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DEVIL’S CURRENCY BANKER’S OWN THE WORLD ...and are ultimately destroying it

ISSUE 01/JANUARY 2014 The First Signs of Hyperinflation

Top 10 reasons I buy Gold & Silver

Larry Summers and the Secret “End Game Memo”


CONTENTS FEATURES

31 THE MONEY CHANGERS SERENADE: A New Plot Hatches

04 BANKERS OWN THE WORLD And are ultimately ruining it

35 TED BUTLER: I Own Silver Because Of The Coming Silver Shortage

10 TOP 10 REASONS I BUY GOLD & SILVER

40 The E.U., Neofeudalism and the Neocolonial-Financialization Model

23 15 SIGNS That We Are Near The Peak Of An Absolutely Massive Stock Market Bubble

44 A CLOSER LOOK AT BANK BAIL-INS The Black Hole Of Our System

27 LARRY SUMMERS and the Secret “End-Game” Memo

48 THE FIRST SIGNS OF HYPERINFLATION 54 CAPITALISM IS DEAD and so is the recovery

Layout & Design by Helen Stead Image Credits: http://www.flickr.com/photos/59937401@N07/

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Editor’s Note Subheading For Editor’s Note...

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Bankers Own the World ...And are ultimately destroying it

by Chris Martenson

In every era, there are certain people and institutions that are held in the highest public regard as they embody the prevailing values of society. Not that long ago, Albert Einstein was a major public figure and was widely revered. Can you name a scientist that commands a similar presence today?

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oday, some of the most celebrated individuals and institutions are ensconced within the financial industry; in banks, hedge funds, and private equity firms. Which is odd because none of these firms or individuals actually make anything, which society might point to as additive to our living standards. Instead, these financial magicians harvest value from the rest of society that has to work hard to produce real things of real value. While the work they do is quite sophisticated and takes a lot of skill, very few of these firms direct capital to new efforts, new products, and new innovations. Instead they either trade in the secondary markets for equities, bonds, derivatives, and the like, which perform the ‘service’ of moving paper from one location to another while generating ‘profits.’ Or, in the case of banks, they create money out of thin air and lend it out – at

interest of course. Because these institutions and individuals accumulate vast sums of money for their less-thanback-breaking efforts, they are well respected if not idolized by most. Many of the most successful paper-accumulators are household names. They get invited to the best parties, are lured by major networks to appear on their shows, speak at the biggest conferences, and their views and words find an easy path to the ears of millions. But this is more than just an idle set of observations for the curious. It’s actually a critically important phenomenon to be aware of. For the current configuration of financially powerful entities has, at the tail end of a decades-long debt-based money experiment, achieved an astonishing concentration of power, money, and influence.

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Bankers own the World

We raise this topic because our work centers on changing the conversation towards the things that really matter while there is still time to engineer a better outcome, and that requires illuminating the status quo and having a conversation about whether it needs to be modified. Unfortunately, those at the center of the status quo are not at all interested in having any such conversation, because all of their accumulated power depends on maintaining things as they are.

ing that regional analyses –such as how Germany compares with the U.S. – might be less relevant than typically portrayed. After all, if decisions being made by a tightly knit group of companies are being made to benefit a network that has no borders, then actions by the German or U.S. governments are only a part of the story. And perhaps a minor one, compared to those made the entities that actually control the real wealth of each nation. It wasn’t that many decades ago that a list Money is power. of the top companies with the most wealth and And history has shown that power is never ceded influence would have been dominated by compaspontaneously or willingly. nies that produced real, tangible products – that is, those that created wealth by adding value to goods The Network That Runs the World by transforming resources into products. CompaA couple of years ago, I came across a study that nies like GE, GM, IBM, Exxon, and other industrial has stuck with me ever since and I want to share it giants would have been the wealthiest, because, with you. It’s really important if we want to under- well, they create actual wealth. stand the likelihood of a graceful transition for our Today the top fifty companies in the ‘supercurrent society into a future of prosperity. entity’ list of 147 from the above study is concern Just 147 companies control over 40% of the ing. Out of the fifty, 17 are banks, 31 are an aswealth of the entire network of companies. It should sortment of investment, insurance, and financial be pointed out that such a network does not have services companies, and only 2 are non-financial any borders and operates on a global basis, mean-[ 5 ]companies (Walmart and China Petrochemical)


Bankers own the World

The top 50 of the 147 superconnected companies: 1. Barclays plc 2. Capital Group Companies Inc (Investment Management) 3. FMR Corporation (Financial Services) 4. AXA (Investments & Life Insurance) 5. State Street Corporation (Investment Management) 6. JP Morgan Chase & Co (Bank) 7. Legal & General Group plc (Investments & Life Insurance) 8. Vanguard Group Inc (Investment Management) 9. UBS AG (Bank) 10. Merrill Lynch & Co Inc (Bank) 11. Wellington Management Co LLP (Investment Management) 12. Deutsche Bank AG (Bank) 13. Franklin Resources Inc (Investment Management) 14. Credit Suisse Group (Bank) 15. Walton Enterprises LLC 16. Bank of New York Mellon Corp (Bank) 17. Natixis (Investment Management) 18. Goldman Sachs Group Inc (Bank) 19. T Rowe Price Group Inc (Investment Management) 20. Legg Mason Inc (Investment Management) 21. Morgan Stanley (Bank) 22. Mitsubishi UFJ Financial Group Inc (Bank) 23. Northern Trust Corporation (Investment Management) 24. Société Générale (Bank) 25. Bank of America Corporation (Bank) 26. Lloyds TSB Group plc (Bank) 27. Invesco plc (Investment mgmt) 28. Allianz SE

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Bankers own the World

29. TIAA (Investments & Insurance) 30. Old Mutual Public Limited Company (Investments & Insurance) 31. Aviva plc (Insurance) 32. Schroders plc (Investment Management) 33. Dodge & Cox (Investment Management) 34. Lehman Brothers Holdings Inc* (Bank) 35. Sun Life Financial Inc (Investments & Insurance) 36. Standard Life plc (Investments & Insurance) 37. CNCE 38. Nomura Holdings Inc (Investments and Financial Services) 39. The Depository Trust Company (Securities Depository) 40. Massachusetts Mutual Life Insurance 41. ING Groep NV (Bank, Investments & Insurance) 42. Brandes Investment Partners LP (Financial Services) 43. Unicredito Italiano SPA (Bank) 44. Deposit Insurance Corporation of Japan

(Owns a lot of banks’ shares in Japan) 45. Vereniging Aegon (Investments & Insurance) 46. BNP Paribas (Bank) 47. Affiliated Managers Group Inc (Owns stakes in 27 money management firms) 48. Resona Holdings Inc (Banking Group in Japan) 49. Capital Group International Inc (Investments and Financial Services) 50. China Petrochemical Group Company

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Bankers own the World

The Problem with Record Bank Profits July 16, 2013, The New Yorker

What do these large dollar numbers have in common: $6.5 billion, $5.5 billion, $4.2 billion, and $1.9 billion? They represent the latest quarterly net profits made by too-big-to-fail banks—in order, JPMorgan Chase, Wells Fargo, Citigroup, and Goldman Sachs, the last of which reported its second-quarter figures before the market opened on Tuesday. Five years after being bailed out by the federal government, the U.S. banking system hasn’t merely recovered from the financial crisis that brought it to the brink of collapse. It is generating record profits—the sorts of figures usually associated with oil giants like ExxonMobil and Royal Dutch Shell. During the past twelve months, for example, JPMorgan, the country’s biggest bank, has earned $24.4 billion in net income. L et’s begin with trading. In the aftermath of 2008, there was much talk of banks getting back to basics, which meant concentrating on lending to businesses and households, and jettisoning many of their investment bankers, whose generously remunerated antics had helped to bring on the financial crisis. (...) In the latest quarter, Citigroup’s investmentbanking arm generated more than sixty per cent of the bank’s net profits, and JPMorgan’s investment bank generated more than forty per cent of the firm’s net profits.

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ow is it that companies that produce nothing and only move digital representations of money from point to point now control far more wealth than the companies that actually produce the things that makes money useful at all? Well, that’s just how the system works. And this is something that nobody in power wants to talk about. While we may decide that such as system is just, or unjust, or evil, or good, such judgments are merely the emotionally laden descriptors we might assign to a system that – by its very design – accumulates wealth from the many to the few. This is why compound money systems have been tried and tried again, yet have never proved sustainable. Even ancient religious texts described them as requiring a Jubilee every 7 periods of 7, or 49 years. The Jubilee, of course, was a reset mechanism that wiped out the inevitable concentration of wealth so that things could start all over again with a fresh slate. So it really should not be any surprise that banks, in particular – with their extraordinary power to lend money out of thin air (that’s what ‘fractional reserve’ allows) and their unlimited-duration corporate lives – are able over time to accumulate, accumulate some more, and finally end up owning everything. While we’re not quite there yet, we are well on the way. A few are beginning to notice the seeming unfairness of it all, such as the author of this recent article in The New Yorker:

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Bankers own the World

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‘AN IMBALANCE BETWEEN RICH AND POOR IS THE OLDEST AND MOST FATAL AILMENT OF ALL REPUBLICS.’ What exactly did JPM do to ‘earn’ more than $24 billion over the past 12 months? Did they build millions of appliances? Install thousands of critical power systems? Build and install high-definition CT scanners? In fact they did none of these things, which are just three out of hundreds of accomplishments of GE, which reported a 12-month net profit of just $17 billion while employing over 300,000 workers. What JPM did was: trade on the markets, lend to speculators, and use its inside advantage to skim what it could off of the Fed’s monthly $85 billion of free money. Not that there’s anything illegal with that, but perhaps we should really be asking ourselves if this truly serves our society to anoint financial players with the privilege of walking off with the vast majority of our total national and global income.

UNSUSTAINABLE SYSTEMS ULTIMATELY END

The alarming growing wealth gap in developed nations is a predictable indicator of the obvious inequities involved in this system. Those not in the top 1% are finding themselves as modern-day feudal subjects – bound by debt or lack of property – to a global corporatocracy (corporations being the new aristocrats). But the stability of this parasitical system begins to weaken quickly when the lifeblood it depends on begins to dry up. And that’s when things can begin to go south in a hurry: a crack-up of the financial system, civil unrest, government breakdown – that kind of scary strife.

Chris Martenson is an economic researcher and futurist specializing in energy and resource depletion, and co-founder of PeakProsperity.com (along with Adam Taggart). As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar: The Crash Course which has also been published in book form. [9]


Top 10 Reasons I Buy Gold & Silver

By Mike Maloney

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s I have said many times before, the economic crisis of 2008 was only a speed bump on the way to the main event. I believe that before the end of this decade there will be an economic crisis so historic that it will eclipse the crash of 29 and the subsequent great depression. I also believe it is both unavoidable and inevitable, because it is merely the free market releasing the stored up energy from decades of economic manipulation. Yes… bad things are going to happen, but it could be the best thing that ever happened to you.

ployees, but when I read it something just didn’t feel right. It contained all the usual reasons that any precious metals dealer would point out as to why people should own gold and silver… they’re the ultimate insurance policy, they’re private, they’re a hedge against inflation, they’re a timeless investment, and so on. I spent lots of time trying to rewrite them but there was still something wrong. And then it dawned on me… though they were all good reasons to own gold and silver; they weren’t the reasons that “ I “ buy gold and silver.

This guide started out as “The Top Ten Reasons So here you go… a countdown of “The Top Ten TO Buy Gold and Silver” and was originally Reasons That I Buy Gold And Silver.” drafted by some good and well-intentioned em[ 10 ]


Top 10 Reasons I Buy Gold & Silver

10.

All World’s Currencies are Fiat Currencies, and Fiat Currencies Always Fail.

99.9% of the world’s population is unaware that we no longer use money… we use “fiat” national currencies. What is a fiat currency? Fiat currencies are faith based. They are national currencies that are not backed by anything of value like gold, instead the government just declares that they have value and, as long as the people keep believing, they accept it… for a while. But here’s the thing, there have been thousands upon thou-

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sands of fiat currencies throughout history, and they have all failed… 100%... no exceptions. But there is a vast difference this time around. Since 1971, for the very first time in history, all of the world’s currencies are fiat currencies simultaneously. Remember this as we progress through the Top Ten…

The Current State of the Global Economy.

In my book, Guide to Investing in Gold and Silver, and in Hidden Secrets of Money, I show how societies have swung back and forth from quality money to quantity currency. Originally, quantity currency took the form of debased coinage (gold or silver money that has been diluted by adding cheap and abundant base metals such as copper). Then it took the deceptive form of national currencies that were initially backed by money, IE: claim checks on gold and/or silver. Once these were established, governments then could change the laws, basically making fraud legal, so they could print claim checks on gold that didn’t exist. The next step was to sever the connection between money and currencies entirely. Back when we used real money gold would automatically balance all economies. When one country experienced an economic boom they would import cheap goods from countries with depressed economies and lower wage rates. The outflows of gold from the boom country would cause a deflation, cooling the economy, while the countries experiencing gold inflows would boom, causing their labor rates to increase, which in turn would cause the prices of

their goods to rise. This meant that trade imbalances would always automatically rebalance. Government spending was also constrained. If a government wanted to spend more than its income (deficit spending) it had to borrow gold from the private sector. If the government borrowed too much it would cause interest rates to rise, which in turn would slow the economy, which in turn would cause tax revenues to fall, which meant less income for the government, which in turn would cause the government to cut spending. But the debt based global monetary system has allowed deficit spending, trade imbalances, and bubbles to persist and balloon to levels unprecedented in all of history. We are in completely uncharted territory. The credit/debt bubble and the derivatives bubble threaten to take down the world economy. The only comparison you could make is to take every great bubble in history times one million and have it burst everywhere on the planet simultaneously… It threatens to be a global financial nuclear holocaust the only financial survivors of which will be the owners of gold and silver.

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Top 10 Reasons I Buy Gold & Silver

8.

Currency Crisis / New World Monetary System.

I am a firm believer that everything happens in waves and cycles. So when I started writing my book back in 2005 I entered every financial crisis that I could identify into a spreadsheet, starting from the beginning of the USA, looking for a cycle, and something very dramatic stuck out at me. I had discovered that every 30-40 years the world has an entirely new monetary system. From that day till now I have been telling as many people as I could that before the end of this decade (before 2020) there will be an emergency meeting of the G-20 finance ministers (or something like that) to hash out a new world monetary system. It’s normal. No man made monetary system can possibly account for all of the forces in the free market. They get old… they develop stress cracks… then they implode.

gold backing, to partial gold backing, to less gold backing, to no gold backing. In each of these transitions the system we were transitioning from had a component that could never fail… gold. This time we will be transitioning from a system based on something that always fails… fiat currencies. The key component to this transition from the U.S. dollar standard to some new standard is of course the U.S. dollar. By the time the emergency meeting takes place the U.S. dollar will be in the final stages of the terminal condition known as fiat failure.

But the U.S. dollar represents more than half of the value of all the world’s currency. A dollar crisis would cast doubts on all fiat currencies, and the cascading effect of loss of faith could cause the rest of them to fall like dominos. The central We have had four different monetary systems in bankers will try everything they can think of to the past 100-years. The system we are on today keep the fiat game going, but when everything is the U.S. dollar standard. It is an ageing sys- they try fails they’ll look around and say, “What tem that is way overdue for its own demise. It is worked before.” And once again the pendulum now developing stress cracks, and will one day will swing back to quality money. implode. Like I said, it’s normal. The only beneficiaries of this event will be gold But what is different this time around is that the and silver, and those who own them. last three transitions were baby-steps from full [ 12 ]


Top 10 Reasons I Buy Gold & Silver

7.

Gold and Silver Come with a Central Bank Guarantee.

My book was written from 2005 through 2007. In it I said there would first be the threat of deflation (this came true in the crisis of 2008) to which Ben Bernanke would overreact with a helicopter drop (this came true with the bailouts and QEs) which would cause an inflation (this came true when the stock markets and real estate reflated.) Next there will be a real deflation… a contraction of the currency supply. This will happen when the credit/debt/bond/fiat currency bubble and the derivatives bubble begin to implode. The reaction of the world’s central banks will be to print until deflation gives way. I believe

this will cause a hyperinflation. A hyperinflation doesn’t require a nation to print its currency into oblivion… it only requires a loss of faith. But never fear, because, periodically, throughout history, gold has revalued itself as it is bid up in price by the free market as people rush back to it for safety. This is when gold does an accounting of all of the currency that had been created since the last time gold revalued itself. In doing so its purchasing power rises exponentially. It’s always done this… and I believe it always will.

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Top 10 Reasons I Buy Gold & Silver

6.

Everything Else is a Scary Investment.

By any realistic measure stocks have been in a super-bubble for more than a decade now with valuations and yields in the danger zone, while bonds are in the later stages of a 30-year bull market and real estate is still deflating from the biggest bubble in history. Dr. Robert Shiller, of Yale University, has compiled data on the stock market going all the way back to the year 1880. His research concludes that by one measure the stock market has been in a bubble since 1998 and by his other measure the bubble is far bigger and more extreme than any prior bubble, including the stock market bubble of the Roaring `20s that led to the crash of `29. Further research shows that the only reason the markets have been levitated to these levels is due to Federal Reserve stimulus. What will happen if they take away the training wheels? I wouldn’t want to be invested in stocks

when it finally implodes. U.S. Treasury bonds have been a great investment for more than 30-years, but no bull market lasts forever. In fact, for the 37 years after WII, bonds were such a bad investment that by the end of the `70s they had earned the nickname “certificates of confiscation”, because they confiscated your wealth. But that was back when countries were financially responsible. Now most countries on the planet run their finances like Greece, and the United States of America is leading the way. And as the world’s central banks keep interest rates low it has caused bond investors to take extraordinary risks in search of a reasonable return. We are now in a global bond bubble, and I believe that this has made the bond market one of the most dangerous places to invest right now.

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Top 10 Reasons I Buy Gold & Silver

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When the stock market crashed in 2000 it caused a recession in 2001. Alan Greenspan’s response was to cut interest rates dramatically. Then along came 9/11, making the stock market crash even worse, and his response was to take the Federal Funds Rate to lows for a duration last seen in the Great Depression. Greenspan’s goal was to reflate the stock market… his achievement was to accidentally create the greatest real estate bubble in history. Since the popping of the bubble in 2007 real estate values have come back down to fair value and then bounced back into a small bubble. Dr. Shiller, also the creator of the Case-Shiller Home Price Index, agrees. This is typical price action of any super-bubble that’s in the process of popping… it’s called a “dead cat bounce.” The public always chases yesterday’s news. As prices reverted near fair value, investors rushed in to scoop up deals causing prices to rise once again. But then, just as in the crash of `29 and the NASDAQ crash of 2000, the dead cat bounce will roll over and the crash will continue until the opposite extreme of severe undervaluation is reached. This is natural

and is what is required to clear out the excesses left over from the bubble days. Too many jobs were created in that sector and too many homes were built. Undervaluation is required to clear out the excess inventory and cause workers to move on. But what worries Dr. Shiller is that institutional investment firms have bought up as much as 30% of the homes that were foreclosed on since the crash of 2008. This has the potential of making real estate as volatile as the stock market. If these firms ever decide to sell they can dump thousands of homes all at once, causing the 2008 real estate crash to look like the calm before the storm. Personally… the thought of investing in real estate right now is down right scary. So the stock market, bonds, and real estate are either in a bubble or have been in a bubble in the last decade. Gold and silver, however, haven’t been in a bubble for more than 30-years, and from my measurements still appear to be less than half way through their bull market. The next great bubble will someday be in gold and silver… It‘s just their turn.

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Top 10 Reasons I Buy Gold & Silver

5.

I

Market Psychology

’ve often said that the markets and the economy are both psychological and cyclelogical. Nobody can really understand the markets or the economy, but you can get an inkling of what they’re about if you understand what drives them… greed and fear. And the most entertaining part of monetary history is the study of their byproducts; manias, panics, bubbles, and crashes. When you study these you quickly learn the meaning of the old saying “The bull climbs the stairs, but the bear jumps out the window.” What it means is that it can take years to create a bubble, but only days or weeks for it to burst. This is because, when it comes to greed and fear… fear is by far the

more powerful emotion. Gold and silver are sometimes the exceptions to this rule because they can rise as fast as lightning in a panic. In the golden bull market of the 70s, it took nine years for gold to rise from $35 to $400, but once a panic out of dollars to the safe haven of gold began to develop, it took only 33 trading days to more than double, rocketing to $850. But actually, it was only a very small percentage of the population that was panicking out of dollars in the 70s. This time I think it will be everyone. Where do you think gold and silver will be headed if my reasons ten through six come to pass?

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Top 10 Reasons I Buy Gold & Silver

4.

This Time it Really is Different

The first time I submitted my book, Guide to Investing in Gold and Silver, to the publisher it was rejected. I had overwritten the book. It was 800 pages long. I was provided with two editors and over a six-month period 600 pages were cut, including nine entire chapters. One of the deleted chapters contained what is probably the most important factor in trying to determine where gold and silver prices may be headed in the future. It was the chapter on the differences between the precious metals bull market of the 1970s and the great gold and silver rush of today. Since then I have traveled the world showing people just how dramatic the differences are, and that… “This time it really is different.” In the 1970s the number of investors in state run economies like Mao’s China or the U.S.S.R. was zero, and most of the rest of the world lived in extreme poverty. The price of gold was set by two major exchanges, the London Bullion Market Association (LBMA) and the Commodities Exchange (COMEX) in the U.S. so only north America and western Europe, about 10% of the world’s population, could participate in the rush that drove gold up 24 times in price from $35 to $850. This time it’s everyone.

vestor mindset. In the 70s we were a planet of savers, but then, as nations around the world abandoned gold and silver as money and adopted fiat currency, inflation raged punishing savers and rewarding investors and speculators. Then we had the tech bubble of the `90s and everyone became a stock investor or trader. Then we had the global real estate bubbles and everyone became a real estate investor or flipper. For more than 30-years saving has been punished and investing and speculating has been rewarded. The result is that there are many, many times more people that are likely to invest in gold and silver this time around. The number is very hard to project, but I would guess it’s somewhere between 10 and 100… possibly even as much as 1,000 times more people with an investor mindset. Remember that in the state run economies (more than half the world’s population) there were no investors, and today China is in the midst of an investor driven real estate hyper-bubble. So that’s 10-times the people, each with 10-times the currency, and somewhere between 10 and 1,000-times the number of people with an investor mindset. That is somewhere between 1,000 and 100,000 times more currency that will someday come chasing gold and silver this time around.

Every country on the planet has expanded their currency supplies about 10-fold since the `70s, so each potential investor has 10-times the currency. And within each population there has been the extraordinary development of the in- This time… it really is different. [ 17 ]


Top 10 Reasons I Buy Gold & Silver

3.

They Should Buy a Whole Lot More Than They Do.

Many analysts in the precious metals community claim that gold is the ultimate wealth insurance because it maintains its purchasing power throughout the centuries. There is an old myth they propagate that in ancient Rome an ounce of gold could clothe a man from head to toe with a toga, sandals, and a belt, and that today a man can still clothe himself in a suit, shoes, and a belt for the price of an ounce of gold. They claim that this has always been the case. Nothing could be further from the truth. Before the Federal Reserve was created in 1913 you could buy a man’s suit, shoes, and belt for an ounce of gold, and gold’s price was $20.67 per ounce, but due to inflation, by the end of the roaring `20s you couldn’t. At the beginning of the great depression gold was still $20.67, but because of deflation you could once again buy the outfit. Then in 1934, as the dollar was devalued, gold’s price rose to $35 and you could now buy an exquisite outfit, but by 1970, with gold still at $35 per ounce, it would only buy the shoes, but just ten years later, when it hit $850, it would buy a topnotch suit, very fine shoes, and a great belt. Then by the year 2001, when gold bottomed at $252, it could only buy a shoddy suit, cheap shoes, and a crummy belt.

tended, hand picked and hand separated from the seed, or it required sheepherders to tend small flocks of sheep and then shear them by hand. Then the cotton or wool had to be hand washed, hand combed, and hand spun into thread, but the spinning wheel was yet to be invented, so a spindle and distaff (basically two sticks) were used instead. This was a very laborious process so it could take someone weeks to make enough thread for a toga. Then the thread was hand dyed with hand made colors that had been hand mined or harvested. Then it had to be hand woven on a two person vertical loom (again, slow and laborious.) Then the cloth was cut to a pattern and hand stitched into a toga. The shoes and belt were equally labor intensive.

Today, with factory farming, cheap fuel, modern irrigation, and pesticides it’s possible to tend thousands of acres planted at densities never before imagined. Giant combines drive through the field plowing the dirt and sowing the seeds in one pass. At harvest time specialized combines pick the cotton and other machined separate the seed. With factory ranching efficiency is the same story with thousands of sheep being tended and shorn in production line fashion. Then trucks deliver the cotton or wool to where it’s washed, combed, and spun into miles of thread in minutes, Yes gold is always worth something, but it has then dyed with cheap mass production dyes and always varied in a range of purchasing power. woven into miles of cloth by machines... again in This myth that gold maintains the same purchas- minutes. ing power throughout the centuries is based on the true fact that we mine gold at about the same Then the cloth is stacked many layers thick and a rate as the growth of the population so there is computer guided shear cuts out dozens of each relatively the same amount of gold per person on of the parts of the suit in a single pass. The parts the planet today as there was in ancient Rome. go to an assembly plant where workers, who speSo let’s dissect the myth of the Roman suit and see cialize in making the left sleeve, or right leg and why gold’s purchasing power has varied, and such, do so at amazing speed. Workers that can what it could be in the future. turn out dozens of suits per day do the final assembly, also at a blazing rate. Then it’s shipped The gains in efficiencies made since ancient to a store where you can pick from dozens, or Rome are mind boggling. To make a toga re- even hundreds of styles, colors, and sizes. It’s a quired either cotton to be hand planted, hand similar story at the shoe factory that spits out a pair [ 18 ]


Top 10 Reasons I Buy Gold & Silver

of shoes every few seconds, and the belts that come off the production line by the thousands.

son… shouldn’t an ounce of gold buy many, many, many times more stuff than it does today? Absolutely, emphatically, YES… it should. The end result is that the “time value” of the Roman Then why doesn’t it? outfit most likely measures in months of human labor, Because of the other big factor in busting this myth... whereas the modern suit contains only a few hours of human time. This is true of all the other stuff in In ancient Rome, if you wanted to save some of your society as well. When it comes to the time value wealth for the future there was only one asset availacontained in stuff… everything today is on sale for ble for you to save your purchasing power in… real a tiny, minuscule fraction of what it once cost. And money… the gold and silver coins that made up their as proof to support my thesis I offer this… Today a money supply. Today if you want to save some of good percentage of the world’s population has may- your wealth for the future you do so with financial asbe a hundred times more stuff than 99% had 2,000 sets such as stocks and/or bonds, and maybe a tiny years ago. Think about it. You are surrounded with portion of currency in a checking account. These furniture, cell phones, computers, TVs, refrigerators, highly liquid assets actually compete with gold and grocery stores, cars, planes, hotels, restaurants, a silver as a place to store your wealth. They all dilute great bed to sleep in at night, and just about any- each other’s purchasing power. thing else that you want. By contrast 2,000 years ago most people, with the exception of the ruling So that’s the answer… competing fiat currencies and class, lived a subsistence living barely able to afford other financial assets. In ancient Rome there was the things they needed to survive. In many cases a only one place to store your wealth… today there great bed or pair of shoes were extravagances they are thousands. The gains in purchasing power that would not experience in their lifetimes. gold should have made due to man becoming so much more efficient at making stuff, have been alSo if this is true… and it is… then why is gold’s pur- most exactly offset by alternative liquid financial aschasing power so low? If there’s so much more stuff sets in which to store that wealth. per person, but the same amount of gold per per[ 19 ]


Top 10 Reasons I Buy Gold & Silver

Highly liquid world financial assets (which exclude all real estate, any business not listed on an exchange, and derivatives) total about $230 trillion. Total world currency, including bank deposits, stands at about $50 trillion. So that’s a grand total of $280 trillion of liquid assets. That’s $40,000 worth of wealth per person on the planet stored as transient digits in computers.

this competition, because of the gains in efficiency, an ounce of gold should buy 10 men’s suits today. And if fiat currencies were to fail (like they always have) then it should buy a hundred or a thousand. So what happens to those alternate financial assets in the inevitable market crash that lies out there in the future? Those trusted financial assets suddenly become, hocus-pocus, voodoo, financial assets and their value evaporates, just like those AAA rated Mortgage Backed Securities did in the crash of 2008. What happens to fiat currencies in the coming currency crisis? All those currencies become hot potatoes that nobody wants, causing hard assets, like gold and silver, to be bid up to the moon. Either way, gold will buy a whole lot more stuff someday in the near future.

Today, investment grade gold (coins and bars) held by the public totals about 1.1 billion ounces and there are about 7.1 billion people on the planet. That’s 0.15 ounces of gold per person. At today’s prices it’s about $200 worth of gold per person. If you include official reserves, such as central bank gold, you get about $400, and if you include all above ground gold, including things like jewelry and religious artifacts… in other words, all the So you have $40,000 worth of wealth per person gold ever mined in history, you get about $800 stored in alternative liquid assets compared to just worth of gold per person. That’s it… That’s all. $200 per person stored in investment grade gold. That’s a 200-1 ratio. That means that in a crisis if With technology, machinery, and super cheap just 10% of the wealth invested in those alternative energy we’ve become a thousand times more ef- assets were to come chasing gold, its price could ficient at producing stuff, and at the same time rise 20-fold. we’ve created a thousand more ways to store our wealth. If it weren’t for all those competing cur- The moral of the story is… If you want to buy 20 rencies and alternative financial assets gold would suits, shoes, and belts a few years from now… buy buy many, many times more stuff. But even with all an ounce of gold today.

2.

Add Up Reasons 10-3… It’s All Happening At Once, and It’s Global.

Highly liquid world financial assets (which exclude all real estate, any business not listed on an exchange, and derivatives) total about $230 trillion. Total world currency, including bank deposits, stands at about $50 trillion. So that’s a grand total of $280 trillion of liquid assets. That’s $40,000 worth of wealth per person on the planet stored as transient digits in computers.

That’s 0.15 ounces of gold per person. At today’s prices it’s about $200 worth of gold per person. If you include official reserves, such as central bank gold, you get about $400, and if you include all above ground gold, including things like jewelry and religious artifacts… in other words, all the gold ever mined in history, you get about $800 worth of gold per person. That’s it… That’s all. With technology, machinery, and super cheap Today, investment grade gold (coins and bars) held energy we’ve become a thousand times more by the public totals about 1.1 billion ounces and efficient at producing stuff, and at the same time there are about 7.1 billion people on the planet. we’ve created a thousand more ways to store [ 20 ]


Top 10 Reasons I Buy Gold & Silver

our wealth. If it weren’t for all those competing currencies and alternative financial assets gold would buy many, many times more stuff. But even with all this competition, because of the gains in efficiency, an ounce of gold should buy 10 men’s suits today. And if fiat currencies were to fail (like they always have) then it should buy a hundred or a thousand.

become hot potatoes that nobody wants, causing hard assets, like gold and silver, to be bid up to the moon. Either way, gold will buy a whole lot more stuff someday in the near future.

So you have $40,000 worth of wealth per person stored in alternative liquid assets compared to just $200 per person stored in investment grade gold. That’s a 200-1 ratio. That means that in a crisis if So what happens to those alternate financial just 10% of the wealth invested in those alternative assets in the inevitable market crash that lies out assets were to come chasing gold, its price could there in the future? Those trusted financial assets rise 20-fold. suddenly become, hocus-pocus, voodoo, financial assets and their value evaporates, just like those The moral of the story is… If you want to buy 20 AAA rated Mortgage Backed Securities did in the suits, shoes, and belts a few years from now… buy crash of 2008. What happens to fiat currencies an ounce of gold today. in the coming currency crisis? All those currencies

1.

I Sleep Better.

As I said at the beginning of this article, I believe that an economic crisis of historic proportions is headed straight at us, and there is no avoiding it. Never before have all governments on the planet simultaneously laid down the foundation for the perfect economic storm.

means is that either of the extremes (also called the tail risks) are very unlikely to happen, but that something in the middle is very likely to happen.

Believe it or not, I am not a doomsayer, but nor do I believe the government when they tell me everything is going to be all right. I believe that there will be a global fiat currency I think it’s going to be something in the middle. crisis that will cause the bubbles in stocks, bonds, Yes, I believe it’s going to be the greatest crash in and real estate to burst simultaneously. This will history, but I have great hope. Man is an amazing result in the greatest economic crash the world has species. We have a resilience and ability to ever seen. adapt and bounce back from anything. Things could get pretty bad. The possibilities range from my being completely wrong and How have I prepared for the range of possibilities? things going pretty much like they are, to a total I have been accumulating precious metals since economic collapse and financial Armageddon 2002. To me this relieves a lot of anxiety. And from which we never recover. Toward the bad now I have purchased a small supply of emergency end is the possibility of the failure of the monetary food. I found an assortment that will have me system, which would raise the likelihood of social eating like a king in an emergency situation. I unrest (rioting), and disruption of the food supply. have given one of these assortments to each of my family members, my best friends, and all of But in any range of possibilities there is something my employees. This has relieved any remaining called a bell curve of probabilities. What that anxieties. [ 21 ]


Top 10 Reasons I Buy Gold & Silver

Yes, the stock and real estate markets will probably crash, and for those who are unprepared it will be devastating. But if it’s going to happen anyway, and if there is nothing I can do about it, then I may as well try to figure out how to turn this catastrophe into the best thing that has ever happened to me. When I talk about an economic crash, most people get a picture in their head’s of the devastated, bombed-out wastelands left over after a war. It’s not going to be that way. All the true wealth, the buildings, the real estate, and the factories will still be there… they’ll just be on sale.

would quickly provide us with a new, efficient, stable, and honest monetary system that would increase the prosperity and standard of living for us all.

As I have said many times… there are these brief moments in history where the safest asset class, gold and silver, the safe haven to protect your wealth for the last 5,000 years, simultaneously become the asset class with the greatest potential gains in absolute purchasing power. I believe we are in one of these episodes right now, and the performance of gold and silver over the last twelve It is when stocks and real estate are bottoming that years have proven me correct. I intend to sell my gold and silver and buy up as much true wealth as I can. In periods of crisis gold and silver are the asset class that out performs all others. This decade Yes, banks could fail, but new, more efficient ones will see the greatest financial crisis in history. That will take their place. Yes, the world monetary means it will also be the greatest wealth transfer system could collapse, but this could be a good in history. And that means that it is the greatest thing. If we could make fraud, theft, and conflicts of opportunity in history. interest illegal for the banking sector and monetary system, and if we just leave the free market alone How do I sleep at night? and stop manipulating and meddling with it, it Very well thank you.

Mike Maloney, host of the free web video series Hidden Secrets of Money, is a noted speaker and #1 bestselling author on monetary history and gold & silver investing. He is the founder and owner of GoldSilver.com, a global leader in gold and silver sales and one of the world’s most highly regarded investment education companies. [ 22 ]


15 Signs That We Are Near The Peak Of An Absolutely Massive Stock Market Bubble

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ne of the men that won the Nobel Prize for economics this year says that “bubbles look like this” and that he is “most worried about the boom in the U.S. stock market.” But you don’t have to be a Nobel Prize winner to see what is happening. It should be glaringly apparent to anyone with half a brain. The financial markets have been soaring while the overall economy has been stagnating. Reckless injections of liquidity into the financial system by the Federal Reserve have pumped up stock prices to ridiculous extremes, and people are becoming concerned. In fact, Google searches for the term “stock bubble” are now at the highest level that we

have seen since November 2007. Despite assurances from the mainstream media and the Federal Reserve that everything is just fine, many Americans are beginning to realize that we have seen this movie before. We saw it during the dotcom bubble, and we saw it during the lead up to the horrible financial crisis of 2008. So precisely when will the bubble burst this time? Nobody knows for sure, but without a doubt this irrational financial bubble will burst at some point. Remember, a bubble is always the biggest right before it bursts, and the following are 15 signs that we are near the peak of an absolutely massive stock market bubble...

Bob Shiller, one of the winners of this year’s Nobel Prize for economics, says that “bubbles look like this” and that he is “most worried about the boom in the U.S. stock market.”

#2

#1

The total amount of margin debt has risen by 50 percent since January 2012 and it is now at the highest level ever recorded. The last two times that margin debt skyrocketed like this were just before the bursting of the dotcom bubble in 2000 and just before the financial crisis of 2008. When this house of cards comes crashing down, things are going to get very messy... [ 23 ]


15 Signs That We Are Near The Peak Of An Absolutely Massive Stock Market Bubble

#3 Since the bottom of the market in 2009, the Dow has jumped 143 percent, the S&P 500 is up 165 percent and the Nasdaq has risen an astounding 213 percent. This does not reflect economic reality in any way, shape or form.

#4 Market research firm TrimTabs says that the S&P 500 is “very overpriced” right now. #5 Marc Faber recently told CNBC that “we are in a gigantic speculative bubble”. #6 In the United States, Google searches for the term “stock bubble” are at the highest level that we have seen since November 2007 - just before the last stock market crash.

#7 Price to earnings ratios are very high right now... ‘The Dow was trading at 17.8 times the past four quarters of earnings of its 30 components, according to The Wall Street Journal on Friday. That was up from 13.7 times its earnings a year ago. The S&P 500 is trading at 18.7 times earnings. The Nasdaq-100 Index is trading at 21.5 times earnings. At the very least, the ratios are signaling that stock prices are rich.’

#8 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.

#9 Twitter is a seven-year-old company that has never made a profit. It actually lost 64.6 million

dollars last quarter. But according to the financial markets it is currently worth about 22 billion dollars.

#10 Right now, Facebook is trading at a valuation that is equivalent to approximately 100 years of earnings, and it is currently supposedly worth about 115 billion dollars.

#11 Howard Marks of Oaktree Capital recently stated that he believes that “markets are riskier than at any time since the depths of the 2008/9 crisis”. [ 24 ]


15 Signs That We Are Near The Peak Of An Absolutely Massive Stock Market Bubble

#12 As Graham Summers recently noted, retail investors are buying stocks at a level not seen since the peak of the dotcom bubble back in 2000.

#13 David Stockman, a former director of the Office of Management and Budget under President Ronald Reagan, believes that this financial bubble is going to end very badly...

We have a massive bubble everywhere, from Japan, to China, Europe, to the UK. As a result of this, I think world fi”’nancial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future.”

#14 Bob Janjuah of Nomura Securities believes that there “could be a 25% to 50% sell off in global stock markets” over the next couple of years.

#15 According to Tyler Durden of Zero Hedge, the U.S. stock market is repeating a pattern

that we have seen many times before. According to him, we are experiencing “a well-defined syndrome of ‘overvalued, overbought, overbullish, rising-yield’ conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing), and at three points in 2013: February, May, and today.”

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15 Signs That We Are Near The Peak Of An Absolutely Massive Stock Market Bubble

As I mentioned at the top of this article, this stock market bubble has been fueled by quantitative easing. Easy money from the Fed has been artificially inflating stock prices, and this has greatly benefited a very small percentage of the U.S. population. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans. When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain. But there are some people out there that argue that what we are witnessing is not a stock market bubble at all. That includes Janet Yellen, the new head of the Federal Reserve. Recently, she insistedthat there is absolutely nothing to be

worried about... We shall see who was right and who was wrong. Let’s all file that one away and come back to it in a few years. So where are stocks going next? If you had the answer to that question, you could probably make a lot of money.Yes, the current bubble could burst at any moment, or stocks could continue going up for a little while longer. After all, the S&P 500 has risen in December about 80 percent of the time over the past thirty years. Perhaps that will be the case this December as well. Perhaps not. Do you feel lucky?

Written by Michael T. Snyder Michael T. Snyder is publisher of The Economic Collapse Blog. He is a former Washington D.C. attorney who now publishes The Truth. His new thriller entitled “The Beginning Of The End” is now available on Amazon.com. [ 26 ]


Larry Summers and the Secret “End-Game” Memo

by Greg Palest

W

hen a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn’t believe it. The Memo confirmed every conspiracy freak’s fantasy: that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet. When you see 26.3%unemployment in Spain, desperation and hunger in Greece, riots in Indonesia and Detroit in bankruptcy, go back to this End Game memo, the genesis of the blood and tears. The Treasury official playing the bankers’ secret End Game was Larry Summers. Today, Summers is Barack Obama’s leading choice for Chairman of the US Federal Reserve, the world’s central bank. If the confidential memo is authentic, then Summers shouldn’t be serving on the Fed, he should be serving hard time in some dungeon

reserved for the criminally insane of the finance world. The memo is authentic. To get that confirmation, I would have to fly to Geneva and wangle a meeting with the Secretary General of the World Trade Organization, Pascal Lamy. I did. Lamy, the Generalissimo of Globalization, told me, “The WTO was not created as some dark cabal of multinationals secretly cooking plots against the people…. We don’t have cigar-smoking, rich, crazy bankers negotiating.” Then I showed him the memo. It begins with Summers’ flunky, Timothy Geithner, reminding his boss to call the then most powerful CEOs on the planet and get them to order their lobbyist armies to march: “As we enter the end-game of the WTO financial services negotiations, I believe it would be a good idea for you to touch base with the CEOs….” [ 27 ]


Larry Summers and the Secret “End-Game” Memo

To avoid Summers having to call his office to get the phone numbers (which, under US law, would have to appear on public logs), Geithner listed their private lines. And here they are: Goldman Sachs: John Corzine (212)902-8281 Merrill Lynch: David Kamanski (212)449-6868 Bank of America, David Coulter (415)622-2255 Citibank: John Reed (212)559-2732 Chase Manhattan: Walter Shipley (212)270-1380 Lamy was right: They don’t smoke cigars. Go ahead and dial them. I did, and sure enough, got a cheery personal hello from Reed–cheery until I revealed I wasn’t Larry Summers. (Note: The other numbers were swiftly disconnected. And Corzine can’t be reached while he faces criminal charges.) It’s not the little cabal of confabs held by Summers and the banksters that’s so troubling. The horror is in the purpose of the “end game” itself. Let me explain: The year was 1997. US Treasury Secretary

Robert Rubin was pushing hard to de-regulate banks. That required, first, repeal of the GlassSteagall Act to dismantle the barrier between commercial banks and investment banks. It was like replacing bank vaults with roulette wheels. Second, the banks wanted the right to play a new high-risk game: “derivatives trading.” JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as “assets.” Deputy Treasury Secretary Summers (soon to replace Rubin as Secretary) body-blocked any attempt to control derivatives.

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Larry Summers and the Secret “End-Game” Memo

But what was the use of turning US banks into derivatives casinos if money would flee to nations with safer banking laws? The answer conceived by the Big Bank Five: eliminate controls on banks in every nation on the planet – in one single move. It was as brilliant as it was insanely dangerous. How could they pull off this mad caper? The bankers’ and Summers’ game was to use the Financial Services Agreement, an abstruse and benign addendum to the international trade agreements policed by the World Trade Organization. Until the bankers began their play, the WTO agreements dealt simply with trade in goods–that is, my cars for your bananas. The new rules ginned-up by Summers and the banks would force all nations to accept trade in “bads” – toxic assets like financial derivatives. Until the bankers’ re-draft of the FSA, each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open

their markets to Citibank, JP Morgan and their derivatives “products.” And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives. The job of turning the FSA into the bankers’ battering ram was given to Geithner, who was named Ambassador to the World Trade Organization. Why in the world would any nation agree to let its banking system be boarded and seized by financial pirates like JP Morgan? The answer, in the case of Ecuador, was bananas. Ecuador was truly a banana republic. The yellow fruit was that nation’s life-and-death source of hard currency. If it refused to sign the new FSA, Ecuador could feed its bananas to the monkeys and go back into bankruptcy. Ecuador signed.And so on–with every single nation bullied into signing.

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Larry Summers and the Secret “End-Game” Memo

Bankers go Bananas Every nation but one, I should say. Brazil’s new President, Inacio Lula da Silva, refused. In retaliation, Brazil was threatened with a virtual embargo of its products by the European Union’s Trade Commissioner, one Peter Mandelson, according to another confidential memo I got my hands on. But Lula’s refusenik stance paid off for Brazil which, alone among Western nations, survived and thrived during the 2007-9 bank crisis. China signed–but got its pound of flesh in return. It opened its banking sector a crack in return for access and control of the US auto parts and other markets. (Swiftly, two million US jobs shifted to China.) The new FSA pulled the lid off the Pandora’s box of worldwide derivatives trade. Among the notorious transactions legalized: Goldman Sachs (where Treasury Secretary Rubin had been Co-Chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation. Ecuador, its own banking sector deregulated and demolished, exploded into riots. Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans. Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim–and the continent is now being sold off in tiny, cheap pieces to Germany. Of course, it was not just threats that sold the FSA, but temptation as well. After all, every evil starts with one bite of an apple offered by a snake. The apple: The gleaming piles of lucre

hidden in the FSA for local elites. The snake was named Larry. Does all this evil and pain flow from a single memo? Of course not: the evil was The Game itself, as played by the banker clique. The memo only revealed their game-plan for checkmate. And the memo reveals a lot about Summers and Obama. While billions of sorry souls are still hurting from worldwide banker-made disaster, Rubin and Summers didn’t do too badly. Rubin’s deregulation of banks had permitted the creation of a financial monstrosity called “Citigroup.” Within weeks of leaving office, Rubin was named director, then Chairman of Citigroup—which went bankrupt while managing to pay Rubin a total of $126 million. Then Rubin took on another post: as key campaign benefactor to a young State Senator, Barack Obama. Only days after his election as President, Obama, at Rubin’s insistence, gave Summers the odd post of US “Economics Tsar” and made Geithner his Tsarina (that is, Secretary of Treasury). In 2010, Summers gave up his royalist robes to return to “consulting” for Citibank and other creatures of bank deregulation whose payments have raised Summers’ net worth by $31 million since the “end-game” memo. That Obama would, at Robert Rubin’s demand, now choose Summers to run the Federal Reserve Board means that, unfortunately, we are far from the end of the game.

Written by Greg Palast Greg Palast has been called the “most important investigative reporter of our time – up there with Woodward and Bernstein” (The Guardian). Palast is the author of the New York Times bestsellers Billionaires & Ballot Bandits, Armed Madhouse and The Best Democracy Money Can Buy and the highly acclaimed Vultures’ Picnic, named Book of the Year 2012 on BBC Newsnight Review. [ 30 ]


The Money Changers Serenade: A New Plot Hatches

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ormer Treasury Secretary Timothy Geithner, a protege of Treasury Secretaries Rubin and Summers, has received his reward for continuing the Rubin-Summers-Paulson policy of supporting the “banks too big to fail” at the expense of the economy and American people. For his service to the handful of gigantic banks, whose existence attests to the fact that the Anti-Trust Act is a dead-letter law, Geithner has been appointed president and managing director of the private equity firm, Warburg Pincus and is on his way to his fortune. A Warburg in-law financed Woodrow Wilson’s presidential campaign. Part of the reward was Wilson’s appointment of Paul Warburg to the first Federal Reserve Board. The symbiotic relation-

ship between presidents and bankers has continued ever since. The same small clique continues to wield financial power. Geithner’s career is illustrative. In the 1980s, Geithner worked for Kissinger Associates. In the mid to late 1990s, Geithner served as a deputy assistant Treasury secretary. Under Rubin and Summers he moved up to undersecretary of the Treasury. From the Treasury he went to the Council on Foreign Relations and from there to the International Monetary Fund (IMF). From there he was appointed president of the Federal Reserve Bank of New York, where he worked to make banks more profitable by allowing higher ratios of debt to capital, thus contributing to the financial crisis.

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The Money Changers Serenade: A New Plot Hatches

Geithner arranged the sale of the failed Wall Street firm of Bear Stearns, helped with the taxpayer bailout of AIG, and rejected saving Lehman Brothers from bankruptcy in order to create the crisis atmosphere needed to more fully subordinate US economic policy to the needs of the few large banks. Rubin, a 26-year veteran of Goldman Sachs, was rewarded by Citibank for his service to the banks while Treasury Secretary with a $50 million compensation package in 2008 and $126,000,000 between 1999 and 2009. When a person becomes a Treasury official it is made clear that the choice is between serving the banks and becoming rich or trying to serve the public and becoming poor. Few make the latter choice. As MIchael Hudson has informed us, the goal of the financial sector has always been to convert all income, from corporate profits to government tax revenues, to the service of debt. From the bank-

ers standpoint, the more debt the richer the bankers. Rubin, Summers, Paulson, Geithner, and now banker Treasury Secretary Jack Lew faithfully serve this goal. The Federal Reserve describes its policy of Quantitative Easing — the creation of new money with which the Fed purchases Treasury debt and mortgage backed securities — as a low interest rate policy in order to stimulate employment and economic growth. Economists and the financial media have parroted this cover story. In contrast, I have exposed QE as a scheme for pumping profits into the banks and boosting their balance sheets. The real purpose of QE is to drive up the prices of the debt-related derivatives on the banks’ books, thus keeping the banks with solvent balance sheets. Writing in the Wall Street Journal (“Confessions of a Quantitative Easer,” November 11, 2013), Andrew Huszar confirms my explanation to be the

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The Money Changers Serenade: A New Plot Hatches

correct one. Huszar is the Federal Reserve official who implemented the policy of QE. He resigned when he realized that the real purposes of QE was to drive up the prices of the banks’ holdings of debt instruments, to provide the banks with trillions of dollars at zero cost with which to lend and speculate, and to provide the banks with “fat commissions from brokering most of the Fed’s QE transactions.” This vast con game remains unrecognized by Congress and the public. At the IMF Research Conference on November 8, 2013, former Treasury Secretary Larry Summers presented a plan to expand the con game. Summers says that it is not enough merely to give the banks interest free money. More should be done for the banks. Instead of being paid interest on their bank deposits, people should be penalized for keeping their money in banks instead of spending it. To sell this new rip-off scheme, Summers has conjured up an explanation based on the crude

and discredited Keynesianism of the 1940s that explained the Great Depression as a problem caused by too much savings. Instead of spending their money, people hoarded it, thus causing aggregate demand and employment to fall. Summers says that today the problem of too much saving has reappeared. The centerpiece of his argument is “the natural interest rate,” defined as the interest rate at which full employment is established by the equality of saving with investment. If people save more than investors invest, the saved money will not find its way back into the economy, and output and employment will fall. Summers notes that despite a zero real rate of interest, there is still substantial unemployment. In other words, not even a zero rate of interest can reduce saving to the level of investment, thus frustrating a full employment recovery. Summers concludes that the natural rate of interest has become negative and is stuck below zero. How to fix this? The way to fix it, Summers says, is to charge people for saving money. To avoid the

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The Money Changers Serenade: A New Plot Hatches

charges, people would spend the money, thus reducing savings to the level of investment and restoring full employment. Summers acknowledges that the problem with his solution is that people would take their money out of banks and hoard it in cash holdings. In other words, the cash form of money provides consumers with a freedom to save that holds down consumption and prevents full employment. Summers has a fix for this: eliminate the freedom by imposing a cashless society where the only money is electronic. As electronic money cannot be hoarded except in bank deposits, penalties can be imposed that force unproductive savings into consumption. Summers’ scheme, of course, is a harebrained one. With governments running huge deficits, who would purchase bonds at negative interest rates? How would pension and retirement funds operate? Would they also be subject to an annual percentage confiscation? We know that the response of consumers to the long term decline in real median family income, to the loss of jobs from labor

arbitrage across national borders (jobs offshoring), to rising homelessness, to cuts in the social safety net, to the transformation of their full time jobs to part time jobs (employers’ response to Obamacare), has been to reduce their savings rate. Indeed, few have any savings at all. The US personal saving rate is currently 2 percentage points, about 30%, below the long term average. Retired people, unable to earn any interest on their savings from the Fed’s zero interest rate policy, are being forced to draw down their savings in order to pay their bills. Moreover, it is unclear whether the savings rate is an accurate measure or merely a residual of other calculations. With so many people having to draw down their savings, I wouldn’t be surprised if an accurate measure showed the personal savings rate to be negative. But for Summers the plight of the consumer is not the problem. The problem is the profits of the banks. Summers has the solution, and the establishment, including Paul Krugman, is applauding it. Once the economy officially turns down again, watch out.

Dr Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available. [ 34 ]


Ted Butler: I Own Silver Because Of The Coming Silver Shortage

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sk a hundred different precious metals investors why they hold gold or silver and, while you may not get a hundred different answers, you’ll certainly get more than one. That’s because there are many different reasons why people own precious metals. Among those reasons; protection against inflation, bank or financial system failures, currency turmoil, unsustainable government debt and money supply growth, stock or bond market collapse and perhaps some combination of all these reasons. While I can understand these reasons and don’t have any real dispute that they may prove to

provide the protection desired; all are far removed from the reason I hold and continue to buy silver. I own silver because I feel it will perform better than any other investment I am aware of, including gold. Although I am not driven by a desire for money at all costs; I am convinced that if you are going to make an investment, it should be the best investment possible. Quite simply, I believe that silver will make more money, by far, than any other investment almost regardless of future circumstances.

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Ted Butler: I Own Silver Because Of The Coming Silver Shortage

‘It is one thing to say that silver will be the best investment over the next several years, but yet another to back that up and explain why I expect that to be the case. The simple reason is because I think silver will go into an extreme physical shortage on a wholesale level. If there is anything that can drive the price of a commodity to the stratosphere it is surely a physical shortage. War time, peace time, any time there has ever been a shortage of any commodity, the price has soared to levels that ration remaining available supplies. The price of silver will behave the same way when a wholesale shortage hits.’

The inevitable shortage was the thing that first much more silver was consumed than was mined attracted me to silver 25 years ago. Some might and recycled annually. At the start of World War say that’s a long time to wait for a shortage, II, the world had more than 10 billion ounces but there are some very special circumstances in silver bullion inventories, with the US Governthat explain why the timetable for a silver short- ment holding about half that amount. It’s hard to age has been drawn out. For one thing, silver conceive of a shortage with 10 billion ounces has been mined and produced in great quanti- of silver in world inventories. But so much more ties for many hundreds of years and tremendous silver was consumed than was produced through inventories were accumulated above ground. It’s 2006 that world inventories of silver bullion (in hard to conceive of a shortage in the presence the form of 1000 oz bars) have fallen to a bit of massive inventories. Certainly, throughout his- more than one billion ounces today, despite the tory, there has never been a silver shortage, so ending of the consumption deficit. Obviously, it’s if a silver shortage develops, it will be unprec- easier to envision a shortage when the inventoedented and that will add to the emotional and ries of a commodity decline by 90%, while the panic-buying intensity that accompanies any population of the world (and resultant demand) commodity shortage. grew from 2.5 billion to 7 billion. Starting around 100 years ago, the I look at silver as a commodity destined to world developed an insatiable appetite for silver go into a shortage because that’s what the facts as an industrial material once it was discovered point to. My professional background revolves that the metal had physical and chemical proper- around supply/demand analysis, having begun ties more varied and vital than any other metal. my working career as a commodity broker for Those properties included silver being the best Merrill Lynch more than 40 years ago. I didn’t set conductor of electricity, the best transfer agent for out to conclude there would be a silver shortage heat, the best reflector of light, the most diverse or any such thing, but in 1985 a client and my medical properties and chemical properties that eventual mentor, Israel Friedman, challenged me ranged from making photography possible to to explain why silver was stuck at $5 an ounce use as a catalyst for other important chemical when demand exceeded production and invenproduction. tories were being drawn down year after year. So great was the industrial demand for sil- Thanks to Izzy’s challenge, I came to discover ver that for 65 years running, until around 2006, that the price of silver stayed low because it was [ 36 ]


Ted Butler: I Own Silver Because Of The Coming Silver Shortage

http://www.flickr.com/photos/59937401N07/with/5858030702/

manipulated by excessive short selling on the COMEX, the principal world precious metals exchange. Since that time, I have petitioned the exchange and the federal regulators to end the manipulation. I have not been successful on that score to date, but many thousands have come to believe that silver has been manipulated in price. The key point here is that nothing invites a shortage more than a prolonged artificial low price and its affect on the law of supply and demand. Any industrial commodity is capable of going into a shortage. All it takes is for industrial demand to exceed total production or come close to that circumstance. Such shortages seem rare, but then again just about every industrially consumed metal or other commodity has gone into a shortage situation at some point over time. Copper, nickel, lead, zinc and a whole host of grains and foodstuffs and energy products have experienced shortages of varying degree. Considering silver’s tremendously diverse industrial consumption base and the growth of world population and economic development, it’s impossible to exclude silver as a potential candidate for shortage compared to every other industrial com[ 37 ]

modity. But wait a minute – didn’t I just say that total production of silver started to exceed industrial consumption around 2006? How the heck can there be a silver shortage if total production exceeds industrial consumption? Well, for starters, silver total production doesn’t exceed industrial consumption by much; say by 100 million ounces or so annually on a billion ounces of total production. And one could argue that with the recent price drop below the cost of production for many silver miners, that it is just a matter of time before industrial consumption exceeds production due to falling mine production. I think that the silver deficit could return in time, unless prices rise; but I have a different reason for expecting a silver shortage before a decline in mine production triggers the shortage. The key to appreciating why, among all commodities, silver is capable of developing quickly into a shortage situation, even if production exceeds total industrial consumption, is in understanding that silver is the most unique of materials in that it has a special dual aspect in its demand. Not only is it a vital industrial material, but it is an extremely popu-


Ted Butler: I Own Silver Because Of The Coming Silver Shortage

lar investment asset. To my mind, this elemental fact of silver’s dual demand is vastly underappreciated, but it lies at the heart of why I own silver. Sure, there are times when big investors buy copper, oil, grains and other commodities for a speculation, but the regular investor rarely buys physical copper or crude oil or corn as a long term investment. If the regular investor buys any commodity, it is usually only gold and silver. Since little gold is used for industrial purposes and the metal is considered primarily a pure investment asset, gold does not have a dual demand aspect. That’s not to say gold can’t rise in price, but it won’t be due to a shortage enflamed by panicky industrial user buying. Only silver, of all commodities, has a bona fide dual demand circumstance. Because this dual demand factor is, effectively, unique to silver, it sets the stage for a very unique potential shortage. Normal commodity shortages come slowly and as a result of a gradual insufficiency of supply in meeting demand over the course of years. After all, most world commodities have many participants, both producers

and consumers and changes in production or consumption are glacial-like and grindingly slow. Only when long and consistent delays in delivery occur do the effects of the commodity shortage become apparent. But there is a very big difference between industrial consumption demand and investment demand. With industrial consumption, the users buy what they need; with investment demand, the buyers buy what they want and can afford. And collective human nature being what it is, investment buyers often behave in unison, all trying to buy or sell at the same time. This holds special significance for a silver shortage. Total silver fabrication demand (industrial consumption plus jewelry, coin and all other such uses) consume 90% of total supply (mine production plus recycling) of one billion ounces. This leaves around 100 million ounces (in the form of 1000 oz bars) to be absorbed by the world’s investors, or $2 to $2.5 billion annually. In terms of typical world investment flows, this is a piddling amount. For instance, $100 to $150 billion is needed annually to be absorbed in newly-produced gold by

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Ted Butler: I Own Silver Because Of The Coming Silver Shortage

the world’s investors. Since investors tend to move in unison and the dollar amounts are so small, the 100 million oz of new silver available to world investors annually could be snapped up in a relative instant. Sure, existing silver investment holdings could also be sold, but remember that world inventories of silver are down 90% from 70 years ago, so not that much silver exists in investor holdings. The dual demand factor in silver will also likely be a self-reinforcing mechanism. The silver story is so good that it is only a matter of time before investors buy sufficient quantities to tighten supply, particularly considering how few relative dollars of silver are available for purchase. When that investor-induced tightness hits, it will inevitably cause tightness for the industrial consumers as well, creating delays in delivery to the silver users. Faced with delivery delays that will shut down assembly lines, the industrial users will do what has always been done throughout history – they will try to buy even more silver to build their own inventories and eliminate future delivery delays. This is just normal human collective behavior – just like panic buying of bread, ice and gasoline when a hurricane warning is issued. You might ask if this is inevitable (as I suggest) – then why hasn’t it happened yet? The truth is that the world was on the cusp of its first shortage of silver three and a half years ago, when the price almost touched $50 an ounce. At that time, investors throughout the world had purchased enough quantities of silver, including many hundreds of millions of ounces in the newly created Exchange Traded Funds that prices were pushed up and severe tightness was evident throughout

the wholesale supply chain. Remember, the ETFs buy the exact same form of industrial grade silver (1000 oz bars) as do the users. But before the industrial users began to build personal inventories, prices were dramatically rigged lower on the COMEX and within a week, the price of silver was smashed for more than 30%. This immediately cooled off investor demand; creating instead investor selling and preventing an industrial user buying panic. Looking back, I believe that we averted an all-out silver user buying panic by the thinnest of margins in the spring of 2011. But the close call back then did nothing to change the underlying circumstances of the inevitable coming silver shortage; it was simply a temporary postponement to what will recur and with greater force. Frankly, I can’t see how a silver shortage won’t occur at some point; so the real question is one of timing. Fortunately, even if we can’t predict the precise timing, it can be made into something largely under our control. It all has to do with how you configure a silver investment. If you become convinced, as I am convinced, of the likelihood of a future silver shortage, don’t try to time it at all. Put yourself in a position where the timing doesn’t matter; only the shortage itself. The way to do that is to buy real metal for cash on the barrel head, put it away and wait it out. No margin or borrowing to buy paper forms of silver, no in and out short term trading; stick to real metal in your own possession until you reach the point where you have so much metal that you need professional storage. By not having to worry about the timing, you put time on your side.

Ted Butler has specialized in precious metals markets analysis for 4 decades. This is an excerpt from his premium service. Readers are highly recommended to subscribe to the service on www.butlerresearch.com as it contains the highest quality of gold and silver market analysis. [ 39 ]


The E.U., Neofeudalism and the NeocolonialFinancialization Model

‘To fully understand the Eurozone’s financial-debt crisis, we must dig through the artifice, obfuscation and propaganda to the real dynamics of Europe’s “new feudalism,” the Neocolonial-Financialization Model.’

Forget “austerity”and political theater--the only way to truly comprehend the Eurozone is to understand the Neocolonial-Financialization Model, as that’s the key dynamic of the Eurozone. In the old model of Colonialism, the colonizing power conquered or co-opted the Power Elites of the region, and proceeded to exploit the new colony’s resources and labor to enrich the “center,” i.e. the home empire. In Neocolonialism, the forces of financialization (debt and leverage controlled by State-approved banking cartels) are used to indenture the local Elites and populace to the banking center: the peripheral “colonials” borrow money to buy the finished goods sold by the “core,” doubly enriching the center with 1) interest and the transactional “skim” of financializing assets such as real estate, and 2) the profits made selling goods to the debtors. In essence, the “core” nations of the E.U.

colonized the “peripheral” nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery. The banks and exporters of the “core” countries exacted enormous profits from this expansion of debt and consumption. Now that the financialization scheme of the euro has run its course, the periphery’s neofeudal standing is starkly revealed: the assets and income of the periphery are flowing to the Core as interest on the private and sovereign debts that are owed to the Core countries’ commercial and central banks. This is the perfection of Neofeudalism. The peripheral nations of the E.U. are effectively neocolonial debtors of the Core countries’ banks, and the taxpayers of the Core nations are now feudal serfs whose labor is devoted to making good on any bank loans to the periphery that go bad.

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The E.U., Neofeudalism and the NeocolonialFinancialization Model

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o fully understand the Neocolonial-Financialization Model, we need to establish some basic characteristics of the Eurozone system. Do to that, let’s start with the Eurozone and the euro. The European Union established a single currency and trading zone for the classical Capitalist benefits this offered: a reduction in the cost of conducting business between the member nations and a freer flow of capital and labor. From a Neoliberal Capitalist perspective, such a union consolidated power in a Central State proxy (The E.U.) and provided large Stateapproved cartels and quasi-monopolies easier access to new markets. From the point of view of the citizenry, it offered the benefit of breaking down barriers to employment in other Eurozone nations. On the face of it, it was a “win-win” structure for everyone, with the only downside being a sentimental loss of national currencies. But there was a flaw in the structure that is

now painfully apparent. The Union consolidated power over the shared currency (euro) and trade but not over the member states’ current-account (trade) deficits and budget deficits. While lipservice was paid to fiscal rectitude via caps on deficit spending, in the real world there were no meaningful controls on the creation of private or state credit or on sovereign borrowing and spending. Thus the expansion of the united economy via the classical Capitalist advantages of freely flowing capital and labor were piggy-backed on the expansion of credit enabled by the Neoliberal Capitalist structure of the union. The alliance of the Central State and its intrinsic desire to centrally manage the economy to benefit its fiefdoms and Elites and classical free-market Capitalism has always been uneasy. On the surface, the E.U. squared the circle, enabling stability, plentiful credit creation and easier access to new markets for all.

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The E.U., Neofeudalism and the NeocolonialFinancialization Model

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ut beneath this beneficent surface lurked impossible-to-resist opportunities for exploitation and arbitrage. In effect, the importing nations within the union were given the solid credit ratings and expansive credit limits of their exporting cousins, Germany and France. In a real-world analogy, it’s as if a sibling prone to financing life’s expenses with credit was handed a no-limit credit card with a low interest rate, backed by a guarantee from a sober, cash-rich and credit-averse brother/sister. Needless to say, it is highly profitable for banks to expand lending to credit-worthy borrowers. Credit at very low rates of interest is treated as “free money,” for that’s what it is in essence. Recipients of free money quickly become dependent on that flow of credit to pay their expenses, which magically rise in tandem with the access to free money. Thus when access to free money is suddenly withdrawn, the recipient experiences the same painful withdrawal symptoms as a drug addict who goes cold turkey. Even worse--if that is possible--free money soon flows to malinvestments as fiscally sound investments are quickly cornered by State-cartel partnerships and favored quasi-monopolies. The malinvestments are masked by the asset bubble which inevitably results from massive quantities of free money seeking a speculative return.

The E.U.’s implicit guarantee to mitigate any losses at the State-sanctioned large banks-exemplifies the Neocolonial-Financialization Model. In effect, the big Eurozone banks “colonized” member states such as Ireland, following a blueprint similar to the debt-based one which has long been deployed in developing countries. This is a colonialism based on the financialization of the smaller economies to the benefit of the “core’s” big banks and their partners, the Member States governments, which realize huge increases in tax revenues as credit-based assets bubbles expand. As with what we might call the Neoliberal Colonial Model (NCM) as practiced in the developing world, credit-poor economies are suddenly offered unlimited credit at very low or even negative interest rates. It is “an offer that’s too good to refuse” and the resultant explosion of private credit feeds what appears to be a “virtuous cycle” of rampant consumption and rapidly rising assets such as equities, land and housing. Essential to the appeal of this colonialist model is the broad-based access to credit: everyone and his sister can suddenly afford to speculate in housing, stocks, commodities, etc., and to live a consumption-based lifestyle that was once the exclusive preserve of the upper

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The E.U., Neofeudalism and the NeocolonialFinancialization Model

class and State Elites (in developing nations, often the same group of people). In the 19th century colonialist model, the immensely profitable consumables being marketed by global cartels were sugar (rum), tea, coffee and tobacco—all highly addictive, and all complementary: tea goes with sugar, and so on. (For more, please refer to Sidney Mintz’s book, Sweetness and Power: The Place of Sugar in Modern History). In the Neocolonial-Financialization Model, the addictive substance is credit and the speculative and consumerist fever it fosters. In the E.U., the opportunities to exploit captive markets were even better than those found abroad, for the simple reason that the E.U. itself stood ready to guarantee there would be no messy expropriations of capital by local authorities who decided to throw off the yokes of European capital colonization. The “too big to fail” Eurozone banks were offered a double bonanza by this implicit guarantee by the E.U. to make everything right: not only could they leverage to the hilt to fund a private housing and equities bubble, but they could loan virtually unlimited sums to the weaker sovereign states or their proxies. This led to over-consumption by the importing States and staggering profits for the TBTF Eurozone banks. And all the while, the citizens enjoyed the consumerist paradise of borrow and spend today, and pay the debts tomorrow. Tomorrow arrived, but the capital foundation of the principal—housing and the crippled budgets of post-bubble Member States— has eroded to the point of mass insolvency.

Faced with rising interest rates resulting from the now inescapable heightened risk, the citizenry of the colonized states are rebelling against the loss of their credit-dependent lifestyles and against the steep costs of servicing their debts to the big Eurozone banks. Now the losses resulting from these excesses of rampant exploitation and colonization by the forces of financialization are being unmasked, and a blizzard of simulacrum reforms have been implemented, none of which address the underlying causes of this arbitrage, exploitation and financialization. Understood in this manner, it is clear there is no real difference between the monetary policies of the European Central Bank and the Federal Reserve: each seeks to preserve and protect the “too big to fail” banks which are integral to the Neoliberal State-cartel partnership. Both are attempting to rectify an intrinsically unstable private-capital/State arrangement-- profits are private but losses are public--by shoving the costs of the bad debt and rising interest rates onto the backs of the core-country taxpayers (now indentured serfs). The profits from the euro arbitrage and Neocolonial exploitation were private, but the costs are being borne by the taxpaying public of both core and periphery. The Power Elites are attempting to set the serfs of the periphery against the serfs of the Core, and this is necessary to keep both sets of serfs from realizing they are equally indentured to the Core’s pathological Financial Elite-State partnership.

Charles Hugh Smith is the author of 14 books (including Why Thing Are Falling Apart And What We Can Do About It and Resistance, Revolution, Liberation) and is the publisher of the popular blog OfTwoMinds.com, one of CNBC’s top ten alternative finance blogs. [ 43 ]


A CLOSER LOOK AT BANK BAIL-INS THE BLACK HOLE OF OUR SYSTEM

The bank bail-in rumble is growing louder. After the events in Cyprus, a small country and potentially meaningless in the eyes of most people, it seems that bailin idea has spread like a virus across the Western world.

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ne could rightfully ask the question why this type of measures are considered in a world which is being flooded with liquidity on a scale that mankind has never seen before (whether one calls it money printing, quantitative easing, easy money, or helicopter money).

Only 30% of the large, international banks analysed is more easily able to fulfil a risk-based Tier 1 capital ratio of 8.5% (including the capital conservation buffer) than a 3% leverage ratio, which is the ratio the Basel Committee favours.

This does not sound very encouraging, does it? The fact of the matter is that, even with excess Nor is the following comment from England’s liquidity, bank losses are still there, as evidenced central bank chairman providing inspiration: in Europe (see Europe prepares to come clean “Systemic resilience depends on being able on hidden bank losses by Reuters). Europeans to resolve failing banks in a way that does not are not not privileged on this matter. Recently, the threaten the entire system. Fairness demands the Bank of International Settlements (say, the mother end of a system that privatises gains but socialof all central banks) released a report in which ises losses.” Mr. Carney told this during a speech they wrote the following: [ 44 ] about a week ago.


A CLOSER LOOK AT BANK BAIL-INS AND THE BLACK HOLE OF OUR SYSTEM

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dmittedely, Mr. Draghi has asked to delay the bank bail-in plans till the Europewide banking union is in place. But still, there are more than enough signs of a growing adoption of bank bail-ins. In order to get a better understanding on how it is possible that the banking system has a real need for bail-ins while having absorbed unprecedented liquidity from central banks, our staff reached out to Darryl Schoon, student of the Great Depression and author of Times of the Vulture. In his book, he correctly predicted the housing crisis back in 2007. Darryl Schoon took us to the heart of our monetary system. He explained how debt-based banking is the foundation of modern economies

, a foundation that is inherently unstable and when stressed, it collapses. Banking is the cause of our problems, not the symptom. The causes of the banking crisis are systemic. While banks have paid-in capital, that capital has nothing to do with the business of borrowing and loaning, i.e. the credit business. Where does the money come from that a bank loans? It does not come from the paid-in capital, as the paid-in capital sits on a separate deposit in the books. Rather, the money comes out of thin air; it is nothing more than an electronic entry in a computer system. It has a relationship with demand deposits (money deposited on a bank account by a bank client), but the relationship is very low (in the order of 10 or 15 to 1).

Basically, the mechanics of banking work as follows: 1. take deposits 2. pay deposit holders the lowest nominal interest rate 3. use a leverage of 10 or 15 on the deposit base then loaning the aggregate leveraged sum at much higher interest rates.

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A CLOSER LOOK AT BANK BAIL-INS AND THE BLACK HOLE OF OUR SYSTEM

The money loaned is not the depositor’s money; it is the total deposit base levered 10 to fifteen times the original amount. That amount is issued as credit in the form of loans. The bank is thus creating debt by offering credit. Because of the leverage, it has 10 to 15 times as much loans as it has on deposit. A bank can borrow money overnight in the repurchase market (repo market) from other banks, in case it needs to meet an obligation which it cannot with its own means. Conversely, a bank can loan its excesses out and get in

return an interest payment. That is how a bank keeps its books in line. The take-away here is that our economic and monetary system is dependent solely on debt and the repayment of that debt. Now, here is the key: this debt based system must always expand. When it stops expanding, it risks becoming a black hole. In order to understand this statement, one should look at the two big risks inherently associated with this debt-based system:

1.

The first risk is a bank run. The banking crisis of 1929/1933 is a perfect example. There was no deposit insurance at that time. When people at a certain point rushed to get their money out of the bank, the money was not there and 80% of banks in the US collapsed.

2.

The second risk is that banks (or their clients) lose money on their bets. Cyprus is a good, recent example. Greek banks owned the banks in Cyprus which all had large investments in Greek debt. When Greek banks got in trouble, Cyprus in turn started accumulating big losses because their deposit base was huge (mainly Russian money). Their 10 to 15 times leverage on that huge deposit base was too big to handle, so it blew up in their own face, and the banks became bankrupt. This is exactly what happens every time when a bubble collapses because the cause of the bubble is bank leverage! When the bubble collapses, the leverage is gone but “it exists in a negative sense”: so much more is owed than ever existed in the first place. This is the black hole of the current economic and monetary system

Darryl Schoon points out that a black hole does not just happen; it is always there as a potential but only becomes a reality when a bank cannot meet its obligations. Furthermore, money is constantly being fed into the system via debt. Debt is constantly compounding. This creates a necessity for the economy to grow and pay back the constantly growing debt.

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A CLOSER LOOK AT BANK BAIL-INS AND THE BLACK HOLE OF OUR SYSTEM

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rom that point of view, it is important to realize that the huge amounts of money being “printed” by central banks is not money that is “sitting in the banking system”; it is merely “debt in motion.” One could compare it with the 1930’s during the Great Depression when people said that “money disappeared.” Such a statement is not correct; it was credit that disappeared leaving only debt that could not be repaid.

One could rightfully ask the question why bail-ins are only now coming front stage (and not earlier)? Darryl Schoon explains it by comparing today’s situation with the one in the 1930’s. Fundamentally, the system was the same back then. At that time, there were no bail-ins nor bail-outs; the debt-based banking system simply collapsed. Today, central planners are fighting tooth and nail to avoid a collapse.

This is the best kept secret in our economic and monetary system. The real issue central banks are facing is the decade low velocity of money. It means that the unprecedented amounts of money being created (i.e. debt being created) are simply not moving. Bail-ins are not solving any issue on that matter; they only allow ailing banks to keep going.

One final note. Central planners are very focused on reassuring people. It is mandatory that people feel safe or they will stop borrowing. In that respect, savings accounts cannot be removed or the illusion of safety is blown up. Large scale bank bail-ins are not very likely to occur, from that point of view. Central planners will likely print more money to replace any savings lost.

Taki Tsaklanos is the founder of Gold Silver Worlds. Check out his partner companies for a precious metals investor kit as well as several free special reports on why you should own physical gold outside the banking system. [ 47 ]


THE FIRST SIGNS OF HYPERINFLATION

US NATIONAL DEBT CAN TRAVEL FROM THE EARTH TO THE SUN AND BACK A STUNNING 83 TIMES! [ 48 ]


THE FIRST SIGNS OF HYPERINFLATION

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he first signs of hyperinflation have arrived. watch. As I will explain later in this article, it began The Obama administration has given last week with the meeting of POTUS Oba- a lot of lip service with zero follow-through to ma and his most supportive lobby, the banking prosecution of criminal banking behavior, the industry. Just a few months into Obama’s first most recent being AG Eric Holder’s following term as US President in early 2009, I penned very empty promise:“Let me be very, very, very an article, “8 Reasons Why the Obama Admin- clear…if we find a bank or a financial institution istration Will Not Solve this Crisis by the End that has done something wrong…those cases of 2009.” Although the title of that article title will be brought” (emphasis not only mine but sounds absurd today, idol worship was so high Holder’s as well!)Unfortunately since that time, of Obama immediately following his election though numerous indisputable cases of banknot only in the US but all across Europe, that me- ing criminal behavior have been uncovered dia commentators across the world were imply- and presented to Holder, Holder has shown no ing, and sometimes matter-of-factly stating, that spine or willingness to enforce his prior promObama would be well on his way to solving ise. As a consequence of the refusal of the top the global monetary crisis by the end of his first attorney in the United States to enforce the rule year as POTUS. of law and to prosecute industry-wide criminal In direct opposition to the media love banking activity, the first signs of hyperinflation affair with Obama, shortly after his election in have arrived. 2008, I objectively studied Obama’s support The real national debt, despite having of a massive bailout plan for banks in his first been falsely frozen at the falsely advertised figmonths of service and his freshly minted ap- ure of $16.699 trillion for more than 90 conpointments of Timothy Geithner, William Daley, secutive days for no other reason than it has William Donaldson, Robert Rubin, Roger Fergu- reached the designated limit, clocks in at a son and Paul Volcker to his economic advisory whopping $220 trillion if you include all unboard and key cabinet positions. Based upon funded, off-balance liabilities such as Medicare my findings, I concluded that beyond a shadow and Social Security (Source: Economist Lauof a doubt, banking cronyism would expand, rence Kotlikoff). multiply, and go unprosecuted under Obama’s [ 49 ]


Original artwork above courtesy of @williambanzai7

Furthermore, this figure of true national debt does not even feel obscene in relative terms once you consider that the Alan Greenspan/ Robert Rubin/Bill Clinton administration let the global derivative market run unregulated in the name of multi-billion dollar short-term profits to bankers and irresponsibly explode into the unresolvable $1,200,000,000,000,000 to $1,500,000,000,000,000 market that exists today. Let it be known for the record that CFTC Chairman Brooksley Born urgently lobbied for strict regulations of the global banking derivatives markets and warned Summers and Greenspan that letting bankers exploit derivatives for profit at the expense of sound banking principles would create the very crisis we are suffering today. What was Born’s reward for such a prescient and wise prediction? A vile cussing out by Larry Summers and forced

resignation by Summers and Greenspan. Yes, this is the same Larry Summers that President Obama has adamantly defended and is Obama’s first choice to supplant Ben Bernanke as the next chairman of the Rothschilds Private Bank. Neither the government lies about the the unchanging nature of the “official” national debt for over 90 consecutive days now nor the government lies about the true scope of the national debt is stunning. What is stunning, however, is just how gigantic is the US National Debt when you start putting the figure in relatable terms. No one really understands how incredibly large is a sum of $1 billion, let alone a trillion or a couple hundred trillion, so it helps to illustrate the absurdity of this unresolvable debt by painting this debt in a different light. Let’s assume for argument’s sake that the estimate of $220 trillion of real US national debt is too aggressive (although Kotlikoff insists

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THE FIRST SIGNS OF HYPERINFLATION

this figure is accurate) and counter estimates of $100 trillion are too conservative. Let’s split the difference and say the true US national debt is $160 trillion dollars. If one were to lay $1 bills side by side, a current US National Debt of $160 trillion would reach from the earth to the moon 239,000 miles away not 100 times, not 500 times, not 1000 times, not even 10,000 times, but 32,358 TIMES AND BACK. Our national debt would travel to the sun 93 million miles away AND BACK, not just once, not just twice, not 10 times, not even an unfathomable 50 times, but EIGHTY-THREE complete round trips! Explained a third way, if you were driving the fastest commercial car in the world (as concluded by Top Gear test

drives), the Pagani Huayra, continuously at its top speed of 372 kms/hour and never, for not even one-second, let up on this top speed and never stopped to change the tires, it would take you until the year 9643 (or more than 7,629 YEARS) before you would pass the last dollar bill of US national debt laid out side by side in 1$ bills. Finally, if you were an alien capable of flying your UFO at the speed of light (670.6 MILLION miles per hour), you would not pass the last dollar of US debt until 23 hours, 1 minute, and 14 seconds later (if the entire debt were laid out side by side in $1 bills)! These FACTS should alert any reasonable logical man, woman and child that massive inflation is the fate of the USD in future years.

US PRESIDENT BARACK OBAMA HELD A CLOSED-DOOR, OFF-LIMITS MEETING IN THE WHITE HOUSE WITH THE FOLLOWING 15 GLOBALIST BANKERS: Lloyd Blankfein, Chairman and CEO Goldman Sachs Jacques Brand, CEO Deutsche Bank Michael Corbat, Chief Executive Officer Citigroup Jamie Dimon, Chairman, CEO and President J.P. Morgan Chase Sergio Ermotti, CEO UBS James Gorman, Chairman and CEO Morgan Stanley Gerald Hassell, Chairman and CEO Bank of New York Mellon Corporation Jay Hooley, Chairman, President and CEO State Street Corporation Abby Johnson, President, Fidelity Financial Services, Fidelity Investments Steve Kandarian, Chairman of the Board, President and CEO Metlife Brian Moynihan, President and CEO Bank of America/Merrill Lynch John Strangfeld, CEO, Prudential John Stumpf, Chairman, President and CEO Wells Fargo Jim Weddle, Managing Partner, Edward Jones Bob Benmosche, President and CEO American International Group

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THE FIRST SIGNS OF HYPERINFLATION

Just hours after this meeting, the bankers flooded the gold derivative markets with 400 tonnes of paper (non-existent physical) gold, and the infamous banker gold price raid of 2013 was on its way. Last week, on August 19, 2013, Obama met with the following banking industry regulators: Securities and Exchange Commission’s Jo White Commodity Futures Trading Commission’s Gary Gensler Consumer Financial Protection Bureau’s Richard Cordray Rothschilds Private Bank’s (U.S. Federal Reserve) Ben Bernanke Office of the Comptroller of the Currency’s Thomas J. Curry Federal Deposit Insurance Corporation’s Martin J. Gruenberg Federal Housing Finance Agency’s Edward DeMarco The National Credit Union Administration’s Debbie Matz US Treasury Secretary Jack Lew Immediately after this meeting was announced, fierce speculation that gold was about to get slammed yet again predominated internet gold forums. We immediately countered that speculation on our twitter feed by suggesting that this meeting was NOT about slamming gold prices but about finalizing plans to seize assets from within the US global banking system, “Cyprus” style.

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THE FIRST SIGNS OF HYPERINFLATION

EVERY OTHER INSTANCE THAT CHAIRMAN BERNANKE EVEN HINTED ABOUT TAPERING QE, IT GAVE THE FEDERAL RESERVE AND THEIR PUPPET BULLION BANKS AN OPPORTUNITY TO SUPPRESS THE PRICE OF GOLD THAT THEY SUCCESSFULLY RELISHED.

S

ure enough, not only did gold and silver fail to get heavily slammed after this meeting as many people were worried about, but both have since risen considerably higher in the interim. Finally, a few days later, the Rothschilds Private Bank (known in some circles as the US Federal Reserve) announced that they were going to begin cutting back on QE measures by $15 billion next month, eventually ending QE measures all together by June 2014. Besides my intense skepticism of this claim, and I would need proof that the Rothschilds Private Bank is actually cutting back QE without any concealed backdoor mechanisms to continue QE, there was one hugely notable development in the gold and silver markets. Normally anytime, Ben Bernanke whispered even a hint or suggestion of QE tapering, the gold and silver markets would crash on such an announcement. However, this time, the mass media reported not a peep about the massively significant decoupling

of gold price behavior from QE tapering announcements, and the subsequent continued rise in gold price. For once, gold price behavior reacted intelligently to the insanity of Central Banking monetary policy and it ignored the propaganda of Central Bankers and continued to rise. Why is this development so significant in my opinion? It is massively significant because it signals a further breakdown of confidence in the monetary system. This time around, I don’t believe that their propaganda was any less effective than all the prior times Bernanke falsely warned about QE tapering. So what has changed? People no longer care what Bernanke and other bankers say about QE because their confidence in fiat currencies, as illustrated by the largest single day drop of the Indian rupee last week, is starting to finally, and justifiably crack. And the first sign of a loss of confidence in fiat currencies and a vote for the solid valuation of gold (and silver) money is the first sign of potential hyperinflation ahead.

JS Kim is the founder and Managing Director of SmartKnowledgeU, a fiercely independent research & consulting firm with a focus on intelligent, dynamic investment strategies to avoid the wealth destruction of quantitative easing and Central Banks’ currency wars. Sign up for our free newsletter on our homepage to learn the best ways to buy gold and buy silver. Follow us on twitter @smartknowledgeu [ 53 ]


There’s a reason for this worried, confused look. The once hot MSCI Emerging Markets Index was offer 11% for the year, as of late summer - Associated Press

Capitalism is dead, and so is the recovery Trends Research Institute contributors sat down with Trends Journal Publisher Gerald Celente for a wide-ranging discussion on the state of the global economy and the direction it is taking. The trends forecaster provided a number of concise, timely answers to questions touching on job growth, investment opportunities, economic policy and the disappearing “common investor.” In this question-and-answer feature, Celente crystallizes the trend lines to watch. He helps you identify the underlying economic tides to focus on most to find your way in a globalized economy.

Gerald, summarize for us the general state of the world economy, with a particular emphasis on the trend lines that have evolved over the last year? In one word, “slowdown.” Tracking trends requires an understanding of where we are and the knowledge of how we got here in order to see where we’re going. Let’s go back to the Panic of 2008 to see how we got here. It is a year that will live in infamy. It marked the end of capitalism in the United States. It was killed with four words: “too big to fail.” In capitalism, no private entity is too big to fail. A new trend line was established when both the Federal government and the Federal Reserve created policies that lavished tens of trillions of dollars in bailout money

and “stimulus” for big finance, big banks and big business. Unprecedented. So, where are we today? Despite the trillions lavished, Gross D mestic Product in the U.S. is expected to increase only 1.5 percent for 2013 while GDP is in decline throughout much of the world. What is the single trend that worries you most and why? The same thing that worries the rest of the financial world: Tapering. Look how the world equity markets reacted in June when the Fed announced the possibility of easingback on their $85 billion a month bond buying   program. A massive sell-off hit the global equity markets. It wasn’t until weaker

[ 54 ]


Capitalism is dead, and so is the recovery

economic nu bers eased the fears of tapering combined with a finetuned publicity campaign featuring the who’s who of finance assuring the Street that central banks would stay on the cheapmoney, low-interest-rate course for the foreseeable future that the markets rallied. Are there any rays of hope? If so, where? Hope is considered one of the most negative words in the metaphysical dictionary. Hope is wishing for something without doing anything to make it happen. The real economy lies in the employment and household income numbers. These are the facts: Three fifths of the jobs that were lost in the US since the Great Recession paid middle income wages. However, three fifths of those that have since been created now pay low-income wages. And, according to the Bureau of Labor Statistics, median household income is below 1999 levels. So how can the trend be reversed? As I see it, the only way — for the US, or any nation for that matter suffering economic decline — is for those nations with the physical and natural resources to do so, to manufacture and produce what it can domestically and only import what it must. For example, in the US some 70 percent the GDP is consumption based. With a balance trade deficit of $550 billion in 2012, that’s an unsustainable equation. No nation can consume more than it produces. That’s another reason why America’s national debt is $16.7 trillion and growing.

The United States Federal Reserve central bank warned that it will slow the flow of cheap money to support economic growth. Break down for us what this means for the US and the global economy at large. This cheap-money, low-interest-rate experiment is unprecedented in modern history and without it, not only would there be no semblance of recovery, the US, and ultimately the global economy, would tank. Don’t believe me, listen to what Fed Chairman Ben Bernanke told the House Financial Services Committee on July 17: “If we were to tighten (monetary policy), the economy would tank.”So that’s the trend line. For nearly five years, the US, Europe and even China have been propping up their weakened economies by pumping in trillions of dollars, euros and yuan in stimulus, bond buying and low interest rates schemes to help keep their economies growing. When the cheap money flow stops and interest rates go up, the global economy goes down. China’s growth has slowed considerably. In fact, the international Monetary Fund’s economists in July stated: “While China still has significant buffers to weather shocks, the margins of safety are diminishing.” Do you agree? What does this mean for the global economy? Yes, I agree. China is exporting and importing less. They have a housing bubble that, despite government efforts to deflate it, keeps growing. And they have a looming debt crisis. They too built a boom economy on easy money loans of questionable value. When the global equity markets began to sharply decline in mid-June, another factor driving them down besides the fear of Fed tapering, was that the Chinese government was not going to bail out troubled lenders. Faced with the prospects of further market turmoil, the government reversed course. And in mid-July, China’s central bank relaxed controls on bank deposit rates, which is essentially a loose monetary policy.

[ 55 ]


Capitalism is dead, and so is the recovery

economic nu bers eased the fears of tapering combined with a finetuned publicity campaign featuring the who’s who of finance assuring the Street that central banks would stay on the cheapmoney, low-interest-rate course for the foreseeable future that the markets rallied. Are there any rays of hope? If so, where? Hope is considered one of the most negative words in the metaphysical dictionary. Hope is wishing for something without doing anything to make it happen. The real economy lies in the employment and household income numbers. These are the facts: Three fifths of the jobs that were lost in the US since the Great Recession paid middle income wages. However, three fifths of those that have since been created now pay low-income wages. And, according to the Bureau of Labor Statistics, median household income is below 1999 levels. So how can the trend be reversed? As I see it, the only way — for the US, or any nation for that matter suffering economic decline — is for those nations with the physical and natural resources to do so, to manufacture and produce what it can domestically and only import what it must. For example, in the US some 70 percent the GDP is consumption based. With a balance trade deficit of $550 billion in 2012, that’s an unsustainable equation. No nation can consume more than it produces. That’s another reason why America’s national debt is $16.7 trillion and growing.

The United States Federal Reserve central bank warned that it will slow the flow of cheap money to support economic growth. Break down for us what this means for the US and the global economy at large. This cheap-money, low-interest-rate experiment is unprecedented in modern history and without it, not only would there be no semblance of recovery, the US, and ultimately the global economy, would tank. Don’t believe me, listen to what Fed Chairman Ben Bernanke told the House Financial Services Committee on July 17: “If we were to tighten (monetary policy), the economy would tank.”So that’s the trend line. For nearly five years, the US, Europe and even China have been propping up their weakened economies by pumping in trillions of dollars, euros and yuan in stimulus, bond buying and low interest rates schemes to help keep their economies growing. When the cheap money flow stops and interest rates go up, the global economy goes down. China’s growth has slowed considerably. In fact, the international Monetary Fund’s economists in July stated: “While China still has significant buffers to weather shocks, the margins of safety are diminishing.” Do you agree? What does this mean for the global economy?

Yes, I agree. China is exporting and importing less. They have a housing bubble that, despite government efforts to deflate it, keeps growing. And they have a looming debt crisis. They too built a boom economy on easy money loans of questionable value. When the global equity markets began to sharply decline in mid-June, another factor driving them down besides the fear of Fed tapering, was that the Chinese government was not going to bail out troubled lenders. Faced with the prospects of further market turmoil, the government reversed course. And in mid-July, China’s central bank relaxed controls on bank deposit rates, which is essentially a loose monetary policy. [ 56 ]


Capitalism is dead, and so is the recovery

The employment market — particularly for higher paying, career-driven jobs — is in a sustained slumber? Where is this trend headed? Are there any bright spots? Again, look at the jobs being created in the US: waiters, bartenders, ambulatory services, home health aides, hospitality sector and temporary jobs comprise the majority as higher paying manufacturing jobs continue their decline. Without strong domestic industrial production, the trend line for living wage jobs will continue its decline. The brighter future is in health care. For those with open minds and a dedication for excellence, there will continue to be professional opportunities in that field as society ages and health concerns grow. Also, for the entrepreneurial set, designing new millennium education systems to replace the old models and for the tech-minded anything in cybersecurity, to name a few. For the common investor, what are the biggest concerns? And where are the opportunities? What is a “common investor?” Back in the old days, people who didn’t want to take risk but wanted to make a safe return on their money had a quaint habit of opening a savings account at a bank and getting interest on it. But since December 2008 the Fed has held the rate banks charge one another for overnight loans near zero … and zero is what they can expect to get back from the banks today if they put their extra cash into savings. So, in effect, people are being forced to play the equity markets in hope of getting a return on their “investment.” Speaking only for myself (I do not provide financial advice), gold and real estate are my two main investments. As for the biggest concerns: market volatility. In this environment of economic uncertainty, markets are susceptible to

sudden shocks. Give us a short answer to this big question: What is the current trend line for economic globalization and what does it mean for average citizens? More financial, industrial and retail multi-national consolidation resulting in less entrepreneurial, small business opportunities. What are the new, even slow moving, economic growth opportunities you see emerging around the globe? The new, biggest and slowest moving growth opportunitys alternative energy. Not wind, solar, geothermal or bio-fuels, but something as revolutionary as the discovery of fire and the invention of the wheel. If scientists could hurriedly make an atom bomb under the pressures of World War II, they could, I believe, invent game changing new energy devices. Not only would it be an economic gamechanger, it would be a geopolitical one as well since oil-rich nations would no longer be vital to national security interests. As you look ahead to 2014, are you overall more or less pessimistic about the global economy than you were a year ago? It’s not a question of optimism or pessimism, but more about policies and initiatives. If interest rates go up and the money pumping slows, the global economies will weaken. And then there are the wild cards that no one can predict: terror, war, natural disasters and/or manmade ones, that can, in an instant, change the course of the future.

Gerald Celente, trend expert, visionary, keynote speaker, is trusted worldwide as the foremost authority on forecasting, analyzing and tracking trends. Celente is publisher of the Trends Journal® and author of Trends 2000 and Trend Tracking. [ 57 ]


Devil's Currency