Buying $600 Billion in Debt with Debt

By James West
November 4, 2010

Here is the glaring hole in the United States Federal Reserve’s approach to what it calls stimulus, and what history will one day categorize as fraud: You can’t use your own debt to purchase more debt when you can’t repay the original debt. The crime is compounded when you know you’re never going to repay the debt. It amounts to treason to intentionally destroy the integrity of the nation’s money. The Federal Reserve’s ability to “purchase” U.S. Treasury Bills is completely dependent on the fact that there is no overseer above the Board of Governors of the U.S. Federal Reserve to call an end to such self-destructive, immoral, and just plain criminal behaviour.

That stock markets rise in reaction to the news is no surprise: that $600 billion will find its way into the pockets of major financial institutions, and will go nowhere near the vast majority of bank accounts owned by people who are out on the street thanks to the collusion, or rather, the subjugation of the government of the United States to the Financial Service Industry. The rise will be temporary, and as this most recent mutation of the disease engulfing certain nations right now, debt addiction is going to suffocate future generations for decades.

The motivation for anointing the Federal Reserve with all the autonomy, secrecy and criminal immunity is completely understandable at this juncture of the collapse of the United States as the leader of the free world. It becomes possible to divorce the culpability of such a group from the history of the nation when such a status is enjoyed. At least, that’s the delusion under which the United States elite seem to operate, given the unilateral destruction and callous disregard for integrity of the world’s financial system emblematic of their conduct.

I feel compassion, to some degree, for the families of such master fraudsters as Ben Bernanke, Larry Summers, Robert Rubin, Timothy Geithner, Hank Paulson, and the rest of the perennial button men who surround them and aid and abet the defrauding of Americans and everybody they do business with through the offices of the Financial Services and Insurance industries. The actions of these criminals will taint the names of their families for many generations as well. The problem with crime on such a huge scale is that it destroys so many lives across generations.

The question is not whether a Republican or Democrat can lead the U.S. out of economic penury. The question is, “who will have the temerity and force of character and intellect to identify the fraud as such, incarcerate the fraudsters, and rebuild the system from the ground up?

Why, even Bill Gross, who heads the world’s largest bond fund, Pimco, has suggested that the United States government is running a ‘Ponzi’ scheme.

“Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic,” he said in his November correspondence to investors.

(A succinct definition and history of the term ‘Ponzi Scheme’ is here.)

Copper is the New Red Gold
Today’s story in Bloomberg in which various commentators gush over the current performance and future prospects of copper prices. The story kicks off with an anecdote about a high school coach who buys 250 shares of a copper ETF, and dispenses the following advice:

“It’s the right time to buy it, the right time to stockpile it and the right time to own it.”

I’m not one to take the wind out of anyone’s sails casually, and certainly no offense to Coach Markovich, but I gotta ask, what does a rugby coach know about copper markets?

It goes on to say that his investment has gained 12% so far, which might be considered a big win in blue chip circles, but in junior mining, 12% is puny. Most would consider it barely a win.

The article points out that all but two of 81 new copper mining projects due to start by 2016 have not gone ahead after the financial meltdown in 2008, and concludes that the 3.5 million tonnes of capacity thereby delayed will keep demand ahead of supply for at least another two years.

What is missing from this piece is the massive qualifier that defines copper’s number one customer, China. Sure China is gobbling up all the copper and steel and gold and tungsten and titanium right now, but how sustainable is that growth?

According to a slew of credible commentators including former Fed economist Kenneth Rogoff, hedge fund manager James Chanos, and Asian fund manager Louis-Vincent Gave, the real estate market in China is approaching saturation with vacancy rates in both Beijing and Shanghai rising. And China’s general rate of economic growth is slowing, down to 9.6% this year from 10.1% last year. Next year it is expected to slow even more to 9.1%.

China right now looks like The United States in 2007. American consumption and speculation drove oil prices to $148 a barrel, copper was just under $4 a pound, and the stock market was surging.

Unlike gold, copper is indeed forming a price bubble, with the price being driven by a higher degree of speculation than is present in the gold market. For now, consumption by the Chinese and stockpiling by speculators outpaces supply, but the peak may indeed be near.

We are not big believers in investing heavily in long term copper development projects. If the demand from China slows substantially within the next two years, the glut of supply now in feasibility and construction will easily swamp the market and send copper prices tumbling back well below $3 a pound, in our opinion.

James West is the publisher of the highly influential and widely respected Midas Letter at MidasLetter specializes in identifying emerging companies in gold and silver exploration at the beginning of their share price appreication curves, and regularly delivers 10 baggers (stocks that increase in value by at least a factor of 10) to his premium subscribers. Subscribe at

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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