In regards to the economy, one of the most important pieces of legislation in almost 100 years passed a key vote in a U.S. House Committee last Friday, November 20. As documented by The Financial Panner since its inception, Ron Paul’s H.R. 1207: Federal Reserve Transparency Act of 2009 successfully passed the House Financial Services Committee today, in a 43-26 vote.

The legislation passed this vote despite significant efforts to stifle and subvert its progression. In all likelihood, it would be a good bet that those behind these efforts do not have the best interest of the general public in mind. In this way, a line in the sand is clearly drawn between upstanding versus corrupt (or just plain ignorant) congressional politicians. With blatant arrogance, the latter will void the astoundingly clear will of the people for the will of those corporations and organizations who donate the most to their congressional campaigns.

An excellent example is the alternative legislation presented by Rep. Mel Watt, a Democrat from North Carolina. Per the Huffington Post:

Rep. Mel Watt, a Democrat from North Carolina, has introduced an amendment intended as an alternative to the measure to audit the Federal Reserve introduced by Reps. Ron Paul (R-Texas) and Alan Grayson’s (D-Fla.) . But instead of increasing transparency, as the amendment claims to do, Watt’s measure would instead make the institution more opaque.

Watt pitched his amendment in a letter to colleagues circulated Tuesday. “While my amendment will certainly fall short of demands by those intent on destroying the independence (if not the existence) of the Fed, the critics of my amendment will have to concede…that my amendment will provide transparency of the Fed’s financial operations that will be completely unprecedented,” he wrote.

In fact, the critics are conceding no such thing. “The Watt Amendment, as written today, actually places new restrictions on the little authority that exists, such as it is, for independent auditing of the Fed,” Grayson said. “It keeps in place all existing restrictions and adds four more. So I don’t see why anybody would reasonably think that it creates unprecedented authority to audit the Fed.”

Ironically, Bank of America (NYSE:BAC) has its headquarters in Rep. Mel Watt’s congressional district, which is based in Charlotte, but worse, the majority of contributions to Watt’s campaign has come from corporations in the real estate, finance and insurance industry.

Watt’s largest contributors included American Express (NYSE: AXP), Wachovia, Bank of America and the American Bankers Association. Altogether the financial industry donated over $217,109 to Watt, which was over 35 percent of the overall contributions he received.

The fact that Rep. Mel Watt’s alternative legislation actually increased existing restrictions was also discussed openly during Friday’s session by Alan Grayson:

As H.R. 1207: Federal Reserve Transparency Act of 2009 now has 313 co-sponsors out of a possible 435, the bill is pretty much a lock in the House of Representatives. Now that this is clear and recently confirmed by the U.S. House Committee vote, members of the Senate are already voicing strong opposition as the peer bill to H.R. 1207, S. 604: Federal Reserve Sunshine Act of 2009 heads their way. Senator Judd Gregg, of New Hampshire no less, came out swinging:

A top Senate Republican lashed out against lawmakers of both parties for supporting legislation that would audit the Federal Reserve, accusing the bipartisan group of “political pandering” to populist anger.

Sen. Judd Gregg, the top Republican on the Senate Budget Committee, says he’s worried that politicians on Capitol Hill are sacrificing the Fed’s historic independence because the Fed has become unpopular during the economic crisis.

“This move to bring the Fed’s conduct of monetary policy under the control of Congress is a grave threat to our economy. Congress has demonstrated time and again its inability to manage the nation’s fiscal policy, illustrated by our staggering national debt in excess of $12 trillion, so how can anyone think that its involvement in monetary policy would be good for the country,” Gregg said in a statement.

The “takeover of monetary policy” line cited by Sen. Gregg is the same talking point being used by everyone who wants to maintain the secrecy of the Federal Reserve. Barney Frank, the House Financial Services Committee Chairman, who initially appeared to back H.R. 1207: Federal Reserve Transparency Act of 2009, voted against the bill when the time came because it could be perceived as influencing monetary policy, which can have inflationary pressure. What is interesting about this argument is simply that it isn’t valid. In no such way does the bill tangibly impose on the Federal Reserve’s monetary policy decisions – it only requests that full information regarding those decisions be provided after 180 days!

Remember what Bernanke said earlier this year would happen if the Federal Reserave was audited?

“My concern about the legislation, is that if the GAO, is auditing not only the operational aspects of our programs and the details of the programs but is making judgments about our policy decisions, that would effectively be a takeover of monetary policy by the congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar, and our national economic situation.”

Don’t expect the Federal Reserve to play nicely. As Alan Greenspan discusses in this interview they are used to 100% autonomy. As long as the entity exists, it will continue to be a source of market bubbles, currency devaluation, and economic malaise. It is entirely possible that when the audit comes down, the Federal Reserve will use it as an excuse to remove the economic stabilizers currently in place all at once, citing the audit as the cause. If and when this happens, don’t be fooled.

UPDATE: Audit the Federal Reserve

http://www.auditthefed.com

• H.R. 1207: Federal Reserve Transparency Act of 2009 now has 313 co-sponsors, up from 311 last week.
• S. 604: Federal Reserve Sunshine Act of 2009 now has 30 co-sponsors, flat from 30 last week.

11/24/09 Peter Schiff on CNBC’s Fast Money: Bull Market in Gold or BS?

http://www.youtube.com/watch?v=WCRSs4NonmU

Paul: Audit the Fed (11/23/09)

http://www.cnbc.com/id/15840232?video=1339737581

Auditing the Fed (11/20/09)

http://www.cnbc.com/id/15840232?video=1337276528

House panel votes to audit the Fed (11/20/09)

http://www.youtube.com/watch?v=FfzqZUFa3Lo

Congressman Burgess-Smug Weasel Tiny Tim Geithner-You Should of Never Been Hired (11/19/09)

http://www.youtube.com/watch?v=q2YgbBEt63U

Congressman Kevin Brady asks Treasury Secretary Timothy Geithner to step down (11/19/09)

http://www.youtube.com/watch?v=O2i7cxUEOXc

Fed Downplaying Weak Dollar (11/19/09)

http://www.cnbc.com/id/15840232?video=1336090735

Gold Rises to Record on Dollar Drop, Report India May Buy More (11/25/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aje39bpey_hw

• Gold climbed to the highest price ever as the dollar’s slump deepened and on a report that India may buy more bullion for its central-bank reserves.
• Gold reached a record $1,184.70 an ounce and has rallied 12 percent since Nov. 2, after India said it bought 200 metric tons from the International Monetary Fund. The country, the world’s largest gold consumer, may buy more from the IMF, the Financial Chronicle reported. The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell to a 15-month low.
• “There is a lot of central-bank buying, hedge-fund buying and gold is obviously getting to $1,200 an ounce before the end of the year,” David Lee, a trader at Heraeus Precious Metals Management in New York, said in a telephone interview.

FDIC: Number of troubled banks rises to 552 (11/24/09)

Number of problem banks on the FDIC’s list is highest since 1993

http://www.marketwatch.com/story/fdic-number-of-troubled-banks-rises-to-552-2009-11-24-10300

• The number of distressed banks in the U.S. rose to the highest level in sixteen years in the third quarter, and the insurance fund used to protect bank depositors swung to a negative balance, according to a report released by the Federal Deposit Insurance Corp. Tuesday.
• The number of troubled banks rose to 552 at the end of September from 416 at the end of June and 305 at the end of March, the FDIC said in its third-quarter report. This is the largest number of banks on its “problem list” since the end of 1993.
• The FDIC’s Deposit Insurance Fund, which is used to protect depositors, swung to an $8.2 billion loss in the third quarter, the largest drop since the savings-and-loan crisis of the 1990s. As a result of the loss, the agency was forced to dip into its contigency fund, which has dropped to $30.7 billion from $38.9 billion.

Dollar Slump Persisting as Top Analysts See No Bottom (11/23/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUFExWDBKmew&pos=2

• The most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an “extended period” away.

Wave of Debt Payments Facing US Government (11/23/09)

http://www.cnbc.com/id/34104722

• The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
• But that happy situation, aided by ultralow interest rates, may not last much longer.
• Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
• Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

IMF warns second bailout would ‘threaten democracy’ (11/23/09)

http://business.timesonline.co.uk/tol/business/economics/article6928147.ece

• The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.
• Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.
• “Most advanced economies will not accept any more [bailouts]…The political reaction will be very strong, putting some democracies at risk,” he told delegates.

Fed’s Bullard: Asset Buying Efforts Should Remain Active (11/22/09)

http://blogs.wsj.com/economics/2009/11/22/feds-bullard-asset-buying-efforts-should-remain-active/

• Federal Reserve Bank of St. Louis President James Bullard wants the Federal Reserve to continue to buy mortgage-backed securities beyond the current end-March 2010 cut-off date to give policy makers more flexibility as they seek to shepherd the economy toward recovery.
• The Fed’s $1.25 trillion mortgage bond purchase program is aimed at keeping borrowing costs low for home owners as a way to support the housing market and the broader economy. As of Nov. 19, the Fed held roughly $847 billion in mortgage-backed securities on its balance sheet. The Fed is also committed to buying $175 billion in debt issued by the government backed housing lenders Fannie Mae, Freddie Mac and Ginnie Mae. But the programs are controversial because they have led, together with other efforts to support financial markets, to a surge in the Fed’s balance sheet to $2 trillion from around $800 billion before the crisis.

$4.8 trillion – Interest on U.S. debt (11/19/09)

Unless lawmakers make big changes, the interest Americans will have to pay to keep the country running over the next decade will reach unheard of levels.

http://www.cnbc.com/id/34040009

• As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is either out of work or under-employed.
• According to the government’s broadest measure of unemployment, some 17.5 percent are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994.
• The number dwarfs the statistic most people pay attention to – the U-3 rate – which most recently showed unemployment at 10.2 percent for October, the highest it has been since June 1983.
• The difference is that what is traditionally referred to as the “unemployment rate” only measures those out of work who are still looking for jobs. Discouraged workers who have quit trying to find a job, as well as those working part-time but looking for full-time work or who are otherwise underemployed, count in the U-6 rate.

Ignore the naysayers – gold is not in a bubble (11/19/09)

http://www.moneyweek.com/investments/precious-metals-and-gems/is-gold-in-a-bubble-94711.aspx

The Fed is sending gold higher (11/18/09)

http://blogs.reuters.com/rolfe-winkler/2009/11/18/the-fed-is-sending-gold-higher/

Paulson & Co. to launch gold fund (11/18/09)

http://www.marketwatch.com/story/paulson-co-to-launch-gold-fund-2009-11-18

• Paulson & Co., the hedge-fund firm that made billions of dollars betting against subprime-mortgage securities, is starting a gold fund, tapping into investor concern about a weak U.S. dollar and inflation.
• Paulson will launch the new hedge fund on Jan. 1. It will invest in gold stocks and gold-related derivatives. John Paulson, who heads the firm, will throw in a chunk of his own money in the vehicle, according to a person familiar with the matter.
• The Wall Street Journal, which reported the launch earlier Wednesday, said that Paulson will invest $250 million in the gold fund.

Société Générale tells clients how to prepare for potential ‘global collapse’ (11/18/09)

Société Générale has advised clients to be ready for a possible “global economic collapse” over the next two years, mapping a strategy of defensive investments to avoid wealth destruction.

http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html

• In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.
• Under the French bank’s “Bear Case” scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.
• Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.
• The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. “High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt,” it said.
• Inflating debt away might be seen by some governments as a lesser of evils.
• If so, gold would go “up, and up, and up” as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.
• SocGen advises bears to sell the dollar and to “short” cyclical equities such as technology, auto, and travel to avoid being caught in the “inherent deflationary spiral”. Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.

Obama: Too much debt could fuel double-dip recession (11/18/09)

http://www.reuters.com/article/marketsNews/idUSN188108620091118

• President Barack Obama gave his sternest warning yet about the need to contain rising U.S. deficits, saying on Wednesday that if government debt were to pile up too much, it could lead to a double-dip recession.
• “It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession,” he said.

The worst is yet to come: Unemployed Americans should hunker down for more job losses (11/15/09)

http://www.nydailynews.com/opinions/2009/11/15/2009-11-15_the_worst_is_yet_to_come_unemployed_americans_should_hunker_down_for_more_job_lo.html

• Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.
• So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.
• Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.
• As a result of these terribly weak labor markets, we can expect weak recovery of consumption and economic growth; larger budget deficits; greater delinquencies in residential and commercial real estate and greater fall in home and commercial real estate prices; greater losses for banks and financial institutions on residential and commercial real estate mortgages, and in credit cards, auto loans and student loans and thus a greater rate of failures of banks; and greater protectionist pressures.
• The damage will be extensive and severe unless bold policy action is undertaken now.

Highlights from “The International Forecaster” newsletter (11/25/09)

Published and Edited by: Bob Chapman

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• Investors buy gold when there is inflation and when there is a flight to quality. They buy gold when they no longer trust currencies, due to government or central bank profligacy. Due to those and other reasons gold has broken out to new highs. It could well be that gold may never see $1,000 again. Long ago the world’s central banks set the course for a planned collapse of the world economy to implement world government and there is now no turning back. We have proof stretching back to 1965 that intervention by the Treasury and the Fed was taking place in the gold market. The illegal sale of gold on 10/19/87 was a good example of that. Then came the FOMC memos of the 1980s and 1990s to kill the perception that gold be allowed to reflect a policy of a weak dollar unbacked by gold. It is all there and probably more proof which our government and the Fed hides from us. We have to laugh at the smug who say why would the Treasury bother to rig the gold price? The point is they have and they are still doing it.
• The Fed is now forced to allow gold to trade higher and the dollar to fall lower. What else would one expect under current monetary circumstances? This policy will allow both gold and the dollar to play out to their full extent. The Fed’s job has been very difficult considering a fiscal budget deficit of $1.5 trillion not counting off budget items that take it over $2 trillion – a condition we are told that will persist for the next ten years. The solution has been the creation of ever more money and credit. There has been no cooperation. Nothing has worked together. All the problems have gone spinning off into a number of directions. There is no control on fiscal or monetary policy. What the players refuse to understand is that until the system is purged the situation is only going to get worse. There is no recovery. It is only an interlude in an ongoing depression.
• The result will be gold at $2,500 by the end of 2010, and perhaps much sooner. The buyers know what we know. Real inflation since 1980 dictates $6,700 to $7,200 gold. Even official inflation demands a $2,400 price. In both instances how much inflation will 2010 bring? We are projecting 14% real inflation and government and the Fed keep telling us inflation is 1.2%. Our figures show 6-1/8%. In addition the fundamentals show us that gold production has been in shortfall to usage by 150 or more tons for years and that situation will worsen over the next ten years. Yes, we have hit peak gold. Interest rates rises won’t come for at least a year, if ever, and 5% growth in aggregates is in the realm of wishful thinking. Less gold is currently produced annually than in 1980 and there are trillions more dollars sloshing about the world financial system, a good part of it for speculative purposes. Without changes in monetary and fiscal policies, gold and silver prices will just keep rising. The further our government, via Goldman Sacks, JPMorgan Chase, HSBC and Citigroup, short gold and silver and the shares, the greater price appreciation will be in the future as they ultimately will have to cover their shorts. We are at the confluence of big things happening. The fiscal debt overhand is so onerous that a ¾% rise in interest rates would mean the Fed would have to monetize another $150 billion and a 5% increase in interest rates would increase debt service interest by $600 billion additional dollars. Yes, gold could reach $3,000 in 2010 and 2011 could bring another doubling as a result of the Fed and government just continuing what they are doing. Will inflation reach 25% or 30% in 2011? We don’t know, but as we reflect on what the Fed has been doing we say that possibility certainly exists. Could that mean $11,000 gold? Perhaps it does, we won’t know until we get there
• Even if inflation abated in 2011 or 2012 and a deflationary depression took command, gold would still be the go to investment. That is because for 6,000 years it has been the only currency that has owed no one anything. Would you really be ready to trade it for a fiat currency? We don’t think so. All bond markets as well as stock markets would have collapsed with the exception of gold and silver shares. Just look at the 1930s and see the gains Homestake had, if you don’t think gold stocks can make fortunes during a depression. Gold and silver are the investments for all seasons as long as you have patience. The banking system may collapse. What better to use than gold and silver coins for barter. This past year we have seen lending by banks fall 16.2% y-o-y or by $600 billion. Just double that figure and you are in depression. Can you imagine what it will be like with little or no lending? Unemployment is 22.2%. Under such conditions the unemployed could be 35% or more. What do we do, let the Illuminati create another world war to cover up their machinations? The dollar is already falling and probably will eventually collapse. Could it be 1-1/2 to 2-1/2 years from now that there will be an official 2/3’s devaluation? The exchange of three old dollars for one new dollar and a 2/3’s default on all debt by all nations with one another and the revaluation and devaluation of all currencies followed by a new international trading unit made up of the top G-20 currencies weighted in an index. That is certainly plausible as the dollar ceases to be the international reserve currency.
• These events could push residential and commercial values down 75% or more from their highs. All investments except gold and silver could fall 60% to 95% as they did during the 1930s. The Fed won’t be able to cut interest rates, which will already be at zero. Demand for capital will force real rates higher and bonds lower. All issuers of consumer debt will most likely go broke, as 50% of debtors won’t be able to service their debt.
• Real nasty times are just around the corner and nothing can be done to prevent them. The system must be purged. More major layoffs are on the way, real wages will fall and taxes will rise. The Dow will settle somewhere between 1,500 and 4,200. We won’t know where until we get a lot closer. Companies have maintained the bottom line by firing people, offshoring and outsourcing and using illegal aliens. That method of cutting costs is approaching a threshold of diminishing returns. The next big wave of layoffs will be municipal in towns, cities, counties and states that no longer have the reserve to pay employees. Some states, such as Florida has no funds to pay for unemployment benefits and were it not for the stimulus plan they would have stopped issuing checks a year ago. At this rate in many states municipalities will cease to function and schools, fire and police will be disbanded. That is where this is all headed. Americans have to be told the truth about what is really going on and who and what caused it and how we can fix it.
• There is no question in our minds that the Fed will monetize and inflate until they cannot anymore. We see no end to increasing deficit spending. That first will perhaps bring about an Argentinean economy and if we do not come to terms with reality than it is Weimarization or Zimbabweization. When this happens everything will be out of control. Who knows where gold and silver will go, but everyone will want them. You had best make preparations now or you will be very sorry you didn’t. Remember, he who holds the gold makes the rules.