Bundesbank Confirms German Gold Held By FED, BOE and Banque De France [goldcore] $GLD $GOLD

Germany’s Bundesbank confirmed yesterday that the German gold reserves are held overseas by the Federal Reserve, the Bank of England and the Banque de France.

There has been a lack of clarity and transparency regarding the German gold reserves, as there are with many other nations gold reserves, and this had led politicians and journalists seeking transparency.

The Bundesbank has previously resisted calls for a more transparent accounting of the German gold reserves.

Some Germans are concerned about the risk of contagion in the eurozone and the risk that the single currency could fall apart. They wish to know that the German gold reserves are secure and can be relied upon in the event of a currency crisis.

The Bundesbank said it has complete confidence in valuations and the security of its gold holdings at other central banks and said that “there is no doubt about the integrity and the reputation of these foreign central banks where the gold is held.”

Gold in USD – Daily (1 Year)

Germany’s central bank has the world’s second largest holdings of gold after the United States, about 3,400 tonnes of gold valued at nearly 140 billion euros, according to the Bundesbank.

The German parliament, the Bundestag, has been examining the accounting of German gold reserves at the Bundesbank. The parliament’s Budget Committee, one of the most powerful committees in the German parliament, had requested a critical report by the Federal Audit Office.

“The decision has been unanimous,” the paper quoted the Christian Social Union budget expert Herbert Frankenhauser. The newspaper report alleged “account cheating” regarding the German gold reserves.

According to a Bild report, the federal auditing office complained of “inadequate diligence of the accounting of the gold reserves, which are stored in some foreign countries. Repatriation of the gold reserves is encouraged.”

The Bundesbank confirmed that it, like many central banks, keeps part of its reserves in vaults at foreign central banks and said some of its gold is held at the Federal Reserve Bank of New York, the Banque de France and the Bank of England.

It declined to say how much gold in total is held overseas or how much gold is stored with the Federal Reserve, Bank of England and Banque de France.

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Guest Post: Alan Greenspan Asked For Advice, Do People Ever Learn? [Zerohedge]


Submitted on Zerohedge by James Miller of the Ludwig von Mises Institute of Canada

Alan Greenspan Asked For Advice, Do People Ever Learn?


That is the only way to express this author’s utter bewilderment that former Federal Reserve chairman Alan Greenspan is still given an outlet to speak his mind.  Actually, I am surprised Mr. Greenspan has the audacity to show his face, let alone speak, in public after the economic destruction he is responsible for.

It was because of Greenspan, of course, that the world economy is still muddling its way along with painfully high unemployment.  His decision to prop up the stock market with money printing under any and every threat of a downtick in growth, also known as the Greenspan Put, created an environment of easy credit, reckless spending, and along with the federal government’s initiatives to encourage home ownership, the foundation from which a housing bubble could emerge.

It was moral hazard bolstering on a massive scale.  Wall Street quickly learned (and the lesson sadlycontinues today) that the Federal Reserve stands ready to inflate should the Dow begin to plummet by any significant amount.  Following his departure from the chairmanship and bursting of the housing bubble, Greenspan quickly took to the press and denied any responsibility for financial crisis which was a result in due part to the crash in home prices.  In his infamous 2009 Wall Street Journaleditorial, he had the nerve to blame availability of credit which financed the run-up in home prices to a “savings glut” in Asia.  He writes:

[T]he presumptive cause of the world-wide decline in long-term rates was the tectonic shift in the early 1990s by much of the developing world from heavy emphasis on central planning to increasingly dynamic, export-led market competition. The result was a surge in growth in China and a large number of other emerging market economies that led to an excess of global intended savings relative to intended capital investment. That ex ante excess of savings propelled global long-term interest rates progressively lower between early 2000 and 2005.

Sounds convincing right?

Much of the aura of greatness attributed to Greenspan throughout his term as chairman was due in part to the purposefully overly-technical language he used when talking to reporters.

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JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking

By Simon Johnson

Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster.  But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become more like Jamie Dimon, head of JP Morgan Chase, with his legendary attention to detail and concern about quantifying the downside.

In the light of JP Morgan’s stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model.  But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed.

JP Morgan claimed to have great risk management systems – and these are widely regarded as the best on Wall Street.  But what does the “best on Wall Street” mean when bank executives and key employees have an incentive to make and misrepresent big bets – they are compensated based on return on equity, unadjusted for risk?  Bank executives get the upside and the downside falls on everyone else – this is what it means to be “too big to fail” in modern America.

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J.P. Morgan Malinvests Free Federal Reserve Money: Market Crash, Bailout & Printing Incoming

At this point, evidence is mounting that the illuminist internationalists in the financial sectors and their media-tycoon spokespersons are doing everything they can to abet an across-the-board selloff in financial markets, with attempts made by news media outlets to say markets are falling when they are steady and the most recent announcement at J.P. Morgan that they are sustaining major trading losses.

The casino gulag prison guard bank, JP Morgan, has again mismanaged their free money from the Federal Reserve. Whilst mainstream reports tout trading losses as the reason for the glut, perhaps a continuation of lavish partying or even getting it on with the boys over at Morgan Stanley with under-age prostitutes has led to, at least, some of the losses.

The bank’s shares have slumped 9.1% in the wake of their announcement of $2 billion in trading losses in just the past six weeks. The bank informed the Federal Reserve and the Financial Services Authority of Britain about the trading activities when media reports surfaced in April about a London-based trader with outsized positions, who was referred to as the “London Whale” and “Voldemort.”

J.P. Morgan has sustained battle wounds over the last year as allegations of their role in commodity manipulation have been made public and led to lawsuits.  Nevertheless, the media has made a half-hearted attempt to shield the bank by suggesting that, just like the May 6 Flash Crash, Guantanamo Bay, etc., the bank’s trading losses are the fault of a rogue trader, a bad cookie.

The company said it could face further losses, totaling $3 billion in losses in the second quarter due to market volatility.

Chief Executive Jamie Dimon spoke in a conference call of a “flawed, complex, poorly reviewed, poorly executed and poorly monitored” hedging strategy. He said that the bank remains profitable despite large losses.

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JPMorgan’s $2B Loss: ‘Stupid’ Bet, Big Fallout

By SUZANNE MCGEE, The Fiscal Times

That clanging sound you just heard was Jamie Dimon’s halo falling to the floor.

Dimon and his firm, JPMorgan Chase (JPM), seemingly couldn’t make a wrong step for years, even during the worst of the financial crisis. As other banks blew up, Dimon’s reputation was burnished and JPMorgan became the model for risk management on Wall Street. The firm, once known as the “The House of Morgan,” was dubbed “The House of Dimon” in recognition of that fact.

But that immunity came to a crashing halt yesterday, when Dimon held a conference call to reveal that the bank had taken a $2 billion trading loss in the last six weeks – and that it may end up reporting another $1 billion in losses this month as the volatile markets make closing out some of those positions very costly. The culprit? Derivatives bets using credit default swaps on a portfolio of corporate debt. “They were egregious mistakes; they were self-inflicted,” Dimon admitted during the relatively brief conference call. The trade wasn’t just complex but also “flawed” and “poorly reviewed.”

Dimon apologized profusely, particularly to analysts he had met with in recent days and whom he couldn’t inform of what was going on for legal reasons. He also took responsibility for the losses, and warned against drawing too sweeping a conclusion from it. “Just because we were stupid, doesn’t mean anyone else was.”

The problem is that apologies and humility after the fact aren’t enough. Nor is it good enough for the bank to decide that the “value-at-risk” model it once saw as the ne plus ultra of risk management isn’t adequate and announce it will be reverting to an older strategy for trying to identify excessively risky activities before they blow up in the face of the institution.

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Biderman On The Fed: “They Control The Market, We Play With Their Money” [Zerohedge]

Submitted by Tyler Durden

The pastel-wearing President of TrimTabs proffers an entirely non-perfunctory prose explaining why he believes we are now due for a stock market decline. Echoing our thoughts, Charles notes that “It’s the Federal Reserve that controls the market, it’s their money, they’re the boss, we play with their money that they print or stop printing“. Sadly true (especially for all the highly-paid economists and strategists out there), the pre-2009 drivers of equity performance (specifically new or excess savings) are no longer so; since the initial QE1 this has not been the case and providing us with a thoughtful history of equity market valuations relative to the various QE-efforts over the past few years – especially when compared to income growth and/or macro-economic data – provides just the color required to comprehend this essentially a obvious thread of reality that merely  four years ago would have been denigrated to the tin-foil-hat-wearers of the world. Real-time data says that wages and salaries are barely growing above inflation, Europe is a disaster, and the emerging nations are seeing slowing growth; without the Fed’s new money where will cash come from to drive stock prices higher?

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Krugman, Diocletian & Neofeudalism [http://azizonomics.com]

From azizonomics.com

The entire economics world is abuzz about the intriguing smackdown between Paul Krugman and Ron Paul on Bloomberg. The Guardian summarises:

  • Ron Paul said it’s pretentious for anyone to think they know what inflation should be and what the ideal level for the money supply is.
  • Paul Krugman replied that it’s not pretentious, it’s necessary. He accused Paul of living in a fantasy world, of wanting to turn back the clock 150 years. He said the advent of modern currencies and nation-states made an unmanaged economy an impracticable idea.
  • Paul accused the Fed of perpetrating “fraud,” in part by screwing with the value of the dollar, so people who save get hurt. He stopped short of calling for an immediate end to the Fed, saying that for now, competition of currencies – and banking structures – should be allowed in the US.
  • Krugman brought up Milton Friedman, who traversed the ideological spectrum to criticize the Fed for not doing enough during the Great Depression. It’s the same criticism Krugman is leveling at the Fed now. “It’s really telling that in America right now, Milton Friedman would count as being on the far left in monetary policy,” Krugman said.
  • Paul’s central point, that the Fed hurts Main Street by focusing on the welfare of Wall Street, is well taken. Krugman’s point that the Fed is needed to steer the economy and has done a better job overall than Congress, in any case, is also well taken.

I find it quite disappointing that there has not been more discussion in the media of the idea — something Ron Paul alluded to — that most of the problems we face today are extensions of the market’s failure to liquidate in 2008. Bailouts and interventionism has left the system (and many of the companies within it) a zombified wreck. Why are we talking about residual debt overhang? Most of it would have been razed in 2008 had the market been allowed to liquidate. Worse, when you bail out economic failures — and as far as I’m concerned, everyone who would have been wiped out by the shadow banking collapse is an economic failure — you obliterate the market mechanism. Should it really be any surprise that money isn’t flowing to where it’s needed?

A whole host of previously illiquid zombie banks, corporations and shadow banks are holding ontotrillions of dollars as a liquidity buffer. So instead of being used to finance useful and productive endeavours, the money is just sitting there. This is reflected in the levels of excess reserves banks are holding (presently at an all-time high), as well as the velocity of money, which is at a postwar low:

Krugman’s view that introducing more money into the economy and scaring hoarders into spending more is not guaranteed to achieve any boost in productivity.

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The Gold Megathrust [goldseek.com]


Stephan Bogner

 “One historic experience is that human nature never changes…” (Ferdinand Lips in “Gold Wars – The Batlle against Sound Money as seen from a Swiss Perspective”, page 251;Fame 2002)



Since mid-2010, the gold price consolidates sideways predominately within the boundaries of the blue-green triangle. In January 2012, the resistive blue triangle leg was broken successfully at approx. $1,700 giving the starting signal for the so-called “breakout“ reaching nearly $1,800 a few weeks later. Thereafter, a so-called “classical pullback“ occurred – typically bringing the price to the apex of the triangle, whereafter the final movement of a triangular price formation begins: the so-called “thrust“ – either a strong and longer-termed up- or downward-trend. A few days ago, a correction to the 260-day EMA at $1,620 occurred – as it was breached shortly, it must be taken into (risk-) account that another pullback may occur (currently at $1,623.90). A sell-signal à la thrust to the downside is not generated until falling below the price level of the triangle apex at approx. $1,625 and reinforced when breaching the (extension of the) blue triangle leg currently at approx. $1,590. As the price rose above the level of the apex recently, a strong buy-signal à la thrust to the upside is active. Principally, the goal of a thrust (to the upside) is to transform the resistive high of the breakout ($1,793) and the triangle ($1,923) into new support – in order for a new and longer-termed upward-trend to begin thereafter.

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How the Fed Favors The 1% [WSJ]


A major issue in this year’s presidential campaign is the growing disparity between rich and poor, the 1% versus the 99%. While the president’s solutions differ from those of his likely Republican opponent, they both ignore a principal source of this growing disparity.

The source is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price. (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm: the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students demonstrated how an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (which is all Fed Chairman Ben Bernanke seems capable of) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.



The Fed, having gone on an unprecedented credit expansion spree, has benefited the recipients who were first in line at the trough: banks (imagine borrowing for free and then buying up assets that you know the Fed is aggressively buying with you) and those favored entities and individuals deemed most creditworthy. Flush with capital, these recipients have proceeded to bid up the prices of assets and resources, while everyone else has watched their purchasing power decline.

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Peter Schiff: Ben Bernanke completely clueless!

Why Blythe Masters is Telling the Truth About Precious Metals Manipulation [silverdoctors]

As by now all of our readers are aware, JP Morgan’s Global Head of Commodities Blythe Mastersyesterday appeared on CNBC for a soft-ball interview giving Ms. Masters the opportunity to deny rumors and allegations that JP Morgan is manipulating the metals markets, particularly silver.

With a smirk on her face, Blythe informed viewers that ‘JP Morgan’s commodities business is not about betting on commodities, it is about assisting clients‘ and ‘we have offsetting positions….(manipulation) is not part of our business model.  It would be wrong and we don’t do it.

While Blythe’s statements’ have already been thoroughly dissected and ridiculed ad nauseum (The Doc included), the fact is that BLYTHE WAS NOT LYING THROUGH HER TEETH AS MANY CLAIM, SHE WAS TELLING THE TRUTH 100%. 

Here’s why:

As our friends at GATA have long alleged, it is highly likely that JP Morgan’s ‘client‘ referred to by Blythe Masters is none other than the Federal Reserve- specifically the NY Fed.

NY Fed Building

Viewed in this light, Blythe’s comments regarding gold and silver manipulation are completely honest (while obviously intentionally misleading, none-the-less they are honest at face value) as it is likely that JP Morgan is maintaining metals positions and trades per the instructions and wishes of their client, the NY Fed.

Recall the rumors in the market that a central bank gave orders to dump 1 million ounces of gold on the market in the span of 2 minutes on February 29th.  Recall that gold and silver were taken down massively and counter-intuitively last fall exactly 5 minutes prior to the Swiss Franc’s devaluation vs. the euro.   Recall that gold and silver are routinely smashed whenever the Federal Reserve Chairman is speaking publicly or the FOMC is meeting.

The Plunge Protection Team’s (NY Fed’s) Brian Sack (who was sacked this week….another story) routinely uses broker-dealers to conduct ‘open market operations’ to fund the Treasury ponzi.  i.e. the NY Fed makes agreements to handsomely reward the primary dealers for taking up treasury auctions with the full knowledge that the NY Fed will buy back the bonds at a premium in approximately a week’s time.  Would Goldman and JP Morgan be buying $1.5 trillion worth of treasuries annually at 2.5% if they had to hold them on their own books for 30 years?  Of course not!

Why should we believe that the NY Fed’s intervention in the commodities sector is any different?  Someone has to execute the trades on behalf of the NY Fed’s commodities intervention.  It makes perfect sense that JP Morgan holds their massive naked short gold and silver positions on behalf of their client, the NY Fed, and not as their own speculative bet.  

If JP Morgan held these positions on their own behalf, the CFTC would likely not be in their 4th year investigating silver manipulation.  The DOJ would be involved
, and let’s just say that Blythe would not be making charity appearances donating millions of dollars to community colleges in Colorado.

Unlike JP Morgan, the Federal reserve would have a variety of motives in suppressing the price of gold and silver, managing the metals markets with an iron fist, and ensuring the metals are smashed upon any significant macro-economic news intuitively harmful to fiat currencies.  

Gold and silver are anathema to central banksters, who make their living by sucking the value out of the population’s currency through inflation and currency devaluation.  The Federal Reserve has every motive to ensure that this process can continue unnoticed by the masses, until the wealth transfer is complete.

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The Worst of All Monetary Policies


I. Monetary Expansion Is Kept Going

In monetary analyses, the balance sheet of the commercial banking sector is typically kept separate from the balance sheet of the US Federal Reserve (Fed). However, combining the two balance sheets might be much more informative.

First, adding up the business volumes of commercial banks and the Fed provides a (much) better insight into the expansion of the monetary sector as a whole over time — especially so in times of the financial and economic “crisis.”

Second, such an aggregation reveals that in times of crisis the central bank unmistakably puts the interest of the banking industry first, with its policy aimed at “restoring the banking sector back to health.”

The expansion of the Fed’s balance sheet as from the end of 2008 onwards has not only helped prevent the banking industry from shrinking; it has kept the expansion of the monetary system going, as shown by the chart below.

Figure 1

The Fed has expanded its balance sheet through providing additional credit to the commercial-banking system and purchasing (government and mortgage) bonds from banks and nonbanks. As a result, the combined balance sheet of commercial banks and the Fed rose to a record high of close to 115 percent of GDP in Q4 2011.

Figure 2

II. The Increase in the Stock of Payments

The expansion of the aggregated balance sheet of commercial banks and the Fed has been accompanied by a rise in the stock of payments in the form of M1. It has increased by 58 percent from August 2008 to February 2012.

Within M1, demand deposits went up from $314 billion to $772 billion, a rise of 146 percent. The increase in the means of payment may be in part due to the extraordinarily low interest rates (that is, the extraordinarily low opportunity costs of money holdings).

However, it may also be due to the Fed’s purchases of bonds from so-called nonbanks (for instance, private households, pension funds, and insurance companies). Under such operations the Fed increases the means of payments directly; it is a policy of increasing money by actually circumventing bank credit expansion.

Figure 3

The marked increase in the stock of payments in recent years is an unmistakable sign of what can be called, economically speaking, inflation, a view held by the Austrian School of economics.

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The Fed’s Latest Announcement: “The Easy Money Spigot is Being Turned Off…”

By  at Gains Pains & Capital

I’ve been pounding the table for months saying that QE 3 wasn’t coming. The reason was simple: the Fed is now politically toxic and cannot engage in aggressive monetary policy without experiencing severe political backlash (this is an election year).

Well, here’s yesterday’s FOMC announcement proving me right… again. Indeed, the Fed has disappointed the “QE is coming” crowd since July 2011. We’ve had Operation Twist 2 which is just the Fed re-arranging its Treasury portfolio, we’ve had promises of extended ZIRP, and we’ve had a multitude of verbal interventions from Fed stooges like Charles Evans…


This makes 8 Fed FOMC announcements/ releases and no QE 3.

Folks, QE 3 is not coming. Not without a Crisis first. End of story. The last time the Fed hit the QE “print” (QE 2)  food prices shot to all time records and revolutions and riots exploded around the globe.

Today, gas is already at $4, food prices aren’t too far off their highs… do you REALLY think the Fed will kick off more QE in this environment… during an election year? At a time when the Fed is becoming a hot topic in the election?

If the Fed did this, Bernanke et al might as well brush up their resumes because the Fed would be dismantled. The political environment in the US absolutely will not tolerate more QE unless we get a Crisis first.

Case in point look at the IMF which is essentially a US-backed bailout fund: how many times has Europe looked to the IMF for more money? How many times has the IMF said “No”? A dozen perhaps?

On top of this, politicians and Wall Street are already looking for a scapegoat to pin the 2008 Crisis and ensuing fall-out on. Make no mistake, the fall-out from the bailouts/ corruption/ behind the scenes deals is far from over. Many folks got a “get out of jail free” card for four years… that doesn’t mean those cards don’t have expiration dates.

The markets and economy have been maintained by a very tenuous balance of policy and talk between the Fed, Wall Street, and Politicians. But as push comes to shove, and REAL litigation starts, these relationships will crumble and sacrifices will be made. The Fed knows this as do all of the connected power elite. Why do you think Goldman’s CEO hired a high profile defense attorney, Tim Geithner is trying to get out of being subpoenaed, and Bernanke is running such a massive “the Fed is great” PR campaign?

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Ben Bernanke and the Case of the Missing Jobs

by Gary North

Bernanke’s speech on March 26 began with a familiar analytical error. Specifically, he continued to give the impression that the Federal Open Market Committee (FOMC) is the cause of today’s low short-term interest rates. It isn’t. The .25% rate is the result of Federal Reserve policy, but not FOMC policy. The FED pays commercial banks .25% on excess reserves. If it did not pay an interest rate of .25%, the rate would be even lower. He always gives the impression that, without the FED’s intervention, rates would be higher.


The causes of today’s low rates are the widespread decisions of commercial bankers to hold excess reserves with the FED, which is what the FedFunds rate reflects. Banks are not borrowing overnight money from other banks in order to meet bank reserve requirements set by the FED. They do not need the money. They have plenty of excess reserves. So, because there is no rival demand for this money, banks put their money with the FED, which pays .25%. Better to earn something than nothing.


His speech focused on the rate of unemployment, as well it should. This rate is also called the “Presidential incumbent’s chance in election years.” In the post-World War II era, an unemployment rate above 7% at the time of the election is the kiss of death.

Bernanke said this: “We have seen some positive signs on the jobs front recently, including a pickup in monthly payroll gains and a notable decline in the unemployment rate.” The unemployment rate is 8.3%. “That is good news.” For Republicans, yes. Not for Obama.


Importantly, despite the recent improvement, the job market remains far from normal; for example, the number of people working and total hours worked are still significantly below pre-crisis peaks, while the unemployment rate remains well above what most economists judge to be its long-run sustainable level.


Correct on both points. “Of particular concern is the large number of people who have been unemployed for more than six months.” Also correct. Not having anything else to do, they are likely to vote in November.

He raised the question of whether this unemployment is cyclical or permanent. He defines “cyclical” as every Keynesian does, that is, incorrectly: the result of a temporary lack of aggregate demand. “Is the current high level of long-term unemployment primarily the result of cyclical factors, such as insufficient aggregate demand. . . .?”

The cause of high unemployment is not insufficient aggregate demand in general. Rather, it is the high aggregate demand to stay home and watch TV. The problem is that some of the unemployed workers refuse to work for lower (non-labor union) wages. They do not want available jobs. Other unemployed workers are no longer worth the minimum wage. They cannot find jobs. All of them are getting paid not to work by the federal government’s unemployed workers’ bailout program, called unemployment insurance, which the government keeps extending.

He also mentioned “a worsening mismatch between workers’ skills and employers’ requirements.” He did not mention the key phrase, which every economist should always use when discussing gluts: “at the prevailing market price.” Had he done so, his audience would have expected him to discuss prevailing market wages in specific labor markets. He did not want to do this. To do so would point to the causes of unemployment: government interference with wages.


If cyclical factors predominate, then policies that support a broader economic recovery should be effective in addressing long-term unemployment as well; if the causes are structural, then other policy tools will be needed. I will argue today that, while both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor. Consequently, the Federal Reserve’s accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well.


Bernanke was justifying the FED’s inflationary policies, which bankroll the Federal government, which in turn spends the newly counterfeited money to “increase aggregate demand.” This has been the Keynesian solution ever since 1936. It will be the Keynesian solution forever. The Keynesian sees unemployment in terms of insufficient aggregate demand, which means insufficiently large federal deficits and insufficiently inflationary central bank policies.

Jobs are increasing in the private sector, he said. Layoffs are moderating in the public sector. But currently, hours worked are 4% less than in 2007. The job market remains weak, he said. Private sector employment is down by 5 million jobs. But the population has increased. The unemployment rate was 3 percentage points above its average over the past 20 years. Let me put it another way. The difference between 8.3% and 5.3% is 3 percentage points. What percent of 5.3% is 3%? It is about 57%. That means that the present unemployment rate is 57% above what has been normal for 20 years. Put this way, the present unemployment rate in 2012, over three years after the recession began, is a disaster.

“Moreover, a significant portion of the improvement in the labor market has reflected a decline in layoffs rather than an increase in hiring.” In short, the job-creation process is not recovering. “Taking the difference between gross hires and separations, the net monthly change in payrolls during this period was, on average, less than 100,000 jobs per month – a small figure compared to the gross flows.”


We need more hiring, he said. Quite true. How will this come about? With more rapid economic growth. Terrific. How will this growth take place?


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That’s the only way to describe the reaction that future historians will have when they look back and study the utter perversion that is our global financial system.

We live in a time when a tiny handful of people have their fingers on a button that can conjure trillions of dollars, euro, yen, and renminbi out of thin air. In the United States, it comes down to one man. Just one.

With a single decision, he controls the lever that dominates the entire economy. When you control the money, you control everything– financial markets, consumer prices, risk perceptions, investment habits, savings rates, hiring decisions, pay raises, sovereign debt, housing starts, etc.  One man.

This irrational, arrogant system presupposes by design that a central banker is smarter than everyone else; that markets are incapable of determining appropriate risk and value; that he is more effective at allocating our time, capital, and labor than we are.

Future historians will probably also be dumbfounded when they see how long people allowed worthless, unbacked fiat paper to pass as money.  It’s extraordinary that most people today happily accept a digital abstraction of paper currency controlled by a single individual as ‘valuable’.

It was more than 5,000 years ago that primitive commodity money was used in Mesopotamia, and it’s been over 3,000 years since metal coins began circulating.  For more than 99.2% of human civilization, money actually meant something… right up until 1971 when Richard Nixon ended any remaining link between the dollar and gold.

Ever since, the US government has refused to acknowledge precious metals as money… yet if the Treasury’s financial statements are to be believed, Uncle Sam is still holding  261,498,900 troy ounces of gold. Let’s dismiss the tungsten possibilities for now and presume that it’s real gold. At today’s prices, the value would be about $437 billion.

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Under Which Conditions Will Fed Money Printing Create High Inflation?

An interesting presentation by Torsten Slok, Ph.D. – Chief International Economist, Managing Director – Deutsche Bank Securities, Inc.


It’s Official – The Fed Is Now Buying European Government Bonds [Zerohedge]

As if the ‘risk-less’ dollar-swaps the Fed has extended to any and every major central bank were not enough, William Dudley just unashamedly admitted that the Fed now holds ‘a very small amount of European Sovereign Debt’. Explaining this position, as Bloomberg notes:


Dudley, testifying to a House panel, noted that he doesn’t see more efforts by the Fed to buffer the US from Europe’s tempests and believes European banks are deleveraging in an orderly manner.

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Chinese Business Media Cautions Japanese Bond Bubble Is Ready To Burst, Anticipates 40% Yen Devaluation [Zerohedge]

Tyler Durden's picture

Submitted by Tyler Durden on 03/26/2012 14:50 -0400

It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning’s tungsten brick road. Yet in the aftermath of last month’s stunning surge in the country’s trade deficit, this, and much more may soon be finally ending. Because as Caixin’s Andy Xie writes “The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then.” As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: “Yen devaluation is likely to unfold quickly. A financial bubble doesn’t burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low.Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government’s solvency could lead to a collapse of the JGB market.” It gets worse: “Of course, the government will collapse with the JGB market.” And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world’s rapidly declining 3rd largest economy to take precautions for when this day comes… soon. Oh, and this: ” If the bond yield rises to 2 percent, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen.”

Why has Japan been able to sustain its deflationary collapse for over 3 decades? Simply – an ever rising currency.

A strong yen, deflation and rising government debt form a short-term equilibrium that lasts as long as the market believes it is sustainable. The yen has seen a relentless upward trend since it depegged from the dollar in 1971, up to 83.4 from 360 again to the dollar. When wages and asset prices rise, a strong currency can be justified. When wages and asset prices fall, a strong currency is suicide. Japan’s nominal GDP peaked in 1997 and its nominal wages did too. Its property prices have declined every year since. The Nikkei rose in only four out of the last fifteen years and is still close to a three-decade low.


Japanese policymakers, businesses, academics, currency traders and the average Mrs. Watanabe all believe in a strong yen. This belief is wrong but self-fulfilling. It has lasted so long because the Japanese government adopts policies to offset the destabilizing effects of deflation due to a strong yen. Hence, Japan’s national debt has marched upwards along with the value of yen. It is expected to top yen 1,000 trillion in 2012, 215 percent of GDP, 7.8 million yen (or roughly US$ 94,000) per person, and about half of net household wealth per capita.


The sustainability of Japan’s deflationary path depends on the market’s confidence in Japan’s debt market. As Japanese institutions and households hold almost all of the government’s debts, their faith in the government’s creditworthiness is the mojo for Japan’s seemingly harmless deflationary spiral.

There’s that. And also that it is nothing but a ponzi. In Xie’s words.

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Will Bernanke Become ‘Hurricane Ben’?

by Gary North on 

This report will deal with quantitative easing (QE). To prepare you for this report, I ask you to watch a short video. It is under 3 minutes. This video is the best thing I have seen on quantitative easing. I wish Bernanke would be this forthright, but I suppose this will never happen.

I will assume from this point on that you have seen the video. If you deal with colleagues who have been confused about what QE really means, forward it to them.

The problem with the video is this: the economics profession, the financial services industry, the financial media, and Paul Krugman have not been able intellectually to make the connection that the interviewer did. He did it effortlessly, but the professionals who are paid to explain things to the public are on the payrolls of special-interest groups that have a direct financial stake in the continuation of the present system. When men are paid very well to see things in a particular way, they become impervious to alternative explanations of causes and effects.


Bernanke became famous in 2002 because of a line in a speech that he delivered in late 2002. It was on combating price deflation. He described policies that in fact were being implemented as he spoke: Bush’s huge (in those days) Keynesian deficit and Greenspan’s monetary expansion.


In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.

The line led to his description as Helicopter Ben. There are cartoons and Photoshopped images all over the Web that use this as their theme.. He will always be known by these images. No other Federal Reserve Board chairman has achieved such poster-child status.

The problem with the helicopter image is that it does not convey the serious nature of the threat. Picturing a bearded man tossing bills out of a helicopter is amusing.

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About That $20 Trillion In Public Debt… [Zerohedge]

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Submitted by Tyler Durden on 03/23/2012 13:18 -0400

Submitted by Charles Hugh Smith of OfTwoMinds blog,

Massive Federal deficits require higher taxes; ever-expanding public debt and higher debt service sets up a death spiral once new investment is crowded out by Federal borrowing.

In only three more years you’re talking $20 trillion in public debt for the USA and a GDP going nowhere fast. And what does that look like in terms of the S&P 500? Courtesy of frequent contributor Chartist Friend from Pittsburgh, here is the SPX charted against total public debt. You’ll notice it’s crashing:

What this chart reflects is another aspect of the death spiral I described yesterday in The One Chart That Says It All: when depreciation outstrips new investment, then productivity, income and profit all decline. As interest on skyrocketing debt rises, then more income must be diverted to service debt, leaving less for new investment. That sets up a positive feedback loop, i.e. death spiral.

Here’s how rising Federal debt creates a death spiral in the economy. As Federal debt skyrockets, the cost of debt service rises, even at super-low rates of interest. That means taxes must rise, because no constituency will allow its share of the Federal budget to decline by more than a symbolic amount. Higher taxes means there will be less money available for new investment, and the enormous sums of Federal debt that have to be sold crowds out other investment.

Interest rates have been manipulated lower for a few years via the Fed buying Treasuries with freshly printed money and a perceived “flight to safety,” but eventually the Treasury will have to compete for investors’ cash, and rates will rise.

The Federal government already borrows more per year than most country’s gross national product: about $1.5 trillion a year. You can look it up here: Public Debt of the U.S. That’s roughly 10% of the U.S. GDP, added to public debt each and every year.

Public debt on March 21, 2008, four years ago, was $9.39 trillion. Today it is $15.57 trillion. The difference is $6.18 trillion. Divide by four and voila, $1.5 trillion has been added to the debt annually.

Ignoring the politicos’ shuck and jive about “balancing the budget” as tiresome political theater, let’s multiply 3 X $1.5 trillion = $4.5 trillion, and add that to $15.57 trillion: in three years, Public Debt will top $20 trillion, on the way to $30 trillion.

As I proved in Can We Please Stop Pretending the GDP Is “Growing”? (June 2, 2011), GDP in constant 2005 dollars is essentially unchanged since 2007.

In constant (2005) dollars:

GDP in 2007 (pre-recession): $13.23 trillion
GDP in 2008 (recession starts): $13.31 trillion
GDP in 2009 (recession officially ends in mid-2009): $12.88 trillion
GDP in 2010: 13.04 trillion

GDP in 2011: $13.3 trillion

In constant (2005) dollars, the economy actually shrank in the three year span of 2008-2010 and is back to 2007 levels. That’s what we bought with $6.1 trillion in additional debt and Federal spending.

Just as a refresher:

Federal revenues

2007 $2.56 trillion
2010 $2.16 trillion

Federal spending

2007 $2.72 trillion
2010 $3.72 trillion

In three years, Federal spending jumped almost exactly $1 trillion, or 36.7%.

In 2011, the Federal deficit is 11% of the nation’s GDP.

In 2011, the Federal government borrowed 42% of its expenditures.

As the recession ended in mid-2009, we’re almost three years into a “recovery.”


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Turkish Government “Goes For Gold”; Seeks To “Transfer” Private Gold Holdings Into Bank System [Zerohedge]

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Submitted by Tyler Durden on 03/22/2012 09:12 -0400

Gold may not be ‘money‘ to the Chairman, but it sure is to Turkey. The WSJ reports that “The Turkish government, facing a bloated current-account deficit that threatens to derail the country’s rapid expansion, is trying to persuade Turks to transfer their vast personal holdings of gold into the country’s banking system.” The reason: “The push to tap into the individual gold reserves—the traditional form of savings here—is part of Ankara’s efforts to reduce a finance gap that is currently about 10% of gross domestic product.” In other words, “sequester” the population’s hard assets (politely of course), and convert these to paper to fund the country’s creditors, both foreign and domestic. Mostly foreign. In other words, Southeast Europe is slowing becoming the staging ground for the 21st century equivalent of Executive Order 6102, where first Greek, and now Turkish gold, is about to be pulled from point A to point B, where point B is some top secret vault deep under London.

How will Turkey spin gold confiscation in the politest of ways? The WSJ has details:

Government officials say the banking regulator will soon publish a plan to boost incentives for consumers to park their household wealth inside the financial system. Banking executives said they are considering new interest-yielding gold-deposit accounts that would allow savers to withdraw gold bars from specially designed automated teller machines.

The moves come after the central bank in November announced that lenders could hold up to 10% of their local-currency reserves in gold, in part to tempt Turkey’s gold hoarders to deposit their jewelry, coins or bullion at banks.

Economists say the policy shift is designed to change Turks’ historic preference for storing a high percentage of personal wealth outside the banking system as a way to protect themselves against the economic volatility that has periodically hit Turkey in recent decades.

The effort is one front in a broader battle to encourage more savings while curbing the ballooning current-account deficit—a pressure point many investors fear could upend a fast-growing economy, estimated to have expanded more than 8% last year. Turkey’s current-account gap has expanded faster than expected in recent weeks amid a surge in oil prices and data showing unexpectedly high consumer demand.

We wish them luck:

For some Turks, the government will have to unveil a lot more sweeteners before they part with the family gold.

Because what may not be apparent to a Princeton Ph.D., is more than obvious to a 70 year old housewife in Istanbul:

“I’m keen to save, so keeping gold at home is easy for me; there is no complicated procedure,” said Ayten Altin, a 70-year-old housewife in Istanbul. “In an emergency, I can convert it to cash and I don’t have to wait for the bank to say the asset has matured.”


Fed Chairman Bernanke, Gold and the Gold Standard [Credit Writedowns]

By Marc Chandler


In yesterday’s lecture, Federal Reserve Chairman rejected the idea that a return to a gold standard is desirable or practical. His pointed remarks come as Republican presidential candidate Ron Paul has fanned ideas in some quarters of the benefits of the discipline of a gold standard. Previously the outgoing World Bank head Robert Zoellick had also advocated a return to a gold standard. In addition, there have been press reports suggesting that some central banks have recently stepped up their purchases of gold for monetary (reserve) purposes.

Bernanke’s objections were essentially four-fold. First, a gold standard prevents adjusting policy in response to shifting economic conditions. No matter how high unemployment rose, for example, under the strict adherence to a gold standard, monetary policy tools could not be used.

Second, by participating in a gold standard, countries would be more vulnerable to developments in other countries. It would increase the transmission mechanism, leaving countries more sensitive to developments of other participants.

Third, Bernanke cited the challenge of credibility. Participants have to convince investors that they will sacrifice all domestic goals for the sake of maintaining the gold standard. This seems hardly politically feasible under representative governments. If there is any doubt whatsoever, there would be a speculative attacks. Bernanke noted that the gold standard did not prevent frequent financial crises/panics.

Fourth, Bernanke acknowledged that a gold standard did promote price stability over the very long run. However, he noted that over the medium run, it sometimes caused periods of inflation and deflation. He cited the second half of the 19th century when a shortage of gold reduced US money supply and fueled deflation.

Bernanke warned that the gold standard often produced pro-cyclical impulses. During periods of strong growth, money supply would increase and interest rates would fall, which is exactly the opposite of modern central banking and the withdrawal of the proverbial punchbowl just as the party gets going.

Bernanke cited practical difficulties as well. Essentially he argued there is simply not enough gold.Consider that at the end of last week, the press reported that several central banks had taken advantage of the drop in price to step up their gold purchases. Some 4-6 tonnes of gold were said to have been purchased (through the BIS). The “street value” is around $250-$300 mln. This is mere pittance by nearly any metric.

After unilaterally severing the link between gold and the dollar in Aug 1971, as “friendly” countries like France and the UK insisted on exchanging their Treasuries for gold, the US retained the most monetary gold, with about 8100 tonnes. This is more than twice he second largest holder, Germany with about 3400 tonnes. As of the end of last year China had the sixth largest, if one were to include the IMF in the rankings. China’s gold holdings were a little more than 1000 tonnes (street value ~$62.5 bln). Recall China has over $3.2 trillion in reserves. If it were to double its gold holdings, would that really amount to a meaningful diversification of its reserves away from dollars?

Global currency reserves are valued at about $10.2 trillion. Central banks’ monetary gold holdings are roughly 31,000 tonnes. The value of that gold is about $2 trillion. Simple back-of-envelop calculations suggest that it would require a 4-fold increase in the price of gold in order to bring the value of monetary gold to the value of the currency reserves.

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What Are the Dangers of Too Much Debt?

Ben Bernanke Tries To Convince America That The Federal Reserve Is Good And The Gold Standard Is Bad

From http://theeconomiccollapseblog.com

Ben Bernanke has decided that he needs to teach all of us why the Federal Reserve is good for America and about why the gold standard is bad.  On Tuesday, Bernanke delivered the first of four planned lectures to a group of students at George Washington University.  But that lecture was not just for the benefit of those students.  Officials at the Fed have long planned for this lecture series to be an opportunity for Bernanke to “educate” the American people about the Federal Reserve.  The classroom was absolutely packed with reporters and just about every major news organization is running a story about this first lecture.  So the Federal Reserve is definitely getting the publicity that it was hoping for.  You can see the slides from the presentation that Bernanke gave to the students right here.  It is pretty obvious that one of the primary goals of this first lecture was to attack those that have been critical of the Fed over the past few years.  In doing so, Bernanke “stretched” the truth on more than one occasion.

The entire event was staged to make Bernanke and the Federal Reserve look as good as possible.  Prior to his arrival, the students gathered for the lecture were actually instructed to applaud Bernanke….

The 30 undergraduates at George Washington University sent up a round of applause. It was, they’d been told beforehand, “appropriate, even encouraged, to politely applaud” Tuesday’s guest lecturer.

But as noted above, this lecture was not for the benefit of those students.  AUSA Today article even admitted that “addressing the public directly” was one of the real goals of this lecture….

For Bernanke, the GW lectures serve a dual function:

They give him a chance to reprise the role of professor he played for more than two decades, first at Stanford and then at Princeton, where he eventually chaired the economics department.

And they give him a way to expand his mission of demystifying the Fed. As part of that campaign, Bernanke became the first Fed chief to hold regular news conferences and conduct town-hall meetings.

In addressing the public directly, Bernanke has also sought to neutralize attacks on the Fed, some of them from Republican presidential candidates.

So what did Bernanke actually say during the lecture?

Well, you can read all of the slides right here, but the following are some of the highlights….

On page 6 of the presentation, Bernanke makes the following claim….

“A central bank is not an ordinary commercial bank, but a government agency.”

Well, that is quite interesting considering the fact that the Federal Reserve hasargued in court that the Federal Reserve Bank of New York is not an agency of the federal government and that the various Federal Reserve banks around the country are private corporations with private funding.

So did the Federal Reserve lie to the court or is Ben Bernanke lying to us?

And what other “agency” of the federal government is owned by private banks?

It is even admitted that the individual member banks own shares of stock in the various Federal Reserve banks on the Federal Reserve website….

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

The Federal Reserve always talks about how it must be “independent” and “above politics”, but when they start getting criticized they always want to seek shelter under the wing of the federal government.

It really is disgusting.

On page 7 of the presentation, the following statement is made….

“All central banks strive for low and stable inflation; most also try to promote stable growth in output and employment.”

Well, on both counts the Federal Reserve has failed miserably


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Watch Bernanke’s ‘Little’ Inflation Capsize U.S. [Bloomberg]

By Amity Shlaes Mar 15, 2012 12:00 AM GMT+0100

A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.

Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as“subdued.”

“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

“Sudden” has happened to us before. In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden.

How did it happen? The Treasury spent like crazy on the war, creating money to pay for it, then pretended that its spending was offset by complex Liberty Bond sales and admonishments to citizens that they save more.

Country in Denial

In other words, the Woodrow Wilson administration was in denial, inflating in all but name. Commenting on one complex plan to make more money available, Representative L.T. McFadden, a Pennsylvania Republican, said, “I would suggest that if the administration believes that inflation of this character is necessary to finance the war the more direct way would be to issue the notes direct.”

Or, to return to sailing terms, the Treasury and Fed had tilted the U.S. monetary craft so far one way that it needed to lean back the other way before it could right. That leaning was the true tight money policy of subsequent years, including deflation of 10 percent and wrenching unemployment.

History has other examples. In 1945, all seemed well: Inflation was 2 percent, at least officially. Within two years that level hit 14 percent.

All appeared calm in 1972, too, before inflation jumped to 11 percent by 1974, and stayed high for the rest of the decade, diminishing the quality of life for whole cohorts. They paid thehigher interest rates needed to reduce the inflation, and got a house with one less bedroom. Or no pool.

The thing about inflation is that it accelerates. The acceleration hit storybook levels in the most sudden case of all, that of Germany in 1922. Many financial analysts thought the Weimar authorities weren’t producing enough money.

“Tight Money in German Market: Causes of the Abnormally Rapid Currency Deflation at Year-End,” read a New York Times headline. The Germans didn’t know it, but they had already turned their money into wallpaper; the next year would see hyperinflation, when inflation races ahead at more than 50 percent a month. It moved so fast that prices changed in a single hour. Yet even as it did so, the country’s financial authorities failed to see inflation. They thought they were witnessing increased demand for money.

The greater the denial before, the faster the inflation accelerates after. Author Daniel Yergintells the story of a student in Freiburg who ordered a cup of coffee in a cafe; the price was 5,000 marks. Then he had another. When the bill came, it was 14,000. “If you want to save money and you want two cups of coffee, you should order them both at the same time,” he was told.

Extreme Example

Germany in the 1920s is always the extreme example. But one form of denial then warrants comparison to the U.S. today.


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