Wednesday, April 21, 2010

Fraud within a Fraud within a Fraud

The job of the FED is to control the money supply in our economy. They do this in several ways by printing money and selling bonds. But due to fractional reserve banking, the total money created in the system is much more that the FED creates alone. When FED member banks borrow 1$ due to the money multiplier they can lend 10$ or even 50$. This is called leverage.

In 2006 the FED stopped releasing important data on the money supply termed M3. Immediately after, the value of M3 ballooned to never before seen levels due to the derivatives markets while the FED was contracting M1. M2 stayed steady. Then in 2008 M3 was sharply contracted which tipped the economy over. Contraction of the money supply has always triggered recessions and depressions. The money supply is the lubricant of the economic machine. If you drain the oil out of the motor, the gear grind to a halt.

At the same time the FED began looking the other way regarding M3, John Paulson a Hedge Fund Manager of Paulson and Co. went to Goldman Sachs with an idea for a new derivative. Long ago commodities markets were created to consolidate and price of raw materials and food stuffs regardless of where these materials like oil, copper, or wheat were produced, mined, or farmed. The problem with the commodities market is that if there is a local drought Oklahoma but plenty of rain in Nebraska, wheat prices overall will be cheap and Oklahoma farmers will go bankrupt. This system which works against producers is good for globalists because bankrupt farms can be bought up my mega-corporations that are more insulated to local ups and downs in the weather and commodities prices.

In the case of oil, the US depends of foreign oil because we refuse to drill in ANWR, offshore, and the Bakken Formation in Montana and North Dakota. Also, knowing of our huge natural gas reserves, our government has failed to develop our natural gas infrastructure. Retrofitted cars can easily be run on natural gas as petroleum and even switch back and forth with the flip of a switch. Because of our dependence on foreign oil, oil cartels like OPEC have had the power to determine the price instead of the refiners as was the case in the early part of the 20th century.

So, the globalists needed a new system to control prices and take pricing control away from the producers. That is when futures and other derivatives were created. Futures are a way in which producers and consumers can pre-negotiate the price before hand. While this pre-arrangement can be good for producers and reduce risk, sometimes factors in one part of the market can still effect the whole market. In response, other derivatives were born, which allow commodities to be divided up and packaged in all sorts of ways allowing for a greater ability to manipulate prices.

John Paulson went to Goldman Sachs in 2007 with an idea on how to package home loans in a most irregular way. The effect of all this mortgage repackaging and gerrymandering was that some of these derivatives which are very risky and volatile contracts were given a AAA rating. These MBS/CDO's were then offered to banks and even communities as safe investments promising twice the return as traditional safe cooperate and municipal bonds. At the same time Goldman was selling these new CDO's, Paulson's hedge fund was shorting these derivatives knowing that the markets would soon come crashing down. But Paulson is no lone gunman.

When the FED contracted the money supply in 2008 companies stop expanding and hiring. When companies stop hiring, mortgage defaults go up, and the volatile CDO/MBS did as derivatives do and suffered massive swing in price losing 95% of their value. This meant Banks lost all their fractional reserves and therefore could no longer create money to lend. No lending, meant no business expansion, which leads to more layoffs , which led to more bankruptcies and mortgage defaults. People defaulting on mortgages wouldn't normally hurt banks, because they created the money they lent out of thin air anyways. But when the banks lost their fractional reserves, they were dead in the water. This allowed the FED to play god and choose who would live and who would die.

The Big Banks were also hurt and knowingly bought up these CDO/MBSs. But with their people in charge of the FED and the US Treasury, the big banks were bailed out with 10's of trillions of free dollars from the US tax payer. Instead of lending, the big banks turned around and purchased US T-Bills which guarantee 3%. When asked what the banks did with the TARP money, they evade the question. But we know what happened because the FED bought 300 billion in long-range T-Bills recentlly and said it was for the purpose of lowering the T-Bill interest rate and get banks to stop buying T-Bills and to return to their usual lending practices.

Now, here comes the SEC so late in the game filing civil suits against Goldman for selling these CDO/MBS/Toxic Assets and not disclosing that Paulson, their creator, was shorting them. But here is the real rub. Obama comes into the picture talking tough against the banks and wallstreet and wanting to institute comprehensive financial reform. Financial Reform sounds good until you read the bill being proposed. This financial reform bill calls for a value added (ad valorum) tax on all banks and all transactions based on some arbitrary determination of risk. This pool of money is to be set aside to be used for the next banking failure. We are being told that it is better to tax the banks and all transactions along the way so that the tax payers don't get stuck with the bill later. But whether the tax payer bails out the banks at the end or the banks get taxed along the way, the money comes from the people either way because banks pass fees and taxes onto the consumer.

This financial reform bill and its risk-associated value added tax on all transactions, is just like the Medical Reform bill which assigns reimbursement based on an arbitrary quality measure assigned by the federal government. And this is just like the Carbon Cap and Trade bill which gives the federal government the power to determine what businesses can do and can't do. All three of these bills gives the Federal government total control over medicine, banking, and industry.

Barack Obama was selling the financial reform bill today by claiming that strong federal government power is necessary to limit the abuses of the big banks. The president even made mention of the Founding Fathers. However, no action by the Federal government could be further from the vision of the Founder's in limiting the power of the Federal government. The truth is that the Federal government already has the power to solve this problem by getting rid of the FED, and exercising anti-trust legislation to break up big banks and big businesses that are too big too fail and too big to be transparent.

What we don't need is a bigger Federal government that limits personal liberties and usurps power and control over all major sectors of our society. You may say, "come on, why would you suspect that our government would want to abuse their power when their stated intention is to protect us." We forget a fundamental rule that the Founder's and George Orwell in Animal Farm knew well, that "Power corrupts and absolute power corrupts absolutely." Consequently, the Founder's knew that banking, financial, cooperate, and government powers needed to be divided up and distributed among the people as widely as possible.

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