Fiat Money Created Out of Thin Air: The Bank Bailouts are Unconstitutional


by Bob Chapman
Global Research, August 8, 2009
The International Forecaster


The starting point for all analysis of the ongoing bailout orgy that is currently being used in crony capitalist fashion to transfer wealth from our middle class to the financial elites and their transnational conglomerates is whether these bailouts are authorized by the US Constitution. The answer is a resounding NO!

Nothing in the Constitution could ever be interpreted in any manner that would in any way allow the conversion of our quasi-capitalist republic into a police state, which is the last thing our Founding Fathers had in mind.

How can our government simply hand over fiat money created out of thin air, which in itself totally violates the provisions in our Constitution dealing with the issuance of money, to whoever they deem to be too-big-to-fail? The very idea of such targeted bailouts violates every precept upon which our nation was founded, and our Constitution in no way allows the bailout of any private person or business entity, especially where this creates special privileges to be given to a chosen few "anointed" entities at the expense of our citizens in general. Regulation of interstate commerce does not mean doling out crony capitalist bailouts, which amount to nothing short of the implementation of feudalism under the Puppet Master oligarchs of our Shadow Government. Regulation would mean fining and jailing these criminals and allowing them to fail so better run companies can acquire their assets via liquidation to be supervised by regulators. You reap what you sow in this nation. You do not reap profits for yourself and have everyone else pay for your losses. That is pure poppycock detritus.

But where is our redress? We have a President who is a usurper pushed into office by the Puppet Masters in another violation of our Constitution that limits the Presidency to natural born citizens, we have a bogus Congress beholden to the Puppet Masters for the filling of their campaign coffers in a political system where elective offices are bought and sold based on wealth instead of ability and integrity, and we have a Kangaroo Court System where the judges know not to bite the hands that appointed them, lest their skeletons be released from their closets or worse. Our regulators, who are in on almost every scam and public rip-off (i.e. the Madoff debacle), look the other way or issue chump change fines without requiring any accountability. The only redress left now are forceful public demonstrations, and if the President and Congress still turn a deaf ear, then there is always the Second Amendment, which is the option which we predict will eventually be used to create a change in our government from total corruption back to public service. Obama wanted "change," and that is what the American people are going to give him, not what he is going to give us. And let's also make that perfectly clear to the Illuminati, whose boots Obama daily licks like a slobbering dog.

When the subprime/credit-crunch debacles first unfolded, we took the position that there should absolutely be no bailouts because such things are illegal, unfair, immoral and flagrantly unconstitutional. You do not mess with private contract rights, or dole out special privileges to a chosen few on a whim, lest you become known as just another Banana Republic. We are a nation of laws and legal precedents. You don't throw out hundreds of years of legal precedent by subordinating secured bondholders to unsecured creditors, all with the blessing of our Supreme Kangaroo Court and its nine numbskulls, who are appropriately dressed like Darth Vader, and then expect any other nation in the world to take you seriously. Our nation has lost any modicum of credibility and integrity, and the only nations who continue to deal with our government are the ones whose governments are even more criminal than ours is and/or who are caught in a "dollar trap." This fact alone is enough to kill the bond markets. This total disregard of the law and of legal precedents creates tremendous risk in the minds of foreign investors, and that means higher interest rates, and lower bond values, both public and private. And never mind the coming hyperinflation! We deserve to have the dollar lose its reserve status and to have our treasuries rated as "junk" bonds based on the actions of our leaders alone, much less the state of our economy. No contract is sacred anymore. They just make up the rules as they go along.

When we recommended against bailouts, we initially were referring to the subprime borrowers who lied on their applications and never should have been given mortgages in the first place. Bailing out failed financial institutions was the farthest thing from our mind because it was simply unthinkable. Instead, we have seen subprime borrowers given token help and watched in horror as the failed Illuminist financial institutions were given the key to Goldman Sachs South and its Treasury Department. We watched slack-jawed as the United States of America became the "Crony Capitalist Bailout Nation." If anyone is going to be bailed out, it should be the taxpayers and not the elitist transnational corporations and financial institutions who park their foreign profits offshore and don't pay any taxes on those profits! COME ON!!!

But the bailouts of "anointed" Illuminist companies have served one purpose very well. They have provided us with the smoking gun that proves the existence of the Illuminist agenda which we discuss in every issue of the IF. What do we mean by that? As Joan Rivers would say: "Let's talk."

Let us first say that the only sensible solution to all the ongoing debacles, other than an immediate purging of the economy which is what we recommended because it would minimize the pain of financial excess and maximize the speed of recovery, would have been to correct the defaults that were causing the various real estate and other credit derivatives to lose value. The defaults could have been corrected by making the loans current or even by paying them off altogether.

The math is totally obvious. Anyone with a high school diploma, a calculator and Internet access could have figured it out. Yet apparently the people with 1600 combined SAT scores, Ivy League diplomas and many years of Wall Street experience apparently could not figure this out. Do you really believe that? If so, you are incredibly naive. You probably also believe that the psychopathic leverage, moronic lending standards and outlandish ratings on bonds and derivatives were the product of mistakes, greed and poor judgment. Again we say: COME ON!

Yes, the underlings were simply doing as they were told to get their million dollar bonuses even though they knew that what they were doing seemed very imprudent, but the people at the top, from the upper tier of the Illuminist cabal, knew exactly what they were doing. The top dogs created the framework for the underlings to work in. That framework was intentionally and fatally flawed by maniacal leverage, rampant fraud and total lack of any meaningful regulation. Even a minor problem could be magnified into a major issue via excessive leverage. And any major problem could, by that same excessive leverage, be magnified into a catastrophic financial meltdown that would destroy the US economy, and even the world economy. You have to kill off the old system utterly, so you can install your fascistic police state and one world government in the ensuing chaos, and that is exactly what is happening right under your nose, right before your very eyes. Does God have to club you over the head from His throne in Heaven to get you to take notice? Get a freaking clue, America!!!

Now, let's look at some numbers. According to mortgage loan servicers handling 64% of all first liens, they were managing $34 million loans totaling $6 trillion dollars of which two thirds were prime loans. That would make the average mortgage somewhere in the area of $175,000. If we add in the other 36% of first liens, and assuming the same overall average principal for these loans, we would have a total of about 53 million first liens with an average of $175,000 per mortgage. The TARP money was 700 billion dollars. That means we could have completely paid off 4 million mortgages, or cut 8 million mortgages in half whose borrowers would then be able to easily refinance with their high newfound equity. And Realty Trac tells us that from 2005 to 2008, inclusive, about 7.5 million properties had foreclosure notices of default, orders of foreclosure and/or notices of sale served/filed against them. There is a lot of double counting there because multiple filings could affect the same properties in different years and not all properties go to foreclosure, but it does give us an outside/maximum figure for loans in serious default. All those mortgages could have been cut in half with the TARP money and saved from foreclosure, and refinanced down to affordable payments.

What would such a bailout have meant for America? Bear Stearns would still be here, Lehman Brothers would still be with us, AIG and the insurers would have manageable claims and still have decent ratings, all the subprime lenders would be solvent, all the Wall Street legacy investment banks and commercial banks would still be functioning and would not have become penny stocks, municipal bonds would be selling like hot cakes, the Dow might be past 14,000, most people would still have their jobs, pensions would be flush, the real estate market would still be sledging along, and the world economy would still be humping. And we haven't even touched the $787 billion of pork from the stimulus plan, or the two trillion dollars that the Fed doled out to both foreign and domestic banks and that is still unaccounted for! With those funds we could have paid off everyone's general purpose credit cards (one trillion), cut another 8 million mortgages in half (700 billion), and still had over a trillion left over to take care of the defaulted car loans, student loans, commercial mortgages and future residential mortgage defaults! Even the foreign banks could have been saved!

Why would this be so? Because if the defaults were cured, the de-leveraging of the big commercial and investment banks, which were, and still are, leveraged at a rate of about 50 to 1, would not have become necessary, at least not right away. This need to de-leverage to absorb losses when they occur by banks that are leveraged at 50 to 1 is what makes a trillion dollar problem into a 50 trillion dollar problem, and this is where we are headed when the Derivative Death-Star ignites and/or banks are forced to mark-to-market again. All this pain could have been avoided by the curing of loan defaults.

Would it have been fair to bail out the liar loans? Of course not. This drips of moral hazard. But would you rather bail out the bankster-gangsters instead? Is it more fair to do what our government has done for the criminals on Wall Street? Heaven forbid! And besides, the bailout of the liar loans would have automatically bailed out the bankster-gansters in any case!!! Do you mean to tell us that the geniuses of corporate America, Wall Street and Goldman Sachs South could not figure this out? Again we say: COME ON!!!

But it gets even better. We are told by our government bean counters that they think it will take about $24 trillion to bail out the so-called too-big-to-fail banks. So let's have some fun with this money. In the private sector, we have $13.8 trillion in household debt, $11.1 trillion in business debt, and $17.2 trillion in debts of financial institutions. We could take the $24 trillion and totally pay off all household and business debts.

That means the financial institutions would collect all that money and use it to pay off their debts as well. The whole system could have been de-leveraged and the derivatives canceled by regulators. Would we have hyperinflation as a result of all this bailing out? Of course! And some deflation as well. But would you rather go into hyperinflation debt free, or in hock up to your ears? You're going to get hyperinflation whether you get bailed, or the banks get bailed. And if you get bailed, the banks automatically get bailed. And for those banks that were totally careless, they would get to fail and be absorbed by the thousands of good banks who would jump at the chance.

Large amounts of pain are being inflicted on you needlessly while the criminal Illuminati and their nefarious bankster-gangsters get bailed out, thus sucking all your blood out like a vampire squid wrapped around the face of humanity, as Goldman Sachs was recently described by Matt Taibbi. This is why all the efforts to cure defaulted loans have been half-hearted at best, and non-existent at worst. The Illuminati know that this is the best cure for the sheople, so we most certainly can not have that. Else, how could they form their Orwellian one world police state of feudality and become lords of the universe over their future serfs? This whole bailout bonanza for financial criminals is the smoking gun. This is irrefutable evidence that the leaders of corporate America, Wall Street and Goldman Sachs South are venomous traitors who want to enslave you and put you and your posterity into bondage forever!

The percentage of occupied living units in the US that were owned as opposed to being rented was about 62% in 1960. All the shenanigans with Fannie and Freddie and the loosening of loan standards so that anyone breathing could have a mortgage has caused that home ownership percentage to fluctuate in an upward trend with the ebbs and flows of various real estate bubbles since that time, with a peak of almost 69% in 2005. If we were to trend back to 1960's 62% ownership, some five million owners would have to become renters again. We see this as inevitable, and it may get much worse as we move into the most disastrous state of the US economy in our nation's entire history. With long-term unemployment at over 20%, which could double if the Illuminati have their way with the ridiculous bailouts of bankster-gangsters, and with hyperinflation on its way, we could see the percentage of home ownership easily drop to 55%, or even less. We also see prices for housing potentially reverting back to the levels that existed at the beginning of the 1990's, which is before profligate expansion of money and credit by the Fed began in earnest as the totally criminal Clinton Administration got underway in 1993. That wild-eyed monetary expansion by the Fed has distorted asset values across the board, and has grown worse with time to cover over the destruction of our economy via free trade, globalization, off-shoring, outsourcing and both legal and illegal immigration.

Foreclosures, coupled with much higher interest rates on account of hyperinflation and elevated risk, could potentially become bad enough to reduce the median house price to 120,000 as it was in 1991, when the real estate market was partly cleansed. The deflation could get even worse as our government fires up the subprime market for another round of rampant fraud which could extend defaults even beyond 2012. Then there is the deflation in the aftermath of hyperinflation. It is just too terrible to even contemplate where this whole thing could go.

In our last issue, we reported that trailing P/E ratios using GAAP principals for calculating earnings were really 761, not the reported 24 or so that was obtained without taking write-downs into account. With a trailing P/E ratio of 761, the stock markets would have little, if any, value. Again, it is too ugly to even contemplate. The next leg down in this bear market is going to be a killer.

The Illuminati are attempting to start back up where they left off when Meredith Whitney cut them off with her exposure of Citigroup's toxic waste, but this time it is the taxpayers who are at risk on account of continuing government bailouts of so-called too-big-to-fail legacy banks. To accomplish this recommencement of the subprime and other derivative fraud, they have their losses held at bay with bogus mark-to-model bond and derivative values while Buck-Busting Ben lends them interest-free money which they are parking with the Fed at interest, investing in treasuries, and/or pouring back into the stock and derivative markets. This is where all the green shoots are coming from, namely, from money created by printing press prestidigitation out of thin air by Bernanke that is being invested by Illuminist financial institutions instead of being loaned to consumers. The dollar volume in the stock markets far exceeds the money coming out of money markets, so dollar volume and stock prices are being greatly exaggerated as a result of all this profligate money and credit. This is yet another reason why the Fed stays silent about what institutions received all the money and credit that it has loaned out. That would enable canny investors to trace the stock market volume to its real source, being digital dollars provided by the Fed to keep the sucker's rally going. This rally mirage will come back to haunt anyone who stays in the stock market, other than owning gold and silver related shares.

Meanwhile, as all this transpires, in yet another parlor trick, Bernanke is exchanging dollars created out of thin air by the Fed for other fiat currencies also created out of thin air by foreign central banks in various currency swap arrangements. This keeps foreign banks out of US credit markets whenever they need dollars to settle transactions, such as oil purchases and credit default swap settlements. These swapped dollars are also used by foreign central banks to purchase treasuries in order to support the dollar and US treasury bond values, which of course helps to maintain the value of their own existing dollar-denominated reserve assets in US treasury and agency paper. These swap arrangements are how the Fed is able to maintain the near zero interest rates in US credit markets which are crucial to Illuminist banking profits.

These swap arrangements are little more than smoke and mirrors economics. They have to keep swapping, or interest rates in US credit markets will rise, treasury values will plummet, and the Fed will be forced to monetize more treasuries to counteract these trends. These swaps swell the amount of dollars held by foreigners, which will come back to haunt us later when these foreigners implement big dollar bailouts and create a dollar carry trade. This flood of dollars back to our shores will be the atmosphere that leads to dollar devaluation. The repatriation of dollars from foreign central banks alone is more than enough to create hyperinflation, much less all the money and credit sloshing around in our national economy already as our government miscreants deficit-spend us into oblivion. The swaps are being used to sterilize dollars, delaying the inevitable so they can continue to milk the system as long as possible.

The Illuminati may well pull the plug on the stock and oil markets to chase money into dollars and treasuries to save those markets again, which are the seat of Illuminist power, and to help fund an FDIC bailout of what could be hundreds of billions from hundreds of bank failures that would be tallied up during the upcoming bank holiday where the small fry will once again be culled out so the big bankster-gangsters can eliminate the competition and acquire their accounts and assets for pennies on the dollar. The bank holiday would be used as the excuse for the PPT to withdraw its support from the stock markets, letting them crash under their own weight by virtue of countless negative fundamentals. Congress is going to grant authority for the issuance of $500 billion in treasuries to fund the FDIC bailouts, and it is the Fed's hope that the flush of liquidity from the PPT's crashing of foreign and domestic stock and oil markets into dollars and treasuries will reduce the amount of those FDIC bailout bonds that the Fed will have to monetize. Precious metals will undoubtedly become beneficiaries of this flushing out as well. This will be the dollar and bond markets' last hurrah, and will pave the roads leading to devaluation of the dollar, and to the greatest bull market in gold and silver of all time. The next leg up will make up for all the big profits that have eluded newer investors in precious metals thus far. The best is yet to come. Buy your tickets now, and make sure that you're already on the train when it leaves the station!

Market In Review

The Challenger job cuts rose 31% to 97,373 month-on-month. This is the first rise in job cuts since January.

Can you imagine the federal government is asking Goldman Sachs about its compensation packages and credit derivative instruments? The government will do absolutely nothing, - Goldman controls our government.

Besides supplying foreign currencies via loans to friendly countries called swap facilities, the Fed is also using this front to buy Treasuries. The friendly countries are England, So. Korea, Singapore, Switzerland, Japan, Mexico, New Zealand, Canada, Australia, Denmark, Norway and Sweden.

The reason the Treasury reconfigured its figures on foreign central bank Treasury sales was to boost foreign participation in Treasury auctions. That allowed foreigners to show larger auction purchase numbers to cover up Fed purchases of US Treasuries. These swaps allowed a cover for the continued monetization via Treasury purchases and at the same time make it look like the foreigners were the buyers. This way they do not have to continue to use secret offshore accounts in the Caribbean. The actions could explain why the Japanese tried to smuggle US Treasury bearer bonds from Italy into Switzerland for sale before the dollar tanked. The US is in a box and they cannot get out. They have to print money and issue credit or deflation will take charge.

We are now seeing the result of such policies in the value of the dollar as it plummets downward. Obviously others have caught on to what the Fed is up too. If you throw all this monetization into perspective you have to realize it’s hyperinflationary.

Then there is the $2 trillion budget deficit, which could become much worse if Cap & Trade and Health Reform become law. That could guarantee double digit deficits as far as the eye can see, never mind what fiscal madness could be cooked up over the next 3-1/2 years. How would you feel if you were holding dollar denominated assets? In addition the administration’s failed programs have to make you cringe. Instead of applying the stimulus package quickly most of it will occur next year, which was purely a political decision, which will prove to be a costly one for the overall economy. Put this together with the rampant corruption in wall Street and banking, the insider trading by Goldman Sachs and others aided and abetted by the New York Stock Exchange; tremendous political pressure to disband the Fed and a public that is finally catching on to what is really going on and you have a formula for disaster. We also shouldn’t forget the enablers of the Wall Street-Government crime syndicate, the SEC and CFTC, which cover up all these illegal activities.

Every large dollar holder knows going in that it has been US policy for years to inflate its currency. They should have recognized this as a cost of doing business. This inflation in part allowed US consumers the ability to continue to buy massive amounts of foreign products. That meant that in time the dollar was doomed to fall in value. Eventually dollar holders will lose 2/3’s of their dollar purchasing power via devaluation and default. As a result of these profligate US policies we hear rumors that secret deals have been made with creditors to keep them from dumping their dollar denominated assets. It is finally becoming clear to foreigners that today’s American financial system is built on fraud benefiting a small group of elitists who control Wall Street, banking and our government. Then again foreigners are not without fault. Almost every one of them have manipulated their currencies and secretly and openly subsidized their industries. Thus, there is plenty of blame to go around.

Inflation has continued to recede worldwide as monetization is neutralized by the pull of deflation. We are frequently asked when is inflation going to start moving upward or where is hyperinflation? Be patient it is on the way. Our financial system, after two years of crisis, still is insolvent and will continue to need massive infusions of monetized capital. That will be especially true if the FASB changes their rules back to mark-to-market from mark-to-model. We are looking at budget deficits of over a trillion dollars or more as far as the eye can see and we are looking at continued increasing unemployment. That means continued massive money and credit creation. Eventually that will bring the higher inflation and hyperinflation. As a result of this policy of throwing money at the problem the dollar is paying a price. It was but two months ago that we recommended the sale of the dollar and the assumption of short positions at 89.5 on the USDX. As we write that index is at 77.60. We believe it is headed toward 71.18, its former low by the end of October. We projected all this in mid-May some three months ago. We at that time moved based on fundamentals and in June we found the elitists at the Bilderberg Meeting in Greece decided that the dollar could no longer be defended at then present levels.

America is still a great importer of goods and the increase in the cost of goods purchased is a very strong stimulus for price inflation. That T-shirt from China that once cost $1.00 would rise to $1.50 and soon. The idea for the elitists is to hold the dollar decline at 71.18. At first they’ll be successful, but in time that level will be broken and the dollar will fall to 40 or 50. It could take six months or three years dependent on what transpires. The anecdote is gold as it has been for centuries. Gold is wealth preservation that preserves assets whether we have inflation or deflation.

Some governments will continue to create money and credit, such as the US and England. Some may decide to bite the bullet now, as we believe the eurozone may now be doing. The ECB has dropped M4 from 12.8% to 4.7% over the last two years, which could well be an indication they have decided to enter deflationary depression – we will see.

A lower dollar 15 years ago would have been helpful for exports, but in today’s environment a 71.18 USDX dollar would only add ½ of 1% to GDP.

Few talk about it but chances are excellent that in September and October that the stock market could take a heavy hit, falling quickly and deeply back to 6600 on the Dow. De-leveraging has a piece to go with banks still at 40 or 50 times deposits. Eight to ten times is normal. This recent bear market rally is very similar to the 1930 rally, which ended percentage-wise just about where we are presently. Unemployment is rising and that means earnings cannot maintain. Who will they sell too? Get out your parachutes; it is time to jump.

On Thursday, there was a rumor on Wall Street repeated by CNBC that the Labor Department would adjust unemployment from January thru July by 500,000 to 1 million additional lost jobs. This wouldn’t be surprising considering Washington lies about everything. If this is true the market will be seriously affected.

Goldman Sachs made $100 million in trading revenue, a company record 46 separate days in the second quarter. You can only achieve this on inside information. In the second quarter they only had two losing trading days. As a former trader for 25 years and official member of the Los Angeles Traders, I find that totally impossible without inside information. They made $50 million a day. These people are criminals, especially for what they have done to the gold and silver markets.

Commercial paper expanded last week up $10.7 billion to $1,076 trillion. Asset backed paper fell $3 billion after being up $900 million the prior week, to a total of $434.8. Unsecured financial issuance fell $400 million after falling $26.6 billion the previous week.

CEO Index, the only one of its kind, fell to 63 in July. The overall confidence was 75.7 in May. 88.8% rated current conditions as bad, up from 86.3% in June and 81.6% in May.

The employment confidence index fell 25% with 57% of CEO’s expecting a continued decrease in employment in the next quarter. More than 95% rated the rate of current employment environment as bad, the highest level for 2009. 0.4% thought they were good.

Thirty-nine percent expect capital spending to drop and the consensus was we are treading water. They thought the government is only delaying the inevitable. 33% believe the worst is yet to come. They think the President’s healthcare reform if approved would have a devastating effect on the economy. Cap & trade if passed would be equally devastating.

Rumors reach us that a major investment house will put out a call to get its clients out of the ETFs due to anticipated accounting issues. Could it be that GLD and SLV will be exposed as Enron-type frauds?

The continuing saga of Pat Kiley

In the ongoing saga of Pat Kiley we do not know if any money will be rescued, but we figure about $190 to $200 million disappeared. As you know we heard rumors that large amounts of cash were dispersed worldwide to Zurich, Scandinavia, Greece, London and Panama. We hope the FBI is about to move on this unfortunate scandal.

The number of U.S. workers filing new claims for state jobless benefits fell last week, providing another glimmer of hope that the economy may be on the road to recovery.

Initial claims for jobless benefits fell by 38,000 to 550,000 on a seasonally adjusted basis in the week ended Aug. 1, the Labor Department said in its weekly report Thursday. The four-week average of new claims, which aims to smooth volatility in the data, fell by 4,750 to 555,250, the lowest level since Jan. 24.

The tally of continuing claims -- those drawn by workers for more than one week -- rose by 69,000 during the week ended July 25 to 6,310,000, the highest level since July 4.

For months, issuers have raised credit card rates and fees at a dizzying pace. Now, a growing number are starting to tack on new card fees for inactivity or purchases made outside the U.S.

In June, Fifth Third Bank began charging a $19 fee if credit card borrowers have no account activity in 12 months. Discover now levies a 2% fee on purchases made outside the U.S., and Chase has introduced a $30 annual fee on its popular Freedom credit card.

Citigroup, meanwhile, has rolled out a policy where certain credit card borrowers who pay late are subject to a "reinstatement fee" to be able to redeem accumulated points for rewards. This fee is currently $0. But it won't stay that way, predicts Robert Hammer, who consults with the industry, if Citigroup finds cardholders aren't objecting to the policy. Citigroup spokesman Samuel Wang says, "We currently have no plans to raise it."

The fees represent issuers' latest attempt to mitigate the effects of a credit card law passed in May, which restricts rate increases and marketing to college students. Analysts say that because most provisions don't take effect until February 2010, issuers are finding ways now to bolster their income despite consumers' precarious financial situations.

Issuers are "hoping to slip in fees where they're least likely to be noticed," says Adam Jusko, founder of IndexCreditCards.com, a card comparison site.

Mortgage rates in the U.S. fell for the first time in three weeks, boosting the potential for further stabilization in the housing market.

The average 30-year rate dropped to 5.22 percent from 5.25 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate averaged 4.63 percent for the week ending today.

Lower rates may increase demand for homes in the fourth year of the housing recession. New and existing-home sales rose in June as falling prices and a government tax credit lured buyers. The S&P/Case-Shiller home price index rose 0.5 percent in May from the prior month, the first gain since July 2006.

“If you’re a homebuyer and you’re employed, you can’t complain,â€