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The purpose of
this paper is to highlight how hegemonic American economic doctrine has
infected global economics in creating a surreal plutocratic corporatocracy, or in other words, what’s black is
white, what’s up is down, what’s safe is risky, you get the idea!
Do Deficits Really Matter, or, What’s Unaffordable is Cheap
Back in 2002,
Treasury Secretary Paul O’Neill warned [then] Vice President Dick
Cheney about the folly of deficit finance as the annual U.S. Government
deficit approached $500 billion. Cheney responded by having O’Neill
fired; but before that, he uttered these words,
"You know, Paul, Reagan proved
deficits don't matter," continuing, "we won the midterms
(congressional elections). This is our due."
Judging by what
deficits were then versus what they are now – roughly $1.5 Trillion
annually – it’s evident that America continues to be
“ruled” by the dictum that deficits do not matter.
While deficits
have “appeared not to matter” to America, they certainly have
come home to roost in Iceland, Ireland, Greece, Italy, Spain, Portugal,
France and now even Germany – with a recent failed 10 yr. bond auction
- too. Ergo, deficits really do seem to matter to some countries – just
not America – at least not yet.
What’s Insolvent is Solvent
To keep the
Truman illusion alive – and keep the namesake believing in the Carrey trade – a little
sleight-of-hand is required. So, to prove to everyone that the U.S. financial
system is still strong, the Federal Reserve has announced it is going to
perform “stress tests” on six major banks.
Higher
'Stress' for Big Banks
BY DAN FITZPATRICK AND VICTORIA MCGRANE
Regulators said they will publish full
results next year of a bruising "stress test" of the biggest U.S.
banks, in a bid to reassure investors about the health of the financial
system at a time of intense market uncertainty.
The six largest banks in the U.S. will
be asked to gauge losses from a "hypothetical global market shock"
related to the turmoil in Europe, the Federal Reserve said Tuesday. The Fed
said that test "will be based on market price movements seen during the
second half of 2008," when financial markets froze following the
bankruptcy of Lehman Brothers Holdings Inc.
Ladies and
gentlemen, the Federal Reserve is the producer of this Truman-esque fairy-tale. The U.S. Treasury is the set-director.
Their stress tests – for banks – are just another scene in the
movie.
What’s Not Safe is the Safety Trade
Five of the six
of the referenced banks just happen to have derivatives books ranging from
53+ Trillion to 78+ Trillion in notional. More than 80 % of these outstanding
derivatives are interest rate contracts. Hundreds of trillions of these are
interest rate swaps, with maturities of 3 – 10 years, which have
physical U.S. government bond trades imbedded in them. This provides the
‘cover’ for these banks to purchase an unlimited amount of U.S.
Government debt. Because the bonds serve as “hedges” for said
swaps – they are not subject
to ‘mark-to-market’ accounting.
Synthetic Alteration or Settlement
Accounting. Derivative instruments used to change
the nature of one financial instrument to that of another financial
instrument (such as an interest-rate swap changing floating-rate debt to
fixed-rate debt) are accounted for in a manner consistent with the underlying
asset or liability to which they are designated. As with interest rate swaps,
any receivable/payable settlement is recorded as an adjustment to interest.
The swap is not marked to market unless the related underlying asset or
liability is carried at market value. If an interest-rate swap is terminated,
any gain or loss is deferred and recognized as an adjustment to interest over
the shorter of the remaining contract life of the swap or remaining life of
the asset or liability.
How many U.S.
Gov’t bonds any of these institutions really hold [warehouse] is
anyone’s guess? Suffice to say, so long as they can finance their
holdings at effectively ZERO % - U.S. deficits should be NO PROBLEM in our
hologram world – no matter how big they become.
Let us also
remember that Morgan Stanley – a bank holding company with a 25 billion
market cap – strapped on 14 Trillion in derivatives in the most recent
6 month reporting period [Dec. 2010 – June 2011]. The lion’s
share of that “add” was in int. rate swaps. These instruments
require reciprocal credit lines between counterparties. To think that the
American banking industry – in total – would have credit lines
for Morgan Stanley – in a credit starved environment - to support a 14
Trillion “add” to their book in 6 months is as likely or
believable as a grade four student winning 8 million dollars at school recess
pitching bubble gum cards.
Non-Truman Reality: Morgan
Stanley [MS] is “paying fixed” in interest rate swaps - terms
ranging from 3 – 10 yrs. – to the “receiver of fixed”
– the Exchange Stabilization Fund or ESF [the U.S. Treasury] –
trades brokered through the N.Y. Fed. The ESF does not provide MS with the
bonds to hedge the trades and this forces MS into the bond market to purchase
these securities to hedge their trades. To understand this process is to
understand why German bond auctions can and do fail while American bond
auctions WILL NEVER FAIL – even though China
and PIMCO
[world’s largest bond fund] NO LONGER BUY TREASURIES.
 
source: Office
of the Comptroller of the Currency
If all this
wasn’t enough, there’s the “small” Orwellian matter
of this - first reported by Dawn Kopecki back in
2006 when she reported in BusinessWeek Online in a piece titled, Intelligence Czar Can
Waive SEC Rules,
"President
George W. Bush has bestowed on his [then] intelligence czar, John Negroponte,
broad authority, in the name of national security, to excuse publicly traded
companies from their usual accounting and securities-disclosure obligations.
Notice of the development came in a brief entry in the Federal Register,
dated May 5, 2006, that was opaque to the untrained eye."
What this means
folks, if institutions like J.P. Morgan, Goldman or Morgan Stanley are deemed
to be integral to U.S. National Security - can be "legally" excused
from reporting their true financial condition – including KEEPING TWO SETS OF BOOKS.
The entry in
the Federal Register is described as follows:
The memo Bush
signed on May 5, which was published seven days later in the Federal
Register, had the unrevealing title "Assignment of Function Relating to
Granting of Authority for Issuance of Certain Directives: Memorandum for the
Director of National Intelligence." In the document, Bush addressed
Negroponte, saying: "I hereby assign to you the function of the
President under section 13(b)(3)(A) of the
Securities Exchange Act of 1934, as amended."
A trip to the
statute books showed that the amended version of the 1934 act states that
"with respect to matters concerning the national security of the United
States," the President or the head of an Executive Branch agency may
exempt companies from certain critical legal obligations. These obligations
include keeping accurate "books, records, and accounts" and
maintaining "a system of internal accounting controls sufficient"
to ensure the propriety of financial transactions and the preparation of
financial statements in compliance with "generally accepted accounting
principles."
Does
sanctioned dual-sets-of-books for select banks sound like something the framers of TARP, TALF, TGLP,
TIP, CAP, CPFF, PPIP, AMLF and MMIFF would bestow upon us?
You be the
judge.
The Hallmark of the Fed is Duplicity, or, What’s Risky is Safe
In 2001, GATA
discovered a reference to gold swaps in the minutes of the January
31-February 1, 1995, meeting of the Federal Reserve's Federal Open Market
Committee and pressed the Fed, through two U.S. senators, for an explanation,
Fed Chairman Alan Greenspan denied that the Fed was involved in gold swaps in
any way. Greenspan also produced a memorandum written by the Fed official who
had been quoted about gold swaps in the FOMC minutes, FOMC General Counsel J.
Virgil Mattingly, in which Mattingly denied making any such comments. (See http://www.gata.org/node/1181.)
The Federal
Reserve Bank of N.Y. is named in official
U.N. documents as the “fiscal agent” for the U.S. Treasury in
matters relating to gold swaps. So, for Alan Greenspan to say, back in 1999
– to Ron Paul UNDER OATH
– that the Fed is not involved, nor are they permitted to be involved
in the gold market was, in fact, a PREMEDITATED
DECEPTION OF CONGRESS.
1999 – Humphrey
Hawkins Testimony
2/24/1999 – Ron Paul responding to Alan Greenspan
Dr. PAUL: Thank you, Mr. Chairman.
Mr. Greenspan, a lot of economists
look to the price of gold as an indicator and as a monetary tool. It has been
reported that you might even look at the price of gold on occasion.
Last summer on a couple of occasions
here when you were talking before the committees on securities and on
derivatives you mentioned something that was interesting. You said that
central banks stand ready to sell gold in increasing quantities should the
price rise, which I thought was rather interesting.
Then I followed up with a letter to
you to ask you whether or not our central bank might not be involved in
something like that, in the gold market. And
you did answer me and stated that since the 1930's the
Federal Reserve has had no authority to be involved with the gold
markets.
Is Mr.
Greenspan guilty of perjury?
You judge for
yourself.
In Sept. 2009,
in response to GATA FOIA requests, the Fed reversed course, in a letter dated
September 17 and written by [then] Federal Reserve Board member Kevin M. Warsh, formerly a member of the President's Working Group
on Financial Markets, detailed the Fed's position that the gold swap records
sought by GATA are exempt from disclosure under the U.S. Freedom of
Information Act.
This is called
sucking-and-blowing at the same time.
We finally
learned why the Fed changed its tune on this steadfast serial lie when it was
publicly disclosed that U.N. had published materials documenting gold quality
swaps between the Bank of England and the Fed/U.S. Treasury – linked here.
We can only
wonder if the stench of lies and deceit emanating from the Federal Reserve
was the real reason why Governor Warsh resigned
his post as “bagman” for the Fed back on Feb. 10, 2011.
The
Fed/Treasury have gone to extremes to perpetuate the
Truman-esque perception of gold as a risk trade. In
fact, gold is the safest, most liquid asset in the world. Gold derivatives
[like swaps, futures, options], along with a pliable media, have been
masterfully used to reinforce this myth.
M F Global: Christof's
Crown Jewel, or, What’s
Yours is the Banks’
“In reality, Truman was an
unwanted pregnancy [much like the
Federal Reserve]. His "father", Christof,
a reckless TV-Producer whom he never met, made up the Truman Show - the
greatest show on earth - a show in which life is live.”
Rest assured, anything the Fed is telling us about what happened at M
F Global is most assuredly NOT the truth. But, then again, in our hologram
world – that is to be expected! In the non-Truman world – where
banks are subject to real accounting - M F Global was probably selected for
extermination to send a message to and strike fear in the hearts of those who
would use their commodity accounts/COMEX as a means to procure physical
precious metal [that would be pretend
precious metal that does not exist outside of the Truman hologram].
The “just
announced” new round of stress tests is another freakish skit in this
ongoing Truman saga – designed to keep the now worried herd of Jane and
Joe Sixpacks believing that “all is
well” in our hallucinogenic land of debt-servitude.
Stay tuned
everyone, the ending of this motion-picture-show “heats-up” in a
hurry and ends in a flash – so sad that there will be very few of us
left to watch/read the credits.
And that,
ladies and gentlemen, is why I’m giving attribution now.
The balance of
this article is subscriber only.
Got physical
gold yet?
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