Issue #52 - November 2008


1. So You Think Deflation Is Coming?
2. Human Solutions
2. The Diabolical Nature of the Derivatives Trade
4. Being Ethical - Neither Required Nor Desired
5. A Real-Life Story from Derivatives Hell
6. Obama and Gold
7. Banks Nullify Government Bailout
8. Nobama - No Change

So You Think Deflation is Coming?

Maybe. There are two possibilities: Either this crisis really is the singular rigged event to turn the world’s economies into chaos so that the world’s rich and self-important can finally create their much-desired utopia, complete with a 90% population reduction, UN-mandated wildlife corridors, and designer-made human bee hives, or the world’s financial powerhouses still have a sense of self-preservation and will do anything possible to prevent a complete and utter global meltdown.

Frankly, for me the jury is still out on that. I know that’s what many fear, and there are indications that some people are planning such things as those mentioned in the first alternative, but I just don’t have the sense that we are at that point yet. Call it uneducated and misplaced optimism, call it me closing my eyes to the obvious, call it what you will. I don’t believe that “they” are as unified and as powerful as we tend to believe and as they want us to believe.

My point is that catastrophic deflation will in my opinion only happen after “they” have done everything in their power to inflate society out of this mess, and after the resulting hyperinflation wreaks havoc on – not just Germany, this time, but on the entire now completely interconnected world economy. The reason: Self-preservation is still too powerful an instinct, even for those who are colluding in laying this nasty game on the rest of humanity.

What’s in store for the nearer-term future was let out of the bag by the IMF, today:

Monetary policy may not be enough in the face of difficult financial conditions and deleveraging. In some cases room for further easing is limited as policy rates are already close to the zero bound. Broad-based fiscal stimulus is likely to be warranted.

That term, “broad-based financial stimulus”, is IMF-speak for monetizing the debt, in other words, hyperinflation: simultaneous, global, and coordinated. It’s Zimbabwe, going global. All major and minor economic powers are going to resort to spending and borrowing – but there soon will be no foreign countries left to borrow from. They will have their own problems.

The slogan “borrowing from China to finance the war in Iraq” was an intentional over-simplification by Ron Paul. He always searched for ways to say things in sound bytes. One reason for that were time restrictions during the primary debates, the other that most people wouldn’t understand how it really works.

How it really works is that foreign governments like Japan and China were only able to “finance our bankruptcy” because we bought so much their stuff with our dollars. We didn’t buy form the countries, either. We bought it from individual companies within their countries. Those companies, whether state-owned or private, then turned around and exchanged their trading profits for local currency at their banks, which exchanged them for local currency from their central bank. Te central bank now ended up with all of those foreign currency reserves and had to do something with them – so they used them to buy US Treasury bonds – in other words, they loaned the money to the US government in exchange for bonds, so they could earn a return on their money. That’s how the US “borrowed” money from the Chinese, in a sense.

Now, during this deleveraging process (I hate that word, but there is no shorter way to say it), Americans will lose their jobs and homes and keep their purse strings closed to buying all those frivolous things that China now produces for distribution in the West. Either that, or they will continue to buy them because they are still cheaper than stuff made elsewhere, but they will do so at much slower speed and in much lighter volume, so the excess foreign currency reserves to “lend” to the US government won’t be there.

That means that Obama, for example, will have to get Congress to borrow the money for all the socialistic public works programs he will impose on us from the Fed – and the Fed will “print” them electronically by giving the Congress credit at one or more of the federal reserve bank branches around the country.

All other major countries will do the same thing. “Fiscal stimulus” means various forms of government handouts – whether you have to work for them or not. That, they hope, will re-stimulate their economies and get the ball rolling again.

Since FDR’s shining example has proven that this doesn’t work already, get ready for another big war for the US to get involved in – except this time not with a downsized military like Bush and Rummy did in Iraq. This time, it will be big.

At the same time, they will try to crank up the green machine worldwide. Alternative forms of energy, alternative propulsion systems, planned sustainable living compounds, all of this will receive major public funding, subsidies, and tax breaks and whatnot (as it does already), and will be allowed to ignite the next asset bubble. Stocks of “green” companies will rival and surpass the dotcoms of the late 1990’s and “viola”, the good times will be here again.

Except, that this time around, the entire world will have succumbed to socialism.

You’ll be allowed to invest your hard-earned dollars in corporations – but you won’t be allowed to decide where you want to live. Certain areas will be off-limits. Let me rephrase that: most areas will be off-limits to human settlement. Father state will tell you where you can live – all for the environment’s sake, of course. We have to look out for mother Gaia.

I expect all of this will develop over the next ten to twenty years. That’s a long time, for most people.

Enough time to forget.

Twenty years ago we were still fighting the commies in Russia, mind you. Today, nobody remembers what a commie is. Nightclubs called “Red Star” with a big fat red communist five-pointer painted on the facade are springing up in cities and attract the world’s glitterati. Twenty years ago, they would have been firebombed by mom and pop types living next door. That’s how long twenty years are. Twenty years from now, we will have forgotten that we were once capitalists. We won’t remember that there was once such a thing as private property. You will be cared for in your retirement years – by father state.

At least, that’s the plan. Judging from how easy it was for a Muslim-born terrorist sympathizer to take the country’s highest elective office with the support of his friends in high media and high finance, nobody will resist the process. All “they” have to do is present an even worse alternative in stark terms to the general populace, and the people will graciously lend its support to whatever and whoever it is that promises it a slightly softer chair to sit on. Comfort and convenience have taken over the position that integrity and honor once occupied in Americans’ minds.

Will it really happen that way?

It is very possible – but I still doubt that I will see it in my lifetime.

Human Solutions

Human solutions always make matters worse. If you want proof of that, just look around. The current crisis is nothing other than the result of previous attempts to “fix” perceived problems that inevitably arise in economies, even in life, when more than two humans interact with each other, on any scale.

What we have discussed above is most frequently not so much a conspiracy as it is the result of too many humans looking toward their own (or, in case of “the masses”, some leader’s) ingenuity and initiative in trying to come up with a “solution”. The further people go down that road (whether it’s leaders giving themselves too much credit or people giving their leaders too much credit and looking to them for solutions), the further they get away from the basic principle that things have a way of working themselves out, if only given enough time and a chance to do so. Once we humans interject their supposed know-how and expertise into this natural equation, we are asking for trouble.

The best and most basic example for this on the economic playing field is the global phenomenon of central banks. These banks all function under the presupposition that the normal business cycle needs human help or a “smoothing out” mechanism. People don’t like the normal ups and downs that every part of life brings with it, so they turn to their leaders for help. The leaders are only too happy to oblige and try to interject their supposed expertise into the process and substitute it for the natural equalizer of massive, accumulated individual decision making and action-taking that we all call “the market”.

By the interjection of human ingenuity, the normal ups and downs are re-engineered into a series of ups and ups. As people get used to this, they take this unnatural sequence of events for granted and come to expect it, demanding of their leaders to produce ever more “ups” so the humans can benefit.

Naturally, the usual “downs” that normally occur don’t simply go away. They only accumulate. They are merely pushed into the future, or if they occur at all they are reengineered into shallow valleys rather than sudden drop offs. The result is the same. There is always a return to the mean – eventually. Right now, we are experiencing one of those eventualities.

Human nature being what it is, the people demand of their leaders to “fix” the problem so the humans can go on with their silly borrow-and-spending spree. Junkies need junk.

Far be it form me to imply that conspiracies don’t exist. All you have to do is look at Enron, and you know they exist. Everybody accepts that the Enron execs conspired with each other – but government? Nooooo! It’s impossible … unless it’s the “other” camp. Democrats believe that the press is controlled by the right-wingers, and they have the Mellon-Scaife empire and NewsCorp, the owner of Fox News, to point their fingers at. Republicans have MSNBC, CNN, the New York Times, and God only knows whom else to point their fingers at. Nobody lets on that both “sides” are working together. Of course not! Who pays them to say and write these things? The same people each side likes to point their fingers at.

The real conspiracy happens at the very top. It is being engaged in by a very small club of people who are stunningly and frighteningly expert at exploiting natural human weaknesses to their own absolute and unquestioned benefit. They know how to make people fear each other, hate each other, they instill greed and power hunger (usually as a result of using their power and influence to help select individuals achieve a position in which they feel like they have something to protect – and then provide them with the means to protect that interest at all cost, and – voila! – you have just groomed yourself a more-than-willing co-conspirator)

The Diabolical Nature of the Derivatives Trade

Everybody who reads articles on gold information websites knows that derivatives are “bad” – but nobody really knows why or how. Derivatives are these shady, almost mystically complex contractual and legal structures that pose as “securities” and that the big players in big finance trade among each other like hotcakes.

In the financial world, derivatives aren’t dirty. They are the pinnacle of human ingenuity, and everybody knows that they can help hedge funds and skillful investment bank operatives achieve enormous wealth in a mere few short years. Derivatives help “spread risk” and they are the last unregulated free-market frontier of an otherwise more and more regulated economy.

Guess why Greenspan was never much in favor of regulating these things? Because his bosses, buddies, and benefactors made way too much money with them. He would not have touched them if he had wanted to.

Here is a real-life story of how one of these deals went down. It is a sterling example of the sheer diabolical nature of the people who devise these types of instruments and the mechanisms by which they manage to market and distribute them. It also sheds a direct light on what helped this current global credit crisis proliferate around the world, with the known, devastating results.

Finally, it helps make and support the point I tried to make above: just give a man some overriding interest to protect, and you have a new “buddy” in your quest to corrupt as much of humanity as you can, just so that nobody is left to point a finger at you for the things you know you have done that were absolutely and horrendously wrong.

This story has recently made plenty of press in the New York Times and other major news outlets. It spans several countries on two continents, involves three international banks, brokerage houses, greedy brokers, and a number of small local governmental entities in the US with a need to bridge a yawning budgetary gap in their retirement obligations.

It also has a lot to do with the nature of our monetary system and they mentalities it breeds.

Being Ethical – Neither Required Nor Desired

At rock-bottom, the entire worldwide debt-contagion can be laid at the feet of Gramm-Leach-Bliley, the Act passed by Congress that dissolved the legal firewall” between banks and investment banks. Had this firewall remained intact, this crisis would not even exist. Investment brokers like Bear-Stearns and Lehman may still have gone down the tubes – but they would never have been able to suck the entire world banking system under with them because the linkages that caused the knock-on effects would simply not have existed.

A Real-Life Story from Derivatives-Hell

In order to fully understand why this is so, nothing could serve as a better example than the little story just introduced above. It is a story of what happens when banks dabble in business they have no business dabbling in – and then are forced to try and extricate themselves from the mess they created for themselves.

Here are the players in this drama:

Bank A – a normal bank that just wants to offload some risk it has incurred in following its normal course of business.

Brokerage Co. – a normal brokerage firm that just wants to make some money.

Bank B – An offshore bank whose 2007 purchase by another county’s major bank almost killed that entire country’s banking system this year.

School Boards - A number of rural US school district boards that fell victim to Bank A’s greed and cunning.

Ratings Cos. - Ratings companies (hopefully major ones) that agree to rate the debt issued by a CDO by using the same criteria and ratings designations as legitimate corporate debt.

The story starts, of course, with Bank A.

Bank A, like many banks and financial investment houses, wanted to push some bad (or soon to go bad) debt assets and some risk off its balance sheet. In by now well-familiar fashion, it created a number of offshore entities called CDO’s or “Collateralized Debt Obligations.” These CDO’s are not simply contracts but consist of actual corporate dummy entities set up in tax and litigation havens in the Caribbean Islands. They are so-called “Special Purpose Entities” (SPE’s) or “Structured Investment Vehicles” (SIV’s) we have already discussed in previous articles and Monitor Issues.

Normal CDO’s issue securities to investors in the form of bonds or equity shares, and the proceeds from these security sales are used to purchase either actual corporate bonds or “mortgage assets” from banks and other financial institutions. These assets then form the collateral that underpins the bonds issued by the CDO, and those CDO bonds are then what is normally called ABB’s or asset-backed bonds/debt obligations.

Although somewhat esoteric to most retail investors, these types of arrangements are actually fairly straightforward. Where it gets a bit trickier is the point at which the CDO entity no longer buys actual bonds or mortgages but only participates in the credit-risk of the bond-issuing entity via Credit Default Swaps (CDS’s). These arrangements are known in the financial world as “synthetic CDO’s” (commonly abbreviated “CSO”).

Now, remember from past Monitor issues that CDS’s are forms of private insurance contracts by which a protection-seller guarantees to a protection-buyer that, if the “reference entity” on whose credit (i.e., bond-ratings) the insurance is purchased undergoes what is known as a “credit event” (usually a default, bankruptcy, reorganization, or entry into a receivership), the protection-seller must pay the protection buyer the full value of his loss. Please also remember that the counter parties of these CDS arrangements are rarely if ever individuals, but usually highly sophisticated institutional investors like hedge funds, etc.

Let’s recap.

What we have so far is a bank (Bank A) who set up a CDO entity (through a trust or other intermediary so under the law it would not be seen as the parent company of the CDO) offshore in order to offload some of its bad debt so it wouldn’t pollute the bank’s balance sheet and thus keep it from making more loans.

That CDO, however, was not funded by actual, regulated, securities like corporate bonds, commercial paper, or even subprime mortgages, but by CDS contracts which only constitute bets on some other companies’ future credit ratings. If these other companies went into default on their obligations, the CDO entity set up by Bank A would have to pony up the losses of the counterparties of the CDS contracts it purchased with the funds of its own investors.

The next step:

Banks A’s next step was to hire a corporate salesperson in order to “market” the bonds the CDO entity was to issue so the proceeds could be used by the CDO to purchase the credit default swaps which would guarantee the CDO a stream of future income up until the time any of the reference entities of the CDS defaulted.

This corporate ‘salesperson’ in our case is Brokerage Co.

These “bonds” to be marketed by Brokerage Co. would guarantee their buyer a percentage of the income stream received by the CDO as protection-buyer from its counter party(ies), the protection sellers, for as long as the credit of the underlying reference entities of the CDS contract were okay.

However, …

… the purchasers of some of these CDO-bonds (there were several kinds or “tranches” of them) would be on the hook – just like the CDO itself would be – if the reference entities did in fact default. As the credit more and more of the reference entities keeled over, one by one, just like dominoes, the liability of the investors in these CDO-bonds would escalate until, at some point (here at the ridiculously low point of less than 10 reference entities going belly-up) they stood to lose their entire investment.

Naturally, this entire arrangement was concocted under the assumption that all ten of these reference entities would never fail – maybe a few, but never all ten. That assumption, however, was made before the credit crisis began.

Then, came the credit crisis.

But, let’s not get ahead of ourselves.

You can see how risky such an investment would be to anyone. You are probably asking yourself how anyone in his or her right mind could possibly invest in such a preposterous deal – and you would be correct. Nobody would – unless they were never told of the risk.

In this case, apparently, someone along the chain of command decided that it wasn’t necessary to tell the ultimate investor of this risk. Someone apparently also decided that it was not necessary to properly compensate such ultimate investors for this added risk, which only makes sense, if you think about it. Why compensate them for intolerable risk if you are never going to tell them that the risk is intolerable? It might tip them off that something is amiss, right?


So, to get back to our story, that mysterious “someone” (whether it was an individual or small group of individual, whether it was at the level of Bank A or at Brokerage Co., we don’t know) did in fact decide that this was the most prudent way to proceed.

Now, we are talking of investments in these CDO bonds that cost anywhere from tens to hundreds of millions of dollars, so your ordinary mom-and-pop retail investors naturally wouldn’t qualify for this deal, and super-savvy institutional investors would be too smart to even consider such a deal. So, who’s left? Who would be the ideal candidate for this super-heist that would allow the bank to not only offload its bad assets onto an artificial someone entity, but would actually allow it to shift its own credit-risk onto the poor old schlocks?

Why, school districts, of course.

School districts usually have pension funds that suffer massive funding shortfalls because they promised pensions to retiring employees that were adequate when the employees retired, but are now wholly inadequate because health care and health insurance costs have skyrocketed at the same time as life-expectancies improved dramatically due to the increased quality of healthcare.

These school boards, especially in rural areas, are manned by the ideal dupes – actual mom and pop investors who have no clue what a CDO is, let alone a synthetic one, and how risky it is.

Now, the very best situation is if the Brokerage Co. employs a broker who has been a school board’s actual, trusted financial advisor fro many years. Just give the broker a one or two hour crash course in what a CDO is, how it works, and what a great deal it can do for school boards that need to invest to make up for pension budget shortfalls, and you have the perfect sales funnel for your toxic CDO bonds!

And that is exactly what happened – except that we haven’t even talked about Bank B yet.

Bank B is incorporated and maintains its headquarter in a small, tax-friendly, low-regulation, insular country that is not located in the Caribbean. It has made itself a name in the world by “going global” in a big way, lending to small governmental subdivisions just like our school districts on terms they can’t get at home.

Bank B didn’t really need to be in this equation here, except for the very fact that Bank A, the originator of the CDO entity we are talking about, didn’t want to tip its hand by offering too high of a return to potential investors in its toxic CDO bonds. Yet, because the school districts’ pension budget shortfalls are so high, the money it had immediately available for investing in this CDO slime was not enough to command a high enough return to reasonably be expected to cover that shortfall, even under the best of conditions.

So, the trusted financial advisor and broker working for Brokerage Co. persuaded the school district to use its money as collateral for a massive loan from Bank B, which was then large enough (in the hundreds of millions) to purchase enough toxic CDO slime to make the required amount of money to cover the budget shortfall – at least in theory. Besides, the added loan also guaranteed the Brokerage Co. a nice, additional commission from Bank B.

The outcome of the story is only too predictable. The credit crisis came, several large “too big to fail” financial behemoths failed and had to be bailed out by governments, and many of these just happened to be in the “reference portfolio” of the CDS (credit default swap) through which the CDO entity “participated” in the credit risk of the reference portfolio).

The entire thing was a huge, rather unnecessary gamble taken by Bank A (possibly as a hedge against some other risky gambles it engaged in elsewhere) with which Bank A wasn’t too comfortable, so it looked for a way to offload its won excessive risk onto many unwashed sucker-investors which ended up being school boards manned by more unwashed sucker-investors.

The school board in question is three defaults (of listed reference entities) away from losing its entire “investment” worth tens of millions of dollars. Not only that, because of the massive loan from Bank B, it is on the hook for far more (by multiples) money than it originally invested. The kids of the school in question don’t have supplies. They don’t have schoolbooks. Parents have to step in and provide things they have already paid for via property taxes to fund the school district because the school board was suckered into gambling away whatever cash it had.

Teachers who retired in years and decades past can no longer count on receiving their pensions. Most certainly, teachers who worked all of their lives at the school and who will retire soon will likely get nothing or far less than they were promised. Some who will not retie soon will likely be laid off.

You see, what the duped members of the school board were never told (and what the broker who was their financial advisor himself probably never realized) is that they didn’t really invest in any “AA” rated bonds, they ended up guaranteeing the creditworthiness of a portfolio of big kahunas on the list of companies in the reference portfolio of the CDS that the CDO entity bought with the proceeds from the many school board who bought “bonds” of the CDO entity.

Unbeknownst to them, they ended up in the same posture as that of the CDO itself – as protection-sellers!

One of the companies listed in the reference portfolio was Freddie-Mac.

Now you know the story of how a small, rural US school district was literally defrauded into guaranteeing the debt of one of the largest guarantor of mortgages in the world.

The final blow is that the school district could have achieved almost the same results by not borrowing several times its cash investment and investing whatever cash it had in straight, plain vanilla US government bonds over the same period as the bonds of the CDO it purchased.

Such is the wonderful world of banking.

Your daddy’s stockbroker is part of that world. The teller at your local bank where you deposit your paycheck on Fridays is part of this world. The people on CNN Money and CNBC are part of this world, and so is Reuters-Thomson, the New York Times, the Wall Street Journal, Goldman Sachs, the current Secretary of the United States Department of the Treasury, Alan Greenspan, Paul Volcker, the heads of JP Morgan Stanley and Bank of America – you name it, they are all a part of that world. And they support it.

Do you think this incident with the school board was an isolated one? If it was, how could this contagion spread around the entire globe and slam the gears of the global economic engine into reverse while hurtling forward at 580 miles an hour?

This is how the game is played, and it is often played far worse than that.

Entire countries are suckered into deals like that; often literally at gunpoint from the big players in the world of finance, backed up by the literal guns and tanks of their home country.

It is the world of debt that poses as money. It is the world in which any asset that “doesn’t pay interest” (i.e., that Is not based on contractual debt, as for example gold or silver bullion) is looked at as a pariah by its willing participants as if such assets were poison.

Now, as indicated earlier, none of the massive fallout of this situation would have occurred if banks were still forbidden from acting as investment banks and from doling out investment advice to their own customers. It would not have happened if Gramm-Leach-Bliley (GLB) had not abrogated the long-standing Glass-Steagall Act that forbid such things.

Who do you think got the idea for GLB into the heads of Phil Gramm and his co-sponsors of the bill? None other than outfits like JP Morgan-Chase, Goldman Sachs, etc. – the owners of the Federal Reserve, in other words. The masters of the financial universe, which coincidentally are the same corporations who financed the campaigns of both John “the Traitor” McCain and Barrack Hussein Obama (as well as Hillary’s and probably that of your local Congressman and state’s US Senator as well – you know, the people you probably just reelected last week?

That’s who.

So, next time you think about reelecting an incumbent – at any level of government, maybe think about that for while before you do it. Do you want to continue to be a willing participant in this soul-corrupting system? Do you want to support the very same legislators, presidents, governors, and other officials who routinely kowtow to this subhuman cadre of financial manipulators, users, and fraudsters? Do you want to empower those whose sole aim is to enrich themselves, whether with money, power, or both, at your expense and at the expense of every other still decent human being on this earth? If so, just vote “yes” and go to get chipped. If not – vote “hell, no!” It’s the only right you still have left.

Obama and Gold

Obama is already on record as saying that he does not favor a return to the gold standard. Coincidentally, I agree with him on that. The gold standard is nothing but a government-instituted price control on gold. What the government giveth, it taketh away. His point, however, was different. He displayed his abject ignorance in these matters when he said that the dollar was strong in the 1990s even without a gold standard, so we don’t need one.

Without belaboring that point, the main reason the dollar became so strong in the late 90’s is that Asian currencies were destroyed by the deliberate action of a junior trader at one of the American banks’ Asian trading desks. Then Russia fell, and the world sought refuge in the US dollar because the US economy was comparatively strong at the time. A very similar thing is happening now – except for the minor detail that the US economy is in no way better off than that of any other developed nation at this point.

‘Deleveraging’ is the code-name for UK and European banks refusing to roll over their dollar-denominated mega-loans to emerging economy companies along the Pacific rim and the BRIC countries, as discussed in “When Gold Will Bottom”. These countries’ companies need to buy dollars in the open market to pay back their loans. There is also a fair amount of Treasury-buying going on – but that’s predominantly on the short-term side of the ledger. The longer the maturity, the lower the attraction – for obvious reasons. In the short term, the dollar is secure, especially when compared to other securities like stocks, etc., so short term treasuries really are a safehaven from the carnage going on in equities and commodities. The farther out you go on the maturity horizon, however, the shakier things are for the dollar, given all of the inflationary pressures discussed at the beginning of this issue. Remember that the interest rate differential between the Fed and the ECB is higher than three orders of magnitude. In English, that means the euro’s rate is 3.25 percent, while the dollar’s is at 1 percent.

That differential will reassert itself as a major factor before the middle of 2009.

Sure, all major economic powers will be lowering interest rates in unison – but the US doesn’t have anywhere to go on this. If Bernie cuts by .05 percent one more time, he will cut the current federal funds rate in half. If he cuts by less, the effect of any cut will e severely in question. Here are the majors and their rates:

PBOC (China): 7.20%; RBA (Australia): 5.25%;BOK (S. Korea): 4.00%ECB: 3.25%;BOE: (England) 3.00%,US: 1.00%BOJ (Japan): 0.30%;

As you can see, compared to the other majors the US is already in Japanese territorial waters. We are now at the point where Bernie has to go “further out” on the US treasury maturity curve in performing his open market operations as he has promised years ago. Besides, his cutting of the funds rate was largely symbolic anyway, since the actual short-term rate dropped to 0.2 percent long before he officially “sanctioned” the market’s decision by lowering his theoretical target.

Anyway, the headline of this section is “Obama and Gold.” Quite against his intention, Obama will be fantastic for gold by the simple fact that he is an unregenerate socialist whose entire economic “program” for the nation rests on nothing more than limitless government spending. That sad fact will turn him into America’s Mugabe.

The need to restart the US economic engine as the driver for the world economy is so strong under present circumstances that Obama will do whatever he can to get it going again, at all costs. At the same time the availability of the short term fix of massive government spending and public works programs is so pervasive that he, given who and what he is, will be unable to resist the temptation.

America will truly be the leader of the world, once again – but this time it will be on the path to ferocious, insane hyperinflation. Obama will make Mugabe look like an altar boy.

That’s why Obama is good for gold. Even for comex-gold.

Banks Nullify Government Bailout

If you have any doubt left in your mind that Congress is the lap dog of its collective donor list – which is mainly populated by banks and investment houses – all you need to do is look at what the banks are doing with the bailout handouts they have received: they are either hoarding them or using them to buy up smaller banks.

Not a whimper of protest from Congress, except maybe from Chris Dodd who is really pissed about the matter. If Congress had any gumption at all, it would put together an emergency package that forced the banks to lend the money they received. After all, it ain’t theirs. It’s yours (if you’re still too scared to stop funding this entire mess by making your yearly government donations to the IRS, that is.)

If Americans had any kind of sense, they would simply stop paying what Congress attempts to extort from them via its cadre of revenue agents. Not that this would keep Congress from spending like a drunken sailor after a bar hopping binge with brother Obama, but at least it would send the right message.

During this past election cycle, the right message was decidedly not being sent. Americans are still dumb enough to believe that a change in party vote will result in a change in how well they are off, or will be off in a few years. What they have voted themselves is nothing more than guaranteed deficit spending on a scale that will relegate Bush to the same altar boy category as Mugabe. The Dems now nearly have a two-thirds supermajority in the House, all by themselves. If there ever was a perfect condition for rubber-stamping any public works program that comes out of the white house, then this is it.

Given the notorious spinelessness of Republicans on these and other matters, the supermajority is virtually guaranteed anyway – not that it’s really needed though. Obama will not veto any spending request for any socialistic scheme this leftie Congress will concoct, no matter what – so there is no need for overriding any veto by supermajority vote.

Nobama, No Change

-And don’t you ever think he will reduce spending on military matters in order to try and make up for it all. He has already vowed to continue the US military foreign adventurist empire his predecessors have built. He may pull some troops out of Iraq, but he will only move them over to Afghanistan, or he’ll use them to attack Iran, if that should become necessary. Nothing new, there.

All it takes to confirm this no-change prediction is to take one look at whom Obama is considering for his cabinet advisors: the same old-guard people who have always been in charge of things around here. We wants Paul Volcker, Greenie’s predecessor at the Fed for Treasury chief – or maybe Clinton’s treasure-boy Larry Summers, the architect of the Clinton-era gold-suppression scheme, or Tim Geithner, the New York Fed chief. No change here, either.

The only change will be one of rhetoric, and a swing from the openly fascist to the openly socialist end of the rhetorical spectrum. Yet, there are those who say that Obama’s election brings the old Breszinski cadre back into power, you know, the guy who ran Jimmy Carter from behind the scenes. The idea is that Breszinski is a much more dangerous strategist than the neocons ever were.

The neocons tried to increase the US footprint in the sands of the Middle East and thus keep primarily China out of that region. Naturally, they also tried to gain strategic control of the oil reservoirs of the Middle East and access to the Caspian Sea oil fields via pipelines. That means Bush, under Cheney, only picked fights with small countries, which can’t possibly pose a real threat to the US. Obama under Breszinski, however, is going to try and play both Iran and China against Russia and Russia against China. The idea behind this is to get these three to fight and cripple each other so that the Anglo-US power axis can maintain its current supremacy for another hundred years or so.

In the process of doing this, the theory goes, the US can easily get entangled on one or the other side of the ensuing conflict, and therefore this type of gamesmanship is far more dangerous than what the neocon crowd had planned.

That all sounds quite possible to me, but I am not that convinced that the very same master strategists don’t run both the neocons and the Breszinski camp. They are constantly trying different approaches, and it turns out the neocon approach hasn’t worked too well, so now they are trying things the other way. Besides, I have for a long time now stopped believing that the US – whether under neocon or any other domination, really is trying to oppose the expansion of China. Bush was a major factor in bringing China up as fast as it grew in the past ten years. I simply don’t buy into these old-school supposedly ideological divisions anymore. These guys do not have ideological convictions. They are lab managers. They see what works, and if something doesn’t they try something else.

In any case, the long and short of it is that the world hasn’t seen the kind of massive hyperinflation that is coming at us, yet. Gold will do well. Very well.

See you next time.

Alex Wallenwein