Janet Yellen Exposed by Peter Schiff

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Peter Schiff exposes the PR job done by the presstitutes on Janet Yellon.

The Bond Bubble Has Been Pricked

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As Andy Haldane, Executive Director of Financial Stability at the Bank of England said to Members of Parliament in London last week,

“We’ve intentionally blown the biggest government bond bubble in history.”

Now having pricked that bubble through Bernanke’s taper comments it may now be a case of controlling that implosion. Thats the new game.

bubble-burstIn theory, the Fed could continue to print money and buy Treasuries and mortgage-backed securities, or even pure junk, at the current rate of $85 billion a month until the bitter end. But the bitter end would be unpleasant even for those that the Fed represents – and now they’re speaking up publicly.

“Savers have paid a huge price in this recovery,” was how Wells Fargo CEO John Stumpf phrased it on Thursday – a sudden flash of empathy, after nearly five years of Fed policies that pushed interest rates on savings accounts and CDs below inflation, a form of soft confiscation, of which he and his TBTF bank were prime beneficiaries. That interest rates were rising based on Fed Chairman Ben Bernanke’s insinuation of a taper was “a good thing,” he told CNBC. “We need to get back to normal.”

A week earlier, it was Goldman Sachs CEO Lloyd Blankfein: “Eventually interest rates have to normalize,” he said. “It’s not normal to have 2% rates.”

They weren’t worried about savers – to heck with them. They weren’t worried about inflation either. They were worried about the system, their system. It might break down if the bond bubble were allowed to continue inflating only to implode suddenly in an out-of-control manner. It would threaten their empires. That would be the bitter end.

Andy Haldane, Director of Financial Stability at the Bank of England, put it this way: “We’ve intentionally blown the biggest government bond bubble in history.” The bursting of that bubble was now a risk he felt “acutely,” and he saw “a disorderly reversion” of yields as the “biggest risk to global financial stability” [my take… Biggest Bond Bubble In History Is Turning Into Carnage].

Preventing that “disorderly reversion” of yields is the Fed’s job, in the eyes of Stumpf, Blankfein, Haldane, and all the others. The Fed should let the air out gradually to bring yields back to “normal.” So the Fed hasn’t actually changed course yet. It’s keeping short-term rates at near zero, and it’s still buying bonds. But it has started to talk about changing course – and the hissing sound from the deflating bond bubble has become deafening.

Long-term Treasuries went into a tailspin. The 10-year note had the worst week since June 2009, the days of the Financial Crisis; yields jumped 39 basis points (13 bps on Friday alone), to 2.55%. Up from 1.66% on May 2. And almost double from the silly 1.3% that it briefly bushed last August.

The average 30-year mortgage rate increased to 4.17%, from 3.59% in early May. In response, the Refinancing Index crashed by almost 40%. Banks have sucked billions in fees out of the system via the refinancing bubble, but that game is over. And the Purchase Index dropped 3% for the week, a sign that higher rates might start to impact home purchases.

Then there was the junk-bond rout. They’d had a phenomenal run since the Fed started its money-printing and bond-buying binge. Average yields dropped from over 20% during the Financial Crisis to an all-time insane low of 5.24% – insane, because this is junk! It has a relatively high probability of default, and then the principal vanishes. That was on May 9, the day the rout started. The average yield hit 6.66% on Thursday. Investors have started to take a gander at what they’re buying and would like to be compensated for some of the risks that they’re suddenly seeing again. The feeding frenzy for yield is over. A sea change! Some companies might not be able to find buyers for their junk. And there will be defaults.

To preserve the system, as dysfunctional as it has become, the Fed has set out to tamp down on that feeding frenzy for yield, the hair-raising speculation, and blind risk-taking that its easy money policies have engendered – that is, financial risk-taking which doesn’t create jobs and doesn’t move the economy forward but just stuffs balance sheets with explosives. With its vague and inconsistent words, the Fed pricked the bond bubble but now is scrambling to control the implosion and soften that giant hissing sound. It doesn’t want the bubble to go pop. Its strategy: sowing confusion and dissension so that investors would react in both directions, with violent swings up and down, not just down.

The first big gun to open fire on the “taper” promulgations was St. Louis Fed President James Bullard when he announced on Friday that he’d dissented with the FMOC’s decision “to authorize the Chairman” to discuss publicly “a more elaborate plan” for the taper and an “approximate timeline.” They were premature. “Policy actions should be undertaken to meet policy objectives, not calendar objectives,” he said.

As stocks were heading south, three hours before what might have been a very ugly Friday close, after Thursday’s plunge, Jon Hilsenrath was dispatched. He is considered a backchannel mouthpiece of the Fed, and markets feed on his morsels. “The markets might be misreading the Federal Reserve’s messages,” he wrote in the Wall Street Journal. Stocks turned around on a dime. Others chimed in. The cacophony grew. And any consensus of when the Fed might actually taper its bond purchases dissolved into hot air.

That’s the plan. To accomplish its goal of preventing, as Haldane called it, “a disorderly reversion” of yields, the Fed will redouble its efforts to spread dissention and uncertainty, to intersperse periods of misery with periods of false hope, to stretch out the process over years so that big players have time to reposition themselves – and make some money doing it, or fall off the cliff and get bailed out, while others will end up holding the bag. Which is how bubbles end.

Source: TestosteronePit

Fed Has No Plan B

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According to Kevin Warsh,( former member of the Board of Governors of the Federal Reserve from from 2006 to 2011), the Fed has no “plan B” and Washington has no strategies for growth. Well one thing is for sure, whatever they are trying, it ain’t working.

At the very crux of the financial crisis, former Fed governor Kevin Warsh notes, “experimental extreme monetary policy,” had the “right risk-reward”, but, he warns, in this excellent (and somewhat chilling) discussion at the Milken Institute, “we left a financial crisis more than for years ago.” While the politicians may ‘prefer’ to think of this as a crisis – and indeed “for them it is a crisis as they preside over an economy that refuses to grow,” which has tended to lead to loss of office, but, Warsh condemns, “they have run out of excuses.” Over the last several years, “[the Fed] has over-promised and under-delivered,” and the bank’s most important asset – credibility – is under attack.

The Fed has “enabled” Washington to do nothing, since the politicians expect the same “rabbit out of the hat” rescue that occurred in the darkest days of the financial crisis. This means no growth strategies (“the mix of policies has to be right”) will occur. Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, “There Is No Plan B.”

The Fed has fewer degrees of freedom and the rest of Washington is not coming to the rescue; and furthermore “the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested – and will not prove to be successful.

Click for full story.

Source: ZeroHedge

Texas Wants Its Gold Back From The NY Fed

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The latest to get in on the gold repatriation act looks to be Texas if the new bill introduced by Rep Giovanni Capriglione  passes. More and more nations are wising up and are not prepared to accept blindly that the gold is there.

This is one of the most interesting stories I have read regarding the precious metals market in quite some time.  It appears that Texas Rep. Giovanni Capriglione has a bill in play that would move the state’s gold from New York (where its under the “safekeeping” of the ultra shady Federal Reserve) to a depository within the state of Texas itself.  The reason this would be such a big deal if it happens, is because a lot of the gold bought and sold globally is not very likely not actually owned by those that “buy” it.  From my perspective, pretty much the only countries that actually buy gold and bring it within their borders are China, Russia and Iran.  Most other nations that claim they “bought” gold, most likely hold a certificate that states they have gold in London or New York.  So in other words, they have no gold.  It looks like Texas is wising up.

From the Star-Telegram:

 Freshman Rep. Giovanni Capriglione, R-Southlake, is carrying a bill that would establish the Texas Bullion Depository, a secure state-based bank to house $1 billion worth of gold bars owned by the University of Texas Investment Management Co., or UTIMCO, and stored by the Federal Reserve.

“If you think gold is a hedge, or a protection, you always want it as close to the individual and the entity as possible,” Paul told The Texas Tribune on Thursday.” Texas is better served if it knows exactly where the gold is rather than depending on the security of the Federal Reserve.”

Source: ZeroHedge

All Wars Caused By Bankers

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Federal Reserve Loves Inflation

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100 years of the Federal Reserve summed up by one chart.

NY Fed Refuse German Audit Of Gold

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This story has intensifying as the New York Fed has predictably denied Germany an audit of its gold reserves stored in New York. Over 1500 tonnes of gold at stake will only increase pressure on German authorities and is very bullish for gold as it leads more credibility to those who claim that it has been leased out but the CBs to suppress gold prices.

Calls for Germany to repatriate its 1,536 tons of gold reserves held at the NY Fed are intensifying as Der Spiegel reports the Federal Reserve has refused to allow German inspectors to even view the country’s massive gold reserves “in the interest of security and of the control process“.

We have stated repeatedly that with repatriation and/or audit requests completed or in progress by Venezuela, Germany, Switzerland, and the Netherlands, The BOE and the Fed suddenly find themselves in a heap of trouble as the situation (and confidence that the Central banks actually still hold the tungsten gold reserves on deposit) is rapidly deteriorating. 
More on the Fed’s non-compliance with German requests to view/inspect their own gold below.

 

Der Spiegel reports that nearly half of Germany’s entire gold reserves are still held (supposedly) 5 floors below the NY Fed.

……

While Bundesbank officials likely understand the reality (much better than German politicians do) that a German repatriation of it’s entire 1,536 tons of gold reserves held at the NY Fed would likely cause a complete Western financial collapse if/when the Fed failed to promptly deliver said gold (tungsten free), confidence in the Fed and the BOE has clearly been shattered, and it is now only a matter of time for an absolute mad run on every last gram of physical metal underneath the NY Fed ensues.

Source: silverdoctors

$36 Trillion of Stock Certificates Potentially Destroyed By Hurrucane Sandy

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The DTCC (Depository Trust & Clearing Corp) owned by the FED, is the clearing house for Wall Street that is responsible for storing over £36 trillion work of share certificates. These paper certificates unfortunately are stored in a vault in lower Manhattan which is currently submerged after Hurricane Sandy. Who knows when the water will be pumped out and how many share certificates are damaged.

Trillions of dollars worth of stock certificates and other paper securities that were stored in a vault in lower Manhattan may have suffered water damage from Superstorm Sandy.

The Depository Trust & Clearing Corp., an industry-run clearing house for Wall Street, said the contents of its vault “are likely damaged,” after its building at 55 Water Street “sustained significant water damage” from the storm that battered New York City’s financial district earlier this week.

The vault contains certificates registered to Cede & Co., a subsidiary of DTCC, as well as “custody certificates” in sealed envelopes that belong to clients.

The DTCC provides “custody and asset servicing” for more than 3.6 million securities worth an estimated $36.5 trillion, according to its website.

“At this point, it is premature to make an accurate assessment as to the full impact of the water damage nor would it be helpful to project on what specific actions need to be taken with respect to our vault,” said DTCC Chief Executive Michael Bodson in a statement. “We are aggressively working on this situation to minimize disruption to our clients and will provide additional updates as more information becomes available.”

Bodson said the DTCC’s computer records are intact and that the corporation has “detailed inventory files of the contents of the vault.”

The building remains inaccessible, but the lower floors are believed to be flooded. The full extent of the damage cannot be assessed until power is restored and the building is deemed safe to enter.

The DTCC has been operating from remote facilities since the onset of the storm and has maintained clearing, settlement and other services that are crucial to the functioning of Wall Street, according to Bodson.

Bodson said the DTCC is working with couriers to ensure that all deliveries are rerouted to a facility in Brooklyn, and the group expects all other services related to physical securities processing to resume “in the next several days,” he added.

 

Source: CNN

Germany’s Gold Is Gone – Deutsch gold ist weg

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Fresh from the story this week that the German Courts have order a stock take of the gold reserves, more stories are arriving that in fact Germany’s overseas gold reserves are not there. On the latest Kesier Report, Max and Stacy discuss (9:15min) a report from GATA that German gold in London was sold at the USA’s request and in exchange, Germany took title to gold stored in vaults in the USA (having title to gold is not the same as physically owning the stuff). This allowed the Bundesbank to technically claim ownership of the gold although vulnerable to rehypotication.

James Turk further backed this up in an interview with King World News saying:

“The entire German gold hoard was gone because it had been leased into the marketplace.  Meaning, the vaults holding German gold were emptied by 2001 because of the Bundesbank leasing activities.”

“Half of the gold they (the Germans) leased themselves.  The other half of Germany’s gold hoard was eventually leased into the market as well through complicated swaps with the US.  But the reality is that as of 2001, all of that German gold was gone.  Meaning all German gold worldwide, which was supposed to be stored in vaults, the vaults were emptied of German gold and the gold was leased into the market.”

“It’s uncertain if any of that leased gold has ever been returned to those vaults.  Meaning, the vaults which are supposed to be storing the German gold hoard may still be empty.”

Originally 11 years ago Turk wrote of the missing German gold in an article called “Behind Closed Doors”. Under normal circumstances the FOMC censors its minutes but on one occasion it failed to do so properly, enabling Turk to gleam some interesting information into the Fed’s activities.

James Turk 2001 – This past December in “The Smoking Gun” I provided substantive proof that the Exchange Stabilization Fund was intervening in the gold market. From publicly available reports prepared by the Federal Reserve, I established that the weight of gold held as a component of the US Reserve Assets has been changing, and that these changes – some of which are of significant size – result from activity by the ESF. These Federal Reserve reports conclusively demonstrate that the ESF has been intervening in the gold market since at least 1996.

Though these Federal Reserve reports make clear that the ESF is involved in the gold market up to its ‘earmarks’, a lot of people remain skeptical. I don’t know why that is. It is worth noting that many of the most obstinate skeptics who deny US government involvement in the gold market live overseas and have little, if any, experience or understanding of the way the US government really works. But even Americans find it difficult to accept that the US government intervenes in the gold market. Ironically though, they readily admit that the government intervenes in the debt markets, foreign currency markets, and according to a growing number of people, even in the US stock market. It is therefore most baffling that they do not concede the ESF’s involvement in the gold market.

Maybe people are skeptical because they haven’t bothered to take the time to read the Federal Reserve reports for themselves. Maybe it’s because it’s easier to accept the word of some government bureaucrat who denies ESF involvement in the gold market than it is to seek out and look for the truth. Maybe they don’t want to believe that the US government is lying to them when Treasury official after Treasury official denies any involvement by the ESF in the gold market. I don’t know. Or maybe it’s because they think that government officials work for the American people – and not for vested interests – in their deliberative sessions behind closed doors. Wouldn’t it be refreshing if we could peek-in behind those closed doors to see what really is being said?

The reality is that very little emerges from behind closed doors, and the minutes and transcripts of closed-door sessions that do make it into the public domain contain redactions that blank out the ‘good parts’ – the revealing statements. But what if someone forgot to redact one of those ‘good parts’? Too fantastic to be true? Well, sit down, take a deep breath and carefully read what follows.

Uncensored Report.

A few weeks ago Reg Howe contacted me and asked my view on something he had discovered. He wanted a second opinion on this discovery, just like I contacted him for a second opinion after I came across the Federal Reserve reports showing the ESF’s gold related activity.

When I read what Reg showed me, I was stunned. But at the same time, it was clear to me what I was reading and what had happened. A transcript of the Federal Reserve Open Market Committee has been released for which somebody forgot to get his or her red pen out. Someone forgot to redact some very revealing words about the ESF and its activity with gold. Here’s what was said. [See the transcript from the January 31st 1995 meeting.]

MR. MATTINGLY. It’s pretty clear that these ESF operations are authorized. I don’t think there is a legal problem in terms of the authority. The [ESF] statute is very broadly worded in terms of words like “credit” – it has covered things like the gold swaps – and it confers broad authority. [Emphasis added]

Please read the above statement again, and maybe even a third and fourth time. This statement, which I can only assume was inadvertently not redacted by the FOMC Secretariat, confirms what we already know, but the US government has all along refused to admit – that the ESF is involved in the gold market. In fact, the authority of the ESF is so broad that “it has covered things like the gold swaps”. In other words, the authority of the ESF is so broad it has even been used to authorize “gold swaps”.

…..

That Mattingly’s remark passed without comment by anyone in the FOMC meeting implies that everyone knew exactly what he was referring to.

Click here to read more of the transcripts. Moreover, the ESF was set up in such a manner that the ESF is a slush fund beyond Congressional oversight.

It can be used to ‘get around’ most anything (i.e., it can skirt normal governmental procedures). No wonder so many people want to do away with the ESF. There is no room for it in our democratic process. It is not subject to the normal checks-and-balances so carefully crafted by the Founding Fathers that have proven over time to be so essential for control within the federal government. The ESF is the antithesis of the American foundation of representative government because it subjects a free people to an unconstitutional governmental force. Still not convinced? Here are some more excerpts:

MR. LINDSEY. My second question has to do with our credibility. I don’t know what questions to ask, and I hope you will help me out in that regard. I have this document in front of me, which includes a page entitled “What is the Exchange Stabilization Fund?” The document came from Treasury International Affairs. I gather it was written by them. I have written enough of these to know what you do, and that is to tell your point of view. Paragraph 3, not to mention the dots indicating an omission in paragraph 2, got me a little nervous. Paragraph 3 says these holdings in the ESF are used to enter into swap arrangements with foreign governments, to finance exchange market intervention, to provide short-term bridge finance, etc., and all these things are great. So, basically paragraph 3 is establishing that this is not unprecedented. My question would be: Do we do all these nice things if it’s not in support of the dollar? Is this unprecedented with regard to the fact that we are supporting another currency?

….

The ESF doesn’t have to notify Congress about anything in advance. It is under the sole authority of the Secretary of the Treasury and the President, and they can do “gold swaps” without any Congressional approval, which brings up an important point I made in “The Smoking Gun”.

….

It is becoming increasingly clear as more and more evidence emerges that the Secretary of the Treasury does not answer questions concerning the ESF because he, but not his underlings, know to what extent the ESF is engaged in gold related activity. His underlings can say that the ESF is not involved in the gold market because as far as they know, what they say is true. However, we now have sufficient evidence proving that the ESF is indeed involved in the gold market. Therefore, the Secretary of the Treasury does not respond to letters asking questions about the ESF and its activity in the gold market. He can’t answer them truthfully without ‘spilling the beans’. He obviously knows everything about what really is going on within the ESF, in contrast to his underlings. Or at least most underlings because it appears that one of them is in there up to his elbows washing ESF laundry. His name is Ted Truman.

From the FOMC transcripts it is quite apparent that Ted Truman has a special role. He went on to say in the minutes

MR. TRUMAN. It is obligated only in the sense that they have one other swap arrangement with the Bundesbank.

 

Swap arrangement with the Bundesbank.

Wouldn’t it be interesting to know what this swap arrangement with the Bundesbank entailed? What is the nature of this swap? Is it a Dollar/Deutschemark swap facility? Or is something else being swapped, like gold perhaps?

 

Gold being swapped with the Bundesbank? It’s an outrageous thought. Or is it? I have already established that the ESF is very much involved with gold. The only thing I haven’t established is with whom the ESF has those gold swaps that Virgil Mattingly was talking about.

Let’s put one and one together here to see if we can come up with an answer. According to Virgil Mattingly, the ESF has authorized gold swaps, presumably in the recent past (circa 1995). According to Ted Truman, the only outstanding swap facility of the ESF (circa 1995) other than the one established for Mexico is their facility with the Bundesbank. Ergo, the ESF has a gold swap facility with the Bundesbank.

“Gold Bullion Reserve” to “Custodial Gold”.

It’s an interesting proposition, and one that fits well with another newly discovered fact. Some very interesting sleuthing by Mike Bolser, who has been assisting Reg Howe in his lawsuit against the BIS, has revealed that the Treasury has made a small but very significant accounting change. Mike noticed that the Treasury Department has changed the designation of nearly 1700 tonnes of inventoried gold at the US Mint’s facility in West Point, New York (approximately 21% of the total US Gold Reserve) from “Gold Bullion Reserve” to “Custodial Gold”.

The August 2000 Status Report on US Treasury Owned Gold stored at West Point has a designation of “Gold Bullion Reserve”.  But the September 2000 and subsequent status reports inexplicably designate this same gold that is stored at the US Mint in West Point as “Custodial Gold”.

This change was made without explanation, so rather than let the matter remain unexplained, Mike diligently contacted the Treasury asking what seemingly are two uncomplicated questions. Would the Treasury please explain why they made this change, and what does this change in designation mean with respect to the ownership status of the gold at West Point?

They are simple questions, but perhaps they touch too close to a nerve. Not surprisingly, the Treasury so far has not responded to Mike. I have some views on what Mike discovered, and why the Treasury is so quiet about it. I think this change in asset classification is related to the ESF gold swaps. Here’s my thinking.

The change Mike spotted possibly occurred as a result of accountants looking at the financial statements of the US Mint being prepared for its annual report ending fiscal year 2000. Note that the previous director of the Mint (Phillip Diehl) resigned in early 2000, so this was the first annual report signed by the new director (Jay Johnson). If there is one thing that government bureaucrats do well, they take great pains to call things by their right name. To do otherwise would put their job in jeopardy if something under their responsibility came under Congressional scrutiny, and it was subsequently determined that the name assigned to something was incorrect or misleading.

Therefore, this change in the descriptive label for nearly 1,700 tonnes of gold at West Point from “Gold Bullion Reserve” to “Custodial Gold” was purposeful. It happened for a reason. This conclusion is all the more plausible because the Treasury did not change the classification from “Gold Bullion Reserve” to “Custodial Gold” to describe the gold stored in Fort Knox or at the US Mint in Denver. Maybe new US Mint director Johnson saw something he didn’t like. What could that have been?

I’ve already put one-and-one together to establish that the ESF has “gold swaps” with the Bundesbank. It therefore does not require much conjecture to add one supposition to the equation by concluding that the gold in West Point has been swapped with gold owned by the Bundesbank, thereby necessitating its reclassification from “Gold Bullion Reserve” to “Custodial Gold”. Here’s what I think has happened.

The Treasury Department wanted to make gold available to some bullion banks. This statement is based on my basic premise that several of the big banks have gold books that are hopelessly imbalanced. By having borrowed short and loaned long, these banks have in their quest for profits imprudently fallen into the alluring but usually fatal banker’s deathtrap – a mismatched loan book. But what’s worse for these banks, it is even more difficult and treacherous to try extricating themselves from this particular deathtrap because they haven’t mismatched their loan book of dollars, which we all know can be created by the Federal Reserve ‘out of thin air’ if dollars are needed to bailout banks from a deathtrap predicament. Instead, these banks have mismatched their gold book. And no one – not even the Federal Reserve – can create gold out of thin air.

So given this reality about the nature of gold, the Treasury had to turn elsewhere to find the gold necessary (1) to keep these banks from defaulting on their bullion obligations arising from their mismatched gold books in an environment where metal had become increasingly difficult to come by and/or (2) to keep the gold price low so that the likelihood of default by the banks would be lessened, even though metal would remain tight because fabrication year after year was exceeding newly mined supply. Rather than accept the bitter pill that certain banks were about to default on their bullion obligations, the Treasury looked for alternatives and found one – they put their hand into the till, until recently known as the Gold Bullion Reserve at West Point. They swapped this gold with the Bundesbank. I’ll explain how they did it, but let’s first consider the practical aspects of this transaction.

In all likelihood, these particular bullion banks needed gold in Europe where their obligations were originally established. There is very little gold lending in New York. It is a practical problem to ship the gold out of West Point without raising the alarm of government auditors. It is costly too. Also, it is likely that some of the gold in West Point is coin-melt from the 1933 gold confiscation. Even if it could be smuggled out of the West Point vault into the market without raising suspicions, the alarm bells would go off at the refiner and soon thereafter in the market because everyone knows that only the US government has coin-melt bars. The appearance of coin-melt bars in the market would immediately raise suspicions that the US Gold Reserve was being dishoarded, an outcome that the Treasury would obviously take steps to avoid in concocting its scheme because the US Gold Reserve cannot be depleted without Congressional approval. Therefore, one is faced with the practical considerations of overcoming these hurdles, but the answer is relatively simple.

The Treasury has gold in West Point. The Bundesbank has gold in Europe. The Treasury cannot directly do a deal with the Bundesbank because unlike the ESF, the Treasury is subject to Congressional oversight. So instead the Secretary of the Treasury and the President decide to use the ESF to set up a swap line for gold with the Bundesbank.

By so doing, the gold in the Bundesbank’s vault in Europe becomes ESF gold, to do with as they please – i.e., the ESF lends this metal to bailout certain bullion banks. And the Bundesbank now owns the gold in West Point, which as a result was purposefully re-classified from Gold Bullion Reserve to Custodial Gold because the Treasury no longer owns this gold, having swapped it out through the ESF in exchange for gold in Europe owned by the Bundesbank. Case closed. The mystery of the abnormally low gold price is solved. The ESF did it.

The abnormally low gold price is the result of the mounting irrefutable evidence that the ESF is deeply involved in the gold market, and I do mean deep. They are involved in some 1,700 tonnes worth because that is the weight of gold stored in West Point, which was probably being swapped at the rate of a few hundred tonnes per year from circa 1995 through 2000. There are two other tidbits that I would like to share with you that add even more validity to this supposition.

First, a couple of months ago I was analyzing the 1998 and 1999 balance sheets of the ESF. Being an ex-banker, I know a little bit about accounting, including where to find the big holes through which the proverbial truck can be driven. And suffice it to say, I found one of those, which could suggest that in these two years 975 tonnes of gold came into the market from the ESF. Interestingly, after reaching this conclusion, I wanted to test it. So I called a top gold market expert whose supply/demand analyses are second to none, and who believes that gold from the US reserves has been coming into the market for several years.

Without telling him about my analysis of the ESF balance sheet, I asked him how much gold he thought came out of the Treasury/ESF in 1998 and 1999 in total. His response was 1,000 tonnes, a mere 25 tonnes difference from what I deduced from the ESF financial statements. When I told him this, that we had both reached the same conclusion from different sources, he chuckled but was not in the least bit surprised, being so convinced that the Treasury/ESF has been a major source of metal for years. I have thoroughly reviewed his supply/demand numbers since 1994 and have determined that as much as 2,000 tonnes of gold from the US reserve may have entered the market in order to make the gold price as low as it is, which leads me to the second tidbit that I would like to share with you. It is just as intriguing.

Source in Europe confirms Bundesbank empty gold vault.

This same individual told me several months ago about some astonishing intelligence he had learned from a source in Europe. He told me that the Bundesbank’s gold vault was empty, which seemed so preposterous that I found it hard to believe. He also admitted that this news startled him when he learned about it, and that he did not have an adequate explanation for it. He knew that the Bundesbank was an active lender of gold, but he had a difficult time accepting the possibility that all 3,400 tonnes that it owned had been loaned. Yet he was confident that his source had provided him with accurate information.

We now know what has happened. The Bundesbank has loaned 1,700 tonnes, one-half of its 3,400 tonnes reserve; the other 1,700 tonnes were swapped for gold in the US reserves, requiring the change in the West Point vault from Gold Bullion Reserve to Custodial Gold. In other words, the Bundesbank’s vault is empty because one-half of their gold is stored in West Point not Europe, and the other half has been loaned out.

Despite the irrefutable proof that the ESF is involved in the gold market, two questions remain unanswered. First, what’s the ESF’s motive? Unfortunately, we just don’t know for certain.

Many, including me, claim that it is to use gold to provide the liquidity needed to bailout some big banks that have imprudently grown their gold books by recklessly expanding credit and mismatching their asset/liability maturities. These banks are the ones with the unusual – some say abnormal – derivative activities that are named as co-defendants in Reg Howe’s suit against the BIS. That this list includes Germany’s largest bank may explain why the Bundesbank would agree to participate in this gold swap scheme. It was bailing out one of its own.

Others claim the ESF aims to manipulate the gold price to make inflation numbers look better than they really are by keeping the gold price artificially low. And there are some who argue that the US government, acting at the behest and under the instructions of the big banks, aim to destroy their combined arch enemy – gold, regardless of the fact that the gold mining industry would be destroyed along with it.

This last theory is not outlandish. It has currency because gold is the world’s only free-market money. In contrast to national currencies, all of which circulate only because of government fiat, Gold’s value derives from everyone who understands that it has usefulness as money. And governments and banks don’t like the fact that while they can manipulate gold for a time – and as have we have seen in recent years, even a long time – they cannot in the end control the price of gold anymore than they can control the price of a Picasso painting. The value of a Picasso is determined by the free-market, and so too is gold. In short, you and I give gold its value – not the central banks, not the US government or any other government, either acting alone or together. But the US government either has not yet learned – or refuses to admit – this reality that its power to control gold is limited, which is an inexplicable conclusion unless you accept the notion that governments have short memories and need to relearn what logic says they should have learned from experience.

If logic prevailed, the US government would have learned from its ill-fated attempt in the 1960’s to keep the price of gold abnormally cheap at $35 per ounce that the market determines gold’s value. But instead, the US government is about to learn that it cannot keep a manipulated ‘floating-rate’ gold price from rising any more than it was able to keep the manipulated ‘fixed-rate’ gold price from rising thirty years ago. The free-market rate of exchange between dollars and gold will prevail, eventually repeating today what happened in the 1970’s after the artificially low $35 rate was no longer tenable – the gold price will skyrocket higher. It is well worthwhile keeping in mind that the gold price rose nearly three-fold in the eighteen months after the fixed-rate price was abandoned in August 1971.

Then there is the second unanswered question. To what extent is today’s exceptionally low gold price the responsibility of certain bullion banks, which have cheapened gold by extending gold credit to such an extreme, and the ESF, by perpetuating this scheme? This question too does not have an answer, at least not yet. But as the truth about the ESF’s involvement in the gold market continues to emerge and become more widely known, the price of gold is destined to rise to a more normal level, just like it did after August 1971. The high price that gold eventually achieves will indicate how badly certain bullion banks and the ESF have damaged gold mining companies and the gold industry.

In conclusion, while we don’t know whether any of these motives for manipulating the gold price that I ascribed to the US government are accurate, one point is clear and cannot be denied. The US government cannot claim that the ESF is not involved with gold. We now have the irrefutable proof that establishes beyond any reasonable doubt that the ESF is indeed involved in the gold market. We know this for a fact because of our peek behind closed doors.

 

So time will tell when the Germans complete their gold reserves audit.

Source: King World News

 

Fed Spends $29 Trillion To Fix Financial System And Still Hasn’t Worked

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The Levy Institute has issued a report that the Fed has committed some $29 trillion in the form of loans and asset purchasing to prop up the global financial system and it still has not worked.

In a system that depends on lies and the credulity of the citizenry, the greatest lie is that the Federal Reserve’s “quantitative easing” bailouts of the banks somehow help our citizens and communities.

To clarify this, ask yourself this question: what else could we have bought with the $29 trillion the Fed loaned or backstopped to the banks?

If you enjoy quibbling about the total sum of Fed support, be my guest; the Levy Institute came up with $29 trillion after poring over all the data, while the Government Accountability Office’s (GAO) tally topped $16 trillion. That’s 100% of the nation’s GDP and roughly 100% of the $16 trillion national debt.

While we’re asking about opportunity costs, let’s ask what else we could have bought with the $10 trillion that the Federal government has borrowed and blown in the past 11.7 years. The national debt was $5.727 trillion when G.W. Bush was sworn into office on January 20, 2001. It had risen to $10.626 trillion when President Obama was sworn into office in January, 2009. It is now $16.016 trillion, an increase of $5 trillion in less than four years in “debt held by the public” (i.e. the Chinese central bank, the Japanese central bank, the Federal Reserve, etc.)

Charles Hugh Smith (OfTwoMinds) has worked out that everyone in the US could have free electricity for a fraction of the debt that has been created. What would this have done for the economy. The question remains what did the US get for $16 trillion of debt?

$500 billion is roughly 3% of $16 trillion. That is rather astounding, isn’t it? We could have switched to a (largely) solar-powered electrical grid for a mere 3% of what the Fed squandered to save the “too big to fail” banks. Yes, yes, I know we need a massive energy storage system for any solar-powered grid; shall we throw $1.1 trillion at the problem? That would total a mere 10% of what the Fed has provided to “save” crony-capitalist financial feudalism.

Source: ZeroHedge

Did Bernanke Say Purchasing $85 Billion a Month, Between Now And Christmas?

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Yesterday Ben Bernanke announced QE3 whereby the Fed would be buying $40 billion per month of mortgage Backed Securities indefinitely. What most people missed was there’s another $45 billion of Treasury monetization that’s already taking place every month via Operation Twist, as well as the Fed’s ongoing reinvestment of proceeds from maturing mortgage and agency debt, bringing the total to a cool $85 billion every 30 days,

or roughly $300 billion between now and Christmas.

Source: The Daily Bell

Unlimited QE3 And Gold Shoots Up By $50

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Bernanke finally unveils QE3 and gold immediately reacts by going up by over $50. The Fed will purchase up to $40 billion a month of mortgage debt for as long as it takes as reported by Bloomberg. He looks to be trying to blow another housing bubble.

The Federal Reserve said it will expand its holdings of long-term securities with

open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing

as it seeks to boost growth and reduce unemployment.

Operation Twist is to continue

The Fed said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist. The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage- backed securities.

The Fed’s economic forecast is as follows but what happens to inflation?

The Fed now expects the job-market outlook to improve more swiftly by 2014, with unemployment forecast to fall to 6.7 percent to 7.3 percent, compared with 7 percent to 7.7 percent in their June projections. In 2015, unemployment will fall to 6 percent to 6.8 percent.

Growth will improve to as much as 3 percent next year and as much as 3.8 percent in 2014, up from upper estimates of 2.8 percent and 3.5 percent in their previous forecasts. The so- called central tendency forecasts exclude the three highest and three lowest of 19 estimates.

There was some dissent about the decision.

Richmond Fed President Jeffrey Lacker dissented for the sixth consecutive meeting, saying he opposed additional asset purchases. Lacker opposed the FOMC’s June decision to extend Operation Twist through the end of the year and has said he expects interest rates will need to be raised in 2013.

ZeroHedge makes a good point about the Fed’s ability to surprise has now been removed. It has no more weapons left in its arsenal.

There is one big problem with the Fed’s announcement of Open-Ended QE moments ago: it effectively removes all future suspense from FOMC announcements. Why? Because the Fed has as of this moment exposed its cards for all to see from here until the moment it has to start tightening the money supply (which may or may not happen; frankly we don’t think the Fed tightens until hyperinflation sets in at which point what the Fed does is meaningless). It means easing is now effectively priced into infinity

All this of course is extremely bullish for gold when coupled with Draghi’s announcement of sovereign bond purchasing and Germany’s court ruling in favour of the ESM.

FOX19: The US Fed Exposed

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FOX19 discussed how the US Federal Reserve was created, by whom and for what purpose.

Objectives of the Federal Reserve

  1. Stop competition from newer banks.
  2. To obtain a franchise to create money out of nothing for the purpose of lending.
  3. To get control of all reserves of other banks so that reckless banks wouldn’t be over run.
  4. To shift the losses from the banks to the taxpayers.
  5. To convince Congress that the purpose was to protect the taxpayer.

 

US Bails Out Foreign Banks

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I never knew how generous the US was until I read Alan Grayson’s account of the GOA report into how much the Fed has lent to banks. In particular non US banks did well and in some cases kept alive by loans from the Fed. This just demonstrates how flimsy the banking system is if the Fed is called on to prop up foreign banks. In the meantime US citizens were kept in the dark about a lot of the loans.

Some of the key points from the report are outlined below by Grayson.

The total lending for the Fed’s “broad-based emergency programs” was $16,115,000,000,000. That’s right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank.

Sixty percent of the $738 billion “Commercial Paper Funding Facility” went to the subsidiaries of foreign banks. 36% of the $71 billion Term Asset-Backed Securities Loan Facility also went to subsidiaries of foreign banks.

Separate and apart from these “broad-based emergency program” loans were another $10,057,000,000,000 in “currency swaps.” In the “currency swaps,” the Fed handed dollars to foreign central banks, no strings attached, to fund bailouts in other countries. The Fed’s only “collateral” was a corresponding amount of foreign currency, which never left the Fed’s books (even to be deposited to earn interest), plus a promise to repay. But the Fed agreed to give back the foreign currency at the original exchange rate, even if the foreign currency appreciated in value during the period of the swap. These currency swaps and the “broad-based emergency program” loans, together, totaled more than $26 trillion. That’s almost $100,000 for every man, woman, and child in America.

The Fed bailed out the Swiss National Bank.

In October 2008, the Fed gave $60,000,000,000 to the Swiss National Bank with the specific understanding that the money would be used to bail out UBS, a Swiss bank. Not an American bank. A Swiss bank.

Grayson makes reference to the Fed’s change in role.

There is one thing that I’d like to add to this, which isn’t in the GAO’s report. All this is something new, very new. For the first 96 years of the Fed’s existence, the Fed’s primary market activities were to buy or sell U.S. Treasury bonds (to change the money supply), and to lend at the “discount window.” Neither of these activities permitted the Fed to play favorites. But the programs that the GAO audited are fundamentally different. They allowed the Fed to choose winners and losers.

Finally, he makes some very interesting observations below

  • In the case of TARP, at least The People’s representatives got a vote. In the case of the Fed’s bailouts, which were roughly 20 times as substantial, there was never any vote. Unelected functionaries, with all sorts of ties to Wall Street, handed out trillions of dollars to Wall Street.

 

  • In the same way that American troops cannot act as police officers for the world, our central bank cannot act as piggy bank for the world. If the European Central Bank wants to bail out UBS, fine.

 

  • For the Fed to pick and choose among aid recipients, and then pick and choose who takes a “haircut” and who doesn’t, is both corporate welfare and socialism.

 

  • The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success.

 

  • During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn’t borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can’t find a full-time job?

Source: Huffington Post,   GOA Report

LIBOR Lawsuits To Follow

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After the LIEBOR scandal and its fallout, its inevitable that somebody somewhere whats to sue. That is what happens when you realize you have been in a rigged game and potentially we are talking a massive number of lawsuits when you look at the US mortgage industry alone.

The second Barclays announced its $450 million Libor settlement, it was all over – the lawyers smelled not only blood, but what may be the biggest plaintiff feeding frenzy of all time. Which is why it was only a matter of time: “State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks. A handful of state attorneys general said they are looking into whether they have jurisdiction over the banks, and are starting preliminary discussions to determine what kind of impact the conduct involving the Libor rate may have had in their states.”

From Reuters:

Lawyers for several states have had early discussions about whether they might pool investigative resources and launch a broader, multi-state effort, but no formal consortium has been established yet, people familiar with the discussions said. New York might be expected to lead such an effort, since most of the banks’ U.S. operations are based there. A spokesman for the New York attorney general declined comment on whether the issue is being looked at.

 

 

Some municipalities, including the city of Baltimore, and funds including the Frankfurt-based Metzler Investment GmbH, which manages 47 billion euros ($59 billion) in assets, have already sued more than a dozen banks, arguing they were bilked of potentially billions of dollars.

 

From FT:

 There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.
Ultimately, it’s the FED that may get all the attention.
The biggest irony is that the torrent of upcoming suits will be in effect targeting none other than the Fed. Because while banks which all were massively levered to even a one basis point move in Libor were very sensitive to the smallest variations in 3 month USD libor, end-clients who did not have this leverage were far less impaired. But that doesn’t matter: after all the same clients were impaired through gross borderline criminal negligence which is all that matters in a court of law (assuming the honorable judge John Roberts is not presiding pro hac vice). Thus the entity that will be sued by proxy is the Federal Reserve, whose Federal Funds rate is really the setter for the baseline Libor rate.
Source: ZeroHedge

China’s M2 Supply and Gold Prices

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Need we have any more reminders of gold’s potential. Well ZeroHedge have made a compelling argument for the increase in the money supply eventually having its effect on gold prices. Below is the case which links China’s M2 supply with large increases in gold prices.

Money supply growth is extremely sluggish right now all over the world. The velocity never happened and the global economy is rolling over. The Fed is already behind the curve and so when they are forced to act the infusion will have to be huge just to stem the momentum. What will really be interesting is if they will be able to stem the momentum. I have no idea but the longer they wait the less likely they will be able to.

China Will Blink and Gold Will Soar
To illustrate the point. Take a look at China’s M2 Monthly year-over-year growth in the chart below. Do you really think they are going to allow that trend to continue? If they do what do you think the implications are for the world? For the U.S.? Want to bet on decoupling? I don’t.

China’s M2 Monthly year-over-year growth

The big point is that China will act and in a meaningful way.  What I suggest people do is go back and look at different asset classes from the prior two lows in China’s M2 year-over-year growth rate.  The first one occurred in late 2004.  The M2 growth rate then accelerated until around mid 2006.  In that time period gold prices went up around 65% and the S&P 500 went up 20%.  In the second period of acceleration from late 2008 to late 2009 gold was up 65% and the S&P500 was up 15%.  We are at one of these inflection points and considering the DOW/Gold ratio is still holding gains from its countertrend rally from last August of almost 40%, this is probably one of the best entry points to buy gold and short the Dow of any time in the last decade.  Oh and if you want more juice, when China blinks silver does much, much better than gold…

Source: ZeroHedge

Ron Paul Hosts Subcommittee Hearing On Ending The Fed

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Ron Paul is chairing a hearing by the House Finance Committee’s Domestic Monetary Policy and Technology Subcommittee on either to mend the Fed or end the Fed.

Texas Congressman Ron Paul will once again face off against his central bank nemesis this morning, during a Congressional hearing on monetary policy and the Federal Reserve. 

The hyped-up hearing is titled “The Federal Reserve System: Mend It Or End It?,” and will be hosted by the House Finance Committee’s Domestic Monetary Policy and Technology Subcommittee, which oversees the Federal Reserve and which, incidentally, is chaired by Ron Paul. 

The hearing will feature testimony from several economists and lawmakers, all of whom have some problem with the central bank. No one who works for the Fed is scheduled to testify. 

The subcommittee will also consider several bills, including Paul’s Federal Reserve Board Abolition Act, which would abolish the Federal Reserve, its Board of Governors, and eliminate the Federal Reserve Act.

“More and more people are beginning to understand just how destructive the Federal Reserve’s monetary policy has been,” Paul said in a press release. “I hope that this hearing will kickstart a serious discussion on the need to rein in the Fed.”

Other witnesses include Rep. Barney Frank (D-MA), the outgoing ranking member of the House Finance Committee who is also an outspoken critic of the Fed, and Rep. Kevin Brady (R-TX), who has introduced legislation to eliminate the Fed’s dual mandate of promoting maximum employment and price stability.

The second panel features five economists. Here’s the list, per Paul’s press release: 

  • Dr. Jeffrey M. Herbener, Chairman, Economics Department, Grove City College
  • Dr. Peter G. Klein, Associate Professor, Applied Social Sciences and Director, McQuinn Center for Entrepreneurial Leadership, University of Missouri
  • Dr. John B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University and George P. Schultz Senior Fellow in Economics, Hoover Institution
  • Dr. Alice Rivlin, Senior Fellow, Economic Studies, Brookings Institution, and former Vice Chair, Federal Reserve Board of Governors
  • Dr. James K. Galbraith, Lloyd M. Bentsen, Jr. Chair in Government/Business Relations, LBJ School of Public Affairs, University of Texas at Austin

The hearing starts shortly, so check back with Business Insider for updates.

Source: http://www.businessinsider.com

Germany Nervous About It’s Gold Reserves

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It’s like a high stakes game of poker right now. The situation with Greece is making everyone nervous and its Germany’s turn this week as more questions are asked about how secure its gold reserves are while being held outside its borders. This time its the turn of the German Federal Audit Office to ask the questions as originally reported by Bild.

The German Federal Audit Office has criticised the Bundesbank’s lax auditing and inventory controls regarding Germany’s sizeable gold reserves – 3,396.3 tonnes of gold or some 73.7% of Germany’s national foreign exchange reserves.

There is increasing nervousness amongst the German public, German politicians and indeed the Bundesbank itself regarding the gigantic risk on the balance sheet of Germany’s central bank and this is leading some in Germany to voice concerns about the location and exact amount of Germany’s gold reserves.

The importance of its gold reserves are crucial in case the eurozone was to collapse. A new germany currency could be backed by these reserves.

The eurozone’s central bank system is massively imbalanced after the ECB’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31% bigger than the German economy, after a second tranche of three-year loans.

The concern is that were the eurozone to collapse, Bundesbank’s losses could be half a trillion euros – more than one-and-a-half times the size of the Germany’s annual budget.

In that scenario, Germany’s national patrimony of gold bullion reserves would be needed to support the currency – whether that be a new euro or a return to the Deutsche mark.

The German lawmakers are following in the footsteps of US Presidential candidate Ron Paul who has long called for an audit of the US’ gold reserves.

It is believed that some 60% of Germany’s gold is stored outside of Germany and much of it in the Federal Reserve Bank of New York.

Germany and other central banks may follow in Hugo Chavez’s footsteps and repatriate their gold to Germany so as to have direct possession of and ownership of their gold reserves in order to be better prepared for a systemic or monetary crisis.

Jim Rickards has outlined possible plans by the Federal Reserve to commandeer Germany’s and all foreign depositors of sovereign gold at the New York Federal Reserve in the event of a dollar and monetary crisis leading to intensified “currency wars” and the ‘nuclear option’ of a drastic upward revision of the price of gold and a return to a quasi gold standard is contemplated by embattled central banks to prevent debt deflation.

Source: ZeroHedge

U.S Treasury Secretary Timothy Geithner Arrested

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I must apologise for this post. It has come to my attention that the clip below was posted in January 2010. Check out the comment section and you will see the original post date of the clip. This story has appeared all over the Internet and doesn’t appear to be accurate.

 

U.S Treasury Secretary Timothy Geithner was arrested last week according to reports on Fox News for his role in AIG fiasco while in charge of NY Fed.

 

$15 Trillion Transferred to UK

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Lord James of Blackheath asked a parlimentary question as to why $15 trillion was transferred from the US to HSBC in 2009.

In April and May 2009, the situation started with the alleged transfer of $5 trillion to HSBC in the United Kingdom. Seven days later, another $5 trillion came to HSBC and three weeks later another $5 trillion. A total of $15 trillion is alleged to have been passed into the hands of HSBC for onward transit to the Royal Bank of Scotland. We need to look to where this came from and the history of this money. I have been trying to sort out the sequence by which this money has been created and where it has come from for a long time.

With 3 possible causes

There are three possible conclusions which may come from it.

First, there may have been a massive piece of money-laundering committed by a major Government who should know better. Effectively, it undermined the integrity of a British bank, the Royal Bank of Scotland, in doing so.

The second possibility is that a major American department has an agency which has gone rogue on it because it has been wound up and has created a structure out of which it is seeking to get at least €50 billion as a pay-off.

The third possibility is that this is an extraordinarily elaborate fraud, which has not been carried out, but which has been prepared to provide a threat to one Government or more if they do not make a pay-off.

The full transcript of his speech can be found at

http://www.publications.parliament.uk/pa/ld201212/ldhansrd/text/120216-0002.htm#column_1016

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