Paper Currency -Fractional Banking- Institutional Fraud

Federal Reserve slight of hand

Federal Reserve slight of hand

An interesting read from Simon Black. In the second part of the article, he talks about the value of the dollar in silver as 416 grains. The conversion is about .951 ounces of silver which = about $19.00 today. Silver is considered ‘cheap’ right now. So, what has happened to your dollars since 1792? MF

July 26, 2013
Kiev, UkraineOver the past several decades, people around the world have become so brainwashed that few people really give much thought anymore to the safety of their currency.

It’s not something people really understand… there’s apparently some Wizard of Oz type figure at the top of the hill pulling all the levers of the monetary system. And we just trust them to be good guys.

This is partially true. Today’s financial system is dominated by central bankers who have been awarded nearly dictatorial control of global money supply.

In allowing them to set interest rates, they are able to control the ‘price’ of money, thus controlling the price of… everything.

This power rests primarily in the hands of four men who control roughly 75% of the entire world money supply:

  • Zhou Xiaochuan, People’s Bank of China
  • Mario Draghi, European Central Bank
  • Haruhiko Kuroda, Bank of Japan
  • Ben Bernanke, US Federal Reserve

Four guys. And they control the livelihoods of billions of people around the world.

So, how are they doing?

We could wax philosophically about the dangers of fiat currency. Or the dangers of the rapid expansion of their balance sheets. Or the profligacy of wanton debasement through quantitative easing.

But let’s just look at the numbers.

In theory, a central bank is like any other bank. It has income and expenses, assets and liabilities.

For a central bank, assets are typically securities or commodities which have value in the international marketplace, such as gold or US Treasuries.

Central bank liabilities are all the trillions of currency units floating around… dollars, euros, yen, etc.

The difference between assets and liabilities is the bank’s equity (or capital). And this is an important figure, because the higher the capital, the healthier the bank.

Lehman Brothers famously went under in 2008 because they had insufficient capital. They had assets of $691 billion, and equity of just $22 billion… about 3%.

This meant that if Lehman’s assets lost more than 3% of their value, the company wouldn’t have sufficient cushion, and they would go under.

This is exactly what happened. Their assets tanked and the company failed.

So let’s apply the same yardstick to central banks and see how ‘safe’ they really are:

– US Federal Reserve: $54 billion in capital on $3.57 trillion in assets, roughly 1.53%. This is actually less than the 1.875% capital they had in December. So the trend is getting worse.

  • European Central Bank: 3.69%
  • Bank of Japan: 1.92%
  • Bank of England: 0.843%
  • Bank of Canada: 0.532%

Each of these major central banks in ‘rich’ Western countries is essentially at, or below, the level of capital that Lehman Brothers had when they went under.

What does this mean?

Think about Lehman again. When Lehman’s equity was wiped out, it caused a huge crisis. The company’s liabilities instantly lost value, and almost everyone who was a counterparty to Lehman Brothers lost a lot of money because the company could no longer pay its debts.

Accordingly, if the US Federal Reserve’s assets unexpectedly lose more than 1.5% of their value, the Fed’s equity would be wiped out. This means that any counterparty holding the Fed’s liabilities (i.e. Federal reserve notes) would lose.

More specifically, that means everyone holding dollars.

Theoretically if a central bank becomes insolvent, it can be bailed out. It happened in Iceland a few years ago.

There’s just one problem with that thinking.

Iceland’s government wasn’t in debt at the time. So they were able to borrow money in order to bail out their central bank. Today the government is in debt over 100% of GDP, but the central bank is solvent.

But governments in the US, Europe, Japan, England, etc. are all too broke to bail out their central banks. These governments are already insolvent. So if the central bank becomes insolvent, there won’t be anyone to bail them out.

This is one of the strongest indicators of all that the financial system as we know it is finished. When central banks can no longer credibly issue liabilities, and their home government are too broke to bail them out, this paper currency standard can no longer function.

Such data really underscores the importance of owning real assets such as productive land and precious metals.

Given its nominal roller coaster ride lately, there has certainly been a lot of scrutiny and skepticism about gold.

But to paraphrase Tony Deden of Edelweiss Holdings, if you dispute the validity of gold as a hedge against declining fiat currency, that makes you, by default, a paper bug. Can you really afford to be confident in this system?

[To be continued on Monday… when I’ll give you some even more surprising numbers.] 

Monday’s continuation below: MF

July 29, 2013
Kiev, Ukraine

Here’s a question– if you’re in the Land of the Free, do you think those green pieces of paper in your wallet are dollars?

They’re not. A US dollar was defined by the Coinage Act of 1792 as 416 grains of standard silver.

No, those green pieces of paper are Federal Reserve notes. “Notes” in this case meaning liabilities to the central bank of the United States.

That makes you, me, and anyone else holding those green pieces of paper essentially creditors of the Federal Reserve, whether we signed up for it or not.

As we explored on Friday, the Fed is theoretically like any other business. On one side of its balance sheet, it has assets. On the other side, it has liabilities.

The Fed is unique, though, in that its liabilities– namely Federal Reserve Notes– are passed off as money in the Land of the Free.

And they have a legal monopoly in this money business. Just ask Bernard von NotHaus, the founder of Liberty Dollar who was labeled a domestic terrorist and convicted for minting silver coins to be used as a competing money.

Moreover, the Fed has the ability to increase its liabilities at will. Mr. Bernanke can conjure additional Federal Reserve notes out of thin air and pump them into the system.

And at this point, thanks to a long-standing policy of wanton money printing, the Fed has more liabilities than ever before in its history. By an enormous margin.

This precarious balance sheet is dangerous, because if the Fed goes bust, everyone loses.

Is it even possible for a central bank to go bust? Definitely. Zimbabwe and Tajikistan are infamous examples.

And most recently it happened in Iceland. The banking system there collapsed from being so highly leveraged, and Iceland’s central bank suffered tremendous losses.

The end result was insolvency, and the central bank’s liabilities, i.e. the Icelandic kronor, went into freefall, losing 60% against the dollar and euro in a matter of days.

So yes, it does happen. And the consequences are devastating.

But how likely is it that the Fed could go bust?

In its most recently published balance sheet, the Fed listed assets valued at $3.5 trillion.

Most of this is US Treasuries and ‘agency’ debt securities. You probably remember those– the toxic mortgage debt that blew up a few years ago like Fannie Mae and Freddie Mac. Not exactly low risk.

Meanwhile, the Fed has become one of the biggest creditors of the United States government… which has managed to accumulate more debt than any government in the history of the world.

Of course, the only way the US government can pay interest to the Fed is by going into even more debt (which the Fed then has to buy).

Every time this happens, the Fed’s already razor-thin capital gets smaller and smaller, and the Fed’s balance sheet becomes riskier and riskier.

In fact, the Fed’s capital ratio (1.53%) is lower than Lehman Brothers when they went bankrupt in 2008.

But what happens if the Fed becomes insolvent?

In the case of Iceland, the government bailed out its central bank.

Iceland’s government went from being essentially debt free to having debts in excess of 100% of the country’s GDP, just to bail out the bank.

But the US, Japan, and Europe are already too indebted to bail out their central banks. An insolvent government cannot bail out an insolvent central bank.

The IMF is not an option either. The US, EU, Japan, etc. make up roughly half of the IMF capital quota– these are the countries who fund the IMF, not the other way around.

There really is no backstop for the Fed. The buck, so to speak, stops here. And with a capital ratio of just 1.53%, the Fed’s balance sheet is already in precarious financial condition.

Given that the Fed’s assets are so closely tied to the finances of the US government, the outlook should concern independent, thinking people.

If they go bust, the value of Federal Reserve notes (i.e. ‘dollars’) is going to plummet… along with the paper wealth of anyone holding them.

Until tomorrow,

Simon Black
Senior Editor, Sovereign Man


Taxpayer Rebellion Expands in Suburbs of Portland Metropolitan Area | Red County

A little history of the growing push back against an out of control, debt ridden government that cannot bring itself to make rational, economically sensible decisions.

Taxpayer Rebellion Expands in Suburbs of Portland Metropolitan Area | Red County.

AFP Responds to President Obama’s Budget | Americans for Prosperity

President Obama’s Fiscal Year 2013 Budget

Just another Tax-and-Spend Proposal

On February 13, President Obama released his budget proposal for the fiscal year starting October 1, 2012.  Just like every budget he has offered, this proposal spends too much, taxes too much, uses budget and accounting gimmicks, and fails to address the nation’s biggest challenges.  Last year, the President’s budget was so unserious that the Senate rejected it 97-0; not even a single member of his own party supported the plan.  This year he hasn’t done much better.

Spends Too Much, Taxes Too Much:  Once again the President produced a budget that never balances, creates trillion-dollar yearly deficits and uses campaign rhetoric instead of pro-growth tax policy.

  • The President’s budget envisions over $3.8 trillion in federal spending in 2013.  Over the next five years, his budget runs up $20.6 trillion in government spending.
  • The budget calls for $1.9 trillion in higher taxes while the economy struggles to regain its footing.  Economists of all stripes agree that raising taxes during a recession is bad policy, but the President is more concerned with campaign rhetoric about taxing the rich than using proven policies to restore economic growth.  What’s more, raising taxes only gives politicians more money to spend; it will only undermine efforts to control federal spending.
  • Even with all these new taxes, the President foresees a $1.3 trillion deficit for this year; the forth straight year with a trillion-dollar deficit.  For 2013, Obama’s budget projects a deficit of $901 billion, but if we strip out the budget’s unrealistic assumptions, yet another trillion-dollar-plus deficit is nearly certain.
  • The President uses rosy estimates to make his budget look better than it really is.  The past three years the nonpartisan Congressional Budget Office issued an analysis of the President’s budget.  They found the deficits were actually 20 percent higher than the President claimed.

Budget Tricks and Accounting Gimmicks: The President claims over $4 trillion in deficit reduction in his budget based on either budget tricks or policies that he had nothing to do with.  A few of the gimmicks include:

  • $1.2 trillion in spending reductions from the 2011 debt ceiling debate. However, it was conservatives and House Republicans that pushed and pushed for spending reductions during this debate; the President wanted a debt ceiling increase with no cuts at all.
  • $617 billion in so-called “war savings” from slowing U.S. involvement in Iraq and Afghanistan.  Counting money we never planned to spend as savings is disingenuous at best.
  • $1.9 trillion in tax hikes.  No surprise here, he’s just another tax-and-spend politician.
  • $429 in spending on the Medicare doctors fix is buried in the baseline, covering up this additional spending without paying for it with other cuts.

No Leadership on Nation’s Biggest Budget Challenges: The three big entitlement programs are the main drivers of the nation’s budget woes. The President has once again failed to offer a serious proposal to address these programs.

  • The President has already installed his vision to try to control Medicare costs.  In his health care takeover, the President empowered 15 unelected, unaccountable bureaucrats at the so-called Independent Payment Advisory Board (IPAB) to cut provider reimbursements.  This plan will have the predictable effect of putting bureaucrats between patients and doctors, and creating shortages as even more doctors refuse to take Medicare patients.
  • Enrollment in Medicaid was greatly expanded under the President’s health care law with no plan to control costs.  More than 15 million people will be added to the welfare medicine rolls starting in 2014.  Instead of block granting the program to states so they can use proven cost control mechanisms, the President didn’t offer any serious proposal to rein in spending.
  • The President clung to the failed pay-as-you-go Social Security system that is currently a terrible deal for workers.  Higher taxes, lower benefits or a later retirement age will all make Social Security an even worse bargain for workers. Instead, we should move to an optional private accounts system that will restore the solvency of the system, increase individuals’ rate of return and encourage a personal ownership mentality in a program that is currently at the whim of politicians.

View the forum thread.

This “budget” puts the assault on America’s citizens into focus. The Obama plan suggest 3.8 Trillion in spending. It is a certain recipe for financial implosion, the likes of which the world has never seen. The massive debt accumulated in the past 3 years exceed the debt created over the previous 200 years, combined. Does anyone really believe this is a plan for recovery? Really? This is a radical plan to destroy America from within. There’s simply no other explanation that comes close to explaining this gross and purposeful destruction of America.

Budget? We don’t need no stinkin’ budget! – The Loft — GOPUSA

This is exactly why people are frustrated with Washington politicians. Americans have to work within a budget. When they don’t, things go crazy. It works like that in Washington too, except our elected officials are quite happy letting things go crazy rather than following a budget. Just look at Democrat Steny Hoyer. At a briefing with reporters regarding the fact that it’s been 1,000 days since Congress passed a budget, Hoyer said, “The fact is, you don’t need a budget.” And these guys wonder why Congressional approval is in the toilet?

Hoyer said: “What does the budget do? The budget does one thing and really only one thing: It sets the parameters of spending and discretionary caps. Other than that, the Appropriations committee are not bound by the Budget committee’s priorities.”

He continued: “The fact is, you don’t need a budget. We can adopt appropriations bills. We can adopt authorization policies without a budget. We already have an agreed-upon cap on spending.”

As noted in the report by, “the last time the Senate passed a budget was on Apr. 29, 2009.”

The federal government has since been operating on funds approved through a series of continuing resolutions (CR), raises in the debt ceiling, and several appropriations bills. The last CR was passed in mid-December 2011, by both the House and Senate, and signed by President Barack Obama.

That $915-billion deal, along with several appropriations measures, will keep the federal government operating though the end of fiscal year 2012, on Sept. 30. also noted that Senate Majority Leader Harry Reid also spoke about not needing a budget, saying, “We do not need to bring a budget to the floor this year. It’s done, we don’t need to do it.”

Is this insanity or what? Hoyer talks about an “agreed-upon cap on spending” as if that is a substitute for a budget. Does that “agreed-upon cap” do anything? NO! All these people do in Washington is vote to make it higher. There is no budget, and there is no spending cap.

Sen. Jeff Sessions issued a statement on Friday when Reid announced that “for the third year in a row, he would not bring a budget plan up for public debate and amendment on the Senate floor.”

nation’s fiscal future and the difficult choices we face. He obviously continues in his belief that it would be politically foolish for his members to go on record in support of any long-term vision. But by refusing to lay out a budget plan for public examination–a fact no one can deny–the Democrat Senate has forfeited the high privilege to lead this chamber.

It’s been 1,000 days since our leaders in Washington have passed a budget. 1,000 days! Isn’t it time to get some new people in there? These guys may understand how Washington works, but they sure don’t know anything about how an average American family works. Get a clue!

A government run by charlatans who refuse to take responsibility for many, many problems. When Harry Reid refuses to come up with a budget, he snorts that America doesn’t need a budget. Friends, that kind of insanity is designed to destroy the financial foundation of our country. It’s simply a full on assault on the remaining remnant of American Patriots by Obama and his Liberal comrades- war by other means.

» CBO: Debt crisis looms absent major policy changes News

WASHINGTON (AP) – A new report says that the national debt is on pace to equal the annual size of the economy within a decade, levels that could provoke a European-style debt crisis unless policymakers in Washington can slam the brakes on spiraling deficits.

The Congressional Budget Office study released Wednesday offers a fresh reminder of what’s at stake in ongoing talks led by Vice President Joe Biden that are aimed at slashing more than $2 trillion from the federal deficit over the coming decade as the price for permitting the government to take on more debt to pay current obligations.

CBO says the nation’s rapidly growing debt burden increases the probability of a fiscal crisis in which investors lose faith in U.S. bonds and force policymakers to make drastic spending cuts or tax hikes.

“As Congress debates the president’s request for an increase in the statutory debt ceiling, the CBO warns of a more ominous credit cliff — a sudden drop-off in our ability to borrow imposed by credit markets in a state of panic,” said House Budget Committee Chairman Paul Ryan, R-Wis.

The findings aren’t dramatically new, but the CBO analysis underscores the magnitude of the nation’s fiscal problems as negotiators struggle to lift the current $14.3 trillion debt limit and avoid a first-ever, market-rattling default on U.S. obligations. The Biden-led talks have proceeded slowly and are at a critical stage, as Democrats and Republicans remain at loggerheads over revenues and domestic programs like Medicare and Medicaid.

With the fiscal imbalance requiring the government to borrow more than 40 cents of every dollar it spends, CBO predicts that without a change of course the national debt will rocket from 69 percent of gross domestic product this year to 109 percent of GDP — the record set in World War II — by 2023.

Economists warn that rising debt threatens to devastate the economy by forcing interest rates higher, squeezing domestic investment, and limiting the government’s ability to respond to unexpected challenges like an economic downturn.

But most ominously, the CBO report warns of a “sudden fiscal crisis” in which investors would lose faith in the U.S. government’s ability to manage its fiscal affairs. In such a fiscal panic, investors might abandon U.S. bonds and force the government to pay unaffordable interest rates. In turn, CBO warns, Washington policymakers would have to win back the confidence of the markets by imposing spending cuts and tax increases far more severe than if they were to take action now.

“Earlier action would permit smaller or more gradual changes and would give people more time to adjust to them, but it would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations,” CBO Director Douglas Elmendorf said in a blog post.

Gosh.. didn’t see this coming… Who is running this country? And what is the objectives for those policies? Could it be a purposeful set of policies, or is simple incompetence? Either way, we must remove this destructive group of people.