The Road to Ruin
Fiat & Credit - The
Anglo-American Nemesis
29 April 2004
by Nigel H Maund
BSc (Hons) Lond., MSc, DIC, MBA, MIMMM, SEG
Economic Geologist
Introduction
Numerous writers on various
internet sites, where complete freedom of speech still exists,
including notably: Richard Russell, Jim Puplava, Doug Noland,
Marshall Auerbach, James Turk, Robert Gordon, Antal Fekete, Bill
Bonner and Clive Maund, to name but a few, have attempted to
alert people to the dangers and consequences inherent in today's
financial markets. However, the Fed has skillfully succeeded
in wrong footing all these experienced writers, and a great air
of complacency now exists amongst the general public that the
fantasy land of ever rising equities, bond and real estate markets
will continue, ad infinitum, In this wonderland, the foregoing
will rise forever into the glittering and rosy horizon of endless,
and rapid, economic growth. What is more, one's house is actually
one's own private bank, to be dipped into as and when the need
arises. No need for those nasty credit checks and grim faced
bankers after all!! He He! Better still, as houses rocket towards
the outer planets, where the effects of gravity diminish, maybe
one's house will be worth an unimaginable, galactic scale, sum
in years to come. What a thought!
This fantastic "cuckoo
land" has been created by the world's key merchant bankers,
such as Goldman Sachs, S G Warburg, Kuhn Loeb, Salomon Brothers,
N.M Rothschild, Lazard Freres, etcetera, who not only control
the world's central (fractional) banks, such as the Fed and the
Bank of England, but own them in their entirety. They remain
as faceless entities behind the puppet figure, called "the
Chairman," or, "the Governor," for whom the syndicated
press creates a God-like persona that the Pope would be ashamed
of. These bankers fully understand the idiocy and greed of the
masses, as evidenced by "Tulip mania" in Holland, the
"South Sea Bubble" in England, and various other manias
that have driven the financial markets to ludicrous valuations
in the near and distant past. However, people generally have
a poor knowledge of history, and a very short memory. They become
the victims of these manias, when they ultimately, and inevitably,
collapse. In the past, losses were purely financial. However,
this time the stakes may be a lot higher.
Never in human history has
mankind had the technical wherewithal and lack of political controls
to create money out of thin air on such a stupendous scale, and
milk the planet dry with bank/management charges and interest
rates on money that quite simply does not exist, other than as
digits in a computer. There has never been an open discussion
of the consequences of such action in the World's "Democracies,"
and more fantastic still, this high stakes global political and
economic game has scarcely been questioned by the media! No one
seems to care, so long as the gravy train keeps on rolling. So,
what happened to previous generations of "Prudent Bankers,"
who believed in encouraging savers who provided the vital underpin
for constructive lending for productive purposes. Remember that
now extinct species of human being? ... and, even more scary,
where will all this easy credit world we live in end up? ...
and, furthermore, what is the purpose of this incredible munificence
by the new easy credit (hyper - elastic) bankers where huge loans
are extended with the minimum of stipulations or requirements?
What happens if gravity is allowed to assume its normal role,
or just does so anyway? ... That the laws of finance and economics
cannot be defied forever by such wondrous geniuses as "the
Great Economic Helmsman," Sir, Dr, Professor, whatever,
Greenspan (now virtually deified), without untold consequences?
What are the eventual economic and political repercussions when,
and not if, this humungous bubble or collection of orbiting bubbles
(Equities, Bonds and Real Estate) suddenly meets reality coming
the other way? Hmmmmm! ... And, if this were not enough, dare
one mention the words Government Debts, State Debts, Corporate
Debts, Personal Debts, and, God forbid ... Derivatives? ... There's
only 200 trillion of those in US markets, a mere bagatelle ...
in "Greenspan's Big Top."
The Propaganda Machine
Propaganda is the supposed
territory of dictatorships such as those under Hitler, Mussolini,
Stalinist Russia or Mao Tse Tung's, People's Republic of China.
However, today, far from being the preserve of the long dead
Dr Goebbles, we live with a propaganda machine that would have
been the envy of any of the above-mentioned dictatorships in
terms of its depth, breadth and sophistication. Thanks to CNBC,
Fox News, CNN, BBC, Sky News, Channel 4, ITV, Deutsche Welle
and France's TV5, not to mention a host of lesser stations, and
the mainstream press of all western "Democracies" (the
so called "Fourth Estate"), we now have a "Global
View," in which the vast majority of people regurgitate,
without question, the accepted dogmas as if these were akin to
the 10 Commandments handed down by God at Mt. Sinai. The few
who dare to ask awkward questions, or, worse still, demand the
truth, are derided, smeared or marginalized by sophisticated
campaigns written by hacks hired to do the desired hatchet job.
This is the unacceptable face of modern journalism, corrupted
by power and money from the very top. A very few, such as Australia's
great journalist John Pilger have survived to keep on telling
the truth. However, sadly, few Americans, Britons or Australians
would know of him or his writings. Of course, all of the foregoing
implies that we are deep in conspiracy territory, the preserve
of "the lunatic fringe." History is "accidental,"
and as much a catalogue of human folly more than any collective
planning. However, it is worth recalling the comment of a past
US President, Franklin Delano Roosevelt, who stated " If
anything happens in history, you can bet it was planned that
way!" This, while not altogether true, is closer to the
truth.
21st Century USA, under its
current administration, is seeing freedom of speech, set down
as a fundamental right in the articles of the 1776 US constitution,
destroyed with little more than a murmur. Nowhere is this assertion
provided with more proof than the manner in which the US administration's
Military - Industrial complex has dealt with the news and casualties
emerging from the current situation in Iraq, and, moreover, the
very one-sided reporting, and handling of the Israel - Palestine
situation since 1948. The steady stream of US coffins, not to
mention the larger number of wounded, maimed and mentally scarred
servicemen, returning from Iraq, is scarcely covered by the US
media, who also fail to cover the huge tragedy and loss of life
suffered by the ordinary Iraqi's and Palestinians. Balanced coverage
of events in Iraq and Palestine is just "not on" in
the "Homeland Security" conscious 21st Century USA.
Is this paying real service to humanity?
Perhaps more significantly,
for these pages, is the manner in which the "Propaganda
Machine" has handled the origin, and economic implications,
of the vast credit expansion witnessed since 1982, which is set
to eventually destroy the wealth of US citizens and transfer
their heavily leveraged assets back to already unbelievably wealthy
Merchant Banking families. People will see their pensions and
savings quite literally wiped out. What then for them? The media
dare not, in its "in depth analyses," discuss the truth.
Rather, day in and day out a stream of bright cheery "talking
heads" and "space cadets," with over large mouths,
ask a heap of pre-arranged questions and try to out do each other
in talking the market up. An orchestrated patter keeps these
cynical and pathetic shows rolling along to lull the masses into
the land of "make believe" and "feel good."
So much for objective analysis. "Consumers, for Christ's
sake keep holding stocks," refinancing and spending is the
watchword! ... The war on savers continues.
Monster Mother Bubble and her Steroid
Fed Son
One has to congratulate 18
auspicious years of Alan Greenspan's tenure as Chairman of the
Fed. He has created the largest stock market, bond and real estate
bubbles of all time, on this planet. Not satisfied with this,
his easy credit policies have resulted in the USA accumulating
the largest debt mountain: Federal, State, Corporate and Personal
in its entire history - a debt burden that it can never repay.
What a legacy, "arise Sir Alan!"
Big Mother Bubble started her
life back in 1982. She caught a little flu in 1987, but after
this was fed steadily increasing amounts of vitamins and steroids,
and by God did she grow! The populace loved it! There's nothing
like a good old dose of FIAT, so "Easy Al" gave them
what they wanted in spades, laying it on with an ever bigger
spade until now spades are too small, he now drives a "Big
Cat" front-end loader of the type seen in huge open pit
mines. Fortunately, human greed knows no bounds, and Al knows
this. Always obliging, Al then pumped up the level of FIAT to
astronomic numbers that even those scientists stationed at Mt
Palomar would find impressive. The printing presses would have
blown up long ago, but never mind, Al just created digital money
out of thin air. How wonderful is the inventiveness of mankind.
No real money is needed at all. In fact, it's mighty inconvenient.
For all those monster leveraged takeovers and acquisitions, and
burgeoning mortgages, Al just conjured up figures out of space.
Of course, management fees, brokerage fees, insurance fees, and
interest has to be paid on all this fictitious money with real
money generated from corporate profits or individual earnings.
This small fact seems to have escaped the notice of the world
at large. Who loses out of this wondrous scheme. Answer? easy
really! the shareholders and Pension Funds, who else?; i.e.,
the man in the street. Who gets all that lovely money? Answer?
... Guess! Yes, its Al's employers, our good old friendly Merchant
Bankers. And, if this were not enough, who handles all US and
UK tax receipts, corporate and personal? the Fed and Bank of
England; QED, the same Merchant Bankers. What a Grand Scheme
this all is! ... provided you're sitting on the receiving end!
Of course, the more one pumps up wages, real estate values and
asset values, in nominal terms, the larger the tax take as these
assets move through different taxation thresholds. Who wins?
why once again ... the Merchant Bankers. To cap it all, these
same merchant bankers get huge brokerage and management fees
for arranging all these mergers and acquisitions, and business
and personal mortgages. Oh, what a lovely world!
Returning to Big Mother Bubble,
she started to look grossly outsized in 2000 and fell inexplicably
sick, thought to be due to increasingly excessive eating habits
developed since 1992. In late April 2002, after a tough pregnancy,
having lost some 30% of her humungous weight, she gave birth
to her son, "Baby Al." "Baby Al" grew at
a fantastic rate, that had the crowds cooing with delight! No
surprise, "Baby Al" was fed with the financial steroid
equivalent of JET A1 fuel, courtesy of his older namesake in
the Fed. In an all out effort to stop what would have developed
into a full blown market correction, taking the DOW back to 4,000
points and S&P back to 400 points, as shown on the chart
above, Al savagely cut interest rates to a 45-year low of just
1%. Credit became ever easier, if that were possible. "Baby
Al" responded wonderfully, feasting on the Mortgage Refinanced
US consumer spending money as if there were no tomorrow. Debts
were serviced by taking on more debt from second and third tier
syndicated banks. In the marketplace equivalent of Michael Milken's
Junk Bond Financing, the already highly-leveraged consumer was
propelled along as never before. US GDP surged to 6% in Q1, 2004,
wowing the markets. Companies have posted impressive Q1 profits,
largely based on 2nd and 3rd tier subsidiary banking operations
lending money through the Mortgage Refinancing system. Should
the consumers finally wake up and start to repay some of their
debts, and not take on additional financing, then one may expect
profits arising from this sector to start drying up. Indeed,
this has started to happen. Furthermore, if the consumers sense,
belatedly, the coming interest rate crunch, to which they are
now highly exposed, they may curtail their consumer habits with
all that that means for the markets. Many ordinary US and British
families can barely meet their household outgoings, let alone
higher interest bills on their enormous credit exposure. If interest
rates were to rise by a mere 3% this would collapse the market,
substantially. Any larger rise would precipitate an all-out recession,
or possibly, a depression of 1929 proportions.
Old Al's scheme is to fine-tune
interest rates upwards, probably, initially, in 25 basis point
moves. This, he says, will gradually allow the economy to adjust
rather than cause any serious perturbations. However, Al's options
are dictated by the behavior of the Bond and Currency markets.
Bonds have already turned south, as shown on Figure 3, as yields
on 10 and 30-year long bonds have risen in the past 6 weeks.
The REIT Index chart looks horrific. The death knell of the US
Property Bubble has been sounded by a very large "Lutine
Bell." The REIT may recover slightly for a couple of weeks,
but is now perched ominously on the support of the 200-day moving
average. Given the stark nature of the recent plunge, one would
expect this market to resume its "death dive" to the
bottom of the Mariana's Trench very soon.
The collapse of the Real Estate
bubble will cause the simultaneous collapse of the DJIA, S&P
and NASDAQ indices. Given "Baby Al's" hormone induced
infancy, his life will be seen to have been a short but merry
one. Overpumped with steroids, Baby Al is beginning to look a
bit peeky. In fact, he's definitely sickening. When the US consumer
is no longer able to tap into the diminishing value of their
private bank; i.e., their house, for easy money, they will start
to wonder what is going to happen next. With their source of
funds dried up, and loaded up with debts that they will never
pay back, panic will set in. The awful realization that 2 + 2
does not equal 10 will dawn, and spending habits will have to
be severely curtailed. The Refinancing driven equities markets
will, accordingly collapse. "Baby Al," unable to go
"cold turkey" without his steroids, will die a sudden
and tragic death. Not for him a long terminal sickness, he has
no strength, as he has been brought up on the wrong diet from
birth.
Currently, the World's Reserve
Currency, the US dollar, which has had a torrid last two years,
having lost 30% of its value, has rebounded 10% in the last 6
weeks. No coincidence that this change in the dollars' fortunes
exactly coincides with the sharp downturn in the Bond markets,
and Al's coded signals about interest rate rises to come. The
stage has been set. The smoke signals have gone up. Those traders
now leveraged to the hilt in the Bond and Real Estate Markets
have been given the blatant signal "Game Over." The
smart ones are rushing for dollars to exit their dangerously
exposed short positions. This has pushed up the US$ Index, which
is now testing its 200-day moving average, as shown on Figure
4. It could well break through it leading to a dollar spike lasting
a few months while the Bond and Real Estate markets cover their
positions. During this time the commodities markets will take
a terrific hammering, with the realization that interest rates
will rise significantly enough to kill off the bull market and
usher in a recession, or, more likely, a major depression . The
writer expects nickel and copper to fall to between 75% and 50%
of their current prices, despite recent years demand from the
Chinese markets. This is apparent on the copper chart, shown
on Figure 5. As with copper and nickel, so with silver and platinum,
which are, after all commodity metals.
However, one metal is not a
commodity, despite the best efforts of the Merchant Bankers to
create the illusion that it is. For 7,000 years gold has been
man's principal store of wealth and bulwark against inflation
by corrupt Governments and Kings. It can neither be created nor
destroyed. There is a sufficient quantity of it to serve the
world as a monetary instrument. During the past 70 years every
effort has been made by the Bankers to demonetize it, with great
success. Almost no one now believes, excepting die-hard gold
bugs, that gold can be a basis for money. The propaganda machine
combined with 70 years of bad experience with the metal, engineered
by the Bankers, have convinced almost everyone that gold is intrinsically
just a commodity like everything else. Had the world been on
the gold standard, the following may be stated as truths:
- Wars could not have been so
readily financed;
.
- Inflation would not have taken
place to anything like the degree it has;
.
- The Anglo - American world
would not know be faced with appalling debts, and the social
consequences of this situation in the years to come;
.
- People's savings and pensions
would have been secure and not placed into the highly manipulated
casino called the stock market, where the "smart money"
habitually plunders the pension and mutual funds;
.
- Asset prices would have remained
to a large degree stable, and attainable by most people, without
incurring massive borrowings, and debt servicing costs;
.
- The huge, and very evil, social
consequences of large corporate and personal debts, involving
many criminal undertakings, would have been avoided simply because
people would have been under far less psychological pressure
to chase money at all costs. The need would not have been there.
.
- Finally, people would have
been encouraged to save their money, where it could be lent out
for constructive and profitable enterprises based on adding real
value to companies, and to society at large.
Once the shorts have covered
their positions, the US dollar will resume its downward path
to an unknown destination. Never has the US currency faced such
a dubious future. The world has changed so much since the US$
became the accepted global currency in 1945. Consider this:
In 1945, the US produced more
manufactured products than the rest of the entire world;
.
- The USA had the world's most
enlightened Constitution ever written by mankind, although it
had already been partially debauched by the Bankers;
.
- The USA was still one of the
world's largest Oil Exporters;
.
- Europe was a total wreck,
and without US Marshall Aid, France, Germany and Italy would
have taken a century to get back on their feet;
.
- The US had a gold reserve
of 22,000 tonnes compared to less than 8,000 tonnes today;
.
- The US was virtually debt
free and produced a large annual balance of payments surplus
from a huge internal economy;
.
- Terrorism did not exist, the
only concern was the Soviet Union, which was in any case held
in check by the US atomic weapons arsenal;
.
- The US had very friendly relations
with the entire Arab world; and,
.
- The average American Citizen
was a net saver.
Compare this situation with
today's and the contrasts are very stark, if not to say very
disturbing.
Add to this America's very
changed image in the wider world, and the rise of China, India,
SE Asia, the recovery in Japan and the expansion of the EEC and
recent launch of the Euro and the world for the US dollar has
become a very different place indeed, with all that this means
for the longer term survival of the US economy and political
hegemony.
The final denouement
If all the above seems pretty
awful, consider this; the next stage in this Grand Scheme is
the inevitable crash. This is what US chess Grandmaster, and
former World Champion, Bobby Fischer, called "The Sucker
Puncher." This crash will by its very scale and nature result
in the largest transfer of assets, to an astronomically wealthy
elite, ever seen in the history of the planet, except in outright
cases of Ancient to Medieval pillage. However, never before has
society been so interconnected, and yet, so easy to manipulate
and to control. When the crash comes, real estate equity, stocks,
savings and all other forms of monetary instruments will become
the property of the banks, dependent upon everyone's state of
indebtedness. Those who are highly leveraged will be totally
financially destroyed.
Gold will be the only monetary instrument outside the control
of the Bankers. This writer is of the belief that the US and
UK administrations will, in this scenario, outlaw private ownership
of gold.
NHM 27.04.2004
eMail: c/o Clive.Maund@t-online.de
Charts by Clive Maund
Copyright
© CliveMaund 2004. All Rights Reserved.
______________
reprinted
at 321gold Inc Miami USA
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