Terminal Velocity “My Friend, I’ll Say It Clear” prepared the way for the proverbial Fat Lady to sing an end to the current iteration of the partisan debt fight in Washington. The final paragraph read:
“One must also look at the cool hand being played by the Obama Administration. Presumably if it believes in the 2011 rhyme, it is betting on the Fed again. The politics of the situation therefore require the framing of the Republicans as the cause of the problem; after which, as the song goes, the President will be able to state the case of which he is certain”.
Following his well-orchestrated no-show at APEC, which was framed as imperiling the Global Economy and American Influence, President Obama began singing the case of which he is certain. He is certain that he and the “Middle Class” are being held hostage by the Republicans. The emotive use of the word hostage is an interesting one that is open to many interpretations depending upon the user’s perspective and context.
It is the mission statement of Key-Signals to think what nobody else thinks about that which everyone sees. When looking through this lens, it became very clear that several cases of Stockholm syndrome were being observed.
For those readers who trust Wikipedia; this is how Stockholm syndrome is explained:
Stockholm syndrome, or capture–bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending them. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness. The FBI‘s Hostage Barricade Database System shows that roughly 27% of victims show evidence of Stockholm syndrome.
Stockholm syndrome can be seen as a form of traumatic bonding, which does not necessarily require a hostage scenario, but which describes “strong emotional ties that develop between two persons where one person intermittently harasses, beats, threatens, abuses, or intimidates the other.” One commonly used hypothesis to explain the effect of Stockholm syndrome is based on Freudian theory. It suggests that the bonding is the individual’s response to trauma in becoming a victim. Identifying with the aggressor is one way that the ego defends itself. When a victim believes the same values as the aggressor, they cease to be a threat.
Stockholm syndrome is named after the Norrmalmstorg robbery of Kreditbanken at Norrmalmstorg in Stockholm, Sweden, in which several bank employees were held hostage in a bank vault from August 23 to August 28, 1973, while their captors negotiated with police. During this standoff, the victims became emotionally attached to their captors, rejected assistance from government officials at one point, and even defended their captors after they were freed from their six-day ordeal. The term “Stockholm syndrome” was coined by the criminologist and psychiatrist Nils Bejerot, using the term in a news broadcast. It was originally defined by psychiatrist Frank Ochberg to aid the management of hostage situations.
So who are the hostage takers and who are the hostages? In the fog of political war it is hard to be certain.
Starting with the man who first used the term, it is tempting to look at the President as a hostage. Looking a little closer however, the Stockholm syndrome obscures the picture. He describes himself as a “Fiscal Conservative”, rather like Bill Clinton was. The “Fiscal Cliff”, the “Sequester” and now the “Shutdown” have had the impact of reducing Federal expenditure; something a “Fiscal Conservative” understands. A “Fiscal Conservative” would therefore easily empathize with his would-be captors from the Right. A skilled orator may even frame himself as the victim to enhance his political capital; so that ultimately his captors become his indirect policy tools.
Since we said that he “is betting on the Fed again”, we have therefore implied that the President and his team have captured it. By appearing as a hostage, the Obama Administration has framed the Fed as the rescuer; bravely repelling into the hostage scene, indiscriminately firing an indefinitely expanded balance sheet. By appearing as the rescuer, the Fed can hide the fact that it has itself been captured. When the Administration was “taken hostage” in 2011; the Fed came to the rescue with QE2. The release of the September FOMC minutes suggested that the “Taper” had been postponed in anticipation of the upcoming fiscal crisis. The captured Fed is thus trying to appear as the reluctant but necessary rescuer. Stockholm syndrome has evolved into “Washington Syndrome”; whereby the rescuer is captured by the hostage.
The ranks of the hostages have been swelled by the implication that their numbers are inclusive of the whole American “Middle Class”. This is the same “Middle Class” which originally did not want a bailout of the banks; but then became willing hostages when it appeared to them that their principal form of wealth (aka their homes) was in danger of being destroyed. The original hostage takers were therefore identified as the “Banksters”. The Obama Administration could then frame itself as a hostage of the “Banksters” also. What has since transpired is that the Administration has followed an economic policy which has rewarded the “Banksters” in a classic case of Stockholm syndrome.
There are also foreign hostages, symbolised by the chorus of global central bankers and policy makers, all demanding that the Congress get its act together. The scale of the drama and by implication the negative consequences are therefore scaled up by these foreign hostages. Allegedly, they have been captured by the “Tea Party” terrorists; but in practice they have been captured, by the Obama Administration, as willing advocates of the Administration’s case.
Attention now focuses on the latest Terrorists. Allegedly they are holding the President and the “Middle Class” hostage. What should first be noted is that they were never captured and then turned by the “Banksters” in the first place. In many ways the “Tea Party” sees itself as rescuing the Federal Government which has been turned by the “Banksters”. The actions of the “Tea Party” in practice have however aligned the interest of the captive Government and the “Banksters”. Furthermore, the “Tea Party” has then supported the Government and “Banksters” by driving the country to the edge of the financial cliff. At this cliff edge, sober minds within the Republican Party have been forced to compromise with their nemesis in the Oval Office. The sober minds within the Republican Party have therefore been captured by the “Banksters” and the Government in the eyes of the “Tea Party”. The sober minds may see themselves as having been freed by the Government from capture by the “Tea Party”.
The reader should be clear that the word hostage is relative to the orator’s context. This context may be totally different from that of the observer. This hostage drama serves to illustrate the axiom of one of the world’s greatest bankers, who opined “give me control of a nation’s currency and I care not who makes the laws”. Leading up to the Crash of 2008, control of the nation’s currency was in the hands of the “Banksters”; who literally had an oligopoly on the creation of currency in the form of credit. After the Crash of 2008, this currency was devalued and had to be backed by the creation of Reserves by the Federal Reserve. The nation’s currency is therefore now being created by the Federal Reserve. Thus far this creation of currency is temporary, because the Fed allegedly intends to “Taper” and then withdraw it. As yet, the banks have not been willing to reclaim their oligopoly role as credit money creators. This means that, if the Fed ever does exit, a collapse in the credit supply and economic depression will follow. When one understands how weak the recovery has been so far, it is not hard not to imagine what it will be like when the Fed exits. The Fed therefore can’t leave until either the banks step back into the breach or some other money creating agency intervenes. The Obama Administration is currently in the process of gaining control of the Federal Reserve; so that it is forced to never leave until it has permanently created new currency in the accounts of selected individuals at the banks.
In this case, the observed Stockholm syndrome is an enigma, inside of which is a mystery that wraps a riddle. Nobody is whom they say they are; and nobody understands who is in control. They are all controlled by the riddle that the creation of money requires the creation of a debt to bring it into existence. Money is backed by debt in what economic orthodoxy has classified as an “Asset Based Economy”. This is an oxymoron; and the “Asset Based Economy” periodically becomes a “Liability Based Economy” when faith is lost in said “Assets”. In a recession private debt is not trusted, so the money backed by it has no value. The Fed therefore has to back this private debt with Reserves. To create these Reserves, the Treasury needs to issue debt. This was QE1. When the Federal Budget shrinks the scope to create more Treasury debt is reduced. The Fed therefore has no ability to create more Reserves with Treasury debt; so it then starts using private assets, such as Mortgage Backed Assets (MBAs), for the same purpose. This was QE2. If the banks are not however creating more of these private assets, the Fed runs into problems again. The Fed must then buy existing assets, which inflates the value of them; as has been observed in the asset bubbles in credit instruments since the alleged economic recovery began. If the economy is not growing, it is not creating new debt instruments; so that the Fed is simply creating inflation in existing asset prices. This is the experience with what has been called QE3 and the “Twist”. In the absence of economic growth, there is also no private sector money to pay the interest and principle on the private debt that the Fed owns. The Fed therefore has another problem, in that in order to get a return of interest and principle on the private debt it owns there must be a creation of private sector credit. So far the banks are not creating the private credit, so the Fed is being forced to do so. It is this creation of private credit that we see as the permanent increase in the money supply using “Helicopter Money”. In this instance, the Treasury creates a unit of Treasury debt in the account US citizens at private sector banks. This action is accompanied by the announcement of a permanent commitment to increase this money supply. So far we have had the garbled speech, known as “Guidance”; by which the Fed’s many lips try to form the words permanent. Thus far, the many lips have developed speech defects; and some have even mouthed the antithesis of permanent. The net result has been the audible word “Taper”; which is neither tightening nor easing, but something in between.
In the “Helicopter” policy, the citizens’ private debt is underwritten by the US Treasury. What the selected private citizen, whose account is underwritten, does not understand is that he and she has just become a prisoner of more debt. The account is a debit with the Treasury and a credit from the Fed. The private citizen does not see the debit, because it is obscured by the Treasury guarantee; he or she does however see the credit. They believe that the Treasury has given them a freebie, at the expense of another taxpayer, by underwriting their debts. The Treasury has not literally created more debt by issuing more bonds; so it has not broken any debt limits. All it has done is to create some future potential liability in relation to the guarantee; which may or may not get called. If it does get called, then it is taken back onto the balance sheet of the Treasury at this future date. The Fed however creates the unit of credit from day one; which is as good as cash for the private citizen. This is a crude form of off-balance sheet leverage; following a business model tried, tested and broken by Fannie Mae and Freddie Mac. At breaking point, the unrealised liability was realised onto the Treasury’s balance sheet. The plan for the GSE’s has evolved a new business model, which follows this leveraged theme. In the future, the GSE’s will provide the guarantee and the private sector will allegedly provide the loans. A Federal guarantee has zero cost of capital to the Taxpayer, until the Federal Government is forced to apply it in practice by taking custody of the assets. Once it has custody of the assets, it then modifies them and passes them onto the Federal Reserve.
When we explained this situation to our readers, they strongly disagreed that it was possible; until we showed them the “Acronyms” known as HARP, HAMP and HOPE in our “Housing Smoke and Mirrors” series. (They then became totally convinced when we showed them the UK Government’s version of this policy named “Help to Buy”). These “Acronyms” effectively (Federally) underwrite private housing financial obligations, which can then find their way onto the Fed’s balance sheet. These “Acronyms” are being applied to existing legacy housing debts as well as new ones. We would therefore say that this confirms that the Fed has been captured and turned in practical terms. The expansion of new Federal “Acronyms” to other private debt obligations in relation to hypothecated cash flows, from “Obamacare” to Student Loans, is a pipeline for the creation of trillions of Dollars’ worth of new currency. It is also a pipeline by which the “Banksters” can shift the liability and risk to the Taxpayer; whilst simultaneously earning fees and complying with new regulations on risk taking and capital adequacy. All that is required is political theatre of the absurd; with market volatility and unwitting characters willing to be taken hostage and turned by the riddle.
We therefore conclude that the “Helicopter” has already landed in stealth mode (in Britain and America) and that the rescue party is currently hiding in plain sight behind “Acronyms”. This thesis will be confirmed by the increase in the size of Federal off-balance sheet guarantees (“Acronyms”) at the same time that Federal on-balance sheet liabilities contract. For “Fiscal Conservatism” read kicking the can down the road.