping billions of dollars into the system and telling governments to provide additional economic stimulus packages.
Is there anything else that has contributed to these bubbles and all of this volatility? The Federal Reserve (and mainstream media) tells us that they adjust the Fed Funds Rate in response to economic conditions. The truth is that the Fed drives the economy (and behavior) with interest rates (coupled with reserve requirements). The Fed isn’t responding to a rollercoaster ride – it created the rollercoaster.
(Source: MoneyCafe.com)
What happens when volatility finally cause the bubbles to burst completely? We’ll need a new, heavily regulated, worldwide financial system.
If you were wondering if the Fed really does own a large portion of our debt – this pie chart should answer the question. The Federal Reserve owns over 50% of the U.S. Federal debt. Remember – this is a cartel of private international bankers. I wonder why we never hear this on the nightly news?
(Source: wikipedia.org)
What does the Bible say about the relationship between a lender and a borrower?
‘the borrower is servant to the lender’ (Proverbs 22:7)
“Do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.” (Proverbs 22:26-27)
And here we see the impact on the Fed’s balance sheet from all the recent ‘bailout’ activity. Notice that their ‘assets’ are increasing substantially.
(Source: Federal Reserve)
The Lord has warned humanity for thousands of years about the very thing happening to us today – and our nation has joined a growing list of nations throughout history - that have ignored His warnings.
Here’s a good parable to summarize what is happening. Our Father tells us that He will build us a nice house – not too big, not too fancy – but it will shelter us and provide us all that we need – a good, stable house that will last. It won’t cost us anything – we only need to believe that He will provide for us and to trust Him. Our Father also warns us about other builders in the world. While we’re thinking about this, another builder makes us an offer. We don’t know this builder – but He promises to build us the nicest house the world has ever seen. It will require a little bit of debt, but it will be far nicer than the home our Father said He would build for us. We begin thinking about how nice it would be to have the nicest house in the world – so we reject our Father’s offer, we choose not to heed His warnings - and we hire the builder. We think this new mansion is complete with everything we could ever ask for – built with the finest fixtures, the finest furniture, the most beautiful lawn – the nicest looking house in the world. The world envies our home because it’s so big and beautiful. There’s only one problem – we didn’t lay a good foundation for our house. Unbeknownst to us – the builder of our home built it on sand – because he is devious and we weren’t paying attention. We noticed after moving in – that every once in awhile – the whole house shakes. We pause – wondering what is causing the problem – but the shaking subsides and we don’t take the time to find out what is causing the problem – we’re too enamored with the beauty of our home. Eventually, one day the whole house comes crashing down – and we all look around – wondering what could have caused such a thing. Now – we don’t even have a roof over our head. Now - we no longer care about how beautiful our home is – we just want some shelter. The same devious builder then tells us that he’ll build us a better, more secure house this time – just trust him. It will only cost us a little bit more than the first home. Even though we rejected our Father the first time – He comes to us again – and again offers to build us a house with a solid foundation that is not too big, not too fancy – but will last our entire lives. He only asks that we humble ourselves, ask for forgiveness for following the world – and to trust Him. Who will we choose to build our next house?
What does all of this mean? It means we better not put our faith and hope in the world – because the world is lying to us.
I’ll finish this with one of Chris Martenson’s blog posts. Pay close attention – because we’re watching history repeat itself – once again.
jg – Nov 5, 2008
_____________________________________
Tuesday, October 28, 2008, 3:06 pm, by cmartenson
Below, I've liberally excerpted from an article I read a couple years back that always stuck with me.
Since our challenge today is to know whom to trust and which story to believe, I thought I'd bring this one back to the forefront, because the parallels are so striking between the late 1920's and now.
Below is a graph of the Dow Jones during the years of the 1920's bubble, the stock market crash of 1929, and the onset of the Great Depression. The numbers in bubbles indicate when one or more quotes from a famous expert were captured.
I happen to believe that we are somewhere between points #8 and #18.
I get chills every time I re-read them...
Link to original article at Gold-Eagle.com
Number 7:
"The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin." - Stuart Chase , NY Herald Tribune, November 1, 1929
"Hysteria has now disappeared from Wall Street."
- The Times of London, November 2, 1929
"The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before."
- Business Week, November 2, 1929
"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..."
- Harvard Economic Society (HES), November 2, 1929
Number 8:
"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
- HES, November 10, 1929
"The end of the decline of the Stock Market will probably not be long, only a few more days at most."
- Irving Fisher, Professor of Economics at Yale University, November 14, 1929
"In most of the cities and towns of this country, this Wall Street panic will have no effect."
- Paul Block (Pres. of the Block newspaper chain), editorial, November 15, 1929
"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929
Number 9:
"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
"I am convinced that through these measures we have reestablished confidence."
- Herbert Hoover, December 1929
"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929
Number 10:
"For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930
Number 11:
"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930
Number 12:
"There is nothing in the situation to be disturbed about."
- Secretary of the Treasury Andrew Mellon, Feb 1930
Number 13:
"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."
- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930
"... the outlook continues favorable..."
- HES Mar 29, 1930
Number 14:
"... the outlook is favorable..."
- HES Apr 19, 1930
Number 15:
"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930
"Gentleman, you have come sixty days too late. The depression is over."
- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930
Number 16:
"... irregular and conflicting movements of business should soon give way to a sustained recovery..."
- HES June 28, 1930
Number 17:
"... the present depression has about spent its force..."
- HES, Aug 30, 1930
Number 18:
"We are now near the end of the declining phase of the depression."
- HES Nov 15, 1930
Number 19:
"Stabilization at [present] levels is clearly possible."
- HES Oct 31, 1931
Number 20:
"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."
- President F.D. Roosevelt, 1933
(Source: wikipedia.org)
(Source: wikipedia.org)
(Source: wikipedia.org)
(Source: wikipedia.org)
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(Source: Wall St. Journal Online)
(Source: Wall St. Journal Online)
(Source: Wall St. Journal Online)
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