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A Gigantic Ponzi Scheme

A very timely piece on Zerohedge from, Greg Hunter’s website, was an interview with Ms. Nomi Prins about her latest book (available soon). It deals with the Federal Reserve, a gigantic Ponzi scheme (my words, not necessarily Ms. Prins). She explains how the Federal Reserve has gotten us into this mess. Listen to the interview (which I am unable to embed, but is available at the link above). It is worth your time, even if you don’t agree with every point.

The value of the interview (and I assume the new book) is that the Ponzi Scheme becomes obvious, especially the  escalation that began in this new century. While Ms. Prins discusses our Federal Reserve, her points apply to all other central banks who utilize fiat currency to mask economic deficiencies. Not addressed directly is the likelihood that there is no return from the extremes we are at. To keep the fraud going, it is likely the Fed (and other banks) will have to continue and accelerate their distortions.

The Creature from Jekyll Island, a book by G. Edward Griffin, was quite prescient although much too kind in its original assessment of the monster that we we call the Federal Reserve. I suspect that even he, at least in his early editions, never imagined the full extent of the damage that was to occur.

Today the US stock market rallied sharply, a reversal of recent behavior. This rally is unlikely a sign that market declines are over! An emergency Fed meeting called this morning may have triggered concerns that the Fed was going to ease off in its fight against inflation. I suspect they will have to, but that realization is unlikely the cause of the rally. Market shorts likely overreacted to the fear of being on the wrong side of the market likely created the rally by defensively closing short positions.

The economic mess is far from over. If the Fed (and other central banks) continue on their present course, companies and financial markets will suffer immensely. The Bank of England abruptly changed course, supposedly out of fear their bond market was going to collapse. Continuation of attempts to control inflation by central banks will likely produce more of these “Lehman events.” World markets are not resting on a foundation of sand, but one of fiat currency. Neither is stable should a storm occur.

Central banks do not want a storm to occur, but their ability to engineer any other ending is in doubt. As stresses surface, look for them to  reverse policies. For politicians, inflation is a lesser evil than recession because it can be blamed on supply chains, shortages, greedy corporations and consumers.

This political cowardice almost certainly ensures that central banks will not stay the course. Central banks may not be bright but they are not suicidal. However, markets are too complex to be managed by bankers. Such attempts could exacerbate conditions. Even perfectly executed, they cannot make the problems disappear. The problems have been allowed to become too big to be manageable, even under perfect management.

Ms. Prins seemed to be realistic in her assessment of how this happened and what is coming. I fear she underestimates the difficulties of keeping this boiling pot contained. Clearly we do not have the best and brightest chefs on the job, and even if we did, it is improbable that they would succeed.

Banks, companies and financial markets around the world are showing stress similar to what preceded our “Lehman moment.” A recreation of such a moment is more likely today, and on a much bigger scale, than it was back in the first decade of this century. All financial systems are under greater strains, with fewer options. Economies were healthier back then than today. Central banks had more options than they do today.

There is no escape from this mess! Kicking the can no longer works when you have run out of road. This winter will be harsh and this harshness is likely not to be limited by our seasons!

Ms. Prins speaks of precious metals and other hard assets as possible protection. Realistically, when economies are devolving, protection means losing less than average. My trading portfolio is almost exclusively filled with such assets (save one traditional stock). These holdings are what Dennis Gartman refers to as things which, “if you dropped them on your foot, would hurt!” Today this portfolio produced results unlike I have seen before. The best return for the day was almost 10%! The worst returned almost 2.5%. I like the returns, but I don’t like being forced to cower in this defensive position. Nor do I appreciate what is happening to the future of the country, especially the poor and middle class. I had a lucky day! But wealth is not created under such conditions. Wealth is meant to be pursued, not defended!