"fraud. why the great recession" (official documentary)

Free markets are not to be blamed for the Great Recession. On the contrary, its origins rest upon the deep government and central bank intervention in the economy. Through fraudulent mechanisms, this causes recurrent boom and bust cycles: bad policies create phases of irrational exuberance, which are then followed by economic recessions, a result that every citizen ends up suffering from.

The Fiscal Cliff Is a Diversion: The Derivatives Tsunami and the Dollar Bubble

The “fiscal cliff” is another hoax designed to shift the attention of policymakers, the media, and the attentive public, if any, from huge problems to small ones.
The fiscal cliff is automatic spending cuts and tax increases in order to reduce the deficit by an insignificant amount over ten years if Congress takes no action itself to cut spending and to raise taxes. In other words, the “fiscal cliff” is going to happen either way.
The problem from the standpoint of conventional economics with the fiscal cliff is that it amounts to a double-barrel dose of austerity delivered to a faltering and recessionary economy. Ever since John Maynard Keynes, most economists have understood that austerity is not the answer to recession or depression.
Regardless, the fiscal cliff is about small numbers compared to the Derivatives Tsunami or to bond market and dollar market bubbles.
The fiscal cliff requires that the federal government cut spending by $1.3 trillion over ten years. The Guardian reports that means the federal deficit has to be reduced about $109 billion per year or 3 percent of the current budget.

Why are (Smart) Investors Buying 50 Times More Physical Silver than Gold?

By: Eric Sprott

As long-time students of precious metals investing, there are certain things we understand. One is that, historically, the availability ratio of silver to gold has had a direct influence on the price of the metals. The current availability ratio of physical silver to gold for investment purposes is approximately 3:1. So, why is it that investors are allocating their dollars to silver at a much higher ratio? What is it that these “smart” investors understand? Let’s have a look at the numbers and see if it’s time for investors to do as a wise man once said and “follow the money.”
Average annual gold mine production is approximately 80 million ounces, which together with an estimated average 50 million ounces of annual recycled gold, totals around 130 million ounces available per year. In comparison, annual mined silver production has averaged around 750 million ounces, while recycled silver is estimated at 250 million ounces per year, which adds up to approximately 1 billion ounces. Using this data, there is roughly 8 times more silver available to buy than there is gold. However, not all gold and silver is available for investment purposes, due to their use in industrial applications. It is estimated that for investment purposes (jewelry, bars and coins), the annual availability of gold is roughly 120 million ounces, and of silver it is 350 million ounces. Therefore, the ratio of physical silver availability to gold availability is 350/120, or ~3:1.¹

The Fed Doubles The Dosage

On December 12th, the Federal Reserve announced the most aggressive program of monetary stimulus ever undertaken in peacetime. Beginning in January, the Fed will more than double the amount of fiat money it creates each month from $40 billion to $85 billion. On an annualized basis that amounts to more than $1 trillion a year. This week we will consider 1) What they did; 2) Why they did it; and, 3) What impact it will have on asset prices over the short-term.
What They Did:
In a nutshell, the Fed announced it will more than double the amount of fiat money it creates each month and that it will use that money to buy government bonds and mortgage-backed securities until the unemployment rate drops substantially or until the inflation rate accelerates. The press release stated:
 “…the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities … initially at a pace of $45 billion per month.”

The Historic Inversion In Shadow Banking Is Now Complete

Back in June, we wrote an article titled "On The Verge Of A Historic Inversion In Shadow Banking" in which we showed that for the first time since December 1995, the total "shadow liabilities" in the United States - the deposit-free funding instruments that serve as credit to those unregulated institutions that are financial banks in all but name (i.e., they perform maturity, credit and liquidity transformations) - were on the verge of being once more eclipsed by traditional bank funding liabilities. As of Thursday, this inversion is now a fact, with Shadow Bank liabilities representing less in notional than traditional liabilities.
In other words, in Q3 total shadow liabilities, using the Zoltan Poszar definition, and excluding hedge fund repo-funded, collateral-chain explicit leverage, declined to $14.8 trillion, a drop of $104 billion in the quarter. When one considers that this is a decline of $6.2 trillion since the all time peak of $21 trillion in Q1 2008, it becomes immediately obvious what the true source of deleveraging in the modern financial system is, and why the Fed continues to have no choice but to offset the shadow deleveraging by injecting new Flow via traditional pathways, i.e. engaging in virtually endless QE.
What is more important, the ongoing deleveraging in shadow banking, now in its 18th consecutive quarter, dwarfs any deleveraging that may have happened in the financial non-corporate sector, or even in the household sector (credit cards, net of the surge in student and car loans of course) and is the biggest flow drain in the fungible credit market system in which the only real source of new credit continues to be either the Fed (via QE following repo transformations courtesy of the custodial banks), or the Treasury of course,via direct government-guaranteed loans.

What is wrong about the euro, and what is not

By Detlev Schlichter

Every Monday morning the readers of the UK’s Daily Telegraph are treated to a sermon on the benefits of Keynesian stimulus economics, the dangers of belt-tightening and the unnecessary cruelty of ‘austerity’ imposed on Europe by the evil Hun. To this effect, the newspaper gives a whole page in its ‘Business’ section to Roger Bootle and Ambrose Evans-Pritchard, who explain that growth comes from government deficits and from the central bank printing money, and why can’t those stupid Europeans get it? The reader is left with the impression that, if only the European states could each have their little currencies back and merrily devalue and run some proper deficits again, Greece could be the economic powerhouse it was before the Germans took over.

Ambrose Evans-Pritchard (AEP) increasingly faces the risk of running out of hyperbolic war-analogies sooner than the euro collapses. For months he has been numbing his readership with references to the Second World War or the First World War, or to ‘1930s-style policies’ so that not even the most casual reader on his way to the sports pages can be left in any doubt as to how bad this whole thing in Europe is, and how bad it will get, and importantly, who is responsible. From declining car sales in France to high youth-unemployment in Spain, everything is, according to AEP, the fault of Germany, a ‘foolish’ Germany. Apparently these nations had previously well-managed and dynamic economies but have now sadly fallen under the spell of Angela Merkel’s Thatcherite belief in balancing the books and her particularly Teutonic brand of fiscal sadism.

No Way Out

by Peter Schiff - Europac   By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve's Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford. At his press conference this week, Fed Chairman Bernanke explained how the easiest policy stance in Fed history has just gotten that much easier. First it gave us zero interest rates, then QEs I and II, Operation Twist, and finally "unlimited" QE3. Now that those moves have failed to deliver economic health, the Fed has doubled the size of its open-ended money printing and has announced a program of data flexibility that virtually insures that they will never bump into limitations, until it's too late. Although their new policies will create numerous long-term challenges for the economy, the biggest near-term challenge for the Fed will be how to keep the momentum going by upping the ante even higher their next meeting.

QE 4: Folks, This Ain't Normal

by Chris Martenson

 
Okay, the Fed's recent decision to boost its monetary stimulus (a.k.a. "money printing," "quantitative easing," or simply "QE") by another $45 billion a month to a combined $85 billion per month demonstrates an almost complete departure from what a normal person might consider sensible.
To borrow a phrase from Joel Salatin: Folks, this ain't normal. To this I will add ...and it will end badly.
If you had stopped me on the street a few years ago and asked me what I thought would have happened in the stock, bond, foreign currency, and commodity markets on the day the Fed announced an $85 billion per month thin-air money printing program directed at government bonds, I never would have predicted what has actually come to pass.
I would have predicted soaring stock prices on the expectation that all this money would have to end up in the stock market eventually. I would have predicted the dollar to fall because who in their right mind would want to hold the currency of a country that is borrowing 46 cents (!) out of every dollar that it is spending while its central bank monetizes 100% of that craziness?
Further, I would have expected additional strength in the government bond market, because $85 billion pretty much covers all of the expected new issuance going forward, plus many entities still need to buy U.S. bonds for a variety of fiduciary reasons. With little product for sale and lots of bids by various players, one of which – the Fed – has a magic printing press and is not just price insensitive but actually seeking to drive prices higher (and yields lower), that's a recipe for rising prices.

Paul Krugman's Dangerous Misconceptions

by zerohedge.com

How to Deal with Economic History

 

In a recent article at the NYT entitled 'Incredible Credibility', Paul Krugman once again takes aim at those who believe it may not be a good idea to let the government's debt rise without limit. In order to understand the backdrop to this, Krugman is a Keynesian who thinks that recessions should be fought by increasing the government deficit spending and printing gobs of money. Moreover, he is a past master at presenting whatever evidence appears to support his case, while ignoring or disparaging evidence that seems to contradict his beliefs.

Among the evidence he ignores we find e.g. the 'stagflation' of the 1970's, or the inability of Japan to revive its economy in spite of having embarked on the biggest government deficit spending spree ever in a modern industrialized economy. Evidence he likes to frequently disparage is the evident success of austerity policies in the Baltic nations (evident to all but Krugman, one might say).

As readers of this blog know, we are generally of the opinion that it is in any case impossible to decide or prove points of economic theory with the help of economic history – the method Krugman seems to regularly employ. This is why we listed the evidence he ignores or disparages: the fact that there exists both plenty of evidence that contradicts his views and a much smaller body of evidence that seems to support them at an unreflected first glance, already shows that the positivist approach to economic theory must be flawed.

An economist must in fact approach things exactly the other way around, but then again it is a well-known flaw of Keynesian thinking in general that it tends to put the cart before the horse (examples for this would be the idea that one can consume oneself to economic wealth instead of saving and investing toward that goal, or that employment creates growth; it is exactly the other way around in both cases).

How the Rich Rule

By Sheldon Richman

ERNEST HEMINGWAY: I am getting to know the rich.
MARY COLUM: I think you’ll find the only difference between the rich and other people is that the rich have more money.

Irish literary critic Mary Colum was mistaken. Greater net worth is not the only way the rich differ from the rest of us—at least not in a corporatist economy. More important is influence and access to power, the ability to subordinate regular people to larger-than-human-scale organizations, political and corporate, beyond their control.
To be sure, money can buy that access, but only in certain institutional settings. In a society where state and economy were separate (assuming that’s even conceptually possible), or better yet in a stateless society, wealth would not pose the sort of threat it poses in our corporatist (as opposed to a decentralized free-market) system.
Adam Smith famously wrote in The Wealth of Nations that “[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Much less famously, he continued: “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”
The fact is, in the corporate state government indeed facilitates “conspiracies” against the public that could not otherwise take place. What’s more, because of this facilitation, it is reasonable to think the disparity in incomes that naturally arises by virtue of differences among human beings is dramatically exaggerated. We can identify several sources of this unnatural wealth accumulation.
A primary source is America’s financial system, which since 1914 has revolved around the government-sponsored central banking cartel, the Federal Reserve. To understand this, it must first be noted that in an advanced market economy with a well-developed division of labor, the capital market becomes the “locus for entrepreneurial decision-making,” as Walter E. Grinder and John Hagel III, writing within the perspective of the Austrian school of economics, put it in their 1977 paper, “Toward a Theory of State Capitalism: Ultimate Decision-Making and Class Structure.”

Anatomy of the End Game

by Martin Sibileau

About a month ago, in the third-quarter report of a Canadian global macro fund, its strategist made the interesting observation that “…Four ideas in particular have caught the fancy of economic policy makers and have been successfully sold to the public…” One of these ideas “…that has taken root, at least among the political and intellectual classes, is that one need not fear fiscal deficits and debt provided one has monetary sovereignty…”. This idea is currently growing, particularly after Obama’s re-election. But it was only after writing our last letter, on the revival of the Chicago Plan (as proposed in an IMF’ working paper), that we realized that the idea is morphing into another one among Keynesians: That because there cannot be a gold-to-US dollar arbitrage like in 1933, governments do indeed have the monetary sovereignty.
Is this true? Today’s letter will seek to show why it is not, and in the process, it will also describe the endgame for the current crisis. Without further ado…
After the fall of the KreditAnstalt in 1931, with the world living under the gold-exchange standard, depositors first in central Europe, and later in France and England, began to withdraw their deposits and buy gold, challenging the reserves of their respective central banks. The leverage that linked the balance sheet of each central bank had been provided by currency swaps, a novelty at the time, which had openly been denounced by Jacques Rueff. One by one, central banks were forced to leave the gold standard (i.e. devalue) until in 1933, it was the Fed’s turn. The story is well known and the reason this process was called an “arbitrage” is simply that there can never be one asset with two prices. In this case, gold had an “official”, government guaranteed price and a market price, in terms of fiat money (i.e. schillings, pounds, francs, US dollars). The consolidated balance sheets of the central bank, financial institutions and non-financial sector looked like this before the run:

Relevance of the Austrian School of Economics in the 21st Century

The Austrian School of Economics has prevailed through time given the relevance it has gained in understanding the way markets really work. Peter Boettke has a conversation with Luis Figueroa regarding the importance of the philosophy of economics and explains the value of its premises. They discuss the process of thinking and understanding life through an economics point of view, as a result of dynamic laws present in everyday situations. Finally, Boettke comments on the role of ethics in the Austrian School of Economics and portrays common misconceptions about these sciences.

Peter Boettke professor of economics at George Mason University, where he also serves as vice president for research, BB&T Professor for the Study of Capitalism, and research director for the Global Prosperity Initiative at the Mercatus Center. Furthermore, he is deputy director of the James M. Buchanan Center for Political Economy. He is author and coauthor of various books on economics and politics, such as: Challenging Institutional Analysis and Development: The Bloomington School, The Economic Way of Thinking, The Political Economy of Soviet Socialism: The Formative Years, among others. Boettke received his BA in economics from Grove City College, MA and PhD in economics from George Mason University.

original video source:http://newmedia.ufm.edu/boettkerelevance

Where to from here?

By Gerardo Coco

We face one of the deepest crises in history. A prognosis for the economic future requires a deepening of the concepts of inflation and deflation. Without understanding their dynamic relationship and their implications is difficult to predict how things might unfold. The economic future depends on the interplay of both these forces. From the point of view of their final effects, inflation and deflation are, respectively, the devaluation and revaluation of the currency unit. The quantity theory of money developed in 1912 by the American economist Irving Fisher asserts that an increase in the money supply, all other things been equal, results in a proportional increase in the price level [1]. If the circulation of money signifies the aggregate amount of its transfers against goods, its increase must result in a price increase of all the goods. The theory must be viewed through the lens of the law of supply and demand: if money is abundant and goods are scarce, their prices increase and currency depreciates. Inflation rises when the monetary aggregate expands faster than goods. Conversely, if money is scarce, prices fall and the opposite, deflation, occurs. In this case the monetary aggregate shrinks faster than goods and as prices decrease money appreciates.

Jim Rogers - US Headed For A Financial Crisis

A History of Central Banking In the United States

Human Nature and the "Perfect" Society

by Frank Chodorov

Anyone who speculates on man's ability to put his social life in perfect order must take into account the biological fact of longevity. Man seeks to satisfy his desires while he lives, not when death has cut short his appetites, and actuarial figures tell him just about how long he may expect to live.

His pattern of behavior is necessarily determined by his expectancy. Which is to say that in the nature of things his is a short-run view, although his perspective may be lengthened by a concern for the welfare of his immediate posterity, his children and grandchildren in being. Beyond that there is the "future of his country," a speculative interest that can have little bearing on his day-to-day chores.

The banker knows full well that the State's bonds in his vaults do not represent goods produced but are merely claims on production; the "interest" they yield is taxes, draughts on the marketplace, and he is in fact a tax collector once removed. Nor is he unaware of the inflationary character of these pieces of paper: that in the long run they depreciate the value of all his assets as well as those of his depositors, that the marketplace is indeed impoverished by his holdings.

What's more, if he stops to think about it, he must know that the more of these bonds he holds the more he must support the fiscal activities of the State, for depreciation of the value of these bonds could put him out of business. Prudence compels him to disregard such considerations; he cooperates with the State's financing schemes, even if he suspects that in doing so he will gradually be downgraded to a secretarial position. In his need for showing a profit this year he puts aside whatever scruples he may have about buying the State's bonds. The future must take care of itself.

What the Road to Hell is Paved With....

by Bill Bonner

Improving the world costs money. When you have it, your efforts either bear fruit. Or they don’t. But when you don’t have it, when you have to change the world on credit, then what?

John Maynard Keynes revolutionized the economics profession in the early 20th century. It was he more than anyone who changed it from a being a refuge for observers and willowy philosophers into a hard-charging phalanx for men of action. But Keynes’ big insight, like all the useful insights of economics, was based on a story with a moral.

In the Book of Genesis, Pharaoh had a dream. In it, he was standing by the river. Out came 7 fat cattle. Then, 7 lean cattle came up out of the river and ate the fat cattle. A similar dream involved ears of corn, with the good ones devoured by the thin ears.

Pharaoh was troubled. His dream interpreters were stumped. So, they sent for the Hebrew man who was said to be good at this sort of thing — Joseph. Pharaoh described what had happened in his dreams. Without missing a beat, Joseph told him what they meant. The 7 fat cattle and 7 fat ears of corn represented years of plenty with bountiful harvests. The 7 lean cattle and thin ears of corn represented years of famine. Joseph wasn’t asked his opinion, but he gave his advice anyway: Pharaoh should put into place an activist, counter-cyclical economic policy. He should tax 20% of the output during the fat years and then he would be ready with some grain to sell when the famine came. Genesis reports what happened next:

Central bank policies and the Ireland and Iceland 2008-12 financial crises

By Dr Frank Shostak.

There were a lot of commentaries regarding the Ireland and Iceland 2008-12 financial crises. Most of the commentaries were confined to the description of the events without addressing the essential causes of the crises. We suggest that providing a detailed description of events cannot be a substitute for economic analysis, which should be based on the essential causes behind a crisis. The essential cause is the primary driving force that gives rise to various events such as reckless bank lending (blamed by most commentators as the key cause behind the crisis) and a so called overheated economy.

Now in terms of real GDP both Ireland and Iceland displayed strong performance prior to the onset of the crisis in 2008. During 2000 to 2007 the average growth in Ireland stood at 5.9% versus 4.6% in Iceland. So what triggered the sudden collapse of these economies?

Central bank policy the key trigger for economic boom



What set in motion the economic boom (i.e. a strong real GDP rate of growth) in both Ireland and Iceland was an aggressive lowering of interest rates by the respective central banks of Ireland and Iceland. In Ireland the policy rate was lowered from 13.75% in November 1992 to 2% by November 2005. In Iceland the policy rate was lowered from 10.8% in November 2000 to 5.2% by April 2004.

Contra Richard Koo and the Keynesians: It is not about ‘aggregate demand’ but about real prices

by Detlev Schlichter


I do not want to waste your time and my energy with shooting down misguided Keynesian schemes all the time, schemes that have been refuted long ago and should by now be instantly laughed out of town whenever put forward. But arch-Keynesian Richard Koo’s latest attempt in the commentary section of the Financial Times to justify out-of-control deficit spending in the United States as a smartly designed and necessary policy that will keep ‘aggregate demand’ up and lead to recovery, is making the rounds on the internet. Koo’s article is a mechanical and naïve exposition of the 101 of Keynesian stimulus doctrine, clearly aimed at those who still perceive the economy as a simple equation with Y, C, I and lots of G in it. If private demand falls out from under the bottom of the economy, it can be replaced with the government’s demand. Simple.

And wrong, of course.

But the piece is not without some educational value. I promise this will be shorter than my attack on the new money mysticism at the IMF.

Fiscal suicide as recovery strategy

I am not sure if even in Washington there is anybody left who still seriously claims that $1trillion-plus deficits year-in and year-out are anything but a sure-fire sign of a public sector out of control – a public sector that despite generous and growing staffing levels is simply running out of fingers to put into the many holes from which the money is leaking. Yet Richard Koo wants us to believe there is a method to the recklessness, that this is a finely calibrated strategy to save the economy.

"We're Flying Blind," Admits Federal Reserve President

Eric S. Rosengren, the president of the Boston Federal Reserve Bank, recently gave a speech at Babson College on November 1. That was a good place to give it. Founder Roger Babson in September, 1929, warned of a stock market crash. Wikipedia reports: "On September 5, 1929, he gave a speech saying, "Sooner or later a crash is coming, and it may be terrific." Later that day the stock market declined by about 3%. This became known as the "Babson Break". The Wall Street Crash of 1929 and the Great Depression soon followed."

Dr. Rosengren began:

Today I plan to highlight three main points about the economic outlook. I always like to emphasize that my remarks represent my views, not necessarily those of my colleagues on the Federal Open Market Committee or at the Board of Governors.

A first point is this: while it is still early to gauge the full impact of the Federal Reserve's September monetary policy committee decision to begin an open-ended mortgage-backed security purchase program, the program has so far worked as expected. The initial response in financial markets was larger than many expected. Given that our conventional monetary tool, the fed funds rate, has hit its lower bound of zero, we have turned to unconventional monetary policy. By that I mean policy that attempts to affect long-term interest rates directly, via asset purchases, rather than indirectly by setting the short-term interest rate, as in conventional policy.