Too Big to Bail?

March 6, 2002

The J.P. Morgan/Chase derivatives overhang of some $29 TRILLION, has many "in the know," worried. Of course! Why not worry, when a huge corporate monster, has its future hanging by its gonads, thanks to absurd loans and trades. Morgan/Chase loaned heavily to Argentina, Enron, Global Crossing, et al, and has, some say, a $50 billion short-derivative position on gold, which it owes to the Bank of England. If gold goes up, they are finished…or are they? Can the manipulators keep gold down? Obviously not, as it has gone up, to be driven down, and will surely overcome the meddlers', shorts and puts, they have so cleverly used to keep it down. Germany sold two weeks ago, in another feeble effort to defeat the marketplace. She sold, even though a few months ago, she said she wouldn't. Drove the price down. Good opportunity!

Understand the facts of the gold problem at Morgan/Chase, and others: They BORROWED it at 1% interest, and sold it at spot prices. The physical gold was transferred from the owner's vaults to the borrowers. Tons of it. The gold no longer rests in the borrower's vaults, and probably never did, as it was undoubtedly sold instantly. They probably covered their debts with gold contracts, which are "paper gold." The borrowers did everything possible to cover the fact that they sold the gold, and they no longer had it. The entities who loaned it, will want it back. The Bank of England, as an example, had gold in their vaults, which paid no interest, and cost something to keep, store, and guard. In order the get a return on their gold, they loaned it at 1% interest. It was income earned on a product that paid no interest. In order to repay the loans of physical gold, Morgan/Chase and other borrowers, must repay the loans with physical gold, not paper gold or promises. Thereby hangs the problem the borrowers face. Do you want real Gold Eagles when you buy from me, or promises to send them? Do you want physical gold, or paper gold?

All the gold that is produced today, is used, bought, and consumed instantly. There is none left for debt repayment by the borrowers. In order to slow the consumption of gold, keeping the price low, so they can buy it and repay the loans, the borrowers use every trick they know, to keep the price down. Not only do they do that, but you can bet that Greenspan and others of his ilk also want gold to stay low, because if it goes to its free market level, of perhaps $600 an ounce, it will make paper money look pretty bad. The rulers want their fiat money to shine, not look like what it is, so gold must be kept down. They have waged a fine fight, but it appears to be failing.

Are the big outfits indeed, "too big to bail, and too big to fail?" I must admit I feel they are. If Morgan/Chase, and Citibank go, because of foolhardy loans and financial predicaments, I think they will be bailed. The presses will roll, and their gross mistakes will be covered. We will then get "used" to the dollar possibly becoming worth half of what it is now. After WWI, the dollar was worth 50% less than before, and the same with WWII. I was "used" to 25 cent a gallon gas when I was a kid, and $9.95, 600:16 tires for my car. Now, I am "used" to $125 tires for my car and $1.25 a gallon gas. I was "used" to nickel cokes, and $75 a month apartments, and now am "used" to today's prices in fiat dollars for everything. I will never get "used' to Chinese merchandise as sold in China Marts, and everywhere else, but that's another subject.

When the bail-out happens, not only will prices escalate in dollars, but it is possible that the Euro will make a huge headway in becoming the world trade vehicle. It is possible that the dollar, having lost its purchasing power, due to hyper-inflation, will be a laughing stock. Or perhaps all the currencies will go down together, and we will all get "used" to $10 cokes, $15 a gallon gas, and million dollar, three bedroom development homes. We may get "used" to $5,000 a week salaries, and a $20 an hour minimum wage. Everything will "go up," when the presses roll to bail out the dozens of fools, at Citibank, Morgan/Chase, and others, who caused this. As if the bail won't be bad enough, we still send hundreds of millions overseas weekly through the Ex-Im bank, IMF, World Bank, grants, subsidies to our enemies, and other methods of screwing the taxpayer through inflating the currency.

Politicos probably will not vote for the bail-out, but it will happen. The Rebublicrats are too busy causing bonds and fed paper to be sold to cover their excesses, to worry about a triviality of Morgan/Chase Citibank biting the dust. Greenspan and his crew will secretly do it, and only a few knowledgeable people will know. Prices will mysteriously go up, and everyone will probably try to "fight inflation," as was common in Carter's day. That is about as fanciful a possibility as stopping a hurricane by boarding up one's windows.

If the financial system, as we know it, were to "go down," there would be mass rioting, looting, and civil upheaval, as hasn't been seen in our history. I am glad to be in the American West, in a lovely town of 13,000, and wouldn't want to go back to my roots in the East for anything, because there's where the trouble will begin, if it falls apart. Look at Argentina, to see what happens, when a system bites the dust. Some say the difference between Argentina and Japan is 2 months. How about America, if Morgan's $29 trillion in derivatives go south? Bailing is the only way to keep the United States from sinking. You thought LTCM was bad? The Morgan/Chase, Citibank, plus others' situations, are a hundred times worse.

It's pitiful, but when a man or woman achieves a public office of trust, their principles and philosophy seem to go to hell very quickly. Greenspan can be quoted endlessly, before he became the honcho of the fed, about how gold is real money, the gold standard is the best, paper money is a fraud, etc. Now he is at the helm of the Economic American Ship of State, that is foundering in high seas, and being threatened with capsize. Is there anything more disgusting than a politician? Other than Ron Paul, I can think of none that I admire completely.

So that, dear reader, is why you should NEVER pay off that mortgage early. You have the mortgage company locked into a long-term loan, at fixed rate, with the same dollar payment per month, and it is a valid contract. You may, after the bail-out, be able to make that monthly payment with the price of a McDonald's meal. But not to worry, because on National Public Radio, last week, said that 98% of economists say the recession is over, and the good times will roll this year. Now you can sleep tight, and not worry.

I have tried to think of a way that the Morgan/ Chase/Citibank overhang could be resolved without a bail-out, and I can think of no way, other than to let the presses roll. Not physically roll, mind you, but it will accomplish the same thing, when trillions of dollars are inserted into the system for the bail-out. Excuse me, Alan, I mean "increased liquidity." (How could I use the wrong terminology! I'll pray for forgiveness) Dubya is trying to beat Clinton in foolish spending, and seems determined to get us into a real war, probably with Iraq. As one wonk says, we should come home and declare victory in Afghanistan, and be rid of it. The Warlords will keep US soldiers busy for decades, and the country will never become civilized. How can it be made into a wonderful place, when few can read, and the schools teach religious fanaticism and violence, rather than the three "R's?"

Why should we want to turn any nation into our values, when they have their own? Why not let's just let them do their thing, and we come home? Dubya's insistence on war, will only cause the presses to roll even faster, and now he wants to spend $350 million to encourage marriage. There is no end in sight of government spending and bail-outs, so batten down the hatches people, and GET OUT OF DOLLARS, AND INTO SOMETHING TANGIBLE WITH YOUR SURPLUS ASSETS. Protect yourself, in other words.

My book "CONSEQUENCES" is still available, free, by e-mail. Just e-mail me your request, and I'll be delighted to send it. Where else can you get a 230 page book free, with no strings attached, and your address not kept? I write this type of drivel daily on my website. Just click on "don's column."

Seventy-five percent of all gold in circulation has been extracted since 1910

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