My case for this scenario has developed as a result of a number of factors including Congressman Paul Kanjorski of Pennsylvania blowing the lid off the fact that there were serious runs on money market funds back in September 2008, and the fact that the government, early on, took an active hand in trying to kill this news.
After the congressman's remarks on C-span, I noticed heavy traffic at EPJ from those who were conducting web searches for terms such as, "money market run September" and "money market withdrawals September 2008". It hasn't stopped. They all end up on a post I made back in September, 2008 regarding heavy redemptions that were occurring at the time in a money market fund, Primary Reserve Fund.
It turns out mid-September 2008 was probably the start of what could have turned into a major run on ALL money market funds, and I was the only one sniffing around the subject. So anyone searching the topic now would end up inevitably at my EPJ post. The money market fund run was so severe that it caused an immediate panic reaction by the Federal Reserve, a panic mode of operation that remains in tact to this day.
Here's what I mean. Back in early 2008, the oil price was climbing out of control on the upside, as were most other prices. On January 2, 2008 oil broke above $100 per barrel. Clearly, the United States was heading toward major price inflation. And despite the fact that Federal Reserve chairman Ben Bernanke did not acknowledge the seriousness of the inflation, he acted as though he was well aware. During the summer of 2008, for all practical purposes, he stopped printing money, thus battling the inflation.
This was the situation going into mid-September 2008, with earlier problems at Bear Stearns and Lehman still on everyones mind. Then a money market fund broke a buck, i.e., they would pay less than a dollar for every dollar invested. This was how I reacted to the news in a post on September 16:
Holy Sh*t: Money Market Breaks Buck; Freezes Redemptions
To me this was big news. Given the spooked financial markets, all we needed was to spook money market holders. The next day I wrote:
News that the Reserve Primary Fund, the oldest mutual fund in the country with $64 billion under management, has broken the buck and frozen resumptions for 7 days, is not good.This was looking big to me, yet I was looking frantically for news about possible panic, but there was little about money market stories outside of specific news on the Reserve Funds. In fact, stories about money market funds were disappearing! On September 18, I posted the following:
Edges of panic are beginning to appear throughout the system. There is a flight to absolute safety. 3-month T-Bills are trading to yield 0.558% ( yield not seen since 1954!). Gold, as I write, is up over $88.50.
Things That Go PoofSomebody didn't want a negative money market fund story out, somebody who had the ability to get to the media and shutdown the story. Guess who that might be?
From my iGoogle page, I monitor a number of news feeds.
The headline below, obviously, would catch my eye. The Fed is now backstopping the mutual fund industry and, yet, corporate officials are apparently still hesitant to park money there. My inquiring mind wanted to know more. I clicked on the story. Poof, Wham, Bam, Gone.
I even googled the first sentence. No luck the only link that shows up is the dead link. I hope the reporter survived.
File under Censorship?
Corporate Treasurers Remain Wary Of Money-Market Funds - CNNMoney.com
SAN FRANCISCO -(Dow Jones)- An explicit government guarantee of money-market funds will likely put a floor under the struggling $3.4 trillion market, but corporate cash that fled it won't be tempted back until both stability and yields rise...
Even the news on heavy redemptions at Reserve Primary was being buried. I wrote, also on September 18:
The news on redemptions at Reserve Primary is certainly being kept low key. The only reference to it that I have seen was buried in the third paragraph of a Bloomberg story.So what was really going on back in September? My guess is full-fledged panic by the government. The government took many actions, including killing significant coverage of the story.
The Reserve Primary Fund lost more than 60 percent of its assets to redemptions this week, according to Bloomberg. Now that's a run on a money market fund.
Here is a rough transcript of what Congressman Kanjorski said on C-Span , recently (video here):
About...Sept 15 at roughly 11 AM The Federal Reserve noticed a tremendous draw down of money market accounts in the USA to the tune of $550 Billion dollars in a matter of an hour or two.So why do I think the government panicked at this time. During the same time period Kanjorski is telling us about , and with the reported problems at the Primary Reserve money market fund, the Federal Reserve completely reversed its monetary policy, without a word to anyone.Here is M2 nsa money supply growth on a week by week basis for the six weeks leading up to September 15:
Money was being removed electronically.
The treasury tried to help with $105 Billion.
But could not stem the tide.
It was an electronic run on the banks
The treasury intervened but had they not closed down the accounts they estimated that by 2 PM that afternoon. Within 3 hours. $5.5 Trillion would have been withdrawn and collapsed, within 24 hours, the world economy.
August 11-- $7683 billion
August 18-- $7674 billion
August 25-- $7633 billion
September 1-- $7650 billion
September 8-- $7685 billion
September 15-- $7693 billion
Notice for the entire period, money supply grew by, roughly, $10 billion.
Then the following week, the week of the problems at Reserve Money Market, all hell broke loose. Money supply climbed to $7803 billion. An increase in one week of $110 billion!! The government panicked. Bernanke panicked. And BTW this confirms Kanjorski's comment that the Treasury added $105 billion. He's not an economist, so he can be forgiven for getting the technicals wrong. It was the Fed not the Treasury that added the funds, but his story checks.
Ever since then, the Fed has been pumping money[M2 nsa] at a rate near 20% annualized. In the summer of '08, it was climbing at 1.5%.
Folks, the government is operating in full panic mode.
If Bernanke stops printing, we're back in crash mode, if he continues printing at 20% rates, it's fierce inflation. Think about it, all the crooked adults are gone from the scene.The key Goldman Sachs players, Robert Rubin and Henry Paulson are gone. News came just yesterday that Goldman Sachs President and Co-Chief Operating Officer Jon Winkelried will retire effective March 31.
They are all crawling under rocks. They know what's coming. They have left as Treasury Secretary, a kid, who can't even get a press conference right. The president, even if given the benefit of the doubt that he is sincere, was brought up on socialist propaganda. He doesn't have a clue. The stimulus package is just the insiders raiding the till while there is still money in it.
Prepare for major financial turmoil, most likely inflation like you have never seen before. Judging by Bernanke's actions, the insiders have decided to go out Butch Cassidy and the Sundance Kid style, with the money pumps blasting.
Update: As I was putting finishing touches to this story, I attended a speech given by Fed chairman Ben Bernanke at the National Press Club in Washington D.C. Much to my amazement he mentioned the September 2008 period twice. Once in his prepared remarks and once during the Q & A session.
Here is his prepared comment about the period:
Together with other government programs, our actions to stabilize the money market mutual fund industry have also shown some success, as the sharp withdrawals from funds seen in September have given way to modest inflows.Since the Congressman Kanjorski comments about the panic withdrawals, the Fed has obviously decided, given that we live in the the age of the internet, to simply go with the flow and act as though it was a known fact about heavy mutual fund withdrawals across the board. It wasn't. I was looking for such stories back in September because of the problems at Primary Reserve. They weren't there. But more important than acknowledgements of the withdrawals, is the panic it caused. It completely reversed Fed policy. The problems at Bears Stearns didn't do this. The problems at Lehman didn't do this. Not even the sub-prime mortgage crisis caused such panic. Congressman Kanjorski is right. It was an electronic run on the banks. If it had been allowed to continue, it would have resulted in trillions in withdrawals, the system would have collapsed. That's what caused Bernanke to within a matter of a couple of days completely change Fed money growth policy. The problem now is that he can't stop printing or the same threat comes back. He's trapped in a major monetary inflation spiral that will ultimately lead to a huge price inflation spiral.
Gold has been going up for a reason. My guess is the players, the Paulson's and Rubin's know what is coming and while they have "The Kid" Geithner run distraction plays, they are loading up on the yellow metal. It's the one thing that will survive the financial panic ahead. Gold won't melt in an overall financial meltdown. I hope you own some.