March 31, 2008



After the many dramatic events over the past two weeks - we're all
saved! At least that is the message being preached in the US.

The Dow is above 12,000 again. The S&P 500 is above 1300. The US
Dollar even had a global rally in the lead-up to Easter. Its nemesis,
Gold, fell nearly $US 86 in three trading days and Oil went back to
$US 100.

That General Perception Is Entirely False:

In principle, not one economic or financial issue has been solved or
even addressed. All the fundamental US problems are still there. They
have been literally papered over. The Fed cut interest rates and
slammed still more new fresh money into the US financial system to
keep it liquid. The Fed is exposing its own balance sheet to an
amazing degree, offering up $US 400 Billion in Treasuries as short
duration "swaps" in return for unmarketable toxic sludge of US
mortgage paper.

The Fed had held about $US 800 Billion in Treasury paper, paper that
it acquired by "monetising" the US Treasury's debts. This paper is at
the core of the Fed's financial holdings. It is the Fed's major
"asset". Now, by having sent $US 400 Billion out the door, the Fed has
in fact sold down its capital by half. Please note here that the Fed's
liabilities - the US Federal Reserve Notes (US Dollars) - have not
fallen in quantity.

If any private financial company had done what the Fed has done, most
people in finance would instantly recognise that its liability to
asset ratio had doubled. That alone would make holding its
liabilities, US Dollars, much more dangerous. What is certain is that
the Fed cannot repeat what it has just done. To do so would strip it
entirely of capital on its own balance sheet. If the Fed is not now
"done" - then it is done for!

General Notice To All Privateer Subscribers:

In The Privateer's judgement, this is the turning point around the
vast pivot which was the US economy. This pivot is now crumbling. The
most important centre point of the post WW II world has been undone.
After this false lull, there are tumultuous events ahead financially,
economically and geo-strategically.

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