The legislation is presumably written to prevent future government bailouts of too-big-to-fail financial institutions.
Don’t believe it.
That legislation—also known as the Dodd-Frank bill, after its sponsors, Connecticut Democratic senator Chris Dodd and Massachusetts Democratic congressman Barney Frank—was supposed to restore regulation to the financial industry in the wake of the 2008 crash.
The problem with the legislation starts with the bill’s sponsors.
Chris Dodd is a member of the Bilderberg Group. He’s also a member of the Council on Foreign Relations. Barney Frank is a member of the CFR. Which means these two are just the people the international financial elite were looking for to rubber-stamp their global financial takeover by removing any serious regulatory power from the legislation that was supposed to rein in the big banks.
Dodd-Frank does almost nothing to prevent another financial meltdown from happening. It waters down the separation of commercial and investment banking functions to such an extent that a repeat of the 2008 debacle is happening again before our eyes.
Although banks do face limits on how much of their capital they can invest in hedge funds or private equity funds (three percent), the bill allows banks to continue to engage in derivatives trading, requiring them to spin off only the riskiest of these trades. And the language of the 2,000-page bill is murky enough that banks will still be able to engage in trading derivatives tied to interest rate swaps. They’re also allowed to continue to act as hedge funds for themselves, trading such assets as commodities and credit derivatives in order to minimize their risk.48
The Dodd-Frank bill was supposed to be about eliminating risky trading and requiring banks to manage their affairs responsibly and to bear the responsibility if they don’t do so.
In other words, there would presumably be no too-big-to-fail banks under Dodd-Frank.
As I see it, Chris Dodd and Barney Frank did nothing to change things. All of the major banks are still too big to fail, they’re still putting their clients’ money at risk because they can still engage in hedging their positions, and you and I are still on the hook for their losses.
But don’t just take my word for it. Here’s what Neil Barofsky, formerly the TARP Inspector General, charged with overseeing how the bailout funds are managed, has to say about it:
The continued existence of institutions that are “too big to fail”—an undeniable byproduct of former Secretary [Henry] Paulson and Secretary [Tim] Geithner’s use of TARP to assure the markets that during a time of crisis that they would not let such institutions fail—is a recipe for disaster. These institutions and their leaders are incentivized to engage in precisely the sort of behavior that could trigger the next financial crisis, thus perpetuating a doomsday cycle of booms, busts, and bailouts.49
Tyranny of Fiat Money
You may not know it, but the money you spend to pay your mortgage and buy food for your family and gas for the car might as well be counterfeit.
When Richard Nixon took us off the gold standard in 1971, he ushered in the era of counterfeit money.
Economists don’t use the term counterfeit. They call it “fiat currency.”
Same thing.
Fiat money is currency that is not backed by a resource such as gold but that is valued based on its relative scarcity and on the faith the people have in the currency. Unlike money tied to a resource such as gold, there is no limit on the amount of fiat currency that can be created.50
Fiat currency is the basis of the financial manipulation bordering on fraud that the current administration is engaged in.
Thanks to a U.S. dollar that has no anchor in gold, combined with a Fed under Goldman Sachs alumnus Ben Bernanke and a Treasury Department run by Tim Geithner, another GS crony willing to do anything to keep American oligarchs’ financial heads above water and their pockets lined, there is no limit to the lengths the Obama administration will go to perpetuate that financial chicanery.
The value of the dollar gradually became less and less connected to what was happening in the real economy, the marketplace where commodities, manufactured goods, and services are exchanged.
I’ve warned you about this over and over.
When the Fed and the Treasury conspired to print hundreds of billions of dollars in what they called Quantitative Easing, they accelerated the process of devaluing the dollar and the other financial instruments and processes that are linked to it.
I call it financial fraud.
Former Treasury secretary Alan Greenspan agrees with me. He just doesn’t call it by the same name I do.
Here’s how he puts it: “The United States can pay any debt that we have, because we can always print money.”51
This is the same scenario that led to runaway inflation in post-World War I Germany, when it took a wheelbarrow full of German marks to purchase a loaf of bread. It’s the same process that led the government of Zimbabwe to print a $100 trillion Zimbabwean dollar note. Because of the hyperinflation rampant in Zimbabwe, that note wouldn’t even buy a loaf of bread.52
The threat of runaway inflation is beginning to surface in the U.S.
Our primary financial instruments and measures, from the dollar to the Treasury bond, have lost 65 percent of their purchasing power against natural resources. Economists and other financial analysts and commentators continue to focus on such things as GDP and corporate earnings, but the real issue is that the value of our fiat currency in terms of real purchasing power has diminished drastically in less than a decade. Paper currency is losing its purchasing power against natural resources, precisely because we no longer have a resource-based dollar.
The purchasing power of the dollar to buy life’s necessities—including food, shelter, and energy—is the true measure of the dollar’s worth. Food and energy costs are eating up a greater and greater percentage of Americans’ earnings. In addition, as the value of the dollar collapses, the value of certain types of assets also collapses. Housing is suffering badly from rising real costs. It took a hit in the housing bubble; now it’s having difficulty recovering its value. The largest and most important asset of most Americans is their home, and their homes have not recovered value against other necessities of life.53
The way I see it, the Obama administration is creating a permanent underclass who are rapidly moving toward third-world status, given the restraints on economic growth the Obama administration is instituting.
Americans’ incomes have dropped to the same levels they were in 1996.54
The poverty rate has risen to its highest level in 50 years, with 46 million Americans (15 percent of the population) now living below the $22,000 poverty line.55
I maintain that inflation plays a big part in these statistics.
The Fed is saying just the opposite.
They’re keeping interest rates low because in their intentionally myopic view “inflation isn’t a long-term risk.” They’ve been flooding the market with billions of increasingly worthless dollars as part of their strategy of quantitative easing, and that’s driving up food and energy prices and eroding people’s purchasing power. Nonetheless, they’re going to keep interest rates “accommodative”—that is, “low.” They should be raising rates in order to slow down inflation, but they won’t even admit that inflation is occurring.56
It’s not just happening here.
Inflation, as measured by the declining purchasing power of fiat currencies, is also rising dramatically around the world. The combination of low wages, rising taxation, and inflation have come together to reduce the real goods that fiat currencies, including the U.S. dollar, will buy to levels not seen in more than a century, according to one analyst.57
The U.S. Department of Agriculture report is an indicator of how expensive food has become. The squeeze is getting so bad that one in seven Americans, nearly 15 percent, are resorting to using food stamps to buy their daily bread, up from about seven percent only a few years ago.58
Precious metals are going in the same direction.
Gold is trading at or near all-time highs. Silver would be trading at all-time highs, but Comex (the commodities exchange) stepped in to stop silver’s surge in order to bail out several key banks that were using silver as a hedge.
Here’s something you won’t hear from most financial analysts. The big financial institutions have accumulated so much power that in the space of four days in May 2011, silver lost about 25 percent of its value.59
Under the new post-Glass-Steagall banking rules, JPMorgan Chase had been hedging its risk by engaging in the short-selling of silver. The bank was already being sued for allegedly trying to drive the price of silver down in order to make huge profits on its short positions of the precious metal.60 The problem was that the bank was using its own stock to collateralize its short silver positions, and when the price of an ounce of silver rose above the price of a share of JPMorgan Chase stock, the bank called in favors in order to reduce the price of silver.
Enter Comex, the exchange on which silver is traded. At JPMorgan Chase’s bequest, Comex began raising the margins required for traders buying silver futures. This had the effect of causing the price of silver to drop significantly, saving JPMorgan Chase billions of dollars in its hedge against risk.
It’s collusion at the highest levels of the financial industry.61
It’s only one of many examples I’ve pointed out of how the big banks are manipulating markets in order to preserve their profits and those of their financial fellow travelers while people who buy commodities such as silver in the expectation that their value will increase are the ones who get hurt.
It’s not just in the United States that it’s happening.
Portugal, Ireland, Italy, Greece, and Spain (appropriately known as PIIGS) are being victimized by the same forces now operating in the United States. Their economies have been taken over by the global financial autocrats, and their governments are in the process of committing their citizens to pay back debt owed to the countries and financial institutions that are bailing them out, an amount of money that is far beyond what each of their economies is capable of generating over several lifetimes.62
Once again, it’s the global crony capitalists, headed by Goldman Sachs, who are trying to manipulate the system for their own gain.
For years Goldman Sachs has played a lead role in brokering the sale of the sovereign bonds that Greece, Spain, France, and Italy use to finance their debt. At the same time they were underwriting European countries’ sovereign bonds, the autocrats at Goldman Sachs were also brokering derivatives that bet against the very bonds they were selling to their clients.63 Many European financial analysts were convinced that Goldman Sachs’s underhanded dealings were instrumental in causing or contributing to the European debt crisis.64
Finally, after Goldman Sachs had helped undermine their bond sales and their economies, Europe banned Goldman Sachs—and other large American banks—from participation in their bond sales. Arlene McCarthy, Vice Chair of the European Parliament’s Economic and Monetary Affairs Committee, put it this way: “Governments do not have the confidence that the excessive risk-taking culture of the big Wall Street banks has changed and they still cannot be trusted to put the stability of the financial system before profit.”65
Another commentator put it like this: “The French people would riot in the streets if we chose Goldman.”66
The European debt crisis is contributing to U.S. economic uncertainty. Germany’s representative to the European Central Bank (ECB) resigned on September 9, 2011, in protest against the bank’s role in helping bail out European countries on the brink of bankruptcy, and the U.S. stock market fell more than 300 points in response.67 The ECB is moving toward the same threat of collapse as U.S. banks reached in 2008 because it is heavily invested in the increasingly risky sovereign debt of countries like Portugal, Italy, Ireland, Greece, and Spain.
A similar thing is happening in the United States, where the Federal Reserve and other U.S. governmental agencies held $5.351 trillion in U.S. debt as of September 2010, making our own government, at nearly 40 percent, the largest single holder of our debt.68
The Fed doesn’t have enough money to purchase U.S. Treasuries, so it prints it, then buys U.S. Treasury bonds. As part of the second round of quantitative easing—called QE2—the Fed bought some $75 billion in Treasuries every month, artificially propping up their value.
The combination of quantitative easing, out-of-control spending, and debt growth had consequences. In April 2011, Standard & Poor’s cut its outlook on our country’s debt to “negative,” down from “stable.” S&P’s revised outlook report said that in the next two years the ratings agency expected to have to downgrade Treasuries from triple-A status.69
The Obama administration’s response?
It used the drop in the Dow Jones average to threaten lawmakers, not to do something to reduce the debt, but to raise the debt ceiling so the government could continue its unrestrained borrowing.70
It didn’t take two years for S&P to downgrade our credit rating.
It barely took two months.
In August 2011—after Congress and the president had reached agreement on a debt ceiling deal—S&P downgraded the U.S. credit rating from AAA to AA+ based on our rising debt burden and the political risk that the U.S. will not be able to get its unbridled spending under control.71
The Tools of Obama’s Leninist Economy
In August 2011, the U.S. economy created zero net jobs for the first time since the 1940s. More than 450,000 new government jobs have been created during the Obama administration, while the private sector has lost somewhere between three million and ten million jobs.72
Here’s how I see what’s happening in Obama’s America: American workers are rapidly becoming the equivalent of tenant farmers in the rural South during the 1920s and ’30s. More and more, they work the job that the government assigns to them, shop at the government store with money (welfare payments, food stamps) the government gives them for goods and services (Chevrolets and Chryslers and college educations and medical care) produced and delivered by the U.S. government.
Obama is determined to turn the U.S. into the next Cuba. Eighty percent of Cuba’s workforce is employed by the Cuban government. Their pay? Twenty dollars a month. The benefits include free education, free health care, and cheap housing, transportation, and basic foods.73
As I’ve made clear, the people responsible aren’t about to admit there’s anything wrong with the economy and how their policies are turning America into the new Cuba. Tim Geithner will continue to treat us to disaster stories about what will happen if we don’t raise the debt ceiling again.
The problem is that he won’t tell us what’s going to happen now that the debt ceiling has been raised.
I’m one of the only people doing that.
Monetary policy is not going to tighten after QE2. U.S. and European banks are not going to raise their interest rates. In fact, it’s likely we’ll see QE3 soon, despite the fact that all this fiat money is circling the globe and killing everybody’s purchasing power because of skyrocketing food and energy prices.
The day after Congress passed the new debt ceiling legislation, China blasted the United States for its “madcap” borrowing, then began to unload some of the $1 trillion in U.S. Treasuries it holds.74 Russian Prime Minister Vladimir Putin accused the U.S. of “leeching on the world economy.”75
The earthquake/tsunami disaster in Japan means that that country, too, will likely have to begin to unload the more than $800 billion76 in U.S. Treasuries it owns, or at least stop purchasing our debt as it tries to recover economically. And the upheaval in the Middle East means that countries in that region will be less likely to continue to finance our debt.
By December 2011, because of rising concern over the growing economic instability among Eurozone nations, U.S. Treasuries had become more attractive to institutional investors. China remained the number one destina
tion for our bonds at $1.13 trillion, while Japan had increased its holdings to $979 billion.77
Bottom line: Despite the fact that we’re in somewhat better shape than Eurozone countries, we’re not immune to the growing world economic crisis, and we’re going to have to pay higher and higher interest costs on the money we borrow to finance our spending.
The U.S. economy hasn’t been at this much risk of collapse since just before the Great Crash in 1929, and things won’t be getting better anytime soon. Even though Barack Obama continues to try to sell his “recovery,” we’re three years into the Obama recession and things have not even begun to turn around.
I’ve lived through the four serious U.S. recessions since the end of World War II. In every one the economy recovered completely within three years, the same point we’re at in the Obama recession.
Here are some numbers to compare.
In the previous recessions, our real gross domestic product was an average of 7.6 percent higher after three years than it had been when the recessions began. In the Obama recession, real GDP is up one tenth of one percent in that time.78
That’s nothing more than a rounding error.
The annual income of every family of four in the United States should be more than $16,000 higher than it is today, 3.5 million more people should be employed today than currently have jobs.79
Instead, we’ve got Obama’s Leninist version of a “recovery.”
It’s what happens when a martinet like Barack Obama teams up with financial pirates determined to highjack the global economy.
The best Obama has been able to come up with in defense of his economic policies was an address delivered on April 13, 2011. It turned out to be a collection of lies in defense of his economic policies. The normally restrained Wall Street Journal characterized it this way: “toxic,” “ludicrous,” “dishonest even by modern political standards.” The speech was filled with “blistering partisanship and multiple distortions [of] the kind presidents usually outsource to some junior lieutenant.”80
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