Credit market debt has increased quite dramatically since the beginning of 1997. How long can we continue this increase in debt/money creation before we stall, which would cause a money supply shortage and recession.

I predict a significant rise in bankruptcies, unemployment, and interest rates down the road.

How long can we continue to pay the federal reserve interest for creating money we could create ourselves for free?

http://www.economagic.com/gif/g2402110290175171039364393828480839.gif


The federal reserve system is the root of the problem.

dipped my fingers into SPAL today.

I enjoy investing in the small cap low volume undiscovered profitables.

Forward PE of about 7-8 if they meet last 2 quarters earnings, even less if they grow more profitable.

If they are smart they will quietly reduce their exposure to our currency. After all, our wild spending habits at not just a government level, but a corporate and a personal level, show no signs of slowing down.

And since the debt we create is added to the money supply, yes many people don't understand this: anytime one uses a credit card, gets a loan, applies for a mortgage, they are creating money out of thin air.. not the federal reserve. The federal reserve only needs enough money on hand to meet the reserve ratio. They create money as a result of our demand for it.

(We have a debt based, fractional reserve currency, not a fiat currency.)

With that added debt in our money supply helping prop things up for another few months, any attempt to pay off such a massive debt would result in a recession or worse, since a debt paid off is money taken out of the money supply, not able to prop up our ailing economic system.

But are you kidding? Americans won't try to pay off their debts. They will increase their debt load until they have to file bankrupcy, as will the government. Our only option at this point is to devalue the currency.. there is no other alternative... whether foreigners dump our debt, or we decide to voluntarily devalue, we must devalue, the debt is too much for us to handle.

Hyperinflation.. that is our future. And one can profit in advance of a dollar decline by purchasing commodities cheap and selling them later on. Silver and land are my favorites. Gold, and hell, even natural gas or oil would work.


http://www.libertyforum.org/showflat.php?Cat=&Board=news_members&Number=763126&part=1//P....

http://www.libertyforum.org/showflat.php?Cat=&Board=news_members&Number=675695&part=1

http://www.relfe.com/plus_5_.html

http://www.prolognet.qc.ca/clyde/money.htm

finally the blowoff top I am looking for?

The intraday price movements have been increasing over the past 2 weeks, volitility is definitely increasing... will the blowoff top in the 9800-10000 level finally be occuring? One thing's for sure, the volume in this upswing could be better.

It's like march of 2000 all over again with the OTCBB stocks. Takes me back to the ECNC and MVEE days.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ivoc&sid=0&o_symb=ivoc&f...

Huge volume with gains that could lead to overnight retirement on selected OTCBB stocks. 2.3 billion is actually a low day lately for the OTCBB.

INIV going well so far. But a dollar should be easy, not ready to sell yet.

Will the next couple weeks bring the blowoff market top I'm looking for? Commodities movements have been interesting. The dollar is heading down again, lets see if the economic data follows suit. Debt money running thin.

The rise in the price of gold could be nothing more then the fact that there is a lot of US dollars chasing a lot of different asset classes right now, and some of the investors out there don't see value in the stock markets and have little place else to put money. The precious metals markets are significantly smaller then the equitys markets, so any movement of any nature is going to effect them, particularly the paper manipulated silver market.

With that said, you are probably correct. The stock market will probably give, along with the US dollar.

damn, up 10 cents or 25% from where I posted that message. You can't tell me all that volume came from here? I hope I helped a few of you make a couple cents today. ;)

I like INIV here. Great revenue growth, almost no debt. Another one of them undiscovered gems, perhaps.



Year Quarter Revenue

2000 Full Year 10,000

2001 Full Year 1,020,000

2002 1 2,790,000
2002 2 2,990,000
2002 3 4,230,000
2002 Full Year 14,780,000

2003 1 5,490,000
2003 2 7,000,000



Innovative Software Technologies Announces Second Quarter & Six Month Results
FRIDAY, AUGUST 15, 2003 6:30 AM
- BusinessWire

PROVO, Utah, Aug 15, 2003 (BUSINESS WIRE) -- Innovative Software Technologies, Inc. (INIV) today announced its financial results for the second quarter ended June 30, 2003, and for the six-month period ended June 30, 2003.

Sales for the three-month period ended June 30, 2003, rose 134% to $6,997,995 from $2,994,339 for the comparable period last year. Net income was $252,711 versus $152,026, a 66% increase over the previous year's second quarter results.

For the six-month period ended June 30, 2003, Innovative Software reported that sales increased 116% to $12,491,203 from $5,789,035 for the six months ended June 30, 2002. Net income for the six-month period ended June 30, 2003, was $352,608, a 1% increase over the previous year's six-month net income of $348,334. Net cash provided by operating activities for the six months ended June 30, 2003, totaled $1,475,974 versus $663,239 for the comparable year ago period.

"The decision to consolidate virtually all of our administrative and fulfillment operations to Utah, combined with bringing our technical support and coaching services back in-house, are two factors that we believe helped us improve sales in the second quarter," said D. Shane Hackett, President & CEO.

http://www.relfe.com/plus_5_.html



I Want The Earth Plus 5%

Dansk, Deutsch Español Polski, Portugues, Russian


Fabian was excited as he once more rehearsed his speech for the crowd certain to turn up tomorrow. He had always wanted prestige and power and now his dreams were going to come true. He was a craftsman working with silver and gold, making jewelry and ornaments, but he became dissatisfied with working for a living. He needed excitement, a challenge, and now his plan was ready to begin.



For generations the people used the barter system. A man supported his own family by providing all their needs or else he specialised in a particular trade. Whatever surpluses he might have from his own production, he exchanged or swapped for the surplus of others.

Market day was always noise and dusty, yet people looked forward to the shouting and waving, and especially the companionship. It used to be a happy place, but now there were too many people, too much arguing. There was no time for chatting - a better system was needed.

Generally, the people had been happy, and enjoyed the fruits of their work.

In each community a simple Government had been formed to make sure that each person's freedoms and rights were protected and that no man was forced to do anything against his will by any other man, or any group of men.


This was the Government's one and only purpose and each Governor was voluntarily supported by the local community who elected him.

However, market day was the one problem they could not solve. Was a knife worth one or two baskets of corn? Was a cow worth more than a wagon … and so on. No one could think of a better system.

Fabian had advertised, "I have the solution to our bartering problems, and I invite everyone to a public meeting tomorrow."


The next day there was a great assembly in the town square and Fabian explained all about the new system which he called "money". It sounded good. "How are we to start?" the people asked.

"The gold which I fashion into ornaments and jewelry is an excellent metal. It does not tarnish or rust, and will last a long time. I will make some gold into coins and we shall call each coin a dollar."


He explained how values would work, and that "money" would be really a medium for exchange - a much better system than bartering.

One of the Governors questioned, "Some people can dig gold and make coins for themselves", he said.

"This would be most unfair", Fabian was ready with the answer. "Only those coins approved by the Government can be used, and these will have special marking stamped on them." This seemed reasonable and it was proposed that each man be given an equal number. "But I deserve the most," said the candle-maker. "Everyone uses my candles." "No", said the farmer, "without food there is no life, surely we should get the most." And so the bickering continued.

Fabian let them argue for a while and finally he said, "Since none of you can agree, I suggest you obtain the number you require from me. There will be no limit, except for your ability to repay. The more you obtain, the more you must repay in one year's time. "And what will you receive?" the people asked.

"Since I am providing a service, that is, the money supply, I am entitled to payment for my work. Let us say that for every 100 pieces you obtain, you repay me 105 for every year that you owe the debt. The 5 will be my charge, and I shall call this charge interest."

There seemed to be no other way, and besides, 5% seemed little enough charge. "Come back next Friday and we will begin."

Fabian wasted no time. He made coins day and night, and at the end of the week he was ready. The people were queued up at his shop, and after the coins were inspected and approved by the Governors the system commenced. Some borrowed only a few and they went off to try the new system.

They found money to be marvelous, and they soon valued everything in gold coins or dollars. The value they placed on everything was called a "price", and the price mainly depended on the amount of work required to produce it. If it took a lot of work the price was high, but if it was produced with little effort it was quite inexpensive.

In one town lived Alan, who was the only watchmaker. His prices were high because the customers were willing to pay just to own one of his watches.

Then another man began making watches and offered them at a lower price in order to get sales. Alan was forced to lower his prices, and in no time at all prices came down, so that both men were striving to give the best quality at the lowest price. This was genuine free competition.



It was the same with builders, transport operators, accountants, farmers, in fact, in every endeavour. The customers always chose what they felt was the best deal - they had freedom of choice. There was no artificial protection such as licences or tariffs to prevent other people from going into business. The standard of living rose, and before long the people wondered how they had ever done without money.


At the end of the year, Fabian left his shop and visited all the people who owed him money. Some had more than they borrowed, but this meant that others had less, since there were only a certain number of coins issued in the first place. Those who had more than they borrowed paid back each 100 plus the extra 5, but still had to borrow again to carry on.

The others discovered for the first time that they had a debt. Before he would lend them more money, Fabian took a mortgage over some of their assets, and everyone went away once moreto try and get those extra 5 coins whichalways seemed so hard to find.

No one realised that as a whole, the country could never get out of debt until all the coins were repaid, but even then, there were those extra 5 on each 100 which had never been lent out at all. No one but Fabian could see that it was impossible to pay the interest - the extra money had never been issued, therefore someone had to miss out.

It was true that Fabian spent some coins, but he couldn't possibly spend anything like 5% of the total economy on himself. There were thousands of people and Fabian was only one. Besides, he was still a goldsmith making a comfortable living.

At the back of his shop Fabian had a strongroom and people found it convenient to leave some of their coins with him for safekeeping. He charged a small fee depending on the amount of money, and the time it was left with him. He would give the owner receipts for the deposit.

When a person went shopping, he did not normally carry a lot of gold coins. He would give the shopkeeper one of the receipts to the value of the goods he wanted to buy.

Shopkeepers recognised the receipt as being genuine and accepted it with the idea of taking it to Fabian and collecting the appropriate amount in coins. The receipts passed from hand to hand instead of the gold itself being transferred. The people had great faith in the receipts - they accepted them as being as good as coins.

Before long, Fabian noticed that it was quite unusual for anyone to actually call for their gold coins.

He thought to himself, "Here I am in possession of all this gold and I am still a hard working craftsman. It doesn't make sense. Why there are dozens of people who would be glad to pay me interest for the use of this gold which is lying here and rarely called for.

It is true, the gold is not mine - but it is in my possession, which is all that matters. I hardly need to make any coins at all, I can use some of the coins stored in the vault."

At first he was very cautious, only loaning a few at a time, and then only on tremendous security. But gradually he became bolder, and larger amounts were loaned.

One day, a large loan was requested. Fabian suggested, "Instead of carrying all these coins we can make a deposit in your name, and then I shall give you several receipts to the value of the coins." The borrower agreed, and off he went with a bunch of receipts. He had obtained a loan, yet the gold remained in the strong-room. After the client left, Fabian smiled. He could have his cake and eat it too. He could "lend" gold and still keep it in his possession.

Friends, strangers and even enemies needed funds to carry out their businesses - and so long as they could produce security, they could borrow as much as they needed. By simply writing out receipts Fabian was able to "lend" money to several times the value of gold in his strong-room, and he was not even the owner of it. Everything was safe so long as the real owners didn't call for their gold and the confidence of the people was maintained.


He kept a book showing the debits and credits for each person. The lending business was proving to be very lucrative indeed.

His social standing in the community was increasing almost as fast as his wealth. He was becoming a man of importance, he commanded respect. In matters of finance, his very word was like a sacred pronouncement.

Goldsmiths from other towns became curious about his activities and one day they called to see him. He told them what he was doing, but was very careful to emphasize the need for secrecy.

If their plan was exposed, the scheme would fail, so they agreed to form their own secret alliance.

Each returned to his own town and began to operate as Fabian had taught.

People now accepted the receipts as being as good as gold itself, and many receipts were deposited for safe keeping in the same way as coins. When a merchant wished to pay another for goods, he simply wrote a short note instructing Fabian to transfer money from his account to that of the second merchant. It took Fabian only a few minutes to adjust the figures.

This new system became very popular, and the instruction notes were called "checks".

Late one night, the goldsmiths had another secret meeting and Fabian revealed a new plan. The next day they called a meeting with all the Governors, and Fabian began. "The receipts we issue have become very popular. No doubt, most of you Governors are using them and you find them very convenient." They nodded in agreement and wondered what the problem was. "Well", he continued, "some receipts are being copied by counterfeiters. This practice must be stopped."

The Governors became alarmed. "What can we do?" they asked. Fabian replied, "My suggestion is this - first of all, let it be the Government's job to print new notes on a special paper with very intricate designs, and then each note to be signed by the chief Governor. We goldsmiths will be happy to pay the printing costs, as it will save us a lot of time writing out receipts". The Governors reasoned, "Well, it is our job to protect the people against counterfeiters and the advice certainly seems like a good idea." So they agreed to print the notes.

"Secondly," Fabian said, "some people have gone prospecting and are making their own gold coins. I suggest that you pass a law so that any person who finds gold nuggets must hand them in. Of course, they will be reimbursed with notes and coins."

The idea sounded good and without too much thought about it, they printed a large number of crisp new notes. Each note had a value printed on it - $1, $2, $5, $10 etc. The small printing costs were paid by the goldsmiths.


The notes were much easier to carry and they soon became accepted by the people. Despite their popularity however, these new notes and coins were used for only 10% of transactions. The records showed that the check system accounted for 90% of all business.

The next part of his plan commenced. Until now, people were paying Fabian to guard their money. In order to attract more money into the vault Fabian offered to pay depositors 3% interest on their money.

Most people believed that he was re-lending their money out to borrowers at 5%, and his profit was the 2% difference. Besides, the people didn't question him as getting 3% was far better than paying to have the money guarded.

The volume of savings grew and with the additional money in the vaults, Fabian was able to lend $200, $300, $400 sometimes up to $900 for every $100 in notes and coins that he held in deposit. He had to be careful not to exceed this nine to one ratio, because one person in ten did require the notes and coins for use.

If there was not enough money available when required, people would become suspicious, especially as their deposit books showed how much they had deposited. Nevertheless, on the $900 in book figures that Fabian loaned out by writing checks himself, he was able to demand up to $45 in interest, i.e. 5% on $900. When the loan plus interest was repaid, i.e. $945, the $900 was cancelled out in the debit column and Fabian kept the $45 interest. He was therefore quite happy to pay $3 interest on the original $100 deposited which had never left the vaults at all. This meant that for every $100 he held in deposits, it was possible to make 42% profit, most people believing he was only making 2%. The other goldsmiths were doing the same thing. They created money out of nothing at the stroke of a pen, and then charged interest on top of it.

True, they didn't coin money, the Government actually printed the notes and coins and gave it to the goldsmiths to distribute. Fabian's only expense was the small printing fee. Still, they were creating credit money out of nothing and charging interest on top of it. Most people believed that the money supply was a Government operation. They also believed that Fabian was lending them the money that someone else had deposited, but it was very strange that no one's deposits ever decreased when a loan was advanced. If everyone had tried to withdraw their deposits at once, the fraud would have been exposed.

When a loan was requested in notes or coins, it presented no problem. Fabian merely explained to the Government that the increase in population and production required more notes, and these he obtained for the small printing fee.

One day a thoughtful man went to see Fabian. "This interest charge is wrong", he said. "For every $100 you issue, you are asking $105 in return. The extra $5 can never be paid since it doesn't exist.

Farmers produce food, industry manufacturers goods, and so on, but only you produce money. Suppose there are only two businessmen in the whole country and we employ everyone else. We borrow $100 each, we pay $90 out in wages and expenses and allow $10 profit (our wage). That means the total purchasing power is $90 + $10 twice, i.e. $200. Yet to pay you we must sell all our produce for $210. If one of us succeeds and sells all his produce for $105, the other man can only hope to get $95. Also, part of his goods cannot be sold, as there is no money left to buy them.

He will still owe you $10 and can only repay this by borrowing more. The system is impossible."

The man continued, "Surely you should issue 105, i.e. 100 to me and 5 to you to spend. This way there would be 105 in circulation, and the debt can be repaid."

Fabian listened quietly and finally said, "Financial economics is a deep subject, my boy, it takes years of study. Let me worry about these matters, and you look after yours. You must become more efficient, increase your production, cut down on your expenses and become a better businessman. I am always willing to help in these matters."

The man went away still unconvinced. There was something wrong with Fabian's operations and he felt that his questions had been avoided.

Yet, most people respected Fabian's word - "He is the expert, the others must be wrong. Look how the country has developed, how our production has increased - we must be better off."

To cover the interest on the money they had borrowed, merchants were forced to raise their prices. Wage earners complained that wages were too low. Employers refused to pay higher wages, claiming that they would be ruined. Farmers could not get a fair price for their produce. Housewives complained that food was getting too dear.

And finally some people went on strike, a thing previously unheard of. Others had become poverty stricken and their friends and relatives could not afford to help them. Most had forgotten the real wealth all around - the fertile soils, the great forests, the minerals and cattle. They could think only of the money which always seemed so scarce. But they never questioned the system. They believed the Government was running it.

A few had pooled their excess money and formed "lending" or "finance" companies. They could get 6% or more this way, which was better than the 3% Fabian paid, but they could only lend out money they owned - they did not have this strange power of being able to create money out of nothing by merely writing figures in books.

These finance companies worried Fabian and his friends somewhat, so they quickly set up a few companies of their own. Mostly, they bought the others out before they got going. In no time, all the finance companies were owned by them, or under their control.

The economic situation got worse. The wage earners were convinced that the bosses were making too much profit. The bosses said that their workers were too lazy and weren't doing an honest day's work, and everyone was blaming everyone else.The Governors could not come up with an answer and besides, the immediate problem seemed to be to help the poverty stricken.

They started up welfare schemes and made laws forcing people to contribute to them. This made many people angry - they believed in the old-fashioned idea of helping one's neighbour by voluntary effort.

"These laws are nothing more than legalised robbery. To take something off a person against his will, regardless of the purpose for which it is to be used, is no different from stealing."


But each man felt helpless and was afraid of the jail sentence which was threatened for failing to pay. These welfare schemes gave some relief, but before long the problem was back and more money was needed to cope. The cost of these schemes rose higher and higher and the size of the Government grew.

Most of the Governors were sincere men trying to do their best. They didn't like asking for more money from their people and finally, they had no choice but to borrow money from Fabian and his friends. They had no idea how they were going to repay. Parents could no longer afford to pay teachers for their children. They couldn't pay doctors. And transport operators were going out of business.

One by one the government was forced to take these operations over. Teachers, doctors and many others became public servants.

Few obtained satisfaction in their work. They were given a reasonable wage, but they lost their identity. They became small cogs in a giant machine.

There was no room for personal initiative, little recognition for effort, their income was fixed and advancement came only when a superior retired or died.

In desperation, the governors decided to seek Fabian's advice. They considered him very wise and he seemed to know how to solve money matters. He listened to them explain all their problems, and finally he answered, "Many people cannot solve their own problems - they need someone to do it for them. Surely you agree that most people have the right to be happy and to be provided with the essentials of life. One of our great sayings is "all men are equal" - is it not?"

Well, the only way to balance things up is to take the excess wealth from the rich and give it to the poor. Introduce a system of taxation. The more a man has, the more he must pay. Collect taxes from each person according to his ability, and give to each according to his need. Schools and hospitals should be free for those who cannot afford them …"

He gave them a long talk on high sounding ideals and finished up with, "Oh, by the way, don't forget you owe me money. You've been borrowing now for quite some time. The least I can do to help, is for you to just to pay me the interest. We'll leave the capital debt owing, just pay me the interest."

They went away, and without giving Fabian's philosophies any real thought, they introduced the graduated income tax - the more you earn, the higher your tax rate. No one liked this, but they either paid the taxes or went to jail.


Merchants were forced once again to raise their prices. Wage earners demanded higher wages forcing many employers out of business, or to replace men with machinery. This caused additional unemployment and forced the Government to introduce further welfare and handout schemes.

Tariffs and other protection devices were introduced to keep some industries going just to provide employment. A few people wondered if the purpose of the production was to produce goods or merely to provide employment.

As things got worse, they tried wage control, price control, and all sorts of controls. The Government tried to get more money through sales tax, payroll tax and all sorts of taxes. Someone noted that from the wheat farmer right through to the housewife, there were over 50 taxes on a loaf of bread.

"Experts" arose and some were elected to Government, but after each yearly meeting they came back with almost nothing achieved, except for the news that taxes were to be "restructured", but overall the total tax always increased.

Fabian began to demand his interest payments, and a larger and larger portion of the tax money was being needed to pay him.

Then came party politics - the people started arguing about which group of Governors could best solve the problems. They argued about personalities, idealism, party labels, everything except the real problem. The councils were getting into trouble.

In one town the interest on the debt exceeded the amount of rates which were collected in a year. Throughout the land the unpaid interest kept increasing - interest was charged on unpaid interest.

Gradually much of the real wealth of the country came to be owned or controlled by Fabian and his friends and with it came greater control over people. However, the control was not yet complete. They knew that the situation would not be secure until every person was controlled.

Most people opposing the systems could be silenced by financial pressure, or suffer public ridicule. To do this Fabian and his friends purchased most of the newspapers, T.V. and radio stations and he carefully selected people to operate them. Many of these people had a sincere desire to improve the world, but they never realised how they were being used. Their solutions always dealt with the effects of the problem, never the cause.

There were several different newspapers - one for the right wing, one for the left wing, one for the workers, one for the bosses, and so on. It didn't matter much which one you believed in, so long as you didn't think about the real problem.

Fabian's plan was almost at its completion - the whole country was in debt to him. Through education and the media, he had control of people's minds. They were able to think and believe only what he wanted them to.


After a man has far more money than he can possibly spend for pleasure, what is left to excite him? For those with a ruling class mentality, the answer is power - raw power over other human beings. The idealists were used in the media and in Government, but the real controllers that Fabian sought were those of the ruling class mentality.

Most of the goldsmiths had become this way. They knew the feeling of great wealth, but it no longer satisfied them. They needed challenge and excitement, and power over the masses was the ultimate game.

They believed they were superior to all others. "It is our right and duty to rule. The masses don't know what is good for them. They need to be rallied and organised. To rule is our birthright."

Throughout the land Fabian and his friends owned many lending offices. True, they were privately and separately owned. In theory they were in competition with each other, but in reality they were working very closely together. After persuading some of the Governors, they set up an institution which they called the Money Reserve Centre. They didn't even use their own money to do this - they created credit against part of the money out of the people's deposits.


This Institution gave the outward appearance of regulating the money supply and being a Government operation, but strangely enough, no Governor or public servant was ever allowed to be on the Board of Directors.

The Government no longer borrowed directly from Fabian, but began to use a system of I.O.U.'s to the Money Reserve Centre. The security offered was the estimated revenue from next year's taxes. This was in line with Fabian's plan - removing suspicion from himself to an apparent Government operation. Yet, behind the scenes, he was still in control.

Indirectly, Fabian had such control over the Government that they were forced to do his bidding. He boasted, "Let me control the nation's money and I care not who makes its laws." It didn't matter much which group of Governors were elected. Fabian was in control of the money, the life blood of the nation.

The Government obtained the money, but interest was always charged on every loan. More and more was going out in welfare and handout schemes, and it was not long before the Government found it difficult to even repay the interest, let alone the capital.

And yet there were people who still asked the question, "Money is a man-made system. Surely it can be adjusted to serve, not to rule?" But these people became fewer and their voices were lost in the mad scrabble for the non-existent interest.

The adminstrations changed, the party labels changed, but the major policies continued. Regardless of which Government was in "power", Fabian's ultimate goal was brought closer each year. The people's policies meant nothing. They were being taxed to the limit, they could pay no more. Now the time was ripe for Fabian's final move.

10% of the money supply was still in the form of notes and coins. This had to be abolished in such a way as not to arouse suspicion. While the people used cash, they were free to buy and sell as they chose - they still had some control over their own lives.

But it was not always safe to carry notes and coins. Checks were not accepted outside one's local community, and therefore a more convenient system was looked forward to. Once again Fabian had the answer. His organisation issued everyone with a little plastic card showing the person's name, photograph and an identification number.

When this card was presented anywhere, the storekeeper phoned the central computer to check the credit rating. If it was clear, the person could buy what he wanted up to a certain amount.

At first people were allowed to spend a small amount on credit, and if this was repaid within a month, no interest was charged. This was fine for the wage earner, but what businessman could even begin? He had to set up machinery, manufacture the goods, pay wages etc. and sell all his goods and repay the money. If he exceeded one month, he was charged a 1.5% for every month the debt was owed. This amounted to over 18% per year.

Businessmen had no option but to add the 18% onto the selling price. Yet this extra money or credit (the 18%) had not been loaned out to anyone. Throughout the country, businessmen were given the impossible task of repaying $118 for every $100 they borrowed - but the extra $18 had never been created at all.

Yet Fabian and his friends increased their standing in society. They were regarded as pillars of respectability. Their pronouncements on finance and economics were accepted with almost religious conviction.

Under the burden of ever increasing taxes, many small businesses collapsed. Special licenses were needed for various operations, so that the remaining ones found it very difficult to operate. Fabian owned and controlled all of the big companies which had hundreds of subsidiaries. These appeared to be in competition with each other, yet he controlled them all. Eventually all competitors were forced out of business. Plumbers, panel beaters, electricians and most other small industries suffered the same fate - they were swallowed up by Fabian's giant companies which all had Government protection.

Fabian wanted the plastic cards to eliminate notes and coins. His plan was that when all notes were withdrawn, only businesses using the computer card system would be able to operate.

He planned that eventually some people would misplace their cards and be unable to buy or sell anything until a proof of identify was made. He wanted a law to be passed which would give him ultimate control - a law forcing everyone to have their identification number tattooed onto their hand. The number would be visible only under a special light, linked to a computer. Every computer would be linked to a giant central computer so that Fabian could know everything about everyone.

________________________________________________________

By the way, the correct terminology used in the financial world for this system is "fractional reserve banking".

The story you have read is of course, fiction.

But if you found it to be disturbingly close to the truth and would like to know who Fabian is in real life, a good starting point is a study on the activities of the English goldsmiths in the 16th & 17th centuries.

For example, The Bank of England began in 1694. King William of Orange was in financial difficulties as a result of a war with France. The Goldsmiths "lent him" 1.2 million pounds (a staggering amount in those days) with certain conditions:

The interest rate was to be 8%. It must be remembered that Magna Carta stated that the charging or collecting of interest carried the death penalty.
The King was to grant the goldsmiths a charter for the bank which gave them the right to issue credit.
Prior to this, their operations of issuing receipts for more money than they held in deposits was totally illegal. The charter made it legal.

In 1694 William Patterson obtained the Charter for the Bank of England.

© Larry Hannigan 1971, Australia

www.wheylite.com.au

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Quotations:

Encyclopaedia Britannica, 14th Edition - "Banks create credit. It is a mistake to suppose that bank credit is created to any extent by the payment of money into the banks. A loan made by a bank is a clear addition to the amount of money in the community."

Lord Acton, Lord Chief Justice of England, 1875 - "The issue which has swept down the centuries and which will have to be fought sooner or later is the People v. The Banks."

Mr Reginald McKenna, when Chairman of the Midland Bank in London - "I am afraid that ordinary citizens will not like to be told that the banks can, and do, create and destroy money. And they who control the credit of the nation direct the policy of governments, and hold in the hollow of their hands the destiny of the people.

Mr Phillip A. Benson, President of the American Bankers' Association, June 8 1939 - "There is no more direct way to capture control of a nation than through its credit (money) system."

USA Banker's Magazine, August 25 1924 - "Capital must protect itself in every possible manner by combination and legislation. Debts must be collected, bonds and mortgages must be foreclosed as rapidly as possible. When, through a process of law, the common people lose their homes they will become more docile and more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers.

This truth is well known among our principal men now engaged in forming an imperialism of Capital to govern the world.

By dividing the voters through the political party system, we can get them to expend their energies in fighting over questions of no importance. Thus by discreet action we can secure for ourselves what has been so well planned and so successfully accomplished."

Sir Denison Miller - During an interview in 1921, when he was asked if he, through the Commonwealth Bank, had financed Australia during the First World War for $700 million, he replied; "Such was the case, and I could have financed the country for a further like sum had the war continued." Asked if that amount was available for productive purposes in this time of peace, he answered "Yes".

From "Hand Over Our Loot, No. 2, by Len Clampett:

"There are four things that must be available for paid work to take place:

The work to be done.
The materials to do the work.
The labor to do the work.
The money to pay for the work to be done.
If any of those four things are missing, no paid work can take place. It is a naturally self-regulating system. If there is work to be done, and the material is available and the labour willing, all we have to do is create the money. Quite simple."

"Ask yourself why it was that depressions happened. All that went missing from the community was the money to buy goods and services. The labour was still available. The work to be done was still there. The materials had not disappeared, and the goods were readily available in the shops, or could be produced but for the want of money.

Extract from a letter written by Rothschild Bros of London to a New York firm of bankers on 25 June 1863:

"The few who can understand the System (Cheque Money and Credits) will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class. While on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint and perhaps without even suspecting that the system is inimical (hostile, hurtful) to their interests.

The following quotation was reprinted in the Idaho Leader, USA, 26 August 1924, and has been read into Hansard twice: by John Evans MP, in 1926, and by M.D. Cowan M.P., in the Session of 1930-1931.

In 1891 a confidential circular was sent to American bankers and their agents, containing the following statements:

"We authorise our loan agents in the western States to loan our funds on real estate, to fall due on September 1st 1894, and at no time thereafter.

On September 1, 1894, we will not renew our loans under any consideration.

On September 1st we will demand our money - we will foreclose and become mortgagees in possession.

We can take two-thirds of the farms west of the Mississippi and thousands of them east of the great Mississippi as well, at our own price.

We may as well own three-fourths of the farms of the west and the money of the country.

Then the farmers will become tenants, as in England."

From "Hand Over Our Loot, No. 2"

In the United States, the issuing of money is controlled by the Federal Reserve Board. This is not a government department but a board of private bankers.Most of us would believe that the Federal Reserve is a federal arm of the national government….This is not true…In 1913 President Woodrow Wilson signed the document that created the Federal Reserve, and committed the American people to debt slavery until such time as they awake from their slumber and overthrow this vicious tyranny."…

"The understanding of this issue of money into the community can be best illustrated by equating money in the economy with tickets in a railway system. The tickets are printed by a printer who is paid for his work. The printer never claims the ownership of the tickets … And we can never imagine a railway company refusing to give passengers seats on a train because it is out of tickets. By this same token, a government should never refuse people the access to normal commerce and trade by claiming it is out of money."

Suppose the government borrows $10 million. It only costs the bankers a few hundred dollars to actually produce the funds, and a little more to do the book-keeping. Do you think it is fair that our citizens should struggle to keep their homes and families together, while the bankers grow fat on these profits?

Credit created by a Government-owned bank is better than credit created by private banks, because there is no need to recover the money from people by way of taxes, and there is no interest attached to inflate the cost. The public work completed with the credit by the Government bank is the asset that replaces the money created when the work is finished.

None of our problems will disappear until we correct the creation, supply and circulation of money. Once the money problem is solved, everything else will fall into place.

Each of us can help to turn this ship around:

The first thing is to teach people. VERY FEW know about or understand this information yet. Please pass this information on to those on and off the net.
Research this subject for yourself to increase your understanding.
Join with others who want to return the control of government to the people. Remember - they are 'public SERVANTS'! We are not their servant. They should do OUR bidding.
Regardless of your political leanings, encourage your local Member to investigate and correct our money system. (They probably need to be educated too!). You can do this by email, letter, telephone or personal discussion.
Legislators receive an average of only 100 letters on any given issue. So if you write you opinion and get others to write, say 25 letters, you send a strong message. (Have a letter writing evening).
FURTHER INFORMATION

A Phone Call to the Fed www.rense.com/general29/ringring.htm

Possible Solution:
Nesara: The National Economic Stabilization and Recovery Act www.nesara.com
A Practical Solution to America’s Problems

"Nesara, The Phillippine-Austrian Gold and the Fed". Some good news: Some of the big boys up the top are good guys. http://www.rumormillnews.net/cgi-bin/config.pl?read=22472

Money Game - The Greatest Scam Ever:
Excerpt from the book "Knowledge without Wisdom" by Paul Bond.

Billions for the Bankers www.mtl.clubplus.net/ ~clinique/bankers.htm

Liberty Australia: Banks & Money www.alphalink.com.au/~noelmcd

The Money Masters www.themoneymasters.com

FAME-Foundation for the Adancement of Monetary Education www.FAME.org

Rothschild Wealth & Influence www.mega.nu:8080/ampp/rothschild2.html#metatop

www.prolognet.qc.ca/clyde/money.htm

www.geocities.com/CapitolHill/Lobby/1234/spooner.html



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One of my holdings. Market cap makes it attractive relative to peers.

HON. RON PAUL OF TEXAS IN THE HOUSE OF REPRESENTATIVES
September 5, 2003

(on c-span today, transcript available here)


http://www.house.gov/paul/congrec/congrec2003/cr090503.htm


Paper Money and Tyranny

All great republics throughout history cherished sound money. This meant that the monetary unit was a commodity of honest weight and purity. When money was sound, civilizations were found to be more prosperous and freedom thrived. The less free a society becomes, the greater the likelihood its money is being debased and the economic well-being of its citizens diminished.

Alan Greenspan, years before he became Federal Reserve Board Chairman in charge of flagrantly debasing the U.S. dollar, wrote about this connection between sound money, prosperity, and freedom. In his article “Gold and Economic Freedom” (The Objectivist, July 1966), Greenspan starts by saying: “An almost hysterical antagonism toward the gold standard is an issue that unites statists of all persuasions. They seem to sense…that gold and economic freedom are inseparable.” Further he states that: “Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth.” Astoundingly, Mr. Greenspan’s analysis of the 1929 market crash, and how the Fed precipitated the crisis, directly parallels current conditions we are experiencing under his management of the Fed. Greenspan explains: “The excess credit which the Fed pumped into the economy spilled over into the stock market- triggering a fantastic speculative boom.” And, “…By 1929 the speculative imbalances had become overwhelming and unmanageable by the Fed.” Greenspan concluded his article by stating: “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.” He explains that the “shabby secret” of the proponents of big government and paper money is that deficit spending is simply nothing more than a “scheme for the hidden confiscation of wealth.” Yet here we are today with a purely fiat monetary system, managed almost exclusively by Alan Greenspan, who once so correctly denounced the Fed’s role in the Depression while recognizing the need for sound money.

The Founders of this country, and a large majority of the American people up until the 1930s, disdained paper money, respected commodity money, and disapproved of a central bank’s monopoly control of money creation and interest rates. Ironically, it was the abuse of the gold standard, the Fed’s credit-creating habits of the 1920s, and its subsequent mischief in the 1930s, that not only gave us the Great Depression, but also prolonged it. Yet sound money was blamed for all the suffering. That’s why people hardly objected when Roosevelt and his statist friends confiscated gold and radically debased the currency, ushering in the age of worldwide fiat currencies with which the international economy struggles today.

If honest money and freedom are inseparable, as Mr. Greenspan argued, and paper money leads to tyranny, one must wonder why it’s so popular with economists, the business community, bankers, and our government officials. The simplest explanation is that it’s a human trait to always seek the comforts of wealth with the least amount of effort. This desire is quite positive when it inspires hard work and innovation in a capitalist society. Productivity is improved and the standard of living goes up for everyone. This process has permitted the poorest in today’s capitalist countries to enjoy luxuries never available to the royalty of old.

But this human trait of seeking wealth and comfort with the least amount of effort is often abused. It leads some to believe that by certain monetary manipulations, wealth can be made more available to everyone. Those who believe in fiat money often believe wealth can be increased without a commensurate amount of hard work and innovation. They also come to believe that savings and market control of interest rates are not only unnecessary, but actually hinder a productive growing economy. Concern for liberty is replaced by the illusion that material benefits can be more easily obtained with fiat money than through hard work and ingenuity. The perceived benefits soon become of greater concern for society than the preservation of liberty. This does not mean proponents of fiat money embark on a crusade to promote tyranny, though that is what it leads to, but rather they hope they have found the philosopher’s stone and a modern alternative to the challenge of turning lead into gold.

Our Founders thoroughly understood this issue, and warned us against the temptation to seek wealth and fortune without the work and savings that real prosperity requires. James Madison warned of “The pestilent effects of paper money,” as the Founders had vivid memories of the destructiveness of the Continental dollar. George Mason of Virginia said that he had a “Mortal hatred to paper money.” Constitutional Convention delegate Oliver Ellsworth from Connecticut thought the convention “A favorable moment to shut and bar the door against paper money.” This view of the evils of paper money was shared by almost all the delegates to the convention, and was the reason the Constitution limited congressional authority to deal with the issue and mandated that only gold and silver could be legal tender. Paper money was prohibited and no central bank was authorized. Over and above the economic reasons for honest money, however, Madison argued the moral case for such. Paper money, he explained, destroyed “The necessary confidence between man and man, on necessary confidence in public councils, on the industry and morals of people and on the character of republican government.”

The Founders were well aware of the biblical admonitions against dishonest weights and measures, debased silver, and watered-down wine. The issue of sound money throughout history has been as much a moral issue as an economic or political issue.

Even with this history and great concern expressed by the Founders, the barriers to paper money have been torn asunder. The Constitution has not been changed, but is no longer applied to the issue of money. It was once explained to me, during the debate over going to war in Iraq, that a declaration of war was not needed because to ask for such a declaration was “frivolous” and that the portion of the Constitution dealing with congressional war power was “anachronistic.” So too, it seems that the power over money given to Congress alone and limited to coinage and honest weights, is now also “anachronistic.”

If indeed our generation can make the case for paper money, issued by an unauthorized central bank, it behooves us to at least have enough respect for the Constitution to amend it in a proper fashion. Ignoring the Constitution in order to perform a pernicious act is detrimental in two ways. First, debasing the currency as a deliberate policy is economically destructive beyond measure. Second, doing it without consideration for the rule of law undermines the entire fabric of our Constitutional republic.

Though the need for sound money is currently not a pressing issue for Congress, it’s something that cannot be ignored because serious economic problems resulting from our paper money system are being forced upon us. As a matter of fact, we deal with the consequences on a daily basis, yet fail to see the connection between our economic problems and the mischief orchestrated by the Federal Reserve.

All the great religions teach honesty in money, and the economic shortcomings of paper money were well known when the Constitution was written, so we must try to understand why an entire generation of Americans have come to accept paper money without hesitation, without question. Most Americans are oblivious to the entire issue of the nature and importance of money. Many in authority, however, have either been misled by false notions or see that the power to create money is indeed a power they enjoy, as they promote their agenda of welfarism at home and empire abroad.

Money is a moral, economic, and political issue. Since the monetary unit measures every economic transaction, from wages to prices, taxes, and interest rates, it is vitally important that its value is honestly established in the marketplace without bankers, government, politicians, or the Federal Reserve manipulating its value to serve special interests.

Money As a Moral Issue
The moral issue regarding money should be the easiest to understand, but almost no one in Washington thinks of money in these terms. Although there is a growing and deserved distrust in government per se, trust in money and the Federal Reserve’s ability to manage it remains strong. No one would welcome a counterfeiter to town, yet this same authority is blindly given to our central bank without any serious oversight by the Congress.

When the government can replicate the monetary unit at will without regard to cost, whether it’s paper currency or a computer entry, it’s morally identical to the counterfeiter who illegally prints currency. Both ways, it’s fraud.

A fiat monetary system allows power and influence to fall into the hands of those who control the creation of new money, and to those who get to use the money or credit early in its circulation. The insidious and eventual cost falls on unidentified victims who are usually oblivious to the cause of their plight. This system of legalized plunder (though not constitutional) allows one group to benefit at the expense of another. An actual transfer of wealth goes from the poor and the middle class to those in privileged financial positions.

In many societies the middle class has actually been wiped out by monetary inflation, which always accompanies fiat money. The high cost of living and loss of jobs hits one segment of society, while in the early stages of inflation, the business class actually benefits from the easy credit. An astute stock investor or home builder can make millions in the boom phase of the business cycle, while the poor and those dependent on fixed incomes can’t keep up with the rising cost of living.

Fiat money is also immoral because it allows government to finance special interest legislation that otherwise would have to be paid for by direct taxation or by productive enterprise. This transfer of wealth occurs without directly taking the money out of someone’s pocket. Every dollar created dilutes the value of existing dollars in circulation. Those individuals who worked hard, paid their taxes, and saved some money for a rainy day are hit the hardest, with their dollars being depreciated in value while earning interest that is kept artificially low by the Federal Reserve easy-credit policy. The easy credit helps investors and consumers who have no qualms about going into debt and even declaring bankruptcy.

If one sees the welfare state and foreign militarism as improper and immoral, one understands how the license to print money permits these policies to go forward far more easily than if they had to be paid for immediately by direct taxation.

Printing money, which is literally inflation, is nothing more than a sinister and evil form of hidden taxation. It’s unfair and deceptive, and accordingly strongly opposed by the authors of the Constitution. That is why there is no authority for Congress, the Federal Reserve, or the executive branch to operate the current system of money we have today.

Money As a Political Issue
Although the money issue today is of little political interest to the parties and politicians, it should not be ignored. Policy makers must contend with the consequences of the business cycle, which result from the fiat monetary system under which we operate. They may not understand the connection now, but eventually they must.

In the past, money and gold have been dominant issues in several major political campaigns. We find that when the people have had a voice in the matter, they inevitably chose gold over paper. To the common man, it just makes sense. As a matter of fact, a large number of Americans, perhaps a majority, still believe our dollar is backed by huge hoards of gold in Fort Knox.

The monetary issue, along with the desire to have free trade among the states, prompted those at the Constitutional Convention to seek solutions to problems that plagued the post-revolutionary war economy. This post-war recession was greatly aggravated by the collapse of the unsound fiat Continental dollar. The people, through their representatives, spoke loudly and clearly for gold and silver over paper.

Andrew Jackson, a strong proponent of gold and opponent of central banking (the Second Bank of the United States,) was a hero to the working class and was twice elected president. This issue was fully debated in his presidential campaigns. The people voted for gold over paper.

In the 1870s, the people once again spoke out clearly against the greenback inflation of Lincoln. Notoriously, governments go to paper money while rejecting gold to promote unpopular and unaffordable wars. The return to gold in 1879 went smoothly and was welcomed by the people, putting behind them the disastrous Civil War inflationary period.

Grover Cleveland, elected twice to the presidency, was also a strong advocate of the gold standard.

Again, in the presidential race of 1896, William McKinley argued the case for gold. In spite of the great orations by William Jennings Bryant, who supported monetary inflation and made a mocking “Cross of Gold” speech, the people rallied behind McKinley’s bland but correct arguments for sound money.

The 20th Century was much less sympathetic to gold. Since 1913 central banking has been accepted in the United States without much debate, despite the many economic and political horrors caused or worsened by the Federal Reserve since its establishment. The ups and downs of the economy have all come as a consequence of Fed policies, from the Great Depression to the horrendous stagflation of the ‘70s, as well as the current ongoing economic crisis.

A central bank and fiat money enable government to maintain an easy war policy that under strict monetary rules would not be achievable. In other words, countries with sound monetary policies would rarely go to war because they could not afford to, especially if they were not attacked. The people could not be taxed enough to support wars without destroying the economy. But by printing money, the cost can be delayed and hidden, sometimes for years if not decades. To be truly opposed to preemptive and unnecessary wars one must advocate sound money to prevent the promoters of war from financing their imperialism.

Look at how the military budget is exploding, deficits are exploding, and tax revenues are going down. No problem; the Fed is there and will print whatever is needed to meet our military commitments, whether it’s wise to do so or not.

The money issue should indeed be a gigantic political issue. Fiat money hurts the economy, finances wars, and allows for excessive welfarism. When these connections are realized and understood, it will once again become a major political issue, since paper money never lasts. Ultimately politicians will not have a choice of whether to address or take a position on the money issue. The people and circumstances will demand it.

We do hear some talk about monetary policy and criticism directed toward the Federal Reserve, but it falls far short of what I’m talking about. Big-spending welfarists constantly complain about Fed policy, usually demanding lower interest rates even when rates are at historic lows. Big-government conservatives promoting grand worldwide military operations, while arguing that “deficits don’t matter” as long as marginal tax rates are lowered, also constantly criticize the Fed for high interest rates and lack of liquidity. Coming from both the left and the right, these demands would not occur if money could not be created out of thin air at will. Both sides are asking for the same thing from the Fed for different reasons. They want the printing presses to run faster and create more credit, so that the economy will be healed like magic- or so they believe.

This is not the kind of interest in the Fed that we need. I’m anticipating that we should and one day will be forced to deal with the definition of the dollar and what money should consist of. The current superficial discussion about money merely shows a desire to tinker with the current system in hopes of improving the deteriorating economy. There will be a point, though, when the tinkering will no longer be of any benefit and even the best advice will be of no value. We have just gone through two-and-a-half years of tinkering with 13 rate cuts, and recovery has not yet been achieved. It’s just possible that we’re much closer than anyone realizes to that day when it will become absolutely necessary to deal with the monetary issue- both philosophically and strategically- and forget about the band-aid approach to the current system.

Money as an Economic Issue
For a time, the economic consequences of paper money may seem benign and even helpful, but are always disruptive to economic growth and prosperity.

Economic planners of the Keynesian-socialist type have always relished control over money creation in their efforts to regulate and plan the economy. They have no qualms with using this power to pursue their egalitarian dreams of wealth redistribution. That force and fraud are used to make the economic system supposedly fairer is of little concern to them.

There are also many conservatives who do not endorse central economic planning as those on the left do, but nevertheless concede this authority to the Federal Reserve to manipulate the economy through monetary policy. Only a small group of constitutionalists, libertarians, and Austrian free-market economists reject the notion that central planning, through interest-rate and money-supply manipulation, is a productive endeavor.

Many sincere politicians, bureaucrats, and bankers endorse the current system, not out of malice or greed, but because it’s the only system they have know. The principles of sound money and free market banking are not taught in our universities. The overwhelming consensus in Washington, as well as around the world, is that commodity money without a central bank is no longer practical or necessary. Be assured, though, that certain individuals who greatly benefit from a paper money system know exactly why the restraints that a commodities standard would have are unacceptable.

Though the economic consequences of paper money in the early stage affect lower-income and middle-class citizens, history shows that when the destruction of monetary value becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable. There’s good reason for all of us to be concerned about our monetary system and the future of the dollar.

Nations that live beyond their means must always pay for their extravagance. It’s easy to understand why future generations inherit a burden when the national debt piles up. This requires others to pay the interest and debts when they come due. The victims are never the recipients of the borrowed funds. But this is not exactly what happens when a country pays off its debt. The debt, in nominal terms, always goes up, and since it is still accepted by mainstream economists that just borrowing endlessly is not the road to permanent prosperity, real debt must be reduced. Depreciating the value of the dollar does that. If the dollar loses 10% of its value, the national debt of $6.5 trillion is reduced in real terms by $650 billion dollars. That’s a pretty neat trick and quite helpful- to the government.

That’s why the Fed screams about a coming deflation, so it can continue the devaluation of the dollar unabated. The politicians don’t mind, the bankers welcome the business activity, and the recipients of the funds passed out by Congress never complain. The greater the debt, the greater the need to inflate the currency, since debt cannot be the source of long-term wealth. Individuals and corporations who borrow too much eventually must cut back and pay off debt and start anew, but governments rarely do.

But where’s the hitch? This process, which seems to be a creative way of paying off debt, eventually undermines the capitalist structure of the economy, thus making it difficult to produce wealth, and that’s when the whole process comes to an end. This system causes many economic problems, but most of them stem from the Fed’s interference with the market rate of interest that it achieves through credit creation and printing money.

Nearly 100 years ago, Austrian economist Ludwig von Mises explained and predicted the failure of socialism. Without a pricing mechanism, the delicate balance between consumers and producers would be destroyed. Freely fluctuating prices provide vital information to the entrepreneur who is making key decisions on production. Without this information, major mistakes are made. A central planning bureaucrat cannot be a substitute for the law of supply and demand.

Though generally accepted by most modern economists and politicians, there is little hesitancy in accepting the omnipotent wisdom of the Federal Reserve to know the “price” of money- the interest rate- and its proper supply. For decades, and especially during the 1990s- when Chairman Greenspan was held in such high esteem, and no one dared question his judgment or the wisdom of the system- this process was allowed to run unimpeded by political or market restraints. Just as we must eventually pay for our perpetual deficits, continuous manipulation of interest and credit will also extract a payment.

Artificially low interest rates deceive investors into believing that rates are low because savings are high and represent funds not spent on consumption. When the Fed creates bank deposits out of thin air making loans available at below-market rates, mal-investment and overcapacity results, setting the stage for the next recession or depression. The easy credit policy is welcomed by many: stock-market investors, home builders, home buyers, congressional spendthrifts, bankers, and many other consumers who enjoy borrowing at low rates and not worrying about repayment. However, perpetual good times cannot come from a printing press or easy credit created by a Federal Reserve computer. The piper will demand payment, and the downturn in the business cycle will see to it. The downturn is locked into place by the artificial boom that everyone enjoys, despite the dreams that we have ushered in a “new economic era.” Let there be no doubt: the business cycle, the stagflation, the recessions, the depressions, and the inflations are not a result of capitalism and sound money, but rather are a direct result of paper money and a central bank that is incapable of managing it.

Our current monetary system makes it tempting for all parties, individuals, corporations, and government to go into debt. It encourages consumption over investment and production. Incentives to save are diminished by the Fed’s making new credit available to everyone and keeping interest rates on saving so low that few find it advisable to save for a rainy day. This is made worse by taxing interest earned on savings. It plays havoc with those who do save and want to live off their interest. The artificial rates may be 4, 5, or even 6% below the market rate, and the savers- many who are elderly and on fixed incomes- suffer unfairly at the hands of Alan Greenspan, who believes that resorting to money creation will solve our problems and give us perpetual prosperity.

Lowering interest rates at times, especially early in the stages of monetary debasement, will produce the desired effects and stimulate another boom-bust cycle. But eventually the distortions and imbalances between consumption and production, and the excessive debt, prevent the monetary stimulus from doing very much to boost the economy. Just look at what’s been happening in Japan for the last 12 years. When conditions get bad enough the only recourse will be to have major monetary reform to restore confidence in the system.

The two conditions that result from fiat money that are more likely to concern the people are inflation of prices and unemployment. Unfortunately, few realize these problems are directly related to our monetary system. Instead of demanding reforms, the chorus from both the right and left is for the Fed to do more of the same- only faster. If our problem stems from easy credit and interest-rate manipulation by the Fed, demanding more will not do much to help. Sadly, it will only make our problems worse.

Ironically, the more successful the money managers are at restoring growth or prolonging the boom with their monetary machinations, the greater are the distortions and imbalances in the economy. This means that when corrections are eventually forced upon us, they are much more painful and more people suffer with the correction lasting longer.

Today’s Conditions
Today’s economic conditions reflect a fiat monetary system held together by many tricks and luck over the past 30 years. The world has been awash in paper money since removal of the last vestige of the gold standard by Richard Nixon when he buried the Bretton Woods agreement- the gold exchange standard- on August 15, 1971. Since then we’ve been on a worldwide paper dollar standard. Quite possibly we are seeing the beginning of the end of that system. If so, tough times are ahead for the United States and the world economy.

A paper monetary standard means there are no restraints on the printing press or on federal deficits. In 1971, M3 was $776 billion; today it stands at $8.9 trillion, an 1100% increase. Our national debt in 1971 was $408 billion; today it stands at $6.8 trillion, a 1600% increase. Since that time, our dollar has lost almost 80% of its purchasing power. Common sense tells us that this process is not sustainable and something has to give. So far, no one in Washington seems interested.

Although dollar creation is ultimately the key to its value, many other factors play a part in its perceived value, such as: the strength of our economy, our political stability, our military power, the benefit of the dollar being the key reserve currency of the world, and the relative weakness of other nation’s economies and their currencies. For these reasons, the dollar has enjoyed a special place in the world economy. Increases in productivity have also helped to bestow undeserved trust in our economy with consumer prices, to some degree, being held in check and fooling the people, at the urging of the Fed, that “inflation” is not a problem. Trust is an important factor in how the dollar is perceived. Sound money encourages trust, but trust can come from these other sources as well. But when this trust is lost, which always occurs with paper money, the delayed adjustments can hit with a vengeance.

Following the breakdown of the Bretton Woods agreement, the world essentially accepted the dollar as a replacement for gold, to be held in reserve upon which even more monetary expansion could occur. It was a great arrangement that up until now seemed to make everyone happy.

We own the printing press and create as many dollars as we please. These dollars are used to buy federal debt. This allows our debt to be monetized and the spendthrift Congress, of course, finds this a delightful convenience and never complains. As the dollars circulate through our fractional reserve banking system, they expand many times over. With our excess dollars at home, our trading partners are only too happy to accept these dollars in order to sell us their products. Because our dollar is relatively strong compared to other currencies, we can buy foreign products at a discounted price. In other words, we get to create the world’s reserve currency at no cost, spend it overseas, and receive manufactured goods in return. Our excess dollars go abroad and other countries-especially Japan and China- are only too happy to loan them right back to us by buying our government and GSE debt. Up until now both sides have been happy with this arrangement.

But all good things must come to an end and this arrangement is ending. The process put us into a position of being a huge debtor nation, with our current account deficit of more than $600 billion per year now exceeding 5% of our GDP. We now owe foreigners more than any other nation ever owed in all of history, over $3 trillion.

A debt of this sort always ends by the currency of the debtor nation decreasing in value. And that’s what has started to happen with the dollar, although it still has a long way to go. Our free lunch cannot last. Printing money, buying foreign products, and selling foreign holders of dollars our debt ends when the foreign holders of this debt become concerned with the dollar’s future value.

Once this process starts, interest rates will rise. And in recent weeks, despite the frenetic effort of the Fed to keep interest rates low, they are actually rising instead. The official explanation is that this is due to an economic rebound with an increase in demand for loans. Yet a decrease in demand for our debt and reluctance to hold our dollars is a more likely cause. Only time will tell whether the economy rebounds to any significant degree, but one must be aware that rising interest rates and serious price inflation can also reflect a weak dollar and a weak economy. The stagflation of the 1970s baffled many conventional economists, but not the Austrian economists. Many other countries have in the past suffered from the extremes of inflation in an inflationary depression, and we are not immune from that happening here. Our monetary and fiscal policies are actually conducive to such a scenario.

In the short run, the current system gives us a free ride, our paper buys cheap goods from overseas, and foreigners risk all by financing our extravagance. But in the long run, we will surely pay for living beyond our means. Debt will be paid for one way or another. An inflated currency always comes back to haunt those who enjoyed the “benefits” of inflation. Although this process is extremely dangerous, many economists and politicians do not see it as a currency problem and are only too willing to find a villain to attack. Surprisingly the villain is often the foreigner who foolishly takes our paper for useful goods and accommodates us by loaning the proceeds back to us. It’s true that the system encourages exportation of jobs as we buy more and more foreign goods. But nobody understands the Fed role in this, so the cries go out to punish the competition with tariffs. Protectionism is a predictable consequence of paper- money inflation, just as is the impoverishment of an entire middle class. It should surprise no one that even in the boom phase of the 1990s, there were still many people who became poorer. Yet all we hear are calls for more government mischief to correct the problems with tariffs, increased welfare for the poor, increased unemployment benefits, deficit spending, and special interest tax reduction, none of which can solve the problems ingrained in a system that operates with paper money and a central bank.

If inflation were equitable and treated all classes the same, it would be less socially divisive. But while some see their incomes going up above the rate of inflation (movie stars, CEOs, stock brokers, speculators, professional athletes,) others see their incomes stagnate like lower-middle-income workers, retired people, and farmers. Likewise, the rise in the cost of living hurts the poor and middle class more than the wealthy. Because inflation treats certain groups unfairly, anger and envy are directed toward those who have benefited.

The long-term philosophic problem with this is that the central bank and the fiat monetary system are not blamed; instead free market capitalism is. This is what happened in the 1930s. The Keynesians, who grew to dominate economic thinking at the time, erroneously blamed the gold standard, balanced budgets, and capitalism instead of tax increases, tariffs, and Fed policy. This country cannot afford another attack on economic liberty similar to what followed the 1929 crash that ushered in the economic interventionism and inflationism which we have been saddled with ever since. These policies have brought us to the brink of another colossal economic downturn and we need to be prepared.

Big business and banking deserve our harsh criticism, but not because they are big or because they make a lot of money. Our criticism should come because of the special benefits they receive from a monetary system designed to assist the business class at the expense of the working class. Labor leader Samuel Gompers understood this and feared paper money and a central bank while arguing the case for gold. Since the monetary system is used to finance deficits that come from war expenditures, the military industrial complex is a strong supporter of the current monetary system.

Liberals foolishly believe that they can control the process and curtail the benefits going to corporations and banks by increasing the spending for welfare for the poor. But this never happens. Powerful financial special interests control the government spending process and throw only crumbs to the poor. The fallacy with this approach is that the advocates fail to see the harm done to the poor, with cost of living increases and job losses that are a natural consequence of monetary debasement. Therefore, even more liberal control over the spending process can never compensate for the great harm done to the economy and the poor by the Federal Reserve’s effort to manage an unmanageable fiat monetary system.

Economic intervention, financed by inflation, is high-stakes government. It provides the incentive for the big money to “invest” in gaining government control. The big money comes from those who have it- corporations and banking interests. That’s why literally billions of dollars are spent on elections and lobbying. The only way to restore equity is to change the primary function of government from economic planning and militarism to protecting liberty. Without money, the poor and middle class are disenfranchised since access for the most part requires money. Obviously, this is not a partisan issue since both major parties are controlled by wealthy special interests. Only the rhetoric is different.

Our current economic problems are directly related to the monetary excesses of three decades and the more recent efforts by the Federal Reserve to thwart the correction that the market is forcing upon us. Since 1998, there has been a sustained attack on corporate profits. Before that, profits and earnings were inflated and fictitious, with WorldCom and Enron being prime examples. In spite of the 13 rate cuts since 2001, economic growth has not been restored.

Paper money encourages speculation, excessive debt, and misdirected investments. The market, however, always moves in the direction of eliminating bad investments, liquidating debt, and reducing speculative excesses. What we have seen, especially since the stock market peak of early 2000, is a knock-down, drag-out battle between the Fed’s effort to avoid a recession, limit the recession, and stimulate growth with its only tool, money creation, while the market demands the elimination of bad investments and excess debt. The Fed was also motivated to save the stock market from collapsing, which in some ways they have been able to do. The market, in contrast, will insist on liquidation of unsustainable debt, removal of investment mistakes made over several decades, and a dramatic revaluation of the stock market. In this go-around, the Fed has pulled out all the stops and is more determined than ever, yet the market is saying that new and healthy growth cannot occur until a major cleansing of the system occurs. Does anyone think that tariffs and interest rates of 1% will encourage the rebuilding of our steel and textile industries anytime soon? Obviously, something more is needed.

The world central bankers are concerned with the lack of response to low interest rates and they have joined in a concerted effort to rescue the world economy through a policy of protecting the dollar’s role in the world economy, denying that inflation exists, and justifying unlimited expansion of the dollar money supply. To maintain confidence in the dollar, gold prices must be held in check. In the 1960s our government didn’t want a vote of no confidence in the dollar, and for a couple of decades, the price of gold was artificially held at $35 per ounce. That, of course, did not last.

In recent years, there has been a coordinated effort by the world central bankers to keep the gold price in check by dumping part of their large horde of gold into the market. This has worked to a degree, but just as it could not be sustained in the 1960s, until Nixon declared the Bretton Woods agreement dead in 1971, this effort will fail as well.

The market price of gold is important because it reflects the ultimate confidence in the dollar. An artificially low price for gold contributes to false confidence and when this is lost, more chaos ensues as the market adjusts for the delay.

Monetary policy today is designed to demonetize gold and guarantee for the first time that paper can serve as an adequate substitute in the hands of wise central bankers. Trust, then, has to be transferred from gold to the politicians and bureaucrats who are in charge of our monetary system. This fails to recognize the obvious reason that market participants throughout history have always preferred to deal with real assets, real money, rather than government paper. This contest between paper and honest money is of much greater significance than many realize. We should know the outcome of this struggle within the next decade.

Alan Greenspan, although once a strong advocate for the gold standard, now believes he knows what the outcome of this battle will be. Is it just wishful thinking on his part? In an answer to a question I asked before the Financial Services Committee in February 2003, Chairman Greenspan made an effort to convince me that paper money now works as well as gold: “I have been quite surprised, and I must say pleased, by the fact that central banks have been able to effectively simulate many of the characteristics of the gold standard by constraining the degree of finance in a manner which effectively brought down the general price levels.” Earlier, in December 2002, Mr. Greenspan spoke before the Economic Club of New York and addressed the same subject: “The record of the past 20 years appears to underscore the observation that, although pressures for excess issuance of fiat money are chronic, a prudent monetary policy maintained over a protracted period of time can contain the forces of inflation.” There are several problems with this optimistic assessment. First, efficient central bankers will never replace the invisible hand of a commodity monetary standard. Second, using government price indexes to measure the success of a managed fiat currency should not be reassuring. These indexes can be arbitrarily altered to imply a successful monetary policy. Also, price increases of consumer goods are not a litmus test for measuring the harm done by the money managers at the Fed. The development of overcapacity, excessive debt, and speculation still occur, even when prices happen to remain reasonably stable due to increases in productivity and technology. Chairman Greenspan makes his argument because he hopes he’s right that sound money is no longer necessary, and also because it’s an excuse to keep the inflation of the money supply going for as long as possible, hoping a miracle will restore sound growth to the economy. But that’s only a dream.

We are now faced with an economy that is far from robust and may get a lot worse before rebounding. If not now, the time will soon come when the conventional wisdom of the last 90 years, since the Fed was created, will have to be challenged. If the conditions have changed and the routine of fiscal and monetary stimulation don’t work, we better prepare ourselves for the aftermath of a failed dollar system, which will not be limited to the United States.

An interesting headline appeared in the New York Times on July 31, 2003, “Commodity Costs Soar, But Factories Don’t Bustle.” What is observed here is a sea change in attitude by investors shifting their investment funds and speculation into things of real value and out of financial areas, such as stocks and bonds. This shift shows that in spite of the most aggressive Fed policy in history in the past three years, the economy remains sluggish and interest rates are actually rising. What can the Fed do? If this trend continues, there’s little they can do. Not only do I believe this trend will continue, I believe it’s likely to accelerate. This policy plays havoc with our economy; reduces revenues, prompts increases in federal spending, increases in deficits and debt occur, and interest costs rise, compounding our budgetary woes.

The set of circumstances we face today are unique and quite different from all the other recessions the Federal Reserve has had to deal with. Generally, interest rates are raised to slow the economy and dampen price inflation. At the bottom of the cycle interest rates are lowered to stimulate the economy. But this time around, the recession came in spite of huge and significant interest rate reductions by the Fed. This aggressive policy did not prevent the recession as was hoped; so far it has not produced the desired recovery. Now we’re at the bottom of the cycle and interest rates not only can’t be lowered, they are rising. This is a unique and dangerous combination of events. This set of circumstances can only occur with fiat money and indicates that further manipulation of the money supply and interest rates by the Fed will have little if any effect.

The odds aren’t very good that the Fed will adopt a policy of not inflating the money supply because of some very painful consequences that would result. Also there would be a need to remove the pressure on the Fed to accommodate the big spenders in Congress. Since there are essentially only two groups that have any influence on spending levels, big-government liberals and big- government conservatives, that’s not about to happen. Poverty is going to worsen due to our monetary and fiscal policies, so spending on the war on poverty will accelerate. Our obsession with policing the world, nation building, and pre-emptive war are not likely to soon go away, since both Republican and Democratic leaders endorse them. Instead, the cost of defending the American empire is going to accelerate. A country that is getting poorer cannot pay these bills with higher taxation nor can they find enough excess funds for the people to loan to the government. The only recourse is for the Federal Reserve to accommodate and monetize the federal debt, and that, of course, is inflation.

It’s now admitted that the deficit is out of control, with next year’s deficit reaching over one-half trillion dollars, not counting the billions borrowed from “trust funds” like Social Security. I’m sticking to my prediction that within a few years the national debt will increase over $1 trillion in one fiscal year. So far, so good, no big market reactions, the dollar is holding its own and the administration and congressional leaders are not alarmed. But they ought to be.

I agree, it would be politically tough to bite the bullet and deal with our extravagance, both fiscal and monetary, but the repercussions here at home from a loss of confidence in the dollar throughout the world will not be a pretty sight to behold. I don’t see any way we are going to avoid the crisis.

We do have some options to minimize the suffering. If we decided to, we could permit some alternatives to the current system of money and banking we have today.

Already, we took a big step in this direction. Gold was illegal to own between 1933 and 1976. Today millions of Americans do own some gold.

Gold contracts are legal, but a settlement of any dispute is always in Federal Reserve notes. This makes gold contracts of limited value.

For gold to be an alternative to Federal Reserve notes, taxes on any transactions in gold must be removed, both sales and capital gains.

Holding gold should be permitted in any pension fund, just as dollars are permitted in a checking account of these funds.

Repeal of all legal tender laws is a must. Sound money never requires the force of legal tender laws. Only paper money requires such laws.

These proposals, even if put in place tomorrow, would not solve all the problems we face. It would though, legalize freedom of choice in money, and many who worry about having their savings wiped out by a depreciating dollar would at least have another option. This option would ease some of the difficulties that are surely to come from runaway deficits in a weakening economy with skyrocketing inflation.

Curbing the scope of government and limiting its size to that prescribed in the Constitution is the goal that we should seek. But political reality makes this option available to us only after a national bankruptcy has occurred. We need not face that catastrophe. What we need to do is to strictly limit the power of government to meddle in our economy and our personal affairs, and stay out of the internal affairs of other nations.

Conclusion
It’s no coincidence that during the period following the establishment of the Federal Reserve and the elimination of the gold standard, a huge growth in the size of the federal government and its debt occurred. Believers in big government, whether on the left or right, vociferously reject the constraints on government growth that gold demands. Liberty is virtually impossible to protect when the people allow their government to print money at will. Inevitably, the left will demand more economic interventionism, the right more militarism and empire building. Both sides, either inadvertently or deliberately, will foster corporatism. Those whose greatest interest is in liberty and self-reliance are lost in the shuffle. Though left and right have different goals and serve different special-interest groups, they are only too willing to compromise and support each other’s programs.

If unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny- a consequence of which the Founders were well aware. For 90 years we have lived with a central bank, with the last 32 years absent of any restraint on money creation. The longer the process lasts, the faster the printing presses have to run in an effort to maintain stability. They are currently running at record rate. It was predictable and is understandable that our national debt is now expanding at a record rate.

The panicky effort of the Fed to stimulate economic growth does produce what it considers favorable economic reports, recently citing second quarter growth this year at 3.1%. But in the footnotes, we find that military spending—almost all of which is overseas- was up an astounding 46%. This, of course, represents deficit spending financed by the Federal Reserve’s printing press. In the same quarter, after-tax corporate profits fell 3.4%. This is hardly a reassuring report on the health of our economy and merely reflects the bankruptcy of current economic policy.

Real economic growth won’t return until confidence in the entire system is restored. And that is impossible as long as it depends on the politicians not spending too much money and the Federal Reserve limiting its propensity to inflate our way to prosperity. Only sound money and limited government can do that.

It doesn't appear the increase in margin debt is due to shorting. Found this in my rummaging and it looks like short interest remain just about unchanged from June to July. Yes, there is some increase in short interest since the beginning of the year, but nothing to justify this increase in margin debt. It could be a good indicator for what is to come, even if some of the amount is from shorting. In April, short interest rised, while margin debt decreased as well.

Edited to reflect August information I found... a somewhat sizable decrese in short interest.. will be interesting to see what margin debt is in August.

The NASDAQ Stock Market Announces Open Short- Interest Positions In NASDAQ Stocks For August 2003
New York, N.Y.—As of mid-August, short interest in 2,760 NASDAQ National Market® securities totaled 4,253,616,217 shares compared with 4,535,616,667 shares in 2,776 National Market issues for the month of July.

The August short interest represents 2.63 days' average daily NASDAQ National Market share volume for the reporting period, compared with 2.69* days in July. Short interest in 712 securities on The NASDAQ SmallCap MarketSM totaled 150,856,007 shares for August, compared with 147,880,403 shares in 728 securities for the month of July. This represents 1.14 days average daily volume, compared with last month's figure of 0.99* days.

In summary, short interest in all 3,472 NASDAQ® securities totaled 4,404,472,224 shares for August, compared with 3,504 issues and 4,683,497,070 shares in July. This is 2.51 days' average daily volume, compared with last month's average of 2.55* days.

The open short-interest positions reported for each NASDAQ security reflect the total number of shares sold short by all broker/dealers regardless of their exchange affiliations. A short sale is generally understood to mean the sale of a security that the seller does not own or any sale that is consummated by the delivery of a security borrowed by or for the account of the seller.

The monthly NASDAQ short-interest figures are current as of the 15th of the month and are released to the media after the market close on the seventh business day following that date. The figures this month include all short-interest positions reported July 16 through August 12 and settled as of August 15, 2003.

The total NASDAQ short positions for the preceding 13 months and current month follow:



Settlement Date Total Short Interest Number of
Securities
August 15, 2002 4,105,634,585 3,758
September 13, 2002 4,108,308,913 3,737
October 15, 2002 4,152,454,217 3,623
November 15, 2002 4,062,892,810 3,670
December 13, 2002 4,043,183,358 3,666
January 15, 2003 4,053,387,295 3,686
February 14, 2003 4,190,132,904 3,668
March 14, 2003 4,335,164,375 3,585
April 15, 2003 4,456,502,765 3,592
May 15, 2003 4,386,454,785 3,566
June 13, 2003 4,604,557,148 3,569
July 15, 2003 4,683,497,070 3,504
August 15, 2003 4,404,472,224 3,472


For more information on NASDAQ Short-Interest positions, visit the www.nasdaqtrader.com Web site.

*Days-to-cover figures from June have been updated to correct a minor irregularity in the calculations.




http://www.nasdaqnews.com/news/pr2003/ne_section03_063.html

Vote ? Depends on if the illuminati really exist.

If you detect the devil's hand in current events, you may be closer to the truth than you think.

A woman who was raised in the Illuminati cult describes a powerful secret organization comprising one per cent of the U.S. population that has infiltrated all social institutions and is covertly preparing a military takeover. Her revelations cast the "war on terror" and "homeland security" in their true light.

"Svali" is the pseudonym of the woman, age 45, who was a mind "programmer" for the cult until 1996. She was the sixth head trainer in the San Diego branch and had 30 trainers reporting to her. She has risked her life to warn humanity of the Illuminati's covert power and agenda.

She describes a sadistic Satanic cult led by the richest and most powerful people in the world. It is largely homosexual and pedophile, practises animal sacrifice and ritual murder. It works "hand in glove" with the CIA and Freemasonry. It is Aryan supremacist (German is spoken at the top) but welcomes Jewish apostates. It controls the world traffic in drugs, guns, pornography and prostitution. It may be the hand behind political assassination, and "terrorism," including Sept. 11, the Maryland sniper and the Bali bomb blast.

It has infiltrated government on a local, state and national level; education and financial institutions; religion and the media. Based in Europe, it plans a "world order" that will make its earlier attempts, Nazism and Communism, look like picnics. One other detail: these people are not happy.

Svali's courageous testimony explains why our children are no longer taught civic values, why they are being habituated to homosexuality and violence, and why our "culture" is descending into nihilism and sexual depravity. It raises the possibility that George W. Bush and his Administration are Illuminists and much of the world "elite" is engaged in a mind-boggling criminal conspiracy.

In March 2000, Svali began writing a monthly column for survivors of Illuminati ritual abuse at Suite101.com. In December 2000, H.J. Springer, the editor of CentrExNews,com contacted Svali and conducted an extended 18-part interview with her by email, which is reproduced on line and is copyrighted.

"I am convinced she is the real McCoy," Springer wrote to me. "I have personally relayed numerous email messages to her from other members -- ritually abused, brainwashed, raped, sexually abused people & you name it -- some of them confirming to me her story. So I have absolutely no doubt that Svali has been part of the Illuminati since childhood."

I also trust Svali's testimony because it confirms my intuition and intensive research. Everything fits: from the dead hand that seems to suppress humanity to why Clinton gave secret technology to the Chinese, to persistent reports of concentration camps in the US. It explains why people I know behave in a conspiratorial way. I thank Svali for giving me a frightening but incredible key to understanding the world.

A friend urged me to beware of a hoax and offered to help confirm Svali's personal story. I accepted. I invite you to read her entire testimony and make up your own mind. Read "Part One" to "Part 18" first, starting at the middle of the list and working up.

With their permission, here are some highlights of Svali's correspondence with CentrExnews.com's H.J. Springer. I have also included material from her article "Are the Illuminati Taking Over the World?"

Pervasive Presence

Svali: "The Illuminati are present in every major metropolitan centre in the United States. The Illuminati believe in controlling an area through its: banks and financial institutions (guess how many sit on banking boards? You'd be surprised) Local government: guess how many get elected to local city councils? Law: children are encouraged to go to law school and medical school. Media: others are encouraged to go to journalism school, and members help fund local papers.

Beliefs

Svali: "The Illuminati is a group that practices a form of faith known as "enlightenment". It is Luciferian, and they teach their followers that their roots go back to the ancient mystery religions of Babylon, Egypt, and Celtic druidism. They have taken what they consider the "best" of each, the foundational practices, and joined them together into a strongly occult discipline. Many groups at the local level worship ancient deities such as "El", "Baal", and "Ashtarte", as well as "Isis and Osiris" and "Set".... I do know that these people teach and practice evil."

Weishaupt

Svali: "Weishaupt did not create the Illuminati, they chose him as a figurehead and told him what to write about. The financiers, dating back to the bankers during the times of the Templar Knights who financed the early kings in Europe, created the Illuminati. Weishaupt was their "go fer", who did their bidding."

Military Takeover

Svali: "Briefly, each region of the United States has "nerve centres" or power bases for regional activity. The United States has been divided up into seven major geographical regions. Each region has localities within it that contain military compounds and bases that are hidden in remote, isolated areas or on large private estates.

These bases are used intermittently to teach and train generational Illuminati in military techniques, hand- to- hand combat, crowd control, use of arms, and all aspects of military warfare. Why? Because the Illuminists believe that our government, as we know it, as well as the governments of most nations around the world, are destined to collapse. These will be planned collapses, and they will occur in the following ways:

The Illuminati has planned first for a financial collapse that will make the great depression look like a picnic. This will occur through the manoeuvring of the great banks and financial institutions of the world, through stock manipulation, and interest rate changes. Most people will be indebted to the federal government through bank and credit card debt, etc. The governments will recall all debts immediately, but most people will be unable to pay and will be bankrupted. This will cause generalized financial panic, which will occur simultaneously worldwide, as the Illuminists firmly believe in controlling people through finances.

Doesn't sound pleasant, does it? I don't know the exact time frame for all of this, and wouldn't want to even guess. The good news is that if a person is debt-free, owes nothing to the government or credit debt, and can live self sufficiently, they may do better than others. I would invest in gold, not stocks, if I had the income. Gold will once again be the world standard, and dollars will be pretty useless (remember after the Civil War? Our money will be worth about what confederate money was after the collapse).

Next there will be a military takeover, region by region, as the government declares a state of emergency and martial law. People will have panicked, there will be an anarchical state in most localities, and the government will justify its move as being necessary to control panicked citizens. The cult trained military leaders and people under their direction will use arms as well as crowd control techniques to implement this new state of affairs. ...Military bases will be set up, in each locality (actually, they are already here, but are covert). In the next few years, they will go above ground and be revealed. Each locality will have regional bases and leaders to which they are accountable. The hierarchy will closely reflect the current covert hierarchy.

About five years ago, when I left the Illuminati, approximately 1% of the US population was either part of the Illuminati, sympathetic to it, or a victim of Mind Control (and therefore considered useable). While this may not sound like many, imagine 1% of the population highly trained in the use of armaments, crowd control, psychological and behavioral techniques, armed with weapons and linked to paramilitary groups."

Leadership

Svali: "The national council [consists of] influential bankers with OLD money such as: The Rockefellers, the Mellon family, the Carnegie family, the Rothschild family etc. I know I shouldn't name names, but I will.

The "Supreme World Council" is already set up as a prototype of the one that will rule when the NWO comes into being. It meets on a regular basis to discuss finances, direction, policy, etc. and to problem-solve difficulties that come up. Once again, these leaders are heads in the financial world, OLD banking money. The Rothschild family in England, and in France, have ruling seats. A descendant of the Hapsburg dynasty has a generational seat. A descendant of the ruling families of England and France have a generational seat. The Rockefeller family in the US holds a seat.

This is one reason that the Illuminati have been pretty "untouchable" over the years. The ruling members are very, very, very wealthy and powerful. I hope this information is helpful. How do I know this? I was on a local leadership council (a head trainer), but I talked to those on regional. Also, every Illuminati child is taught who their "leaders" are, and told to take an oath of allegiance to them and the "New Order to come"."

Royalty

Svali: "The Illuminati leadership state that they are descended from royal bloodlines, as well as unbroken occult heritage.

See, there were two definitions of "royalty" used. Open royalty that is currently seen now, and "hidden royalty" of royal lineage and extreme occult power. Sometimes the two were concurrent, such as with the Prince of Wales.

I never thought of which country/line held the most power, since I was just a peon busily doing my job. But my understanding was: The Hanoverian / Hapsburg descendants rule in Germany over the Bruderheist. They are considered one of the strongest lines for occult as well. The British line is just under them, with the royal family. Definitely, they rule the UK branch under the Rothschilds in the occult realm, even though parliament rules the country openly.

In France, again, descendants of the royal families are also in power in the occult realm, but the French Rothschilds hold the reigns over all of them."

Rank of the US

Svali: "The U.S. is considered lower, and younger, than the European branches. ...Germany, France, and the UK form a triumvirate that rules in the European cult. The USSR is considered important, and has the strongest military groups. The USSR has been promised fourth position in the New World Order, BEFORE the role the U.S. would have, because the USSR has been more helpful and cooperative over the years with furthering the agenda.

The descendants of the former ruling families there are also involved in the occult leadership, along with the newer ones. There is no Marxism in the cult. China will be ranked after the USSR, then the U.S. But a lot of the current U.S. leadership will be in Europe when the change occurs, and many have homes there. They will be "changing nationalities" overnight, as it were. This is the little that I do remember. Wish I had been a better student of this stuff, but I was too busy trying to stay alive when I was in it.

Russia will be the military base and powerhouse of the group, since their military commanders (Illuminist) are considered the best in the world, and very, very disciplined. China, because of its roots in oriental occultism, and its large population, will also be considered a higher power than the US. But again, the real power will reside in Europe, according to what I was taught when part of the group.

The United Nations

Svali: "The UN was created early in this century in order to help overcome one of the biggest barriers to a one-world government ...That barrier is the one of nationalism, or pride in one's country. This is why it was NOT a popular concept when first introduced, it took years of country bashing in the media and the destruction of any sense of national pride by a (not so subtle) media campaign over the years.

The UN is a preparation, but it is not the real power in the world, and will be relatively unimportant when the NWO comes into being. The real councils will then step forward. But as a means of getting the general public to accept the idea of a "global community" and the "one world community" the UN is a stepping stone in their working towards the NWO."

Israel

Svali: "The conflict in the Middle East is only to the advantage of the Illuminists. They HATE Israel, and hope one day to see it destroyed, and are biding their time. One of the olive branches offered by the UN when it takes over is that they will prevent war in the Middle East, and this will be greeted with joy by many.

At the same time, the Illuminati covertly supply guns and funds to BOTH sides to keep the conflict fuelled. They are very duplicitous people. They used to funnel guns through the USSR to Palestine, for example, in the name of promoting "friendliness" between the USSR and this state and other Arab nations. Then, the US Illuminists would help funnel guns to Israel, for the same reason.

These people love the game of chess, and see warfare between nations as creating an order out of chaos. The USSR is going to get stronger again. It has too strong a military both openly, and covertly (ALL Illuminati military trainers have visited Russia to learn from them) to sit quietly and quiesciently to the side. In the NWO, they will be stronger than us."

Is the Illuminati a JEWISH conspiracy?

Svali: "Absolutely not. In fact, Hitler and his people (especially Himmler and Goebbels) were top Illuminists. The Illuminati are racist in the extreme, and as a child, I was forced to play "concentration camp" both on my farm in Virginia, and also in Europe in isolated camps in Germany.

The Jews historically fought against the occult (see Deuteronomy and the Old Testament for how God through the Jewish people tried to cleanse the land of the occult groups that were operating there, such as those who worshipped Baal, Ashtarte, and other Canaanite and Babylonian gods.

(from an email to Henry Makow) Yes, there are some very powerful Jewish people in this group. For instance, the Rothschild family literally runs the financial empire in Europe (and indirectly the States), and are a well-known Jewish family. I have also known people whose parents were Jewish diamond merchants in the group, and at every level. But to rise to power in the Illuminati, a Jewish person at night would be forced to renounce their faith, and to give their first allegiance to Lucifer and the beliefs of the Illuminati. In return for this betrayal, they believe that power (financial) and rewards come; and in one sense they do, but at too high a price (losing their eternal soul).

The nazi/concentration camp mentality is very strong, though, and I was told that Hitler, Himmler, Goebel, and others were high-ranking German members of the group (Himmler was higher than the other two), and Mengele their paid puppet as well, who later worked as a high trainer of the American branch between his periods of hiding in South America. They honestly believed that they were acting as agents of their 'gods' to exterminate the Jewish race, and I am so, so sorry that this group has enacted so many horrors on the earth (and so, so glad that I left it).

I hope this helps you. I have always wondered this, though, why some of the highest ranking financial families in the group (baron Rothschild of France is one of the 13 European lords, or "kings" that run the group in Europe, and sits on the World Council) are Jewish, yet the group espouses hatred of their own race."

ARE THEY RACIST?

Svali: "Lots of Illuminists have Fourth Reich programming inside. The Illuminati are racist, and have a very "Aryan" outlook. They believe strongly in the rule of the "pure" and "intelligent" by their definitions, and in their ceremonies, there will occasionally be minorities killed in ceremonies.

They are trying to breed a "genetically superior" race to rule, with their children and descendants. They are also followers of Plato's Republic, and believe that they will be the ones to usher in this "Utopian" rule with the NWO in their opinion. In their Utopia, the intelligentsia will rule, and the sheep like masses will follow their leaders (that is their view of the world; that the occult leaders are "enlightened' and intelligent, while the average person is a "sheep" to be led by the nose)."

FREEMASONRY

Svali: "The Freemasons and the Illuminati are hand in glove. I don't care if this steps on any toes, it's a fact. The Masonic temple at Alexandria, Virginia (the city itself was named after Alexandria, Egypt, and is a hotbed of Illuminati activity) is a centre in the Washington, DC area for Illuminati scholarship and teaching. I was taken there at intervals for testing, to step up a level, for scholarship, and high ceremonies. The leaders in this Masonic group were also Illuminists.

This has been true of every large city I have lived in. The top Freemasons were also top Illuminists. My maternal grandparents were both high ranking Masons in the city of Pittsburgh, Pa. (president of the Eastern Star and 33rd degree Mason) and they both were also leaders in the Illuminati in that area.

Are all Masons Illuminati? No, especially at the lower levels, I believe they know nothing of the practices that occur in the middle of the night in the larger temples. Many are probably fine businessmen and Christians. But I have never known a 32 degree or above who wasn't Illuminati, and the group helped create Freemasonry as a "front" for their activities."

CIA FBI are all infiltrated. So are Mormons etc.

Svali: "Many of the administrators and directors at the FBI are also Illuminists. The CIA helped bring over German scientists after WWII. Many of these were also Illuminati leaders in their own country, and they were welcomed with open arms by the U.S. group. They also funnelled all information they were learning to the Illuminati.

The Mormons affiliated years ago in a meeting with Illuminati leadership in the 1950s. The same with the Jehovah's Witnesses."

The Cold War

Svali:"Russia was never really a threat to us. Marxism was funded by the Illuminati, and espoused as a counterbalance to capitalism. The Illluminati believe strongly in balancing opposing forces, in the pull between opposites. They see history as a complex chess game, and they will fund one side, then another, while ultimately out of the chaos and division ..., they are laughing because they are ultimately beyond political parties. A top western financier will secretly meet with an eastern or Russian "adversary" during those years, and have a good laugh at how the "sheep" were being deluded. I am sharing here what I was taught, and also observed.

They are truly an international group, and the group's agenda supersedes any nationalistic feelings. There is also a lot of trading back and forth of members in these groups. A Russian trainer might come to the US for awhile, complete a job, then go back, or vice-versa."

Assassin Training

Svali: "Here is how it is done (how it was done to me): [1] When the child is 2 years old, place them in a metal cage with electrodes attached. Shock the child severely.
[2] Take the child out, and place a kitten in its hands. Tell the child to wring the kitten's neck. The child will cry and refuse.
[3] Put the child into the cage, and shock them until they are dazed and cannot scream any more.
[4] Take the child out, and tell them again to wring the kitten's neck. This time the child will shake all over, cry, but do it, afraid of the torture. The child will then go into the corner and vomit afterwards, while the adult praises them for "doing such a good job".

This is the first step. The animals get bigger over time, as the child gets older. They will be forced to kill an infant at some point, either a set up or VR, or in reality. They will be taught by age 9 to put together a gun, to aim, and fire on target and on command. They will then practice on realistic manikins. They will then practice on animals. They will then practice on "expendables" or in VR. They will be highly praised if they do well, and tortured if they don't comply.

The older the child or teen, the more advanced the training. By age 15, most children will also be forced to do hand to hand combat in front of spectators (high people who come to watch the "games" much as the ancient gladiators performed). These matches are rarely done to the death, usually until one child goes down. They use every type of weapon imaginable, and learn to fight for their lives. If a child loses a fight, they are heavily punished by their trainer, who loses "face". If they win, they are again praised for being "strong' and adept with weapons. By the time they are 21, they are well trained combat/killing machines with command codes to kill and they have been tested over and over to prove that they WILL obey on command. This is how children in the German Illuminati are brought up, I went through it myself."

Trust in Family

Svali: "They tell their children as they are torturing them, "I am doing this because I love you." To them, the greatest love is to make a child strong, and fit to lead or to move higher in the group, by whatever means it takes.

If a leader sees a child, and wants it as a prostitute, the loving parents will give it away, happy that their child will rise in status. Also, again, they view betrayal as the greatest good. They will do set up after set up to teach their children to never openly trust others.

I remember hundreds of agonizing set ups and betrayals, and hearing when I was betrayed or wounded, "And such is the heart of man." Those doing this to me thought they were teaching me something of value, that would help me. And because of the vicious and political nature of the group, in one sense they were right; the naive get stepped on and wounded. I have known parents who tried to spare their children some of this out of love, but often they were overruled by other family members, who viewed these parents as "weak" and "unfit" to teach their child."

Morale

Svali: "Most of them are wounded, abused victims, who don't realize that it is possible to leave the group. There is a lot of discontent in the ranks, and there would be a mass exodus if the members believed it were really possible to get out (and live). Many of the trainers I knew (I know, wicked, torturing pedophiles) were NOT happy with what they did. They would whisper quietly, or give a look, to show that they disagreed with what they had to do. They would resignedly do their jobs, in the hope of advancement.

Know what one of the biggest carrots offered to those who advance up in the group is? That you don't have to hurt people anymore, and that you can't be abused (it's true: only those higher than you in the group can abuse you, so everyone wants to move up, where the pool of candidates becomes smaller). Of course, people can choose to abuse anyone beneath them, and that motivates.

The Illuminati are a very political and back stabbing group, a "dog eat dog" mentality; everyone wants to move up. These are NOT nice people and they use and manipulate others viciously. They cut their eyeteeth on status, power, and money.

They never openly disclose their agenda, or their cult activities, as often they are amnesic to them. These are well-respected, "Christian" appearing business leaders in the community. The image in the community is all-important to an Illuminist; they will do anything to maintain a normal, respected facade, and DESPISE exposure. ....

None of the Illuminists that I have known, had unkind, or evil appearing, persona in their daytime lives, although some were dysfunctional, such as being alcoholics. The dissociation that drives the Illuminists is their greatest cover ... Many, if not most, of these people are completely unaware of the great evil that they are involved in, during the night."

TV

Also, remember those studies that stated that "TV violence doesn't affect children's behaviour" years ago? Guess who funded them? They are a bunch of bullcrud. What a person watches DOES influence them, and this is well known by the behaviourists in the group. In fact, they know that TV is a tool that they purposely use to influence "the masses". It cannot create a total personality change in the average citizen, but it can desensitize us increasingly to violence, pornography and the occult, and influence the perceptions of young children.

Rock Music

I believe that Brittany Spears, Eminem, and others are being used by them to sing lyrics they like (ever notice that he wears a Neo-Nazi look and sings hate lyrics? This is NOT by chance). In fact, many of the top pop singers come from an internship with the "Mickey Mouse club" (yep, good old Walt the Illuminist's Empire) and I believe they are offered stardom in exchange for allegiance or mind control.

How many lyrics advocate suicide, violence, despair, or New Age spirituality in pop/rock today? Or just get a copy of the words and read (but be aware that many are possibly triggering to survivors of mind control).

Illuminati Weaknesses

Svali: "1. Their arrogance (I think I mentioned this before) is their weakness. These people think they are untouchable, and this could make them careless.

2. If by a miracle, enough people took this SERIOUSLY and started organizing in some way to stop the Illuminati take over, with prayer and God's guidance, perhaps they could be stopped. I hope so, with all of my heart.

3. Stopping pornography and child prostitution and drug smuggling and gun running would take out a huge chunk of their profits. Maybe they would slow down. But honestly, stopping the above would be as difficult as stopping the group."

Public's Denial Mechanism

Svali: The evidence is there, but in my opinion, the average person does NOT want to know, and even when confronted with it, will look the other way.

The Franklin case is a point. How much evidence has come out? Or the MK-Ultra documents that have been declassified, shown as real, and people ignore it.

Okay, I'll get off my soapbox. But I believe that the media that downplays ritual abuse is feeding into a deep need in the average person to NOT know the reality. In fact, how can a person face the fact of great evil in mankind, unless they have either a strong faith in God, or are faced with insurmountable evidence? We as human beings want to believe the BEST of our race, not the worst, IMHO.

I really don't believe people will do anything about the Illuminati even if they know. Sorry for the cynicism, but it is based on a lifetime of experience.

The Illuminists don't care who prints this stuff, or if they are "exposed" because they are counting on the majority not believing it, having done a pretty good job with a media blitz campaign (seen any articles in Newsweek or Time lately that addresses this other than as a laughable conspiracy theory? Guess who owns Time-Warner?).

I have heard them laughing about this very thing in leadership meetings five years ago, and I doubt their attitude has changed much since then. If people DID believe this, if action could be taken, then I would be very surprised and quite happy."

"Svali" is a registered nurse and freelance writer living in Texas.

I tend to agree. In my head, the volume is another indication. You almost have to go back to the middle of 2000 to see volume this low on the dow jones industrial average. Everyone's afraid to sell, and nobody wants to buy. Every selloff is bought into, but volume remains downright pathetic for what some here think is a new bull market.

Same goes for the nasdaq. The higher volume due to the garbage stocks hitting their highs in july made me think we had topped, but now the volume is just pathetic, and the garbage stocks you would associate with moves in the nasdaq like this, are just not participating. It seems to be the largest stocks moving this market right now, and many seem to be moving in tandem.

Insiders are selling at a fantastic rate, and the economic data, despite the hype of CNBC remains mixed. The numbers are often released strong, and quietly revised weaker the next week or month.

I stand by my prediction that this economy will be coming back down to recession territory and things could be quite serious. Technical analysis be damned. The refi money and tax credit money has had it's effect, dried up, and now what do we have.. government spending to raise up that GDP number?

Always a good time to play the market though.. seems to be dangerous to be short or long any significant period of time right now though.. dipping my fingers into the precious metals, since I don't daytrade, generally buy and hold for days to as much as a month or two on stocks.

VERY bullish on silver, bullish on gold, commodities in general.


"The big winners would be those folks wise enough to own "things" instead of fiat money - real estate, gold, and other long term assets"


My thinking exactly.. whether we see a depression, currency devalution, or downright hyperinflation, I don't intend to be stuck with money in a bank account. I want to buy a house while the dollar is strong, own physical silver as well, then use the weakness in the currency and the strength in silver to pay that house off, one asset purchased at a fixed price with a fixed obligation for payment being paid off by another asset purchased at a fixed price free to move with market conditions... the silver I own should be more then enough to cover costs. (only 22 years old so I don't own a house yet ;) )

You beat me by 4 days. I'm calling a top now.. last week's surge to 9500 was it. I'm also calling a bottom in the $vix, and think the upward move in volitility will now start, although it doesn't necessarily have to be quick.

Didier Sornette maintains his predictions as of August 16th.. updated this morning. I take a look at this one occasionally to see how his predictions pan out... so far he's pretty accurate... according to him, the uptrend in the $VIX and the downtrend of the dow should begin within a month depending on which graph you look at.

http://www.ess.ucla.edu/faculty/sornette/prediction/index.asp#prediction

well we didn't top yet so whoever said that was correct, but now the real question.. what kind of top will we have? A bowl shaped top, a blowoff top where we surge hundreds of points intraday then fall back to perhaps form a head shoulders formation in the coming months, or perhaps one more unexpected where we continue drifting along slowly upward as someone keeps buying stock futures on dips, then suddenly we start to crater... I guess time will tell.

I just post them as I find them... I'm long and taking advantage of this rally on the small cap garbage myself... now taking more of a turn towards precious metals stocks as I believe the bulk of the rally is behind us and we are in for some rough times once the bubbles burst and greenspan loses control. What I would like to see is some blowoff top on low volume where we're up 200-300 intraday on the dow and 50-70 on the nasdaq, followed by high volume selling perhaps intraday or the next day. Could happen if joe investor thinks there's no technical resistance once we break to new highs, or will we just drag along up 30 points a day as greenspan or whoever continues buying the futures on dips.. guess we'll wait and see.

Today's WrapUp by Mike Hartman 08.20.2003 Mon Tue Wed Thu Fri Archive


The Dow Struggles to Hang On

The bellwether index for stocks in the USA, the Dow Jones Industrial Average, has struggled in the red all day long, but continues to show resilience to bad news. The Dow desperately clings to the gains of the War Rally, refusing to break down as Hewlett-Packard missed their sales and earnings target for the second quarter. HPQ shares are being punished today by a solid 10% to below $20.00 per share after yesterday’s report. There is lots of competition in the technology sectors which is putting a squeeze on corporate margins. There is very little pricing power for manufacturers to make a profit with companies like Dell Computer slashing its prices on certain business and consumer products by as much as 22%. Dell shares were off by $.54 to $32.28 at the close.

Also in the news today, R.J. Reynolds Tobacco has told employees that they could lose their jobs as early as next month. RJR warned last month that its profit and sales have fallen sharply from year-ago levels and has also warned that their earnings could fall below projections for the full year forecast. On the brighter side, shares of Petco Animal Supplies (PETC) gapped up for a gain of 14% today adding $3.41 to close at $27.94. Petco reported earnings of $0.25 per share versus $0.17 a year ago and raised its outlook for the full fiscal year.

Overall for the day, the Dow Industrials fell 31 points to close at 9,397, the NASDAQ Composite finished flat for the day at 1,760 and the S&P 500 is still flirting with the 1,000 level to close the day at 1,000.30, a loss of two points. It seems to me that tensions are running very high. Investors are anxious to get some definitive direction out of stocks. We’re still in no-man’s land to see if stocks break lower, or gather a base to break-out of the current very narrow trading range.

Endurance Test for the Bears

If you are in the bear camp for equities, it has been a grueling ordeal to watch the indices pulled higher in the futures pits. I watched it happen three times yesterday and the same garbage today after the gap–down open, and again in the last thirty minutes of trading. Frankly, I almost got frustrated enough today to pull my short positions, but I’m going to stay the course. This stock market has no substance. Pro-forma earnings are now outpacing GAAP earnings by a full 60% according to Dresdner Kleinwort Wasserstein Research. Pro-forma earnings are a joke! Rather than watch the earnings numbers, it makes more sense to watch the Fed repo numbers (Federal Reserve Repurchase Agreements). According to Mike Bolser of GATA the Fed repo pool grew by $5 billion yesterday bringing the total to $36.25 billion. Above $30 billion the repo pool has an “uplifting” effect on the broad stock market, and it looks like the Feds do not want to see this market go down. Please excuse me, but I’m a bit nauseated by capitalism and free markets. Enough said. The market will win in the end. It always has.

To sum up a few of the extremes that we see today, I have extracted my ten favorite ALL TIME RECORDS from capitalstool.com. They are as follows:

* Ratio of insider selling vs. buying: 32 to 1. An all time record.
* Bullish Percent divided by Fear Gauges: All time record.
* Number of stocks trading above 200-day: Over 90% for 2 ½ months. New record.
* Money supply: All time record.
* Gold sold short or leased out: All time record.
* Number of penny stocks up 50%+: All time record.
* Trading volume as a % of GDP: All time record.
* Number of companies “tapping the bond market” for new funds: All time record.
* Number of phony appraisals and stated incomes on mortgage apps.: New record.
* Level of emotional hysteria, confusion, and bewilderment among investors.
(You decide if the last one is an “All Time High!”)

Inflation is Coming

Treasury bonds and notes sold-off today supposedly in fear of good economic reports that are due out tomorrow. New claims for unemployment benefits are expected to remain below 400,000 and the numbers from regional manufacturing are expected to improve. With the expectations of further improvement in the economy, the 30-year bond fell to 106 22/32, down 21/32 or 0.6% to yield 5.29% and the 10-year note fell 20/32 to yield 4.45%. The spinsters on Wall Street want you to believe that interest rates are rising because of the expected economic improvement.

I think the bond market is pricing-in inflation expectations, or at least stagflation expectations. Remember that inflation occurs when the total supply of money increases. The result of the inflated money supply is higher prices (more money chasing the same amount of goods). In the ‘70s the excess money supply showed up in consumer prices, whereas the excess money supply created these days ends up in the financial markets, pumping up the “value” of paper assets. That’s where we end up with the most sophisticated of financial terms called, “Bubbles.” Inevitably, bubbles pop.

According to Mr. Doug Noland of the Prudent Bear, “The broad money supply (M-3) surged $49.9 billion last week. This increased the 16-week money expansion to $389 billion or 14.7% annualized. Since early last October (43 weeks) money supply has inflated $642 billion or 9.3% annualized. Money creation is tracking at roughly a 10% increase, but inflation is reported around 1.5% thanks to hedonic deflators and all sorts of mathematical wizardry. It’s the system we live in, so we gotta’ go with it!

Actually, you can see why we need to create all this extra money, or rather, borrow it into existence. The U.S. federal budget deficit grew to $54.2 billion in July, up from $29.2 billion a year ago. So far in fiscal year 2003, the federal deficit has totaled $324 billion versus $146 billion a year ago. I guess that’s one way to keep a country’s economy from officially going into recession. Just borrow more and spend more to keep things going.

Oil, Gold and Silver

Like I said, just go with it. That’s why precious metals are showing signs of strength. In fact, today was a great day for commodities across the board. The grains were all higher except for wheat, crude oil closed over $31 per barrel and natural gas closed more than 3% higher at $5.13 per million BTU’s. Gold touched $367.00 intra-day and closed at $365.00 for a gain of $3.60 per ounce and silver added two cents to close at $5.01 per ounce. Between Mr. Greenspan and Mr. Bernanke, they overwhelmed the financial markets with threats of deflation, thereby giving themselves room to print lots of extra money as pointed out by Doug Noland. The Feds were screaming to increase the supply of money, and they got it. Since then, they said that it didn’t look like they would need to subsidize the bond market, which effectively unwound all the money that was pushed into treasuries. Since November and December of last year the Fed has consistently stated that we will inflate, inflate, and inflate some more….and even more if we have to! That is extremely gold friendly.

Governments around the world are expanding the supply of money to re-inflate the world. When currencies are debased investors eventually go to the safe haven of precious metals, since paper currencies do not work well as a store of value. We are now in a time when currencies will fall in value relative to physical goods. In fact, if you have been in the silver market, I have good news. So far silver has been rising in U.S. dollar terms, but not across the board in all currencies until very recently. As foreign currencies have gained in strength relative to the U.S. dollar, the PM’s have not appreciated as much overseas. In foreign currency terms, silver recently broke its downtrend line and is headed higher. Once silver takes out its recent high of $5.20, it should be off to the races. Likewise, gold will need to clear the high from last May at $372 before its assault on the $400 level.

As far as I am concerned, inflation is guaranteed. Our system cannot function in an atmosphere of deflation…it will implode on itself. More money must continuously be borrowed into creation in order to keep our fractional reserve fiat money system alive. That’s how it works. They can continue to pump the paper markets, but that in itself will be the fuel to launch commodities and precious metals into the next phase of their bull markets. Frustrated on the short side, but very profitable in precious metals. Just look at the HUI Index that closed over 190 today. Nice run and ready for more!

Have a great evening!

© 2003 Mike Hartman
August 20, 2003

Train wreck of the week...

by Bob Chapman...


We do believe we are in deflationary times, but elitist mouthpiece Sir Alan Greenspan has told us he will inflate as long and as much as he has to in order to fend off depression. Thus, we are faced with hyperinflation as the elitists grope to find a way out of their financial morass. We are about to enter Weimerland and right after that is over we enter a depression, worse than the 1930s. That will be followed by civil war or revolution and the termination of the elitist conspiracy. All this agony will bring $3,500 per ounce gold prices. All this, of course, will be accompanied by a dollar that will fall 70% or more. The euro and Swiss franc should do very well versus the dollar in relative terms. The biggest holder of dollar asset debt is Asia and the Middle East, both of which will take mega losses. Oil producers Mexico and Venezuela will take losses unless they switch to euros, Swiss francs and gold Needless to say, all of this threatens the entire world economy and if you throw in derivatives for good measure you have an ultra toxic brew. China and Japan alone have $600 billion. That figure could become $1.2 trillion in just another year. They can enjoy screwing the US and European markets now, but they’ll lose 70% of their dollar gains if they don’t bail out now. We are very skeptical that China will adjust their dollar currency peg. They’ll go down in flames as will Japan. The Plunge Protection Team will do as it has been doing, rigging the markets, but in the final analysis they’ll be losers. They have already begun losing control of the gold market. The current account balance can only worsen as the dollar weakens. As import prices rise, gold rises, the dollar and the market falls as interest rates rise. Once foreigners stampede for the exits and dump their dollar-based assets it will be like a cascade as gold jumps $50 a day. The market distortions will have the professionals in shock and investors in panic. Stick around; it will be very exciting and very nasty.

SMOKE AND MIRRORS

By James R. Cook


The deafening propaganda about an economic recovery ain’t necessarily so. New orders, shipments and production are stuck at levels below last year. There’s no real improvement in capital spending (other than government hocus-pocus). Corporate profits edged up, not from increased business activity, but from stock speculation, currency and commodity gains. There is zero growth in employment incomes and unemployment is high, despite fancy government formulas that lower the number. Here’s the bad news; the private economy is weakening.


Richard Benson of Specialty Finance Group summed it up nicely. "The new market driven economy is based on managing expectations always upward and manipulating markets to keep asset prices up, and the appearance of wealth high. This is designed to keep businesses and households spending. This economic model, however, has an air of desperation about it. At present, corporate cash flows, and the rate of capacity utilization does not justify any meaningful pick-up in corporate investment or hiring. The household sector continues to spend beyond its means and is sustained only by the extraordinary increase in annual mortgage debt."


The bubble in mortgage debt may be over. Stephen Roach of Morgan-Stanley writes, "It’s a nightmare scenario, even for me. Sharply rising real long-term interest rates are the last thing an economy on the brink of deflation needs. Such an outcome would depress an already weakened state of aggregate demand, conjuring up notions of the dreaded deflationary spiral. The extraordinary correction in the bond market over the past seven weeks tells us not to dismiss such a possibility out of hand." Doug Noland adds, "the Fed has lost control of the interest rate market, with onerous portents for the highly leveraged and speculation-rife U.S. credit system."


Lance Lewis sums it up. "Refi and homebuilding activity is what has sustained the consumer and supported the economy. With rates no longer falling, that game is over, period. Business spending will not be picking up unless demand accelerates. And with the rest of the world still soft and the U.S. consumer losing his mortgage bubble lifeline, what’s going to be there to catch the economy? The answer is ‘nothing.’ The second half fable is just that, a fable."


A rise in rates not only takes the starch out of housing, it kills the stock market. According to Bill Buckler, "It is the cost of carrying debts which is now so dangerous to the REAL U.S. economy as it cuts into fragile U.S. corporate cash flows and earnings. Wall Street has managed to hoist the U.S. stock markets back towards the 10000 level. Over the next few weeks, it faces increasing warnings about the economic recovery being aborted by climbing market interest rates. U.S. stock markets are set up for another massive downwards break."


Apparently, government spending has become the economy’s new savior. The war boosted second quarter G.D.P. and additional government juggling (adding dollars that weren’t spent) accounted for most of the rest. There’s close to a trillion-dollar swing from budget surplus to budget deficit. Where’s the money going to come from? Economist Ludwig von Mises wrote, "If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes as many jobs as it creates." Not such a godsend after all.


Kurt Richebacher describes the Austrian theory of business cycle. "Recessions are periods in which consumers and businesses correct their spending excesses built up during the earlier boom. But such necessary adjustments are not taking place this time…..Instead of restraining the excess in consumer spending, the Fed’s looser and looser monetary policy has fostered new, dangerous bubbles sustaining the same ill-structured economic and financial development as in the past years."


Mises elaborated on the outcome if the depression is continuously postponed by money and credit creation. "Finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scraps of paper. Nobody wants to give away anything against them."


Asset Hyperinflation


Lately, the prices of high-quality collectibles, art and antiques have begun to go through the roof. They used to double in price every decade. Now they are doubling in two years. Is this a sign of the forthcoming crack-up boom that Mises warned about? Everyone doesn’t get out of dollars into tangibles at one time. A few people initially decide to shed dollars in a hurry and buy assets. I’m one of those, and there are numerous others. Most of the economic thinkers I pay attention to are looking for a crash and a depression. Maybe we’re all looking the wrong way. Maybe we should think about hyperinflation. Consider that the first G.I. Joe doll just sold at auction for $200,000.


My late business partner, back in 1972, used to claim that bread would someday cost a dollar a loaf. We scoffed at him. I have a Beach Boys concert poster from years ago that offers tickets for $2.00, $3.00 and $4.00. Recently my wife and I went to a Fleetwood Mac concert. Ordinary seats were $150 each. Yet, the government assures us that there is no inflation. Here again, they’re massaging the numbers. It’s all smoke and mirrors. We use the term "sticker shock" to describe what’s really happening to prices.


Scarce collectibles and antiques are exploding upward in price. These collectors items are outside the realm of government manipulation. Their price rise can’t be controlled. Maybe that’s another reason they’re rising. Will they double every year, every six months, every month? While red-hot prices prove that a lot of people have a lot of money, it may also be the start of hyperinflation. It has to start somewhere. Money and credit cannot expand indefinitely. As more goods and services begin to adjust to the abundance of money, more people refuse to hold cash. Prices rise more drastically. A panic ensues that obliterates the purchasing power of the currency. If the Fed maintains the present course, more and more people will begin to believe that the quantity of money and credit will increase beyond all bounds. We’re not there yet, but we’re further down this road than many would like to believe. According to the great thinkers of the Austrian School, there are one of two outcomes ahead; depression or runaway inflation. Don’t bet against the latter.

that link is the correct link. Weekly commentary August 5th.. updated weekly. The portion you read is the very beginning of the article. If you see the one from last week you simply may need to refresh the page.. happened to me before getting the old pages.

http://www.investmentrarities.com/weeklycommentary.html

Ted Butler's Latest...

These are extraordinary times in the silver market. No, not the price action so much (yet), but the remarkable events swirling behind the scene. I will attempt to highlight these recent events and put them into proper perspective. You already know my message to investors - buy real silver while there is time, at such incredibly low prices. Prices made incredibly cheap by the 15+ years of the downward price manipulation. A manipulation that increasingly looks like it is drawing on its last dying breath.

But my message today is not directed towards the real silver investor, as that investor has not been asleep at the switch. The real silver investor has paid attention. He has done his silver homework. He has used his God-given common sense. He has positioned himself in real silver. Additionally, he has demonstrated his anger with the continuing market crime of manipulation and has written to the market regulators. That those regulators have ignored the clear signs of manipulation is a reflection on them, not on the real silver investor.

Today, my message is to US industrial silver users, lease participants, mining company short sellers, call option sellers and the members of the COMEX, close to 1000 in total number. My message to them is that there are forces in effect that will radically change the nature of the silver market soon. If they ignore these changing forces and they conduct their silver business as usual, they will be destroyed by the coming silver price violence, the likes of which they can not imagine.

Before I highlight those changing forces, I would like to discuss the recent price action in silver and the new Commitments of Traders Report, issued Friday, August 1. The statistics are revealing and disturbing. There was an explosion in new buying and short selling. In a little less than two weeks, more than 200 million ounces (over 40 thousand contracts) of new silver futures and call options were created on the COMEX paper factory. In that same time frame, only 20 million ounces of new real silver were produced by all the mines in the world. A thirty cent rally caused new paper short selling of ten times the amount of real silver taken from the earth. Where would the price be, without such uneconomic and manipulative short selling?

As of today, August 3, there is a total of 884 million ounces held short in COMEX futures and call options. That is more than a year and a half total world mine annual production. That is six times all the known silver inventory in the world. I can assure you, with absolutely no fear of being wrong, that no commodity has ever had such an outrageously large short position, as silver. And that's just the short position on the COMEX. It does not include the OTC and leasing short position. By itself, this COMEX short position explains why we are so depressed in price and also guarantees why we will move much higher, in time, as it is unsustainable.

In a very real way, this 884 million ounce short position is an obvious, very simple proof of the manipulation in silver. Ask yourself this - at only $5 per ounce, who, in their right mind, would actually allow themselves to be short such an obscene amount of silver, if it weren't for manipulative purposes? I'd like to hear from anyone who could explain, on economical grounds, the justification for the largest short position in history, at the dead low, inflation adjusted price for 5000 years? For the market regulators to ignore this visible proof, is like a policeman stepping over a dead body on his beat and not reporting it.



http://www.investmentrarities.com/weeklycommentary.html

http://www.ess.ucla.edu/faculty/sornette/prediction/index.asp#prediction

You have to factor in the greenspan equation. I'll go out on a limb here and be the first to say we have not topped, although it's just a guess.. I don't know what greenie will do. I do think we'll drift around this area for another month or two, and then we go down, and down hard, to new lows by next year, lower lows then the October of last year lows. If we haven't topped, my guess is it will happen fast, not be too much higher then the current tops, and we'll come down just as fast.

Keep in mind I'm very pessimistic on the future of this nation.. I believe the debt bubble will be held up until the very end, and nobody will know what is going on until it's too late... the collapse will be hard, and leave anybody with debt that loses their job, anyone without significant hard assets to get by (precious metals), in ruins. It could very well leave the government in ruins and lead to government taking actions against us that we never thought they would. It will be the end of the corrupt 2 party zionist pyramid scheme. What will happen from there is anybody's guess.

I believe that the market and the economy are in an extreme bubble, and that the collapse will have an effect similar to 1929.. one bankrupcy will lead to another, the dollar sharply depreciating along the way, causing the whole economy to just stop.. leaving trillions of absolutely worthless dollars floating around. It will be the largest margin call in the history of the world, 31 trillion dollars of public, private, corporate, and government debt, happening on a nationwide scale and effecting the entire planet. In my opinion, of course.

It really is the perfect storm. Ignorance is NOT bliss, in this occasion. A little gold or even better, silver, will go a long long way. Don't forget your guns and ammo and food, either... in case you need to shoot government agents. ;)

90% of people surveyed in a recent poll agreed: You can use polls to say just about anything. With that said, 15% of people polled recently agreed: Most people are idiots and don't have a clue.

Sure, with enough debt spending you can fart up a good GDP number, but it changes nothing. Proping up the economy with more and more debt instead of letting it deflate naturally will only make the collapse that much worse. Then again, I don't need to tell any of you this.. I'm just thinking out loud here while I watch the hail and thunderstorms move by here. Quite impressive this afternoon.

question for precious metal buff.

Now I'm not all that familiar with the finer aspects of trying to manipulate the price of a precious metal, but what is the significance of sudden spikes in lease rates for a precious metal? Why would they occur? Is it a sign that someone is trying to short a large amount of the metal, whether it be physical or paper metal? As I stare at a long term chart of silver lease rates

http://kitco.com/lease.chart.silv.html

it baffles my mind how or why someone would be willing to lease silver at interest rates of 30-70% like they did during early 1998 during the buffet run. Clearly someone had an interest in silver that required paying these high rates, but I'm not certain why. All I know, is that every time silver breaks out of it's normal trading range, lease rates spike, and silver tanks back down, then lease rates tank back down to near nothing, and the cycle repeats. The recent spike in gold did not cause unusual lease rate spikes, so it will be interesting to watch the next couple weeks to see what happens.

Today's WrapUp by Jim Puplava 07.28.2003 Mon Tue Wed Thu Fri Archive


The Earnings Game and Other Bull Markets (The Silver Streak)

We are now at halftime for Q2 earnings. As usual companies have beat estimates. There is nothing new there because that is the way the game is played. Company’s lower guidance, analyst’s lower estimates, and then companies report actual results that beat forecasts. You would never really have a good handle on things if you listened only to financial reports coming from the financial media. "Times are good and getting better" and "This is a new bull market" are constant mantras repeated every day and every week. The bulls site rising stock prices as evidence that a new bull market has begun in stocks. There is another bull market going on that nobody talks about that I will get to in a moment. For now I want to cover the earnings story since that is the topic dû jour. Earnings look good as long as you don’t ask questions.

The recent rally in stocks since the end of Gulf War II has been based on expectations for an earnings rebound. The simple fact is that year-over-year earnings have improved, but that isn’t saying much. A year ago with accounting scandals, goodwill write downs and other restructuring charges, earnings were pretty lousy. Since then they have improved as companies have taken deliberate action to stave off cash drains due to lack of pricing power which has led to lower profit margins. Now that over 60 percent of all S&P 500 companies have reported earnings, we are getting a better picture of the way things could shape up for the rest of the year.

To start out, earnings for S&P companies have risen over 8 percent from a year ago. That has topped analysts’ estimates of 5.3 percent. This is the bull story that you hear almost daily, “earnings are beating estimates.” These numbers sound good only if you forget that at the beginning of the year Q2 estimates were supposed to rise 11 percent. After Q1 results were reported, analysts slashed estimates by more than half to the now present 5.3 percent number. By lowering estimates to a level this low, Wall Street gave companies a wide swath in which to easily beat the numbers. Yes, companies were able to beat expectations, but only because those expectations were lowered dramatically. So the good news is that companies are beating estimates, but only because those estimates keep moving lower.

The next question is how companies are improving earnings. Is the improvement coming from higher top line sales growth and higher margins which would indicate an improvement in the earnings environment? Unfortunately the answer to both questions is no. An analysis of earnings indicates that, like the previous five quarters, the improvement in earnings is mainly coming from cost cutting. Top line growth has been hard to come by so companies are still relying on cost cutting to improve their profits. In addition to cost cutting another enhancement to earnings this quarter has come from a declining dollar which has made overseas earnings more valuable when translated into domestic dollars. Foreign currency gains added about 2-3 percentage points to profits this quarter. Without them companies would have reported earnings at the lower estimated number of 5 percent. On a trade weighted basis the dollar has fallen 9 percent since reaching its peak back in February of last year. Since the dollar is expected to decline even further, currency gains remain one of the bright spots on the earnings front.

Finally the issue of earnings quality isn’t addressed adequately in company press conferences or by media coverage. In the words of UBS analyst David Bianco, “In our view, the quality of earnings for the S&P 500 from an accounting standpoint is the worst it has been in more than a decade.”

Companies still routinely exclude stock option expense which overinflates income. In addition to stock option expense they also overstate earnings by overinflating returns on pension investments. Many company pension plans have been losing money while their pension assumptions remain positive.

The gulf between pro forma earnings (C.R.A.P. - cloudy reporting account principles) and real earnings (GAAP - generally accepted accounting principles) keeps getting larger. Last year GAAP earnings for the S&P 500 were $28. The pro forma numbers used by Wall Street and the financial media was $47.26. We are seeing growth rates in pro forma earnings that veer far away from actual earnings numbers according to GAAP. There is also a widening canyon between the operating numbers used by analysts and anchors and those reported to the government and used in the national income accounts.

We are still dealing with bogus numbers, a fact that is starting to get the attention of foreign investors that the U.S. markets are no longer clean. Last week the Financial Times ran an article on the rigging of the U.S. markets. It may be one reason that many foreign entities are pulling out of the U.S. We once were considered to be the model that other markets strived for; now we have become the one they try to avoid. Over the weekend the ECB recommended that all of its member central banks dump all of their holdings of Freddie Mac and Fannie Mae due to accounting irregularities. Freddie Mac is currently under investigation by the SEC and federal prosecutors after understating earnings by $4.5 billion leading to the resignation of the firm’s top three execs. Foreign institutions and governments are now starting to pay more attention to accounting issues and earnings quality. The constant accounting scandals are starting to get everyone’s attention overseas, even though they are ignored by investors domestically.

There is a lot riding in this market on a second half recovery. There are big expectations for earnings in Q2 & Q4, especially in the tech sector. There is nothing reported, at least so far that would support these expectations. This means at some point, either in September if not before, when companies start confessing Q3 results a serious realignment of expectations is going to take place. Unless the dollar plunges rapidly enough to impact earnings through currency gains it is hard to see where the next earnings catalyst will come from. Wall Street’s credibility is now at stake. The Street has been predicting a second half recovery for four years now. Now it is time to pony up and deliver or face a severe retraction. The recent rally has gotten way ahead of even the most optimistic expectations with stocks now sporting bubble valuation in almost all indexes. As of the close today the Dow is selling at 30X trailing earnings, the S&P 500 trades at 29X 12 month profits, and the Nasdaq 100 is selling at 233 times trailing profits. That is a market that is priced for years of perfection when none actually exists.

The Silver Streak

There is another bull in town that is starting to get investors attention which is the precious metals and energy markets. Gold is in a new bull market and has been recently joined by silver. Silver has risen more than 10 percent in seven trading days last week and was up another $.12 today to close at $5.195. That price increase has moved up with increased volume to hit $5.20 intraday. This has gotten the attention of many precious metals bulls. Up until now silver has failed to confirm the new bull market in gold. Just as in Dow Theory the Transports and Industrials must confirm each other, it is the same in the precious metals markets where silver is an important confirmation of gold.

Many silver bulls, I include myself as one of them, believe that the upside potential in silver is enormous. James Turk, editor of the Freemarket Gold & Money Report, thinks that silver could hit $6.45 by September. I personally believe that silver could actually go much higher. The reason is that there isn’t much of it around and what there is has been shorted heavily. Large monster short positions on the COMEX have kept silver suppressed now for more than a decade. As I wrote in my last Storm Update, “Silver, an Undervalued Asset Looking for a Catalyst”, shorting silver has been a one-way trade. The shorts have controlled the silver market for far too long. They have shorted the bullion and they have shorted the stocks. As shown below, short positions in the silver stocks went up last month and are up substantially over the last year.





Part of the jump in silver stocks this last week (many are up over 30% in a week) is due to short covering. The shorts have kept prices suppressed and have afforded investors an opportunity to pick up the bullion and the shares at extremely depressed prices. Given where I think silver is going in this decade, which I believe will be far north of $50 an ounce, there is still plenty of opportunity left to get in on what I believe will be the play of the decade. This is just the beginning of a decade long bull market.



The best thing about this new bull market is that it is still in its formative stages. The press spends very little time talking about it; it isn’t followed by Wall Street, few institutions have put money in it, and it is ignored by the investment public. That is how new bull markets begin. Institutions and the investment public are still foolishly chasing the last bull market bidding up the shares of tech companies and Internet shares to absurd levels again. Even though the mania returns to Wall Street the precious metals markets have soared and held up well during the recent stock market rally. Everyone is gloating over the double-digit returns in the NASDAQ this year. Small cap stocks are in again and have been among this year’s top performer. However, you hear very little about small cap junior mining stocks which are also soaring. Some of these stocks are up 600-1000 percent over the last couple of years. If you want to talk about larger issues consider this point; the Amex Gold Index (HUI) is up 305% since January 2001. The hedged Philadelphia Gold & Silver Index (XAU) is up over 80% over that same period. Don't you think if tech stocks were up over 300%, it wouldn’t be front page news?



It is a shame that Wall Street and the financial media continuously goad investors into overvalued tech stocks at a time that insiders are selling at record levels. It just proves the point that old bulls die slowly and new bulls emerge reluctantly. As gold and silver prices double, triple and quadruple, they will eventually catch on. In the meantime the astute investor has the opportunity to buy actual bullion (suggest paying cash and taking delivery) while prices remain cheap because of heavy shorting, manipulation and disbelief.

Keeping An Eye on Energy Too

Another bull market is also emerging in the energy sector. Despite the ending of major hostilities in Iraq, oil and natural gas prices remain stubbornly high. It will be years before Iraqi oil can successfully come on stream to relieve pricing pressures. In the meantime, OPEC will keep production under control which means higher oil prices are here to stay, especially as many countries have already reached peak production limits and are now in decline such as Britain’s North Sea.

A bullish picture is also starting to emerge on the natural gas front where experts now all agree the U.S. faces a short-term crisis. There are two camps when it comes to natural gas. There are the depletionists who believe that natural gas production will peak at 130/tcf year by 2030. The anti-depletionists believe that supplies will last throughout this century. What we do know is that annual average production growth rates have fallen in each decade. They were 3.52% from 1970-1980, 3.15% from 1980-1990, and 1.97% from 1990-2000. Furthermore, most of the bulk of the world’s untapped gas resources remains in remote and isolated locations. This makes transportation costs a key issue in getting at available supplies. These remote locations are far away from major gas markets. Since many gas users such as the U.S. lack adequate infrastructure for handling transported gas (LNG) the hurdles for development are much greater. This is one reason why prices remain high. We are in the middle of summer, a time when gas prices are expected to fall because of weak demand due to nicer temperatures and new storage injections. Yet closing prices today at $4.70 are well above projected average prices for this year of $3.50.

While experts disagree over the future peak of natural gas production; they all agree that North America and Western Europe face near-term production peaks. This means the U.S. as it is in oil will become even further dependent on its future energy needs. According to the EIA in its 2003 International Energy Outlook, 71% of the world’s gas reserves are in the Middle East and former Soviet Union. Russia and Iran account for 45% of the world’s natural gas reserves. This bodes well for Middle Eastern nations that will become even more dominant in their control over the energy sector. With the major share of the world’s oil, and now natural gas, the Middle East will become a more important balancer in meeting western countries’ oil and natural gas needs. One of the pictures that I see emerging in this next decade is the growing importance of natural gas in meeting the world’s energy needs. The three major plays of this decade are going to be in precious metals, energy and in water. Within the first two, silver and natural gas will become the best performers within those respective groups. We have been positioning our portfolios along these lines since the beginning of my Storm Series.

Today’s Markets

Back in today’s markets, stocks had difficulty maintaining gains despite Wall Street upgrades of Disney and AT&T. The blue chip indexes were down while the NASDAQ pulled a rabbit out of the hat to end up in positive territory. Everything is on hold this week ahead of important economic reports. Tomorrow we get consumer confidence numbers. On Thursday we get an advance report on Q2 GDP and the jobs report. On Friday the markets will have to digest ISM manufacturing reports. Also weighing in on the markets has been the recent rise in interest rates. Today was no exception as bond prices plunged with the yield on the 10-year note rising to 4.305% and the yield on 30-year bonds rising to 5.23%. The bond markets lost ground on news of the Treasury’s major debt calendar during the second half of the year. The Treasury will have to raise $230 billion to fund this year’s deficit. The government reported that it will need to borrow $104 billion in the July-September period and $126 billion in the subsequent three months.

The rise in yields in some quarters is being attributed to comments made last week by Alan Greenspan and Governor Ben Bernanke. Both the Fed Chairman and Bernanke expressed optimism in the economy’s recovery. Mr. Greenspan, known for his inability to spot bubbles, believes that economic growth next year could approach between 3.75- 4.75%. The Fed is doing all it can to reinflate the economy and the financial markets. It appears that Wall Street and investors believe the Fed will eventually prevail. However, for bond investors who bought 10-year notes last month at their low point, now sit on losses of almost 9%. We have now done in one month what it took almost six months to do in 1994, the last time we has a bond market crisis.



Fed officials are still sticking to their robust economic forecast with Federal Reserve Bank President of Chicago, Michael Moskow, saying that tax cuts, productivity gains and the lowest interest rates since 1958 are going to give us a robust economy in the second half of the year. The Fed’s message for the second half of this year is “robust growth without inflation.”

Wall Street analysts believe that bond yields can continue to rise without much impact on the stock market because of robust pro forma earnings growth now projected to grow at 13.1 percent for Q3 and 21.6 percent for Q4. What the real numbers will be is anyone’s guess.

Volume trimmed back to 1.28 billion shares on the NYSE and 1.53 billion on the Nasdaq. Market breadth was negative by 18-15 on the Big Board and positive by 19-12 on the Nasdaq. The VIX edged lower by .01 to 19.93 and the VXN rose .36 to 30.40.

Copyright © 2003 Jim Puplava
July 28, 2003

I find it amazing how this man thinks a rally to $5.20 is Speculative fervor and "irrational exuberance" while some of these same individuals are saying the market is undervalued at these levels.

Today's WrapUp by Mike Hartman 07.25.2003

Silver Breaks Out!

The broad stock market indices opened today roughly where they left off last Friday, and after the first two hours of trading it looked like we were headed to overall losses for the week. At one point the Nasdaq Composite Index was down 18 points, but made a fast turn to close the day with a gain of 29 points. Depending on your individual holdings, you could easily have seen stock prices move 20-30% based on earnings reports and guidance for the second half of the year. Overall for the week, the Dow Industrials added 96 points to close at 9,284, the Nasdaq gained 22 points or 1.3% to close at 1,730 and the S&P 500 just barely held onto gains for the week by adding five points to close at 998. With stocks adding narrowly for the week, the money continued to trickle out of the bond market and some of the big money was clearly planted into the Precious Metals Sector.

Bond prices fell again this week with the 30-year bond closing at 109.66 for a yield of 5.12% versus 4.91% last Friday. The 10-year yield rose from 3.97% to 4.18, which now puts 30-year fixed rate mortgages at approximately 5.7%. Just three weeks ago fixed rate mortgages were hovering right at 5.0%. Ever since Alan Greenspan announced the last rate cut back on June 25th of a quarter-point, interest rates have been going up. At that time the markets were asking for a 50 basis point cut to keep the party going, but Alan refused to spike the punch. That took care of the short end of the yield curve (shorted dated maturities). He then appeared before Congress and basically stated that buying longer dated maturities (30-year bonds) to keep long-term interest rates low “appeared unlikely.” With that, the bond market took over and protested. Bonds have been selling-off with a vengeance, and the money is looking for a home. Volatility will continue to remain at high levels, as there is just too much “hot money” chasing returns anywhere they can be found.

For a second opinion on stocks, bonds, precious metals, and the action of the Federal Reserve, I have extracted the following paragraph from the International Forecaster by Robert Chapman. Mr. Chapman’s nutshell version goes like this,

"NASDAQ is selling at 240 times earnings and 38 times next year’s estimated earnings. Of 1,500 large, medium and small stocks tracked by S&P, the 195 that lost money over the past year are up 101% on average since 10/9/02 and the 1,305 that made money are up 42%. This speculation is more excessive than that of 1999-2000 and we can lay that at the feet of the FED, first and foremost, George W. Bush and a supplicant Congress. The Fed’s market interference is colossal and fiscal irresponsibility is the worst in a century. FED and government intervention is what exacerbated the depression. As we look back the only silver lining in that entire period was falling prices which made dollars more valuable. Those in gold and silver this time around will have a great advantage, because we fully believe that the elitists will have to return to a gold standard or a gold exchange standard. If you are prepared, deflation and depression is not a horrible thing. Those who suffer the most are those with the most debt and those who suffer the least are those with no debt and have gold and silver. An inflationary depression, which we are facing, is the worst possible starting point. It won’t last long but it will be very damaging. Sir Alan told us last week there won’t be further bond market interference and in the same breath he said he was prepared to keep interest rates low for as long as needed. That, of course, cratered the bond market and ended the Greenspan bond put. Whether Sir Alan likes it or not, bond yields will be much higher by next March. Inflation is the worst possible path to follow. The delaying tactic only makes matters worse and that is exactly what the FED has endorsed as a matter of policy. The trick for both consumers and corporations is to work to protect your financial structure. Avoid going into debt no matter how low the interest rates are.”

On the Housing Front

I believe Mr. Chapman is dead-on track by saying that those households with the least amount of debt will survive the current economic climate MUCH better than those that are buried in debt payments. Americans have been extracting equity from their homes to buy cars, go on vacations, pay for school tuitions, home remodeling, and a plethora of other wants and needs. Rather than consolidating existing debt to capture lower interest payments, and therefore lower monthly payments, people have been taking out more debt and using the lower interest rates to keep the monthly payments roughly the same as before. It is wrong thinking to look at lower interest rates as free money. If you extract an additional, $30,000 from your home, but the payment stays the same because of a lower interest rate, the debt is still there. You have just surrendered some of your future financial freedom in exchange for debt payments. Only in America can we come up with the cliché, “I owe, I owe, so off to work I go!” You could do a study of your own finances to see just how much money you pay to the tax man every year, and to the bankers in the form of interest payments.

Thirty-year mortgage rates have risen from 5% to 5.7% over the last three weeks and it appears to have taken its first hit on the housing market. Existing home sales in June fell 0.3%, while expectations were calling for a gain of 2.9%. On the plus side, new home sales in June rose 4.7% to a record 1.16 million units annualized. The rising interest rates are just barely starting to affect the housing market. Home prices will soon begin their decline, but for now prices are holding. The median price for existing homes increased 6.1% since May. Probably the scariest trend that is beginning to emerge is the fact that more mortgage borrowers have had to resort to variable rate mortgages just so they can afford the monthly payments RIGHT NOW. With rates rising, how will variable rate mortgage borrowers be able to afford the monthlies when they are eventually adjusted to 7%, 8%, or even higher? Variable rate mortgages are dangerous, unless you are planning to sell the house soon.

Fannie Mae and Freddie Mac

The last thing I need to say about housing and mortgages in general is the fiasco that is going on with the GSE’s (Government Sponsored Enterprises) known of as Fannie Mae and Freddie Mac. I believe this is a pressure cooker ready to explode! I am in the middle of researching where the whole mess is headed, but for now I will leave you with another quote from the International Forecaster.

“It has come to light that Freddie Mac will have to put back $6.5 billion in gains from its derivative operations. Management took huge gambles in derivatives beyond the level needed to hedge their mortgage holdings, and then held back some of the profits from this as a hedge against events turning against them. Their exposure is to hedge contracts valued at over $1 trillion, hence $6.5 billion is a small reserve should interest rates begin rising. Interest rates have just risen .96% in three weeks from 3.04 to 4.00%, so they have to be in trouble. This is a bomb waiting to explode, and the Fed is trying to run a blocking action for Freddie and Fannie that no matter what they do will be ten times bigger than LTCM. The two derivative positions are so massive they can’t be unwound for years and if one of the writers goes under the entire financial system is doomed.”

Doomed is a strong word, but if not doomed, I would go along with “Too big to fail” and “Government bailout.” This could very well become the ten-sigma event that Jim Puplava has been researching and commenting about.

Investment Alternatives

American investors are going to have a very difficult second-half of the year if we encounter many days like yesterday, when stocks, bonds and the dollar were all down in the same day. American financial assets sold-off across the board. So where does one go for a relative degree of safety? As paper assets decline in value, we have focused on companies with a base in natural resources such as oil, gas, water, and precious metals. We have also taken advantage of the falling dollar by investing overseas in foreign currencies from countries that have a strong resources base. While our foreign currency positions have been grinding out some excellent gains over the last year, this week the precious metals holdings took-off like a rocket!

Gold closed today at $362.70 per ounce for a gain of $15.65 or 4.5% since last Friday, while silver added 36 cents or 7.6% to close at $5.07 for the week. For silver, this is a big victory to climb over the $5.00 mark and have the last three trading days close at $5.06, $5.09 and $5.07. Technically speaking, the shot through $5.00 this week also broke the 20-year downtrend line, which is quite significant. Since October of 2001, this is the third time silver has gone through $5.00, and with the 10+ fundamentals of low inventory, shrinking mine supply and increasing demand, it should be difficult for the short interests to push it back down. Anyone in their right mind would not want to be caught short on silver at this point. A short squeeze and subsequent covering would send silver to $7.00 like it did back in 1997 when Mr. Buffett bought his mountain of bullion.

While gold had a very nice week by adding over $15 per ounce, the HUI Gold Index moved from 144.27 last Friday to close at 167.03 today for a one week gain of 22.76 or 15.8%. You can see the leverage that the shares offer over the bullion by the percentage increases. In the case of silver, the price moved from $4.71 a week ago to $5.07 today for a gain of 36 cents or 7.6%. There is only one silver equities index that I am aware of, which is on the gold-eagle website in their silver section. It is called the Silver Seven Index and shows history back to 1998. The downside is that the index is only updated through July 3rd, so to get a snapshot view of what the silver stocks have done over the last week I have prepared the following data table.

Silver Mining Companies

Ticker Company Name Close
7/18 Close
7/25 Gain %
SIL APEX Silver Mines 14.34 16.58 15.6
PAAS PAN American Silver Corp. 7.33 8.31 13.4
SSRI Silver Standard Resources, Inc. 5.20 6.72 29.2
HL Hecla Mining Co. 4.57 5.69 24.5
CDE Coeur D'Alene Mines Corp. 1.48 1.85 25.0
32.92 39.15 18.9%

In the effort of fair disclosure I must say that I personally own some of the stocks above, and also hold them in our client accounts. It has been a difficult exercise in patience, but has now been rewarded handsomely. The best part will be to see the fireworks yet to come. This is a PRECIOUS metal that has been consumed as if it were a base metal with unlimited supply. The suppression in the price of silver via paper short selling should be coming to an end as physical inventory continues to vanish. That same suppression will act as the proverbial “coiled spring” to cause a further explosion in price. The above ground inventories that the U.S. government has been feeding to the physical market over the last twenty years, is gone. The U.S. Mint must now purchase silver on the open market in order to continue minting the Silver Eagle program. This is an exciting and rewarding time for those that have been patiently waiting for silver to POP!!

It’s been a great week here, and I hope for you as well. May you prosper in all of your investment decisions. Have a great weekend!

Copyright © 2003 Mike Hartman
July 25, 2003

ETLT


book value of 96 cents a share, earnings per share of 26 cents fiscal year 2002, which will be increasing significantly due to a huge increase in demand of one of their products to china. This should be on everyone's radar screen. Once the float is all bought up, watch out.