Banks

Why A Greek Exit From The Euro Would Mean The End Of The Eurozone

What was considered unthinkable a few months ago has now become probable.  All over the globe there are headlines proclaiming that a Greek exit from the euro is now a real possibility.  In fact, some of those headlines make it sound like it is practically inevitable.  For example, Der Spiegel ran a front page story the other day with the following startling headline: “Acropolis, Adieu! Why Greece must leave the euro”.  Many are saying that the euro will be stronger without Greece.  They are saying things such as “a chain is only as strong as its weakest link” and they are claiming that financial markets are now far more prepared for a “Grexit” than they would have been two years ago.  But the truth is that it really is naive to think that a Greek exit from the euro can be “managed” and that business will go on as usual afterwards.  If Greece leaves the euro it will set a very dangerous precedent.  The moment Greece exits the euro, investors all over the globe will be asking the following question: “Who is next?”  Portugal, Italy and Spain would all see bond yields soar and they would all likely experience runs on their banks.  It would only be a matter of time before more eurozone members would leave.  In the end, the whole monetary union experiment would crumble.

As I have written about previously, New York Times economist Paul Krugman is wrong about a whole lot of things, but in a blog post the other day he absolutely nailed what is likely to soon unfold in Greece….

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

By itself, Greece cannot crash the eurozone.  But the precedent that Greece is about to set could set forth a chain of events that may very well bring about the end of the eurozone.

If one country is allowed to leave the euro, that means that other countries will be allowed to leave the euro as well.  This is the kind of uncertainty that drives financial markets crazy.

When the euro was initially created, monetary union was intended to be irreversible.  There are no provisions for what happens if a member nation wants to leave the euro.  It simply was not even conceived of at the time.

So we are really moving into uncharted territory.  A recent Bloomberg article attempted to set forth some of the things that might happen if a Greek exit from the euro becomes a reality….

A Greek departure from the euro could trigger a default-inducing surge in bond yields, capital flight that might spread to other indebted states and a resultant series of bank runs. Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.

In fact, yields on Spanish debt and Italian debt are already rising rapidly thanks to the bad news out of Greece in recent days.

What makes things worse is that a new government has still not formed in Greece.  It looks like new elections may have to be held in June.

Meanwhile, the Greek government is rapidly running out of money.  The following is from a Bank of America report that was released a few days ago….

“If no government is in place before June when the next installment (of loan money) from the European Union and International Monetary Fund is due, we estimate that Greece will run out of money sometime between the end of June and beginning of July, at which point a return to the drachma would seem inevitable”

In the recent Greek elections, parties that opposed the bailout agreements picked up huge gains.  And opinion polls suggest that they will make even larger gains if another round of elections is held.

The Coalition of the Radical Left, also known as Syriza, surprised everyone by coming in second in the recent elections.  Current polling shows that Syriza is likely to come in first if new elections are held.

The leader of Syriza, Alexis Tsipras, is passionately against the bailout agreements.  He says that Greece can reject austerity because the rest of Europe will never kick Greece out of the eurozone.  Tsipras believes that the rest of Europe must bail out Greece because the consequences of allowing Greece to go bankrupt and fall out of the eurozone would be far too high for the rest of Europe.

A spokesman for Syriza, Yiannis Bournos, recently told the Telegraph the following….

“Mr Schaeuble [Germany’s finance minister] is pretending to be the fearless cowboy on the radio, saying the euro is secure [against a Greek exit]. But there’s no way they will kick us out”

So Greece and Germany are playing a game of chicken.

Who will blink first?

Will either of them blink first?

Syriza is trying to convince the Greek people that they can reject austerity and stay in the euro.  Syriza insists that the rest of Europe will provide the money that they need to pay their bills.

And most Greeks do actually want to stay in the euro.  One recent poll found that 78.1 percent of all Greeks want Greece to remain in the eurozone.

But a majority of Greeks also do not want anymore austerity.

Unfortunately, it is not realistic for them to assume that they can have their cake and eat it too.  If Greece does not continue to move toward a balanced budget, they will lose their aid money.

And if Greece loses that aid money, the consequences will be dramatic.

Outgoing deputy prime minister of Greece Theodoros Pangalos recently had the following to say about what would happen if Greece doesn’t get the bailout money that it needs….

“We will be in wild bankruptcy, out-of-control bankruptcy. The state will not be able to pay salaries and pensions. This is not recognised by the citizens. We have got until June before we run out of money.”

If Greece gets cut off and runs out of money, it will almost certainly be forced to go back to using the drachma.  If that happens there will likely be a “bank holiday”, the borders will be secured to limit capital flight and new currency will be rapidly printed up.  It would be a giant mess.

In fact, there are rumblings that the European financial system is already making preparations for all this.  For example, a recent Reuters article had the following shock headline: “Banks prepare for the return of the drachma”

But a new drachma would almost certainly crash in value almost immediately as a recent article in the Telegraph described….

Most economists think that a new, free-floating drachma would immediately crash by up to 50 percent against the euro and other currencies, effectively halving the value of everyone’s savings and spelling catastrophe for those on fixed incomes, like pensioners.

A Greek economy that is already experiencing a depression would get even worse.  The Greek economy has contracted by 8.5 percent over the past 12 months and the unemployment rate in Greece is up to 21.8 percent.  It is hard to imagine what Greece is going to look like if things continue to fall apart.

But the consequences for the rest of Europe (and for the rest of the globe) would be dramatic as well.  A Greek exit from the euro could be the next “Lehman Brothers moment” and could plunge the entire global financial system into another major crisis.

Unfortunately, at this point it is hard to imagine a scenario in which the eventual break up of the euro can be avoided.

Germany would have to become willing to bail out the rest of the eurozone indefinitely, and that simply is not going to happen.

So there is a lot of pessimism in the financial world right now.  Nobody is quite sure what is going to happen next and the number of short positions is steadily rising as a recent CNN article detailed….

After staying quiet at the start of the year, the bears have come roaring back with a vengeance.

Short interest — a bet on stocks turning lower — topped 13 billion shares on the New York Stock Exchange at the end of last month. That’s up 4% from March and marks the highest level of the year.

If the eurozone is going to survive, Greece must stay a part of it.

Instead of removing the weakest link from the chain, the reality is that a Greek exit from the euro would end up shattering the chain.

Confidence is a funny thing.  It can take decades to build but it can be lost in a single moment.

If Greece leaves the euro, investor confidence in the eurozone will be permanently damaged.  And when investors get spooked they don’t behave rationally.

A common currency in Europe is not dead by any means, but this current manifestation is now operating on borrowed time.

As the eurozone crumbles, it is likely that Germany will simply pull the plug at some point and decide to start over.

So what do you think?

Do you think that I am right or do you think that I am wrong?

Please feel free to post a comment with your thoughts below….

The 2 Billion Dollar Loss By JP Morgan Is Just A Preview Of The Coming Collapse Of The Derivatives Market

When news broke of a 2 billion dollar trading loss by JP Morgan, much of the financial world was absolutely stunned.  But the truth is that this is just the beginning.  This is just a very small preview of what is going to happen when we see the collapse of the worldwide derivatives market.  When most Americans think of Wall Street, they think of a bunch of stuffy bankers trading stocks and bonds.  But over the past couple of decades it has evolved into much more than that.  Today, Wall Street is the biggest casino in the entire world.  When the “too big to fail” banks make good bets, they can make a lot of money.  When they make bad bets, they can lose a lot of money, and that is exactly what just happened to JP Morgan.  Their Chief Investment Office made a series of trades which turned out horribly, and it resulted in a loss of over 2 billion dollars over the past 40 days.  But 2 billion dollars is small potatoes compared to the vast size of the global derivatives market.  It has been estimated that the the notional value of all the derivatives in the world is somewhere between 600 trillion dollars and 1.5 quadrillion dollars.  Nobody really knows the real amount, but when this derivatives bubble finally bursts there is not going to be nearly enough money on the entire planet to fix things.

Sadly, a lot of mainstream news reports are not even using the word “derivatives” when they discuss what just happened at JP Morgan.  This morning I listened carefully as one reporter described the 2 billion dollar loss as simply a “bad bet”.

And perhaps that is easier for the American people to understand.  JP Morgan made a series of really bad bets and during a conference call last night CEO Jamie Dimon admitted that the strategy was “flawed, complex, poorly reviewed, poorly executed and poorly monitored”.

The funny thing is that JP Morgan is considered to be much more “risk averse” than most other major Wall Street financial institutions are.

So if this kind of stuff is happening at JP Morgan, then what in the world is going on at some of these other places?

That is a really good question.

For those interested in the technical details of the 2 billion dollar loss, an article posted on CNBC described exactly how this loss happened….

The failed hedge likely involved a bet on the flattening of a credit derivative curve, part of the CDX family of investment grade credit indices, said two sources with knowledge of the industry, but not directly involved in the matter. JPMorgan was then caught by sharp moves at the long end of the bet, they said. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives.

In essence, JP Morgan made a series of bets which turned out very, very badly.  This loss was so huge that it even caused members of Congress to take note.  The following is from a statement that U.S. Senator Carl Levin issued a few hours after this news first broke….

“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making.”

Unfortunately, the losses from this trade may not be over yet.  In fact, if things go very, very badly the losses could end up being much larger as a recent Zero Hedge article detailed….

Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.

And yes, the SEC has announced an “investigation” into this 2 billion dollar loss.  But we all know that the SEC is basically useless.  In recent years SEC employees have become known more for watching pornography in their Washington D.C. offices than for regulating Wall Street.

But what has become abundantly clear is that Wall Street is completely incapable of policing itself.  This point was underscored in a recent commentary by Henry Blodget of Business Insider….

Wall Street can’t be trusted to manage—or even correctly assess—its own risks.

This is in part because, time and again, Wall Street has demonstrated that it doesn’t even KNOW what risks it is taking.

In short, Wall Street bankers are just a bunch of kids playing with dynamite.

There are two reasons for this, neither of which boil down to “stupidity.”

  • The first reason is that the gambling instruments the banks now use are mind-bogglingly complicated. Warren Buffett once described derivatives as “weapons of mass destruction.” And those weapons have gotten a lot more complex in the past few years.
  • The second reason is that Wall Street’s incentive structure is fundamentally flawed: Bankers get all of the upside for winning bets, and someone else—the government or shareholders—covers the downside.

The second reason is particularly insidious. The worst thing that can happen to a trader who blows a huge bet and demolishes his firm—literally the worst thing—is that he will get fired. Then he will immediately go get a job at a hedge fund and make more than he was making before he blew up the firm.

We never learned one of the basic lessons that we should have learned from the financial crisis of 2008.

Wall Street bankers take huge risks because the risk/reward ratio is all messed up.

If the bankers make huge bets and they win, then they win big.

If the bankers make huge bets and they lose, then the federal government uses taxpayer money to clean up the mess.

Under those kind of conditions, why not bet the farm?

Sadly, most Americans do not even know what derivatives are.

Most Americans have no idea that we are rapidly approaching a horrific derivatives crisis that is going to make 2008 look like a Sunday picnic.

According to the Comptroller of the Currency, the “too big to fail” banks have exposure to derivatives that is absolutely mind blowing.  Just check out the following numbers from an official U.S. government report….

JPMorgan Chase – $70.1 Trillion

Citibank – $52.1 Trillion

Bank of America – $50.1 Trillion

Goldman Sachs – $44.2 Trillion

So a 2 billion dollar loss for JP Morgan is nothing compared to their total exposure of over 70 trillion dollars.

Overall, the 9 largest U.S. banks have a total of more than 200 trillion dollars of exposure to derivatives.  That is approximately 3 times the size of the entire global economy.

It is hard for the average person on the street to begin to comprehend how immense this derivatives bubble is.

So let’s not make too much out of this 2 billion dollar loss by JP Morgan.

This is just chicken feed.

This is just a preview of coming attractions.

Soon enough the real problems with derivatives will begin, and when that happens it will shake the entire global financial system to the core.

22 Red Flags That Indicate That Very Serious Doom Is Coming For Global Financial Markets

If you enjoy watching financial doom, then you are quite likely to really enjoy the rest of 2012.  Right now, red flags are popping up all over the place.  Corporate insiders are selling off stock like there is no tomorrow, major economies all over Europe continue to implode, the IMF is warning that the eurozone could actually break up and there are signs of trouble at major banks all over the planet.  Unfortunately, it looks like the period of relative stability that global financial markets have been enjoying is about to come to an end.  A whole host of problems that have been festering just below the surface are starting to manifest, and we are beginning to see the ingredients for a “perfect storm” start to come together.  The greatest global debt bubble in human history is showing signs that it is getting ready to burst, and when that happens the consequences are going to be absolutely horrific.  Hopefully we still have at least a little bit more time before the global financial system implodes, but at this point it doesn’t look like anything is going to be able to stop the chaos that is on the horizon.

The following are 22 red flags that indicate that very serious doom is coming for global financial markets….

#1 According to CNN, the level of selling by insiders at corporations listed on the S&P 500 is the highest that it has been in almost a decade.  Do those insiders know something that the rest of us do not?

#2 Home prices in the United States have fallen for six months in a row and are now down 35 percent from the peak of the housing market.  The last time that home prices in the U.S. were this low was back in 2002.

#3 It is now being projected that the Greek economy will shrink by another 5 percent this year.

#4 Despite wave after wave of austerity measures, Greece is still going to have a budget deficit equivalent to about 7 percent of GDP in 2012.

#5 Interest rates on Italian and Spanish sovereign debt are rapidly rising.  The following is from a recent RTE article….

Spain’s borrowing rate nearly doubled in a short-term debt auction as investors fretted over the euro zone’s determination to deal with its debts. 

And Italy raised nearly €3.5 billion in a short-term bond sale today but at sharply higher interest rates amid fresh concerns over the euro zone outlook, the Bank of Italy said.

#6 The government of Spain recently announced that its 2011 budget deficit was much larger than originally projected and that it probably will not meet its budget targets for 2012 either.

#7 Amazingly, bad loans now make up 8.15 percent of all loans on the books of Spanish banks.  That is the highest level in 18 years.  The total value of all toxic loans in Spain is equivalent to approximately 13 percent of Spanish GDP.

#8 One key Spanish stock index has already fallen by more than 19 percent so far this year.

#9 The Spanish government has announced a ban on all cash transactions larger than 2,500 euros.  Many are interpreting this as a panic move.

#10 It is looking increasingly likely that a major bailout for Spain will be needed.  The following is from a recent Reuters article….

Economic experts watching Spain don’t know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.

#11 Analysts at Moody’s Analytics are warning that Italy has now reached financially unsustainable territory….

“Italy is already out of fiscal space, in our estimate.” said Moody’s. “Its debt levels relative to GDP already exceed a manageable level. The manageable limit for Italian 10-year bond yields is estimated at 4.2pc. As of Wednesday, Italian 10-year yields were 5.46pc.”

#12 It is being projected that the Portuguese economy will shrink by 5.7 percent during 2012.

#13 There is even trouble in European nations that have been considered relatively stable up to this point.  For example, the Dutch government collapsed on Monday after austerity talks broke down.

#14 The head of the IMF, Christine Lagarde, says that there are “dark clouds on the horizon” for the global economy.

#15 The top economist for the IMF, Olivier Blanchard, recently made this statement: “One has the feeling that at any moment, things could get very bad again.”

#16 A recent IMF report admitted that the current financial crisis could lead to the break up of the eurozone….

Under these circumstances, a break-up of the euro area could not be ruled out. The financial and real spillovers to other regions, especially emerging Europe, would likely be very large.

This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse.

#17 George Soros is publicly declaring that the European Union could soon experience a collapse similar to what happened to the Soviet Union.

#18 A member of the European Parliament, Nigel Farage, stated during one recent interview that it is inevitable that some major banks in Europe will collapse….

There are going to be some serious banking collapses and the impact of that on some sovereign states, will be serious. I’m afraid we’ve gotten to a point where we really can’t stop this now. We’re beginning to reach a stage where however much false money you create, the problem becomes bigger than the people trying to solve it. We are very close to that point.

When I talk about the threats and the risk that this thing could wind up in some kind of rebellion, some sort of awful social cataclysm, they (other European politicians) are now very worried indeed. They will talk to you in private, but in public, nobody dares utter a word.

I think the deterioration, in the last two or three weeks, in the eurozone is very serious indeed. It’s the bond spreads in Italy and Spain. It’s the fact that youth unemployment is now over 50% in some of these Mediterranean countries.

It’s riot and disorder on the streets. And yet a month ago I was here and there was Herman Van Rumpuy telling us, ‘We’ve turned the corner. Everything is solved. There are no more problems with the eurozone.’ What a pack of jokers they look like.”

#19 The IMF is projecting that Japan will have a debt to GDP ratio of 256 percent by next year.

#20 Goldman Sachs is projecting that the S&P 500 will fall by about 11 percent by the end of 2012.

#21 Over the past six months, hundreds of prominent bankers have resigned all over the globe.  Is there a reason why so many are suddenly leaving their posts?

#22 The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives.  That is approximately 3 times the size of the entire global economy.  It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is.

The financial crisis of 2008 was just a warm up act for what is coming.  The too big to fail banks are larger than ever, the governments of the western world are in far more debt than they were back then, and the entire global financial system is more unstable and more vulnerable than ever before.

But this time the epicenter of the financial crisis will be in Europe.

Outside of Europe, most people simply do not understand how truly nightmarish the European economic crisis really is.

Spain, Italy and Portugal are all heading for an economic depression and Greece is already in one.

The European Central Bank was able to kick the can down the road a little bit by expanding its balance sheet by about a trillion dollars over the last nine months, but the truth is that the underlying problems in Europe just continue to get worse and worse.

It truly is like watching a horrible car wreck happen in slow motion.

The good news is that there is still a little time to get yourself into a better position for the next financial crisis.  Don’t leave yourself financially exposed to the next crash.

Sadly, just like back in 2008, most people will never even see this next crisis coming.

So do you have any other red flags to add to the list above?  Please feel free to post a comment with your thoughts below….

The Too Big To Fail Banks Are Now Much Bigger And Much More Powerful Than Ever

The Democrats, the Republicans and especially Barack Obama promised that something would be done about the too big to fail banks so that they would never again be a threat to destroy our financial system.  Well, those promises have not been kept and the too big to fail banks are now much bigger and much more powerful than ever.  The assets of the five biggest U.S. banks were equivalent to about 43 percent of U.S. GDP before the financial crisis.  Today, the assets of the five biggest U.S. banks are equivalent to about 56 percent of U.S. GDP.  So if those banks were “too big to fail” before, then what are they now?  They continue to gobble up smaller banks at a brisk pace, and they continue to pile up debt and risky investments as if a day of reckoning will never come.  But of course a day of reckoning is coming, and when it arrives they will be expecting more bailouts just like they got the last time.

The size of these monolithic financial institutions is truly difficult to comprehend.  They completely dominate our financial system and everywhere you look they are constantly absorbing more wealth and more power.  The following comes from a recent Bloomberg article….

Five banks — JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc., Wells Fargo & Co. (WFC), and Goldman Sachs Group Inc. — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve.

Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy

Despite all of the talk from the politicians, they just keep getting bigger and bigger and bigger.

So why isn’t anything ever done?

Well, one reason is because these gigantic financial entities funnel huge quantities of cash into political campaigns.

For example, Barack Obama gives nice speeches about the dangers of the too big to fail banks, but he is also more than happy to take their campaign contributions.  Goldman Sachs, JPMorgan Chase and Citigroup were all ranked among his top 10 donors during the 2008 campaign.

So do you really expect that Barack Obama is going to bite the hands that feed him?

Of course he is not going to do that.

The truth is that the Obama administration and the Federal Reserve have done everything they can to make life very comfortable for the big Wall Street banks.

During the last financial crisis, the too big to fail banks were absolutely showered with bailouts.

Meanwhile, hundreds of small and mid-size banks were allowed to die.

When representatives from those small and mid-size banks contacted the federal government for help, often they were told to try to find a larger bank that would be willing to buy them.

Sadly, the last financial crisis simply accelerated the consolidation of the banking industry in the United States that has been going on for several decades.

Today, there are less than half as many banks in the United States as there were back in 1984.

So where did all of those banks go?

They were either purchased by bigger banks or they were allowed to go out of existence.

This banking consolidation trend has allowed the big Wall Street banks to absolutely explode in size.

Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets.

Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.

So where will this end?

That is a good question.

The funny thing is that Federal Reserve Chairman Ben Bernanke and other Fed officials keep giving speeches where they warn of the dangers of having banks that are “too big to fail”.  For example, during a recent presentation to students at George Washington University, Bernanke made the following statement about the U.S. banking system….

“But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.'”

So does that mean that Bernanke is against the too big to fail banks?

Of course not.

The truth is that he showered those banks with trillions of dollars in bailout money during the last financial crisis.

The amount of money in secret loans that some of the big Wall Street banks received from the Federal Reserve was absolutely staggering.  The following figures come directly from a GAO report….

Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Bank of America – $1.344 trillion
Goldman Sachs – $814 billion
JP Morgan Chase – $391 billion

Bernanke has shown that he is willing to move heaven and earth to protect those big banks.

So what did those banks do with all that money?

They certainly didn’t lend it to us.  Lending to individuals and small businesses by those big banks actually went down immediately after those bailouts.

Instead, one thing that those banks did was they started putting massive amounts of money into commodities.

One of those commodities was food.

Over the past few years, big Wall Street banks have made huge amounts of money speculating on the price of food.  This has caused food prices all over the globe to soar and it has caused tremendous hardship for hundreds of millions of families around the planet.  The following is from a recent article in The Independent….

Speculation by large investment banks is driving up food prices for the world’s poorest people, tipping millions into hunger and poverty. Investment in food commodities by banks and hedge funds has risen from $65bn to $126bn (£41bn to £79bn) in the past five years, helping to push prices to 30-year highs and causing sharp price fluctuations that have little to do with the actual supply of food, says the United Nations’ leading expert on food.

Hedge funds, pension funds and investment banks such as Goldman Sachs, Morgan Stanley and Barclays Capital now dominate the food commodities markets, dwarfing the amount traded by actual food producers and buyers.

Goldman Sachs alone has earned hundreds of millions of dollars in profits from food speculation.

Can you imagine what kind of mindset it takes to do this?

Can you imagine taking food out of the mouths of hungry families on the other side of the world so that you and your fellow employees can pad your bonus checks?

It really is disgusting.

But that is the way the game is played.

It is set up so that the big guy will win and the little guy will lose.

The other day I wrote about how this is particularly true when it comes to our system of taxation.

Well, since that article I have discovered some new numbers that were just released by Citizens for Tax Justice.  Some of the things that they have uncovered are absolutely amazing….

Between 2008 and 2011, Verizon made a total profit of $19.8 billion and yet paid an effective tax rate of -3.8%.

Between 2008 and 2011, General Electric made a total profit of $19.6 billion and yet paid an effective tax rate of -18.9%.

Between 2008 and 2011, Boeing made a total profit of $14.8 billion and yet paid an effective tax rate of -5.5%.

Between 2008 and 2011, Pacific Gas & Electric made a total profit of $6 billion and yet paid an effective tax rate of -8.4%.

So why should middle class families continue to be suffocated by outrageous tax rates when hugely profitable corporations such as General Electric are able to get away with paying nothing?

Our current tax system is an utter abomination and should be completely thrown out.

But as is the case with so many other things, our current system is going to persist because the “big guys” really enjoy the status quo and they are the ones that fund political campaigns.

It would be bad enough if the “big guys” were beating us on a level playing field.

But the truth is that the game has been dramatically tilted in their favor and they know that the politicians are going to take care of them whenever they need it.

So what is going to happen the next time the too big to fail banks get into trouble?

They will almost certainly get bailed out again.

Unfortunately, the big Wall Street banks continue to treat the financial system as if it was a gigantic casino.  The derivatives bubble just continues to grow larger and larger, and it could burst and absolutely devastate the entire global financial system at any time.

According to the New York Times, the too big to fail banks have complete domination over derivatives trading.  Every month a secret meeting that includes representatives from JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup is held in New York to coordinate their control over the derivatives marketplace.  The following is how the New York Times describes those meetings….

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

When the derivatives market fully implodes, there will not be enough money in the world to bail everyone out.  According to the Comptroller of the Currency, the too big to fail banks have exposure to derivatives that is absolutely outrageous.  Just check out the following numbers….

JPMorgan Chase – $70.1 Trillion

Citibank – $52.1 Trillion

Bank of America – $50.1 Trillion

Goldman Sachs – $44.2 Trillion

So what happens when that house of cards comes crashing down?

Well, those big banks will come crying to the federal government again.

They will want more bailouts.

They will claim that if we don’t give them the money that they need that the entire financial system will collapse.

And yes, if several of the too big to fail banks were to collapse all at once the consequences would be almost unimaginable.

But of course all of this could have been avoided if we would have made much wiser decisions upstream.

Our financial system is more vulnerable than it ever has been before, and the too big to fail banks just continue to grow.

The lessons from the financial crisis of 2008 have gone unheeded, and we are steamrolling toward an even greater crash.

What a mess.

The Crazy Things That One Whistleblower Says Are Happening At JP Morgan Will Blow Your Mind

Rampant silver manipulation?  Rampant gold manipulation?  Rampant LIBOR manipulation?  Hiding MF Global client assets?  These are all happening at JP Morgan according to an open letter reportedly written by an anonymous employee of the firm.  The whistleblower also warns of a “cascading credit event being triggered” by derivatives related to Greek government debt.  Unlike Greg Smith at Goldman Sachs, this whistleblower has chosen to remain anonymous for now.  According to the letter, the whistleblower is still an employee of JP Morgan and has not resigned.  But that does make it much more difficult to confirm what he is saying.  With Greg Smith, we know exactly who he is and what he was doing at Goldman.  As far as this anonymous whistleblower is concerned, all we have is this letter.  So we must take it with a grain of salt.  However, the information in this letter does agree with what whistleblowers such as Andrew Maguire have said in the past about silver manipulation by JP Morgan.  And this letter does mention Greg Smith’s resignation from Goldman, so we know that it must have been written in the past few days.  Hopefully this letter will cause authorities to take a much closer look at the crazy things that are going on over at JP Morgan and the other big Wall Street banks.

This anonymous letter was addressed to the CFTC, but unfortunately it looks like the CFTC has already chosen to ignore it.

The original letter from this anonymous whistleblower has already been taken down from the CFTC website. When you go there now, all you get is this message….

“The Comment Cannot Be Found. Please Return to the Previous Page and Try Again.”

Fortunately, there are many in the alternative media that copied this entire letter from the CFTC website.

The following is a copy of the original letter that the anonymous whistleblower from JP Morgan submitted to the CFTC….

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Dear CFTC Staff,

Hello, I am a current JPMorgan Chase employee. This is an open letter to all commissioners and regulators. I am emailing you today b/c I know of insider information that will be damning at best for JPMorgan Chase. I have decided to play the role of whistleblower b/c I no longer have faith and belief that what we are doing for society is bringing value to people. I am now under the opinion that we are actually putting hard working Americans unaware of what lays ahead at extreme market risk. This risk is unnecessary and will lead to wide-scale market collapse if not handled properly. With the release of Mr. Smith’s open letter to Goldman, I too would like to set the record straight for JPM as well. I have seen the disruptive behavior of superiors and no longer can say that I look up to employees at the ED/MD level here at JPM. Their smug exuberance and arrogance permeates the air just as pungently as rotting vegetables. They all know too well of the backdoor crony connections they share intimately with elected officials and with other institutions. It is apparent in everything they do, from the meager attempts to manipulate LIBOR, therefore controlling how almost all derivatives are priced to the inherit and fraudulent commodities manipulation. They too may have one day stood for something in the past in the client-employee relationship. Does anyone in today’s market really care about the protection of their client? From the ruthless and scandalous treatment of MF Global client asset funds to the excessive bonuses paid by companies with burgeoning liabilities. Yes, we at JPMorgan that are in the know are fearful of a cascading credit event being triggered in Greece as they have hidden derivatives in excess of $1 Trillion USD. We at JPMorgan own enough of these through counterparty risk and outright prop trading that our entire IB EDG space could be annihilated within a few short days. The last ten years has been market by inflexion point after inflexion point with the most notable coming in 2008 after the acquisition of Bear.

I wish to remain anonymous as of now as fear of termination mounts from what I am about to reveal. Robert Gottlieb is not my real name; however he is a trader that is involved in a lawsuit for manipulative trading while working with JPMorgan Chase. He was acquired during our Bear Stearns acquisition and is known to be the notorious person shorting in the silver future market from his trading space, along with Blythe Masters, his IB Global boss. However, with that said, we are manipulating the silver futures market and playing a smaller (but still massively manipulative) role in manipulating the gold futures market. We have a little over a 25% (give or take a percentage) position in the short market for silver futures and by your definition this denotes a larger position than for speculative purposes or for hedging and is beyond the line of manipulation.

On a side note, I do not work directly with accounts that would have been directly impacted by the MF Global fiasco but I have heard through other colleagues that we have involvement in the hiding of client assets from MF Global. This is another fraudulent effort on our part and constitutes theft. I urge you to forward that part of the investigation on to the respective authorities.

There is something else that you may find strange. During month-end December, we were all told by our managers that this was going to be a dismal year in terms of earnings and that we should not expect any bonuses or pay raises. Then come mid-late January it is made known that everyone received a pay raise and/or bonus, which is interesting b/c just a few weeks ago we were told that this was not likely and expected to be paid nothing in addition to base salary. January is right around the time we started increasing our short positions quite significantly again and this most recent crash in gold and silver during Bernanke’s speech on February 29th is of notable importance, as we along with 4 other major institutions, orchestrated the violent $100 drop in Gold and subsequent drops in silver.

As regulators of the free people of this country, I ask you to uphold the most important job in the world right now. That job is judge and overseer of all that is justice in the most sensitive of commodity markets. There are many middle-income people that invest in the physical assets of silver, gold, as well as mining stocks that are being financially impacted in a negative way b/c of our unscrupulous shorts in the precious metals commodity sector. If you read the COT with intent you will find that commercials (even though we have no business being in the commercial sector, which should be reserved for companies that truly produce the metal) are net short by a long shot in not only silver, but gold.

It is rather surprising that what should be well known liabilities on our balance sheet have not erupted into wider scale scrutinization. I call all honest and courageous JPMorgan employees to step up and fight the cronyism and wide-scale manipulation by reporting the truth. We are only helping reality come to light therefore allowing a real valuation of our banking industry which will give investors a chance to properly adjust without being totally wiped out. I will be contacting a lawyer shortly about this matter, as I believe no other whistleblower at JPMorgan has come forward yet. Our deepest secrets lie within the hands of honest employees and can be revealed through honest regulators that are willing to take a look inside one of America’s best kept secrets. Please do not allow this to turn into another Enron.

Kind Regards,
-The 1st Whistleblower of Many

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Another Enron?

If what this letter says is true, then the problems facing our financial system are more serious than most of us thought.

And the allegations of corruption at JP Morgan are absolutely shocking.

But this is not the first whistleblower to come forward to the CFTC with charges of rampant market manipulation by JP Morgan.

Back in 2010 I wrote about the stunning allegations that a former silver trader named Andrew Maguire presented to the CFTC.  The following is an extended excerpt from that article….

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Back in November 2009, Andrew Maguire, a former Goldman Sachs silver trader in Goldman’s London office, contacted the CFTC’s Enforcement Division and reported the illegal manipulation of the silver market by traders at JPMorgan Chase.

Maguire told the CFTC how silver traders at JPMorgan Chase openly bragged about their exploits – including how they sent a signal to the market in advance so that other traders could make a profit during price suppression episodes.

Traders would recognize these signals and would make money shorting precious metals alongside JPMorgan Chase.  Maguire explained to the CFTC how there would routinely be market manipulations at the time of option expiries, during non-farm payroll data releases, during commodities exchange contract rollovers, as well as at other times if it was deemed necessary.

On February 3rd, Maguire gave the CFTC a two day warning of a market manipulation event by email to Eliud Ramirez, who is a senior investigator for the CFTC’s Enforcement Division.

Maguire warned Ramirez that the price of precious metals would be suppressed upon the release of non-farm payroll data on February 5th.  As the manipulation of the precious metals markets was unfolding on February 5th, Maguire sent additional emails to Ramirez explaining exactly what was going on.

And it wasn’t just that Maguire predicted that the price would be forced down.  It was the level of precision that he was able to communicate to the CFTC that was the most stunning.  He warned the CFTC that the price of silver was to be taken down regardless of what happened to the employment numbers and that the price of silver would end up below $15 per ounce. Over the next couple of days, the price of silver was indeed taken down from $16.17 per ounce down to a low of $14.62 per ounce.

Because of Maguire’s warning, the CFTC was able to watch a crime unfold, right in front of their eyes, in real time.

So what did the CFTC do about it?

Nothing.

Absolutely nothing.

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You can read the rest of that article right here.

So will the CFTC do anything about all of this?

Based on past history, probably not.

Basically, the CFTC is a government agency that appears to do next to nothing.

Another scandal involving JP Morgan has come out in recent days as well.

This one involves their credit card division.  If you have a moments, you should really read the recent American Banker expose of credit card debt collection practices at JPMorgan Chase.  It exposes some things that will absolutely blow your mind.

Linda Almonte, a former executive at JPMorgan Chase’s Credit Card Litigation Support Group, has revealed some incredible stuff regarding the debt collection practices at the company.  Almonte says that she was shocked at what she saw when she began examining the details of a $200 million package of debt collection judgments to an outside debt collection agency….

Nearly half of the files her team sampled were missing proofs of judgment or other essential information, she wrote to colleagues. Even more worrisome, she alleged in her wrongful-termination suit, nearly a quarter of the files misstated how much the borrower owed.

In the “vast majority” of those instances, the actual debt was “lower that what Chase was representing,” her suit stated.

Almonte says that she warned that this sale of debt collection judgments must be stopped, but that a company executive told her that “she had better go along with the plan to sell the misrepresented asset“.

Almonte refused to go along, and she was fired on November 30th, 2009.

You are probably thinking that this sounds very much like the “robo-signing” foreclosure scandal and you would be right.

The more we dig into these giant financial companies the more corruption we find.

It really is shocking.

And remember, JPMorgan Chase is also the company that makes more money whenever the number of Americans on food stamps goes up.

JPMorgan Chase issues food stamp debit cards in 26 U.S. states and the District of Columbia, and they actually want more Americans to go on food stamps so that they can make bigger profits from the division that issues them.

So now are you starting to understand why so many Americans are upset about the corruption on Wall Street?

This isn’t a “conservative issue” or a “liberal issue” – it is an American issue and the outrageous behavior of these firms has brought our financial system once again to the edge of disaster.

Over the past six months, more than 350 prominent executives have resigned from major banks and financial institutions all over the globe.

Is this a sign that the rats are fleeing a sinking ship?

Do they know something that we don’t?

What we do know is that the financial crisis in Greece is far from over and the European financial system is getting closer to a complete meltdown with each passing day.

Very few of the things that caused the financial crisis of 2008 were ever corrected and our financial system is even more vulnerable today than it was back then.

In the end, this entire pyramid of debt, leverage and corruption is going to come crashing down really hard, and the consequences are going to be absolutely catastrophic.

10 Things That Every American Should Know About The Federal Reserve

What would happen if the Federal Reserve was shut down permanently?  That is a question that CNBC asked recently, but unfortunately most Americans don’t really think about the Fed much. Most Americans are content with believing that the Federal Reserve is just another stuffy government agency that sets our interest rates and that is watching out for the best interests of the American people.  But that is not the case at all.  The truth is that the Federal Reserve is a private banking cartel that has been designed to systematically destroy the value of our currency, drain the wealth of the American public and enslave the federal government to perpetually expanding debt.  During this election year, the economy is the number one issue that voters are concerned about.  But instead of endlessly blaming both political parties, the truth is that most of the blame should be placed at the feet of the Federal Reserve.  The Federal Reserve has more power over the performance of the U.S. economy than anyone else does.  The Federal Reserve controls the money supply, the Federal Reserve sets the interest rates and the Federal Reserve hands out bailouts to the big banks that absolutely dwarf anything that Congress ever did.  If the American people are ever going to learn what is really going on with our economy, then it is absolutely imperative that they get educated about the Federal Reserve.

The following are 10 things that every American should know about the Federal Reserve….

#1 The Federal Reserve System Is A Privately Owned Banking Cartel

The Federal Reserve is not a government agency.

The truth is that it is a privately owned central bank.  It is owned by the banks that are members of the Federal Reserve system.  We do not know how much of the system each bank owns, because that has never been disclosed to the American people.

The Federal Reserve openly admits that it is privately owned.  When it was defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve stated unequivocally in court that it was “not an agency” of the federal government and therefore not subject to the Freedom of Information Act.

In fact, if you want to find out that the Federal Reserve system is owned by the member banks, all you have to do is go to the Federal Reserve website….

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

Foreign governments and foreign banks do own significant ownership interests in the member banks that own the Federal Reserve system.  So it would be accurate to say that the Federal Reserve is partially foreign-owned.

But until the exact ownership shares of the Federal Reserve are revealed, we will never know to what extent the Fed is foreign-owned.

#2 The Federal Reserve System Is A Perpetual Debt Machine

As long as the Federal Reserve System exists, U.S. government debt will continue to go up and up and up.

This runs contrary to the conventional wisdom that Democrats and Republicans would have us believe, but unfortunately it is true.

The way our system works, whenever more money is created more debt is created as well.

For example, whenever the U.S. government wants to spend more money than it takes in (which happens constantly), it has to go ask the Federal Reserve for it.  The federal government gives U.S. Treasury bonds to the Federal Reserve, and the Federal Reserve gives the U.S. government “Federal Reserve Notes” in return.  Usually this is just done electronically.

So where does the Federal Reserve get the Federal Reserve Notes?

It just creates them out of thin air.

Wouldn’t you like to be able to create money out of thin air?

Instead of issuing money directly, the U.S. government lets the Federal Reserve create it out of thin air and then the U.S. government borrows it.

Talk about stupid.

When this new debt is created, the amount of interest that the U.S. government will eventually pay on that debt is not also created.

So where will that money come from?

Well, eventually the U.S. government will have to go back to the Federal Reserve to get even more money to finance the ever expanding debt that it has gotten itself trapped into.

It is a debt spiral that is designed to go on perpetually.

You see, the reality is that the money supply is designed to constantly expand under the Federal Reserve system.  That is why we have all become accustomed to thinking of inflation as “normal”.

So what does the Federal Reserve do with the U.S. Treasury bonds that it gets from the U.S. government?

Well, it sells them off to others.  There are lots of people out there that have made a ton of money by holding U.S. government debt.

In fiscal 2011, the U.S. government paid out 454 billion dollars just in interest on the national debt.

That is 454 billion dollars that was taken out of our pockets and put into the pockets of wealthy individuals and foreign governments around the globe.

The truth is that our current debt-based monetary system was designed by greedy bankers that wanted to make enormous profits by using the Federal Reserve as a tool to create money out of thin air and lend it to the U.S. government at interest.

And that plan is working quite well.

Most Americans today don’t understand how any of this works, but many prominent Americans in the past did understand it.

For example, Thomas Edison was once quoted in the New York Times as saying the following….

That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.

Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.

But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.

We should have listened to men like Edison and Ford.

But we didn’t.

And so we pay the price.

On July 1, 1914 (a few months after the Fed was created) the U.S. national debt was 2.9 billion dollars.

Today, it is more than more than 5000 times larger.

Yes, the perpetual debt machine is working quite well, and most Americans do not even realize what is happening.

#3 The Federal Reserve Has Destroyed More Than 96% Of The Value Of The U.S. Dollar

Did you know that the U.S. dollar has lost 96.2 percent of its value since 1900?  Of course almost all of that decline has happened since the Federal Reserve was created in 1913.

Because the money supply is designed to expand constantly, it is guaranteed that all of our dollars will constantly lose value.

Inflation is a “hidden tax” that continually robs us all of our wealth.  The Federal Reserve always says that it is “committed” to controlling inflation, but that never seems to work out so well.

And current Federal Reserve Chairman Ben Bernanke says that it is actually a good thing to have a little bit of inflation.  He plans to try to keep the inflation rate at about 2 percent in the coming years.

So what is so bad about 2 percent?  That doesn’t sound so bad, does it?

Well, just consider the following excerpt from a recent Forbes article….

The Federal Reserve Open Market Committee (FOMC) has made it official:  After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years.  The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

#4 The Federal Reserve Can Bail Out Whoever It Wants To With No Accountability

The American people got so upset about the bailouts that Congress gave to the Wall Street banks and to the big automakers, but did you know that the biggest bailouts of all were given out by the Federal Reserve?

Thanks to a very limited audit of the Federal Reserve that Congress approved a while back, we learned that the Fed made trillions of dollars in secret bailout loans to the big Wall Street banks during the last financial crisis.  They even secretly loaned out hundreds of billions of dollars to foreign banks.

According to the results of the limited Fed audit mentioned above, a total of $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010.

The following is a list of loan recipients that was taken directly from page 131 of the audit report….

Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion

So why haven’t we heard more about this?

This is scandalous.

In addition, it turns out that the Fed paid enormous sums of money to the big Wall Street banks to help “administer” these nearly interest-free loans….

Not only did the Federal Reserve give 16.1 trillion dollars in nearly interest-free loans to the “too big to fail” banks, the Fed also paid them over 600 million dollars to help run the emergency lending program.  According to the GAO, the Federal Reserve shelled out an astounding $659.4 million in “fees” to the very financial institutions which caused the financial crisis in the first place.

Does reading that make you angry?

It should.

#5 The Federal Reserve Is Paying Banks Not To Lend Money

Did you know that the Federal Reserve is actually paying banks not to make loans?

It is true.

Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on “excess reserves” that U.S. banks park at the Fed.

So the banks can just send their cash to the Fed and watch the money come rolling in risk-free.

So are many banks taking advantage of this?

You tell me.  Just check out the chart below.  The amount of “excess reserves” parked at the Fed has gone from nearly nothing to about 1.5 trillion dollars since 2008….

But shouldn’t the banks be lending the money to us so that we can start businesses and buy homes?

You would think that is how it is supposed to work.

Unfortunately, the Federal Reserve is not working for us.

The Federal Reserve is working for the big banks.

Sadly, most Americans have no idea what is going on.

Another example of this is the government debt carry trade.

Here is how it works.  The Federal Reserve lends gigantic piles of nearly interest-free cash to the big Wall Street banks, and in turn those banks use the money to buy up huge amounts of government debt.  Since the return on government debt is higher, the banks are able to make large profits very easily and with very little risk.

This scam was also explained in a recent article in the Guardian….

Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don’t even have to make clever investments to make huge profits.

That is a pretty good little scam they have got going, wouldn’t you say?

#6 The Federal Reserve Creates Artificial Economic Bubbles That Are Extremely Damaging

By allowing a centralized authority such as the Federal Reserve to dictate interest rates, it creates an environment where financial bubbles can be created very easily.

Over the past several decades, we have seen bubble after bubble.  Most of these have been the result of the Federal Reserve keeping interest rates artificially low.  If the free market had been setting interest rates all this time, things would have never gotten so far out of hand.

For example, the housing crash would have never been so horrific if the Federal Reserve had not created such ideal conditions for a housing bubble in the first place.  But we allow the Fed to continue to make the same mistakes.

Right now, the Federal Reserve continues to set interest rates much, much lower than they should be.  This is causing a tremendous misallocation of economic resources, and there will be massive consequences for that down the line.

#7 The Federal Reserve System Is Dominated By The Big Wall Street Banks

Even since it was created, the Federal Reserve system has been dominated by the big Wall Street banks.

The following is from a previous article that I did about the Fed….

The New York representative is the only permanent member of the Federal Open Market Committee, while other regional banks rotate in 2 and 3 year intervals.  The former head of the New York Fed, Timothy Geithner, is now U.S. Treasury Secretary.  The truth is that the Federal Reserve Bank of New York has always been the most important of the regional Fed banks by far, and in turn the Federal Reserve Bank of New York has always been dominated by Wall Street and the major New York banks.

#8 It Is Not An Accident That We Saw The Personal Income Tax And The Federal Reserve System Both Come Into Existence In 1913

On February 3rd, 1913 the 16th Amendment to the U.S. Constitution was ratified.  Later that year, the United States Revenue Act of 1913 imposed a personal income tax on the American people and we have had one ever since.

Without a personal income tax, it is hard to have a central bank.  It takes a lot of money to finance all of the government debt that a central banking system creates.

It is no accident that the 16th Amendment was ratified in 1913 and the Federal Reserve system was also created in 1913.

They have a symbiotic relationship and they are designed to work together.

We could fill Congress with people that are committed to ending this oppressive system, but so far we have chosen not to do that.

So our children and our grandchildren will face a lifetime of debt slavery because of us.

I am sure they will be thankful for that.

#9 The Current Federal Reserve Chairman, Ben Bernanke, Has A Nightmarish Track Record Of Incompetence

The mainstream media portrays Federal Reserve Chairman Ben Bernanke as a brilliant economist, but is that really the case?

Let’s go to the videotape.

The following is an extended excerpt from an article that I published previously….

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In 2005, Bernanke said that we shouldn’t worry because housing prices had never declined on a nationwide basis before and he said that he believed that the U.S. would continue to experience close to “full employment”….

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

In 2005, Bernanke also said that he believed that derivatives were perfectly safe and posed no danger to financial markets….

“With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.”

In 2006, Bernanke said that housing prices would probably keep rising….

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”

In 2007, Bernanke insisted that there was not a problem with subprime mortgages….

“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”

In 2008, Bernanke said that a recession was not coming….

“The Federal Reserve is not currently forecasting a recession.”

A few months before Fannie Mae and Freddie Mac collapsed, Bernanke insisted that they were totally secure….

“The GSEs are adequately capitalized. They are in no danger of failing.”

For many more examples that demonstrate the absolutely nightmarish track record of Federal Reserve Chairman Ben Bernanke, please see the following articles….

*”Say What? 30 Ben Bernanke Quotes That Are So Stupid That You Won’t Know Whether To Laugh Or Cry”

*”Is Ben Bernanke A Liar, A Lunatic Or Is He Just Completely And Totally Incompetent?”

But after being wrong over and over and over, Barack Obama still nominated Ben Bernanke for another term as Chairman of the Fed.

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#10 The Federal Reserve Has Become Way Too Powerful

The Federal Reserve is the most undemocratic institution in America.

The Federal Reserve has become so powerful that it is now known as “the fourth branch of government”, but there are less checks and balances on the Fed than there are on the other three branches.

The Federal Reserve runs the U.S. economy but it is not accountable to the American people.  We can’t vote those that run the Fed out of office if we do not like what they do.

Yes, the president appoints those that run the Fed, but he also knows that if he does not tread lightly he won’t get the money from the big Wall Street banks that he needs for his next election.

Thankfully, there are a few members of Congress that are complaining about how much power the Fed has.  For example, Ron Paul once told MSNBC that he believes that the Federal Reserve is now actually more powerful than Congress…..

“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”

As members of Congress such as Ron Paul have started to shed some light on the activities of the Federal Reserve, that has caused many in the mainstream media to come to the defense of the Fed.

For example, a recent CNBC article entitled “If The Federal Reserve Is Abolished, What Then?” makes it sound like there is absolutely no other rational alternative to having the Federal Reserve run our economy.

But this is not what our founders intended.

The founders did not intend for a private banking cartel to issue our money and set our interest rates for us.

According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress has been given the responsibility to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why is the Federal Reserve doing it?

But the CNBC article mentioned above makes it sound like the sky would fall if control of the currency was handed back over to the American people.

At one point, the article asks the following question….

“How would the U.S. economy then function? Something has to take its place, right?”

No, the truth is that we don’t need anyone to “manage” our economy.

The U.S. Treasury could be in charge of issuing our currency and the free market could set our interest rates.

We don’t need to have a centrally-planned economy.

We aren’t China.

And it goes against everything that our founders believed to be running up so much government debt.

For example, Thomas Jefferson once declared that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing….

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

Oh, how things would have been different if we had only listened to Thomas Jefferson.

Please share this article with as many people as you can.  These are things that every American should know about the Federal Reserve, and we need to educate the American people about the Fed while there is still time.

The Financial Crisis Of 2008 Was Just A Warm Up Act For The Economic Horror Show That Is Coming

The people out there that believe that the U.S. economy is experiencing a permanent recovery and that very bright days are ahead for us should have their heads examined.  Unfortunately, what we are going through right now is simply just a period of “hopetimism” between two financial crashes.  Things may seem relatively stable right now, but it won’t last long.  The truth is that the financial crisis of 2008 was just a warm up act for the economic horror show that is coming.  Nothing really got fixed after the crash of 2008.  We are living in the biggest debt bubble in the history of the world, and it has gotten even bigger since then.  The “too big to fail” banks are larger now than they have ever been.  Americans continue to run up credit card balances like there is no tomorrow.  Tens of thousands of manufacturing facilities and millions of jobs continue to leave the country.  We continue to consume far more than we produce and we continue to become poorer as a nation.  None of the problems that caused the crisis of 2008 have been solved and we are even weaker financially than we were back then.  So why in the world are so many people so optimistic about the economy right now?

Just take a look at the chart posted below.  It shows the growth of total debt in the United States.  During the financial crisis of 2008 there was a little “hiccup”, but the truth is that not much deleveraging really took place at all.  And since the recession “ended”, total credit market debt has gone on to even greater heights….

So what does this mean for the future?

Well, if a small “hiccup” in the debt bubble caused so much chaos back in 2008, what is going to happen when this debt bubble finally bursts?

That is something to think about.

Sadly, most Americans seem oblivious to all of this.

If you go out to malls in the wealthy areas of America today, people are charging up a storm.  In all, Americans charged a whopping 2.5 trillion dollars on their credit cards during 2011.  Way too many people have already forgotten the lessons that we all learned back in 2008.

Of course some Americans pay off their credit cards every month, but way too many Americans are not doing that.  Today, Americans are carrying 793 billion dollars in revolving credit balances.

And student loan debt is an even bigger bubble than credit card debt is.  As I have written about previously, total student loan debt in America is rapidly approaching a trillion dollars.

So it looks like U.S. consumers have not learned to stay away from debt.

That is not good.

Well, what about the banks?

Has the financial system learned any lessons since 2008?

No, not really.

Sadly, the “too big to fail” banks are now even bigger than ever.  The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.  If they were to fail today, they would be even more of a threat to our financial system than they were back in 2008.

And our major banks continue to be very highly leveraged.  In fact, major banks all over the world are absolutely swamped with debt.

The following statistics come from Zero Hedge….

The U.S. banking system is leveraged 13 to 1.

The Japanese banking system is leveraged 23 to 1.

The French banking system is leveraged 26 to 1.

The German banking system is leveraged 32 to 1.

These are insane levels of leverage, and they are just inviting another major financial crisis.

Do you all remember Lehman Brothers?  The fact that they were leveraged so highly is what did them in back in 2008.  When the value of their holdings declined by just a little bit they were totally wiped out.

Well, during this next financial crisis large financial institutions are going to be wiped out all over the world.  Major banks all over the globe are going to be crying out for more bailouts when things take a turn against them.

They are making the exact same mistakes that they made before, and they are going to be expecting more government handouts when things go bad.

Will we ever learn?

So obviously the banking system has not learned any lessons.

What about the federal government?

Well, if you follow my blog regularly, you know that I love to write about how horrific U.S. government debt is.

Unfortunately, over the past four years things have gotten so much worse.

Back in 2008, the U.S. national debt crossed the 10 trillion dollar mark.

Just recently, it crossed the 15 trillion dollar mark.

So now we are in a much weaker position financially to respond to another major financial crisis.

Just check out the chart posted below.  This is a recipe for national financial suicide….

During fiscal 2011, the Obama administration stole close to 150 million dollars from our children and our grandchildren every single hour.

At the moment, the legacy of debt that we are passing on to future generations is sitting a grand total of $15,351,406,294,640.49.

But keep in mind that it is going up every single hour.

Meanwhile, our ability to service that debt is declining.  We are rapidly getting poorer as a nation.

During 2011, the amount of money that left the United States exceeded the amount of money that entered the United States by more than a half a trillion dollars.

This gap is called a trade deficit, and it is absolutely ripping our economy to shreds.

For a moment, imagine Uncle Sam standing next to a giant pile of money on a map of the United States.  Then imagine a half a trillion dollars being taken out of that pile every single year.

So why haven’t we totally run out of money yet?

Well, it is because we borrow those dollars back.  In order to maintain our false standard of living, our federal government, our state governments and our local governments have to go out and beg the rest of the world to lend us our dollars back.

Sadly, our government schools have “dumbed-down” the population so much that most of them don’t even know what a “trade deficit” is anymore.

Meanwhile, our economic infrastructure is being gutted like a fish.

Look, I know that I go over this point over and over and over, but it is absolutely imperative that we all understand this.

The half a trillion dollars a year that leaves this country every year could have gone to support businesses and jobs inside the United States.

But instead it is going to support businesses and jobs on the other side of the world.

The consequences of this are absolutely devastating.

According to U.S. Representative Betty Sutton, an average of 23 manufacturing facilities a day closed down in the United States during 2010.  Overall, more than 56,000 manufacturing facilities in the United States have shut down since 2001.

Even many so-called “American companies” have been bought up by the rest of the world.  The following comes from a recent article posted on Economy In Crisis….

RCA is now a French company, Zenith is a Korean company. Frigidaire is a Swedish company. IBM’s Personal Computer Division—with its 500 patents—is now a Chinese company. Westinghouse Nuclear Energy’s major shareholder is Toshiba—a Japanese Company. Lucent Technologies, a former research division of AT&T, along with all the patents acquired from the beginning of the phone system, is now a French company. In 2008, Brazilian-Belgian brewing company InBev purchased the iconic American brewer Anheuser-Busch, makers of Budweiser. With the sale of these manufacturing companies, the future profit and technologies all belong to foreign entities.

We once had the greatest economic machine in the history of the world.

Now it is being dismantled and bought up by foreigners.

When America’s economic infrastructure declines, that means that there are less jobs available for all of us.

As I wrote about the other day, the employment situation in this country is not getting better and we have never even come close to recovering from the recession that started back in 2008.

During 2008 and 2009, the U.S. economy lost millions of jobs.  Since the beginning of 2010, the percentage of the U.S. population that has had a job has remained very stable….

Normally, when a recession ends the percentage of Americans that have a job bounces back pretty dramatically.

So considering the fact that the employment situation has never recovered from the last financial crisis, what is going to happen when the next financial crisis hits?

And most of the jobs that have been “created” during this so-called “recovery” have been low income jobs.  In fact, if you look closely at the employment numbers that were released last Friday, you will find that the vast majority of the “new jobs” were part-time jobs.

But you cannot pay a mortgage and support a family on a part-time job.

Sadly, the truth is that median household income in America has been steadily dropping over the past several years.  Tens of millions of American families are deeply struggling and more Americans than ever are falling into poverty.

Back in the year 2000, about one out of every nine Americans was living in poverty.  Today, about one out of every seven Americans is living in poverty.

All of this is causing a great deal of anxiety in America today.  Large numbers of Americans know that something has fundamentally changed, even if they don’t understand the specifics.  That is one reason why sites such as this one have become so popular.  People want some answers.

And once people get some answers about what is really happening, they tend to want to prepare for the hard times that are coming.

In a few days, a new series on National Geographic entitled “Doomsday Preppers” premieres.  The mainstream media is starting to take notice of the growing “prepper” movement in America today.  It is estimated that there are at least 2 million “preppers” in the United States at this point.  Of course people are “prepping” for a whole host of reasons, but the number one concern among most groups of preppers is the economy.

As the economy crumbles, more Americans than ever have decided that it is not a good thing to be 100% dependent on the system.

Back in 2008 and 2009, millions of Americans suddenly lost their jobs.  Because they did not have any finances stored up, large numbers of them also lost their homes.  Many went from being solidly middle class to being out on the street in a matter of months.

That doesn’t have to happen to you.  Instead of blowing your money on frivolous things, do what you can to set something aside for the difficult times that are on the horizon.

A lot of those “in the know” are quietly making their own preparations.  For example, legendary film director James Cameron (Avatar, Titanic and Terminator) has purchased more than 2600 acres of farmland in New Zealand and he is getting out of the U.S. for good apparently.

Unfortunately, most of us do not have the resources for something like that.  But what most of us can do is we can change our priorities and start focusing on the things that will help us survive the hard times that are coming.

So are you ready?

Making Money On Poverty: JP Morgan Makes Bigger Profits When The Number Of Americans On Food Stamps Goes Up

How would you feel if someone told you that one of the largest banks on Wall Street makes more money whenever the number of Americans on food stamps goes up?  Unfortunately, this is something that is actually true.  In the United States today, one out of every seven Americans is on food stamps.  In fact, the number of Americans on food stamps has increased by a whopping 14 million since Barack Obama entered the White House.  All of this makes JP Morgan very happy, because JP Morgan has been making money by the boatload on food stamps.  Right now, JP Morgan Chase issues food stamp debit cards in 26 U.S. states and the District of Columbia.  The division of JP Morgan Chase that issues these debit cards made an eye-popping 5.47 billion dollars in net revenue during 2010.  JP Morgan is paid per customer, so when the number of Americans on food stamps goes up, they make more money.  But doesn’t this give JP Morgan an incentive to try to keep the number of Americans on food stamps as high as possible?  Of course it does.  JP Morgan is interested in making money as rapidly as possible. If JP Morgan can get more Americans enrolled in the food stamp program and keep them enrolled in it for as long as possible, that is good for business.

And the Obama administration is certainly doing what it can to help out.  Even though a whopping 46 million Americans are now on food stamps, the Obama administration plans to give out large amounts of money to organizations that are able figure out ways to get even more people enrolled in the program….

Despite the historic rise in food stamp use, however, the Obama Administration believes not enough people are receiving food stamps who should be and is offering $75,000 grants to groups who devise “effective strategies” to “increase program participation” among those who have yet to sign up.

In fact, U.S. Agriculture Secretary Tom Vilsack says that if we can get even more Americans enrolled in the food stamp program, that will be a great way to “stimulate the economy“.

Of course JP Morgan just loves all of this.  The more people they have in the system the better.

Christopher Paton, the managing director of JP Morgan’s “Treasury Solutions” business, made the following statement about the “food stamp business” that his firm is engaged in during an interview with Bloomberg Television….

“This business is a very important business to JPMorgan. It’s an important business in terms of its size and scale…Right now, volumes have gone through the roof in the past couple of years. The good news, from JPMorgan’s perspective, is the infrastructure that we built has been able to cope with that increase in volume.”

You can see more of the interview with Paton in the video posted below….

As the interview above noted, more than 40 percent of all food stamp recipients in the United States actually have a job.

This is an exciting “growth area” for JP Morgan.  As the middle class continues to decline, the number of “the working poor” in America is exploding.

Back in 1980, less than 30% of all jobs in the United States were low income jobs.  Today, more than 40% of all jobs in the United States are low income jobs.  This trend is perfect for JP Morgan because it means that the number of low income workers that are eligible for food stamps is going to keep increasing.

And what makes all of this even sadder is that JP Morgan has outsourced many of the customer service jobs for its food stamp program to India.

Yes, you read that correctly.

When Americans that can’t find a decent job need help with their food stamps there is a good chance that they will be talking to a customer service representative sitting in India.

Isn’t that crazy?

When ABC News confronted JP Morgan about this, JP Morgan would not tell ABC which states have customer service calls sent to India and which states have them handled inside the United States….

JP Morgan is the only one today still operating public-assistance call centers overseas. The company refused to say which states had calls routed to India and which ones had calls stay domestically. That decision, the company said, was often left up to the individual states.

But JP Morgan doesn’t just handle food stamps.  JP Morgan also issues child support debit cards in 15 states and unemployment insurance debit cards in 7 states.

Of course JP Morgan is not the only big bank involved in this kind of business.  Several others are also making money in massive quantities on the backs of the poor.

The following example comes from a Huffington Post article….

Shawana Busby does not seem like the sort of customer who would be at the center of a major bank’s business plan. Out of work for much of the last three years, she depends upon a $264-a-week unemployment check from the state of South Carolina. But the state has contracted with Bank of America to administer its unemployment benefits, and Busby has frequently found herself incurring bank fees to get her money.

To withdraw her benefits, Busby, 33, uses a Bank of America prepaid debit card on which the state deposits her funds. She could visit a Bank of America ATM free of charge. But this small community in the state’s rural center, her hometown, does not have a Bank of America branch. Neither do the surrounding towns where she drops off her kids at school and attends church.

She could drive north to Columbia, the state capital, and use a Bank of America ATM there. But that entails a 50 mile drive, cutting into her gas budget. So Busby visits the ATMs in her area and begrudgingly accepts the fees, which reach as high as five dollars per transaction. She estimates that she has paid at least $350 in fees to tap her unemployment benefits.

There is something about all of this that just seems very, very wrong.

When we have good jobs, the big banks hit us with outrageous bank fees and they try to get us enslaved to credit card debt.

When we are down on our luck and become dependent on the government, the big banks still find ways of making money at our expense.

Why do the banksters always seem to win and we always seem to lose?

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