Monthly Archives: February 2010

Banks Starving Business While Monetizing Government Debt

As usual, credit (money) is being lavished on the parasitic elements of the economy while the productive sector is being starved. A report from James Turk’s Free Gold Money Report draws upon a Wall Street Journal article (Lending Falls at Epic Pace) which includes two charts that make that plain. Here they are below along with a couple quotes. –t.h.g.

What Are Banks Doing with Their Depositors’ Money?

“So if the banks are not making loans, what are they doing with depositor money?

Well, they are still lending, but not to businesses and consumers.  They are lending to the federal government.

Banks don’t lend directly to the federal government of course, but buying US government paper accomplishes the same thing in the end.”

“Instead of depositor money being used to stimulate economic activity in the private sector by lending to businesses and consumers, the banks are helping to fund the growing federal deficits.  This re-allocation of resources has a negative long-term impact on the economy.  Depositor money is not being used for productive purposes like building manufacturing plants and making other investments that will create jobs and grow the economy.  It is being spent by the government, which consumes in the present and does not invest for the future.”

The Bailout Scam in Simple Language

The following is an allegorical story that has been circulating recently. I don’t know who wrote it or where it originally came from, but it does a pretty good job of explaining the scam of the recent banking/finance bailout. –t.h.g.

Econ 101 Heidi’s Bar

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit

By providing her customers’ freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar.

Now, do you understand?

I must correct that final statement. The funds required for the bailout are mostly obtained, not from taxes, but are CREATED by the government and the banking system as new massive government debts are monetized. This is the classic inflation of the money supply, i.e., debasement of the currency.–t.h.g.

Secret Banking Cabal Emerges From AIG Shadows: David Reilly

The most amazing thing about this story is that it appeared in Bloomberg, a mainstream financial news service. The second most amazing thing is that it acknowledges what critics  of central banks (including the Federal Reserve) have been complaining about for decades.

Here are a couple tidbits from the article, with my comments in italics. — t.h.g.

Jan. 29 (Bloomberg) — The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.
Well, duh…

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the US government. But in fact you work for the private banks that elected you.”
It is the bankers who have long dictated who would serve as Treasury Secretary, and most who have held that post had been top level bankers.

Yet when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.
Indeed, but then what? The corrupt global system of money, banking and finance cannot be reformed. It needs to be transcended. My book, The End of Money and the Future of Civilization, describes effective action that can be taken by individuals, businesses, governments, and NGOs to achieve that outcome.

Read the full article here…

Ron Paul’s Straight Talk About Central Banks and the Greece Bailout

The government of Greece is only the latest entity to stagger under the ever-increasing global load of debt. Virtually everyone (individuals, companies, and governments) is caught in  the usury trap. Only the members of the banking cartel who create the debt-based money in every country of the world (and their cronies) are exempt. They are our creditors.

In his latest four-minute update, Congressman Ron Paul again explains the real purpose of central banks (like the Federal Reserve), the way in which they collude to steal wealth from the people, and the ultimate disaster that is on the horizon. — t.h.g.

The Time of the Chrysalis?

As I sit sweltering here in Malaysia (and before this, in Thailand) observing the busyness, the massive amounts of construction, the noisy moving to and fro, the widening extremes of opulence and degradation, the scramble of people to earn or save a few pennies to buy a piece of the good life, I often feel despair about the human condition. But, as I’ve said in my books and presentations, it is clear that civilization is experiencing a multi-dimensional mega-crisis which must lead to a thorough social, economic, and political restructuring. I liken it to the process of metamorphosis from the caterpillar to the butterfly. My soul yearns for peace and quiet, fellowship, and positive engagement in the metamorphic process.

Where to find it? How to proceed? These are the vexing questions of the moment.

Over the past three years my nomadic lifestyle has provided numerous adventures of discovery in many parts of Asia. I think my time in Asia has given me a pretty good sense of the developmental trends and the conditions that ordinary people here must contend with. The apparent lull in the breakdown process over the past few months should not cause us to become complacent but should be taken as an opportunity to prepare ourselves and to intensify our efforts to build a better world.

The global economy, like the caterpillar must at some point stop growing. That point seems now to have been reached. If you have not seen it, the post by Darryl Schoon, Davos: The Bomb Shelter, clearly expresses my own views that the current financial crisis is unprecedented and “the crisis will end in a complete breakdown of the banker’s system of credit and debt…”

The next phase, the chrysalis phase, requires that we take the accumulated resources that are at our disposal and use them to create the new butterfly economy. It is not easy to ascertain how that process will proceed, what the specific challenges will be, or how we might best negotiate what Robert Theobald called, The Rapids of Change. Carolyn Baker’s book, Sacred Demise: Walking the Spiritual Path of Industrial Civilzation’s Collapse, may help us in that regard. Major portions of the book can be read for free at books.google.com.

Each of us now needs to ask, “Where shall I spin my personal cocoon, where is my cohort community, and how can I help the emergence of a new, sustainable, more harmonious world.

Ron Paul Bill Seeks to End Legal Tender and Taxes on Coins

Congressman Ron Paul has introduced a bill in Congress that would really break the logjam of monopolized money and economic depression. This article from Coin News gives the highlights.

Here’s one significant quote:

“There is nothing in the Constitution that grants the Congress the power to enact legal tender laws. We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender. Yet, there is a section of US Code, 31 USC 5103, that purports to establish US coins and currency, including Federal Reserve notes, as legal tender.”

More…