Britannia Radio

The Daily Reckoning U.S. Edition

Home . Archives . Unsubscribe

The Daily Reckoning | Saturday, January 28, 2012 A central bank “printaholic” falls off the wagon... A few comments and some very real concerns from our dear, dear readers... Plus, all this past week’s finest reckonings for your leisurely weekend perusal... --------------------------------------------------------------- 10 Million Blind Could Regain Sight In the 21st Century, a new dawn of medicine has emerged that could restore the sight of 10 million people worldwide. It’s a medical breakthrough that is unprecedented in human history. In fact, this amazing technology could eventually improve... and extend... every life of every person on earth. And one tiny California Company, priced under 80 cents per stock, is at the forefront of this revolutionary medical treatment. Click here to get the full details on this explosive penny stock that could significantly advance the field of regenerative medicine — and possibly make you ridiculously rich. Joel Bowman Reporting from Buenos Aires, Argentina... Actually...we’re not going to report from Buenos Aires today. Not at all. We did that yesterday. Instead, Eric Fry is going to bring you this week’s feature column from Laguna Beach. We’re going out to have an afternoon cocktail in the sun. Not sure why we even poked our head in here, come to think of it... Anyway, here’s Mr. Fry’s excellent musing. Please enjoy... [This column was originally published on Wednesday, 25 Jan. 2012] The Daily Reckoning Presents Gentlemen, Start Your Printing Presses! Eric Fry Whoops!...Oh dear!...It looks like Ben fell off the wagon again! Such a shame. He had been doing so well ever since he put that bottle of “Old Q.E.” back on the shelf last June... and got sober. But a few weeks back, he tripped up on his 12-step program and started nipping at the bottle again. Slowly at first... then to excess. Yes, it’s true, dear reader, Federal Reserve Chairman Ben Bernanke, is printing money again. That’s bad enough. But this time, after he prints it, he sends it over to Europe. Crazy, but true. The chart below tells the tale. It shows the quantity of currency swaps on the Fed’s balance sheet. What are these things? Technically, they are an exchange of one currency for another currency. Functionally, they are a loan. Typically, one side of the swap pays interest to the other side of the swap, depending on the prevailing interest rate differentials between the two currencies. [For more about swaps, click here.] During the crisis of 2008-9, the Fed supplied nearly $600 billion of this form of credit to various financial institutions. Eventually, as credit conditions improved, the borrowers unwound these swaps, causing them to disappear completely from the Fed’s balance sheet...until late last year. The Fed is ramping up its swap activity again. As we noted in the January 6th edition ofThe Daily Reckoning: Whenever a central bank cannot provide direct, overt assistance to a specific insolvent investment bank or government, not to worry, a central bank can still provide indirect, covert assistance. The recently announced “backdoor bailout” of European financial institutions illustrates the point. The European Central Bank (ECB) cannot directly bail out the insolvent governments of Greece, Italy, Spain, Portugal, et al. Meanwhile, the US Federal Reserve cannot directly rescue Europe’s insolvent banks. Enter the indirect bailouts... Here’s how they work: The Fed extends unlimited lines of credit to the ECB under so-called swap agreements. The ECB, in turn, provides dirt-cheap capital to Europe’s struggling banks. Then, the banks — understanding an unspoken quid pro quo — use the dirt-cheap financing to buy the high-yielding bonds of Greece, Italy, Spain, et cetera. So if you follow the money, the Fed is lending money to the Greek government... and all along the way, the insolvent European banks are making money they don’t deserve to make, while US taxpayers are losing money they don’t deserve to lose... As recently as a few weeks ago, the amount of dollar swaps — i.e., loans — with the ECB was only $2.4 billion. “For the week ending December 14, however, the amount jumped to $54 billion,” the Journal reports... Thus far, the Fed’s indirect bailout of Europe is relatively small, at a mere $62 billion. But we should expect that number to grow...a lot. And as that number grows, the Federal Reserve will be providing yet one more reason to buy gold, silver and other hard assets... Since we aired those remarks, the Fed has added another $41 billion (and counting) in currency swaps to its balance sheet — bringing the grand total to $103 billion, as of January 18th. That little green doodad at the upper right of the chart below represents $103 billion of currency swaps. (The fact a $103 billion increase on a chart of Fed assets is barely visible says something about how out-of-control the Fed’s activities have become). Importantly, these currency swaps are not replacing some other asset on the Fed’s balance sheet. In other words, the Fed did not sell $103 billion worth of Treasury securities in order to provide $103 billion worth of currency swaps to the ECB. Instead, the Fed conjured this fresh cash into existence out of thin air. Since announcing the “emergency” swap lines on November 30, 2010, the Fed’s balance sheet has increased by $100.7 billion — a mere rounding error away from the $100.8 billion in currency swaps the Fed added to its balance sheet over the same timeframe. The mainstream financial press has not seemed to notice — or care — that the Fed is printing dollars and sending them to Europe...even though this new Fed operation is a kind of “QE3” without any headlines or fanfare...and without any direct US-based beneficiaries. What does interest the press, however, are the “improving credit conditions in Europe.” LIBOR rates have retreated a bit from their recent highs, for example, which means that European banks are finding it easier to obtain short-term credit. Of course they are! The Fed is flooding the European financial markets with cheap credit, thereby lowering the demand for credit from traditional sources in the private sector. But unless the Fed intends to single-handedly bail out every insolvent bank and government in Europe, the short-term balm it is providing will achieve absolutely zero long-term benefit...except for the owners of precious metals. This “Backdoor QE Operation” will merely kick the can down the stradas, rues and calles of Europe, while adding hundreds of billions of dollars to the Fed’s balance sheet. This new Fed operation is inflationary... and it will become more inflationary if/as/when the volume of currency swaps on the Fed’s balance sheet continues to grow. If you’d like to keep tabs on the growth of this Fed asset, the Cleveland Fed’s website makes it very easy. Just click on this link. While watching, remember to add a few precious metals to your portfolio. Regards, Eric J. Fry for The Daily Reckoning World oil production is about to be shaken to its core... You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future... Click here to see who is set to become the new king of oil — and how you can use the news to go for big profits as early as this MAY! ALSO THIS WEEK in The Daily Reckoning... Getting out of Dodge, Part II By Doug Casey Punta del Este, Uruguay Stating that the US is turning into a police state when you started this conversation was quite accurate. You can see more and more videos spreading over the Internet, not just of police brutality, but demonstrating the militarization and federalization of police, who are being inculcated with both disdain for and paranoia about ordinary citizens. Knowing Your Role as an Obedient Citizen By Joel Bowman Buenos Aires, Argentina We can see them there, huddled under cover of night, assembled in the darkened corners of dimly-lit bars, conversing in hushed tones, eyes darting nervously, wondering who among them might turn coat. Which man here conceals a Ministry badge? Do I hide one myself? Dare I even ask? How their hands do tremble. How their voices quiver, knowing that a second of free expression might cost the author his life. How shall we ever find our way home again, to the land of the free? Best Places in the World to Retire By the Staff of International Living If you had $20,000 a month to retire on — you could live lavishly pretty much anywhere on the planet. But we’re interested in the places where you can live that lifestyle on one-tenth the budget...Places where you can have a maid clean for you...hire a gardener... wake up to a view...have great health care, eat well, enjoy the finer things in life — for less than $2,000 a month. You may be surprised how many there are... Best Places in the World to Retire, Part II By the Staff of International Living In the States today, most Americans are on the verge of retiring are much more likely to talk about their fears than their dreams. The cost of everything from healthcare to food is rising, while incomes, pensions and nest eggs are shrinking... or at least not growing nearly as much as expected — leaving baby boomers with fewer and fewer options for retirement at home. But all hope is not lost! Read on... A Wealth Chance This Extreme Pops Up Once Every Few Lifetimes Only 62 people know exactly why these four companies could change the world. Starting right now, you’re #63 on the inside. That means you’re on the verge of massive wealth. Click here for the full story — you can’t afford to miss this epic, one-time wealth chance. The Weekly Endnote... And now, it’s over to a few readers for some thoughts, ideas and rumors... First up, this one from Reckoner(s) Sven (and Wife)... Dear Mr. Bonner, I nearly laughed my head off reading your account of your uncle’s driving license renewal. So did my wife. We are more concerned however about the“backdoor bailout” of European financial institutions. No laughing matter. We don’t quite know how to label it, but QEE 2 or 3 (Quantitative Easing for Europe) after the ECB’s and EFSF’s stop gap measures might be appropriate. Anyway, the roads are slippery and the European politicians are not driving a tank, rather hanging on to a toboggan on a slippery slope, without real means of steering. Your comments continue to be insightful, helpful and delivered with a humorous touch in our current momentous times. For that we are thankful. Keep up the good work and good cheers. And this, from Reckoner Michelle... Bill Bonner is spot on (per usual) with his analysis of the US tax code as “completely corrupt”, yet defended by the politicians and the tax avoidance industries because it is their (zombiefied) cash cow. The 66,600 pages of “tax law” that is the IRS code flies in the face of one of the foundational tenets of natural law our constitution is based on; ‘void for vagueness’. Until FDR flooded the courts with liberal justices, any law (at any level) had to pass a simple sniff test to be enforced; “Can any literate person of regular intelligence understand the law, the acts or conditions that constitute breaking the law, and the penalty for doing so?” If the answer was no, a “normal person” could not understand any part of a law or its implications, the law was annulled by the court as ‘void for vagueness’. As a business owner who has survived 2 IRS audits, I can personally attest that no one person alive on this earth understands the entirety of the IRS code; no lawyer, tax advisor, IRS agent or justice of the court. Literally thousands of terms and conditions in the code are so convoluted and confusing to the point that 5 accountants (or agents, or judges) considering the same point in question come to 5 differing conclusions proves my point. After both of my audits I received a nominal refund from Uncle Sam, and wrote a larger check to my CPA. The US tax code is completely corrupt, and certainly should be ruled ‘Void for Vagueness’. And finally this, rather chilling message from a Fellow Reckoner whose name we shall refrain from publishing... Dear DR, Aren’t you people afraid of all this outward talk against the government. They’ve already tried to shut down NPR? Eventually, you’re going to get a letter, phone call, something asking you to stop “turning” minds against them. They are all seeing, omnivorant [sic]. Cameras on every street corner, public building. Most Americans fear the government by now; they can literally make us disappear (legally). Don’t taunt them. DR: Thank you for your concern. It’s messages like this that prove now is THE time to speak out...before it really is too late. --- As always, we welcome your thoughts. Email them to the address below and... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning