The World’s Debt is China’s Wealth

By LUIS MIRANDA | THE REAL AGENDA | AUGUST 30, 2012

Debt is never seen as a positive outcome, however there are times when someone’s incapacity to handle finances becomes wealth for others. A clear example is the current state of economics in both the developed and developing worlds, where indebted nations are the subject of hefty fees and interest rates on loans they cannot mathematically pay. In fact, the irresponsibility of politicians and bureaucrats to manage their countries monies has made them slaves of their own greed.

But for other countries like China, which has bought most of the debt from countries like the United States, a nation’s hell has become a bonanza. China’s leverage has allowed to accumulate a gigantic purchasing power, which many people also attribute to the Chinese management of their currency value. China, they claim, purposely devalues the Yuan, in order to keep its products at more competitive prices. China’s currency manipulation and the fact that its labor is one of the cheapest in the world allowed the country to accumulate large amounts of wealth.

Where is all that money going? To purchase land and resources all over the world. But China’s race to acquire land, mainly to plant food for its growing population, and to sell it to other countries, is not unique. Countries like Saudi Arabia and organizations like the UN are also investing their cash in large portions of land. The practice of buying land abroad is also known as the third wave of the outsourcing movement, although many call it a new form of neocolonialism.

The Chinese have gone everywhere they find open arms to effectively acquire property and infrastructure, sometimes hiding their purchases behind a veil of bilateral agreements or simply financial aid that is not expected to be returned. The Chinese government has built soccer stadiums in Costa Rica, offered millions of dollars to local governments in Brazil, bailed out the US in multiple occasions by purchasing its debt, and now, it is buying Europe up.

If anyone is in doubt about where do European bankers get all the money they’ve given to their corporate friends in so-called ‘rescues’ and ‘bailouts’, please look at two main sources. First, massive electronic creation of money; as in typing digits on a computer keyboard and charging the interests generated from those ‘rescues ‘to many generations to come, and two, Chinese purchase of European Union bonds. The latter is the same mechanism used by the United States to get cash flow or liquidity to maintain its gigantic empire going.

The Chinese couldn’t have come to Europe at a better time, because not even Germany, the sudden shiny house at the top of the hill, was able to handle the scandalous sovereign debt catastrophe that most EU members are into. Meetings and conversations already begun, with German Chancellor Angela Merkel and Prime Minister of China, Wen Jiabao, providing a quick pick into what they call the first fruit of their encounter, but which in reality could be a rotten fruit. The president of the Asian giant has confirmed that his country would continue to buy sovereign bonds in the EU, but also deeply analyze their risks.

After the meeting with German Chancellor Angela Merkel on official visit to China, Wen said Beijing would improve consultation and communication with the EU, the European Central Bank (ECB), the multilateral financial institutions and major countries to help the most indebted European states to cope with their problems.

In this regard, he said that China hopes that the EU can achieve a balance between fiscal austerity and economic stimulus, a formula that is the fundamental way to solve the crisis.

Cooperation with Germany and the EU as a whole, said the Prime Minister, should focus on boosting confidence. “We must let people see hope, oppose trade protectionism and promote collaboration to explore the markets,” said Wen.

Meanwhile, the Chancellor said that the euro zone has the political will to address the crisis. Wen and Merkel led today the second round of intergovernmental consultations between their respective countries, with the participation of seven German ministers, which accounts for half of Merkel’s Cabinet.

Following the meeting of the two, China announced the purchase of 50 Airbus A320 model, the value of 2,790 million euros ($3,500 million).

It seems that the Chinese financial rescue of the European Union has begun, except it is not to rescue Europe, but to rescue China itself. The deeper in debt  countries get with China, the more products they have to buy from that country and the lesser finished goods they will produce. China’s investments will yield not only access to markets with less regulations for its cheaply made toxic products, but also and most importantly, dependence.

China is on the way to becoming the landowner, the producer and the seller who no one will be able to contest.

Western Democracy: A Farce And A Sham

Paul Craig Roberts
Infowars.com
November 3, 2011

Every day that passes adds to the fraudulent image of what is called Western democracy.

Consider that the entire Western world is outraged that the Greek prime minister announced that he is going to permit the Greek people to decide their own fate instead of having it decided for them by a handful of banksters, politicians, and bureaucrats living it up at taxpayer expense at “talks” in the French resort of Cannes on the Mediterranean.

The Greek economy is facing its fourth year of decline and lacks the revenues to service its national debt held by private European banks. The banks don’t want to lose any money, so a handful of power brokers reached an agreement with representatives of the Greek government to write off some of the debt in exchange for EU capital subsidies to be financed by inflicting severe austerity on the Greek population. Wages, salaries, pensions and medical care are being cut while the rate of unemployment rises to depression levels. Government employees are laid off. Valuable public properties are to be sold to private parties for pennies on the dollar. In short, Greece is to be looted.

Large numbers of Greeks have been in the streets protesting the austerity policy and have reached the point of anger of throwing Molotov cocktails at the police. Greece is disintegrating politically. The Greek people sense that the EU “bailout” is not bailing out Greece. It is bailing out the French, Dutch, and German banks at the expense of the Greek people.

The Greek prime minister, watching his party’s support and power crumble, announced that he would let the people decide in a referendum. After all, allegedly that’s what democracies do. But it turns out that “we have freedom and democracy” is not supposed to be taken literally. It is merely a propagandistic slogan behind which people are ruled through back-room deals decided by powerful private interests.

The Greek prime minister’s announcement that he would put the back-room bailout deal to a referendum shocked the EU hierarchy, Washington, and investors. Who does this Greek guy think he is permitting the people, who bear the cost of the deal, to have a say in it? Who let this Greek guy out of his cage? This is not the way democracies are ruled.

The EU power brokers are outraged over the Greek prime minister’s departure from normal procedure. But the Greek PM is relying on the Greek people to approve the deal, and not without reason.

The Greek people have been brainwashed for decades as to the importance of “being part of Europe.” That means being a member of the European Union. When the Greeks realize that voting down the bailout of the banksters means being thrown out of the European Union, which is what they will learn between now and the referendum, they will vote for the back room deal.

Polls already indicate this. A poll for a Greek newspaper indicates that whereas 46% oppose the bailout, 70% favor staying in the EU, which the Greeks see as a life or death issue.

If this poll is a reliable indicator, the Greek PM has made a brilliant political decision. The Greek people will vote in favor of what they have been protesting violently in the streets. As the Greek people will do themselves in, the politicians are off the hook. This is the bet that the Greek PM has placed.

Whatever the outcome, keep in mind that the entire Western political and investor world was shocked that a politician, instead of simply imposing a back room deal, said he would let the people decide. Letting the people decide is a no-no in Western democracies.

If you need more evidence of this mythical creature called “Western democracy,” consider that Western governments are no longer accountable to law. Contrast, for example, the sexual harassment charges that are plaguing US presidential candidate Herman Cain’s campaign with the pass given to high government officials who clearly violated statutory law.

What follows is not a defense of Cain. I take no position on the charges. The real point is different. In America the only thing that can ruin a politician is his interest in sex. A politician, for example, George W. Bush, Dick Cheney, B. Omama, cannot be ruined by violating United States and international law or by treating the US Constitution as a “mere scrap of paper.” Bush and Cheney can take America to wars based entirely on lies and orchestrated deceptions. They can commit war crimes, murdering large numbers of civilians in the cause of “the war on terror,” itself a hoax. They can violate US and international laws against torture simply “because the president said so.” They can throw away habeas corpus, the constitutional requirement that a person cannot be imprisoned without evidence presented to a court. They can deny the right to an attorney. They can violate the law and spy on Americans without obtaining warrants. They can send due process to hell. In fact, they can do whatever they want just like Hitler’s Gestapo and Stalin’s secret police. But if they show undue interest in a woman or proposition a woman, they are dead meat.

Very few commentators have said a word about this. The House of Representatives did not impeach President Bill Clinton for his war crimes against Serbia. They impeached him for lying about a sexual affair with a White House intern. The US Senate, which had too many sexual affairs of its own to defend, didn’t bother to try to convict.

This is Amerika today. A president without any authority whatsoever, not in law and certainly not in the Constitution, can assassinate US citizens based on nothing except an assertion that they are a “threat.” No evidence is required. No conviction. No presentation of evidence in any court. Just a murder. That is now permissible to the Amerikan president. But let him try to get a woman who is not his wife into bed, and he is a cooked goose.

In Amerika there is no such thing any longer as torture; there is only “enhanced interrogation.” A mere word change has eliminated the crime. So torture is permissible.

In Amerika today, or in the UK and the EU, anyone who tells the truth is a “threat.” Julian Assange of Wikileaks, who made public information leaked to him by US government sources horrified by the criminal actions of the United States government, is now, as a result of Amerikan pressure on UK courts, being turned over to Sweden, which, for favors from the “world’s only superpower,” will turn him over to the US regardless of law to be prosecuted on trumped-up charges.

Western “civilization” is totally corrupted by American money. There is no integrity anywhere. For a decade Washington has been murdering women, children, village elders, and journalists in the name of the hoax “war on terror.”

What terror does the world actually see? The world sees the terror that Israel, protected by Washington, inflicts on the Palestinians. The world sees the terror that the US inflicts on Serbia, Iraq, Afghanistan, Pakistan, Yemen, Somalia, Libya, Latin America and now Africa, with Syria, Lebanon, and Iran waiting in the wings. The “war on terror” is nothing but an orchestrated invented excuse for Amerika-Israel to achieve hegemony while enriching their armaments industries.

In Greece, at least the PM committed to giving the people a say in their fate. In America the people have no voice whatsoever. The sheeple are content to be protected by “security,” porno-scanners, warrantless wiretapping, indefinite detention, and sexual groping. To carry on the hoax “war on terror,” the US government has elevated itself above the law.

The American effort to achieve accountability to law, the Occupy Wall Street (OWS) movement, if not shut down by cold weather, ice, and snow, is likely to be shut down by police violence. One riot begun by provocateurs is all it takes to transform protesters into “domestic extremists,” the number one concern of Homeland Security. The presstitute media will make the case against the rioters, and the sheeple will buy it.

The police have been militarized by Washington. Community police forces no longer represent the local public that pays their salaries. Local police represent Washington’s war against America.

American citizens are all suspects. Anyone who goes through airport security knows this. The only law that the US government obeys is not even a law. It is a bureaucratic regulation that prevents, even in dire wartime, any profiling of suspects by ethnicity or country of origin.

Consequently, all native born, flag-waving, American super-patriots are suspects when they board commercial airliners. Americans who have a life time of security clearances are subject to being porno-scanned or sexually groped. Airport Security cannot tell a “terrorist” from a CIA analyst, a Marine general or a US Senator.

Well-connected members of the ruling elite, such as Michael Chertoff, can become rich from selling the porto-scanners to taxpayers in order “to protect the public from terrorists.”

The only terrorists Americans will ever experience are those funded by their own tax dollars within their “own” government. A people incapable of perceiving its real peril has no chance of surviving. America might be a military superpower, but it no longer exists as a free country with accountable government and a rule of law.

Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously an editor for the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.

The Next Stage of the European Debt Crisis; Towards Global Financial Collapse?

Bob Chapman
International Forecaster
November 3, 2011

Those who believe the European crisis is over are mistaken. The dislocation will continue as their economies slow and political, social and economic events converge into further crisis. The most glaring problem is the banks only taking a 50% loss on Greek bonds. The loss should have been 75% or even 80%. There is absolutely no way Greece can overcome that burden in a slowing European economy and an enraged population. They are still striking and demonstrating and they will continue even under a new government.

Some of the best economists in the world have been saying for almost as long as we have been saying that the weaker and smaller countries have to leave the euro at least temporarily. In our eyes that really means permanently. If Italy falls out it will take France with it and the euro edifice will fall. Very quickly it will be found that Greece cannot and will not recover. It is one thing to set recovery in motion in good times, but it is another to attempt to do so under austerity. These politicians in Europe have been self-serving. They are quickly going to find what they have done is not going to work. Greece should have never been saved, as we said from the beginning. They will need more and more money just to exist and you cannot have perpetual funding. Then you have the overriding social factor. It is simply impossible and once Greece goes, the other 5 will have to cut loose as well. Again, it will be called temporary, but their exists will be permanent. It simply cannot be any other way. Political hot air is not going to change anything. We have no details and bankers who refuse to face the music, and what is attempted to be achieved is impossible.

The concept of a tighter union with a new constitution won’t work either. We can go back to 1991 when these issues came forth and we stated the Europeans are doing this backwards. You need a strong constitution first, only nations involved that can meet the criteria of public debt of 3% GDP. Smaller nations cannot be allowed to falsify their balance sheets and above all you cannot use one interest rate for all. Just about everything that has been done has been done incorrectly. Unfortunately, the US and world economy hang in the balance as well. This euro, European and UK problem is not going to go away. By February it will again be front page news. There is an 80% chance that Greece will leave the euro in the next six months.

If Ireland and Portugal do not receive equal treatment, followed by Belgium, Spain and Italy, then they will all be forced to leave the euro. If you think for one minute that these nations can stand more than a year or two of austerity you are mistaken. The whole approach is wrong. They should all be allowed to leave the euro. The only reason Greece has been temporarily saved is to keep Greece in the euro. These one-worlders cannot bear to see their dream of world government fail. It has already failed. Do you really think Germans are going to give up their sovereignty? Wait for the next German election. You are going to see a house cleaning in the Bundestag that will be staggering. The German people are outraged at what these politicians have done to them. If anything the move in the EU’s strongest economy will be away from further consolidation, not toward it.

The magic number to keep the euro from collapsing over the next two years is $6 trillion that solvent European countries do not have, and using derivatives in place of cash is a prescription for disaster. Debt may be addressed, but the core economic and financial problems that were responsible for these problems are still not being addressed. That is a glaring lack of economic progress. Where is the capital needed for growth? Countries in the EU are going to have to increase money and credit and suffer the incumbent inflation; that is if they can even raise those funds and rollover old debt. Either that or China will lend $3 to $500 billion and we don’t think they are willing to do that. If China prints the money to lend, the value of the yuan will fall, the Chinese will take more market share and there will be more inflation. Their goods sold to Europe, the US and elsewhere will rise in cost as well. The Chinese will have to use cash euros or sell euro bonds. Such moves could be really upsetting to China. If aid comes it will be in much smaller amounts.

This past week the swaps association said the failure on 50% of Greek debt does not constitute failure, because it was voluntary, so the NYC legacy banks do not have to pay up on their derivative bet. That could all change, because Fitch says it does constitute default. We will now have to await the decisions of S&P and Moody’s.

What Europe has done is pull a page from US bailouts, which reduce debt starting in a few years, which would extend over 10 or 20 years. It reminds us of the two sets of books banks are currently keeping. They intend to write off bad debt over 50 years, like it really didn’t exist. This plan allows further current increases in debt over the short term. That is no solution at all. Again, it only throws the debt and service into a future that could include deflationary depression. Recovery is not a given.

Fitch has really opened a large can of worms in calling a 50% debt default a payable derivative event. We are talking about hundreds of billions of CD’s, credit default swaps OTC derivatives, which just happens to be an unregulated market. Our view is Fitch is correct and the ISDA, the derivatives information agency is wrong. What isn’t made an issue of is that banks have been asked to raise $150 billion they are offside on this issue. We projected this number long ago. The official number is $3.7 billion, which is laughable. About a month ago the players admitted to $75 billion, so we are making progress toward truth and reality. We wonder what the French bankers are saying, who bought the insurance? If NYC banks do not pay off the ECB will have to create the $150 billion and lend it to the banks in France, so they can survive. Could this be a renege? We think so, and that would ultimately allow citizens of the EU to pay the debt. These bankers are crafty buggers they are.

We also question why banks are writing off 50% of their debt and the sovereigns are not. Isn’t this strange? Why are they not writing off 50%? Could it be that if they did they would be insolvent? Could it be to deceive their taxpaying citizens and pop the question several years from now? Could this be they are just trying to extend the timeline into the future? Time has a way of revealing everything. Incidentally, none of that Greek debt will probably ever be paid off. It should also be noted that of the $140 billion lent by the IMF, US taxpayers are on the hook for about 30%, or $42 billion. We are sure that will make Americans very happy.

The difference between $516 billion allocated by EU members, half of which comes from Germany, and $1.4 trillion will come from the sale of bonds by the EFSF, the European Financial Stabilization Fund. The question is who is going to buy this tranche of some $900 billion in bonds? Nations will receive greater taxes from a phantom recovery and buy the bonds. How can this be when those economies barely have even GDP growth? All this in the midst of austerity. We do not get it. We must be missing something. Does Italy really believe that raising the retirement age from 65 to 67 is going to bring any real immediate relief? As you can see the case is terminal.

The whole plan is absurd, stupid and unworkable. These problems are going to last for years as Europe, the UK and US wallow in negative growth and eventually in deflationary depression. Greece will collapse; it is only a question of when. The ECB will continue to create money and credit, just as the US and UK are doing. It won’t take long for investors to figure out they have been bamboozled again. They will flee stock markets probably just after the Fed’s latest QE 3 is announced. Some will buy US Treasuries and lose about 10% of their purchasing power annually. Some will flee to commodities and many will use the flight to quality to purchase gold and silver coins, bullion and shares. Modes of investments are going to change dramatically, so you had best participate, or you may end up losing most of your wealth.

What you are witnessing is financial chicanery at its best. Wait until the citizens of Europe discover they are going to have to pay all these bills, just so they can be enslaved in a one-world government. They are not going to be happy.

We always tend to be ahead of the curve and the crowd. This time the time frame for discovery may be very short, because once investors understand what we have written here they will want to get out. Gold, silver and commodities will rise for different reasons, along with the flight to quality. Incidentally, this time the gold and silver mining shares will soar.

Reflecting back on our comments the second Greek bailout does not solve the EMU’s fundamental problem, which is the 30% competitiveness gap between the northern and southern countries and Germany’s giant-EMU trade surplus at the expense of the south. Unless a way can be found to rectify that there cannot be a recovery. The south has been forced into austerity, which limits their chances of being competitive. As we pointed out over and over again the end product will be a deflationary spiral and eventually deflationary depression. What the IMF and EU members are imposing on the six countries is very destructive.

A fiscal union would perhaps work, but that means the end of individual country sovereignty, which would eventually lead to authoritarianism, which would not like to see. The entire union is unnatural and should be ended. It has been a failure and just leave it at that.

All this program is going to do is buy time. It is not a long-term solution. Current debt holders are going to be incensed, as they will be forced in before sovereigns, but will banks really take a 50% haircut? We don’t really know. Is this really a fig leaf, a wholly inadequate alternative to the ECB, which cannot provide endless liquidity?

This rescue effort is really too dependent on high-risk deals, such as what caused this crisis. Four times leverage is outrageous. In the end the European public could get caught holding the bag.
At the same time we are seeing monetary contraction in Portugal, which mirrors that of Greece as it spiraled out of control. Bank deposits are off 21% over the past six months and that could well be a precursor of a weak economy and monetary trouble.

Another question that arises is due to the treatment accorded to NYC legacy, money center banks. Will those using credit default swaps continue to do so. There is a default and because it was voluntary the derivative writers do not have to pay off. Give us a break. It looks like contract law no longer exists.
In very late breaking news we find something we warned about is happening. The German High Court, the Bundesgerichtshof, has issued an express order that the nine-member committee dealing with dispersing the rescue funds is not allowed to do so. The plug has been pulled on the EU and German politicians on money releases. If the Germans and the EU are lucky they’ll have a constitutional decision by Christmas. We predicted this would happen.

Uncertainty revolves around the deal reached with Greek bondholders to face a 50% haircut on the face value of their bonds. This has not been negotiated as yet.

At the same time France needs to raise $11.2 billion to keep its AAA rating. Sarkozy says 2012 GDP growth will be about 1%, about the same as Germany, but no one mentions it would be -2% with inflation.

Switzerland’s State Secretariat for International Financial Matters said the Swiss were interested in investing in a special investment vehicle proposed by the euro zone bailout fund, but we see a real fight brewing. The Swiss People’s Party, which was against franc devaluation and the sale of Swiss gold, will be after this move by the Swiss government. They do not want closer ties to the EU.

This past summer we warned that European banks would have to increase their reserve position to 9%, because both the BIS and IMF said it was absolutely necessary. You might call the EU’s laxity of not forcing Greece to implement its austerity agreement as part of a socialist mindset. There was no way to move Greece into line. For not living up to their commitment they could have cut Greece off, because then they would default and leave the euro. Thus, they continued to fund Greece. The truth is they have to do so irrespective of what Greece does or doesn’t do.

The heart of the problem was banking incompetence followed by sovereign stupidity. Banks and solvent sovereigns never should have made the loans in the first place. All the greedy bankers, politicians and bureaucrats could think of was the euro zone and the euro being the template for one-world government. The interconnectivity of banks within nations with banks of other nations is the lynchpin that will eventually take all of them down. It’s caused by central control such as that embodied in the European Central Bank. The bottom line is if a state like Greece, partially defaults, then the banks within Greece default as well because these banks are holding large amounts of federal bonds and loans. Thus, the edifice collapses. This relationship exists all over Europe and as we are seeing six countries are in trouble and if the European economy continues to slip into recession or depression other countries will join the six. In addition in many countries supervision is all but non-existent. A perfect example of such a relationship was with France, Belgium, and the Dexia bank, which they created. As a result the taxpayers of Belgium and France have acquired all the bad assets of Dexia.

Adding to such problems is that usually half of the debt of any country is held by foreign banks and sovereigns, which means failure becomes contagion. France’s holding of 8.5% of GDP of debt from these six countries will eventually cause France to lose its AAA rating. If that is the case we venture to ask how can France be party to a commitment to bail out Greece or anyone else? They simply cannot and they are the number 2 player. You would think French citizens would elect someone who was not involved in such stupidities, such as Marine LePen of the National Party. The banks and business interests, such as the Rothschilds, couldn’t have that – could they? If France financially fails we could see 1789 all over again. This sovereign debt is widely held by other nations including the US, UK and Japan. European banks have controlled European society for a long, long time and they are the catalyst for the new world order.

We hear over and over again there will be recovery, we will grow our way out of it. That won’t be possible for Europe, the UK and the US. The number of young people who do the largest part of consumer spending in their 20s and 30s today have a hard time making ends meet, never mind spending. On top of that many are unemployed and may be for some time to come. If you have noticed unemployment has risen or stayed the same in the regions we have spoken of. Accumulation has only occurred among the upper-middle class and the wealthy. This also means borrowing has fallen and the ability to access loans and capital are limited, because so many prime age borrowers do not qualify.

One of the reasons Germany does as well as it does is because they have an abundancy of inexpensive capital available for loans and credit, which allows expansion, creates jobs and brings profits. The cost of labor is low or in the form of growing productivity and people pay their bills.

One interest rate fits all became a disaster. The weak participants borrowed at 4% instead of 8% and the result was an orgy of spending that ended up in today’s insolvencies. We said 12 years ago this would destroy the euro zone and it has. These low rates also allowed a massive influx of imports into the six problem countries, which caused major balance of trade deficits. This also brought about borrowing in foreign currencies, which turned into a nightmare, particularly in Eastern Europe.

European banking and politics are very closely intertwined. In other words the banks overtly run these countries. The same is true in the UK, but in the US it has been subtler due to ignorance of how the banking system works and that has been deliberate. In Europe the stress test used 5% as a guideline, instead of the normal 10%. This shows you the power and control banking has over EU government making the margin for error extremely thin. Considering the exposure cash reserves were increased to 9%. This means capital has to be raised and that is not easy in today’s recessionary environment. Two-thirds of European banks are currently under 9%. The worst exposed are RBS, Deutsche Bank, Unicredit, Bank Paribas, Barclays and Societ General. Hundreds of billions of euros are needed and the question is where will they come from? In addition how many banks are shuffling assets between trading, deposit, and banking sectors, such as Dexia had been doing until they had to be taken over by the French and Belgium governments? The banks need $270 billion that is readily available. If funds are not available then that means governments will have to supply the capital from out of thin air, which is very inflationary.

The EFSF, the European Financial Stability Facility, which was set up to aid Greece, Ireland and Portugal, now aids banks and European governments, such as the Fed does. An EFSF if allowed to dispense $1.4 trillion based on a $900 billion derivative structure would take months to move into action. Then there is the question will the German High court allow leveraging. We do not think so. The Court had already told the Bundestage you cannot do that, but they did it anyway.

As we can say is stay tuned for the next episode in this saga. It could end up taking down the entire world’s financial system.

Ron Paul Embarrasses Ben Bernanke as he says Gold is not Money

Forbes
July 13, 2011

Chairman Ben Bernanke faced-off with Fed-hating Representative Ron Paul during his monetary policy report to Congress on Wednesday.  The head of the Fed was forced to respond to accusations of enriching already rich corporations while failing to help Main Street, while he was pushed on his views on gold.  “Gold isn’t money,” Bernanke said. (See video below).

While most of Bernanke’s reports to Congress serve politicians to pursue their own agendas by gearing the Chairman towards their issues, with Republican Rep. Bacchus talking of the unsustainability of Medicaid and Rep. Frank (D, Mass.) asking about the need to raise the debt limit without cutting spending, it was a stand-off between Bernanke and Ron Paul that took all the attention. (Read Apocalyptic Bernanke: Raise The Debt Ceiling Or Else).

Rep. Ron Paul, Republican for Texas, asked Bernanke why a capital injection of more than $5 trillion “hasn’t done much” to help the consumer, who makes up about two-thirds of GDP in the U.S., and prop up the economy, while it helped boost corporate profits.  “You could’ve given $17,000 to each citizen,” Ron Paul claimed.

Bernanke, clearly on the defensive, told Rep. Ron Paul that his institution hadn’t spent a single dollar, rather, the Fed has been a “profit center” according to the Chairman, returning profits to the federal government.  As Bernanke began to sermon Rep. Paul on the history of the Fed (“we are here to provide liquidity [in abnormal situations],” the Chairman said), he was interrupted.

“When you wake up in the morning, do you think about the price of gold,” Rep. Paul asked.  After pausing for a second, Bernanke responded, clearly uncomfortable. that he paid much attention to the price of gold, only to be interrupted once again.

“Gold’s at about $1,580 [an ounce] this morning, what do you think of the price of gold?” asked Rep. Paul.  A stern-faced Bernanke responded people bought it for protection and was once again cut-off, with Ron Paul once again on the offensive.

“Is gold money?” he asked.  Clearly bothered, Bernanke told the representative “no, gold is not money, it’s an asset.  Treasuries are an asset, people hold them, but I don’t think of them as money,” said Bernanke.

Rep. Ron Paul again jumped in, noting the long history of gold being used as money, and then asked Bernanke why people didn’t hold diamonds, clearly hinting at his fiat money criticism of the U.S. monetary system.  The Fed Chairman told Rep. Paul it was nothing more than tradition, and, as he was attempting to develop his argument, Rep. Ron Paul quickly asked the acting authority of the House of Representative’s Committee on Financial Services, Rep. Bacchus, to excuse him for exceeding his time, as he returned the floor to the Committee. (Read Bernanke To Rep. Paul Ryan: QE2 Created 600,000 Jobs).

The interesting exchange served as one of the few times Bernanke has been publicly pushed off his comfort zone by an elected official.  Rep. Ron Paul brought up the issues that he’s famous for, namely, a sort of allegiance between the Fed and the nation’s most powerful institutions, the illusion of fiat money, and the gold standard.  Bernanke, angered and bothered, had no option but to respond. (Read Bernanke’s Contradiction: Minutes Reveal QE3 Talk And Exit Strategy).

Dollar tumbles on Bernanke speech, euro rebounds

Reuters
July 13, 2011

The dollar fell against most major currencies on Wednesday after Federal Reserve Chairman Ben Bernanke said the central bank could resort to more monetary stimulus if a sluggish U.S. economy weakens further.

That pushed the euro above $1.41, moving it further from the prior session’s four-month low beneath $1.39 and on track for its best day since mid-April.

Surprisingly swift Chinese growth data also helped divert attention, at least temporarily, from a worsening euro zone debt crisis, as Fitch Ratings, which said an ambitious Italian deficit reduction plan would help stabilize its credit rating.

“The comments from Bernanke and Fitch amount to a double whammy for the dollar and a boost for the euro and riskier assets. It’s all positive for risk,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.

The Fed ended its most recent asset-purchase program in June. Traders said that another round of easing would flood the financial system with more money and encourage investors to reach for higher-yielding currencies and assets.

Major U.S. stock indexes rose more than 1 percent and gold hit a record high. The euro was last at $1.4142, up 1.2 percent. It also rose 1.7 percent against the yen.

The high-yielding, commodity-sensitive Australian and New Zealand dollars rose sharply.

Fitch’s remarks eased worries about Italy, which saw its borrowing costs soar this week for fear a default in Greece would hurt European banks and strain other countries’ finances.

Italy is considered especially vulnerable, as it has the euro zone’s second largest debt-to-output ratio, which would become harder to finance with higher borrowing costs.

Still, some analysts said markets remained anxious. European leaders, set to convene an emergency meeting on Friday, have yet to agree on a second Greek bailout.

“I’d call this a short-term respite,” said Firas Askari, head of FX trading at BMO Capital Markets. “If we don’t hear anything substantial from Europe by the weekend, people will be back to shorting the euro next week.”

In the options market, one-month risk reversals were elevated in favor of euro puts — options to sell the currency, with plenty of event risks ahead, including the results of stress tests on euro zone banks due out on Friday.

Reflecting that unease, the yen soared against the euro and hit its highest level against the dollar since Japan’s March earthquake as investors unwound risky trades funded with yen.

The dollar was last at 79.08 yen, not far from its 78.48 four-month low.

That brought warnings from top Japanese officials worried that a strengthening yen will hurt Japan’s fragile economy, raising the possibility that authorities could intervene to weaken the currency.

The dollar also fell to a fresh record trough of 0.8250 Swiss francs after Bernanke’s testimony, and Askari said markets were also on edge about a pending deadline to lift the U.S. debt ceiling.

“We still have not seen the political will in either Europe or the United States to resolve the key issues,” Askari said, which makes positioning for currency investors difficult.

“With currencies, it’s hard to be short everything. The Swiss franc is appreciated, but even Swiss banks won’t be immune from a meltdown in Europe,” he said.

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