Is Gold – Or Fiat Currency – In a Bubble?
by Washington’s Blog
Global Research, December 31, 2010
Washiington’s Blog
It is easy to argue that gold is in a bubble.
But as I made clear last month:
Deutsche Bank’s head commodities researcher Michael Lewis wrote in September:
Gold prices would need to surpass USD 1,455/oz to be considered extreme in real terms and hit USD 2,000/oz to represent a bubble.
Lewis lists as factors driving gold higher:
A total collapse of the US dollar
Low or negative real interest rates
Skitish global equity markets
Coordinated as opposed to disorderly central bank gold sales
Producer dehedging
New gold investment vehicles
Falling mine production and steadily rising costs
Terrorism & rising geopolitical risk
Bloomberg notes:
Myles Zyblock, chief institutional strategist at RBC Capital Markets, said last month gold may reach up to $3,800 within three years as it follows the pattern of earlier “investment manias.”
Barron’s points out:
Louise Yamada, the eminent technical analyst who for many years worked at the various companies that have coalesced into Citigroup and now presides over LY Advisors, last week remarked in a client note that gold—based on its current trajectory—most likely wouldn’t represent a true bubble unless and until it gets to $5,200 an ounce from its $1,317.80 December-contract close on Friday within a couple of years.
University of Michigan economics professor Mark J. Perry noted in July that inflation-adjusted gold prices are at a lower rate now than in 1980:
Adjusted for inflation, the cost of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce in 2010 $’s.
Frank Holmes, the CEO of US Global Investors said recently:
“If you take a look at previous cycles, super cycles, we’re far from it,” he said.
“If gold were to go to 1980 prices like most commodities have gone to, gold would be over $2 300/oz,” Holmes commented.
WJB Capital Group’s John Roque pointed out in May that the current gold bubble is still much smaller than the bubble in the 1970s when priced against the S&P.
MSN’s Money Central noted last month:
Brett Arends, a columnist for The Wall Street Journal and MarketWatch, estimated that “individuals bought $5.4 billion worth of gold, and sold about $2.7 billion, so their total net investment comes to $2.7 billion” in 2010, through early summer.
Arends contrasted that with the $155 billion they shoveled into bond funds through July. That may be the real bubble.
Arends also concluded that “if it continues along the same trajectory of past bull markets — a big if — gold today is only where the Nasdaq was in 1998 and housing in 2003.”
In May, Arends wrote in the Wall Street Journal:
Before we assume the gold bubble has hit its peak, let’s see how it compares with the last two bubbles—the tech mania of the 1990s and the housing bubble that peaked in 2005-06.
The chart is below, and it’s both an eye-opener and a spine-tingler.
ROI_100524
It compares the rise in gold today with the rise of the Nasdaq in the 1990s and the Dow Jones index of home-building stocks in the 10 years leading up to 2005-06.
They look uncannily similar to me.
So far gold has followed the same path as the previous two bubbles. And if it continues along the same trajectory—a big if—gold today is only where the Nasdaq was in 1998 and housing in 2003.
In other words, just before those markets went into orbit.
Tyler Durden notes:
JP Morgan’s Michael Cembalest indicates that ownership of gold in dilutable terms aka dollars, as a portion of global financial assets has declined from 17% in 1982 to just 4% in 2009. And even though the price of gold has double in the time period, as has the amount of investible gold, the massive expansion in all other dollar-denominated assets has drowned out the true worth of gold. Were gold to have kept a constant proportion-to-financial asset ratio over the years, the price of gold would have to be well over $5,000/ounce.
Durden points out that when derivatives are factored in, the percentages are even more dramatic.
Aden Forecast argued in its November 12th forecast:
Debt is in a mega trend. Eventually, the magnitude of the situation and its repercussions will become more obvious. That’s also why the U.S. dollar will continue to fall because more spending and money creation makes the dollar worth less, and gold will keep rising because it is real money. This is one main reason why they’re in mega trends too.
We clearly believe that gold and silver are far from being in a bubble…. The value of the whole monetary system is under question and until this very issue is resolved, gold and silver will prevail.
As I noted last year:
Nouriel Roubini quotes a report from Merill Lynch as follows:
As for all the talk of a ‘gold bubble,’ it would take a nearly 625% surge in gold to over US$6,000/oz and a flat stock market to actually get the ratio of the two asset classes back to where it was three decades ago when bullion was in an unsustainable bubble phase.”
Merryn Somerset Webb argued in May:
You probably think gold is in a bubble. After all, it hit new highs in dollars, pounds and euros this week – and has pretty much quintupled since its lows of 2001.
But look at the actual price of gold and it is hard to see real evidence of a bubble. Gold may have hit new highs in nominal terms, but it hasn’t come close to hitting its old highs in real terms. Adjust the 1980 high of $850 for US inflation and you get a price of around $2,400 – a level only the most bullish are predicting even now.
Then look to the last few years. The bears would have you believe that the gold price has somehow gone “parabolic”. But, in fact, the price in US dollars has only risen around 25% in the last two years.
Marc Faber said in September:
Given all the unfunded liabilities and the money printing in the world and the size of the financial assets in the world, I don’t think we are in a bubble.
although he warned their could be massive short-term corrections.
Also in September, James Dines said:
This currency bubble is the largest bubble of all time in history. It is the mother of all bubbles.
If you don’t have gold…..you are going to be screed.
The same month, Jim Willie claimed:
Calls of a gold bubble are shallow moronic pontifications, since the sanctioned asset bubble is the mammoth US Treasury variety. It is the last bubble before systemic failure. . . .
The Gold bull will continue as long as the cost of money is negative. Investors flee the conventional paper vehicles like stocks, bonds, and housing since the system is failing and paper money in which values are denominated is fast becoming meaningless.
In September, even Alan Greenspan was singing from the same hymn sheet, saying that “fiat money has no place to go but gold.
In November, Bremer Landesbank chief analyst Folker Hellmeyer argued:
Gold is not in a bubble, silver is not in a bubble, precious metals are in general terms not in a bubble.
If there is a bubble, it’s in Triple A-rated Treasury papers, whether from Germany or United States. Precious metals are in demand for very simple reasons: We have an inflexible supply due to a lack of exploration and we have an increasing demand due to various factors.
One factor is definitely the debasement of the U.S. dollar. The second aspect is that the global wealth is increasing quickly, in particular in the emerging-market countries. Five billion of the world population are having higher living standards and thus are consuming more precious metals. Thirdly, and that is very important: smart central banks start to accumulate gold rather than accumulate printed paper from the United States.
Peter Boockvar writes this week:
According to Dictionary.com, the definition of a speculative bubble is “a temporary market condition created through excessive buying and an unfounded run up in prices occurs.” If there is one asset that commonly gets described as being in a bubble, its gold but let’s look at its move over the past 10 yrs in perspective compared to other “bubble’s.” Gold at $1400 is up 450% from the Aug ’99 low. From 1982 to 2000, the NASDAQ rose 3000% and the DJIA rose 1400%. From 1978 to 1989, the Nikkei rose 700%. From July ’98 to the high in July ’08, crude oil rose 1245%. From its low in Nov ’01, copper has risen 605%. I’m not calling a bubble in Apple but its up by 4850% since 2003 for the obvious reasons. Thus, just because an asset is higher and has done well for years doesn’t mean its a bubble, YET, and this gold rally which I’ve been bullish on for many years, still has room to run.
And Expected Returns argues:
Gold is not the inflation hedge most people think it is. Here is a data point that will give you some perspective. In 1869, gold traded at $162; in 1969, it traded at $35. How gold hedged inflation in any way over this period of a century is lost on me. It is a fact that stocks and real estate more closely tracked the rate of inflation.
Price movements in gold resemble price movements in stocks. Intense bear markets are followed by spectacular bull markets, which culminate in a spike move fueled by human emotion. The same 100% moves in real estate that would signal a bubble of massive proportions are normal moves in gold. While the price movement of gold in absolute terms is important, the price movement of gold expressed in relation to time is even more important. A 100% rise in 5 years means nothing, although a 100% move in 2 months means everything. Everyone invested in gold should be more focused on time.
Each asset class moves to its own rhythm. To say that gold is a bubble merely because it has risen 6x is just plain ignorant. Gold has always shown that it is an asset that lies dormant for decades, only to experience the biggest moves in the shortest amount of time. There is no reason for me to believe that “this time is different.” Gold has yet to do anything but trend upwards in a classic bull market formation. If and when the trajectory of the rise steepens, that will be the time to start thinking about getting out.
For extensive background information regarding gold, see this.
Note: I am not an investment adviser and this should not be taken as investment advice.
Washington’s Blog is a frequent contributor to Global Research. Global Research Articles by Washington’s Blog
16 U.S Cities Could Face Bankruptcy in 2011
January 07, 2011 @ 5:24:27 PM EST
16 U.S. Cities Could Face Bankruptcy in 2011
Global Research, December 29, 2010
The Business Insider
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2011 will be the year of the municipal default. At least that’s what analysts like Meredith Whitney predict, as do bond investors that have been fleeing the muni market.
There are many reasons to be worried. First, the expiration of Build America Bonds will make it harder for cities to raise funds.
Second, city revenues are crashing and keep getting worse. Property taxes haven’t reflected the total damage from the housing crash. High joblessness is cutting into city revenues, while increasing costs for services.
The next default could be a major city like Detroit, or it could be one of hundreds of small cities that are on the brink. Did we leave off your ailing city? Let us know in the comments.
San Diego, Ca.
Deficit through June 2012 : $73 million
Budget in FY2011: $2.85 billion
Annualized gap: 1.7%
The city’s official have tried curbing the deficit by increasing sales taxes, but residents of the city strongly oppose this and have voted it down.
San Diego already cut over $200 million over the past two years, so these cuts won’t come easy.
New York, NY
Deficit through June 2012: $2 billion
Budget in FY2010: $63.1 billion
Annualized gap: 2.1%
Estimates of the NYC deficit range from $3.6 billion according to Comptroller John Liu to around $2 billion according to the Independent Budget Office. Everyone agrees that the deficit will be worse if New York state cuts aid as part of its own deficit reduction plan.
Mayor Bloomberg has already started to address the FY2012 deficit, calling for layoffs in all city agencies, closing 20 fire departments at night, and reducing services for seniors, libraries and cultural centers.
San Jose, Ca.
Deficit through June 2012: $90 million
Budget in FY2010: $2.7 billion
Annualized gap: 2.2%
After an audit of the San Jose police department, city officials found it to have too many high paid supervisors, costing the city too much money. The answer to this is converting some of those upper ranked officers to patrol positions. This could reduce the city’s debt by $33 million.
Last year’s deficit was $116 million, leading to brutal cuts including nearly 900 layoffs.
Cincinnati, Oh.
Deficit through December 2012: $60 million
Biennial budget FY2009/2010: $2.5 billion
Annualized gap: 2.4%
Helping the budget in Cincinnati depends largely on changes in the police and fire departments. The city can either get $20 million in concessions from the two unions, lay off 216 firefighters, or outsource the police force to neighboring city, Hamilton.
Honolulu, Hi.
Deficit through June 2012: $100 million
Budget in FY2011: $1.8 billion
Annualized gap: 3.7%
Mayor Peter Carlisle said police officers and fire fighters will be asked to make concessions in the upcoming budget and he will also end furloughs of two days per month for public workers. This will require the 2,900 officers to give back their 6% pay raises they have received in each of the past four years.
Last year Honolulu raised some property taxes to fill a huge $140 million deficit.
San Francisco, Ca.
Deficit through June 2012: $380 million
Budget in FY2011: $6.55 billion
Annualized gap: 3.9%
Mayor Gavin Newsom says this year’s deficit is completely manageable. Last year’s deficit approached $500 million and the city did not need to lay off any police or firemen. While Newsom’s term is coming to an end, he says he and his colleagues will leave detailed options for the incoming mayor.
Last year’s cuts were even larger, eliminating a $438 million deficit. The city is down to the bone.
Los Angeles, Ca.
Deficit through June 2012: $438 million
Budget in FY2011: $6.7 billion
Annualized gap: 4.4%
The Los Angeles City Administration Office plans to cut 225 civilian positions in the LAPD, reduce firefighting staffing, and eliminate a dozen positions in the City Attorney’s Office and General Service Department. The deficit will only get worse unless an effort to privatize parking garages is approved. If not, the city will require more layoffs, furloughs, and curtailed hiring.
Last year’s deficit was even larger, totalling nearly $700,000.
Washington, D.C.
Deficit through September 2012: $688 million
Budget in FY2011: $8.89 billion
Annualized gap: 4.4%
Council member Tommy Wells proposed tax rate increases which were voted down, but Wells says he will continue to push his proposal. Wells’ proposal seems reasonable as residents making $100,000 a year would only pay $63 more in taxes per year. This is a small price to pay that would benefit the city immensely.
Newark, NJ
Deficit through December 2011: $30.5 million
Budget in FY2010: $677 million
Annualized gap: 4.5%
Newark’s deficit was $83 million before Mayor Cory Booker initiated a plan to sell city-owned buildings, raise property taxes to 16 percent and decimate the police force. Nontheless, Moody’s cut Newark’s rating to A3 citing its $30.5 million remaining deficit.
Detroit, Mi
Deficit through June 2011: $85 million
Budget in FY2011: $3.1 billion
Annualized gap: 5.5%
Detroit’s city government has cut costs with layoffs and by leaving currently vacant positions open. Mayor Bing’s emergency fiscal plan includes demolishing houses and cutting police and trash services to 20% of the city.
Last year the city council pushed through severe cuts to fill an over $700 million deficit.
Reading, Pa
Deficit through December 2011: $7.5 million
Budget in FY2010: $120 million
Annualized gap: 6.3%
One of Pennsylvania’s several distressed municipalities, which receive state aid, Reading has been running an operating deficit for years. In September the city council said their deficit was bigger than expected, soaring to $7.5 million for the current year, which means they will have to borrow around $17 million from the state to pay off total debts.
Joliet, Il
Deficit through December 2011: $21 million
Budget in FY2010: $274 million
Annualized gap: 7.7%
Last year, the city increased property tax by over 12 percent and hiked water and sewer rates by 45 percent over three years to help with the deficit. The city council also cut police and public sector jobs.
Camden, NJ
Deficit through December 2011: $26.5 million
Budget in FY2010: $178 million
Annualized gap: 15%
Despite holding title of second most dangerous city in America, Camden recently received approval to lay off half of its police force.
Hamtramck, Mi
Deficit through June 2012: $4.7 million
Budget in FY2011: $18 million
Annualized gap: 17%
City manager Bill Cooper was denied permission to declare bankruptcy. He says the city is owed millions of dollars in tax dollars from Detroit from a shared facility. The state offered the city a loan to stave off bankruptcy.
Cooper says he has already cut almost everything possible, going so far as to lay off the city’s five crossing guards.
Hamtramck might avoid bankruptcy, but also-broke Michigan can’t afford many of these deals. That’s why Gov. Rick Snyder predicts “hundreds of jurisdictions” going bankrupt in the next four years.
Central Falls, RI
Deficit through June 2012: $7 million
Budget in FY2011: $21 million
Annualized gap: 22%
Central Falls has been put in state receivership due to critical budget problems. State-appointed receiver Mark Pfeiffer thinks the best solution is for Central Falls to be annexed by its neighboring city, Pawtucket.
Paterson, N.J.
Deficit through December 2011: $54 million
Budget for FY2010: $225 million
Annualized gap: 24%
As a “last resort,” Paterson is considering laying off 30 percent of its police force, said councilman Steve Olimpio. This will put 150 police officers out of work.
BONUS: Chicago, Il
Deficit through December 2011: $654 million Closed
Budget in FY2010: $6.8 billion
Annualized gap: 9.6%
Mayor Richard Daley has balanced the budget, but absolutely ruined Chicago finances from here on.
His FY2011 plan uses up nearly the entire revenue from a long-term lease of the local parking system and airport, which he passed in 2008. The multi-billion lease deal was supposed to last for decades, but it only lasted two years. The best hope for the future is building a city-owned casino.
Financial Meltdown on Wall Street
January 07, 2011 @ 5:21:57 PM EST
Financial Meltdown on Wall Street
by Michel Chossudovsky
Excerpt from Chapter 1
We are at the crossroads of the most serious economic crisis in world history.
The economic crisis has by no means reached its climax, as some economists have predicted.
The crisis is deepening, with the risk of seriously disrupting the structures of international trade and investment.
The Nature of the Economic Crisis
In contrast to Roosevelt’s New Deal, adopted at the height of the Great Depression, the macroeconomic policy agenda of the Obama administration does not constitute a solution to the crisis. In fact, quite the opposite: it directly contributes to the concentration and centralization of financial wealth, which in turn undermines the real economy.
The crisis did not commence with the 2008 meltdown of financial markets. It is deeply rooted in major transformations in the global economy and financial architecture which unfolded in several stages since the early 1980s. The September-October 2008 stock market crash was the outcome of a process of financial deregulation and macroeconomic reform.
We are dealing with a long-term process of economic and financial restructuring. In its earlier phase, starting in the 1980s during the Reagan-Thatcher era, local and regional level enterprises, family farms and small businesses were displaced and destroyed. In turn, the merger and acquisition boom of the 1990s led to the concurrent consolidation of large corporate entities both in the real economy as well as in banking and financial services.
International commodity trade has plummeted. Bankruptcies are occurring in all major sectors of activity: agriculture, manufacturing, telecoms, consumer retail outlets, shopping malls, airlines, hotels and tourism, not to mention real estate and the construction industry.
What is distinct in this particular phase of the crisis is the ability of the financial giants – through stock market manipulation as well as through their overriding control over credit – not only to create havoc in the production of goods and services, but also to undermine and destroy large and well established business corporations.
This crisis is far more serious than the Great Depression. All major sectors of the global economy are affected. Factories are closed down. Assembly lines are at a standstill. Unemployment is rampant. Wages have collapsed. Entire populations are precipitated into abysmal poverty. Livelihoods are destroyed. Public services are disrupted or privatized. The repercussions on people’s lives in North America and around the world are dramatic.
The Financial Meltdown
The subprime residential mortgage crisis leading to millions of people losing their homes reached its climax in the last days of August 2008, when financial institutions reported billions of dollars in declines.
Friday, September 12, 2008, Lehman Brothers faced collapse in weekend negotiations behind closed doors on Wall Street. Black Monday descended on September 15, 2008. Following the filing for Chapter 11 Bankruptcy by Lehman on Monday morning, the Dow Jones industrial average declined by 504 points 4.4 percent, its largest drop since September 17, 2001, when trading resumed on Wall Street after the 9/11 attacks.
The following day, it was the turn of AIG, the insurance conglomerate. On the evening of September 16, the Bush administration “granted an $85 billion loan to AIG in exchange for a controlling 79.9% equity share of the company”.1
The financial slide proceeded unabated throughout September. Barely two weeks later, on Monday, September 29, the Dow Jones plummeted by 778 points, its largest one-day drop in the history of the New York Stock Exchange. This followed the rejection by the U.S. House of Representatives of the Bush administration’s 700 billion dollar bailout plan, which was slated to come to the rescue of the banks affected by the subprime mortgage crisis. In a single day, 1.2 trillion dollars had seemingly evaporated.
The world’s stock markets are interconnected around the clock through instant computer link-up. Instability on Wall Street immediately spills over into the European and Asian stock markets, thereby rapidly permeating the entire financial system.
The Global Economic Crisis
Michel Chossudovsky
Andrew G. Marshall editors
This book can be ordered directly from Global Research
Cont.
Speculative Onslaught on Black Monday, September 29, 2008
There was something disturbing about the Black Monday, September 29, 2008 collapse of Wall Street, following the decision of the U.S. House of Representatives. Did this paper money “vanish into thin air” as claimed by financial analysts, or was it “appropriated” by institutional speculators in one of the largest transfers of money wealth in American history?
There was prior knowledge on how the Congressional vote would proceed. President Bush’s speeches had intimated that a collapse would occur. There was also an expectation that the market would crumble if the proposed 700 billion dollar bailout were to be rejected by the U.S. Congress.
Speculators, including major financial institutions, had already positioned themselves. Powerful financial actors with prior knowledge and access to privileged information prior to the House’s rejection of the bill made billions in speculative trade on Black Monday when the market crumbled. And thenon Tuesday, September 30, they made billions when themarket rebounded, with the Dow jumping up by 485 points, a 4.68 percent increase, compensating in part for Monday’s decline. Those financial actors who had foreknowledge and/or who had the ability to influence the vote in the U.S. Congress also made billions of dollars.
Ironically, almost twice as much money was eliminated from the U.S. stock market on Black Monday, September 29 1.2 trillion dollars than the value of the Bush administration’s bank bailout under the Troubled Assets Relief Program TARP 700 billion dollars.
Even before the opening bell, Monday looked ugly. But by the time that bell sounded again on the New York Stock Exchange, seven and a half frantic hours later, $1.2 trillion had vanished from the U.S. stock market.2
This money did not vanish. It was confiscated from the pockets of people who had invested their lifelong savings in the stock market.
While public opinion celebrated the refusal of the U.S. Congress to accept the Bush administration’s bailout, the decision of the legislature had fed the speculative onslaught.
Political uncertainty regarding the proposed bailout constituted ammunition for the speculators.
In a bitter irony, the Wall Street banks are “double dippers”; they are the recipients of the bank bailout. And at the same time they made money speculating first on the rejection by the U.S. Congress and subsequently on the later adoption of the bank bailout legislation.
On October 1, Wachovia Bank was taken over by Wells Fargo, overriding a competing bid from Citigroup. The deal was sealed with the support of Warren Buffett, the richest man in the world, according to Forbes, and a major shareholder of Wells Fargo.3
The first week in October 2008 represented a crucial turning point. The Dow Jones fell by 21 percent over the week, with Thursday, October 9 suffering its biggest fall since Black Monday, October 19, 1987. The S&P 500 index lost 22 percent of its value. The entire western banking landscape was in disarray. Iceland’s banking system was destabilized and the country was put in receivership. The Reykjavik government gave the green light for the forced bankruptcy of the entire banking system.
Following a pledge by G7 finance ministers and central bank governors on the weekend of October 10-11 to prevent further bank collapses, the world’s stock markets rebounded on October 13. The G7 had committed itself to “taking all necessary steps to unfreeze credit and money markets”. The Dow increased by 936 points eleven percent at the close of trading on October 13, its largest one day increase since 1933.4 Most European exchanges had “recovered”, with the Paris CAC index rebounding by an astounding 8.8 percent at the close of trading.
This short-lived “recovery” was part of the speculative game. Two days later, on October 15, Black Wednesday, the Dow Jones plummeted by 7.9 percent.
The sequence of a “one day collapse” followed by a “one day surge” and recovery, followed by another “one day collapse” a few days later, is part of the process of financial manipulation. Day to day instability and swings in stock market values are the source of large windfall profits accruing to “institutional speculators” and hedge funds.
Financial Warfare: The Powers of Deception
The September-October 2008 financial meltdown was not the consequence of a cyclical downturn of economic activity. It was the result of a complex process of financial manipulation, which included speculative trade in derivatives.
Financial manipulation has a direct bearing on the workings of the market. It potentially triggers instability in market transactions. This snowballing instability then becomes cumulative, leading to an overall slide of market values.
Inside information, high level political connections and foreknowledge of key policy announcements are crucial instruments in the conduct of large-scale speculative operations.
“Financial intelligence” and the powers of deceit were the driving forces behind the 2008 financial meltdown. Covert undercover financial operations were waged. Those powerful financial institutions, which had the ability to drive the market up at an opportune moment and then drive it down, had placed their bets accordingly. As a result, they reaped billions of dollars in windfall gains both on the upturn as well as on the downturn.
In contrast, for those who had put their faith in the free market, lifelong savings were erased in one fell swoop, appropriated by the shadow banking system. The crash of financial markets had led to a massive concentration of financial wealth.
The weapons used on Wall Street are prior knowledge and inside information, the ability to manipulate with the capacity to predict results and the spreading of misleading or false information on economic occurrences and market trends. These various procedures are best described as the powers of deception that financial institutions routinely use to mislead investors.
The art of deception is also directed against their banking competitors, who are betting in the derivatives and futures markets, stocks, currencies and commodities. Those who have access to privileged information political, intelligence, military, scientific, etc. will invariably have the upper hand in the conduct of these highly leveraged speculative transactions, which are the source of tremendous financial gains. The CIA has its own financial institutions on Wall Street.
In turn, the corridors of private and offshore banking enable financial institutions to transfer their profits with ease from one location to another. This procedure is also used as a safety net that protects the interests of key financial actors including CEOs and major shareholders of troubled financial institutions. Companies can be divested from within and large amounts of money can be moved out at an opportune moment, prior to the company’s demise on the stock market e.g. Lehman, Merrill Lynch and AIG, not to mention Bernhard Madoff.
As events unfolded, Merrill Lynch was bought and Lehman Brothers was pushed into bankruptcy. These are not haphazard occurrences. They are the result of manipulation, using highly leveraged speculative operations to achieve their objective, which consists in either displacing or acquiring control over a rival financial institution. The 2008 financial meltdown has nothing to do with free market forces: it is characterized by financial warfare between competing institutional speculators.
The Federal Reserve Bank of New York and its powerful Wall Street stakeholders – which are Wall Street’s largest private banks – have inside information on the conduct of U.S. monetary policy. They are therefore in a position to predict outcomes and hedge their bets in highly leveraged operations on the futures and derivatives markets. They are in an obvious conflict of interest because their prior knowledge of particular decisions by the Federal Reserve Board enables them, as private banking institutions, to make multibillion dollar profits.
Links to U.S. intelligence, the CIA, Homeland Security and the Pentagon are crucial in the conduct of speculative trade, since that allows the speculators to predict events through prior knowledge of foreign policy and/or national security decisions which directly affect financial markets. An example: they purchased “put options” on airline stocks in the days preceding the 9/11 attacks.
Notes
1. Daniel R. Amerman, “AIG’s Dangerous Collapse”, Financialsense, http://www.financialsense.com/fsu/editorials/amerman/2008/ 0917.html, 17 September 2008.
2. Vikas Bajaj and Michael M. Grynbaum, “For Stocks, Worst Single-Day Drop in Two Decades”, New York Times, http://www.nytimes.com/2008/09/30/business/30markets.html, 29 September 2008.
3. Eric Dash and Ben White, “Wells Fargo Swoops In”, New York Times, http://www.nytimes.com/2008/10/04/business/04bank.html, 3 October 2008.
4. Michael M. Grynbaum, “Stocks Soar 11 Percent on Aid to Banks”, New York Times, http://www.nytimes.com/2008/10/14/business/14 markets.html, 13 October 2008.
Michel Chossudovsky
is an award-winning author, Professor of Economics Emeritus at the University of Ottawa and Director of the Centre for Research on Globalization CRG, Montreal. He is the author of The Globalization of Poverty and The New World Order 2003 and America’s “War on Terrorism” 2005. He is also a contributor to the Encyclopaedia Britannica. His writings have been published in more than twenty languages.
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