Dark Skinny

It is certainly true that everyone from the Keynesians, Monetarists and the Austrian Schools of economics all seem to promote the wonders of  Free Markets. These ancient and revered tenets are also widely amplified in the media by the likes of Paul Krugman, Milton Friedman, Larry Summers, Ben Bernanke et al. But, strangely, and from the economic opposition, this very same esteemed principle is urgently and heavily shouted by the likes of Peter Schiff, Jim Rogers, Marc Faber, Joseph Stiglitz, Doug Casey and Congressman Ron Paul. So, I guess something smells fishy in Kansas, something is a bit awry, evidently these free market principles are perhaps being played with and twisted or bluffed for some particular advantage. And when economic principles become thus bastardized, abused and two faced, the common-sense simplicity of economic Free Market principles.becomes lost and wayward  to  simple understanding, wherein government planners and schemers are able to shamelessly steer the markets, and  all trusting citizens are misled and fooled. So, perhaps a proper definition is in order for those of us who are utterly flummoxed. Here are several simple definitions of Free Market:

Definition 1

Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy.

Definition 2

A foreign exchange market that is not controlled by the government.

Definition 3

A security with sufficient liquidity that its price is not significantly affected by availability.

When you read these definitions, is it any wonder that ordinary people are so confused with the complex economic activities of the US government? And although the likes of Geithner, Summers and that know-all President Obama resolutely preach Free Market principles out of the left-hand side of their faces — all you have to do is dig down a little into the current stinking US economic septic pit to expose all the dirty, gross market manipulations that have been perpetuated by these paragons of free markets.  If you want to read about this then this link is a good starter. But don’t mistake what I’m saying here, the governments of most other developed countries in Europe and elsewhere also manipulate the Free Markets to some much smaller extent. After all, they’ve had a good teacher haven’t they? But, in my opinion, the US government throughout the last century has been The King Daddy of Market Manipulators.

Perhaps, as an American, you might feel that this economic interference and malpractice is OK, –  Hey, what’s all the fuss about ? — that’s simply the way the economic game is now played, since it ’s  all part of the capitalist principle to win economic advantage by any clever and innovative means possible. Perhaps the US government is only trying to help America to lead economically from the front, so all can be forgiven with these manipulations. And maybe this is all true. But there is also a great danger here. America’s economic lead is undoubtedly waning and the likes of Russia, China and the other emerging market countries are all playing catch-up with a vengeance now. Soon the global economic baton and lead  may well pass to the likes of China and what then? China has been watching America’s economic activities and is now very aware of the American Governments blatant hands-on manipulation of the dollar. So, when China eventually moves to the front of the Global economic pack — as she must through sheer un-leveraged manufacturing productivity and savings — how will America cope? China has been a patient, fast learner. On his last visit to China, Geithner was laughed at, hooted and booed when, during a speech,  he assured the Chinese government that US Treasuries were a safe bet. Well he tried the bluff, but crashed and burned mightily. Fairly clear that the Chinese now fully realize what America is up to, that China must pay heavily  and sacrifice all her savings for America’s re-emergence without any other choice. The point here is that political sway and influence relies heavily on the economic performance and riches of any country — this is certainly one form of power — and so if America has been playing The King Daddy of Market Manipulators then what’s to stop China or Russia or India or The Middle East — as they eventually overtake America’s falling, failing economy — playing by the same dirty manipulative market rules? Will Americans then cry “Foul !!” when China or Russia start to manipulate the markets heavily in their own favor. And maybe Russia and China will then laughingly respond with “Hypocrite!! Hypocrite !!”. Who could blame them? The current “rules” of modern economics seem more likely derived from Sun Tzu than they are from the essays and works of Maynard Keynes, Milton Friedman or Ludwig von Mises. Anything goes, it seems.

In the first definition of free markets — defined as markets which are not interfered with, manipulated or subsidized by governments — it is quite evident that the US government(as well as governments in Europe and other developed countries) clearly have not abided by this rule. This simple rule defines that the markets are an economic jungle, and when left alone as they should be,  if any business or stock doesn’t perform, then that business is inefficient, uncompetitive, non-productive, over-leveraged  or corrupt and rightly deserves to die. So, according to the Darwinian free market principles, only the strongest and best performing businesses should survive. But what have we got instead? In a word — Bailout after bailout. The US Government is not only rescuing Wall Street and huge corporations, the Fed is also buying up all their dirty toxic assets as well !! In effect, the US government now clearly supports all the corrupt, fraudulent, insolvent and too-big-to-fall business institutions of America which is quite the opposite of Free Market principles.

As further evidence of  US Government market manipulations — all you have to do is take a peek at the recent performance of commodities like oil, gold, soyabeans and wheat. I won’t spend time on more evidence, there’s too much evidence really. But I will describe how it is done.

From my readings the US FED is supposedly responsible for the maintenance and regulation of US banks, price stability, inflation and the US money supply. Little known is how the FED maintains the strength of the US Dollar. The FED maintains the US dollar, not only by suppressing interest rates,  but  by entering into large currency swap arrangements via the Federal Open Market Committee. This Committee is allowed to interfere and play the currency exchange markets as much as they like to maintain the strength of the dollar. And, according to the second definition of Free Markets — A foreign exchange market that is not controlled by the government — again, this FOMC activity directly offends and contradicts the definition of  “Free Markets” doesn’t it ?  

There is also a very little known arm of the US Treasury called the Exchange Stabilization Fund(ESF), which discreetly though massively manipulates the US stock markets by their very secretive and hard-working Plunge Protection Team(PPT). Recent activities of the ESF seem to be concerned with dollar price stabilization via direct gold manipulation in the commodities market. From the Market Skeptics site:

Originally funded out of the profits from the 1934 gold confiscation, the little known ESF is available for intervention in the foreign exchange markets. In the absence of a Congressional appropriation, the Clinton administration used funds from the ESF to finance the 1995 U.S. bailout of Mexico. However, accepting the Greenspan dictum that it “would be wholly inappropriate” for the Fed ever to intervene in the gold market to manipulate the price, it is hard to imagine any situation in which such intervention would be appropriate by the ESF, never mind one involving large profits for the former investment bank of the Secretary himself.

Last week, in response to an inquiry from Bridge News, Secretary Summers “categorically denied” that the Treasury was selling gold. With all due respect to the Secretary, this is not the allegation that knowledgeable gold market participants and observers are making. Their allegation is that the ESF — by writing gold call options or otherwise — is making sufficient gold cover available to certain bullion banks to allow them safely to take large short positions in gold, thereby putting downward pressure on the price and in the process making huge profits for themselves.

So, how does the ESF manipulate the free markets, what is its modus operandi ?
From an interview in the Americans for a Free Republic website:

The PPT [Plunge Protection Team] operation has access to unlimited funds because it was formed by the Treasury which can create money out of thin air. My guess is that the organization is structured through an offshore hedge fund established by the ESF as a front group. They do their buying and selling from perhaps the Bahamas or the Cayman Islands. One thing we know is that they place their orders through several of the big brokerages in New York such as Goldman Sachs, JP Morgan, or Merrill Lynch. This way no one at the brokerage houses or on the exchange floors actually sees any massive buy orders from Washington bureaucracies.

The way they work the scheme is whenever the market is going too low and threatening to crash, the PPT initiates buy programs on margin for S&P futures contracts in large enough volume to check the market fall and panic short sellers into covering their short positions. This creates a “short squeeze” and explodes prices upward. Hedge funds and institutional buyers then rush into the market to buy in order to catch the rally. This extends the rally and effectively ends the potential market crash as investor mood shifts from bearish to bullish. The rally is created in the way that lighting a match to kindling ignites a roaring fire. The S&P futures contracts are so highly leveraged that a $200 million buy can be initiated for $10 million in the PPT account with JP Morgan. A $500 million buy can be initiated for $25 million. These margins are chump change for the Treasury-ESF-PPT operatives. As the rally proceeds, the PPT then sells their contracts back to the hedge funds and institutional buyers that follow after them. The PPT then goes to the sidelines to await the next crisis when they will need to stem a potential crash.

Is this not also outright market interference and manipulation? This makes me laugh very sarcastically concerning one of President Obama’s past stated policy dictums. Early on in his reign,  when Obama first came  to power — he made much rhetorical sound and thunder concerning  sterner rules, regs and transparency regarding offshore bank accounts and businesses in places such as the Cayman Islands. Can anyone now see  that this was all BS — because without these non-transparent offshore accounts and businesses the ESF simply could not function or do its covert job. So, folks, anyone with an offshore account will be safe enough in the future. This empty and hollow promise by Obama seems to be just one more ineffective and deliberate distraction for his people.

So, please, let’s not have anymore babble about how we have Free Markets.  We haven’t had Free Markets in over a century and they will never return. But I will give you a new economic rule:

The Free Market principles are dead. But whichever country is at the top of the global economic pyramid will always endeavour to control and manipulate the global markets without fail — in any  dark, selfish and illicit manner they choose. Sadly, this rule seems already to be the accepted economic norm. And, like it or not, global leadership always changes according to economic circumstance because the Global Markets will forever remain a black, complex and unpredictable jungle and  one that is still very capable of teaching harsh lessons against the greater follies of both stupidity and greed versus risk.

And so it goes on, through all this continual massive government market interference, with all the usual   stupidity, folly or greed,  such that with this greater risk  and leverage comes  a much deeper decent into the economic abyss. In truth, The Markets can certainly be manipulated but their final timing and outcome can never be accurately predicted. This is how lessons are learned,  from the simple failed investor to the massive slide into Hell of a complete economy.

Such is the timeless  nature and behaviour of The Markets which, even though economically bound and manipulated like a great tiger,  are still able to behave remarkably freely and so unpredictably. Somehow, even with all this manipulation, the US government still manages to screw up the markets regularly. After all, that most illusive of all predictables — Market Confidence — is surely derived from nothing more than human action and human behaviour.

And there is no accurate economic or mathematical model for that one. Right ?

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Other References:

The Exchange Stabilization Fund

The Exchange Stabilization Fund: Slush Money or War Chest ?

From the WSJ
Author Jon Hilsenrath

The Senate signaled that lawmakers could push for a shake-up of the 12 regional Federal Reserve banks that are central players in the Fed’s decision-making process and market oversight.

In a non-binding resolution that passed 96-2, the Senate called for “an evaluation of the appropriate number and the associated costs of Federal reserve banks.”

In addition to the Federal Reserve Board in Washington, the Fed system has 12 regional Fed banks around the country. They rotate on the Federal Open Market Committee in casting votes on Fed interest-rate policy. The New York Fed also has been at the center of government financial-rescue efforts.

Currently, Congress has no say in the naming of bank presidents. But given the New York Fed’s prominent role in rescue efforts, some lawmakers are keen to re-evalute the system.

The resolution was sponsored by Sen. Christopher Dodd, (D., Conn.), the chairman of the Senate Banking Committee, and Sen. Richard Shelby, (R., Ala.), the ranking Republican on the committee.

In two other resolutions, the Senate called for the central bank to disclose more information about its loans to firms during the financial crisis.

Well, well…you could knock me over with a feather on  this one. Many have tried this in the past - in government attempts to force the Fed to be accountable and more transparent in its dark, secretive and tilted monetary dealings - but all have failed. Ron Paul has been  trying for decades. I guess Senator Dodd is pretty pissed about being caught red-handed signing off all those bonuses to the AIG execs, and has to get his credibility back somehow.

But it remains to be seen whether this proposed law actually becomes law. If this does happen - this will be a tremendous blow against all those very powerful and untouchable “shadow banking” elements that so  heavily permeate and influence the decisions and workings of both Wall St and the US govt.

To be sure, this possible erosion of private Fed control will also  greatly piss off the Rockefeller and Rothschild financial clans and cartels - who are the real “owners” of the Fed now. I will reserve and, perhaps,  shed a tear later  for these rapacious shadow-financial clowns….much later. I’ve also read somewhere that financial power and greed must always have their own limits, checks and balances within a democracy. And I suspect that this most admirable of tenets derives from the ancient and true passages of The US  Constitution whose steady and guiding influence, even in these raw and  depleted economic times,  must now contribute and convey its own sparkling, diamond honesty more urgently than ever before towards the proper defense, protection and fulfillment of American Democracy today.

Philipp Bagus and Markus H. Schiml, Ludwig von Mises Institute
Only two things can save the Fed at this point. One is a bailout by the federal government. This recapitalization could be financed by taxes or by monetizing government debt in another blow to the value of the currency.

The other possibility is concealed in the hidden reserves of the Fed’s gold position, which is only valued at $42.44 per troy ounce on the balance sheet. A revaluation of the gold reserves would boost the equity ratio of the Fed to 12.35%.

It is ironic that in troubled times a revaluation of the “barbarous relic” could save the Fed from insolvency. Yet this would only be an accounting measure and would not change the fundamental problems of the paper dollar. While shooting its last bullets and weakening the dollar, the Fed is outmaneuvering itself. The end of the experiment is getting closer.

Doug Casey, Casey Research
America, which is basically an idea, a concept, is dead and gone. The United States is just another of 200 awful little nation-states that have spread across the face of the earth like a skin disease. There’s no longer any difference that I can tell between the U.S. and any other country.

There is no real haven for freedom in the world today. The best you can do is go where the governments are so unorganized that they can’t control you effectively. That’s one reason I like to spend time in Argentina. They have an incredibly stupid government, but they’re also very inefficient and ineffective. So it’s wonderful as a place to live. I also spend time in Uruguay, because it’s a tiny little country with no ambitions to conquer the world. The nice thing about New Zealand, where I am now, is that it’s a small country, only 4 million people, lots of open land. It’s got some severe problems, but it’s pleasant. I think the U.S. is going to be the epicenter of a lot of problems in the years to come.

…Europe is going to be hurt much worse than the U.S. Europeans are much more heavily taxed and much more heavily regulated. The average European is much more reliant upon the state psychologically as well as economically. So it’s all over for Europe and this doesn’t even count the problems that they’re going to have in the continuing war against Islam, which are much more serious for Europe than they are for the U.S. So Europe is fated to be nothing but a source of houseboys and maids for the Chinese in the next generation.

Gary Gibson, Whisky & Gunpowder
For the first time in history, currencies everywhere are merely paper…including the world’s reserve currency. The potential…the inevitability…of a worldwide bonfire of these little paper vanities staggers the imagination. The conflagration will be mesmerizing in its size and intensity. You may even find yourself enjoying the view…if you make it a point to be standing far enough away not to be consumed.

Eric Janszen, iTulip
There you have it, the foolproof way to get frightened investors out of Treasury bonds and back into stocks if all else fails: central banks around the world print money and buy stocks. In a world where interventionism is the order of the day, government purchases of stocks for the purpose of supporting the stock market is only, in my view, a matter of time. The question is, how to best prepare for it. For all we know, it’s already started. And, because [Paulson, Bernanke, et al] are not really gods — they can’t foresee the consequences of all they do — there will be myriad unintended consequences. One we’re pretty sure of, the gold price will continue to climb.

…We are getting a 1930 to 1933 financial system and debt deflation collapse but in Internet time. The Internet that operated so efficiently for ultra efficient transmission of pricing information and execution of transactions is accelerating the financial and economic crisis process far more quickly than governments can respond to it. A 20th century international regulatory and trade institutional framework is no match for 21st century computer networked financial markets. No administration can correct 30 years of errors in a few months. Unfortunately, a few months is all we have because of the accelerated rate of change we are experiencing.

History teaches us that adjustments to imbalances can be sudden and brutal, and we think it imprudent to bet that the mother of all international payments imbalances — between the US and the rest of the world — will be the exception. The rise of gold from $260 to $700 in six years followed by an increase from $700 to $1000 in two years may be quickly followed by a rise from $1,000 to $5,000 in just a few months.

Trace Mayer, Seeking Alpha
What if silver trades in backwardation for an extended period? It means individuals are unwilling to take the risk of holding national currency illusions or the risk of an exchange’s failure to deliver. Potentially the national currency illusions could be pulled into the event horizon leading to the fiat currency graveyard. Watching the gold and silver prices in euros and pounds is getting exciting.

David Morgan, Silver Investor
The easy money has been made in the precious metals but the BIG money lies ahead, because if you think like I think, once this “disinflation” turns into a dollar collapse people will be looking for anything that will hold value, and that certainly includes both the precious metals. Remember there is no fever like gold fever, and that will ignite the silver market, as those looking to gold might be priced out of the market and, thus, willing to buy silver!

Doug Noland, Prudent Bear
Analysts made a momentous blunder earlier this decade when they mistook the collapse of the technology Bubble (and attendant recession and corporate debt problems) for the onset of “deflation.” Reflationary policymaking without regard to the nature of inflationary consequences proved disastrous. We’re about to repeat this error. The Burgeoning Bubble in Government Finance is poised to make the Mortgage Finance Bubble appear tiny in comparison.

The Government Finance Bubble is enormous and powerful - and should be anything but underestimated. Akin to the previous Bubble in Wall Street finance, the epicenter of this Bubble is here in the U.S. But I would argue that this unfolding Bubble dynamic has greater potential to engulf the entire world than even U.S.-style mortgages and derivatives did starting back around 2002. Welcome to the new world of synchronized stimulus, deficits, and reflationary policymaking. I don’t believe true systemic deflation (as opposed to collapsing asset Bubbles) is a high probability scenario as long as the Government Finance Bubble is rapidly inflating. All bets are off, however, if confidence in government debt falters.

Gary North, LewRockwell.com
The West’s economy really is at the edge of a leveraged disaster. The politicians know only one answer: deficit spending. The central bankers have only one significant tool: monetary inflation. The speed of events is increasing.

The markets don’t reflect this yet. This gives time to a few people to get out. But the vast majority cannot get out. There are too few escape hatches open.

Peter Schiff, Euro Pacific Capital
Although it may sound harsh, it would be far better for all involved if our foreign friends simply cut us off. Since their loans are merely fueling the growth of our government and artificially pumping up consumer spending, their savings will not only be lost but their sacrifice will severely exacerbate our problems as well.

Darryll Schoon
The day people realize that paper money is worthless is the day economic activity as we know it will come to a halt. What happens next has happened before. Barter begins the movement of goods and services until a trustworthy medium of exchange arises to take the place of the bankers’ debased paper.

Currency collapse is a reoccurring story. Because we denied its reality does not mean it would not happen. Denial is very powerful but, in the end, it changes nothing except the ability to effectively respond. Our wish that gold achieve its rightful price level in today’s accelerating crisis is tempered by our realization that when that day is reached, the human carnage and suffering will be without precedence. It is best, then, to buy gold and silver whenever possible and to wait patiently for things to unfold as they will.

Eric Sprott, Sprott Asset Management So here we are today with governments the world over taking an increasing role in the functioning of the economy and the financial markets. But are they trying to solve the main problem; namely, too much debt? Quite the contrary, every single solution they’ve adopted has been trying to get the good ol’ days back. Cutting interest rates to zero. Throwing money at the banking system so it can lend again. All these solutions have one goal: to bring back debt. They are ignoring, at least for the time being, the paradigm shift. But the markets aren’t buying it… literally. Debts continue to implode.

Every bailout is being followed by an even more massive bailout down the road. The government’s solution has been to shift debt from the financial markets to the taxpayer. Is there a difference? Instead of individuals living beyond their means, we now have governments living beyond their means. Substitute taxpayers for governments and you will quickly realize how the whole thing is a farce.

Take no solace in the fact that the government is the buyer of last resort. It is really you who are the buyer of last resort. In the end, people will be even more indebted than they were before, setting the stage for the next crisis: a currency crisis. This is why governments aren’t, and cannot be, the solution.

James West, Midas Letter
The true reflection of the value of any currency, the only one that’s really left, is how much gold it can buy.

All Extracts from “Best Quotes of February 2009″

I’ve read a few articles concerning comparisons of the present day Financial Crisis in the US with The Great Depression Years. In this comparison among many, Ambrose Evans-Pritchard, writing in the UK Telegraph, walks us through a history, painting a small economic and political picture of what it was like in 1931 America, the similarities as well as differences to the present day crisis - the economic effects, wide civilian suffering with minor regional uprisings, Hoover’s bumbling policies, the Fed’s inadequacy and Roosevelt’s election, intervention and key change of policies. Much of this troubled economic period - in many ways - eerily resembles the Bush-Obama changeover.

In this extract - taken from his article  “Bad news: we’re back in 1931. Good news: it’s not 1933 yet.” - Mr. Evans-Pritchard takes us back to those times in a general historic  and economic assessment between then and now:

“President Obama faces a happier world. The liberal economic order is still in tact, if fraying at the edges. Capital and ships move freely. North America and Europe talk the same political language. China has so far proved a dependable pillar of the international system.

But then the world seemed benign enough in early 1931. It is the second phase of depression that does terrible things.

Roosevelt took over a country where the economic machinery had completely broken down. The New York Stock Exchange and the Chicago Board of Trade had closed. Thirty-two states had shut their banks. Texas had restricted withdrawals to $10 a day.

Few states could borrow on the bond markets. Illinois and much of the South had stopped paying teachers. Schools closed for months. An army of 25,000 famished war veterans squatting in view of Congress had been charged by troopers of the 3rd US cavalry with naked sabres – led by a Major George Patton.

Armed farmers threatening revolution had laid siege to a string or Prairie cities. A mob had stormed the Nebraska Capitol. Minnesota’s governor was recruiting Communists only for the state militia. Lawyers attempting to enforce foreclosures were shot. More than 100,000 New Yorkers applied to go to the Soviet Union when Moscow advertised for 6,000 skilled workers.

We forget how close America came to open revolt. Eleanor Roosevelt feared the country was beyond saving. Her husband kept the faith. He channelled the anger against Wall Street, diffusing it. “The practices of the unscrupulous money-changers stand indicted in the court of public opinion,” he began his presidency.

The Fed was an ideological deadweight. Bowing to pressure from Congress it began to purchase bonds in mid-1932 to boost the money supply, but then recoiled, before retreating into pitiful self-justification. A third of the rescue funds in Hoover’s Reconstruction Finance Corporation had been embezzled.

Today there has been no such failure of US institutional imagination, even if, as George Soros argues, the Treasury’s policies have been “haphazard and capricious”.

The twin blasts of fiscal and monetary stimulus have been massive. In short order the Fed has slashed rates to zero. It is now conjuring money out of thin air on an industrial scale, buying $600bn of mortgage bonds to force down the cost of home loans, and propping up the commercial paper market to avoid mass corporate default. Ben Bernanke, a Depression junkie, is proceeding with a messianic sense of certainty. The wash of money should ensure that the next 18 months will not mimic the cascade of disasters from late 1931 to early 1933.

It buys time. But it does not solve the deeper problem, which is that a West addicted to Ponzi credit has put off the day of reckoning with ever more extreme monetary policy with each downturn, stealing prosperity from the future.

It will be an extremely delicate task to right the ship again. Central banks will have to extricate themselves from their venture into the bond markets without setting off a bond debacle in 2010 or 2011. Governments will have to map out of a path of Puritan discipline for year after year.

This will be Barack Obama’s grim test of statesmanship.”

While the financial riots continue in Iceland and in the European border states of Ukraine, Latvia, Bulgaria and Hungary, we now have confirmation that the United Kingdom is officially in recession which, so the pundits are saying, is likely to bottom into a Depression equal in magnitude and effect to that of the 1930s.

These writhing European countries do not have all the advantages of the US economy or the dollar. They don’t have a world reserve currency, they are not the largest debtor nation in the world whom the world supports, these countries  can’t sell they’re debt to any great extent, they do not have a high comparative GDP and they do not have a Fed printing truckloads of zero-value fiat paper to hold the whole Ponzi scheme together. This ‘quantitative easing’ by the Fed has recently skyrocketed to astonishing heights. Don’t believe me ? Have a look at this graph from the St Louis Fed:

It took 200-years for the monetary base to go from $0 to $800 billion, but in just the past 3-months it has grown from around $800 billion to $1.5 trillion. The sheer right-angled upturn of this graph is astounding and frightening. Sometimes I can’t help wondering whether there really is any US gold left in Fort Knox. Has anybody seen it ?

From the UK Telegraph newspaper - in an article headed “Britain on the brink of an economic depression, say experts”:

“Families must brace themselves for a slump of far greater severity and longevity than the recessions of the 1980s and 1990s, they warned. They said the current crisis will be of a scale to rival the biggest peace-time crisis in modern history — the Great Depression.

The news sent the pound sliding to its lowest level since 1985. Sterling dropped more than three quarters of a cent to $1.3688 as investors speculated that the Bank of England may be forced to cut interest rates towards zero in response to the recession.

Roger Bootle, the managing director of Capital Economics, said: “I think there’s a very good chance this recession will be the worst since the 1930s. I suspect the economy could shrink by 6 per cent from last year to the end of next year — and that might not be the end.

The plight facing Britain is uncannily similar to the 1930s, since prices of many assets —from shares to house prices — are falling at record rates, but the value of the debt against which they are held remains unchanged.

This “debt deflation” is among the most painful of all economic phenomena, since it means the amount families owe increases each year even if they borrow no more.

Albert Edwards, a strategist at Société Générale, likened the British economy to a Ponzi scheme — a fraudulent debt mountain like that allegedly used by the New York hedge fund manager Bernard Madoff. “What I find amazing is that people aren’t really nailing Gordon Brown and [Bank of England Governor] Mervyn King for this,” he said. “At least in the US they had the excuse of the arrival of sub-prime — a new sector of the market. We didn’t really have anything similar but we ended up with a bigger national Ponzi scheme than the US.”

Regarding the state of the US Markets, I had a quick look at my US stock practice portfolios today and was amazed at what I saw. I created these practice US portfolios on Google Finance in August 2008 - not five months ago - as a real gauge to the US financial crisis and market confidence. And here are the meager results - Commodities -41.49%, Water and Waste -25.66%, Energy and Oil -43.50%, My Portfolio -39.81%, Berkshire Hathaway -26.06%, Dividend Portfolio -31.89%. And that’s only in the last five months !!

I would guess that it’s only a matter of time before these riots spread around the world - and as Gerald Celente has already predicted -  these financial riots will soon start appearing in all the western developed countries as well. Today, on the BBC Oracle TV program - in a sort of European market watch assessment, the expert debaters all confirmed their belief that there would be a run on pound sterling by April 2009, and that a run on the Euro would ensue by December 2009.

Of course the US dollar will also collapse, and my guess is that there is a high probability of a dollar crash occurring when Israel decides to bomb the hell out of Iran at some point this year.

References :

“Prime Minister Steps Down Amid Violent Protests” - Der Speigel

“The bond bubble is an accident waiting to happen” - Ambrose Evans-Pritchard(UK Telegragh)

“Super Baaaddd” - Bill Bonner(Daily Reckoning)

“UK recession: what the experts say” - UK Guardian

“UK Economy Shrinks Most Since 1980, in Recession” - Bloomberg