Le Metropole Cafe Article Excerpt.

I've been meaning to post a blog about the dire straits America is in now thanks to our bandit Federal Reserve.

The following piece appeared in an article on Le Metropole Cafe. I forgot who wrote it, it was either Bill Murphy or Chris Powell of the Gold Anti-Trust Action Committe, of whom I'll be blogging more about when I can organize some blogs in a chronological educational manner. But for now, since I've been procrastinating posting my "definitive" account of the failure of Wall Street, I figured I'd just post this. I think it has enough dramatic pomp to please the reader. This was included in an email of mine to someone else dated 9/21/2008.

This past week was a disaster for markets worldwide. We came closer to a financial meltdown than any time since the Depression. Don't take my word for it, listen to Pres. Bush, Paulson, Bernanke, Cox, Dodd, Schumer, Gross, etc.. These are the same people who have been telling us all along that everything was just hunky dory. Remember Paulson, Bernanke, and Sheila Bair doing their media blitz and assuring anyone who would listen that the "banking system is sound" and "the financial system is strong"? That was just TWO WEEKS AGO during the Fannie and Freddie failures.

WOW! What happened? How could the whole system go from "sound" and "strong" to the verge of a meltdown in such a short period of time?

So what really happened? The Dow and S+P hardly went down this week so what's the big deal? The big deal is that the credit markets completely seized up, no one was lending, we had a $100+ Billion run on money markets, short Treasury rates went negative, Central banks were forced to pump half a Trillion Dollars into the system just to keep the doors open. Lehman Brothers failed, Merrill Lynch disappeared and AIG was saved by the government all within 3 days, this, the week after Fannie and Freddie were nationalized. How come no one told us 30 days ago that we had big enough problems that could threaten the entire system? No, no one from the government had anything other than BLATANT LIES for public consumption 30 days ago [actually 20]! Now we are told they have the answer, WE WILL ALL BE SAVED! They weren't telling the truth last month but now they are? Why? Because tomorrow is a new season? Because they planned to go to church today and will swear to God that if he spares them they "won't do it again"? NO! Because the game is over, they know it, we know it, and they know we know it. They have to tell us that all is well even though it isn't, as the TRUTH will cause THE panic of all time.

OK so here's the deal, we were one minute to midnight this past week. We know this because Wall Street and the government finally admitted that the system was imploding. But wait, now they have a plan, didn't they have a plan before? Treasury is going to wave its magic wand and buy up $700 Billion of "toxic mortgages" [their words not mine] and that will solve everything. $700 Billion is a lot of money no? NO!!! $700 Billion won't even scratch the surface of this problem, the derivative market is now over $1 Quadrillion. This is over one thousand TRILLION DOLLARS. The mortgage market in the US probably approaches $20 Trillion. This new "plan" will not do anything other than bail out institutions that ALREADY own toxic debt. It won't help me, and it won't help you make next months mortgage payment. All this does is buy time. How much? Who knows? It buys time until people realize that all the Treasury is doing is trying to prolong a system that has already broken down.

We already know that without government intervention this past week, the system would have imploded. Now the government wants to save the system with more of the same [more debt] so we can go back to living like we have in the past? Wasn't the way the system worked up until now just proven to be a failure? It felt good, it was fun, in some ways it was even easy. Of course it was all of this because we LIVED BEYOND OUR MEANS for years upon years! So now the Treasury will go out and borrow $Trillions [yes Trillions not Billions] more to fix a problem that was caused by living too large for too long in the first place.

But there is a big, fat fly in this ointment. In order for the magic wand to wave its magic powers, the Treasury has to have the ability to borrow these $ Trillions. For years now the US has not been able to fund it's own debt. We have gone across the globe to borrow the money necessary to live light years beyond our means.

Foreigners now know that we have not been entirely truthful about the status of various financial products we sold them, nor were we truthful about companies' prospects, economic numbers [inflation , money supply etc.] and the health of the entire system in general. Are foreigners now going to fall all over each other to line up and lend the Treasury more capital? I think not. I think not because the Treasury has already had it's debt downgraded in the CDS markets. The credit default swap rates on US Treasuries have more than doubled in the last month so that market has already made a judgment with negative bias. I can see big pressure on interest rates to rise because of this additional necessary debt. When rates rise for Treasury borrowings, I assure you mortgage rates will rise also. This cannot be good for the real estate markets.

Last but not least is the value of the Dollar. Let's assume this is only a $700 Billion magic wand [I assure you it will have to be more]. This is an additional $700 Billion of added money supply and added debt that goes into the system without the system expanding. The mathematical outcome of this action is a MUCH LOWER DOLLAR value. This is highly inflationary. Over the next sixty days or so the inflation volcano will surely spurt a few unpleasant and unintended consequences. Inflation of "things", the things we need to live our daily lives will explode. Even if $700 Billion is the correct number, US debt will expand 7%. So in one sense this amount of money is chicken feed as to the amount really needed, and on the other hand it is a huge amount based upon the Treasury's ability to borrow.

Actually all of the above will soon prove to be moot because a total collapse will stop the clock. Treasury will have a failed auction very shortly, let's do some math. Just over the last two weeks Treasury has announced spending of $100 Billion each for Fannie and Freddie, $85 Billion for AIG, extra $s for the Fed [because the Fed has run through it's balance sheet and now only has the ability to print], Lehman ?, FDIC will need $50 Billion, and the magic wand of a mere $700 Billion. So... that will come to ...over $1 Trillion! I don't know about you, but since we are broke we might as well spend the exta .69 cents and supersize it! The funding will not be there for US to borrow, all that remains now is Ben Bernanke's printing press. Monetization will become as common a phrase as "would you like to supersize that". Your only protection against monetizing the debt is a four letter word that the government wishes you didn't know.