UPDATE: Summers had to withdraw his nomination because he could not get support in the Senate. But this essay is still relevant as it covers the three exit strategies the Federal Reserve faces. And all will devastate us in the near future.
President Obama has signaled that he intends to nominate Larry Summers (Samuelson) to be the next Chairman of the Federal Reserve Bank. Janet Yellen is the only major competitor for the position. She is currently on the Federal Reserve Board. If she resigns along with Bernanke and the two others who have announced their departure, the composition of the FED Board and its policy will change radically in just a few months.
Yellen and Summers are both Jewish as are most FED Chairmen in the modern era. Summers background screams for closer scrutiny. He lost a billion dollars in speculative investments while he was President of Harvard University. He was a protege of Robert Rubin who was Clinton’s Secretary of the Treasury and had previously been Co-Chair of Goldman Sachs. Rubin and Summers were critical in deregulating the financial markets in 1999. Summers had succeeded Rubin as Treasury Secretary.
Credit Default Swaps are derivatives on steroids that pretend to be insurance. They are dangerous. The mortgage backed securities fraud was enabled by CDS. Wall Street took fraudulent mortgage bundles that were worthless and bought a CDS to pretend to guarantee its worth. This allowed credit ranking agencies like Warren Buffet’s Moodys to give AAA ratings for junk bonds. Pension funds are not allowed to purchase lower grade bonds. By purchasing CDS, Wall Street was able to sell trillions of dollars in fraudulent mortgage bonds to American pension funds and to European banks. Ben Bernanke has spent trillions of dollars buying worthless bonds to keep American bankers out of jail.
Brooksley Born had been a corporate lawyer active in Democratic politics and was appointed by Clinton to Head the Commodity Futures Trading Commission. She had made moves to regulate CDS which would have prevented the subprime mortgage Bubble. And she would also have made impossible the now looming cascade of a few hundred trillion dollars in CDS claims as soon as the banks collapse and nations default on their supposedly insured bonds. Brooksley Born wanted at a minimum to force the people selling a CDS to set aside money to pay out in case a claim was filed. Since no provisions were made for Wall Street to pay claims, it fell upon the taxpayers to pay as in the case of AIG which cost 187 billion dollars to bail out. In 1999 Robert Rubin, Larry Summers, Alan Greenspan and Arthur Levitt all went to Chairwoman Born at the CFTC and told her that she was not allowed to regulate CDS.
Larry Summers is now being asked by Obama’s financial backers to solve the problems that he had created as Clinton’s Treasury Secretary by becoming Federal Reserve Chairman. The 3 new directors will give Summers a voting majority. Larry Summers and his 3 new appointees could literally turn the world upside down within months.
The trendy Zero Hedge has cited two exit paths from Bernanke’s Quantitative Easing (Money Printing) for the incoming Federal Reserve Chairman. One is that we go the way of Cyprus. The governments of the US, Canada, England and Europe had agreed to a policy of Bail-ins prior to the collapse of Cyprus. The policy was that in event of a catastrophic bank collapse the Central Bank would seize the bank accounts of depositors to pay off the wild speculations and irrational loan policies of the bank management. What was unreported in the Mainstream Media was that these Cypriot banks had branches in Russia which did allow depositor’s to withdraw their funds.
There is a second possible Exit Path for Larry Summers that Zero Hedge just recently described. Bernanke has tripled the monetary base (M0) of the US. This has led to only moderate inflation. It is true that government statistics have under reported inflation. But Bernanke did avoid a tripling of prices because he channeled the expansion of the money supply into the purchase of worthless mortgage bonds and other fraudulent assets. This artificially kept asset prices high and made the Too Big To Jail Banks look solvent. Recently Zero Hedge went back to Bernanke’s famous Helicopter Ben speech of November 21st, 2002 and outlined a rather horrific potential future.
Give a tax break to the working and middle classes. And fund it with Federal Reserve money printing. Instead of raising asset prices of bonds, fund consumption by giving every citizen money in the form of a tax refund check (whether they paid taxes or not). Let’s say $500 in cash for single people and $1,000 for married couples. Then at the same time cut payroll taxes. Pay for these tax cuts by having the Federal Reserve increase the Money Supply. Compare this to what Japan is doing. They plan to double the money supply in two years. As bad as that sounds, it would be far worse for the dollar than the Japanese yen.
The US dollar is an international reserve currency. Until recently if you were in Japan and wanted to buy oil from overseas, you had to buy dollars and then buy oil. No more. Because of America’s insane Zionist inspired Iran sanctions you can now buy oil with gold. Previously the Saudis were being overwhelmed with dollars which they used to buy US Treasury bonds. That meant that the US government did not have to collect enough taxes to keep the country going. All they had to do was to let Goldman Sachs and their very best friends buy and sell every barrel of oil 27 times in the derivatives market before it got to your local gas station. That kept the price of oil artificially high. This generated money which could be used to fund both America’s budget and trade deficits. It also enriched bankers at the expense of consumers.
Jim Rickards has recently pointed out that in 2010 Obama, Geithner and Bernanke abandoned the defense of the dollar by lowering interest rates and exporting inflation. Rickards interpreted this as an assault against everyone in the world not living inside the US borders. This was an open invitation to a Dollar Carry trade. Get a zero interest loan from the FED and buy real assets in foreign countries. This sent the markets in emerging nations soaring but it also exported American inflation. This policy was recently crushed when the ten year Treasury benchmark interest rate rose from 1.5 to 3%. Rising interest rates forced American speculators to close their Dollar Carry positions overseas and sell off their assets. This has been a disaster for emerging markets and their currencies. Workers were hit with exploding inflation and layoffs as the sell off of their local currencies to unwind the Dollar Carry trade drastically devalued their purchasing power by 20% or more. That is one reason why Obama cannot find support for American wars or any other Wall Street shenanigans.
If America inflates its currency any further, it will be stealing even more from the dollar reserves of other countries. Foreign governments need those reserves to buy oil and food for their people. Failure to have sufficient reserves to buy energy and food will lead to catastrophic riots and rebellions. Egyptian turmoil is a case in point. One day soon governments all over the world will have to dump their US dollars and either buy gold or trade them in for Chinese yuan and Russian rubles. Or they could buy the currencies of one of 20 or 30 other countries with a fixed rate of exchange against a gold backed yuan. That overnight dumping or forced repatriation of dollars will double prices in a matter of days for domestic holders of Federal Reserve Notes. And that will impoverish a couple hundred million Americans. There will be food riots in every American city.
About now you are thinking these first two options sound awful. The government could steal every dollar we have in the bank, in our pension funds and in savings. That would be worse than the Great Depression in which more than 3 million Americans died from starvation. And the second option would result in Hyperinflation which would also steal our paychecks, pensions and savings by cutting the value of our money by 50 or 60%. More than 140 million Americans would have no way of feeding themselves.
So just what is that Third Option? Larry Summers could opt for a combination of the first two exit strategies and do both combining the worst of both worlds. On November 13th and 14th the Department of Homeland Security will run a two day nationwide drill in which attacks on the power grid and the uploading of viruses will be simulated. Just suppose that as in the 7-7-2005 London subway bombings and the 911 attacks on the World Trade Center and the Pentagon, these drills go live. Al Qaeda reads the papers and figures out this would be a great time to upload viruses and attack the American power grid. Ayman al Zawahiri has promised to attack America. What would he do if his paycheck from Obama bounced? Or what if the Israelis wanted America to nuke Iran? The Israelis could upload viruses into our banks, steal our deposits and and blame those dastardly Muslims urging us to war without limit against 1.3 billion Muslims.
After the dust settles and our pensions and bank accounts have been emptied, what is left of the federal government could send us all checks and pay for it by printing massive amounts of money. That would be Hperinflationary. At that point people might cut off the electrical power to Washington DC and attack the DHS seizing those 2 billion bullets and the food reserves the government had been stockpiling. The final step would be to wait and see what the US military decides to do.
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Below is a video on Larry Summers and his questionable dealings. And below that is a video from an economist who says America’s economy with respect to its debts is actually worse than Greece’s.