Washed It!

“The Royal Scam” by Anonymous Correspondent

August 3, 2009

Are we at the end? These massive insolvable problems: where can they lead? The inattentive political class, too selfish to care. The corrupt and venal insiders, what can they do?

What can they do? Here’s an idea, presented in the book And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina (2006) and independently researched and presented by Eric Janzen in a review of his now-10-year-old “Ka-Poom” theory entitled Does USA 2009 = Argentina 2001? Part I: Falling economy reaches terminal velocity .

Here’s Argentina’s CPI in 2001:

Here’s the chart, and this deflation head-fake has happened elsewhere, such as Weimar. See how Mish is right and there is REAL Deflation here? He’s not kidding. CPI is minus 1% to 3%, while Case-Shiller CPI is minus 6%:

Nevertheless, 3 months after Deflation begins in Argentina, Inflation rises to 120%. The Peso is devalued 73%

The bond market collapses:

And a few months later, Argentina defaults on sovereign debt, for a multi-billion dollar loss to foreign creditors. A mere two years later, the country is without debt, working hard, and booming.

Hmm…

Work with me here. Suppose, just suppose, that mathematically, the US Fiat system has a very certain, very predictable end date, easily seen even by such non-monetary critics such as Martenson’s “Crash Course”.

(Also http://www.youtube.com/watch?v=iIwyMif5EOg&feature=related )

This certain end date is roughly when the parabolic curve goes vertical as mapped using the average interest rate of all national transactions—6% perhaps. And suppose, just suppose, that being no dummy and working with money as your sole object, clawing your way to the top of the Billionaire’s club, you could see this coming. In fact, everyone can—all your peers who clawed through the same training, saw through the same veil, and are now in positions of unimaginable influence, having friends who are Presidents, Diplomats, nation-shaking Hedge Funds, and IMF/BIS bankers. And they all looked at each other and said: “This is bad, dahlink” and: “It’s mathematically certain, mate,” then everyone together: “So what do we do?”

Well, no one knows what to do. Nothing like this has never been tried before. The financial world has never had ALL baseless currencies before, and never has a country as large as the US been brought down except during a war that exhausted all nations together. The risks are too high just to guess what will happen if we pull lever X instead of lever Y when the end comes. So you pick a country a lot like America. Productive, hardworking, modern, agricultural, having a corrupt, spendthrift political class and an uninvolved, unassuming, spendthrift-but-hardworking middle class—a country the most like America. And you run a little experiment.

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What happens to a country when it does exactly what we’re about to do? You influence leaders here, fund populist movements there, then get your friends to invest in this nation, knowing all along what’s going to happen, and knowing that—because we know, we’re making it happen—no one important will lose their money playing along. A nation like, oh, Argentina.

You push foreign investment through banking and diplomatic channels from the top, while as in “Economic Hit Man” no one below the 1^st level need know, and you over-invest in the country, buying the leaders and giving them every assurance that things are fine, they’re not too far along, the world believes in them, and the IMF is right there to catch them.

Until one day, you don’t. Once they’ve gone too far to pull back, you spread some rumors, cause a run on some investments, then have your banking friends step back a bit. Then a bit more. Then at the 11^th hour, despite daily promises all along the way, the IMF also leaves them in the lurch, cutting off their last foreign credit. What do they do? What do the people do? What does it take to keep them under control in this transition? Where are the pressures? Do they give in to interminable debt slavery to the IMF, or do they default on foreign investors? And what happens when they do? Does the world punish them or two years later is it like nothing happened?

Meanwhile, on the other side of the world, with another placid, productive, agricultural, English-speaking country with a strong middle class and rule of law, also most like America, you try the other direction: unlimited inflation. In Zimbabwe, three eggs cost 100 billion dollars…back in 2008, before things got really bad.

What happens there? Which way was better, for power, influence, and control in world affairs? Which way do the important people remain in power with less bother?

Just a thought, mind you. I’m sure no one would actually do such a thing.

Here’s what happened in Argentina: the political leaders are dysfunctional and infighting, paying out to their home provinces, uncaring of the enormous debt and with no reason to care so long as foreign money could be borrowed. Meanwhile the economy began to rest more and more on bubbles and speculation funded by this foreign borrowing. When the balloon went up, the insiders saw which way it was headed and got their money offshore, something like Cheney and Halliburton did the other year. Then as things devolved, ever-increasing capital controls were put in place, just like now with the US investigating “off-shore havens” and profits one might have made overseas using the premise of money laundering to chain the firedoors shut one by one.

Finally, they enforced the official “corrilito”, and soon after had an extended Bank Holiday for the 5 months it took to devalue the Peso by 73%–far faster than anyone not forewarned could adjust and react. Once every exit was chained tight, they firebombed the casino, trapping everyone inside. Even if you had thousands in stocks, bonds, and savings accounts, with the market frozen and the monthly bank withdrawal limit set at $300/mo, the little people could not pay rent or even eat, becoming “Cartoneros” garbage-picking architects and engineers, wandering the streets with their children at midnight as the nation devolved into a chaos that did not topple the ruling class.

Once all the assets in the country had been discounted a minimum of 73%, the insiders then repatriated their money and bought their neighbor’s fortunes for pennies on the dollar, finding cheap, hungry, competitive labor, ready to compete with even 3^rd world wages. The prudent, hard-working, and savers (the wrong people) were wiped out, and the money was transferred to the speculators and insiders (the right people). Massive capital like land and factories can not be expatriated, but are always worth their USE value and did not fall as much, or even rose afterwards as with falling debt ratios and low wages these working assets became competitive again. It’s not so much a “collapse” as a redistribution, from the middle class and the working to the capital class and the connected. …And the genius is, they could blame it all on foreigners, “incompetent” leaders, and careless, debt-happy citizens themselves.

Now I’m no genius here, but couldn’t the United States do the very same thing?

What you need to do is–and bear with me here–send your best Wall St. salesmen and diplomats to China and sell them a bill of goods about how they can “modernize” with our help. The Cold War is over. Capitalism reins. You know us Wall St. types! It’s all about the dollar! Have the radio scream the President sold out and sign them up to the WTO as you suck Asia into massive overcapacity and a deep, unbreakable reliance on the US and G-8 as customers while paving over the national independence of their life-giving water and farmland. Then, once they’ve tasted freedom and affluence, once they’re unable to support themselves independently, you pull the plug not on them but YOURSELF. Implode your own middle class as above. Kill the bond markets, cause a run on your own currency, and default on the debts you owe them. Hey, it’s the only thing you could do, right? Americans are just stupid, right? Wall Street is just greedy. It’s all an accident, an act of God really. No one’s to blame. It’s classic Judo.

In a single stroke you:

a) lose the burden of external debt

b) by devaluation lose your internal debt

c) make the nation competitive as a manufacturing power.

d) scare the people back into compliance, even exultation with their low wages.

e) with the renewal of manufacturing, re-cast the power that your military rests on

f) during a time of Peak Oil, radically reduce unnecessary consumption while insuring strategic (military) supply.

g) by doing that, suck in the oil powers of Russia, Iran, and Venezuela enough to knock them off-base, first with high prices, then low prices.

h) club China into submission to the G-8 money powers again

and best of all:

i) enrich insiders beyond their wildest dreams, insuring their dominance for a generation to come.

All the right people win, all the wrong people lose.

Seeing the monetary parabola looming dead ahead after the near-miss of the Tech collapse, what do you need to insure this happens on a very tight schedule?

First, knowing this will happen, you suck in your own people by demanding—straight from the top—that bankers loosen lending standards so low even the dumbest financier couldn’t believe it was prudent, then refuse to prosecute even the most blatant corruptions by mortgage originators, fraudulent borrowers, and other “outsiders”. Suspecting this will all blow up, pay yourself today in bonuses instead of later in investments.

Then, knowing you’ll never repay, you jack up national spending beyond anything anybody’s ever seen and go do what you want all over the world, in any country you want, with impunity.

Then you have a scare that gives you cover to set up conduits that insure all the right people have lifeboats, even if it costs $23-30 Trillion, and even if the Hoi Polloi scream bloody murder. It’ll all be over soon anyway.

It was only a 3% GDP deficit that sank Argentina:

But the US$ is not the Peso. You need to make sure it goes down on demand. You aim straight for $2+ Trillion yearly deficits for 70 years and threaten more if necessary.

Hey, is this enough to insure a collapse, even of the world’s reserve currency?

Is this enough to force China to cut us off and play the role of the bad guy we have planned for them? Funny how convenient that is, no? When every economist is screaming, “Mr. President, don’t do this, why are you doing this?” Why indeed.

Hit health care as a way to make the people dependent on the government–innate independence is America’s resistance to the plan—and a way of tracking and controlling them. Computerized medical records were the first thing they brought up, the highest priority, and have been attempted regularly over the years. (1993, 2004, 2009…)

Use the 5 owners of nearly all media to keep up the drumbeat of the “other”: left, right, black, white, famous, religious, atheist, straight, gay, immigrant, commie, Muslim–whatever the people will buy–to insure confusion and infighting when the time comes.

And here we are. Eye of the storm, explosives primed, waiting to pull the detonator.

Any reason the US could not do this, and that everything these incredibly smart, ruthless, immeasurably connected people have been doing is actually not stupid but smart? And what if they believe what they’re doing is all for the good of the country and are willing to take any measure, any action no matter how awful or unprincipled, because it will put America back on top again? And if they get richer than Croseus in the process, well, who’s fault is it anyway? It’s hard work after all.

Like I said, just a thought.

The real magic of a good Con is not to get the money. It’s to do it in such a way that the Mark thinks he knows what happened, thinks he saw the Con you’re pulling, when in fact, the real Con is somewhere else. There’s a saying: “Before the scam, you have the dream and they have the money; while afterwards, you have the money and they have the dream.” If you want to know the real Con, when it’s all over, find out who walked away with the money. Before then, you won’t know.

These Billionaires are the smartest, most unprincipled, double-thinking gamesmen in the world, playing the biggest, most dangerous games in the world, on a field where whole nations are at stake. They didn’t get to where they are by being stupid, taking chances, and making mistakes. You can be sure they’re not making them now. They have immense control in media, finance, military, government, business, and while every plan has risk and it might still get away from them, it sure won’t be for lack of trying. And that goes for the gamesters in China and every other country worldwide who are try every day to do the exact same thing to back to them. It’s the big boy’s game, and when the elephants fight, the grass gets trampled.

So when you’re reading the news about how randomly careless and stupid everybody was, just remember the Argentine plan: all the right people win, all the wrong people lose, and the good people never knew what hit them. The Royal Scam.

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Survival+: Structuring Prosperity for Yourself and the Nation (PDF version (111 pages): Survival+ )

John Cannon has been financing big real estate loans for $25 billion-asset Capmark Finance Inc. of Horsham and its predecessors since 1985, and he’s never seen business this slow.

“There’s nothing being bought and sold,” Cannon told me by phone from the vast Virginia headquarters of government-controlled home lender Freddie Mac, one of the few outfits still pumping millions into buildings.

Capmark financed $1.5 billion in apartment deals during the first half of the year, down by half since early 2008. Almost all this year’s lending was refinancing loans, funded by Freddie and Fannie Mae, and the U.S. Department of Housing and Urban Development.

“They’re the only viable lenders in U.S. commercial real estate right now,” and all they do is residential real estate, not offices or industry, Cannon said.

He’s seen slow markets before. The early 1990s, when the savings banks failed. But that “was a supply issue. You saw a lot of empty buildings. Now it’s a liquidity issue.” Banks aren’t lending.

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He’s hoping things have hit bottom. Fannie and Freddie tightened credit sharply last year. Lately, they aren’t requiring quite so many escrow payments, Cannon said hopefully. “Terms are getting looser. Spreads are coming down.”

It’s not that loan rates have fallen. It’s the spread between what money costs and what Fannie and Freddie charge that tells the story, according to Cannon:

Back in the mid-2000s, loans were approved at less than 1 percent above the benchmark 10-year Treasury rate. That zoomed to 3.5 to 4 percent above the benchmark during last fall’s credit crisis, after the Bush administration took control of Fannie and Freddie. Now it’s around 2 percent, Cannon says.

But banks still aren’t coming back into the market. It’s not just that they’re shy. There’s also “the disconnect between buyers’ and sellers’ expectations,” Cannon told me. “Guys bought a building five years ago for $10 million. They don’t want to sell for $8 million.”

NJ to PA

Archer Daniels Midland Co., Decatur, Ill., says it’s closing its Glassboro cocoa plant and ending jobs for 53 workers there. The work is moving to ADM’s new 500,000-square foot plant in Hazleton, says spokesman Roman Blahoski.

Bernanke or Summers?

Democrats in Congress and the Obama White House are plotting to remove Federal Reserve Chairman Benjamin Bernanke and replace him with Obama’s chief economic adviser, Larry Summers, at the end of his term next year, writes veteran bank analyst Richard X. Bove of Connecticut-based Rochdale Securities.

Summers is the brainy Main Line native, Harvard economist, and ex-Treasury Secretary who’s trying to re-regulate the financial institutions he helped deregulate under President Bill Clinton, setting the stage for the current mess.

Bernanke or Summers – what’s the difference? “Mr. Bernanke has demonstrated a willingness to act to defend both the economy and the financial system. Conversely, Mr. Summers has written the bulk of the proposals to regulate the financial industry,” which Bove says “would dramatically restrict fund flow to the economy” and kill the recovery like the government did when it tightened credit rules too soon in 1937. (But when’s the right time?)

Bove credits Bernanke, ex-Treasury Secretary Henry Paulson, and FDIC chief Sheila Bair with “bold, innovative action” that salvaged the banks and prevented a full U.S. takeover. Bush and Obama at that time “did nothing.” Congress was “the proverbial deer in the headlights.”

Yet “the same people who were incapable of acting when there was a clear need for action will now make the decision as to whether the man who helped save the system should be removed.”

Bernanke is set to testify before the House banking committee next Tuesday. Expect Fed critics to ask how he’ll reverse the scary growth in the money supply without stalling the economy.

May 21 (Bloomberg) — The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.

While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”

Several policy missteps suggest that investors should stop trusting — and lending to — the U.S. government. These include the state’s pressure on Bank of America Corp. to buy Merrill Lynch & Co.; the priority given to Chrysler LLC’s unions over the automaker’s secured creditors; and the freedom that some banks will regain to supersize executive bonuses by giving back part of the government money bolstering their balance sheets.

Currency markets have been in a weird state of what looks almost like equilibrium for the past couple of months. What’s really going on is something akin to an evenly matched tug of war that fails to move the ribbon tied around the center of the rope, giving the impression of harmony while powerful forces do silent battle until someone slips.

“All currencies are being debased dramatically by their central banks at extraordinary speeds and so in relative terms it appears there is no currency problem,” Lee Quaintance and Paul Brodsky of QB Asset Management said in a research note earlier this month. “In reality, however, paper money is highly vulnerable to a public catalyst that serves to acknowledge it is all merely vapor money.”

Flesh Wounds

Why pick on the dollar, though? Well, not necessarily because the U.S. economy is in worse shape than those of the euro area, the U.K. or Japan. The biggest problem is that external investors — particularly China — have more skin in the dollar game than in euros, yen or pounds, which makes the U.S. currency the most likely candidate to meet the cleaver in a crisis of confidence about post-crunch government finances.

China owns about $744 billion of U.S. Treasury bonds in its $2 trillion of foreign-exchange reserves.

Chinese exports, though, are dropping as the global economy weakens, with overseas shipments declining 23 percent in April from a year earlier, leaving a nation that has already expressed concern about its U.S. investments with less to spend in future.

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‘Heavy Hand of Government’

Those kinds of concerns are starting to surface in a steepening of the U.S. yield curve, driven by an increase in 10- and 30-year U.S. Treasury yields. The 10-year note currently yields 3.23 percent, about 235 basis points more than the two- year security, which marks a near doubling of the spread since the end of last year.

“When the government parks its tanks on capitalism’s lawns, that spells trouble for those who invest, add value and create jobs,” says Tim Price, director of investments at PFP Wealth Management in London. “Trillion-dollar bailouts do not only leave massive public-sector deficits in their wake, they also leave the presence of the heavy hand of government all over industry and markets, so the outlook for government bonds is less promising than the economic textbooks on deflation would have us believe.”

Earlier this month, the U.S. reported the first budget deficit for April in 26 years, with spending exceeding revenue by $20.9 billion, even though that’s the month when taxpayers have to stump up to the Internal Revenue Service and the government’s coffers should be overflowing. So far this fiscal year, the U.S. shortfall is $802.3 billion, more than five times the $153.5 billion gap in the year-earlier period.

Deathly Deficit

For the fiscal year ending Sept. 30, the Congressional Budget Office forecasts a record deficit of $1.75 trillion, almost four times the previous year’s $454.8 billion shortfall and about 13 percent of gross domestic product. Bear in mind that the target demanded of European nations wanting to join the euro was a deficit no greater than 3 percent of GDP.

David Walker, a former U.S. comptroller general, wrote in the Financial Times on May 12 that the U.S.’s top credit rating looks incompatible with “an accumulated negative net worth” of more than $11 trillion and “additional off-balance-sheet obligations” of $45 trillion. “One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate,” he wrote.

No Default

It is undeniable that the U.S. government’s ability to finance its borrowing commitments has deteriorated as its deficit has ballooned. Dropping the U.S. from the top rating grade, though, wouldn’t mean the nation is about to default on its debt obligations; there’s a subtle distinction between ability to pay and propensity to fail to pay. There’s also a compelling argument that no government should be enjoying the benefits of a top credit grade in the current financial climate.

Using the definitions outlined by Standard & Poor’s, a one- step cut into the AA rated category would nudge the U.S.’s creditworthiness into a “very strong” capacity to fulfill its commitments, just weaker than the “extremely strong” capabilities demanded of AAA rated borrowers. That seems an appropriately nuanced sanction — albeit one that the rating companies might turn out to be too cowardly to impose.

(Mark Gilbert is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net

April 3 (Bloomberg) — The U.S. unemployment rate jumped in March to the highest level since 1983 and service industries shrank at a faster pace, indicating the economy remains trapped in what’s likely to be the longest recession since the 1930s.

Federal Reserve Vice Chairman Donald Kohn said both the Obama administration and central bank must remain “flexible and open” to further measures because the economy and financial markets aren’t “out of the woods yet.” The labor-market rout will make it tougher for President Barack Obama to follow through on his pledge to save or create 3.5 million jobs.

The economy lost 663,000 jobs in March, bringing losses since the slump began to about 5.1 million, the worst in the postwar era, Labor Department figures showed in Washington. The 8.5 percent jobless rate was consistent with the forecasts of 79 economists surveyed by Bloomberg News. The Institute of Supply Management’s non-manufacturing index unexpectedly dropped.

“We could continue to see a few more months of really bad employment numbers before it starts to ease,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. Behravesh projected the jobless rate will peak between 10 percent and 10.5 percent in early 2010. “We aren’t there yet, but we are getting closer to a bottom,” he said.

Treasuries, Stocks

Treasuries slumped after the jobs report was no worse than what economists had forecast, with benchmark 10-year note yields rising as 2.84 percent at 11:42 a.m. in New York, up from 2.77 percent late yesterday. The Standard & Poor’s 500 Stock Index fell 0.3 percent to 831.82.

Job cuts have been spreading from manufacturers such as Johnson Controls Inc. and Dana Holding Corp. to service providers like International Business Machines Corp. and even the U.S. Postal Service.

In addition to cutting jobs, companies also reduced hours for those still on payrolls. The average number of hours worked fell to 33.2 per week, down six minutes from February and the fewest since records began in 1964.

Revisions subtracted 86,000 workers from January payrolls while February’s drop of 651,000 was not revised.

The last time the unemployment rate was at 8.5 percent was in November 1983, when the economy was recovering from the 1981- 82 recession that pushed the rate to almost 11 percent. Then Fed Chairman Paul Volcker boosted interest rates to quell soaring inflation following the 1970s fuel crisis.

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Payroll Forecast

Payrolls were forecast to drop by 660,000, according to the median of 80 economists surveyed by Bloomberg News. Estimates ranged from losses of 525,000 to 750,000. Forecasts for the jobless rate ranged from 8.2 percent to 8.7 percent.

“The hope and expectation is that things will get a little less dire in the second quarter as various stimulus efforts kick in,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, who used to work at the Fed.

Today’s report showed factory payrolls fell by 161,000 after declining 169,000 in the prior month. Economists forecast a drop of 160,000. The decrease included a loss of 17,500 jobs in auto manufacturing and parts industries.

The manufacturing slump that began more than a year ago may intensify should General Motors Corp. be forced into bankruptcy, economists said. As many as 1 million additional auto-industry jobs may be lost and unemployment would climb to 11 percent, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.

Auto Slump

The auto slump has already rippled through the industry. Johnson Controls, a maker of car interiors and batteries, said last month it will shut 10 factories and cut about 4,000 jobs. Dana, the truck-axle manufacturer that exited bankruptcy in 2008, said it will boost its payroll reduction to 5,800 this year, 800 more than previously announced.

“We are taking the difficult actions necessary to survive,” Dana’s Chief Executive Officer John Devine said in a March 16 statement.

Service industries, which include banks, insurance companies, restaurants and retailers, cut 358,000 workers after a 366,000 decline in February. Financial firms cut payrolls by 43,000, after a 44,000 decrease the prior month. Retail payrolls decreased by 47,800 after a 50,800 drop.

The ISM’s services index, which covers almost 90 percent of the economy, fell to 40.8, the lowest level of the year, from 41.6 the prior month, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.

The measure was projected to increase to 42, according to the median forecast in a Bloomberg News survey of 67 economists. Estimates ranged from 38 to 45.

Fewer Orders

The ISM index of new orders fell to 38.8 from 40.7 the prior month, and its gauge of employment dropped to 32.3 from 37.3.

For many Americans, this employment slump has been an unfamiliar experience. Sarah Opple, 42, was fired in February from a sales position at Gaylord Hotels in Chicago after holding a series of jobs in the hospitality industry since she was 17 years old. “It’s more real to me now,” she said in a March 26 interview. “This recession is way more tangible than the others. It makes everyone feel they could be next.”

Since taking office Jan. 20, Obama has enacted a series of measures aimed at stemming the recession. He signed into law a $787 billion stimulus plan on Feb. 17 that included spending on infrastructure projects to boost hiring.

The Treasury Department is also moving to repair the damaged financial system and lower record foreclosures, while the Fed is flooding markets with cash to boost borrowing and spending.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net