The A.S.S principle: It's All Speculators Stupid

Posted in Destruction of Money on March 09, 2010 by Max DeFault

Greek Prime Minister Papandreou delivered an important speech today in the US flanked by Hillary Clinton. To paraphrase the 20-page speech: it is still just the speculators' fault, who are now "threatening not only Greece, but the entire global economy".

Hmmm. Lets call it the A.S.S. principle. It's All Speculators Stupid!

Lets ignore the long term fiscal irresponsibility of Greece itself, and try and assess who these terrible speculators might be?

Investment funds risking mum and dad investors hard earned savings on big Credit Default Swap bets against sovereign debt? I think not.

Hedge funds with people like George Soros calling the shots? No too much political risk. Just ask Amaranth or the Hunt brothers how profitable it is to make big bets against the establishment.

There is more than enough evidence to suggest that the culprit is none other than Goldman Sachs (also known as Government Sachs and God's private investment bank). Yes the part owner of the Federal Reserve and holder of all important positions within the US Treasury department has its finger prints all over this mess.

To understand why Goldman has bankrupted Greece we need to look at a much bigger agenda, saving the US dollar as the worlds reserve currency. I have written many times before as to how the reserve currency status of the US dollar is the single most important pillar to US foreign policy, military strength and economic prosperity. For example the Iraq war was never about weapons of mass destruction, but rather Saddam Hussein threatening to undermine the US dollar monopoly by selling oil in Euros. With Iran making similar noises time will tell if this invokes the same military response.

So with the US economy and confidence in the all mighty US dollar in terminal decline, what better way to restore confidence but make the US dollar less worse than its competitor. By targeting Greece directly, Goldman Sachs (as US government agent) has undermined the sentiment towards the Euro. Investors have no choice but to flee the Euro in favour of the dollar. Japan will be next.

Given that 2 weeks ago Mr Papandreou's ministers were all over Goldman Sachs as the culprit, todays speech in the US (flanked by Hillary Clinton) blaming unknown speculators suggests that Greece will like so many before them, yield to the power of Government Sachs and the almighty US dollar.

For a bit more context on this matter it might be worth reading an article I wrote in July last year entitled Battle Lines and a recent video on the Goldman Sachs infection.

Battle Lines

by Mark van der Sluys (July 2009)

Next month will mark two years since the first shock waves of the financial crisis were felt in credit and stock markets around the world. Much speculation exists as to whether this was an orchestrated take down or simply market forces correcting years of excess and imbalance. I have an opinion as to why it occurred, but in reality "why" is a sunk cost. I would rather focus my attention on "how" things have changed and "what" this means going forward.

For me, three main changes stand out amongst the wreckage of the last two years:

1. A new government omnipresence and fascist agenda in US/UK/Australia
2. The absolute power and total integration of JPMorgan and Government Sachs with the US Treasury and Federal Reserve
3. China and Russia positioning for a change in world economic order

It is my contention that Warren Buffet was right when he referred to this crisis as an "economic war" and the above mentioned changes represent huge battle lines in that war.

On one side you have the US strategically fortifying systems, institutions and alliances vital to defend its position as monetary and economic leader of the world.

On the other side you have China and Russia building strategic assets, alliances and reserves in gold, oil, base metals and agriculture. Bi lateral arrangements that exclude the US and settled in Rouble or Yuan are now the norm. Internal reform and vocal support for an end to the exclusive right of the US dollar as the world reserve currency are clear signs China and Russia are preparing for big changes in coming years.

If these observations are true we can surmise the battle strategy for each side.

United States
The US as the defender of the status quo will seek to build on its existing strengths. It still controls the worlds monetary system and therefore financial markets. It has successfully fought a paper war since 1971. Now armed with new powers (through legislative changes passed under the "world will end" threats) the US Treasury, Federal Reserve and favoured institutions (ie JPM, GS & GE et al) are well positioned to create economic chaos through strategic market intervention. I've probably just lost half of the readers with this statement who have an unwaivering belief that markets are free and fair. I ask you to consider the QE strategies announced earlier this year - open declaration for market manipulation of interest rates in the bond market. I ask you to consider currency markets where it is stated policy to maintain currency stability. I ask you to consider that 97% of the short positions on COMEX gold and silver are held by just two investment banks (JPM & HSBC who are both owners of the Federal Reserve). Apparently it is OK to control 97% of a market on the short side but when the Hunt brothers owned just a fraction of this percentage on the long side in 1980 it is illegal cornering of the market. I ask you to consider how easy and profitable it is, with 100 times derivative leverage and advance notice of price movements, to move any market in any direction at any time. This is the US core capability and changes over the last two years only strengthen this position.

China/Russia
China and Russia seem to have a "build and exclude" strategy. The build component is focused on securing the infrastructure and resources. Whether its oil refineries in Africa, base metals from Australia, food supplies from Brazil or a bi lateral natural gas pipeline the core idea is to invest in things that facilitate future prosperity and security. In battle terms this approach can lock out or exclude the US from increasingly scarce resources. Coupled with the increased exclusion of the US dollar for international trade, the Chinese and Russians seem intent on gradually weakening the US. They are aware that major dislocations in markets would have much more severe implications for resource rich Russia and export driven manufacturing China than it would on the US.

Summary
The US has the capability and incentive to increase market volatility. China and Russia have the will and patience to slowly undermine the US seeking an orderly transition of power. It is unlikely that the US will allow the privilege of the post 1944 world political, economic and monetary order to lapse without a fight. It is also unlikely that China and Russia will continue to allow the US to abuse its privilege. Battle lines are drawn and unfortunately the consequences for you and I will be significantly higher prices, increased taxation, food scarcity, geopolitical tensions, extreme market volatility, social unrest and ultimately war.