Thursday, May 19, 2016


As we explain in our book Splitting Pennies - the world is not as we think!  Every day, our money is worth less and less, and markets become more cumbersome, regulated, and overall disfunctional (except for an elite group of billionaires that can front run orders due to advanced computer-aided execution because of 'order types').  We explained in an article about America's Big Red Forex Button, now we need to elaborate on the 'nuclear option' - considering that leading generals are saying more and more that war with Russia is 'plausible'if not 'likely'.  Military politics in today's world is a complicated mix of government politics, geopoliti#mce_temp_url#cs, and traditional statecraft.  It's based on REAL geopolitics, meaning - not what you see on TV, but what goes in to build an energy pipeline, such as has been launched in Southern Europe.  This same politics is what goes into Forex.  Forex is a private market, the participants are 90% private banks, and it's not regulated.  There's no exchange.  It's literally - a globalist capitialist free for all.  The rules are determined by the participants.  It's all privatized - no government intervention.  HOWEVER.  The big linchpin is that FOREX markets operate at the licensure of the US Government.  The Fed, is a private bank.  But - the Federal Reserve Act was enacted by Congress, creating the Fed.  All these conspiracy nuts talking about the Fed is private blah blah blah 13 families, they missed the boat.  These people cherry pick facts that suit their pre determined beliefs, whatever they may be (The planet is run by Lizards - my personal favorite).  The point here, the Fed is the most powerful institution in the world, arguably.  Because of their powers, not their connections, not their clients, not their skills.  The Fed can tommorrow, set the benchmark rate to 10%, the world would explode - contracts would default, loans called in, companies bankrupt, the US Dollar would rise by huge a amount - it would be an 8.0 earthquake on the economic Richter scale.  And it's not so far fetched, after all, Paul Volcker did it.  They can do it - and they can do even more.  The Fed can do things, that could literally put an end to the economic system on the planet.  They have all these powers, both legally and physically (meaning that, if the Fed acts electronically - it has the systems to do it, regardless of the legality).
But - the Fed derives its powers from the US Government.
The Fed isn't a GSE, it's in a unique situation.  To use the Military analogy, the CIA outsources an untold number of it's functions, sometimes reported as high as 70% - 80%:
Among the many revelations in the Senate Intelligence Committee’s investigation into the use of torture by the CIA is this crucial detail: The CIA delegated much of its “enhanced interrogation” to others.The report discloses that in 2008, 85 percent of the workforce in the CIA’s Rendition, Detention and Interrogation Group was made up of contractors. Former FBI special agent Ali Soufan, who was at the center of the Sept. 11 investigations, told FRONTLINE that he believes that the CIA’s most troubling interrogation practices can be traced to the agency’s decision to hand over key responsibilities to these outsiders.“They hired people from outside,” said Soufan, who testified to Congress in 2009 about what he saw as the many flaws in the CIA’s procedures. “We hire the best and the brightest to work for the government, and then we outsourced to people who we have no clue who they are.”
This is, in fact, how government works.  The US Government has become the world's largest business enterprise.  Defense was once a need - now it's a business.  Every aspect of life from healthcare to managing your retirement has been commoditized and securitized for your consuming pleasure.
The ones who hold the big stick, it's really the US Government, not the Fed, not the banks.  Because they have the ultimate power - the power to bomb.  Don't take it lightly, and don't misunderstand.  The fact that DC enjoys this power is not a critique or some kind of implication that "America is Evil" or some such nonsense.  Simply that, in REAL geopolitical terms, this is the reality of the world's economy since World War 2.  All other explanations, like "Gunboat Diplomacy" are good metaphors, but the real power is derived from a small suitcase that POTUS carries that can eliminate a continent or the entire planet Earth.  
Is the Petro Dollar system coming to an end?  Yes, but it will be replaced by a new system - the NUCLEAR DOLLAR.  This is why one reason that the only real threat to the USD as a global reserve currency is Russia - not the EU, Africa, or Asia.  But as George Friedman explains in his latest book, the power which controls the trade routes in the Atlantic and Pacific, controls the world.  The United States is uniquely positioned on both coasts, with natural geologic advantages.  This, combined with the largest economy in the world, and Nukes, means that for the forseeable future, the United States will remain the world's superpower.  This article is a must read for any Forex trader, would-be analyst, or conspiracy nut: 
The other part of the world that could produce a rival to the United States is Eurasia. Eurasia is a region of extremely varied geography, and it is the most likely birthplace of an American competitor that would be continental in scope. Geography, however, makes it extremely difficult for such a power (or a coalition of such powers) to arise. In fact, the southern sub-regions of Eurasia cannot contribute to such formation. The Ganges River Basin is the most agriculturally productive in the world, but the Ganges is not navigable. The combination of fertile lands and non-navigable waterways makes the region crushingly overpopulated and poor.
Things like Oil pipelines, can change this.  It's why the politics is so complicated, and why the US has such an aggressive foreign policy promoting the use of US-involved contractors, or US-ally client states.
So while the Fed is a private institution, and Forex is run by private banks (for profit corporations) - it does so because governments authorize them to do so.  States provide banking charters.  States can take away banking charters.  If the US Government wanted to, it could mint its own money, create its own currency, and be its own banker.  Many economists and leading analysts have suggested this as sound monetary policy.  But to understand the FOREX system we have today, and how the Fed operates, one must understand government thinking, as explained in our previous article:
The government approaches work in an entirely different way than in private enterprise. - the world's first billion dollar website, is another great example.  Now imagine the task the Department of Defense is given; protect America from external threats.  Their first step, to identify threats.  In the military, this is done by agencies such as the CIA and the NRO.  Actually if the CIA operated according to its public mission, it would be an analyst agency not much different than those seen on Wall St. - providing information to their DOD bosses who act on it.  Since 911, the potential for financial terrorism has been considered a national security issue.  It's in the laws, it's in the regulations, it's serious.  What if the Saudis flood the market with US Dollars?  What if the Chinese dump treasuries crashing the US Dollar?  What if hackers take control of the NYSE and flood the market with sell orders, causing a crash?  These are all extremely improbably events, so rare there is a higher chance of a giant meteor striking Manhatten this year.  The probability is so low it's difficult to calculate.  But just like the false threat of Russian's launching nukes, billions of dollars have been spent building a Big Red Button to press in case it happens.  It's because government workers have one thing in mind; protect themselves.  Avoid a potential disaster.  The last thing any government worker wants is to be in charge of security on a day like 911, even if the threat is financial.  Although the debate rages about TARP and government actions during the weekend of the Bear Stearns collapse - the financial system was saved.  They pressed the button.  But this wasn't the Forex button.
The Fed is a method of outsourcing.  Government doesn't really DO anything, except collect taxes, make laws, and delegate powers.  Things like USPS and are anomalies.  
The US Government maintains the ultimate currency Nuclear option:  Destroy the US Dollar.  The power to destroy, is real power.  They can do it - just like they can create a new currency.  If you think this is irrational or impractical, see hundreds of references where they've done this in the past 100 years, including but not limited to issuing Military Payment Certificates (MPCs) during times of war, and has been often accused of counterfeiting US Dollars.  There's no better 'slush fund' to finance a 'black budget' than REAL currency printed off the books, that no one knows exists.  And why not, it doesn't cost much to print, and as an 'anonymous' Congressman admits in a recent release, they're just a sinkhole of leeches:
More details are being released about the anonymous expose of Washington D.C. corruption and largesse that confirms why Americans hate their national government and have rallied to anti-establishment presidential candidates like Donald TrumpAs NYPost reports, the 65-page manifesto called 'The Confessions of Congressman X' is based on years of transcribed private discussions, which the congressman last November gave editor Robert Atkinson, says more time is spent fundraising than reading bills and calls Washington a "sinkhole of leeches," where money 'corrupts' and House members are "puppets" to lobbyists who bankroll their campaigns.
Recapping the FOREX NUCLEAR OPTIONS that USA has:
  • USA can revoke the powers of the Fed, and create their own government run central bank
  • USA can make null and void, use of the US Dollar as "Legal Tender" - to be replaced by a new currency, something electronically, centrally controlled
  • USA can freeze all incoming and outgoing Foreign Currency transactions (which are processed by the Fed)
This is all possible, and much more.  These are operating powers.  Does it imply that anything like this will ever happen?  Probably not.  But investors should understand the reason WHY NOT.  Because if someone is holding a gun to your head while you work, it's not likely that you're going to throw stones at him.  The French tried that, and Nixon pressed the button.  And finally, they didn't get their Gold that they wanted.  They just got more worthless US Dollars.