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Sunday, October 20 - 1:55pmSanction this postReply
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Greenspan said:
"He said he is baffled by all the blame that has been piled on him. Since the recession, critics have said the increased money supply and low interest rates during his tenure at the Fed from 1987 to 2006 led to bubble investments. Mr. Greenspan first heard that theory, he says, in 2007, when John Taylor, a professor of economics at Stanford University who has advised Republicans, made the connection between easy money and the housing bubble. "It had absolutely nothing to do with the housing bubble," he says. "That's ridiculous." "

I'm baffled that he thinks so. How could low interest rates not seduce prospective home buyers into commitments that they couldn't afford at reasonable rates?

Sam



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Sunday, October 20 - 3:23pmSanction this postReply
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Sam,

1. Maybe he's an idiot.
2. Maybe he's kinda smart, but like God believing scientist (scientist except for some compartmental beliefs accepted via faith), he is in denial or refusing to think about this subject, maybe because it would then result in the destruction of his self confidence/self worth.
3. Maybe he's really smart, and he's chosen his path in life to be one who acts like an idiot in front of the press as a spokesman for the Fed's policies (no matter how corrupt they are) in exchange for being able to do whatever money can buy (all costs paid for by The Federal Reserve & friends).

I'd guess the answer lies somewhere between 2 and 3. Maybe he at times realizes this, but there's no way in hell he'd admit it to the press. 'Cause... what's going to happen to him if he betrays the Federal Reserve & friends? What would the mob of society do to him? He probably fears for his life. Does he have any children?



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Sunday, October 20 - 3:29pmSanction this postReply
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One outright lie he made in the article: He claimed that no one predicted the housing price crash of 2008. "Not a single major forecaster of note [predicted the housing price crash of 2008]" Its inconceivable that he doesn't know that Peter Schiff very publically predicted it. That pushes my suspicion towards #3.

Peter Schiff is a well known economic forecaster, the most well known to me. There's two Austrian: Peter Schiff and Jim Rogers. Is he not notable? Is he not major?
(Edited by Dean Michael Gores on 10/20, 3:36pm)




Post 3

Monday, October 21 - 5:33amSanction this postReply
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As I understand it, one major factor in the housing bubble boom and bust was the ability of lenders to create toxic loans to unworthy borrowers and then sell them as investments to other institutions. Had they not been able to engage in this deceptive practice, I doubt the bubble would have formed since the lenders would have had incentives to set the bar higher for loan worthiness. Can anyone argue against that?

I admit that the lenders themselves had pressure to make these loans based on "discrimination" threats but once again this is a policy unrelated to the low interest rates.



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Post 4

Monday, October 21 - 7:50amSanction this postReply
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Low interest actually works against lenders, reducing their incentive to loan. But in this case, there was that government pressure to make the subprime loans - help out the disadvantaged - turn everyone into a homeowner - don't violate the law that Clinton passed and was now being enforce, AND Fannie Mae and Freddie Mac were buying these loans with money rolling out of the Treasury. Make it, turn around sell it right away to get the return of capital and the profits, and do another - volume gave them a good working model. Financial institutions were lining up at the Fed window for free money to purchase the repackaged bundles of mortgages from Fannie and Freddie.

The making of loans just to sell them overcame the low interest disincentive. Fannie and Freddie being quasi government agencies meant they didn't care if the loans were going to be repaid. The money coming from the treasury was the hot air going in to blow up the balloon. The sale of the bundled mortgages in the different forms of derivatives just spread the toxicity far beyond the housing market's immediate environs.



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Monday, October 21 - 8:44amSanction this postReply
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Luke:

"I doubt the bubble would have formed since the lenders would have had incentives to set the bar higher for loan worthiness."

Leaving aside for the moment all the complications of the malfeasance done by the big banks, the credit worthiness is directly related to the interest rate. A borrower can repay a loan at 4% interest much easier than at 6%. The low interest rate attracted many more people to own homes, thus reducing the inventory and jacking up prices. As renters and homeowners saw prices rise they felt left out of the boom and either bought a home for the first time or bought a second home for speculation, increasing the prices in a spiral, all the time acting on the "greater fool" strategy. Witness all the TV reality shows with the theme of "flipping" a home. This just added to the frenzy. It came crashing down when it was revealed that the bundled mortgages were worthless, but in my opinion, it would have come crashing down anyway when it was realized that owning three, four or five empty homes was insane.

Is this too simple an explanation?

Sam




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Monday, October 21 - 9:04amSanction this postReply
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My wife and I attended some of those real estate investing seminars back in the mid-2000s before concluding that following the frenzied herd would prove itself highly imprudent. We were right. My own residence inflated and deflated in market value by six figures. The whole thing was lunacy. Thank Galt I stayed out of it. There were "preachers" of real estate flips who encouraged people to buy houses on credit cards because they could "fix and flip" them in time to pay them back. Ugh.



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Post 7

Monday, October 21 - 10:50amSanction this postReply
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Luke,

I disagree that was even a factor. The thing was, people thought housing prices would go up no matter what, so even if a person defaulted on their mortgage, nobody cared, because they thought the bank could just foreclose the house and resell at a higher price. They weren't misleading financial investments. Its like Francisco d'Anconia's coal mine in Mexico. Nobody looked into whether the Mexican coal mine was worth anything. They never asked Fransisco how he expected they'd make profit. They just looked at Fransisco's track record and decided to invest for that reason.

Now let me explain the whole 2008 (and ongoing) financial meltdown in detail...

=== The Unwanted Houses Scheme ===

First as a prerequisite, you must understand some lessons from Austrian Economics. The first thing to know is that for any durable good, people are mostly interested in its monthly expense or rent, rather than a good's total purchase price. Factories decide whether to upgrade or expand their manufacturing equipment by whether the potential income would exceed the rental rates. Farmland is also rented out, and individual farmers look for as much land as they can rent and still make profit on... as the rent of some land decreases the more a farmer would want to rent it and farm on it.

The same goes for renting houses. If the rent for houses goes down, people who once couldn't afford to live by themselves, who shared living space with their relatives or friends would then be able to afford a place on their own. And people who could only afford a small living space would then be able to afford a larger living space.

The price of renting any durable good is primarily set by three factors: the market value of the good if sold outright, the market interest rate, and the reliability of the renter in fulfilling his end of the contract. This is because the owner of any durable good can always choose between renting his durable good out, or outright sell it and then loan out the proceeds and earn interest. If the interest rate is higher, he will sell. If the rental rate is higher, he will rent. Through the interest of durable good owners to maximize profit, rental profits equal sell & financial market interest rate profits.

Rental price per month for X year contract ~= [(market value of durable good) * (1 + market yearly interest rate / 100%)^X] / (X * 12)

If interest rate goes up, the rental price for a particular good goes up. If interest rate goes down, the rental price for a particular good goes down.

A house mortgage is very similar to renting. The difference is a person with a mortgage owns some portion of the durable good. Commonly since the year 2000 (I'm guessing), in 15 or 30 year mortgages, the person taking out the loan begins with only owning 20% or less of the home. Anyways, with a mortgage its like partial ownership and partial renting, and the ratio of ownership increases for the home manager as the mortgage nears its end of term. And... renting prices are directly set by a function of three things: market value of durable good, market interest rate, and reliability of renter.

Now there is something interesting about the housing market in recent times: Americans in general don't save anymore, instead they live paycheck to paycheck keeping spending balanced with income. If rental prices for houses in general go down, then Americans don't stay in their current house rental with a lower rent, which would cause them to save. Instead, they upgrade their living conditions. People who once rented rooms in a home or apartment now can afford renting a whole home or apartment, or at least upgrade some extent, and they do upgrade to keep their monthly housing spending at the same level in order to "live up to their means" and keep spending balanced with income. They have social security and medicare and the money is inflationary fiat and the stock market and future exchanges are all being manipulated... who would want to save in that environment? People who rented smaller houses upgraded to bigger houses. People who rented at a less desirable place upgraded to live closer to the action in the city or by the beach. And not just renters, but owners and mortgage holders too, because they all feel the same financial impacts of durable good rental prices going down due to a decreasing interest rate.

So as you can see, with a decreasing interest rate, in such an environment, there is a huge demand to build more houses and to build better houses. Because Americans want to live up to their means, which includes renting/owning-> living in a larger, more grand, higher market value living space. In fact, looking at my formula above for rental price, as you can see, if you keep, rental price the same, but DECREASE MARKET INTEREST RATE, to balance the equation MARKET VALUE OF DURABLE GOOD MUST INCREASE.

The Federal Reserve, Freddie Mac, and Fannie Mae, and their friend big banks (like JPM & BoA) all decided at once that they would like to decrease the market interest rate. They did this by buying homes for people. They collectively bought pretty much everyone in the USA a house, some people more than one house. They didn't just outright buy houses though. Instead they took a more concealed approach: The Federal Reserve and Federal Government offered Freddie and Fannie & the big bank owners a deal (The Unwanted Houses Scheme (UHS)):
We will bail you out and/or not hold you accountable for defaulting. All you have to do is get people to start doing nonsense like building and buying unnecessary houses, and we'll all milk the whole process by: Government: gets to tax all sorts of financial transactions such as income that results from the worthless labor of building unwanted houses. Banks: get to be the middle men of financial transactions and get to pay their employees and owners lots of overhead middleman charges. So here's how its going to work: Big banks: you offer people lower interest rates than existing savers & owners of market value would loan their resources in order to kick off house building. You can just loan out depositor money like you already know how to do... just do it to such a scale like you've never done before that will eventually cause you to go bankrupt, but who cares! While it lasts, you can pay yourselves really high salaries. Freddie & Fannie: you guys buy mortgages from the big banks, and since you are even more government privileged and the public thinks your there to help them, nobody will hate you for your eventual default. Federal Government: don't hold defaulters accountable, and use tax money to bail friends out. Federal Reserve: Print money to bail out Freddie, Fannie, the big banks, and the Federal Government. As icing on the cake, nobody in the free market will accept a loan from savers, since the big banks are offering lower interest rates. So savers will be manipulated to buy something else, such as houses or US Treasuries.
The UHS was approved by all involved, and in this way, interest rates were lowered, housing prices went up, and Americans went on a frenzy building houses when if left to the free market they'd rather have other things than more houses. They paid lots of income taxes and property taxes and all sorts of taxes oh my! They worked to pay huge sums to big bank owners. People who had savings in dollar backed financial instruments were ruined by the decreasing value of the dollar, a significant portion of their savings market value being redirected by inflation towards the ends of the Unwanted Houses Scheme: to build unwanted houses & to line the pockets of government & bank organization members.

To keep the frenzy going the gov & banks just kept on decreasing the interest rate... until the interest rate got down to pretty much zero. And then with the interest rate being almost zero the big banksters realized: "Oh no, we can't decrease the interest rate anymore, we've reached zero! We can't go negative! That would mean we'd be paying people to borrow our fiat!" So the interest rate went from decreasing to staying just above zero. And hence the market value of durable goods (such as houses) went from increasing to stable. This was right before the crash.

Now here's a funny thing. There are many investors in the market who invest not by looking at future expected earnings due to expected Price/Earnings ratios... instead they just like to plot trend lines on charts and expect the prices to follow the line, and they don't even try to consider underlying causes for price movements. Such is called a technical analysis investor. Such was the case with the price movement of the market value of houses while interest rates were being decreased through the Unwanted Houses Scheme. Many people bought houses only because via technical analysis they decided buying a house would result in the best rate of return, ignoring the underlying cause for the housing price increases. And ignoring that housing prices would eventually stop increasing when the interest rate stopped decreasing.

When housing prices stopped increasing, some technical analysis investors saw the flat line and decided they were not making profits any more on owning houses, so they sold their houses. This drove the housing prices from a flat line to a downturn. A downturn!?! This caught even more technical analysis investor's attention, and drove more of them to sell. What a shock to the financial system! Banks and businesses who were stuck with the hot potatoes of 80% of house ownership on the entirety of America's houses (given Americans only own ~20% of house principal) were devastated, many thrown from solvency to insolvency.

The story isn't over yet. The Federal Reserve still needs to print lots of money to hold the interest rate down, OR print lots of money to bail out the banks due to the shock of them not printing and the interest rate going up, OR let them default, which will completely destroy the US financial market throwing us back into the dark ages of using cash and coin instead of banks. Oh yea, and the Federal Government likes lower rates so that they can spend & borrow more instead of having a balanced budget.

You see, savers generally look to savings accounts at banks in order to earn interest on their monetary savings. But the big banks aren't offering savers very high interest rates on savings accounts, in fact right now the money market interest rate is practically zero, well bellow the (manipulated) CPI inflation rate (currently ~2% per year), and WAAY below the monetary base inflation rate (currently ~30% per year). Nobody wants to take loans from savers, because the big banks are offering interest rates way below what any saver would accept. So the savers look for the best place they can for higher interest rates. Many inverters find that US Treasuries give them the highest rate of return. This is the final aspect of the Unwanted Housing Scheme. Hence since the big banks are still offering interest rates which are lower than savers are willing to offer: more US Treasuries are purchased than non-manipulated markets would otherwise choose. Hence there is a bubble in US Treasuries too.

Today, and until the UHS is dismantled, until the big banks stop offering interest rates that are lower than savers are willing to offer, until then, the housing market and the US Treasuries market will be in a bubble. The beneficiaries of the UHS will continue to be able to feed off of the market through its various methods until it is dismantled.



Post 8

Monday, October 21 - 10:57amSanction this postReply
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The UHS is a massive scheme to redistribute wealth. I couldn't imagine there was a greater redistribution of wealth scheme in the history of man. It all revolves around the Federal Government confiscating gold & silver from anybody who tries to make a precious metal backed bank.

Gold & silver are very easy to confiscate by governments.

Wahoo for bitcoin! Silk Road case could set bitcoin legal precedent against self-incrimination:
FBI estimates place this amount at nearly 600,000 bitcoin (currently worth $80m), however it is probably significantly less than 600,000 since earlier bitcoin was not worth what it is now and some of it would have been paid out to employees or reinvested back into ongoing operations.

Regardless, if access to those bitcoins is maintained via a brain wallet, then the only way for the government to gain access would be by compelling the defendant, Ross Ulbricht, to reveal his passphrase and private keys.
Haha the Feds can't confiscate bitcoins! They don't even know how many he has to be confiscated!
(Edited by Dean Michael Gores on 10/21, 11:11am)




Post 9

Monday, October 21 - 12:07pmSanction this postReply
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We used to have 50 sets of state banking and lending regulations; these were the old, conservative days of 20% down and verified income. But more importantly...they were 50 sets of regulations in parallel.

These laws were systematically replaced -- in court case after court case, and even, USSC case -- with a single overbearing fedral model of regulation.

2008 doesn't happen with out that.

Also, the entity 'MBS' -- Mortgage Backed Security. How does such an instrument come into being without fannie and freddie inserting the federal giov't into the mortgage 'secirities' marketplace, by design-- with the intent to liberalize credit by shedding risk?

2008 doesn't happen without MBSs, and MBSs don't ahppen without the fatfignering of the federal government.

We all remember the accusations of 'redlining.' The CRA, it has been claimed often, had no impact on these events. Enforcing individuakl acts of discrimination in the housing market was proving too hard to do, so they threw their hands up and went right to the summary numbers. They ignored the underlying reasons for correlations between race and income and went right to blaming the banks for that correlation-- they held the banks directly responsible for their bottom line numbers, and forced them to lend to people wothjout respect to credit rating.

They were told-- blackmailed-- to meet numbers or lose business approvals for mergers. The banks saluted the flag and di God's work here on earth by shoveling warm bodies at credit apps, because indeed-- anyone who would have kept them away during the boom would have easily been accused of being a 'redlining' meanie.

But what we did, in order to keep a demographically driven housing bubble alive for just a litle while longer, is shepherd exactly that segment of our population least able to bear the title 'last poor suckers into a bubble' into -exactly- that role, thinking the bubble was never going to end.

It was insanity. And yet, if it had been insanity only on a statewide level-- say California or New York -- the balance of states would have easily absorbed the insanity. The critical element of the 2008 failure is that it occurred nationwide. This is why monopolies are dangerous to us all -- including, monopolies of givernance.

There are those who say the CRA had nothing to do with the 2008 crisis.

Nonsense. Exactly what happened is all the direct result of a social theory gone bad all at once, an experiment run on the entire nation all at once. The theory was, what was keeping poor people poor was lack of access to ready credit.

Did bankers rush to take advanatge fo the insanity for as long as they could? For sure-- doing exactly what was being demanded of them.

And now, stuttering fools like Barney Franks et al have all walked away from the train wreck, and Krugman wants us all to ignore that it was him in 2002 explicitely encourag8ng the housing bubble as policy.

regards,
Fred



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Post 10

Monday, October 21 - 1:07pmSanction this postReply
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Fred,

I agree that pressure on banks to loan to risky borrowers filled the bubble larger. But the bubble wouldn't have grown in the first place if it wasn't for the Unwanted Houses Scheme as described above. For... it wasn't just the most poor who were given better interest rates than savers were willing to offer. The banks were giving everyone throughout the reliability spectrum from most reliable (highest credit rating) to least reliable (lowest credit rating) better interest rates than free market savers were willing to offer. Giving loans to the most unreliable who in normal circumstances would have been given a completely unaffordable interest rate in normal circumstances... is doing the same thing just at the lowest end of the credit worthiness spectrum.

The key is that the default protected banks offered interest rates lower than free market savers would offer.

Cheers,
Dean



Post 11

Monday, October 21 - 1:52pmSanction this postReply
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Dean:

Agreed-- lots of people -- including people who weren't 'poor' per se, but who also could not afford to be 'the last investor in the bubble' got sucked into that. Perfect storm. I still remeber all the ads-- 'cash in on the equity in your home!' I used to just shake my head. It was clearly insane.

Also, en masse, I think most folks believed -- had no idea if, never mind when -- the bubble was going to bust. Irrationality run amok.

Exactly like today with the pending low interest debt bomb.

Hey, maybe the government will always pay 0.25 for debt. How does anyone 'know' that is someday going to rise to 1.25%...and explode debt service by a factor of x 5?

Maybe the days of interest rates > 0.25 have been forever repealed?

We've found other means of endlessly attracting ever more willing debt holders, unbounded by any limits imaginable.

So high interest rates will never be necessary again; ever.

And face it; if things get too bad, the government doesn't need to rely on interest rates to find debt holders..or even 'debt' for that matter.

1] They can club bond holders over the head with a blunt axe, like the GM bond holders, and simply take what they want. I mean, what they need.

2] They can just run the presses. The difference between what they did with QE1 and QE2 and just running the presses is, if they just ran the presses, there would be no second swipe at the economies trying to overtax them to claw back the $2T, just to payback the FED holding bonds. Hey-- if we ignore the inflated stock prices -- there was no inflation caused by a secretar printing 12 zeros on a piece of paper and $2T in funny money injected into the economies. So what is the downside of tearing up the bond at this point? The fed create nothing from nothing. The nothing found its way into inflated stock prices...and little circulation. Mainstreet is still going to scratch its head, looking at all the unemployment and dusty 'for lease' signs. Why compound the issue by sending MainStreet the tax bill, or as bad, crushing the limping economies by trying to chutes and ladders the tax bills?

3] They can confiscate all the black ink tied up in regulated pesion plans today. (ie, if you got it, you don't need it.) I predicted this would eventually someday happen back in the late 70s. Shorty Reich and the Clintons had their panties in a bunch over private pension plan black ink in the 90s. They can barely contain themselves knowing there is all that black ink out there, unmolested. So they molested it, and as the noose tightens, will continue to more aggressively do so. Regulated pension plans will have been a gamble that ultimately loses. This is all because these people have no fundamental idea how investment and deferred spending works. All they know is their massive want, and it totally blinds them to any other considerations...like 15 minutes in the future.


To them, what happens to this nation 15 minutes after they get what they think they want is a future hypotheical, not worth worrying about until those 15 minutes pass...

regards,
Fred
(Edited by Fred Bartlett on 10/21, 1:53pm)




Post 12

Monday, October 21 - 2:18pmSanction this postReply
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There were several key aspects:
  • Without the CRA being pushed, and the involvement of FHA and HUD (the lenders were being threatened with audits that might take away their FIDC status), this wouldn't have started. And it was pushed by community organizers that demonstrated, and threatened lenders.
  • Without Fannie and Freddie, lenders could have only made a small number of subprime loans - some percentage of their capital. But with Fannie and Freddie, lenders could sell them as fast as they made them.
  • Without the Fed providing Fannie and Freddie funds, they couldn't have continued to buy in such huge numbers.
  • There was also a huge increase in the market. New to the market were people who would never have qualified under rational standards. Mortgages were given to homeless, to unemployed, to illegal immigrants. Another giant increase in the market place came out of bubble psychology. People who suddenly saw getting a vacation home AND it would be a great investment, or people who went into the business of flipping houses, or the people who decided to acquire rental properties, and the people who decided it was time to step up to a larger, nicer house.
  • The bundling of bad mortgages into derivatives gave more funds for Fannie and Freddie to use to buy more mortgages, and in doing so, they piped that expanding housing bubble into the global financial market, and ultimately created the credit collapse when the housing market bubble popped.
  • Like all bubbles it had to be fueled by the promise of quick riches. The impression was that housing prices were going up and up. All bubbles in history have had a psychological frenzy associated with the end stage (on a slightly separate note: This was also fueled, in several areas, by local land use, zoning, and building code regulations that made land scarcer and construction more expensive. In some cities in California they simply outlawed any new construction - the environmentally inclined decided there were enough houses - and prices went up like a rocket. This pattern can be seen in quite a few areas.)
  • Low interest rates helped at three points: House buyers got far more for house their monthly payment and were encourage to go for even more expensive houses. Fannie and Freddie was using very cheap money at those rates to purchase loans. And big financial houses were getting money from the fed at dirt cheap prices to buy those derivatives.




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Post 13

Monday, October 21 - 3:00pmSanction this postReply
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Fred,

Low interest rates can't last. Let me explain...

Back a long time ago there was World War I and II. Everybody sent their gold to the US for safekeeping from the Germans. At the same time The Federal Reserve was created, which over time worked towards confiscating most all of the gold of the US citizens. (First they moved the gold from local banks to Fed approved banks. Then they moved the gold from the Fed approved banks to JPM's vaults). So then from 1933 to a little after 1971 JPM had most all of the worlds gold hahaha. They required all us citizens to use their printed money for long distance and convenient money transfer (banking), because if you created your own private gold backed bank they'd confiscate your gold. And they raided safety deposit boxes for gold. And they did raid banks, ask me if you need proof. And in 1971 the US told foreign countries that the US would never give them their gold back, instead they have to accept USD.

=== Begin Dean's Conspiracy Theory ===

So for a while Americans and international trade was stuck using US dollars, which The Federal Government said they wouldn't inflate too much. JPM loved that because he can print as many USD as he wants, since he has control of the Federal Reserve. And he did print money. But people figured he was... so the gold price skyrocketed.

The gold price skyrocketed, which was killing the international reputation of the USD. JPM didn't like that because he likes to be able to trade his monopoly money for real goods. So he began selling his stockpile of gold under a series of guises like gold swaps and the gold futures market. So in this way, he suppressed the price of gold for years and years (its been like 42 years now from 1971 to 2013) by secretly selling his stockpile of gold while in public telling the world "Yea the gold's still there, no you can't independently audit it to verify its still there, you'll just have to trust me!" The world took his bait and trusted him, and the gold price was suppressed.

Now at the start of 2013, we see governments are beggining to call JPM's bluff. Germans ask for their gold back and JPM responds "Yea, well do that, in 7 years lol!"

China's caught on. They now import more gold on an annual basis than the rest of the world's annual mining output. Their official news programs promote citizens to save gold and bitcoins. They are reducing their purchases of US Treasury purchases.

Right now the Comex (future trade) gold vaults are going empty. Gold bugs predict the gold futures market is soon going to default for cash settlement at the lower manipulated gold price.

Eventually JPM will run out of gold to be able to suppress the gold price with. Then either the Comex will default, or the gold price will become free of his manipulation. I think many gold bugs think they are running on fumes now. Gold manipulation will end. Germany won't get their gold at the end of the 7 years. And the dollar will go the way of all fiat currencies in mankind's history.

As a fun little note, I figure that September 11th, 2001 was a false flag event. The two towers were not brought down by extremely motivated terrorists in the middle east, or if some were involved, they were just puppets. Instead JPM and friends just wanted to blow up the two towers and Building 7 (ever seen building 7's demolition?) in order to destroy some evidence and start more military industrial complex spending wars (brings in money to JPM and friends just like making unwanted houses) and to be able to increase surveillance on American Citizens (like bank account information both domestic and in Switzerland). The book "1984" was off by merely 17 years.


=== End Dean's Conspiracy Theory ===

Anyways, whether you believe all of my conspiracy theory or not, there are some good facts in there. Like... the US's claimed ownership of gold hasn't been audited in a really long time. How much do we trust those guys anyways? I mean, they did confiscate everybody's gold and then force everybody to use USD. And Germany did ask for some of their gold back, and they were told to wait 7 years. And China is importing lots of gold. And the gold futures market has been repeatedly pounded since mid April by some gold sellers who are nonsensically just dumping gold on the market (causing sudden non-profitable price drops) who would do that other than someone who wasn't interested in making profits selling their gold but had more devious motives?

Anyways... China has been sending the US lots of stuff in exchange for USD for a number of years. There has been a massive US trade deficit. Remember people talking about that? Well that's going to change. Pretty soon china isn't going to want more USD anymore. China is only going to trade for Gold or for their own currency or for real goods. Then...

That's the end game for JPM & the Feds in their interest rate hold down. I mean, they can still hold the interest rate down, but no one is going to buy the loans, they will have to run their printing presses in order to finance the loans which keeps the interest rate down.

By the way, have you seen this little chart on the Monetary Base of the USD (The chart that shows the number of USD that have ever been printed):


Clearly... we are at the end game, just as I've described above. The Fed has been printing money at rate that has increased the money supply by 30% per year over the last 5 years. How high does it have to go in order to be considered hyper inflation? When will the idiot mobs of the world's population realize this?
(Edited by Dean Michael Gores on 10/21, 3:18pm)




Post 14

Monday, October 21 - 4:40pmSanction this postReply
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Dean:

Alot of banks offer small business lines of credit these days that are structured as : "Prime plus 1%...with a floor.

The floor might be 4%.

At first blush, this seems greedy; bank are enjoying a bonanza on the spread.

But the upside is, businesses only accept the debt service they can comfortably carry at the floor value.

A benefit is, when prime starts to creep up a bit...nothing happens to debt service. It is still 'prime + 1%...with a floor.

This gives businesses plenty of time to react to rising interest rates.

Compare that to what would happen without the floor. Businesses(just like our government)would accept debt service based on the ridiculously low interest rates.

As soon as they go up even just 1%...debt service skyrockets. (this is because of the base of the really low interest rates...) If businesses had loaded up on debt based on the low interest rates, they just got hammered with a massive and probably unsustainable increase in debt service.

Compare with where the federal government is today, massively dependent on low interest rates.

30% of debt is 0-1 years. But that is marketable debt. The unmarkatable debt-- the SS Trust Fund bonds -- are steadily rolling over for the foreseable future -- decades -- and the SS Trust Fund is the #1 holder of Treasury debt...

Low interest debt bomb. Not if, but when.

What can possibly keep that off ... forever? At the rate they are burning through debt, they are going to have to find -new- willing debt holders. How?

regards,
Fred




Post 15

Monday, October 21 - 4:51pmSanction this postReply
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Dean:

Hadn't read your last post before posting my last post...

I agree, no way that interest rates don't blow up this debt bomb, and probably sooner than later.

Easily predictable: new emergency powers. Confiscations of net black regulated pension plans(if not directly, then indirectly.) Running the presses even more.

The ticks are dug in fang deep, and will cling to the gig with guns and knives and bloody axes if necessary.

Fundamental change. This ship of state will turn over.

Not going to be pretty. I don't think hollywood has imagined a mess as bad as the one coming to this nation of 330 million.





Post 16

Monday, October 21 - 5:13pmSanction this postReply
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I don't think hollywood has imagined a mess as bad as the one coming to this nation of 330 million.
I wish I could say that's an exaggeration, or that it isn't coming anytime soon, or that it won't be THAT bad... but I can't. Watching politics in this country, at this time, is far scarier than anything Hollywood has produced - Alfred Hitchock would be in awe of the level of suspense that is building as we wait for the next bubble to burst, or the next collapse, or just see the last string run out.



Post 17

Monday, October 21 - 6:05pmSanction this postReply
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Even if they didn't confiscate the 401ks and IRAs, those financial instruments won't keep much value through hyperinflation. The only thing that would keep value is self owned stuff. Nothing with counterparty risk. India and other countries that are already prepared for financial and government corruption will do well, prepared because their citizens already know their governments and banks are corrupt. Americans on the other hand... are like blindfolded sheep being led to the slaughterhouse thinking nothing but good thoughts about the shepherd.



Post 18

Monday, October 21 - 6:18pmSanction this postReply
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Speaking of conspiracies, I heard that we won't make it to the end of the year in 2014 -- i.e., that economic hardship as bad as it was in the Great Depression (with bread lines, and people starving in the streets, etc.) will hit before December of next year.

That gives us about 12 months to come up with some kind of an exit strategy. Maybe Steve can fit us all on his boat! [movie line from Jaws: "You're going to need a bigger boat."]

:-)

Ed




Post 19

Monday, October 21 - 6:27pmSanction this postReply
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Here is a very interesting prediction in a newsletter by Richard J. Maybury. I didn't agree with everything, but I liked a great deal of it.



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