The Ruthless Truth blog

by Bob Chapman

Global Research, March 6, 2010

The International Forecaster

Sovereign debt hangs like an albatross around the necks of too many countries. There are 17 medium-size to large countries that are close to, or are bankrupt. Many are being kept solvent by using two sets of books and by marking to model. As you know we expect these bankruptcies to take place by the end of 2011. That will be accomplished at meetings such as we saw in the 1970s at the Smithsonian, the Plaza Accord of 1985 and the Louvre Accord of 1987. There will be a realignment of currencies.

America, like many other nations is mired in an inflationary depression, and even if the economy were to return to where tax revenues accelerated, we would still have a deficit of 6% to 8% of GDP. In order to have real recovery we need a public debt to GDP ratio of 3%. The problem is government refuses to cut deficit spending. Such policies curtail investment and lasting productivity growth. An economy cannot long endure a government that represents 24% of GDP. In the late 1960s we had government spending at 20% of GDP. There was a run on our gold dollar backing and on 8/15/71 gold backing had to be abandoned. Thus, you can see how difficult today’s problems are. In fact during the depression it was only 10%. As you can see what we have today is a monstrous situation. Government is destroying our country and worse yet our debt can never possibly be repaid. A federal deficit of 10% of GDP cannot long be tolerated. Quantitative easing is supposed to end this month. If it is not foreigners will probably totally stop buying dollar denominated assets. That means more Fed secret buying, more monetization and more inflation to accompany the M3 increase of 29.5% in money and credit. Those actions surely will put pressure on America’s AAA credit rating. America has joined the ranks of nearly bankrupt or bankrupt nations. America’s finances are a giant fraud and over the next two years it will be plain for all to see.

The three best plays investment wise is to be long gold and silver related assets and to be short the general stock market, as well as bonds. Over the past two years the treasury and the Fed have spent $12.7 trillion and are liable for $23.7 trillion, so says our inspector general. Things are not getting better they are getting worse. What does government do after the stimulus and quantitative easy ends? If they do more of the same the problem will just worsen. They have no permanent solution. They are like a ship without a rudder in a stormy sea and the rocks are not far away.

Challenger says planned layoffs fell in February to the lowest level since 2006, some 42,090.

Private employers shed 20,000 in February off from 60,000 in January.

Credit card charge offs rose 112 bps to 11.37%. 60-day plus delinquencies fell for the second straight month, down 3 bps to 4.16%, as the 30-day fell 6 bps to 5.38%.

Ron Paul was on Fox with Stewart Varney where he stated a currency crisis is coming. When pressed by Varney as to what he is investing in, Paul told Varney gold. “I’ve been buying gold since 1971 at $35.00 to protect my family.”

Initial claims for state unemployment benefits dropped 29,000 to a seasonally adjusted 469,000. The economy lost 8.4 million jobs since 12/07. The 4-week moving average fell 3,500 to 470,750.

Fourth quarter non-farm productivity was up 6.9% and unit labor costs fell 5.9%.

The commercial paper market fell by $20.4 billion to $1.134 trillion.

January pending home sales fell 7.6% to 90.4 from 97.8 in December. Year-on-year it was up 12.3%.

January factory orders rose 1.7%. December’s were up 1.5%. Orders have risen for the past ten months. Transportation equipment orders rose 15%, the biggest increase since 7/09, as commercial aircraft orders soared 118.6%.

Otherwise new orders rose 0.1%; inventories rose 0.2% after falling 0.2% in December.

The monster employment Index rose 10 points m-o-m in February to 124 and y-o-y from 122.

Citigroup is suing Morgan Stanley for $245 million, alleging Morgan failed to make good on credit default swaps held by Citi. A judge will decide the outcome.

The Senate on Tuesday passed a $10 billion measure to maintain unemployment benefits for the long-term jobless and provide stopgap funding for highway programs after a holdout Republican dropped stalling tactics that had generated a Washington firestorm.

Kentucky Republican Jim Bunning had been holding up action for days but conceded after pressure intensified with Monday’s cutoff of road funding and extended unemployment benefits and health insurance subsidies for the jobless.

Bunning wanted to force Democrats to find ways to finance the bill so that it wouldn’t add to the deficit, but his move sparked a political tempest that subjected Republicans to withering media coverage and cost the party politically. Bunning’s support among Republicans was dwindling, while Democrats used to being on the defensive over health care and the deficit seemed to relish the battle.

The bill passed by a 78-19 vote. It passed the House last week and President Barack Obama is likely sign the bill into law quickly so that 2,000 furloughed Transportation Department workers can go back to work on Wednesday.

Doctors faced the prospect of a 21 percent cut in Medicare payments, and federal flood insurance programs had lapsed with Monday’s expiration of an earlier stopgap bill that passed late last year.

Tuesday’s action will provide a month-long extension of the expired programs to give Congress time to pass a yearlong — and far more costly — fix that’s also pending.

Without the legislation, about 200,000 jobless people would have lost federal benefits this week alone, according to the liberal-leaning National Employment Law Project. Jobless people normally get 26 weeks of unemployment benefits and 20 more weeks in states with higher unemployment rates. The legislation extends several additional layers of benefits added since 2008 because of the stubborn recession.

The ISM non-manufacturing purchasing manager’s index indicates that the US service sector had a better-than-forecast February rising to 53.0 from 50.5 in January. The market had only expected a more moderate improvement to reach 51.0.

The US lost 20,000 jobs in February versus January’s destruction of 60,000 jobs, which was revised down from the 22,000 jobs eliminated originally reported, according to the ADP employment report. February’s decline is the lowest since the the US economy began shedding jobs at a historic rate in February 2008. The report also indicated that the US could turn the corner in March and see job growth for the first time in two years.

U.S mortgage rates retreated below 5 percent last week, propping demand for home loans after purchase applications sank to a nearly 13-year low the prior week, Mortgage Bankers Association data showed on Wednesday.

February’s volatile swings in housing demand comes on the heels of a steep January sales slump, blamed mainly on unusually harsh winter weather.

The industry group’s market index, which measures requests for loans to buy homes and refinance, rose by a seasonally adjusted 14.6 percent in the week ended Feb. 26 to the highest level since mid-December.

Purchase applications increased 9 percent while refinancing requests jumped 17.2 percent last week as average 30-year mortgage rates fell 0.08 percentage point to 4.95 percent.

“Mortgage applications rebounded last week, particularly refis, as rates dropped back below 5 percent,” Michael Fratantoni, vice president of research and economics at MBA, said in a statement. “Purchase activity remains subdued, with application volumes remaining within the narrow range seen in the last few months.”

Gov. Jan Brewer wants Arizonans to volunteer to provide some of the social services being reduced by the state’s budget crisis.

Brewer on Tuesday announced creation of a task force to coordinate efforts by religious groups and other nonprofits to serve the elderly and other people needing assistance.

Brewer’s office says volunteer activities where organizations could help include foster parenting, supervising child visitations, providing transportation and helping with care for the elderly and children from low-income families.

Arizona has cut social services to help reduce big budget shortfalls.

Brewer says she hopes the state “can reach out and get a lot of volunteers” and that their efforts “will change peoples’ lives.”

House Financial Services Committee Chairman Barney Frank asked Federal Reserve Chairman Ben S. Bernanke to investigate allegations of Fed involvement in the Watergate scandal and Iraqi weapons purchases in the 1970s and 1980s.

Representative Ron Paul asked questions about “inappropriate political interference” and “hidden transfers of resources” during a Feb. 24 hearing with Bernanke, and the allegations “must be fully investigated,” Frank said in a letter today to Bernanke and obtained by Bloomberg News.

Frank, 69, said the Fed must address the charges because “continued concern about political interference” with the Fed and “allegations about a lack of transparency.” Bernanke and other Fed officials are trying to fend off a measure offered by Paul, which passed the House in December, that would open the Fed to audits of interest-rate decisions.

“These specific allegations you’ve made I think are absolutely bizarre, and I have absolutely no knowledge of anything remotely like what you just described,” Bernanke told Paul, a Texas Republican who wrote the 2009 book “End the Fed,” during last week’s hearing.

Bernanke, 56, joined the Fed in 2002 as a governor and was appointed chairman in 2006. The Senate confirmed him for a second four-year term in January by a 70-30 vote.

“The Federal Reserve’s ability to manage monetary policy in an effective manner depends, in large part, on its reputation for independence and integrity,” Frank, a Massachusetts Democrat, said in the letter. “A complete investigation of these charges is necessary to maintain both.”

California lost far more jobs last year than the state initially reported, according to a new report that provides an early glimpse into statewide employment trends.

“The economy was a lot worse than everybody thought,” said Howard Roth, chief economist with the state’s Department of Finance. “The job market is weaker than we figured.”

According to an estimate from the state Employment Development Department, California employers shed 871,000 jobs in 2009. If that estimate holds up when final revisions are released this month,

California’s job losses would be far more grim than first believed. The agency reported as recently as Jan. 22 that California employers chopped 579,000 jobs from payrolls in 2009. That would translate into 292,000 more lost jobs.

Why are job losses so much worse than first thought? The EDD’s monthly estimates depend in part on the number of employers it believes exist in California at a given time. But the recession has erased numerous companies. “Businesses went away and no longer existed that we originally thought were there,” said Dennis Meyers, an economist with the state finance department… [Their guesses were bogus.]

The American Thinker: Secretary Geithner’s Got Some Explaining to Do The problem Geithner knew he had to confront, however, was that the FED was not authorized to take ownership in AIG or any other financial institution. The law authorized the FED only to loan money and take collateral. While the FED might end up with ownership after a default and foreclosure on the collateral, the Federal Reserve Act does not authorize the NY Fed to structure the debt deal with an equity piece.

So what did Geithner do? He took equity, but he used a fictitious “Trust” to accomplish that which he could not do legally. The AIG Credit Facility Trust has three so-called independent, non-governmental trustees owning the 77.9% of the legal interests of AIG, and the Trust agreement assigns the U.S.

Treasury the beneficial interests in the 77.9%. The highly-touted “independence” of the trustees is quite obviously critical to save the Trust from the claim that it is merely a ruse for FED ownership and control.

But there is only one problem with this Trust structure: It is invalid and illegal for two important reasons, not the least of which is that its independence is nonexistent.

Specifically, the Trust Agreement includes a hardly-noticed section 1.03, which gives the FED absolute authority over the Trust’s existence and its terms, effectively granting the FED control over the actions of the trustees. By any legal definition, this is not a valid independent trust. This means, at the very least, that the FED is the real owner of the legal interests in 77.9% of AIG’s equity, and this is, as Geithner himself testified before the Senate Banking Committee in April 2008, not legal.

A report warns that the country is now immersed in a “doomsday cycle” wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

“Risk-taking at banks,” the report cautions, “will soon be larger than ever.”

The Institute’s chief economist, Nobel Prize-winner Joseph Stiglitz, called the report “an important point of departure for a debate on where we are on the road to regulatory reform.”

The report blasts some of Washington’s key players. Writes Johnson, “Our government leaders have shown little capacity to fix the flaws in our market system.” Two other panelists, Simon Johnson, a professor at MIT, and Peter Boone of the Centre for Economic Performance, voiced similar criticisms.

Federal Reserve chairman Ben Bernanke and Treasury Secretary Tim Geithner “oversaw policy as the bubble was inflating,” write Johnson and Boone, and “these same men are now designing our ‘rescue.’”

An average 345 companies filed per day in February – 6,557 businesses that filed for relief from creditors in February, according to Automated Access to Court Electronic Records (AACER), a database of U.S. bankruptcy statistics.

First, the category of “personal consumption expenditures” includes pretty much all of the $2.5 trillion healthcare spending, including the roughly half which comes via government. When Medicare writes a check for your mom’s knee replacement, that gets counted as consumer spending in the GDP stats.

At a time when we are wrangling over health care reform, it’s misleading to say that “consumer spending is 70% of GDP”, when what we really mean is that “consumer spending plus government health care spending is 70% of GDP.”

According to a 2008 book, “Deception and Abuse at the Fed,” by University of Texas Professor Robert D. Auerbach, then-Fed Chairman Arthur Burns tried to block lawmakers’ probes into the source of $6,300 found on the burglars of the Democratic National Committee’s offices in Washington’s Watergate complex in 1972. Burns, who served as Fed chief from 1970 to 1978, died in 1987.

Auerbach worked for Henry Gonzalez, a former chairman of the House committee who died in 2000 and investigated the sale of U.S. arms to Iraq in the 1980s, before the Gulf War. Gonzalez said the Fed and other agencies initially tried to block his probe, according to a 1992 New York Times article.

Fed bank examiners in Atlanta failed to note $5.5 billion being funneled to Iraq from a local branch of an Italian bank, Auerbach, a critic of the central bank and former congressional economist, said in his book.

“The Federal Reserve’s ability to manage monetary policy in an effective manner depends, in large part, on its reputation for independence and integrity,” Frank, a Massachusetts Democrat, said in the letter. “A complete investigation of these charges is necessary to maintain both.”

Police in Delaware say a man angry about his sewer bill was arrested after he suggested someone should crash a plane into a county government center.

New Castle County police say 45-year-old Darren Spayd of Newark got upset Tuesday after being assessed a late fee.

Police say he started cursing at county workers and threw the change he had received back at one. Police say several employees overheard him suggesting someone should fly a plane into the building.

A Texas man angry with the Internal Revenue Service recently flew a plane into an office building in Austin, killing himself and one IRS employee.

Spayd was charged with disorderly conduct and terroristic threatening. He was released on $2,500 bail and ordered to have no contact with the government center. No phone number was listed for him.

The U.S. unemployment rate held at 9.7 percent and payrolls fell less than forecast, indicating the labor market strengthened even as East Coast snowstorms forced some employers to temporarily close.

Payrolls dropped 36,000 last month after a revised 26,000 decrease in January, figures from the Labor Department in Washington showed today. Manufacturers added workers for a second straight month, the first back-to-back gain since 2006, while construction companies fired workers.

The unemployment rate held at 9.7 percent in February as employers shed fewer jobs than expected, evidence that the job market may be slowly healing.

A Subscriber sent the following: CNBC was commenting on the job figures and the government said if somebody works 1 hour in 14 days that is considered being employed. It’s a joke. Ok just wanted to share this with you.

Couples now fight about the financial burden.

Thanks to plummeting property values, divorcing couples now find themselves fighting for the right not to keep the house.

The crippled real estate market has turned once-valuable assets into huge financial burdens. Homes bought at or near the peak of the housing market in 2005-2006 have lost tens of thousands of dollars in value in just a few years, forcing many discordant couples to keep a painful reminder of a failed relationship.

“Instead of fighting over the house, we’re fighting over who gets stuck with it,” said Steve Halbert, 57, an Arlington homeowner going through a divorce.

Halbert and his wife bought their house in 2006, shortly before their marriage and the housing market took a turn for the worse.

“We thought we’d be walking away with hundreds of thousands of dollars in equity. But there is no equity,” he said.

As a four-time divorce — and a real estate appraiser — Halbert said he’s accustomed to heated legal battles over property ownership.

But unlike his first three trips to divorce court, Halbert said he’s hoping to lose possession of his house this time around.

Divorce lawyers across Washington say Halbert’s situation is common, thanks to the tumble in the housing market.

“Anybody who practices in this area has seen the same thing,” said divorce lawyer Hughie Hunt, who represents clients in Maryland and the District.

Lawyer Michelle Thomas said the drop in home values and the resulting financial strife have translated to more contentious divorce negotiations for her clients in D.C. and Virginia.

“Homes had always been an asset, until the last two years or so,” Thomas said. “You had a situation where there was $100,000 or $200,000 of equity in a house to be divided, and that’s not the case anymore.”

Now, the opposite is true.

“I had some folks that bought a home and then ended up splitting up, and the home hasn’t been worth enough to sell. They ended up renting it for a loss,” said Chris Upham, a Coldwell Bank real estate agent who works throughout the region. “That’s something I’ve seen a lot lately.”

Jessie Peterson and her husband, Jeff Holmberg, who are separating, bought their Northeast Baltimore home in 2007, and then watched helplessly as it lost 10 percent of its value.

Peterson said arguments about the house made an already-difficult situation a lot tougher.

“You’re at each other’s throats. You’re dealing with this huge burden of this house with absolutely no solutions,” Peterson, 30, said of the arguments she and Holmberg had about what to do with their house. “It’s hard to maintain any kind of peace when you’re in that situation.”

Peterson said she and her husband hadn’t built up any equity in their home, so refinancing wasn’t an option. Filing for foreclosure would have damaged the couple’s credit, so they had to work out another solution.

Holmberg agreed to take possession of the house and the mortgage. But, at least for now, Peterson’s name will stay on the deed, an arrangement that leaves her feeling “terribly uncomfortable,” though happy to move on.

Likewise, Halbert said the financial mess involving his house made a bad situation much worse.

“It became the biggest thorn between us,” he said, chuckling at the irony of his situation. “We’ve ended up fighting a lot over this.”

After stalling briefly, the Democrats’ jobs agenda regained momentum on Thursday as the House passed one measure designed to boost employment and the Senate pressed forward on a more ambitious bill that is expected to come to a vote next week.

The House voted 217 to 201 to approve a $15 billion measure that would give tax breaks to companies for hiring new employees. Six Republicans joined the vast majority of Democrats in supporting the bill, which also includes a one-year reauthorization of the law governing federal highway funding, as well as an expansion of the Build America Bonds program and a provision allowing companies to write off equipment purchases.

More than 30 Democrats voted against the measure. Liberals complained that it is too small and too focused on tax cuts rather than on spending.

Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages.

That’s the estimate of Oppenheimer & Co. analyst Chris Kotowski, who says U.S. banks could suffer losses of $7 billion this year when those loans are returned and get marked down to their true value. Fannie Mae and Freddie Mac, both controlled by the U.S. government, stuck the four biggest U.S. banks with losses of about $5 billion on buybacks in 2009, according to company filings made in the past two weeks.

The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.

“If you want to originate mortgages and keep that pipeline running, you have to deal with the push-backs,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, and former examiner for the Federal Reserve. “It doesn’t matter how much you hate Fannie and Freddie.”

Freddie Mac forced lenders to buy back $4.1 billion of mortgages last year, almost triple the amount in 2008, according to a Feb. 26 filing. As of Dec. 31, Freddie Mac had another $4 billion outstanding loan-purchase demands that lenders had not met, according to the filing. Fannie Mae didn’t disclose the amount of its loan-repurchase demands. Both firms were seized by the government in 2008 to stave off their collapse.

February Average Hourly Earnings up 0.1% M-o-M and 1.9% Y-o-Y.

US average weekly hours 33.1 in February vs. 33.3 in January.

The Federal Reserve received the most loan requests in six months from investors for the final round of its program that unlocked the market for asset-backed securities.

About $4.1 billion in lending was sought, including $1.8 billion for financing of student-loan securities, the New York Fed said yesterday on its Web site. In total, about $7.1 billion of sales this week were of securities that included eligible classes, according to data compiled by Bloomberg.

CIT Group, SLM Corp., Ford Motor Co. and Chrysler Financial Corp. were among borrowers selling TALF-eligible debt, including securities backed by student loans without government guarantees, lending to car dealerships and equipment leases. The program, begun a year ago with asset-backed bond sales frozen, is no longer needed for much of the market, said Bryan Whalen, a managing director at money manager TCW Group Inc.

“A year ago, 9 out of 10 issuers couldn’t come to market in the credit-card or auto space without TALF; today, 9 out of 10 can,” Whalen said yesterday in an interview at Bloomberg News headquarters in New York. “It’s just the outlier, the remote weird asset class that needs TALF to get done.”

U.S. consumers increased their debt in January for the first time in a year, the Federal Reserve reported Friday. Total seasonally adjusted consumer debt rose $4.96 billion, or at a 2.4% annual rate, in January to $2.46 trillion. Economists surveyed by MarketWatch expected consumer credit to decline by $6 billion in January. This is the first increase since January 2009 and the biggest since July 2008. After the financial crisis deepened in the fall of 2008, the economy fell into recession and consumers stopped spending and worked down their debt levels. On a year-on-year basis, consumer credit is down 4.2%. The increase in January was led by non-revolving debt, such as auto loans, personal loans and student loans, which rose $6.62 billion or 5%. Credit-card debt fell $1.67 billion, or 2.4%, to $864.4 billion. This is the record 16h straight monthly drop in credit card debt.

Pending Homes Sales tanked 7.6% m/m in January. +1% was expected.

As we warned several years ago and re-warned recently, US businesses are cannibalizing future sales in order to survive today. But this ensures future calamity.
The US government rescued or tried to rescue some industries over the past year. But their stimulus schemes and incentives once again cannibalized future sales. So the housing and auto industries once again face a possible sated-demand problem.

The Fed’s balance contracted $5.982B due to the Fed’s unexpected SELLING of $5.732B of MBS. The Fed did monetize $957.926m of agencies. http://www.federalreserve.gov/releases/h41/Current/

February non-farm payrolls (36K) Some notable trends in the numbers:

*Average hours worked fell one tenth to 33.8 hours, which may have been impacted by the 1M people that the BLS said missed some work due to weather (vs 290K on average in February). •Manufacturing payrolls rose 1K, the second straight increase.

•Construction payrolls continued to fall, falling 64K after a 77K decline in January, though weather may well have been a factor.

•Service payrolls rose 42K, led once again by temp help, which rose 48K. The temp category has been the strongest in recent months, averaging a 57K monthly gain over the past five months of increases.

•In the notoriously volatile household survey, the labor force rose 342K and employment rose 308K, leaving the unemployment rate unchanged at 9.7%. [Temporary jobs rose 48,000 in February.]

Idaho tax revenue is $41M behind estimates.

North Carolina tax collections down $35M as consumers cut spending.

Florida’s budget gap could be as high as $3.2 billion.

Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System ‘Corrupt’

http://www.huffingtonpost.com/2010/03/03/stiglitz-nobel-prize-winn_n_484943.html

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Today, the International Monetary Policy and Trade Subcommittee approved H.R. 4573, the Debt Relief for Earthquake Recovery in Haiti Act, introduced by Rep. Maxine Waters (D-CA). The bill would require the Secretary of the Treasury to instruct the U.S. Executive Directors at the International Monetary Fund (IMF), the World Bank, the Inter-American Development Bank (IDB), and other multilateral development institutions to use the voice, vote, and influence of the United States to do the following:

1-cancel immediately and completely all debts owed by Haiti to these institutions;

2-suspend Haiti’s debt service payments to the institutions until such time as the debts are canceled completely; and

3-provide additional assistance to Haiti in the form of grants so that Haiti does not accumulate additional debts.

The United States has called on the IMF to cancel Haiti’s debt to the IMF using the institution’s own internal resources, and H.R. 4573 directs the Secretary of the Treasury to instruct the IMF’s US executive director to advocate the use of some of the realized windfall profits from the sale of IMF gold, which was authorized by Congress last year, to provide debt stock relief, debt service relief and grants for Haiti.  The measure also calls upon the Administration to use all appropriate diplomatic influence to secure complete cancellation of any remaining bilateral, multilateral and private creditor debt owed by Haiti.

If you think this proposal has merit, please pass it along to all of your email friends.
This is a great plan. Pass it around and see if it develops legs.
There is power in the internet.
Here is a proposal  to promote a “Congressional Reform Act of 2010.”  It would contain eight provisions, all of which should be strongly endorsed by the constituents of the members of both houses.
Many of you will say, “this is impossible.”  Remember, congress has the lowest approval of any entity in government and now is the time for  Americans to join together to reform congress – the entity that supposedly represents us.
We need a senator to introduce this bill in the US senate and a representative to introduce a similar bill in the US house. Please contact your senators and congressmen.
If all else fails, something like this needs to be added to the ballot for the next election.
After what’s been going  on for the past few years,  surely the American public will vote for these changes.

Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman

http://www.globalresearch.ca/index.php?context=va&aid=17971

Editor’s Note: Introduced in South Carolina legislature is House Bill 4501 (H4501), which if passed would make Gold and Silver Coin Legal Tender in the state. Cited as authority in the legislation is Article I, Section 10 of the Constitution and the principle of reserved powers under the 10th Amendment.

A number of other states are also considering similar legislation – click here to view the Tenth Amendment Center’s Constitutional Tender Laws Tracking Page.

The article below is an excerpt of a longer essay written by Michael Rozeff for LewRockwell.com in 2008. It covers much of the long history of legal tender laws in the U.S.

Inherent Power and Legal Tender
by Michael Rozeff

Before there were Federal Reserve notes (our current paper money instrument), there were U.S. notes. These were issued by the U.S. Treasury, not the Federal Reserve, which is a central bank created by Congressional action.

Looking at a clear picture of a $20 U.S. note, we see at the top “Legal Tender for Twenty Dollars.” Legal tender means that the note must, by law, be accepted as payment for all debts, public charges, taxes, and dues.

The U.S. Treasury began issuing non-interest bearing notes in 1862 after Congress passed several Legal Tender Acts authorizing their issue. The notes came to be known as greenbacks. The law, which did not distinguish debts contracted before the law was passed from debts contracted thereafter, read as follows:

“Be it enacted …, That the Secretary of the Treasury is hereby authorized to issue on the credit of the United States, one hundred and fifty millions of dollars of United States notes, not bearing interest, payable to bearer, …, and such notes herein authorized shall be receivable in payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States,…, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States,…”

The existing U.S. law is not far different:

“Section 5103 of title 31, United States Code

§ 5103. Legal tender

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.”

Ex post facto law

The 1862 statute conflicted with the Constitution in several ways. In the first place, it was an ex post facto law. It was retrospective or retroactive. It impaired contracts made before the date of the law. Article I, Section 9, which applies to the federal government, says: “No bill of attainder or ex post facto Law shall be passed.” Article I, Section 10, which applies to the states, says: “No state shall…pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts,…”

In his article written in 1900 titled “Are Our Legal Tender Laws Ex Post Facto?”, Brainerd Taylor DeWitt examines the issue thoroughly. The evidence that the legal tender laws are retroactive and thus, in his view, unconstitutional is overwhelming. His own conclusion is this:

“Laws impairing the obligation of contracts being embraced in the prohibition of Article I, Section 9, under the terms “ex post facto law,” as explained by the Constitution itself, by The Federalist and by the usage of our English ancestors long previous to the formation of the Constitution, the conclusion is unavoidable that our legal-tender laws are ex post facto, and that Congress in enacting them violated an express provision of the Constitution.”

To Justice Strong, who wrote the majority opinion that upheld the legal tender laws, it did not matter if those laws impaired contracts and violated some provisions of the Constitution. There were more important fish to fry. He wrote:

“If, then, the legal tender acts were justly chargeable with impairing contract obligations, they would not, for that [79 U.S. 457, 551] reason, be forbidden, unless a different rule is to be applied to them from that which has hitherto prevailed in the construction of other powers granted by the fundamental law. But, as already intimated, the objection misapprehends the nature and extent of the contract obligation spoken of in the Constitution. As in a state of civil society property of a citizen or subject is ownership, subject to the lawful demands of the sovereign, so contracts must be understood as made in reference to the possible exercise of the rightful authority of the government, and no obligation of a contract can extend to the defeat of legitimate government authority.”

In unambiguous words, Strong asserts that government authority trumps the property of citizens (subjects) and the contracts they may make in civil society. He holds this view, as we shall soon see, because he believes that government itself is entitled to whatever powers it requires to perpetuate and preserve itself. In other words, we not only must have government, we must have the government we now have that was established by the Constitution, and that government has a right to preserve itself. We are subject to it. It is not subject to us.

In some cases, the Framers linked the impairment of contracts by ex post facto laws to the production of paper notes, known then as bills of credit. They knew that historically legal tender laws had the intent of making people accept a devalued currency in place of money instruments like gold and silver and augmenting the power and resources of the sovereign while diminishing the liberty of the sovereign’s subjects. Roger Sherman and Oliver Ellsworth, in recommending the Constitution to their state, wrote:

“The restraint on the legislatures of the several states, respecting emitting bills of credit, making anything but money [gold and silver] a tender in payment of debts, or impairing the obligation of contracts by ex post facto laws, was thought necessary as a security to commerce, in which the interest of foreigners as well as the citizens of different states may be affected.”

In Number 44 of The Federalist, Madison speaks strongly against bills of credit being issued by the states. The Federal Convention refused to grant Congress this power as well.

Emitting bills of credit, then the term for non-interest bearing paper notes to be used as currency, is not the same as making such bills into legal tender. The Supreme Court later held that the federal government could issue bills of credit.

Hepburn v. Griswold

The first test of the constitutionality of the legal tender law came in 1869. The Supreme Court found that the law was unconstitutional.

The Court said that (1) the Constitution contained no express provision to make any credit currency a legal tender in payment of debts, and (2) the legal tender laws were not justifiable under the “necessary and proper” clause:

“The making of notes or bills of credit a legal tender in payment of preexisting debts is not a means appropriate, plainly adapted, or really calculated to carry into effect any express power vested in Congress, is inconsistent with the spirit of the Constitution, and is prohibited by the Constitution.”

The Court pointed out another major conflict of legal tender laws with the Constitution. The Fifth Amendment declares that “no person shall be deprived of life, liberty, or property, without due process of law.” The legal tender laws by directly impairing the value of contracts deprived persons of property without due process of law.

Knox v Lee

Knox v. Lee

The Court reversed Hepburn v. Griswold in the following year in two cases: Knox v. Lee and Parker v. Davis. Such a reversal was unprecedented. The majority of 5-3 in Hepburn changed into a 5-4 decision favorable to legal tender laws with the Chief Justice dissenting. One of the original five had retired. The remaining four maintained their position. The minority of three became four when a vacant seat was filled, and it became the majority of five through a new appointee when the court was expanded from 8 to 9 seats in December, 1869.

Statements made by the majority in support of the legal tender laws are what interest us. They are of the utmost importance to us today, inasmuch as we hear them echoed on all sides as every government, Democrat and Republican, reaches for more power.

Justice Strong made several arguments. He began with this statement:

“If it be held by this court that Congress has no constitutional power, under any circumstances, or in any emergency, to make treasury notes a legal tender for the payment of all debts (a power confessedly possessed by every independent sovereignty other than the United States), the government is without those means of self-preservation which, all must admit, may, in certain contingencies, become indispensable, even if they were not when the acts of Congress now called in question were enacted.”

This statement contains justifications for the government power. Not one of them refers directly to the Constitution. A first technique of subverting the Constitution is simply to ignore its language and bring in other considerations. This technique is always in vogue.

Strong mentions extreme circumstances and emergencies in which Congress should have power to act, such power being constitutional, even if it be not present in that document. His idea is that practical necessity is the real ruler at times. He is saying that there is a tradeoff of constitutional constraints on power for another urgent need. This assumes that the Constitution is of second-order or third-order importance. Necessities hold sway.

A second technique of subverting the Constitution is thus to cry “Emergency!” This technique, which relegates the Constitution to secondary status, is also always in vogue. Any leader can easily find a dozen pressing needs, problems, disasters, exigencies, and necessities. He will then urge that they be dealt with no matter what the Constitution says. The Constitution, being the general document that it is, is denigrated as being unable to handle events that it could not have foreseen. Room must be made for stretching its words to fit the necessities of today. Under this philosophy one may well ask, why bother to have a constitution?

Obviously, if the Constitution is ignored in times of emergency or pressing need, then it is no longer the fundamental or supreme law of the land. Something else is, namely, practical need or pragmatism. They are assumed to be more important than the law. The problem with this approach is that it is lawless. Practical needs are not defined by law. They are defined by men, and that means there is no constitution acting as law. Once the Constitution has been ignored or twisted so as to conform to some supposed need, it is then easy to ignore it again and again. It cannot retain its former character as a constraint on government power. When pragmatic matters are primary, the role of the Constitution is that of providing a patina of legality that covers over the actual illegality.

Ignoring the Constitution’s limitations on government power in time of emergency or practical exigency not only assumes that the Constitution is of second-order importance, it also presumes that the government is the only means of possible action. It presumes that the government is the sole organization that can and must act and that it must be empowered to find the solution to the supposed emergency. But this is hardly ever so. In case after case, the government is the worst possible organization chosen to handle problems.

The question at issue in the legal tender case is whether or not the government has the power constitutionally to make everyone accept its paper money as legal tender. Justice Strong begs that question. He presumes that we as persons need the government to solve various problems and have put that government in place as the sole and only means to solve these questions. He presumes that we are incapable of organizing ourselves in any other ways to resolve particular problems. Having made that postulate, he easily deduces the implication that the legal tender power is necessary and proper for the government’s exercise of its other powers.

If one glorifies government to begin with, by placing it on a pedestal, by assuming that it and no other organizations and associations, it and no other means, can solve the common problems we as persons face, one then is ineluctably led to the conclusion that any powers that the government exercises that are needed to support its unique position in solving our problems must be necessary and proper to those exercises of power. If one assumes the uniqueness and singular importance of a government, one is led away from a government with limited powers. One is led to a government with unlimited powers. But since the Constitution established the national government as a unique government, it left itself open to expansive interpretations such as Justice Strong’s.

Strong’s second argument begins in the offhand remark that every other independent sovereignty had the power to make its note into legal tender. He views this as an indispensable means to the “self-preservation” of governments. This argument is false on several grounds, both theoretical and constitutional.

Mr. Justice Clifford, dissenting, demolished Strong’s argument. He pointed out that there was no implied power in the Constitution to make bills of credit into legal tender. Congress already had ample constitutional power to conduct war and preserve the government.

“Congress may appropriate all moneys in the treasury [79 U.S. 457, 630] to carry on the war, or Congress may coin money for that purpose, or borrow money to any amount for the same purpose, or Congress may lay and collect taxes, duties, imposts, and excises to replenish the treasury, or may dispose of the public lands or other property belonging to the United States, and may in fact, by the exercise of the express powers of the Constitution, command the whole wealth and substance of the people to sustain the public credit and prosecute the war to a successful termination.”

In another dissent, the Chief Justice gave an economic or theoretical argument. He laid out the basis for a “tax” foundation for U.S. notes to become currency:

“The real question is, was the making them a legal tender a necessary means to the execution of the power to borrow money? If the notes would circulate as well without as with this quality it is idle to urge the plea of such necessity. But the circulation of the notes was amply provided for by making them receivable for all national taxes, all dues to the government, and all loans. This was the provision relied upon for the purpose by the secretary when the bill was first prepared, and his reflections since have convinced him that it was sufficient.”

Governments do not disappear when they lack the legal tender power. The U.S. has fifty state governments that lack this power. Nor do paper monies issued by governments fail if they are not legal tender. A government can support its note issues as currency, without making them legal tender, by making them payable for the taxes that it assesses. Since the notes can be returned to the government to extinguish tax bills, they can circulate as a money instrument that has value.

Returning to Justice Strong, we find next an amazing argument:

“…the powers conferred upon Congress must be regarded as related to each other, and all means for a common end. Each is but part of a system, a constituent of one whole. No single power is the ultimate end for which the Constitution was adopted. It may, in a very proper sense, be treated as a means for the accomplishment of a subordinate object, but that object is itself a means designed for an ulterior purpose. Thus the power to levy and collect taxes, to coin money and regulate its value, to raise and support armies, or to provide for and maintain [79 U.S. 457, 533] a navy, are instruments for the paramount object, which was to establish a government, sovereign within its sphere, with capability of self-preservation, thereby forming a union more perfect than that which existed under the old Confederacy.”

Strong argues that the Congressional powers, as granted in the Constitution, and the Constitution itself are means to an overriding end: to establish a perpetual government. Government itself is the paramount end! It is true that the Constitution’s preamble says that we the people established the Constitution to form a more perfect union, but it does not say that union of the states is the premier end or even anything but a means to the other objects it lists: justice, domestic tranquility, the common defense, the general welfare, and the blessings of liberty. For us the people, having a union of states makes no sense in and of itself unless it is a means to these other ends.

He quotes approvingly from Justice Marshall:

“Said Chief Justice Marshall, in Cohens v. The Bank of Virginia, 86 ‘America has chosen to be, in many respects and to many purposes, a nation, and for all these purposes her government is complete; for all these objects it is supreme. It can then, in effecting these objects, legitimately control all individuals or governments within the American territory.’”

Some of our Justices seem to have had Hobbes at their elbows or for bedtime reading.

Strong holds that the government, by the necessary and proper clause, can do whatever it wants to that it is not prohibited from doing:

“That would appear, then, to be a most unreasonable construction of the Constitution which denies to the government created by it, the right to [79 U.S. 457, 534] employ freely every means, not prohibited, necessary for its preservation, and for the fulfilment of its acknowledged duties. Such a right, we hold, was given by the last clause of the eighth section of its first article.”

Mr. Justice Bradley, a member of the majority, explained at length why the government had the power to make its paper money a legal tender. He ended up saying that it is “one of those vital and essential powers inhering in every national sovereignty and necessary to its self-preservation.”

The notion of inherent powers, supported by Bradley, arises at the inception of the U.S.A. and carries forward to this day. Hamilton in The Federalist 23 made incredibly broad claims for government power:

“The authorities essential to the common defense are these: to raise armies; to build and equip fleets; to prescribe rules for the government of both; to direct their operations; to provide for their support. These powers ought to exist without limitation, because it is impossible to foresee or define the extent and variety of national exigencies, or the correspondent extent and variety of the means which may be necessary to satisfy them. The circumstances that endanger the safety of nations are infinite, and for this reason no constitutional shackles can wisely be imposed on the power to which the care of it is committed.”

Is it really the case that free people cannot defend themselves without giving up their liberty? Must they commit their lives and liberties to a central power and give that power carte blanche? If they do that, how can they control their controllers? Obviously, a government with no constitutional shackles concerning the war power is exceedingly dangerous and inimical to liberty. It seems that the U.S. has taken the Hamiltonian philosophy to heart. But should it have done so? The passage quoted seems to express an inordinate degree of paranoia and fear combined with an inordinate faith in government as the remedy for that fear. It is hardly wise for an entire country to follow out intemperate and extravagant rambling that has so little balance and restraint.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.

Copyright © 2008 LewRockwell.com

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by Bob Chapman

Global Research, February 19, 2010

The International Forecaster – 2010-02-17

When the next census is over America will probably have 320 million people. The number of Americans 50 years ago was about 184 million. Our budget then was about $100 billion. Today it is supposed to be $3.8 trillion. We call that spending gone wild. Government control of the economy has become bigger and all consuming at what will prove to be an unsustainable pace. Markets are telling us the world has serious sovereign debt problems as witnessed recently with the financial debacles in Ireland and now Greece with others to follow. Arrogant government, Fed officials and Wall Street telling us the borrowings are necessary to save our economy, when in fact just the opposite will prove to be true. Chairman Bernanke tells us inflation expectations are stable and will be subdued for some time to come. Our big questions are what is he hiding at the Fed? Why doesn’t he want an audit? What has the Fed been doing that it doesn’t want us to know about? Could it be the funnel of insider information flowing to Wall Street and banking or the operations of the “Presidents Working Group on Financial Markets”? In their minutes it would be found that inflation is recognized as a friend not an enemy. The independence Mr. Bernanke speaks about is a subterfuge to keep what the Fed is doing away from prying eyes. We do not believe this is any way to run a monetary system.

As we forecast Fed Chairman Bernanke was reconfirmed as the Republican National Committee doled out campaign contributions (payoffs) so that Senators could see their way to confirming Ben. Treasury Secretary Geithner and former Secretary Paulson lied before the congressional committee and as usual nothing happened. Again three illuminists waltz free to again rape our financial system. Democrats in scumbag fashion didn’t seat the newly elected Scott Brown and was able to increase short-term government by $1.9 trillion, so they wouldn’t have to increase it before the November elections. What a wonderful government we have. If Americans do not dump the incumbents of both parties our country is doomed.

It should stand foremost in everyone’s mind that we have had zero interest rates for 14 months and there is no end in sight. The Fed in its secrecy, because you do not have a need to know, won’t admit that they paid banks, Wall Street firms, insurance companies, other corporations and foreign banks 100 cents on the dollar for virtually worthless bonds. The Fed saved the financial system and the US taxpayer will pay for it. Incidentally, these recipients are all back doing the same thing they did before, which brought the financial system down. The Fed created more than $2 trillion for this bailout, as well as via the purchase of Treasuries and Agencies.

In this process the Fed lost control of the Fed funds’ rate, a new rate process will probably be interest paid on excess bank reserves. This could lead to a drain in reserves of $1 to $2 trillion. Part of those reserves are toxic garbage that the Fed has to find a way to get rid of at $0.20 to $0.30 on the dollar and in process not let anyone know what the publics’ losses are. Keep in mind that if these securities had not been “purchased many banks, brokerage houses, insurance companies and transnational conglomerates would have been bankrupt by now.

China expanded bank loans in January by a phenomenal $200 billion plus. This is in addition to $1.3 trillion in previous expansions. As a result house prices rose 9.5% year-on-year. Their manufacturing fed giant oil and copper imports rose 33% to 25%, as consumption rose 40%.

As a result the People’s Bank raised reserve requirements by 50 bps, or 1/2%. Whether this becomes an isolated event or whether it is the beginning of real tightening, remains to be seen. If they are serious they will need higher rates than that. This tactic is used rather than raising interest rates, which will attract additional hot money flow. The bank says they are guiding the economy back to normality. They are expecting other countries to follow their lead in ending stimulus. The question now for China and the rest of the world is will world stock and bond markets, as well as asset values fall as the stimulus and quantitative easing ends? Our forecast is a fall in GDP, higher unemployment, an easing to a very small degree in inflation and a big fall in stock, bond and real estate prices. The temporary palliative will not carry their economy ahead on a permanent basis.

China can act aggressively because their enormous Forex position of some $2.4 trillion; a luxury not available to many countries. In addition we now have recognized sovereign debt problems mainly so that the dollar could rally and for other currencies to fall to make them more competitive. That is the price to be paid – recognition. Those conditions were well known long before the open exposure of Greece, Ireland, Portugal, Spain and Italy. The magical exposure was all prearranged. We could tell that was the plan by the long dollar positions of Goldman, Morgan and Citi, and in reverse their massive short positions in gold and silver bullion and shares that still as yet have only been partially covered.

China will tighten up but not in a big way, because others won’t and can’t without there economies coming unglued, especially in the category of unemployment. World monetary authorities are hoping the deflationary underflow will in total or at least in part ward-off the inflation caused by monetized stimulus. That is wishful thinking. What is in motion is very dangerous, especially for the US, where the federal deficit has gone ballistic, probably reaching $1.5 to $2.0 trillion by September 30, 2010, the end of the fiscal year. Then there is the matter of debt that last year saw the Fed service 80% via monetization. This cannot persist indefinitely. As you can see the US and other economies are very vulnerable.

As all attention has been drawn over the past few weeks to Greece, Europe and China, it went almost unnoticed that the US had the largest trade deficit in a year, and that Freddie Mac will purchase hundreds of billions of dollars of toxic waster better known as collateralized debt obligation, in behalf of the American taxpayer. There is no end to America’s financial problems.

This is the result of the market’s reluctance to purchase these securities. These publicly supported bankrupt entities will spend another $200 billion buying these securities. This is an add on to the Fed’s program of purchasing $1.25 trillion of these home loans, a program that is supposed to end next month.

If this is part of the Fed’s exit strategy we are in serious trouble. These purchases are not going to solve the problems. The Fed is just moving these wasteful assets from one place to another. Under these circumstances how can there be a recovery and how can the dollar maintain its current strength? Leverage is still the method of speculators and inflation is still with us.

It looks like global financial and economic problems are not going to disappear anytime soon. Over and over again nations paper over problems never attempting to solve them. The current dilemma in Greece and at the Fed are perfect examples.

Observers are going to be shocked when China’s stock market and real estate bubbles burst. The ramifications of these Chinese failures will resound worldwide. The biggest question is will China have to start selling off its $2 trillion dollar hoard to straighten out its problems? Only time will tell. What is important is that these problems exist. They are not being addressed and in time will resurface in a more virulent manner.

We see Greece as a reflection of where America is headed. Greece and America have many things in common, one of which is their governments consistently lie about everything. The EU and eurozone solution for Greece are budget cuts of 8.7% this year and down to 3% of GDP in three years. Can you imagine the US going through this? Well, get ready for it because this is where the US economy is headed. Instead of $780 billion stimulus plans we will have $780 billion in budget cuts. Not only would government start cutting staff, but also there would be major cuts in Medicare, Medicaid, Social Security, wages, etc. Yes, taxes would rise, as tax cuts would not be renewed.

We hear all about the corruption in Greece, but we are not surprised. They just copy what they see in the US. It is a revelation when we are told 30% of Greece’s economy is underground. It has been a dark secret for many years that 30% of the US economy is underground as well. This began in the Vietnam era, and has gone on ever since. Today people say if illegal aliens do not have to pay taxes why should they. It is a government-sponsored program to do little or nothing about this problem, so what can government expect from the public?

Greece is a basket case, as are many other governments. The more we research the more we are convinced Greece is a setup and trial run to take other governments under, one at a time. This in part was done to boost the dollar’s value versus other currencies. This could be the second inflationary leg of the depression similar to 1933. Again the only safe haven is gold and silver related assets.

As we mentioned before, Greece could well be a distraction so players would lose sight of US problems. A strong dollar does not mean the America’s problems are over. Others’ problems are not worse than ours. By the looks of things the Illuminists are not as yet ready to pull the plug on Europe. If they were they would have already pulled it. The EU, but in particular the eurozone, has become a failed experiment. Greece may be bad but California is going to be much worse. It represents 13% of US GDP and is the 7th largest economy in the world. They owe the federal government $6 billion and have a budget deficit of more than $6 billion. Then there are the $500 billion in municipal bonds they have outstanding, that could go into default. Then there is New Jersey with an $11 billion deficit. Pennsylvania hs talked about bankruptcy. Then come many others. Yes, Greece could be a diversion. If it is it will be a long-term diversion that could last 20 years. For those who do not know Greece has been in default in 105 of the last 200 years.

The bottom line is there is a limit to the amount of debt a sovereign country can handle. The Illuminists are setting the world up for a long string of sovereign defaults. Now you can better understand why you need gold and silver related assets.

The latest G-7 meeting in N. Canada was another non-event. They reaffirmed that stimulus has to keep flowing or the seven major world economies won’t be able to make it. Little of what really went on got into the media, which is usually the case. Governments in recent years have become more and more secretive. Most nations generally want lower deficits, but in reality never practice what they preach. That gives us a bottom line as we are left with little more than blatant hypocrisy. It has simply become a pure political game and as a result there is no path back to economic and financial normality. No one wants to purge a system that no longer functions properly. The looting goes on unabated. They are all a disgrace, but we know exactly what they are up too. Thank goodness for newsletters, talk radio and the Internet, otherwise we’d still have darkness being only able to access the controlled media.

Last week the Dow gained 0.9%, S&P 0.9%, the Russell 2000 3% and the Nasdaq 1001.9%. Banks fell 0.2%, broker/dealers rose 1.3%, cyclicals 2.5%, transports 2.5%, consumers 1.6%, as utilities lost 1.3%. High tech rose 1.8%, semis 4%, Internets 1.8%, as biotechs fell 0.2%. Gold bullion rose $27.00, the HUI gained 3.2%, as the USDX dollar index fell 0.3% to 80.22.

Two-year Treasury bills rose 5 bps to 0.74%, 10-year notes rose 13 bps to 3.70 and 10-year German bunds gained 7 bps to 3.19%.

Freddie Mac 30-year fixed rate mortgage rates declined 4 bps to 4.97%. The 15’s fell 6 bps to 4.34% one-year ARM’s jumped 9 bps to 4.33% and 30-year jumbo’s rose 2 bps to 5.92%.

Fed credit increased $1.8 billion last week. It is up 22% yoy. The Fed foreign holdings of Treasury and Agency debt jumped $9.3 billion to $2.956 trillion. Custody holdings, for foreign central banks yoy are up $395 billion, or 15.4%.

M2 narrow money supply increased $7 billion to $8.471 trillion yoy; it has expanded 1.8%.

Total money market funds assets fell again $6.7 billion to $3.198 trillion. Year-on-year they have fallen $705 billion, or 18.1%.

China’s lending surged to 1.39 trillion yuan ($203 billion) in January and property prices climbed the most in 21 months as banks extended more credit in anticipation the government will tighten monetary policy. Lending was more than in the previous three months combined. Property prices in 70 cities rose 9.5% from a year earlier… China’s 9.35 trillion yuan of loans in the past year has added to the risk that the world’s fastest-growing major economy may overheat.

Fannie Mae and Freddie Mac’s plan to step up purchases of delinquent loans may boost prepayments on their securities. Freddie Mac said yesterday that it would buy ‘substantially all’ loans with payments late by 120 days or more from its securities in the next month. Fannie Mae said later that it will ‘increase significantly’ its buyouts, setting a less aggressive timeline. The value of Freddie Mac’s delinquent loans is $70 billion, while Fannie Mae has $130 billion of the debt. ‘This is going to be a wad of cash coming into the fixed- income markets and it’s not immediately clear where it’s going to be reinvested,’ said Jim Vogel, head of agency-debt research at FTN Financial.

More than a fifth of U.S. homeowners owed more than their properties were worth in the fourth quarter according to Zillow.com. In the fourth quarter, 21.4% of owners of mortgaged homes were underwater, up from 21% in the previous three months.

Like millions of American households, the Mortgage Bankers Association found itself stuck with real estate whose market value has plunged far below the amount it owed its lenders. On Friday, CoStar Inc., a provider of commercial real estate data, said it had agreed to buy the MBA’s 10-story headquarters building in Washington, D.C., for $41.3 million. That is well below the $79 million the trade group agreed to pay for the glass-walled building in 2007.

Senator Evan Bayh of Indiana announced yesterday that he will not seek a third term in November, a decision that, combined with other Democratic departures, could imperil the party’s prospects of retaining control of the Senate.

Bayh cited the lack of bipartisanship on Capitol Hill as his main reason for leaving, adding to skepticism that the fractiousness in Washington can be repaired and undermining President Obama’s efforts to build bridges. [The rats are leaving the sinking ship. As it says in the Bible the writing is on the wall.]

HERE has been no global warming for 15 years, a key scientist admitted yesterday in a major U-turn.

Professor Phil Jones, who is at the centre of the “Climategate” affair, conceded that there has been no “statistically significant” rise in temperatures since 1995.

The admission comes as new research casts serious doubt on temperature records collected around the world and used to support the global warming theory.

Researchers said yesterday that warming recorded by weather stations was often caused by local factors rather than global change.

The revelations will be seized upon by sceptics as fresh evidence that the science of global warming is flawed and climate change is not man-made.

The Daily Express has led the way in exposing flaws in the arguments supporting global warming.

Last month we revealed how the UN’s International Panel on Climate Change was forced to admit its key claim that Himalayan glaciers would melt by 2035 was “speculation” lifted from a 1999 magazine article. The influential IPCC then admitted it had got the key claim wrong and announced a review.

The Daily Express has also published a dossier listing 100 reasons why global warming was part of a natural cycle and not man-made.

Yesterday it emerged that Professor Jones, whose raw data is crucial to the theory of climate change, had admitted he has trouble “keeping track” of the information.

Colleagues have expressed concern that the reason he has refused Freedom of Information requests for the data is that he has lost some of the crucial papers.

Professor Jones also conceded for the first time that the world may have been warmer in medieval times than now. Sceptics have long argued the world was warmer between 800 and 1300AD because of high temperatures in northern countries.

Climate change advocates have always said these temperatures cannot be compared to present day global warming figures because they only apply to one specific zone.

But Professor Jones said: “There is much debate over whether the Medieval Warm Period was global in extent or not. The MWP is most clearly expressed in parts of North America, the North Atlantic and Europe and parts of Asia.

“For it to be global in extent, the MWP would need to be seen clearly in more records from the tropical regions and the southern hemisphere. There are very few climatic records for these latter two regions.

“Of course, if the MWP was shown to be global in extent and as warm or warmer than today, then obviously the late 20th century warmth would not be unprecedented.” Professor Jones first came under scrutiny when he stepped down as director of the University of East Anglia’s Climatic Research Unit in which leaked emails were said to show scientists were manipulating data.

Researchers were accused of deliberately removing a “blip” in findings between 1920 and 1940, which showed an increase in the Earth’s temperature.

John Christy, professor of atmospheric science at the University of Alabama and a former lead author on the IPCC, said: “The apparent temperature rise was actually caused by local factors affecting the weather stations, such as land development.”

Ross McKitrick, of the University of Guelph, Canada, who was invited to review the IPCC’s last report said: “We concluded, with overwhelming statistical significance, that the IPCC’s climate data are contaminated with surface effects from industrialization and data quality problems. These add up to a large warming bias.”

International demand for long-term U.S. stocks, bonds and financial assets grew at a slower pace in December than a month earlier, as China sold U.S. government securities, a U.S. Treasury Department report showed.

Net buying of long-term equities, notes and bonds totaled $63.3 billion for the month, compared with net purchases of $126.4 billion in November, the Treasury said in Washington. Including short-term securities such as stock swaps, foreigners purchased a net $60.9 billion in December, compared with net buying of $30.7 the previous month.

China has questioned the dollar’s dominance as the world’s reserve currency. In the U.S., spending to avert an economic collapse sent the federal budget deficit above $1 trillion for the first time ever in fiscal 2009, and economists said that may deter investment from abroad.

“The U.S. may not be able to get its government spending under control,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, before today’s report. “But it is still seen as an island of relative safety.”

China was a net seller of U.S. Treasuries for a second straight month, after sales of $34.2 billion, the report showed. Japan replaced China as the top foreign holder of U.S. government debt, after net purchases of $11.5 billion raised its total to $768.8 billion.

Economists surveyed by Bloomberg News ahead of today’s survey projected long-term U.S. financial assets would show a net increase of $35.4 billion in December. Estimates ranged from $15 billion to $68.2 billion, according to the seven forecasts compiled in the survey.

Manufacturing in the New York region expanded in February at the fastest pace in four months as companies boosted payrolls in anticipation of accelerating orders and sales.

The Federal Reserve Bank of New York’s general economic index rose to 24.9 this month, higher than anticipated, from 15.9 in January. Readings above zero in the so-called Empire State Index signal growth in the area covering New York and parts of New Jersey and Connecticut.

Manufacturers are increasing output to replenish depleted inventories as business and consumer spending pick up and exports surge. The factory expansion may persist for months, leading to gains in hiring and incomes that will probably also give the rest of world’s largest economy a lift.

JPMorgan Chase & Co., the second- biggest U.S. lender, agreed to buy the non-U.S. units of RBS Sempra Commodities LLP for $1.7 billion to expand its energy- and metals-trading units.

JPMorgan will acquire the firm’s European and Asian global metals and oil units, Edinburgh-based Royal Bank of Scotland Group Plc said in a statement today. RBS was forced to sell its stake in Sempra by the European Union after receiving a 45.5 billion-pound ($71 billion) taxpayer bailout.

The purchase, led by JPMorgan global commodities chief Blythe Masters, expands the bank’s commodities division just as U.S. President Barack Obama tries to curb banks’ trading of securities for their own account. JPMorgan held talks to buy RBS Sempra’s North American gas and power trading units as well, two people with knowledge of the talks said this month.

“This transaction maximizes the market value of our European and Asian businesses and represents a positive first step of an orderly exit by RBS from the joint venture,” Donald E. Felsinger, chairman and chief executive officer of Sempra Energy, said in a statement today.

Sempra will receive about $940 million from the sale, the San Diego-based company said. RBS will receive about $799 million from the deal and expects to make a “small gain” from the sale, the bank said.

The government already has made so many promises to so many expanding "mandatory" programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.

It’s time for some perspective.

Greece is in crisis because its budget deficit was thought to be 12.7% of its GDP.

Spain is perceived to be the next crisis because its budget deficit is 11.7% of its GDP.

A proposed bailout condition is Greece must reduce its deficit to the 3% of GDP level mandated by Maastricht.

The US will run a projected $1.6 trillion deficit. Its GDP is $14.2 trillion. This means the US budget deficit is projected, under the rosy economic assumptions of the Obama administration, to be 11.3% of its GDP. To get a budget deficit of 3% of GDP, the US must cut $900B of spending or increase taxes.

Dubai’s stock market fell 3.5% after a report said the government’s investment vehicle Dubai World may offer only 60 cents on the dollar to creditors. The company denied the Dow Jones report but that did not stop Dubai’s index seeing its biggest drop in three weeks.

Volcker says must let big financial firms fail Large financial institutions that engage in speculative activities for profit should be allowed to fail if they get in trouble, White House advisor Paul Volcker said on Sunday.

"If a big non-bank institution gets in trouble and threatens the whole system, there ought to be some authority that can step in, take over that organization and liquidate it or merge it — not save it," Volcker said on CNN. "It’s called euthanasia, not a rescue."

"I don’t think there’s any question the Federal Reserve and other regulators were not on top of the housing picture," Volcker said.

The next US bank or financial institution that becomes insolvent is likely to be nationalized or merged into another entity with possible covert guarantees. That’s what current politics dictate.

We have been screaming for the past several years that food and energy inflation are boosting retail sales. Also, the government has been reporting higher retail sales than industry sources or sales taxes indicate.

Texas collects $1.66 billion of January Sales, 14% below last year.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $355.8 billion, an increase of 0.5 percent (±0.5%)* from the previous month and 4.7 percent (±0.5%) above January 2009. Gasoline stations sales were up 29.0 percent (±1.5%) from January 2009 [+0.4% m/m].

Seeking Alpha comments on the ugly 30-year US Treasury auction last week: To see such a MASSIVE drop off in Indirect Buyers (40% down to 28%) is a MAJOR warning sign that Foreign Governments are no longer willing to buy long-term US debt.

This auction was a very small step away from a failed auction. To see Primary Dealers buying so much (remember they HAVE to buy it) and Indirect Buyers so little, only confirms what I’ve been saying for months: that the US is entering a Debt Spiral; a situation in which it must issue more and more debt (while rolling over trillions of old debt) at the very time that fewer and fewer investors are willing to lend to the US for any lengthy period of time (more than ten years).

Gradually we are getting confirmation that Chinese "posturing" about offloading US debt is all too real. The most recent TIC data confirmed the Treasury’s greatest nightmare: China is now dumping US bonds. In December China sold $34.2 billion of debt ($38.8 billion in Bills sold offset by $4.6 billion in Bonds purchased), lowering its total holdings $755.4 billion, the lowest since February 2009, and for the first time in many years relinquishing the top US debt holder spot to Japan, which bought $11.5 billion (mostly in Bonds, selling $1.4 billion Bills) bringing its total to $768.8 billion. Also, very oddly, the surge in UK holding continues, providing yet another clue as to the identity if the "direct bidder" – as we first assumed, these are merely UK centers transacting primarily on behalf of China as well as hedge funds, which are accumulating US debt under the radar. UK holdings increased from $230.7 billion to $302.5 billion in December: a stunning $70 billion increase in a two month span. Yet, with the identity of the UK-based buyers a secret, it really could be anyone… Anyone with very deep pockets.

L.A. budget crisis threatens jobs, credit rating

The $212 million budget shortfall, projected to more than double next year, is attributed mainly to plunging tax revenue blamed on the region’s sagging economy, falling property values and a 15 percent jobless rate — one of the highest of any major U.S. city.

"The last time we saw this kind of drop in revenue was the Great Depression," Miguel Santana, the city’s chief financial officer, told Reuters. "It speaks to how severe this budget crisis is."

By Opposing Just A 5% Pay Cut, L.A.’s Union Hardliners Show Why California Is Doomed.

The Hill: The risk from the financial crisis was overblown and many of the TARP bailouts were unnecessary, Gov. Tim Pawlenty said in an interview published today. Speaking to Esquire magazine, Pawlenty suggested the bailout was contrived by Goldman Sachs execs for their own self interest. He referred to an unnamed story he read on how the bailout was conceived.

"In this story, Paulson, former Goldman Sachs CEO, was meeting with other Goldman Sachs executives, trying to figure out what to do, and surprise, surprise, they came up with the conclusion that the federal government should bail out Goldman Sachs," Pawlenty said.

"So I don’t take as an article of faith that the financial world would have come to an end if we had let more of these institutions fail," he added.

http://thehill.com/blogs/blog-briefing-room/news/80951-pawlenty-financial-crisis-risk-was-overblown

Police in the Greek capital say a bomb has exploded at the offices of American financial services firm JPMorgan Chase & Co., causing no injuries.

The blast occurred early evening Tuesday in an upscale area of central Athens, following a warning telephone call to an Athens newspaper.

The extent of the damage was not immediately clear.

America’s fragile high street banks are bracing themselves for a fresh financial crunch as a wave of commercial property mortgages go sour on offices, shops and factories, causing losses of up to $300bn (£192bn) hitting nearly 3,000 small- and medium-sized financial institutions.

A congressional oversight panel charged with scrutinising the Obama administration’s bailout efforts has warned that $1.4tn of loans covering commercial premises will reach maturity between 2011 and 2014. After a plunge in property prices, nearly half of these loans are underwater, with borrowers owing more than their underlying property is worth.

An analysis by the panel found that 2,988 of America’s 8,100 banks have potentially dangerous exposure to commercial property loans. The impact could damage hopes of a US economic recovery and could cause a further squeeze in the availability of credit to consumers and businesses.

"Are we arguing that this is a serious problem that we need to get in front of? The answer is yes," said Elizabeth Warren, chairman of the oversight panel. "It’s like throwing a handful of sand into the economic recovery."

She said that if banks see that their commercial property liabilities are mounting, they will hold back on lending elsewhere: "They’ll tend to husband their money so that it’s not available for small business loans.

A new report says hotels in Hawaii lost $741 million last year, $1.1 billion since the tourism slump began in 2008.

The report by the industry consulting firm Hospitality Advisors LLC says hotel occupancy throughout the state averaged 66.5 percent in 2009. That’s down from 70.5 percent in 2008.

Hospitality Advisors says last year’s rate was the lowest since it began reporting hotel data in 1987.

Company President and Chief Executive Officer Joseph Toy says 2009 was a tough year for the visitor industry in Hawaii and across the nation.

He says the speed and depth of the downturn was unprecedented, and the hotel industry has never experienced the level of rate discounting that is continuing.

Hotels have been heavily discounting room rates to generate demand.

The sudden pullout of three corporate giants from a leading alliance of businesses and environmental groups could be the death knell for climate change legislation languishing on Capitol Hill.

ConocoPhillips, BP America and Caterpillar’s announced Tuesday they will pull out of the U.S. Climate Action Partnership, citing complaints that the bills now in Congress are unfair to American industry.

Net long-term TIC flows were $63.3 billion. The November total net figure was revised to $30.7 billion: net long-term TIC figures was revised to $126.4 billion from $126.8 billion

The February NAHB housing market index rose to 17, up from January’s 15. Another negative for builders is that lumber prices have increased 32% this year.

Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman

by futureofdollar.com

Global Research, February 18, 2010

futureofdollar.com – 2010-02-17

The World is concerned that the dollar cannot play the role of the main reserve currency any longer after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since the 1930s. The Government’s stimulus packages, financial bailouts, the need to support liquidity in Treasuries, keeping interest rates at the lowest level under the circumstances of low economic growth, high unemployment and low tax collection make it print more dollars. This leads to a high risk of substantial inflation, or hyperinflation in a long-run.
With a $12.3 trillion national debt and $55 trillion in unfunded obligations for programs such as Social Security, Medicare and Medicaid, with total Federal Reserve and Treasury bailout commitments now at $11.8 trillion, of which $3.6 trillion has already been spent the U.S. need to take steps immediately to protect themselves from the potential loss of the purchasing power of their U.S. Dollars, inflation.us warns.
Although there is still no significant inflation data in the United States international stock and commodity markets grew abnormally within the last eleven months. Analysts called it the “flight from the dollar” or “diversifying risks.”
There are many factors evidencing against the future of the dollar as a global reserve currency. In the present article futureofdollar.com pays attention to the crucial points of analysis after conducting an extensive research on the topic. 
Part I

Weak Fundamentals of the U.S. Economy

Nobel Prize winner Paul Krugman states that “a country whose fundamentals are persistently and predictably deteriorating will necessarily have a [currency] crisis at some point.” (1)
1. National Debt
In the middle of February 2010, President Obama signed into law the bill increasing the public debt ceiling from $12.394 trillion to $14.294 trillion.  This is a second increase in the upper limit on the national debt in less than two months.
Last time, in December, House Majority Leader Steny Hoyer commented that the Congress simply had no other choice: otherwise the United States would have to default on their debt obligations what would be another catastrophe for financial markets. (2)
The Peterson-Pew Commission on Budget Reform stated that “the United States would almost certainly experience a debt driven crisis,” that “could unfold gradually or it could happen suddenly, but with great costs either way.” “The excessive debt would. . . affect citizens in their everyday lives by harming the American standard of living through slower economic growth and dampening wages, and shrinking the government’s ability to reduce taxes, invest, or provide a safety net.” (3)
2. Unemployment
This past January, the economy lost 20,000 jobs after loosing 150,000 jobs in December, and the unemployment rate was 9.7 percent. (4)
The unemployment rate fell from 10.0 to 9.7 percent in January. According to Reuters “a sharp increase in the number of people giving up looking for work helped to depress the jobless rate. The number of ‘discouraged job seekers’ rose to 1.1 million in January from 734,000 a year ago.”
3. Budget deficit

IMF’s Managing Director Dominique Strauss-Kahn noted at the 10th Annual Herzliya Conference in Tel Aviv that the global crisis had created a problem of fiscal sustainability for many countries that could take decades to fix because of the huge debts built up during the crisis, especially in developed countries. (5)
The United States reached a record budget deficit of $1.415 trillion in fiscal year 2009 that ended in September. (6)  The deficit will probably again exceed one trillion dollars in the current fiscal year as it is already over $400 billion.
The excess of spending over revenue in the United States rose to $91.9 billion in December 2009, as opposed to a deficit of $51.8 billion in December 2008, the Treasury Department announced in its monthly budget statement. The U.S. has posted a record 15 straight monthly deficits. (7)
In the beginning of February 2010 Obama transmitted a $3.8 trillion budget for 2011 to the Congress with a record $1.6 trillion deficit. (8)
During the debate on the national debt the Senate “rejected a proposed bipartisan commission to recommend ways to reduce the U.S. budget deficit,” Bloomberg reported. “The legislation would have required that the panel’s recommendations be voted on by Congress without being amended.” (9)
4. Financial sector
Recent Bank of America’s and Citigroup’s losses for the fourth quarter of 2009 and inability to repay the bailout funds without additional stock offering, Morgan Stanley’s low profits, and J.P. Morgan Chase’s retail division loss confirm a suspicion that the U.S. banks’ economic conditions are not very strong putting in doubt health of the financial sector as a whole.
“Loan demand continued to decline or remained weak in most Districts.” (10)
“A number of Districts reported that credit quality continued to deteriorate.” (11)
5. Home Sales

  Existing-home sales fell 16.7 percent in December 2009 “after first-time buyers rushed to complete sales before the original November deadline for the tax credit,” the National Association of Realtors reported. (12)
  According to the U.S. Bureau of the Census sales of new single-family houses declined 7.6 percent in December 2009, following a drop of 9.3 percent in November. Bloomberg noted that for all of 2009, sales declined 23 percent to 374,000, the lowest level since records began in 1963. (13)
6. Economic impact of U.S. international military operations

The cost of conducting wars in Iraq and Afghanistan pushed the budget into the red during the presidency of George W. Bush. The situation deteriorated after the beginning of the financial crisis when the government adopted measures such as stimulus packages, financial bailouts, the need to support liquidity in Treasuries, etc. Moreover, early in December 2009 it has increased its nonproductive expenses by approving 30,000 troops to be sent to fight in Afghanistan.
All economists agree that one of the basic nonmonetary reasons of inflation is the existence of significant nonproductive government expenses such as military expenses.
Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said Obama may have too much on his plate. “You can’t fight a war, a financial crisis, a recession, and add health-care coverage to the uninsured at the same time,” he said. “It is simply the recipe for disaster.” (14)
However important goals of the war could be, military operations are, undoubtedly, very costly for U.S. citizens especially at the time of the financial crisis and growing deficits. Moreover, the situation is not getting better considering that around 40 percent of the war financing has been borrowed from abroad, Joseph Stiglitz, the Nobel Prize Winner, shows in his research “The Three Trillion Dollar War: The Real Cost of the Iraq Conflict.”
Explaining why wars are expensive he points out that military expenditures are not only limited to direct operation costs but also include (the bigger part) human casualties, future disability costs, loss of income, increased oil prices, opportunity costs, veterans’ social welfare, nonproductive spending, loss of confidence in the future economic situation, increase in the national debt, and so on.
“If we try to stay the course, we are going to spend more and more money,” Stiglitz stresses. “The fact that we financed the war totally by deficits means that when 10 years from now we decide we want to repay that, which I don’t know if we will, the amount that we will have to raise our taxes will be that much larger because the debt will be that much larger.”
7. China’s peg to the dollar

So far China is enjoying low yuan rate giving its exports competitive advantage in relation to those countries with appreciating currencies against the U.S. dollar.
As the result China is actually “stealing” jobs from many countries since with appreciating currencies their companies are not able to compete with Chinese producers.
In relation to the United States this means that the country should not count on sooner recovery. China’s peg to the dollar makes imports into the U.S. cheaper. This supports high level of unemployment in America. Unemployment prevents the growth of GDP and reduces revenues. 
Part II

Lack of Coincidence

Defining major reasons of currency crises Paul Krugman states that the most important is a lack of confidence. The “investor lack of confidence – is a defining feature of a currency crisis,” he argues. (15)
Below are opinions of a number of people from different parts of the world whom many of us know quite well. Their opinions concern the U.S. dollar and the U.S. economy. 
Nouriel Roubini, the New York University professor who predicted the financial crisis, said that the greenback may weaken for the next three years. (16)
Warren Buffett, a successful international investor: “There is the likelihood of significant inflation down the road.” (17)
Robert B. Zoellick, the World Bank President: “There is little the United States can do about the sinking value of the dollar except restore growth in its economy.” (18)
George Soros, a successful international investor: “Irrespective of the situation in the stock markets or condition of the economy we shall see further shift from the dollar into real assets in a long run.” (19)
Jim Rogers, a successful international investor: “Printing money to help the U.S. economy will weaken the greenback and Treasuries in a long run.” (20)
Joseph Stiglitz, Nobel Laureate in Economics: The greenback will continue to head downward for the time being, given the huge U.S. trade deficit and global trade imbalance. (21)
Fan Gang, a prominent economist and adviser to China’s central bank: "This crisis is a U.S. dollar crisis, which takes a relatively long time to clear up. The problem involves the U.S. currency and U.S. debt; eventually it has to be solved through U.S. dollar depreciation." (22)
Yuri Luzhkov, City of Moscow Mayor, Russia: The world is on the brink of a radical devaluation of the American currency. Therefore, Russia has to abandon its dependency on the dollar as soon as possible. American currency reserves are supported by nothing and industrial production in this country is very low. (23)
The list of well-known people with similar thinking is endless. In its research futureofdollar.com faced a difficulty of finding successful investors, economists or foreign politicians with the opposite thinking. There are just a few of them. Most of them are the U.S. government officials whose job is to restore the confidence in the U.S. economy with a part of this job being speaking in ‘positive’ terms.
People in this group either believe that:
*the recession is over and the U.S. economy will have a sharp rebound, or
*that the dollar will remain the primary reserve currency for a long time because during this last financial crisis investors found the dollar a safe haven, or
*that there is no inflation threat relying on the U.S. government data, or
*simply stating that “we will sink or swim with the dollar.”
For instance, Barack Obama is confident that the dollar is “extraordinarily strong” because investors are confident in the ability of the U.S. to lead a worldwide recovery. (24)
The Chairman of the U.S. Federal Reserve Ben Bernanke believes that U.S. asset prices aren’t out of line with underlying values, and central bank policy will ensure that the “dollar is strong.” (25)
The U.S. Treasury Secretary Timothy Geithner forecasts that the dollar will remain the world’s "dominant reserve currency." (26)
Therefore, we came to a conclusion that, unfortunately, the U.S. economy and the dollar are losing confidence. The U.S. government must work even harder now to restore it.
Part III

Diversification Out of the Dollar
It is hard to argue that the future of the dollar nowadays significantly depends on such developing countries as China, India, Brazil, Russia, and others. These countries accumulate very large dollar reserves and the U.S. debt. 
Let’s explore their recent positions regarding the U.S. dollar with an attempt to predict its future.
1.  China

Already for an extended period of time China was quite aggressive in diversifying its reserves and protecting from weakening dollar, recommending its private sector to do the same.
The Chinese Ministry of Finance said in the beginning of September 2009 that it would issue 6 billion yuan worth of government bonds in Hong Kong, a major step to internationalize its currency at a time of concern about the dollar. (27)
Same month China bought the equivalent of $50 billion of the first bond sale by the International Monetary Fund, a purchase that might raise Beijing’s standing in the fund and help the government’s quiet campaign to expand the reach of its currency. China took the unusual step of paying for the IMF bonds with 341.2 billion yuan — which is not traded on global markets — rather than dollars. (28)
The country signed currency agreement with Argentina and agreed to credit South Korea, Malaysia, Indonesia and Belarus with its own currency. (29)
In the mid-September 2009, the International Monetary Fund announced that it was going to sell 403 tons of gold. Chinese central bank showed its willingness to buy the whole offer. (30)
The People’s Bank of China showed its intention to decrease its dollar reserves. Chinese authorities will increase their euro and yen reserves. (31)
China and Brazil established international payments in national currency of the Republic of China. Zhuhai Geli corporation received a transfer of several million yuan from San Paolo in the fall of 2009. (32) 
Foreign investments of Chinese companies rose in the 3d quarter of 2009 reaching $20,5 billion. The number is almost three times higher as opposed to the last year statistics for the same period of time, as data of the Chinese Ministry of Trade showed. (33)
The country was seeking to expand its African oil reserves by bidding for up to a sixth of Nigeria’s crude reserves constituting approximately 6 billon barrels. Valuing near $30-50 billion Chinese offer is higher than that of the current owners. China has been buying oil resources around the World for the second year already. (34)
Chinese companies may invest about $ 4,4 billion into Peru’s mining sector within the next three years, said Bloomberg referring to the statement made by the Prime Minister of Peru Javier Velasquez. (35)
Nearly 44% ($14,3 billion) of the total volume of China’s investments within the first nine months of 2009 were coming into mining and production sector. Representative of the Asian Development Bank noted that investing in the mining sector by purchasing stocks corresponded to a long-term strategy of the country to achieve resource security. (36)
China Investment Corporation (CIC), a sovereign wealth fund responsible for managing part of Chinese foreign exchange reserves, “has been quietly accumulating stakes in resource firms including Canada’s Kinross Gold Corp. and Potash Corp. of Saskatchewan according to a filing with securities regulators.” (37)
CIC chairman Lou Jiwei “recently said that CIC would focus on investing in emerging markets in 2010. In October, the CIC chairman said the fund had allocated $110-billion for foreign investments and had already deployed about half of that.” (38)
“In addition to its $3.5-billion interest in Teck, CIC has a $652-million stake in Brazilian iron ore and nickel giant Vale SA, a $4.7-million interest in copper miner Freeport-McMoRan, and a $9.1-million holding in steel producer ArcelorMittal.” CIC has also acquired stakes in a number of high-profile brand name companies in North America such as Research In Motion Ltd., Apple Inc., News Corp., and AIG Inc. (39)
2. India

IMF sold 200 metric tons of gold to India in the beginning of November 2009. The $6.7 billion sale is “the biggest single central-bank purchase that we know about for at least 30 years in such a short period,” said Timothy Green, author of “The Ages of Gold.” “The only comparable event was the U.S.’s steady purchases in the 1930s and 1940s.” (40)
3. Brazil

Brazilian Central Bank president Henrique Meirelles said the country is considering the gradual elimination of the U.S .dollar in trade with China, Russia and India. (41)
In October 2009, the Brazilian Central bank announced that an agreement was reached with Uruguayan economic authorities to apply the so called SML system in bilateral trade operations. (42)
Brazilian Finance Minister Guido Mantega said that Brazil would spend 10 billion US dollars on buying International Monetary Fund bonds to boost the fund’s resources. This “radical change” will help Brazil to diversify its resources, he added. (43)
4. Russia
The Central Bank of Russia increased the share of Japanese yen and Swiss franc in reserves in the middle of 2008. Japanese yen currently accounts for around 2 percent of Russia’s reserves. The franc’s share is smaller because of the limited liquidity.
Russian reserves consist now mainly of the U.S. dollar and the euro. However, it is quite possible that Russia will add Chinese yuan in there, said Alexei Kudrin, Russian Finance Minister. The lack of convertibility of the China’s currency and of the free movement of capital was the main current obstacle. (44)
Brazil and India are interested in settling bilateral trade with Russia in national currencies, said Alexander Potemkin, an advisor to the Russian central bank chairman, echoing Moscow’s drive for more use of national currencies and less of the U.S. dollar.  "There was an initiative within the framework of the BRIC. These countries intend to create the conditions for direct payment for trade in national currencies," he said. He also said that Russia had a reach experience of reciprocal payments in national currencies with China. He estimated that settlements in yuan and rouble already account for around 2 percent of Russia’s trade with China. (45)
Moscow also discusses trade in national currencies with other countries including Turkey and Vietnam. (46)
Russian central bank first deputy chairman Alexei Ulyukayev said in November 2009 that Russia was going to add the Canadian dollar to its gold and forex reserves in the next few months, but its share would be insignificant. (47)
5. Other countries

In April 2009 the Latin American leaders signed into effect a new South American currency, to be called the ‘sucre’. ALBA leaders (representing Venezuela, Cuba, Bolivia, Honduras, Nicaragua, and Dominica) say the sucre is necessary to help defray the regional effects of the world economic crisis by substituting their trade in dollars with a new alternative currency. The ALBA countries and their allies plan to use the virtual sucre by early 2010. (48)
In the second quarter ending in June 2009, central banks around the world invested 63 percent of their new cash reserves into euro and yen, and put only 37 percent into dollars. (49)
Kuwait, Saudi Arabia, Qatar and Bahrain signed in June 2009 an accord to create a joint monetary union council, a prelude to establishing a Gulf central bank and launching a monetary union and single currency. The remaining two members of the Gulf Cooperation Council (GCC), the UAE and Oman, did not sign after deciding to withdraw from the project. The GCC states have set 2010 as the target to launch the monetary union and single currency, but many experts believe that target is too ambitious and unrealistic. (50)
The International Monetary Fund sold 10 metric tons of gold to the central bank of Sri Lanka for about $375 million. The purchase is part of Sri Lanka’s plan to diversify its reserves and it has been gradually accumulating the metal in the past nine months. “Gold is a good anchor and hedge to have in these volatile circumstances,” said Nivard Cabraal, the bank’s governor. “We think it’s a good time to buy.” (51)
In the beginning of January 2010 Canada announced that it might sell about 1 billion euros of 10-year bonds, its first issue of debt in the European currency in more than a decade. This strategy will help attracting new investors, while debt denominated in U.S. dollars is becoming less popular among the creditors given the declining value of the U.S. currency. (52)
It is obvious that the trend of the diversification out of the dollar persisted through the whole year of 2009.
Part IV
Way Out

Peterson-Pew Commission on Budget Reform suggests that “the United States must show its creditors that it is serious about stabilizing the federal debt over a reasonable timeframe. Both spending cuts and tax increases will be necessary.”
Most of the economists would suggest that the anti-inflation strategy of the United States should include:
* suppression of inflation expectations and stimulation of savings;
* reaching balance between budget receipts and expenditures;
* increasing the mass of commodities; and
* strengthening national currency by establishing an unconditional priority of inflation targeting over other government programs (such as military expenses, unemployment rate regulation, influencing the national currency market, etc.).
Will the U.S. assume such a pain by reducing spending and fighting the deficits? Probably not, taking into consideration the words of Sir John Templeton, the John Templeton Foundation, who said in 2005: “The psychology all over the world is that people will not re-elect leaders who want them to be thrifty. The voters will elect the government that spends more money.” (53)
Many analysts are pretty sure that the weak dollar policy is beneficial to the U.S. Therefore, whatever the authorities say, there will be no resistance to dollar depreciation on their part.
Most experts already doubt that the solution of the problem depends much on the U.S. and call for global measures. “We must reform the international monetary system,” Yu Yongding, a former Chinese central bank adviser, stated in mid-November 2009. “A good monetary system should make us confident. But we don’t have confidence in the U.S. dollar now,” he added. (54)
George Soros, a global financier, is convinced that we “need a new currency system and actually the Special Drawing Rights do give you the makings of a system," he told the Financial Times.
The Future of the Dollar

The future of the dollar is in jeopardy now as it is evident from the article.
This subject is the primary focus of futureofdollar.com. We follow latest developments in this area and provide our readers information from reliable sources.
This analysis is prepared by http://www.futureofdollar.com

Notes
(1)     Paul Krugman, Currency Crises, 1997;
(2)     Reuters, December 17, 2009;
(3)     budgetreform.org, December 14, 2009;
(4)     U.S. Department of Labor, February 5, 2010;
(5)     IMF, January 31, 2010;
(6)     The Department of the Treasury;
(7)     Merco Press, January 13, 2010;
(8)     Bloomberg, February 1, 2010;
(9)     Bloomberg, January 26, 2010;
(10)    Jan 2010 Beige Book;
(11)    Ibid.;
(12)    NAR, January 25, 2010;
(13)    Bloomberg, January 27, 2010;
(14)    Bloomberg, January 8, 2010;
(15)    Paul Krugman, Currency Crises, 1997;
(16)    Bloomberg, February 4, 2010;
(17)    FOX Business Network, June 24, 2009;
(18)    The Economic Times, November 13, 2009;
(19)    Reuters, October 26, 2009;
(20)    Bloomberg, October 28, 2009;
(21)    The Korea Times, October 28, 2009;
(22)    Reuters, December, 2009;
(23)    RB.ru Russian Business, September 1, 2009;
(24)    Bloomberg, March 24, 2009;
(25)    Bloomberg, November 17, 2009;
(26)    USA Today, March 25, 2009;
(27)    DealBook, September 7, 2009;
(28)    The Associated Press, September 3, 2009;
(29)    The New York Times, September 4, 2009;
(30)    CommodityOnline.com, September 21, 2009;
(31)    RosBusinessConsulting, November 6, 2009;
(32)    NEWSru.com, October 28, 2009;
(33)    Bloomberg, 26 October 2009;
(34)    Vedomosti, 28 September, 2009;
(35)    Bloomberg, 25 November, 2009;
(36)    ChinaPro.ru / Vedomosti, 25 November 2009;
(37)    The Globe and Mail, February 8, 2010;
(38)    Ibid.;
(39)    Ibid.;
(40)    Bloomberg, November 3, 2009;
(41)    Merco Press, October 29, 2009;
(42)    Ibid.;
(43)    Bloomberg, October 4, 2009;
(44)    Bloomberg, October 24, 2009;
(45)    Reuters, November 25, 2009;
(46)    Ibid.;
(47)    Reuters, November 2009;
(48)    Venezuelanalysis.com, April 17, 2009;
(49)    CNBC, October 14, 2009;
(50)    ArabianBusiness.com, October 11, 2009;
(51)    Bloomberg, November 25, 2009;
(52)    Bloomberg, January 5, 2010;
(53)    NewsMas;
(54)    Bloomberg, November 17, 2009.

Global Research Articles by futureofdollar.com

 

http://www.globalresearch.ca/index.php?context=va&aid=17677

 

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You won’t believe the sweetheart deal that the Indymac boys were given by the FDIC.

BPA Plastic Chemical Linked to Aggression, Hyperactivity in Toddlers

Prenatal exposure to the endocrine-disrupting chemical bisphenol A (BPA) may increase aggressive behavior in toddler girls, according to a study conducted by researchers from the University of North Carolina-Chapel Hill and published in the journal Environmental Health Perspectives

Cyber ShockWave Simulated Cyber Attack Set for Today

The Cyber ShockWave simulation, created by former CIA Director General Michael Hayden and the BPC’s National Security Preparedness Group, led by the co-chairs of the 9/11 Commission, Governor Thomas Kean and Congressman Lee Hamilton, follows the acclaimed series of Oil ShockWave simulations conducted in 2007 by the BPC and Securing America’s Future Energy (SAFE).

Neurobiologist Charged with Mass Shooting at College; Suspect in 1993 Mail Bombing & Allowed to go Free After Murdering Her Brother

Bank of America Forecloses on Houses without Mortgages

As it happens, the Cardosos are not the first family this year to sue Bank of America for illegal home invasion

‘Mossad assassination squad used British passports’

EU Biofuels Significantly Impacting Food Production

The consequences of European biofuel targets, said the report by ActionAid, could be up to 100 million more hungry people, increased food prices and landlessness.

Dubai World debt strategy sends stock tumbling

Stock markets in Dubai were down this morning as investors reacted nervously to the latest proposed solution to Dubai World’s $22 billion (£14 billion) debt crisis.

Genetic code 2.0: Life gets a new operating system

A new way of using the genetic code has been created, allowing proteins to be made with properties that have never been seen in the natural world. The breakthrough could eventually lead to the creation of new or "improved" life forms incorporating these new materials into their tissue.

Links to Spirituality Found in Brain

Scientists have identified areas of the brain that, when damaged, lead to greater spirituality. The findings hint at the roots of spiritual and religious attitudes, the researchers say.

EU wants answers on Wall Street role in Greek debt

The European Commission has said it is seeking answers following allegations that Wall Street investment banks helped Greece hide the extent of its debt.

US creates task force to crack down on IP crime

SpecOps WC2 wearable computer gets upgraded with iKey keypad

We’ve already seen a few of iKey’s own wearable, nearly indestructible keyboards, but it looks like the company isn’t above sharing its creations with others, and it’s now announced that its working with SpecOps Systems on a new keypad-equipped version of the company’s WC2 wearable computer.

Are Sobriety Checkpoints Police Profit Centers?

Sobriety checkpoints in California are increasingly turning into profitable operations for local police departments—operations that are far more likely to seize cars from unlicensed motorists than catch drunk drivers.

TED 2010: Reality Is Broken. Game Designers Must Fix It

Playing digital games is something people do for fun, right? It’s not brain surgery, and it’s certainly never going to change the world. Except game designer Jane McGonigal thinks games can change the world and that game developers have a responsibility to make it happen. Instead of just inviting gamers to escape into a game world that is more attractive than the real world, game developers have a responsibility to steer gamers toward improving the real world.

Dubai says Hamas man killed by European hit squad

Dubai’s police chief said Monday an 11-member hit squad carrying European passports and disguised in wigs, fake beards and tennis clothes was behind the mysterious killing of a Hamas commander in his hotel room last month. Authorities also released photos of the 11.

China v world as a trade war comes closer

“WHEN some foreign nation restrains … the importation of some of our manufactures … revenge naturally dictates retaliation.”

Greece: Cash Business Transactions Over €1500 Will Be Outlawed in 2011

FDIC Responds To IndyMac/OneWest Video Alleging Sheila Bair Transferred Billions In Taxpayer Funds To Paulson & Co., And Others

Spying for Dollars: Military Contractors and Security Firms Reap Huge Profits

As the Defense Budget Soars, Billions of Dollars are Channelled Offshore to Avoid Paying Taxes

America’s Shadowy Base World

Once is an anomaly; twice is the beginning of a pattern. Right now, we’re seeing the same sequence of events for the second time in less than a decade, and it looks like the signature American way of war in our time is coming into focus.

Child ‘mini-marketeers’ paid by junk food firms to secretly push products among their friends

Children are being paid up to £25 a week to promote sugary soft drinks and other products through social networking sites and playground chat.

Indian official calls for ‘global governance’, a ‘rule-based international society’ to combat terror

Mr. Narayanan cautioned the media to be careful and responsible while reporting matters of national security, as the country was dealing with dozen-odd credible threats. “Freedom of the press should not degenerate into a licence.”

Control freaks want web licences to end bloggers’ anonymity

The American blogosphere is going increasingly “viral” about a proposal advanced at the recent meeting of the Davos Economic Forum by Craig Mundie, chief research and strategy officer for Microsoft, that an equivalent of a “driver’s licence” should be introduced for access to the web

U.S. Economic Terrorism the New ‘Winning Trade’

When Wall Street planned and executed the U.S. housing-bubble (and all its related scams), it destroyed the lives of tens of millions of Americans. Then, when it subsequently ‘crashed’ global markets, it inflicted hardship on most of the world. But the Oligarchs were just getting started.

Obama Breaks Yet Another Key Campaign Promise By Using Executive Power To Rule By Decree

With much of his legislative agenda stalled in Congress, President Obama and his team are preparing an array of actions using his executive power to advance energy, environmental, fiscal and other domestic policy priorities.

Vancouver Olympics protest takes violent twist

Carbon Currency: A New Beginning for Technocracy?

Critics who think that the U.S. dollar will be replaced by some new global currency are perhaps thinking too small.

Teenage girls are being rewarded with shopping vouchers for having the cervical cancer jab.

No Way Out: 60% of Student-Loan Debt in Default or Deferment

Unlike other kinds of debt, student loans can be particularly hard to wriggle out of.

Israel is accused of waging covert war across the Middle East

Israel is waging a covert assassination campaign across the Middle East in an effort to stop its key enemies co-ordinating their activities.

Obama Signs Law Raising Public Debt Limit from $12.4 Trillion to $14.3 Trillion

Behind closed doors and with no cameras present, President Obama signed into law Friday afternoon the bill raising the public debt limit from $12.394 trillion to $14.294 trillion.

China surprises by raising banks’ required reserves

China sprung a surprise on global markets on the eve of its New Year’s holiday with an increase in banks’ reserve requirements, a move that can slow bank lending and tamp down on rising inflation.

Students brains ‘rewired’ by the internet

British students are unable to concentrate on reading an academic book for study, because the internet is ‘"rewiring" their brains, a new documentary claims.

IMF Prepares For Action: Signs Agreements With Three Countries Increasing Borrowing Capacity By $7.2 Billion, Expands Total Access To Over $500 Billion

Collapse of the euro is ‘inevitable’: Bailing out the Greek economy futile, says FRENCH banking chief

During the Olympics, The Feds Will Be Reading Your Tweets – And the Blotter

DHS Is Monitoring Social Media and Web Sites for Terror and Disaster Info

IMF Prepares For Action: Signs Agreements With Three Countries Increasing Borrowing Capacity By $7.2 Billion, Expands Total Access To Over $500 Billion

Late today, the IMF released details of three borrowing agreements signed between the organization and the National Banks of Belgium, Slovakia and Malta.

Harvard-Educated Neurobiologist, Co-Inventor of Revolutionary Medical Research Device, Involved with Mass Shooting?

US banks facing $1.4tn crisis over commercial property loans

A congressional oversight panel charged with scrutinising the Obama administration’s bailout efforts has warned that $1.4tn of loans covering commercial premises will reach maturity between 2011 and 2014. After a plunge in property prices, nearly half of these loans are underwater, with borrowers owing more than their underlying property is worth.

Aspartame has been renamed and is now being marketed as a natural sweetener

In response to growing awareness about the dangers of artificial sweeteners, what does the manufacturer of one of the world’s most notable artificial sweeteners do? Why, rename it and begin marketing it as natural, of course

Obama attorneys argue for warrantless cell phone tracking

A US appeals court began weighing Friday whether police should be allowed to track citizens through their cellphones without first obtaining a warrant.

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