International Forecaster Weekly

Inflation And Debt Met With Even Worse Policy Decisions

Xmas season in trouble, weak dollar and inflation predicted in 2011, big changes when Americans realize most states are broke, Stock market overpriced, T-bills and metals will rise, pensions to be raided, Fed wont be able to prevent inflation.

Bob Chapman | December 15, 2010

The experts’ keep telling us how great shopping is this Christmas Season when only 17% of shoppers are using credit cards. That is a drop of 50% from last year, and the lowest usage in 27 years. We guess buyers have unloaded the cookie jar and pulled their savings from under the mattress. The consumer sentiment index has risen 2.6, but we will wait to see if attitudes turn into sales. Home buying intentions continue to fall as interest rates hit 4.66% for a 30-year fixed mortgage this past week, putting a further damper on future sales.

By many yardsticks it looks like the stock market is topping out again. If for no other negative fundamental or technical reason then the fact that all strategists are bullish. GS believes profits will rise 25%. We don’t, we see GDP growth at 2% in 2011 including a tax compromise and a net of $800 billion and the Feds addition of $1.7 trillion. This is what happened in the last stimulus effort. Besides from our point of view shares are already overpriced. The market will be helped by a relatively stable dollar due to the turmoil in Europe and Japan. As the year moves on we see an eventual weaker dollar in spite of sovereign credit problems in Europe reflected in the euro. As 2011 wears on the developing world will have inflation problems caused in part by imported dollar inflation. During the course of the year barriers will be erected as they have been in Brazil.

The Fed will continue to monetize, as the deflationary undertow remains strong. Money velocity will rise, as will inflation and the prices of gold and silver. In spite of dollar strength on a relative basis the struggle between the dollar and gold for mastery will be ongoing as the dollar loses the pitched battle versus gold for monetary supremacy. Underlying deflation will be aided by ever falling prices in residential and commercial real estate. Household de-leveraging will continue at a moderate pace as it has for the past 2-1/2 years. Personal savings are back down to 4%, a reflection of debt pay down.

If you were curious as to one of the reasons the market has held up, just go to what corporations have been doing with revenues, bond issuance and loans. They have bought back more than $368 billion of equity, but internally-generated funds are falling rapidly.

We don’t as yet see a double dip recession, but on the other hand wait until the public realizes that for another $2.5 trillion we are going to buy time and move sideways again. That was also the cost of QE1. The risks are again being papered over.

Wait until Americans realize that most states in the US are broke and radical changes are immediately ahead at these levels never mind what the federal government has to eventually cut. If it is any consolation, Europe is in the same fix. Is it any surprise then that nations want to commandeer pensions, as Argentina, Hungry and France have already done. Fifty percent of Americans feel they are worse off now then they were two years ago. Wait until 2012 ends, they’ll wish they were living on another planet. By that time we should be involved in another major war. Maybe in Korea. That means they will be more concerned about dying than they will be about economic and financial issues. The elitists’ hope is that war will lead to forced world government. Two-thirds of Americans believe their nation is headed in the wrong direction and they are right. Their consensus and that of professions regarding tax cuts are correct. They do not favor full extension of tax cuts, but they know if they are terminated the economy will fall. That would take down most of the financial institutions and much of business and industry. The big question is when will they ever be prepared to face the music? Never we suppose, but it has to come anyway, even if by WWIII. Read history, it is all there. This has happened over and over again. Even if continued GDP growth will be only 2% for 2011, down from 3% in 2010. Unemployment via U3 is 9.8%. The best that could possibly be hoped for is 9.5%. The funds that are being spent under the tax package are for banking, Wall Street and corporate America, not for the Americans on main street. That would put U6 at 16-5/8% and real unemployment at 22-1/4%. Passage of a tax package will insure that government won’t drag the economy down between now and 9/30/11, the end of the fiscal year.

The stock market is overpriced and due for correction. The bond market is in the process of a correction. How far it will go remains to be seen. Commodities and gold and silver are in their respective bull markets. Some contend they have overreached. Commodities began their bull market in 1999 and gold and silver in 2000. Commodities are still a long way from their highs of 2-1/2 years ago. There is no way anyone who understands market history can say gold and silver are over priced, when one considers the price suppression by the “President’s Working Group on Financial Markets” for the past 22 years. Official inflation would have gold at $2,400 based on figures from January of 1980, when gold was $850. Real inflation shows gold should be trading at $7,700. Gold and silver are climbing a wall of worry and that won’t end for a long time.

It looks like the US 10-year Treasury note is headed to 4% whether the Fed likes it or not, and it could go to 5%. That will be tough on real estate and business in general. Gold and silver will continue to rise as rates rise. Even when we reach a higher plateau they both will continue to rise. Higher inflation will help, but the real reasons for continued higher prices will be the unwinding of years of suppression, but more importantly, that gold is again the real world reserve currency. The official position of government and Wall Street is that inflation is 1.2%. They can tell that to Giant ticket holders that can pay $380 to watch a football game, as the average American watches his economic and financial world collapse. As an afterthought, the 30-year T-bond, which is finally again being used as a benchmark, could go to 6%. That could cause unexpected austerity because the rise let’s say over the next six months to a year would come from a far lower economic base than say in 2000. That makes a 4% to 5% 10-year T-note yield or a 6% 30-year yield, events that could stagger the economy even further. Those higher rates alone could easily neutralize the positive affects, if you view it in the light of government and Fed stimulus of $2.5 trillion. Those rates, if they materialize, could have a killer affect on the economy. Those events would strengthen the positions of gold and silver as the only real money, as the US dollar and all other currencies fall against gold and silver. This is why Wall Street, professionals and the public investor have not figured out what is going on. They haven’t a clue about monetary, fiscal, economic, financial, social and political history. If they did it would be a no-brainer. Unfortunately, that also includes many newsletter writers who continually miss the boat. Almost all Wall Street pundits are looking for 12,600 to 13,000 on the Dow. When the entire herd believes the same thing it is not going to happen. Recently bulls were over 56% and bears fell to just over 21%. Higher rates and continuing high unemployment and lower real estate wealth values will definitely not serve to produce a better economy. Companies are still not hiring and that will continue even with a favorable tax package. In time Wall Street and investors will discover that gold, silver and commodities are surrogates for fiat currencies, particularly the dollar. They will as well eventually come to terms with the notion that even with a giant amount of money and credit entering the system, all America and Europe can hope to see is ten or more years of little growth and stagnation, just as Japan has experienced.

The tax crisis and still growing federal deficits are taking their political toll. The Democrats, as we saw in the latest election, lost control of the House. That means with a 42% approval the President has serious lame duck problems. He probably is looking out at two years of near gridlock. As a result of this and facts we mentioned earlier December should be a good month, but after that things could get dicey. A market fully priced; a President with a House divided and the unthinkable – a President who no longer has a political base.

The administration would like to dip into Social Security revenues, but there is barely enough to pay the recipients. That means it is only a matter of time before government goes after private pension plans. They may not follow the lead of Argentina and Hungary, but that of France. Legislators may allow pilfering of government pension plans, which they call loans, which, of course, never get repaid.

 Moody’s says the tax bill will cost almost $1 trillion, which means the Fed will only have to come up with $1.5 trillion this fiscal year to make the economy go sideways. This one bill alone has destroyed the President’s reputation and it will only add 1%, or 1-1/4% to GDP. Normally during a second year expansion the economy would have gone from 3% to 5%. In fact for the past six months the economy has been decelerating and had it not been for the Fed’s activities in the Treasury and Agency markets since June, the economy would have worsened. Between the Fed, which really only represents Wall Street and banking, and a President with no financial background, one can see neither factor has any intention, including Congress, of bringing some sort of sanity to the financial sector.

All you Americans out there that do not believe your government will move in on your pension plans just take a look at these facts. In 1997, the UK’s Labor government abolished the dividend tax credit for pension funds, which cost pensioners $157 billion.

Just last month the French Parliament agreed to transfer assets of the French pension fund from equities to cash and government bonds.

In Ireland, their PM agreed to take half of the National Pension Reserve fund of $16.5 billion and apply it to the IMF-EU bank bailout. These funds are to be used as a backup to the bank rescue package.

Recently Hungary announced the nationalization of assets and contributions into the country’s supplementary “private pension scheme.” The funds will go into government bonds to help meet the budget deficit targets of its IMF-EU bailout.

In 2008, Argentina set the precedent, when $30 billion of assets in the country’s ten “private” pension funds, were nationalized.

Estonia has cut state contributions into private sector pension schemes, while Poland is considering similar action.

These events are not fantasy, but reality. The UK government is currently eyeing the pension assets of the Royal Mail of some $30 billion.

In England, it is believed a government guarantee would be next to worthless and a partial default on pensions and welfare are inevitable. England is close to broke having bailed out its banks.

The BIS estimates that even with fiscal improvement and a freezing of age-related spending to GDP at projected 2011 levels, debt to GDP in France, Ireland, the UK and the US will continue to spiral upwards and end in massive shortages of funds. By then many governments will be bankrupt.

Just two months ago Senate Democrats held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401Ks and IRAs to more fairly distribute taxpayer-funded pensions to everyone, just as Karl Marx advocated.

Under the GRA system, government would not only seize the private plans, but also add an additional 5% mandatory payroll tax to distribute a “fair” pension. This would be operated like the Ponzi scheme known as Social Security. $6 trillion in assets would be seized plus the ongoing income to fund government’s out of control spending.

The system envisioned by Professor Teresa Ghilarducci at the New School for Social Research, which is considered to be communist in philosophy, is that they want a truly universal system to shield low-income workers from out-of-pocket costs of wage cuts. This is known as the Guaranteed Retirement Account. This is the hard-core leftist approach advocated by socialist, fascists and communists. Democrats wanted desperately to pass such legislation in the lame duck session of Congress. That does not look like it will happen with only 4 business days left for Congress. There was also proposed a new entitlement program that would set up a permanent bailout of the union pension plans that have already been looted, guaranteed through the Pension Benefit Guaranty Corporation. All of this comes under the heading of class warfare. They believe it is fair to take what one person has earned in the free market and give it to someone else via redistribution. This is the same basic concept being used in bailing out Europe’s banks. The European socialists are now seriously contemplating guaranteeing the bailout of all banks and countries. They couldn’t print money fast enough to do that.

Now that the Democrats have lost control of the House the possibility of nationalization and confiscation of 401Ks and IRAs has lessened, but it is not going to go away. There are a number of Republicans who agree with the Democrats and given the right set of circumstances would roll and vote for such legislation. The call would be we need the equity as collateral to balance the deficit, or to guarantee holders of government debt, that the debt would be backstopped by the assets in 401Ks and IRAs. In turn pension owners would be given a government guaranteed annuity, that wouldn’t be worth the paper it was written on. In mid-September in meetings held between the Labor and Treasury departments we saw an agenda labeled, “Lifetime Income Options for Retirement Plans.” Their plan was to take your funds and replace them with US Treasury bonds, paying 3% annually. Once you die, the value of your account would become the property of government. In this process you would immediately lose about 60% of your retirement to your government. If you refuse to roll your IRAs and 401Ks you would lose your sheltered tax benefits. The taxes that would have to be paid would cost you 1/3rd of your savings. Then stuck in these vehicles you could lose 50% or more if the stock and bond markets fall.

Somewhere along the line such action by Washington at the behest of banking and Wall Street will become inevitable. If you stay in these retirement vehicles hold only gold and silver shares, bullion and coins. If you cannot access your 401K, borrow against it and use those funds as we have recommended. One should be thinking seriously of phasing out of 401Ks and IRAs, paying the taxes and penalties if necessary. It is better to do that than to lose it all to a criminal enterprise known as your government. Consult with your CPA to determine the tax ramifications. If you do not act now you may be very sorry. These crooks mean business and they care not one wit about your future, or the future of America. You can see the precedents have been set in other countries. A world to the wise should be sufficient.

Over the next month the New York Fed will purchase another $105 billion in bonds; $30 billion of that will be Agency principal payments and Agency MBS, better known as toxic garbage.

Last night the Senate voted 83-15 to move forward with the Obama-GOP deal on taxes, which is actually Stimulus II. The plan extends expiring Bush tax cuts, cuts payroll taxes 2%, extends unemployment benefits 13 weeks and allows companies to write off 100% of capital investments through 2011 and resurrects other tax benefits for corporations. This means more money flowing into direct fixed investment in emerging nations, which means more unemployment in the USA.

A Tea Party umbrella group circulated a petition in opposition to President Obama's tax deal with Republicans, while another high-profile GOP lawmaker aligned with the grassroots movement said he's inclined to vote against it.

"The idea that this massive tax and spend bill has not yet even been written but may be voted on by the Senate this weekend is appalling, and has rightfully drawn the anger of the and other Tea Party activists, an anger that will not diminish," said a petition…by the Tea Party Patriots.

President Barack Obama's historic health care overhaul hit its first major legal roadblock Monday, thrown into doubt by a federal judge's declaration that the heart of the sweeping legislation is unconstitutional. The decision handed Republican foes ammunition for their repeal effort next year as the law heads for almost certain eventual judgment by the U.S. Supreme Court.

The ruling by U.S. District Judge Henry E. Hudson, a Republican appointee in Richmond, Va., marked the first successful court challenge to any portion of the new law, following two earlier rulings in its favor by Democratic-appointed judges.

Last week the Dow rose 0.2%, S&P 1.3%, the Russell 2000 2.7% and the Nasdaq 100 1.1%. Banks rose 6%; broker/dealers 2.1%; cyclicals 1.7%; transports 0.69%; consumers 1% and utilities fell 0.8%. High tech rose 1.3%; semis 1.0%; Internets 1.9% and biotechs 0.6%. Gold bullion fell $28.00, the HUI declined 1.9% and the USDX gained 0.9% to 80.06.

The 2-year T-bills rose 15 bps to 0.61%, the 10-year notes jumped 32 bps to 3.33% and the 10-year German bunds rose 10 bps to 2.95%.

Freddie Mac 30-year fixed rate mortgages rose 15 bps to a 6-month high of 4.61%, the 15’s rose 17 bps to 3.96%, one-year ARMs added 2 bps to 3.27% and 30-year fixed jumbo rates rose 9 bps to 5.46%.

Fed credit surged $33.9 billion to a record $2.352 trillion, up 6.3% annualized and $184 billion, or 8.5% yoy. Fed foreign holdings of Treasury, Agency debt declined $0.3 billion to $3.341 trillion. Custody holdings, for foreign central banks, have increased $385 billion YTD, or 13.8% annualized and $397 billion YOY, or 13.5%. There could be a slowdown in foreign buying, but the selling looks like it is coming from domestic sources and the Fed continues to buy more paper.

Total Money Market Fund assets leaped $25.3 billion to a 13-week high of $2.836 trillion. YTD assets have fallen $458 billion, with a one-year decline of $485 billion, or 14.6%. We see this trend continuing over the next few weeks, both markets will be in trouble.

Total commercial paper declined $13.3 billion to $1.008 trillion. CP has declined $162 billion YRTD, and $202 billion YOY.

World money supply is increasing at a great clip. Global central bank international reserve assets, excluding gold, were up $1.390 trillion yoy, or 18.2%, to $9.014 trillion.


“San Francisco’s Public Utilities Commission, which supplies water to 2.5 million people in the Bay Area, postponed $524 million in competitive offerings, including $350 million in Build America Bonds, as yields soared.  The average yield on taxable Build Americas climbed to 6.35 percent Dec. 7, the highest since Jan. 7…”


“The global economy faces an imminent end to three decades of low interest rates as emerging markets embark upon a building boom and aging populations drain savings, according to McKinsey & Co.  A shift toward investment and away from savings is set to drive up the cost of capital with long-term interest rates possibly starting to rise within the next five years, the research division of McKinsey… said in a study…  ‘Everyone who is in business has lived in a 30-year period when rates of interest have declined and that world is coming to an end,’ said Richard Dobbs, a Seoul-based director of McKinsey Global Institute and co-author of the report.”

“New York state’s $132.8 billion pension plan is underfunded by $71 billion and annual taxpayer payments to keep it sound may more than double to almost $4 billion during the next five years, a report says.”

“U.S. states are preparing for more budget cuts next year as tax revenue isn’t likely to rebound enough to replace almost $38 billion in aid that will be gone as federal economic stimulus ends, according to a report.   At least 31 states and Puerto Rico are forecasting deficits of $82.1 billion in the next fiscal year even as tax receipts are picking up, the National Conference of State Legislatures said… Under a temporary mandate since 2009, the U.S. has provided economic aid to states, helping to pay government workers and shoulder the cost of the Medicaid program to provide health care for the poor… The fiscal 2012 deficits come on top of at least $110.6 billion in gaps that have been dealt with or are pending for the current year….”

“Times have gotten so tough for the Illinois state government that it has begun turning to Wall Street trading houses and hedge funds to help pay its bills.   The state owes more than $4.5 billion to vendors large and small, ranging from prison-cleaning crews to schools for the disabled. Tax shortfalls and pension obligations continue to leave the state light on cash.   Quietly, aides to Illinois Gov. Pat Quinn have begun reaching out to Wall Street with a novel plan to plug this shortfall. Instead of further tapping the public debt markets, Illinois is trying to borrow from private sources for short-term interest loans that could carry higher interest rates than the state pays its bond investors.”

“There’s now a better estimate of how wide the gap between expected revenues and expenses could be in North Carolina state government in 2011.  Fiscal experts at the Legislature announced… the preliminary gap for the year starting July 1 is $3.7 billion. That's $500 million more than the minimum budget gap discussed after the current year's $19 billion budget was approved last summer.”

“State economists… projected Florida's budget deficit would grow to $3 billion next year in the wake of declining sales tax collections and an increase in Medicaid costs, the Miami Herald reported…”

“Washington Governor Christine Gregoire intends to call a special legislative session before Christmas to deal with a $1.1 billion projected budget deficit for the current fiscal period…”

“Minnesota faces a $6.2 billion budget deficit over the next two years that is about $590 million more than previously projected, according to a new revenue forecast…”

igher rates and continuing high unemployment and lower real estate wealth values will definitely not serve to produce a better economy. Coma

 The S&P 500 is up 54% since Obama’s inauguration. This augurs for a poor, not a great third year for stocks. There use to be a tight correlation between stocks and a president’s approval rating. But due to the historic disconnect between Main Street and Wall Street, which is due to funny money, the correlation has been destroyed…PS - Gasoline is up 67% since Obama’s election. What impacts consumers more?

 The Obama administration’s requirement that most citizens maintain minimum health coverage as part of a broad overhaul of the industry is unconstitutional a federal judge ruled, striking down the linchpin of the plan.

U.S. District Judge Henry Hudson in Richmond, Virginia, today rule that the requirement in President Barack Obama’s health-care legislation goes beyond Congress’s powers to regulate interstate commerce. While severing the coverage mandate, which was to become effective in 2014, Hudson didn’t address other provisions such as expanding Medicaid.

“At its core, this dispute is not simply about regulating the business of insurance -- or crafting a scheme of universal health insurance coverage -- it’s about an individual’s right to choose to participate,” wrote Hudson, who was appointed by President George W. Bush in 2002.

The ruling is the government’s first loss in a series of challenges to the law mounted in federal courts in Virginia, Michigan and Florida, where 20 states have joined an effort to have the statute thrown out. Constitutional scholars said unless Congress changes the law, its fate on appeal will probably hinge on the views of the U.S. Supreme Court.


Representative Ron Paul, a Texas Republican who next month will take control of the House subcommittee that oversees the Federal Reserve, said he’s concerned the central bank won’t be able to prevent an outbreak of inflation.

Fed Chairman Ben S. Bernanke said during an interview broadcast Dec. 5 on CBS Corp.’s “60 Minutes” he was “100 percent” confident the Fed could keep inflation below 2 percent and reverse its accommodative monetary policy when necessary. Policy makers “could raise interest rates in 15 minutes,” if needed, he said.

“This optimism of Bernanke who says that when the prices start to go up, he can turn that off in 15 minutes, I don’t think he fully understands the subjective theory of value and how prices have a psychological reason for going up, too,” Paul said today on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. “When people lose confidence, prices go up, and you can’t turn that psychology off in a minute”

The Fed’s preferred gauge of inflation, the personal consumption expenditures index excluding food and energy, rose 0.9 percent in October from a year earlier. Including all items, the index increased 1.3 percent.

Paul said he believes prices are increasing at a faster pace.

“If you look at private sources that measure prices with the old consumer price index, it’s more like 5 percent,” he said. Paul did not provide further details on the 5 percent inflation estimate.

The 75-year old congressman, who wrote the 2009 book “End the Fed,” said the odds of a weak dollar “bringing the Fed down are much greater than me bringing the Fed down.”

Earlier today, in an interview on Bloomberg Television, Paul said that he will “not really, not right up front” push for an end to the U.S. central bank.

“But obviously that’s the implication,” Paul said.

House Financial Services chairman-elect Spencer Bachus, an Alabama Republican, selected Paul to lead the panel’s domestic monetary policy subcommittee when their party takes the House majority next month.

As chairman of the Fed oversight committee, Paul said he will “push for debating” whether the central bank should focus solely on policies that promote price stability, foregoing the dual mandate by Congress that it also pursue maximum employment.


One in four senior citizens believe that they will not be able to cover monthly expenses, and nearly 20 percent believe they will have to give up their homes without additional cash flow, according to a phone poll of 1,800 seniors and their adult children taken over the last half of October and released Thursday. The poll, conducted for the National Reverse Mortgage Lenders Association, found that almost 85 percent of senior citizens and their adult children are deeply pessimistic about the state of the economy and nearly 50 percent of senior citizens worry they will not have enough money to support themselves in retirement. The poll has a margin of error of plus or minus 4 percent and was conducted by Marttila Strategies. The association also polled seniors with reverse mortgages and reported that among those who have entered into such agreements, 75 percent said they understood the financial terms well or very well.

Leading liberal Bernie Sanders mounted an hours-long pseudo-filibuster against the bipartisan tax package, carrying his message far beyond the nearly empty Senate chamber through live C-SPAN and Web feeds as he forged the emotional touchstone of the day for opponents.

With most of his colleagues already home for the weekend, Sanders took the floor at 10 a.m. yesterday and led a nine-hour speech against the tax plan.

“This nation has a record-breaking, $13.8 trillion national debt at the same time as the middle class is collapsing and poverty is increasing,’’ Sanders said. “It seems to me to be unconscionable, unconscionable for my conservative friends and for everybody else in this country to be driving up this already too high national debt by giving tax breaks to millionaires and billionaires who don’t need it and in some cases . . . don’t even want it.’’

His speech went beyond taxes, and near 5 p.m. he ridiculed “the crooks on Wall Street’’ who, he said, precipitated the financial collapse of 2008. By 5:30 p.m., he read letters from constituents who had been hit hard by the Great Recession. Around 7 p.m., the Vermont senator left the floor.


Declassified CIA files reveal that US intelligence officials went to great lengths to protect a Ukrainian fascist leader and suspected Nazi collaborator from prosecution after World War II and set him up in a New York office to wage covert war against the Soviet Union, according to a new report to Congress.

Mykola Lebed led an underground movement to undermine the Kremlin and conduct guerrilla operations for the CIA during the Cold War, said the report, prepared by two scholars under the supervision of the National Archives. It was given to Congress on Thursday and posted online.

During World War II, the report says, Lebed helped lead a Ukrainian nationalist organization that collaborated with the Nazis in the destruction of the Jews of the western Ukraine and also killed thousands of Poles. The report details postwar efforts by US intelligence officials to throw the federal government’s Nazi hunters off his trail and to ignore or obscure his past.

“You can make the argument the CIA never should have gone near this guy because of his past,’’ said Norman J.W. Goda of the University of Florida, who wrote the report with Richard Breitman of American University in Washington. But Goda said the CIA found the relationship to be so valuable for getting information into and out of the Soviet Union that it “couldn’t be sacrificed.’’

“This was somebody that was very, very useful and remained so for the entire Cold War,’’ he added.

The report, titled “Hitler’s Shadow: Nazi War Criminals, US Intelligence, and the Cold War,’’ was written by historians hired by the US National Archives and Records Administration.

The report draws from an unprecedented trove of records on individuals and clandestine operations that the CIA was persuaded to declassify and from over 1 million digitized Army intelligence files that had long been inaccessible.

“The CIA records give us a much better picture of the movements of Nazi war criminals in the postwar period,’’ Breitman said. “The Army records are voluminous, and will be keeping people busy for many years.’’

CIA spokesman George Little said yesterday: “The CIA at no time had a policy or a program to protect Nazi war criminals, or to help them escape justice for their actions during the war. The agency has cooperated for decades with the Justice Department’s Office of Special Investigations.’’

The records were made available under the Nazi War Crimes Disclosure Act of 1998, one of the most ambitious and exhaustive federal government efforts to expose its own secrets.

The papers include correspondence, excerpts, clippings, medical records, and vouchers. They illuminate the activities and postwar whereabouts of some of the most high-profile alleged Nazi war criminals.

The Nazi War Crimes Disclosure Act has resulted in more than 8 million documents being declassified, a 2005 book on “U.S. Intelligence and the Nazis’’, and a final report to Congress. The interagency working group overseeing the project was disbanded in 2007.


A prominent Austrian banker who portrayed herself for two years as one of Bernard L. Madoff’s biggest victims was accused yesterday of conspiring for 23 years to funnel more than $9 billion into his immense global Ponzi scheme.

The accusations were made in a civil lawsuit that sought damages of $19.6 billion — the sum of the cash lost in a fraud that wiped out nearly $65 billion in paper wealth and ruined thousands of investors on almost every rung of the economic ladder.

The central defendant in the complaint is Sonja Kohn, who was the hub of a complex network of European and Caribbean funds that channeled money to Madoff. A well-connected banker in her native Vienna, Kohn insisted she never suspected her trusted friend was running a global Ponzi scheme.

In reality, according to the complaint, she knowingly raised billions of dollars in cash to sustain Madoff’s fraud in exchange for at least $62 million in secret kickbacks — payments she insisted be handed over face to face and never put in the mail. The lawsuit says that her collusion was so pivotal to the fraud that Madoff tried to destroy evidence of their connection before his arrest in 2008.

The civil complaint against Kohn was part of a fusillade of litigation filed in federal bankruptcy court in Manhattan during the last month by Irving H. Picard, the trustee trying to recover assets for victims who sustained cash losses in the fraud.

The trustee has until midnight tonight to file any lawsuits seeking to recover cash withdrawn from the Ponzi scheme before its collapse.

Picard has filed suits seeking to recover more than $50 billion much more than the approximately $2 billion he has so far recovered. Many of these cases will be courtroom battles that could last for years, but some defendants are known to be negotiating settlements.

A former Goldman Sachs programmer was convicted yesterday of stealing secret computer codes that enable high-speed trading from the investment bank when he took a new job with a rival last year.

The jury in US District Court in Manhattan convicted Sergey Aleynikov of North Caldwell, N.J., of theft of trade secrets and transportation of stolen property in interstate and foreign commerce. Aleynikov, 40, of North Caldwell, N.J., faces up to 15 years in prison when he is sentenced March 18.

The criminal case was brought after federal authorities concluded that Aleynikov left Goldman Sachs in 2008 with trade secrets to help his new company Teza Technologies gain an advantage with high-speed trading.

His lawyer, Kevin Marino, said that his client was merely trying to copy parts of the company’s software that were taken from public software codes. He acknowledged that Aleynikov had violated confidentiality agreements but said that was a civil matter.

The government said Goldman Sachs makes millions of dollars a year in profits from high-frequency trading and carries a competitive advantage because of the speed of its programs.


Treasuries plummeted; pushing the yield on the benchmark 10-year note up the most since August 2009, as traders speculated President Barack Obama’s agreement to extend tax cuts will accelerate economic growth.

The yield rose to a six-month high as reports this week showed consumer confidence climbed and a boost in exports shrank the trade deficit more than economists forecast. Central bank policy makers prepared to meet on Dec. 14 after Federal Reserve Chairman Ben S. Bernanke said purchases of government debt may be increased beyond the $600 billion announced last month.

“The sell-off was sparked by the tax policy shift that has raised growth expectation for the economy and raised the amount of money that will need to be raised over the next decade, both of which are negatives for Treasuries,” said Eric Lascelles, chief rates strategist and economist at Toronto-Dominion Bank’s TD Securities unit in Toronto.


Galleon Group LLC founder Raj Rajaratnam is scheduled to go on trial Feb. 28 on charges he used tips from company executives, hedge-fund employees and others in a multimillion dollar insider-trading scheme.

U.S. District Judge Richard J. Holwell, in an order filed today in federal court in Manhattan, said the charges against Rajaratnam will be tried separately from those against his co- defendant Danielle Chiesi. The trial of Chiesi, a former hedge fund consultant, is scheduled to start April 25.

Rajaratnam, 53, was arrested last year and is the central figure in a probe of insider trading at hedge funds that has led to 14 guilty pleas. He and Chiesi, a former consultant at New Castle Funds LLC, deny wrongdoing. Theirs is the largest insider-trading case involving hedge funds.

Rajaratnam and Chiesi last month lost a bid to block the first-ever use of wiretap evidence in an insider-trading case. Evidence at an October hearing showed that the government secretly recorded about 2,400 conversations between Rajaratnam and more than 130 friends, business associates and alleged accomplices.