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Government Control and Market Intervention

It is, without doubt, possible to overlook or simply ignore those things which are not very obvious in our daily lives, it is this fact that makes many of the actions of our government possible. Actions of government in the area of economic markets, which, must include the primary economic medium of exchange: money, will always, without exception, create interference within the forces that normally function within the market. It is the sole aim of government to influence not only the market, but also the behavior behind the market through such intervention, such interferences always alter market forces, distorting them and in most cases hindering the natural flow of such forces to the point that the market system is thrown into economic chaos. Like money, most government intervention seeks to direct consumption that would not otherwise be a market directed choice, in a very similar fashion as the government seeking to direct, through legal tender laws, the use of its monopoly fiat paper money substitutes.

As these distortions continue there is a growing amount of economic dislocation of normal resource allocations, direct market signaling systems are misdirected into areas that would not otherwise be present or prevalent in the market itself. Since the aim of government intervention into the market is not simply an economic, but a social interference, directing certain social agendas with a political basis in origin, we can assume from such a conclusion that there is, based on this official aim, a motive to create a controllable society in which the government is the primary source of all economic and thus social forces within the country.

While that might sound a bit conspiratorial, the fact is simply that the character of government, especially when it reaches a particular point in its evolutionary growth, is to assume such a position of bureaucratic control. Such events are not novel to history, but quite common in all large civilizations; Ancient Rome being the most notable and perhaps the most comparable. As in the decaying Roman Republic, our Republic, long lying upon its deathbed, has been subjected to the same type of government mentality. Our government appears to be equally as eager to keep up appearances of one of republican ideas of liberty and freedom, all the while subverting those very vital principles through directing the forces of economic and monetary markets to achieve a social and political goal that is not consistent with the principles upon which this Republic was founded.

As with all government interference and regulation, the purpose appears to be to use such interference and regulation as a means to an end, but not the end itself, for the actual purpose of all interference and regulation is subservient to the ultimate goals of control. While we are sold on the idea that such interference and regulation is protective, the fact is that the goal is an indirect encroachment on the rights of the individual to make individual choices based on his or her own decisions and needs.

This government has assumed an old and ancient ideology, strange as it might sound, as its creed the “Divine Right of Kings”, for Kings of old thought themselves divinely appointed to care for their subjects and to direct the lives of their subjects, whether just or unjust, based on the divine direction they assumed to be correct. For ultimately, this divine right provided the Kings of old with such a degree of divine wisdom that their decisions were essentially beyond reproach and beyond the ability of the King’s subjects to question. Thus, the providential guardianship of the King over his helpless and unknowledgeable subjects presented a degree of power that would not have otherwise been available to the King. The same is true about our own government, especially today. Today, our government assumes essentially what could easily be considered as “Divine Right” over its “kingdom” and operates under the assumption that it knows what is best for its subjects.

This extends, not only to government regulation and interferences into the physical markets, but also this government has, for decades, been on a quest to even control the mental, spiritual and moral makeup of the country; while not directly imposing a government authorized moral system, there are, through the control of economic forces, a degree of control over the ability of the individual to choose what to believe, how to behave and what to think. The government assumes to know what is best, what type of money is best, which type of businesses are best, what type of consumer goods are best. What is good and not good for your body, what manner of speech is proper and correct, what mental attitudes are acceptable to society; it is a means to an end, and that end is and has always been controlled regimentation, conformity and compliance!

In the eyes of government bureaucracy, the ideal would be to remove all determination from the individual to make choices in his consumption of goods and services, in his ability to think for himself, to have a type of censorship that only allows for the individual to think that which is generally acceptable to the whole of society, of course, what is acceptable to the whole of society has been engineered through decades of gradual compulsory regiments, each building one upon the other, all with the goal of a collective conformity of purpose. We talk about the dumbing down of the American public, but we fail to understand that has simply been one of the methodical processes of control that the government bureaucracy has implemented in its quest for placating and thus dominating the independent spirit of the individual. This government has evolved into what other governments throughout history evolved into, that being a Paternal Organization set to develop the public opinion with a defined belief system, one that is ultimately compliant with and supportive of government without the necessity to question its directives.

It is therefore, essential that any hint of free market decision-making be eliminated, for once a person cannot longer determine his own choice in consumption, then the individual becomes essentially a ward of the State. Likewise, the assault on the idea that there is a Right to Private Property is an equally essential component of the overall directive of control. When the government can issue money substitutes that cannot, by definition, be considered the actual real property of the bearer, then the remaining directives become easier to establish. Government intervention and thus interference in economics is the main avenue utilized by government to implement its controls over the population. What has happened and is happening is nothing short of a longer version of a communist revolution; instead of a radical violent revolution, the same effects can be achieved through a gradual introduction of what amounts to communism through incremental government directives, regulations, prohibitions and induction training in public opinion, i.e. “political correctness”.

Never assume that there is not a political and social purpose behind the governments programs, which directly interfere with market forces, whether it is through regulation, monetary creation or manipulation, all are methodologies toward the goal of ultimate control over an increasingly compliant population. It is evident that through such interference into the markets, businesses and entrepreneurs are systematically forced to actually change the way they do business from market induction to government bureaucratic dictates. Business must take its signals from a distorted view of the market, one that is regulated and controlled instead of proper market signals. Instead of obeying market directives, which actually generate a market result, businesses must obey a plethora of government regulations that are so immense that even the regulators cannot adequately discharge their regulatory duties and can rarely properly interpret the very regulations they are responsible to enforce. Far from being a negative for government regulators, such vagueness is necessary for it provides government with a broadness of implementation and an “out” when such policies are questioned.

Such bureaucratic systems are always subject to corruption, this is true anytime actual market forces are interfered with and controlled. Under normal free market conditions, fraud is short-lived due to the fact that there are signals given that alert the consumer early of the possibility of corruption. Under a system where government intervenes and interferes with market processes, fraud becomes easily hidden since the market signaling process is distorted through government intervention and the regulatory processes employed. It is also essential to understand that any system that employs force to achieve a goal will always create an atmosphere where few will profit from many and income distribution is always stratified through such systems of bureaucratic controls and intervention. Government patronages become common place as those with political connections benefit the most.

Opportunities become very limited due to regulated competition that favors certain politically connected corporations, entrepreneurship becomes increasingly difficult to compete in business where regulation is based upon government patronage to the virtual exclusion of those that might build a better mouse trap but are limited in the opportunity to do so because the established mice trap company is protected by official regulatory walls. There can be no possible way to insure an equitable field of opportunity under such systems, as a rule there are those few therefore, who will prosper at the expense of the majority of individuals. As we have seen, risk becomes socialized while profits remain privatized which, is a complete distortion of market principles where risk and profits are always a private combination of business.

It can be observed therefore, that there is simply no possible method by which the bureaucratic regime can exert such power with any degree of fairness or equitable distribution of opportunity. There is the assumption, by those in government, that it is within the power of government to implement changes in the market that will actually produce equitable results, thus the exercise such power under that assumption, but reality points to a very different set of results. Government intervention into the markets is based on certain assumptions. Most bureaucrats tend to view the public with a condescending eye, one that sees the public as needing direction and guardianship. Thus, government becomes the social worker and policeman of the population. It is this attitude that permeates bureaucracy and provides the excuse for more and more intervention into individual lives, organizing the individuals through classifications and groupings, stratifying the population into distinct and separate classes all for the purpose of social control.

Under such bureaucratic systems, normal legal values are tossed aside and replaced with a regulatory mentality that implies the superiority of a “higher law”, this ideology began in this country during the Administration of Lincoln and it has simply ballooned to the point that we are subject to the arbitrary interpretation of “higher law” rather than the actual Law de jure. Social construction is paramount to the bureaucratic regime, and it is employed through a variety of means, but primarily through intervention into the market processes, controlling and directing both production and consumption. Since the advocates of the “higher law” must mete out a form of justice that is rarely equitable, they do so under the pretense of equality and fairness for the public good. Thus, those who advocate free markets, liberty and freedom of the individual are seen and described as opponents of equality and the public good. They are portrayed as greedy and selfish because the assumption is that the public good cannot be advanced under a pure market system where government is not involved with intervention to create what it imagines as beneficial to the “many” rather than the “few”, but the very system promotes exactly the opposite of what the pronounced intention is and how it is promoted. The assumption by government bureaucrats is that all forms of exploitation can be eradicated through government intervention yet, with this assumption there comes a blindness that prevents those in power to understand that they actions create far more exploitation than it can ever eliminate.

Of course, with these assumptions come the efforts to equalize both income and wealth, thus all manner of redistribution schemes find its way into legislation, whether it is through various taxation or programs. Anyone seeking to actually improve their lot, to actually embark on a path of success where income may be considered above average is castigated as greedy and shameful, detrimental to the public good and the equitable cause of “higher law” and “social justice”. It is therefore, the character of interventionism to foster corruption, there is after all, nothing but the arbitrary decision-making process of bureaucrats to determine the application of what might be considered fair and just, for the Law de jure has been neutralized throughout the system.

Essentially, while we all know that the free market doesn’t provide a “free lunch” that is exactly what the government bureaucratic system seeks to provide, all at the expense of the actual producers in the controlled market. The bureaucrats don’t understand that in all forms of market expression, resources are always scarce, thus anytime any good, whether it is a consumable good or even money, the consumption of that good will always, as it must, come at the expense of someone. The government, through its various means of control, does not appear to understand that fact, or if it does understand it, it assumes the power to disrupt such market forces with an artificial construction seeking to replace market principles with a planned system, centralized and consolidated. The government however, can never be an actual producer and can only siphon off productive activity and in the process it ultimately destroys any productive results to the point that the entire economic system eventually enters a state of failure. Not only that, but since the government and its intervention cannot possibly account for actual economic calculation, the system goes into dystrophy, its artificial monetary substitution system loses economic potency, the entire structure enters various stages of decay that befuddle government economists because they have been so indoctrinated into the official government assumptions rather than the economic reality that the market will always seek to restore.

It is therefore, ultimately impossible for such a mercantilist market to remain stable, there are simply far too many distortions created by the system itself to remain viable. Since government intervention cannot adequately reproduce economic calculation, all of its efforts of control over the market culminate in social and economic destruction. As was mentioned in the beginning of this essay, the government is seeking to displace market choice and yet, since all markets deal with the scarcity of resources it is impossible for the government to implement a system where choices are completely eliminated. Since choice determines price or costs within the market, the governments attempts to restrict or limit choice, thus competition, within the market through regulation displaces normal market signaling systems, creating more and more distortions leading to economic dislocations, the misallocation of resources and ultimate economic failures.

As such intervention increases, and it is a natural process of intervention to exponentially increase without much effort, the whole process eventually becomes an exercise in futility, an absolute absurdity. Of course, bureaucrats don’t understand that the entire free market system of private property and the enterprise to achieve wealth is absolutely the best method of bringing about a higher level of living standards far the greatest bulk of the population. The problem, in the eyes of bureaucrats is that they don’t understand that life is life, it is not fair, it is not an equal playing field, nor will it ever be, despite all the efforts of government intervention to transform the system into one where all people have the very same opportunity to achieve the same living standards. The idea of equal opportunity is itself a misapplication of an ideology that simply cannot exist in real life. The ideal that opportunity is a factor of life that can manage, controlled or transformed is fundamentally flawed in its conception, yet government bureaucrats are seeking to equalize something that cannot be equalized or managed.

Though the government assumes it has both the ability and the power to manage and manipulate markets through various types of intervention, it fails to understand that it is the market that creates civilization. Through the interventionist policies of government essentially the government is setting up its own demise. The government appears to believe, at least evidenced by its actions, that there is an alternative to the free market system, but there is none, there is only the alternative of market distortions created by such intervention. Government bureaucrats appear to believe that the markets are the product of human design, and while it is definitely true that the market is the product of human action, it is far beyond human design. Government intentions to manage and manipulate the market defies the fact that the market, just as money, emerged in history as a pure phenomenon of unintended consequences, all in the pursuit of the self-interest of human action throughout the course of mankind’s history. Money, like the market, has no artificial substitutes.

Carl Menger explored the subject of the emergence of money within markets, it emerged as a phenomenon of trade, as did the market itself. Money is simply the most tradable good, the most competitive commodity to emerge to suit the necessity as the most tradable good was gold and silver, history proclaims the success of gold as money through several thousands years of utility. There was no intention to make gold or silver into money, it was simply the competitive nature of the markets making the most useful and efficient choice.

The first and foremost weapon in the governments arsenal in pursuing market manipulation therefore, was real money, it had to be displaced before all other market principles could be manipulated and somewhat managed. Thus the demonetizing of gold and silver were a priority of government interventionists. Without such steps it would be virtually impossible for the government to implement the vastness of social controls, all the while expanding its own scope of power. The incremental revolution that has taken place over the decades is astounding when viewing it for what it really is and how it has progressed. With the advance of this interventionist system, there has been a growing and perhaps more pronounced hostility toward the free market in general and capitalism specifically, this hostility has been intentionally crafted, for without it the systems of control could not possibly continue to be implemented. It is easy to see this hostility around the world, yet it is obvious that such hostility is artificially constructed and is based on a total ignorance of market principles. All one need do is listen to the rhetoric within the public arena to see that it is based on ignorance, but it is exactly that ignorance that is useful to this government.

If you have noticed recently there have been many in the public arena that have heaped praise on the Chinese model of “capitalism” yet, for all the praise, they neglect the obvious and that is that the Chinese model is actually a failure that will be exposed soon enough. Yet, such praise is actually nothing more that ploys to further implement more bureaucratic controls and management over our own economy. These bureaucrats are delusional in their understanding and their faith in the power of their actions verses the power of the market to seek to correct the distortions they create. There are many within our government who actually believe that a mercantilist form of socialism actually represents advancement over the free market, that such a system is superior, at least ethically superior, to any market production that is based upon private profits. Unfortunately for those who hold such wayward beliefs, their system can never function to the degree that success would be sustainable for a long period of time, nor could it produce the necessary standard of living to maintain popular satisfaction. They seek to make their fantasy of a government induced free lunch possible while rejecting the only type of market that can provide a higher standard of living for the masses which is the free market unhindered by government interference and intervention.

Government bureaucrats cannot seem to grasp the grand nature of the free market, that it is essentially unplanned order in the highest degree; since they have no understanding of how something can be unplanned and yet ordered, they seek to place their particular brand of order upon it, but their alternative planned order only displaces market order and creates, in its wake, economic and social destruction. It is, without doubt therefore, these extremely irrational tendencies of government that pose one of the greatest threats to our civilization, in particular our liberty and freedom, as well as our well being. If there is any consolation it can be found in the fact that the system that they have created is rapidly falling into a state of total disrepair, the question will be for all of us, is what type of world will we choose to rebuild after the collapse of this artificial system of control?

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One more exceptional dissertation

that I will be adding to my permanent file. Republicae, you are a treasure.

Well written Republicae

The 1st Weapon of the Gov't (however) was not money.

The first weapon was limited voting (a limited number of those who could move the economy by law).

Meaning only a small number of wealthy WASP men could vote or decide.
---This mirrored the Crown (in that only the King and his Advisors and the wealthiest of merchants could sit at the table).

Those who could vote and lobby were the ones who could steer the ship.

The second weapon was the threat of theft
---That the founders would steal assets from the King if the King refused to tax at the rate the Founder's found fair.

If the King kept the tax below 10% there is a good chance there would have never been a revolutionary war (I think it was 10% -- let's say X% the "line in the sand" amount).

According to Law and Might the Crown onwned all the lands in America and had a "right" to tax the assets therein and thereof.

The Founder's stole that authority and transfered it to a limited number of Wealthy Anglo Men (and to no one else).

If we believe Mises that a free-market is one wherein every individual is a consumer and that consumers must be sovereign (the right to consume whatever they can afford) then having it so that ONLY white men could own assets, or having a system that could strip assets from widows, or having slavery - forced relocation - forced assimilation initiatives (et al) was NOT a free-market and thus NOT a free-society.

The question becomes -- Does allowing all to vote beget a free-market (in our case the all-can-vote policy happened at the same time as the inception of corporatism or just after) or should the direction be moved toward none-can-vote.

We could still have a minarchism that leads toward a free-society with limited decision authority; if we outlined specifically and irretractably what gov't autority is -- but how do we get to that point (by transversing the ballot box under corporatism?)?

I agree with Mises -- a free-market is maintained via daily-dollar-voting, non-interventionism, and engaging in entrepreneurial activity.

Would the answer therefore be (on how to obtain a free-society, meaning how we actually get into one); by engaging in free-market activity (meaning we don't vote or lobby our way in - we actually just start living it).

How would that look?

Buy only Local (or as local as possible)

Never buy from publically traded companies (only non-sec controlled organizations)

Work under-the-table (if possible) -- this one is not a widely distributed possibility but maybe with technology it will become "more possible"

Do not hedge against inflation loss by keeping assets in FRN-banks
---Again we might only be able to get "partially" away from this in the short-run.

Invest in entrepreneurial projects with a short-run time horizon
---As the wealthy would do in a free-market.

I believe Chairman Mao had a better handle on the first weapon

of government - "Political power grows out of the barrel of a gun."

We are almost at the reset point

Watch Europe very closely.
Glad to see you are still writing Republicae; it is good to see that there are at least one or two philosophers left in the movement.

"the only thing that keeps the banking system from failing is general ignorance about how the banking system works."

Republicae's picture

Hey Goldstein, how have you

Hey Goldstein, how have you been? Yes, I find some time to write from time to time. Thanks!

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

article on the same subject by Paul Craig Roberts
Collapse At Hand

Ever since the beginning of the financial crisis and quantitative easing, the question has been before us: How can the Federal Reserve maintain zero interest rates for banks and negative real interest rates for savers and bond holders when the US government is adding $1.5 trillion to the national debt every year via its budget deficits? Not long ago the Fed announced that it was going to continue this policy for another 2 or 3 years. Indeed, the Fed is locked into the policy. Without the artificially low interest rates, the debt service on the national debt would be so large that it would raise questions about the US Treasury’s credit rating and the viability of the dollar, and the trillions of dollars in Interest Rate Swaps and other derivatives would come unglued.

In other words, financial deregulation leading to Wall Street’s gambles, the US government’s decision to bail out the banks and to keep them afloat, and the Federal Reserve’s zero interest rate policy have put the economic future of the US and its currency in an untenable and dangerous position. It will not be possible to continue to flood the bond markets with $1.5 trillion in new issues each year when the interest rate on the bonds is less than the rate of inflation. Everyone who purchases a Treasury bond is purchasing a depreciating asset. Moreover, the capital risk of investing in Treasuries is very high. The low interest rate means that the price paid for the bond is very high. A rise in interest rates, which must come sooner or later, will collapse the price of the bonds and inflict capital losses on bond holders, both domestic and foreign.

The question is: when is sooner or later? The purpose of this article is to examine that question.

Let us begin by answering the question: how has such an untenable policy managed to last this long?

A number of factors are contributing to the stability of the dollar and the bond market. A very important factor is the situation in Europe. There are real problems there as well, and the financial press keeps our focus on Greece, Europe, and the euro. Will Greece exit the European Union or be kicked out? Will the sovereign debt problem spread to Spain, Italy, and essentially everywhere except for Germany and the Netherlands?

Will it be the end of the EU and the euro? These are all very dramatic questions that keep focus off the American situation, which is probably even worse.

The Treasury bond market is also helped by the fear individual investors have of the equity market, which has been turned into a gambling casino by high-frequency trading.

High-frequency trading is electronic trading based on mathematical models that make the decisions. Investment firms compete on the basis of speed, capturing gains on a fraction of a penny, and perhaps holding positions for only a few seconds. These are not long-term investors. Content with their daily earnings, they close out all positions at the end of each day.

High-frequency trades now account for 70-80% of all equity trades. The result is major heartburn for traditional investors, who are leaving the equity market. They end up in Treasuries, because they are unsure of the solvency of banks who pay next to nothing for deposits, whereas 10-year Treasuries will pay about 2% nominal, which means, using the official Consumer Price Index, that they are losing 1% of their capital each year. Using John Williams’ ( correct measure of inflation, they are losing far more. Still, the loss is about 2 percentage points less than being in a bank, and unlike banks, the Treasury can have the Federal Reserve print the money to pay off its bonds. Therefore, bond investment at least returns the nominal amount of the investment, even if its real value is much lower. (For a description of High-frequency trading, see: )

The presstitute financial media tells us that flight from European sovereign debt, from the doomed euro, and from the continuing real estate disaster into US Treasuries provides funding for Washington’s $1.5 trillion annual deficits. Investors influenced by the financial press might be responding in this way. Another explanation for the stability of the Fed’s untenable policy is collusion between Washington, the Fed, and Wall Street. We will be looking at this as we progress.

Unlike Japan, whose national debt is the largest of all, Americans do not own their own public debt. Much of US debt is owned abroad, especially by China, Japan, and OPEC, the oil exporting countries. This places the US economy in foreign hands. If China, for example, were to find itself unduly provoked by Washington, China could dump up to $2 trillion in US dollar-dominated assets on world markets. All sorts of prices would collapse, and the Fed would have to rapidly create the money to buy up the Chinese dumping of dollar-denominated financial instruments.

The dollars printed to purchase the dumped Chinese holdings of US dollar assets would expand the supply of dollars in currency markets and drive down the dollar exchange rate. The Fed, lacking foreign currencies with which to buy up the dollars would have to appeal for currency swaps to sovereign debt-troubled Europe for euros, to Russia, surrounded by the US missile system, for rubles, to Japan, a country over its head in American commitment, for yen, in order to buy up the dollars with euros, rubles, and yen.

These currency swaps would be on the books, unredeemable and making additional use of such swaps problematical. In other words, even if the US government can pressure its allies and puppets to swap their harder currencies for a depreciating US currency, it would not be a repeatable process. The components of the American Empire don’t want to be in dollars any more than do the BRICS.

However, for China, for example, to dump its dollar holdings all at once would be costly as the value of the dollar-denominated assets would decline as they dumped them. Unless China is faced with US military attack and needs to defang the aggressor, China as a rational economic actor would prefer to slowly exit the US dollar. Neither do Japan, Europe, nor OPEC wish to destroy their own accumulated wealth from America’s trade deficits by dumping dollars, but the indications are that they all wish to exit their dollar holdings.

Unlike the US financial press, the foreigners who hold dollar assets look at the annual US budget and trade deficits, look at the sinking US economy, look at Wall Street’s uncovered gambling bets, look at the war plans of the delusional hegemon and conclude: “I’ve got to carefully get out of this.”

US banks also have a strong interest in preserving the status quo. They are holders of US Treasuries and potentially even larger holders. They can borrow from the Federal Reserve at zero interest rates and purchase 10-year Treasuries at 2%, thus earning a nominal profit of 2% to offset derivative losses. The banks can borrow dollars from the Fed for free and leverage them in derivative transactions. As Nomi Prins puts it, the US banks don’t want to trade against themselves and their free source of funding by selling their bond holdings. Moreover, in the event of foreign flight from dollars, the Fed could boost the foreign demand for dollars by requiring foreign banks that want to operate in the US to increase their reserve amounts, which are dollar based.

I could go on, but I believe this is enough to show that even actors in the process who could terminate it have themselves a big stake in not rocking the boat and prefer to quietly and slowly sneak out of dollars before the crisis hits. This is not possible indefinitely as the process of gradual withdrawal from the dollar would result in continuous small declines in dollar values that would end in a rush to exit, but Americans are not the only delusional people.

The very process of slowly getting out can bring the American house down. The BRICS--Brazil, the largest economy in South America, Russia, the nuclear armed and energy independent economy on which Western Europe (Washington’s NATO puppets) are dependent for energy, India, nuclear armed and one of Asia’s two rising giants, China, nuclear armed, Washington’s largest creditor (except for the Fed), supplier of America’s manufactured and advanced technology products, and the new bogyman for the military-security complex’s next profitable cold war, and South Africa, the largest economy in Africa--are in the process of forming a new bank. The new bank will permit the five large economies to conduct their trade without use of the US dollar.

In addition, Japan, an American puppet state since WWII, is on the verge of entering into an agreement with China in which the Japanese yen and the Chinese yuan will be directly exchanged. The trade between the two Asian countries would be conducted in their own currencies without the use of the US dollar. This reduces the cost of foreign trade between the two countries, because it eliminates payments for foreign exchange commissions to convert from yen and yuan into dollars and back into yen and yuan.

Moreover, this official explanation for the new direct relationship avoiding the US dollar is simply diplomacy speaking. The Japanese are hoping, like the Chinese, to get out of the practice of accumulating ever more dollars by having to park their trade surpluses in US Treasuries. The Japanese US puppet government hopes that the Washington hegemon does not require the Japanese government to nix the deal with China.

Now we have arrived at the nitty and gritty. The small percentage of Americans who are aware and informed are puzzled why the banksters have escaped with their financial crimes without prosecution. The answer might be that the banks “too big to fail” are adjuncts of Washington and the Federal Reserve in maintaining the stability of the dollar and Treasury bond markets in the face of an untenable Fed policy.

Let us first look at how the big banks can keep the interest rates on Treasuries low, below the rate of inflation, despite the constant increase in US debt as a percent of GDP--thus preserving the Treasury’s ability to service the debt.

The imperiled banks too big to fail have a huge stake in low interest rates and the success of the Fed’s policy. The big banks are positioned to make the Fed’s policy a success. JPMorgan Chase and other giant-sized banks can drive down Treasury interest rates and, thereby, drive up the prices of bonds, producing a rally, by selling Interest Rate Swaps (IRSwaps).

A financial company that sells IRSwaps is selling an agreement to pay floating interest rates for fixed interest rates. The buyer is purchasing an agreement that requires him to pay a fixed rate of interest in exchange for receiving a floating rate.

The reason for a seller to take the short side of the IRSwap, that is, to pay a floating rate for a fixed rate, is his belief that rates are going to fall. Short-selling can make the rates fall, and thus drive up the prices of Treasuries. When this happens, as these charts illustrate, there is a rally in the Treasury bond market that the presstitute financial media attributes to “flight to the safe haven of the US dollar and Treasury bonds.” In fact, the circumstantial evidence (see the charts in the link above) is that the swaps are sold by Wall Street whenever the Federal Reserve needs to prevent a rise in interest rates in order to protect its otherwise untenable policy. The swap sales create the impression of a flight to the dollar, but no actual flight occurs. As the IRSwaps require no exchange of any principal or real asset, and are only a bet on interest rate movements, there is no limit to the volume of IRSwaps.

This apparent collusion suggests to some observers that the reason the Wall Street banksters have not been prosecuted for their crimes is that they are an essential part of the Federal Reserve’s policy to preserve the US dollar as world currency. Possibly the collusion between the Federal Reserve and the banks is organized, but it doesn’t have to be. The banks are beneficiaries of the Fed’s zero interest rate policy. It is in the banks’ interest to support it. Organized collusion is not required.

Let us now turn to gold and silver bullion. Based on sound analysis, Gerald Celente and other gifted seers predicted that the price of gold would be $2000 per ounce by the end of last year. Gold and silver bullion continued during 2011 their ten-year rise, but in 2012 the price of gold and silver have been knocked down, with gold being $350 per ounce off its $1900 high.

In view of the analysis that I have presented, what is the explanation for the reversal in bullion prices? The answer again is shorting. Some knowledgeable people within the financial sector believe that the Federal Reserve (and perhaps also the European Central Bank) places short sales of bullion through the investment banks, guaranteeing any losses by pushing a key on the computer keyboard, as central banks can create money out of thin air.

Insiders inform me that as a tiny percent of those on the buy side of short sells actually want to take delivery on the gold or silver bullion, and are content with the financial money settlement, there is no limit to short selling of gold and silver. Short selling can actually exceed the known quantity of gold and silver.

Some who have been watching the process for years believe that government-directed short-selling has been going on for a long time. Even without government participation, banks can control the volume of paper trading in gold and profit on the swings that they create. Recently short selling is so aggressive that it not merely slows the rise in bullion prices but drives the price down. Is this aggressiveness a sign that the rigged system is on the verge of becoming unglued?

In other words, “our government,” which allegedly represents us, rather than the powerful private interests who elect “our government” with their multi-million dollar campaign contributions, now legitimized by the Republican Supreme Court, is doing its best to deprive us mere citizens, slaves, indentured servants, and “domestic extremists” from protecting ourselves and our remaining wealth from the currency debauchery policy of the Federal Reserve. Naked short selling prevents the rising demand for physical bullion from raising bullion’s price.

Jeff Nielson explains another way that banks can sell bullion shorts when they own no bullion. (See, Nielson says that JP Morgan is the custodian for the largest long silver fund while being the largest short-seller of silver. Whenever the silver fund adds to its bullion holdings, JP Morgan shorts an equal amount. The short selling offsets the rise in price that would result from the increase in demand for physical silver. Nielson also reports that bullion prices can be suppressed by raising margin requirements on those who purchase bullion with leverage. The conclusion is that bullion markets can be manipulated just as can the Treasury bond market and interest rates.

How long can the manipulations continue? When will the proverbial hit the fan?

If we knew precisely the date, we would be the next mega-billionaires.

Here are some of the catalysts waiting to ignite the conflagration that burns up the Treasury bond market and the US dollar:

A war, demanded by the Israeli government, with Iran, beginning with Syria, that disrupts the oil flow and thereby the stability of the Western economies or brings the US and its weak NATO puppets into armed conflict with Russia and China. The oil spikes would degrade further the US and EU economies, but Wall Street would make money on the trades.

An unfavorable economic statistic that wakes up investors as to the true state of the US economy, a statistic that the presstitute media cannot deflect.

An affront to China, whose government decides that knocking the US down a few pegs into third world status is worth a trillion dollars.

More derivate mistakes, such as JPMorgan Chase’s recent one, that send the US financial system again reeling and reminds us that nothing has changed.

The list is long. There is a limit to how many stupid mistakes and corrupt financial policies the rest of the world is willing to accept from the US. When that limit is reached, it is all over for “the world’s sole superpower” and for holders of dollar-denominated instruments.

Financial deregulation converted the financial system, which formerly served businesses and consumers, into a gambling casino where bets are not covered. These uncovered bets, together with the Fed’s zero interest rate policy, have exposed Americans’ living standard and wealth to large declines. Retired people living on their savings and investments, IRAs and 401(k)s can earn nothing on their money and are forced to consume their capital, thereby depriving heirs of inheritance. Accumulated wealth is consumed.

As a result of jobs offshoring, the US has become an import-dependent country, dependent on foreign made manufactured goods, clothing, and shoes. When the dollar exchange rate falls, domestic US prices will rise, and US real consumption will take a big hit. Americans will consume less, and their standard of living will fall dramatically.

The serious consequences of the enormous mistakes made in Washington, on Wall Street, and in corporate offices are being held at bay by an untenable policy of low interest rates and a corrupt financial press, while debt rapidly builds. The Fed has been through this experience once before. During WW II the Federal Reserve kept interest rates low in order to aid the Treasury’s war finance by minimizing the interest burden of the war debt. The Fed kept the interest rates low by buying the debt issues. The postwar inflation that resulted led to the Federal Reserve-Treasury Accord in 1951, in which agreement was reached that the Federal Reserve would cease monetizing the debt and permit interest rates to rise.

Fed chairman Bernanke has spoken of an “exit strategy” and said that when inflation threatens, he can prevent the inflation by taking the money back out of the banking system. However, he can do that only by selling Treasury bonds, which means interest rates would rise. A rise in interest rates would threaten the derivative structure, cause bond losses, and raise the cost of both private and public debt service. In other words, to prevent inflation from debt monetization would bring on more immediate problems than inflation. Rather than collapse the system, wouldn’t the Fed be more likely to inflate away the massive debts?

Eventually, inflation would erode the dollar’s purchasing power and use as the reserve currency, and the US government’s credit worthiness would waste away. However, the Fed, the politicians, and the financial gangsters would prefer a crisis later rather than sooner. Passing the sinking ship on to the next watch is preferable to going down with the ship oneself. As long as interest rate swaps can be used to boost Treasury bond prices, and as long as naked shorts of bullion can be used to keep silver and gold from rising in price, the false image of the US as a safe haven for investors can be perpetuated.

However, the $230,000,000,000,000 in derivative bets by US banks might bring its own surprises. JPMorgan Chase has had to admit that its recently announced derivative loss of $2 billion is more than that. How much more remains to be seen. According to the Comptroller of the Currency the five largest banks hold 95.7% of all derivatives. The five banks holding $226 trillion in derivative bets are highly leveraged gamblers. For example, JPMorgan Chase has total assets of $1.8 trillion but holds $70 trillion in derivative bets, a ratio of $39 in derivative bets for every dollar of assets. Such a bank doesn’t have to lose very many bets before it is busted.

Assets, of course, are not risk-based capital. According to the Comptroller of the Currency report, as of December 31, 2011, JPMorgan Chase held $70.2 trillion in derivatives and only $136 billion in risk-based capital. In other words, the bank’s derivative bets are 516 times larger than the capital that covers the bets.

It is difficult to imagine a more reckless and unstable position for a bank to place itself in, but Goldman Sachs takes the cake. That bank’s $44 trillion in derivative bets is covered by only $19 billion in risk-based capital, resulting in bets 2,295 times larger than the capital that covers them.

Bets on interest rates comprise 81% of all derivatives. These are the derivatives that support high US Treasury bond prices despite massive increases in US debt and its monetization.

US banks’ derivative bets of $230 trillion, concentrated in five banks, are 15.3 times larger than the US GDP. A failed political system that allows unregulated banks to place uncovered bets 15 times larger than the US economy is a system that is headed for catastrophic failure. As the word spreads of the fantastic lack of judgment in the American political and financial systems, the catastrophe in waiting will become a reality.

Everyone wants a solution, so I will provide one. The US government should simply cancel the $230 trillion in derivative bets, declaring them null and void. As no real assets are involved, merely gambling on notional values, the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system. The financial gangsters who want to continue enjoying betting gains while the public underwrites their losses would scream and yell about the sanctity of contracts. However, a government that can murder its own citizens or throw them into dungeons without due process can abolish all the contracts it wants in the name of national security. And most certainly, unlike the war on terror, purging the financial system of the gambling derivatives would vastly improve national security.

RP R3VOLution

Republicae's picture

ThanKs for the link!

ThanKs for the link!

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Republicae, I Ask Your Opinion About The Speaker of The House

I would have contacted you through some other channel but this is the only way I know how at this time.

I have researched early American history as to the role of the Speaker of the House of Representatives. I went to the library of the Office of the Clerk and found these images of the House journal for the first session written on Wednesday, April 1, 1789 which recorded the votes for the first Speaker, Frederick Augustus Muhlenberg and the first Clerk of the House, John Beckley (see: ).

On Tuesday, April 7, the duties of the Speaker were documented in the journal for that day as follows:

First – Touching the Duty of the Speaker.

1. He shall take the chair everyday at the hour to which the House shall have adjourned on the preceding day; shall immediately call the members to order, and, on the appearance of the quorum, shall cause the Journal of the preceding day to be read.

2. He shall preserve decorum and order; make speak to points of order in deference to other members, rising from the seat for that purpose, and shall decide questions of order, subject to an appeal to the House by any two members.

3. He shall rise to put a question, but may state it sitting.

4. Questions shall be distinctly put in this form, viz. “As many are of opinion that (as the question may be ) say Aye;” And, after the affirmative voice is expressed – “As many of a contrary opinion, say No.”

5. If the Speaker doubts, or a division be called for, the House shall divide; those in the affirmative going to the right and those in the negative to the left of the chair. If the Speaker still doubt, or a count be required, the Speaker shall name two members, one from each side, to tell the numbers in the affirmative; which being reported, he shall then name two others, one from each side, to tell those in the negative; which being also reported, he shall rise and state the decision to the House.

6. The Speaker shall appoint committees, unless it be determined by the House that the committee shall be consist of more than three members, in which case the appointment shall be by ballot of the House.

7. In all cases of ballot by the House, the Speaker shall vote; in other cases he shall not vote, unless the House be equally divided, or unless his vote, if given to the minority, will make the division equal, and in case of such equal division, the question shall be lost.

8. When the House adjourns, the members shall keep their seats until the Speaker go forth; and then the members shall follow.

Other than a few additional nuances of parliamentary procedure, the Speaker’s authority was limited to keeping House activities orderly and with as few disruptions as possible as he oversaw the proceedings of the House with respect to bill introduction, discussion or being forwarded into committee(s). As you already know, political parties did not exist at that time.

Now fast forward to today in 2012. I found this interesting document at the Central Connecticut State University (see: ). Without going into a lot of detail, the Speaker’s position of authority has increased significantly as well as that of certain powerful committee leaders to the point where the Congress over the last 223 years has ignored its responsibilities to the people and strayed far from the republican form of representative government guaranteed by the U.S. Constitution as defined in Article IV, Section 4, The States (nothing new here).

At this point you’re probably wondering; a: why I am writing this to you?, b: where am I going with this? or c: please don’t bother me, I have a life. I'm coming to that now.

Because of your breadth as a historian of American political history, I’m asking you for your opinion as to whether it’s feasible or practical to put forth a national ballot initiative to require the Speaker to be elected by the American people rather than be appointed by the majority political party for up to eight years as is the norm today. The Constitution says the House shall choose it’s Speaker but does not define how that choice is to be made nor is there a requirement for the Speaker to be a member of Congress.

My reasons are two-fold. First, I believe by selecting an “outside agent” so to speak, the people have a chance to elect someone who does not have a party allegiance or is embroiled in the political machinations for which the country is suffering today.

Secondly, should the sitting president or vice president vacate the position, the Speaker is second in line to the presidency. It is only fair the Speaker in the potential position of President be voted into office by all the nation’s people, not just the current majority party.

I look forward to your response.

Republicae's picture

Thank you so much and I

Thank you so much and I certainly appreciate the opportunity to give you an answer, though I am not sure it is really the one that you want, nevertheless I will attempt to give my opinion on the subject.

While I can certainly understand your concerns over the evolution of the position of the Speaker of the House, morphed into a monstrosity as it were, I do however, think that the further “democratization” of the process would not be beneficial. The mere fact that such a position were “up for grabs” would open up yet another avenue for corruption and fraud. What should take place is a “de-democratization” within our government by restoring the original intent of the Framers. This would, first and foremost, include the “de-nationalization” of the election process of the Senate, restoring, as it were, the voice of the States.

The Repeal of the 17th Amendment would do far more than people realize in restoring the republican ideals upon which this country was founded. This one thing would, essentially create a necessary friction between the House and the Senate once again, The Senate would once again be appointed by the State Legislatures and not elected by popular vote of the People, the House, being the voice of the People, should remain as elected and the House should be able to continue the process of internal election of the Speaker of the House.

What would take place, if the 17th Amendment were repealed is the Checks and Balances originally proposed would be restored, this would have a great effect, not only on the Senate, but also on the House as well. At present, we really have two House of Representatives bidding themselves out to the electorate. Removing the Senate from the direct election process would force the House to once again perform their Constitutional Duties as designed, likewise, the Senate themselves would be forced to do the same and would be accountable to the States just as the House would be accountable to the Citizens. This balance would restore the struggle and the cumbersomeness to the entire legislative process and would give far more power to the American Citizens even though they have been relived of the vote for their respective Senators.

I will focus therefore, on the nationalization of the Senate, for that is one of the avenues where tyranny began in this country, along with another Amendment and an Act that also were passed in 1913, those being the Federal Reserve Act and the 16th Amendment. You see, by simply restoring the proper role of the Senate in the political equation would once again make it almost impossible for the Congress to divert its responsibilities. Back in 1880, it became clear that the goal, or at least part of the goal, was to remove the power of Senate appointments from the States, where it happens to properly belong. In 1880, as a part of a process that began in 1860, the goal of tyranny was clearly stated and was summed up with the election of James A. Garfield by a newspaper article that read: “Garfield’s rule will be the transitory period between State Sovereignty and National Sovereignty. The United States Senate will give way to a National Senate. State Constitutions and the United States Senate are relics of State Sovereignty and implements of treason. Garfield’s Presidency will be the Regency of Stalwartism; after that:REX!”

Now, notice what is happening here, and indeed what really did happen to this country after 1913. The interesting word here is REX which, as you know, means KING, or the authority of a King. That was the intent of removing everything to do with State Sovereignty from this country. It is evident therefore, the need to affect a Nationalized Senate was absolutely essential in the conquest, not only of State Sovereignty, but also of Individual Sovereignty. The purpose was to install what would eventually amount to a political monarchy in this country, a ruling class that would be beyond the Law of the Land and would essentially be the masters of the arbitrary application of de facto laws.

James Garfield himself knew very well what his intents were when he stated: “The influence of Jefferson’s Democratic principles is rapidly waning, while the principles of Hamilton are rapidly increasing. Power has been gravitating toward the Central Government.”

Of course, it took over 30 years for the fullness of this political crime to become realized with the passage of the 16th, 17th Amendments and the Federal Reserve Act. In that year, the dreams of anti-republican radicals became realized.

James Madison stated the proper and appropriate balance: "If indeed it be right, that among a people thoroughly incorporated [not absorbed] into one nation, every district ought to have a proportional share in the government, and that among independent and sovereign States, bound together by a simple league, the parties, however unequal in size, ought to have an equal share in the common councils, it does not appear to be without some reason that in a compound republic, partaking both of the national and federal character, the government ought to be founded on a mixture of the principles of proportional and equal representation. In this spirit it may be remarked, that the equal vote allowed to each State is at once a constitutional recognition of the portion of sovereignty remaining in the individual States, and an instrument for preserving that residuary sovereignty. So far the equality ought to be no less acceptable to the large than to the small States; since they are not less solicitous to guard, by every possible expedient, against an improper consolidation of the States into one simple republic."

Mr. Madison knew that it was essential to place layers of separation within the entire structure of the government, with the expression of making this government system nothing more than a “simple league”.

He continues with some extraordinary and exemplary commentary: "Another advantage accruing from this ingredient in the constitution of the Senate is, the additional impediment it must prove against improper acts of legislation. No law or resolution can now be passed without the concurrence, first, of a majority of the people, and then, of a majority of the States. It must be acknowledged that this complicated check on legislation may in some instances be injurious as well as beneficial; and that the peculiar defense which it involves in favor of the smaller States, would be more rational, if any interests common to them, and distinct from those of the other States, would otherwise be exposed to peculiar danger. But as the larger States will always be able, by their power over the supplies, to defeat unreasonable exertions of this prerogative of the lesser States, and as the faculty and excess of law-making seem to be the diseases to which our governments are most liable, it is not impossible that this part of the Constitution may be more convenient in practice than it appears to many in contemplation.”

"First. It is a misfortune incident to republican government, though in a less degree than to other governments, that those who administer it may forget their obligations to their constituents, and prove unfaithful to their important trust. In this point of view, a senate, as a second branch of the legislative assembly, distinct from, and dividing the power with, a first, must be in all cases a salutary check on the government. It doubles the security to the people, by requiring the concurrence of two distinct bodies in schemes of usurpation or perfidy, where the ambition or corruption of one would otherwise be sufficient. This is a precaution founded on such clear principles, and now so well understood in the United States, that it would be more than superfluous to enlarge on it. I will barely remark, that as the improbability of sinister combinations will be in proportion to the dissimilarity in the genius of the two bodies, it must be politic to distinguish them from each other by every circumstance, which will consist with a due harmony in all proper measures, and with the genuine principles of republican government.”

There was therefore, a structural requirement that would not only force the Senate to maintain checks and balances, but likewise, the entire structural context would also, by necessity, require the House to maintain its own checks and balances, this would naturally include the position of the Speaker of the House. Far more scrutiny would be placed on both Houses of Congress and upon their respective roles in legislating proper law in line with the Constitution, this would, of course, force the Executive to be very careful in its actions and would require the Judiciary to be nothing more than an appraiser of the legislation stemming from the Congress, thus performing its proper role.

Such a structure provides not only checks and balances on the whole, but also bring about a structural concurrency within those bodies, thus protecting the actual Liberties and Freedoms of the People rather than simply becoming a centralized government intent on ruling despite the will or consent of the People. Concurrency would provide a necessary check to the potential ambitions, usurpations and corruption that has occurred because now, as we currently have it, the two bodies are nothing more than mirror images of one another. The Senate and the House are now nothing more than essentially the same type of legislative body, a shell of their former selves and are now just a de facto branch of the overall federal government instead of being essentially two Houses of Congress with separate mandates of government. By placing the Senate on the open market of direct elections, the Senate is no longer an institution that counter-balances the House nor the can the House properly counter-balance the Senate. As we have seen, neither now serve as counter-balances of the Executive or the Judiciary. As such, the federal government is now the sole depository of power, it has, with such power, been able to define its own role and indeed declare its sovereignty over the States and thus, the People themselves.

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

fireant's picture

Very well stated.

If I may add, with repeal of the 17th (and 16th), the state legislators would re-emerge as a vital link between the people and DC.

Undo what Wilson did

May The Sound of The Liberty Bell Never Leave Your Fingertips

I understand and agree, SPQR is alive and well again. I expect someday the Senate will wear the toga trabea in chambers as did the Consuls of ancient Rome. Thank you for your wisdom and counsel.

well said.

well said.


best piece I've read in a long time. Thanks for taking the time to write and post.


Thanks you, Sir/Madam, for taking the time to write this ...

Thanks you, Sir/Madam, for taking the time to write this exceptional piece of literature. My hat goes off to you.

Here are some of the highlights that I found in your essay:

(This is my interpretation) "Many people disagree that Lincoln was the first dictator in America, despite all the propaganda."

"Thus, government becomes the social worker and policeman of the population. It is this attitude that permeates bureaucracy and provides the excuse for more and more intervention into individual lives, organizing the individuals through classifications and groupings, stratifying the population into distinct and separate classes all for the purpose of social control."

"The government, through its various means of control, does not appear to understand that fact, or if it does understand it, it assumes the power to disrupt such market forces with an artificial construction seeking to replace market principles with a planned system, centralized and consolidated."

"The problem, in the eyes of bureaucrats is that they don’t understand that life is life, it is not fair, it is not an equal playing field, nor will it ever be, despite all the efforts of government intervention to transform the system into one where all people have the very same opportunity to achieve the same living standards."

"These bureaucrats are delusional in their understanding and their faith in the power of their actions verses the power of the market to seek to correct the distortions they create."

"They seek to make their fantasy of a government induced free lunch possible while rejecting the only type of market that can provide a higher standard of living for the masses which is the free market unhindered by government interference and intervention."

"Government bureaucrats cannot seem to grasp the grand nature of the free market, that it is essentially unplanned order in the highest degree; since they have no understanding of how something can be unplanned and yet ordered, they seek to place their particular brand of order upon it, but their alternative planned order only displaces market order and creates, in its wake, economic and social destruction."

"... the question will be for all of us, is what type of world will we choose to rebuild after the collapse of this artificial system of control?"

Thank you, again!

Republicae's picture

Thank you for the compliment,

Thank you for the compliment, I appreciate it that you took the time to read my essay and obvious gained from the information.

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun