Woes on Wall Street coincide with gold coin rush
By SANDY SHORE
DENVER (AP) — Investors who have forsaken shaky financial markets for the safety of gold must feel a little bit like prospectors.
As the worst recession in at least a generation spreads, so too does the clamor for gold bars and coins, assets less likely to go up on smoke like so many derivatives and asset-backed securities.
"I've never seen a case where demand was so high and supply was so short," said Chicago coin dealer Harlan Berk, who has been in the business 44 years.
Spikes in demand for gold coins this year appear to run parallel with the mounting woes on Wall Street.
In August, as the Federal Reserve pumped $62 billion into the U.S. banking system and rejected requests for mortgage finance giants Fannie Mae and Freddie Mac to take on more debt, sales of the popular American Eagle coin were suspended for a week.
The U.S. Mint was unable to get enough gold blanks from suppliers to match demand, Mint spokesman Michael White said.
In late September, when a massive bailout for the nation's biggest banks failed, sales of the American Buffalo coin were suspended until Nov. 3 because of shortages.
Yet even before the full extent of the financial crisis was known, investors had begun to load up on gold and other assets that could be held in the hand.
By early spring, investors were snapping up precious metals such as gold, silver and platinum, said Beth Deisher, editor of Coin World trade magazine.
Gold for April delivery shot up to a record of $1,033.90 an ounce on the New York Mercantile Exchange March 17. According to a report by the National Bureau of Economic Research released this month, that was just three months into the U.S. recession.
That correlation continued throughout the year as Wall Street institutions fell.
"People sensed there was something going on that they didn't quite understand," Deisher said.
In the third quarter, when the U.S. bailed out Fannie Mae and Freddie Mac, the Fed gathered the chiefs of major banks on Wall Street to plot a rescue, and Lehman Brothers descended into bankruptcy protection, gold sales went into high gear, said Natalie Dempster, head of the World Gold Council's North American investment unit.
U.S. demand for gold coins and small bars jumped 600 percent and international demand rose 121 percent, according to the council.
"The fact that gold is nobody else's liability was really an extremely important trait for investors in Q3 that were growing increasingly mistrustful of financial institutions in general," Dempster said.
To get gold as stocks began to fall, investors were willing to pay.
"You saw people paying premiums to get coins and small bars," Dempster said. "The refiners, et cetera, just wouldn't have been set up to produce that amount of gold, the same way as any other product."
Compounding the shortage somewhat, Deisher said, was a decision years ago to offshore some of the tasks that go into making U.S. gold coins.
Under the law, gold used in U.S. coins must be mined domestically. However, the government contracts with private companies to fabricate blank coins for striking with images such as the American Eagle. One of those companies is Gold Corp., owned by the government of Western Australia and operator of the Perth Mint.
Demand for gold coins continued to grow as economic news from Wall Street and Washington grew more ominous.
In early October, the Dow Jones industrial average closed below 10,000 points for the first time since 2004. At the same time, coin dealers saw demand a hit a peak, and bullion coins were fetching huge premiums, said Larry Shepherd, executive director of the American Numismatic Association.
LEGITIMACY DWINDLES
by James Howard Kunstler
Zounds! Public sentiment toward the accelerating economic fiasco has shifted, seemingly overnight, from a mood of nauseated amazement to one of panicked grievance as the United States moves closer to an apparent comprehensive collapse - and so ill-timed, wouldn't you know it, to coincide with the annual rigors of Santa Claus. The tipping point seems to be the Bernie Madoff $50 billion Ponzi scandal, which represents the grossest failure of authority and hence legitimacy in finance to date in as much as Mr. Madoff was a former chairman of the NASDAQ, for godsake. It's like discovering that Ben Bernanke is running a meth lab inside the Federal Reserve. And out in the heartland, of course, there is the spectacle of Illinois governor Rod Blagojevich trying to desperately dodge a racketeering rap behind an implausible hairdo.
What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system. Not even the legions of Obama are immune as his reliance on Wall Street capos Robert Rubin, Tim Geithner, and Larry Summers seem tainted by the same reckless thinking that brought on the fiasco. His pick last week for chief of the SEC, Mary Shapiro, is already being dissed as a shill for the Big Bank status quo. In a few days we'll discover what kind of bonuses are being ladled out by the remaining Wall Street banks with TARP money and a new chorus of howls will ring out.
This is very dangerous territory. In dollar terms, the numbers being applied to the various problems are so colossal - trillions! - that the death of our currency seems assured. And in defiance of congress's express intentions, none of the TARP "money" has been applied to its targeted purpose of buying up "toxic" (i.e. fraudulent) securities hidden in the vaults of banks, pension funds, and municipal portfolios.
George W, Bush's personal bailout of General Motors and Chrysler is designed solely to postpone their bankruptcy and mass job layoffs until after the holidays. Otherwise, the $17.4 billion will probably be used by the companies to underwrite the extensive legal work required for the moment they must declare bankruptcy - when Mr. Obama is in the White House. Meanwhile, the President-elect has ramped up his job-creation target overnight from two to three million, and some observers are catching a whiff of Soviet-style economic engineering ("…we pretend to work and they pretend to pay us….").
The years since Jimmy Carter have produced an astoundingly flaccid public, sunk in various addictions and distractions, but this is about to change. The darkling mood of political protest and violent activism that saturated my own young adult years is scudding up again on the horizon. Mr. Obama's pick for attorney general, the mild-looking Eric Holder, may be the key figure in the early months of the new government. If he doesn't commence some aggressive investigations and prosecutions - beginning with Henry Paulson for insider trading when he was in charge of Goldman Sachs and shorting his own company's mortgage-backed securities - then the whole Obama enterprise could fall under suspicion of illegitimacy. The bums who ran the US banking sector into a ditch have to account for their turpitudes. They can't be allowed to hide under a TARP.
Unfortunately, the legal system, and probably the legislative system, will be so buried in procedural bullshit from the unwind of countless enterprises and institutions, and the sorting out of the remnants, that it remains to be seen whether this generation of people-in-charge can even embark on a fresh start of anything connected to real everyday life in America. All this is starting to alarm the tattered residue of the middle classes, and from here it's a very short path to them being really pissed off.
When legitimacy erodes, anything goes. Nothing is respected including rules and personalities. The center doesn't hold and the new vacuum there is a tumultuous place. The same crisis of authority and legitimacy is spreading from nation to nation now. Soon, China will contend with a discontented army of the unemployed. Greece has been in an uproar for two weeks. Belgium's government just collapsed. Trade barriers are going up. Exports are falling away. The world's energy markets are not immune to these disorders. I would expect problems with the currently seamless supply lines that bring America two-thirds of the oil we use. Even a mild disruption of oil supplies could attach an anvil to the ankle of an economy already falling off a cliff.
Right now, the overwhelming sentiment is to get this country back to where we were, say, ten years ago, when everything was humming nicely: Clinton nostalgia. We're definitely not gong back there, though. It's an idle wish. And any set of policies designed to lead in that direction will prove very disappointing. Our destination is a land of much smaller-scaled local economies. We could retain our federal ties if the federal government can scale back appropriately from the bloated, feckless enterprise it has become. Otherwise, it might only get in the way and make matters worse, and the public in one region or another of North America might reach a decision that they are better off without it. That would be what's called a revolution.
Regards,
James Howard Kunstler
for The Daily Reckoning
Editor's Note: James Kunstler has worked as a reporter and feature writer for a number of newspapers, and finally as a staff writer for Rolling Stone Magazine. In 1975, he dropped out to write books on a full-time basis.
His latest nonfiction book, The Long Emergency describes the changes that American society faces in the 21st century. Discerning an imminent future of protracted socioeconomic crisis, Kunstler foresees the progressive dilapidation of subdivisions and strip malls, the depopulation of the American Southwest, and, amid a world at war over oil, military invasions of the West Coast; when the convulsion subsides, Americans will live in smaller places and eat locally grown food.
-- Posted Tuesday, 23 December 2008 | Digg This Article | Source: GoldSeek.com
MarketWatch reports:
Villehuchet, 65, was found sitting at his desk with both wrists slashed, the Associated Press said, citing NYPD spokesman Paul Browne.
A box cutter was found on the floor along with a bottle of sleeping pills on his desk, but no suicide note was found, it said.
Villehuchet co-founded Access International Advisors LLC, which specializes in managing hedged and structured-investment portfolios.
He had been trying for a week to recover at least $1.5 billion in European funds that Access International had invested through Madoff's business, The Wall Street Journal reported.
Villehuchet once worked for the capital markets division of Credit Lyonnais SA as founder, chairman and chief executive officer of Credit Lyonnais Securities (U.S.A.), it reported, citing a company statement.
Fund manager tied to Madoff loss found dead: reports
By Wallace Witkowski
MarketWatch
Last update: 1:49 p.m. EST Dec. 23, 2008
SAN FRANCISCO (MarketWatch) -- Thierry Magon de la Villehuchet, a fund manager who reportedly lost large sums in Bernard Madoff's alleged $50 billion Ponzi scheme, was found dead in a New York office building, according to media reports Tuesday. A New York City Medical Examiner spokeswoman told Reuters that de la Villehuchet, 65, was pronounced dead at 8 am Eastern, and that the cause of death was not known. He co-founded Access International Advisors LLC, which specializes in managing hedged and structured-investment portfolios.
Watch that printing press
Commentary: Money supply will soar once banks loosen purse strings
By Irwin Kellner, MarketWatch
Last update: 12:01 a.m. EST Dec. 23, 2008
PORT WASHINGTON, N.Y. (MarketWatch) -- As 2008 draws to a close, one of our chief concerns is deflation. A year from now, the nation's No. 1 problem might well be inflation.
Last week's statement by the Federal Reserve indicated that, when it comes to interest-rate cuts, the central bank has gone about as far as it can go.
The Fed acknowledged that the actual federal funds rate was well below its target because it has injected massive amounts of liquidity into the economy. So it made this rate its new target, and said that it would concentrate instead on pumping gobs of money into the system.
Not that the central bank has been exactly resting on its oars.
On the contrary, according to the Federal Reserve Bank of St. Louis, the monetary base (the raw material for the money supply) has risen at a seasonally adjusted annual rate of 86% over the past year. Bad enough, but over the past three months this has skyrocketed to an annual rate of almost 1,000%!
Adjusted reserves have ballooned from $100 billion to $700 billion since mid-September, while the Fed's balance sheet has more than doubled over this period of time, from about $900 billion to a thumping $2.2 trillion.
These funds are beginning to show up in the Fed's two measures of the money supply. M2 has risen 8% over the past year, while MZM, the St. Louis Fed's measure of liquid money, is up more than 10% during the same period.
This is with the banks still reluctant to lend. Once they loosen their purse strings, the money supply will soar.
When this happens, don't be surprised if the Fed stops reporting these numbers. This is what it did several years ago, when it stopped reporting M3, which apparently was rising too fast for the Fed's comfort.
While virtually no one is raising prices in today's depressed economy, all this liquidity will soon become an accident looking for a place to happen.
While virtually no one is raising prices in today's depressed economy, all this liquidity will soon become an accident looking for a place to happen. The trick then, for the Fed, is to drain this excess liquidity before it turns into inflation.
This is easier said than done, because the Fed will have to begin weaning us off easy money long before the recession ends. By the way, this could happen sooner than you think.
Besides easy money, the sharp plunge in oil prices since midyear has put billions of (after-tax) dollars back into the pockets of consumers, business and governments -- by some estimates as much as $250 billion.
Add to this the $150 billion in tax rebates that Washington mailed out over the summer, and this economy already has received stimulus equal to almost 3% of GDP. When the new administration takes over in January, you may expect additional fiscal stimulus of as much as 5% of GDP.
Such a push could easily jump-start the economy -- right into another round of inflation.
For its part, the Fed may find it difficult to reverse course. This is because in the process of blowing up its balance sheet, the central bank has bought lots of instruments for which there are few ready buyers.
Thus we are likely to witness the formation of a new bubble, possibly as soon as a year from now. The question is where.
It will be a while before shell-shocked retailers and others try to raise prices. Oil is unlikely to go up either, in view of the imbalance between supply and demand. The same goes for housing. The jobless rate is likely to be too high to tempt labor to go for big pay increases (at least in most sectors).
But workers might have some leverage when it comes to rebuilding the country's infrastructure -- one of the president-elect's top priorities. In addition, prices of such commodities as steel, cement and construction equipment could also soar as tons of money land in this sector literally overnight. End of Story
Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.
The Fed Makes Money
By Nicholas von Hoffman
The Nation
December 22, 2008
"Quantitative easing," don't you love it? It's the latest business-economics euphemism designed to mislead. I do not know who they think they're fooling: it's like doctors calling excruciating pain "discomfort."
Quantitative easing is the government's way of saying it is printing money. The Federal Reserve Board is printing the money, incalculably large amounts of it, to drive interest rates down to the zero range and ramp up business activity.
The New York Times summed up what that crew of economists, professors and Wall Street operators in Washington are undertaking: "the Fed bluntly announced that it would print as much money as necessary to revive the frozen credit markets and fight what is shaping up as the nation's worst economic downturn since World War II.
"In effect, the Fed is stepping in as a substitute for banks and other lenders and acting more like a bank itself. 'The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth,' it said. Those tools include buying 'large quantities' of mortgage-related bonds, longer-term Treasury bonds, corporate debt
The money for buying these billions or trillions of loans, mortgages, bonds and every other sort of debt does not come out of your pocket now, although it may come out of your hide later on. These are not tax dollars; they are not borrowed dollars; they are not dollars generated by anyone's earnings. They represent no ratio to anything of value. You cannot even say that they have been created out of whole cloth, which would mean that they derive from some kind of antecedent of value. These are dollars plucked from nowhere.
The rationale for the alchemic generation of money out of the thinnest of air is that the economy is starving for greenbacks but is like a sick person who cannot take nourishment by mouth. It must be injected à la an intravenous line into a body with a collapsed circulatory system. What we do not know is if this procedure is akin to pumping blood into a corpse or if the patient will sit up and start feeling better.
Either way, the United States of America's currency is being depreciated. This will not be the first time and, if history is any guide, do not expect miracles. It was tried in the early 1930s in hopes that it would ignite an inflationary surge in prices and, by making American goods selling for depreciated dollars cheaper, our exports would perk up. Neither happened.
But other things did. Other trading nations depreciated their money so that their export goods would be cheaper and, as did the United States, raised tariff barriers to keep other nation's exports out. You cannot find a better example of a zero-sum game.
It looks like we are seeing at least a partial repeat of seventy-five years ago. Washington, instead of raising tariffs on imports, is taking to subsidizing at least one major American industry threatened by foreign competition, the automobile industry. They are doing the same in Russia, where the natives in Vladivostok were so upset at the prospect of prohibitive tariff increases on imported foreign cars that they rioted. Japan and China, for much the same reasons as here, are dropping their interest rates.
As of now the EU is less enamored with lowering interest rates. Apparently somebody on the continent has figured out that individuals and businesses without jobs or customers are not going to borrow money at any interest rate, regardless of how low it might be.
Even before the Fed announced it was going in for quantitative easing, the value of the dollar plunged. People, businesses and nations buy US government bonds because they believe such bonds keep their money safe and earn a modest amount of interest. If American money is no longer going to be safe because it is being devalued and US bonds are going to be paying close to zero interest, foreigners will stop buying them. Since we have been living off borrowed money to pay for our gasoline, our cars and our clothes, quantitative easing, instead of getting business going again, may be the shovel we do not need to dig ourselves into a deeper hole.
If the dollar is debased past a certain point, foreign investors will panic, sell their dollar-denominated bonds at any price they can get, bolt for the doors and leave us with a godawful depression and an inflation such as you won't believe until you go to the supermarket and pay $100 for a quart of milk. Something of this sort happened in Argentina a few years ago, literally pauperizing that nation's middle class.
Cheapening the dollar runs risks and poses serious problems in every direction. The dollar as the international reserve currency, the money that is accepted everywhere as the preferred means of payment, is the foundation of American power and influence around the world. We will be presenting ourselves with a major national security problem if we continue to undermine our own currency.
Cell Phone Spying
The News On 6 found that anyone can listen to your conversations, read your text messages and even turn your phone into a microphone.
Cell phones are essential for most of us; they're a life line to work, family and friends, but could they be used to spy on you? Last fall, News On 6 crime reporter Lori Fullbright introduced us to a woman being stalked by her ex-boyfriend. She was convinced he was using her cell phone to learn things about her that were private. Her idea seemed far-fetched and police were stumped, but The News On 6 did some digging and found out that anyone can listen to your conversations, read your text messages and even turn the phone into a microphone. News On 6 crime reporter Lori Fullbright reports cell phone spies can take control of your cell phone from anywhere and you would never know.
Cell phones let us keep in touch, check email, exchange messages and be connected to the world. Who would ever think it could be turned against you?
Carla Robinson's ex-boyfriend has stalked her for three years. Nobody could figure out how he was able to track her every move, her every conversation, especially when he was often out of state.
Full Story...
Protectionist dominoes are beginning to tumble across the world
The riots have begun. Civil protest is breaking out in cities across Russia, China, and beyond.
By Ambrose Evans-Pritchard
Last Updated: 10:30AM GMT 22 Dec 2008
Comments 65 | Comment on this article
Greece has been in turmoil for 11 days. The mood seems to have turned "pre-insurrectionary" in parts of Athens - to borrow from the Marxist handbook.
This is a foretaste of what the world may face as the "crisis of capitalism" - another Marxist phase making a comeback - starts to turn two hundred million lives upside down.
We are advancing to the political stage of this global train wreck. Regimes are being tested. Those relying on perma-boom to mask a lack of democratic or ancestral legitimacy may try to gain time by the usual methods: trade barriers, sabre-rattling, and barbed wire.
Dominique Strauss-Kahn, the head of the International Monetary Fund, is worried enough to ditch a half-century of IMF orthodoxy, calling for a fiscal boost worth 2pc of world GDP to "prevent global depression".
"If we are not able to do that, then social unrest may happen in many countries, including advanced economies. We are facing an unprecedented decline in output. All around the planet, the people have reacted with feelings going from surprise to anger, and from anger to fear," he said.
Russia has begun to shut down trade as it adjusts to the shock of Urals oil below $40 a barrel. It has imposed import tariffs of 30pc on cars, 15pc on farm kit, and 95pc on poultry (above quota levels). "It is possible during the financial crisis to support domestic producers by raising customs duties," said Premier Vladimir Putin.
Russia is not alone. India and Vietnam have imposed steel tariffs. Indonesia is resorting to special "licences" to choke off imports.
The Kremlin is alarmed by a 13pc fall in industrial output over the last five months. There have been street protests in Moscow, St Petersburg, Kaliningrad, Vladivostok and Barnaul. Police crushed "Dissent Marchers" holding copies of Russia's constitution above their heads in Moscow's Triumfalnaya Square.
"Russia has not seen anything like these nationwide protests before," said Boris Kagarlitsky from Moscow's Globalization Institute.
The Duma is widening the treason law to catch most forms of political dissent, and unwelcome forms of journalism. Jury trials for state crimes are to be abolished.
Yevgeny Kiseloyov at the Moscow Times said it feels eerily like December 1 1934 when Stalin unveiled his "Enemies of the People" law, kicking off the Great Terror.
The omens are not good in China either. Taxis are being bugged by state police. The great unknown is how Beijing will respond as its state-directed export strategy hits a brick wall, leaving exposed a vast eyesore of concrete and excess plant.
Exports fell 2.2pc in November. Toy, textile, footwear, and furniture plants are being closed across Guangdong, now the riot hub of South China. Some 40m Chinese workers are expected to lose their jobs. Party officials have warned of "mass-scale social turmoil".
The Politburo is giving mixed signals. We don't yet know how much of the country's plan to boost domestic demand through a $586bn stimulus package is real, and how much is a wish-list sent to party bosses in the hinterland without funding.
Shortly after President Hu Jintao said China is "losing competitive edge in the world market", we saw a move towards export subsidies for the steel industry and a dip in the yuan peg - even though China already has the world's biggest reserves ($2 trillion) and the biggest trade surplus ($40bn a month).
So is the Communist Party mulling a 1930s "beggar-thy-neighbour" strategy of devaluation to export its way out of trouble? Such raw mercantilism can only draw a sharp retort from Washington and Brussels in this climate.
"During a global slowdown, you can't have countries trying to take advantage of others by manipulating their currencies," said Frank Vargo from the US National Association of Manufacturers.
It is a view shared entirely by President-elect Barack Obama. "China must change its currency practices. Because it pegs its currency at an artificially low rate, China is running massive current account surpluses. This is not good for American firms and workers, not good for the world," he said in October. The new intake of radical Democrats on Capitol Hill will hold him to it.
There has been much talk lately of America's Smoot-Hawley Tariff Act, which set off the protectionist dominoes in 1930. It is usually invoked by free traders to make the wrong point. The relevant message of Smoot-Hawley is that America was then the big exporter, playing the China role. By resorting to tariffs, it set off retaliation, and was the biggest victim of its own folly.
Britain and the Dominions retreated into Imperial Preference. Other countries joined. This became the "growth bloc" of the 1930s, free from the deflation constraints of the Gold Standard. High tariffs stopped the stimulus leaking out.
It was a successful strategy - given the awful alternatives - and was the key reason why Britain's economy contracted by just 5pc during the Depression, against 15pc for France, and 30pc for the US.
Could we see such a closed "growth bloc" emerging now, this time led by the US, entailing a massive rupture of world's trading system? Perhaps.
This crisis has already brought us a monetary revolution as interest rates approach zero across the G10. It may overturn the "New World Order" as well, unless we move with great care in grim months ahead. This is where events turn dangerous.
The last great era of globalisation peaked just before 1914. You know the rest of the story.
Phoenix Business Journal - December 17, 2008
http://phoenix.bizjournals.com/phoenix/stories/2008/12/15/daily34.html
Wednesday, December 17, 2008
Ariz. police say they are prepared as War College warns military must prep for unrest; IMF warns of economic riots
Phoenix Business Journal - by Mike Sunnucks
A new report by the U.S. Army War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as protests against businesses and government or runs on beleaguered banks.
“Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security,” said the War College report.
The study says economic collapse, terrorism and loss of legal order are among possible domestic shocks that might require military action within the U.S.
International Monetary Fund Managing Director Dominique Strauss-Kahn warned Wednesday of economy-related riots and unrest in various global markets if the financial crisis is not addressed and lower-income households are hurt by credit constraints and rising unemployment.
U.S. Sen. James Inhofe, R-Okla., and U.S. Rep. Brad Sherman, D-Calif., both said U.S. Treasury Secretary Henry Paulson brought up a worst-case scenario as he pushed for the Wall Street bailout in September. Paulson, former Goldman Sachs CEO, said that might even require a declaration of martial law, the two noted.
State and local police in Arizona say they have broad plans to deal with social unrest, including trouble resulting from economic distress. The security and police agencies declined to give specifics, but said they would employ existing and generalized emergency responses to civil unrest that arises for any reason.
“The Phoenix Police Department is not expecting any civil unrest at this time, but we always train to prepare for any civil unrest issue. We have a Tactical Response Unit that trains continually and has deployed on many occasions for any potential civil unrest issue,” said Phoenix Police spokesman Andy Hill.
“We have well established plans in place for such civil unrest,” said Scottsdale Police spokesman Mark Clark.
Clark, Hill and other local police officials said the region did plenty of planning and emergency management training for the Super Bowl in February in Glendale.
“We’re prepared,” said Maricopa County Sheriff Deputy Chief Dave Trombi citing his office’s past dealings with immigration marches and major events.
Super Bowl security efforts included personnel and resources from the U.S. Department of Homeland Security and U.S. military’s Northern Command, which coordinated with Arizona officials. The Northern Command was created after 9/11 to have troops and Defense Department resources ready to respond to security problems, terrorism and natural disasters.
Northern Command spokesman Michael Kucharek and Arizona Army National Guard Major. Paul Aguirre said they are not aware of any new planning for domestic situations related to the economy.
Nick Dranias, director of constitutional government at the libertarian Goldwater Institute, said a declaration of marital law would be an extraordinary event and give military control over civilian authorities and institutions. Dranias said the Posse Comitatus Act restricts the U.S. military’s role in domestic law enforcement. But he points to a 1994 U.S. Defense Department Directive (DODD 3025) he says allows military commanders to take emergency actions in domestic situations to save lives, prevent suffering or mitigate great property damage.
Dranias said such an emergency declaration could worsen the economic situation and doubts extreme measures will been taken. “I don’t think it’s likely. But it’s not impossible,” he said.
The economy is in recession. Consumer spending is down, foreclosures are up and a host of businesses are laying off workers and struggling with tight credit and the troubled housing and financial markets. The U.S. Federal Reserve Bank and U.S. Treasury Department have pumped more than $8.5 trillion into the economy via equity purchases of bank stocks, liquidity infusions, Wall Street and bank bailouts and taxpayer rebates. U.S. automakers are seeking more than $14 billion in federal loans with fears they could fall into bankruptcy without a bailout. The U.S. housing and subprime lending-induced recession also has hit economies in Europe, Japan and China.
Gov. Janet Napolitano’s office declined comment on emergency planning and possible civil unrest. Napolitano is president-elect Barack Obama’s pick for secretary of Homeland Security, an agency that oversees airport security, disaster response, border security, customs and anti-terrorism efforts.
As governor, Napolitano sent National Guard troops to Palo Verde Nuclear Generating Station in 2003 in response to terrorism threats.
Glendale Police spokesman Jim Toomey said the West Valley suburb developed new emergency plans with the approach of Y2K computer changeovers leading up to the year 2000 and police have updated those plans several times including after 9/11. Toomey said strategies to deal with public unrest usually involve deploying personnel and equipment to deal with specific incidents while still providing usual services.
WEB EXCLUSIVE -- Local teens claim pranks on county's Speed Cams
By Joe Slaninka
Special to the Sentinel
As a prank, students from local high schools have been taking advantage of the county's Speed Camera Program in order to exact revenge on people who they believe have wronged them in the past, including other students and even teachers.
Students from Richard Montgomery High School dubbed the prank the Speed Camera "Pimping" game, according to a parent of a student enrolled at one of the high schools.
Originating from Wootton High School, the parent said, students duplicate the license plates by printing plate numbers on glossy photo paper, using fonts from certain websites that "mimic" those on Maryland license plates. They tape the duplicate plate over the existing plate on the back of their car and purposefully speed through a speed camera, the parent said. The victim then receives a citation in the mail days later.
Students are even obtaining vehicles from their friends that are similar or identical to the make and model of the car owned by the targeted victim, according to the parent.
"This game is very disturbing," the parent said. "Especially since unsuspecting parents will also be victimized through receipt of unwarranted photo speed tickets.
The parent said that "our civil rights are exploited," and the entire premise behind the Speed Camera Program is called into question as a result of the growing this fad among students.
The Speed Camera Program was implemented in March of this year and used for the purpose of reducing traffic and pedestrian collisions in the county. Cameras are located in residential areas and school zones where the posted speed limit is 35 miles per hour or lower. A $40 citation is mailed to the owner of the car for violating the speed limit in these areas.
The Montgomery County Police said they have not seen or heard of this prank occurring but said they will keep an eye out for people committing the crime.
"I hope the public at large will complain loudly enough that local Montgomery County government officials will change their policy of using these cameras for monetary gain," the parent said. "The practice of sending speeding tickets to faceless recipients without any type of verification is unwarranted and an exploitation of our rights."
Edward Owusu, Assistant Principal at Wootton High School, said that he heard of local students pulling the prank when the school received a call from a parent informing them of its occurrence. "I have not heard of this happening among students at Wootton," Osuwu said. "It is unfortunate that kids have a lot of time on their hands that they can think of doing such a thing."
Montgomery County Council President Phil Andrews said that the issue is troubling in several respects. "I am concerned that someone could get hurt, first of all, because they are speeding in areas where they know speeding is a problem," he said.
Andrews also said that this could hurt the integrity of the Speed Camera Program. "It will cause potential problems for the Speed Camera Program in terms of the confidence in it," he said.
He said he is glad someone caught it before it becomes more widespread and he said he hopes that the word get out to the people participating in this that there will be consequences.
Will printing money help the economy?
What's the wisdom behind the Fed's recent actions? Doug Henwood and Brian Doherty debate.
December 17, 2008 - LATimes.com
Today's question: Critics say that the Federal Reserve -- which will buy up to $800-billion worth of troubled mortgage and consumer-credit assets -- is effectively printing money to fix the economy. What's the wisdom behind the Fed's actions? Doug Henwood and Brian Doherty debate the consequences of federal monetary policy.
It's better to inflate than deflate.
Point: Doug Henwood
It's not just critics who say the Fed is printing money to fix the economy. That's what it's doing, and I don't see what's wrong with it.
Back in 2002, Federal Reserve Chairman Ben S. Bernanke gave a speech reflecting on what a central bank might do if faced with the threat of deflation -- an extended period of falling prices. Falling prices might sound nice, but over the last century, they've generally accompanied severe economic crises, like Japan in the 1990s or, worse, the U.S in the 1930s. A deflation turning into a depression is a central banker's worst nightmare. And we're at risk for one of those today.
In that speech, Bernanke -- who made his academic reputation by studying the role of bank failures and other financial troubles in propagating the Depression -- said that everything should be done to prevent a deflation from taking hold, and if one took hold, everything should be done to reverse it. Speaking six years ago, Bernanke laid out the framework for what the Fed is doing today -- deep cuts in interest rates, unorthodox purchases of securities (not the short-term U.S. Treasury paper the Fed usually trades in but long-term bonds, mortgage bonds and even private securities) and financing a big fiscal stimulus by printing money. "If we do fall into deflation ... we can take comfort that the logic of the printing press ... must assert itself, and sufficient injections of money will ultimately always reverse a deflation," he said.
For further perspective on current events, we can turn to a classic 1933 paper on debt deflations by economist Irving Fisher. His model boils down to this: Some shock hits the economy, resulting in an increase in pessimism and asset sales. Asset sales drive down prices, leading to more pessimism and distress selling. That results in a shrinkage in the money supply and a decline in velocity (the speed at which money turns over, a function of how quickly people spend). Prices for goods and services fall, hitting profits and raising the real value of debts. Businesses go bust. Managers of surviving firms cut production and employment.
This deepens pessimism, leading those with cash to hoard it. Repeat in a vicious cycle. The point of Bernanke's printing press is to arrest and reverse this process.
Fisher, writing when the New Deal was only months old, noted that FDR's early policies of imposing a bank holiday (after 10,000 had failed) and going off the gold standard quickly reversed the deflation and marked the beginning of an economic recovery. After contracting by 27% between 1929 and 1933, the economy grew 43% from 1933 to 1937.
Sure, printing money sounds awful, but not as bad as watching the unemployment rate hit 25%, as it did in 1933.
Libertarians consider this an interference with the self-adjusting beauties of the free market. Some even argue that the New Deal made the Depression worse, by not allowing the system's excesses to be purged, through some economic equivalent of a high colonic. Bernanke doesn't agree, and I'm glad for that.
Doug Henwood edits the Left Business Observer and does a weekly radio show on WBAI-FM in New York and KPFA-FM in Berkeley.
Runaway inflation would cause far more misery than a bit of deflation.
Counterpoint: Brian Doherty
Deflations can be grim, and inflations can be grim. As a way to help ameliorate -- though not eliminate -- these often damaging fluctuations in currency value, I'm going to speak up for a line of thought I've long been sympathetic to: the hard money school of economics (the Austrian variety is my favorite) which posits that the best way to "manage" the money supply is to remove from political authorities the ability to make more of it willy-nilly.
The most dire eventuality of government's ability to inflate its way out of perceived problems (as I fear Bernanke is gearing up to do today) dwarfs even the difficulties in America in the 1930s or 1990s Japan (more on that in a minute). See the hyperinflations of Germany in the 1920s, Hungary in the 1940s and, more recently, Zimbabwe.
Given Bernanke's firmly stated beliefs, and the fear of the early '30s deflation you mention, we have far more reason to fear inflation out of control than rampant deflation. Inflation out of control means, among other evils, the wiping out of most savings and most Americans seeing their real resources gradually shrink even with apparent monetary gain.
Deflation, especially of the mild variety we might be seeing right now, need not lead to the looping downward spiral of Fisher's model. In the last half of the 19th century, for example, America saw overall price deflation combined with overall healthy economic growth (with some ups and downs along the way). See this data sheet from the St. Louis Federal Reserve Bank on how deflationary episodes can correspond with economic growth and health.
Even if Fed money supply looseness doesn't lead to a repeat of a 1923 Germany horror show, I think we have recent evidence indicating that a Bernanke inflation solution might not save us. Although Doug has elsewhere argued that the problem was Japanese authorities not acting quickly enough, I think the experience of Japan in the 1990s -- where at least 10 attempts at massive fiscal stimulus, lowering interest rates to rock bottom and raising the money supply all failed to propel the nation from recessionary doldrums -- should at least make us wonder if Bernanke's policy is worth the risk.
Yes, deflationary hangover adjustments from years of cheap credit and money growth can be painful, which is why free-market, hard-money types advocate eschewing willy-nilly credit and money growth in the first place. One big worry arising from Bernanke's current intentions is that if we seem hellbent on increasing the quantity of these mysterious paper things to get out of today's mess, those things are going to be worth less -- far less -- even if that inflationary action solves an apparent short-term problem.
And that could hasten the day when the people who lend the U.S. money in the hopes of getting back something that's worth close to what they lent us will stop. Which, as gold goes up and the dollar down, leads us to tomorrow's topic, roughly: How much government debt is too much?
Brian Doherty is a senior editor at Reason magazine and author of "Radicals for Capitalism" and "Gun Control on Trial."
--------------------By Arnd Wiegmann and Lisa Jucca
MENDRISIO/ZURICH, Switzerland (Reuters) - Sealed off by grey concrete walls and barbed wire, the workmen in protective glasses and steel-toed boots at this smelter cannot work fast enough to meet demand from the nervous rich for gold.
This refinery near Lake Lugano in the Alps is running day and night as people worried about recession rush to switch their assets into something that may hold its value.
"I have been in the gold business for 30 years and I have never experienced anything like this," said Bernhard Schnellmann, director for precious metal services at the refiner Argor-Heraeus, one of the world's three largest.
"Production has dramatically increased since the middle of the year. We cannot cope with demand," said Schnellman, wearing a gold watch on his wrist.
Spot gold hit a record $1,030.80 an ounce on March 17. It fell below $700 in late October, partly because investors sold their holdings to cover losses in equity and bond markets hit by the credit crisis, and is now around $830 an ounce.
The trigger for the price to rise again could come from a much weaker dollar, making gold cheaper for holders of other currencies, and a renewed aversion to paper assets as governments and central banks pump large amounts of cash into the economy, stoking inflation.
Smoke billows as the molten gold, like glowing butter, is poured. To cool it, the worker drops it into water. It hisses as it hits. Once hardened in moulds, the gold bars are embossed with the refinery's seal. Workers wearing white gloves stack them into boxes like domino pieces.
Though Switzerland is not a gold miner, it is home to some of the world's largest refineries, which process an estimated 40 percent of all newly mined gold.
Argor-Heraeus is part-owned by the Austrian Mint and a subsidiary of Germany's Commerzbank. Commercial and central banks are its chief customers and it says it processes some 350-400 tonnes of gold and 350 tonnes of silver per year.
Customers buying gold bars, which can weigh more than 10 kg each, have to wait roughly a month, taking into account the year-end holiday season.
For those buying coins or ingots, which can fit into the palm of a hand, the delay is six to eight weeks. A year ago, these small products could be had within a couple of days.
Worries about the banking system globally have boosted worldwide demand for physical gold, the Gold Council said.
"Many (people) are afraid of leaving their money in banks," said Sandra Conway, managing director at ATS Bullion in London, which sells bullion and gold coins to institutions and the retail market.
"It's difficult to quantify, but I would say our turnover over the last three months has certainly doubled compared to the previous three months," she said.
FULL CAPACITY
Other Swiss gold refiners also say business is booming.
"Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular," said Fiorenzo Arbini, in charge of health and safety at Pamp, another large Swiss refiner.
"People used to buy certificates, now they want physical gold."
Schnellmann said the Argor-Heraeus smelter is operating at full capacity, three eight-hour shifts a day. Conquering the backlog by hiring is difficult, because each candidate has to undergo a security check.
Gold refiners were established in Switzerland to supply the watch industry and, later, jewellery-makers in Italy.
Switzerland's largest banks stepped in to replace a void in gold trading while the London gold market was shut after World War Two and again during a brief closure in 1968.
The former Soviet Union, another top gold producer, chose Zurich banks to handle most of its gold sales in the 1970s and 1980s.
"Gold has an image of being the asset of last resort. This could be viewed as old-fashioned but this is how enough people with enough money to matter think," said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.
GOLD TOUCH
India, China and the Middle East remain the biggest gold importers, particularly for jewellery. But demand for physical gold has exploded also in Europe, the Gold Council said.
In Switzerland, home to the world's largest private banking industry, demand for gold bars and coins shot up six-fold to 21 tonnes in the third quarter of 2008, more than in any other European country.
Retail investment in gold rose 121 percent in the third quarter of 2008, an important contributor to the overall increase in global demand, the Gold Council said.
In that period purchases of gold bars by retail investors, who often buy through commercial banks, rose nearly 60 percent, notably in Switzerland, Germany, and the United States.
There was a surge of interest among professional investors shortly after the collapse of Lehman Brothers in September.
Private bank Julius Baer in October launched a fund to invest exclusively in gold bars stored in highly secured vaults in Switzerland.
"The fascination with gold has been there since the beginning of civilisation," said Schnellmann. "It cannot be explained: you can't eat gold, you cannot build anything resistant with it and yet people want to hoard it."
(Additional reporting by Pratima Desai in London)\
Bailout Madoff!
By: Brady Willett, FallStreet.com
-- Posted Tuesday, 16 December 2008
With the financial markets already in a state of panic and the global recession expected to worsen in 2009, we can ill afford to allow the financial institutions, charities, and rich idiots that entrusted Bernard Madoff with their money to go bust. As for the widespread contention that since Mr. Madoff committed fraud he deserves to go to jail, do not think of Madoff as operating a ponzi scheme so much as a Strong Armed Perception Fund (SAP Fund), and don’t think of him as breaking the law so much breaking new ground in the arena of fictitious returns.
In short, there needs to be a new bailout effort entitled the Criminal Reprieve Assistance Program (CRAP) to provide ingenious criminals like Madoff the tools required to help kick start the faltering U.S. economy. By investing $100 billion with Madoff so that he can start-up a new and improved SAP Fund and make current clients whole, the CRAP would immediately help restore confidence in the marketplace. Concurrent with the Madoff bailout pieces of CRAP could also be used to expedite the release of jailed mortgage brokers so that they can help stabilize the collapsing U.S. housing market by doing what they do best - underwriting crappy mortgages.
What we have failed to learn time and time again is that the Madoffs’ of this world take risks that ordinary investors do not, and only when these criminals amass enough capital and clout does the average investor stand to benefit. If adopted the CRAP can effectively flush out the safety-crazed attitudes of investors now taking root and allow unlawful innovation and the temporary perception of wealth to flourish once again. It goes without saying that the only alternative if the CRAP sinks and Madoff doesn’t get bailed out is financial Armageddon, millions of jobs losses, and another Great Depression.
-------------------------Citadel locks up investors’ funds
Citadel Investment Group has joined the rush of hedge funds suspending redemptions to investors, a development that is in effect locking up hundreds of billions of dollars in cash during a volatile period in global markets. Ken Griffin, Citadel’s founder, sent a letter on Friday to investors in the group’s flagship Kensington and Wellington funds telling them that the group had decided to hold on to their money at least until March. Citadel has about $15bn under management after suffering big recent losses, and by imposing this lock-up joins a growing list of hedge fund groups - including Tudor, Farallon and DE Shaw - that have imposed restrictions on the ability of investors to withdraw money, the FT said.
Nobel Economist Says More Stable Currency Needed
Contact: Janet Sassi
212-636-7577
fallersassi@fordham.eduMore than 200 members of the Fordham community converged upon the Flom Auditorium on Oct. 14 to hear John Forbes Nash Jr., Ph.D., winner of the 1994 Nobel Memorial Prize in Economic Sciences, talk about solutions to the downturn in the national and global economy.
John Forbes Nash Jr., Ph.D.
Photo by Ryan Brenizer
Nash told the audience that such financial crises would be less likely to occur if there was some international monetary standard, such as the gold standard or competition among worldwide currencies, to curb inflation and prevent the rise of mortgage abuses. He expressed some skepticism about a government bailout as a solution.
“I get the impression that the government is not ready to do anything that is really beyond a short-term basis,” said Nash, a senior research mathematician at Princeton. “[But] we need a natural stability of value.”
Nash said that various interest groups that subscribe to Keynesian, or short-term, economic theories have sold the public on the notion that inflation is acceptable or that “bad money is better than good money.” Such a notion, he said, led to the dangerous proliferation of bad mortgage loans—loans made on the gamble that house values would continue to rise and eventually turn a profit.
“A fixed-rate 30-year mortgage would be reasonable under the gold standard,” Nash said. “Now, there are variable rates, and adjustables, and convertibles, and it is very complicated” for homeowners to figure out what they are getting into. In fact, Nash said, nobody really knows the depth of the financial crisis.
Having an internationally oriented money standard would promote better quality currencies and less inflation, he added.
Nash further said that any such new international monetary system should be democratically determined, and cited the recent vote in Sweden not to abandon the Krona for the Euro.
Nash shared the 1994 Nobel Memorial Prize with two other economists for research in game theory, a method of predicting behavior in strategic social situations and a tool now widely used by economists and biologists. His academic notoriety was catapulted into celebrity status in 2001 when he and his wife, Alicia, became the subject of the movie "A Beautiful Mind." The film was nominated for eight Oscars and won four. The movie, part of which was filmed in the basement of Keating Hall, documents Nash’s seminal contributions to game theory and mathematics and his subsequent 25-year struggle with schizophrenia.
The event was also attended by special guest Charles Soludo, Ph.D., governor of the Central Bank of Nigeria.
Dominick Salvatore, Ph.D., Distinguished Professor of Economics, introduced Nash and Saludo to the standing-room-only crowd and concurred with the need for a new international regulatory system more in tune with today’s global economy. “The entire financial sector has to be regulated, but those regulations cannot be specific,” Salvatore said. “Money is fungible. You have to be comprehensive, but general.”
Reform starts at home, Salvatore argued. “We need less exotic derivatives and much more transparency. And the U.S. has to live within its means. We save practically nothing at the individual level . . . we have a huge trade deficit and we are mortgaging our future.”
The event was part of the Distinguished Lecture Series hosted by Fordham’s Center for International Policy Studies.
Founded in 1841, Fordham is the Jesuit University of New York, offering exceptional education distinguished by the Jesuit tradition to approximately 14,700 students in its four undergraduate colleges and its six graduate and professional schools. It has residential campuses in the Bronx and Manhattan, a campus in Westchester, and the Louis Calder Center Biological Field Station in Armonk, N.Y.
10/08
Re-posted from jsmineset.com:
The roots of hyperinflation
I have written the following because I do not think the dangers of hyperinflation and currency collapse are understood;
Peter Shann
The most widely accepted view is that hyperinflation and monetary collapse results from governments introducing large amounts of fiat money into the economy, Wikipedia comments;
"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run"
This explanation is superficial and doesn’t provide answers as to why governments would in the first instance "massively and rapidly increase the amount of money" nor why they would.
I feel compelled to continue with this as inflation increases by factors of thousands of percent and in some extreme instances print banknote in denominations of 100,000,000,000,000 currency units, it also fails to explain why newly issued money is not primarily invested in asset class goods or why goods that can easily be replicated, as can most essential consumables, be often subject to the greatest price inflation.
A prerequisite of hyperinflation and monetary collapse is that a disruption in the availability of essential goods occurs, today this could happen as a result of past reliance on expanding credit and fiat money temporally facilitating dependency on low cost imported goods many of which now feed primary needs leading to a commensurate loss of home production capacity with an inherent delay to the medium-term should such reengagement with manufacture become necessary as it would in the event of off shore suppliers losing confidence in reciprocal worth of monetary instruments offered in exchange for goods, and or shortage of essential goods may arise as a result of natural correction occurring, by way of example from the collapse of speculation driven credit markets and or as a result of collateral damage to the production cycle caused by inappropriate governmental action in further increasing money and credit supplies in attempt to drive a spontaneously occurring and necessary correction back in the direction of instability and in so doing distorting essential work ethics and disincentivising investment in the production cycle,
In my view the most probable sequence of events resulting in hyperinflation and monetary collapse is as follows:
1. A broad based shortage of goods that are thought essential develops and this is not relieved in time to satisfy demand.
2. Consumers trying to acquire essential goods that they believe are in short supply become fearful and are prepared to pay increasingly higher prices and stockpile these goods further increasing shortages and accelerating prices as a sellers market develops.
3. Prices rise for essential goods in short supply as an increasing proportion of the money supply circulates in these goods, also with increasing velocity and as most of these goods are consumables with high turnover upward re pricing quickly occurs.
4. The proportion of available money circulating in goods that are perceived as essential increases and the demand for less essential goods diminishes I.e essentials become disproportionately more expensive than the norm against non essential goods displacing money towards the goods most in demand further fuelling inflation,
5. The shortage of essential goods accelerates as manufactures increasingly focus on short term survival, longer term risk is avoided and investment in the production cycle is reduced accelerating 1.
6. The normal balance of demand for all goods increasingly prefers those goods required to satisfy primary needs and people engaged in making and supplying less immediately essential or non essential goods become unemployed who then pressures governments accelerating condition 9.
7. Eventually goods not immediately required but non the less essential are needed and rapidly increase in price as they also become in short supply.
8. Consumers with least money first find it increasingly difficult to secure essential goods, become frightened and are forced to allocate greater proportions of their money on essential goods and demand greater income,
9. The demand for money forced by need and fear becomes irresistible so governments feel insecure and provide increasing amounts of fiat new money,
10. Consumers first to spend the new money see some value but soon as this new money is distributed and its value is lost, the velocity of money also accelerates as people rapidly exchange money for goods, wealth is seen as best protected when stored as goods rather than cash further increasing price and reinforcing condition 9.
Fed Refuses to Disclose Recipients of $2 Trillion (Update2)
By Mark Pittman
Dec. 12 (Bloomberg) -- The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.
Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.
The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.
“If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.
The Fed stepped into a rescue role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program. The central bank loans don’t have the oversight safeguards that Congress imposed upon the TARP.
Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren’t rated AAA.
‘Been Bamboozled’
Congress is demanding more transparency from the Fed and Treasury on bailout, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had “been bamboozled.”
Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn’t receive a formal response that would let it file an appeal within the legal time limit.
On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.
In response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”
Data Provider
The Fed supplied copies of three e-mails in response to a request that it disclose the identities of those supplying data on collateral as well as their contracts.
While the senders and recipients of the messages were revealed, the contents were erased except for two phrases identifying a vendor as “IDC.” One of the e-mails’ subject lines refers to “Interactive Data -- Auction Rate Security Advisory May 1, 2008.”
Brian Willinsky, a spokesman for Bedford, Massachusetts- based Interactive Data Corp., a seller of fixed-income securities information, declined to comment.
“Notwithstanding calls for enhanced transparency, the Board must protect against the substantial, multiple harms that might result from disclosure,” Jennifer J. Johnson, the secretary for the Fed’s Board of Governors, said in a letter e-mailed to Bloomberg News.
‘Dangerous Step’
“In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information,” she wrote.
New York-based Citigroup Inc., which is shrinking its global workforce of 352,000 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.
The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn’t seek money damages.
‘Right to Know’
“There has to be something they can tell the public because we have a right to know what they are doing,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.
“It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed,” she said.
The Fed’s five-page response to Bloomberg may be “unprecedented” because the board usually doesn’t go into such detail about its position, said Lee Levine, a partner at Levine Sullivan Koch & Schulz LLP in Washington.
“This is uncharted territory,” said Levine during an interview from his New York office. “The Freedom of Information Act wasn’t built to anticipate this situation and that’s evident from the way the Fed tried to shoehorn their argument into the trade-secrets exemption.”
The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.
Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country’s biggest bank by assets.
Banks oppose any release of information because that might signal weakness and spur short-selling or a run by depositors, Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group, said in an interview last month.
‘Complete Truth’
“Americans don’t want to get blindsided anymore,” Mendez said in an interview. “They don’t want it sugarcoated or whitewashed. They want the complete truth. The truth is we can’t take all the pain right now.”
The Bloomberg lawsuit said the collateral lists “are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression.”
In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank’s customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.
“I understand where they are coming from bureaucratically, but that means it’s all the more necessary for taxpayers to know what exactly is going on because of all the money that is being hurled at the banking system,” Johnson said.
The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net;
Last Updated: December 12, 2008 17:12 EST
The Worldwide Crack Up Boom, According to Ludwig Von Mises
By Bill Bonner • June 26th, 2007
A kiss is still a kiss. A sigh is still a sigh. And a bubble is still a bubble.
When a kiss is over, it's over. When a bubble pops...well...that's all she wrote! All kisses end - even the wettest "French" kisses. And so do all bubbles - even sloppy mega-bubbles of liquidity. This one will be no exception. But of course, it's not the certainties that make life interesting...it's the uncertainties - the known unknowns and the unknown unknowns, as Mr. Rumsfeld says. We are all born of woman and end up where all men born of women end up - dead. But that doesn't mean we can't have some fun between baptism and last rites.
You'll remember we said that this worldwide financial bubble is both worldlier, and more financial than any in history.
And, for the moment, it is very much alive. So much alive that the media can hardly keep up with it. Forbes magazine, for example, tries to estimate the wealth of the world's richest people. But the rich don't typically give out their balance sheets, telephone numbers and home addresses. So, there's a fair amount of guesswork in the calculations.
But when it came to guesstimating the net worth of Stephen Schwarzman, founder of Blackstone, the Forbes crew wandered off into fiction. They put his wealth at about $2 billion. Recent filings in connection with the new Blackstone IPO show he earned that much in a single year!
In this phase of the bubble, it is as if your neighbors were throwing a wild party - and you weren't invited. You detest them... envy them... and want to join them, all at once. A very small part of the population is having a ball; everyone else is getting restless and wondering when the noise will stop.
We wish we knew. And we've given up guessing.
Meanwhile, the experts, commentarists, kibitzers and analysts are saying that there is a whole new phase of the giant bubble about to unfold; things could get a whole lot crazier. Even many of our respected colleagues are pointing to a text by the great Austrian economist, Ludwig von Mises, for a clue. What we have here, they say, is what Mises described as a "Crack-Up Boom."
Before we go on, readers should be aware that the "Austrian school" of economics is probably the best theory about the way the world works. Like The Daily Reckoning, it is suspicious of efforts to control the natural workings of an economy, in general...and suspicious of central banking, in particular. The fact that it was a one-time "Austrian," Alan Greenspan, who became the most celebrated central banker in history, only increases our suspicions. He was able to master central banking, we imagine, because he understood what it really is - a swindle.
What is a "Crack-Up Boom?" Von Mises explains (with thanks to Ty Andros for reminding us):
"'This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.'
"But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
"It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last."
Mises is describing the lunatic phases of a classic inflationary cycle.
At first, no one can tell the difference between a real dollar - one that is earned, saved, invested or spent - and one that just came off the printing presses. They figure that the new dollar is as good as the old one. And then, prices rise...and people don't know what to make of it. Later, they begin to catch on...and all Hell breaks loose.
You see, if you could really get rich by printing more currency, Zimbabweans would all be as rich as Midas, since the Mugabe government runs the presses night and day.
Von Mises died in 1973 - long before this boom really got going - let alone cracked up. He may never have heard of a hedge fund...or even a derivative, for that matter. A world money system without gold? He probably couldn't have imagined it. People spending millions of dollars for a Warhol? Twenty million for a house in Mayfair? Chinese stocks at 40 times earnings? He would have chuckled in disbelief. He understood how national currency bubbles expand and how they pop, but he probably never would have imagined how insane things could get when you have a whole world monetary system in bubble mode.
He'd have recognised the beginning of this bubble...and he'd have recognised the end, but the middle...or the beginning of the end - that would have dumbfounded him. During his lifetime he saw a Crack Up Boom in Germany in the '20s...and a few more here...but he never saw a worldwide Crack Up Boom.
No one, anywhere, has ever seen a worldwide Crack Up Boom. We're the first, ever. Pretty exciting, huh?
Bill Bonner
The Daily Reckoning Australia
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