Sunday, January 20, 2013

Fed Admitted Ignorance, Underplayed Severity Of Situation Just Ahead Of Massive Crisis, New Docs Reveal

If you want to feel confident that the Federal Reserve knows where it's going as it steers the world's biggest economy, then you probably should not read the transcripts of its 2007 policy meetings.
Those transcripts, released on Friday, show a Fed groping blindly for answers about the early market tremors preceding the financial crisis, while also blithely deciding that everything was probably going to be just fine.
In what may be the most glaring example of the Fed's forecasting failure, its economists declared at the December 2007 policy meeting that the U.S. would avoid a recession, despite a slowdown in housing and turmoil in financial markets that was getting worse all the time. As we now know, the worst recession since the Great Depression began that very same month, according to the National Bureau of Economic Research. In less than a year, the financial system would be on the brink of total collapse.
The Fed didn't see it coming.
"Overall, our forecast could admittedly be read as still painting a pretty benign picture," Fed economist Dave Stockton said in that December meeting. "Despite all the financial turmoil, the economy avoids recession."
But Stockton also knew that some might not take his forecast seriously.
"So I tried not to take it personally," he added, "when I received a notice the other day that the Board had approved more frequent drug-testing for certain members of the senior staff, myself included."

That cracked up the room, according to the transcript. The Huffington Post is still reading through the hundreds of pages of transcripts, but it is not hard to find numerous examples of Fed officials sharing this relatively benign outlook.
Fed policy makers may have felt they had room to relax, given the Fed's year-end forecasts of 1.25 percent GDP growth in 2008 and 2.1 percent growth in 2009. Those are not great numbers, but not the end of the world, either.
Unfortunately, they were way off the mark. Instead, GDP shrank by 0.3 percent in 2008 and 3.1 percent in 2009, adjusted for inflation, the worst two years of GDP since 1945-46.
Even in that December 2007 meeting there were lots of early signs that the Fed's forecasting abilities were suspect. With almost the same breath he'd used to crack his joke about drugs, Stockton admitted that the economic situation was worse than the Fed had expected.
"In particular, the incoming data have been weaker than expected, the projected path of household net worth has been revised down owing to lower prices for both equities and houses, oil prices average about $7 per barrel higher than in our previous forecast, and the brief improvement in financial conditions that we experienced in September and October has been reversed in recent weeks," he said.
Other than that, Mrs. Lincoln, how did you like the play?
To be fair, economic forecasting is hard. Most economists don't do it well, and there is no magic water fountain at the Fed that gives people the ability to see the future any better. Many mainstream observers at the time shared the Fed's sanguine view and ignored the warning signs. But then none of those observers controlled the levers of the U.S. economy.
Earlier in 2007, Fed policy makers were repeatedly reassuring each other that things were going to be fine, despite a sudden meltdown in credit markets, as investors suddenly started to suspect that derivatives stuffed with toxic mortgage assets might not be money-good.
"The good news, of course, is that as time passes, the uncertainty about bank balance sheet pressures and funding requirements should lessen," William Dudley, then a Fed official handling market operations and today the New York Fed President, said in September 2007.
Sure enough, in October 2007, then-New York Fed President Timothy Geithner felt able to declare: "The panic has receded. The disruptions are more contained."
But the panic got worse again almost immediately.
The problem was hiding in plain sight: The toxic mortgage assets on bank balance sheets. It was even identified by Fed Governor Donald Kohn in August 2007: "The primary problem is that no one is quite sure what the value of those assets is."
Despite this uncertainty, Fed officials had no problem making pronouncements about the health of banks. In August 2007, for example, Dudley said of subprime-mortgage factory Countrywide Financial: "The good news about Countrywide is that people view them as having a strong franchise."
Less than a year later, Countrywide, now recognized as among the worst mortgage lenders of the era, was bought in a fire sale by Bank of America. The toxic mortgages BofA got in the deal haunt it to this very day.
But Fed officials did sometimes acknowledge the possibility that things could be significantly worse than they expected.
"Whether you use Greg Ip to rewrite the history or you rewrite it yourself, no amount of rewriting of history will exonerate us if we are not prepared for the more-dire scenarios that were presented by the staff," Dallas Fed President Richard Fisher told Fed Chairman Ben Bernanke in August 2007. Ip, now with the Economist, was the Wall Street Journal's Fed reporter at the time. "I would ask that we do some scenario preparation in terms of, should we encounter increased financial market turbulence,
what actions we might take to deal with it."
Bernanke assured Fisher that the Fed was "quite attuned to these issues."
Update: To his credit, Geithner repeatedly expressed anxiety that the Fed might be behind the curve -- although he ultimately came to much the same conclusions as his peers and predicted economic growth would be "modestly below trend," instead of catastrophically horrible. In September 2007, for example, he wondered if the Fed was acting aggressively enough to help the economy and markets. The Fed decided to cut its target for the fed funds rate, its key policy tool, by half a percentage point at that meeting. At the next meeting, Geithner wondered how bad the credit crunch was going to be. Stockton reassured him that the Fed was "not forecasting a deep credit crunch."
During this time, San Francisco Fed President Janet Yellen and Boston Fed President Eric Rosengren became the Fed's Coalition of the Pessimistic. In December, Yellen, who is now the Fed Vice Chairman, warned: "The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real.” Rosengren followed up by saying "I think I took the same pessimism pill as President Yellen this morning."
(h/t Wonkblog)
-- Eleazar David Melendez, Emily Peck and Maxwell Strachan contributed reporting to this story.
7 Bosses Who Have Ticked Off Their Liberal-Leaning Customers

As Dispute Over Islands Escalates, Japan and China Send Fighter Jets to the Scene

Agence France-Presse — Getty Images
A view of the islands in the East China Sea that are known as Senkaku in Japan and Diaoyu in China. Control of them would give China unobserved access to the Pacific, something it lacks. 

BEIJING — The action in the skies over the East China Sea started simply enough. 
Last week, the Chinese government sent a civilian surveillance plane, a twin propeller aircraft, to fly near the uninhabited islands at the heart of a growing feud between China and Japan. Tokyo, in response, ordered F-15 fighter jets to take a look at what it considered Chinese meddling. The Chinese then sent their own fighters.
It was the first time that supersonic Chinese and Japanese military fighters were in the air together since the dispute over the islands erupted last year, significantly increasing the risk of a mistake that could lead to armed conflict at a time when both countries, despite their mutual economic interests, are going through a period of heightened nationalism that recalls their longstanding regional rivalry.
The escalation comes amid a blast of belligerent discourse in China and as the Obama administration has delayed a visit to Washington requested by Shinzo Abe, the new prime minister of Japan, the United States’ main ally in Asia. After the rebuff, Mr. Abe announced that he would embark on a tour of Southeast Asia intended to counter China’s influence in the region. On Friday, as Mr. Abe cut short his trip to return to Tokyo to deal with the hostage crisis in Algeria, Secretary of State Hillary Rodham Clinton said in Washington that Mr. Abe would meet with President Obama in the second half of February.
For Japan and China, what began as a seemingly minor dispute is quickly turning into a gathering storm, military analysts and Western diplomatic officials warn, as each country appears determined to force the other to give ground.
“What is really driving things is raw nationalism and fragmented political systems, both on the Japanese and even more so the Chinese sides, that is preventing smart people from making rational decisions,” said Thomas Berger, an associate professor of international relations at Boston University. “No Chinese or Japanese leader wants or can afford to be accused of selling out their country.”
The backdrop for the dispute is the changing military and economic dynamic in the region. In Japan, which rose from utter defeat in World War II to become a prosperous global economic power, many experts talk of a nation preparing for an “elegant” decline. But Mr. Abe has made clear that he does not subscribe to that idea and hopes to stake out a tough posture on the islands as a way of engineering a Japanese comeback.
In contrast, Beijing brims with confidence, reveling in the belief that the 21st century belongs to China — with the return of the islands the Chinese call the Diaoyu and the Japanese refer to as the Senkaku as a starting point.
Though Japan is far richer than China on a per-person basis, its economy has been stagnant for years and contracted once again in the second half of 2012. It was hit hard by a slowdown in exports to China after the island dispute erupted in August; Chinese protesters disrupted Japanese plants in China and boycotted Japanese products during the autumn. The value of Japanese exports to China fell by 17 percent between June and November, the World Bank said this week.
China’s fast-growing military still lags behind the Japanese Self-Defense Forces in sophistication of weaponry and training, but Japan’s edge is diminishing, according to Dr. Berger, an expert on the Japanese military, and other Western defense analysts.
For now the Chinese military wants to avoid armed conflict over the islands, Dr. Berger said, but its longer-term goal is to pressure Japan to give up its administration of the islands. That would give China a break in what is known in China as the “first island chain,” a string including the Diaoyu, that prevents China’s growing ballistic submarine fleet from having unobserved access to the Pacific Ocean. Taiwan is part of the “first island chain,” as are smaller islands controlled by Vietnam and the Philippines.
“The Chinese leadership seems to think that the cards are in their favor, and if they push long and hard enough, the Japanese have to cave,” Dr. Berger said.
A senior American military official said that Washington considered China’s decision to send its fighter jets in response to Japan’s to be “imprudent” but not a violation of international law. The Chinese jets had entered what is known as Japan’s Air Defense Identity Zone, but had not infringed Japan’s airspace, the official said.

Obama Again Warns Cameron Against EU Exit

British PM Ditches Speech After Last Minute Obama Chiding

British Prime Minister David Cameron cancelled his high-profile Amsterdam speech, officially, because of the hostage crisis in Algeria. Privately, officials say the move came because President Obama called him just hours ahead of time to browbeat him further on Britain’s future in the EU.
Cameron, who has been pushing for reform in the EU, was planning to warn that Britain was “drifting toward the exit” on the EU question and would continue to do so unless reforms were enacted.
Obama, however, called to reiterate that the US believes keeping Britain in the European Union is vital to world security and that they consider UK withdrawal for any reason unacceptable.
British officials initially sought to downplay the issue, saying Obama had only called to talk about the hostages. White House officials however were eager to go public with the warning, which US officials have repeatedly, publicly issued to Britain in recent days.


The Ticking Trillion Dollar Debt Bomb

Since the EU Crisis went into overdrive in 2010, EU politicians have largely resorted to political posturing rather than implementing any actual financial solutions to the EU’s debt and banking crisis.
To clarify that statement, we view a “real solution” as one that A) cleared bad debts from the system, B) brought debt levels down to manageable levels, and C) got the troubled country’s economy back on track.
By way of example, real solutions would involve outright debt defaults, bank failures, and very likely one or more countries leaving the Euro. However, no major EU leader ever seriously promotes any of these ideas because doing so would akin to committing political suicide as the rest of the political class would blame them for what followed.
As a result, EU politicians continue to kick the can down the road with half-measures such as austerity measures in exchange for bailouts. The end result is that nothing is ever solved as those in charge of the decisions that matter have no incentives to actually do anything beneficial for their countries’ economies.  See Greece whose economy has completely imploded to the point that children are being admitted to hospitals every week for malnutrition… and it will still have a Debt to GDP of 120% in 2022!
It is now obvious that US politicians have seen this work well for their European counterparts (nothing gets fixed, not tough choices have to be made and almost no one gets kicked out of office), and are now adopting this strategy on this side of the pond.
Consider the fiscal cliff issue, which our political leaders discussed endlessly for over a month, only to then pass a “deal” which both raised taxes AND failed to cut the deficit or debt.
Again, nothing solved, but plenty of posturing and blame.
Expect more of this. Today, the top story for the US is gun control even though we will officially breach the debt ceiling in roughly one month’s time. The last time we did this the US lost one of its AAA ratings from a credit agency and the markets imploded wiping out over a trillion dollars in household wealth in a matter of days.
This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market.
As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast.
Another consequence of the US losing another AAA rating would be a potential spike in interest rates as a result of us having a lower credit rating. A 100 basis point move higher in interest rates means the US paying another $100+ billion in interest payments on its debt. The US is slated to pay some $300+ billion in interest payments in 2013. This amount could explode higher if interest rates rose.
We already have a Debt to GDP ratio of over 100%. Our deficit to GDP is nearly 10%. These are Greece type levels. And while the US has several advantages Greece does not (it produces the reserve currency of the world and is also the largest economy), the bond markets can be very unforgiving of fiscal profligacy.
But US politicians don’t care. They know that the US economy is a disaster and will be getting worse. The issue for them is not fixing this, but shifting the blame for what’s coming onto the other party.
Bottomline: the US debt situation is not going to be brought under control. We’ll either breach the debt ceiling or pass some hurried bill to raise it. Neither of these will help our credit rating or our fiscal issues.
Buckle up, 2013 is going to be an “interesting” year.

Rise in tuition fees leads to 40% drop in university admissions

  • Ten of the 24 leading universities register drops
  • 51,000 fewer students started degree courses
  • It follows rise in tuition fees cap to £9,000 a year
  • Labour attacks the Government over the figures
By Alex Gore

The hike in tuition fees has caused 'wild and dangerous swings' in university admissions, with some institutions taking on 43 per cent fewer students that the previous year.
The Universities and Colleges Admissions Service (Ucas) revealed that 51,000 fewer students started degree courses last autumn - a fall of 12 per cent - after fees nearly trebled to £9,000 a year.
Ten of the 24 leading universities from the Russell Group, including Leeds, Imperial College London and Warwick, registered drops.
Enlarge   Hardest hit: London Metropolitan University had 43 per cent fewer students starting degree courses last autumn compared to the previous year
Hardest hit: London Metropolitan University had 43 per cent fewer students starting degree courses last autumn compared to the previous year
London Metropolitan University, which last year had its licence to sponsor international students revoked, suffered the biggest fall at 43 per cent.

Enrolment also dropped 13 per cent at the University of Southampton, 10% at the University of Liverpool and 9% at the University of Sheffield.

There was also a 7 per cent decline at the University of Birmingham, Birmingham University and 6 per cent drops at the University of Leeds, Imperial and the University of London.
But some institutions managed to buck the trend, including University College London, where enrolment rose 22 per cent, and the University of Cardiff, which posted an increase of 13 per cent.

King's College London boasted a rise of 12 per, while admissions were up 11 per cent at the University of Edinburgh.
Anger: Police attempt to hold back tuition fees protestors at the Conservative Party's campaign headquarters in Millbank, London, in 2010
Anger: Police attempt to hold back tuition fees protestors at the Conservative Party's campaign headquarters in Millbank, London, in 2010
Shadow universities minster, Shabana Mahmood, said the figures show the Government's decision to raise the cap on fees is having a chaotic impact on higher education.
She told The Guardian: 'Ucas reports wild and dangerous swings - with some huge losers and some winners - but the variations show severe volatility in the system that should be a concern for everyone. 
'The government must now answer for the damage it has done to those universities that have suffered as a consequence of their reforms and decision to raise fees to £9,000'
Ms Mahmood said the decline could have a devastating impact on local economies of cities such as Manchester and Leeds.
Patrick McGhee, vice-chancellor of University of East London and chairman of Million+, which represents new universities, said the figures do not include a decline in students studying part-time.
'Chaotic': Labour says the Government 'must answer for the damage it has done'
'Chaotic': Labour says the Government 'must answer for the damage it has done'
He told The Times: 'The need for Government to launch a campaign to promote the value of higher education is all too obvious.'
In 2010, thousands of people staged a series of protests against a rise in fees ahead of the vote in the House of Commons.

There were violent scenes at the Conservative Party's Millbank campaign headquarters in London.
Protesters stormed the building and a fire extinguisher was thrown from the roof.

The Liberal Democrats bore the brunt of many people's anger and last year Deputy Prime Minister Nick Clegg apologised for an election pledge not to raise fees.

What is Germany scared of? Bundesbank to retrieve $200bn of gold reserves from central banks in Paris and New York

Germany is set to retrieve its gold reserves held abroad, in a move critics fear could trigger a contagion of mistrust among the world’s central banks.
The country’s Bundesbank is set to repatriate a large hoard from its holding in New York and all of its bullion from Paris, the German newspaper Handelsblatt has reported.
Germany's Bundesbank owns nearly 3,400 tonnes of gold – only the US has a bigger reserve.
Safe keeping: Germany is reportedly set to repatriate tonnes of gold
Safe keeping: Germany is reportedly set to repatriate tonnes of gold
Until now Germany has been happy to store part of its reserves in vaults at foreign central banks – an estimated 45 per cent at the Federal Reserve Bank of New York, 11 per cent the Banque de France and 13 per cent at the Bank of England. Just 31 per cent is held at its headquarters in Frankfurt.

Much of the gold stashed abroad as been there since the Cold War, when it was moved for safety amid fears of a Soviet invasion.

But now the bank is reportedly planning to overhaul this distribution, leaving just small amounts in the US and UK for trading and liquidity in dollars and sterling and bringing the rest back to Germany, worth an estimated $200 billion.

Bundesbank board member Carl-Ludwig Thiele claimed last year that there is no longer a need to hold gold abroad, now Germany is at peace.

However critics fear Germany’s move could prompt other central banks to repatriate their gold, undermining the role of the US and UK as key custodians of the commodity.
Walls of wealth: Gold reserves at the Federal Reserve building in New York
Walls of wealth: Gold reserves at the Federal Reserve building in New York
The timing of the decision – amid continued uncertainty in global markets and ongoing turbulence in the eurozone – is also likely to prompt accusations that Germany is preparing for the eventuality of an escalation of the global financial crisis.

The move comes just months after the German Federal Court of Auditors called on the Bundesbank to carry out a physical inspection of the gold reserves it stores at foreign banks.

At the time it was thought the precious metal holdings had never been fully checked.
The central bank was taken aback and maintained it did not see the need for more scrutiny in overseeing the reserves, saying 'there is no doubt about the integrity of the foreign storage sites'.
However, the debate on the gold reserves continued to simmer, with some conspiracy theorists questioning their existence and a few politicians calling for some of the reserves to be retrieved.
Germany has around eight times more gold than the UK, after Gordon Brown sold more than half of the UK's reserves between 1999 and 2002 when prices were at a 20-year low.
Analysts say gold could still hit $2000/oz this year, meaning the UK could have sold its gold for £16billion, as opposed to £2billion.


I know many people have a great deal of difficulty comprehending just how many wars are started for no other purpose than to force private central banks onto nations, so let me share a few examples, so that you understand why the US Government is mired in so many wars against so many foreign nations. There is ample precedent for this.
The United States fought the American Revolution primarily over King George III's Currency act, which forced the colonists to conduct their business only using printed bank notes borrowed from the Bank of England at interest. After the revolution, the new United States adopted a radically different economic system in which the government issued its own value-based money, so that private banks like the Bank of England were not siphoning off the wealth of the people through interest-bearing bank notes.
"The refusal of King George 3rd to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators, was probably the prime cause of the revolution." -- Benjamin Franklin, Founding Father
But bankers are nothing if not dedicated to their schemes to acquire your wealth, and know full well how easy it is to corrupt a nation's leaders. Just one year after Mayer Amschel Rothschild had uttered his infamous "Let me issue and control a nation's money and I care not who makes the laws", the bankers succeeded in setting up a new Private Central Bank called the First Bank of the United States, largely through the efforts of the Rothschild's chief US supporter, Alexander Hamilton. Founded in 1791, by the end of its twenty year charter the First Bank of the United States had almost ruined the nation's economy, while enriching the bankers. Congress refused to renew the charter and signaled their intention to go back to a state issued value based currency on which the people paid no interest at all to any banker. This resulted in a threat from Nathan Mayer Rothschild against the US Government, "Either the application for renewal of the charter is granted, or the United States will find itself involved in a most disastrous war." Congress still refused to renew the charter for the First Bank of the United States, whereupon Nathan Mayer Rothschild railed, "Teach those impudent Americans a lesson! Bring them back to colonial status!" Financed by the Rothschild controlled Bank of England, Britain then launched the war of 1812 to recolonize the United States and force them back into the slavery of the Bank of England, or to plunge the United States into so much debt they would be forced to accept a new private central bank. And the plan worked. Even though the War of 1812 was won by the United States, Congress was forced to grant a new charter for yet another private bank issuing the public currency as loans at interest, the Second Bank of the United States. Once again, private bankers were in control of the nation's money supply and cared not who made the laws or how many British and American soldiers had to die for it.
Once again the nation was plunged into debt, unemployment, and poverty by the predations of the private central bank, and in 1832 Andrew Jackson successfully campaigned for his second term as President under the slogan, "Jackson And No Bank!" True to his word, Jackson succeeds in blocking the renewal of the charter for the Second Bank of the United States.
"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!" -- Andrew Jackson, shortly before ending the charter of the Second Bank of the United States. From the original minutes of the Philadelphia committee of citizens sent to meet with President Jackson (February 1834), according to Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels
Shortly after President Jackson (the only American President to actually pay off the National Debt) ended the Second Bank of the United States, there was an attempted assassination which failed when both pistols used by the assassin, Richard Lawrence, failed to fire. Lawrence later said that with Jackson dead, "Money would be more plenty."
Of course, the public school system is as subservient to the bankers' wishes to keep certain history from you, just as the corporate media is subservient to Monsanto's wishes to keep the dangers of GMOs from you, and the global warming cult's wishes to conceal from you that the Earth has actually been cooling for the last 16 years. Thus is should come as little surprise that much of the real reasons for the events of the Civil War are not well known to the average American.
When the Confederacy seceded from the United States, the bankers once again saw the opportunity for a rich harvest of debt, and offered to fund Lincoln's efforts to bring the south back into the union, but at 30% interest. Lincoln remarked that he would not free the black man by enslaving the white man to the bankers and using his authority as President, issued a new government currency, the greenback. This was a direct threat to the wealth and power of the central bankers, who quickly responded.
"If this mischievous financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedent in the history of the world. The brains, and wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe." -- The London Times responding to Lincoln's decision to issue government Greenbacks to finance the Civil War, rather than agree to private banker's loans at 30% interest.
Goaded by the private bankers, much of Europe supported the Confederacy against the Union, with the expectation that victory over Lincoln would mean the end of the Greenback. France and Britain considered an outright attack on the United States to aid the confederacy, but were held at bay by Russia, which had just ended the serfdom system and had a state central bank similar to the system the United States had been founded on. Left free of European intervention, the Union won the war, and Lincoln announced his intention to go on issuing greenbacks. Following Lincoln's assassination, the Greenbacks were pulled from circulation and the American people forced to go back to an economy based on bank notes borrowed at interest from the private bankers.
Finally, in 1913, the Private Central Bankers of Europe, in particular the Rothschilds of Great Britain and the Warburgs of Germany, met with their American financial collaborators on Jekyll Island, Georgia to form a new banking cartel with the express purpose of forming the Third Bank of the United States, with the aim of placing complete control of the United States money supply once again under the control of private bankers. Owing to hostility over the previous banks, the name was changed to "The Federal Reserve" system in order to grant the new bank a quasi-governmental image, but in fact it is a privately owned bank, no more "Federal" than Federal Express. Indeed, in 2012, the Federal Reserve successfully rebuffed a Freedom of Information Lawsuit by Bloomberg News on the grounds that as a private banking corporation and not actually a part of the government, the Freedom of Information Act did not apply to the operations of the Federal Reserve. 1913 proved to be a transformative year for the nation's economy, first with the passage of the 16th "income tax" Amendment and the false claim that it had been ratified.
"I think if you were to go back and and try to find and review the ratification of the 16th amendment, which was the internal revenue, the income tax, I think if you went back and examined that carefully, you would find that a sufficient number of states never ratified that amendment." - U.S. District Court Judge James C. Fox, Sullivan Vs. United States, 2003.
Later that same year, and apparently unwilling to risk another questionable amendment, Congress passed the Federal Reserve Act over Christmas holiday 1913, while members of Congress opposed to the measure were at home. This was a very underhanded deal, as the Constitution explicitly vests Congress with the authority to issue the public currency, does not authorize its delegation, and thus should have required a new Amendment to transfer that authority to a private bank. But pass it Congress did, and President Woodrow Wilson signed it as he promised the bankers he would in exchange for generous campaign contributions. Wilson later regretted that decision.
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by its system of credit. We are no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men." -- Woodrow Wilson 1919
The next year, World War One started, and it is important to remember that prior to the creation of the Federal Reserve, there was no such thing as a world war.
World War One started between Austria-Hungary and Serbia, but quickly shifted to focus on Germany, whose industrial capacity was seen as an economic threat to Great Britain, who saw the decline of the British Pound as a result of too much emphasis on financial activity to the neglect of agriculture, industrial development, and infrastructure (not unlike the present day United States). Although pre-war Germany had a private central bank, it was heavily restricted and inflation kept to reasonable levels. Under government control, investment was guaranteed to internal economic development, and Germany was seen as a major power. So, in the media of the day, Germany was portrayed as the prime opponent of World War One, and not just defeated, but its industrial base flattened. Following the Treaty of Versailles, Germany was ordered to pay the war costs of all the participating nations, even though Germany had not actually started the war. This amounted to three times the value of all of Germany itself. Germany's private central bank, to whom Germany had gone deeply into debt to pay the costs of the war, broke free of government control, and massive inflation followed (mostly triggered by currency speculators) , permanently trapping the German people in endless debt.
When the Weimar Republic collapsed economically, it opened the door for the National Socialists to take power. Their first financial move was to issue their own state currency which was not borrowed from private central bankers. Freed from having to pay interest on the money in circulation, Germany blossomed and quickly began to rebuild its industry. The media called it "The German Miracle". TIME magazine lionized Hitler for the amazing improvement in life for the German people and the explosion of German industry, and even named him TIME Magazine's Man Of The Year in 1938.
Once again, Germany's industrial output became a threat to Great Britain.
"Should Germany merchandise (do business) again in the next 50 years we have led this war (WW1) in vain." - Winston Churchill in The Times (1919)

"We will force this war upon Hitler, if he wants it or not." - Winston Churchill (1936 broadcast)

"Germany becomes too powerful. We have to crush it." - Winston Churchill (November 1936 speaking to US - General Robert E. Wood)

"This war is an English war and its goal is the destruction of Germany." - Winston Churchill (- Autumn 1939 broadcast)
Germany's state-issued value based currency was also a direct threat to the wealth and power of the private central banks, and as early as 1933 they started to organize a global boycott against Germany to strangle this upstart ruler who thought he could break free of private central bankers!

Click for larger image
As had been the case in World War One, Great Britain and other nations threatened by Germany's economic power looked for an excuse to go to war, and as public anger in Germany grew over the boycott, Hitler foolishly gave them that excuse. Years later, in a spirit of candor, the real reasons for that war were made clear.

"The war wasn't only about abolishing fascism, but to conquer sales markets. We could have, if we had intended so, prevented this war from breaking out without doing one shot, but we didn't want to."- Winston Churchill to Truman (Fultun, USA March 1946)

"Germany's unforgivable crime before WW2 was its attempt to loosen its economy out of the world trade system and to build up an independent exchange system from which the world-finance couldn't profit anymore. ...We butchered the wrong pig." -Winston Churchill (The Second World War - Bern, 1960)
As a side note, we need to step back before WW2 and recall Marine Major General Smedley Butler. In 1933, Wall Street bankers and financiers had bankrolled the successful coups by both Hitler and Mussolini. Brown Brothers Harriman in New York was financing Hitler right up to the day war was declared with Germany. And they decided that a fascist dictatorship in the United States based on the one on Italy would be far better for their business interests than Roosevelt's "New Deal" which threatened massive wealth re-distribution to recapitalize the working and middle class of America. So the Wall Street tycoons recruited General Butler to lead the overthrow of the US Government and install a "Secretary of General Affairs" who would be answerable to Wall Street and not the people, would crush social unrest and shut down all labor unions. General Butler pretended to go along with the scheme but then exposed the plot to Congress. Congress, then as now in the pocket of the Wall Street bankers, refused to act. When Roosevelt learned of the planned coup he demanded the arrest of the plotters, but the plotters simply reminded Roosevelt that if any one of them were sent to prison, their friends on Wall Street would deliberatly collapse the still-fragile economy and blame Roosevelt for it. Roosevelt was thus unable to act until the start of WW2, at which time he prosecuted many of the plotters under the Trading With The Enemy act. The Congressional minutes into the coup were finally released in 1967 and became the inspiration for the movie, "Seven Days in May" but with the true financial villains erased from the script.
"I spent 33 years and four months in active military service as a member of our country's most agile military force -- the Marine Corps. I served in all commissioned ranks from second lieutenant to Major General. And during that period I spent more of my time being a high--class muscle man for Big Business, for Wall Street and for the bankers. In short, I was a racketeer, a gangster for capitalism. "I suspected I was just a part of a racket at the time. Now I am sure of it. Like all members of the military profession I never had an original thought until I left the service. My mental faculties remained in suspended animation while I obeyed the orders of the higher-ups. This is typical with everyone in the military service. Thus I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-12. I brought light to the Dominican Republic for American sugar interests in 1916. In China in 1927 I helped see to it that the Standard Oil went its way unmolested. During those years, I had, as the boys in the back room would say, a swell racket. I was rewarded with honors, medals and promotion. Looking back on it, I feel I might have given Al Capone a few hints. The best he could do was to operate his racket in three city districts. I operated on three continents." -- General Smedley Butler, former US Marine Corps Commandant,1935
As President, John F. Kennedy understood the predatory nature of private central banking. He understood why Andrew Jackson fought so hard to end the Second Bank of the United States. So Kennedy wrote and signed Executive Order 11110 which ordered the US Treasury to issue a new public currency, the United States Note.

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Kennedy's United States Notes were not borrowed form the Federal Reserve but created by the US Government and backed by the silver stockpiles held by the US Government. It represented a return to the system of economics the United States had been founded on, and was perfectly legal for Kennedy to do. All told, some four and one half billion dollars went into public circulation, eroding interest payments to the Federal Reserve and loosening their control over the nation. Five months later John F. Kennedy was assassinated in Dallas Texas, and the United States Notes pulled from circulation and destroyed (except for samples held by collectors). John J. McCloy, President of the Chase Manhattan Bank, and President of the World Bank, was named to the Warren Commission, presumably to make certain the banking dimensions behind the assassination were concealed from the public.
As we enter the eleventh year of what future history will most certainly describe as World War Three, we need to examine the financial dimensions behind the wars.
Towards the end of World War Two, when it became obvious that the allies were going to win and dictate the post war environment, the major world economic powers met at Bretton Woods, a luxury resort in New Hampshire in July of 1944, and hammered out the Bretton Woods agreement for international finance. The British Pound lost its position as the global trade and reserve currency to the US dollar (part of the price demanded by Roosevelt in exchange for the US entry into the war). Absent the economic advantages of being the world's "go-to" currency, Britain was forced to nationalize the Bank of England in 1946. The Bretton Woods agreement, ratified in 1945, in addition to making the dollar the global reserve and trade currency, obligated the signatory nations to tie their currencies to the dollar. The nations that ratified Bretton Woods did so on two conditions. The first was that the Federal Reserve would refrain from over-printing the dollar as a means to loot real products and produce from other nations in exchange for ink and paper; basically an imperial tax. That assurance was backed up by the second requirement, which was that the US dollar would always be convertible to gold at $35 per ounce.
Of course, the Federal Reserve, being a private bank and not answerable to the US Government, did start overprinting paper dollars, and much of the perceived prosperity of the 1950s and 1960s was the result of foreign nations' obligations to accept the paper notes as being worth gold at the rate of $35 an ounce. Then in 1970, France looked at the huge pile of paper notes sitting in their vaults, for which real French products like wine and cheese had been traded, and notified the United States government that they would exercise their option under Bretton Woods to return the paper notes for gold at the $35 per ounce exchange rate. Of course, the United States had nowhere near the gold to redeem the paper notes, so on August 15th, 1971, Richard Nixon "temporarily" suspended the gold convertibility of the US Federal Reserve Notes. This "Nixon shock" effectively ended Bretton Woods and many global currencies started to delink from the US dollar. Worse, since the United States had collateralized their loans with the nation's gold reserves, it quickly became apparent that the US Government did not in fact have enough gold to cover the outstanding debts. Foreign nations began to get very nervous about their loans to the US and understandably were reluctant to loan any additional money to the United States without some form of collateral. So Richard Nixon started the environmental movement, with the EPA and its various programs such as "wilderness zones", Roadless areas", Heritage rivers", "Wetlands", all of which took vast areas of public lands and made them off limits to the American people who were technically the owners of those lands. But Nixon had little concern for the environment and the real purpose of this land grab under the guise of the environment was to pledge those pristine lands and their vast mineral resources as collateral on the national debt. The plethora of different programs was simply to conceal the true scale of how much American land was being pledged to foreign lenders as collateral on the government's debts; eventually almost 25% of the nation itself.
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With open lands for collateral already in short supply, the US Government embarked on a new program to shore up sagging international demand for the dollar. The United States approached the world's oil producing nations, mostly in the Middle East, and offered them a deal. In exchange for only selling their oil for dollars, the United States would guarantee the military safety of those oil-rich nations. The oil rich nations would agree to spend and invest their US paper dollars inside the United States, in particular in US Treasury Bonds, redeemable through future generations of US taxpayers. The concept was labeled the "petrodollar". In effect, the US, no longer able to back the dollar with gold, was now backing it with oil. Other peoples' oil. And that necessity to keep control over those oil nations to prop up the dollar has shaped America's foreign policy in the region ever since.
But as America's manufacturing and agriculture has declined, the oil producing nations faced a dilemma. Those piles of US Federal Reserve notes were not able to purchase much from the United States because the United States had little (other than real estate) anyone wanted to buy. Europe's cars and aircraft were superior and less costly, while experiments with GMO food crops led to nations refusing to buy US food exports. Israel's constant belligerence against its neighbors caused them to wonder if the US could actually keep their end of the petrodollar arrangement. Oil producing nations started to talk of selling their oil for whatever currency the purchasers chose to use. Iraq, already hostile to the United States following Desert Storm, demanded the right to sell their oil for Euros in 2000 and in 2002, the United Nations agreed to allow it under the "Oil for food" program instituted following Desert Storm. One year later the United States re-invaded Iraq, lynched Saddam Hussein, and placed Iraq's oil back on the world market only for US dollars.
The clear US policy shift following 9-11, away from being an impartial broker of peace in the Mideast to one of unquestioned support for Israel's aggressions only further eroded confidence in the Petrodollar deal and even more oil producing nations started openly talking of oil trade for other global currencies.
Over in Libya, Muammar Gaddafi had instituted a state-owned central bank and a value based trade currency, the Gold Dinar. Gaddafi announced that Libya's oil was for sale, but only for the Gold Dinar. Other African nations, seeing the rise of the Gold Dinar and the Euro, even as the US dollar continued its inflation-driven decline, flocked to the new Libyan currency for trade. This move had the potential to seriously undermine the global hegemony of the dollar. French President Nicolas Sarkozy reportedly went so far as to call Libya a “threat” to the financial security of the world. So, the United States invaded Libya, brutally murdered Qaddafi ( the object lesson of Saddam's lynching not being enough of a message, apparently), imposed a private central bank, and returned Libya's oil output to dollars only. The gold that was to have been made into the Gold Dinars is, as of last report, unaccounted for.
According to General Wesley Clark, the master plan for the "dollarification" of the world's oil nations included seven targets, Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran (Venezuela, which dared to sell their oil to China for the Yuan, is a late addition). What is notable about the original seven nations originally targeted by the US is that none of them are members of the Bank for International Settlements, the private central bankers private central bank, located in Switzerland. This meant that these nations were deciding for themselves how to run their nations' economies, rather than submit to the international private banks.
Now the bankers' gun sights are on Iran, which dares to have a government central bank and sell their oil for whatever currency they choose. The war agenda is, as always, to force Iran's oil to be sold only for dollars and to force them to accept a privately owned central bank.
The German government recently asked for the return of some of their gold bullion from the Bank of France and the New York Federal Reserve. France has said it will take 5 years to return Germany's gold. The United States has said they will need 8 years to return Germany's gold. This suggests strongly that the Bank of France and the NY Federal Reserve have used the deposited gold for other purposes, and they are scrambling to find new gold to cover the shortfall and prevent a gold run. So it is inevitable that suddenly France invades Mali, ostensibly to combat Al Qaeda, with the US joining in. Mali just happens to be one of the world's largest gold producers with gold accounting for 80% of Mali exports. War for the bankers does not get more obvious than that!
You have been raised by a public school system and media that constantly assures you that the reasons for all these wars and assassinations are many and varied. The US claims to bring democracy to the conquered lands (they haven't; the usual result of a US overthrow is the imposition of a dictatorship, such as the 1953 CIA overthrow of Iran's democratically elected government of Mohammad Mosaddegh and the imposition of the Shah, or the 1973 CIA overthrow of Chile's democratically elected government of President Salvador Allende, and the imposition of Augusto Pinochet), or to save a people from a cruel oppressor, revenge for 9-11, or that tired worn-out catch all excuse for invasion, weapons of mass destruction. Assassinations are always passed off as "crazed lone nuts" to obscure the real agenda.
The real agenda is simple. It is enslavement of the people by creation of a false sense of obligation. That obligation is false because the Private Central Banking system, by design, always creates more debt than money with which to pay that debt. Private Central Banking is not science, it is a religion; a set of arbitrary rules created to benefit the priesthood, meaning the owners of the Private Central Bank. The fraud persists, with often lethal results, because the people are tricked into believing that this is the way life is suppoed to be and no alternative exists or should be dreamt of. The same was true of two earlier systems of enslavement, Rule by Divine Right and Slavery, both systems built to trick people into obedience, and both now recognized by modern civilizatyion as illegitimate. Now we are entering a time in human history where we will recognize that rule by debt, or rule by Private Central Bankers issuing the public currency as a loan at interest, is equally illegitimate. It only works as long as people allow themselves to believe that this is the way life is supposed to be.
But understand this above all; Private Central Banks do not exist to serve the people, the community, or the nation. Private Central Banks exist to serve their owners, to make them rich beyond the dreams of Midas and all for the cost of ink, paper, and the right bribe to the right official.
Behind all these wars, all these assassinations, the hundred million horrible deaths from all the wars lies a single policy of dictatorship. The private central bankers allow rulers to rule only on the condition that the people of a nation be enslaved to the private central banks. Failing that, said ruler will be killed, and their nation invaded by those other nations enslaved to private central banks.
The so-called "clash of civilizations" we read about on the corporate media is really a war between banking systems, with the private central bankers forcing themselves onto the rest of the world, no matter how many millions must die for it. Indeed the constant hatemongering against Muslims lies in a simple fact. Like the ancient Christians (prior to the Knights Templars private banking system) , Muslims forbid usury, or the lending of money at interest. And that is the reason our government and media insist they must be killed or converted. They refuse to submit to currencies issued at interest. They refuse to be debt slaves.
So off to war your children must go, to spill their blood for the money-junkies' gold. We barely survived the last two world wars. In the nuclear/bioweapon age, are the private central bankers willing to risk incinerating the whole planet just to feed their greed?
Apparently so.
Flag waving and propaganda aside, all modern wars are wars by and for the private bankers, fought and bled for by third parties unaware of the true reason they are expected to gracefully be killed and croppled for. The process is quite simple. As soon as the Private Central Bank issues its currency as a loan at interest, the public is forced deeper and deeper into debt. When the people are reluctant to borrow any more, that is when the Keynesian economists demand the government borrow more to keep the pyramid scheme working. When both the people and government refuse to borrow any more, that is when wars are started, to plunge everyone even deeper into debt to pay for the war, then after the war to borrow more to rebuild. When the war is over, the people have about the same as they did before the war, except the graveyards are far larger and everyone is in debt to the private bankers for the next century. This is why Brown Brothers Harriman in New York was funding the rise of Adolf Hitler.
As long as Private Central Banks are allowed to exist, inevitably as the night follows day there will be poverty, hopelessness, and millions of deaths in endless World Wars, until the Earth itself is sacrificed in flames to Mammon.
The path to true peace on Earth lies in the abolishment of all private central banking everywhere, and a return to the state-issued value-based currencies that allow nations and people to become prosperous.

Republicans agree three-month debt ceiling increase in boost for Obama

Eric Cantor, House majority leader
House majority leader Eric Cantor said the extension is contingent on a budget being passed in three months. Photograph: Alex Wong/Getty Images
Republicans showed the first sign of backing down over the looming debt ceiling crisis on Friday, in the face of relentless pressure from President Barack Obama.
Congressional Republicans, who only last week had been threatening to close down the federal government, emerged from closed-door negotiations at a party retreat to announce they will present a bill next week to increase the debt limit by a further three months.
The White House gave the move a cautious welcome to the news.
It is an unexpected bonus for Obama just days before the start of his second presidential term, and gives him breathing space so that instead of another showdown between White House and Republicans in Congress at the end of next month or in March, the issue could be pushed back until summer.
Eric Cantor, the Republican majority leader in the House, said: "Next week, we will authorise a three-month temporary debt limit increase to give the Senate and House time to pass a budget."
The GOP came close to closing down the federal government in 2011 when they initially refused to raise the debt ceiling.
A messy compromise was eventually worked out. But Obama said earlier this month, after yet another economic showdown, he would not negotiate with the Republicans over the debt limit.
Obama, ramping up pressure on opponents in Congress, held a press conference at the White House on Monday, warning them that if they were not prepared to raise the ceiling, then they would have to take the blame for government closing down.
Obama's strategy appears to have worked, with the Republicans worried about the electoral consequences of government grinding to a halt, which would mean hundreds of thousands of people – from welfare recipients to veterans – no longer receiving their cheques, federal staff going on forced leave and agency after agency being shut down.
The Republican cave-in was announced from their retreat near Colonial Williamsburg, Virginia, where they have been discussing overall strategy in the wake of the November elections.
In what appears to be a political gimmick, the Republicans are to attach to the bill extending the debt limit for three months clauses that would see members of Congress have their pay withheld unless they can reach agreement on a separate issue: a budget that cuts spending.
The Republicans had been using the debt ceiling crisis as leverage to try to force Obama into accepting deep spending cuts, particularly in welfare.
Cantor, in a statement, said of the proviso in next week's bill about the three-month extension: "If the Senate or House fails to pass a budget in that time, members of Congress will not be paid by the American people for failing to do their job. No budget, no pay."
The Republicans are banking on the idea of members' losing their pay being popular with voters.
But both the White House and the Democratic leadership in the Senate dismissed the idea, saying they wanted a "clean bill", focused solely on raising the debt ceiling.
The White House, in a statement, said: "The president has made clear that Congress has only two options: pay the bills they have racked up, or fail to do so and put our nation into default.
"We are encouraged that there are signs that congressional Republicans may back off their insistence on holding our economy hostage to extract drastic cuts in Medicare, education and programs middle class families depend on. Congress must pay its bills and pass a clean debt limit increase without further delay. And as he has said, the president remains committed to further reducing the deficit in a balanced way."
The Democratic leader in the Senate, Harry Reid, said if the House passes a clean bill raising the debt ceiling, even temporarily, the Senate would be happy to consider it.
A spokesman said Reid saw the move as the Republicans beginning to back off from their threat to "hold our economy hostage".
Separate from the debt ceiling, a deal on spending is within reach. Obama has already agreed to consider changes to the index that determines welfare benefits, something the Republicans have been pushing for but Democrats have resisted, and to raise the age at which Medicare kicks in, another Republican proposal.
He and the Republican House speaker, John Boehner, are not too far apart either over a global figure for spending cuts.

The Essence Of The Banking Industry...

By Michael Rivero
Back in 2008, in testimony before Congress in the wake of the crash of Wall Street's mortgage-backed securities scam, fromer Federal Reserve Chairman Allan Greenspan made the admission that his "ideology" had a flaw.

Greenspan and the members of Congress relied heavily on euphemisms like "ideology" and spoke in vague terms to obfuscate from the American people that there are fundamental flaws in the way the US Financial system works.
The first and largest flaw in the system is the Federal Reserve itself. Not actually a part of the government (the Federal Reserve is no more "Federal" than Federal Express), the Federal Reserve is a privately owned central bank which has been given the authority by the US Congress to create money, something which under any other circumstances would be called counterfeiting. Created by act of Congress in 1913 and signed into law by President Woodrow Wilson, the Federal Reserve now exercises the power to create money originally granted to the government itself under the Constitution. It might be argued that such a dramatic reassignment of constitutional powers should have required a Constitutional Amendment, but that is a discussion for another article. What is germane is that the Federal Reserve system is unstable because by design it creates more debt than it creates money with which to pay that debt.
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by its system of credit.We are no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men." -- Woodrow Wilson 1919
What few Americans realize is that under the private central banking system, all currency enters circulation as a loan at interest from the central bank. The money you are paid for work, the money you pay for food; all of it first entered the economy as a loan at interest form the Federal Reserve. Loans to the Us Government, loans to other banks, loans to businesses and loans to consumers. As that money circulates, passing from hand to hand to hand to hand, it accrues interest on that loan, which must eventually be repaid through higher prices and increased taxation.
The trap of private central banking lies in the fact that the moment that first paper note enters circulation, more money is owed to the private central bank than actually exists. The only way that interest can be paid is if new money is created through more lending, with part of that newly created money used to pay the interest on the old money. The system can only perpetuate itself as long as ever-larger generations of new borrowers can be found to allow the creation of that new money. It is because of this basic principle that private central banks are little more than pyramid, or Ponzi schemes, albeit cloaked with an image of respectability.

It is also because of this principle that every nation enslaved to a private central bank is drowning in accumulated debt, and unable to find the money with which to pay that debt. That debt, in turn, is used to exercise control over that nation and its people.
"This is the very essence of the banking industry; to make us all, whether we be nations or individuals, slaves to debt!"
But there are three other flaws which doom the economy as it is currently constituted to failure.
The first flaw is inside modern economic theory itself, and even Allan Greenspan admitted before Congress that the best minds of Wall Street missed (or did not want to see) what was going on.
There are two kinds of purchases, goods and assets. Goods are items you purchase to use and expect to sell (if ever) at a reduced price. Assets are things purchased with the expectation of re-selling at a higher price. Normal rules of supply and demand (the wisdom of the crowd) are that as the cost of goods rises, demand will lessen, and commerce will slow until the price of the good succumbs to market pressures and comes back down. This is a naturally stable system that needs little interference.

The mistake that the Federal Reserve and Wall Street made was assuming the same stability also applies to assets. As the price of gold rises, demand will slacken, for example. But this is not always true.
Houses inhabit a grey area. They are bought to use, like goods, but their price will usually increase like an asset. But Wall Street still viewed houses primarily as goods, with the increase in value really the accumulation of mortgage interest carried forward to the next buyer. And that was where they failed.
During the early 2000s, more and more Americans started viewing housing purchases as assets. As housing prices rose, demand actually increased as the promise of overnight profits lured more people to mortgage out the equity in their homes and invest the cash into additional houses. That demand in turn stimulated greater price increases, which stimulated more demand, etc.

This is a naturally UNstable system, chaotic in the mathematical sense. Controls should have been imposed, but were not, and that is how the housing bubble was created. Everyone on the inside was too busy getting rich to realize the obvious smell of tulips in the air.
Worse, they were also too busy to notice two other major problems.
For any economic system to work, all parts of the system must work. Money must flow to all sectors and all levels to maintain a stable economy.

Capital is invested in factories, farms, new product development, as well as home mortgages and consumer debt. The investment in factories and farms provides jobs with which consumers can repay their consumer debt and home mortgages, keeping the system stable and self-sustaining.
However, with real-estate and mortgage-backed securities paying such high rates of returns (until the crash), investment money was lured away from other capital ventures like farming and manufacturing. Profits were higher investing in consumer debt than in investing in businesses with which to provide jobs so that consumers could pay that debt! American entrepreneurs outside the financial services sector were starved for investment cash and never opened their doors. This accelerated the loss of jobs, which triggered the mortgage and retail crashes.

Put simply, essential parts of the US economy were allowed to starve to death because they did not provide the highest immediate profits.
This illustrates very clearly that Adam Smith was wrong about individual greed being good for the society as a whole. And this also proves John Nash was correct that one must keep an eye on the system as a whole to have the best outcome. Keeping that eye on the whole is, of course, the advertised job of the US Federal Government, and obviously, they dropped the ball on this one; too busy selling us solutions to make-believe crisis to notice the real disaster that was unfolding before them.

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Again, Greenspan admitted that simply allowing bankers to do what served their own interests did not work out.
In essence, Greenspan admitted that the deregulation of the financial system in 1999 had not worked out; hardly a surprise to anyone who studied the events leading up to the passage of the Glass-Steagal act in 1933.
It is for this reason that Russia is correct to take control of their central bank, to make certain that instability (greed) does not strangle essential parts of the entire system for the sake of a quick profit.
The final flaw relates to the issue of stability versus chaotic markets. Obviously, stable markets are best for normal investors, businessmen, government, banks, and homeowners. The flow of cash is reliable and predictable. Long term planning is easy as forecasts and expense are reliable. There is little excitement.

But for the growing population of hedge fund managers, arbitragers, and players in derivatives, profits (and the emotional thrill that goes with them) are faster and greater during times of chaos and instability. And just like drug addicts and gamblers, money junkies will consciously or unconsciously reinforce those parts of their existence which feed their addictions.

The US economy has thus become more unstable over time under the influence of money-junkies, who favor the volatile over the calm. This psychology of the money-junkies as an influence over financial practices was a factor totally overlooked by the bankers and the US Government, who see the economy wholly as numbers and never looked into the psychology of the Wall Street crowd, possibly out of fear as to the very unflattering mental illness they would find.

Sterling is a 'sick little puppy' as it hits 10-month low

The pound is a “sick little puppy” as it hits a 10-month low and is expected to continue its decline, analysts warned, after UK retail unexpectedly declined in December.

A pound sign made from gold
On Friday the pound fell 0.2pc against the euro to hit a ten-month low of 1.192, while it fell for the six-consecutive day against the dollar, down 0.4pc to 1.592. Photo: PA
On Friday the pound fell 0.2pc against the euro to hit a ten-month low of 1.192, while it fell for the six-consecutive day against the dollar, down 0.4pc to 1.592.
"UK retail sales left their mark on sterling," said Kathleen Brooks, research director of UK, Europe and Middle East at
"This [retail sales] data is not disastrous, but it does suggest the UK consumer is cautious as we start 2013.
"The pound is definitely in the weak basket of currencies right now and with interest rates so low and unlikely to move higher any time soon. We may not have seen the bottom in sterling just yet."
Retail sales unexpectedly fell 0.1pc in December, dashing hopes that Christmas shoppers would provide a last-minute lift to an economy on the verge of another contraction.

The contraction, which also produced the slowest year-on-year growth in December sales since 1998 – with the exception of 2010 when a harsh winter battered trade – was driven by non-food goods, according to Office for National Statistics' figures.
The pound has now fallen more than 2.5pc so far this year.
“Sterling continues to look like a sick little puppy as [it] firmly sliced through the key 1.60 [against dollar] and 1.20 [against euro] levels like a pair of knives through hot butter,” said Lee McDarby, head of dealing for the corporate & institutional treasury desk at Investec.
“The ease at which these psychological rates gave way suggests that this downwards slump for the pound is not necessarily over just yet.”
There was further pressure on the pound after excerpts from a proposed speech by David Cameron were released today. They show Mr Cameron had planned to warn that Britain risked “drifting towards the exit” of the EU unless there was fundamental reform.
The Prime Minister's speech, originally understood to be planned for January 22, was brought forward to avoid it coinciding with an anniversary marking 50 years of Franco-German friendship, but was postponed again today due to the hostage crisis in Algeria.
Investors have become concerned that a loosening of the Britain’s relationship with the EU will threaten London’s role as a financial centre.
New Bank of England policymaker Ian McCafferty also raised doubts about the pound on Friday, questioning whether sterling was at the right level to ensure economic rebalancing, and said the central bank should be open to new policies.
Asked in a Bloomberg TV interview whether he would favour a weaker level for sterling to help exports, McCafferty said there "are questions on whether sterling is now at a competitive level in terms of allowing that fundamental rebalancing".
Conversely, the euro is being lifted by the market’s perception that the eurozone is a safer place to invest so far this year.
Mr McDarby said it was becoming more and more apparent that hedges to protect against a collapse of the single currency were being unwound, with the euro "firmly returning to vogue".
Earlier this month, HSBC said the sterling would weaken further as it faced a destructive "triple cocktail" in 2013".
"The pound's fiscal credibility is under threat as a sovereign downgrade looms," the bank said in its 2013 HSBC View.
Alongside that, the bank says austerity is now kicking in at a time when the MPC appears less activist which could see a 'what's wrong with a weaker currency' attitude prevail.
And the UK's failings will start to "grab attention" as the US steps back from the fiscal cliff, momentum grows in China, and eurozone break-up fears diminish.
"The pound looks set to lose the contest of the uglies," the HSBC report said, as its "frailties emerge from the shadows".
VIDEO: How you can profit from a falling pound

Bill Gates interview: I have no use for money. This is God’s work

Having already given away $28bn, Bill Gates intends to eradicate polio, with the same drive he brought to Microsoft . He speaks to Neil Tweedie.

Bill Gates interview: I have no use for money. This is God’s work
Later this month, Gates will deliver the BBC’s Dimbleby Lecture, taking as his theme the value of the young human being Photo: Andrew Crowley for the Telegraph
William Henry “Bill” Gates is a rich man. His estimated wealth, some 65  billion measured in US dollars, equals the annual GDP of Ecuador, and maybe a bit more than that of Croatia. By this rather crude criterion, the founder of Microsoft is worth two Kenyas, three Trinidads and a dozen or so Montenegros. Not bad for a university dropout.
Gates is also mortal, although some of his admirers may find that hard to believe, and as they say, there are no pockets in shrouds. So he is now engaged in the process of ridding himself of all that money in the hope of extending the lives of others less fortunate than himself.
“I’m certainly well taken care of in terms of food and clothes,” he says, redundantly. “Money has no utility to me beyond a certain point. Its utility is entirely in building an organisation and getting the resources out to the poorest in the world.”
That “certain point” is set a little higher than for the rest of us – Gates owns a lakeside estate in Washington State worth about $150 million (£94  million) and boasting a swimming pool equipped with an underwater music system – but one gets the point. Being rich, even on the cosmic scale attained by Bill Gates, is no guarantee of an enduring place in history. The projection of the personal computer into daily life should do the trick for him, but even at the age of 57 he is a restless man and wants something more. The “more” is the eradication of a disease that has blighted untold numbers of lives: polio.
Later this month, Gates will deliver the BBC’s Dimbleby Lecture, taking as his theme the value of the young human being. Every child, he will say, has the right to a healthy and productive life, and he will explain how technology and innovation can help towards the attainment of that still-distant goal. Gates has put his money where his mouth is. He and his wife Melinda have so far given away $28 billion via their charitable foundation, more than $8  billion of it to improve global health.

“My wife and I had a long dialogue about how we were going to take the wealth that we’re lucky enough to have and give it back in a way that’s most impactful to the world,” he says. “Both of us worked at Microsoft and saw that if you take innovation and smart people, the ability to measure what’s working, that you can pull together some pretty dramatic things.
“We’re focused on the help of the poorest in the world, which really drives you into vaccination. You can actually take a disease and get rid of it altogether, like we are doing with polio.”
This has been done only once before in humans, with the eradication of smallpox in the 1970s.
“Polio’s pretty special because once you get an eradication you no longer have to spend money on it; it’s just there as a gift for the rest of time.”
One can see why that appeals to Gates. He has always sought neat, definitive solutions to things, but as he knows from Microsoft, bugs are resilient things. The disease is still endemic in Nigeria, Pakistan and Afghanistan, and killing it off altogether has been likened to squeezing jelly to death. There is another, sinister obstacle: the propagation by Islamist groups of the belief that polio vaccination is a front for covert sterilisation and other western evils. Health workers in Pakistan have paid with their lives for involvement in the programme.
“It’s not going to stop us succeeding,” says Gates. “It does force us to sit down with the Pakistan government to renew their commitments, see what they’re going to do in security and make changes to protect the women who are doing God’s work and getting out to these children and delivering the vaccine.”
Gates does not usually speak in religious terms, and has traditionally danced around the issue of God. His wife, a Roman Catholic, is less defensive on that topic but ploughs her own furrow, encouraging contraception when necessary, in contradiction to teaching from Rome.
“Melinda and I had been talking about this even before we were married,” he says. “When I was in my 40s Microsoft was my primary activity. The big switch for me was when I decided to make the foundation my primary purpose. It was a big change, although there are more in common with the two things than you might think – meeting with scientists, taking on tough challenges, people being sceptical that you can get things done.”
Gates is still chairman of Microsoft but without his day-to-day attention it has taken on the appearance of a weary giant, trailing Apple and Google in innovation. Some have called for Gates’s return to the company full-time to inject some verve but he isn’t coming back.
“My full-time work for the rest of my life will be at the foundation,” he says. “I still work part-time for Microsoft. I’ve had two careers and I’m lucky that both of them have been quite amazing.
“I loved my Microsoft: it prepared me for what I’m doing now. In the same way that I got to see the PC and internet revolutions, now I see child death rates coming down. I work very long hours and try to learn as much as I can about these things, but that’s because I enjoy it.”
He emphasises that the foundation’s effort is part of a global campaign in which governments must play the lead role.
“The scale of the (foundation’s) wealth compared to government budgets is actually not that large, and compared to the scale of some of these problems. But I do feel lucky that substantial resources are going back to make the world a more habitable place.”
In 1990 some 12 million children under the age of five died. The figure today is about seven million, or 19,000 per day. According to the United Nations, the leading causes of death are pneumonia (18 per cent), pre-birth complications (14 per cent), diarrhoea (11 per cent), complications during birth (nine per cent) and malaria (seven per cent). For Gates, though, polio is a totem. The abolition of the disease will be a headline-grabber, spurring countries on to greater efforts. The Bill and Melinda Gates Foundation will spend $1.8 billion in the next six years to accomplish that goal, almost a third of the global effort.
“All you need is over 90 per cent of children to have the vaccine drop three times and the disease stops spreading. The number of cases eventually goes to zero. When we started, we had over 400,000 children a year being paralysed and we are now down to under 1,000 cases a year. The great thing about finishing polio is that we’ll have resources to get going on malaria and measles.”
Gates is no saint. He could be an intimidating boss at Microsoft and his company became notorious for using its clout to reinforce its dominance in the market place, at the expense of smaller rivals. Still, he and his wife are showing generosity on a staggering scale, a counterblast to the endemic greed of the Nineties and early Noughties, and they have convinced others that mega-philanthropy is the way of the future. That wily investor, Warren Buffett, has so far given away $17.5 billion via the Gates Foundation.
The children of Bill and Melinda Gates will never know poverty. They may not become multibillionaires but even the loss to charity of the vast bulk of their parents’ fortune should leave them with a billion or so each.
Gates explains: “The vast majority of the wealth, over 95 per cent, goes to the foundation, which will spend all that money within 20 years after neither of us are around any more.”
So, is it about some new-found faith, all this giving?
“It doesn’t relate to any particular religion; it’s about human dignity and equality,” he says. “The golden rule that all lives have equal value and we should treat people as we would like to be treated.”
The 37th Dimbleby Lecture will be broadcast on BBC One on Jan 29