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Weird Finance: Redux

By Rusty McDougal

The New York and Washington DC financial geniuses continue in their wayward path. Their specialty is weird finance and they desperately cling to implementing even more bizarre strategies. This would make a great comedy series if it wasn’t so tragic.

My last article regarding weird finance was October, 2008 when the following words were penned:

“Let’s see now...the task is to nationalize, bailout and hyperinflate everything in sight. But the corresponding rising interest rates (inevitable) stand to implode the system. Remember those qazillions in interest rate derivatives. They explode during times of excess volatility. Not good for a system that is based on confidence in the first place.”

The strategies mentioned are still in play. Derivative totals are estimated by the bank of International Settlements (BIS) to now stand at well over one quadrillion dollars. More toxic waste is being dumped across the existing waste. Derivatives are about greed and fascist control.

What else are our elitist money leaders doing as their end game approaches? It should be patently clear that Wall Street refugees are the ones in charge of the decision making and string pulling process. The Goldman Sachs connected boys have assumed the helm … Henry Paulson, Tim Geithner, Larry Summers and an entire host of others.

OK, maybe that’s not exactly weird, but just plain dumb. You make the call. In the real world, there are consequences for screwing up on an historic basis.

Since last fall, our financial wizards have promised $12.8 trillion in bailout funds to primarily well connected cronies. The US national debt since the birth of this great nation now stands at a comparable $11 trillion. None of these debts will ever be paid off and it’s hard to fathom how anyone believes to the contrary.

The printing press is also being used to artificially maintain low interest rates via market interventions. Derivatives have long been focused there but now the Fed has resorted to direct action. The Fed is in the market buying our own Treasury Bonds. $300 billion is the first estimate, but you know how government estimates tend to work out.

Folks, this extreme action is akin to entering the bidding for your own house sale. An advanced central planning degree is required for this desperate maneuver.

It’s the debt, stupid! Mega-debt is now our official motto, but it is being expanded by an order of magnitude instead of being dealt with. If foreigners are no longer willing to purchase our Treasuries and corresponding excesses we’ll just buy them ourselves. Brilliant. Bring in some Caribbean off-shore money center buying to top it all off. A shadow government running shadow markets with shadow money.

The Fed is also in the markets buying Treasury Inflation Protected Securities (TIPS). These have been around since 1997 and are supposed to pay higher interest payments with inflation and lower interest payments with deflation. Having the Fed buy these securities also can’t be too comforting for buyers seeking “protection”.

That’s enough chicanery for several articles, but why stop now? The Fed’s “balance sheet” is supposed to be the substancebehind their issuance of money. This balance sheet has been comprised of smoke and mirrors for decades since the total fiat era started in 1973. Those days now look golden compared to the current makeup.

The Fed used to hold almost exclusively Treasury securities with which to perform their various “operations”. Only 24% of their holdings are now in Treasuries. The rest is a toxic soup that they’ve now taken on (mortgage backed securities, commercial paper, money market assets, failed crony paper, etc.) to keep the entire system afloat. The mortgage backed securities, for example, are really worth around 35% on the dollar. The Fed and other banks holding this junk assign pretend values of 100% on them.

The Fed balance sheet had more than doubled to $2.19 trillion since the global meltdown started. It looks like they took the “good bank – bad bank” scenario seriously but made the wrong choice. Watching the world’s most influential bank implode is a rare event.

Most local banks are FDIC insured. These banks also hold just over $200 trillion in obscure derivatives. The reserves to back up these positions are a mere 3.5% as opposed to a more normal 10% backing of solid and traditional loans. Banking gone wild.

Weird finance has also led to $100 trillion in losses in global stock, real estate and commodity markets.

Did I mention the Fed has killed 96% of the dollar’s value over the last 96 years? You can bet they’re up to finishing the task.

Proponents of weird finance demonstrate pure ignorance of the natural laws of economics. Holding interest rates at abnormal levels is folly. Manipulating data is pure folly. Propping up failed entities with failed philosophies does nothing but prolong and amplify the long term pain. The system will get its purge one way or another.

There is a better way! Keynesian and Friedman-style economics have dominated America and most of the planet for the last 95 years. Federal Reserve antics and their funny money products are the inevitable result of this doomed philosophy. Dig through this article about Austrian Economics and you’ll have a better understanding of what went wrong and how to fix it than 98% of your fellow citizens.

Something will arise from the ashes of the government’s ongoing inferno. Do your part to see that we go back to a strong foundation. Separate from the present weird system and protect yourself from its demise. Precious metals remain on sale.

Think Resourcefully,

Rusty


[Ed. Note: Dr. Russell McDougal has dedicated years of study and investing in the natural resources exploration sector. During that time he has closed out DOZENS of gains of 500%... 1,000%... 2,000% and more! Currently he is sitting on multiple thousand percent winners, including one stock that is up a whopping +5,000%. And for a select group of investors, Rusty has agreed to share his secrets of success... and his top stock recommendations. CLICK HERE to learn more...]