The government’s self-interest




1) MEDIA BLACKOUTS:  The government’s self-interest




MEDIA BLACKOUT:  The profits of the “war on drugs”


Crackdown On Drugs Profitable


Crackdown on drugs profitable
Bangor Daily News – Google News Archive - Oct 19, 1982

(AP) — The illegal drug industry, ranked just behind Exxon in sales last year, is losing millions of dollars to police that confiscate property and cash in a nationwide

Between Jan. 1, 1981. and Sept 30. 1982, US. Customs agents confiscated 699 boats, 503 cars and trucks and 271 planes worth a total of $57.5 million during drug raids in 11 Southeastern states.

About 90 percent of those seizures occurred in South Florida, Customs officials in Miami said.

Most of the seized goods nave been or will be sold at public auctions, said Kitty Pryor. a spokeswoman for the customs agency. THE PROCEEDS ARE THEN TUNNELED INTO THE U.S. GOVERNMENT’S GENERAL TREASURY.



Restraining Property Seizures


Restraining Property Seizures
Published: December 17, 1993

Property seizures can be valuable supplements to law enforcement.
By confiscating drug dealers’ houses, cars, yachts and other property, Federal agents can disable their enterprises and deprive them of ill-gotten gains. But as the Supreme Court is beginning to suspect, such seizures can be abused to raise revenues.

Explaining the need for legal safeguards for seizures and forfeitures the other day, the high court cited a 1990 Justice Department memorandum to its far-flung agents.
"We must significantly increase production to reach our budget target," the memo said. "Failure to achieve the $470 million projection would expose the Department’s forfeiture program to criticism and undermine confidence in our budget projections."

the Government has a strong economic motive to grab a person’s house for budget-balancing purposes, the courts need to be vigilant to insure fairness, the Court said. …

The decision was perhaps only a temporary victory for James Daniel Good, a small-time drug violator
whose home in Hawaii was seized four years after he pleaded guilty to a marijuana charge and served a year in prison.

In recent cases the increasingly cautious justices have
blocked the seizure of a house from an owner if she can prove she was unaware that drug money was used to buy the home. They also served notice that some seizures can be so valuable compared with the crime as to violate the Eighth Amendment’s ban on excessive fines.


Google Archive News results for "forfeiture program" drug


… Based on twelve months of covert observation from within narcotics enforcement agencies, Drug Enforcement’s Double-Edged Sword: An Assessment of Asset Forfeiture Programs described forfeiture as a "dysfunctional policy" that forces law enforcement agencies to subordinate justice to profit.

The Double-Edged Sword undercover researcher observed agencies abandon investigations of suspects they knew were trafficking large amounts of contraband simply because the case was not profitable. Agents routinely targeted low level dealers rather than big traffickers, who are better able to insulate themselves and their assets from reverse sting operations.  The report states: "EFFICIENCY IS MEASURED BY THE AMOUNT OF MONEY SEIZED RATHER THAN IMPACT ON DRUG TRAFFICKING."

… More importantly, THE NARCOTICS UNITS STUDIED PREFERRED SEIZING CASH intended for purchase of drugs supplied by the police, RATHER THAN CONFISCATING DRUGS ALREADY ON THE STREET. When asked why a search warrant would not be served on a suspect known to have resale quantities of contraband, one officer responded: 

"Because that would just give us a bunch of dope and the hassle of having to book him (the suspect). WE’VE GOT ALL THE DOPE WE NEED IN THE PROPERTY ROOM, just stick to rounding up cases with big money and stay away from warrants."  

In one case an agency instructed the researcher to observe the suspect’s daily transactions reselling a large shipment of cocaine so that officers could postpone making the bust UNTIL AFTER THE MAJORITY OF THE DRUG SHIPMENT WAS CONVERTED TO CASH. This case was only one of many in which THE GOAL WAS PROFIT RATHER THAN REDUCING THE SUPPLY OF DRUGS REACHING THE STREET. 


IMPLICATIONS:  Once you understand how the government profits from the "war on drugs", the fact that the US is helping grow 90% of the world heroin makes a lot more sense.  After all profits from forfeiture programs are proportional to amount of available drug money to be seized.  Healthy consistent profits from these forfeiture programs are therefore depended on a steady inflow of hard drugs like cocaine and heroin.


So if the US eradicated Afghanistan’s poppies and created a worldwide shortage of heroin, it would create severe budgetary problems.  Worse still, the dropping revenue at forfeiture programs would be seen as a failure on the war on drugs.


After all, the more property the government seizes, the more it is hurting drug dealers.  Wouldn’t you be outraged if you learned the government was going easy on drug pushers by seizing half as much property  as it did before?






MEDIA BLACKOUT:  How the US government benefits from dollarization


Because of its implications, this is one of the biggest and most important media blackout.

Basically, there are two ENORMOUS BENEFITS for the US when a foreign country is dollarized.  The dollarization of Iraq clearly illustrate the clearly illustrate the first way the US profits from the process.  The US sends Iraq pieces of paper in exchange for billions in oil revenue.


History Commons reports that The Federal Reserve’s cash shipments to Iraq.


April 2003: Federal Reserve Sends CPA $20 Million in Cash
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $20 million in $1, $5, and $10 bills. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. This is the first of several shipments, TOTALING SOME $12 BILLION, that will be made over the next 14 months. [US Congress, 2/6/2007 ]


December 12, 2003: Federal Reserve Sends CPA $1.5 Billion in Cash

“Brick” of $400,000 in U.S. Currency (4,000 $100 bills)
“Brick” of $400,000 in U.S. Currency (4,000 $100 bills)
[Source: Federal Reserve Bank of New York]

At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $1.5 billion in cash.  … [US Congress, 2/6/2007 ; Reuters, 2/7/2007]


June 22, 2004: Federal Reserve Sends CPA $2.4 Billion in Cash

Pallets of US Currency Arriving in Iraq
Pallets of US Currency Arriving in Iraq
[Source: US Congress. House Committee on Government Reform]

At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $2.4 billion in cash. This is the largest cash pay-out of US currency in Federal Reserve history. This shipment is quickly followed by another large shipment three days later. …


June 25, 2004: Federal Reserve Sends CPA $1.6 Billion in Cash; Last Shipment to CPA

Cash shipments to Iraq by month
Cash shipments to Iraq by month [Source: US Congress. House Committee on Government Reform] (click image to enlarge)

The US Federal Reserve sends the Coalition Provisional Authority (CPA) in Baghdad $1.6 billion on giant pallets aboard military C-130 cargo planes. This is the last of a series of several shipments that began in April 2003 (see April 2003). The money was drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. Most shipments were under $1 billion, except for this one and two others, one in December, and one just three days before (see December 12, 2003 and June 22, 2004). TOGETHER THESE SHIPMENTS AMOUNT TO $12 BILLION, SOME 363 TONS OF PALLETED CASH.

IMPLICATIONS:  The benefits to the US are the same even when dollarization is indirect.  For example, if large quantity cash flows into Latin American countries experiencing hyperinflation, the US can print money to replace that cash without causing inflation.



  The government’s incentive to lie about the dollar’s strength.

Gold Data: Lesson in Artful Dodging

Gold Data: Lesson in Artful Dodging
Wall Street Journal - Aug 1, 1967

WASHINGTON — "In this business, you have to choose between lying to people or scaring them to death.” The speaker isn’t a doctor or a nuclear bomb expert but a Johnson Administration official coping with the balance of payments problem. His choice is usually clear: Don’t let the public, or more pertinently the nervous bankers abroad who could cash in their dollars and touch off a run on the nation’s gold supply, KNOW THE TRUTH

AII the shadowy activities revolve around the persistent payments deficit—which has as foreigners acquired more dollars than they returned to the U.S. … With $29 billion of foreign owned dollars stacked up as potential claims on $13.2 billion gold stock figure, they have ample reason for what’s left as best unsaid…

Since international high finance is so subtle, … the dilemma rarely has to be resolved with the outright lie either. Instead the Administration is EVER MORE SHREWDLY GUARDING THE DOLLAR’S VALUE abroad and intelligence about it through little known techniques that range from DOUBLECOUNTING GOLD BARS to TINKERING WITH OF OTHERWISE ROUTINE GOVERNMENT SECURITIES. The result is a web of statistics that mask almost as much they display about the dollar outflow.

Some of this double counting [of gold] dates back to the 1950s when the IMF made gold investments in interest earning short-term Treasury securities. The fund can reclaim this $800 million gold whenever it wants. And 5228 million more is gold the U.S sold outright for dollars in the last year or so to smaller nations so they in turn could make their mandatory quota payments to the IMF. Swiftly before these show up in Government data, the IMF restored this gold to the Treasury as a special deposit. The purpose was clearly by both parties. Mitigation of the original sales effect on the U.S. statistics.

Only a discreet footnote following in Government statistical publications brings these double countings to light. But because they were openly announced when they were initiated, Washington officials contend they aren’t really deceptive

Happily for officials anxious to put the best face on the figures, there’s no simple standard for deciding just what is a dollar going into foreign hands and thus swelling the payments deficit. Few of them are greenbacks carried out of the country the basic measure comes from major banks reports of how foreigners checking accounts went up or down during a reporting period. These dollar deposits are considered liquid liabilities. Also counting as liquid liabilities are the dollars foreigners invest in most Treasury securities regardless of their maturity and dollars they invest in other Federal securities and bank certificates of deposit having original maturities of less than one year. But the self-imposed accounting standards that class these as liquid liabilities are sterner than those in most other nations, so Administration men argue that it’s not dishonest to bend events around them to America’s best advantage. Thus it was that, because a single day’s added maturity would make these short-term investments count as a favorable dollar inflow, a recent a 400 million debenture offer by the Federal National Mortgage Association appeared with maturity of one year and two days. If foreigners should chance to buy some it would help rather than hurt the payments position.

Privately foreign financial officials are delighted to see Walther Lederer, the Department’s chief payments economist, persistently pointing out that there’s no real advantage for the U.S. in getting foreigners to put dollars in securities that are just barely over an arbitrary line.  The Treasury is very clever but WALTHER SPOILS IT BY BEING SO HONEST one embassy aide snickers.

foreign purchases of such securities aren’t being left entirely to chance. Other governments are frequently coaxed to rechannel their dollar investments into the most statistically soothing forms. It’s partly because the Treasury can quietly arrange such investments at the last minute before a balance of payments reporting period ends of course that forecasting the deficits has become so much less attractive to private predictors. In the first 1967 quarter for instance it was largely a spate of foreign official purchases that spared the Government from having to report a deficit close to $900 million instead the figure was roughly $540 million…

It’s not all arm-twisting a State Department official insists arguing that interest rates on short-term Federal securities and bank certificates of deposit have been high enough to inspire such purchases voluntarily. Even so, the growing awareness in Washington that pressures are applied makes the topic a sensitive one.

Discreet Dissembling

The discreet dissembling is squarely in the public interest officials are convinced. TO GIVE THE WORLD A GLIMPSE AT RAW PAYMENTS DEFICIT FIGURES FOR JUST A SINGLE MONTH OR AT ONE DAY’S ACTUAL GOLD OUTFLOW THEY ARGUE COULD PROVE DISASTROUS. While U.S. authorities might take an immensely adverse number calmly knowing a big inflow is on the way, such a figure might so frighten outsiders that GREATER EXODUS OF DOLLARS WOULD RESULT.

Even a prominent private financier who helped create the Government’s dollar defenses confesses that he can’t tell anymore what our balance of payments trend is. Since he has left Washington ho says the dodges have become even more artful.  The Treasury’s credibility problem is becoming terrible…


IMPLICATIONS:  Nothing has changed.  In fact, the government’s incentive to lie is INFINITELY stronger today.







MEDIA BLACKOUT:  How the federal government itself benefits from inflation


Lawrence H. White from the Cato Institute explains the consequences of politicizing the money supply.


What must be recognized as fundamental is HOW THE FEDERAL GOVERNMENT ITSELF BENEFITS FROM INFLATION. The federal government gains from monetary expansion and accompanying rising prices in at least three ways. (1) Inflation under-anticipated by bond-holders erodes the real value of the government’s interest-bearing debt. Wealth is transferred from holders of government debt directly to the government, the largest debtor in the economy. (2) Inflation swells federal tax receipts due to "bracket creep." Income taxes are progressive with respect to nominal income, and deductions are nominally defined. Also, inflationary appreciation of business inventories is taxed as profit. The real burden of taxes increases, yet Congress is able to declare a moderating "tax cut." (3) Most importantly, expansion of the money stock itself levies a "tax" on holders of money. By issuing fresh batches of money, the federal government can obtain real resources in exchange. … [(4) inflation pushes up the value of hard assets (homes, cars, etc…) creating taxable capital gains.]

The Process of Inflation

the Fed’s open-market operations are usually tailored to support the Treasury’s funding needs ON A MONTH-TO-MONTH BASIS.

The Temptation of Easy Money

That the illusory boom comes first, and the painful readjustment period of the recession comes later, helps explain why a shortsighted monetary authority is tempted by easy money policy. The temporary dip in output and employment associated with the monetary restraint necessary to cool inflation unfortunately comes before any permanent gain. A temporary bulge in unemployment appears well before price stability and productive reintegration can be established. Past expansionary impulses continue to snake their way through the economy, pushing up prices. Restraint reveals the distortions and dislocations due to the previous inflation, and popular analysis mistakenly attributes these troubles to the restraint RATHER THAN TO THE PREVIOUS INFLATION. Since the Fed (as Mr. Dooley once said of another political body, the Supreme Court) follows the election returns, shortsightedness is just what we should expect of our monetary authority.

the Federal Reserve Board’s pursuit of inflationary policy is THE PREDICTABLE RESULT of the incentive structure surrounding them AS AN ARM OF THE FEDERAL GOVERNMENT. We cannot hope to end inflation – and with it the business cycle — until we reform our monetary institutions so that the stock of money is no longer subject to manipulation by politicians. As long as the federal government enjoys central control of the money supply, we will find money being turned to political ends. …

The bald fact about the Fed is that, like any state-sponsored central bank, it is by nature and origin a parasitic institution. Central banks typically originated as wartime inflationary finance schemes, the Bank of England being the premier example. They exist today primarily TO SERVICE GOVERNMENTS’ APPETITES FOR SPENDING.


IMPLICATIONS:  If you could print money, wouldn’t you?







MEDIA BLACKOUT:  The Treasury’s motive to bail out banks where it has billions on deposit.


Tax Revenues Glut Coffers at Treasury


Tax Revenues Glut Coffers at Treasury

Washington Post - May 2, 1998

By John M. Berry

On Wednesday Treasury had $42 billion on deposit with the Federal Reserve and $58 billion in so-called tax and loan accounts at commercial banks around the country. The total on deposit with the banks was about $15 billion more than Treasury has ever had in the past.


New York Times – December 13, 1990
By JEFF GERTH, Special to The New York Times

WASHINGTON, Dec. 12 — The Treasury Department routinely deposits in commercial banks Federal funds from personal and corporate taxes as well as operating cash. Hundreds of financial institutions act as Federal depositories through these "tax and loan accounts," which the Treasury says are "blindly" placed.

Critics Talk of Risk

The case has raised questions among legislators and financial experts about the safety of the procedures of the Government for investing public money and about its role in aiding troubled financial institutions.

These critics say the action is risky. Because the Federal money is uninsured, THE GOVERNMENT COULD BE EXPOSED TO LOSSES IF THE BANK FAILED.


The media blackout can best be seen by comparing Google Archive News results for "tax and loan" treasury and the chart of showing number of bank and S&L failures in the 1980.  Notice how the media stopped mentioning the treasury’s "tax and loan accounts" (the government’s self-interest in bailing out certain banks) right during the years where it would have been most relevant (when a large number of S&Ls and banks were failing).


IMPLICATIONS:  Since the government can’t insure its own deposits, the billions of dollars the US treasury has on deposit around the country are unprotected in the event of bank failure.  It therefore has strong financial interest in bailing out the banks where it has large deposits in order to avoid losses.


This leads to the question: when the treasury bails out a particular bank while letting others fail, is it bailing out the bank… OR ITSELFWhy doesn’t the press ever mention this exposure?





MEDIA BLACKOUT:  The government’s hate of inflation (and love of deflation).


This is really simple:

A)  Fighting the threat of inflation means highly unpopular tax hikes and agonizing budget cuts.

B)  Fighting the threat of deflation means highly popular tax cuts, all kinds of pork-barrel spending, increases in benefits, etc…


In other words, politicians HATE fighting the “war on inflation”, but LOVE fighting the “war on deflation.”


IMPLICATIONS:  Washington’s hatred of inflation extends to anything—besides their own money printing—which fuels inflation (ie: speculating against the dollar, gold buying, etc).  Similarly, Washington’s love of deflation extends to anything which puts downward pressure on prices (ie: illegal immigration, dollarization of foreign countries, etc).





MEDIA BLACKOUT:  How the government benefits from illegal immigration.


Study Says Aliens Pay Taxes But Not Reap Social Benefits


Study says aliens pay taxes but not reap social benefits
Beaver Country Times – Google News Archive – Nov 20, 1975

The nation’s estimated eight million illegal aliens contribute far more to the American taxpaying system than they reap in government social benefits, according to a Labor Department study.

The report nonetheless confirmed assumptions that
illegals depress wages in low-level jobs and cause a harmful swell of cheap labor during times of high unemployment.

Dunlop, who will discuss the alien problem with Mexican officials next week, said he was surprised that
77 PER CENT of the sampled illegal aliens paid Social Security taxes and 73 PER CENT paid federal income taxes.

“The involvement of illegals in taxpaying is much more pronounced than their use of tax-supported systems,” the report said.


Tax Day Hits Illegal Aliens, Too


Tax day hits illegal aliens, too
Free-Lance Star – Google News Archive – Apr 13, 2003
By Donnie Johnston

Every employer in this country is required to deduct and send to the government such payroll taxes as prescribed by law. NO WORKER — not even a Mexican migrant worker— IS IMMUNE.

Illegal aliens pay federal income tax, Social Security tax and Medicare tax. It doesn’t make any difference that those taxes are being withheld under a false Social Security number, they are still withheld and sent to the U.S. Treasury.

Since the workers are illegal,
they can’t file federal tax returns so THE GOVERNMENT JUST KEEPS ANY OVERPAYMENT.

What’s more,
these people will never have an opportunity to draw Social Security. So, as far as they are concerned, THAT MONEY IS JUST THROWN AWAY.

the employer has to file a Social Security match so THAT MONEY IS, in effect, A FREE GIFT TO THE GOVERNMENT, TOO.

Since Social Security benefits are taken almost directly from payroll taxes,
all these illegal aliens we keep bad-mouthing are actually helping support those now receiving Social Security checks. They tire helping pay Medicare bills, too.”

The taxing of illegal aliens doesn’t stop there, either. Every time these people buy anything from a store, they pay Virginia sales tax and when they eat at a restaurant, they pay a meals tax just like you and me.
State income taxes—none of which they will get back—are also deducted from their wages.

So what do these people get for their taxes? Well, NOT MUCH. Most Mexicans are teenagers or young men in their 20s who have no families or children in school. About the most illegal aliens get for their tax dollar is a hard time.


This column is neither in support nor in protest of illegal aliens. Rather, it is to point out that those who gripe that
these people are not contributing anything to this country DON’T KNOW WHAT THEY ARE TALKING ABOUT.

… illegal aliens pay taxes just like the rest of us.

They just don’t get refunds and qualify for few—if any—services.

Google archive news results for "illegal aliens" paying "social security" tax


IMPLICATIONS:  Illegal aliens benefit the government in three ways:


1)  They depress wages in low-level jobs, which puts downward pressure on inflation! (The government’s hated number #1 enemy.)

2)  While they depress wages, illegal aliens increase tax revenues, because illegal aliens don’t get the tax refunds an American citizen would have gotten for the same job.

3)  They cost the government next to nothing.




MEDIA BLACKOUT:  The government’s exposure to the housing market

As can be seen in the chart below, the government has developed a huge exposure to home mortgage debt.




As of 2009, the federal government guarantees or owns 8 trillion dollars of mortgage debt.

(in billions)

MBS Exposure

Fannie Mae


Freddie Mac




Ginnie Mae


Federal MBS Exposure


Since, at the end of 2009, about $11.7 trillion in mortgage debt was outstanding, the federal government now owns or guarantees 69% of all mortgages.

Federal MBS Exposure


mortgage debt outstanding


Percent of mortgage debt guaranteed or owned by federal government





The federal government has a ridiculous amount of exposure to mortgage debt.

How did the federal government owns or guarantees 70% all mortgages?

The answer is simple.  Presidential administrations (like Bush and Obama) have faced two choices with regards to their housing policies:

A)  Increase involvement in mortgage/housing markets, decreasing the immediate short term cost (but increasing long term costs).
B)  Reversing involvement in mortgage/housing markets, causing housing prices to crash and defaults to skyrocket, leading to massive taxpayer losses due to the government’s existing exposure mortgage debt.

Every administration for the last 50 years has chosen answer A.

IMPLICATIONS:  Federal involvement in housing was NEVER about “home ownership”, but always bailing about bailing out financial institutions and, more importantly, itself!  As the government’s exposure to the mortgage/housing market has grown, the incentive to prop up housing prices has only grown.

The real purpose of housing legislations can be seen as clear as day in their names:

The Emergency Home Finance Act of 1970
The Emergency Housing Act of 1975
The Emergency Housing Assistance Act of 1983
The Emergency Housing Assistance Act of 1988

Is home ownership an emergency?  No.






MEDIA BLACKOUT:  The government’s self-interest as one of the biggest seller of toxic debt



The Government is one of the biggest seller of toxic debt.  And no, I am referring not to treasury securities (which have become increasingly toxic themselves with the US’s deteriorating finances), but to the real problem assets: unsecured defaulted consumer/corporate loans. The lack of collateral to restore the debt holders makes this debt "toxic."


Lewis William Seidman, in his book Full Faith and Credit: The Great S & L Debacle and Other Washington Sagas

Explains how the government, through the Resolution Trust Corporation (RTC), held the World’s Largest Fire Sale.


The Resolution Trust Corporation:
The World’s Largest Fire Sale

The Resolution Trust Corporation (RTC) took its name from a financial term: to “resolve,” which in bankruptcy means to dispose of the firm’s assets and settle things once and for all.
Like most goals of government, this proved easier to promulgate than to perform. This resolution was unprecedented not only in the variety but the size of the assets. At its peak it would deal with about $400 BILLION WORTH OF ASSETS FROM FAILED INSTITUTIONS. About half of this historic figure was in home mortgages, and other loans, most of which were good, solid loans that yielded regular interest payments. But the other half of the S&Ls’ investments WERE THE PROBLEM. They averaged only 60 to 70 percent of their face value, and some raw land was worth only about 10 percent of the money loaned on it.

The RTC was set up by the Financial institutions Reform, Recovery and Enforcement Act (FIRREA), signed into law on August 9, 1989.

The RTC was supposed to contain, manage, and “resolve” failed savings associations that had been insured by the FSLIC before the law’s enactment. The RTC was directed to sell off the assets of the S&Ls at the maximum value it could realize in the market, and at the same time it was also directed to minimize the impact of dumping all this already dubious real estate, junk bonds, stocks, and other questionable financial paper on a glutted market. … The goals set for the RTC would be forever in conflict, but Congress went away happy…






The Los Angeles Times reports that the RTC was one of the nation’s biggest holders of junk bonds.

U.S. Gets Creative to Sell Junk Bonds

The RTC is already ONE OF THE NATION’S BIGGEST HOLDERS OF JUNK BONDS, thanks to regulatory takeovers of institutions such as Imperial Savings of San Diego and CenTrust Bank in Miami. And if it takes control of troubled Columbia Savings & Loan Assn. of Beverly Hills, as many expect, its junk portfolio WILL DOUBLE OVERNIGHT.



IMPLICATIONS:  As the largest seller of toxic assets, the government’s self-interest diverges sharply from that of the public, especially on issues like the credit ratings of toxic securities.









MEDIA BLACKOUT:  The Government’s incentive to participate in financial fraud.

Here is the chart of treasury yields from June 2009, at the time the story below was written.  Rising yields means the value of treasuries are falling.

Stewart Thomson explains THE HORROR confronting bond traders in June 2009.

THE HORROR, Bond traders are white with terror
by Stewart Thomson

I want to talk about the bond market today as it relates to gold. And take you into the very real mind of a very real bond trader. Looking at a bond and gold chart is all very interesting if you like watching ivory tower movies. I do. But movies are not the whole picture.
Experiencing the market thru the eyes of a real professional bond trader gives you a sensation of reality, in this case a most horrifying reality, that no chart can give you. I’m going to take you into the mind of a major bond trader who is a very good friend of mine.

What’s happening in bond land? The latest US govt bond auction was for $110 billion. Two years ago the average monthly bond auction total was $5 billion, $10 billion, numbers like that. The US govt finances its debt with bonds. A $2 trillion deficit means $2 trillion in new bonds needs to be issued. Approx. $200 billion a month.

I want to take you inside the mind of a primary dealer. These are the approx. 20 dealers that have contracts with the US govt to market their bonds. The way the deal works in the govt’s mind is: "You buy our bonds and sell them. You can short t-bonds going into the auction and bag a nice profit for yourself. But if you don’t sell the bonds to your clients, guess who owns them? You do! If you don’t like it, no more primary dealing for you, got it? And maybe we aren’t so keen to hand over anymore bailout money or allow fraud accounting of your OTC derivatives. So play ball, OR WE TAKE YOU OUT."

I spent two hours yesterday meeting in person with a very good friend of mine
who is retired as the largest govt bond trader in Canada for one of the primary dealers. He still manages $1.5 billion as a side gig. His minimum trade is $5 million. He looks like a pitbull and uses 4 letter words like Mr. Bernanke uses a greenback photocopier. He carefully detailed to me the horrors that began roaring thru the bond market, HORRORS THAT ARE GROWING, since the shocking $110 billion US govt bond auction was announced for this week.

The bottom line is:
THERE ISN’T ENOUGH MONEY TO SOAK UP ALL THE GOVT PAPER SCREAMING DOWN THE PIPE. The $300 billion in total that Mr. Bernanke committed to buy the bonds over multiple auctions, is a drop in the bucket. IT’S NOT ENOUGH.

There is a daily competition for money in the world’s bond markets. The US govt bond is the King Daddy of those markets.
The primary dealers will do WHATEVER IT TAKES to sell those bonds. The primary dealers also carry tremendous power against the govt. Let’s have a listen to their response to the Gman’s "it’s my way or the highway". Listen carefully. "How would you like it, Mr. Gman, if we announced that "sorry, we can’t find buyers for your triple A rated toilet paper, WE’RE GOING TO ANNOUNCE TO YOUR PUBLIC THAT YOU DEFAULTED. Let’s see how you do when we cut your credit cards up. You tell us what to do? Wrong. Go ahead, take away our primary dealerships. WE’RE ALL STANDING TOGETHER ON THIS. We give the orders, not you. Got it?"

What might those orders be? One order could be:
"Your $300 billion commitment to buy T-bonds ain’t gonna cut it. Try $3 trillion. Now get to your greenback photocopier start button and start pushing it. We’ll tell you when to stop."

While that action may be in the pipeline, as of today the ACTIONS taken in the bond market by the players are what is important. And
those actions, believe it or not, are to buy bonds. Money is starting to come out of general equities, aka the stock market, and into bonds. Money is not coming out of bonds, it’s going in. THIS IS WHAT THE CHARTISTS DON’T UNDERSTAND. Money isn’t just trickling in, it’s pouring in. But it’s not enough to meet the govt’s skyrocketing demand for money!

The bond market auction was this week. Again, I want you to FEEL what the bond traders are feeling. THEY ARE WHITE WITH TERROR. They aren’t looking at some chart in internet candyland, they know there isn’t enough money to buy all the govt bonds.

… Let me repeat:
money IS not just moving into bonds now, it is POURING in. But… THAT MONEY IS NOT ENOUGH TO SOAK UP ALL THE BONDS THE GOVT IS ISSUING.


IMPLICATIONS:  The fate of the US government and primary dealers are both linked to the continued health of the US treasury market.  The government has a MASSASSIVE self-interest for not only allowing, but participating in financial fraud with primary dealers to keep the US treasury market from collapsing.









MEDIA BLACKOUT:  How the government benefits from the “conspiracy theories” rhetoric.


Any government fraud involves more than one person and is therefore a conspiracy.


Government Fraud = Conspiracy


Any allegations of government fraud is therefore, by default, a “conspiracy theory”.


Allegations of Government Fraud = Conspiracy Theories


Today, the mainstream stream media is not willing to cover conspiracy theories, which means by extension that all allegations of fraud, even those backed by a mountain of evidence, will be ignored.


A mainstream media not willing to cover conspiracy theories = A mainstream media not willing to cover allegations of government fraud



IMPLICATIONS:  Thanks to today’s rhetoric about "conspiracy theories", the government is virtually insulated from all accountability thanks to a press and public that instinctively reject any allegation of government fraud.  So thorough is the mental roadblock against "conspiracy theories" that most people will be turned off by the mere act of questioning inconsistencies in the official stories, let alone making an accusation of fraud.



Answer:  Because there is so much government fraud:

Government Fraud Rampant, Gao Says

Government Fraud Rampant, GAO Says
Deseret News – Google News Archive – Feb 28, 1980

The head of the General Accounting Office says fraud abuse and waste totaling billions of dollars from bribery to thievery exists throughout the government, but not enough is being done to slop it.


Unsurprisingly, the amount of alleged government frauds ("conspiracy theories") corresponds with the actual level of government fraud.

Google archive news results for "government fraud"



Google archive news results for "conspiracy theories"


There will always be outlandish accusations of government fraud ("conspiracy theories"), but there will also ALWAYS BE REAL ACCUSATIONS OF GOVERNMENT FRAUD.  The job of the press is to sort out between the two which is which, RATHER THAT SIMPLY IGNORE ALL ALLEGATIONS OF GOVERNMENT FRAUD.


How can a media that is unwilling to consider ANY allegations of government fraud be considered free?







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