Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Paulson's Civic Robbery To Finance Hyper Inflation

Economics / Market Manipulation Apr 02, 2008 - 09:28 AM GMT

By: John_Browne

Economics

Best Financial Markets Analysis ArticleMonday, Treasury Secretary Hank Paulson announced the laying of the government's foundation stone for the next big financial bubble, heralding an era of hyperinflation and probable further runs on the U.S. dollar.

Of course, like most politics, there is usually a ‘good' reason and a ‘real' reason for actions. Today's announcement was no exception.


In today's case, the ‘good' reason was the effective ‘policing' of the financial, derivative, insurance and mortgage markets. Some cynics could be excused for thinking that the so-called ‘restructuring' and massive increase in the powers of the Federal Reserve Board were like locking the stable doors after the horses had bolted.

The extension of the ‘supervisory' powers of the Fed to non-bank (deposit) financial houses (like stock brokers), derivative dealers, insurance companies, and even to the private, high risk investment companies of the rich, like hedge funds, is dramatic to say the least. But when it is realized that, in return for supervision, the Fed will stand behind those industries as a lender of last resort, the true revolutionary magnitude of today's proposal becomes manifest.

The new initiative was described persuasively as an attempt to ‘modernize' our national financial monitoring systems and bring them in line to cope with the free-wheeling cowboy dealings that financed some $26 billion of bonuses paid to Wall Street firms alone in 2007! It all sounded so patriotically ‘good' and deserving of massive popular support.

The truth is staggeringly different; so different that it commands a certain admiration for how the political/financial ‘pro' Paulson was able to keep a straight face!

The truth, or ‘real' reason, should alarm every hardworking American taxpayer who supports the improvement of our country and the handing of a working economy on to our descendants.

Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke, more than any two people on earth, were too well aware that two weeks ago, we faced a systemic collapse of our financial system and that it risked spreading to much of the developed world in short order. Further, they knew that their emergency action to salvage Bear Stearns and other troubled brokerage houses would only postpone disaster, not prevent it. What was needed, to stand a chance of long-term survival, was a lender of last resort with massive resources.

When Hank Paulson soothingly mentioned “deleveraging”, he knew more than most that it meant some $12 trillion in the residential real estate market alone, excluding the excessive debt in the commercial real estate, auto loan and credit card markets!

In other words, the ‘real' problem is far, far larger than the $800 billion balance sheet of the Fed can absorb! This fact alone should provide a salutary shock to investors who still hold U.S. dollar assets. It certainly did for our Treasury and Fed.

The Treasury and Fed realize that, over the past decade, they have pumped in so much money that has, in turn, become excessively leveraged, by banks and derivatives, that the government no longer has the funds available to avert a systemic financial disaster. That sort of mega-money could only be ‘captured' directly from American citizens.

Behind Paulson's responsible and pro-active sounding modernization plan is the most cynical plan to rob American citizens further, by making their government, through the Fed, the lender of last resort for Wall Street's Billionaire speculators.

In the last resort, the Fed is financed by the Treasury, which, in turn, is financed by borrowing, taxing many Americans and robbing every single American through the debasement of their hard earned dollars.

Instead of allowing the free market to punish speculators, Paulson is now asking Congress to force the American citizen to stand as a lender of last resort, via the Fed, for the speculators on Wall Street, insurance companies, derivatives and, most amazingly, the most speculative of all rich investors - hedge funds!

The cynical arrogance of this ‘civic robbery' is hard to accept.

Make no mistake, the coming economic storm will be painful for us all. As if to rub salt into the wound, the hard-pressed citizen is now to be forced into bailing out Wall Street with injections not of billions, but of trillions in dollar liquidity.

To make it more politically acceptable, the Government must focus peoples' attention on an attractive use of funds. Green, alternative energy would fit the bill handsomely. Indeed the President has already announced a massive increase in nuclear power generation as a first step.

Soon we should expect to see massive (trillions of dollars) government programs announced and the funding farmed out via the ‘needy' on Wall Street.

In the meantime, direct financial aid will be administered via the Fed as lender of last resort.

In addition, we should expect accounting rules to be changed to allow the reality of ‘marking to market' to be eradicated, allowing technically insolvent financial institutions to continue their vastly profitable operations.

The economic ‘drag' effect of the increased regulation is yet to be seen. But it is likely to prove insignificant when compared to the great latent damage done to the basic productive economy of America by hyperinflation.

What does all this add up to for the investor?

First, we should expect a continued erosion of the U.S. dollar as interest rates are lowered further to avert depression and as inflation subsequently morphs into hyperinflation.

Eventually, we should expect massive growth in the dollar earnings of green alternative energy companies as the confiscated largesse of the American citizen is pushed into that sector of the economy.

It remains to be seen whether Congress will authorize the required massive level of trillions of dollars in funding soon enough to avoid the present recession morphing into a depression.

Whatever the result, it is increasingly clear that the government intends to leave it for future generations to pay the ‘real' bill for the reckless conduct of Wall Street and our Fed over the past decade.

In the meantime, investors keen to preserve their wealth should look abroad to the productive corporations and currencies of economies that continue to produce more than they consume.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's book “Crash Proof: How to Profit from the Coming Economic Collapse.”  Click here to order a copy today.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in