**Note: We are republishing each of the 22 challenges from Catherine’s fiscal cliff article – one a week. Helps to digest them bit by bit!**
By Catherine Austin Fitts
The U.S. stock, bond and commodities markets – and therefore global markets – are all deeply dependent on cash flows and credit flowing from the federal budget and, in turn, cash flows from fraudulent and criminal activities.
Agricultural subsidies set the cash flows for all of the farm futures.
Government contracts and purchases set the income for an endless series of corporations with stock and bonds trading in those markets.
The U.S. government is the largest issuer of currency and debt in the world, with those markets organizing around its actions and those actions of the Federal Reserve which functions as its agent in these areas.
The federal credit insures directly or indirectly most U.S. mortgage credit and a significant portion of U.S. bank deposits.
The U.S. Treasury Exchange Stabilization Fund managed by the NY Fed, has broad authority to intervene in the markets backstopped by U.S. government credit.
In one sense, the capital markets have become a securitization of the U.S. federal budget. This situation is further complicated by the fact that all the major markets have become significantly dependent on interest rate derivatives to help engineer a low cost of capital across many markets.
Consequently, reengineering the federal budget means having to reengineer the capital markets and a highly unregulated, complex derivatives book of many trillions of outstanding derivatives, much of which the U.S. government appears to be financially backstopping whether through the Exchange Stabilization Fund or through bailouts.
If the ability of the interest rate swap marketing to hold down interest rates should blow up and/or interest rates rise significantly, the U.S. budget as well as budgets throughout the developed world have the potential to blow wide open in scenarios that could easily lead to a financial meltdown more serious than what we experienced in 2008 or World War III.
Thus the advocacy for continued market management by the federal government and global central banks and tight coordination between that management of markets and the management of the federal budget (this is not a complete sentence). In 2008, with the collapse of AIG, the U.S. Treasury had to confront the risk of not bailing out a company that was intimately involved in the black budget, mortgage fraud and the derivatives market.
While managed markets have served a number of strategic geopolitical goals (for example, see the excellent interviews on the Solari Report with Jim Norman on the management of the global oil price) and have advantaged large banks and corporations “in the know” (see our interviews on the Solari Report on the management of the gold price) it has been exceptionally damaging to household and small business productivity and wealth. Managed markets misallocate capital, create perverse incentives and break down trust.
Bottom line: think of a tornado of financial paper and derivatives full of collateral fraud that is sucking up all of the federal cash flows and an increasing amount of all other assets and incomes flows in a drive towards securitization to keep the ball rolling and to prevent global financial markets from imploding– and in the process destroying the fundamental conditions of real wealth.
How, exactly, does Congress address this inherent conflict between the centralization of wealth into the securitized tornado and creating the conditions of creating a healthy, decentralized economy? Derivatives dependency and blackmail are at the heart of the Congressional fiscal cliff conundrum.
