15 July 2009
Jim Willie CB,  “the Golden Jackass”

* The Direct Legal Challenge
* Fear Level Grows, as Does USFed Defense
* Weak USFed Financial Condition
* Leadership at USFed Questioned

Special Report
Issue #64


A direct legal challenge is underway by the USCongress against the US Federal Reserve, its contract agency that refuses to tell its employer what it has done with Congressional funds. The fearful comments show within the USFed itself. Members state the need for independence to be retained, hiding fear of public outcry and action. In defense, leaders at the USFed threaten higher interest rates and lost ‘AAA’ debt rating, in an attempt to scare off critics and attacks. The USFed is trapped by the size, risk, and toxin of its own balance sheet. Their leverage does not even pass the test imposed on banks it regulates. Any hike in interest rates or broad selloff of its assets would probably bring down the USFed itself. It is stuck. Past warnings by the Bank For Intl Settlements were not heard. Now USFed Chairman Bernanke might be set up as a fall guy, the scapegoat, as the recovery is failing.


◄$$ THE RON PAUL CHALLENGE TO AUDIT THE USFED IS BEING BLOCKED, NOTHING NEW $$$. This is not a surprise in any way to me, fully expected. Congressman Ron Paul from Texas vows the movement will not be stopped. He wants formal disclosure of where missing TARP funds went, authorized by the USCongress, used by Goldman Sachs, which both controls the USDept Treasury and influences the USFed. He will not rest until a full audit of the US Federal Reserve occurs. The drafted legislation has 250 co-sponsors in the House of Representatives. During an appearing on FoxNews Freedom Watch with Judge Napolitano, House Rep Paul harshly criticized Senate authorities for blocking the bill last week. They claimed attachment of the amendment that included the USFed audit violated rules for provisions attached to spending bills. Paul mentioned that it made no sense to grant the USFed more power when they had already created the bubble that led to the economic collapse. The Obama Admin has a new regulatory reform plan, which will officially empower the US Federal Reserve with complete dictatorial control over the USEconomy and banking system. The central bank would have the authority to enforce regulation and shut down any firm whose activity it believes could threaten the nation, its economy, and its financial markets. My view is simpler, that the USFed could then shut down its opponents, block all firms wishing to expose their criminal behavior, force mergers to feed the cancerous broken Wall Street firms, and continue the great consolidation on behalf of its global bank masters.

Ron Paul believes that the current efforts to block passage are certain to energize the entire grass roots movement. Paul wants to reveal which USGovt and Wall Street cronies received vast TARP funds. Paul wants to reveal the cozy (probably criminal) agreements they have with international banks, with other governments, sure in my view to include vast extortion and bribery. Paul wants to reveal their gold suppression activities in support of the mortally wounded USDollar. Paul said, “When we discover what is really going on, I think the American people are going to demand the next step. They are going to demand honest money. It has happened many times in history.” This initiative is extremely dangerous, since President JFKennedy was assassinated primarily to obstruct his effort to abolish the US Federal Reserve. JFK had taken numerous steps, had re-introduce Federal Reserve Silver Certificates, and had a Senate sponsor for an important piece of legislation. Ron Paul understands this. He believes an entire Pandora’s Box would be opened with a formal USFed Audit. The Congressman concluded that the Ruling Elite would do everything in their power to prevent the bill from a vote or passage, because it represents the first major step in abolishing the US Federal Reserve altogether. By anything is meant murders, bribery, propaganda, smear campagins, and extortion. See the Prison Planet article (CLICK HERE).


◄$$ INTERNAL SIGNALS POINT TO THE USFED BEING A LITTLE PETRIFIED ABOUT PUBLIC OUTCRY DIRECTED AT THE CENTRAL BANK $$$. This is not a fear of anger directed at Wall Street firms, but rather the US Federal Reserve in charge of bank system supervision, regulatory oversight, currency management, debt security auctions, predatory mortgage loans, housing traps that forced foreclosures, and much more. The unspoken fact by those in charge, and those high level advisors who hang like leeches on the system, is that THE CENTRAL BANK SYSTEM IS BROKEN, AND HAS FAILED BADLY IN THE CLIMAX BANK DESTRUCTION. The US Federal Reserve has been permanently damaged in terms of its reputation and credibility in my view, and is setting up for departure of its role. The people are being swamped with news, perceptions, and analyses that promote the image of its failure, primarily on the internet. Another dominant fact prevailing today is that the militaristic environment has changed the nation. Placing the vast security apparatus, much of what is newly assembled with great overriding powers, into the political structure has attempted to render mute many voices of criticism.

How is the USFed supposed to stand up against the USMilitary, the Central Intelligence Agency, and numerous attendant agencies during a staged War on Terrorism, and declare that the Wall Street banks cannot participate in vast money laundering from narcotics shipments linked to the Afghan and Iraq Wars? They cannot. The central bank might have supreme powers in ordinary times, but not in emergency times like these. In this militaristic environment, not only is there very limited freedom, but there is very little bank oversight as the Fascist Business Model entities have taken control like gangsters. They are indeed crime syndicate leaders. Now the USFed governors are worried sick about the populace turning against them. They might just resign their central bank agency contract commission. The syndicate leaders are well hidden. Their puppets might soon face attack, and the puppets are showing more open fear. The central bank has begun to defend itself in the same manner than Nixon did, hiding behind independence and executive privilege. Let’s see if it works under direct challenge. My belief is firm, that instead of the syndicate opening its doors, its books, and its operations, and thus running the extreme risk of broad rebuke and profound prosecution, the nation will be subjected to one of more of the following: another false flag attack, a series of deadly virus attacks, declarations of emergency by states, shutdown of the banks.

In late June, the St Louis Fed President James Bullard publicly stressed how the USFed must shield its independence. He openly stated that public anger over the US financial crisis and subsequent bailouts could cause major problems if it resulted ultimately in a political challenge to the USFed’s independence as a central bank. Bullard said, “If that leads to some sort of erosion, or even the appearance of an erosion, of the independence of the Fed, I think that could be very counter-productive in this environment.” One can only infer that Bullard made such comments based upon deeply shared fear within the central bank that its fortress walls are under quiet but broad attack. The political fallout from the financial crisis is resentment of the USFed by the USCongress. The tension is easily detected.

Legislators are angry over the coerced USGovt rescues of the major Wall Street banks, the lack of disclosure of TARP fund disbursement, and the abuse of funds by the insurer American International Group. The USCongress was lied to with TARP fund granted approval. The USCongress is angry that the USFed has been issued illicit secretive orders for the major banks NOT to lend money to the public. A majority of the House of Representatives endorse the compulsory examination of the USFed balance sheet and internal operations by an independent auditor. Bank supporters have clearly pulled some power cords to obstruct the will of the people. Shaping up is a confrontation of the Elite versus the People. The public has begun to organize, refine its message, and take to the streets in the form of Tea Parties. The first round of Tea Parties focused upon big government and high taxes. Within two weeks, a virus outbreak occurred with full blossom television coverage. The second round of Tea Parties is planned in September, with focus upon abusive banker power and predatory mortgage practices. In today’s age, the people rarely win, since they are pawns in the game, where the powerful tools of media, military, and impunity of security organizations are dominant forces indeed. The people are slowly growing in anger in a manner than reminds me of the anti-Vietnam War movement! The USFed senses the attack!

Notice historically over the last three or four decades, that each crisis results in greater powers for the USFed, greater control by Goldman Sachs, greater submission by regulatory bodies into subservience, and greater collusion by debt rating agencies. The USFed is attempted next to take total banking power despite its recent failure. Bullard speaks for the USFed, which wants to preserve its independence. The salvage job has become pathetic, as the crises sequentially reached a crescendo in 2007 and 2008 as a climax of failure. Their terrible job in managing the banks and monetary system is slowly being recognized. A further coordination of power would be a final shutdown of the republic’s capitalism and free enterprise system, a climax victory of the Fascist Business Model.

Few Americans realize the US Federal Reserve is a control mechanism by the Ruling Elite. In 1913 when the USFed was hatched, the legislative bill authorizing its creation was passed late at night with much of USCongress absent. The United States was a na? young nation, exploited by wealthy foreigners in Old Europe. The actual planning of the USFed was done on Jekyll Island, an ironic name for the island. Monsters were  in attendance.

◄$$ UNDER THREAT OF FULL DISCLOSURE, COUNTER ATTACK CONTINUES BY THE USFED, AS KOHN THREATENS HIGHER INTEREST RATES AND LOST ‘AAA’ DEBT RATING $$$. The battle has elevated in a strong counter-attack. After essentially killing the USEconomy and the US banking system, the USFed defends its independence before its boss, the USCongress. USFed Vice Chairman Donald Kohn said opening up some of the US central bank’s most sensitive decisions to political scrutiny could result in higher long-term interest rates and jeopardize the USGovt ‘AAA’ credit rating. Kohn said, “Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation. The Federal Reserve strongly believes that removing the statutory limits on GAO audits of monetary policy matters would be contrary to the public interest by tending to undermine the independence and efficacy of monetary policy. History provides numerous examples of non-independent central banks being forced to finance large government budget deficits. Such episodes invariably lead to high inflation.” Kohn also said a chill would be cast over monetary policy deliberations, as officials would be nervous that discussions behind closed doors could become public. Exactly! What a weak pansy set of statements! These guys are desperate!

The Obama plan is under deliberation, which would grant the USFed an expanded role to monitor risks across the entire financial system, and to deal with threats accordingly. Kohn actually argued that the plan would not expand USFed powers and not further compromise monetary policy. While the Ruling Elite push to take total banking power, the People demand more scrutiny. The Ron Paul bill forcing a USFed audit would grant the General Accountability Office full powers to examine decisions on monetary policy and emergency lending. THIS IS A CONSTITUTIONAL WAR, NOT RECOGNIZED. Kohn argued that credit market perceptions would be affected by political views, when crime syndicate behavior is the real concern. See the Washington Post article (CLICK HERE).

A small parade of USFed experts has come before the USCongress. It will be interesting to see if the august Congress For Sale will pay much attention. They argue AGAINST expanded powers. The alternative might be no powers! Allan Meltzer is professor of political economy at Carnegie Mellon University (my alma mater) and author of a book detailing the history of the USFed. He delivered a scathing criticism when he said, “I do not know of a single clear example in which the Federal Reserve acted in advance to head off a crisis or a series of banking or financial failures. We all know that the Federal Reserve did nothing to prevent the current credit crisis. It has not recognized that its actions promoted moral hazard and encouraged incentives to take risk.” This is not criticism, but rather an indictment justifying a canceled contract to serve as central bank. In a written testimony prepared for the House Financial Services Committee, Meltzer cited a long list of financial crises. He actually argued that the USFed had either failed to take preventative action or worsened the situation to cause a deeper crisis. His was also a severe indictment of the venerable master of confusion and wizardry, the King of Serial Bubbles, the knighted Sir Alan Greenspan. See the New York Times article (CLICK HERE).


◄$$ USFED INSOLVENCY COULD RENDER ATTACKS AND SCRUTINY AS MOOT, SINCE THE USFED IS TRAPPED $$$. The USFed holds on its balance sheet a wide assortment of basic garbage, a result of its diligent efforts to deal with the financial crisis. No toxic asset was turned down for acceptance and swap. It is now exposed to a significant amount of both credit and interest-rate risk. The USFed has made public its consolidated balance sheet as of May 27th, as part of a new monthly report on its Credit & Liquidity Programs. It claims assets of $2.082 trillion and total capital of $45 billion. The maintained capital ratio to assets stands at a miniscule 2.16%, below its own 4.0% target for tangible equity capital ratio. Bear in mind that its assets are probably greatly exaggerated, since illiquid in nonexistent markets. Its Tier 1 capital ratio is near 4.9% under common methods. The USFed has committed to expanding its mortgage portfolio to $1.2 trillion from its current size of $428 billion. This would reduce its Tier 1 capital ratio to 3.6%, under the same methods. The USFed cannot increase its capital account, except to retain more of its earnings, and not return funds to the USDept Treasury. The USFed cannot engage in a stock offering since a private firm.

Continued monetization and abuse of credit derivatives could destroy all the USFed capital. The risk of small changes in interest rates could easily eliminate the USFed capital under true market value. For example a 1% increase in interest rates would reduce the USFed capital by 38% if assets were marked to market, thus require liquidation managed by the FDIC, if it were a bank, a mere mortal financial firm. An exit strategy to remove a portion of its balance sheet would move interest rates by even a relatively small amount, thus threatening insolvency of the USFed itself. A sell program of their deeply impaired (often toxic) assets would instantly reduce their assets, force proper valuation, and also threaten insolvency. THEY ARE TRAPPED BY THEIR OWN SIZE, RISK, AND TOXIN. The other huge kill factor for the USFed pertains to duration. The USFed can remain technically solvent as long as the duration of its liability flow is substantially greater than the duration of its asset flow. Mortgage pre-payments work to harm their balance sheet by altering duration of liabilities. Even mortgage modifications are impossible without doing great harm to their duration. If they raise interest rates to ward off price inflation, they will also narrow the gap between the duration of the USFed’s assets and liabilities. A rate hike would increase the risk that its capital will fall below acceptable levels. An examination by credit analysts shows the USFed balance sheet is almost failing this test now. Public disclosure or formal audit revelations could result in a grand headline: THE USFED IS BROKEN, BUSTED, INSOLVENT.

Here is some strange irony! If the USFed marked its assets and liabilities to market, its gold hoard would also lift its balance sheet. Such an accounting change would add about $150 billion to the carried book value of the USFed gold. So disclosure would subject the USFed to scrutiny as the gold price fluctuated. More importantly, it would certainly enhance the market view of precious metals as a true bank asset, strong ballast immune to credit writedowns. See the fascinating tour of the USFed balance sheet analysis on the Ritholz article (CLICK HERE).


◄$$ THE CHIEF ECONOMIST AT THE ULTIMATE POWERFUL LEAD DOG BANK, THE BANK FOR INTERNATIONAL SETTLEMENTS, WARNED OF CRISIS WELL BEFORE 2007, BUT WAS IGNORED. INSTEAD, GLOBAL CENTRAL BANKERS FOLLOWED ALAN GREENSPAN INTO RUIN. $$$ William White is the chief economist at the BIS, and ongoing erstwhile rival of Alan Greenspan. He predicted the imminent financial crisis years before 2007, when the credit asset bust began. The chorus of global central bankers chose instead to listen to Alan Greenspan instead, which heaped devastating consequences on the global banking system, the financial structures, and the economies. The Spiegel magazine of Germany laid out the details. It wrote, “Now White has been proved right, to an almost apocalyptical degree. And yet gloating is the last thing on his mind. He, the chief economist at the central bank for central banks, predicted the disaster, and yet not even his own clientele was willing to believe him. It was probably the biggest failure of the world’s central bankers since the founding of the BIS in 1930. They knew everything and did nothing. Their gigantic machinery of analysis kept spitting out new scenarios of doom, but they might as well have been transmitted directly into space.” The entire story points out clearly that intentional monetary inflation and credit expansion, even if insanely adminstered, prevails, since it delivers the perception of wealth generation on a temporary basis. Tomorrow be damned! Inflation is always desired today, since consequences come tomorrow. The more dire view is that the bankers intended to destroy the system with full knowledge. See the Spiegel article (CLICK HERE).

◄$$ EXTREME CRITICISM HAS COME TO USFED CHAIRMAN BERNANKE AS HIS TERM ENDS IN FEBRUARY 2010 $$$. Michael Shedlock delivers a scathing criticism of Bernanke, calling his tenure a failure, laced with accusations of incompetence and lack of integrity. They seem extremely deserved and on the mark. The consensus even among his critics is that he made many mistakes, missed many turns of events, has failed to limit lending among bankers, was asleep at the regulatory wheel. but deserves to continue as USFed Chairman. What a curious viewpoint! It is consistent with approving Geithner from Goldman Sachs as the new Treasury Secy, arguing that the nation should not engage in on-the-job training, when a syndicate boss will suffice.

Shedlock outlines several specific charges in thorough fashion. Bernanke is a liar with poor memory in pressures given toward the Bank of America merger with Merrill Lynch. Bernanke claims to be a student of the Great Depression, but is instead a dunce. Student Ben concludes it was caused by lack of USFed liquidity response after the stock crash. Yet he misses the entire point of massive expansion of credit and debt fostered by the USFed itself. Bernanke is no student of history, but is instead a dunce. Despite promises of transparency, Bernanke gives no transparency, and even defies the Bloomberg lawsuit under the Freedom of Information Act for disclosure of TARP fund disbursement. The USFed forces a subpoena by the USCongress on matters with the Bank of America merger. The creative juices exhibited by Bernanke have resulted in an amazing array of official lending facilities and the ballooning of the USFed balance sheet, as it acquired a mountain of garbage collateral. The USFed Chairman post is one where discipline is required, not creativity. Bernanke supports policies of theft with generational inflation and serial bubbles, without their recognition or comprehension of their damage in capital destruction, and ravage of the middle class. His voice was absent during the soaring price expansion of the property bubble and commodity bubble.

Bernanke cannot offer dissent in a firm stance, and never did while serving as a member of the Greenspan Fed. Bernanke supports policies of outright fraud bound within the fractional reserve lending system, called by sound money experts to be legalized counterfeiting. It is the creation of money without the necessity of production, to compete for resources against those who have produced, in the words of Murray Rothbard. Bernanke could not spot the housing bubble when it expanded, and did not foresee its burst. Bernanke has no concept where interest rates should be, but he thinks he does. The result is overshooting interest rate policy in both directions, just as Greenspan did. He continues the USFed Uncertainty Principle. He calls Bernanke a power grabbing hack, who seeks greater power after being partly responsible for creating this credit crisis. He pursues a dangerous concentration of power in the hands of the financial syndicate.

Here are words by Shedlock in conclusion, exactly on point. He said, “Bernanke is a disingenuous liar with a memory problem. He is also an economic dunce, who does not understand the cause of great depression nor could he spot a housing & credit bubble visible to nearly every blogger in the country. However, like his mentor Greenspan, Bernanke believes that every problem can be cured by throwing money at it. Finally, he is a creative, political power grabbing hack who gives memorable speeches about throwing money out of helicopters. That is indeed a unique set of qualifications. Bernanke’s four-year term ends in February. Let us hope he is gone. Better yet, it is time to audit the Fed and then END IT!” One should be very clear that the USFed will end only when the entire world collapses on its financial feet, an event that might indeed be in progress. See the Market Oracle article (CLICK HERE).

The exact date could not be verified, but around December 2006, Bernanke delivered a speech in Beijing that resulted in his banishment for life, unwelcome ever again in China. He lectured them on their system’s weak footing. Bernanke is, after all, the principal figure most closely tied to the creation of phony money that so offends the leaders in Beijing. When on a trip to China as part of a delegation, he made a speech at a university where Chinese economists are trained. Bernanke was disrespect in his candid remarks. He delineated their many mistakes from a centrally planned economy, and warned of problems that could bring the rulers and the country down. Their Economics Minister at the time was furious, took control of the situation, and screamed insults at him for half an hour. In the ensuing weeks, the USGovt was told that Bernanke was ‘persona non-grata’ and never to set foot on Chinese soil aagain. Chinese delegations who visit WashingtonDC are careful to avoid the Fed’s marbled headquarters that comprise the USFed ivory tower. See the JrDeputy article (CLICK HERE).

◄$$ BERNANKE WAS NOT OBAMA’S CHOICE, BUT RATHER THE YOUNGER BUSH’S. BERNANKE MIGHT BE OUT NEXT FEBRUARY. HE IS BEGINNING TO SEE THAT HE IS BEING PAINTED AS THE GOAT. THE BROKEN CORRUPTED SYSTEM NEEDS A ‘FALL GUY’ AND BEN MIGHT BE PERFECT TO FIRE AS DISTRACTION. HE IS NOT A POLITICAL ANIMAL. $$$. The failed stimulus, the failed bank rescues, the failed liquidity programs, and the failed mortgage modifications require a Grand Scapegoat. It might come, to serve as grand distraction from not just failure of policy, but failure of the system and deep corruption of that system. The main lesson not learned by policymakers is that the system is badly flawed in its foundation and response mechanisms, and its revival with greater volume of what broke it will not succeed in revitalizing it. Potential vengeance directed against Bernanke will be interesting to observe. Remember that if he goes quietly, he will be given a huge pension. If he causes trouble, he will light fires in retribution that become firestorms. He might figure the hush money is not worth it, and SELECTIVELY SKEWER SOME PEOPLE AND INSTITUTIONS. Since he operates within the bowels of the crime syndicates, with slush funds, narcotic funds, fraudulent bond flow, cover-up initiatives galore, insider trading schemes, and much more, he knows too much. He might be kept on in order to sustain the fraud cover-up on Wall Street, or suffer a fatal heart attack. We will see. It is doubtful that he is resented for the Helicopter speech of free month, since it probably landed him the job! Easy money, and broad disbursement of that money are essential for crime syndicates to profit. They wanted a monetizer.

Here is the NEXT BIG ANGLE. Lawrence Summers at the USFed Chairman post could betray and anger the Chinese credit masters with grand monetization continuation schemes. That is precisely what the Chinese elaborated upon with specifics, repeatedly, from many pulpits. A new chairman could start fresh, betray the Chinese, and claim politically not to have gone back on any promises. The USGovt could simply say “WE DID WHAT WE HAVE TO DO IN RESPONSE TO STUBBORN CRISIS, IN OUR NATIONAL INTEREST” which in internatational credit circles is translated as F.U. loudly. Inflating debt down to lower manageable levels will continue to be an important directive. Besides, foreign creditors have much less foreign trade surpluses at a time when they are also much less willing to support the broken and corrupt US financial system, adorned by aggressive military flanks. Actions taken, perceived in the best interest of the United States, go diametrically in opposition to the interests of foreign creditor nations, and that is precisely the grand conflict coming. My prediction is that Bernanke announces his resignation before the autumn is over, giving reasons like he wishes to return to the peaceful tranquility of a university campus, where politics are more manageable. He will not say that he has been chewed up by syndicate cross currents.

Subscriber LawrenceL of Massachusetts makes some very intriguing comments on a potential USFed transition. He said, “As a professor he is out of his league. And they are probably still pissed about the ‘Helicopter Speech.’ They say nothing happens in Washington without a reason. I think his days are numbered. I will bet he takes the fall and they put Summers in there. Summers figures out some new evil way to try to screw over precious metal holders. The interesting thing though is that I bet Bernacke does not go quietly. I think he is tougher than he looks, and he has some principles. It would not surprise me to see him blow the whole lid off the scheme if they treat him poorly. If [quiet accumulation of gold on Wall Street] is the plan then Summers and the rest of the boys own the precious metals. That makes sense. I still fear they will try some other stunt to screw us, but who knows? Maybe just my paranoia. Summers is extremely evil, but he is also smart and they must have a Plan B for gold.  I am thinking some new currency, restrictions, or something.”