T would Like to thank the many people who have been writsng from around the vorld, fe ir encouraging Eo know that there are so many people who are interested in uncovering the truth. T have also special thanks for 20 many providing Valuable insight inte trends around EgeTwor1e from chins, soviet Republics, Sowth Africa, Brazil, australian, and India. I believe ve can survive the folly of governsants évon if they refuse to listen. he key 1s snderstanding the natura cf events, and that Ellove us to correctly make the decisionto bs on the opposite side. T would Like to algo thank all my old friend and formar elients for their support and to know that they have continued to gather infornstion that serves us ail in tines of exists: We are standing on the procipice of a new era in global-social-ccononies. How wo enter this new age is Seeritical inportance. Government is Incapable eo doing Snything for any refora of sta on abuse of power is not up for negotiation, we must Weather the storm, and to do 2S we nued to understand ite nature. Just as the 19302 Geont Depression sat in motion profound changes that were even manifest in geopolitical confrontations, we have” now Eesched such a crossroads, A debt crisis has its tentacles Geoply embedded into every sector right into governneat. his 1s the distinction fron a mere stock market crash that cver-lavezaged and coms banis are still teyiag to be hedge fonds and have to speculate to make a profit. that isa key Sarning sign that the worse is yet to cone. comments, Suggestions £ Questions, Comments, Suauestions £ Questions Please mail to Martin A. Armstrong Fer Fort pix Camp, #12518-050 PO Box. 2000 Fort Dix, NJ 08640 PLEASE REGISTER YOUR WAL ADDRESS [FOR FOTURE UPORTED NEWS CRITICAL TO COR SURVIVAL ArstrongEccncmicsaiai 1. Cot This fepoct may be Fomusssed 2s yeu provided a a Public Sorvice 3 Tate nae fens ecorentestiy, The contents ond cesigne of the syst are in Fac ext clan of the 1908 The Grostoot 8ul2 Rack Jn story wilt be el fest book will soar o= pufllshon on the nigel iesal? = Tho Goumécy of Tm, Te is vite) that ‘orld erorony and fe scramen thet ary ation can dictate te ew orld cy vation #tiacta st ators ne aitfarn Shan if ne orb wa So pes aArmstrong Economics ” Is America On The Verge Of Another Bank War? Should We End the Fed or Goldman Sachs?PROLOGUE ‘There is a brewing storm over the Federal Reserve and vhether or not wo even need 2 central hark. Many blare the Ped for the current economic erieis and are calling for its execution, ‘Ron Paul has written a book entitled md the Fed, while many others sae conspiracy lurking in its secret halls and its private omership by comercial banks. ‘Then wo have those who are at the center of the stom, pretending that. the grisis was caused by the Lack of Transparency and the failure of the regulators to comprehend the "risk" underlying the transactions. Lloyd Blankfein, oad of Goldman Sachs, wrote a piece in the London Financial ‘Times on Ostober’ 13th, 2009, claiming: “at Goldnan Sachs, we calculate the fair value of our positions every day, because we would not know how to assess or manage risk if market prices vere not reflected on our books. This approach provides an essential carly warning system that is erition! for risk managers and regulators." Quite frankly, calculating "fair value" of risky positions after they have been established if sort of like closing the barn door after the horse ran away. ‘The question that needs to be asked, is fron the outset, Is this product even aparopriate to be involved in? Goldtan Sachs needed to fe bailed out just 1ike every other bank involved in COS products. When Long Term Capital: Managenant. had blown up in 1998, the Fed did mot bailout a hedge fund, they were bailing out the banks who Uma had positions with and would have defaulted, "To "cover-up" who wes being bailed cut on that one, inelikiing Goldnan Sachs, they claimed to be bailing out the hedge fund, Thay’ vars not protecting the investors in that fund, it was the banks who took the "risk" for calculating daily "fair value" obviously oes mothing to provent an econaric collage. The best that can do is tell you you are going to collapse - ROW! Hank Paulson when he was the head of Goldnan Sachs, testified before the SEC asking to raise the very leverage that has caused the entire problem. I find the ability to rewrite events incredible. Is st any wonder why there will never bs any solution as things stand now? Madoff hinself has been revealed on tape coaching another on how to deal with tho SaC portraying then as stupid and easily fooled. This is the shole problem. ‘The goverment hires young attorneys who never had a real job, vho run to them to \get-Sone experience; so they can then get a real Jobs Anyone who has-had-to-hire staff can tell you education degrees are really worthless. No matter shat school ‘thay are fron, you have to take that parson and still train than in the real vorld, Degrees only show interest. Tt is like reading a book on sex, and then you go around teaching people to have sek, but you have never had sex. ie are entering into a Bank War that has been raging since the beginning. Do (we need the Red? Or is the problan vith firms 1ike Goldman Sachs? That is the key!by: Martin A, Armstrong Former Chairman of Princeton Booeanics International, Ltd. ‘and the Foundation For the Study of Cycles NCE UPON A THE, the United States Goverment had no debt. This was the oason wiy President Andrew Jackson could even engage in what hes becon= Known as the Bank War, Today, the United States borrows from China, About 289 of the total National Debt is funded by foreign sources. The USA has Jost any of its ability to be independent in world polities anyrore. Do jou really think that the O&A cnn do anything Lf China invaded another pation and still turn to them to buy its debt to fund wwe have "career" politicians and not a ilitary? Zt i= tine to gst real. Because fre "denocracy" as it was in Athens, the out any hope of oar future. The dependency the Primary Dealers now control the state 1ike never before. has always taken place whenever debt has risen the Debt Crisis, is a collapse that tS dovestie agenda incluaing Combination of Marx and Keynes has wiped ‘pon debt has immobilized the nation and hat is now at risk in ES control the state, The dog no longer is capable of wagging the tail. The flee at the end of the tail, ga the end result will be the state once more waging now vag the the dog. Wie are headad into the eye of the storm war on the Banks. ‘The Crisis Begins When The Banks Cannot Sell the Debt T have spoken to journalists who will state up front, they do not believe in the 50 called “oongpiracy theories." ‘The sad pact of this bias, it ‘them from ven seeing the real crisis that is brewing der the fonsense, Nother it has been a deliberate plot (conspiracy) to get the pation addicted to debt, it does not matter Tf this vas a conspiracy plot, on it sas ‘the power then over the financlal system that fone could argue the NY Investnent Banks have today. In 1832, Andrew Jackson vetoed the officials. He had singled out its president Nicholas Bidile arguing he had far too mich the prodict-of -evolutien politically. The —|{néluence-over-the nation's econoqy. end result is still the sane. ‘The Bonk War, as it was know, took ‘The First Bank of the United states vas the child of Alexander Hamilton over the place between President Andrew Jackson and | objections of Thoms Jefferson who foresaw ‘the Second Bank of the United States. nt ‘this would lead to a national debt. The bank that time, there was only one national bank | charter expired in 1817. Due to the tar of operating naticowide and it had as much of 1 1812 and inflation, it was revived in 1816.‘Tt was President Madison sho revived ‘the Bank’ in 1816 dan to the rising level of Anflaticn on the heels of the War of 1812. Tt was at this tine that Nicholas Biddle tas appointed the head of the hank. Jackson had Personal problens with barks and credit. the Glection of 1828 yas quite bitter. Perscnal attacks were now part of the game, and the Unfortunate death of Jackson's wife he had blamed on these slanderous attacks that had Geeply affected his wife, causing him to believe they effected her health. Nicholas Biddle joined forces with Honey Clay (1777-1852) to apply for renexal of the Bank Charter in order to make it a Presidential carpaign issue. when Jackson won, be took this as a mandate to destroy the’ hank when in fact the charter was not Guo for renoval until 1836, Jackson's big defeat of Clay who waa the Whig candidate, set the stage for the Hank War. Jackson vas a debtor to banks in his youth and was against paper roney in favor Of coins only. Jackson's veto massage to Congress set, Gut his objections. Jackson stated that "sone of the powers and privil- feges possessed by the ousting bank are un authorized by the Constitution” suggesting that the bank was a dangerous monoply, There was a fierce debate over Jackson's views and Henry Clay tried to have him imeached by alleging "Jackson claimed powers greater than ‘Buropean Kings." Sven Daniel Webster viewsd Jackson as a marchical president, in 1834, tthe Senate consured Jackson over his vetoes, Tt was 1833 that destroyed the hank, Jackson saw the way to finish the bank would be to renave the Government deposits. ‘To accomplish this, be had to replace aot cone, but two Secretary Of the Treasury posts until he found the right man - Roger Taney. (on October ist, 1833, Jackson announced that federal funds would fo longer be deposited at the bank, Bidile retaliated by calling in loans from across the country. Bidile deliberately wanted to create a financial crisis in order to denonstrate his point that a national bank vas needed in the country. Bidile"s nove backfired, and businessmen a3 well as the farmers blaned the bank, not Jackson. The politicial pressure rost and the bank lost its charter. in 1836. By 1841, it was out of business altogether! hen Jackson withdrew the oney from ‘the sank of the United States, he places it with private state chartered banks that the press had called "pet" banks. This led to ‘wider acceptance of paper soney 1ssued by state banks and caused widespread inflation,Jackson's Bank War set the stage for the Panic of 1837. By withdrawing the deposits of the federal govorntent fron the Bank of ‘he United States, he placed then in the hands of his "pot" banks that was indirectly a vote Of confidence in these "wildest banks" chat issued their om paper money that wore in effect promissory notes. ‘the great speculative boon in those days was the sale of public lanis, People ‘were buying land fron tho federal’ government and were taking a fortune, the crisis cate ‘hen Jackson in 1836 prior to the President {al elections, issued the Specie Circular ‘that required the payment for such lands to be paid only in coin issued by the federal (govarnnant and not the paper foney of all. these state chartered banks. ‘The effect of the Specie Circular in the econoay was one of throwing cold watac fon the rad hot speculative boon, Land values Gropped, and the value of coin rose. This created’ the deflation and the Panic of 1837. ‘he public land sales were fixed at $1.25 and acre and vers sold to anyone with no Limit on the arount purchased nor vas there any requirement that the purchaser had to settle on the land, This created real estate bubble. Batwean 1820 and 1829, ‘the annual average was $1.3 million. In 1630, sales jumped tp alscst $214 million and it exploded thereafter; 1831 $3.2 million, 1832 $2.6 million, 1833 $3.9 million, 1834 $4.8 ‘nillion, with the expcnential Phase ‘trans— ton coming in 1835 with §14.7 million and 1836 with the staggering $24.8 million. ‘The Bank lar that resulted in the creation ‘of the “pet hanks" was an endorsenont of their paper currency even though Jackson did not ‘intend that effect, Thus, the Specie Cireu- Jar iltustrated by these Figures gives sone dea of the scope of the real estate bubble at that tino. Koop in mind however, that vhile this, Land was sold by the govertment for $1.25 fan acre, during the 1930s, land values’ Fell 5 abost 30¢ an crs 100' years latersDefenders of Jackson in the destruction ‘of tho Bank of the United States ina vain ‘effort to exonerate the governnant from the ‘cause of creating the Panic of 1837, point to the fact that the deposits during 1833 were sLightly less than $10 million, Since there was no national debt, the land sales wore pure profit so by 1836, the governnent Geposit in the "pet banks* rose to almost $42 million. ‘The Defenders argue that these "pet banks" ancunted to a snall fraction of the ore than 600 state banks, shat they ignore is the endorsement factor that the faderal goverment itself was using these "wildcat" Eanks chartered by states and that the bulk Of the national deposits was not in gold, but| wos in the paper money of these banks from alll over the nation. This is the prinary Feason for the 1836 Specie Ciroular that ow Gemanded only coin. This burst the bubble of Just printing money and buying land that had Greated a glut of Land omed by speculators, pot farmers and settlers. Because the monetary system was built ‘ugon paper money issued by hanks, not the government, these issues vere expanding ronencously, Just’ betwoen 1620 and 1834, the paper money growth soared fron $61 to $200 aillion, as reflected in clained hank capital. The’ loans during this sane period grew from $200 to $324 million, while the factual notes in circulation rose from $61 million to almost $100 million. ‘The period betwoon 1834 and 1836 shove that the banking capital rose from $200 to $251 million, the loans urged from $324 million to $457 million, and the notes that were in circulation rose from $95 million to $140 milion. ‘the speculative boon that many would Like to ignore as the cause for the Panic of 1937, created a wave of inflation that wont into’ ovory sactor of the economy. On Fabra ary 4th, 1837, thousands of people gathered in protest befére New York City Hall all over the dnélation issue. The chant reported by the press was "Bread, meat, rent, fuel! Their ices mast, cote dowil” The press called the frotestors "Yackson Jacobins" suggesting ‘they wore the supporters of a king no longer = power. A riot broke out and they stormed the flour warehouse gutting it entirely. the soverrment sent in troops to auppress the Fiot, Contercial failures began shortly there ‘after about April Tet. within just 1 Week, ‘over 100 business failures took place, the collapse of the pager money even caused 5 foreign exchange brokers to collapso that ‘sane Week, Sone 28 firms who had bean the real estate brokers servicing the speculators failed, Even 8 stock brokers failed along ‘with 30 comodity houses. as the second wosk Cf April bogan, another 26 failures all in New York City took place. ‘The Contagion ow spread causing Fires to panie and began to cut wages, provisions, and even rent prices collapsed. The Now York Berald announced ‘everything was coming down. Within days, the failures becane too runerous to even bother to report, Camodities in general fell by 50% just because. ‘The history of this period has been so manipulated by fany to extract support for particular agendas, Jackson's destruction of the Bank of the United States has been used ‘to support the need for a central bank. We have Others pointing to the paper mney and using this to support the GOLD STANDARD. tie have others vho point externally to Hexico ho denonstized Silver and their coin cane rushing to the United States where silver as still logal tener, Derenders of the banks used the Mexican silver as the inflixe that created inflation. They argue that the silver value declined Because the British were buying goods fron China and began to pay in opium they obtained in India, causing heir need for silver in international trade to decline during the 1830s. Defenders of the banks also point to tthe British vho had a huge trade Geficit with America and thus began to extend credit to Americans in order to sell more progct. ‘his has also been highlighted as the start of the funding for the big boon in railrosds and ‘the construction of canals, Looking at the custons duties collected in 1839, they were in excess of $23 million about on par with 1036. the Panic of 1837 caw revenues drop to S11 ail. But hard times was hitting Britain and this caused their credit lines to also Contract s0 customs revenues in Anerica now ropped to $13 million in 1840. ‘here is no doubt that the effects of external forces aided the trend, but they id not cause this one. Jackson’ may have rickad the bubble, but he did not craste it either, This was a'Real Estate Speculative Babble ‘that burst.Jay Cooke & Company _ (1821 ~ 1905) Because the Federal. Government ow nothing, they vere largely free from the feed to\have a direct yelationship with a bank, Thotas Jefferson's objections to ‘Alexander Hari ton proved to be correct. However, with the introduction of the Civil Wer, everything changed, ‘The wildoat barks vere over. The money supply Was coin, aided by the California Gold Rush of 1849, This influx of GOED had Created a massive wave Of inflation that vas furthered Ly the Australian gold discoveries in 1851. We then have this speculative boon reach its bubble top in 1857, and this tine Te yould be truly the first Global Contagion Gie"to the influx of GOLD. Nevertheless, it would be the Civil war that re-established the need for a banking relationship. Tt was Jay Cooke & Company ‘oho became the {iret PRIMARY DEALER in that this was the first firm to use the telegraph fo create a nationvide network of sales agents| ‘that ware able to-sell_ stocks-and_bonds.. The Feds turned to Jay Opoke & 09 to sell a huge bbond issue - §500 million to fund the war. Jay Cooke & Company becane over extended ‘hen it could not sell a vast holding it had Undorwritten in Northern Pacific Railroad. ‘this led to its collapse in 1873, Nicholas Biddle Second Rank of the United States (1796-1844) ere Nicholas Biddle was perhaps the first anerican Banker to flirt with Govern trent and loet, vben Jackson refused to then enew the chatter in 1835, Biddle turned to Pemmylvania. fils bank then became a state hank. Biddle helped to establish Girard Collage and his bank building still stands feday a few blacks fon Independance Hall. ‘The economic downtuen after 1637, led to the collapse of his bank in 1841. Biddle died Shortly thereafter, still arguing that a central bank wr scsssary for economic and Tong-tern stability. John Pierpont: Horgan (1837-1913) ‘The third and perhaps the anst fanous of the Anerican harkers in history, ws noo other than John Plerpont. Morgan ("JP") who was born ironically during the Panic of 1837. He began hie career as an accountant at theNY banking house of Duncan, Sherman and Co, ‘ihich wae tho Anerican agent of the London ‘Eien George Peabody & >. Tn 1861, J.P. Morgen becane the Anerican agent for his’ father's banking fira in Naw York City. Between 1864 and 1871, he was a enber of the firm naned Dabney, Horgan & Co. In 1871, he became a partner in Brewel, Morgan & Oo, With the 1873 Banie that brought the collapse of Jay Cooke 2 Co, the firm soon becane the Primary Dealer for the Federal Goverment to sell its bond issues. (1795 ~ 1869) Tt was actually George Peabody sho as the Founder of the fanous Hanking Hoase of Nogan. George Peabody was born in Devons: Nass and worked with his brother whose dry goods store Sured down in 1811. Peabody then moved to Georgetown in Washington, DC to work in a wholesale dry goods warehouse. He became a partner in 1614 vhon it reloca ted to Baltimore. By 1829, Peabody became the senior partner expanding branches now to Philadelphia and New York City. ‘Tt was_the dry goods business that led Peabody to travel for trad= purposes to then England, who as very mich interested in now expanding trade and provided lines of credit to find that trade to Anerica. On one of theso tripe, he negotiated an’$8 million loan for the State of Maryland taking no comission at the tine. Peabody was attracked by the vast amount of Capital Concentration in London. ithen the Panic of 1837 hit, Peabody noved to London, here he established a merchant Dankeing house Chat now specialized in my personal favorite ~ foreign exchange, Peabody amazed a fortune of at least $20 million, He hecane well connected and ad a inherent talent for trading currency. He becane a great philantropist creating in Baltimore a library, art gallery, and a msic academy, He funded the natural his Cory miseum at Yale and the msoun of arch- cology at Harvard. He helped to fund many the colleges in America and he established the Peabody Baucation Pun to provide an Sducation for Southern children of all faces. In 1862, be donated a vast amount of honey’ for the Goastruction of apartment Settlanants in London for the working people. {In 1868, the town where he was born, changed its name to Peabody, Hass. in his honor. | guntus Spencer organ (1813 ~ 1890) took in a partner in 1854, the father of J.P., Junius Spencer Morgan, Junius wes at first a partner in a foreign trade firm with James: Bosbo.. Peabody vas looking for a partner, and Resbe recomended Junius. Peabody offered a partnership on a silver platter, Junius did not jump at the idea of hnoving to London, Tn London, Peabody's firm twas considered second to Baring and Roths- Child, In October 1854, he agreed to Join, Yn 1864, Poakody gave Junis the fire, but 6‘took his nae with him. the fen then was yown to history as J.8, Morgan and Company in 1864. Peabody was legendary for his just nasty altitude and shoor man streak. Many assured that his spectacular gifts ws an effort to buy his reputation to the contrary. uP bad struck out on his own and had ‘shown his persons] "feel" for trading viten fhe purchased a literal boat load of coffee that arrived with no buyer. JP purchased the entire lot and quickly sold it for a profit but his firm only saw the risk and shen it becane clear he scared the partners, be left Danean, Sherman and set up his ow firm in New York under hie nan J.P. Morgan and Com any located at 54 Exchange Place, with his Gousin Jamas J. Goodwin. At the eander age Of just 24, he'vas now an agent for Peabody. By 1864, His father disapproved of his risk taking and his wife. iis father orchestrated a partnership for his 27 year-old son with Charles H. Dabney and the firm now becane Jaown as Dabney, Morgan and Company, with Dabney being 30 years JP's senior, In 1871, Dabney retired, and again his father moved! to find his son another partner to tonpor and| control hin. Multinational dealing vas very such a part of the times. Junius wanted to expand fhe Norgan fanily boyond just the traditional Lendon-New York route for capital, The trend ves not branching, but international partner- Ships, This would allow for cooperation with ‘no management responsibility between nations. ‘Mrying to manage employees and deals in all @ifferent nations, was a task that was just impossible back then, if not truly even now. Before the collapse of Jay Cooke, the second largest bank in Philadelghia was that Of Anthony J. Drexel, Drexel vas looking for a relationship with Zondon to compete with Jay Cooke (ho would go bust. in 1873). Junius ‘was already doing business vith Drexel acting a5 his London correspondent, Junius suggested Doxel take his son as a partner and be then encouraged his son_ to travel. to Philadelphia to met with him. The two met over diner and JP returned to tie York with a partnership ‘agreanant, The financial center was shifting— to Now York City from Boston and Philadelphia because of its Link to trade and finance with London, The Firm now became known a8 Droxol, Morgan and Company in 1871, just 2 years before the Panic of 1873 that ‘took dom Jay Cooke, @P vas a brilliant man who had Little time for fools, He often resarked that the scarcest comodiey vas brains. Yet this vas ‘2 man rot greedy for power, for he was Chained to his role and lanented about not being free to retire, Ho was truly a man vho Was exhausted by his’ success more so than ‘thrilled by it. He vas a natural trader who could "fool" biosd flowing through the wiole market. He was 2 man of his word, and always Sell respected in business as an'honast and Smpoctant counterparty. If you did a deal with JP, be did not try to get out of it the next day if prices went against him, Ho was ‘aman vho valued his reputation more than 2 dollar, his was aot always comon to ind among such dealers. Junius died a few days after being thrown from his carriage on April 3, 1890, Tt vas after Junius’ death that JP began to anass the largest art collection in private hands baying everything in sight. Merchant Banking yas built at that tine upon the family name tnd reputation, unlike corporate dynasties. Tn 1893, Anthony Droxel died. By 1895, there was a splitting of the ways, The Drexel family etained Drexel and Company in Philadelphia, Drewel, Horgan becane J.P. Morgan and Comeary, Ghile the Paris office Of Drexel, Harjes how Decane Morgan, Harjes. With the death of Junius, the four main partnerships had only one conton partner — 5p, This alo shifted the balance of power ‘from London to New York. The London firm bad retained his father's nane for 20 years. Tt ‘became Morgan Grenfell in 1910 adding the British partner to ease the English pride for the financial capital was shifting to denrica. Grover Cleveland had worked on Wall. St ag a lawer next to Horgan's office, with Cleveland beooting President, he vas very much sensitive about being in the pocket of the Wall Strest boys. In 1894, tho US gold reserve fel below §100 million. The over valuation of silver led to international arbitrage causing gold to flee america and Silver to pour in. By 1895, gold vas just | fouring-out of tho US at ah astonishing Fate. Gold was being loaded onto ships. in ‘New York and could be visibly seen setting sale for Europe. The comon bet anong the professionals was hen tho US would go into Bankruptcy - not if!Panic of 1884 ‘The economy on a global scale was undergoing a profound change that 1 one seems to have honestly understood. Just as we can se how Capital Concentrates anong the individuals, it does so also ona ‘sector scalé within the econony land then among nations and regions. (What was boginning was more than Gust the shift in power at the house of Morgan from London to now Now York, but this was taking on tthe entite force of the worldwide conan. ‘the Panic of 1884 was a short- lived event. But it was hinting at ‘the flow of capital anong nations that was emerging. Here we find the sharp decline in Buropean GOLD reserves, This began to set in m- tion sore capital withdrawls by foreign investors. In a act of proparation for the worst, New ‘York national banks began’ to call im loans made to the west $2 Host cash with the tacit approval of the US Treasury. Yore than 10,000 firms failed, Two of the major failures were Penn Bank in Pittsburgh and Grant # Ward, Marine Bank in Naw York, Bveryone was now judging "panics" as all ‘the gans and did not have a clue that the cash was now starting to flow around back and forth between Europe ari Anarica, This birth of international capital flow ‘that had first appeared with the South Soa and Mississippi Bubbles in 1720 that created the first true speculative bubble post-Dark Age, vas now manifesting in full-blown noves of capital that honestly was undermining the ‘hole foundation of economic theory that was Built upon isolated dowstic fundamentals, Now, fundamental changes in a distant land could spark net capital outflows and selling of domestic assets even then there was no such| change whatsoever in the domestic economy. We ‘Saw this as late as the 1987 crash. Despite this development, both the field of politics and econonies retain as @ retarded ability to ever learn from plain oberservation of what is actually taking place. No one seened to observe and explore as Adan Snith hinsel? had done. Consequently, as this trend of capital flow wos reversed by the Shemman Silver Purchase Act of 1890, politicians remained ignorant of the implications of setting now silver at a ratio to gold of 16:1 compared to Europe's 15:1. The European gold reserves ow bouan to explode and the US began to fall at an alarming speed. ‘This would have been 8 dream trade for any trader of foreign exchange ~ the guarantee profit. Cleveland was a Democrat. Norgan was a Republican, Still Morgan voted for Cleveland kocause he was a nan sho believed in sound finance. Congress sat on its hands and just fused to give the authority to replenish ‘the gold reserves, the conspiracy theories of the day made it impossible for Cleveland to tum to Morgan leaving hin politically paralyzed. By January 24th, 1895, the US gold Feserves fell to $68 aillion. Gold coin vas now being hoarded as many saw the federal government headed for complete disaster.Cleveland could not be seen to now be turning to Wall street. Instead, Cleveland turned to the Rothschilds in Lotdon, ‘The Rothschilds turned in Zondon to J.8. Morgan ‘and Company, who then agreed to participate only if-J.P. Morgan handled the Anerican end ‘with the Rothschilds representative at that tine who was August Belmont, Jr. Belaont and Morgan mot at the US Treasury| office in New York, while nothing was then settled, over $9 million in gold cn ships headed to Landon was taken off and returned to the city vaults that might, The mesting also fueled the conspiracy theories of the Wall Streot-tashingten league. Morgan's correspondence at this tine revealed his contempt for Furopean opinion, his distrust of politicians and Jevish banks ard his distain for unsound finance. In a matter of wesks, the Flight of gold had in fact sesuned aid now default appaard to be absolutely certain by February. ‘The politicians clearly knew nothing ‘about what they had done. A bunch of absolute idiots destined to destroy the entire Us sconomy hecstiss of their politics) Fawors to the sliver miners and farmers. The cabinet infomed Morgan and Belnont that they nov rejected their proposal for a bond issue to Faise gold. Morgan and Belmont hopped on trains for washington, They were met by Daniel Larent, Secretary Of War, who informed then that the President decided against a private synicate and would not see then, JP is said to have replied: "I have cone down to see the pres ident, and 1 an going to stay here until I see him." (Allen, Great Pierpont Worgan, 790). Cleveland was holding out in hopes of making a "public bond" issue rather than a private one. As the politicians delayed, it took a clerk to inform the White House that all that now remained was $9 million left in gold coin in the government vaults. JP told the politicians that he knew of a $10 nillion draft that would be presented and by-3 olclock, the country wotld te completely bankrupt. Finally, Cleveland for the first time asked JP, "what suggestions have you to wnako, Mr. Morgan" (Satterlee, J. Pierpont Morgan, £289); (Chernow, The House of Horgan, 7s). J.P, Worgan replied to Cleveland that the canbination of Horgan and Rothsch{la ‘Hiens in New York and London would now put ‘together 3.5 million ounces of gold with at Jeast half coning from Europe in return for ‘$65 million worth of gold backed 30 year bonds, Yet the boldness of the proposal went even further. He guaranteed to rig the gold market so that at least temporarily, no gold would leave the United States in the foreign exchange markets. ‘The proposal was bold indead. Tt was certainly worthy today of 25 years in jail. Nonetheless, Secretary of the Treasury Joh G. Carlisle relied on the 1862 statute that had beon enacted during tHe Civil war for Lincoln granting energency powers to buy gold during the war. Cleveland had sean the Light. tte still sought to get Congress to enact a” public bond offering to raise Gold. Nevertheless, he knew that if they failed for political reasons, he could turn to Wall street. ‘The Congress defeated the bill to allow the US ‘Treasury to sell long-term bonds to the pab- Lic. News broke about the Moran-Rothschila operation. On February 20th, 1895, the bond Salo in London sold out in 2 hours. In New York, they were sold out in just 22 minutes. ‘The conspiracy theorists used this rise in denand for the bonds to argue that they nad cheated the government. They sold the honds at 104 and they rose'to 119 on the open market. How the uproar expanded £0 include anti-senitisn because Rothschild was involved, This 1s the backdrop to the 1296 Presidential elections and the Denocratic Convention here William Jennings Bryan (1860-1925) ran for President and delivered ‘his infanous speech that Thou shalt not crusify mankind on a cross of gold. JP saved the nation that day. tie haa suffered the arrows of every possible sort When the politicians refused to yield and vere destroying the country with their silver madness. Morgan's view of politicians vas certainly well founded. They were 1 ‘taking a cab ride driven by a monkey. They will never Listen and will lash out at any arson who dares to criticize them. Even shen tho end was in their face, they still would not yield,various plots with other fanous Jews to dominate the world. He was said ‘59 have funded the Bolsheviks in the ‘takeover of Russia. Schiff had in fact lent money to all nations during World War T except Russia, He vould not lend soney to the Tsar because of tthe oppression of Jaws. There did not appear to be true support for the over- fhrow of capitalism. During the 1904-5 Russo-Japanese War, he lent Japan $200 million that aided its victory over Russia. J.P, Morgan in 1892 arranged for ‘the margar of Bison General Electric and Thonson-llouston Electric Company treating General Electric, He financed War of Wealth - 1896 Broadway Play tthe creation of Federal Steel Company ‘that he merged with Carnegie Steel Co and several other companies to then This vas also the era of American Mariam | craste United States Steel Corporation sn that had taken hold of much of the nation. The | $901. ‘these efforts nade hin a hated target conspiracy theories against Morgan reflected | of the Teddy Roosevelt Adninistration. With this clase struggle, yot it was ironic that | 5 Steel, he had now two-thirds of the market. verso was fot zeelly interested in money, be | In 1902,/his firm finaroad the foraation fanentad over his duty he felt he owad to'his | International Wercantile Marine Company. coutry and more than anyone else, he aided “tonal Yercant fie fhe shice in power rom London to New York. Above, is a poster from a piay that appoared on Broadway ~ The War of Wealth. This vas then Unspived by the Pane of 1893 and we begin to See the Nandat tone hed gripped the nation. ‘The unsound finance and the attack upon business with the whole Anti~Trust Act in 1880 set a tone Of caution, Capital remained uneasy and thus it vas quick to take flight. ‘he Panic of 1899 sent interest rates soaring on the New York stock Exchange reaching almost 2008 - their historical high. ‘hore sg a huge margor boon. countless small raiircad vere ‘Being merged aed Bought to form bigger onaa.Ageiny there wos, the Pante of 1901 sbore the Nes York stock Bach ange, sellin pert din to the struggles now Eeteen £.i, Harriman, Jacob Sonitt, abd J-P. Morgan/James Hill for the control of the my Corts ea oT rehaen Pacific . 8 tether Pacific tained. tha tone thus tbe Panic of 1907 had actmtty began ‘tp create Northern Securities Company. The’) with the attenpt_to. create 2 short_squoeze. Suprese Court ruled this now violated the | Manipulating the stock price of United Comper Antitrust Law in Northern Securities Gov | Qowany shere the majority shareholder was F- Og 151 us 55 (1908). Heinze who colluded with others. The scam was te force the shorts oat aad thet they sould Jacob Schiff (1847-1920) attracked the es conspiracy theories of the day casting him in | #418, and est off a domino effect, 10‘The idea was to start a short squeeze buying the shares and thus force the shorts to then cover. hey borrowed money fron Knickerbocker ‘Trust Company. ‘They began to buy on October 14th, 1907 ariving the price of the share up fron’ §33 to §52 per share, On the following day, a call was issued to return the borrowed owed by the shorts, The share price junped farther to $60. But they covered their loss with plenty of shares mde available from Other sources. The short squeeze was over and the stock bogan to collapse. The stock Closed back at $30 that day and by tho tine tthe market closed on third day, October 16th, 1907, the peice collapsed to new $10. ‘This trading took place cn the "curb" and not on the NY Stock Exchange. ‘the Wall Strect Journal reported: “Never has there been guch wld scenes on the Curb, so gay the cldest veterans of the outside market." rnc) ees De pegheroge, fom they used woot tally | 5,0, morgan gathered his associates to we 7 . coratbenny fe examine the books of the Knickerbocker Trust SES EST ceili imteomaaeoae, | Sate Ph Na oe ras Se Sie ee eee mene ana | ber fund Se ee teolent and decid i Rank A rear tect | Siar the Ruichtboctar seus would fail the aaa = its ingolveney. “he bank’ | f5"Spread co other banka, The irist Contany eee id ay of america asked Morgan for help. Morgan now against its lending. Heinze was also PAstcect of Roreartile National Bark in x | Sowsht in First National Bank ad wotionn ee tional Bank in NY | city Bank of few York (later Citi Bank), and aol the US Secretary of the Treasury. Morgah had Heinze to resign by mid-day, the Humans wore Figing and'a rin on Mercantile National pone | 3,9uCk auZit of the tank and declared that began in force. Runs began on any bank that eee feelers Senay was connected to the players. The Panic was Mucins waded. iit: Ts aasnninien Ge wed the. Contained for the first week to just those | assets of the bank to free up cash for the be ot ae were removed and placed with | juiciness, Morgan knew this was not the end. ‘The bank run did hit the Knickerbocker bya ol a eee aeons tanks in Now York and kept them anki mide of events reached Morgan, who was in Virginia ‘aight T Phaey Baresd Eo, provace toens ct tnd dacided to eet back to New York teavieg “| £5 dososit $28 million in MY banks. Jom Dr of october 19th, 1907, the very date of the | jocketeller, the wealthiest nan in Aterics, Panic Joy in 1967- On Monday the 7206) 2 Silt | deposited $10 aillion with City and called Sours, some fo million maa wicharain, by | te Aesociated Press to amounce his pledge noon, it was forced to suspend operations. Spices, Gail ‘onay rates soared ant now Broker Lesh | a. tame thon, ae : were being called. This fueled an outright re a vere being called; This fuelod am OUSFiGht | seis worst enum, beopite the efforts of all gains made since 1900, The Panic spread | Morgan to create this infusion, they vare any ade since 1900, The Panic spread | Yelyeant to lend any novey for’ short-term 24th of October, there was a chain of major eres et ae 1!30 pe cot 2ithy the president of the NOSE aes 11 Bote fo tell Morgan the exchange vould close carly.Morgan would not allow it, He warned that Sf the NYSE closed early, it would be catastropic to ay the least. ‘Morgan again Samoned the banks who arrived by about 2am fand Norgan pretty mich yelled at’ then and ‘warned that as many as 50 stock brokerage firme would fail unless $25 million was now raised in 10 mimtes!. By 2:16 pn, 14 banks pledged $23.6 million’ to keep the’ stock Exchange alive. The money even reached the Sxchangeby 2:30 pa, to finish trading at 3pm. ‘The sun that was actually neated was $19 million, Morgan himself fated the press, but this time he gave a rare coment. ‘The next day, the NYSE needed more money ‘and Morgan this tine could only raise $9.7 million. Morgan directed the NYSE that the noney could not be used for margin sales. ‘The exchange made it to the close. Morgan knew be had to turn the minds of the people and to restore their critical GQNFIDENCE to Stop the Panic, Morgan now Girected two committees to be formed to (1) persuade the clergy to preach calm to their congregations on Sunday, and (2) to sell the idea of clan to the press. Morgan was desperately trying to bold the nation together. Unknow oven to his associates, the City of New York could not aise acney through its bond issue and it informed Morgan that it needed $20 million bby Noventer ist, 1907, or it would go into Eankruptoy. Morgan Rifieelf contracted to purchase $30 million in city bonds. on Novenber 2nd, one of the largest stock exchange brokers, Wore & Schley, was heavily in dabt using the Tennessee Coal, ron & Railroad Op stock as collateral. the Stock vas thinly traded end the stock was Under pressure. Their creditors would now surely call their loans. vorgan called another emergency necting and a proposal vas put forth that US Steel Corp, would acqaire the stock in bulk. Yet another crisis was looming, Runs ware now Likely to-hite tuo banks_on Nonday, organ. ‘sumoned 120 banks and told chen he would fot proceed with the US Steel deal unless ‘they supported the banks. Horan now locked thon in his Library and told thom they had to come up with §25 million to save the banks. a Tt took almost 2 hours. Morgan finally ‘convinced then that they had to batlout the banks to save their om skins. hey signed ‘the agreonent, and he unlocked the doors and let them leave, Morgan vas saving the nation again, single handedly. Morgan turned back to save the IYSE. He know the problem would be the dann enti- trust lave, and the crusading Marxist, old ‘Teddy Rosecvelt. Breaking up companies vas the main focus of Roosevelt's adsinistration, To save the day; he would have to seo that the anti-trust Jaws mst yield. ‘Two men thus traveled to the White House to anplore Roosevelt to sat aside his anti- Efust lave £0 save the nation, As typical, Roosevelt's secretary refused to let thn’ in to evan discuss the problen. ‘The two men, Frick and Gary of 0S steel turned to James Garfield sho was Secretary of the Interior, hey pleaded with him to go to the President directly. Garfield had convinced Roosevelt to at least review the proposal. Roosevelt was for the first time Foresd inte s sornar, He had to realize a collapse of the NYSE would take place if he @id rot yield. Roosevelt later lanentod:Feb 2nd, 1910 Covor of Puck "The English Magazine “the Central Bank = why should Uncle San establish one, when Uncle Pierpont is already on the job, John Pierpont Morgan was a man whose passion was not money, but accomplishment. fie lamented over his Life and haa thought any tines he should retire. Bor always hin Guty called hin to action, He was at the very front of the Capital shift fron Europe to America taking the financial center vith it, Here we have a cover of the English Puck magazine in 1910, showing Horgan protecting his kingdom. Burope had a central bank. America did not. Morgan filled that role, and received ‘pthing but conspiracy theories and slander always trying to cast him as sone greedy man motivated solely by money. His vast are that bbe spant abcut $50 million collecting, was his gift that becase the NY Metropolitan’ museun. Morgan vas a nan often hated by his om comtry, and certainly betrayed by it. In Novenber 1910, a secret conference was held on Jekyll Island Club just off the coast of Georgia to discuss the monetary policy of the nation, The group of financiers produced ‘ay plan for a central banking eysteny they — called the "National Resarve ank,"""A final report was published on January Tith, 1911 as the National Monstary Comission. But for 2 years, Congress debated the question afd the real problens. 0n December 23rd, 1913 the Owen-Glass Act becane law creating the Federal Reserve. 3 Politicians were jealous of Morgan's Powor. Horo was a man who saved the nation While the politicians would have destroyed the nation by their sheer self-interest and greedy stupidity. The efforts of Morgan had exposed the incompetence of politicians, and ‘for that, they wanted to roverite events and crush hin into the dust. ‘They twisted the US Steel deal into his greed to circumvent the anti-trust Laws. Sone even accused him of creating the whole Panic of 1907 just to accomplish that goal, Never mind that Morgan personally lost’ $21 million in Panic, they refused to beliove anything he would say in his own defense. careers were made in politics by bashing Morgan, Louis D, Brameis von national atten tion for attacking Morgan and his control of ‘New Haven Railroad, Sranseis\es appointed to the US Supreme Court, Tt was Charles A. Lin- bbergh, Se, who becane Fanous for beginning ‘the Wall Street probe, giving his son the aviator, a head start with a fanoue name. ‘They tore Morgan apart, shosing how very ungrateful a nation could be wien run by a Ibunch of crooks anyeay. Semel. Untarayer (1858-1940) ‘The ruthless prosecutor in working for the Holse Comite: on Banking & ‘Gurency, assumed the main role of trying to take dom Morgan. The Couittes was Chaired bby Arsene Pujo (B La), to investigate hatALL the efforts of Morgan to further Anerica over that of Burope and to protect the whole economic systen, meant nothing to the politicians who only are seeking glory by tearing down ‘those who contribute mare to the nation than they will ever bo able to accomplish. They had Sumoned Norgan whose health was ow starting to fail, mostly out of the realization that his life meant. nothing to these people in Congress. The ingratitude was nis deepest blow and struck his core sense of dignity and purpose. one of the most often cited parts Of Morgan's testimony in the Pujo Hearings that ware very hostile and bent upon trying to paint hie sbole Life as being a rook and Scam artist, the ruth less Unternyer was doing the interrogation. Unternyer: Is not comaxcial credit based primarily upon money or property? Morgan: Noy sir. The first thing is char acter. Untermor: Bofors money or property? Morgan: Before money Or anything else. Money cannot buy it man I do rot trust could not get money from tte on all the bonds in Christendon, Everyone blamed his continued decline in health on the bearings, They did far more danage. They destroyed his faith in his ow country. He vas betrayed and the old saying ‘that No good deed, ever goes unpunished, as made manifest by the ruthless Unternyer and the politicians involved, including Linbersh, truly a broken fh Hist, 1913 in Rome. What the politicians did to this man should never be forgotten. Tt was the great fest blow that a nation could flict upon such a patriot. ‘whe fizm continued led by his son they called "Gack" yet there ‘was a doop resentnant that had boon fueladby the press and the depraved politicians of the day. Following World War 1, another Zinancial panic hit, This was far worse ~ the Panic of 1919, This was the Dubble top in comedities and the Yow would ot be Found until 1932. Sectorial capital shifted fron the railroads with the 1907 Panie to commodities in 1919, and then to Industrials for 1929;-TrSeptanber 4920, the restentment fueled again st Nocgan, led to a bonbing of his office long after his death. To Morgan employee died, The politic- ians had succeded in turning Horgan into 2 very much hated mn. This is what truly killed him in 1913,Panic of 1907 APYIAL FLOWS whore the key to the Panic of 1907. While the Now York news focused upen naturally the events in the New York Stock Warkets and the banking, there was something else that was undermining the entire economy. Just as'J.P, Morgan aided the capital flows from Burope to America and ore than’ anyone else contributed greatly tozaking New York the Financial Capital of the World, there was a capital flow that wes now energing also internally within the ation. Just as J.P. Morgan also contributed to the moving of ‘the financial center fron Philadelphia that had been dominated by Jay Cooke & Co Guring the Civil War, there was somthing else n the undercurrent than just capital Slowing from Philadelphia and Boston to New York. The railroad had indoe? opened up the West and alloved the land bubble of the 1837 period to now take the forn of actual settlenant, ithin just 51.6 years of the Panic of 1837, capital was now also Flowing within the nation fron region to region, Where capital had been hoarded for so long after the fall of Rom in 476 AD, as capitalism was flourishing and blossoming through the industrial revolution, the age of Capital Flow had arrived. If the Panic of 1907 was created by merely a failed short squeeze, then why was it 50 devastating? The answer’ Lies in the regional Capital Flows. Cash vas also at that time moving west. ‘The insurance com panies ware in New York and the victims ‘were in San Francisco when the art Jit in San Francisco on April 18, 1908, ‘the city burned for 3 days ani over 35,000 buildings were destroyed ~ some 490 blocks wore simply leveled. ‘he damage at that tine was a staggering $350 million. This bad ‘Greated a cash fow problen, One can See that the US Treasury throwing in $25 million| to help New York, was nothing conpared to ‘the danage in San Francisco. 5 Wile focusing only on the events in Now York make great reading, we must also unerstand the inpact of the Earthquake, ‘There vas also rising unrest thanks to Mareisn, Tn Atlanta, Georgia, there was @ race Hot that resulted in the city being Placed under mrtial law. the Rev. crapoey ‘was put on trial for teaching Martism by Ghe Protestant Episcopal church, asl this as the birch of the first wireless trans atlantic conmunication between the US and Ireland conducted by Lee De Forest. - ‘There was a need for a Central Bank. But to suggest that it was only necessary to lend noney to hanks shen in trouble, missed the economic revolution. This is why ‘when the Federal Reserve was born in 1913, Ye bad 12 regional barks with each capable of raising and lowering interest rates holly independently. ‘The capital flows were more than just bbotween New York are London, they were now internally as well. The cash flow to California left New York vulnerable so that the short squeeze set off a chain re action that was far more devastating than ‘anyone had realized at the time, It would ‘take years of debate behind closed doors _befc 1s was now af auspected. The structure of the central bank had fo now fit the dynamic of economic growth that no one understood at the time.States. This went beyond Roosevelt's insane In the aftermath of 1907, there was a rising tension within the nation. Marcian wes becoming dominant. within the United nniscomprehension of the esonoric evolution process ard how thers ware many small corps Formed that are always bought up and merged into the gore dominant company. Ne would 98e ‘this during the 1920 in the auto sector. In fact, General Notors was precisely such a narger of indepansent manufactures. Even in the computer filed, we have seen Microsoft battle both in the United States and within Barope against this concept of a monoply. No one has ever proven this theory ~ it has always been a dream from the dark side of the mind of Karl Marx. Several companies have fron tine to ine agreed on non-conpetition ina field, But there 1s fo evidence that one company has bought up competitors to deliberately prevent competition, Yet, this boogle-rmn as Teddy Roosevelt's pet: drean, convention who noninated Bugene V. Debs for President and Banjanenin Hanford for ve. ‘the Denocrats noninated William Jenings During the 1908 Presidential Election cycle, on Say 10-17, 1908, there was even the "Socialist Party" who’ bald a national Bryan again ani the Republicans nominated Willian Howard Taft, who won the electica ‘The Sockalist Party’ took 420,820 votes to Taft's 7.6 million, There vas also the Prohibition Party and several other fringe parties that ran that year. on February 3rd, 1908, the Supreme court held in Loowe v tavlor, that the Antitrust Act applied now evan to labor Conbinations ae vali as capital. So we can ‘bea how judges will take one law intended for one thing, and suddenly now expand $t on. their ow far beyood what Jegisiatare began with. now just starting to sprout when Henry Ford ‘the eoad for the 1920's auto boom vas began to sell his model T in 1908 for $850. Ris {avention of the aseenbly Lins allowed nim £0 reduce the price to $310 by 1926. 16 (on duly 12th, 1909, Congress passed ‘the 16th Anandnant to the Constitution to allow inoone taxes. While it would take until 1973 to have the state ratify this enactment, it still gives the flavor of how dominant Mancism bacane during this period in American history. By 1910, 8 States all enacted Prohibition with’ all bbeing in the South with the exception of Maine. Congress passed the Mann Acton June 25th, 1910 to criminalize the trans portation of wonen for "moral purposes" hat was dubbed as "white slavery" at that tine, The sudden turn to religion was also caused by many believing it was now the fend ofthe world because Halley's Comet ci ‘appeared. Daspite the fact that it had a regular cyclical path and was first dis~ covered in 1682, there ware docurented Sightings in 1551 and 1607 and appeared ‘once every 76 years or so. There vere people even selling conet pills to ward off the Gangerous effects. on May 15th, 1911, The Supreme Court ordered the break-up of Standard O21 under the Antitrust Laws, For 1912, the election for President wos fow a threswvay race: ‘with fast running as the Republican, Teddy Roosevelt now the candidate for the’ naw Progressive Party, afd Woodrow Wilson the Denocrat, The aajor issue vas still the break-up of big business. Ronsevelt prom ised a Square-Deal and a Now Nationalism an wanted more regulation against the huge Industrial nonopoly as he sav it. Wilson spoke of a Now Frosdon and promised to now break-up big business to create competition. 1a 1913, the Income Tax was ratified, en May 14th, "1913, John D. Rockefeller then Started the’ Rockefeller Foundation with the largest donation in history, §100 millica While Wilson now pronised bank feform that Becane the Federal Reserve. In August 1914, World War I broke out, ‘the primary incone of the Federal Govern- nent had been tariffs. The combination af ‘the iorld War and the reliance upon tariffs for incone, clashed, the US had a very tiny ‘amy at the tine and it was unprepared for engaging in war. Tk was on April 16th, 1914 that ve sew ‘the march of the unemployed upon Washington known a5 Cosoy's Remy sho bad nade his first march back in 1894.World War I Dependency Upon Debt ‘on January 28th, 1915, Congress enacted the U.S, Coast Guard’ and was placed under the US Traasury because its prinary function was to catch smogling vhen the majority of tae revenue was tariffs. on May 7th, the Gonans sank the Insitania off the coast of ireland, ‘This disaster in 1915 saw of the 1924 passat gers aboard, 1198 drowned including 63 infants That included 114 Anericans, ie was 1915 that the Victor Talking tach dine Conpany brought cut the phonograch. By 1919, Anericans were pow sponding nore cn records than boks or anything else sare or jess. ‘There vas still rising racial tensions thet was illustrated by After the Suprane Court comuted the sentence of death for leo Frank for the murder of Mary Phagan, the mb stormed the jail, dragged Frank out’ and hung hin. This vas largely seen as bias bocause he os a Jew, Zt would take 70 years to over um nis conviction when evidence surfaced it was the wrong man afterall. on July 22, 1316, a bomb went off in San Franciso over rising Markisn’s influence in labor. The leader of tthe movenent. Tom Mooney was Sentenced to hang ‘but again there were doubts, President Wilson Conmuted the sentence to Life isprise ani then it was show that the testanony of the Governnant witnesses vas coached snd perjury Fesulted in the conviction that ws later pardoned in 1939, on January 31st, 1917, Germany informed it would ronay its submarine warfare against even neutrals. 0n February 3rd, the Germans Sank the US ship Housatonic and Wilson had. ‘po choice, ‘he Senate voted for war 82 to 6 a April 4th, on February 24th, 2 coded reesage vas intarcepted fron the Germans to exico proposing aaa! Lance against. the US. On April 24th, Congress enacted the Liberty oan Act authorizing raising money fron the public pay 338 in gold bonds with a total issue of §2 billion. By June 26th, the first. Awerican troops arrived in Burope. ‘The economy had been doing quite well, by 1917, there were 4,8 million cars now registered in just 8.6 years! Yet the religious right was gaining and it was also ‘on Decerber 18th, 1917 that Congress enacted Prohibition that was ratified by the States on Jamuary 29th, 1819 in time for the 1519 crash, World War T cane to an offictal end on Novenber 11th, 1918, Yet erica showed its Tack of respoct for the Constitution cove more as Congress enacted on May 16th, 1918, the Sadition Act creating stiff panalt- ies for anyone who even spoke cut against the ‘The War Industries Board wae established ‘on July 28th, 1917 smposing rationing on food and fuel with increased tastes. The government hationalized the rallroads by proclanation on December 26th, 1917. ‘The European war had created a vast boon in the US and even the Steel production had doubled betwoon 1914 and 1917... The Post Office had begun the first’ Air Mail en May 15th, 1978, The great health panic also took place where as many as half 2 million Anaricans died of influenza that Feached its peak around October 1918, In 1919, they saddled Gemany with the impossible war reparations of §56 billion. ‘This only sot the satge for Hitler and the Second World War, Wilson's League of Nations vas drafted February 14th, 1919. Nevertheless, it vas the development of World War I that gave birth to a rising debt evel and widespread taxation that of course id not magically cone to an end with the war. Ne even find the beginnings of Solomon Bros and other investment banks that would becone he network of Primary Dealers. ‘The 26 Year Cycle in War did not allow for the subsiding of debt. With the Great Depression on the horizon, the United States emerged into a debt dapenient nation.New York Becomes the New Financial Capital of the World World War I changed the course of the world in so many ways. Burope was in ruin and as always, the Buropean politicians did fore to undernine Europe than rebuild it. ‘hore vere living in a drean world to even ‘think that Germany could make $56 billion 4in reparation payments and serve their debt ‘to the United States. Prior to World War T, there was a core Gisrespect for politicials’ that J.P. organ retained. France had paid reparations to the Germans in 1819 and 1871. So it we vieved leo az what goes around, comes around, Tt anti-reparations that contributed to the Garman feoling that they were being harshly penalized, This would uitinately fester into fa turn toiard itler for Germany went into hyperinflation during the early 19202. While "Yack" Morgan took the reiems of ower and Thomas Lanorit becane the debonair Partner at J.P. Morgan. he war shifted the Power from the dominant Buropean Jewish banks| to the Protestant Americans ~ J.P. Morgan — National City Bank (now CitiBank) — First Nat onal Bank, The antinJevish rival contest in banking still lives on today in New York in ‘even the legal industry, There has always ‘been and undercurrent of Jewish/Protestant ‘confrontation in New York City that behind Closed doors is called the New Jerusalem. ‘The financial capital of the world that. hhad been London, now shifted to New York and with that began’a now era between the banks and goverment. In 1917, Treasury Secretary Carter Glass appointed fom Lamont as a new financial adviser to the US Peace Conference in Europe. Lamont. becare perhaps the first banker from Wall Street to pave the political roads to Washington. Yet, by Novanbar 1919 tthe Treaty of Versailles was dead in the US Senate and the USA never joined the League of __Nations,- Wilson's. drean, imeriea was very much | ‘a nation of isolationiats, he demands that tho war debts be paid by Europe, was part of that isolationism whereby Anericans Viewsd thanselves as always being looked Gown upon by the Europeans. Lanont ‘as also publisher of the New York Evening Post and he directed the paper adopt a pro-Wiison stand for the League of Nations. hile the average American and nost ‘bussinessnen vere very provincial in their view, by bringing in Lamont to the inner cirelé of politics, this in itself had the effect of marking Anerican banking far more ‘cosmopolitan with worlaly view. ‘the Republicans were far nore isolation ist at that tine and it was the Danocrats who were more worldly under Wilson, Warren G. Harding won the 1920 election putting the Republicans back in powsr taking once more the Ssolationist views to Washington. Jack Horgan was very anti-German, yot the hank was now trapped into the political dance and lending had to reflect the policy of the nation, not tthe personal views Of harkers, Gradually, the New York banking center was starting to in fact follow the political agenda. organ was no providing loans that made the German rep rations possihle, whan Jack Horgan hinoel® Gotested the Garmang and felt that General Pershing should have wiped cat Berlin before entering into a peace treaty. Meanshile, the Russians seized power led by Trotsky and Lenin ‘who had Czar Nicholas IT and his fantly all murdered. They also defaulted on all foreign Gebt and Russia now tried to move ite deposits from Barings in London to Guaranty Trust in New Yorkn only to have all funds frozen. We also see the Mexican Revolution unfold and they too defaulted on all foreign debt, and ‘wore now proposing to nationalize all Anericen Gil interests. ‘The Marxist contagion was spreading. In cemany, the new government cama in 1919 known as tho Weimar Republic that lasted until 1923 hen Hitler cane to poner. These revalutions Created what bocans Krom’ as the "Bed Scare" with visions that revolution would spread to Mnerica. Indeed, in 1818, over 4 million want fon strike. Attorney Goneral A. Mitchell Palmer ‘sct-out-oft-a-mission-to-hunt.down-the- "Reds! and Massachusetts Governor Calvan Coolidge rose to fame for suppressing a major strike in Boston of the police force, This puts in context the birth of the Red Scare, the shift in power from London to New York, and the first use of banking by politics. 18N.Y, Federal Reserve Discount ate ‘The Panic of 1919/1920, was perhaps the Hirst such chacs deliberately crested by any Contral Bank, ‘The nan in charge was Benjamin Strong who was governar of the New York Ped, Keep in mind that as T pointed out, the Fed original design was to establish 12 branches With each forming an independant role. ‘hus, each branch had the power to raise or lower’ interest rates in their district - not on a national basis. That would come under FR. Clearly, the Federal Reserve under Bon ‘Strong seamed to merge the role of cantral bank with guardian of the econamy. While wo can soe that the Fed raised rates during the ser from 4 to 4.58 in Docanber 1917 and then to 4,758 in Harch 1918, it was ite actions in January 1920 after the'war that deliberately created the recession and Crash, the Fed was ‘concerned with the sharp rise in comodities. Daring WW Z, most compaity prices were fixed. For exumple, there was the Sugar Ryvalization Roand. Horbort Hoover recomended to President Wilson that the crop of 1919 should remain under controls until Burope got hack on its fect, However, Wilson relied upon Frank Wa, ‘Taussig (1859-1940) who had lovely creditials, Harvard degres from 1879 and went on £0 get ‘his-Ph.D-in-1883-an-than_a-law-dagras-in 1886,| Ho imediately hogan teaching econanics at Harvard in 1892 until he retired in 1935, He had no real world experience, Yet he was’ the main Presidential advisor ¢o°\iilson and vas even chaiman of the US Tariff Commission stwean 1917-1919, le wrote the Principles of Jilson rejected Hoover's warnings and Listened to his acedanic with no experience. ‘Taussig recomended dropping the controls and suger for exanple, soared from 9 cents to 25 cents in 1919. his set in motion the insane reaction by the Fed sho raised intarest rates now significantly in January 1920 fron 4.75% to 68, the Fed still aid not understand its role and then raised rates again to 78 in ‘June 1920 creating confusica and the Crash. ‘The Panic of 1919/1920 set in sotion tthe entire process that would lead to the Great Depression. Tt vas (1) tho assumption Of powers by the Fed in New York under’ Ben Strong that were at best questionable, (2) it set the stage for massive selling of for- ‘eign government bonds in small denaninations that would wipe out American savings, and (3) it created the peak in compdities a show above by the silver chart. Thdustrial stocks rade ne highs in 1929 ~ not comodities. This Panic wiped out two major players the founder Of General Motors, and Jonathan Omen Armour ‘whose father founted Armour reats’ in Chicago |_and during this Panic, Jonathan lost about ses more than even Rockefeller gave away. No Sndividsl bas ever lost so much money is such @ brief period of tine. Adjusted for inflation tthe loss was probably twice the wealth of Bilt Gates at his absolute peak. Boonamics in 1911, but sat in his ivory tower never -observing-the real. world, 19 Si million per day for 130 days etraight. ThatIn 1908, Wiliam Crapo Durant had bogan tobaildhis vision of an autom- Bile company with a variety of brands to offer the consumer a choice. Durant vas a wealthy bugsy manufacturer who instead of fighting the new innovation, hhe decided to enbrace it. Durant vas a, man of vision - a builder. He was not a CBD to rin the company. ‘His lack of managanent skills led to his losing ‘control of the coapeny he formed keown 5 General Motors. After losing Gt with the Panic of 1907, Durant entered into a partnership with’ Louis Chevrolet and began the key Chevrolet Notor Oanpany. In. 1915, Durant. then used Chevy to buy_and take Control of his beloved @, which bocaro the Largest manufacturer and in 1916, he paid tho largast dividend in the NYSE history. Durant, perhaps more than any other person, put the auto industry in tthe minds of all. Anericans. Henry Ford id not believe in going public, and had believed his workers were the natural shareholders, so it would be @¥ that set tthe new tone'for American Industrials. Durant: vas a viscrary, not a manager. Durant: Gid not understand yarkets. Perhaps 1Like the Japanese governmefit ried to hold the Mikkel fron collapsing after the top in 1989, Durant tried to support his stock at $20. hen it fell to $12 and he could no longer meet margin calls, the dark clouds appeared on the horizon. iis Morgan bankers went to his office on Sith Street only to bea witness to a mb scene of creditors, Durant's debt had reach $38 million ~ a incredible anount of money when you realize J.P. Morgan lost $21 million in the Pante of 1907 and the US Treasury had only $25 million to lend the NY bankers. With visions of the Durant default now creating another Panic of 1907, J.P. Morgan Eco and Pierre dy Pont bought’ up GM stock at $9.50, a steep discount to the closing peice of $12. They covered $20 million in margin calle and formed a now company to buy tthe Gl shares. ‘The du Ponts took 40%, Morgan 20%, and Durant. 408, But the Morgans were not. happy to discover that Durant had been trying ‘e9 apport his stock with a pool they knew nothing about, So the Horgan partners insisted hhe reeigh, and Pierre du Pont cane from his Estirenent to assure the role of President of General Notors that be held until replaced by Alfred Sloan, Jr. 3 years later. Durant. vould ose mast of his fortune during the 1929 crash land ended up runing a bowling alley in Flint Michigan, He died virtually pennyless in New York in 1947. ‘As illustrated below, you will find the comparison of the Industrials with tho Rail- road stocks, This Panic of 1919 illustrates the ehift f2om the Age of RaLlroade to the Gawn of the Age of Tnustrials, Note that the Railroads peaked in Yay 1919 and made a perfect PI Cycle decline 31,5 months into the mejor ow for 1821. Now compare that to the Dow Jones Ingustrials, ‘where we have a December 1919 high witha 71.5 month drop into 1921. rn 2007, Feb 27th parked the high in Financials while’ the broader march made new highs nto Octeber. ‘The banks crash on 07 and like the railroads in "19, they peaked first. Dow Jones Industrie ent in 1918 = Boe 1922 @ 0 My ‘er mr) “one! Source: Greatest Bull Market In History aieide Strong's manipulation of the interest rates to fight "inflation" set in notion a ‘how idea that cast goverment bonds as the alternative to what #28 looking to be the Hiskier stocks and comoditien, Reap in aind that prior to this Panic, thera was no real {flight to quality toward’ goverment bonds. The energing goverment dabt vas creating a another cowpeting tier in investments, ‘he bonds fol 172 wonthe (2 » 8,60) to the 31.4 menth decline in Ratleceds and-Stantho in the Tnchstrials. ‘This was a ontizely new field for the aver~ ‘age Merican. What you mst also keep in fhe front of your mind during his pariod, twas that the © vas near baneruptey in 1695. he capital flow poured into the OS Tlesing Ww and to buy raw food and materiale, Tho naricans where now the rich boy on the town whereas that had long relied on Furope for Cepital to fund ventures. ‘To fund the war effort, the US began this trend to initiate the average citizen 0 became a holder of government debt, the government sold $50 Likerty and Victory Bonds ‘creating # market for-debts-Anericane had —| traditionally invested in savings accounts, insurance policies, and stocks. Now, they ‘were becoming the tarket for goverment debt that profoundly set the stage for the true core that would create the Great Depression -| the exargence of the Debt Crisis. The brokers wore now marketing debt to the general public that. had ‘continued to show derand after the (wer. They were now shorn that they too could be miniwJ.P. Morgans and participate in worldvide markets. ‘The national banks vere prohibited from engaging in securities business, and thus they set up subsidiaries in Guaranty Trust, Chase, and City Bank, to santion 4 few. ‘they were now following the model of Jay Cooke 4 Op and had agonts spreading out all lover the country marketing debt. ‘The product was now Foret. bonds and they were sold with the now image of J.P. organ saving Europe, ‘There was Fisk, but that was played dom. National ‘city Bank had gone into Russia folloring the 1913 reform of banking, only to find that all its operations’ were seized by the Bolshe— ‘viks, the American bankers now saw themselves as global harkers opening up branches even in China as well as throughout South america. ‘The foreign bonds being sold to the mon and pops was staggering. You can stil) buy many such bonds at antigue stores and rated aking nice wall decorations. The Averican banks had begun to displace the British. Even Barings was surpassed by the New York cron. ‘the politicians and the Fed vere simply taken by all the activity. They were trying to figure out a way to create politeal capital and muscle. They did not sea the danger that they were undermining the stability of the Mmerican econsey for what vas really taking place was a vast pouring out of wealth from the average Anorican and when foreign govern- nents defaulted in mass in 1931, whoever did ‘ot lose money in the etock mariet, was wiped cout by the collapse of the debt market. During the 19208, three Republican ad- inistrations assured’ the power now to vet foreign lending. This was pechape contrary to laissez-faire principles, but there was a debate about alloving foreign goverments to raise noney_fron_ the american people. with no restrictions. Tt vas ironically the Secretary of Commerce, ‘Berhert Hoover, who who vas not jentirely catifortable with the trend, Herbert Hoover (1874-1964), was not one Jor those acadanics nor a career’ politician. He ‘wes a nen who was an engineer in mining and aHoover 1964) Herbert. oars worked on four continents. When I yas in Austalia visiting Western Wining, there ‘as an oil painting of Herbert Hoover. He had een a CED down there woll before be bocane President of the USA. In fact, Hoover worked for about 18 years bofore getting involved with politicians. He bad vast experience and vas in China during the Hower Rebellion in June 1900 (killing of foreigners) and he was in Torion in 1914 when the war broke out and ‘was asked to head up the Allied relief oper- tions. this led him to be appainted ae. the Pational food administrator in the US during 1918, Wilson rejected his experience for the acadanic that proved to be a disaster, but in 1921, he becane Secretary of Commerce. He overaw the expansion of radichroadcast ing and he was Chairman of the Colorado River Conn'a that culminated in the "Hoover" dan, When Coolidge decided not to run for a third term, Hoover von the nomination and the Re- publican Party support and the election in 1928 taking office in 1929, His Memoirs are ost enlightening for this period and were published in 1951, Ironically, the Democrats saw rebuilding (the world while’ the Republicans viewed all. this money going to foreign nations as debt ‘that would have been better spent in the local economy. This created a strange conélict with the NY Bankers who were now looking at having to get approval first before marketing any foreign debt in Anecica, The pro-business __party was conflicting with the bankers who, id fot Like being cutrailed fron a market that was a real. boon. President Harding thus took the position that war debts were owed, and should be paid back to Anerica. Harding believed that if the debt was repaid, taxos could be reduosd on Americans. 22, ‘The opposing Denocratic view wae that the war debt should be foregiven and they saw this debt retarding world trade, They also believed that this would undermine the Few status of Anerica and prevent relations with Western Burope from developing. This new requirenent that foreign bonds required US Government approval to bs sold in America, had the effect of also giving the stamp Of approval of the federal govern ment to any foreign government: bond sold. ‘the ‘brokers spun this image creating the real illusion that thie debt was sanction by the ‘government itself. ‘The year 1923 saw Germany default on its reparation payments and there vas even 2 failed uprising known 25 the Boarhall Putsch in thmich were Adolf Hitler vas sentenced to 5 years in prison. On September ist, 1923, the worst earthquake in modern times hit Japan wiping out most of Tokyo and Yokohara. The chaos of 1923 led to stock declines. Tt vas the Jewich bankers Rahn, Loeb were just too anal to handle a $150 million loan to Japan. In February 1924, J.P. Morgan & Co created a syndicate to hand the vast amount Sf public dane toa foreign mation, Tt vas perhaps Bon Strong vto hecan the ow powerfull man behind the Fed. He had wade contacts with the Buropean central bankers and and where the Republicans Harding and ‘Coolidge declined to assune leadership in any rorenstruction role in Europe, Strong assured this role without any formal authority. Thus, ‘Strong cultivated his relationship with J.P. Morgan & Co and was seen by many as Linked at the hip with Burope. ‘the Ped could not lend money directly to Burope, and thus he eoded J.P. Morgan & co to achieve his goals, Be tried to turn the Fed into the the U.S. image of the Bank of England founded in’1694, He aspired to near royal dicnity for the Ped. He developed a very close relationship with ‘Noman, governor at the Bank of Eng and that it often sparked rumors. Monty was a bachelor and Strong was divorced. The two would secretly take vacations together and both shared-a-distrust_of politicians. They. Sought to thus forge an independent. central bank untouchable by politicians. Monty hinsolf ‘rad cone from an Anglo-American merchant bank Brown Shipley & Co (known as Brow Brothers in Now York). The idea of Fed independence ccan thus be traced to Strong and Nonran.‘The United States had completely just arassed tronardous debt, The calculations of loans made to Allies (mst never repaid) exceeded $10 billion. The theory was that Ehis massive debt wold be repaid by the Gemans. Britain proposed that the dabts should all be just canceled at. Versailles. Wilson refused. Congress established the Foreign Debt Comission on February 9th, 1922 to study the problan. The final settlenant was agreed that they would repay the US with $11,5 billion over 62 years at the interest até of 2.1358. When 1€ beoane clear that Gemany wuld never be able to pay now suffering hyper-inflation, the debt was thea scaled dow in 1325 and again in 1926. ‘the government couldn't figure out how to audit no lass even manage its budget. In 1921, it established the Bureau of the Bad get Within the Treasury. the size of the federal goverment just kept expanding. Tn 1919, the Conmodity Bubble caused by the War, burst. Tho richest man pachaps ever ‘borane Johnathan Ogden Amour «ho lost in this bubble at least a few million dollars per day for about 130 days straight. He was the supplier of fooa to the allies Guring World War Z. He lost everything, incising ‘the company; and died penniless’ in Loxon, Living off the charity of old friends. During the 1920s, the two greatest issues were the War Dabts ani Prohibition. ‘The later was truly an atteapt to punish ‘the Catholic immigrants pouring in from both Italy and Ireland. ag a result, botwaen 1920 and 1930, 500,000" Anericans were arrested. Gun wars and Crime exploded by making this Tt was William Jennings Bryan who in 1923 called the theory of evolution just a "progeam of infidelity masquerading under ‘the nane of science."” This 1923 speech he gave in Saint Paul, Kin., created the term for those who belseved in this "nad" science. In July 1925, John T Scopes was. crininally_put_on trial in Dayton, Teon. for teaching evolution... Now even Texas hed made it a crine to teach evolution. ‘The next great land bubble was also taking place, but this tine in Florida, The prices peaked in October 1925, setting the stage for a distinction between real estate and stocks that continued to rise going into 1929 as well as the difference between purely Gonestic investment (land) and that of stocks that vas far more international. ‘The Dow Jones Industrials peaked in 1923 and consolidated into 1924, The stocks toole off and rallied as real estate began to get soft. Tn fact, vhile the stocks had heen moving largely sidesays, domestic cash was moving into Florida creating’ the big boom. ‘that peaked in about 8.6 months creating a spike high. cash tthen migrated to stocks concentrating in the Financial sector. GALL Money RATES re76-1692 Wie can see from the Call Money Rates on the New York Stock Exchange, that the birth of the Federal Reserve in 1913, had the dnpact- of reducing the spike highs’ during panics. This ‘would prove to be a beneficial aspect of the Fed as tine went on. Nevertheless, as tine went cn, the flight of capital fron Rurope was misunderstood. TE as no different than the flight of capital to Japan going into the bubble top there in 1969, ‘The US tried to deflect the capital on an agrement with Burope to lover its interest rates to try to make it benoficial to retain Funds in Bitope. However, this backfired and when if was seen that the central banks were ‘coordinating, his confirmed the runars or the Gay that there was a crisis breving. still, acadonics just NEVER get it. Sonetine you have to leave the Ivory Tover and mingle, Té is NOP the eupirical difference between rates that moves capital, but the expectation of profits one mist measure against. 23Anti Japan 80% Belgium Holland Som Bulgaria Norway. 20% Ceechosiwain: Poland ino% Denmark Portugal 300% England Romani 6.0% France South Aca 60% Germany Spain 50% Greece, Sweden, 55% Hi Switzerland. 4.0% India United Sates 33% Taty. In June 1924, the New York Fed cut its Giscount rate to 5.5%. What Strong was ‘now trying to do in leaguc with Norman of tho Bank Of Bngland, was to deflect capital hack ‘t5 Burope to support their economies and the British pound. This manuver illustrated quite a lot, Te illustrated that the United states had indood everged 2s the new Rone displacing Europe and that New York itself was the new financial capital of the world. Koop in mind that the Federal Reserve was 12 independent branches. Ben Strong had fo power over the other branches. ‘The other ‘branches did not follow suit and then again on August 7th, 1924, Strong cut the rata to now just 38. This contrasted not only with tthe entire world, but Boston, Philadelphia, Cleveland and San Francisco left their rates at 3.58 shile the other 7 branches maintained theif discount rate at 48, ‘he NY Ped is whore the gold reserves were stored. Suddenly, gold began to move to other countries and capital would flow from Now York to other regions as well in the United States. The cut in the rates in YC lege May 1924 aa the low for the year, The Dow Jones Industrials rallied from just below 90 to about 120 by the end of 1924, ‘The sharp reduction in the NY Fed rate began to start rumors in Purope that there vas a serious economic problem. A lot of the oney being lent to Burope was going to rearm ‘the comtries, There was concern that the Sebt level wore excessive and that if the NY Fed fad lowered rates so drastically, it began to be taken as a negative confirmation about Europe. Neamhile, capital had rushed into the stock market afd there was also som ‘concern about domestic inflationary boon. ‘The NY Fed raised the discount rate back to 3,58 to match the other ranches to stabilie the internal domestic capital flows. This incident would later play a part in arguing for a single discount rate, Many have criticized the actions of the wed on this move ang have fried to blame ‘the ball market into 1929 on these events, ‘hat is a real stretch to say the least. hat is clear, is that virtually all of ‘the foreign dsbt sold to nem and pop investors who believed it tne sanctioned by the Goverrment and less risky than the stock market, lost everything in 1931. Hl / alate I = 2The credibility of farmers, priests and prostitutes — and bankers? In August 2008, the China Daily published an article that reported a national survey on credihility. They asked people What professions were the most trusted. Indeed, we live ina ‘world where the’ Investnent Banks bie-venton fare either so shancless in their | 5 pursuit of profits, or they are Sublinely stupid. the survey in able professions that are trust worthy, but the survey of more ‘than 3,000 ranked those profess ons We as: Pe cinseneor Pa couekseer sor a erence Votsisi7 isis tet 193 1395 Farmers ~ Priests - Prostitutes ‘Soldiers and Students Bankers have just been Linked with corruption fron Roman tines. Being a banker in Rowe vas not considered to be an honorable profession, The tarpation for corruption seams to be too great and in fact the term "Black Friday" reflects not a shopping day, but the Panic of 1869 ‘shen they had to send treops into Wall Street because the mob vas dragging bankers cut of their offices and hanging then on the streets. Pechaps the banking field is just filled ‘with hot air that they are trying to meke themselves faa ib handle nial aus 023 alts tne TSE SEES MEE inthe oom Agel eee eee erete oot thas et ei alopecia ee is ee in arti blade Rate of the AY Fed (1915-1933), there is a striking issue that jumps out fron the Chart. Here vo have iLlustrated proof that during tha 1929 Bubble, the high in Fates ws 68 whereas the 1919 Bubble the rate was 78, Clearly, raising or lowering ‘he Discount Rate is 2’ subjective human judy- ent. This means there is human error. The low Yates for the Fed compared to Purope and the est of the vorld illustrate that capital will fleo if it (1) swlls danger of default, or (2) —uhen_its expectation of profit 1s greatr else ‘where. The Fed was Keeping rates low trying to deflect the foreign capital flow back to Burope, That did not work. Burope defaulted ‘in 1931. ‘he US was the new financial capital of the orld in the 1920s, Tt was the place fo be, Capital moved to the USA regardless of the interest rates.Roosevelt's Usurpation of the Federal Reserve Pranklin D, Roosevelt was a serious socialist with very pronounced Marxist views toward Government: being the salvation. FOR even tried to alter the Supreno Court” that was opposing mach of his New Deal notions. Even the Damoerats rejected this effort of July 22nd 1937. Meanwhile, Justice Willis Van Devanter retired and this’ allowed HDR to now appoint Justice Black and swing the court to his philosophy. ER signod the Securities Exchange Act on dune 6th, 1934 creating the SEC. Just. as the weather cycle weat into extrene shock waves of incredible volatility in 1934 with records cold spells in February and thea scorching heat in July setting in motion the Dust Bowl, the sane was taking place in the political world. Nevertheless, thanks largely to the mix of political intrigue and conspiracy theory that sonehow it is the private barks who now control the Federal Reserve, the truth about. ‘the banking system has been’ lost in the deep cracks of tine. Before 1934 and the MOR usurpation of ‘the Federal Reserve. (here the "Ped"), the currency was actually issued by the Treasury for prior to the Civil War, money was aly coins offically, Private banks issued paper money that représanted their assets, but the private notes were just that - private. the Treasury bogan to issue paper notes after the Civil War, Te vas FDR sho changed the entire systen. Te is true that the Fed was set up in 1913 to be the custodian of reserve accouits of conmarcial banks and effectively clear transactions. Because of the events in 1907 “that saw how" JP, Morgan organized: the berks collectively, the purpose of the Fed was to fill that role, This wae the core of model proposed at Jekyll Tsland in 1910. However, 8 T have explained about the San Francisco Basthquake of 1806, this brought to Light 26 regional capital flows. this problem was now Gealt with by creating 12 branch systen of the Fad but what is overlocked by most, 1s that prior to FUR, cach of the 12 regional Danks were independent. Each established its om interest rate to manage the capital flow nationally, Another critical point of the ed that is overlooked is the fact that the way the Fed functioned vas wbolly private. Tt would "buy" comercial paper to stimllate the local cash flow probleas. It was the development of World War I and then FDR vho completely altered the entire systen. This is vhere the conspiracy theories Greats confusion. It is true that the original design of the Fed was a private clearing operation that would buy comercial paper and hold the reserves of banks. Tt vas privately omed to serve the public interast. Tt vas governed by 9 directors, 6 of uhon were elected by the banks and 3 were political appointments. As it was originally designed, there vas 09 threat to the eccnony or anything else. Tt vasa vital Link in the chain of econcmic evolution. Where things start to get massed up is once the US hogan to get involved with being fa dabtor nation, As debt started to be issued, it was the politicians who now directed the od to support their bond issues. with the FOR usurpation and then World Kar IT, forget everything that the Fed was surpose to do in the "public interest” for now it was order to support the US debt at par to prevent interest rates fron rising. That mandate lasted wntit But it gets worse, Fin‘s detemination ‘to-changer tha econcay” led to- the fundamental: change in 1934 usurping the power of the 12 independent branch-systen into a single one size-fits-all agonda. The entire capital flow {lesson learned from the 1907 Panto, went out the window entirely as Washington set one rate for all.US. Doar index 1900 = 100 ‘lhe Chara gh 48-178 ‘The entire atmosphere was one as always ~ targeting Wall Strest and the bankers as causing the Great Depression. ‘The catholic priest Father Charles E. Coupblin (1891-1979) played a big role in getting FOR elected. He created more unrest by alsays portraying this as a class war and ie is "us varsus them with the "ees being the dononized "grinning devils" of Will strest. ‘This public blame coring from a priest had a ajor impact. Then in the South there was the ‘notorious Huy Pierce Lond (1893-1935) ho in fact advocated his plan to confiscate all such estate worth more than $1 million and "share ‘he vealeh” as it became known. Long, hovever, es assassinated after beconing a senator in 1932 for his political views. ‘his was the atmosphere and FOR's oom poople ware also guite extrene. ‘the historians and economists of the tines were Very prO-FOR and as such, what dha bean taught in schools for so long is about as truthful as the Gemans taught Togarding Hitler or the Japanses taught én reepect to thelr invasions. To the victor, often Lies the right to alter history and to the loser, he assuned the right to just ignore history. the aassive save of selling foreign debt to the retail public throughout the the 19208 that vas encouraged under Wilson and regulated ander the Republicans, ad a Profound inpact won the econeny. For eros furdnsed those foreign tonas | Total Gonds Listed at Par Value on NYSe, fost everything. At least the aajority of stocks that fell, id not go to zero. Nast aia Sventually returned so those ‘ho could bold; hed soachow Survived, As you can seo by the illustration of the list fed bonds on the NSE, thare ‘was @ complete collapse arid — Gelisting of most Bonds. ~ uv ton so sora m = aBoney Horgenthay, Jr (1891 —— 1967) Me, Henry Morgenthan (1891-1967) 25 Secretary of the Treasury, was the ruthless man who probably sot the stage for a preb- ens today. Morgenthau went ater andrew MeLlon (1855-1937) sho had also been the former Secretary of Treasury. His relentless desire to punish the rich for simply Being rich was a Giscrace to the foundation of tthe United States. His perscnal hatred of the rich was only matched by that be also Gisplayed ageinat Geman cittzans as ateer Being Jewish, Morgenthau drafted his plan for Germany. Tt became known as ‘tho Morgenthau Plan that vas simply beyond description. jie proposed the cotlawing of ever allowing Gemany to rebulld any Industrial capacity. Iie vanted to drive Gamany into the ‘stone age completely and prevent any economic development thereafter. His “Plan” revealed sore about the inner hatred of this man that confizned his actions in attewpting to 99 after ‘the "rich" and Since MeLion had been the Secretary of the Treasury before hin, he was also attempting to 30 after Republicans while overlook the Denocrats. hen FDR died, Horgenthay then discovered he had fev zeal friends in Washington. His ruthless nature vas scary. Morgenthau this resigned and returned te private life in Now York. His actions toward the zich would illustrate to many that political contacts were just not Yeanshile, Washington was browing with resentment and blane fearing that the people were looking at the politicians. It becane their primary goal to now look for all sorts Of conspiracies to deflect the blane from ona other but thenselves. Senator Gerald B Rye, a Republican of North Dakota, illustrated that the hatred Of Wall strott that was brewing cane from both parties and tas distinctly also a trond that fas regional pitting the West and South against the banks and Wall Street of Now York, {st as Hoover began hearings on the mere Phone call that someone was forcing the Stock Market to crash to ruin his administration, here Senator Nye began hearings into yet a new coaspiracy that bocame dubed the Nerchants-of- Death based upon the conspiracy theory that now the WY Bankers id stoared America into ver (World war I) to safeguard their loans and to perpetuate a business in arms. on January 20th, 1936, ‘hme magazine asked the question that ym cizeulsting an ‘every corner: "Before the Comittee for settle- betrayed its own rewriting history to try to blaiwe anyone other than Governnant. Te vas a bitter lesson anerica can't be trusted, Lamont - Whitney ~ Jack Morgan Bofors Sonate Bearings of Gerald Nye ‘The "werchant-of-Death” Hearings ‘of January 1936‘he confiscation of gold by FUR also meant that what was "legal tender" had to change. Te was 1934 that ve find the new smaller paper currency know as the Federal Reserve Note, The currency previously was about 33% larger. You will Find these old otes in collector stores today or perhaps {hia wovie interasted in being historically accurate. Now the paper currency was just a Federal Reserve Note and not a note that was issued by the Treasury and redeenable there in gold, Nothing was redeemable in gold in the United States any nore. Joha Maynard Keynes (right) with ‘Treasury Secretary Henry Hoxgenthan, Jr ‘The entrance oF John Maynard Reynes to the mix, in effect added the seal of his approval to Marxism, I do not mean that FDR and Keynes advocated comunisn. What Marx Gid advooate was that government should be the salvation, In communism, he saw the naw State should om all property. FDR did not. gp that far and neither Gid Keynes. what they’ id advocate waa the central position that fhe goverment knoes bast and had the power to control the economy. once we added Keynes to the mix, this also changed the role of tho Fed. Instead ‘Of managing the cash flow to pravent the Collapse fron temporary shortages in cash, politicians assumed that seant that the Fed Controlled “naney" and thus it would be the Supply of money that would control the whole ‘scoot. This coly Further usurped the role Of the Ped fron a private clearing bank to the assumption that it could control the shoe econony. The Fed role vas now to hold power over the "direct" and Nindirect" con trol of the econany. 29 ‘he "direct" control was the ability to alter the reserve ratio of member banks, Tn other words, demand that the bank mst have 66 or 108 of all its daposits as the reserve, his is sen as the "direct" moans of reducing the ability of a bank to make loans, Since mney supply is defined by the velocity of mney, not the actual empirical amount of mney, then the alteration of the reserve ratio impacts money supply for if f bank lends out $10,000 you have in your account to another, fow that generates a ew deposit and both of you have $10,000 fand thus the money supply is defined’ aot bby tho actual printed notes, but by the Nvelocity” meaning how many’ tines the same $10,000 is multiplied in the economy and is changing hands. ‘he other presumed means of "direct" control is by the Fed setting the discount rate of interest it is charging menber banks ‘ard thus in “Af the rate rises, this iLL reduce Gamat and also lover the mney Supply. However, this mst have bean a. dream ‘by som academic with no Live experience, Te ‘somds nice, but is completely nonsense. IF terest rates £0 the stock market ‘YOU compare interest, rates to the stock market qeil aoa fhe Pl anrkat Paka place wiFh ‘ising interest rates - not lower interest atest Anyone with half a brain and a fow bucks in their pocket can Figure out this one. If you think a stock will double, you Will pay ‘any anount of interest that ldaves you with 2 goad "profit" between the expected gain land the cost of the money. 5 if T loan you $100 at 208 per ronth and you are sure you can make 1008 in that time period, you will pay the 208. ~the- Rad's power over the reserve ratio has more of an impact than merely altering the discount rate of snterest. The problem hhas been that the politicians have felt it is the Fed's job, and not their's to curtail their spending to effect the economy.| ‘The infirect rovers of the Fed to con trol the sconamy 18 claimed to be throu 8 Open-Market Operations that were first exploved during the 19208. Today, this is the Gaily tool that the Ped prior to the immediate crisis, believed it could adjust the money markets co an increnental basis. ‘The Fed buys or sells securities in the ope narket and this is purported to manage the size of comerical-bark reserves. Tf the Fed fuys securities, it adds cash to the systan and if {tsells Securities in the open market i 48 draining excess cash from the systen, Again, this is a wonderful but it has Tost 411 meaning in a global econony. Al of thase ideas are funanentally Hlaved because the economy has simply just evolved far beyond the concepts of Limited international experience. They are based co what I call the Flsh-Bowl Bonemy, that 1 ttean by that is the world as we know it is Tinted to the confines of an isolated and holly self-sufficient and contained world. here is ao external contact. You Live in @ world Just as a fish is confines by his owl. ile has no concept of the ocean and the ability to swim around the world, world is caly within that bowl LIE you take Rockefeller Plaza in NC and you Sell it to an american, his bank Sends to the other bank the money. There ie no change to the roney supply at all assuming this is a cash deal. Now if you fell it to the Japanase, they convert’ their yen to dollars ant hand’ you the pile of ash. Now you take that to the bank, You just ‘expanded the money supply because the Japanese brought inv cashy from cutside the System expanding the local money supply. This és the Fish Boel ‘and someone Just put anther fish in the bowl. The theories are all wrong because thoy are only based upon the presumption of a danestic isolated ecoomay. The econcay evolved as fa child, We need to reassess ite growth. % Dependency Upon Debt Once you realize that the Goveramant in following Keynes, they made the assumption that inflation is the problem of the Red and not the politicians. their definition of an inflation is the rise in the price of goods relative to the mney supply. Therefore, it became the Fed's problem ~ not Congress. Roosevelt's usurpation of the Fed and ‘the government dictating that the Fed hag to support the OS dabt at par until 1950, was effectively the nationalization of the Fed. ‘nite menber banks may om shares oominally, they have no effective control over the Fed! for it is firmly a political entity. all the conspiracy theories mies the point. ‘he Fed can no longer even control the money surely fam its Open-Markot Operations have nce been ‘Eransformed from comercial-paper £0 manage fhe cash Flow, into the buying and sal.ing Of Publin debe, That manne, in the ral uel, AE the Fed were to daciae to buy $1 trillion in goverment securities, in a Pish-Bowl Enonoay it "should! add Cash to the system increasing the money supply. However, in the real world, that §1 trillion could be omed by china. If China sold its paper to the Fed, the cash vould be exported to China and there would be ap donastic inpact whatsoever! ‘The problem ve have today, is about half the national debt’ is funted inter-agency. if the Goverment had to raise that neney fron the private sector, it could never sell that mich. They rely on alnost 308 of the debe being bought outside the Fish-Boel.. Every aspect of cur world today has bean’ turned on it bead. There is hardly a ecorasie that survives outside of Smith and Ricardo for everything 1s based ypen this Fish- Bow Beonemy with fo consideration for the new wey capital flows globally Like the currents in the cosan, Tt is our en Debt that as changed everythingr NOt Ouly Ys the Fed porerless to honestly steer us out of a major Gepression, neither can the politicians. We fare cn auto-pilot and the trie mover and ‘Shaker is the Pree Market and by that T mean that capital will flow and we need to under- stand hew things honestly wark by good old CRSERVATON!ferment whereby lacking term Limits, have is a professional ruling class. The parties docide even who they will support as 2 candidate, So I fail to sce that the Fed Should be efded because it ie not in the Spirit of 9 Pemocratie ontity when hardly anything in America is. ‘The real problem merged from Strong ‘who took the position that the Fed must be free from political manipulation, while T certainly understand that principle, T fail to see how the Fed is free of the influence of the Sec. of Treasury and powerful banks Such as Golgran Sachs. ‘There 13 no real Fed ‘hat is unbiased or fee from pessaure, in 1976, the Ped vas thon given the power to protect consumers. Tt was then to Setup the Consumer Advisory Comeil, But Paul Volker raised interest rates to’ insane levels going into 1861 that dramatically set in motion mich higher costs of interest to ‘find the whale goverment. Agencies to this day rush tp spend all there money at the end of their fiscal year because if they did not tase every dine, their budget is presumptively| mat for the next year. fie have massive waste in government just because of that buaget process. Volker did more to hurt consumers for he Lifted the usury laws to raise rates Of interest that would have bean illegal Cthervise and never restored usury levels which is why consumers pay high credit card rates of interest today. 31 Ze is true that the Fed has probably failed at its mission more 20 than mst People suggest, However, that strangely Goes not justifying the’ destruction of the ‘Ped, that we have to understand is that the s0 called mission statanont and purpose of the Fed is far fron what it was intended to be, and politicians have enjoyed the cover of being able to point tho finger at the Fed and the culprit ~ not them! Design| ‘The entire purpose of the Fed was to do vhat J.P, Morgan did during the Panic of 1907, titan there are cash flow problens as there will always be, because the real econcty is not "seasonally adjusted" (sncothed to ‘create the image of a perfect steady economy), Ghdead, most retail sales take place during Christras season, when crops come to market from the satura goawing cycle of he manson, again there are imbalances in capital flow. ‘The Fed is there to provide cash during rere capital flow probless to secure the banking systen. That is needed and provides the off for the economic engine, Just look at the Call Money rates fron tho NYSE and You see historical highs of 2008 before the Bed vas created, the highs in Call Noney rates at the NYSE are substantially lover post-1913 conpared to the period before we had a central bank. ‘The original design is vital to help protect the economy as a whole by managing the cash flows. This is the purpose for tho bank and it is vat it should be doing - NOT pretending to compensate for shat our politicians are not doing ~ fiscal managenent, Moreover, because the idea that inflation is caused by én increase in “noney supply" and the Fed's job bas sonething to-do with mney, — then it should also nanipulate the economy by playing with interest rates and money supply Bnd politicians are free to do as they Like. Strong went into overkill in 1820 and so aid Volker in 1961. Both failed to "nanage"" the ‘cconony as Keynes believed sas possible.‘the problen we have concerning the Fed | ig that the politicians have bestowed uson Af the idea that it controls the ecomemy and fot thon, so they are free to spend whatever the Like’ to get elected, and its is the Fed- eral Reserve's problem to sort out the mess fend make it all better. The Fed vas never intended to do what it does today, and in that respect, there is far too much conflict, of interest surrounding this role. the concept of being disinterested shen this tion see founded, Beant abaotstety te | fetrtial conflict, Tere ws Sos SF Eas | ‘iv basins ast caning stares in the” | ‘ery nein company you are fguiaeing, be | Chon clateing® you jut hen fave "bund trot Snr sumocte else to mange. You still know you have Use shares end that is sorbistry. ‘The joke 1s on us if we continwe to let this nonsense go en. As the notable Gordon 5, Wood explained in his work on the very character of the en that established this ‘country would never tolerate what is going fon today? In fact, Benjamin Franklin had to retire from ali business activity in order to| be respected as a true “disinterested” man, ‘he swirling conspiracy theories about oldman Sachs are entirely reasorable and fact are to be expected even if there is no foundation to support then. This is the very problen - the incest that prevails and the complate lack of "disintarest™ anong these people. I think every auto manufacturer would ‘be up in arms if sudenly the chairman of Gt is appointed to a post that has any power fo decide vino gets investigated, Licenses oF anything having to do with competition when he still ows G4 stock, T have no problem with a man of great ‘experience taking the position as Chairman ef the Fed, provided he is truly one who is “alainterested" and has real world experience that is necessary to even understand what you ray be reading in a book to earn your PAD. Bn acadanic with no experience is no differ fent than going to a med-student who Just Graduated and oxzoct hin to do brain surgery Solo. Baucation is rot finished until et Ty rat ata pos or a ‘The Giscount rate will rise with bull markets and collapse with the bear markets. ow about the novel idea of just letting the market determine the discount rate by supply ‘ard donand? We ‘will have less risk about the “overkill” problan that is caused by huzan error. There can be a scale based upon the wolim 20 that one bid cannot force a rate to rise. The Fed has no real direct control over the econeay. That is why everything is so secret ~ 60 nobody knows that truth. ' "Erom the sixteenth century through the eighteenth century the European oaarehies had been busy consolidating their power land making out their authority within clearly designated boundaries and military forces in order to wage war, and that as what they did through most decades of three centuries. This Seant_the building of evernore centralized governments and the creation of ever more elaborate means for extracting money ané nen from their subjects. These efforts in turn Jed to the grovth of armies, the Sncrease in public debts, the raising of taxes, and the strengthening of executive power.” Revolutionary Characters, What made the FOUNDERS Different, Cordon S. Wood The Penguin Press 2605 aeOOELING is absolutely critical to the survival of our global econcay. Yet the one critical advantage we can gather from the Gevelopment of computers, is to create models that handle somich data that gous bayend human capability, Jand compiles all the known economic trends throughout history so that we can learn fron the experience of generations. Currently, our politicians are acting more like witch-doctors, chanting, dancing around the subject, dragging in the sacrificial victim to blane and slaughter on their alter to appease the people that they fare once again safe, but perhaps without a job, home or future, But hell! This won't ever happen again because we got that bastard! Wie are reduced to ripping out entrails and trying to diviniate the future from subtle differences in texture and patterns, Why can't we simply have a knowledge hase that you type in a question, get the current data, and Jet the computer plot the soluticn just as it does in space travel? What is the problem? Unfortunately, it seens that, the professional investment bankers who use such models to ‘even assess their so called "daily risk" want to keep the people, government, and the world in the dark ages. then this suizject came up asking shy shouldn't the government have such a model, the conflicted SEC Chairman argued.no, we shouldn't have models. with respact to modeling all of the risk in the aysten, I suppose at sone point you run up against the problem of trying to create such @ level of evactitude that you rebuild tthe wiole world in all of its complexity. That 1s probably an aspiration that we ought not to ha SEC Chairman cox, pl24, 12999-2003, Snow asked vhether we should have sone sort of a nodal instead Congressman of flying by tha seat of our pants. "T share the basic thrust of your question here, which is can't Wwe do better? Can't ve find ways fo do better? It smune to m2, and this is retrospective, the question is leverage in the system, When loans and dabt gots to be sone fraction of GP, At profably ought to send off sone signals, because GOP represents the’ earning power, the debt represents the’ obligation. Congressman Cooper talked to us about future obligations that vastly —- that rise at a very significant rate relevant to the GBP of the United states. That sort of thing in rough and ready terms we should be able to model and have signals go off." Congressman Snow, p125, 13016-3027 ‘one reason everyone should learn tech nical analysis is because most professionals tise various forms. Tt matters nob if you in fact believe in it or mt, others do, 50 you should understand at least when this grou ‘ill be doing something for you sure as hell do not want to be caught standing in a field ‘wher the-cattle-start to-rans—————— I find it incredibly curious that here ve have professional people now working for ‘the governmant telling Congress it should not © what all the major banks and hedge funds e& - use modeling. This is the stuff of conspiracy theory Ibuffs because quite frankly, it mekes no sense vhatsoever to tell Oongress if 18 not an aspiration that we ought" to follow. Is this nuts? Way would any professional man make such a statanent unless the failure to create models leaves the managenent to just personal opinions, That seams to ts the fost dangerous of all propositions. That is like Saying ve will sail acrose the wide conan, but let's not bother with a conpase decane ve should let nature take whatever course it desires. Something is seriously sxrong on that advice.I find the anti-transparent culture at the Fed implausible whan it has assumed the role of extending beyond "nenber banks" for its bailouts such as Long Term Capital Manage ment and AIG. This recent argunent that sone Institutions are "too big to fail" means they ‘are possibly the very claimed purpose of the ‘Anti-trust Laws to prevent such monoplias. ‘The Fed can print money out of thin air and oxpand its balance sheet by $2 trillion Gollare and thie is clained as dangerous by its critics. The problem is he sho guards the Fed, Congreas, doss the sane thing by failing to manage its’ own budget. I do find it abeurd that the Fed is not audited itself. This allows even mistakas to build into disasters. the clains that if thelr "independence" in monetary policy were to be usurped by politics, interest rates would rise and cost generations vast portions of their income a real joke. Tt has long been understood that since the President picks the Fed Chairman, the post is political in every respect. It is hard to see any Red Chairman refusing to comply with the White House, ‘he anti-transparent cloak and dagger stuff only masks the fact that since thay lack a sophisticated model that objectively answers questions based upon the knowledge of mankind collected for centuries, that. this Setting of interest rates might as well be Gone vith @ coin toss or have a virein just ‘chase a chicken around the room for sacrifice ‘and if it runs left ve lower the rate, right we raise then, or if the chicken doesh't see the knife coming, rates stay the sano. Without a plausible explanation for any decision to set interest rates, there is no empirical vay to dispute the critics vino say the crisis was caused by the Ped keeping the rates artificially low for too long. Geanted, under Bernanke the Fed has now begun to publish a monthly balance sheet, TE onitts any names of banks or non-banks that ove it money. ‘The Fed cannot warn of a crisis should-tt be tanpered-with by Congress -when— nobody knows what is going on; is it the coin of the chicken? How are these dacieions even made? What is the criteria? Ts there any way fo prevent overkill as under Strong and Paul Volker or (NUERKTLL as the Japanese did by Keeping rates at functionally zero. Tost in this debate are serious issues. For example, keeping interest rates at naar zero, destroys fixed incowe of the elderly luho dre often the only consumers spending when others save fearing a possible job loss. ‘his effect hurt the Japanese econony and ‘the Japanese of Finance ("HOE") accounted for about 44% of GDP. ‘this brain Goad idea would fe casily resolved with a simple computer mel napping interest rates to the economy. What one will suddenly see is that interest rates rise in a bull market and decline hy ‘Bull markets are good economies and people are buying and businesses are expanding so the demand for money Bear markets people board cash, foar spending, and savings rates rise as jwe are steing even in the UK for the for the first tine eince 1993, Lowering interest rates to practically zero did rot get the banks lending nor vere People willing to spond when their expectation Sf the future was oncertain. This thole view Of interest rates is daad wong, but then ‘again, if ve won't do a rodel € even soo ‘what fas taken place over tins, vhy should we Gogect to understand that the world might not bbe flat afterall, ‘The FED should lose its consumer protec ttion authority for it does not protect’ thar anyway. If they were truly the guardian of the consumer, they should have never Lifted ‘the usury late to fight inflation with the insane 178 discount rate in 1981. the Fed should be relieved of any pretense that it has some sort of duty to fight inflation, Tt as Suppose to protect capital flows and the Supervisory powers over banks was to saooth out the bunes. that's itt where did all this other stuff cone from anyieay? Wwe have to stop borrowing money. Face the blosdy facts, and 65 a slow burn to sonetize he debt since nobody really expects us to ever pay itoftanyeay; Like they have-some——— master plan to pay off their debt. What we are ‘Spending on interest is consuning everything and lowering the overall standard of Living. ‘The debt is already monetized for it is used 5 reserves anong all nations. Tt is a joke to think if we menstize it is more inflationary 44 than issuing bonds that ve have pay interest.(What About Goldman Sache? ‘here 1s no question that Goldman Sachs has cleverly infiltrated goverment placing its alumni is key spots. After what the USA ia to J.P. Morgan, Andrew Yellon, and Jack Morgan just to mention a few, who’ could now bane then for taking a proactive role to control the devil that threatens then. But to extend this to tho idea that somehow they pall the strings and deliberately caused the entire crisis is absurd, That benefited no ‘ene, Did Hank Paulson oonsuit with Goldman Sachs and not others? Undoubtedly. There may yet be revelations of secret nestings and the dacisicn to let Baar and Lehman fall yet pot AIG, was most likely influenced by Paulson's ties to Golan, What benefit hae ‘cone of their fall? The spreads have widened and that moans record profits for Goldman. Yet all that said, Goldman is perhape guilty of attenpting to’ manipulate markets and to prevent investigations of their own Gperations. But that dose not translate into sone giant ‘conspiracy to dominate the world ‘and bring doon covertents. That is just over tthe top. They are interested in making the big pubis, That's itt Nevertheless, all of these conspiracy theories do warrant major reform and that nmeans Goldman shoud be broken up, Lilke al thers. Tt is not healthy for the economy fand the confidence of the people as well as other nations, to have Wall Strest looked at as a den of thieves. Sither you are a bank with deposits or you are an investment hank, Te was a mistake > allow Goldman to becone a baak taking client Goposits with FDIC insurance, Are we nuts or ‘what? A comercial bank uses client's money. whereas an investment tank used its ow oF Taised money through the REEO market borrow ding funds overnight (as did Long erm Capital. Maraganont ); by. selling preferred shares ‘that pay interest and issuing its om Junk bonds. To now allow an investment bank to use depositor money for trading is insane. Tt scons to ma, if you can't make money as a hank and you hive to speculate £0 make: profit, then you are a hedge fund, not a real tank. Sonething has to give and what has morphed out of this currant disaster is Wo have to understand what 2 going on and I find the bast way is to stick to the mmothod of Descartes and his 4 rules: (1) accept nothing as true unless clearly recognized as such; (2) to solve probit systeatically by analyzing them part by party (3) to procesd from the simple (seed) to the complex; and (4) to review everything thoroughly to ensure that nothing is omitted. Wo will soe yot another disaster. The trading has not stopped and the leverage 1s still in the syston, T do not boliove that Goldman is the source of all our problens, but st vill never be resolved until we also restore the country to sound economics. The massive dabt is already there. Tt is factored in and unless we face the facts, it will go bust ani force us into a econcaic collapse. ‘hat day will arrive as soon as there comes the day when the next treasury auction goes without bidders on sone portion. china has shifted its mturity to extrenely short-term. Tf 1 vare advising China, given the political problen of turning its back on the US and causing a economic crisis, 1 would do the next best thing. shorten maturity so that if the birds take Flight, T can move to dump at the first sign of trouble. Wo desperately nocd reform. Wo should | have a realistic computer model not auys may be chasing chickens and flipping coins enind closed doors. If we monetize the debt and got rid of the elephant hiding in the athroon, the future will opan and the flowers Will Bloom, because we will have a future ‘again. Tt is possible. We just have to roll the sano mistakes that required regs to be at in place in the 1930s. vp our sleves and stop the nonsense. 35