The Fox Wants More Of Our Chickens

How to Profitably Say "No"

by DeepCaster LLC, deepcaster.com | April 4, 2008

“Explain the logic of this? The Bank of Bernanke takes $29 billion in Bear’s toxic real estate debts, but lets Bear Stearns’ skyscraper go to JPMorgan for a song? Why didn’t the Fed take control of Bear’s one real asset and rent it out to JPMorgan with the proceeds going back into federal coffers?”…American taxpayers are potentially on the hook for $29 billion…yes, $29 billion…

“$66 billion. That is the record amount of money Wall Street’s top five firms…paid out in compensation and bonuses last year to their 186,000 employees…”

“At Merrill Lynch, they paid out $15.9 billion in compensation last year just weeks before the firm went hat-in-hand to secure a $6 billion lifeline investment”…

“Two weeks after Federal Reserve Chairman Ben Bernanke masterminded the purchase of Bear by JPMorgan Chase, one thing is crystal clear: JPMorgan shareholders are richer to the tune of $24 billion, Bear shareholders are several billion dollars better off than if the firm went totally bust, and American taxpayers are potentially on the hook for $29 billion”…

Terry Keenan, NY Post, March 30, 2008

That Private-For-Profit “Fox” called the U.S. Federal Reserve and its Allies want more of our Chickens. Thus we describe here a way to profitably say “No.” First, though, the background.

The U.S. Government is drowning in debt, which now totals some $9.4 trillion. This means that annual interest payments to the holders of U.S. Government Securities are nearly one half trillion dollars annually. The Fed itself holds over $719 billion in U.S. Treasury Securities on which it “earns” some $36 billion annually.

And how does The Fed “earn” the $36 billion annually? It prints money out of thin air, which it has used to purchase the $719 billion in Treasury Securities. The U.S. Government (that is, the U.S. taxpayers) is then obligated to pay interest to The Fed (!) to the tune, we reiterate, of over $36 billion annually.

And it is this “U.S.” Federal Reserve to which the Bush Administration (per the Plan released March 31, 2008) wants to give broad new powers to “regulate” the entire financial industry as an ostensible “Market Stability Regulator.” As well, consumer protection entities (in original intent) such as the Securities and Exchange Commission would have their power reduced (in the case of the SEC, it would be merged with the CFTC which regulates futures trading), according to that Plan.

In addition, it appears that the Plan would give The Fed broad Assets Seizure Powers as a consequence of having the power to go in and look at the books of any financial institution that it claimed “threatened the stability of the financial system.”

But consider that this is the same Fed that allowed, and indeed enabled, the massive credit and derivatives excesses which began in the 1990s and led to today’s massive Toxic Bubbles (the Housing Bubble, the Mortgage Bubble, the OTC Derivatives Bubble et. al.) which are now being punctured much to the pain of the average American, and others holding (or affected by) the Toxic Paper around the world.

Indeed, the Bush/Paulson/Fed Plan would not reign in practices like packaging risky sub-prime mortgages into securities carrying the highest ratings.

Nor would it require tighter rules for the largely unregulated “dark liquidity” OTC Derivatives-based markets for risk-sharing and hedging such as e.g. those credit default swaps which are supposed to ensure lenders against loss.

In sum, it appears that the housing and credit bubbles which the Fed created/enabled, plus the powers it now has and would be given by this proposed legislation would not prevent it and its allied institutions from seizing real estate and other assets from those who are now over their heads in debt and defaulting.

This is ominously reminiscent of the 1930s Great Depression-era seizures of all manner of assets including especially prime farmland and Gold. Remember that The Fed allowed/enabled all manner of financial excesses in the 1920s. In so doing The Fed then set the stage well for the 1930s foreclosures on American Assets, and the 25% unemployment rate which inflicted great suffering.

And do not forget to consider the Fed-led Cartel’s* massive and continuing Interventions today in most major markets to the great detriment of Hard Assets Investors, and much to the profit of their International Financial Allies, as the recent (March, 2008) painful Takedowns of Gold and Silver prices graphically demonstrate.

Why is The Cartel so interested in taking down these prices? As we have noted on several occasions, the Monetary Metals and Strategic Commodities are “The Mortal Enemies” of the Fed-led Cartel’s* Fiat Currencies and Treasury Securities because they serve as potential and, but for Intervention, actual Stores and Measures of Value. See Deepcaster’s January, 2008 Letter “Market Intervention, Data Manipulation, Increasing Risks, The Cartel “End Game” and Latest Forecast” at www.deepcaster.com.

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*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Central Bankers and Allies to read Deepcaster’s January, 2008 Letter containing a summary overview of Intervention entitled “Market Intervention, Data Manipulation - - Increasing Risks, The Cartel End Game, and Latest Forecast” at www.deepcaster.com>LatestLetter. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”

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Even so, by tracking the Cartel’s “Interventionals” in addition to the Fundamentals and Technicals, one can profit. For example, On March 14, 2008, Deepcaster issued a “Forecast Warning: “We believe the probability of a Takedown of precious metals and strategic Commodities prices very soon is high.” Sure enough, from March 18 – 20, 2008, Gold prices were taken down into the low $900s, from the high $900s, and a short play which Deepcaster recommended resulted in over 100% profit in 13 days.

And at the end of that Takedown episode on March 20, 2008, Deepcaster noted that while there might be bounces, the: “Takedown of Gold, Silver…and of Crude Oil and other Strategic Commodities has only just begun.”

That forecast too was fulfilled - - since March 20th, we have seen Crude Oil slammed down to $100/barrel and Gold taken down to below $900.

And on April 2nd Deepcaster issued yet another Forecast because we believe explosive moves in the Precious Metals and Strategic Commodities markets are coming again very soon.

However, even though one can profit from tracking such Interventions (see Deepcaster’s 4/8/07 Alert “Protecting From Dark Liquidity and Other Systemic Risks” at www.deepcaster.com) the Systemic Risks and Ethical Issues raised by such massive Interventions are quite troubling. See also Deepcaster’s article “Increasing Systemic Risk Portends Cartel End Game Attempt” of February 29, 2008.

Indeed, it is not only the Major Markets which are victims of Intervention and Manipulation, but also key economic and financial data.

On April 4, 2008 the U.S. Bureau of Labor Statistics claimed that non-farm payroll jobs fell by 88,000.

Indeed (since this “low” number was created by statistical chicanery) the actual drop was much larger.

The actual number was “a contraction of 124,000” according to shadowstats.com and 222,000 according to Robert McHugh. This is serious because the U.S. economy needs to create 150,000 jobs a month just to keep up with legal population growth, as McHugh points out.

Given all this, the Fundamental issue is whether or not any of us would benefit from this private-for-profit Cartel known as the U.S. Federal Reserve having the massive new powers which the Bush Administration proposal would grant.

We think giving The Fed more power is NOT a good idea. Our view is that President Kennedy’s idea of having the U.S. Treasury issue U.S. Notes to displace Federal Reserve Notes (which he began in the early 1960s shortly before he was killed) is a far better and, indeed, a Constitutional, approach.

As another first step, to help prevent the Daisy Chain Effect in which a financial disaster in one sector affects several others, thus creating a Systemic Threat, we need to re-pass the Glass-Steagall Act. That Act had separated the banking from the securities industries until the Clinton Administration unwisely, but successfully, lobbied for its repeal.

As a more comprehensive solution, Deepcaster, Presidential Candidate Ron Paul, and legendary investor Jim Rogers all advocate the abolition of the Federal Reserve. There is no need for such a Private-for-Profit “Middleman,” Banking Cartel, particularly one as rapacious as the U.S. Fed has proved to be.

Indeed, abolition of the U.S. Federal Reserve would allow the establishment of a Constitutionally authorized authentic National Bank, as well as the re-linking of the U.S. Dollar to Gold and Silver, and savings of at least $36 billion per year in interest payments to The Fed. We have set out our proposals in this regard in detail elsewhere.

Should we not work to stop the Fox from being the Overseer of our Entire Chicken Coop before it takes most of our Chickens, instead of just some of them?

Copyright © 2008 DeepCaster LLC
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