Sunday, August 31, 2008

Britain Faces Worst Slump in 60 Years, Darling Tells Guardian

By Caroline Binham

Aug. 30 (Bloomberg) -- The U.K. is facing ``arguably the worst'' economic crisis for 60 years, according to Chancellor of the Exchequer Alistair Darling.

In comments that contrast with those of Prime Minister Gordon Brown, Darling told the Guardian newspaper in an interview the downturn would be ``profound and long-lasting,'' and said he had no idea how serious the credit crunch would become. Brown has said he will unveil measures next month to prevent the U.K. economy from tipping into recession and bolster support for his ruling Labour Party. The Treasury confirmed the chancellor's comments

Official data this month showed the British economy recorded zero growth in the second quarter, while Bank of England policymaker David Blanchflower this week forecast two million people could be unemployed by the end of the year. U.K. consumer confidence stayed near a record low in August as the fastest inflation in a decade and falling house prices discouraged shopping, London-based research group GfK NOP said yesterday.

Brown has said Britain is better placed to weather global economic storms now than in the late 1970s, when it was bailed out by the International Monetary Fund, and in the early 1990s, when the pound was forced out of the Exchange Rate Mechanism that tied its value to other European currencies.

The government now has its ``work cut out'' to persuade voters that it deserves another term in power, Darling told the newspaper. He said ministers had ``patently'' failed to explain problems to the public.

`Huge Problem'

``This coming 12 months will be the most difficult 12 months the Labour Party has had in a generation,'' Darling told the Guardian. ``We've got to rediscover that zeal which won three elections, and that is a huge problem for us.''

The opposition Conservative Party's lead over Labour widened to 22 points in a YouGov Plc poll finished on Aug. 21, from 8 points at the beginning of the year.

The Bank of England kept the benchmark interest rate unchanged at 5 percent this month on concerns about inflation after the economy stagnated in the second quarter. Retail sales slumped to the lowest since 1983 this month, and house prices fell by the most in three decades, reports showed Aug. 28.

An index of confidence, based on a survey of 2,001 people, rose 3 points from July's minus 39, which was the lowest since the data began in 1974, GfK said. While sentiment was lifted by the Olympic Games in Beijing this month, the U.K. index has declined from minus 4 a year ago, the report said.

Blanchflower, who has voted to reduce interest rates at every meeting of the Monetary Policy Committee since October, has called for ``a substantial fall'' in borrowing costs, ``probably quite quickly.''

``I certainly think we are in negative growth now and I expect several further quarters,'' Blanchflower said in an interview with Reuters on Aug. 28.

Darling's comments on the economy ``are entirely consistent with his previous statements about the challenging times the U.K. is currently facing,'' the Treasury said in an e-mailed statement today. ``These are the same difficult economic circumstances that every other country in the world is having to deal with.''

To contact the reporters on this story: Caroline Binham in London at

Broken Systems & Dysfunctional Mechanisms

Broken Systems & Dysfunctional Mechanisms

Jim Willie, CB

The highest functions of the financial system have finally broken to the point where smart and connected people are openly making comments. Shortages are acute, to the point where low prices for gold & silver, for instance, render supply as inadequate to meet huge growing demand that wants to exploit the artificially low prices. Even the USTreasury Bonds are enjoying artificially high prices, undoubtedly an extension of the colossal usage of US Federal Reserve lending swap facilities. They print new USTBonds and exchange new third world (US) government debt securities for acidic US mortgage bonds, some hastily cobbled into securities by ailing lending institutions from cratered mortgage loans portfolios. It seems the US Federal Reserve and the Euro Central Bank might accept bonds from English, German, and possibly Swiss sources soon. That seems fair, since they contributed to making vacant US mortgage bonds look attractive.

The market systems are broken, and dysfunctional mechanisms are limping along, as corrupt paper instruments have flooded the financial system to the point of wrecking the commodity markets entirely. If such words seem prone to hyperbole or silly exaggeration, consider that some specific markets are depleted of supply and cannot honor current prices. Those prices have been recently established by force, by the future contracts, all under the watchful eyes of regulators who are totally asleep, corrupt, in the pocket of Wall Street, and whose desks are occupied by means of revolving doors and chairs with Wall Street firms. Just try to imagine the Mafia crime syndicates regulated by agencies whose officials are retired Mafia dons. Let's examine some mechanisms and a couple weak links to the phony price structure that provides intricate linkage among the USDollar, gold, crude oil, and USTreasury Bonds.RESTORED ORDER – RELEVANT FACTORS

Many forces within the mechanisms themselves can easily work to push up the gold & silver prices. Other factors are highly likely to play a role to reverse the recent price movements that defy the broad shortages. The USDollar is certainly a specious specie, a form of legal tender whose value defies reality due to its chronic dependence upon a printing press. Some factors loom large. Here are a few.

The US banks are fast approaching the early warning season in early to middle September. They are required (Wall Street firms excluded) to come forward and provide guidance on their earnings, their balance sheet damage (called impairment, since sounds better), and their profits (nonexistent, as in extinct). Wall Street firms have almost no stock or bond issuance, no private equity packaging, so business is largely dominated by management of their demise, along with management of their propaganda messages that seem shrill lately. The US banks will in my estimation announce bigger Q3 losses than Q2. Their BS-stories continue since they are actively seeking cash to shore up balance sheets. Their mortgage related losses will be ongoing, but now those losses will be joined by prime mortgage losses, commercial loan losses, car loan losses, credit card losses, and more. The USGovt can claim the economy is in good shape, that exports are booming, but a grand disconnect has occurred. Something like 460 thousand jobs have been lost this year, and most job gains are on paper, from the Birth Death Model nonsense. More paper deception, this of the labor market. Consumers might spend less if they were keenly aware of US-based unemployment running over 14%. The steep decline in USGovt tax receipts testifies to a recession. Most statistics testify to recession, like the Leading Economic Indicators. Reverse gear for the USEconomy is bad news for the USDollar. And all the horrendous disasters coming from Fannie Mae and Freddie Mac acid pits cannot be good.

The crude oil price has the capability to knock the USDollar off its feet. It is vulnerable to hurricane storms. Will Hurricane Gustav do harm? Will another storm directly behind it hit with a one-two punch like Katrina and Rita in 2005? Much oil production has already been shut down in the Gulf of Mexico, where they have too much experience in weathering such storms. The biggest threat to the crude oil price is now the situation in Georgia and Iran. It has quickly exited the front page, as quickly as it entered. My personal view is that the USGovt is attempting to push Europe into a military confrontation with Russia. As a few key European friends say, EUROPE IS THE GRAND PRIZE. They refer to waning US sphere of influence, rising Chinese influence, and numerous other strong players in the mix. Not much of anything reported on the Georgia versus Russia conflict has been true. Under USMilitary guidance, most indications lead one to conclude that Georgia attacked Ossetia and Russia, only to be strongly repelled. The Russians held back and did not destroy the crucial BTC oil pipeline from the Caspian Sea through Georgia to the Mediterranean Sea. My view is that Russia wanted to highlight the BTC exposure, but not damage it, a deed certain to label Russia as aggressor. Experts call the Georgia fumble a gross error of US judgment. The US press parrots the fabrication handed them by official sources. Those evil Russians!!? The next foray is over Ukraine, who along with Georgia were denied entrance into NATO, that organization that might be a dead treaty already. The European nations have organized and agreed in preliminary fashion to a European Atlantic Treaty Organization, since almost all recent NATO accords have been violated by the current USGovt administration, without proper reporting by the sleepy obedient lapdog press.

The geopolitical risk is palpable and obvious, a risk capable of lifting the crude oil price and pushing the USDollar back down again. Technical signals favor a rise in the crude oil price, as the 50-week moving average offers support. An 'Inside Week' favors a reversal in oil upwards, just like an 'Inside Week' favors the silver price. See the September Hat Trick Letter for details. One primary place to retreat in the face of financial shock and disruption is crude oil. It is tangible, not so subject to false valuation, and best yet, it is suffering from natural supply depletion. Given the broken US banks, an economy in a recession, a consumer leaning lastly on credit cards with negative home equity and negative car equity and high credit card rates, the USDollar seems the last place to take refuge. Given the numerous insolvencies behind the US$ curtain, the USDollar seems the last place to take refuge. As Nouriel Roubini says, "The US is epicenter of market turmoil and global economic slowdown, the country most exposed to credit crunch." The path for the USDollar long-term counter-trend rally was clearly created by the sharp correction in the crude oil price. The resumption of the USDollar decline and the revival of a damaged gold & silver trade could easily lie in a crude oil bounce up. The strong correction in crude oil clearly pushed down the gold price, or at least rendered gold weak enough for a Wall Street engineered pounce with a flood of paper. With the Georgia loss of the one million daily barrels from the BTC oil pipeline, with the sequence of hurricanes coming through the Caribbean alley into the platform region, with increasing unease tied to the US presidency turnover, with the global isolation exerted upon the US nation, the USTreasury Bond complex will be a much difficult sell to engineer. The world aint that dumb, certainly not as intellectually downtrodden as the American public. That they still give any credence to a shallow terrorism threat is testimony to extraordinary low brain wattage. Rome collapsed from within. The burning of Rome has a parallel in the dismissal of US manufacturing and the ruin of one third of US homeowners as their home equity has been killed.

The flight to safety lately has been mainly into physical gold by foreigners in Arab nations, China, and Russia. It is the story not told. They are increasingly shunning USTBonds on new trade surplus investments, and might soon unload large quantities of USTBonds held in reserves, turning instead in favor of gold. The early stages of this movement have contributed to the shortages of gold & silver. Expect those precious metal shortages to worsen. The trigger for a resumed decline in the USDollar might be a retest of the 140 level in crude oil. The USDollar is still tied at the hip with oil. Meanwhile, the physical realities, together with dealer hedging, will continue to apply pressure on gold & silver futures contracts. A friend called me this morning from overseas. He wondered if the Arabs, Chinese, and Russians are sufficiently angry at the whacking to the gold & silver prices for the large savings they hold in reserves in precious metals, enough to force the physical metals prices higher. My answer was simple: ONLY IF THEY ATTACK WITH GOLD & SILVER PAPER. Namely, if they attack with gold & silver futures contracts. They are increasingly likely, given their disgust with both Wall Street and USMilitary actions, to sell some of their vast USTreasury Bond holdings (paper) and purchase large amounts of gold & silver futures contracts (paper). Few seem to realize that a large new business has emerged in Russia, in gold bullion vault storage for Western investors. This stored wealth must be associated with shaky owners.DID THEY REALLY ???

Did US oil giants really spend 80% of profit on stock buybacks in the last four years? That was a claim by an interviewed CNBC guest, in reply to the need for bigger heftier oil firm tax benefits from proposed Congressional legislation, as they fight the good fight to supply the USEconomy with ample crude oil and natural gas. Or is their battle to keep the Arab sheiks in power, to keep them buying USTreasurys? Do US oil giants prefer a higher oil price? Is their investment in alternatives an empty battle cry? These are questions to ponder.

The Exxon Valdez oil spill 18 years ago resulted in a $5 billion successful lawsuit, supposed to be awarded to fishermen, fish hatcheries, marina operators, shore land owners, and more. The decision was made final several years ago. Fast forward to just a couple years ago. The US Supreme Court summarily rejected the court decision, and reduced the award by fiat to be paid by Exxon Mobil to a mere $505 million. Individuals affected along the Alaskan shoreline have suffered losses typically near $100k per person, with ongoing lost income on the order of $50k annually. They received a mere $15k to $20k each. Business losses are much greater. To claim that justice was served is a total indisputable joke. The entire US system seems undermined.BROKEN SYSTEMS – SEE BANKS

A good preface can be told regarding the short rule restriction applied to the bank stocks. They faced annihilation, so they appealed the change the rules. Refer back to a favorite quip of mine, that when billionaires are soon to be ruined, they make a phone call and change the rules. The short rule restriction triggered a short squeeze rally that killed off some hedge funds. As they reacted, they were forced to sell other positions. They tended to liquidate their crude oil contracts that were puffed up recently. One thing led to another. The USDollar benefited from not only the bank stock dead-cat rally and crude oil selloff, but the absurdly corrupted economic growth report about Q2 Gross Domestic Product. The claimed Q2 GDP rise of 1.9% was revised up to a 3.3% silly story. The key element to expose the ridiculous US growth story claim is that the GDP Deflator series was revised from 1.11% to 1.33% in a way that should cause raucous laughter. Price inflation in the second quarter, when the CPI was rising enough to cause alarm, when energy prices were hitting record highs, was so perilously close to zero??? Methinks not! The lie is 4% even within the corrupted USGovt statistics, if consistency is desired with the faulty Consumer Price Inflation index. The 3.3% GDP revised from strong exports should be minus 1%. The same report cited a PCE price index of 4.2% for Q2 (close to recent 5% CPI figures). So the USGovt provides clues of their own doctored numbers, and expects you will do nothing in pursuit.

What also significantly aided the USDollar in the last few weeks was the Euro Central Bank, which almost admitted they will not raise the key official interest rate. Now this week, Bundesbank President Max Weber announced they want to raise rates when their economy returns to recovery mode. Another bland comment, clearly designed to lift the euro, which fell almost 1000 basis points in the last few weeks, more than they wanted. The Shadow Govt Statistics folks cover the statistical sham, but so does Jesse's Café Américain (click here). If the growth story were real, then the long-term 10-year USTreasury Note yield would not be below 4.0%, as it has been for several weeks. Some key author analysts seem missing in action (like PVE) to explain this, as they claimed wrongly that rising price inflation would cause long-term USTreasury yields to rise. They must have missed how most rising prices are costs without benefit of rising wages. Maybe they missed the China & India story. Then again, from my desk the big euro currency selloff and gold decline were missed, but not the crude oil selloff.

The talk of averting a USEconomic recession is laughable when it is here now, and worsening. The only recovery is statistical, and its false front is obvious to anyone who reads beyond the headlines. Debate on recession is utterly laughable. To point out the utter absurdity of it all, consider this. The reason given for the crude oil price decline is demand destruction from the big slowdown in the USEconomy. Gasoline consumption and oil demand in the aggregate is way down from a year ago! Credit flow and oil demand are the two major indisputable keys to USEconomic recession! So a recession explains the lower crude oil price. But the reason given for the USDollar rebound is a strong USEconomy, the strongest among the major continents! This is not a reason, but rather propaganda. It is the latest chapter in the ongoing US mythology saga, the US$ marketing pitch. Such chapters are extremely important in the continuation of a broken US$ system.

So back to bank stocks, where the focus of attention should be on stock option brokers. Here is where a broken mechanism lies. They might receive strong buyers in option put contracts for big bank stocks, even the BKX bank stock index. These profit from bank stock declines. The stock option broker would obviously sell the option put, thus putting the broker firm into an implied long position, totally undesired. The typical response from such brokers is to short the bank stocks and return to net neutral on their position. The short rule restriction disabled this mechanism. Since this corrupt rule has been removed two weeks ago (enabled huge insider illicit profits), the BKX stock index has fallen. It looks like an identical chart pattern as we head into the end of the Q3. Look for a bearish triangle to form or some pennant pause pattern to form, with a base of 55 set in July. Either way, the 20-week moving average seems impenetrable as a strong ceiling.

My claim is simple: Q3 bank losses will exceed those of Q2, just like Q2 losses exceeded those of Q1. Therein lie the lies told by the big bankers, led by the crime syndicate operating as Wall Street firms. For those who believe such a claim is outrageous, consider first their $1 trillion mortgage bond fraud, then their control of the financial press & media as bulwark advertisers, then their benefit from USFed tipoffs on changed monetary policy, then their flagrant marketing to investors opposite to their own corporate assets strategies, then their money laundering operations from clandestine Afghan contraband sales. The only pipeline coming out of Afghan land (recall an oil pipeline as partial justification for its annexation in 2003?) involves the flow a different black gooey substance, one refined into narcotics. The banks, their balance sheets, their losses, their dilution, and their stocks are covered in the upcoming September Hat Trick Letter. The point here is that market mechanisms were disrupted initially in bank stocks. The

Let us not forget the don of Manhattan Made Men Robert Rubin. Looking a bit nervous and frazzled, he publicly announced the need for banks no longer to mark their assets to market. Nice try, what gall, Bob! He urges the creation of a new government sponsored Garbage Can, or as he described it, a clearinghouse for credit derivatives. Surely a maneuver from the sublime to the ridiculous, and now to build a giant pink elephant to sit in the Wall Street board rooms, but without the voting privilege. Apparently, the Garbage Can managed by JPMorgan is not big enough, or broad enough, or deep enough. They want one with official USGovt sponsorship and moniker. That might be because the JPMorgan monstrosity is attracting too much attention. One way to relieve pressure to address the corruption caused by JPMorgan on currencies, Treasuries, crude oil, gold & silver with outrageous uneconomic paper futures contract positions is to put much of that corrupt duty under the aegis of the largest criminal enterprise foundation on the planet, the USGovt.BROKEN SYSTEMS – SEE PRECIOUS METALS

The USMint has announced shortages of gold and silver coins. Major precious metals dealers have announced shortages of gold and silver in various forms, like ingots of bullion. UBS has announced shortages of gold across all of Europe, strong demand from India, Turkey, and the Middle East, and the "substantial liquidation has occurred in the COMEX, TOCOM, and OTC markets, although the ETF holders remain broadly resolute." The COMEX refers to the Commodity Exchange in Chicago. The TOCOM refers to the Tokyo Commodity Exchange. Consider that the Exchange Traded Funds like the corrupt GLD gold fund managed by JPMorgan, and the corrupt SLV silver fund managed by Barclays might not have sold off gold & silver stored metal bullion respectively during the recent price decline, but rather THEY REDUCED THEIR NAKED SHORT POSITIONS. The South Africans just ran out of gold Kruggerands, due to a large Swiss order. Bear in mind that Arabs are extremely resentful of European bullion bankers, who 'LOST' their gold. Only paper certificates on Arab gold bullion accounts remain. Thus motivation for the rise of the Dubai and Abu Dhabi gold centers in the Middle East, where corrupt Westerners do not hold control. Curiously, popular (but very real markets) EBay and Craigslist show that silver is available, but closer to $17 per ounce than $13. Two markets exist, a corrupt paper one and more realistic physical one. Public outcry has begun. If you want physical deliveries, you must wait or pay a proper market price. The number of fools unloading their physical gold & silver supplies is dwindling, sure to cause a climax of shortage. They say physical always drives the paper futures contract price system. We are witnessing a steady depletion of inventory, delivery delay, and coins being unavailable. The price mechanism is not responding much at all, yet.

Well, don't be too sure about physical markets dominating paper markets until a full examination is done of JPMorgan, the monster and center of the Wall Street syndicate. They are untouchable. Their books are not subject to scrutiny. They obtain a pass on disclosure for national security reasons, as they manage their giant Garbage Can. Is that because JPM plays illegal games with the USTreasury complex in managing a phony USDollar exchange rate, which plays on the gold price? Is that because JPM permits credit derivatives owned by an array of Wall Street firms to dump their acid garbage into the Garbage Can, so that Wall Street firms can report rosy earnings and only tainted (not destroyed) balance sheets? Is that because JPM had to hold vast Enron records and suspicious USTreasury Bonds (valued over $1 trillion) housed in the third World Trade Building that fell without any airline impact? Is that because JPM manages the Bank of Baghdad, where rumor has it the illicit contraband Afghan funds are channeled in vast money laundering? Is that because Wall Street firms enjoy broad benefits from Afghan black bag funds, enough to keep them afloat? For those who doubt JPMorgan would be involved in double booking, let alone burial of dead assets, and surely not money laundering, consider that JPMorgan owns the very same mix of ill-fated bond and other securities as the other Wall Street firms, but to date has yet to suffer much in the way of losses or stock decline.

Back to precious metal dealers. Reports abound of greater demand for physical gold & silver, which directly cause huge risks to dealers. Arab and Asian sources (including both China and Russia) are responsible for much but not all of demand. Reports come that COMEX physical demand is strong, enough to put their inventory of silver below that of the Barclays silver exchange traded fund. Word comes to me from an Irish source (Mark O'Byrne of Gold Investments, click here) that London and Irish gold supply is rock bottom, inadequate to meet demand. Dealers across the spectrum are telling customers that supply is available but delivery times are not guaranteed. Some like GoldMoney (click here) have supply, but that supply is not as strong as ten days ago. The common theme is that inventory of gold & silver is very low, if not having vanished.

Examine the very great risks involved to dealers. They enter a contract, set a price, and promise delivery of gold or silver. They usually require some time to fill the order and execute on the contract. But nowadays, the strain and risk is greater. Imagine a $1 million silver order from a wealthy shrewd investor in upstate New York or San Francisco or Dubai or Tokyo or Singapore or Shanghai or Moscow or Zurich. Say the price is set for $13.50 per ounce, plus a vig for the dealer. Remember, an artificially low price creates ultra-strong demand against vanishing supply in shortages. What moron would dump silver at $13 but someone who must, or someone who believes Wall Street & USGovt propaganda, or someone who might be coerced by bankers? Given the Fascist Business Model at work, the Wall Street and USGovt messages are fully coordinated, down to reports of the USGovt Strategic Petroleum Reserve being available to tap in the event of a hurricane disruption. A powerful storm would lift the crude oil price and push down the USDollar again. The crude oil price reversed on Thursday in response to the official news report. The USGovt did not sell anything from the SPR in recent weeks, and will not again in future weeks, but propaganda moves sheep.

So the silver dealer saddled with the risk of a big $1 million silver order must protect the business from risk. If the dealer struggles and scrambles to find the large supply necessary to satisfy the order, the dealer might have to pay up. An order that usually used to take a few days to fill might now take over two weeks to fill. The dealer must contend with big risks from the rigged market, whose price is artificial. The longer the rigged low silver price is in effect, the greater will be the disappearance of silver supply. That is how markets work. The presence of the powerful corrupt paper market atop the physical market is a big story of our times. Its resolution is not at all certain. The dealer can react to protect the business from acute risk by buying long silver futures contracts at the nearby month! So the abundance of gold & silver physical contract orders could easily result in a big surge in dealer hedging against their risk under unmet contracts. If this particular dealer is forced to fill the order at $14.50 per ounce instead, the loss is huge, enough to threaten the business. To purchase 74k ounces at $1 too high means simply around a $70k loss. Put a few such similar orders together, and the dealers shuts doors and is dead. Knock out a string of dealers and the problem becomes more severe to find supply to purchase. THE RESULT IS THAT DEALER HEDGING WILL EVENTUALLY ATTACK THE CORRUPT PAPER GOLD & SILVER MONOLITHSYSTEM RISK – MANAGED SHORTAGES

We are not close to the crossroads, but rather squarely at the crossroad of brutal force used to control market mechanisms. The uprising of complaints that paper gold & silver has reduced significantly the price of physical gold & silver, while each has been in shortage and reduced mine supply, has raised criticism. So what? To complain nowadays is to be unpatriotic. To oppose a corrupt government and regulatory system, managed largely by a corrupt Wall Street entourage, is to be considered unpatriotic. The risk is rising, at our doorstep, that managed shortages against a backdrop of rigged price (low for physical, high for USGovt bonds) will be the rule not the exception. If the gold & silver prices are kept artificially low, then shortages will become profound. The only permitted buyers will be the privileged, the insiders, and the corrupt in power. If the crude oil and gasoline prices are kept artificially low, then rationing to businesses and consumers will become the rule of the day. Over the last year or more, my work has mentioned repeatedly that martial law will be the outcome, with a likely military dictatorship. The missing ingredient nowadays is public chaos, violence in the streets, and a call for order. All in time.

So far, the landscape is dominated by huge personal financial loss, a vast undercut to income and job security, rising costs of almost everything, challenges to feed families, strain on retirees never seen before, difficulty in securing loans, most viable products being imported, and incessant talk about threats from terrorists. The external threat is minimal. The internal threat is gigantic, real, and ongoing, enough to threaten the national structure. That is why martial law is very likely. The systems are imploding, starting with the USGovt federal finances, then to the yawning trade gap and need for foreign capital, now to the housing deficit from one third of the population suffering negative home equity, and lastly the insolvent bank system whose core capital has melted completely (not partially). Such broad and deep bankruptcy and insolvency is wholly inconsistent with freedom, liberty, and unencumbered paths to prosperity, let alone happiness. Dead banks don't lend money, period! The fork in the road has resulted in an important turn being taken in late July and early August. Price controls have taken the form of powerful paper futures contract impositions. The fork in the road has been taken toward price controls and managed shortages.

If price mechanisms and market mechanisms return with force, then big shocks are coming. All the fraud, all the aggressive military movement in the last few years, these actions have resulted in an isolation of the Untied States in ways that have eluded detection by the great majority of Americans. The many continents are engaged in meetings, where new systems are being designed for trade and banking, as they prepare for a new age without American dominance, and perhaps without American participation. The more USGovt leaders talk about terrorism and use aggression abroad, the more the nation becomes increasingly isolated. One must wonder if the current US president will take up residence in Paraguay at the end of term, where he has purchased tens of thousands of acres of property only a few years ago. My personal preparations are in defense of what are considered to be a gradual relentless national degradation into martial law. The remaining question is whether the price structure will be consistent with shortages at work. With ultra-high prices might come violence. With ultra-low supply might come violence. With depleted job prospects might come violence. With continued home foreclosures might come violence. With helplessness to Congressional compromise, imposed burdens, and corruption might come violence. LIKE IN FRANCE AT THE BASTILLE, HIGH FOOD PRICES MIGHT COME VIOLENCE. With public expression of outrage at USGovt & Wall Street corruption, profiteering, and utter distortions of truth might come violence.

The proliferation of Exchange Traded Funds enables price controls, and leaves investors exposed to Wall Street corruption. If you invested in the Goldman Sachs Commodity Index in the summer of 2006, you lost big, from GoldSax manipulation of the unleaded gasoline price, and the coordinated sale of crude oil by the USMilitary, all before the November 2006 national election. Reports are strong that Barclays has not been buying silver with newly invested money. They are selling silver naked short illegally, in all likelihood. Reports are strong that GoldSux is selling short gold & silver mining stocks in a large scale effort by suppressing the GDX exchange traded fund under their management. There is the USO (oil ETFund) and numerous others, including a water ETFund. They are marketed by a stress of their convenience as an investor. Your convenience has a flipside open door to Wall Street corruption.

The current situation is reminiscent of the 1992-1993 era when George Soros opposed the Bank of England. The central bank attempted to prevent the British pound sterling from a precipitous decline in devaluation. The sterling currency did decline, much to the profit of Soros, who essentially made his name a public icon back then. One must wonder if history is repeating itself. The USGovt, Wall Street, and the USFed are locked in a titanic struggle to maintain totally false price structures, almost all interconnected. The USDollar, USTBond, gold, and crude oil are all connected in price structure. This will be interesting. Back 15 years ago, the Bank of England did not have the strong advantage of a JPMorgan monolith manipulation machine, nor a powerful US Federal Reserve, nor a $1 trillion slush fund behind the Working Group for Financial Markets (aka Plunge Protection Team), nor a potent USMilitary to enforce an Arab-led petrodollar (on its last legs), nor a printing press spinning off counterfeit bills with green ink and US$ markings. Yes, this will be interesting.

Copyright © 2008 Jim Willie, CB

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a Ph.D. in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials.

Jim Willie CB is the editor of the “HAT TRICK LETTER� Use the below link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise like a cantilever during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by heretical central bankers and charlatan economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. A tad of relevant geopolitics is covered as well. Articles in this series are promotional, an unabashed gesture to induce readers to subscribe.

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World's Largest Gold Refiner Runs Out of Krugerrands (Update1)

by Claudia Carpenter

Aug. 28 (Bloomberg) -- Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland.

The order was for 5,000 ounces and it will take until Sept. 3 for inventories to be replenished, said Johan Botha, a spokesman for Rand Refinery in Germiston, east of Johannesburg. He declined to identify the buyer.

Coins and bars of precious metals are attracting investors as a haven against a sliding dollar and conflict between Russia and its neighbor Georgia. The U.S. Mint suspended sales of one- ounce ``American Eagle'' gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe.

``A lot of people are worried about the dollar, they're worried about inflation and now we have geopolitical risk with what's happening in Russia,'' said Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. O'Byrne said his company's sales are up fourfold this year, heading for a record since its founding in 2003.

Gold rose to a record in March and is 25 percent higher than this time last year, while the dollar dropped 7.4 percent against the euro. Silver is up 15 percent in the period.

Salt Lake

French Foreign Minister Bernard Kouchner said European Union leaders meeting in Brussels Sept. 1 will discuss sanctions against Russia after it recognized the independence of two regions of Georgia. U.K. Foreign Secretary David Miliband said yesterday Russia was trying to ``redraw the map'' of Europe.

Johnson Matthey's Salt Lake City refinery doesn't have the capacity to meet investor demand for 100-ounce silver bars, said spokesman Ian Godwin in London. He wouldn't comment on whether the company may expand capacity or end production.

The refinery usually gets orders for 1,000 ounce bars from banks and silver grains from jewelers, Godwin said.

Rand Refinery has manufactured, marketed and delivered more than 46 million ounces of Krugerrands since the gold coin was introduced in 1967, according to the company's Web site. Krugerrands are minted at the South African Mint from gold coin blanks supplied by Rand Refinery.

Gold for immediate delivery rose $2.29 to $829.19 an ounce by 5:24 p.m. in London. Silver gained 10.5 cents to $13.60.

To contact the reporter on this story: Claudia Carpenter in London at

Friday, August 29, 2008

As Arctic Sea Ice Melts, Experts Expect New Low

August 28, 2008

WASHINGTON (AP) — The National Snow and Ice Data Center has reported that sea ice in the Arctic now covers about 2.03 million square miles. The lowest point since satellite measurements began in 1979 was 1.65 million square miles, last September.

With about three weeks left in the Arctic summer, this year could wind up breaking that record, scientists said.

Arctic ice always melts in summer and refreezes in winter. But over the years, more of the ice is lost to the sea with less of it recovered in winter. While ice reflects the sun’s heat, the open ocean absorbs more heat, and the melting accelerates warming in other parts of the world.

Sea ice also serves as primary habitat for threatened polar bears.

“We could very well be in that quick slide downward in terms of passing a tipping point,” said Mark Serreze, a senior scientist at the data center, in Boulder, Colo. “It’s tipping now. We’re seeing it happen now.”

Five climate scientists, four of them specialists on the Arctic, told The Associated Press that it was fair to call what was happening in the Arctic a “tipping point.”

Last year was an unusual year when wind currents and other weather conditions coincided with global warming to worsen sea ice melt, Dr. Serreze said. Scientists wondered if last year was an unusual event or the start of a new and disturbing trend.

This year’s results suggest the latter because the ice had recovered a bit more than usual thanks to a somewhat cooler winter, Dr. Serreze said. Then this month, when the melting rate usually slows, it sped up instead, he said.

The most recent ice retreat primarily reflects melt in the Chukchi Sea, off Alaska’s northwest coast, and the East Siberian Sea, off the coast of eastern Russia, according to the center.

The Chukchi Sea is home to one of two populations of Alaska polar bears.

Federal observers flying for a whale survey on Aug. 16 spotted nine polar bears swimming in open ocean in the Chukchi. The bears were 15 to 65 miles off the Alaska shore. Some were swimming north, apparently trying to reach the polar ice edge, which on that day was 400 miles away.

Polar bears are powerful swimmers and have been recorded on swims of 100 miles, but the ordeal can leave them exhausted and susceptible to drowning.

And the melt in sea ice has kicked in another effect, long predicted, called “Arctic amplification,” Dr. Serreze said.

That is when the warming up north is increased in a feedback mechanism and the effects spill southward starting in autumn, Dr. Serreze said. Over the last few years, the bigger melt has meant more warm water that releases more heat into the air during fall cooling, making the atmosphere warmer than normal.

On top of that, researchers are investigating “alarming” reports in the last few days of the release of methane from long-frozen Arctic waters, possibly from the warming of the sea, said Bill Hare, a Greenpeace climate scientist, who was attending a climate conference in Ghana. Giant burps of methane, which is a potent greenhouse gas, is a long-feared effect of warming in the Arctic that would accelerate warming even more, according to scientists.

Over all, the picture of what is happening in the Arctic is getting worse, said Bob Corell, who headed a multinational scientific assessment of Arctic conditions a few years ago. “We’re moving,” he said, “beyond a point of no return.”

Big jump in gold sale spurs manipulation talk

Some analysts say only manipulation is government's attempt to take down oil
By Moming Zhou, MarketWatch
Last update: 7:54 p.m. EDT Aug. 29, 2008
NEW YORK (MarketWatch) -- Recent heat from Congress and regulators, along with public speculation, over whether commodity prices are being manipulated has also reached gold pits, where the debate was stirred by a surge in bets last month that gold prices would fall.
"Congress is already investigating allegations of manipulation in the oil market, and it seems likely that it is only a matter of time before a similar investigation will be required in the precious metal markets," said Mark O'Byrne, executive director at Gold and Silver Investment.
Three unidentified U.S. banks held 86,398 short positions, or bets that gold prices will fall, in the COMEX gold market as of Aug. 5 -- 10 times more short positions than a month earlier, a government report showed.
The report by the Commodity Futures Trading Commission, which regulates U.S. futures markets, also showed short positions held by three U.S. banks in silver futures had increased more than four times during the same period.
"The data in the bank participation report is so clear and compelling that it is hard to conclude anything but manipulation," said Theodore Butler, a precious metals analyst, in a note.
The sudden jump in short positions coincided with a slide in silver and gold prices, which fell $12.30 an ounce in July and another $89.20 in August, their biggest monthly loss since at least 1984, according to Factset.

Manipulation vs. speculation

Taking a short position, even large amounts, however, doesn't equate to manipulation, which would imply collusion between several big players to influence prices one way or the other.
But the fact that three big banks were singled out in the CFTC report is nothing new. The regulator's reports always show the largest three players in futures markets in any given month.
"One can take any data and make it suit their argument," said Jon Nadler, senior analyst at Kitco Bullion Dealers.

"The theory that the market is somehow sinisterly manipulated, especially as it comes at a time when U.S. regulators are keeping a keen eye on the goings-on in the commodities and financial markets for just such type of evidence, is simply ludicrous and totally out of touch with market reality."

The talk of manipulation in metals markets follows similar allegations that crude oil and agricultural commodities prices were bid up by speculators, and were not the result of fundamental demand and supply situations.

As oil surged this year and almost reached $150 a barrel in early July, while food prices also kept on rising, cries grew louder in Congress that something had to be done.

The CFTC took steps to stamp out "excessive speculation" in the oil markets, while Congress also held numerous hearings and investigations into other futures market.

In July, the CFTC charged Dutch company Optiver Holding BV with manipulation of crude oil and of other energy futures. In at least five out of 19 attempts, the defendants successfully manipulated certain energy futures contracts, causing artificial prices, the CFTC alleged. See related story.

Of oil and elections

Some analysts say the surge in oil and gasoline prices earlier this year caused many worries in Washington, where all eyes were already turned toward the presidential elections in November.
"My gut feeling is that the Republicans wouldn't mind taking oil back down under $100 before the elections," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.

Mendelsohn said he believes the government has tried to make the U.S. economy, oil, and markets appear in better shape and also to temporarily curb the immediate effects of the slumping housing market, of bad home loans and of the credit crisis.

In July, the Securities and Exchange Commission, the stock market regulator, limited so-called "naked" short selling of shares in Fannie Mae FRE) and 17 other financial firms. See related story.

The measure temporarily halted some financial stocks from falling further. But when the rule expired earlier this month, most stocks covered by the moratorium started dropping again. See related story.

Jeffrey Saut, market strategist at Raymond James, also believes that the commodities bull run may have run out of steam, even if only temporarily, because of the upcoming elections.
"There is a lot of nervousness, especially in energy pits, about the efforts underway to propose wrong-footed legislation from politicians who want to bring down the price of gasoline," said Jeffrey Saut, market strategist at Raymond James.

"I don't believe we have a speculative bubble, but these moves are going to drive a lot of hot money out of commodities pits between now and the elections," he told MarketWatch back in July.


Many analysts also point to fundamental factors that helped bring down prices in commodities over the past month and a half.

"There is indeed a rational explanation for the decline in the price of gold and silver: the dollar has staged one huge rally, and fundamentals suggested the dollar should rally," wrote Mike Shedlock, an investment advisor at Sitka Pacific Capital Management, in an online blog post on Wednesday.

Dollar-denominated commodities, such as gold and crude oil, tend to fall when the dollar rises, as the commodities become more expensive to purchase for holders of other currencies.
The dollar has rallied against the euro and the British pound as European economies showing increasing signs of slowing down.

A slump in the dollar in the first half of this year, as the credit crisis flared up and the U.S. economy slumped, had helped push gold and silver prices to historic highs.

Banks and markets

As for the banks involved in the recent short selling of gold, they are only market makers, taking orders from large money players, such as hedge funds, said Jeffery Christian, founder of commodities research firm CPM Group.

Banks "stand to buy or sell the commodities, taking the other side from other people or institutions entering a market," said Christian. Gold and silver prices slumped recently "because investors, particularly short-term, technically-oriented funds, were selling."

Short-term funds tend to use over-the-counter channels to trade gold and silver and their positions were therefore not recorded by the CFTC.

"What you have here is the footprints of hedge funds exiting the commodities markets en masse," said Kitco's Nadler.

Banks, playing as a market maker to buy contracts from funds, hedge their risks by doing opposite trading in the futures market: They sell, or short, gold and silver contracts in the futures markets.

That explains the recent jump in banks' short positions, said Christian.
"Banks are the passive agents usually in markets," Christian added. "They make the markets, and take what is coming at them." End of Story
Moming Zhou is a MarketWatch reporter, based in San Francisco.

US FDIC announces 10th bank failure of the year

Georgia's Integrity Bank is closed by state regulators. FDIC is named receiver and branches will reopen as Regions Bank.

By Ben Rooney, staff writer

NEW YORK ( -- State regulators shuttered a Georgia bank late Friday, marking the tenth bank failure this year.

Integrity Bank, based in Alpharetta, Georgia, was closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation was named receiver.

The bank had $1.1 billion in total assets and $974.0 million in total deposits as of June 30.

The Federal Deposit Insurance Corporation approved the assumption of Integrity Bank's deposits by Regions Bank, of Birmingham, Alabama. The failed bank's five offices will reopen Tuesday as branches of Regions Bank.

All depositors of Integrity Bank, including those with deposits in excess of the FDIC's $100,000 insurance limit, will automatically become depositors of Regions Bank for the full amount of their deposits, the FDIC said in a statement.

Depositors will continue to have uninterrupted access to their deposits and will remain insured by Regions Bank.

"There is no need for customers to change their banking relationship to retain their deposit insurance," according to the statement.

Regions Bank will pay a portion of the failed bank's deposits and will purchase approximately $34.4 million of its assets. The FDIC will retain the remaining assets for later disposition.

In the statement, the FDIC estimated that the cost to its Deposit Insurance Fund will be between $250 million and $350 million.

Customers with questions about about the failure of Integrity Bank can visit the FDIC's Web site at, or call the FDIC toll-free at 1-800-523-0640. To top of page

U.S., Europe, Japan Devised Plan to Prop Up Dollar, Nikkei Says

By Timothy R. Homan

Aug. 27 (Bloomberg) -- Finance officials from the U.S., Japan and Europe in mid-March drew up plans to strengthen the U.S. dollar following troubles at Bear Stearns Cos., Nikkei English News reported, citing unnamed sources.

The intervention designed by the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank called for the central banks to purchase dollars and sell euros and yen, with Japan providing the yen needed for the currency swap if the greenback's value dropped significantly, the news service said.

The three groups, which considered making an emergency statement through the Group of Seven industrial nations, did not stipulate a specific exchange rate for the potential intervention, nor did they detail the amount of money to be used, Nikkei said.

ECB spokeswoman Eszter Miltenyi and Treasury spokeswoman Brookly McLaughlin declined to comment on the report.

To contact the reporter on this story: Timothy R. Homan in Washington at

Bank of China flees Fannie-Freddie

By Saskia Scholtes in New York and James Politi in Washington

Published: August 28 2008 23:33 | Last updated: August 28 2008 23:33

28/08/08 "
FTimes" --- Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June.

The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a s ign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.over the mortgage financiers’ capital positions and the timing and structure of a potential government rescue has made some investors reassess their exposures. Asian investors in particular have become net sellers of agency debt, said analysts.

Federal Reserve custody data shows that for the year to July, foreign official and private investors bought an average of $20bn of agency debt a month, including debt issued by other government agencies such as Ginnie Mae and the Federal Home Loan Banks. Purchases of US Treasuries averaged $9.25bn.

From July 16 to August 20, foreign investors sold $14.7bn of agency debt, trimming their overall holdings to $972bn. They purchased $71.1bn of Treasuries in the same period.

The US Treasury was granted powers last month to extend its credit lines to Fannie and Freddie and invest in their debt and equity. The rescue plan came after a collapse in the companies’ shares heightened concerns about their ability to raise equity capital to cushion losses and whether they could maintain their access to the debt markets.

By making a historically implicit government guarantee for the mortgage financiers’ debt increasingly explicit, the Treasury sought to reassure foreign and domestic investors by providing a safety net. Fannie and Freddie have a combined $1,500bn of debt outstanding.

This weekend, the Group of Twenty developed and advanced developing countries will be holding a preparatory meeting in Brazil. Although the crisis at Fannie Mae and Freddie Mac is not on the agenda, there is speculation that Treasury officials could informally encourage big holders of agency debt and mortgage-backed securities not to scale back their investments.

After a sharp drop in the market value of their stock last week, Fannie and Freddie have made a strong recovery after successful short-term debt sales. Fannie was 13.5 per cent higher on Thursday and Freddie was up 12 per cent.

Bank of China’s disclosure on its holdings of Fannie and Freddie securities came as the bank reported a 15 per cent increase in second-quarter profit.

Saigon Charlie's Corporate Security Procedures

Dilbert-Loud Howard - Celebrity bloopers here

Thursday, August 28, 2008

McCain: The Most Reprehensible of the Keating Five

The story of "the Keating Five" has become a scandal rivaling Teapot Dome and Watergate

By Tom Fitzpatrick

First published: November 29, 1989 -
Phoenix New Times

You're John McCain, a fallen hero who wanted to become president so desperately that you sold yourself to Charlie Keating, the wealthy con man who bears such an incredible resemblance to The Joker.

He poured $112,000 into your political campaigns. He became your friend. He threw fund raisers in your honor. He even made a sweet shopping-center investment deal for your wife, Cindy. Your father-in-law, Jim Hensley, was cut in on the deal, too.

Nothing was too good for you. Why not? Keating saw you as a prime investment that would pay off in the future.

So he flew you and your family around the country in his private jets. Time after time, he put you up for serene, private vacations at his vast, palatial spa in the Bahamas. All of this was so grand. You were protected from what Thomas Hardy refers to as "the madding crowd." It was almost as though you were already staying at a presidential retreat.

Like the old song, that now seems "Long ago and far away."

Since Keating's collapse, you find yourself doing obscene things to save yourself from the Senate Ethics Committee's investigation. As a matter of course, you engage in backbiting behavior that will turn you into an outcast in the Senate if you do survive.

They say that if you put five lobsters into a pot and give them a chance to escape, none will be able to do so before you light the fire. Each time a lobster tries to climb over the top, his fellow lobsters will pull him back down. It is the way of lobsters and threatened United States senators.

And, of course, that's the way it is with the Keating Five. You are all battling to save your own hides. So you, McCain, leak to reporters about who did Keating's bidding in pressuring federal regulators to change the rules for Lincoln Savings and Loan.

When the reporters fail to print your tips quickly enough--as in the case of your tip on Michigan Senator Donald Riegle--you call them back and remind them how important it is to get that information in the newspapers.

The story of "the Keating Five" has become a scandal rivaling Teapot Dome and Watergate. The outcome will be decided, not in a courtroom, but probably on national television.

Those who survive will be the sociopaths who can tell a lie with the most sincere, straight face. You are especially adept at this.

Last Friday night, on The John McLaughlin Show, which features well-known Washington journalists, the subject of the Keating Five was discussed. Panelist Jack Germond suggested that three of the Keating Five were probably already through in politics.

So you spend your days desperately trying to make sure you will be one of the survivors. You keep volunteering to go on radio and television stations to protest your innocence. Last week you made ABC's Nightline.

Not long before that you somehow managed to get James Kilpatrick, the national columnist, to write a favorable paragraph about you. Last Sunday morning, you made it to national television again; this time on ABC's This Week With David Brinkley. You smiled at the panel with your usual studied insouciance. Sitting next to you was Senator John Glenn of Ohio.

Brinkley, Sam Donaldson, and George Will were the interrogators.
It was a sobering scene. There you sat with Glenn, both sweating before the cameras, waiting to answer questions: two badly tarnished American icons.

No one forgets that Glenn was the first American astronaut to orbit the Earth. You won't let anyone forget that you were a prisoner of war. But you have played that tune too long. By now your constant reminders about your war record make you seem like a modern version of Arthur Miller's tragic failure Willy Loman.

Clearly, both you and Glenn sold your fame for Charles Keating's money.

It was a Faustian bargain. It was also a bad joke on the rest of us and a disaster for many old people who lost their life's savings to Keating.

The money was never really Keating's to give. But he never would have got his hands on it if you and the rest of the Keating Five didn't halt the government takeover for two long years while Keating's people continued their looting.

And now, the tab for the Savings and Loan heist must be paid from taxpayer pockets.

On Sunday, Senators Dennis DeConcini, Alan Cranston, and Riegle refused offers to appear on the Brinkley show. What must we make of that?

You, the closest of them to Keating and the deepest in his debt, have chosen the path of the hard sell. You may even make it out of the pot, but to many, your protestations of innocence taste like gall.

You are determined to bluff your way. You will stick to your story that you were acting to help a constituent and intended to do nothing improper. The very fact you attended the meeting makes you guilty, just as every man who entered the Brinks vault went to prison.

You insist that an accounting firm Keating hired told you Lincoln was sound. Alan Greenspan, who Keating also hired, wrote a report saying it was sound. Why shouldn't you believe the people Keating hired? You were, after all, fellow employees.

Perhaps you might silence your own conscience about all this someday.

Just keep telling everyone that it was your wife's money invested in that shopping center with Keating and that you knew nothing about it.

Keep saying that cynical newspaper people don't understand that every move you make has always been for the enrichment of Arizona . . . the education of our Native Americans on the reservations . . . for the love of the elderly in Sun City and Green Valley.

Keep telling them that it wasn't that you were bought off but that Charlie Keating got special help only because he was one of the biggest employers in the state.

Just keep sitting there and staring into the camera and denying that Keating bought you for money and jet plane trips and vacations.

So what if he gave you $112,000? Just keep smiling at the cameras and saying you did nothing wrong.

Maybe the voters will understand you took those tiring trips to Charlie's place in the Bahamas in their behalf. Certainly, they can understand you wanted to take your family along. A senator deserves to travel on private jets, removed from the awful crush of public transportation.

You sought out a master criminal like Keating and became his friend. Now you've discarded him. It shouldn't be surprising that you are now in the process of selling out your senatorial accomplices.

You're John McCain, clearly the guiltiest, most culpable and reprehensible of the Keating Five. But you know the power of television and you realize this is the only way you can possibly save your political career.


McCain is well qualified to be in the executive branch. How do we know? Joe Biden said so.
Biden had urged Republican Senator John McCain to run with Kerry, saying the cross-party ticket would help heal the “vicious rift” in U.S. politics.[28] Biden had also been widely discussed as a possible Secretary of State in a Democratic administration.[29]
WASHINGTON - Sen. Joseph Biden, a senior Democrat, on Sunday urged Republican Sen. John McCain to run for vice president with the Democratic hopeful, Sen. John Kerry, in order to heal the “vicious rift” dividing America.

McCain and the Keating Five

What is the Keating Five?

28/08/08 --- "McCain Keating Five"

For anyone not aware of the Keating Five, here’s a very simple summary:

Charles Keating owned a savings and loan in California. He was illegally using the money of his bank’s customers to give loans to himself and friends that they didn’t have to repay, and to speculate on risky real estate investments, which was strictly forbidden by U.S. law (the latter was one cause of the Great Depression).

When the feds found out what was going on and launched an investigation into Keating and his company, Keating called five U.S. Senators whom he had wined, dined, and lavished with hundreds of thousands of dollars in campaign donations and personal gifts for years.

Keating asked the five Senators to tell the feds to bug off, and the five Senators, later known as the Keating Five, obliged, meeting with federal investigators twice and pressuring them to stop investigating Keating’s crimes. They bought Keating some time, but the feds didn’t give up and eventually Keating was nailed. The reason the feds were so persistent was because Keating wasn’t playing with mere chump change. Keating blew $3.4 billion through illegal personal loans and bad investments, and the FDIC eventually had to reimburse Keating’s customers who had been ripped off. (The FDIC is a part of the federal government funded by taxpayers dollars, so when Keating stole from his customers you and I were the ones who paid for it.)

(Background Info - Keating wasn’t the only Savings and Loan owner who was committing fraud, 20% of the S&L’s that failed during that three year period were found to have been caused by fraud and/or insider trading. The failure of the Lincoln Savings and Loan and other S&L’s pushed the country into a recession, costing the U.S. government $126 billion dollars in FDIC insurance payouts to investors. All of this came to a crescendo during the first year of the presidency of George H.W. Bush, who pushed through the S&L bailout plan to keep the economy afloat.)

When the involvement of the Keating Five was made public, a scandal erupted and the Senate Ethics Committee launched their own investigation into whether the Keating Five had violated Senate ethics rules. It was a giant mess (see the Keating Five Videos section). The other four Senators left office either immediately or within one term. John McCain was formally rebuked by the Senate Ethics Committee for exercising “poor judgment” for intervening with the federal regulators on behalf of Keating.

John McCain then went back to the drawing board and re-invented himself as “the Straight-Talk Express” and the media gobbled it up. “Tax-Evading-Criminal” doesn’t sound as catchy as “Straight-Shooting-War-Hero”.

Ever since the scandal, when McCain lies today, it’s never questioned, because he’s a “straight talker”. The man has more skeletons in his closet than any politician in history. The Keating Five is just one bone.

There are two fantastic articles about the Keating Five we highly recommend reading.

One is from 1989, written by the Phoenix New Times, called McCain: The Most Reprehensible of the Keating Five. That article does a good job of capturing the anger at the time at John McCain and the other corrupt Senators. It took an incredible spin job for McCain to have survived the scandal.

The other article is from, written in 2000 and titled, Is John McCain A Crook?

Copyright 2008. McCain Keating Five. All rights reserved

A Master-Slave Society

Democrats in Denver Should Skip One of Their Parties and Read the American Monetary Act

By Richard C. Cook

28/08/08 "ICH" -- - How are things going at the Democratic Party National Convention in Denver this week?

Are they talking about the fact that the Western world is run by an international financial elite headquartered in London, the financial capitals of mainland Europe (such as Frankfurt, Hamburg, Amsterdam, Paris, and Milan), and, of course, New York City?

Are they mentioning at their cocktail parties that the financial elite exert control over the world’s population through the cartels that make up the world’s producing economies and through the civilian and military bureaucracies who work for the governments that kow-tow to them?

Of course they know that the most important cartels are those which control energy resources. And that of these, the commodity of central importance is oil. But is any of this helping them draw conclusions regarding the doubling of oil prices during the last year or about the largest oil company profits in history?

Also, they should be drawing the right conclusions from the fact that every private and pubic enterprise operates on the basis of a money economy, though it would be more accurate to call it a credit economy. This means that whoever controls the issuance of money and credit controls the world. And the world’s monetary systems function on the basis of money and credit being introduced into circulation through loans from the banking system, loans for which interest is charged. So what should that tell them?

In fact, they should be pointing out to each other and their TV viewers that the charging of interest for the use of money is a chain around the neck of everyone on earth. Further, that these cumulative interest charges are built into the price of every product that is manufactured or consumed. And that growth of debt means price increases too.

They should be honest in making it clear that the world is a master-slave society, that the slaves are those who borrow and pay interest, that the masters are those who collect the interest, and that this unjust system has existed in one form or another for thousands of years.

The candidates and delegates are talking about the aspirations of the American people and how everyone should have an opportunity to achieve their dreams. But if the United States were a free nation, they would also be talking about a financial system that destroys people’s dreams.

Unfortunately, the highest rung the candidates and delegates have been able to reach on the ladder of modern-day slavery is the need for more jobs—but they fail to note that jobs are not only the means by which people live, but also the instruments for them to pay the heavy burden of interest the masters of finance require.

What they won’t say is that the world economy is based on usury, something religions used to consider a crime (and which Islam still does). Usury is the charging of interest for the use of money. As the religions backed off from their prohibitions of interest, usury became just excess interest. But that’s not what the word really means.

So what have over two centuries of usury done to the United States?

The best answer ever given to that question was contained in a paper entitled “Revisiting U.S. Public and Private Debt” published in January 2005 by Dr. Bob Blain, Emeritus Professor of Sociology at Southern Illinois University. The paper updated an earlier study by Dr. Blain published for the United Nations Educational, Scientific, and Cultural Organization (UNESCO) in the International Social Science Journal, November, 1987, Paris, pages 577-591.

In his paper, Dr. Blain examined the growth of total public and private debt in the U.S. Total debt includes “the debts of governments (federal, state, and local), corporations, farmers, home mortgages, and consumer, commercial, and financial debts.”

In his analysis, Dr. Blain began with data from the Bureau of Economic Analyses of the United States Department of Commerce which covered the years 1916-1976. After that year the Bureau stopped publishing the data.

The figures showed that from 1916-1976, total U.S. debt grew from $82 billion to $3,800 billion ($3.8 trillion). But most of that growth was during the last 21 years, from 1955-1976, when it began to grow exponentially. Dr. Blain wrote, “The consistency of the pattern suggests that some imperative is at work, something that requires debt to increase.”

Dr. Blain found the answer by researching American history. He wrote: “Then I read G.R. Taylor’s 1950 book, Hamilton and the National Debt, which described the debate over Alexander Hamilton’s plan to fund the new economy with borrowed money.” He continued:

“The most revealing account was a speech by the first congressman from Georgia, James Jackson, on February 9, 1790, in which he predicted that adoption of Hamilton’s funding plan would lead to the explosive growth of debt. Jackson said, ‘Though our present debt be but a few millions, in the course of a single century it may be multiplied to an extent we dare not think of.’” (Annals of Congress, Vol. I, February 1790, pp. 1141-2)

From the very beginning, the U.S. had a monetary system based on borrowing and debt. First came the thousands of state chartered banks that began operating late in the Revolutionary War period and continued in one form or another until today. Then there were the two early central banks: the First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836). Today’s national banking system began during the Civil War with the National Banking Acts of 1863-64. Then there is the system we are living under today, the Federal Reserve, chartered by Congress in 1913. Even during the times when the government has sold its debt directly to the public, as with war bonds, savings bonds, and Treasury notes and bills, that too has been money borrowed at interest.

Although there have been times in history when money entered into circulation other than through debt, such as with coinage and the Civil War greenbacks, those were exceptions and today are of little importance.

Dr. Blain estimated that from the time Alexander Hamilton placed the U.S. under a debt-based monetary system until today, the debt has compounded at 5.8 percent annually. The big problem with this system, he said, was “that no money was created to pay interest.” He continued:

“Loans created only the principal. Interest had to be paid out of principal. So payment of interest reduced the money supply and slowed economic activity. Recovery could come only when new loans were taken out at least equal to interest paid.”

Dr. Blain concluded, “As long as the money supply of a nation is created as debt costing interest, debt must grow by compound interest.” From a longer-range view, it’s a system that is constantly collapsing and that must constantly be bailed out.

Dr. Blain next sought to update his figures past the 1976 data from the Bureau of Economic Analyses. Turning to the Federal Reserve’s series on “Total Credit Market Debt Outstanding,” he found remarkably similar indicators.

He found that adding data from the Federal Reserve from 1945 to 2003 showed the “debt explosion” continuing. In 1945 total debt was $463.4 billion. In 2003 it was $44,967.7 billion ($45.0 trillion). When he projected the debt level for 2010, he arrived at a figure of $74.9 trillion. By this time the debt curve was climbing so steeply there would be almost a doubling of the amount of total debt in only nine years.

It might be argued that these figures do not take into account inflation. This is because lending at interest is the cause of inflation. The dollars still have to be repaid with interest. The problem occurs when economic growth, measured by GDP, does not keep up.

Looking at the growth of GDP from 1945 to 2003, the increase was from $223.1 billion to $10,987.9 billion, a factor of 49. But the debt ($463.4 billion vs. $44,967.7 billion) grew by a factor of 97, almost twice the rate of GDP growth. Thus the total debt burden on the economy has doubled from a ratio of 2:1 to more than 4:1 (though it was much less than that during the early days of the nation).

But with continued compound growth of debt and a slow- or no-growth state of the economy as we head into a recession, we are starting to see what Dr. Blain called an “acceleration to meltdown.” He wrote:

“We are buying more and more in the same amount of time. Witness the efforts of people to get rid of their excess through yard sales, storage units, and big trash pickup days, and the massive size of what are euphemistically called landfills. While two billion people in the world lack basics such as clean water, food, and shelter, Americans throw away their microwave ovens, televisions, computers, refrigerators, furniture, and cars. Meanwhile, acceleration is applauded as increasing productivity. It’s like arguing that cancer is good because it grows.”

These are the things the Democrats in Denver should be talking about, instead of going to so many parties. They should be making note that the U.S., to quote economists close to the Federal Reserve, is “functionally bankrupt.”

In fact, the debt this nation owes to the banks, to foreign creditors, and to each other can never be paid off. Further, one big reason for all of our fruitless military endeavors overseas may simply be to escape unpleasant economic realities at home. But this is pointless. Nothing creates more debt than war, as the bankers have always known.

The only solution is to adopt a monetary system that is not based on debt. Dr. Blain makes a couple of specific recommendations: 1) “Stop using percentage rates to calculate charges for the use of money”; and 2) “Congress must supply the economy with a money base that is debt-free and interest-free.”

The second point is a call for a new monetary system, not one based solely on lending by the banks or on government borrowing. One organization that has developed a blueprint for such a system is the American Monetary Institute (AMI), headquartered in Chicago. The director of the AMI is Stephen Zarlenga, author of a massive, groundbreaking work: The Lost Science of Money (AMI, 2002). Zarlenga’s assistant is Jamie Walton, a monetary reformer from New Zealand.

AMI will be holding its fourth annual conference in Chicago on September 25-28. Expected as keynote speaker is Congressman Dennis Kucinich, whose wife Elizabeth once worked as an intern at AMI. Dr. Bob Blain will be a featured speaker.

On the AMI website at is a remarkable document, the American Monetary Act. The product of several years of work by Zarlenga and his network, which now includes a number of local chapters around the country, the American Monetary Act would replace today’s debt-based monetary system with one where the government spends or loans money directly into circulation.

Under the Act, the Federal Reserve would be retained as a national financial clearinghouse but would no longer be a bank of issue. The system would be overseen by a Monetary Control Board within the U.S. Treasury Department. The Act also includes a provision for a citizens’ dividend, similar in some respects to the Alaska Permanent Fund, which would inject desperately needed purchasing power into the economy without additional government debt or taxation.

Also promoting a citizens’ dividend, by the way, is Stephen Shafarman in his important new book, Peaceful, Positive Revolution. (Tendril Press, 2008)

It’s the American Monetary Act the candidates and delegates in Denver should skip one of their parties to read, because it’s the only way any of their hopes for America can ever be realized. Says AMI’s Jamie Walton:

“This is a crucial time. Things are happening. We have got some key media people talking and writing about our kind of reforms. The inertia is starting to yield. Things are starting to roll. The worsening conditions in 2009 will give us a once-in-a-lifetime chance to be heard above the propaganda.”

Copyright 2008 by Richard C. Cook

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. He is a contributor to the American Monetary Act. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is Comments or requests to be added to his mailing list may be sent to