Accelerating to the end of the road
We are getting a 1930 to 1933 financial system and debt deflation collapse but in Internet time. The Internet that operated so efficiently for ultra efficient transmission of pricing information and execution of transactions is accelerating the financial and economic crisis process far more quickly than governments can respond to it. A 20th century international regulatory and trade institutional framework is no match for 21st century computer networked financial markets. No administration can correct 30 years of errors in a few months. Unfortunately, a few months is all we have because of the accelerated rate of change we are experiencing.
History teaches us that adjustments to imbalances can be sudden and brutal, and we think it imprudent to bet that the mother of all international payments imbalances -- between the US and the rest of the world -- will be the exception.
The rise of gold from $260 to $700 in six years followed by an increase from $700 to $1000 in two years may be quickly followed by a rise from $1,000 to $5,000 in just a few months.
http://www.itulip.com/forums/showthread.php?p=78579#post78579
How the Economy was Lost [ excellent read ]
The demise of America’s productive economy left the US economy dependent on finance, in which the US remained dominant because the dollar is the reserve currency. With the departure of factories, finance went in new directions. Mortgages, which were once held in the portfolios of the issuer, were securitized. Individual mortgage debts were combined into a “security.” The next step was to strip out the interest payments to the mortgages and sell them as derivatives, thus creating a third debt instrument based on the original mortgages.
In pursuit of ever more profits, financial institutions began betting on the success and failure of various debt instruments and by implication on firms. They bought and sold collateral debt swaps. A buyer pays a premium to a seller for a swap to guarantee an asset’s value. If an asset “insured” by a swap falls in value, the seller of the swap is supposed to make the owner of the swap whole. The purchaser of a swap is not required to own the asset in order to contract for a guarantee of its value. Therefore, as many people could purchase as many swaps as they wished on the same asset. Thus, the total value of the swaps greatly exceeds the value of the assets.*
The next step is for holders of the swaps to short the asset in order to drive down its value and collect the guarantee. As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts could easily exceed the net worth of the issuer.
This was the most shameful and most mindless form of speculation. Gamblers were betting hands that they could not cover. The US regulators fled their posts. The American financial institutions abandoned all integrity. As a consequence, American financial institutions and rating agencies are trusted nowhere on earth.
The US government should never have used billions of taxpayers’ dollars to pay off swap bets as it did when it bailed out the insurance company AIG. This was a stunning waste of a vast sum of money. The federal government should declare all swap agreements to be fraudulent contracts, except for a single swap held by the owner of the asset. Simply wiping out these fraudulent contracts would remove the bulk of the vast overhang of “troubled” assets that threaten financial markets.
http://www.counterpunch.org/roberts02242009.html
The U.S. Economy: Designed to Fail
But neither President Obama, nor his Democratic supporters or Republican antagonists, should feel badly about what is happening. This is because the system they have been given to work with was designed to fail. The U.S. was saddled long ago with a debt-based monetary system, whereby the only way money can be introduced into circulation is through bank lending. It was the system that was instituted in 1913 when Congress gave away its constitutional power over money creation to the private banking industry by passing the Federal Reserve Act.
It was then that the catastrophe we are now facing became inevitable. It took nearly a century to get here but it finally happened. We should have known it was coming when Federal Reserve-created bubbles replaced economic growth from our disappearing heavy industry, starting with the recession of 1979-83. We could have seen it coming when the dot.com bubble collapsed in 2000-2001, and Fed Chairman Alan Greenspan worked with the George W. Bush administration to substitute the housing bubble for a real recovery.
The day of reckoning is here. So don’t worry, Mr. President. It’s not your fault.
http://www.globalresearch.ca/index.php?context=viewArticle&code=20090228&articleId=12493
Why the U.S. Dollar Is Vulnerable to Decline Now
If we observe the $USD graph for March 2, 2009, we see that the USD has just broken above the resistance level of 88. Will this mark the beginning of a new run higher in the U.S. dollar? Currently the U.S. dollar is benefiting from the propaganda of other countries (i.e. China), political games, intervention of the Exchange Stabilization Fund, and the foolish actions of the Bank of England [BOE] and the European Central Bank [ECB] which have caused Europeans to flee the Euro and the Pound Sterling.
However, fleeing the Euro and the Pound Sterling for the U.S. dollar is akin to fleeing the Lusitania for the Titanic. All three currencies are sinking ships and fleeing one sinking ship for another sinking ship is just not intelligent and is destined to end poorly for all involved parties.
Therefore, I believe that this subsequent “breakout” above 88 will be short-lived. While the U.S. dollar may meander higher for a short-time longer above 88 as the U.S. Treasury and the Exchange Stabilization Fund reach deeper into their bag of monetary tricks, I do believe that when it breaks back down below 88 sometime shortly, the retreat will be marked by periods of extreme volatility and rapid decline.
http://seekingalpha.com/article/123965-why-the-u-s-dollar-is-vulnerable-to-decline-now
USD Scenarios 1&2
If the dollar follows scenario #2 and breaks out here, from over bought levels and bearish divergence, it will negate a healthy ascending triangle and blow off into a less sustainable rise, which would likely top out per the weekly chart.
The implication of scenario #2 is short term pain to most asset holders in a final liquidation, and then preparation for a long inflation cycle (dollar decline). Scenario #1 however, would be the real nightmare scenario, where the dollar declines now, sucks in the casino patrons for a play at the bull game and then rises in a stronger and longer fashion than most would anticipate.
Despite a short term decline, #1 is the most bullish USD scenario where Uncle Buck hits the lower line around the SMA 200 and then rises once again for a try at upside resistance at the top line. The intermediate term measured target off this would be the high 90’s, specifically, 98.
We might extrapolate a bit and define #1 as the gateway to deflationary depression and #2 as the introduction to the next inflation cycle which itself could be a gateway to the Austrians’ Crack Up Boom.
http://news.goldseek.com/GoldSeek/1235998562.php
Elliott Wave Gold Update XXIII
Alf Field
-Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
We are getting a 1930 to 1933 financial system and debt deflation collapse but in Internet time. The Internet that operated so efficiently for ultra efficient transmission of pricing information and execution of transactions is accelerating the financial and economic crisis process far more quickly than governments can respond to it. A 20th century international regulatory and trade institutional framework is no match for 21st century computer networked financial markets. No administration can correct 30 years of errors in a few months. Unfortunately, a few months is all we have because of the accelerated rate of change we are experiencing.
History teaches us that adjustments to imbalances can be sudden and brutal, and we think it imprudent to bet that the mother of all international payments imbalances -- between the US and the rest of the world -- will be the exception.
The rise of gold from $260 to $700 in six years followed by an increase from $700 to $1000 in two years may be quickly followed by a rise from $1,000 to $5,000 in just a few months.
http://www.itulip.com/forums/showthread.php?p=78579#post78579
How the Economy was Lost [ excellent read ]
The demise of America’s productive economy left the US economy dependent on finance, in which the US remained dominant because the dollar is the reserve currency. With the departure of factories, finance went in new directions. Mortgages, which were once held in the portfolios of the issuer, were securitized. Individual mortgage debts were combined into a “security.” The next step was to strip out the interest payments to the mortgages and sell them as derivatives, thus creating a third debt instrument based on the original mortgages.
In pursuit of ever more profits, financial institutions began betting on the success and failure of various debt instruments and by implication on firms. They bought and sold collateral debt swaps. A buyer pays a premium to a seller for a swap to guarantee an asset’s value. If an asset “insured” by a swap falls in value, the seller of the swap is supposed to make the owner of the swap whole. The purchaser of a swap is not required to own the asset in order to contract for a guarantee of its value. Therefore, as many people could purchase as many swaps as they wished on the same asset. Thus, the total value of the swaps greatly exceeds the value of the assets.*
The next step is for holders of the swaps to short the asset in order to drive down its value and collect the guarantee. As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts could easily exceed the net worth of the issuer.
This was the most shameful and most mindless form of speculation. Gamblers were betting hands that they could not cover. The US regulators fled their posts. The American financial institutions abandoned all integrity. As a consequence, American financial institutions and rating agencies are trusted nowhere on earth.
The US government should never have used billions of taxpayers’ dollars to pay off swap bets as it did when it bailed out the insurance company AIG. This was a stunning waste of a vast sum of money. The federal government should declare all swap agreements to be fraudulent contracts, except for a single swap held by the owner of the asset. Simply wiping out these fraudulent contracts would remove the bulk of the vast overhang of “troubled” assets that threaten financial markets.
http://www.counterpunch.org/roberts02242009.html
The U.S. Economy: Designed to Fail
But neither President Obama, nor his Democratic supporters or Republican antagonists, should feel badly about what is happening. This is because the system they have been given to work with was designed to fail. The U.S. was saddled long ago with a debt-based monetary system, whereby the only way money can be introduced into circulation is through bank lending. It was the system that was instituted in 1913 when Congress gave away its constitutional power over money creation to the private banking industry by passing the Federal Reserve Act.
It was then that the catastrophe we are now facing became inevitable. It took nearly a century to get here but it finally happened. We should have known it was coming when Federal Reserve-created bubbles replaced economic growth from our disappearing heavy industry, starting with the recession of 1979-83. We could have seen it coming when the dot.com bubble collapsed in 2000-2001, and Fed Chairman Alan Greenspan worked with the George W. Bush administration to substitute the housing bubble for a real recovery.
The day of reckoning is here. So don’t worry, Mr. President. It’s not your fault.
http://www.globalresearch.ca/index.php?context=viewArticle&code=20090228&articleId=12493
Why the U.S. Dollar Is Vulnerable to Decline Now
If we observe the $USD graph for March 2, 2009, we see that the USD has just broken above the resistance level of 88. Will this mark the beginning of a new run higher in the U.S. dollar? Currently the U.S. dollar is benefiting from the propaganda of other countries (i.e. China), political games, intervention of the Exchange Stabilization Fund, and the foolish actions of the Bank of England [BOE] and the European Central Bank [ECB] which have caused Europeans to flee the Euro and the Pound Sterling.
However, fleeing the Euro and the Pound Sterling for the U.S. dollar is akin to fleeing the Lusitania for the Titanic. All three currencies are sinking ships and fleeing one sinking ship for another sinking ship is just not intelligent and is destined to end poorly for all involved parties.
Therefore, I believe that this subsequent “breakout” above 88 will be short-lived. While the U.S. dollar may meander higher for a short-time longer above 88 as the U.S. Treasury and the Exchange Stabilization Fund reach deeper into their bag of monetary tricks, I do believe that when it breaks back down below 88 sometime shortly, the retreat will be marked by periods of extreme volatility and rapid decline.
http://seekingalpha.com/article/123965-why-the-u-s-dollar-is-vulnerable-to-decline-now
USD Scenarios 1&2
If the dollar follows scenario #2 and breaks out here, from over bought levels and bearish divergence, it will negate a healthy ascending triangle and blow off into a less sustainable rise, which would likely top out per the weekly chart.
The implication of scenario #2 is short term pain to most asset holders in a final liquidation, and then preparation for a long inflation cycle (dollar decline). Scenario #1 however, would be the real nightmare scenario, where the dollar declines now, sucks in the casino patrons for a play at the bull game and then rises in a stronger and longer fashion than most would anticipate.
Despite a short term decline, #1 is the most bullish USD scenario where Uncle Buck hits the lower line around the SMA 200 and then rises once again for a try at upside resistance at the top line. The intermediate term measured target off this would be the high 90’s, specifically, 98.
We might extrapolate a bit and define #1 as the gateway to deflationary depression and #2 as the introduction to the next inflation cycle which itself could be a gateway to the Austrians’ Crack Up Boom.
http://news.goldseek.com/GoldSeek/1235998562.php
Elliott Wave Gold Update XXIII
Alf Field
-Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
-Major TWO down from $1015 to $699, say $700 (a decline of 31%);
-Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
-Major FOUR down from $3,500 to $2,500 (a 29% decline);
-Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)
Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.
Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in "Crisis Cogitations" for a five fold increase in money and prices in order to arrive at a "Less Hard" economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.
It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.
In "Crisis Cogitations" it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a "safe haven" investment may be large enough to cause the metal to perform better than cash or Government Bonds.
The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.
Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in "Crisis Cogitations" for a five fold increase in money and prices in order to arrive at a "Less Hard" economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.
It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.
In "Crisis Cogitations" it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a "safe haven" investment may be large enough to cause the metal to perform better than cash or Government Bonds.
The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.
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