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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
March 25, 2008
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In stages, the entire US banking and financial system is now in the process of unravelling. Scared US commercial banks are hammering out calls for increases in margins or the placing of more collateral behind the loans they have made to hedge funds. These hedge funds, in their turn, are falling like ninepins because being hedge funds, they have very little real cash behind them. The situation has now reached the point that even US Treasuries are being discounted when offered as collateral. Now, the real financial dimensions of this huge US financial crisis are being revealed.

They Haven't Got It - There's NOT Enough:

Wall Street bankers are facing a "systemic margin call" that may deplete these banks of $US 325 Billion of capital due to deteriorating subprime US mortgages, JPMorgan Chase & Co said in a report late on March 7.

The problem here is that these US banks do NOT have $US 325 Billion in capital to meet the "call". Normally, whenever somebody cannot meet a margin call, the underlying assets are seized by the lenders and sold in the markets to get whatever can be got. The problem here is, that there is NO market for the US subprime paper. There are NO buyers!

Subprime-related losses at global financial institutions have so far totalled as much as $US 215 Billion, with about 55 percent of that coming from the United States, the head of Japan's financial regulator said on March 10. These estimates are from Japan's Financial Services Agency (FSA).

European losses totalled about $US 78.5 Billion, FSA Chairman Takafumi Sato told reporters at a regular briefing. Asia's losses are at about $US 140 Billion. Europe and Asia can handle this. The US cannot.

Wall Street's New Pawnbroker - The Fed:

Behind the Bernanke Fed's many recent panic actions there is a subscript which screams a warning to US banks and other financial institutions: "Don't Sell, Please Don't Sell"! What the Fed is trying to avoid is a cascade sell-off of US financial paper of all descriptions from stocks to bonds to US Treasuries.

To avoid any such cascade sell-off, the Fed has launched its Term Auction Facility. This is a program which allows any US bank or savings and loan to bid for loans at what amounts to wholesale rates. It allows them to pledge a wide variety of securities - including mortgage-backed securities that are not tradable at the moment - as collateral! This is desperate. The Fed is turning itself into a garbage truck.

And what does the Fed issue? The US Federal Reserve Note - aka the US Dollar. On March 12, the $US index (USDX) fell a huge 0.86 points on the day to close at yet another new all time low of 72.43.

Look - LOOK - A New Fed "Facility":

Often, one doesn't know whether to laugh or cry. Laughing is better when utter monetary folly is on full display for all to see - and being taken seriously by most of those doing the seeing. A fast step back is necessary here. In December 2007, the Fed set up the so-called "term auction facility" to lend funds to banks in exchange for a wide variety of collateral, including toxic mortgage debt paper. The system was saved! The Dow rallied!! On March 11, the Fed announced it will lend US Treasuries in a new program. This "facility" will be known as the "term securities lending facility". It will be available to all so-called primary dealers, the 20 banks and securities firms that can trade directly with the US central bank.

Who Facilitates The US Facilitator?:

The Fed said it will lend US Treasuries for a 28-day period through this "term securities lending facility". The "collateral"? Debt paper, including AAA-rated mortgage securities as sold by Fannie Mae, Freddie Mac and, of course, by US banks. Again, the system was saved and the Dow rallied a huge 417 points on March 11. Can anybody else see the beginning of a new and very different kind of trend here? Whenever the US edifice of bad loans and an overvalued stock market seems on the verge of serious breakdown, out rolls the US Fed with yet another new "facility".

What Is Being "Facilitated" Here?:

With this new "facility", US holders of assorted forms of financial toxic waste paper can roll this over to the Fed and exchange it for US Treasuries! With these US Treasuries in hand for 28 days, the holders can either use them as collateral for their own debt (much better collateral than toxic waste paper) or they can actually sell the US Treasuries for which there is still a market and therefore willing buyers. That is something which cannot be said for the toxic wastepaper - which has no buyers and therefore no market.

Won't it be fun waiting for a few more weeks to see the arrival of the Fed's next new "facility"? Eventually, one "facility" will follow the next until just about everybody starts laughing out loud, no longer being able to keep a straight face. At that point, the Fed's whole house of cards falls over.

When the laugher starts dying down, perhaps it will then be realised that the Federal Reserve NOTE is itself a debt instrument. It is a NOTE. Anybody who accepts it has

thereby given credit to the Fed.

Giving credit to the Fed by accepting its NOTE always means that one has given a loan to the Fed.

"Facilitating" The US Dollar:

In that plain commercial sense, the Federal Reserve note is structurally no different from any other note. But other notes carry a rate of interest, the Fed note pays no interest at all. In the end, that means that all the present holders of US Dollars (aka Fed notes), whether inside the US or around the world, have given an interest rate free loan to the US Federal Reserve and through it to the entire US economy and its banks.

When it is finally realised that accepting a note is NOT the same as receiving payment, then the Fed notes (aka US Dollars) will die the death of all other defaulted commercial

notes - marked "worthless".

From The Paper To The US Banks To The Deposits - To What?:

Present circumstances have already brought about a perception that all US financial paper is dangerous. This perception has brought the US commercial banks into the global spotlight. With the torrent of bad loans burning holes in their balance sheets, anxieties are now fast increasing as to whether it is safe to keep one's deposits with these banks. This is potential bank run territory. Were they to start, the lucky ones would be those who leave US banks holding Federal Reserve Notes! But, what are they worth?

What Is The US Dollar Worth?:

There are three basic ways to see what any currency is worth. The first is to compare one currency with any other one. Here's an example. The US dollar has lost 6.3 percent of its value against the Euro so far this year. On Wednesday, March 12, the Euro rose to an all time high of $US 1.55. The second way is to compare the currency to Gold. Gold climbed 31 percent against the US Dollar in 2007. The third way is to note the currency's value against standard consumer goods. Official US consumer costs rose 4.3 percent in 2007, the most since 1990. In REAL terms, the rise was much more than that.

US producer prices are up 7.5 percent from a year ago, a 27-year high. US consumer prices are up 4.3 percent, a 17-year high. US import prices are 11.7 percent higher than a year ago. What this data shows is that right across the field, the US Dollar is falling in value against other measures of real goods.

The Weimar Monetary Self-Entrapment:

In the economic terrain of climbing monetary prices across a broad front, the climbing prices have a real effect. They give the appearance of increased scarcity. It is as if there is not enough money available for most individuals and many businesses to meet the higher costs. During the extraordinary three-year event in the Weimar Republic when a currency was totally destroyed because of over issuance, most people succumbed to this false perception that money was "scarce" because there wasn't enough to meet the higher prices. The Weimar Republic tried to overcome this problem by printing more money so as to be able to meet these higher prices. Then an event happened that is perceived incorrectly to this day.

When the monetary authorities of the Weimar Republic perceived a "gap" of 20 percent between prices and the amount of money in circulation available to meet these higher prices, they ran the printing press to make up the difference. In short order, prices were climbing even faster than before. The "gap" between prices and the amount of money in circulation seemed to have widened to 50 percent. So the monetary authorities promptly accelerated the printing presses to 150 percent to try to catch up to this widening "gap". Now, desperate to catch up, the Weimar Republic accelerated its paper money printing as fast as it physically could, running the printing presses twenty-four hours a day.

While this was going on, everyday Germans and German businesses never seemed to be able to catch up to the ever accelerating prices. To them "increased scarcity" was seen as

fast growing poverty.

However measured at the time, the scarcity of money, was now reaching astronomical proportions. There was no way for most to come even close to paying the higher prices. Finally, the Germans gave up and simply threw the Marks they had in hand at whatever real economic goods they could find. When it was over, the purchasing power of their money was nil. This is the trap Mr Bernanke is now in.

The Growing Danger Of More Bernanke "Facilities":

What the Bernanke Fed is now trying to do through the US CREDIT money system is what the Germans back in the Weimar Republic tried to do with their PAPER money system. The more Ben Bernanke cuts the Fed funds rate, the harder he is trying to make the US credit money system run faster. In principle, this is no different in monetary terms to the Weimar Germans running their printing presses faster. What Bernanke will "accomplish" is to widen the "gap" between prices inside the US economy and the amount of credit money available with which to meet these higher prices.

Many Americans are already feeling the pinch of increased scarcity! There are more and more goods which many more Americans are no longer able to buy with the money they have in hand. To most of these Americans, it is as if they have a scarcity of money. It is as if there is not enough money at all.

Increased scarcity and a perceived scarcity of money always go hand in hand. To stop both, stop printing.

Ó 2008 – The Privateer

(reproduced with permission)


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