WEB OF DEBT BLOG

THE NOT-SO-INVISIBLE HAND: HOW THE PLUNGE PROTECTION TEAM KILLED CAPITALISM

14 Responses

1. 

   daveeriqat, on October 27, 2008 at 2:34 pm said:

   It’s impossible to “invest” intelligently anymore. Between the panic-driven chaos enveloping the financial system and massive government manipulation of all the markets, you can toss technical and fundamental analysis right out the window.

   Like the monarchical days of old, the only ones who profit in this environment are the favored courtiers buzzing around the king and who are privy to inside information.

   Dave
   http://daveeriqat.wordpress.com/

   Reply
2. 

   AC, on October 27, 2008 at 3:49 pm said:

   Excellent article. It confirms what I have been thinking for a while.

   To me the way gold prices are being manipulated sounds like a high tech version of what the rich did in the 1930’s to preserve and consolidate wealth under Roosevelt. During the confiscation / deflation, gold just disappeared. 40 years later, it amazingly re-appeared when the price was de-controlled. To me it seems as if this time banks have figured a way of making gold disappear on the market through a form of “kiting”. It’s sold on the books which theoretically increases overall supply (in the gold price formula), resulting in an artificially reduced market price. However, the reduced price doesn’t affect demand since the market never sees delivery of the metal. No market equilibrium is achieved. As a result of continued falling prices, “common” gold-investors lose confidence in the metal and dump their ETF’s, mining companies and other gold-linked investments which the rich re-purchase at an artificially low price. This leaves the common man with a portfolio of only debt money-based instruments. Then at some point, bankers will lift the means of suppression, the transactions will reverse, causing the bullion price to increase and the metal will miraculously reappear on their books at a much higher price. All this without the physical reserves ever leaving the vaults. Wealth is not only preserved but consolidated.

   And I’m not even a conspiracy theorist!

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3. 

   Tom Chechatka, on October 28, 2008 at 4:39 pm said:

   Bill Murphy is wrong. The other countries of the world do not have a reserve currency. Contrarily, the dollar is.

   The U.S. has been a net importer of capital for many years. However, now that Wall Street’s Structured Finance has broken down, the capacity to continue meeting domestic capital needs with further capital inflows has ceased. That is why stock markets across the globe crater and the U.S. market remains relatively buoyant. This, however, comes at a price. We are witnessing first-signs the U.S. can no longer export its inflation. So, don’t be fooled by collapsing commodities prices. The worst is yet to come.

   Per markets operating on “free market principles,” this is, was, and always will be a pipe dream. There was never such a thing as a “free market.” Some element always exercises control. What’s been missing is effective oversight facilitating some modicum of balance and fairness.

   As per “pump and dump” schemes, these have preceded the current generation of monetarist monkeys headed by Paulson and Bernanke. I give you the NASDAQ from October 1998 through October 2002…

   Commodities are in free-fall precisely for the same reason as are global stock markets. Wall Street’s capacity to manufacture credit (with an infinite multiplier no less) has died with Structured Finance. Still, capital needs persist (hence, the dire urgency of the Paulson-led bailout). So, everything not nailed down is being sold to raise capital until such time as the bailout mechanisms are running like a well-oiled machine. The impact of a financial system starved for capital is hitting the gold and silver market, too. The same need for capital that drained global stock markets on October 17th drained the gold market on October 16th.

   (Have you heard commentators saying, “This is not a liquidity crisis, rather it is a capital crisis?” Well, what you are seeing on all markets — equities and commodities, in particular — is a clear reflection of this.)

   The dollar’s strength since July is a function of a credit system meeting its endgame. With the breakdown of Structured Finance, the capacity to easily roll over liabilities by adding still more liabilities ceased to exist. Still, the need for capital persists. So, foreign investment holdings being sold and converted to dollars is responsible for the dollar’s strength. Indeed, it was this new phase of the credit system breakdown process that precipitated “the most massive intervention of government into the capital markets or the financial system since Roosevelt closed the banks back in 1933.”

   (Speaking of which, closing the banks is precisely what should have been done. The tragedy of the present attempt to bailout the financial system is its elevating the sanctity of dubious debt securities made on Wall Street. This sea of derivative-based securities simply should have been sent through a bankruptcy proceeding. Of course, this would have meant virtually declaring war on the United Kingdom, as the greater bulk of derivatives originate in strictly unregulated OTC markets located in British offshore banking centers. Instead, these securities have been made a liability of the American people. Given government’s constitutional charge to “promote the general Welfare,” this bailout was nothing short of treasonous. Of course, being slick legal types, Senators and Representatives who voted for the bailout skillfully defend their rationale for doing so, shedding crocodile tears for Main Street. In fact, I just got a response from Senator Clinton to my outrage over her voting Aye on the bailout. It was a weak and pathetic statement of her position. I have yet to hear from Senator Schumer. He’s probably too busy helping Barack Obama become the new and improved Jimmy Carter.)

   The free market is doing precisely what it should with regards to the skyrocketing dollar and collapsing commodities markets. Dollars simply are being both repatriated and reallocated for the defense of a credit system on the verge of collapsing. Your point about “insiders pocketing … fortunes lost by unsuspecting investors,” though, is well-taken — even if it was facilitated via a blind-eye turned by regulators. Like the bailout, it is being done to defend the sanctity of Wall Street finance … and so, by default, the legitimacy of British offshore banking centers. This is treason.

   Similarly, Theodore Butler hit the nail right on the head. What of “obscene profits” was needed to plug the holes in balance sheets left by collapsing credit markets, and what of it will be used to facilitate a massive consolidation of financial institutions remains to be seen.

   This connecting notions of “socialism” with the extraordinary government intervention into the financial system is entirely mistaken, though. A financial system whose organization facilitated the widest divide between the haves and the have nots since 1920 is fascist in its character, simply by how severe social and economic regimentation is perpetuated under the arrangement. Government stepping in to defend this makes their intervention no more “socialist” than were the Nazis.

   Finally, your advice to investors could prove very costly. Erin Burnett, like all other CNBC personalities, is a perma-bull. I, on the other hand, am not. Indeed, I may see Dow 3600 as a possibility sometime over the next few years, yet I recognize this moment as one that separates the savvy from the uninitiated. Over the weeks ahead we should see bottom (and this not far from October 10th intra-day lows), and then, the best rally since 2003 following. Truly, all the right conditions are in place. Your article-ending quote is some of the best proof I have seen yet!

   Mind you, I see no rush to buy stocks. Likewise, I respect views that look to Wall Street as being a “rigged and risky Las Vegas casino.” Same as it ever was. If you can’t be the house, then you must reduce your risk of loss in your attempt to beat the house. The recent bloodbath has done much good toward this end. Indeed, the worst for the moment appears over, and there is a fine historical case to be made in defense of this view suggesting stocks will sooner reverse higher than collapse any further.

   It’s a weird game, though. In as much as the reader might have been incredulous when I advised exiting the stock market earlier this year, they most surely are just as incredulous now as I make my case for the best rally in five years…

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4. 

   Ellen Brown, on October 29, 2008 at 4:21 am said:

   I haven’t sold. I’m riding it down. I just meant you could understand the thinking of people who were tired of the whipsaw. (Actually I just liked that last quote about diversifying!) Thanks for your comments.

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5. 

   Sad, but True, on October 30, 2008 at 2:31 am said:

   This is a brilliantly educational article, and I’ve blogged about it at http://unrulymob.blogspot.com/2008/10/corporate-welfare.html – really my post is just an elaborate advertisement to get people to read this one. I’m looking forward to reading your book.

   I’m not an investor but have been tracking the Canadian Dollar for some time, and wondering in particular why it’s been going down since the bailout fraud added nearly a trillion to US debt. Shouldn’t it have been the other way around? I’ve suspected for a while now that the international central banks have been undercutting their own currencies in order to keep $USD out of hyperinflation. This pretty much confirms it.

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6. 

   Ellen Brown, on October 30, 2008 at 7:39 am said:

   Yes, sad but true! The question is, what can we do about it. We need a mass grassroots movement.

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7. 

   Brian, on October 30, 2008 at 10:05 pm said:

   It’s hard to have a mass movement when much of the population are clueless on understanding why financial industry is in a big mess today.

   They can see physical results and demand changes, but true reform won’t happen unless they understand the fundamentals.

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8. 

   Steven Berry, on November 1, 2008 at 9:10 am said:

   I cry when I think how depraved things must become before an apathetic American public uproots its grass.

   What a real financial collapse looks like:
   http://www.brasschecktv.com/page/445.html

   Argentina has sufferred thus for years, so things will need to get worse here for any popular uprising to begin. Imagine being told you can eat if you help quell the crowd. Brother against brother.

   An economic pyramid is rebuilt from the base, not from the capstone down. Where are the jobs that will generate spending, taxes and savings? How far will real estate values drop if no one can afford payments?

   So far, I’ve lost my job, my house and my retirement. My credit is ruined and the IRS will soon ask for blood. I am the canary in the American coal mine.

   On the bright side, I’m about bled out. Nowhere to go but up!

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9. 

   karen, on November 3, 2008 at 3:04 am said:

   So will the “market” for metals ever go back to being consistent with physical prices? When does the PPT team run out of ammo? When the US/taxpayer is bankrupt, bled dry? It seems to me that this whole thing ends with US just being just like Argentina, at which time I am assuming the rich folks will have there riches somewhere else, or some form else.

   Another issue with the metal prices, it makes some sense to me that a commodity like silver that is used in real industrial processes would drop in price in a recession/depression just as oil would. I don’t know if that applies to gold, don’t know if there is lots of real physical need for gold.

   It also makes sense to me that physical gold and silver are in demand as folks are insecure about all paper assets, so this could the disconnect to “markets” have to do with the demand for an alternate currency? Maybe an ETF or a mining stock is not secure enough of a hedge, maybe the physical metal is the only thing people will trust? (that describes me and describes why I would pay more per oz for phsyical silver than spot market price, if I could find it).

   That leads to a question I have for Ellen, if you care to speak to it. It seems like some good ideas need a smaller scale proof of concept and from there they can spread. So I am wondering if this could be a means to achieveing a new currency, banking system. A non-monetary example would be national health care may have never just happened from scratch in Canada but one province in Canada did it, it was popular, and it spread. An example more to the currency topic: it seems Malaysia’s dealing with currency run in 90s not only helped Malaysia but also served as a rebuff of IMF/World Bank demands of other Asian economies and helped these other coutries do things better for them by Malaysia’s example.

   So I wonder, is there a way to start a small version of an alternative to current banking system, currency, manipulated markets in US. On the surface it seems impossible to me, given it all involves things that are a monoply of the Federal govt. by law, people can’t create their own currency except for kind of using gold/silver, can’t use federal criminal courts to enforce alternate interstate market rules. But I wonder if I am just short on imagination.

   It just seems so daunting to get the whole country public perception to the level of demanding right thing from federal governement in terms of monetary policy in one big move, it would be be easy to frighten people away from “radical” change, even if they are in a depression. But it could be less daunting to do some alternative on a small scale that spreads once proven and becomes less scary and harder for people to knock-down as it is not theory/hypotethical, it is really proven in a real world. Could a small state with fairly sharp, clean politics do something, say like Vermont?

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10. 

    Ellen Brown, on November 3, 2008 at 6:36 am said:

    Yes, that’s my thinking — a state bank as a prototype. States charter banks routinely. A state could charter its own state-owned bank and issue loans to itself at 0% interest for infrastructure and the like, to be paid back from profits or taxes. Eliminating interest would cut the cost roughly in half, making otherwise unaffordable projects affordable. Once one state succeeded at it, the others would follow suit.

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11. 

    Peter J. Nickitas, on November 3, 2008 at 1:58 pm said:

    Ellen,

    I like your last post. What prospects does The Bank of North Dakota have, in your opinion, to fill this prescription? What do we do to skirt the clause in Article I of the U.S. Constitution that prohibits states from “emitting bills of credit?”

    You addressed this after the I-35W Bridge in Minneapolis collapsed. Surely we should add to this thread! I am eager to continue this discussion.

    Peter of Minneapolis

    Reply
12. 

    Brian, on November 3, 2008 at 7:05 pm said:

    Ellen,

    You asked where’s the outrage in your article today (3 Nov).

    How could there be an outrage when the MSM is tightly controlled by the plutocracy.

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13. 

    Ellen Brown, on November 3, 2008 at 9:28 pm said:

    Brian — that’s true, but I had to think of some concluding line . . . journalism you know.

    Peter — that’s a very interesting point. I think state-chartered state-owned banks are the place to start. You can get around “emitting bills of credit” by simply issuing CREDIT, just as any bank does. Issue it not as money printed by the state but as loans. You just write it into the account as credit owed, monetizing the state or local government’s promise to repay. The advantage over an ordinary bank loan or bond issue is that the government bank could make interest-free loans to government enterprises, cutting costs by half or more; and you don’t have to “have” the money first to get the ball rolling. You just issue credit, on the ordinary fractional reserve system. A million will get you ten million.

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14. 

    Dan, on November 8, 2008 at 1:50 am said:

    I strongly agree with the concept of state owned and chartered banks for their in state financial needs. That, to me, is playing by the rules, according to FRA 1913. I would go so far as to make it a state citizens bank for all to use in support of their state government.

    Additionally, activate a bumper sticker campaign. The sticker could say,

    “Save the Economy of United States and the World, repeal the Federal Reserve Act of 1913 & 1933” Details – webofdebt.wordpress.com

    Packs of 100 bumper stickers would be available from the Web of Debt website for an appropriate fee.

    Additionally, start a recall campaign for ALL elected Washington DC office holders.

    Develop a book report like the ones we all gave in high school for Web of Debt. The high school book report was 5 minutes but this one would need to be 30 to 45 minutes. The book report download would be available from the Web of Debt web site for FREE and include encouragement to purchase and read Web of Debt. The book report would include unlimited reproduction and distribution rights as well as instruction for use and distibution in concert with the following activities described on page 12 of Web of Debt.

    Lawrence Goodwin, author of The Populist Moment, described the nineteenth century movement to change the money system:

    [T]here was once a time in history when people acted. . . . [F]armers (citizens) were trapped in debt. They (the citizens) were the most oppressed of Americans, they experimented with cooperative purchasing and marketing, they tried to find their own way out of the strangle hold of debt to merchants, but none of this could work if they couldn’t get capital. So they had to turn to politics, and they had to organize themselves into a party. . . . [T]he populists didn’t just organize a political party, they made a movement. They had picnics and parties and newsletters and classes and courses, and they taught themselves, and they taught each other, and they became a group of people with a sense of purpose (PURPOSE), a group of people with courage (COURAGE), a group of people with dignity. (DIGNITY)

    The download would include a copy of the original “Wizard of Oz ” with dashed over original words and replaced by the correct entries for the dashed over words. As well as paranthetic explanations and interpretations.

    The download would include a printable (legally correct ) recall form. The recall form would have a box to place a legal citizens drivers license and voter registration card for copying prior to placing an original (notorized) signature on the form that matches the signature used on the drivers license. The form would include spaces to enter precinct number, congressional district number etc from a person’s voter registration card. Spaces would be provided to write in the names of the specific office holders being recalled, House of Representatives, Senate, Vice President and President. The recall form would include a specific explanation of the conditions of recall. (The standard one line name and address with signature petition approach is totally inadequate.) The forms must be easily pagenated by drivers license number within precincts and easily researchable. We want a rapid recall because we have so little time to survive.

    The recall forms would be mailed to a network of pro bono Lawyers in each state for processing and assembly for the official recall filing with the State Attorney General.

    An elected official could cancel the recall process by publically signing, on live statewide television stations, a form of commitment to vote to repeal FRA 1913 & 1933 and to Nationalize the Currency and banking system of the United States. The commitment form would be filed with the Attorney General of each state with the proviso that, if, an official did not vote according to the signed commitment the official would be recalled without vote or election. The Attorney General would also be recalled if proper oversight of the Washington official was not implemented and accomplished.

    If a new election became necessary, all qualifiers for the new election would be required to sign the letter of commitment to Repeal FRA 1913 & 1933 and to Nationalize the currency and banking system of the United States. The application to be placed on the ballot would be denied without a notorized signature of agreement on the letter of commitment.

    Develop an infomercial promoting the book report, recall, etc. Sympathetic financial backers would be needed to pay for production and broadcast of the infomercial. Donations would be solicited from each person who downloads the book report.

    After thought. The download should have a section listing the names of specific Congressional office holders and the specific Committee Chairs that must be recalled to prevent the required bills from being held in committee.

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