Signs of a Dying Society

Signs of a Dying Society

FBI statistics confirm a dramatic decline in violent crimes since 1991, yet the number of prisoners has doubled over approximately the same period. It’s but one sign of a deeply troubling decline. (Photo: PRCJ/file)

While Edward Snowden and Chelsea Manning and John Kiriakou are vilified for revealing vital information about spying and bombing and torture, a man who conspired with Goldman Sachs to make billions of dollars on the planned failure of subprime mortgages was honored by New York University for his “Outstanding Contributions to Society.”

This is one example of the distorted thinking leading to the demise of a once-vibrant American society. There are other signs of decay:

1. A House Bill Would View Corporate Crimes as ‘Honest Mistakes’

Wealthy conservatives are pushing a bill that would excuse corporate leaders from financial fraud, environmental pollution, and other crimes that America’s greatest criminals deem simply reckless or negligent. The Heritage Foundation attempts to rationalize, saying “someone who simply has an accident by being slightly careless can hardly be said to have acted with a ‘guilty mind.'”

One must wonder, then, what extremes of evil, in the minds of conservatives, led to criminal charges against people apparently aware of their actions: the Ohio woman who took coins from a fountain to buy food; the California man who broke into a church kitchento find something to eat; and the 90-year-old Florida activist who boldly tried to feed the homeless.

Of course, even without the explicit protection of Congress, CEOs are rarely charged for their crimes. Not a single Wall Street executive faced prosecution for the fraud-ridden 2008 financial crisis.

2. Unpaid Taxes of 500 Companies Could Pay for a Job for Every Unemployed American

For two years. At the nation’s median salary of $36,000, for all 8 million unemployed.

Citizens for Tax Justice reports that Fortune 500 companies are holding over $2 trillion in profits offshore to avoid taxes that would amount to over $600 billion. Our society desperately needs infrastructure repair, but 8 million potential jobs are being held hostage beyond our borders.

3. Almost 2/3 of American Families Couldn’t Afford a Single Pill of a Life-Saving Drug

62 percent of polled Americans said they couldn’t cover a $500 repair bill. If any of these Americans need a hepatitis pill from Gilead Sciences, or an anti-infection pill from Martin Shkreli’s company, they will have to do without.

An AARP study of 115 specialty drugs found that the average cost of a year’s worth of prescriptions was over $50,000, three times more than the average Social Security benefit. Although it’s true that most people don’t pay the full retail cost of medicine, the portion paid by insurance companies is ultimately passed on to consumers through higher premiums.

Pharmaceutical companies pay competitors to keep generic drugs out of the market, and they have successfully lobbied Congress to keep Medicare from bargaining for lower drug prices. The companies claim they need the high prices to pay for better medicines. But for every $1 they spend on basic research, they invest $19 in promotion and marketing.


Listen To This Week’s Radio Show 11-20-15

Listen to this week’s “The Financial Physician” radio show. -Lou


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Have You Heard Of This Digital Currency That’s A Total Scam?


Have You Heard Of This Digital Currency That’s A Total Scam?

Sovereign Man

It was back in May 2010 that the very first ‘real world’ Bitcoin transaction was conducted: 10,000 bitcoins traded for two Papa John’s pizzas.

Today that transaction would be worth nearly $4 million, probably making those the most expensive pizzas in the history of the world.

But back then it was considered revolutionary to trade a ‘digital’ currency, something that few people really understood at the time, for a real product.

People are still skeptical of digital currency. But the concept itself is not so esoteric.

As Jim Rickards reminded me some time ago, MOST currencies are digital, even the US dollar.

The Federal Reserve’s estimate of US dollar money supply is $12.1 trillion; yet only about 10% of that is physical cash in circulation.

The rest—more than $10 trillion—is simply a series of entries in banks’ core system databases.

In other words, the money in your savings account isn’t piled up inside your bank’s vault. Far from it.

Your savings doesn’t really exist. It’s all just digits in an electronic account ledger.

And yet we transact with these digital currency units all the time.

Whenever you use a credit card or send a bank transfer, you’re using the digital form of your currency.

This concept actually dates back to the Middle Ages when Italian bankers realized that they could conduct their transactions without physical money.

Rather than risk transporting gold coins across the countryside, medieval bankers merely annotated their ledgers with debit and credit entries.

They didn’t have the computers, but it was the same concept– they kept track of transactions and balances on account ledgers, instead of with physical money.

In the late 1960s, the IMF took this idea to the next level when they created their own digital currency for the exclusive use of governments and central banks.

They’re called Special Drawing Rights (SDR, or XDR).

And even though the IMF’s balance sheet totals nearly 300 billion SDR (around $211 billion USD), not a single SDR exists in physical form.

100% of the SDR money supply is digital. Just like Bitcoin, it exists in computer databases, making it the digital equivalent of a 500-year old accounting system.

There is one key difference, though.

No one controls Bitcoin. But dollars, euros, SDR, etc., are controlled by central banks.

Federal Reserve, Banque du Canada, Bank of Japan, etc. all decide how much of their currencies to create.

The SDR in particular is a total scam; the entire reason it was created was because the system didn’t have enough real savings.

So they ‘solved’ the problem by creating a new digital currency that allowed them to easily conjure more money out of thin air.

But the even bigger risk is the commercial banks, which control your account balances. They keep all the records and ledgers, they hold all the keys.

This means that the ‘money’ in your savings account isn’t really yours. You don’t actually have any savings.

What you really have is a claim on your bank’s savings. Your account is just an entry in the liability column of their digital ledger.

When you make a deposit, you’re trading your money for a banker’s promise to repay you.


Debt ceiling lifted, and the same day, debt jumps $339B

It’s all games and more games.-Lou



Debt ceiling lifted, and the same day, debt jumps $339B


Washington Examiner

The U.S. national debt jumped $339 billion on Monday, the same day President Obama signed into law legislation suspending the debt ceiling.

That legislation allowed the government to borrow as much as it wants above the $18.1 trillion debt ceiling that had been in place.

The website that reports the exact tally of the debt said the U.S. government owed $18.153 trillion last Friday, and said that number surged to $18.492 on Monday.

The increase reflects an increasingly common pattern that can be seen in the total U.S. debt level when the debt ceiling is reached.

At the end of 2012, for example, the government hit the debt ceiling, and the Treasury Department was forced to use “extraordinary measures” to keep the government afloat until the ceiling could be increased again. Those measures included decisions to delay issuances of certain debt instruments.

When the ceiling was finally lifted a little more than a month later, the debt jumped $40 billion in a day as the pressure to stay under the ceiling eased, and after nine days, the U.S. was $100 billion deeper in debt.

In February 2013, the debt ceiling was suspended until mid-May. Extraordinary measures were again used through mid October, and the official debt burden hovered in place for more than six months. When the debt ceiling was suspended again in October, the debt exploded by $300 billion the next day.

This time around, the national debt has been frozen at its ceiling of about $18.1 trillion since late January, longer than nine months. The Bipartisan Policy Center estimated that the government had somewhere around $370 billion worth of extraordinary measures to use this time around.


What your high school chemistry teacher never taught you about gold

Interesting take on why gold has been money for 5,000 years.-Lou



What your high school chemistry teacher never taught you about gold


Sovereign Man

One of the more unfortunate developments in human civilization over the last century is the devolution of money.

In fact, the word ‘money’ has now become synonymous with those funny pieces of paper that are conjured out of thin air by unelected central bankers.

Or even more ridiculous, ‘money’ has become the electronic representation of that paper.

Think about your bank account balance; it’s not like the bank has all that paper currency sitting in its vault.

The ‘money’ in your account doesn’t even really exist. There’s just enough of a thin layer of confidence in the system (at the moment) that this is a widely accepted practice.

It seems rather strange when you think about it. Though for thousands of years, early civilizations had some pretty wild ideas about money.

There are examples from history of our ancestors using everything from animals skins, to salt, to giant stones, as their form of ‘money’.

Though I suppose these weren’t any more ridiculous than our version of money– pieces of paper that don’t even really exist, controlled by unelected central bankers.

Of course, over the last 5,000 years, there was at least one form of money that did make sense. And it stuck. I’m talking, of course, about gold.

It’s no accident that gold has become the most consistent form of money in world history.

The metal is uniquely suited to serve as currency, not only amongst precious metals, but compared against nearly everything else on the planet.

You can see for yourself by taking a look at the periodic table of elements, the scientist’s catalog of everything the world has to offer.

Many of the entries on the periodic table are immediately disqualified. Many elements are radioactive. Others are gasses that would be impossible to transport.

Still others are colorless, and hence indistinguishable from air.

Taking these out eliminates most of the list, and you’re left with just a few dozen metals.

Most of these, however, like copper or iron, can be easily eliminated as well. They’re simply too common. And a form of money is useless if its in too much abundance… a lesson that modern central bankers have completely forgotten.

Others (like cesium) are highly reactive and explode on contact with water, or at least corrode easily.

Clearly a currency that kills its holder, or can’t even maintain its physical state without debasing itself, is rather useless.

Even silver, which nearly passes every single test falters at the last point, because it tarnishes slightly in reaction to sulfur in the air.

So out of all the elements we’re left with just one that’s just right: gold.

Gold is inert and non-reactive. It’s stable. It holds its form over the long-term. It’s malleable and easily divisible. And it’s rare. But not too rare.

Judging by its chemical properties, it’s no accident that gold became the most widely-used currency in history.


Walmart Collapse Spreads!

Walmart seeing a huge earnings decline is a symptom of a contracting economy.-Lou

Hopes dim for deal to avert Medicare premium spikes

So there is no inflation hence no cost-of-living increase in Social Security but Medicare premiums are going up because of the increased cost of health care. Only in Washington.-Lou


Hopes dim for deal to avert Medicare premium spikes

The window is closing for congressional leaders to avert the double-digit premium hikes that are set to hit 8 million Medicare enrollees next year.

Congress has only a handful of weeks to prevent the 52 percent premium hikes — the largest in the program’s history — that will harm seniors and drain state budgets. And with a key deadline missed on Thursday, aides of both parties say a deal between House leaders by year’s end is becoming less likely.

After some initial optimism for an agreement between House Speaker John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (D-Calif.), things have since grinded to a near halt, according to several people familiar with the talks. Any hopes of a deal have dropped out of sight until likely December, when the same leaders must approve a government spending bill.

“I think it will be a part of the government spending discussion, especially since Pelosi seems to have this as a priority. I think she’ll be pretty insistent,” a Democratic aide said.

That outcome — if it can be reached — would mean months of uncertainty for millions of Part B enrollees trapped in the crosshairs of a federal benefits policy glitch.

Because of a quirk in federal law, in years that the government doesn’t approve an annual cost-of-living increase, Medicare enrollees face a spike in premium costs if they aren’t protected by Social Security’s “hold harmless” provision.

Among those affected, monthly premiums will rise to $159.30 per month, from about $104.

Pelosi had initially hoped to achieve a deal by Oct. 15 — the date that the administration announced there would be no cost-of-living increase — because it would result in a slightly cheaper price tag from the Congressional Budget Office. (The budget office would have calculated the cost of the bill using a nearly 1 percent cost-of-living increase, which some have dismissed as a budgetary gimmick).

The Democratic leader first raised the issue in a one-on-one meeting with Boehner on Sept. 17, according to her spokesman, who declined to share any other details.

“There was a real hope they could do it before today,” David Certner, legislative policy director for AARP, said the day the deadline passed.

It’s only been a few months since Pelosi and Boehner last struck a major deal on a healthcare bill, to eliminate the decades old “doc fix.” But with the House GOP leadership scramble and the threat of a government shutdown over the same period, those talks went nowhere. “Obviously Congress is not functional right now,” Certner added.

The Obama administration confirmed Thursday that this year’s cost-of-living index would not increase — the first time without an increase since 2011. That news all but assures a spike in premiums, driving up the pressure for Congress to act.


How and Why Banks Will Seize Deposits During the Next Crisis

I have been warning you. I believe that insured deposits will also be lost once the systemic banks all fail.-Lou


How and Why Banks Will Seize Deposits During the Next Crisis

Phoenix Research

As we noted last week, one of the biggest problems for the Central Banks is actual physical cash.

The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system.

Suffice to say, if a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem.

Indeed, this is precisely what caused the 2008 meltdown, when nearly 24% of the assets in Money Market funds were liquidated in the course of four weeks. The ensuing liquidity crush nearly imploded the system.

Because of this, Central Banks and the regulators have declared a War on Cash in an effort to stop people trying to get their money out of the system.

One policy they are considering is to put a carry tax on physical cash meaning that your Dollar bills would gradually depreciate once they were taken out of the bank. Another idea is to do away with actual physical cash completely.

Perhaps the most concerning is the fact that should a “systemically important” financial entity go bust, any deposits above $250,000 located therein could be converted to equity… at which point if the company’s shares, your wealth evaporates.

Indeed, the FDIC published a paper proposing precisely this back in December 2012. Below are some excerpts worth your attention.

This paper focuses on the application of “top-down” resolution strategies that involve a single resolution authority applying its powers to the top of a financial group, that is, at the parent company level. The paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context…

These strategies have been designed to enable large and complex cross- border firms to be resolved without threatening financial stability and without putting public funds at risk…

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities. 

…Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

In other words… any liability at the bank is in danger of being written-down should the bank fail. And guess what? Deposits are considered liabilities according to US Banking Law. In this legal framework, depositors are creditors.

So… if a large bank fails in the US, your deposits at this bank would either be “written-down” (read: disappear) or converted into equity or stock shares in the companyAnd once they are converted to equity you are a shareholder not a depositor… so you are no longer insured by the FDIC.

So if the bank then fails (meaning its shares fall)… so does your deposit.

Let’s run through this.

Let’s say ABC bank fails in the US. ABC bank is too big for the FDIC to make hold. So…

1)   The FDIC takes over the bank.

2)   The bank’s managers are forced out.

3)   The bank’s debts and liabilities are converted into equity or the bank’s stock. And yes, your deposits are considered a “liability” for the bank.

4)   Whatever happens to the bank’s stock, affects your wealth. If the bank’s stock falls at this point because everyone has figured out the bank is in major trouble… your wealth falls too.


Carl Ichan….Danger Ahead

Not a stupid man.-Lou

Shorting The Federal Reserve

Excellent Article.-Lou

Shorting The Federal Reserve

Submitted by Michael Lebowitz of 720 Global

Shorting The Federal Reserve

“I’ve never let my guard down by saying, I do not need to be hedged” – Paul Singer

Preservation of clients’ wealth is the most important fiduciary duty guiding investment managers. This obligation tends to be under-appreciated in the midst of financial asset bubbles when recency bias blunts the desire to sacrifice the potential for further gains in exchange for protection against losses. Inevitably, this is made painfully clear when a bubble pops and those once popular assets lose value and the manager’s clientele suffer. 720 Global has repeatedly urged caution as valuations are currently stretched on the back of reckless Federal Reserve monetary policy and poor economic fundamentals. This article presents the case for an asset that can help managers protect their clients and uphold their fiduciary duty owed to them.

Gold is neither a claim on the promise of future earnings like a stock, nor a liability owed by a public institution or a private party like a bond. It also lacks the full faith and credit of most governments, like a currency. Gold serves little industrial purpose, unlike all other commodities and is most commonly revered as a shiny metal used in ornamental display or jewelry. It is precisely these failings that make gold a unique and valuable asset and one that can play an important role in portfolio construction.

Gold is one of the few stores of value that is limited in supply, transportable, globally appreciated and not contingent upon the faith and credit of any entity. It cannot be manufactured or debased. Gold is the only time honored currency or in the words of John Pierpont Morgan (J.P. Morgan), “gold is money, everything else is credit”.


Thousands of years ago trade between people began through a system of barter. This method of payment was effective but very limiting. Trade could not occur unless both parties had the goods or services demanded by the other. If a metalsmith, for example, did not need wheat, a farmer seeking a new sickle would have to find alternative goods or services to offer the metalsmith.
These stark limitations and the growing desires to conduct trade with parties over further distances required a more robust system. Accordingly, trade graduated from the barter system to that of a common currency. Aristotle stated the rationale for a common currency eloquently:

“When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use”. At first, in almost all cases, the currency was a commodity. While eliminating some of the problems associated with barter, this system presented new ones. Carrying gold or other commodities such as silver, grain, shells, or livestock can be cumbersome and difficult to properly measure for weight and purity. Dividing most commodities into fractions for ease of exchange produced additional difficulties. Paying for an acre of land with a quarter of a cow must have presented quite a quandary.

The next step in the advancement of currency was the use of sovereign issued, standardized currency typically made with gold, silver, copper and bronze. The first known instance of such a currency, the Greek drachma (pictured to the left) dates back to approximately 700BC. The benefit of this commonly accepted currency was that the supply of money became regulated and standardized. Additionally, the limited availability of the metals made it hard to increase the supply of currency in any significant manner. These currencies held their value well as the worth of the coin was always tied to the weight and the price of the metal used. That said, there are instances where governments abused their authority by decreasing, or shaving, the metal used in each coin, temporarily unbeknownst to the public.

While coins were a big improvement from the days of barter, they could not fulfill the pressing monetary requirements of escalating global trade. To fill this need national banks introduced bank notes. Bank notes are essentially paper IOU’s, as we have today. The dollar bill, for instance, is backed by the full faith and credit of the United States. However, prior to the last 50 years, full faith and credit was rarely acceptable and accordingly most bank notes were backed by a commodity, typically gold or silver. One holding a bank note backed by gold or silver could always exchange the note for a fixed amount of the metal backing the currency. In 1792 the Mint and Coinage act authorized the Bank of the United States to establish a fixed ratio of gold to the U.S. dollar. While the fixed rate fluctuated over time, there was always gold and silver backing the currencies. Below is a picture of a $20 gold certificate.

On May 1st, 1933, President Roosevelt issued executive order 6102. This action ordered U.S. citizens to turn in their gold coins, gold bullion and gold certificates to the government. The order essentially made holding gold, in those forms, illegal for private citizens. The government set a rate of $20.67 per ounce for anyone exchanging their gold for cash. Surprisingly, and still deeply entrenched in the memory of many, personal bank vaults were raided in search of gold. 7 months later, having accumulated a significant amount of gold, the Gold Reserve Act was passed which raised the fixed rate of gold per ounce to $35.00. While rarely discussed in mainstream economic text books, this simple act was a massive devaluation of the dollar. With one swipe of a pen the amount of gold supporting the dollar was increased by 70%.

Roosevelt’s actions highlight an important distinction in the gold debate. Most critics of a gold standard today argue there is not enough gold in existence to back the current monetary regime. The truth is that the amount of gold is irrelevant, it is the price of gold that matters.

While the gold standard no longer applied to U.S. citizens, foreign nations were still able to exchange U.S. currency for the gold or silver backing it. In 1971, President Nixon signed executive order 11615 which suspended this right of exchange. The act officially took the U.S. off of the gold standard. Most other nations have since taken similar actions.

It has only been the last 44 years where gold plays little to no role in the backing of any major currency. Although there is still gold stored in Fort Knox and other vaults, it only represents about 7% of our monetary base at current prices. The nouveau logic surrounding this fiat currency regime states that confidence and trust for a piece of paper backed by faith will always trump the desire for people to hold something tangible.

History is littered with financial crises and other disturbing events resulting from reckless monetary policies. Part II of this piece, soon to be released, will chronicle one example of the ills of uncontrolled money printing, namely the actions that ultimately led to the French Revolution (1789-1799). This example is not as well-known as recent money printing schemes such as the Weimar Republic in 1923, Argentina in 1981 or Zimbabwe in 2008, but the lesson it provides is invaluable. The scale of money supply growth today is enormous but far from those achieved in the aforementioned countries. Nonetheless, all investors should have an appreciation for the path we are on and the fate that befell others that took similar paths.