classical economics
for analysis,  forecasting
and policy design

Hosting Financial Terror

Doing More for Domestic Predators
By Wayne Jett © April 3, 2011
    Financial terrorism was at play in U. S. financial markets during 2008, destroying major investment banks and other targeted firms. Readers here knew this was so before, during and after the events. A de-classified investigative report done for the Pentagon in June, 2009, confirmed this is so. The report said the financial terrorists ought to be identified and stopped, but nothing has been done.
    The Pentagon report said $50 trillion “virtually vanished,” and about $15 trillion of that had belonged to Americans. The capital lost disappeared from view of the losers, but it certainly did not evaporate – someone has it.
    Imagine having $50 trillion more than three years ago, instead of $50 trillion less. Which raises an interesting question: with the “world” having just lost $50 trillion, and someone having gained that much, where are those who have the money? Find them and you might find a country or two better off than before 2008, though it is likely to be one or more obscure, off-shore tax havens with no U. S. extradition treaty.
Oh, Dear, Who Can the Culprits Be?
    The Pentagon report is worth further comments. The investigative analyst found two new broker-dealers came from nowhere to do almost all of the nefarious trading which destroyed major financial firms in 2008. The two broker-dealers could be identified, but their clients could not be, with data sources available to the investigator. The target firms were destroyed by “bear attacks” armed with powerful weapons: options, credit default swaps and naked short selling.
    The attack on U. S. financial markets, said the report, seemed to be comprised of three phases. Phase I was manipulation of crude oil prices higher during 2007-2008. Phase II was a series of bear attacks on major financial firms during 2008. Phase III was anticipated to be an attack on the U. S. dollar as the international reserve currency, possibly by dumping large amounts of counterfeit Treasury securities on the market overnight, causing interest rates to spike and collapsing U. S. economic production.
    The report advises immediate efforts to identify principals behind the bear attacks of 2008, and to protect against renewal of similar attacks. And, since the bear attacks were aided and facilitated by actions of U. S. politicians and financial regulators, the report emphasizes the Pentagon should not use normal channels in political and financial circles because domestic involvement in the financial terrorism remained a distinct possibility. To take a hopeful outlook, the Pentagon must have used completely secret channels in dealing with the financial terrorism problem since, so far as can be determined, nothing whatsoever has been done to remedy or protect against what was learned in the report.
    Readers of classical economic analysis will not be surprised that crude oil prices were manipulated, since the price “jiggling” began in 2004 and alarms were sounded, first in The Supply Side Guide since early 2006 and then here. Effects of fraudulent trading tactics, particularly naked short selling, in U. S. markets on targeted companies have been deplored here year after year as the most significant macro-force in the economy.
Making Dough
    Imagine how much further ahead of the curve the Pentagon might have been by following classical analysis here, particularly regarding Phase III of the financial terrorism attack against the dollar. All of the shock upon learning who would dump hundreds of billions worth of Treasury securities on the market to destroy the dollar might have been avoided. Phase III is now underway and the culprits were predictable all along: the U. S. Treasury and the Federal Reserve are the contract hit-men so far as the dollar is concerned.
    During Quantitative Easing 2 alone, the Fed has bought $491 billion in Treasury securities since November 1 with new dollars which draw their value entirely from the value of capital created by working people and exchanged for other dollars. Treasury has borrowed $589 billion in net new debt during the same period. How’s that for undercutting the dollar? Treasury secretary Timothy Geithner has even invited other nations to join him in supporting a new international reserve currency to be managed by the International Monetary Fund.
    Before Geithner made public his already obvious intentions, China offered to assist its trading partners who wished to do business in a currency more stable in value than the dollar. France and Russia were already among the significant economies seeking relief from the Fed’s malfeasance in managing the dollar’s value. These actions are consequential. One capable businessman estimates loss of reserve currency status for the dollar will reduce American living standards by 25%. The Fed and Treasury seem bent on assuring that destructive outcome, regardless of currency reserve status, by devaluing the dollar relentlessly and by creating exorbitant federal debt.
    To put this Fed’s conduct in context, Greenspan was adding about $40 billion annually to monetary base during strong economic growth in 2003-2005, the years later blamed for soaring housing prices and demand. Current money creation is at a rate 25 times higher in an economy which is actually contracting in real terms.
    This is monetary policy entirely divorced from economic principle, designed to serve political ends which could not achieve majority support in legislative bodies. The Fed is taking the value of current savings from Americans through inflation rather than taxes – giving the funds to Treasury to spend for purposes concealed from the public by a Congress which has since been thrown from office in elections. This is money which will have to be repaid from tomorrow’s investment capital. Current uses of the borrowed money cannot possibly be as wisely chosen as would be the case had the funds not been created and given to Treasury at all.
    Pretending to prevent Great Depression II from happening on his watch, the Fed’s Bernanke is assuring economic depression so deep and long-lasting as to threaten the Constitution and return to feudalism. Do not be fooled by apparent sanguinity in financial media as the DJIA hovers near 12,400.
    Today’s DJIA buys roughly one-third as much gold (8.67 oz) as it would buy in October, 2002, at its low of 7,500 after 30 months of fraud-and-terror-induced crashing (25 oz). In January, 2000, the DJIA bought about 42 oz of gold, nearly five times more than today.
Fantasy Galore
    How can this be other than the worst financial malfeasance in history so far as American interests are concerned? Yet the community of investment “professionals” sits quietly, taking its commissions and management fees, saying nothing to disclose the evisceration investment capital is enduring. Real unemployment may be 8.8%, 10.8 % or 18.8%; we might as soon ask China to tell us our employment data as to rely on the Bureau of Labor Statistics or the White House.
    One last thing to mention for the present is this. Now that we know the Fed’s QE2 will definitely, 100% certainly, end its QE2 monetizing of Treasury debt by June – does anybody believe that will happen? The Fed has been buying more than 80% of all funds borrowed by Treasury. In reality, the Fed is the only source of funds for Treasury. Forget the “government shutdown” due to budget impasse in Congress. Even if Congress permits Treasury to borrow more (raising the “debt ceiling”), borrowing by Treasury will become highly problematic if the Fed fails to create the funds from “thin air.” ~