Friday, April 22, 2011

Morning Update/ Market Thread 4/22 - Dear Mr. President, YOU are the Oil Speculator...

Good Morning,

Markets are closed today, and there are no economic releases. Next week will bring a lot of data including Q1 GDP which is forecast to have risen 2.0%, down from 3.1% in Q4, 2010. Wednesday will also bring more lip flapping from the “Fed’s” FOMC, and oh boy, we get a historic first in that Bernanke will hold a press conference after the announcement. What a placating joke.

Once again President Obama says that the evil speculators are running up the price of oil and that he’s really going to crack down on them! This time he means it. Of course he said basically the same exact thing back in 2009, and then again in 2010, and how’s that worked out so far? Oh yeah, and here’s what he said when he was running for President, showing just how knowledgeable our President is on the subject:

Well, here’s a tip, Mr. President. Take a look at the following chart and see if you can spot the correlation:

Okay, so WHO is in charge of the monetary base, Mr. President? Yes, that’s right, the same PRIVATE bankers who pretend to be a government agency and are the largest donators to your campaign. The same bankers who you promised time and again to crack down on, but never did. If and when you get serious about controlling speculation in the oil markets, then please write and I’ll fill you in on how to actually accomplish that – just make sure you surround yourself with your most trusted security force first!

And Mr. President, just so that you’re not confused on where the fuel for the speculation is coming from, let’s discuss that aspect because it seems that many people are being fooled by the “Fed’s” mechanics of “Quantitative Easing.” The trail they have built for America is one based upon deception.

But to fully understand this deception, we must first understand that there are three types of money:

1. Credit Money – this is money that is borrowed under contract, must be repaid within a specified timeframe, and bears interest. Prior to QE, 100% of our traceable money was credit money – new money came into existence through private loans, and if the government needed more money than they received in taxes, then they could barrow more in the form of bonds – usually bought by the private banks. In this way, ALL money is created by the PRIVATE banks, is someone’s obligation, and bears interest.

2. Sovereign Money – This is money created by the government without debt. Our government does not produce sovereign money any longer.

3. Other Money – Other money is created by instruments that act like money, but are neither sovereign produced, nor bear interest. This is BY FAR the largest type of money in existence. It includes all derivative instruments, trading on margin, futures (which are just another form of derivative), and any thing else that acts like money generally to create leverage (which is the act of effectively multiplying money).

Now we need to talk about Inflation and Deflation. For overall MONETARY inflation to occur, the total supply of all three forms of money must rise. For monetary deflation to occur, the total of all three forms of money must decline.

Monetary inflation/ deflation is not necessarily the same as overall PRICE inflation/ deflation. It is possible to have the money supply growing, for example, but to have overall PRICE deflation occur if the population size is growing faster than the total supply of money – and visa versa.

Let’s examine the “Roaring Twenties.” At the time, there was a mix of sovereign money (supposedly “gold backed”), privately created credit money, and then massive amounts of margin was used to buy up stock which inflated the price of equities. The aggregate of all three dramatically outstripped the growth in population and overall price inflation broke out, especially in equities where margin was rampant. This created a bubble which was not supported by income and thus the bubble burst in the year 1929 – note that having gold backed sovereign money DID NOT stop the bubble from being created! This is because private credit and margin were not kept under control. And that is because we allowed the private bankers to be in control, and it was in their interest to let it get out of control – the very same thing that is happening today.

Here’s what most “economists” either don’t know or don’t admit. Credit dollar creation is inflationary up until the point of debt saturation which is when income can no longer support it. Once debt saturation is reached, then credit creation becomes deflationary!!! This is why we had the wave of deflation that began in 2007 and roared into 2009.

During the Great Depression, margin money and credit money were allowed to contract. That allowed debt to fall to the point that income could support it, and then REAL growth resumed.

Today we have failed to let derivatives, margin, and credit money contract. Our income still cannot support more debt, and thus we are still debt saturated.

In comes the “Fed” to try something “different” because we don’t want to repeat the Great Depression: So instead of letting the debt properly default, and let investors deleverage their margin, the “Fed” instead began transferring the private debt and leverage onto itself with a guarantee by the American taxpayer. This is exactly what “QE” is – it is a shift of debt from private banks onto the general population. Doing so IS MONEY “PRINTING,” but it is simply indirect instead of direct. By taking debt instruments off the private banks, they are thus allowing the total money (all three types) to expand where otherwise it could not have!

Understand? In this way the mechanics of QE are designed to fool you. They get to claim that at some point they will be repaid, but that is simply a game, because in the mean time the banks are allowed to generate even more, and thus the total supply of money skyrockets. That’s the fuel that creates the speculation.

My contention is that the total supply of the three types of money is unknowable because derivatives and margin are so out of control. Banks are effectively being allowed to “fractional reserve” to infinity, and thus producing nearly infinite leverage. This, of course, is NOT supported by income – and thus is GUARANTEED to fail.

It is the creation of too much credit, and too much of the “other money” type that is the problem. It became a problem because we allowed private individuals to control its production. Think about it – any individual, and even any politician who is given the power to create money will find ways to create more of it. Give me that power, and I’ll show you how!

But it is possible to create a system that works – that is sustainable over time, allows prosperity, but also allows contraction without collapse. Such a system should, in my opinion, be a mix of private credit money, and sovereign money with NO “other money.” If your goal is truly to reign in speculation in oil, food, or anything else, that is the only proper direction to head.

WHO controls the production of our money, Mr. President, WHO.

Still more radiation is being found in feeding mother’s breast milk in Japan. Of the nine mothers tested so far, half have radioactive iodine contamination, and the most contaminated mother lives 150 miles away. According to one nuclear expert, the currently reported levels of radioactive iodine at the Fukushima plant absolutely mean that nuclear fission is taking place both in the reactors and in the cooling pools – Expert who worked at Sandia Labs: “TEPCO data suggest that fission is ongoing… This is bad news” — “Truly scary” that nobody in Japan seems to know basics of reactor accident progression. And thus radiation continues to pour out of the plant, across the ocean, and into our food and water supply where they are continuing to find increasing levels of radiation in our water, milk, and soil.

Yet according to the FDA, not to worry, it’s all safe… Well here’s a conversation that Arnie Gunderson had with Dr. Steven Wing regarding radiation exposure. No, there’s no “safe” level of radiation. And what Dr. Wing pointed out is that even though the radiation is spread very widely, the total number of cancers does not decrease because of the dispersion! In other words, the more radiation that comes out, the more cancers there are regardless of how widely it disperses.

Epidemiologist, Dr. Steven Wing, Discusses Global Radiation Exposures and Consequences with Gundersen

While I wholeheartedly support what Dr. Wing is saying regarding acting collectively to ensure safety, I strongly disagree that there’s nothing you can do to protect yourself individually. You can strive to eat food and drink water that was produced prior to the spread of radiation. You can avoid milk and creamy dairy products. You can install a reverse osmosis filter for your home’s water. And if you want to get even more creative, there are many other things you can do as well. The young, in particular, should be protected.

And our government absolutely needs to get far more proactive, but again, they have been completely captured by special interests and thus will fail again in that regard.