The Poker End Game - JP Morgan, The Fed, US Treasury, China & Gold

By Robert Fitzwilson of The Portola Group

September 23 (King World News) - 

We recently wrote about the board game called Clue in which participants solve a crime by identifying the perpetrator, the place and the weapon used.  Recent revelations in the world of finance in the past week have made it a bit clearer as to the likely forces behind the curtain who  are perpetrating what has to be the biggest financial crime in human history....

The first thing we learned is that there apparently has been no criminal manipulation of markets.  It turns out that the perpetrators, the legal system and the enforcement mechanisms have decreed that the manipulation of markets is completely legal relying upon legislation enacted in the 1930s.  That is quite a disturbing surprise for the majority of investors who have been told that attempting to corner and manipulate markets would not be tolerated, and would also result in severe financial penalties as well as incarceration.  Apparently this is the case for everyone except central planners.  It is just official policy.  As they say, “nothing to see here, keep moving”.

In the case of J.P. Morgan, they have said that they are simply executing the orders of the customers when accused of cornering/manipulating the precious metals markets. There has also been speculation that the “customer” to which they are referring is the U.S. government/ Federal Reserve.  There has also been speculation that the Chinese have had a hand in the suppression of gold and silver prices.

It crossed our minds that the real customer is not only the Fed and the U.S. Treasury, but also the Chinese.  It has been surmised that the Chinese have had two objectives with their massive acquisition of gold.  The first is diversification away from their massive accumulations of paper currencies, specifically the dollar.  The other speculation is that the Chinese would like to take over the mantle of the world’s reserve currency in the form of a gold-backed Yuan.  Both are no doubt true.

Connecting the dots to create a plausible explanation for what we are witnessing, let us assume that China is one of the customers to which J.P. Morgan is referring.  The U.S. might be allowing China to suppress gold and silver prices in exchange for a deal not to disgorge their huge holdings of Treasuries on the open market.  J.P. Morgan could very well be telling the truth, just not the truth that most people believe.  

China also floods the paper gold and silver markets with huge quantities of contracts which neither the Comex or J.P. Morgan will question.  At these artificially low prices, China is able to vacuum up existing stocks of physical gold from the GLD and other repositories, in order to add to the tons acquired from their own domestic mining.

But the harsh reality is this is a very dangerous poker game for the United States to take part in because the deck is stacked against the US.  How does it end?  China simply defaults on any outstanding paper contracts.  The answer as to when they might do that is when there are no significant existing holdings to be acquired.  We appear to be getting very close to that moment with the dramatic reduction of above ground supplies throughout the Western central bank vaults.

If default sounds far fetched, recall that in August of 2009, it was decreed by the Chinese Assets Supervision and Administration Commission that state-owned entities could walk away from derivatives where lack of disclosure and fraud are involved.  Given that the evidence is clear that the gold and silver markets have been rigged, it would be easy to say that outstanding contracts could be voided.  We are also sure that J.P. Morgan and other firms alleged to be involved would have protected themselves long ago.

Why would the scenario outlined above be plausible?  Having the reserve currency status is a huge advantage.  Faced with the choice between allowing the Chinese to acquire 10,000 tons of gold that could very well dethrone the dollar longer-term and an immediate dethroning if U.S. treasuries were unloaded, one can see the Fed choosing the option that buys more time.  Strategically, the U.S. avoids an immediate collapse of the dollar and the loss of reserve currency status.  The Chinese get cheap gold, but this means that the dollar won’t be dethroned, at least for now.

As the financial fog continues to dissipate, the above scenario makes sense to us.  As investors, we will have to wait and see how these events unfold.  In the meantime, diversification out of paper currencies into real assets is the proper strategy.  Energy, gold and silver remain as crucial components of the foundation of a portfolio.  We also believe that shares in rapidly growing companies as well as cash-rich older firms make equally good sense to us.  Another good choice would be well-managed private companies with sound business models.  For those worried about getting their paper assets “out of the system”, stock held in private companies would add that particular dimension.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/9/30_Poker_End_Game_-_JP_Morgan%2C_Fed%2C_US_Treasury%2C_China_%26_Gold.html

Ray Dalio - The Way the Economy Works....explained

Marc Faber on Fed not Tapering Bond Purchases

What Would Goldman Think?

By Greg Palast for Vice Magazine

Monday, 16 September 2013

Joseph Stiglitz couldn't believe his ears.  Here they were in the White House, with President Bill Clinton asking the chiefs of the US Treasury for guidance on the life and death of America's economy, when the Deputy Secretary of the Treasury Larry Summers turns to his boss, Secretary Robert Rubin, and says, "What would Goldman think of that?"

Huh?

Then, at another meeting, Summers said it again:  What would Goldman think?

A shocked Stiglitz, then Chairman of the President's Council of Economic Advisors, told me he’d turned to Summers, and asked if Summers thought it appropriate to decide US economic policy based on “what Goldman thought.”  As opposed to say, the facts, or say, the needs of the American public, you know, all that stuff that we heard in Cabinet meetings on The West Wing.

Summers looked at Stiglitz like Stiglitz was some kind of naive fool who'd read too many civics books. 

R.I.P. Larry Summers

On Sunday afternoon, facing a revolt by his own party’s senators, Obama dumped Larry as likely replacement for Ben Bernanke as Chairman of the Federal Reserve Board.

Until news came that Summers’ torch had been snuffed, I was going to write another column about Larry, the Typhoid Mary of Economics.  (My first, in The Guardian, 15 years ago, warned that “Summers is, in fact, a colony of aliens sent to Earth to turn humans into a cheap source of protein.”)

But the fact that Obama even tried to shove Summers down the planet’s throat tells us more about Obama than Summers—and whom Obama works for.  Hint:  You aren’t one of them.

All these Cabinet discussions back in the 1990s requiring the blessing of Goldman Sachs revolved around the Rubin-Summers idea of ending regulation of the US banking system.  To free the US economy, Summers argued, all you'd have to do is allow commercial banks to bet government-guaranteed savings on new "derivatives products," let banks sell high-risk sub-prime mortgage securities and cut their reserves against losses.

What could possibly go wrong?  

Stiglitz, who would go on to win the Nobel Prize in Economics, tried to tell them exactly what would go wrong.  But when he tried, he was replaced and exiled.

Summers did more than ask Rubin to channel the spirit of Goldman: Summers secretly called and met with Goldman's new CEO at the time, Jon Corzine, to plan out the planet’s financial deregulation. I’m not guessing:  I have the confidential memo to Summers reminding him to call Corzine.

[For the complete story of that memo and a copy of it, read “The Confidential Memo at the Heart of the Global Financial Crisis”.]

Summers, as Treasury official, can call any banker he damn well pleases.  But not secretly.  And absolutely not to scheme over details of policies that could make a bank billions.  And Goldman did make billions on those plans.

Example:  Goldman and clients pocketed $4 billion on the collapse of “synthetic collateralized debt obligations”—flim-flam feathers sold to suckers and dimwits i.e. the bankers at RBS.  (See Did Fabrice Tourre Really Create The Global Financial Crisis?)

Goldman also cashed in big on the implosion of Greece’s debt via secret derivatives trades permitted by Summers’ decriminalization of such cross-border financial gaming.

The collapse of the euro-zone and the US mortgage market caused by Bankers Gone Wild was made possible only by Treasury Secretary Summers lobbying for the Commodities Futures Modernization Act which banned regulators from controlling the 100,000% increase in derivatives assets, especially super-risky "naked" credit-default swaps.

The CMFA was the financial equivalent of a fire department banning smoke alarms. 

Summers took over the Treasury's reins from Rubin who’d left to become director of a strange new financial behemoth:  The combine of Citibank with and an investment bank, Travelers. The new bank beast went bankrupt and required $50 billion in bail-out funds.  (Goldman did not require any bail-out funds–but took $10 billion anyway.)

Other banks-turned-casinos followed Citi into insolvency.  Most got bail-outs ... and got Larry Summers–or, at least, Larry's lips for "consulting" or for gold-plated speaking gigs.

Derivatives trader D.E. Shaw paid Summers $5 million for a couple of years of "part-time" work.  This added to payments from Citigroup, Goldman and other finance houses, raising the net worth of this once penurious professor to more than $31 million. 

Foreclosure fills the Golden Sacks

When Summers left Treasury in 2000, The New York Times reports that a grateful Rubin got Summers the post of President of Harvard University—from which Summers was fired. He gambled away over half a billion dollars of the university’s endowment on those crazy derivatives he’d legalized.  (Given Summers’ almost pathological inability to understand finance, it was most odd that, while President of the university, he suggested that humans with vaginas aren’t very good with numbers.)

In 2009, Summers, Daddy of the Deregulation Disaster, returned to the Cabinet in triumph. Barack Obama crowned him “Economics Tsar,” allowing Summers to run the Treasury without having to be questioned by Congress in a formal confirmation hearing.

As Economics Tsar in Obama's first term, did Summers redeem himself?

Not a chance.

In 2008, both Democrat Hillary Clinton and Republican John McCain called for using the $300 billion remaining in the "bail-out' fund for a foreclosure-blocking program identical to the one Franklin Roosevelt had used to pull the US out of the Great Depression.  But Tsar Larry would have none of it, although banks had been given $400 billion from the same fund.

Indeed, on the advice of Summers and his wee assistant, Treasury Secretary Tim Geithner, Obama spent only $7 billon of the $300 billion available to save US homeowners.

What would Goldman think?  

As noted, Goldman and clients pocketed billions as a result of Obama’s abandonment of 3.9 million families whose homes were repossessed during his first term.  While American homeowners were drowning, Tsar Summers torpedoed their lifeboat:  a plan to prevent foreclosures by forcing banks to write-off the overcharges in predatory sub-prime mortgages.  Notably, Summers’ action (and Obama's inaction) saved Citibank billions. 

Loan Shark Larry

The deregulation disaster machinery is not done with mangling Americans.  While not-for-profit credit unions, lenders of last resort for working people and the poor in the US, have been under legal and political attack, a new kind of banking operation has bubbled out of the minds of the grifters looking for a way to make loan-sharking legit. 

One new outfit, for example, called “Lending Club,” has figured out a way to collect fees for arranging loans charging as much as 29%.  Lending Club claims it cannot and should not be regulated by the Federal Reserve or other banking police.  The recent addition to its Board of Directors:  Larry Summers.

If you want to know why Obama would choose such a grifter and gamer to head the Fed, you have to ask, Who picked Obama?  Ten years ago, Barry Obama was a nothing, a State Senator from the South Side of Chicago. 

But then, he got lucky.  A local bank, Superior, was shut down by regulators for mortgage shenanigans ripping off Black folk.  The bank’s Chairwoman, Penny Pritzker was so angry at regulators, she decided to eliminate them:  and that required a new President. 

The billionaires connected Obama to Jamie Dimon of J.P. Morgan, but most importantly to Robert Rubin, former Treasury Secretary, but most important, former CEO of Goldman Sachs and mentor of Larry Summers.  Without Rubin’s blessing and overwhelming fundraising power, Obama would still be arguing over zoning on Halsted Street.

Rubin picked Obama and Obama picks whom Rubin picks for him. 

Because, in the end, Obama knows he must choose a Fed chief based on the answer to one question:  What would Goldman think?

USD Competition as Safe Haven Currency - Axel Merk

56 Owners per Oz...

sharelynx.com via KWN

Money for Nothing

Paul Craig Roberts - The Greatest Country in the World

"Washington itself has contingency plans to use nuclear bunker busters against Iran’s underground nuclear energy facilities. If Washington believes that weapons of mass destruction are impermissible, why does Washington have so many of them and contingency plans to use them? Is Washington regretful that Washington dropped two nuclear bombs on civilian Japanese cities at the very time that the Japanese government was doing everything in its power to surrender?

Ever since the dangerous Cold War ended, hot war has been the mainstay of US foreign policy. George H.W. Bush attacked Iraq after Bush’s ambassador gave Saddam Hussein the green light to attack Kuwait. Clinton attacked Serbia on false pretenses and without any constitutional or legal authority. George W. Bush attacked Afghanistan and Iraq on the basis of lies. Obama renewed the attack on Afghanistan and has attacked also Yemen, Pakistan, and Somalia. Obama sent his NATO puppets to attack Libya, sent mercenaries into Syria, and now intends to prevent his mercenaries’ defeat by attacking Syria.

Washington is building a string of military bases around both Russia and China. These bases are extremely provocative and foretell nuclear war.

The US, a country with a vast nuclear weapons arsenal, whose political leaders are both corrupt and insane, is a great danger to life on earth. That Washington is the number one danger to the world is now universally recognized, except by Americans who wear their patriotism on their sleeve. These gullible dupes are the enablers of the demise of humanity by war.

Until the US economy collapses, Washington still has printed money, and it can buy acquiescence to its crimes. Washington can rely on the presstitute media to tell its lies as if they were facts. The world will not be safe until the American house of cards collapses.

I feel sorry for those uninformed Americans who think that they live in the best country in the world. Too few Americans care that their government has destroyed countless lives from Central America and Vietnam to the Middle East and Africa. The US military routinely murders civilians in Afghanistan, Pakistan, Yemen, Somalia, and is responsible for as many as 1,000,000 Iraqi deaths and 4,000,000 displaced Iraqis. The American definition of “the best country in the world” is the country that can murder the most innocent people, people who have never attacked America, people who once looked upon America as the hope of the world and now see a deadly threat.

Too many Americans have no idea that one-fifth of their fellow citizens are dependent on government support, or if they do know, they blame the unfortunate for being leeches on the taxpayers’ purse. In the US wages and employment opportunities are declining. There are no impediments to the looting of citizens by financial institutions. There are no constraints on the lawlessness and brutality of the police, and no limit to the lies that keep the American population entrapped in the Matrix unaware of reality.

How such a people can retain liberty or restrain a government committed to war strains the imagination.

Those Republicans who worry about our children’s and grandchildren’s debt burdens are worried about a future that might never come about. Washington’s hubris is pushing the world toward nuclear war.

“The best country in the world” is the evil force that is destroying the lives and prospects of many different peoples and might yet destroy all life on earth."

http://www.paulcraigroberts.org/2013/09/01/obama-has-decided-that-it-is-safer-to-buy-congress-than-to-go-it-alone-paul-craig-roberts/

The Class-Backed Dollar

Editorial of The New York Sun | September 1, 2013

"After disclosing some “gender undertones” in the maneuvering over the next chairman of the Federal Reserve, the New York Times is out with a new scoop — this one over the issue of class. “The most obvious topic for a Democratic Fed leader to emphasize is the sharp growth in income inequality, which many scholars think has destabilized the economy,” writes the paper’s Washington correspondent, David Leonhardt. He goes on to quote one contender for the job, Lawrence Summers, as saying he thinks “the defining issue of our time is: Does the economic, social and political system work for the middle class?”

Mr. Summers, a former treasury secretary, is important in part because, according to the earlier dispatch in the Times, Mr. Summers is the individual who is being advanced for the job by the faction that favors a man. The reporters who broke that story, Binyamin Appelbaum and Anne Lowrey, disclosed that the individual favored by the faction that wants the next Fed chairman to be woman is the vice chairman of the Fed, Janet Yellen. At a time when the monetary debate is in a state of flux, the idea that the dollar should be based not on gender but on class is a scoop.

Call it the third mandate. The first mandate would be your basic price stability, which mandate has obtained since the founding of the Fed a century ago. The second mandate would be your full employment, which was legislated by the Congress in 1978 in a law called Humphrey Hawkins, after two Democrats, Hubert Humphrey and Augustus Hawkins, both men. The measure was signed by another Democrat and man, President Carter. The combination of the price stability and the full employment is your dual mandate. The third mandate would be to manage the dollar in a way calculated to help the middle class.

Why it’s the middle class that the dollar should be managed to help isn’t dwelled on by the Times. But the thinking of the Times must be that your poor people don’t have many dollars to worry about, so the question of whether their dollars hold their value doesn’t affect them as much. The rich people have so many dollars that they, too, don’t care whether the dollar holds its value. So one can start to see the outlines of how Messrs. Summers and Leonhardt are thinking. It prompted us to type into the New York Times’s search engine the phrase “rise of the American middle class.”

One of the first cables it turned up, if sorted by relevance, is a post by Paul Krugman, introducing his Web log in September 2007. In it the columnist offers a paean to the middle class, which the future Nobel laureate says he grew up in and was created by the New Deal. He offers a chart that traces the “share of the richest 10 percent of the American population in total income,” which Mr. Krugman calls “an indicator that closely tracks many other measures of economic inequality.” It illuminates four periods in our recent history. Mr. Krugman focuses on one, which he labels Middle Class America.

The span labeled middle class America were years when society was “without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality.” But the odd thing about it — about Mr. Krugman’s column — is that he fails to mention one other feature of the period. The dollar was defined as a matter of law through most of the period as being a 35th of an ounce of gold. Mr. Krugman’s chart shows the American middle class period running from the 1930s right up until the early 1970s.

What brought that era to an end? Well stub our toe if it wasn’t the beginning of the period of fiat money. This is the period in which Congress stopped defining the dollar in terms of gold and turned to the concept of fiat money, when the dollar was whatever the Federal Reserve said it was and was, in any event, convertible into but another piece of government issued scrip. Mr. Krugman calls the period “the great divergence.” We call it the fiat years, when the value dollar has collapsed to, at last check, less than a 1,385th of an ounce of gold. So here's the real scoop: If the Times wants to recapture the era when the middle class soared, history suggests the thing to do is to define the dollar not in terms of employment or gender or class but in terms of gold."

http://www.nysun.com/editorials/the-class-backed-dollar/88395/