Friday, May 1, 2009

M.I.A. - The Canary In The Coal Mine

Have Washington and Wall Street gone CRAZY?
From Martin D. Weiss
In recent days, stocks have risen despite some of the most terrifying headlines so far in this crisis ...

Major U.S. banks are failing the trumped-up stress test: Despite the fact that Washington has jury-rigged its stress tests, at least six of America’s largest banks are still coming up desperately short of the capital they need to survive.

Chrysler bankruptcy; GM deathwatch: Regardless of how the authorities spin it, consumers and dealers are already vowing to drop Chrysler like a hot potato. Liquidation of the company’s assets is also now on the table.

And one month from today, GM will face its own Judgment Day, with the likelihood of similar results. Americans are facing BOTH massive layoffs AND a federal bailout that could turn General Motors into “Government Motors.”

Unemployment is still exploding: Even before the impact of mass layoffs at Chrysler and GM, this morning’s jobless claims report shows that, once again, more than 637,000 American wage-earners lost their paychecks last week — bringing the number of Americans drawing unemployment benefits to more than 6.27 million — the highest on record.

The historic plunge in the U.S. economy is still unfolding: Yesterday, Washington revealed that the U.S. economy plunged a shocking 6.1 percent in the first three months of this year. Between last November and the end of March, the economy shriveled more than in any six-month period in over 50 years.

Swine flu pandemic is likely to hit the economy like another debt crisis: Swine Flu is spreading rapidly, earning a Level Five Pandemic Alert from the World Health Organization, and implying massive new economic losses ahead as businesses and employees reel from work stoppages.

The real estate crash is continuing: On Monday, the S&P Case Schiller index showed that home prices are still plunging, down 18.8 percent in a year and down 2.1 percent — an annual rate of 25.2 percent — in February alone.

A massive new explosion of mortgage defaults is expected in May: Beginning early next month, payments on teaser-rate adjustable mortgages will shoot for the moon. Lenders will be slammed by an explosion in defaults and foreclosures. Home prices will plunge yet again.

And yet yesterday and today, talking heads in Washington and Wall Street rushed to the microphones to declare that “the end of this recession” and bear market is now in sight and stocks surged.

Look: It’s no secret that the financial media, brokers and politicians all have a massive conflict of interest when it comes to telling the truth about the economy.

That’s why Washington has downplayed this crisis every step of the way — ever since the first cracks began appearing in the subprime mortgage market over two years ago. It’s also why so many Wall Street analysts have officially declared “the end of the bear market” every time stocks have rallied since then.

But the sad truth is, investors who chose to ignore the economic fundamentals — who based their investment decisions on Washington and Wall Street hype instead — have suffered massive, painful losses as a result.

Sadly, it’s happening again. Right now:

>> The Fed says the economy is starting to recover.

The International Monetary Fund (IMF), not driven by domestic politics, says the economic decline is gaining momentum.

>> The U.S. Treasury says the credit crisis is easing.

The IMF says credit crisis is spreading.

>> The Fed says most banks have capital far in excess of needs.

The IMF says U.S. banks will suffer ANOTHER $1 trillion in losses beyond what they’ve already written down.

Make no mistake: This great economic catastrophe is still in its early stages!

In The Great Depression of the 1930s, there were no fewer than NINE sucker rallies just like this one!

The lesson is clear: Investors who allow themselves to be seduced by Washington and Wall Street hype will be licking their wounds for many years to come.

Martin can be a bit dramatic, but he cuts through the BS to point out the obvious. I could not have said it better myself. The Great Confidence "CON GAME" roars full speed ahead. Naive Americans consumed by American Idol and Dancing with The Stars oblivious, their faith in their government unwavering.

"If they say they're gonna fix it, it will be fixed."

It will be fixed alright. As a matter of fact, it's a pretty safe bet the "fix" is already in. Unfortunately the "fix" will only be temporary, and when this thing finally breaks, the crash will be heard 'round the world.

We continue to gaze upon the Precious Metal Markets in amazement. Could the bad news be any worse? Could the Gold Market suppression be any more obvious?

Why didn't gold rise $100? [GOOD QUESTION]
By Patrick A. Heller
Several major news stories broke last week that all should have sent the price of gold soaring. Gold did rise 5.3 percent, which did not reflect the importance of the developments.

There is a theme to the eight news items cited here. China has been buying large amounts of gold, it wants even more and the U.S. banking system is still in dire straits.

Story 1: About 10 days ago, the Gold Anti-Trust Action Committee filed a new set of Freedom of Information Act requests with the U.S. Treasury and Federal Reserve to seek information on the U.S. government's gold swap activities. The first attempt to dislodge this information was filed in December 2007, with dismal results. After carefully analyzing the loopholes used by the Treasury and Federal Reserve to avoid disclosing the requested information, these revised FOIA requests include detailed instructions to overcome the government's obstacles. For example, one FOIA request noted that the agency was unable to uncover where its own public Web site discussed gold swaps.

Story 2: The federal government has conducted "stress tests" of individual banks to help find out which were financially strong, or average, or in serious trouble. It was reported that these tests were completed a few weeks ago, but the government was slow to release the results.

Story 3: On April 24, Bloomberg reported an analysis released by Washington Service of Bethesda, Md., stating that insiders at New York Stock Exchange-listed companies in the first 20 days of April had sold more than eight times the amount of stock that they had purchased.

Story 4: Bank of America CEO Ken Lewis testified under oath for New York Attorney General Andrew Cuomo that last December he had notified the federal government that the bank had discovered huge new losses ("material adverse changes") at Merrill Lynch and was going to exercise an escape clause to cancel the bank's takeover of the brokerage firm. Upon hearing this, then-Treasury Secretary Henry Paulson blatantly told Lewis, at the behest of Federal Reserve Chair Ben Bernanke, that Bank of America had to go through with the takeover or all of the bank's directors and senior management would be fired. The federal government did not want the public to become aware of the weakness of Merrill Lynch and the U.S. banking system that the cancellation of the transaction might expose. Bank of America then closed the Merrill Lynch purchase deal.

In effect, Lewis labeled Paulson and Bernanke as blackmailers. Their actions in this matter also show them as liars in repeatedly stating that the U.S. banking system is sound and solid.

Story 5: At the G20 meeting, the International Monetary Fund was pressed to sell 403 tons of its gold reserves to be used to ease the global financial crisis. China has since gone on record as advocating that the IMF sell its entire 3,217 tons of gold holdings. The Chinese central bank may be looking to purchase another 4,000 tons of gold, which is a larger amount than all the gold reserves reported by the IMF, and is also larger than those held by all but a handful of the world's central banks. At a price of $1,000 per ounce, China would need barely five percent of its central bank reserves to buy this much gold.

In effect, if the IMF does not sell a lot of gold, and sell it soon, that supply shortage could help drive up the price of gold.

A reason that China may be pressing the IMF to sell gold and why the Chinese central bank may want to add gold reserves is a long-term plan to revalue gold, similar to what U.S. President Franklin Roosevelt did in 1933.

Story 6: In 2008, 1.7 million American homes were lost to foreclosure. In 2009 Lazard Asset Management forecasts 2.1 million U.S. home losses. Despite regular news reports trying to portray positive news about the real estate market, the truth is that foreclosure rates should continue rising at least until early summer. It doesn't take a genius to figure this out. All you have to do is look at delinquency rates and foreclosure notices. How will the U.S. financial system react to this surge in bad debts?

Story 7: After so much fuss was made at the G20 meeting about the IMF possibly selling gold, the subject has either been dropped or been reclassified as a very low priority task. In the last few days, the IMF has said instead that it plans to sell bonds to finance its activities. Several years ago, these fund-raising activities were supposedly being done to help the world's poor people. Now the IMF is raising funds to support central banks and governments. This shift in emphasis at the IMF adds credence to the assertions by several analysts, including me, that the IMF gold sale will never occur.

Story 8: On April 24, the Xinhua News Agency reported that China's gold reserves had increased from 600 tons at the end of 2002 to 1,054 tons, a rise of 76 percent. Until this announcement, the Chinese central bank had continued to report only the 600 tons in reserves. The spokesman claimed that all gold had been purchased from domestic mine sources.

The impact of this announcement has ramifications far beyond that fact that China has been buying gold without reporting it. The World Gold Council and major precious metals consultancies such at GFMS regularly report gold supply and demand statistics that are widely quoted in the financial press. None of their reports include the Chinese central bank gold purchases as part of gold demand. Even more damaging to their reputations, these reports do not show any gold supply to cover what the Chinese have purchased.

Let me make this explicit. The gold purchased by the Chinese could not have come from mine production, recycling, investor liquidation, or announced government sales. Almost certainly the gold bought by the Chinese had to come from other central banks that secretly sneaked these supplies on the market.

In other words, the supply-and-demand statistics used by the mainstream financial press have been wrong for years. The question is how large are the errors. GATA researchers assert that the annual supply and demand statistics reported by the World Gold Council and GFMS could easily be off by 50 percent. With GATA's enhanced credibility confirmed by China's admission of their gold purchases, the mainstream financial press should seriously examine their data.

So with all this positive news for the price of gold, why did the price only rise 5.3 percent last week? I think the answer is obvious. The U.S. government is trying to hold off further financial crises as long as possible. One way to accomplish this is to suppress the price of gold. Gold serves as a report card on the value of the U.S. dollar. As long as the price of gold can be held in check, then it is easier to prop up the dollar. If the dollar starts to drop significantly, interest rates will soar, and foreign central banks will become more aggressive in dumping their dollar reserves.

U.S. Rep. Paul Kanjorski, D-Pa., already revealed that the U.S. financial system was perilously close to collapse at 2 p.m. last Sept. 18, 2008. With all the above news hitting in such a short time, it is entirely possible that the U.S. economy could have crashed last week.

If you still don't think it's time to consider owning gold or silver, you probably never will.

by Rob Kirby
The Fed / Treasury first announced that banks would be subject to stress tests back on Feb. 10, 2009.

WHEN STRESS TESTS WERE CLEARLY PLANNED and ANTICIPATED – FASB [Financial Accounting Standards Board] rules CLEARLY stipulated that mark-to-market accounting was the measuring stick for prudently gauging the true financial health of any banking institution.

Something happened to the methodology for how stress tests would be conducted on the way to the recent G20 Central Banker confab, as this Reuters article dated April 2, 2009 reveals;

US STOCKS-Wall St climbs on G20, FASB hopes

Thu Apr 2, 2009 10:23am EDT

By Chuck Mikolajczak

NEW YORK, April 2 (Reuters) - U.S. stocks rose for a third straight session on Thursday on optimism the G20 meeting in London will agree on ways to temper the economic crisis and that new U.S. accounting guidance will favor banks.

World leaders will triple the war chest of the IMF to fight the worst economic crisis since the 1930's and impose curbs on financial markets, monetary sources at the G20 summit said. For details see [ID:nL1230573].

In the United States, the Financial Accounting Standards Board said new mark-to-market accounting guidance will be effective for the second quarter, with early application allowed for the first quarter, and not be retroactive.…

We can only surmise that the TRUE reason for this accounting chicanery is to obfuscate the true condition of institutions such as Goldman Sachs – which recently, for the first time – was subject to minimal transparency requirements when, as a bank for the first time, they were required to report to the Office of the Comptroller of the Currency [OCC] and their financials were subject to the OCC’s Q4/08 Quarterly Derivatives Reporting:

Ladies and gentlemen, the Total Credit Exposure to Capital ratio is one of the most telling capital adequacy ratios known to man. If ever there was a failing grade on a “stress test” – HERE IT IS IN SPADES!!! The aforementioned measure of capital adequacy, [1,056.4] in Goldman’s case, is so TOXIC – in fact; one can only wonder if regulators might have required radiation suits and Geiger Counters to safely measure the TOXICITY of Goldman’s books. Goldman’s figures stand out almost 5 times worse than those of Citibank and Bank of America and 11 times those of Wells Fargo.

Of course, with the discarding of real accounting standards in the United States, the true extent of this toxicity will now conveniently be obfuscated from the general public in further OCC reports,

“ mark-to-market accounting guidance will be effective for the second quarter, with early application allowed for the first quarter, and not be retroactive.

Not retroactive????? “Effective for the second quarter, with early application allowed for the first quarter??????” Who are these CLOWNS trying to kid? From this time forward, this shall no doubt become known as “the Goldman Clause”.

You see folks; a rising gold price historically acts a canary-in-the-coal-mine – alerting all that things are “not right” in the monetary system. Additionally, gold has historically served as the-go-to flight to quality / wealth preservation trade. In the current environment, the powers that be desperately need U.S. Bonds to serve that function. This is why gold has been auspiciously stifled [murdered] so many times at the EXACT moments of U.S. Dollar and Bond negative news. The current Obama Administration is being “coached” by none other than Paul Volcker, who is clearly and factually on the record regarding the rising gold price circa 1980 – [excerpted from Volcker’s memoirs published in The Nikkei Weekly, November 15, 2004];

“That day, the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.”

Fool me once, shame on you. Fool me twice………

Maybe pigs really can fly?

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