Meltdown: The Secret History of the Global Financial Collapse Part's 1, 2, 3 & 4

The latest attempt to cover the Great Financial Crisis of 2008 is this excellent by the Canadian Broadcasting Corporation (CBC). Yesterday we noted that Al Jazeera had been broadcasting the series, but the documentary is actually a CBC production.

Titled Meltdown: The Secret History of the Global Financial Collapse, the series is a four-part investigation that takes a closer look at the people who brought down the financial world. Here all all four parts of the series.

PART 1

The first episode of the series was posted yesterday but we are reposting it today for continuity.

Titled 'The Men Who Crashed the World', we hear about four men who brought down the global economy: a billionaire mortgage-seller who fooled millions; a high-rolling banker with a fatal weakness; a ferocious Wall Street predator; and the power behind the throne.

PART 2

Here is the second episode of the series, 'A Global Tsunami'.

This epispde looks at how the financial tsunami swept the world, how a renegade executive nearly destroyed the global financial system and how the US treasury secretary bailed out his friends.

PART 3

Next up is the third episode of the series: 'Paying the Price'

In this episode the effects of the global collapse are looked at.  In Iceland, protestors force a government to fall. In Canada, ripped off autoworkers occupy their plant. And in France, furious union workers kidnap their bosses.

PART 4

Finally we present the fourth episode in the series, 'After the Fall'.

In this episode investigators begin to sift through the meltdown's rubble. Shaken world leaders question the very foundations of modern capitalism while asking: could it all happen again?



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Thur Post #2: Is China nearing the tipping point? And whither Vancouver?

We have covered the flip floping of local Real Estate industry representatives who now claim 'hot asian money' is not the factor in the Vancouver Real Estate market that it has been made out to be.

Whether or not it is true, there is no denying a definite Asian influence that has transformed Vancouver since the early 1990s.

Asian money is most certainly present in Vancouver and it plays a role in our resilient housing bubble.

Some observers of our Real Estate scene believe the real tipping point for the implosion of our massive bubble will begin in earnest when the China juggernaut begins to slip.

China is renown for its boom/bust cycles and many critics content the latest 'China miracle' is simply an extension of that trend.

China, on a per capita basis, has pumped more stimulus into their economy than America has during this financial crisis. Their housing bubble is believed to be larger than the one the that built up in the United States.

Mike Shedlock, author of the blog Mish's Global Economic Trend Analysis has done a number of posts about the China situation.  You can see them by following the links at the bottom of this post in which he looks at news that China's shadow loan market is crashing and that scores of business owners, unable to pay back their loans, have disappeared or have committed suicide.

The collapse of the shadow loan market (and the rash of suicides) is the latest in a series of troublesome news out of China.

Back on April 17, 2011 we noted how the fourth ncrease in China's banking reserve requirements this year had triggered a plunge in Chinese real estate:

• “Prices of new homes in China’s capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city’s Housing and Urban-Rural Development Commission... Home purchases fell 50.9% year over year and 41.5% month over month the newspaper said… For all intents and purposes a drop of this magnitude levered even 2 times (assuming 50% or so equity down) means that China is on the verge of a complete bubble implosion.”

The China situation deserves close scrutiny. 

If the China Real Estate bubble is indeed starting to unwind, at some point wealthy Asian property owners will be forced to liquidate assets they own in other parts of the world in order to cover debt payments.

And given the current situation in the Vancouver market, an emergency selloff in the high end of our market could be the trigger that starts a cascade of selling.

As we have said, it's a situation that continue to watch with interest.

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Thur Post #1: Meltdown Part 1 - The Men Who Crashed The World

The latest attempt to cover the Great Financial Crisis of 2008 is this excellent offering by Al Jazeera and the CBC.

Titled Meltdown, the series is a four-part investigation that takes a closer look at the people who brought down the financial world.

In the first episode of the series, 'The Men Who Crashed the World', we hear about four men who brought down the global economy: a billionaire mortgage-seller who fooled millions; a high-rolling banker with a fatal weakness; a ferocious Wall Street predator; and the power behind the throne.

The crash of September 2008 brought the largest bankruptcies in world history, pushing more than 30 million people into unemployment and bringing many countries to the edge of insolvency.

It was as if the clock was turned back to when the world teetered on the brink of the Great Depression.

How did it all go so wrong?

According to 'Meltdown' it was primarily a lack of government regulation. Easy lending in the US housing market meant anyone could qualify for a home loan with no government regulations in place.

Also, London was competing with New York as the banking capital of the world. Gordon Brown, the British finance minister at the time, introduced 'light touch regulation' - giving bankers a free hand in the marketplace.

All this combined with key players making the wrong financial decisions, saw the world's biggest financial collapse.

Well worth your time to check it out.

And for those of you out there who enjoy chronicling the Vancouver Housing Bubble, there are some excellent quotes in Part 1 relevant to our current situation.

The complete series with Part 1, 2, 3 & 4 will be posted tomorrow at 12:01 am PDT.

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Wed Post #2: #OccupyWallStreet Spreads

Apparently the New York based “Occupy Wall Street” protest (which we posted about yesterday) is spreading out to other parts of the USA – Boston, Chicago, Los Angeles, Denver, and, according to this report, tomorrow afternoon in San Francisco. Here’s a video update from RT on the latest developments along with an interview with one of the protestors.

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Wed Post #1: Print, Print, Print.

Two days ago it was Alessio "BBC Trader" Rastani's gloom and doom musings on Europe that garnered all the attention.

Today it is Attila Szalay-Berzeviczy, head of UniCredit global securities (Italy’s biggest lender) and former Chairman of the Hungarian stock exchange (pictured above).

Bloomberg is reporting that Szalay-Berzeviczy has written an OpEd piece in which he claims that the euro is “practically dead” and Europe faces a financial earthquake from a Greek default.

Sounds familiar, doesn't it?

• “The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece's spirits. A Greek default will trigger an immediate magnitude 10 earthquake across Europe. Holders of Greek government bonds will have to write off their entire investment, the southern European nation will stop paying salaries and pensions and automated teller machines in the country will empty within minutes. The impact of a Greek default will rapidly spread across the continent, possibly prompting a run on the weaker banks of weaker countries. The panic escalating this way may sweep across Europe in a self-fulfilling fashion, leading to the breakup of the euro area.”

Of course this is just "one scenario among many". Szalay-Berzeviczy offers this ray of hope:

• “It’s one scenario among many, one which may lead to the breakup of the euro area via a banking crisis. This can still be averted. It primarily depends on the Germans, and secondly on European citizens, especially on how much the Greek population can tolerate.”

All Europe has to do is print, print, print.

Pity they can't print more Gold and Silver too.

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Tues Post #3: The 'Occupy Wall Street' protests go mainstream media (Updated)

For the past week a rag-tag group has been carrying out a protest on Wall Street. Orchestrated on the streets and online, the effort has been dubbed "Occupy Wall Street".

The demonstration is against corporate greed and while it promised thousands, so far it has delivered just hundreds. But the perserverance of the dedicated is starting to draw attention.

Mainstream media have mostly ignored the story, but as Police violence starts to ramp up against the peaceful protesters... the spotlight is starting to shine on what's going on in the streets of New York.

Above is 10 minutes of coverage by MSNBC on the brutality by the New York Police Department.

We will watch developments with keen interest.

England's Guardian Newspaper covers the protest here.

CNBC touches on the story here.

And the Vancouver Courier newspaper covers the Vancouver angle here.

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Tues Post #2: BBC defends Trader interview

Yesterday we posted the stunning interview (above) which was televised on BBC. It is the kind of interview you will NEVER see on North American financial TV.

UK trader Alessio Rastani shines in this three-and-a-half-minute spot where he says what most know but simply ignore:

• "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!"

Hi comments on the global economic meltdown have caused outrage.

Gawker promptly called him a “sociopath.”

Forbes said he might be a psychopath. 

Rumours quickly circulated that Rastani might be a member of Yes Men, a collective of impersonators and lead many to suggest he isn't who he claims to be and the whole appearance was a hoax.

It has all lead the BBC to release the following statement:

• "We've carried out detailed investigations and can't find any evidence to suggest that the interview with Alessio Rastani was a hoax. He is an independent market trader and one of a range of voices we've had on air to talk about the recession."

 It appears Rastani has touched a nerve.

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Tues Post #1: So what happened to all the Asian Money flooding into Vancouver?

Remember when HAM or 'Hot Asian Money' (and not cheap credit inducing Canadians to overextend themselves) was supposed to be the reason the Vancouver Real Estate market was remaining buoyant?

Back in June of 2010 we were told that Vancouver Real Estate had recoverd from the recession and that a surge in sales in the high end market was supposed to be trickling down to the lower levels and thus keeping sales up across the board.

And the source of that high end money?

China... or so we have been told by the media and Cameron Muir, Chief Economist of the BC Real Estate Association (BCREA) as this Global clip from June 12, 2010 attests to:

The clip tells us that all the money flowing into our Real Estate market is coming from Mainland Chinese who were buying homes here, upgrading their homes here or buying homes for investment purposes.

Muir is very specific, telling us that not only are the largest proportion of buyers of high end homes coming from mainland China, but their presence is what has been maintaining property values.

Global TV summarized and stated, "it means the rush of buyers from China is keeping the Lower Mainland housing bubble from loosing air."

Hmm... okay.  And since early 2010 that's all we have heard about in Vancouver:  'Chinese buyers are snapping up properties and keeping the market strong. No need to worry about a market collapse here, hot asian money is pouring into Vancouver.'

Translated... the message for you and I is the same as it always is from the R/E propoganda machine - buy now or be priced out forever.

Fast forward a year and a bit to today and the myth of HAM remains. Talk to anyone on the street and their view is that 'hot asian money' continues to flow into the market.

But wait! The tune from the likes of Cameron Muir has changed dramatically.

Over on the local CTV station, the dinner hour news last night had a segment on concerns our housing bubble is about to burst. You can find it at this link and watch the video broadcast itself (CTV News - Is Vancouver's housing bubble about to burst?)

CTV's story notes that our astronomical real estate prices combined with global instability have many locals wondering if the bubble is about to burst in Metro Vancouver.

Naturally CTV pops by to have a chat with Mr. Muir.

And the chief cheerleader for R/E in BC does not disappoint. "I guess the first question is - is there a real estate bubble at all?" says Muir.

Cameron goes on to tell us there is no bubble; that the average home price is actually being skewed, inflated by skyrocketing prices for detached homes in Richmond, West Vancouver and the West Side where prices have soared nearly 80% over five years - 27% in the past year alone.

A result of 'hot asian money', right?

It doesn't make the written transcript in the link above, but if you watch the actual clip there is a very insightful exchange at the very end.

The newscast host (Tamara Taggart) asks, "What about offshore people are they jacking up prices?"

Reporter: "That's kind of a fiction. The Chief Economist of the BC Real Estate Association says a lot of people have heard these rumours but he says only 2-3% of the buyers are foreign investors from mainland China"

Say wha????

Gee Cameron... and where would these 'rumours' have gotten started to begin with?

Muir quick shifts gears and attempts to belay concerns about a looming collapse by saying, "we had a financial crisis, the largest we've seen since the great depression, we had an ensuing global recession, and if that isn't a trigger or a tipping point for any kind of over-inflated market to see a major correction, I don't know what is."

Wow!

First off HAM is a myth, and now you're telling us that because the bubble hasn't popped yet, there isn't one?

One thing I can agree with Muir is that we did have a financial crisis, and it was the largest we've seen since the great depression. 

We also had an ensuing global recession.

But as the mainstream is starting to appreciate, that recession is nowhere near being over.

Up until now our government has moved heaven and earth to forstall its effects by slashing interest rates and coaxing our citizens to plunge themselves into record levels of debt by buying real estate and delaying the consequences of that financial crisis.

But the global recession marches on and we can't hide from what's coming.

Muir says, "if that wasn't a trigger or a tipping point for any kind of over-inflated market to see a major correction, I don't know what is."

Again, he's right. But the problem is that the trigger hasn't been pulled yet. Muir makes it sound as though the time for the trigger to be pulled has past us by.

It hasn't.  And when it does get pulled, we will see that tipping point.

It may already be upon us.

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Mon Post #3: Yeehaw

Overnight trading in Silver last night saw a massive, determined night bombing raid that took the metal down in the least liquid period of the 24 hour trading day. 

The attach dropped the spot price to $26.15 with the low being reached around 2:00 am EDT (11:00 pm last night on the west coast).

Silver rebounded today to $30.78 in New York trading, which was virtually unchanged from their open at $30.85, or up an astounding $4.50 from the low.

In early overnight trading tonight, Silver is up over $31.00.

But tomorrow is option expiration on the COMEX, so look for more short selling tonight. 

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Mon Post#2: "The Collapse is coming..."

Stunning interview on BBC today, the kind of which you will NEVER see on North American financial TV.

UK trader Alessio Rastani shines in this three-and-a-half-minute interview where he says what most know but simply ignore:

• "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!"

It's a painfully frank interview and shows you how some view opportunity in what others view as crisis.

Speaking of crisis, the harsh reality is that nothing has been fixed in the financial system since the Great 2008 Financial Crisis.

All government has done is paper over the problems and pushed the problems down the road.

In Europe, as Greece teeters on the brink of collapse, it's the world's banks that are at risk from the contagion.

And the banks are still in serious trouble. 

One European banker recently said, "it is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."

Mark to Market accounting is the great lie of the banking system right now. Instead of valuing the assets on their books at what they can be sold for today, we have this fantasyland-esque hope that values assets at what they 'think' they will get for them a couple of decades in the future.

European and North American banks are being kept alive with phony accounting.

This was not the case in 2008. Now we have insolvent banks AND phony bookkeeping to make them appear solvent. The problem has only been kicked down the road.

But the desperate efforts to ignore the problem continue. EU finance ministers are taking criticism from around the globe because they are not printing enough money to bail out their banks.

Yesterday, Reuters reported,

• “After a weekend of being told by the United States, China and other countries that they must get more aggressive in their crisis response, European officials focused on ways to beef up their existing 440 billion-euro rescue fund. Deep differences remained over whether the European Central Bank should commit more of its massive resources to shoring up Europe’s banks and help struggling euro zone member countries.”

The Telegraph is now reporting on how German and French authorities have begun work on a three-pronged strategy  to build a “firebreak” around Greece, Portugal and Ireland to prevent the crisis spreading to Italy and Spain, countries considered “too big to bail”.

The reality is that the banks are still in just as much trouble as they were in 2008, and probably more.

Lost in the blizzard of economic news last week were the downgrades of three very big U.S. banks.

There was zero talk of downgrades in 2008, and now Moody’s has cut the debt rating of Bank of America, Wells Fargo and Citigroup.

To paraphrase UK trader Alessio Rastani, the economic crisis is like a cancer. And it's growing.

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Mon Post #1: Shanghai Exchange Hikes Silver Margin By 20%

You will notice that in overnight trading Silver got hammered down to the low $26.00 mark.

The Shanghai Gold Exchange, the Asian counterpart to the CME, hiked their margins on Silver by 20%.  This follows the CME move on Friday which hiked margins on that exchange by 16%.

Will we see multiple margin hikes like we saw at the end of April/beginning of May 2011?

Stay tuned... this will be a week to remember in precious metals. Silver has already swung from $26.00 to $30.00 and back to $28.00 this morning.

To characterize this time as one of 'violent volatility' is almost an understatement.

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Desperate times, desperate measures

The idea that the Federal Reserve might need to 'engineer' a stock market crash has been brought up numerous times over the past two years in the blogosphere by other commentators.

Articles like "Will the Fed Engineer a Stock Market Crash to Flood the Bond Market With Much Needed Demand?" have surfaced on many occasions.

As the current year has moved along, it has become abundantly clear that the Federal Reserve must initiate another round of Quantitative Easing.

The problem is that, rather than helping the economy, the last round of Quantitative Easing just pushed commodity prices through the roof. Especially the price of Gold, Silver and Copper. 

So the pressure on the Fed not to ease has become immense.

It has lead many to wonder if the Fed might allow the stock market to tank in order to facilitate demand for QE3.

In the midst of this debate, as commodity prices have gone through the roof, the topic of derivatives has added an interesting angle.

The latest quarterly report from the Office Of the Currency Comptroller was just released and it presents in a crisp, clear and very much glaring format the fact that the top 5 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system.

Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks, a mere 5 banks account for 95.9% of all derivative exposure.

Earlier today Zero Hedge pondered if Morgan Stanley is sitting on an FX derivative time bomb.

And just last Saturday this blog wondered about the almost $80 trillion dollar derivative monster that JP Morgan was sitting on.

JP Morgan's massive short position in Silver is tied to a substantial number of derivatives which are triggered if the price of Silver remains above $36 per ounce for more than 60 consecutive trading days.

Is it a coincidence that the last time this deadline loomed (in early May, 2011) we saw a giant Silver smackdown?

Back then five margin hikes on traders in 8 days forced massive liquidation by investors trading on credit.

It triggered a sell-off that cascaded the paper price of Silver down to the mid $32.00 level, thus defusing the looming derivative time bomb.

Fast forward to September 2011.

After the May smackdown, Silver rebounded into the low $40 range despite massive shorting by JP Morgan.  On September 14th we outlined for you how the September CFTC Bank Participation report indicated that the four large US banks (primarily JP Morgan) had increased their silver shorts by 809 contracts in August from 23,775 to 24,584.

This was an increase of 4.05 Million ounces to the manipulative short position in silver in a single month. More importantly the total naked short position is up to 24,584 contracts.

It meant that JP Morgan has rebuilt their massive silver short position almost entirely back to the 25,412 contract position held prior to the giant short squeeze of August 2010.

This was all done in a frantic effort to beat Silver down below $36. But despite this massive manipulative downward pressure on the spot paper price of Silver, JP Morgan was facing another showdown with the Silver derivative time bomb.

Worldwide demand for Silver and Gold during this latest phase of the Sovereign debt crisis failed to dampen demand. Rather than drive drive investors away from the metal after the May smackdown because it is too volatile, buyers continued to accumulate Silver and the spot price was nearing another 60 consecutive trading days above the crucial $36 mark.

Derivative contracts on Gold were also nearing their tipping point.

When the Federal Reserve held their rare 2 day FOMC meeting last week, expectations were rampant that QE 3 would be announced in addition to measures like 'Operation Twist'.

When the Fed failed to impliment QE 3, the market tanked.

Was it a deliberate move?

Is a temporary minor market collapse a much lesser evil than allowing the top bank on the derivative list (JP Morgan) to implode from derivative exposure?

Not announcing QE 3 triggered a collapse in stock prices which had been pricing in the QE 3 announcement.  This forced liquidation.

And when we say 'liquidation', we mean wide-spread liquidation. Massive liquidation across asset classes such as currencies, bonds, commodities and stocks. All moved swiftly and sharply in a direction that screamed - Seek safety! Raise cash! Get liquid.

It's hard to imagine the Fed was ignorant of the impact not moving forward with QE3 would have.

Then, on Friday while stocks and the dollar all paused from the frantic selling, Gold and Silver were hammered. And the selling looked to be more calculated than incidental as it has been throughout the week.

There is little doubt that some of this is the association with usual gaming of the COMEX option expiration next week, and the potential delivery situation on that exchange with their unusually thin supplies and concentrated short positions held by a few of the banks.

But the trading volume in Gold on Friday was monstrous...in the neighbourhood of 340,000 contracts net.

In Silver net volume was an out-of-this world 114,000 contracts. This volume represented more than 100% of silver's total open interest. Just think about that for a second.

Then came the CME announcing a margin increase of 21% for Gold and 16% for Silver.

Warren Buffet famously called derivatives "financial weapons of mass destruction."

We were reaching a point where those derivaties could have wiped out JP Morgan and the other big four banks.

Desperate times called for desperate measures.  And it was desperate measures that were enacted this week to bring commodities down.

I would suggest to you that the stock market collapse this past week was but collateral damage in a far more significant battle.

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Silver's September Hard Fall (UPDATED)

On a day when the stock market has (momentarily) stopped hemorrhaging, the spot paper price of Silver and Gold continue to plunge.

As of 12:30pm PDT Silver is down another $5.26 per ounce for the day and is down about $10.00 per ounce this week.

We will have more on this in the days ahead (particularly as the Commitment of Trader's Report comes out reporting this weeks commercial shorts). Obviously there has been no change in fundamentals, so there's more to this than immediately meets the eye.

There are also a lot of traders who are forced to sell Gold/Silver to meet margin calls in order to cover other losses.  This will play a substantial role in the nosedives today as  a big sell-off in stocks is historically followed by a sell-off in Gold/Silver the next day.

For now let's focus on the sale of PHYSICAL Silver.

Last week if you wanted to buy a one-ounce Silver Maple Leaf from Scotiabank you would pay about a $3.80 premium over the spot price.

Today, as Silver sits at a spot price of $30.58, the premium has skyrocketed to about $5.50 over spot.(click on images to enlarge).

It's reminiscent of 2008 when the spot price dropped to $9 per ounce and you couldn't buy a Maple Leaf for under $15.

The manipulated paper price has dropped, but those who own physical Silver simply aren't willing to part with their Silver at anything close to that spot price. 

UPDATE

Ahhh... you just knew something was behind the illogical massive sell off today. Just as was done at the end of April, the CME used the market collapse (which when everyone is selling, clearly there is irrational speculation going not - NOT!!!) to smack down the metals.

The CME just announced they are hiking Gold margins by 21% and Silver margins by 16%, thus prompting another emergency sell off by those trading on borrowed money. News of this always leaks early in the morning and those leveraged traders would have had to liquidate immediately.

Like last time, look for Silver and Gold to quickly rebound next week.

Gold Margin Hike 9.23

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Anticipation

Back on September 8th we speculated that the US Federal Reserve would be implementing 'Operation Twist' shortly.

On Monday, as one faithful reader noted, the Globe and Mail likewise speculated that 'Operation Twist' would be the outcome of the recent, extra-ordinary 2 day FOMC meeting.

As it turned out, that was the outcome... the sole outcome... of the FOMC meeting.  By implementing 'Operation Twist', US Federal Reserve Chairman Ben Bernanke swapped 400 billion in short term treasuries for 400 billion in long term treasuries.

The move has no effect on the overall balance sheet since the total debt remains unchanged. But it supposedly stimulates the economy by driving down interest rates across the board - loans, mortgages, credit cards, etc.

Bernanke believes that by lowering interest rates on longer dated maturities it will cut long-term interest rates boosting investment in both housing and business.

The problem is is that interest rates are already at levels twice as low as they were the last time "Operation Twist" was implemented in 1961.

And if the lowest rates in 50 years aren't spurring a demand for credit in the economy - why does Bernanke believe a further decline will do the trick?

During the previous 'Operation Twist' the economy was experiencing a increasing trend of growth. Interest rates were also steadily rising as stronger economic growth allowed for higher rates of interest to be charged. Debt, as a function of GDP, remained well constrained at low structurally manageable levels.

Beginning in 1980, the economy shifted and interest rates began a very steady descent. This decline of interest rates led to a massive expansion of debt which ultimately sowed the seeds for slowing rate of growth in the economy.

Our problem isn't low interest rates.

Our problem is that we have massive amounts of excess debt.  And that excess debt literally drains the demand for more credit. 

For businesses, access to credit is not an issue.

Poor sales are their number one concern and the lack of demand on their businesses do not warrant adding on more leverage. The number of businesses currently thinking this is a good time to expand is at some of the lowest levels on record.

Likewise, consumers, are trying to pay down debt as worries about job security, rising food and energy costs and stagnant wages reduce their desire to consume and make debt reduction a priority.

The excess debt that has been accumulated over the last 30 years as interest rates were in a steady decline, lending standards were reduced and massive pools of available credit were supplied has now begun the inevitable unwinding process.

It's exactly what Japan have been going through for the last 30 years.

In the early 1980's Japan experienced their own real estate/credit bubble bust.

Japan has attempted virtually everything the US Federal Reserve has tried.  They lowered interest rates, made liquidity injections and utilized currency deflation in order to restart their ailing economy.

None of it has worked.

The heart of the problem is debt.

A credit induced boom has led to a massive period of malinvestment. It's that credit induced malinvestment which lies at the heart of our housing bubble.

What we are going through right now isn't a  normal economic recession. The system is trying to clear the excess debt but Government keeps intervening and retarding the process.

Government has to get out of the way and allow the system to clear the excesses.

Debt must be destroyed and cleared out.  Bad investments (and those who made them) must be allowed to fail.

The housing bubble must be allowed to burst fully.

Banks must be allowed to fail.

But that would be deflation and those in power aren't prepared to let that happen. Helicopter Ben has already told you what he will do when faced with deflation.

In a November 21, 2002 speech Bernanke said the government in a fiat money system owns the physical means of creating money. Control of the means of production for money implies that the government can always avoid deflation by simply issuing more money. He said "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." He referred to a statement made by Milton Friedman about using a "helicopter drop" of money into the economy to fight deflation.

Today the stock market is dropping like a stone. Investors thought Bernanke was ready to fire up the helicopter with the last FOMC meeting.  All month long they have been watching the date of that meeting and waiting, anticipating.

But all they got was 'Operation Twist'.

It doesn't mean it isn't coming.  It just means Bernanke wasn't ready to take that step this month.

It will come.

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Beauty, eh?

Back on August 31st we made a post about the latest marketing gimmick from the sales team team at Rennie Marketing for the Olympic Village.

The website hailed: "We’re kicking off a brand new promotion tomorrow—an amazing move-in package of essentials for every buyer—it’s everything you’ll need for life at The Village!"

The list of goodies and incentives for you to make your purchase included:

• A hybrid bicycle – for your 5KM ride along the seawall to Stanley Park
• A portable BBQ – for Saturday’s BBQ with the in-law’s, on your balcony or at Hinge Park
• A one-year Aquabus ferry pass – for a last minute trip to Granville Island or Yaletown
• A single person kayak – get to know the neighbourhood sea life
• A year’s worth of one-zone Translink FareCards – the skytrain is only 5 minutes away
• A coffee per day for a year at Terra Breads Café – just downstairs
• A pair of running shoes – run the seawall in style
• A year’s worth of groceries from Urban Fare – an elevator ride away
• A year’s membership to Modo Car Co-op – for your day trip to Seattle
• A set of All-Clad cookware – for your Miele kitchen

Well it seems the R/E freebie promotion is starting to spread.

Over in Calgary, Realtor Robyn Moser (rhymes with hoser) has a distinctly... umm... Canadian approach that lacks only the endorsement of Bob and Doug Mackenzie of SCTV fame.

After reading a newspaper story in Chicago wherein a seller saw showings of a property skyrocket by 300% when free beer was offered with the purchase of the home, Moser decided to offer a similar promotion in Cow Town.

As the Vancouver Sun notes, two Calgary homes she currently has listed include the sales incentive of $1000 worth of beer as part of the list price.

The buyer gets the beer on possession.

Moser, meanwhile, proudly smiles with the suds. 

No word on whether or not the offer includes Realtor toques or not.

Good day, eh?

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Smack Down

Older readers will recall that Paul Volcker was the Chairman of the US Federal Reserve from August 1979 to August 1987.

He is widely credited with ending the high levels of inflation seen in North America in the 1970s and early 1980s.

Most recently he was Chairman of the Presiden Barack Obama's Economic Advisory Board from February 2009 until January 2011.

In 2004 he did an interview with the 'Nikkei Weekly' newspaper.  They were talking about when the US dollar was devalued against the yen in January of 1973.

What stands out in the interview was a comment Volcker made about central bank intervention to control the price of Gold:

• "That day the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."

We bring this up because tomorrow in the start of the extra-ordinary 2 day US Federal Reserve Federal Open Market Committee Meeting (FOMC).

The meeting is extra-ordinary because it is rare that the Committee Meeting is ever longer than a day.  But last month current Fed Chairman Bernanke announced that it would be expanded to two days and it is widely expected that the Committee will use this meeting to facilitate in depth discussions of non-traditional Fed market activities.

In other words, Quantitative Easing 3.

The banking cabel loves to smack down gold and silver prior to a market operation. That way, if the metals rally, they have less opportunity to break out and run even higher.

Former Fed Chairman Alan Greenspan made a famous comment in 1998 which reinforced this practice.  He said,

• "Central banks stand ready to lease gold in increasing quantities should the price rise."

Today we saw a massive raid on both Gold and Silver in keeping with this philosophy as Gold dropped by $35.70 to $1776.40  and Silver fell by $1.67 to $39.11.

 

But while the manipulated 'spot price' of Gold/Silver fell today, we were presented with further evidence that things in Europe are getting worse.

 

In a shocking move demonstrating just how bad things are in Europe, the Financial Times is reporting the major European industrial company Siemens has pulled €500 million form a large French bank and deposited the money straight to the Eurpean Central Bank.

 

The implications of this are stunning.

 

It means that even European companies now refuse to work directly with their own banks, and somehow the ECB has become a direct lender/cash holder of only resort to private non-financial institutions.

The Financial Times quoted a person with direct knowledge of the matter as saying that the group had withdrawn the money partly because of concerns about the future financial health of the bank and partly to benefit from the higher interest rates paid by the ECB.

Consider the dynamics going on right now with Gold and Silver.

You just had the European Central Bank, the Swiss National Bank, the Bank of England and the US Federal Reserve act in concert to try and suppress the price of Gold/Silver while the SNB devalued the Swiss franc.

Then the group of central banks collectively put together a bailout liquidity facility in place to keep the Europen Union banking system from collapsing and also moved to try and supress Silver and Gold.

And now you have the big smack down in advance of the FOMC meeting.

At some point Silver and Gold are going to have a "snap-back" reaction in its price that could be quite breathtaking.

 

The massive emergency funding programs being put in place will eventually have to be monetized by central banking printing presses and transferring liabilities from the banks to the Taxpayers - just like in 2008.

 

It's going to get really interesting over the next 3 months.

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Epic? (updated)

The big news today is rampant rumours of an impending Greek default and it has some speculating that the big day may come as soon as September 20th.

The thinking is that Greece has two big bonds with coupon payments due that day totalling 769 Million Euro. So if the IMF wanted to avoid letting another billion euro go down the drain, September 20th would be a good day to do it.

Then there is the US Federal Reserve.

The Fed has their rare 2 day FOMC meeting starting on September 20th.

Maybe the fact these two events fall on the same day is a coincidence, but what better way to be prepared for new emergency policies than to have to act on a Greek default?

Speaking of FED rumours, financial analyst David Rosenberg has been speculating that the outcome of the FOMC meeting could produce stimulus far greater than what anyone is expecting.  "If Bernanke wants to juice the stock market, then he must do something to surprise the market. 'Operation Twist' is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires."

All of this is clearly spooking China.

As Ambrose Evans-Pritchard notes in The Telegraph, a key rate setter for China's central bank let slip that Beijing aims to run down its portfolio of US debt as soon as safely possible.

"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way. Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.

This appears to be the  first time that a top adviser to China's central bank has uttered the word "liquidate" in relation to US Treasuries. Until now the policy has been to diversify slowly by investing the fresh $200bn accumulated each quarter into other currencies and assets – chiefly AAA euro debt from Germany, France. 

And what size of a 'liquidation' are we talking about?

It is estimated that over $2.2 trillion US Dollars is held by SAFE (State Administration of Foreign Exchange), the bank's FX arm. 

Finally, the last tidbit in the rumour mill for today focuses on the infamous JP Morgan.

As we posted yesterday, a detailed class-action lawsuit has been publicly released on the silver price manipulation activities by JPM. The suit outlines exactly how JP Morgan has been conducting it's manipulation including specific names and titles of those JPM employees involved.

But the rumours focus, not on the Silver manipulation lawsuit, but on JPM's outstanding derivative position.

As faithful readers probably already know, JP Morgan is sitting on a $80 trillion plus derivatives monster.

Derivatives are securities whose value depends on the values of other basic underlying securities. Derivatives have exploded in use over the past two decades. They include such well known instruments as futures and options which are actively traded on numerous exchanges and as well numerous over-the-counter instruments such as interest rate swaps, forward contracts in foreign exchange and interest rates, and various commodity and equity derivatives.

And as noted at the end of this 2009 Business Week article, JP Morgan has the face-value equivalent of a mind-boggling $87 trillion in derivatives on its books.

Although your dutiful scribe cannot confirm it with a credible citation, the chatter is that if the price of Silver remains above $36 per ounce by mid/late October, the first of JPM's derivative bombs will denonate in their faces.

October always seems to be a volitle month in the world of global finance.

But if even only one of these stories plays itself out, October 2011 could be an epic month for the ages.

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Update

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Former U.K. Prime Minister Gordon Brown is speaking at the World Economic Forum in the Chinese port city of Dalian today and his candor is nothing short of astounding.

• "European banks are grossly under-capitalized and the debt crisis is more serious for the region than the 2008 meltdown as governments are constrained by fiscal pressures. In 2008, governments could intervene to sort out the problems of banks. In 2011, banks have problems, but so too do governments."

That, in a nutshell, says it all.

But Brown went on and noted that while the ECB is part of the short-term solution, it needs additional assistance. The European Financial Stabilization Mechanism, which is run by the European Union’s 27-nation executive arm, is “not enough.”. “Substantially more resources” are required.

• “The euro area problem is now moving to the center. The euro cannot survive in its present form, it’s going to have to be reformed dramatically. We are, I think, at an hour to midnight in the way that we look at this issue.”

A debt problem cannot be resolved with the creation of more debt, which is what authorities have been trying to do. 

• “European banks as a whole are grossly under-capitalized. We’ve now got the interplay between banks that are not properly capitalized and sovereign debt problems that have arisen partly because we’ve socialized or accepted responsibility for the banks’ liabilities.”

Do you think you will ever hear such candor from the likes of US Federal Reserve Chairman Ben Bernnake?

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