It's No Longer Like 1929...

It's like 1931...

Obama's Subprime Loan

As if we need another more example of the catastrophic nature of the Fed's depression, let's take a peek at the President's own real estate losses.

Obviously, the President is a special case. He'll be fine because he can cash-in influence that comes with the office, and has already done so. But let's assume for a moment that his very typical real estate losses were not accompanied by his very atypical employment situation.

When the President showed up in DC as a freshman Senator, he and Michelle took out a subprime loan in order to buy their Chicago home. Unlike the real world, they got sweetheart loan terms as a "Friend of Anthony," but that didn't alter their plan to financially hurt themselves; it probably made it worse.



Then-Senator Obama made about $160K. The Obamas took a $1.2M subprime loan to buy a $1.65M home. That was $350K lower than the $2M ask price. The $2M figure was after the doctor selling the home allowed the Senator to split the land into two parcels so he could shave $700K from the original $2.7M asking price. The second parcel was purchased at the same time by Obama's top campaign contributor, Tony Rezko (now in prison for real estate fraud). The Obama's bought the second parcel back from Tony's wife Rita for $105,000, less than a year later. The difference in valuation remains unexplained.

The second part of the deal is really too shady to value, so let's stick with the base home to evaluate the Presidents real estate situation.

I say this was a "subprime" loan, because there is no earthly way a $160K/yr temporary job qualifies to purchase a $3M 30 year prime note, especially when they have to split the property into partially undeveloped land to afford it. Nevertheless, the couple decided the risk was worth the gamble, and so did their banker.

The Obama's compulsive gambling habit (yes, making regular $10K/month installments on leveraged loan losses IS life-altering, compulsive gambling) is probably fairly typical among highly-degree'd, but poorly educated mid-to-upper class Americans. It's not their fault. They're victims. They've been taught that it's "OK" to speculate their future away using 20x leverage.

How did they do? Better or worse than Vegas?

Well, DC prices have "officially" declined by only 33% (with way more to follow, but that's a different post). However, sales volume is anemic, so the masses can't fetch that price without driving it much lower. Just for fun, let's say the Obama's home could rot on the market for about $1.1M, today.

So, about a $500K loss. That's not small for a $160K breadwinner. Additionally, that puts the President's subprime loan $100K underwater even with an optimistic valuation, and after losing the 25% they put down.

If our own President's financial situation would be this dire, but for extraordinarily atypical book deals and influence peddling, imagine how the rest of the subprime community is doing--to include all of the non-Presidents still in congress. And let's not forget, 22% of those people are on the unemployment dole or have fallen off and given up looking for sufficient work (the congressional UE rate could be higher in November).

Maybe that's why the President and Congress seem perfectly comfortable doubling down with a new $4T gambling loan on behalf of their constituents?

Paulson: "The Devil Made Me Do It"

I'm sure everyone has heard that Hank "The Holy Monk" Paulson is blaming, that's right, "the Russians" for his destruction of the U.S economy.

So Hank, even if one believes that the Russians were financially attacking the United States, well, you lost the battle. And longer term, probably the war.

The only thing worse than destroying the United States economy by accident is allowing someone else to do it on purpose.

Excuse to Halt Production?

With worldwide auto sales plunging almost 50% from peak, one has to wonder when Toyota powers-down assembly lines for their most popular vehicles.

My hunch:

The only pedal they want off the metal is massive overproduction.

Would you rather halt production for a strangely lengthy recall, or permanently cut auto prices 50%, inline with the rest of the retail market? I think Toyota choose the former; incompetent management gambling that this will blow over with their subprime-era prices intact. Pretty dumb, considering Japan has been in a horrible deflationary Depression for 20 years.

How to Quit Your Job Forever

Most people probably read this blog for posts like this. So it's time to post another one. If you remember nothing else from this blog, remember this:

Fed interest rates are free-market driven by profit motive, not "set" by benevolent dictators who claim they only want to help you.

I've written a ton about this, but it really is this simple:

When there is a long, long line of super-smart bank customers (not to be confused with bankers) who WANT to borrow (= invest in the economy, with leverage), then banks can charge high interest rates. Venture capital gets expensive for one reason: the market allows it to get expensive. Banks raise their retail interest rates because they have lots of borrowers competing to pay them, then the private Fed bank cartel follows by raising their wholesale rate to juice profits. The Fed is not "tightening to curb inflation, to help the good people of the world." That's just stupid.

When there is no line of super-smart bank customer who WANT to invest in the economy with leverage, interest rates plunge to 0%.

So people ask me all the time, when should I jump back in? The answer is simple: you should jump in when the smart people who make the economy hum jump in. When interest rates start a sustained climb, slowly marching higher, month after month, year after year, then there is customer-driven demand for risk taking.

As long as the Fed can't find anyone dumb enough (except the government) to WANT to buy their paper funny money, they have to market it at fire-sale interest rates. That means stocks are, or shortly will be, in free-fall. And anytime you hear the word "stimulus" that means "no smart customers" and only the government can be coerced into borrowing to pad bank profits.

Quitting your job forever is as simple as understanding this simple relationship:

Interest rates low, or worse, falling? Sell.
Interest rates high, or better, climbing? Buy.

I'm talking about sustained, macro trends, not politically motivated blips. Our current trend is clear, and it is firmly established.

Bernanke Confirmed: Market Crumbles

The for-profit Federal Reserve Corporation has gone from "Wizard of Oz" to "Man Behind the Curtain" in two short years.

Clearly, people are catching on. It's encouraging. Too bad we're already in an unfolding Fed-engineered mega-Depression.

"I didn't steal it."

Secretary Geithner (last President of the NY Fed): "I didn't steal it."

Secretary Paulson (last CEO of Goldman Sachs): "I didn't steal it."

As with all multi-trillion dollar government heists, no one knows who did it.

But we do know who took it:

Who got it.

The two primary beneficiaries of this magical, self-appropriating cash:

• Goldman Sachs - Received $320B funneled through AIG to delay certain bankruptcy.
• The NY Fed - Financed The People's enormous new debt to give to Goldman Sachs.

Hmmm, so who DID steal it? Who in the room might be representing Goldman Sachs and the NY Fed?

I wonder....

Paulson:

"I was not involved in any of the decisions made with respect to those payments"

Really, Hank? The Secretary of the United States Treasury removed $800B of the Peoples' money without having any idea where it was going? Sounds like jail-able dereliction of duty to me.

Throw away the key.

Pop Quiz

Q: What do these two images have in common?

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A: Bank runs.

The People Revolt!

Bernanke appears to be in trouble.

Who'da thunk it?

Well, me.

Before everybody who throws light upon the Fed's crimes celebrates, remember, if Ben is in trouble it is because the Fed's mostly foreign, private shareholders want his head. The People have no say. Congress is simply following orders.

So, why would the Money Power wish to do away with Ben?

Simple, he's probably trying to do the right thing. Ben is a hard core inflationist. The economy is sliding into a deep depression. Ben wants to move to 0%, finally lowering the Fed rate below the market rate for cash. He's on the record in countless places, suggesting he would use 0% without hesitation (try to forget his 2.5 years of hesitation). But that would actually make reserves cheap relative to the market rate for short term cash, possibly expanding the cash supply, and allowing macro prices to rise. The board won't let him do that.

A move to 0% would remove the Fed's BANK CRUSHING 1,000% suffocation premium (30 day Fed Rate of 0.25% / 30 day Market rate of 0.025%) on cash reserves for their finally-desperate competition. It is financial murder, playing out on a world stage before our eyes.

Remember, once the American golden goose is pronounced dead (= stops laying new credit eggs to buy Fed shareholders hookers and blow), the Fed desperately wants to deflate The Peoples' collateral prices against their inflated loan balances. The People must go bankrupt. That's how the Fed cartel seizes their stuff. It's an essential step in the Fed-owners' plunder of America. And believe me, that "exclusive club" of world crime king pins DOES NOT include little Professor Ben and his $2M estate.

If Ben is removed now, it's because the Fed plan calls for interest rates to go way up. This play has been called time and again, just as the Fed's non-cartel competition desperately needs cheap reserves.

If Bernanke insists upon 0%?

B-bye.

***** Privacy Alert *****

Friends in the industry have informed me that major U.S. banks have been instructed to submit Form 104s for cash withdraws lower than the $10,000 threshold required by the Bank Secrecy Act.

Limit cash withdraws to LESS THAN $2,500 per 24 hour period if you want to avoid being reported to the government.

2000-2010: The Worst Financial Decade Since....

a) The 1970's.
b) The Great Depression.
c) The 1830's.
d) The dawn of recorded human history.

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Correct Answer: D

Even the historic price crash from the Bank of England's South Sea Bubble was complete by 1725 and prices rose slightly from 1720-1730.

The beginning of SBUS retribution against Americans in 1836 (a direct fractal equivalent to today's Federal Reserve fiasco) took markets down, but only to even between 1830 and 1840 because the central bank's inflationary surge into 1836 was irrationally steep. The net change from 1830-40 was approximately 0%. Prices continued to plunge deeply into 1842 as Biddle's BoE-spinoff tried to rape America after Andrew Jackson kicked him back to England. But without central bank looting, the US economy quickly surged on true fundamentals, and was iron horse strong by 1850 as the Industrial Revolution took root.

The 1930-40 Dow dropped a whopping 40%, but the Fed only stole 58% of the dollar's buying power as measured by the rise in the gold price. Net charge to Americans: a WWII-inducing 65% loss.

2000-2010 took a 15% price plunk on top of a momma-better-start-working -77% dollar pancake, also measured by gold priced in dollars. Net charge to Americans: a brutal 81% loss.

And that's after kicking out 10 of 30 Dow components between 2000 and 2010 for poor performance.

Our previous decade's steep spike in gold price indicates that the great majority of America's 2000-10 loss was exported to the private, multi-national Federal Reserve bank. Physical wealth exported. Worthless paper imported. In other words, let me steal 90% of your stuff and I will append a zero to your currency prices so your "net worth" doesn't change.

What will 2010-2020-2030 bring? Too bad we can't ask Andrew Jackson. Bernanke Biddle already has the king's bank in hot water.

How to Protect Yourself From the Federal Reserve

kcb wrote: [questions about how/why to buy Treasuries]

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At Dow 14K, I recommended that everyone, who does not have a risk profile compatible with shorting, move to 100% cash and Treasuries. That was mid-2007 (the first pop of Dow 14K) with T rates around 6%.

Since then, Treasuries have been crushed by demand to around 0% (or even negative) yield, by people and entities with real money ($millions to $billions) who are investment savvy.

So it's true that the smart money has already removed the possibility of getting the 6% yield that I urged everyone to jump-on. But it's still not too late to switch to cash and Ts. To the contrary, with the most expensive Dow ever by roughly five fold, as priced by P/E, broad market prices are only beginning their multi-decade decline. With the dumb money still fully vested in stocks, paper gold, and banks, Treasuries at 0% are the opportunity of a lifetime. Every time prices halve, safe cash bags a cool 100% return.

In order to survive the current and future financial chaos, the most important thing is to convert as many assets into cash as possible. I'm talking about everything, not just your "investment portfolio." Cars, vacation homes, boats, extra furniture, everything you can sell for cash should be sold. Next, figure out a way to protect that cash.

In the coming decades, protection of cash will be extremely difficult, much more difficult than it is today. Banks are not a safe option. Some will survive, but which ones will be unpredictable, it depends which politicians the private Fed has purchased, which banks they wish to destroy, and how long the Federal Reserve banks themselves survive.

As a minimum, avoid any large American bank that is not based in NY. These are the Fed's primary objectives for destruction, they will likely be the early casualties of the Federal Reserve's war on Americans. Hint: a big bank with a name like Washington Mutual is not generally a member of the NY Fed's bank cartel. Big, Carolina-based Bank of America is an easy pick to fall in the opening battles, while the Federal Reserve still has residual political clout.

Especially avoid FDIC insured banks. The private FDIC, desperate to avoid insurance payouts, will kick dead insured banks to stronger insured banks, bringing down most of them.

So, where to stash your cash? First, if you have the means, protect it yourself. This will be the lowest risk option for most people. Hide it; fireproof it; waterproof it. FDR sent thugs door to door to steal Americans' gold at gunpoint. He jailed any American who didn't submit. The same thing could happen tomorrow with cash.

With cash you cannot safely store, buy Treasuries. Treasuries are a near-cash equivalent. Once the big banks start to fall, it will be too late to buy Treasuries without paying a large premium, so do it now. Treasury prices have already exceeded $1 per $1. Once $15T in bank deposits starts competing for a few billion in weekly T auctions, don't be surprised to pay an 80% surcharge to preserve 20% of your cash.

The U.S. Treasury is NOT your friend. It is indirectly controlled by the commercial Fed banks like most of our government and court system. But it is where the smart money hides and they have political power in our country, so you cannot do better.

There may be safer options in other countries, but given the U.S. propensity to commercialize and legalize Federal Reserve counterfeiting, while possibly safer, other currencies will not experience the same surge in buying power as U.S cash as our economy crumbles. I've said this many times but I'll say it again, I recommend U.S. cash and/or Treasuries not as a safe INVESTMENT, but as a high yield TRADE as prices tumble around you. The risk:reward ratio can't be beat.

Because our government is owned by the for-profit Federal Reserve banks, there are some wonderful, recent Treasury innovations aimed directly at destroying their American bank competitors. You should take advantage of these features, unless you want to go down with the ship.

The first is the Treasury's new zero percent C of I account. C of I stands for Coupon of Indebtedness. It functions like a U.S. Treasury "bank account" (but without bankers habitually gambling away your deposits). You can buy electronic coupons of any size, and your balance is recorded at the U.S. Treasury. You can redeem all or part of your C of I balance at any bank you select, by electronic funds transfer which takes one business day. You can change your selected bank if it fails, any redemption to a dead bank bounces back into your Treasury account.

C of I was recently implemented. Why? To encourage and accelerate bank runs; to help cause the Fed's depression. There is no reason in the world today to keep money a risky bank account. The Fed and the Treasury need your help to destroy their commercial competition, they are going to do it with or without you, so place your money with them.

C of I has one very important limitation. It doesn't seem important, but it is. You can only directly buy C of I coupons up to a $1,000 at a time. However, you can redeem Treasury instruments of any size into your C of I account. So if you want to get, say, $10 million into your C of I account quickly, there is only one way to do that, buy a 4 week T-Bill and elect C of I as the destination upon maturity.

Why this limitation?

Simple.

They want the dumb money, the late money, to have to pay a potentially huge negative yield when the roof falls in. The new option to hold C of I, plus the requirement to fight for Treasuries via auction, will be a multi-trillion dollar money making machine during the coming Federal Reserve-engineered panic.

How do you purchase Treasuries?

Visit: https://www.treasurydirect.gov/go_to_login.htm

Register. It takes about a week to receive the "decoder card" they require to login, via snail mail. You have to jump through a couple of pages of login hoops...


Set up a bank to fund your Treasury account. This is similar to using any financial site, acct #, routing #, etc. To buy Treasuries, all you do is select an instrument, it pulls funds from your bank account on the auction date.

Be sure to select...



...to keep money from flowing back into your bank account.

You can buy any any type of Treasury instrument in any odd dollar amount using the site, it is self-explanatory. You bid on instruments, meaning you must pay the going rate. Usually, that means paying a price slightly lower than face value at maturity. The discount is your yield. If you pay 99 cents on the dollar for a 52 week Treasury, that's like getting a 1.01% yield.

When times get bad, you may actually have to pay more than $1 per $1. Throughout the entirety of U.S. history, all of our precipitous ups and downs, World Wars, the Great Depression, through the struggle and strife of our storied nation, that has never happened. Until recently. Now, it is not uncommon. Soon, it could become punishing. Beat the rush.

Smarter than a Fifth Grader?

The Supreme Court ruled, yesterday, that lumbering multi-national corporations wishing to purchase the votes required to appoint justices to the Supreme Court is constitutionally protected free speech, under our citizen Bill of Rights.

Almost immediately following the ruling, the U.S. Government decided there is no such provision.

Obama Warns Bank of America

Hmmmm, where else have I read that certain large banks will not be bailed out (and instead are targeted by the private Bank of NY, aka the Federal Reserve, for destruction)?

Let me think... Oh yes, I remember.

Too Much Information

"FDR, you said there has never been a better time to go short. How confident are you that we'll see another nose dive? Would you recommend 50/50 long short or 25% long, 75% short? Would you recommend going 100%? 200% short? Just curious. What would you recommend to your clients? ... ... FDR, what do you think about EDZ? 3X emerging market short etf? I see a lot of problems with emerging markets being over-leveraged. Half of Europe is overleveraged, and China really hasn't experienced much of a downturn yet and could face trouble ahead. Curious to get your take on it."

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When it comes to individual picks, is it more complicated than forecasting xyz will dive by 2012, 2020, or 2030, though almost all stocks will severely deflate in the macro.

xyz might be a great buy or sell, but a better day or week or month-long opportunity might merit a switch out of it, then back to it, etc. Listing all those moves in real time would knock everything else in the blog off the front page. That is why I created PW watch as a separate service, so PW subscribers can watch detailed symbol and weighting changes in near real time. When I anticipate a large, possibly counter-intuitive change on the horizon, I issue PW subscribers an email alert in advance.

For example, I recently issued an email warning to to PW subscribers explaining why I had covered the vast majority of my metal shorts, and listed my price targets to reset that short position:

December 20, 2009 -

Advance Warning:

"The metals market always trades very thinly over the Christmas-New Years holiday week. Combine that with an anticipated low volume countertrend uptick, and then add volume returning in earnest as the the new trading year begins, and I hope to seize a golden opportunity with real money and virtual.

I'd like to catch gold around $1160; silver $18.40, possibly on, or a few days before, the final trading day of 2009. I'd also like to see a lot of enthusiastic "go long" buzz surrounding a metals mini-spike. Regardless, if we get a mild to strong ascent near the end of the trading year, I anticipate laying a rather large (short) bet down, possibly minutes before the casino closes for 2009.

I'll probably cover some other shorts going in, to set the scale of the trade I want."

Just after the new year, I wound up resetting my precious metal shorts, along with a very substantial weighting change. For silver, I reset the short position as it counter-rallied past $18.46. For gold, I reset the short position after it touched $1162 in the aftermarket.

Obviously, I was not recommending being long precious metals at any time, just giving my short position a rest while gold/silver counter-rallied within a larger Bear Market to my short term targets.

I don't provide that type of micro-view in the blog because it would constantly bump off the front page and confuse the people who did not care to tune in, perhaps, a few times a day.

That Giant Sucking Sound Isn't Mexico

Stocks, Bank Accounts------------------------->Treasuries

Popularity Sinks Lifeboats

Reader email: "I really like the comments you made about BAC and GS but about the insinuations of the FED wanting to kill BAC or other are a bit light on the facts and argumentations if you can post when time maybe mention why GS would go under
or elements that would direct one's thinking toward that understood that some stuff might not sit well on internet pages"

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I do not want to be popular, I'm just posting where the truth is.

It is interesting to see the reaction to my forecast, that most major banks and insurances companies (and every other mega-leveraged financial as well as the industries dependent upon them like airlines and autos), will go bust within a few years.

When I first made that forecast, the Dow was 14K and Bear and Lehman and GS and AIG and Countrywide and NovaStar and Fannie and Freddie were all "infallible," so I understood why most people didn't get it. But after the bailout "saved" the financial system from "certain collapse" according to the banks themselves, who then stole TARP money to finance another high stakes gambling fix as they found themselves unable to continue speculating with people's deposits, it's amazing, but not surprising, that the same people who didn't get it the first time around still don't get it now, and to an intensified degree.

They didn't see any problem, then they were told the entire financial system was in collapse (completely unexpected, from their perspective), but the fact that a huge heist claimed to fix all the underlying problems (problems they never saw nor understood) has actually served to increase the amount of blind faith in the system.

Nothing has changed, Goldman Sachs still went bankrupt.

Goldman Sachs is still bankrupt. Even more so, now that they quintupled-down with money they stole from poor people on the same losing bets. I pick on GS a lot, because I like to point out that the false gods that so many people blindly worship are not immune from the laws of nature. To the contrary, their fundamental incompetence is the very cause of the larger scale manifestations of those laws. Everyone knows, but doesn't want to hear, that Goldman Sachs went bankrupt (along with LEH, BSC, CFC, NFI, the list goes on....). So they need me to state the utterly obvious.

I've posted a lot of specific numbers on GS over the past year, their asset column has only massively deteriorated against their $1.1T debt. So you can simply subtract a few hundred billion more from net. This is a company, mind you, that only had $39B in operating capital above $1T+ debt, in their heyday. What fraction and how much their massive commercial and residential subprime "assets" have deteriorated is impossible to know, since the few who might know (though I doubt anyone knows) aren't saying, but it is safe to say that GS's failure to write any portion of their mega-leveraged real estate "assets" down is laughable at best, and a laughable crime at worse.

It is all an incredibly interesting exercise in the irrational nature of group human behavior. Even after my first forecast came to be, completely to their astonishment, they are still convinced that everything is wonderful--no, they think it is even better.

The greatest shorting opportunity of our lives (I said that at Dow 14K, but that one is behind us) sits right under our nose.

Bank of America - Target for Destruction

It's no secret that the privately held, unconstitutional Federal Reserve banking cartel was formed to keep American banking power concentrated in New York. When it used to matter (during the reign of the supposedly infallible FBUS and SBUS), NY was geographically closest to the original central bank scam and global oppression king pin, the Fed's mother Bank of England.

Nearly a century after becoming the latest, tired U.S. incarnation of that same, age-old, crooked-banker lineage, the "modern" Federal Reserve Bank of NY is now a walking ghost laden with worthless assets. But this unattractive lot of self-proclaimed foreign royals still maintain their original deadly objective: to destroy the rogue, Carolina-based Bank of America, and any other homegrown American bank dumb enough to challenge its inbred and worm-eaten, monarchical currency printing monopoly.

First, the Federal Reserve impaired BAC with Countrywide's oozing subprime sludge. Soon, we'll find out how the Red Coats intend to finish them off.

...could be interesting.

MAJOR Market Problems

Most people understand that corporate earnings were pumped by a wild governmental orgy of theft and bribery. But most people can't understand why stock prices plunge on such great earnings.

The reason is simple: if we dissect a stock price with a 20:1 P/E, we pay 5% for actual earnings and a 95% premium for future growth. The greater the P/E, the more earnings don't matter. The price you are paying is almost entirely premium (hope).

So if we learn retroactively, say, from an earnings report, that earnings grew unexpectedly last quarter (ancient history), then the next quarterly report will have a much harder time clearing the same bar, and the forward-looking stock price must fall. Good earnings destroy the future multiple, especially if they are unexplained or from unrelated economic anomalies. Your chance to profit from that blip is over.

And so, there are two major problems with good earnings reports next week:

1. The last few quarters have been artificially pumped from outrageous crimes by a government-corporatacracy against her people. That's over, while our depression continues to rage making future quarters worse when compared to mass theft, resulting in negative growth rates. The better last quarter's thievery, the more that 95% growth premium must contract.
2. Major index P/E's are running near 200 if you sum negative earnings. The advertised index P/E simply ignores a huge number of companies running losses (P/E=infinity) or hides the fully calculated P/E from the public. So the earnings level doesn't matter, only the relative height of the bars matters.

Not to mention all the other catastrophic problems:

• Plunging cash supply continuing the US Dollar's 22 month long, massive strengthening trend. Stronger buying power prices everything lower, including future earnings with the same 200:1 leverage from spiking P/Es.

• Historic run on banks converting uninsured deposits into near-0% Treasuries.

• Berserk government flailing. Bureaucrats doing ANYTHING to stay employed. From new taxes on TARP2, to the upcoming TARP3 transfer from poorest to richest, to the recent Fannie and Freddie defaults exacting a $5T government backstop, to a stone-broke FDIC kicking dead banks to the dying to avoid an insurance payout, to cops ignoring violent crime so they can hop up traffic fine revenue, to prosecuting costly wars against faceless enemies, to government-forced vaccinations to spread virulent strains to pump drug and health care corporation profits. The government is attacking her citizens in a confused rage. There is a U.S Government jihad against American citizens.

• All-time record foreclosures, eclipsing the Great Depression.

• 22% unemployment, as calculated using the pre-Clinton method, soon to eclipse the Great Depression peak of 24%.

• Most large State governments are about to default--the Federal Reserve prohibits those United States from infringing on their cash-printing monopoly.

Ben's Helcopter Meets an Angry Mob of Lenders

I guess it shouldn't surprise anyone that Ben, an academic with no experience at all, didn't consider that his helicopter might meet a mob of angry lenders, not willing borrowers, as our economy collapses into a mega-depression.

Ben's childlike idea was that if you load up a helicopter with cash for sale, people will always trample themselves to buy it. How stupid. I guess Ben never considered that people might empty their bank accounts and mob the Treasury window to lend at 0% (a cool 100% return every time prices halve), instead of borrow into his uber-depression. Meanwhile, Ben waves from above, confused and disoriented.

The economy has collapsed. The next wave of fireworks has begun.

Goldman Sachs--About to Go Bankrupt, Again

Remember how quickly Goldman Sachs went bankrupt the first time? A hung over kid clinging to the toilet bowl, they promised taxpayers who bailed them out that they would never touch investment banking again, and would instead turn into bank holding company with consumer retail locations.

They ignored their own mandate after Treasury Secretary Paulson, the same Goldman Sachs CEO who bankrupt the company, seized the taxpayers' money in the face of 100:1 voter opposition. He reimbursed Goldman's mountain of losses to the tune of $320B (16x Goldman's total operating capital at peak), most of it laundered through AIG at 100 cents on the dollar.

Today, Goldman Sachs losses are much worse. They've got over a $trillion in mega-leveraged liabilities. They've marked-up, instead of written down, a $53B ultra-leveraged, completely worthless subprime portfolio, and have lost hundreds of billions in diving commercial real estate which they continue to book as more valuable than 2005.

Even as litigation from their first bankruptcy settlement pours in, Goldman Sachs employees continue to loot the bonus pool, setting aside a record-doubling $22B in one time pay raises in an all out sprint for the exit door. They know what's coming.

The second Goldman Sachs bankruptcy will be even faster, and this time, there will be no way out.

Global Warming Buries All of Europe Under Snow and Ice

Sub-freezing temperatures have engulfed both hemispheres. The U.S. is encountering its most dangerous winter in decades, maybe centuries, at some 10 degrees colder than average. 23% have no employment to heat their home, or are on the street. Most of Europe is buried under ice and snow, the temperature is 30 degrees F below normal at the moment.

During the last Ice Age, most of England was covered in snow, today, the entire country is buried:

Goldman Sachs Sued by Illinois for Billions

NEW YORK (Reuters) - Goldman Sachs Group Inc was sued on Thursday by an Illinois pension fund seeking to recover billions...

Good luck Illinois, you filed in the supreme kangaroo court of NY. Not very smart. The private Federal Reserve (aka The Bank of NY) was created to concentrate economic and political power in NY, and to siphon $trillions of US citizen owned money into the private pockets of rich foreigners who literally own congress and NY government. In fewer words: to screw states like Illinois.

Why the Fed Rate Chases the 3-Month T Bill

kcb writes: "You assert that the Fed is charging a few thousand percent too much for cash they issue. The question is: relative to what?"

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Historically and without significant exception, the Fed sets their rate to equal the 3-Month T Bill.

Contrary to popular belief, there is never any doubt what the Fed will do with their interest rate. They ALWAYS chase the 3-M T.

The reason is simple, the Fed has no control over interest rates, because they have to make money or they cease to exist, same as every private business on the planet.

The 3-M T is their benchmark, because it is market driven at about the same term the Fed lends. Actually, the Fed usually lends for 30 days so their rate should be a little lower than the 3 month, but they typically gouge, and the primary dealers are more risky than the US gov as a whole.

There is no way banks can lend en mass above the market-driven 3-M T rate, because if the world's wealth is willing to protect money at that rate (0%, today), they certainly won't pay more than that rate for leveraged capital.

This relationship always holds true.

One can then glean that when the 3-M T rises above the Fed rate, they'll raise their rate. Why? Because they can. They want the highest profit they can rake in. If they charge too much, they go bankrupt like every other private biz.

That said, they can put the screws to their competition by charging WAY too much for desperately needed reserves to cover over leverage gone bad, like they are today. In that case, if the suffocating bank is weaker than the Federal Reserve system, they'll fail first and the Fed can then seize them for pennies on the dollar.

The flip side of that coin is the Fed pricing their counterfeit cash slightly below the market rate (placing it "on sale") to expand the cash supply, push prices skyward, and encourage the over-leveraging at inflated prices so they may later call the margin and seize the underlying assets (by later charging too much for reserves to cover).

With these swings in interest rates relative to the market, the Fed can by method of inflation and deflation steal our nation's wealth until our children wake up homeless on the land their fathers conquered (ok, that's Charles Lindbergh melded with Thomas Jefferson).

That's the beauty of having a 100% monopoly on cash accounting. I can change your books anytime I want to, for the better, or for the worse.

"Money" from Helicopters?

Today, I heard a helicopter hovering nearby. I went outside to see what was going on. A enormous white helicopter marked with the words "FEDERAL RESERVE" on the side door was slowly traversing my neighborhood!

As it approached, I caught a glimpse of B.S. Bernanke inside. He was removing his Rolex to add it to a pallet brimming with fine diamonds, gemstones, silver and gold. His time piece barely hit the pile of jewels when the crew shoved it sideways and out the door, to fall upon an eager crowd, gathering below.



Next, they dropped food rations. Then HDTVs, washing machines, and newly boxed computers. They swooped close to road and brand new convertibles, luxury sedans, and SUVs emerged as they flung the back doors open.

Ben finally arrived! True to his promise, the Federal Reserve is dropping "money" from helicopters! To think that I thought Ben would try to drop Federal Reserve Notes of indebtedness demanding 250% interest due upon maturity on top of a front-loaded 2.5% service charge, only to be laughed at by our intelligent townspeople. How wrong I was! I snagged a Mercedes convertible, two HDTVs and a leather recliner, all completely free. Listen, I'm sure he's not far from your neighborhood.

Profits? Nah. Many Businesses Just Reaped Paper Inflation

Anon wrote: "FDR, isn't it possible that banks that borrow money from the fed are putting it somewhere where they can get a higher rate of return?What is keeping them from taking their $'s overseas, which is what the carry-trade crowd is doing?
The Fed makes a nice profit, the banks still profit. For now..."

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There is no easy rate of return above 0%. That's why the world's wealth is piling onto 0% treasuries at the rate of about $0.5T per month. Smart businesses know, or sense, that the natural state of affairs has shifted to dwindling profits, as opposed to the easy inflationary "growth" of yesteryear.

The businesses that will really suffer those that refuse to acknowledge that most of their previous growth, and thus increasing access to capital, was nothing more than the trickle-down result of an unrecognized Fed-government-banker Ponzi scheme. Most business in the US are insolvent, at least partly because their business models simply don't work in a stable or deflationary environment. In fact, they never worked, but for a dwindling domestic dollar covertly chomping away at their liability column.

Deflation is probably running between -10% and -15% today. During the Great Depression the deflation rate peaked at about -12%, we should double that during our peak crunch years. This is a most likely a Grand Supercycle topping process, meaning the wave length from our s 5th wave to Wave 1 reaches back several hundred years to pre-American Revolution, at least, possibly even capturing another degree, back to a Roman W1-2. The magnitude of our top formation is the largest challenge and also the largest opportunity.

The long-term deflation trader of today is much like the one-in-a-million inflation believer in 1932+. Grandchildren will be the most likely beneficiaries, after decades of grands fits and grand starts. It'll be easy to die thinking you were wrong, only to miss the next harrowing tumble.

Bottom line:

Money frozen in the form of assets will lose value for decades. Stuff inflated cash into a time capsule and forget about it (or more risky: short assets in all classes).

How the Fed Banking Cartel Stays a Cartel

kcb wrote: "It's a free market, right? So if the Fed is charging banks more than the free market does for currency, then clearly the banks would prefer to get their currency from the free market and not from the Fed, right? So what prevents them from doing precisely that?"

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Great question (and Happy 2010).

Nothing prevents that, normally. Depositors are a major, and the cheapest source of bank capital. Problem is, we have massive internet-based, speed of light bank runs occurring as we speak, not net deposits. De-leveraging, not leveraging.

In other words, banks have people lining up and the teller window to claim, not deposit, cash. Banks printed leveraged cash for roughly 39 out of of 40 the people lining up, and most of that cash has been lost to wild banker speculation. The bank thought the FDIC would cover their losses, but that only worked for the first $50B or so, which has already been sucked dry. The next $15T in bank losses is the part that hurts.

0% short term Treasury rates prove that people are moving their money out of banks at a pace few dreamed possible (I dream a lot faster pace, within a year or two). Overwhelming demand at the Treasury window (now THEY have net deposits) means the current 3M-T Bill yields less today than the day Hitler rolled over Poland (the previous all-time low).

That is the main reason the private Federal Reserve central bank (supposedly) exists, to counter bank runs with freshly printed cash. But that is a myth for non-cartel banks, the Fed simply turns them away (by charging a few thousand percent too much during times of severe distress) in an attempt to destroy them.

While the Fed is charging outrageously high interest rates for new capital, as they are today, they leave non-cartel banks no recourse but to (1) go farther in the hole, paying through the nose to support the Fed or (2) close, and have their assets seized by one of the NY Fed cartel banks.

That's how the private Bank of NY (aka the Federal Reserve) guarantees US banking power stays concentrated in NY.