Chris Martenson

On Wednesday of last week, I wrote these words in an Alert:

Given the recent revelations that Goldman Sachs and other well-connected players in the AIG scandal got billions of dollars directly from the US taxpayers for their side-bets with AIG, I will not be at all surprised to find out in a few weeks or months that Goldman Sachs, JPM, and others were magically positioned to make a killing off of this move.

That’s just raw speculation, but it fits with the general pattern of conflicted enrichment that has stalked every move in this grand looting operation so far.

In fact, the constant drip-drip-drip of news about self-dealing by insiders with zero legal consequences for the perpetrators leaves me with the queasy feeling that every attempt at finding a legitimate resolution to this crisis will be thwarted by a crowd of Wall Street insiders who simply cannot resist an opportunity to redirect money into their own pockets. But that’s another story.

Yesterday that story got published in Rolling Stone Magazine.

Matt Taibbi, the author, deserves a standing ovation for the most outstanding explanation of how truly corrupt the situation is, and capturing the hubris and entitlement that infuse our entire power structure.

It is the best I’ve yet read on the subject. You must read it. The whole thing.

Below is an alert I sent out on Wednesday evening.  I want everyone to see what is at the forefront of my thinking right now.

I am busy writing up my next layers of thought around this development and will make that the basis of my next Martenson Report or two.  

Why?  Because this recent action by the Fed is a "game changer."

In a shocking development that I frankly hoped we’d never actually see, the Federal Reserve dropped a bombshell yesterday and announced that it is going to create an extra $1 trillion dollars out of thin air to support the spending desires of the US government and to drive down interest rates for mortgage borrowers.

Of course, this will continue to punish savers and pension plans, but those, frankly, are of no concern to the Fed.

Below I explore this outrageous turn of events. Please note that I have not had much time to digest this incredible news and that I reserve the right to add to (or amend) my thinking over the next few days.

The way that the US is planning to fund all of the bailout and stimulus activity is by borrowing the money.  As any long-time reader here knows, the rate of US savings has been less than stellar over the past 15 years or so, indicating that borrowing from foreign sources is necessary to plug the gap.

The way we keep an eye on this is by watching something called the Treasury International Capital, or "TIC," report.

What this report from the Treasury Department measures is the aggregate total of money coming into vs. heading out of the US. Money flows in and money flows out.  When it comes in, it lands in bank accounts and bond and equity purchases.  When it leaves, the various financial assets are sold and the money flows home, wherever that happens to be.  All of this is tracked.

Admittedly there are a lot of moving pieces in this measurement, but, roughly speaking, for everything to balance, the amount of money coming in needs to equal the amount of money being borrowed by the US.

If it does not, then the official deficit of the US government will compete with local needs for borrowing while the trade deficit will erode the value of the dollar.  If and when both domestic and foreign sources of lending are insufficient for the task, then we’d expect the Federal Reserve to cave in and simply print up the difference.

As I’ve been writing about in the Martenson Reports over time, including the last one, one of the next shoes to drop is going to be a pension disaster. This too will be more easily measured in trillions than billions.

I am expecting a public pension wreck based on “management” so flawed as to cross over into gross negligence or worse.

For the record, I think Obama seems a decent man and I am thrilled to have a president that can speak in complete sentences and does not have Dick Cheney as a vice president. All of these things are good and hopeful signs.

And it is good to finally see some heated debate erupt into this conversation about bailouts. It’s about time! If you are not taken aback by what is happening, you are not paying attention. A good, vigorous debate is exactly what is needed. Passions should be riled here.

There’s one thing in this discussion that I would like to set the record straight about. I have been a consistent and vocal critic of the bailout every step of the way. This spans a republican and now a democratic administration and you will not be able to detect any difference in how I approach my analysis of the policies of these adminstrations because that’s not how I work.

Folks, this is just not a partisan issue.

I don’t see this as a matter of “left vs. right”, but rather “right vs. wrong.”