To Whom Can China Sell It’s Bonds?

There are die hard fans, then then there’s my ever loyal reader Kevin who wrote in comment to my recent blog:

KevinM :

I think you’re wrong about China, Preston. After all, to whom can they *sell* their U.S. holdings? I think that China came (back) to a world power too late, and they chose (or could not see properly) short-term profit via their economic alliance with the U.S. over long-term stability. It would seem now that their only choice is to hold on tight to their Little Red Books and hope that everything doesn’t come crashing down around *their* heads, as it surely must around ours. (Although I still maintain that we are headed to war, since that will be the only way out of this mess…)

China can attempt to sell it’s bonds to whomever wants them, and when it turns out that China has far more US bonds to sell than there are buyers for them, then the value of US Treasuries will plummet. At that point, the US would see its currency fall precipitously and it would be unable to see any more US Treasuries to fund its ongoing deficits. From that point forward, the US would have to fund the operation of its government through taxation or cut back its spending.

Many argue that China would never do this because why would China seek to devalue its own investment. That’s a separate matter. I was merely pointing out in my last blog that if China were interested in creating chaos and destroying the value of the dollar, as did the diabolical villains in Goldfinger, then all it would have to do is sell its bonds. Now, I’d like to point out that an investment that is valueless if you go to sell it is really valueless period. Suppose I sold you a piece of art that I said was worth millions. Come to find out, you could never sell it and recoup even a fraction of that. You could carry it on your personal financial statement as an asset (as many banks are now doing) but the truth is that you got a bad deal and will have to take the loss sooner or later.

China is in the same position. They got a bad deal in buying are bonds and, now that they have them, there’s no way they are going to be able to avoid taking a loss. The longer they carry them, the more the US will use the opportunity to sell even more bonds to the world market and inflate away the value of what the bonds are worth. The sooner China moves to sell them, the more it could hope to profit. That’s why I feel a collapse of the dollar is inevitable. Andrew Gause and other conspiracy theorists see the invisible hand of the illuminati behind it all and he assures us that the dollar will not collapse because it is currently the preferred currency of the Illuminati.

Personally, I’m not much of a conspiracy theorist. So I don’t put much stock into the idea that the Illuminati who control the Fed also control the Chinese and will continue to prop up the dollar so that they can use it keep us in slavery. But I suppose we should take some comfort in knowing that, if the Illuminati are out there, that they want to keep the dollar valuable. Now, failing that, you’re left with the nations of the world holding a lot of bonds that are worth far less than they paid for them and will lose even more value if any one of them should come out and liquidate them on the open market. That’s scenario where the first party to take a lose will lose far less than the last person who tries to cash out- an unstable situation that is bound to collapse at some point.

Conspiracy Theories That Surround The Federal Reserve: Part III

In the first two parts of this series on the conspiracy theories that surround the Federal Reserve, we looked at the popular G Edward Griffin conspiracy which traced the formation of the Federal Reserve from the Jekyll Island meeting forward to present. As I laid out in both parts I and II, the Jekyll Island meeting was the culmination of the national banking power over US politics. It was literally a meeting of the nations power brokers (the “money trust”) in a smoke filled room where the future of the nation was discussed.

The Jekyll Island meeting is an easy target for conspiracy theorists. The problem lay in that they then make this rather credible event the lynch pin of a broader, all encompassing conspiracy. In Griffin’s case, the Jekyll Island meeting plays the frontman for a conspiracy of “Fabian Socialists” who were behind not only Woodrow Wilson, but everything else from the Soviet Union to the US Environmentalist movement. Griffin’s conspirators wait behind the power of the United Nations to strip away our power when we are weakest in the name of Socialism.

Griffin commits three logical fallacies: Continue reading Conspiracy Theories That Surround The Federal Reserve: Part III

Conspiracy Theories That Surround The Federal Reserve: Part I

This nation was founded on hard money. It says right in our Article I, Section 10 of the US Constitution that, “No State shall … make any Thing but gold and silver Coin a Tender in Payment of Debt.” We lived as a hard-money nation for well over a century; Americans would only accept gold or silver coin in payment of debt or bank notes that were redeemable in same. That’s not the world we live in today, and on that, most everyone can agree. As for how we got here, there are many different versions of history. This article is the first in a three part series that will examine the history of how this came about, including the various conspiracy theories surrounding it.

The pedestrian version of the story is that the American public wanted government oversight over the banking industry, so Congress convened a series of hearings — The Pujo Hearings — as they gathered the necessary information to act. Soon, the Federal Reserve Act was drafted. This provided for a large bureaucracy that included a Federal Reserve Bank in most major cities. Their purpose for having them spread across the nation was two-fold: first, to distribute the power of the Fed far and wide, ensuring each region adequate representation. Secondly, to provide a local Federal Reserve Bank for oversight of the regional banks, making sure they were responsibly conducting their business in a manner not endangering to their depositors. The Federal Reserve Act also empowered the Fed to be the “lender of last resort”; essentially, it was allowed to create money from nothing so that it may purchase US Treasury bonds from troubled banks. The Act was sold as a means of breaking up the power of the banking industry and returning it to those representing the people, to promote responsible banking, and make bank failures a thing of the past.

The first book I ever read on the Fed was G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve, which tells a far more gripping tale of the its creation. Continue reading Conspiracy Theories That Surround The Federal Reserve: Part I

Staying Motivated in Today’s World

I have a good friend named Baron in Los Angeles. He plays in a rock band, Manic Automatic, and he really deserves credit for getting my interested in looking into the ill effects of the Federal Reserve on American society. He’s going through a rough time in his life right now. Part of it is just those moments we all go through as we age and realize that all the dreams we had growing up have gone unfulfilled, but part of it probably related to his politics. He shares my Libertarian outlook on American politics and that means that, unlike the vast majority of the politically aware American public, he never gets to really celebrate when looking at an election result. Instead he just seems to get increasingly disgusted with a world that seems comprised almost entirely of sheep and the shepherds in the banking industry who are there to sheer them. I understand his frustration because I feel it too.

I was reminded of this recently when I was listening to Andrew Gause being interviewed on Mr. Gause wrote the book, Secret World of Money
as well as Uncle Sam Cooks The Books. At one point during the interview he talked about studying the Federal Reserve for over thirty years and that over that time he had gone from trying to awaken people to action to simple acceptance of what was going on. I don’t have nearly the length of time under my belt that he has, but I have also reached the same sentiment. 

As Morpheous says in the movie The Matrix “You have to understand that most of these people are not ready to be unplugged. And many of them are so inert, so hopelessly dependent on the system that they will fight to protect it.” And so it is with us. Americans can be made to understand that their monetary system is entirely run by a banking cartel that pursues its own interests well ahead of considering theirs, but most of them just don’t care. For those politically minded enough to even be able to follow, the Federal Reserve is part of an indispensable system that they need in order to make the beliefs they are truly passionate about doable. After all, the Republicans want war and the Democrats want the socialized medicine. Neither of those things would really be doable in the absence of a fiat money system. 

And so we go through life; we are surrounded by people who simply don’t realize what’s going on. They are either to apathetic or ignorant to care or they have allowed themselves to be so deluded that they can’t understand the problem outside of the a political framework that makes the problem unsolvable. Few people understand what a gold standard is, what’s our Constitution says about gold and silver being legal tender, or that the world we live in today is not so much better than the old that those ideas have not lost their relevance. Of the few people out there who do care, they are typically so distrustful of the system that they believe so many conspiracies as to simply file “Federal Reserve” as just another conspiracy they believe in such as the JFK assassination or that 9/11 was an inside job. Being a scholar of the Federal Reserve is a lonely life. 

I think the problem here stems from the impossibility of the situation we realize we are in. The world’s banking system is so entrenched that we few who really understand what is happening could never hope to dislodge it. What are we to do then? I say we simply come to terms with this fact; that we put our arms around it and really accept that no matter how much proof we amass as to who is really going on, we will be powerless to change it. Our true power comes in being able to use our knowledge for our own personal gain. 

What? Did you think I was going to say that we use our knowledge for good? What’s good in this world? When the voting population of the United States votes to re-elect George Bush so that he can continue to mortgage our nation’s future fighting a war that was started with a lie, what meaning does this notion of good really have. Sure, we should try to be good to each other and we should engage in a system of ethics such that we improve the sphere of our world that is right around us, but the more money we have, the more good we can do. Instead of blindly investing our money like sheep and allowing ourselves to be sheared, why not use our knowledge to enrich ourselves? 

I’ve been able to soundly beat the stock market year after year and most of that comes from simply trying to figure our what’s really going on in the world and reacting accordingly. When I come to the investing landscape with full knowledge of what’s really going in in the world and everyone else is employing a buy and hope philosophy, I’m at a huge advantage. I have enjoyed using this advantage to enrich myself and I will continue to do so in the future. Why bother trying to save a world that doesn’t want saving when you can gain access to wealth through predicting the Fed’s next move?

I don’t know about you, but those thoughts are what gets me out of bed in the morning. To indulge in the idea that we can somehow defeat the world’s banking system is folly. Sure, we can show how the world is worse off because of it, but no one really cares. We have to accept that most people simply don’t want to be unplugged and instead use the powers that we do have to lead extraordinary lives.

Will The Dollar’s Value Ever Reach Zero?

Mark, who frequently reads and comments, recently wrote:

On Christmas day I would have agreed with your assessment and conclusions for the most part. But, by the very next day I had been exposed to an opposing view, which leads to a very different scenario.
Somehow in my Internet quest to learn more and more about the crisis we face I discovered Andrew Gause ( who is described as a monetary historian and contemporary expert on American and international banking systems. I began listening to archives of his weekly radio shows at starting with the most recent 12/24 broadcast: (you’ll have to sign up for his free newletter to listen) and continued backward week by week.
It is clear to me that this guy understands money, the Federal Reserve, US monetary history, and the current crisis far better than anybody I’ve followed to date. Like Peter Schiff and a few select others he was able to predict the mess we’re in which he documented in his interviews and in the two books he published, The Secret World of Money and Uncle Sam Cooks the Books. His predictions for the future, however, are far different than Schiff’s (and yours.)
I can’t recommend too highly that you take the time to listen to his archived broadcasts.
You’ll recall that I recently suggested that a “one world currency” was coming our way. Gause chuckles at that by saying “you’re predicting the past”. He says we already have it, the US dollar. He feels the Fed and the International banking cartel that owns them (including Citigroup, JPMorgan Chase, and Goldman Sachs being the top 3) are already in control of the world’s banking systems and can keep the dollar going forever by simply adding zero’s (i.e. inflation).
He explains that the current deflation (or disinflation) caused by the 1 trillion dollars recently sucked up by the treasury and deposited into the (NY) Fed will end with the big banks and their corporate buddies buying up recently devalued assets (like GM) for pennies on the dollar as the tsunami of liquidity is suddenly pumped into the market leading to a 70’s style inflation (but short of collapse) over the next several years.
Fascinating stuff!! 3 thumbs up…

I haven’t yet had time to digest the digital media. My girlfriend Auby, my mother, and family friend Pam, were watching the entire Californication – Season One tonight. I liked it. It’s good to see David Duchovny in a high-profile series again. I enjoyed him in The X-Files, and even in that movie he did, Playing God. I remember this one piece of dialogue from that movie where he’s confronted with a thug:

DUCHOVNY: Are you going to hit me?

THUG: Why are you afraid?

DUCHOVNY: I’m just trying to plan my day.

The stoic sarcasm that Duchovny brings to his characters reminds me a lot of myself. Which is to say, I enjoy his work.

At any rate, the gist of Mark’s point is the idea that the central bankers of the world have realized their ultimate goal of one world currency in the US Dollar, and are not going to let that default. While I’m sure that the person Mark is citing, Andrew Gause, has done his homework and knows what he’s talking about, I’m going to have to stick to my guns on this one: The dollar is going to default in the not-too-distant future. But, before I really tackle this question, I think it’s important to review a bit of history.

Bankers have always jealously guarded the power to create money; such power is as much a part of banking as the force is to George Lucas’s Jedi Knights: it is the source of all their power, and thus zealously defended by them. Remove from a banker his ability to create money, and all you’re left with is someone in formal clothes. Of course, money-creation creates problems of its own as well-documented by economists like Murray Rothbard in his book, The Case Against the Fed, as the blog readers who’ve been with me for a while are no doubt aware. It creates a devaluation of the currency as new money enters the system and, as the process continues, will prompt investors to put their money in another currency.

Hence, alternative investment options always create problems for the bankers. If they get too carried away and create too much money, they run the risk of people feeling the currency and eventually having it lose relevance altogether in a hyper-inflationary scenario. That’s why John Maynard Keynes proposed a currency that would circulate universally world over, which he named the “Bancor.” Now, in such a scenario, there is no alternative currency to run to, because this one would have legal tender power all over the world. Think of it as Keynes’s interpretation of Tolkien’s “One ring to rule them all.”

The argument has been put forward that the US Dollar is the de facto universal currency, and therefore, we are living in Keynes’ dreams today. The problems with this argument, is that it’s missing the whole point. The US Dollar does not have legal tender power everywhere, it simply has legal tender power for the world’s most dominant power. Now, yes, that may be good enough for most purposes — but there are competing factions that will not accept US Dollars; some powers, like Iran — who are politically motivated to see the US fall from grace, consequentially pricing their dollars in Euros or Yen instead of dollars. Others simply see the US Dollar as having lost much of its buying power, and therefore prefer to deal in local currencies — as we saw in the news this year where they stopped taking US Dollars at the Taj Mahal.

You see, this is all just a replay of the classic story: The Federal Reserve has created so much money to fund so much debt that the entire edifice of debt now towers over our entire economy and threatens to bring it down, which has lead people to start quietly moving towards the exits. The whole idea of a currency such as the Keynesian Bancor is that there is no exit: the world banking system would oversee the currency, inflating it a bit in each country — which is a far cry from one part of the world inflating the living hell out of its currency and expecting the rest of the globe to play along.

Think of it this way: governments all over the world are envious of the US Government’s ability to simply turn to the Fed in order to run perpetual deficits. These governments would like to do this themselves, but, to do that, they would need to displace the US Dollar as the world’s reserve currency. Thus, we are not in a situation where we could really have one-world currency. Furthermore, this argument supposes that: all the bankers of the world value this idea of one universally accepted inflationary currency, and that they would gladly watch their own people suffer the effects of perpetual inflation brought by a foreign power, rather than take moves to stop it.

I feel that that thinking is too conspiratorial for my taste. Central bankers have always fawned over the governments that oversee them since it could take away their money-creation abilities at any time. Governments allow the mischief of money creation on behalf of their banks because it has always made it easier for said government to run a large debt.

I just don’t think that that nation state-centered thinking is going to change anytime soon.

Honestly, can we really expect the central banks of countries such as China to just keep on honoring devaluing their own currency so they can keep honoring the dollar on, and on, and on, with no expectation that the Chinese themselves might want to become the ones issuing the world’s reserve currency?

It’s human nature.

Someday, someone somewhere is going to decide that they want their power to become the next global empire, and you’d better believe that on that day, they’ll tell the US Federal Reserve just where they can deposit all of the dollars it’s flooded the world with.

When that day comes, do you really think the dollar will be left with any value at all?