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More Catalysts for the Impending Crisis


Addison Wiggin

Somewhere in the sad tale of Raymond Zack lies a warning about the future – the new financial crisis the catalysts for which we were searching yesterday and the day before.

Zack, depressed and on disability, walked into San Francisco Bay on Monday…and allowed the tide to wash him away to his death. He was 52.

The windsurfers and joggers at Crown Memorial State Beach stood and watched. One called 911. Alameda police and firefighters showed up. They too stood and watched.

And that’s all they did.

Funding for the fire department’s water-rescue training program dried up in 2009. That meant firefighters had to use overtime hours to train… and OT has been cut back recently. So no one had the proper certification. “Without it, the city would be open to liability,” reports KGO-TV.

Two hours later, an off duty nurse swam out 50 yards to retrieve Zack’s body. Liability was no longer an issue.

“It’s like you are living in a different country,” a witness told the San Jose Mercury News.

Indeed it is. The country is broke. And the impact of its bankruptcy is beginning to show from the bottom up. Libraries are closing in Charlotte, N.C. Garbage pickup is being cut back in Columbus, Ga. Camden, New Jersey’s police force has been cut in half.

As early as January 21, 2010 the Atlanta Journal Constitution was beginning to report on the seeds of the new crisis: “About 80 percent of stimulus money has gone directly to state governments,” the paper observed. “Instead of being used to create new jobs, the bulk of the money has been used to save existing state government jobs – teachers, law enforcement and others – and for shoring up sagging state budgets.”

In a new documentary, we’ve tentatively titled “Risk!”, we’ve been chronicling the challenge of entrepreneurs in the post-Panic environment to create and sustain new jobs. The policy mix that has come along with the effort to save government budgets has been anathema, in our opinion, to an environment that encourages entrepreneurship.

Unless the politics change, and people begin to realize that government, even at the local level, cannot be the guarantor of American prosperity, the economy will continue to be hollowed out from the inside. Capital, in large quantities, is being misallocated to saving unproductive government assets… and crowding out investment in job creating entrepreneurial efforts.

Worst of all, it’s not like the government is using its savings to fund their spending sprees. As you know, the US government has no savings. Instead policymakers have chosen to swipe Uncle Sam’s credit card and…poof, everything has been magically “paid” for.

We can’t help but sit back and wonder what the world looks like when that credit card is eventually cut off. Or when it becomes much more expensive for the Federal government to borrow money.

As we pointed out in our first film, I.O.U.S.A., the States can’t print money. They have to cut spending. They have to cut services like policeman, firefighters and trash collection. For most Americans, those cuts won’t be popular. As we’ve seen all across the country, people get angry they things they’ve been “promised” are cut.

But unlike the States, when the Federal government’s credit card it cut off they don’t have to cut back. They can continue to spend. Continue to promise. And continue to run the printing presses day and night to pay for political whims. But for how long?

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The Sky Is Falling, It Is Time To Panic And The U.S. Economy Has Fallen And It Can’t Get Up

The Economic Collapse
June 3, 2011

So many economists and financial pundits seem absolutely shocked that the U.S. economy is slowing down again.  It is as if this latest wave of bad economic data has caught them completely by surprise.  Now, in the mainstream media we are seeing all kinds of headlines declaring that the U.S. economy is headed for disaster.  But anyone with half a brain could have seen this coming.  This year alone, we have seen the worst tsunami in Japanese history, the worst U.S. tornado season in recent memory and the worst Mississippi River flooding in decades.  In addition, chaos in the Middle East has pushed the price of oil up to very high levels.  Of course all of those things were going to have an effect on the economy.  In addition, all of the long-term trends that have been destroying the U.S. economy for decades have not been taken a breather.  In fact, the truth is that all of our long-term economic problems have been accelerating.  So yes, the sky is falling, it is time to panic and the U.S. economy really has fallen and it really can’t get up.  It is just that everyone in the mainstream media seems to have believed that Ben Bernanke and Barack Obama would just sprinkle a bunch of fairy dust on the economy and everything would just magically get better.  Well, in the real world things simply do not work that way.

Despite an unprecedented debt binge by the federal government and nightmarish money printing by the Federal Reserve, the economic downturn continues to drag on.  Andrew Barber, a strategist at Waverly Advisors in Corning, New York recently told CNN the following….

“People are starting to see that this sort of malaise is not just going to go away no matter what you do.”

And “malaise” is a really good word for what we have been experiencing.  For those that remember the late 1970s, what we are going through today is similar in a lot of ways.

But what is perhaps even more frightening is that 2011 is starting to look a lot like 2008 all over again.

In particular, we are starting to see some real signs of instability in the financial markets.

When Moody’s downgraded Greek debt again on Wednesday all the way downto Caa1, I was only moderately alarmed.  The truth is that everyone knows Greece is a basket case so a debt downgrade wasn’t really all that surprising.

When Moody’s announced that it plans to review the U.S. government’s AAA debt rating “if there is no progress on increasing the statutory debt limit in coming weeks” that got the attention of a lot of people around the world, but it was not totally unexpected. Moody’s is telling Congress that they better raise the debt ceiling or else.  A lot more pressure will be applied to Congress before this is over.

When Moody’s warned that it may downgrade the debt ratings of Bank of America, Citigroup and Wells Fargo, that really set off alarm bells for me.

Do you all remember what set off the financial panic in 2008?

Do the names “Bear Stearns” and “Lehman Brothers” ring a bell?

Well, right now there are some frightening indications that we may see more trouble at some “too big to fail” institutions.

But will there be any willingness to do more bailouts this time?


 

Right now the financial markets are closely mirroring their performance just prior to the financial collapse of 2008.  One great example of this is these charts which were recently posted by the Financial Armageddon blog.  It looks like bank stocks may once again be leading the way down.

Hopefully the financial system can hold together and we won’t have a repeat of 2008 right now, because if it happens it is going to be really messy.

But even without a “financial collapse” we already have all of the economic problems that we can handle.

Robert Brusca, the chief economist at FAO Economics, is being quoted by CNNas saying the following….

“We’ve had a poor economic recovery to begin with, and now it appears to be segueing into an end.”

At this point, U.S. consumer confidence is already lower than it was back in September 2008 when Lehman Brothers collapsed.  U.S. consumers are holding on to their money more tightly these days and that is not a good sign for an economy that is so highly dependent on consumer spending.

The latest manufacturing numbers have also been very distressing.  Measures of manufacturing activity all over the world are indicating that we have now entered an economic slowdown.  This is also similar to what we saw a few years ago.

We should all feel really bad for anyone that is entering the workforce right now.  We are in the midst of graduation season, and the only thing that our new graduates have to look forward to is an economic crisis that never seems to end.

On a recent article entitled “Global Financial Markets Tremble As Bad Economic News Continues To Pour In” a reader named Esta left the following comment….

I feel sad for yet another year of graduates entering a horrible job market. I recently read, and I think it was in the mainstream media, that only half the 2010 college grads have found jobs of any kind, only half of those have found jobs requiring a college education, and that 85 percent of all grads moved right back in with their parents. The job growth rate is so low that we keep employing fewer and fewer people as a percentage of our adult population. Why isn’t that still a recession?

What a future our college graduates have to look forward to, eh?  Moving back in with your parents, a crappy job (if you can find one) and a pile of student loan debt that will crush you financially for decades.

We are always told that “more education” is the answer, but even many of our most highly educated young people can’t find jobs.  In fact, it turns out that a third of last year’s law school graduates aren’t even practicing law….

The law school class of 2010 is making news for all the wrong reasons. The budding legal minds who managed to find employment last year have set a new record–only 68.4 percent of them are in jobs that require them to pass the bar exam, the lowest share since the Association for Legal Professionals began collecting data.

Now it looks like the economy is going to starting heading downhill once again.

What is that going to do to the job market?

Last year, only 45.4% of Americans had jobs.  That was the lowest figure since 1983.

In some states it was even worse than that.  In states like California, Arizona and Mississippi only about 37 percent of people had a job last year.

The economic news just seems to get worse and worse and worse.  The American people have been relatively calm over the past several years as they have waited for the promised “economic recovery”, but what do you think is going to happen if we have another major economic downturn and unemployment spikes back up by several more percentage points?

And what in the world can our “leaders” really do to “help” the economy if we do have a repeat of 2008?

We are already running trillion dollar deficits.

The Federal Reserve is already printing money like it is going out of style.

So what would their next moves be?

Most Americans have no idea how fragile our financial system and our economy really are.

Let us hope and pray that things can hold together for as long as possible, because when the next wave of the economic collapse happens it is going to be really, really messy.

 

After the Dollar: What Comes Next?


Peter Schiff

My readers are familiar with my forecast that the US dollar is in terminal decline. America is tragically bankrupt, unable to pay its lenders without printing the dollars to do so, and enmeshed in an economic depression. The clock is ticking until the dollar faces a crisis of confidence like every other bubble before it. The key difference between this collapse and, say, the bursting of the housing bubble is that the US dollar is the backbone of the global economy. Its conflagration will leave a vacuum that needs to be filled.

Mainstream commentators often discuss three main contenders for the role: the euro, the yen, or China’s RMB (known colloquially as the “yuan”). These other currencies, however, each suffer from a critical flaw that makes them unready to carry the reserve currency role in time for the dollar’s collapse. When it comes to fiat alternatives, it appears the world would be going out of the frying pan and into the fire.

EURO: FRAYING AT THE EDGES

The euro is a ten-year-old experiment in uniting divergent political, economic, and cultural interests under one monolithic fiat currency held in the hands of one very powerful central bank.

If managed correctly, such a currency could serve to keep its member-governments honest – but that is not the world in which we live. Instead, the fiscally irresponsible members are discussing ditching the currency at the first sign of trouble. That is, they’d rather have their own national currencies to inflate in order to cover over their burdensome public debts. So, in order to keep the euro together, creditor states have been strong-armed into bailouts of the debtors – even though such measures violate the compact that created the common currency.

The question becomes: how long do Germans – still wrought with the memory of Weimar hyperinflation and the rise of the Third Reich – want to keep printing euros to pay the debts of the spendthrift Greeks? How many German politicians will ride to electoral victory on promises of unending bailouts and higher prices across Europe? This is the fundamental flaw of the euro.

And, of course, Greece isn’t the only problem. Ireland and Portugal are vying for second-worst debt crisis in Europe. Spain, representing over 12% of eurozone GDP, saw sovereign yields jump from 4.1% at the beginning of 2010 to 6.6% by the end of the year. Yields on most other eurozone countries have been rising as well – a clear indication that the eurozone is an increasingly risky bet.

While a euro secession by the PIGS could actually leave a stronger currency region at the end, it would be a traumatic event. That prospect is undermining confidence in the euro at just the time when the world is considering where to go next.

Perhaps a mature currency that didn’t falter so easily amidst the recent global financial crisis would be a good contender for the world’s reserve. The euro, by contrast, is both young and in serious trouble. If less than two-dozen nations are too immense a burden for the euro to shoulder, should we expect better results when it’s stretched across two hundred?

YUAN: CAPITALIST COUNTRY, COMMUNIST CURRENCY

The investment community is slowly coming around to my long-held excitement about the miraculous growth of China. This is no frenzy. In fact, if anything, I think many are still too skittish when it comes to this market. Yet, those that are jumping on the bandwagon are now proclaiming the Chinese yuan as the logical successor to the dying dollar. But while China is becoming an immense economic force, the yuan itself is hobbled by the country’s communist past.

Foremost, China enforces stern capital controls on the yuan. A reserve currency must be freely and easily exchangeable with other currencies. Even within China’s borders, one cannot exchange large amounts of yuan for dollars or any other currency.

China is slowly undertaking reforms to relieve these controls, but remember they were not put there arbitrarily. The controls allow China to suppress the value of the yuan, thereby maintaining artificially high exports, among other consequences. If China allowed the yuan to trade freely, it would lose the power it maintains over its money – and by extension, its people.

Let’s remember that all fiat currencies are routinely manipulated and inflated. The People’s Bank of China has reported M2 growth of over 140% in the past five years – almost entirely to maintain a stable exchange rate with a depreciating dollar. Given rampant inflation, combined with exchange restrictions and a serious lack of transparency, the yuan is simply not ready for primetime.

YEN: BLACK HOLE OF DEBT

The Japanese yen is the third amigo at the international fiat fiesta. While it doesn’t suffer the structural risks of the euro, the yen is subsisting in an environment of massive sovereign debt. Japan’s debt-to-GDP ratio is the highest of any developed country at 225%, meaning there is a perpetual impetus to print more yen to pay it back. The yen must endure this debt-noose, making it a poor alternative to the USD, which suffers the very same problem.

While I believe Japan is in a much better position because it generally maintains a net trade surplus and because most of their debt is held domestically, it’s still not a stable unit with which to conduct world trade.

Perhaps more importantly, with a world seeking yen reserves, the price of yen would increase drastically. This is politically unpalatable in Japan, where the export lobby is constantly trying to push the yen down to boost their sales overseas.

These two factors combine in such a way as to make the yen a plainly infeasible reserve currency. The appreciation in yen value would simultaneously make Japan’s debt problems worse and cause its export industry to suffer greatly, meaning that Japan probably doesn’t want this role any more than we want her to have it.

As an aside, if you type “yen as reserve currency” into Google, it will ask, “Did you mean: yuan as reserve currency?” I guess even the world’s smartest search engine doubts the yen could fill that role.

THE SIMPLEST ANSWER IS OFTEN THE BEST

As J.P. Morgan famously said to Congress in 1913, “gold is money and nothing else.” Morgan meant that gold was unmatched in its effectiveness as a store of value and medium of exchange.

Given that his namesake bank started accepting physical gold bullion this past February as counterparty collateral, why should the trend of a widespread return to gold be considered only a remote possibility? On the contrary, it should be expected – if for no other reason than every other currency is fundamentally dismal.

Markets are powerful things, and require a reliable medium of exchange. The call for sound money is not just philosophical; it is derived from the market itself. Throughout human history, merchants have always turned to pure gold and silver over every pretender. This is not the first experiment in a paper money system, nor is it the first widespread debasement of money. In fact, the lessons of history were impressed upon our well-read Founding Fathers to the point that they included the following clear language in the Constitution: “No state shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.”

While it has always been possible that another fiat currency would rise up to take the dollar’s place, and thereby keep this irrational experiment in valueless money going awhile longer, the particular circumstances that abound today make it seem less and less likely to me. Instead, I’m seeing signs that the world is moving back to gold at a breakneck speed.

This is a return to normal and has many positive implications for the global economy. It’s certainly a trend we can all welcome, and profit from.

The Canadian Dollar is No Haven from a US Dollar Collapse


Jeff Berwick

We spend a lot of time here at The Dollar Vigilante chastising Ben Bernanke and the Federal Reserve and preparing our subscribers for a collapse of the US dollar – something which has been paying off very handsomely, with gold and silver at record highs this year – but don’t take that to mean that we prefer any other fiat currency. No fiat currency in the western world is any better than the US Dollar. In fact, in every case, they are worse.

The Federal Reserve is still, despite its secrecy, one of the most transparent central banks in the world. It also has, over the last century, despite inflating the dollar downward by 97%, been one of the least inflationary banks.

We often hear of people denounce the US dollar and correctly divine that it is headed to worthlessness, but, in the same breath, they say they own other fiat currencies like the Canadian dollar.

This is a case of ignorance of the workings of banks like the Bank of Canada – or virtually any other major central bank in the world, for that matter.

There are numerous reasons why the Canadian dollar will not survive a US dollar collapse:

  • The Canadian economy is very tied to the US economy
  • The Canadian Government is intent on devaluing the Canadian dollar alongside the US
  • The Bank of Canada has virtually no gold backing the Canadian dollar
  • All that does back the Canadian dollar is the US dollar and other fiat currencies
  • The Canadian dollar is not used globally


The Canadian Economy is Very Tied to the US Economy

We need only show one graphic to make this point:

Balance of Payments - Canada's Major Trading Partners

It is obvious that if the US goes through a monetary collapse or even just a major depression, the Canadian economy will be hobbled significantly.


The Canadian Government is intent on devaluing the Canadian dollar alongside the US

The Canadian Government has made it painfully clear that they have no intention of allowing the Canadian dollar to rise much more than par with the US dollar. The reason: lobby groups and voting blocks from export based industries will depose of any government which allows this to happen.

Canadian Dollar


The Bank of Canada has virtually no gold backing the Canadian dollar

Since 1980, Canada has sold 99.5% of it gold. Canada now has the 78th largest holding of gold of all countries. Countries such as Bolivia, Bangladesh, Cambodia and Macedonia have more gold than does the Bank of Canada.

The Bank of Canada used to have 653 tonnes but today it only holds 3.4 tonnes. To give a rough idea of what all of Canada’s gold holdings look like, we created this rough estimate of what it would look like if Canadian Prime Minister, Stephen Harper, was standing beside it:

Canada Gold Reserves


All that does back the Canadian dollar is the US dollar and other fiat currencies

If you believe that the US dollar is headed to zero then it makes no sense to own the Canadian dollar. Practically all that backs the Canadian dollar is US dollars.

Total Bank of Canada Reserves


The Canadian dollar is not used globally

The Canadian dollar is not a true global currency. There is only one, current, true global currency: the US dollar. It is accepted on the streets of New Delhi, Phnom Penh, Buenos Aires, Moscow and practically everywhere. Try bringing some Canadian monopoly money to Shanghai and try buying some street noodles. You’ll see how valid of a global currency the Canadian dollar is. No soup for you!

U.S. Government Squeezing Americans to Pay Its Debts


Jeff Berwick

Anyone aware of the U.S. government’s real financial situation knows that time is running out.

The government has $15.5 trillion in admitted debts but those debts, when calculated under Generally Accepted Accounting Principles (GAAP), or ‘honest accounting’, is over $70 trillion. $70 trillion divided by 300 million+ Americans works out to $233,000 per person in U.S. federal government debt and obligations. Or nearly $1 million per family of four.

That does not included personal debt, state debt or municipal debt.

This debt plus an economy that has been completely hollowed out by the Federal Reserve system ensures that there is no way the U.S. government can ever pay off this debt. And, everyone knows it.

It seems that the U.S. government is moving very quickly to enact any legal measure or fine against Americans and to make it nearly impossible for any American to escape payment to pay for their sins are everywhere.

It Is now Easier to Enter the U.S. Than It Is To Leave. Customs agents and cash sniffing dogs stand on guard at most international US airports checking to make sure no one has more than $10,000 in cash without declaring it. The standard response to this is: “They are only making it difficult for criminals to move about and to transfer money”.

Well, the problem is, the U.S. government is moving very quickly to make it so almost everyone is seen as a criminal in the eyes of the U.S. legal system.

Now We Are All Criminals

It is already said that there are so many laws, rules and regulations in the U.S. that each person in the US breaks at least one law per day, if not much more – without even knowing it. But the U.S. government is becoming more obvious in how it will go about making everyone a criminal and fining them ridiculous amounts of money in doing so.

Last week, an American family who said they were just trying to teach their son about responsibility and entrepreneurship was fined $90,000 by the USDA because the teenager sold $4,600 worth of bunnies in one calendar year without a license. Not only were they demanded to pay $90,000, but if they did not pay within a short period of time the fine could increase to as high as $4 million.

This one case only goes to show how easy it is, within the system, to take any small transgression and to blackmail someone for, for all intents and purposes, every penny they have – or more.

Students to be Forced into the Military to Repay Debts

The U.S. college system draws people into large debts (“Debtucation“) and student debt is now larger than credit card debt in the U.S. It is the U.S. government itself that has made college education so expensive by offering student loans to anyone who can fog a mirror but again they have shown their intentions by making student loan debt the only debt which cannot be forgiven. A 2005 decree from the Bush Administration stated that student loan debt could not be dissolved through bankruptcy proceedings. The only other scenario where this “no-escape” clause exists is debt from criminal acts and debt from fraud. In other words, student loan debt is seen, by the US Government, as being similar to proceeds from crime!

What will this mean with more young Americans in student loan debt than any other time? It’s anyone’s guess but it would not be out of the realm of possibility to force students who cannot pay off their debt into the military to repay their debt.

And with the US military with 800 military bases worldwide with US military personnel in 156 countries and US Military bases in 63 countries and currently occupying or attacking Iraq, Afghanistan, Libya and with other drone operations in places like Yemen and Pakistan, the US is all but ensuring that it is screwing around in enough places to eventually draw in one of the big boys. Russia, China or Iran.

And, hey, we Gotta Support the Troops, right?

US Government Eyeing Pensions and Retirement Funds

On the other end of the spectrum, seniors and those in retirement, the U.S. Government recently made it very obvious that funds held in retirement accounts are going to be the first to be taken when times get tough.

In the recent scuffle over raising the debt ceiling, the U.S. government was short of some funds after reaching the United States’ $14.3 trillion debt ceiling last Monday. Where was the very first place the U.S. government went to find new sources of funds? Two weeks ago they dipped into state pension funds in order to make payments.

It is no great leap to think that as things worsen in the U.S. government’s financial situation, which is all but guaranteed, that the first thing that will be nationalized will be all tax-sheltered retirement accounts. After all, we all have to do our part to pay for the debts of the government, right?

Anyone living off of U.S. pensions should be very worried. And anyone with significant funds in retirement accounts should be running, not walking, to get any funds they can outside of the direct control of the U.S. government.

Get a 2nd Passport

There are two ways to look at the upcoming battle between the US Government and US citizens. You can stay and fight or you can run and hide.

If you plan to stay and fight we wish you good luck and will try to support your efforts in any way we can.

If you would rather run and hide then one of the first things you should be looking to do at this time is to at least get a second passport. This is still legal for Americans and there are many options.

As well, if you have the financial capability, we highly recommend buying some foreign real estate – preferably somewhere you like to live.

2011 Last Year to Get Out

Most things are still legal in the US. It is still legal to have foreign bank accounts – although you are required by law to report them to the government. It is still legal to get a second passport. It is still legal to move assets in your IRA outside of the country. It is still legal to move money outside of the country and buy foreign real estate.

The window of opportunity is closing. If you live in the U.S. and still have all your assets inside of the U.S., you likely have months, not years, to internationally diversify your assets and to get your affairs in order. Anything much after 2011 is taking a big risk of losing it all.

U-G-L-Y, It Ain’t Got No Alibi


Michael Ashton

Well, it’s the first day of the new month and suddenly, all of those investors who really loved stocks between 3:55 and 4:00 yesterday decided they really hate them today. Stocks belly-flopped (I’m saving “plunged” for something more than 2.5%), back into last week’s consolidation range. So much for the short-covering rally on the Greece news!

Incidentally, Greece was downgraded to Caa1 today from B1 by Moody’s with a continuing negative outlook. Since there is not much between here and “D,” which indicates an issuer is actually in default, the Moody’s outlook is essentially a warning that they at least are not yet convinced that Greece can avoid default – whatever the politicos are saying today. The ‘plan’ being readied involves (and I’m being serious here) asking investors to invest in new debt when their existing bonds mature. They’re also examining “the feasibility of voluntary rescheduling,” which unlike a restructuring would not be a technical default. Seriously. The main problem this alcoholic says he has, apparently, is access to booze so would you all please take a turn tending bar?

But today for a change really was about the economic data, which was clear and uncontroverted: it sucked. The ADP employment measure came in at 38k, missing expectations by 137k. Honestly the direction shouldn’t be very surprising, as I pointed out yesterday, but the degree of the miss was pretty bad.

None of this data is a measurement of reality, though, but just an experiment. If the ADP report had occurred in a vacuum, we might not be eager to reject a null hypothesis that the true underlying run rate hadn’t changed very much. After all, if 175k per month is the real level, then occasionally you’ll get a clunker and occasionally a moon shot. That’s just the nature of a random variable. But in this case the ADP result is consonant with what we are seeing in other employment indicators. Initial Claims have been weak recently and the Consumer Confidence “Jobs Hard to Get” indicator just ticked up. This all argues for a weak Payrolls number on Friday, and economists’ estimates are dropping. The average forecast on Bloomberg of the 16 economists who changed their forecasts today is 138k. The average forecast for the 31 economists still showing a forecast from before ADP is 210k. Obviously, the former is easier to beat than the latter, but I will note that the current low estimate is 75k from Ian Shepherdson of High Frequency Economics, and he’s one of the sharpest guys out there. Tell him I sent you.

I’d also warned that there was downside risk to ISM, and indeed it printed at 53.5 versus 62.7 last month and expectations for 58.2. That’s a big miss in a slow-moving indicator. The subcomponents were uniformly bad. Order Backlogs fell to 50.5 from 61.0, Production dropped to 54.0 from 63.8, Employment skittered to 58.2 from 62.7, and New Orders skated to 51.0 from 61.7. Overall, the Manufacturing ISM report was the weakest since 2009 (see Chart).

ISM Mfg PMI SA Chart
Tom Madell Things just stopped getting better.

And did I mention car sales yesterday as well? To make it a clean sweep, Total Vehicle Sales (expected to be 12.44mm vs 13.14mm last month) dipped to 11.76mm, the worst reading of the year and a level that we have only seen previously in recessions (see Chart). Remember, these are car sales, not assemblies, so we’re looking at demand and not a tsunami effect.

US Auto Sales Total Annualized SA
Charts like this are why most people (not economists) feel like we’re still in recession.

The Dow dropped 279 points, and the S&P -2.3%. (Volumes were still low, only 1.1bln, although that was the highest total since March triple-witching except for yesterday’s month-end spike). The 10y note yield dropped 12bps to 2.94%, and the 10y TIPS to 0.69%. 10y inflation swaps fell 3-4bps, but the front end fared worse with NYMEX Unleaded down more than 5%. Commodities ex-energy, however, were only -0.5%. The weaker the data get, the more chatter there will be about QE3. I think QE3 is very unlikely unless the economy simply falls off a cliff or hubris reaches new heights at the Federal Reserve and they come to believe their copy about being able to easily reverse extraordinary liquidity measures. There seems to be enough disagreement about that already, though, that I think QE3 will not happen.

However, remember that inflation is a global phenomenon that depends on global factors. Around two-thirds of U.S. inflation is sourced from the “global inflation process,” which means that inflation-phobes must worry about more than QE3. We also have to worry about whether the ECB will retract its absurd tightening move, and/or pursue more explicit liquidity-adding measures as it attempts to rescue more passengers than are supposed to be trying to fit in the lifeboat at once. Despite the fact that the ECB has Bundesbank DNA, it is easier for me to imagine the ECB interceding to save the many European banks that are in trouble than it is for me to see the Fed tying another one on at the moment.

And make no mistake, many European banks are in trouble. How bad is it? Well, we won’t really know for a while, as word came today that the release of results of the current round of ‘stress tests’ that were supposed to be completed in June will be delayed until July. According to the article in the Wall Street Journal, the newer tests (which are supposed to be less make-believe than the ones from last year) produced somewhat implausible results.

“…the banks generally seemed excessively upbeat about how they would fare in a new downturn compared to how they weathered past recessions. The EBA’s specific concerns relate to certain assumptions banks are making about default rates for some customers and how their funding bases would hold up in a crisis…”

The “default rates for customers” here mentioned doesn’t mean sovereigns. The European Banking Authority is requiring banks to report their holdings of sovereign debt, but “the tests won’t examine banks’ abilities to absorb losses on their holdings of struggling countries’ sovereign bonds.” Fortunately, no bank has more than a few tens of billions of Euros invested in those bonds, rediscounted at the ECB and carried at par. (In a story last year, the WSJ estimated the exposure of German and French banks to Greek borrowers alone at $119bln and more than $900bln to Greece, Portugal, Ireland, and Spain but who knows where that exposure sits now.)

So, as growth continues to surprise on the downside – the Citi Economic Surprise index now stands at -91.3, a level exceeded on the downside only in the aftermath of the Bear Stearns crisis and the late-2008 crunch – the situation is growing uglier. It is not terribly surprising that investors are slipping into Treasuries despite the low yields, and others are wondering whether they can get out of the high yield door before everyone else tries to. It is not shaping up to be a very fun summer.

Tomorrow is a holding pattern, however. Initial Claims (Consensus: 417k from 424k) is the important indicator to watch; a significant upside surprise could break some eggs as investors get off the bus before Employment. There are other releases, such as the final Q1 Productivity and Cost figures, but labor is the theme of the week. Be careful out there.

The Federal Reserve Cartel: The Eight Families

Dean Henderson
Global Research
June 2, 2011

(Part one of a four-part series)

 

The Four Horsemen of Banking (Bank of America, JP Morgan Chase, Citigroup and Wells Fargo) own the Four Horsemen of Oil (Exxon Mobil, Royal Dutch/Shell, BP Amoco and Chevron Texaco); in tandem with Deutsche Bank, BNP, Barclays and other European old money behemoths.  But their monopoly over the global economy does not end at the edge of the oil patch.

 

According to company 10K filings to the SEC, the Four Horsemen of Banking are among the top ten stock holders of virtually every Fortune 500 corporation.[1]

 

So who then are the stockholders in these money center banks?

 

This information is guarded much more closely.  My queries to bank regulatory agencies regarding stock ownership in the top 25 US bank holding companies were given Freedom of Information Act status, before being denied on “national security” grounds.  This is rather ironic, since many of the bank’s stockholders reside in Europe.

 

One important repository for the wealth of the global oligarchy that owns these bank holding companies is US Trust Corporation – founded in 1853 and now owned by Bank of America.  A recent US Trust Corporate Director and Honorary Trustee was Walter Rothschild.  Other directors included Daniel Davison of JP Morgan Chase, Richard Tucker of Exxon Mobil, Daniel Roberts of Citigroup and Marshall Schwartz of Morgan Stanley. [2]

 

J. W. McCallister, an oil industry insider with House of Saud connections, wrote in The Grim Reaper that information he acquired from Saudi bankers cited 80% ownership of the New York Federal Reserve Bank- by far the most powerful Fed branch- by just eight families, four of which reside in the US.  They are the Goldman Sachs, Rockefellers, Lehmans and Kuhn Loebs of New York; the Rothschilds of Paris and London; the Warburgs of Hamburg; the Lazards of Paris; and the Israel Moses Seifs of Rome.

 

CPA Thomas D. Schauf corroborates McCallister’s claims, adding that ten banks control all twelve Federal Reserve Bank branches.  He names N.M. Rothschild of London, Rothschild Bank of Berlin, Warburg Bank of Hamburg, Warburg Bank of Amsterdam, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Bank of Italy, Goldman Sachs of New York and JP Morgan Chase Bank of New York.  Schauf lists William Rockefeller, Paul Warburg, Jacob Schiff and James Stillman as individuals who own large shares of the Fed. [3]  The Schiffs are insiders at Kuhn Loeb.  The Stillmans are Citigroup insiders, who married into the Rockefeller clan at the turn of the century.

 

Eustace Mullins came to the same conclusions in his book The Secrets of the Federal Reserve, in which he displays charts connecting the Fed and its member banks to the families of Rothschild, Warburg, Rockefeller and the others. [4]

 

The control that these banking families exert over the global economy cannot be overstated and is quite intentionally shrouded in secrecy.  Their corporate media arm is quick to discredit any information exposing this private central banking cartel as “conspiracy theory”.  Yet the facts remain.


 

 

The House of Morgan

 

The Federal Reserve Bank was born in 1913, the same year US banking scion J. Pierpont Morgan died and the Rockefeller Foundation was formed.  The House of Morgan presided over American finance from the corner of Wall Street and Broad, acting as quasi-US central bank since 1838, when George Peabody founded it in London.

 

Peabody was a business associate of the Rothschilds.  In 1952 Fed researcher Eustace Mullins put forth the supposition that the Morgans were nothing more than Rothschild agents.  Mullins wrote that the Rothschilds, “…preferred to operate anonymously in the US behind the facade of J.P. Morgan & Company”. [5]

 

Author Gabriel Kolko stated, “Morgan’s activities in 1895-1896 in selling US gold bonds in Europe were based on an alliance with the House of Rothschild.” [6]

 

The Morgan financial octopus wrapped its tentacles quickly around the globe.  Morgan Grenfell operated in London.  Morgan et Ceruled Paris.  The Rothschild’s Lambert cousins set up Drexel & Company in Philadelphia.

 

The House of Morgan catered to the Astors, DuPonts, Guggenheims, Vanderbilts and Rockefellers.  It financed the launch of AT&T, General Motors, General Electric and DuPont.  Like the London-based Rothschild and Barings banks, Morgan became part of the power structure in many countries.

 

By 1890 the House of Morgan was lending to Egypt’s central bank, financing Russian railroads, floating Brazilian provincial government bonds and funding Argentine public works projects.  A recession in 1893 enhanced Morgan’s power.  That year Morgan saved the US government from a bank panic, forming a syndicate to prop up government reserves with a shipment of $62 million worth of Rothschild gold. [7]

 

Morgan was the driving force behind Western expansion in the US, financing and controlling West-bound railroads through voting trusts.  In 1879 Cornelius Vanderbilt’s Morgan-financed New York Central Railroad gave preferential shipping rates to John D. Rockefeller’s budding Standard Oil monopoly, cementing the Rockefeller/Morgan relationship.

 

The House of Morgan now fell under Rothschild and Rockefeller family control.  A New York Herald headline read, “Railroad Kings Form Gigantic Trust”.  J. Pierpont Morgan, who once stated, “Competition is a sin”, now opined gleefully, “Think of it.  All competing railroad traffic west of St. Louis placed in the control of about thirty men.”[8]

 

Morgan and Edward Harriman’s banker Kuhn Loeb held a monopoly over the railroads, while banking dynasties Lehman, Goldman Sachs and Lazard joined the Rockefellers in controlling the US industrial base. [9]

 

In 1903 Banker’s Trust was set up by the Eight Families.  Benjamin Strong of Banker’s Trust was the first Governor of the New York Federal Reserve Bank.  The 1913 creation of the Fed fused the power of the Eight Families to the military and diplomatic might of the US government.  If their overseas loans went unpaid, the oligarchs could now deploy US Marines to collect the debts.  Morgan, Chase and Citibank formed an international lending syndicate.

 

The House of Morgan was cozy with the British House of Windsor and the Italian House of Savoy.  The Kuhn Loebs, Warburgs, Lehmans, Lazards, Israel Moses Seifs and Goldman Sachs also had close ties to European royalty.  By 1895 Morgan controlled the flow of gold in and out of the US.  The first American wave of mergers was in its infancy and was being promoted by the bankers.  In 1897 there were sixty-nine industrial mergers.  By 1899 there were twelve-hundred.  In 1904 John Moody – founder of Moody’s Investor Services – said it was impossible to talk of Rockefeller and Morgan interests as separate. [10]

 

Public distrust of the combine spread.  Many considered them traitors working for European old money.  Rockefeller’s Standard Oil, Andrew Carnegie’s US Steel and Edward Harriman’s railroads were all financed by banker Jacob Schiff at Kuhn Loeb, who worked closely with the European Rothschilds.

 

Several Western states banned the bankers.  Populist preacher William Jennings Bryan was thrice the Democratic nominee for President from 1896 -1908.  The central theme of his anti-imperialist campaign was that America was falling into a trap of “financial servitude to British capital”.  Teddy Roosevelt defeated Bryan in 1908, but was forced by this spreading populist wildfire to enact the Sherman Anti-Trust Act.  He then went after the Standard Oil Trust.

 

In 1912 the Pujo hearings were held, addressing concentration of power on Wall Street.  That same year Mrs. Edward Harriman sold her substantial shares in New York’s Guaranty Trust Bank to J.P. Morgan, creating Morgan Guaranty Trust.  Judge Louis Brandeis convinced President Woodrow Wilson to call for an end to interlocking board directorates.  In 1914 the Clayton Anti-Trust Act was passed.

 

Jack Morgan – J. Pierpont’s son and successor – responded by calling on Morgan clients Remington and Winchester to increase arms production.  He argued that the US needed to enter WWI.  Goaded by the Carnegie Foundation and other oligarchy fronts, Wilson accommodated.  As Charles Tansill wrote in America Goes to War, “Even before the clash of arms, the French firm of Rothschild Freres cabled to Morgan & Company in New York suggesting the flotation of a loan of $100 million, a substantial part of which was to be left in the US to pay for French purchases of American goods.”

 

The House of Morgan financed half the US war effort, while receiving commissions for lining up contractors like GE, Du Pont, US Steel, Kennecott and ASARCO.  All were Morgan clients.  Morgan also financed the British Boer War in South Africa and the Franco-Prussian War.  The 1919 Paris Peace Conference was presided over by Morgan, which led both German and Allied reconstruction efforts. [11]

 

In the 1930’s populism resurfaced in America after Goldman Sachs, Lehman Bank and others profited from the Crash of 1929. [12]  House Banking Committee Chairman Louis McFadden (D-NY) said of the Great Depression, “It was no accident.  It was a carefully contrived occurrence…The international bankers sought to bring about a condition of despair here so they might emerge as rulers of us all”.

 

Sen. Gerald Nye (D-ND) chaired a munitions investigation in 1936.  Nye concluded that the House of Morgan had plunged the US into WWI to protect loans and create a booming arms industry.  Nye later produced a document titled The Next War, which cynically referred to “the old goddess of democracy trick”, through which Japan could be used to lure the US into WWII.

 

In 1937 Interior Secretary Harold Ickes warned of the influence of “America’s 60 Families”.  Historian Ferdinand Lundberg later penned a book of the exact same title.  Supreme Court Justice William O. Douglas decried, “Morgan influence…the most pernicious one in industry and finance today.”

 

Jack Morgan responded by nudging the US towards WWII.  Morgan had close relations with the Iwasaki and Dan families – Japan’s two wealthiest clans – who have owned Mitsubishi and Mitsui, respectively, since the companies emerged from 17th Century shogunates.  When Japan invaded Manchuria, slaughtering Chinese peasants at Nanking, Morgan downplayed the incident.  Morgan also had close relations with Italian fascist Benito Mussolini, while German Nazi Dr. Hjalmer Schacht was a Morgan Bank liaison during WWII.  After the war Morgan representatives met with Schacht at the Bank of International Settlements (BIS) in Basel, Switzerland. [13]

 

The House of Rockefeller

 

BIS is the most powerful bank in the world, a global central bank for the Eight Families who control the private central banks of almost all Western and developing nations. The first President of BIS was Rockefeller banker Gates McGarrah- an official at Chase Manhattan and the Federal Reserve.  McGarrah was the grandfather of former CIA director Richard Helms.  The Rockefellers- like the Morgans- had close ties to London. David Icke writes in Children of the Matrix, that the Rockefellers and Morgans were just “gofers” for the European Rothschilds. [14]

 

BIS is owned by the Federal Reserve, Bank of England, Bank of Italy, Bank of Canada, Swiss National Bank, Nederlandsche Bank,Bundesbank and Bank of France.

 

Historian Carroll Quigley wrote in his epic book Tragedy and Hope that BIS was part of a plan, “to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole…to be controlled in a feudalistic fashion by the central banks of the world acting in concert by secret agreements.”

 

The US government had a historical distrust of BIS, lobbying unsuccessfully for its demise at the 1944 post-WWII Bretton Woods Conference.  Instead the Eight Families’ power was exacerbated, with the Bretton Woods creation of the IMF and the World Bank.  The US Federal Reserve only took shares in BIS in September 1994. [15]

 

BIS holds at least 10% of monetary reserves for at least 80 of the world’s central banks, the IMF and other multilateral institutions.  It serves as financial agent for international agreements, collects information on the global economy and serves as lender of last resort to prevent global financial collapse.

 

BIS promotes an agenda of monopoly capitalist fascism.  It gave a bridge loan to Hungary in the 1990’s to ensure privatization of that country’s economy.  It served as conduit for Eight Families funding of Adolf Hitler- led by the Warburg’s J. Henry Schroeder and Mendelsohn Bank of Amsterdam.  Many researchers assert that BIS is at the nadir of global drug money laundering. [16]

 

It is no coincidence that BIS is headquartered in Switzerland, favorite hiding place for the wealth of the global aristocracy and headquarters for the P-2 Italian Freemason’s Alpina Lodge and Nazi International.  Other institutions which the Eight Families control include the World Economic Forum, the International Monetary Conference and the World Trade Organization.

 

Bretton Woods was a boon to the Eight Families.  The IMF and World Bank were central to this “new world order”.  In 1944 the first World Bank bonds were floated by Morgan Stanley and First Boston.  The French Lazard family became more involved in House of Morgan interests.  Lazard Freres- France’s biggest investment bank- is owned by the Lazard and David-Weill families- old Genoese banking scions represented by Michelle Davive.  A recent Chairman and CEO of Citigroup was Sanford Weill.

 

In 1968 Morgan Guaranty launched Euro-Clear, a Brussels-based bank clearing system for Eurodollar securities.  It was the first such automated endeavor.  Some took to calling Euro-Clear “The Beast”.  Brussels serves as headquarters for the new European Central Bank and for NATO.  In 1973 Morgan officials met secretly in Bermuda to illegally resurrect the old House of Morgan, twenty years before Glass Steagal Act was repealed.  Morgan and the Rockefellers provided the financial backing for Merrill Lynch, boosting it into the Big 5 of US investment banking.  Merrill is now part of Bank of America.

 

John D. Rockefeller used his oil wealth to acquire Equitable Trust, which had gobbled up several large banks and corporations by the 1920’s.  The Great Depression helped consolidate Rockefeller’s power.  His Chase Bank merged with Kuhn Loeb’s Manhattan Bank to form Chase Manhattan, cementing a long-time family relationship.  The Kuhn-Loeb’s had financed – along with Rothschilds – Rockefeller’s quest to become king of the oil patch.  National City Bank of Cleveland provided John D. with the money needed to embark upon his monopolization of the US oil industry.  The bank was identified in Congressional hearings as being one of three Rothschild-owned banks in the US during the 1870’s, when Rockefeller first incorporated as Standard Oil of Ohio. [17]

 

One Rockefeller Standard Oil partner was Edward Harkness, whose family came to control Chemical Bank.  Another was James Stillman, whose family controlled Manufacturers Hanover Trust.  Both banks have merged under the JP Morgan Chase umbrella.  Two of James Stillman’s daughters married two of William Rockefeller’s sons.  The two families control a big chunk of Citigroup as well. [18]

 

In the insurance business, the Rockefellers control Metropolitan Life, Equitable Life, Prudential and New York Life.  Rockefeller banks control 25% of all assets of the 50 largest US commercial banks and 30% of all assets of the 50 largest insurance companies. [19]  Insurance companies- the first in the US was launched by Freemasons through their Woodman’s of America- play a key role in the Bermuda drug money shuffle.

 

Companies under Rockefeller control include Exxon Mobil, Chevron Texaco, BP Amoco, Marathon Oil, Freeport McMoran, Quaker Oats, ASARCO, United, Delta, Northwest, ITT, International Harvester, Xerox, Boeing, Westinghouse, Hewlett-Packard, Honeywell, International Paper, Pfizer, Motorola, Monsanto, Union Carbide and General Foods.

 

The Rockefeller Foundation has close financial ties to both Ford and Carnegie Foundations.  Other family philanthropic endeavors include Rockefeller Brothers Fund, Rockefeller Institute for Medical Research, General Education Board, Rockefeller University and the University of Chicago- which churns out a steady stream of far right economists as apologists for international capital, including Milton Friedman.

 

The family owns 30 Rockefeller Plaza, where the national Christmas tree is lighted every year, and Rockefeller Center.  David Rockefeller was instrumental in the construction of the World Trade Center towers.  The main Rockefeller family home is a hulking complex in upstate New York known as Pocantico Hills.  They also own a 32-room 5th Avenue duplex in Manhattan, a mansion in Washington, DC, Monte Sacro Ranch in Venezuela, coffee plantations in Ecuador, several farms in Brazil, an estate at Seal Harbor, Maine and resorts in the Caribbean, Hawaii and Puerto Rico. [20]

 

The Dulles and Rockefeller families are cousins.  Allen Dulles created the CIA, assisted the Nazis, covered up the Kennedy hit from his Warren Commission perch and struck a deal with the Muslim Brotherhood to create mind-controlled assassins. [21]

 

Brother John Foster Dulles presided over the phony Goldman Sachs trusts before the 1929 stock market crash and helped his brother overthrow governments in Iran and Guatemala.  Both were Skull & Bones, Council on Foreign Relations (CFR) insiders and 33rd Degree Masons. [22]

 

The Rockefellers were instrumental in forming the depopulation-oriented Club of Rome at their family estate in Bellagio, Italy.  Their Pocantico Hills estate gave birth to the Trilateral Commission.  The family is a major funder of the eugenics movement which spawned Hitler, human cloning and the current DNA obsession in US scientific circles.

 

John Rockefeller Jr. headed the Population Council until his death. [23]  His namesake son is a Senator from West Virginia.  Brother Winthrop Rockefeller was Lieutenant Governor of Arkansas and remains the most powerful man in that state.  In an October 1975 interview with Playboy magazine, Vice-President Nelson Rockefeller- who was also Governor of New York- articulated his family’s patronizing worldview, “I am a great believer in planning- economic, social, political, military, total world planning.”

 

But of all the Rockefeller brothers, it is Trilateral Commission (TC) founder and Chase Manhattan Chairman David who has spearheaded the family’s fascist agenda on a global scale.  He defended the Shah of Iran, the South African apartheid regime and the Chilean Pinochet junta.  He was the biggest financier of the CFR, the TC and (during the Vietnam War) the Committee for an Effective and Durable Peace in Asia- a contract bonanza for those who made their living off the conflict.

 

Nixon asked him to be Secretary of Treasury, but Rockefeller declined the job, knowing his power was much greater at the helm of the Chase.  Author Gary Allen writes in The Rockefeller File that in 1973, “David Rockefeller met with twenty-seven heads of state, including the rulers of Russia and Red China.”

 

Following the 1975 Nugan Hand Bank/CIA coup against Australian Prime Minister Gough Whitlam, his British Crown-appointed successor Malcolm Fraser sped to the US, where he met with President Gerald Ford after conferring with David Rockefeller. [24]

 

Next Week: Part II: Freemasons & The Bank of the United States

 

[1] 10K Filings of Fortune 500 Corporations to SEC. 3-91

[2] 10K Filing of US Trust Corporation to SEC. 6-28-95

[3] “The Federal Reserve ‘Fed Up’. Thomas Schauf. www.davidicke.com 1-02

[4] The Secrets of the Federal Reserve. Eustace Mullins. Bankers Research Institute. Staunton, VA. 1983. p.179

[5] Ibid. p.53

[6] The Triumph of Conservatism. Gabriel Kolko. MacMillan and Company New York. 1963. p.142

[7] Rule by Secrecy: The Hidden History that Connects the Trilateral Commission, the Freemasons and the Great Pyramids. Jim Marrs. HarperCollins Publishers.New York. 2000. p.57

[8] The House of Morgan. Ron Chernow. Atlantic Monthly Press NewYork 1990

[9] Marrs. p.57

[10] Democracy for the Few. Michael Parenti. St. Martin’s Press. New York. 1977. p.178

[11] Chernow

[12] The Great Crash of 1929. John Kenneth Galbraith. Houghton, Mifflin Company. Boston. 1979. p.148

[13] Chernow

[14] Children of the Matrix. David Icke. Bridge of Love. Scottsdale, AZ. 2000

[15] The Confidence Game: How Un-Elected Central Bankers are Governing the Changed World Economy. Steven Solomon. Simon & Schuster. New York. 1995. p.112

[16] Marrs. p.180

[17] Ibid. p.45

[18] The Money Lenders: The People and Politics of the World Banking Crisis. Anthony Sampson. Penguin Books. New York. 1981

[19] The Rockefeller File. Gary Allen. ’76 Press. Seal Beach, CA. 1977

[20] Ibid

[21] Dope Inc.: The Book That Drove Kissinger Crazy. Editors of Executive Intelligence Review. Washington, DC. 1992

[22] Marrs.

[23] The Rockefeller Syndrome. Ferdinand Lundberg. Lyle Stuart Inc. Secaucus, NJ. 1975. p.296

[24] Marrs. p.53