Friday, March 27, 2009

The "Price" of Gold Is A Joke!

View Ben Bernanke, now turned commodity supplier. He is shoveling and humping around confetti laced with mold reinforced by a massive flow of swill, and does not even realize it! Forget the helicopter images. The palettes of $100 bills stacked neatly vastly overshadow any volume dropped from black unmarked choppers.
-c/o Jim Willie CB,

I will refrain today from commenting on the "price" of Gold...clearly it is a JOKE.

Kevin Kramer, chief operating officer at West End Financial Advisors, an asset management company in New York, said that stocks have risen too fast as ebullient traders have been quick to look past a long list of trouble spots in the economy. He contends unemployment, limited access to credit and heavy loads of debt will continue to curtail growth.

"Just because things aren't getting worse doesn't mean they're getting better," he said. "You stopped the flow of blood out of my body, but it doesn't mean I'm going to survive."

NYSE Runs Out of Gold Bars: What Happens Next?
The NYSE-Liffe futures exchange has, it seems, run out of 1 kg bars of gold. Futures markets, like NYSE-Liffe and COMEX, try hard to maintain the fiction that they will deliver physical gold, in completion of executed contracts. Indeed, to prevent fraud, U.S. law requires clearing members to keep a stockpile, of one kind or another, consisting of a minimum of 90% of metal. Up until October, 2008, it didn’t matter. Only about 1% of long buyers of paper gold futures contracts typically took delivery. Now, the situation is very different. Demand has surged and, it appears, one major futures exchange, NYSE-Liffe, and by extension, the COMEX gold warehouses it shares with its larger cousin, are unable to meet the requirements of their contracts, visa vi, delivery of 1 kg. bars.

Absent legal action, clearing members are now being allowed to hand out little slips of paper, called “warehouse depository receipts” (WDR). These are being substituted for “vault receipts” (VR). The WDRs, in contrast to the VRs, merely promise the customer that he owns a 1/3 interest in a 100 ounce bar. The customer is not allowed to take delivery, unless he can accumulate 3 WDRs, which equals 1 VR. NYSE-Liffe shares its warehouses with COMEX. The warehouse is predominantly stocked with 100 ounce bars. The COMEX ETF also stores 100 ounce bars, and clearing members can withdraw baskets of them in order to meet delivery demands. But, the COMEX ETF doesn’t store any 1 kg. bars

After a customer complaint, I contacted the head of regulatory compliance at NYSE-Liffe, and had a serious chat with him. He seemed like a nice enough fellow, but he wouldn’t admit that NYSE-Liffe had run out of 1 kilo bars. He said that the warehouse registrar has complete “discretion” to hand out paper WDRs, representing a 1/3rd interest in a 100 ounce bar, if the “circumstances warrant”. But, if the exchange has “complete discretion” to alter contracts as they see fit, what is the purpose of the advertised contract specifications? NYSE-Liffe claims that its clearing members can rely on Exchange Rule 1408. This obscure rule, however, was never communicated to customers. Nevertheless, it is now being relied upon by the exchange, in an attempt to “default” on the contracts without legal consequences. The rule says that clearing members can substitute delivery of a WDR, giving the customer a 1/3rd interest in a 100 ounce bar, instead of a physical 1 kg bar of gold. There is only one problem. In their eagerness to sell contracts, the exchange failed to communicate that customers and failed to make it a part of the contract specifications. As a result, clearing members may be saved from claims by one against the other, but they are NOT immune to the just claims of aggrieved customers. The exchange clearly misled the public, intentionally or unintentionally, and allowed clearing members to sell huge numbers of 1 kg contracts, even though they did not have enough 1 kg. bars to fulfill the contracts.

The Vulnerable Dollar
Adding another layer to the vulnerability of the dollar are calls for a new global reserve currency. China, Russia Brazil and India have been championing this cause and it seems to be gaining some traction. Perhaps even here in the US.

On Wednesday Treasury Secretary Geithner said that he was "quite open" to the Chinese plan for a global reserve currency linked to IMF Special Drawing Rights (SDR). In saying that, Mr. Geithner essentially signaled a willingness to cede substantial US economic influence and power.

In hindsight, he confessed that he hadn't even read the Chinese plan. Of Geithner's comment and subsequent revelation, Jessica Hoversen, a foreign-exchange analyst at MF Global said, "Government policy is only as effective as the government is credible. Having a government official speak out of both sides of his mouth in five minutes erodes credibility."

Reserve diversification, out of dollars and into other currencies and gold, has been a growing trend for some time now. Events of the past several weeks are only going to accelerate that diversification and the ultimate selling of dollars.

Can the Zimbabwean School of Economics SAVE THE WORLD??...
By: Clive Maund
There are two central problems that prohibit the return to normal healthy growth of the US economy. One is that natural cyclical recessionary forces have been obstructed for so long that they have built up to disastrous proportions, especially as speculation and pyramiding via derivatives have ballooned the excesses to astronomic proportions, and as is already plainly obvious, these forces are now unstoppable. Like King Canute trying to stop the tide coming in, the response of the system to these devastating corrective forces is to try to beat them back by employing more of the excesses that created the problems in the first place. Hence the continued bailouts and the buying up of Treasuries etc. This is like a gambler on a losing streak finally going down in a blaze of glory as he throws everything he has on to the table, only to lose anyway and be shown the door. The ultimate outcome of all this will be a hyperinflationary depression - money becoming worthless and most everyone and everything broke and dysfunctional. The other central problem is that the country is essentially run as a gigantic crime syndicate - corruption at the top, across the government and throughout the banks and Wall St is now so deep rooted and endemic that there is only one way that the people can rid themselves of it. Right now, after years of soft living the population don't have the stomach to do what is necessary to rid themselves of these parasites, and it will only be when the television flickers and dies and the supermarket shelves are empty that the average American hauls his weighty posterior out of the armchair with the intention of "doing something about it" only to find himself being taken down to one of the large compounds already organized where he can meet and chat with plenty of people like himself.

With last week's announcement by the Fed and subsequent developments, the powers that be have "nailed their colors to the mast" and made it plain that they are going to manufacture as much money as they think is necessary to prevent the system from imploding - in particular to stop the Treasury market from collapsing and to keep the zombie entities at the center of the crisis limping along. What they have neglected to mention, and what you have to figure out for yourself, is that given the magnitude of debt and especially the enormity of the derivative deleveraging going on, they are going to end up creating blizzards of money to battle the monster, and that means that we are on the road to hyperinflation. Yet, despite the intent to exponentially increase the money supply to battle the deflationary juggernaut, there is no guarantee that they will succeed - on the contrary, due to its enormity, they are likely to fail, and their obstinate and misguided attempts to block the necessary cleansing forces of contraction, obstructed for so long that they have built up to disastrous proportions, will only make the inevitable collapse that much more total, and involve the destruction of Fiat currencies worldwide, and the forcible elimination of the old order that created this enormous mess by a deeply discontented populace, who will by this time be highly motivated by a lack of food, water and electricity.

The Threat of Hyper-Depression
At this stage nothing is certain, but the country is currently headed straight into a period of very rapid price hikes and a very bad recession. It would not surprise me at all if the national unemployment rate and the annualized rate of consumer price inflation both broke through into double digits by the end of 2009. Moreover, regardless of when it actually starts, I predict that things will get much worse before they get better, and that the United States will be mired in a malfunctioning economy for at least a decade, with price inflation in the double-digits (possibly higher) the entire time. We can call this condition “hyper-depression.”

As with stagflation during the 1970s, hyper-depression will blow up the prevailing “cutting edge” models of the macroeconomy. Back when he was an academic, Fed Chair Ben Bernanke was actually an expert on the Great Depression. Bernanke adheres to the (alleged) lesson taught by Milton Friedman and Anna Schwartz in their classic A Monetary History of the United States. F&S argued that Fed officials bore a large share of the blame for the Great Depression, because they did not pump in enough liquidity. The quantity of money actually declined by about a third from 1929-1933, as panicked customers withdrew cash from the banks. (In a fractional reserve banking system, when people withdraw deposits, the banks have to shrink their outstanding checking balances because of reserve requirements.)

The Fed has more than doubled its balance sheet since the financial crisis began, leading to an unprecedented jump in the monetary base.

Thus far, this enormous injection of new reserves into the banking system hasn’t caused the CPI to explode, but that is because (a) the banks are mostly sitting on the new reserves because they are all terrified, and (b) the public’s demand for cash balances has risen sharply. But using very back-of-the-envelope calculations, there is now enough slack in the system so that if banks calmed down and lent out the maximum amount of reserves, the public’s total money stock could increase by a factor of 10. There is no way that the public will simply add that new money to its checking accounts or home safes without increasing their spending. Eventually, prices quoted in U.S. dollars will start shooting upward.

All of the financial analysts are aware of this threat, but they foolishly reassure us, “Bernanke will unwind the Fed’s holdings once the economy improves.” But this commits the same mistake as the Keynesians during the 1970s: What happens when the CPI begins rising several percentage points per month, and unemployment is still in the double digits? What would Bernanke do at that point? Expecting the Fed chief to relinquish his new role of buying hundreds of billions in assets at whim, in the midst of a severe recession, would be akin to hoping that a dictator would end his declaration of “emergency” martial law in the middle of a civil war.

There are even many free market economists who are predicting that the Fed’s massive money-pumping will “fix” the economy, at least for a while, but at the cost of high price inflation. Yet these analysts don’t realize that they are buying into – what we all thought was – the discredited Phillips Curve. The 1970s proved that the Fed cannot fix structural problems with the economy by showering it with new money. Hyper-depression is simply stagflation squared.

People need to stop wondering, “When will the market find its bottom? This month? Next?” The federal government has already done an incalculable amount of damage to the American financial sector, and the insults keep growing. Think of it: Besides the unpredictable “sometimes we seize you, sometimes we take billions of bad assets off your books, sometimes we let you fail” strategy with respect to major financial institutions, the government has also done childish things such as ban short-selling of financial stocks. No one knows what the rules will be next week in these markets. Only a fool would expose new capital to the American financial sector at this point – and the politicians have the gall to wonder, “Why are the laissez-faire credit markets frozen?”

China: Partner, Adversary, Rebel
An extremely dangerous and controversial agreement might have been struck between the USGovt and Chinese Govt during a visit to Beijing by Secy State Hillary Rodham Clinton. Some call this news pure rumor, while others claim it is suppressed fact. Time will tell. The Chinese had been demanding greater assurances for continued USTreasury Bond purchase. The public is not privy to actual discussions, as US leaders continue to betray the US public with a string of secret deals dating back to IPO offering by Wall Street for giant Chinese banks. Ever since Goldman Sachs took control of the Dept Treasury in 1992, the nation has suffering a skein of betrayals on gold treasury management, suppressed USTBond yields (that skewer savers), insider trading schemes that would read like out of crime novel, and lately channeled TARP funds for Wall Street elite sequestered usage. Details and quotes appear in the Hat Trick Letter, in particular the Gold & Currency report for March out last weekend. The US Embassy in Beijing confirmed the deal to the source. Hillary closed the deal. A quid-pro-quo agreement was struck, continued USTBond purchases in return for Eminent Domain option to exercise by China for property seizure, “to physically take, inside the USA, land, buildings, factories, perhaps even entire cities.” The concepts of colonization and carpet-bagging should come to mind!

In order to maintain credit flow for the deeply insolvent USGovt, the federal authorities might have mortgaged the physical land and property of citizens and businesses in the Untied States to a foreign power. What makes the betrayal all the worse if its apparent secrecy. In my analysis last autumn, mention has been made that a great risk grows for China to embark on a COLONIZATION movement. Huge tracts of USTBonds have been accumulated by China since September. The USTBond hoard held by China would be converted into mortgage bonds, and then into actual hard asset property, including commercial buildings. Sadly, the Secy State post under Hillary has morphed into an emissary post to plead with creditors. This is NOT so much about forcible confiscation, but rather conversion to property like during any other ordinary liquidation, ordered within receivership. China has embarked on early stages in preparation to convert debt securities into hard assets like property. They are crafty and deliberate. What few seem to acknowledge is the path from mortgage bond ownership to property purchase (for a very low price) upon foreclosure is a very short path. Imagine a throng of Chinese businessmen and bankers dressed in Western suits attending foreclosure auctions holding property titles in their hands!!! A bizarre obstacle might thwart some Chinese efforts, if they discover that mortgage bonds continue imperfect or missing property titles, or worse, are forged Fannie Mae counterfeit bonds.

As you can see, the "price" of Gold is obviously a JOKE...

1 comment: