A Commenter on TBP says:

Kris Dannon Says: 
December 13th, 2010 at 7:31 pm

I would differ with the opinion of the author on the competence of Bernanke & Co. I tend to side with what Barry Ritholtz wrote recently on the incompetence with which the financial crisis was handled, in first looking at the Obama adminstration (putting aside the competence of Bernanke). Ritholtz has said he felt that Obama essentially missed an opportunity to really deal with crisis in a way that would have made a real difference, with new and innovative ideas and an approach that originated outside of Wall Street rather than from within it. When Obama appointed advisers from the very group of Wall Street cronies that brought the system down and brought the world to the brink of financial collapse, he missed the opportunity to have really created a difference.

To make Ritholt’z point clearer I would suggest we not forget recent history. It was the former Head of the CFTC, Brooksley Born, who attempted to initially open up regulation of over-the-counter derivatives late in the Clinton administration. It was Born and her staff that were desperately trying to warn the public of the dangers in the unregulated OTC markets. Every effort made by Born and the CFTC staff was opposed by the Wall Street crowd, and chief among those opponents were Greenspan, Summers and Rubin. Some 10 years before the financial crisis began, a mini-meltdown occurred in the unregulated OTC derivatives markets involving the failure of Long Term Capital Management (LTCM). The near collapse of LTCM issued a flashing warning sign to those who had thought that OTC derivatives markets were in no need of regulation. Yet the response was to quietly handle it from the inside by a few large banks who were coaxed by Greenspan into purchasing it. The failure was a warning of what would eventually happen and yet when it was absorbed everyone was assured and felt there was no cause for alarm.

Bernanke had often been in agreement with Greenspan on policy. And Summers later became one of Obama’s chief financial advisers.

Born said this recently in a media interview:

“We had no regulation. No federal or state public official had any idea what was going on in those markets, so enormous leverage was permitted, enormous borrowing. There was also little or no capital being put up as collateral for the transactions. All the players in the marketplace were participants and counterparties to one another’s contracts. This market had gotten to be over $680 trillion in notional value as of June 2008 when it topped… And that is an enormous market. That’s more than 10 times the gross national product of all the countries in the world. I think the profits made by the over-the-counter derivatives dealers, by our largest banks and investment banks, were the upside…. at the expense of all the people who have lost their jobs, who have lost their retirement savings, who have lost their homes.”

I have strong feelings on Bernanke’s basic incompetency, and I believe he should never have been reappointed as Fed Chair for numerous reasons… just one among many is his responses to questioning put to him by congress relating to the over-the-counter derivatives markets.

In November of 2005, Mr. Bernanke was questioned by then-Senate Banking Committee Chairman Paul Sarbanes.

Sarbanes: Warren Buffett has warned us that derivatives are time bombs, both for the parties that deal in them and the economic system. The Financial Times has said so far, there has been no explosion, but the risks of this fast-growing market remain real. How do you respond to these concerns?

Bernanke: I am more sanguine (confident) about derivatives than the position you have just suggested. I think, generally speaking, they are very valuable. They provide methods by which risks can be shared, sliced and diced, and given to those most willing to bear them. They add, I believe, to the flexibility of the financial system in many different ways. With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions.

On February 27, 2008, Fed Chairman Bernanke said, “If you have two investment banks doing an over-the-counter derivatives transaction, presumably they both are well-informed and they can inform that transaction without necessarily any government intervention.”

As late as February 28, 2008, Fed Chairman Bernanke said, “Among the largest banks, the capital ratios remain good, and I don’t expect any serious problems … among the large, internationally active banks that make up a very substantial part of our banking system.”

In a July 2005 interview with Bernanke on the housing bubble:

Interviewer: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying, “Oh, this is a bubble, and it’s going to burst. And this is going to be a real issue for the economy.” Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?

Bernanke: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

On March 28, 2007, Fed Chairman Bernanke said, “The impact on the broader economy and financial markets of the problems in the sub-prime markets seems likely to be contained.”

On May 17, 2007, Fed Chairman Bernanke said, “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

On February 27, 2008, Fed Chairman Bernanke said, “By later this year, housing will stop being such a big drag directly on GDP…. I am satisfied with the general approach that we’re currently taking.”

A few of Bernanke’s comments on the Financial Crisis:

On February 15, 2007, Fed Chairman Bernanke said, “The Federal Reserve takes financial crisis management extremely seriously, and we have made a number of efforts to improve our monitoring of the financial markets to study and assess vulnerabilities, and to strengthen our own crisis management procedures and our business continuity plans.”

On July 16, 2008, Fed Chairman Bernanke said that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.” Since then, Fannie Mae and Freddie Mac have received massive bailouts and have been taken over by the federal government with an open checkbook from the US Treasury.

Jim Rickards speaks at the Applied Physics Laboratory

...an absolute must listen to talk from Jim Rickards, about two hours in length including Q&A

inflation, deflation, currency wars, capital controls, the Fed, China, gold, US as Gold Superpower, etc...

...take one red pill please...

link to video...

Rethinking the Future National Security Environment - Economics and National Security


James G. Rickards: Senior Managing Director for Market Intelligence

James G. Rickards is Senior Managing Director for Market Intelligence at Omnis, Inc. and co-head of the firm’s practice in Threat Finance & Market Intelligence.  He is also a member of the Board of Directors.  Mr. Rickards is a seasoned counselor, investment banker and risk manager with over thirty years experience in capital markets including portfolio management, risk management, product structure, corporate finance, regulation and operations.

Mr. Rickards’s career prior to Omnis spans an over 30-year period during which he was a first hand participant in the formation and growth of globalized capital markets and complex derivative trading strategies.  He has held senior executive positions at “sell side” firms (Citibank and RBS Greenwich Capital Markets) and “buy side” firms (Long-Term Capital Management and Caxton Associates) as well as technology firms (OptiMark).  Mr. Rickards has been a direct participant in many of the most significant financial events over the past 30 years including the 1981 release of US hostages in Iran, the 1987 Stock Market Crash, the 1990 collapse of Drexel, and the LTCM financial crisis of 1998 in which Mr. Rickards was the principal negotiator of the government-sponsored rescue.  He has been involved in the formation and successful launch of several hedge funds and fund-of-funds.  His advisory clients have included private investment funds, investment banks and government directorates.  Since 2001, Mr. Rickards has applied his financial expertise to a variety of tasks for the benefit of the US national security community and the Department of Defense.

Mr. Rickards is licensed to practice law in New York and New Jersey and various Federal Courts and has held all major financial industry licenses including Series 3, Series 7, Series 24, Series 30 and Series 63.  He has been a frequent speaker at conferences sponsored by bar associations and industry groups in the fields of derivatives and hedge funds and is active in the International Bar Association.  He has been the interviewed in The Wall Street Journal, The Washington Times, Politico and on CNBC’sSquawk Box, as well as Fox, CNN, NPR and C-SPAN and is an OpEd contributor to the New York Times and the Washington Post.

Mr. Rickards is a graduate school visiting lecturer in finance at Northwestern University and the School of Advanced International Studies.  He has recently delivered papers on econophysics at the Applied Physics Laboratory and the Los Alamos National Laboratory.  Mr. Rickards has published numerous articles in the fields of cognitive diversity, network science and risk management.  He is a member of the Advisory Board of Shariah Capital, Inc., a firm specializing in Islamic finance and is also a member of the International Business Practices Advisory Panel to the CFIUS Support Group of the Director of National Intelligence.

Mr. Rickards holds an LL.M. (Taxation) from the New York University School of Law; a J.D. from the University of Pennsylvania Law School; an M.A. in international economics from the School of Advanced International Studies, Washington DC; and a B.A. degree with honors from the School of Arts & Sciences of The Johns Hopkins University.

Hyperinflation Watch - December 13, 2010

...from James Turk

Numbers Don’t Lie –

December 13, 2010 – For several months I have been warning that hyperinflation of the US dollar is looming.  The ominous signs of this impending currency train-wreck are becoming increasingly clear. 

For example, crude oil is threatening to break above $90 per barrel.  Copper has broken through $4 per pound to a record high price.  The prices of many other commodities are also in uptrends. These commodities are not in short supply.  There is no shortage of oil or copper.  Rather, these high prices are the result of too much money printing, which if not quickly stopped by returning to a sound money policy will ultimately lead to hyperinflation.

Last week another important part of the hyperinflation puzzle fell into place.  Long-term interest rates surged, continuing their sharp upward path that began two months ago.  The 10-year T-note during this two month period has risen from 2.4% to end last week over 3.2%, a remarkable and therefore telling jump.

This rise in long-term rates lays bare the flawed logic of the Federal Reserve’s newly announced $600 billion so-called “Quantitative Easing” program supposedly designed to help the economy.  This new round of money printing is not going to help the economy, which has been hollowed out by years of debt financed consumption along with too little savings and production.  This money printing is serving only one purpose.  This central bank trickery is providing the federal government with all the dollars it wants to spend. 

So despite the fact the Fed will be purchasing $600 billion of US government debt instruments, T-bond and T-note yields are climbing, a clear sign that investors are rushing to sell their US government paper.  Why?  Because they know the purchasing power of the dollar is being debased by QE, and more importantly, will continue being debased.

I have discussed this reckless monetary policy before.  “The [Federal Reserve] has one mission.  It is to make sure that the federal government obtains all the dollars it wants to spend.  If the federal government cannot attract these dollars from the world’s savings pool, then there is only one other way to obtain them.  The Fed must print them.”

The following chart illustrates that the US government continues to spend and borrow recklessly.  Despite all the pump-priming by the Federal Reserve aimed at stimulating the economy and therefore increasing US government revenue, there has been no meaningful reduction in the deficit.

Federal expenditures remain far above federal revenue.  More worrisome is the resulting growth in US government debt – now nearly $14 trillion – much of which the Fed is turning into currency with its QE actions.  The transformation of government debt into currency by the central bank is the core cause of hyperinflation.

The dollar not only remains on the road to hyperinflation, the rise in commodity prices and bond yields mean that the dollar is picking up speed as it heads toward the fiat currency graveyard.  Remember, numbers don’t lie.  But the same thing can’t be said for politicians who refuse to accept reality or central bankers willing to experiment with the US economy just to test their chalkboard theories.

http://www.fgmr.com/numbers-do-not-lie.html 

Miles says Happy B-day Wes, Chapeau FE - Friday Night Jazz

Audit the Fed in 2011 - you go boy Ron...

Since the announcement last week that I will chair the congressional subcommittee that oversees the Federal Reserve, the media response has been overwhelming.  The groundswell of opposition to Fed actions among ordinary citizens is reflected not only in the rhetoric coming out of Capitol Hill, but also in the tremendous interest shown by the financial press.  The demand for transparency is growing, whether the political and financial establishment likes it or not.  The Fed is losing its vaunted status as an institution that somehow is above politics and public scrutiny.  Fed transparency will be the cornerstone of my efforts as subcommittee chairman.

Thanks to public pressure earlier this year, Congress did pass legislation that requires the Fed to disclose some information about its bailout of select industries and companies following the 2008 financial crisis.  So two weeks ago the Fed released data concerning more than $3 trillion of assistance it offered to banks through its bailout facilities.  After reviewing this data, however, we are left with many more questions about the Fed's “lending”.

In the “Term Securities Lending Facility”, the Fed was supposed to have loaned against AAA-rated securities-- yet over half of the collateral put up by banks to obtain loans had no listed credit rating. Should we assume that the Fed accepted absolute junk rated securities as collateral for loans?  Presumably these securities were so bad that they wouldn’t even publicize their credit rating.  So why should our central bank, backed up by your taxes, accept such collateral?

On another note, of the $1.25 trillion purchased under the Fed’s “Mortgage-Backed Securities Purchase Program,” only $877 billion in purchases have been publicized. What happened to the remaining $400 billion? 

These kinds of limited disclosures by the Fed only underscore the need for a full and complete audit of the Fed’s financial books.  This audit should be done by an independent third party, in the same manner that public companies are audited.  The Fed should make public its balance sheet, income statement, and perhaps most importantly its cash flow statement.  It also should publicize the notes explaining those financial statements.

We seem to forget sometimes that Congress created the Fed-- it is a government-created banking monopoly, and its top decision-makers are appointed by the President and confirmed by the Senate. If the Fed does not perform satisfactorily in the eyes of these politicians and their constituents, the Chairman and Governors may not be re-nominated.

In theory, Congress could even repeal the Federal Reserve Act altogether since it has the authority to do so.  Obviously Congress is within its authority to audit an organization it created by statute, and it is time to assume that responsibility. 

With 320 Members of Congress cosponsoring my legislation to fully audit the Fed in the 111th Congress, my hope is that we can build on our broad bipartisan coalition in 2011 and continue the push for greater Fed transparency going forward.

http://paul.house.gov/index.php?option=com_content&view=article&id=1807:audit-the-fed-in-2011&catid=31:texas-straight-talk


...as always Rp-BP is apolitical

Converted to Gold

By Jeff Clark Warren Buffett recently remarked that you can't value gold like an oil company or farmland, so we should forget gold and buy equities. But he misses the point. Gold doesn't produce value because it is value; in other words, gold is money. It's sad to see Mr Buffett go to the dark side. But, as I'm about to show, he's losing company when it comes to his views on gold. It's difficult to fathom why a professional money manager - someone who looks at markets all day long and tries to make money for his clients - doesn't see the in-your-face arguments for buying precious metals. It's borderline irresponsible. You may think that's a strong statement, but I ask: what would you do if you were responsible for investing other people's money and found yourself in the following investment environment: The US government had printed more money in the past two years than at any other time in world history. Then, they printed more. Government spending exceeded revenues by obscene margins, and, in the most recent year, the US ran a budget deficit of US$1.4 trillion. Interest rates were at 40-year lows. Runaway entitlements and social discord remained unresolved in many major European countries. Raising taxes and cutting spending to reduce the debt burden were politically untenable, leaving inflation the easy and likely solution. The economy was weak and showed signs of weakening further. Financial markets were tenuous, and the stock market as a whole was vulnerable. Gold, in spite of being the top-performing asset of the past decade, was roughly $1,000 below its 1980 inflation-adjusted high. Silver was even further undervalued. What asset would be a wise and time-tested holding for this kind of environment? Think about it: gold is designed exactly for these kinds of circumstances. Any casual glance at history will bear this out. So, yes, "irresponsible" comes to mind when you're handling other people's money and ignoring the very asset that is ideal for the current economic and monetary climate. There are others, however, who "get it". And they make my list of the Twelve Gold Bugs of 2010:

1. Peter Thiel, Clarium Capital Management . At the end of the second quarter, Clarium had no gold holdings. But that changed in Q3: the firm put $11.4 million into GLD (the SPDR Gold Trust ETF), buying about 100,000 shares.

2. Julian Robertson, Tiger Management . With no prior gold exposure, the chairman of Tiger invested a whopping $247 million in GLD in Q3, buying about 2 million shares.

3. Chris Shumway, Shumway Capital . His first-ever gold purchase occurred in Q3 when he put over a quarter-billion dollars into GLD - more than 2.1 million shares.

4. Dan Loeb, Third Point . The firm made its first gold purchase last quarter, putting $15 million into GLD, about 115,000 shares.

5. Steve Cohen, SAC Capital . Already invested in GLD and four gold mining companies, the firm placed over $9 million in four new gold stocks last quarter.

6. Highbridge Capital Management. With seven gold companies already in the fund, Highbridge recently put $11.4 million into two more gold stocks.

7. Howard Marks, Oaktree Capital . The firm increased its investment in two gold companies by an additional $6 million.

8. John Paulson, Paulson & Co . If you don't know the name, Paulson made a fortune betting against the housing market and financial companies in 2008. Now, his single largest holding is gold. His fund also has large positions in seven gold mining companies. Mr Paulson believes in gold so much that he started his own gold fund earlier this year, investing a quarter-billion dollars of his own money.

9. Russia. The Central Bank of the Russian Federation has been steadily buying gold since the autumn ofl 2007. It added 600,000 ounces of gold to its official reserves this October, with year-to-date purchases now totaling 4.6 million ounces. Russian's gold reserves now stand at 24.9 million ounces - breaking into the top 10 globally.

10. China. The Chinese government doesn't publicly disclose what it is doing with its reserves, so how can I put them on the list? Because its announcement last year revealed it had been buying gold all along and had increased its gold reserves by 75%; because it's widely believed the country is currently buying all of its own gold production; because government officials have publicly encouraged their citizens to buy gold and silver; because the country has disposable income growth of 15%, but gold demand growth of 26%; because China's commerce minister recently stated, "Doubtlessly, if the yuan is set to become an international currency like the dollar or euro, China has to get a huge gold reserve to support it, and a reserve of 1,054 tonnes is far from being enough." I could go on, but it's clear that the Giant from the East is extremely bullish on the yellow metal.

11. Doug Casey, Casey Research. A longtime gold bug, Doug insists a mania still lies ahead since the common man has not jumped on board. As you may know, my boss is heavily invested in small mining exploration companies and said earlier this year that he expects to see a life-changing rally in them. It's perfectly normal for the juniors to cyclically run up 1,000%, he says, with the leaders increasing 10,000%.

12. Peter Schiff, Euro Pacific Capital . Peter believes in gold so much that earlier this year he started his own bullion dealership. We always caution our readers to watch out for the dealer that starts pushing numismatic coins, but what I like about Peter's Euro Pacific Precious Metals is that it sells only bullion, and only at reasonable prices. In addition to miners and ETFs, I believe investors should allocate at least one-tenth of their net worth into physical gold (and silver), and Peter has created a reliable way for average investors to do so. Also, starting a bullion dealership when gold is already selling for four figures means Peter thinks the gold bull market has a long way to go. None of the individuals on this list think the gold price is too high. They're buying for the future, to both protect and grow assets. They don't believe economies are as stable as reported, and they recognize the implications of a world floating on fiat currencies. They also believe governments' attempts to "fix" the problems will not only fail, but make fiscal conditions worse. As for me, I think quantitative easing will "work" - I think the Federal Reserve will meet its goal of inflation, but that it will spiral out of control for the reasons I outlined above. The Fed is neither omniscient nor omnipotent, as it tries to claim, and this situation will quickly snowball. Printing money, as the Fed is relentlessly doing, is not just supportive for gold, it makes owning the metal a requirement for the foreseeable future. This reckless pursuit of dollar abuse will have disastrous consequences. It will destroy the US dollar, weaken the US economy, and cripple the US government's influence in the world. Gold is your number one protection against those inevitabilities. I hope that this Christmas, you'll become a gold bug, too. This article was written by Jeff Clark of Casey Research exclusively for Peter Schiff's Gold Report. To be the first to read the latest precious metals market analysis from Peter Schiff, the Aden Sisters, and Casey Research, click here for a free subscription to Peter Schiff's Gold Report.

Jim Rickards interviewed by Eric King

This is a must listen...

King World News Interview with Jim Rickards, part 1



http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/12/4_Jim_Rickards.html

King World News Interview with Jim Rickards, part 2



http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/12/7_Jim_Rickards__Part_II.html