Monday, March 23, 2009

"Inflate Or Die!"

First, a quick word to ALL the criminals at the NY CRIMEX.

"Kiss my rosy red ass."

What you witnessed today at exactly 3PM on the CRIMEX was just that...a crime in progress. Never in all the months of criminal activity witnessed there have I seen the desperation observed today. Does ANYBODY for even a nano second believe that there was any Gold actually sold this afternoon? NO! None was.

Gold held it's own all day today. The CRIMEX criminals were exasperated by this. How could Gold NOT go down with the DOW up over 400 points? Simple... Gold got it's orders from the Fed on Wednesday afternoon. The Fed has chosen to destroy the US Dollar, and Gold has booked a one way ticket to infinity and beyond.

The US Dollar was as weak as a tit on a bull today. Gold will not go down with the Dollar now paralyzed by the Fed's decision to print money out of thin air. The rally in the equities markets may be as phony as the money the Fed is printing to buy US Treasury debt, but as long as the equity markets rally, the Dollar will go down...and Gold will go up.

Doesn't it strike anybody as "odd" that the ONLY "commodity" that was down today on Dollar weakness was Gold, soon followed by Silver? Oil was up, Copper was up, Corn was name it, if it was a commodity, it was up. The handwriting is very clearly written on the White House Wall. "Inflate Or Die!"

The CRIMEX can play games with Gold, but the games will all be in vain. The jig is clearly up. Bernanke and Company have obviously failed to "prevent" deflation of asset prices, so now they must resort to the cure. And the cure is MASSIVE INFLATION. How else do you think they expect to get the prices of banks Toxic Assets back to par? There is ONLY one way now: "Inflate Or Die!"

Little Timmy Geithner's big new plan depends on MASSIVE INFLATION. Without massive inflation his plan is just a pipe dream. His plans success depends on the Toxic Asset prices rising. And the ONLY hope for them to rise is through MASSIVE INFLATION...because they don't have a snowball's chance in Hell of rising otherwise.

"Inflate or Die!"

First up is a series of interviews with noted economist James Galbraith. Please watch BOTH clips. This man pulls no punches, and tells it like it is. The Geithner "plan" is a joke.

Part I: Geithner's Plan "Extremely Dangerous," Economist Galbraith Says
...the plan is yet another massive, ineffective gift to banks and Wall Street. Taxpayers, of course, will take the hit

Why does Tim Geithner keep repackaging the same trash-asset-removal plan that he has been trying to get approved since last fall?

In our opinion, because Tim Geithner formed his view of this crisis last fall, while sitting across the table from his constituents at the New York Fed: The CEOs of the big Wall Street firms. He views the crisis the same way Wall Street does--as a temporary liquidity problem--and his plans to fix it are designed with the best interests of Wall Street in mind.

If Geithner's plan to fix the banks would also fix the economy, this would be tolerable. But no smart economist we know of thinks that it will.

We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy. Here they are:

The trouble with the economy is that the banks aren't lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it. As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem. The banks, meanwhile, are lending. They just aren't lending as much as they used to. Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.

The banks aren't lending because their balance sheets are loaded with "bad assets" that the market has temporarily mispriced. The reality: The banks aren't lending (much) because they have decided to stop making loans to people and companies who can't pay them back. And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.

Bad assets are "bad" because the market doesn't understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer.

Once we get the "bad assets" off bank balance sheets, the banks will start lending again. The reality: The banks will remain cautious about lending, because the housing market and economy are still deteriorating. So they'll sit there and say they are lending while waiting for the economy to bottom.

Once the banks start lending, the economy will recover. The reality: American consumers still have debt coming out of their ears, and they'll be working it off for years. House prices are still falling. Retirement savings have been crushed. Americans need to increase their savings rate from today's 5% (a vast improvement from the 0% rate of two years ago) to the 10% long-term average. Consumers don't have room to take on more debt, even if the banks are willing to give it to them.

Part II: Geithner, Obama Kowtowing to "Massively Corrupted" Banks, Galbraith Says
Like it or not, many people seem to be resigned to the idea there's no alternative to the public-private investment fund scheme Treasury Secretary Geithner detailed this morning.

That's hogwash, says University of Texas professor James Galbraith, author of The Predator State. Of course there's an alternative: FDIC receivership of insolvent banks.

Aside from being legally proscribed, the upside of FDIC receivership is the banks are restructured and reorganized for potential sale (either in whole or parts), Galbraith says. Such was the fate in 2008 of, most notably, Washington Mutual and IndyMac.

Crucially, FDIC receivership also means new management teams for insolvent banks; and Galbraith notes new leaders will have no incentive to cover up the fraudulent or predatory lending practices of their predecessors. Given the entire system was "massively corrupted by the subprime debacle," the professor believes criminal prosecutions on par with the aftermath of the S&L crisis - when hundreds of insiders went to jail - is a likely (and necessary) outcome of the current crisis.

But don't expect to see many "perp walks" if Geithner's current plan comes to fruition. That's one reason Galbraith called the plan "extremely dangerous" in part one of our interview.

So why isn't the Obama administration pushing for FDIC receivership? "Political influence of big banks," the economist says.,FAS,SKF,C,BAC,JPM,%5EDJI?sec=topStories&pos=3&asset=TBD&ccode=TBD

My Plan for Bad Bank Assets

Little Timmy just doesn't get it. His entire plan revolves around creating MORE debt...and MORE securitization of that debt. TIMMY! You f**king idiot! This is EXACTLY what caused the financial crisis.

And Timmy, what makes you think that the banks are going to sell their trash. They have had plenty of opportunities to unload this crap, but have repeatedly refused. Why? Because by selling at distressed prices they will have to book MASSIVE losses. They, like you, FOOLISHLY believe that this garbage is worth something...and if they just wait long enough, the prices will rise "back to normal". Sorry, NO THEY WON'T. You have seen to it that they won't.

Your whole "plan" revolves around the false idea that by continuing to lower the cost of money, people will begin to spend money they don't have again...and everything will get back to "normal". LOOOOOOOOOOOOOOOOOOOOOOL! Ain't never gonna happen pal. You can lead a horse to water, but you can't make him drink. The people do not want anymore debt. The only reason people are going to begin to spend money again is because the value of it will be dropping so fast, they will be afraid that if they don't buy today, the price will be higher tomorrow. Timmy, you and your pals have set in motion an Inflation Tsunami that is going to even shock you, the originator. Asset prices are going to rise again, eventually, but not because you "fixed the credit markets". They are going to rise in a hyper-inflationary mushroom cloud.

I hope you're already working on your next plan...because this one is going to fail like all those of yours and your predecessors preceding it. God help us all....

Dangerous Unintended Consequences [MUST READ]
by Martin D. Weiss, Ph.D. 03-23-09

The Fed Chairman, the Treasury Secretary and Congress have now done more to bail out financial institutions and pump up financial markets than any of their counterparts in history.

But it’s not nearly enough — and, at the same time, it’s already far too much.

Two years ago, when major banks announced multibillion-dollar losses in subprime mortgages, the world’s central banks injected unprecedented amounts of cash into the financial markets.

But that was not enough.

Six months later, when Lehman Brothers and AIG fell, the U.S. Congress rushed to pass the TARP, the greatest bank bailout legislation of all time.

But as it turned out, that wasn’t sufficient either.

Subsequently, in addition to the original goal of TARP, the U.S. government has loaned, invested, or committed $400 billion to nationalize the world’s two largest mortgage companies … $42 billion for the Big Three auto manufacturers … $29 billion for Bear Stearns, $185 billion for AIG, and $350 billion for Citigroup … $300 billion for the Federal Housing Administration Rescue Bill … $87 billion to pay back JPMorgan Chase for bad Lehman Brothers’ trades … $200 billion in loans to banks under the Federal Reserve’s Term Auction Facility (TAF) … $50 billion to support short-term corporate IOUs held by money market mutual funds … $500 billion to rescue various credit markets … $620 billion in currency swaps for industrial nations … $120 billion in swaps for emerging markets … trillions to cover the FDIC’s new, expanded bank deposit insurance, plus trillions more for other sweeping guarantees.

And it STILL wasn’t enough.

If it had been enough, the Fed would not have felt compelled this week to announce its plan to buy $300 billion in long-term Treasury bonds, an additional $750 billion in agency mortgage backed securities, plus $100 billion more in Fannie Mae and Freddie Mac paper.

Total tally of government funds committed to date: Closing in on $13 trillion, or $1.15 trillion more than the tally just hours ago, when the body of this white paper was printed.

And yet, even that astronomical sum is still not enough!

Why not? Because of a series of very powerful reasons:

First, most of the money is being poured into a virtually bottomless pit.

Second, most of the money from the government is still a promise, and even much of the disbursed funds have yet to reach their destination.

Third, the government has been, and is, greatly underestimating the magnitude of this debt crisis. Specifically,

The FDIC’s “Problem List” of troubled banks includes only 252 institutions with assets of $159 billion. However, based on our analysis, a total of 1,568 banks and thrifts are at risk of failure with assets of $2.32 trillion due to weak capital, asset quality, earnings, and other factors. (The details are in Part I of our white paper, and the institutions are named in Appendix A.)

When Treasury officials first planned to provide TARP funds to Citigroup, they assumed it was among the strong institutions and that the funds would go primarily toward stabilizing the markets or the economy. But even before the check could be cut, they learned that the money would have to be for a very different purpose: an emergency injection of capital to prevent Citigroup’s collapse. Based on our analysis, however, Citigroup is not alone. We could witness a similar outcome for JPMorgan Chase and other major banks. (See Part II of our white paper.)

AIG is big. But it, too, is not alone. Yes, in a February 26 memorandum, AIG made the case that its $2 trillion in credit default swaps (CDS) would have been the big event that could have caused a global collapse. And indeed, its counterparties alone have $36 trillion in assets. But AIG’s CDS portfolio is just one of many: Citibank’s portfolio has $2.9 trillion, almost a trillion more than AIG’s at its peak. JPMorgan Chase has $9.2 trillion, or almost five times more than AIG. And globally, the Bank of International Settlements reports a total of $57.3 trillion in credit default swaps, more than 28 times larger than AIG’s CDS portfolio.
Clearly, the money available to the U.S. government is too small for a crisis of these dimensions.

Fourth, but at the same time, the massive sums being committed by the U.S. government are also too much:

In the U.S. banking industry, shotgun mergers, buyouts, and bailouts are accomplishing little more than shifting their toxic assets like DDT up the food chain.

And the government’s promises to buy up the toxic paper have done little more than encourage banks to hold on, piling up even bigger losses.

But the money spent or committed by the government so far is also too much for another, relatively less-known reason: Hidden in an obscure corner of the derivatives market is a unique credit default swap that virtually no one is talking about — contracts on the default of United States Treasury bonds. Quietly and without fanfare, a small but growing number of investors are not only thinking the unthinkable, they’re actually spending money on it, bidding up the premiums on Treasury bond credit default swaps to 14 times their 2007 level. This is an early warning of the next big shoe to drop in the debt crisis — serious potential damage to the credit, credibility, and borrowing power of the United States Treasury.

This trend packs a powerful message — that there’s no free lunch; that it’s unreasonable to believe the U.S. government can bail out every failing giant with no consequences; and that, contrary to popular belief, even Uncle Sam must face his day of reckoning with creditors.

That credit default swaps are still being sold against ANY debt should be alarming in and of itself. Have these clowns learned nothing? Why are these financial WMD still being manufactured?

Soon there may be nobody left to lend to America
So here is where we are at. The combination of the Fed’s surprise attack on the credit markets and the president’s decision to borrow-and-spend will give the economy a lift. My own guess, and that of many economists with whom I have spoken, is that by the middle of next year, if not sooner, the economy will start growing again at a decent rate.

At that point, Bernanke will have to decide whether to start pulling money out of the system by selling off some of the assets on his swollen balance sheet, and the Obama administration will have to decide how to bring down the fiscal deficit. Bernanke is keenly aware that during the Great Depression the Fed tightened the money supply prematurely, nipping a nascent recovery in the bud. So he is likely to stall.

Meanwhile, there is little prospect that Congress will do what is necessary to bring spending and borrowing down to levels that do not trigger inflation. Politicians just don’t worry as much about inflation as about catering to their multiple constituencies. So the Treasury will have more trillions in IOUs to peddle.

But its best customers just might be unenthusiastic about adding significantly to their holdings. Wen already owns trillions in Treasury bills that are depreciating in value. Besides, China’s mounting needs for infrastructure and an improved safety net will sop up funds once used to buy American securities. Japan, another large customer, is now running a current-account deficit, and so it won’t have as many dollars to recycle. Nor will Middle East buyers, no longer receiving a flood of dollars from $140-a-barrel oil. Little wonder that Larry Lindsey, former economic adviser to President George W Bush, says he “cannot figure out what combination of foreign buyers is going to acquire . . . [the] debt” that Obama’s plans will generate.

Which leaves Americans and the Fed as customers. Even if they save more, domestic consumers can’t absorb all the Treasury bonds that will be on offer. And if the Fed keeps buying, it will pour fuel on the inflationary fires.

Interesting to note: In spite of the CRIMEX hit on Gold this afternoon, Gold held support at old resistance, now support, at 935. 935 is also a 38% retracement of the rally off of Wednesday's low prior to the Fed's announced plans to destroy the US Dollar. Gold is going higher, much higher. Discontinue looking for reasons to sell Gold. Rest easy with the knowledge that the equity markets have rallied following every new government sponsored "plan" to free up the credit markets and "return things to normal"...and subsequently tanked to new market lows.

This time might just be different ONLY because the Fed is now committed to destroying the Dollar via MASSIVE inflation of the money supply...but should the markets continue to rally for a time...the Dollar will subsequently fall, and Gold and commodities will rise substantially. You can't lose with Gold...the currency of choice.

No comments:

Post a Comment