Thursday, August 27, 2009

The Truth Hurts

“The Central Bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an enemy to all banks discounting bills or notes for anything but coin. If the American people allow private banks to control the issuance of their currency, first by inflation, then by deflation the banks and corporations that grow up around them will deprive the people of all their property, until their children will wake up homeless on the continent their Fathers conquered.”
-Thomas Jefferson.

Truth would destroy U.S. economic system, Fed warns
NEW YORK -- The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.

The central bank filed its request on Wednesday, two days after Chief Judge Loretta Preska of the U.S. District Court in Manhattan ruled in favor of Bloomberg News, which had sought information under the federal Freedom of Information Act.

"Immediate release of these documents will cause irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis," the central bank argued.

It added that the public interest favors a delay, citing a potential for "significant harms that could befall not only private companies, but the economy as a whole" if the information were disclosed.

What is going on here? Inquiring minds want to know. Me thinks any bank fighting this hard to hide figures has something really awful to hide. This is truly laughable. Don't tell the people the truth, they might demand their money and quit doing business with the bankrupt bank. ONLY in AMERICA...

Are The Bullion Banks Losing Their Grip On Gold And Silver?
One wonders if perhaps too many people are finally catching on to the game and beating the commercials at their game, by buying gold before the COT’s have a chance to harvest what they had hoped to gain.

What if some Central Banks along with a few billionaires, together with a large number of small investors, began buying physical gold as they looked in horror at the profligate spending currently going on in Washington?

Recently I read that to get a grip on what a trillion dollars looks like, imagine a stack of one thousand dollar bills 63 miles high. If you topple the stack you can drive for about an hour before reaching the end. Now imagine driving for 9 hours to reach the 9 trillion dollar number that was just announced as the projected growth in the deficit for the next ten years, (and this number will no doubt be subject to upward revision as we go along).

This kind of ‘massive US dollar degradation’ has never happened before, and could well provide the motivation for a lot of people to increase their gold stashes, thereby denying the COT’s the gold they had hoped to scoop up.

Antal Fekete: Dress rehearsal for the last contango
Whatever paper trading of gold is still going on in the United States, it is at best a dress rehearsal for the Last Contango in Washington, which will be followed by the regime of permanent backwardation.

The meaning of this is that physical gold cannot be purchased at any price quoted -- this time, yes, in U.S. dollars.

The U.S. dollar rubbing shoulders with the Zimbabwe dollar?

Mainstream economists and financial journalists shrug: "So what? We are not watching the basis of frozen pork bellies trading either when we make monetary policy." These gentlemen betray a lack of comprehension of the nature of the present financial and credit crisis. Whatever else it may be, this crisis, first and foremost, is a gold crisis with an incubation period measured in scores of years. It is about to reach its climax.

The world appears to be totally unprepared for it -- witness the silence surrounding the gold nexus.

Even the so-called sound-money Internet sites misread the situation. They are talking about an imminent breakout of the dollar price of gold from its holding pattern below $1,000 per ounce. Such breakouts have occurred from time to time since 2001, when gold broke through the "resistance levels" of $300, $400, etc. The coming breakout is not distinguished by the fact that $1,000 is an even rounder figure than the previous round figures that have been surpassed. It is distinguished by the fact that we are confronting a world event the like of which has never happened.

It has never happened that gold was unobtainable at any price. It has never happened that all governments have defaulted on their debt obligations simultaneously.

Still, we have to explain the relevance of this to the credit crisis. It is no secret that the bonds, notes, bills, and other obligations of the U.S. government, or any other government, for that matter, are irredeemable. That is, they are redeemable in nothing but more of the same. For example, the bonds of the U.S. Treasury are redeemable in Federal Reserve credit, which is itself irredeemable and is "backed by" the self-same bonds of the U.S. Treasury. Why is it, then, that these Treasury obligations are in demand where one might think that redeemability is a sine-qua-non of issuing them? What makes people participate in this shell game? How can such a crude check-kiting scheme mesmerize the entire population?

Come to think of it, the sight of this Ponzi scheme would shudder the Founding Fathers of our great Republic.

This is not an easy question to answer. But going through all the alternative explanations one by one, we come to the conclusion that the debt of the U.S. government is still redeemable in a sense, however limited or restrictive it may be. The debt of the U.S. government has a liquid market in which it can be exchanged for Federal Reserve credit. In turn, Federal Reserve credit can still be exchanged in liquid markets for physical gold, the ultimate extinguisher of debt, albeit at a variable price.

But if you break that final link, when gold is no longer for sale at any price quoted in U.S. dollars, then the rug will have been pulled from underneath this house of cards, and the international monetary system will collapse like the twin towers of the World Trade Center. And this is the situation that we are confronted with.

Look at it this way. There is a casino where the lucky gamblers can gamble risk-free. Their bets are "on the house." This casino is the U.S. bond market. There is only one catch. The pile of the winning chips in front of each gambler may become irredeemable at the exit when the hairy godfather waves his magic wand.

As the gold markets enter their phase of permanent backwardation, all rational basis for holding U.S. Treasury debt -- or any debt, for that matter -- will disappear. There will be a mad rush to the exits, and holders of debt will trample one another to death in trying to cash in on their winnings.

Looming Crisis, Golden Exits
By Darryl Robert Schoon
The current economic collapse has its roots in a crisis caused by the decline in the value of paper money over time resulting from the removal of gold and silver from global monetary systems. Previously, for much of mankind’s history, money was gold and/or silver and its value was intrinsic and fixed.

Then, following the lead of the Bank of England, the US central bank, the Federal Reserve in 1913 began issuing US dollars in the form of paper money convertible upon demand to gold or silver. But by 1971, even that artifice was no longer true as the amount of paper dollars issued by the US far exceeded the underlying amount of gold.

Today, as a consequence, the US dollar, along with all paper currencies, is not convertible to anything of fixed value; and, while others may wonder why we are having a financial crisis, I don’t. To me, the cause of the current crisis is clear as the uncertain value of money itself.

Paper currencies are now backed only by “the full faith and credit” of their increasingly bankrupt and insolvent issuing governments. Economies based on currencies of variable and declining worth are no more stable than housing developments built on quicksand. The reasons for our economic problems are clear whether we want to know them or not.

The consequences of the degradation of money over time are now with us; and because the loss of value was gradual, it went largely unnoticed, much as an undetected cancer grows surreptitiously until it is too late. What is happening now took decades to develop and its resolution is not over.

This is where we are today, in a late-stage monetary crisis where only massive doses of borrowed money from heavily indebted governments buying their own debt are keeping major economies afloat, e.g. the US, the UK, and Japan. The global economy is surviving only because it’s on full blown artificial life-support.

...and we wait. We wait for what appears will be a breakout to the upside in Gold. With the CRIMEX fighting tooth and nail on behalf of the US FED and TREASURY, we have no choice but to wait. It's frustrating, but as they say, "Good things come to those who wait."

I will be on vacation for the next week. I will post if I have the opportunity. Thanks for reading!

Tuesday, August 25, 2009

Damage Control?

"The Federal ruling that the Fed must disclose its secretive recent bank activity and the reappointment of Fed Chairman Bernanke are connected events."
-Jim Sinclair

Fed Must Make Public Reports on Emergency Loans, U.S. Judge Says
Aug. 24 (Bloomberg) -- The Federal Reserve must make public reports about recipients of emergency loans from U.S. taxpayers under programs created to address the financial crisis, a federal judge ruled.

Most red ink ever: $9 trillion over next decade
WASHINGTON (AP) -- In a chilling forecast, the White House is predicting a 10-year federal deficit of $9 trillion -- more than the sum of all previous deficits since America's founding. And it says by the next decade's end the national debt will equal three-quarters of the entire U.S. economy.

On Monday afternoon news breaks that a federal judge rules that the Fed can no longer keep secret the recipients of their "emergency loans" to banks at the height of the financial crisis last year. On Tuesday morning the White House tells the world that America's deficit problem is bigger than anybody could have imagined...$2 TRILLION bigger. Suddenly, while on vacation, the president shows up infront of a makeshift "Presidential Podium" in some hotel backroom and announces that he will reappoint Ben Bernanke a Chairman of the US Federal Reserve. Strange coincidence?

Not at all. In an obvious effort to "protect" the US Bond Markets, Team Obama had to do "something" to divert attention from the TRUTH. The US Fed is about to be stripped naked, and America is without a doubt broke.

Why Did Obama Reappoint Bernanke on His Vacation?
By Ezra Klein
The surprise isn't that Barack Obama reappointed Ben Bernanke. It's that he announced reappointing Ben Bernanke today. Obama is on vacation in Martha's Vineyard. It's a rare person who reappoints the Fed chairman in order to relax. Nor was this an urgent decision: Bernanke's term doesn't end till January. So why today?

...the OMB is coming out with big deficit numbers today, which could rattle the markets and be used as a cudgel against health-care reform. To prevent that, the White House scheduled the Bernanke announcement for the same day. Fed chairmen may be insulated from politics, but the people who choose them sure aren't.

By Tim Fernholz
...there's plenty of interest in why Obama chose today of all days to unveil his decision, since Bernanke's first term doesn't end until January and the president's on vacation in Martha's Vineyard. Noam Scheiber, as well as sharing my appreciation for Bernanke's extremely effective and pragmatic crisis management, suggests it's about coddling the bond markets, as monetary policy decisions often are.

...the bond markets love to freak out at the first sign of increasing deficits. To counteract the deficit news that otherwise would put CNBC and the markets in a huff, the White House is pushing ahead the Bernanke announcement, putting a little honey in the bad medicine. Bernanke is "trusted" by the "markets," in the insane parlance of our times, and this should give them some confidence going forward. (It also won't hurt to take health-care reform out of the news cycle for a few hours or so.) And if, as Noam suggests, Bernanke's market credibility will give him more leeway to wait on raising interest rates until recovery truly comes instead of jumping early, then that will help bring down unemployment and prevent a 1937-style second recession.

It should also be interesting to note that the Treasury has a mountain of debt to auction this week...imagine that. After auctioning off $61 BILLION in three and six month debt yesterday, and beating up the Precious Metals Markets to do it, the Treasury AND the Fed were at it again today. Gold once again came in scortching hot this morning only to see it's gains beaten back once again by the goons on the CRIMEX as the Fed "bought more debt than some had expected it would in the first of the U.S. central bank's two U.S. debt purchases scheduled for this week". No, seriously, Gold sold off because the Fed bought MORE debt than was expected. The Fed bought $6 BILLION of Treasury Debt, with money created out of thin air, and the price of Gold went down? ONLY IN NEW YORK.

Treasurys add to gains after Fed's big buyback
Major supply of notes, bills up for bid in government auctions this week
NEW YORK (MarketWatch) -- Treasury prices advanced Monday after the Federal Reserve bought more debt than some had expected it would in the first of the U.S. central bank's two U.S. debt purchases scheduled for this week.

The rally "started after the buyback which was a little better then expected," said Thomas Di Galoma, head of U.S. rates trading at brokerage Guggenheim Capital Markets.

Dealers submitted $29.371 billion in offers to the Fed.

Such offers may be higher than in past repurchases if traders decide to use the buyback to set up for the auctions this week, said George Goncalves, chief fixed-income rates strategist at Cantor Fitzgerald, one of the 18 primary government security dealers required to bid at auctions.

Still, gains may be short-lived before the week's government auctions -- $109 billion in notes plus $117 billion in shorter-term bills -- get underway.

Traders usually prepare for coming sales of new debt by selling existing holdings, both to have assets to bid on auctions and to push prices down to get a better deal.

The Treasury will sell $42 billion in 2-year debt on Tuesday and $39 billion in 5-year notes the following day. It will also offer $28 billion in 7-year securities on Thursday.

One challenge for this week's auction slates is that the government is selling far more in new debt than it has debt maturing and interest payments, meaning investors have less cash to roll over into the new securities. The relative success of last month's auction slate was in part attributed to very large amounts of maturing debt and interest payments.

"The burden will be the new money issue in the period given the $19 billion in 2-year debt as the sole maturing issue while raising $90 billion new money," said John Spinello, Treasury strategist at primary dealer Jefferies & Co., referring to the note sales.

Team Obama may be focused on damage control today, but it looks like they've decided they will all go down with the ship together tomorrow.

Monday, August 24, 2009

There Is No Gold To Be Bought Or Sold

Today's CRIMEX Gold AND Silver Market is one for the ages. Is this a new CRIMEX tactic to throw the dogs of the scent of their crime? The takedown of the Gold market in the FINAL 15 minutes of trading was abhorrent. Not to mention the rape in the Silver market. The London fix for Silver was 14.41. Obviously traders overseas saw fit to bid Silver up overnight. But no, they were mistaken. The Asian traders had it all wrong, the CRIMEX goons said so.

I find it laughable that this "sudden" free fall in the Precious Metals 15 minutes before the close of the CRIMEX market was precipitated by the Dollar catching a bid on the "successful" sale of $61 BILLION of three and six MONTH Treasury bills. $61 BILLION folks! $61 Billion of DEBT sold in one morning. The equivalent of 12% of the entire 2008 budget deficit...sold in one morning! LOL, the three month bills pay less than $5 profit to the holders? Who in the hell is buying this garbage? And why would its sale excite anyone enough in the FOREX markets to purchase the Dollar? Gold, even in a rigged market, would offer a far superior return on ones money.

Bah, just another day spent waiting for the inevitable... The Dollar notably closed below the 78.28 trigger line...

Interest rates drop at Treasury auction with six-month bills falling to lowest level this year
WASHINGTON (AP) -- Interest rates on short-term Treasury bills fell in Monday's auction with rates on six-month bills dropping to the lowest level this year.

The Treasury Department auctioned $31 billion in three-month bills at a discount rate of 0.16 percent, down from 0.18 percent last week. Another $30 billion in six-month bills was auctioned at a discount rate of 0.255 percent, down from 0.27 percent last week.

The three-month rate was the lowest since these bills averaged 0.15 percent on June 1. The six-month rate was the lowest since these bills averaged 0.25 percent on Dec. 29.

The discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,995.51 while a six-month bill sold for $9,987.10. That would equal an annualized rate of 0.162 percent for the three-month bills and 0.259 percent for the six-month bills.

Separately, the Federal Reserve said Monday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, fell to 0.44 percent last week from 0.47 percent the previous week.

Danger for the Dollar
By Bill Bonner
Desperate borrowers should expect to pay high rates of interest. A borrower who doesn’t need the money can shop for the best rates and hold out for a good deal. But when a person needs to borrow, he takes what the market gives him.

Yet, one of the most curious things about the financial world circa 2009 is the yield on the 10-year Treasury note. It has fallen to under 3.5%. Despite record borrowing by the feds, lenders content themselves with the lowest yields in nearly half a century. Go figure.

The market seems to be anticipating a depression. Why else would bond yields be so low? If the economy sours…and the stock market sinks…the safe yields on Treasury bonds will seem like a good alternative. But Buffett believes the Treasury yields are not as safe as they appear. That other $900 billion has to come from somewhere. And the feds can’t allow interest rates to rise significantly; that would undermine all their stimulus efforts. High real interest rates depress economic activity. So, what can the feds do?

“Washington’s printing presses will need to work overtime,” says Buffett prophetically. Of the two ways of financing the deficit, one is a flimflam; the other is robbery. In the great credit expansion consumers borrowed so they could buy things such as automobiles. Now, the feds borrow and bribe the voters with money to buy automobiles.

No matter who does it, borrowing for consumption is merely taking from the future. Then, when the future comes…the account has to be settled. Result: no net gain. What was consumed in one year is not consumed in the next.

Of course, the feds don’t spend money the same way consumers did. Consumers wasted their money on frou-frou and watchamacallits of their own choosing. The government wastes money on different things – like turtle crossings and billion-dollar bailouts.

Not that we’re complaining about government spending. We’re just pointing out that it’s not the same as private spending. What makes goods good is that people choose them and buy them with their own money. They get what they’ve got coming. But the feds are spending other peoples’ money. If they get any goods at all it is practically an accident.

But what we’re talking about this morning is the dollar. According to Buffett, the dollar is in danger. He’s worried about the larceny, not the flim-flam. Printing up additional dollars robs savers. Each new dollar created to buy US debt makes each one already in existence – say, in a vault in the Bank of China – worth less than it was before. If that isn’t true, the whole body of economic thinking from Adam Smith to Irving Fisher is nothing but a fantasy. And the only way to protect the value of the dollars held by savers, theoretically, is to withdraw the stimulus money before inflation sends prices soaring.

Obama to raise 10-year deficit to $9 trillion
WASHINGTON (Reuters) - The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.

The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama's opponents, who say his spending plans are too expensive in light of budget shortfalls.

The White House took heat for sticking with its $7.108 trillion forecast earlier this year after the Congressional Budget Office forecast that deficits between 2010 and 2019 would total $9.1 trillion.

"The new forecasts are based on new data that reflect how severe the economic downturn was in the late fall of last year and the winter of this year," said the administration official, who is familiar with the budget mid-session review that is slated to be released next week.

"Our budget projections are now in line with the spring and summer projections that the Congressional Budget Office put out."

The White House budget office will also lower its deficit forecast for this fiscal year, which ends September 30, to $1.58 trillion from $1.84 trillion next week after removing $250 billion set aside for bank bailouts.

Record-breaking deficits have raised concerns about America's ability to finance its debt and whether the United States can maintain its top-tier AAA credit rating.

$107 trillion in liabilities
Are members of Congress out of touch with reality?

The nation can't pay for Social Security and the health entitlement programs it has now.

The Social Security and Medicare Trustees Reports for 2009, released in early May, laid out the situation plainly:

Social Security and Medicare have a combined unfunded liability of almost $107 trillion.

Members of Congress have, over the decades, promised Americans $107 trillion more in benefits under these two existing programs over the next 75 years than they have provided for in taxes.

Medicare alone has an unfunded liability of almost $38 trillion.

By some people's reckoning, when today's college students reach retirement in about 2054, the burden of paying Social Security and Medicare benefits would consume one in three dollars of taxable payroll.

And traders bought the Dollar today? And sold Gold? Not likely. No real Gold was sold today. Not a single ounce. Just little pieces of paper pretending to be Gold were sold today. There is no real Gold to be bought OR sold...and that is the TRUTH about the CRIMEX market. The CRIMEX is a game played by a very select few banks that gives the "illusion" of a Precious Metal market in New York. But there is no real bullion "exchange" in New York or in the USA for that matter. How can there be when futures contracts in New York are settled for shares of a Gold bullion ETF instead of Gold bullion? Ditto for the Silver Market. Both are a sham run with the blessings of the US Government.

Striving to be Free
By: David N. Vaughn, Gold Letter, Inc.
What is the next crisis bearing down on us? The next bust to come?

Almost 700,000 Americans are soon to use up all of their unemployment benefits. The national unemployment rate now hovers just under 10%. Sounds like a looming crisis to me. What happens when the last dollar disappears? I have relatives myself who have lost their jobs and their home has depreciated by 40%. This is happening all across the country. Around 4.5 million people will lose all their unemployment benefits. What comes next? Selling apples on the street? Increased soup kitchens across Middle America?

“Jim Rogers, retired chairman of Vancouver-based Rogers Group Financial, says advisors often suggest clients take a 5% or 10% position in precious metals as insurance…” “He says "a trillion dollar stimulus has to be inflationary…” “Since the future is unpredictable, I'd argue investors should be exposed to all of stocks, gold, real estate or REITs, cash and both nominal and inflation-linked bonds, as I am myself. How much of each can be decided after consulting with a trusted financial advisor.”

It is estimated that true year to year inflation is 7%. As the years move forward we may see inflation as we experienced in the 1970s. No, this world crisis is far from over but continues to build up steam if only under the surface. In this long term environment gold and gold related investments will always prove to be the better longer term investments. Today, do not consider the short term events, but continue to prepare yourself for the longer term events pending.

When investing always consider well where the longer term direction of the economy and current events are heading. You’ll hold on to your money longer if you think this way. Warren Buffet is the master in determining long term events. I'll give a plus here also for Wells Fargo Bank. During the real estate boom Wells Fargo refused to provide sub prime loans. And when the real estate bull crashed they were sitting on a lump of cash and calmly proceeded to purchase Wachovia Bank. A long term disciplined approach is always the key to where to place your money.

And traders sold their Gold and bought Dollars?

Yeah, right...

Tipping The Scales

Gold Market Update
By: Clive Maund
UPSIDE BREAKOUT ALERT: gold is now believed to be very close to an upside breakout to new highs, a development that should lead to a rapid advance towards the $1300 area, and it should be noted that this scenario will not be negated by a brief sharp drop that may be aimed at wrong-footing a lot of traders. The reasons for shifting from our recent stance of neutral/bullish to flat out bullish are as follows... 1. Massive inflationary pressures building as the gargantuan panic measure increases in M0 money supply by the US Fed late last year and well into this year come through the pipe, replicated in other countries around the world although probably not on such a grand scale. 2. strong breakout by US stockmarkets late last week that portends continued gains, confirming the building inflationary pressures. 3. ongoing gains in the prices of other commodities - copper continues to advance, crude oil threatening to break clear above June highs. 4. window for dollar to stage a strong rally believed to be closing, increasing downside risk - it appears that the dollar is to be sacrificed in favor of Treasuries - a quite logical way of reducing reducing the debt burden, even if not entirely appreciated by creditors. 5. significant improvement in gold COT last week. 4. gold's best month of the year seasonally, September, is just around the corner.

GATA presses Fed to give up its golden secrets

Dear Friend of GATA and Gold:

Yesterday GATA's Washington-area law firm, William J. Olson P.C. of Vienna, Virginia -- -- filed with the Federal Reserve Board an administrative appeal of the Fed's most recent refusal to grant us access to the agency's records involving the U.S. gold reserve.

By letter dated August 5, the Fed reported to us that 137 pages of documents being withheld "contain the following kinds of exempt information: 'trade secrets and commercial or financial information obtained from a person and privileged or confidential' (confidential commercial information); and 'inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency' (staff memoranda, draft memoranda and letters, and intra- and inter-agency communications). Such information is exempt from disclosure under authority of Exemptions 4 and 5 of the [Freedom of Information] Act, respectively, 5 U.S.C. 552(b)(4) and (b)(5)."

We construe this as an admission that the U.S. gold reserve has been put into private hands to some extent or has been compromised in some way by possession by private interests, such as financial houses that trade in gold. Really, why should any Federal Reserve record involving the national gold reserves be confidential, except perhaps records involving the most ordinary security of the reserve's vaulting? Plainly the Fed has knowledge of something that has been done with the gold reserve that the U.S. government does not want the American people and the financial markets to know.

Further, GATA's administrative appeal notes, the Fed's search of its records in response to our request was negligent, insofar as it did not cite at least one document involving gold swaps that is posted and publicly accessible at the Fed's own Internet site. That is, it seems that GATA's lawyers looked harder for the relevant documents than the Fed itself did.

It strikes GATA as remarkable that the financial market commentators who most often disparage suggestions that central banks are intervening surreptitiously as well as openly in the gold market never have tried to put a critical question about gold to any central bank. Even big financial news organizations have failed to do this when reporting on the gold market. But if they ever did start asking critical questions, they would have to report that the Fed has some big secrets about gold. It is more justification for U.S. Rep. Ron Paul's legislation to audit the Fed.

You can read GATA's administrative appeal of the Fed's denial of our freedom-of-information request here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

International Forecaster
By: Bob Chapman, The International Forecaster
Speaking of regulators, Ted Butler thinks he can work with someone like Gary Gensler, who is the current chairman of the CFTC, and an alumni of Goldman Sachs (gee, what a surprise). Gary Gensler helped Larry Summers rig the gold market as the Clinton Administration established its strong dollar policy, taking gold down to its market bottom as Gordon Brown put his two cents in to create "Brown's Bottom."

Gensler also teamed up with Summers to advocate the repeal of Glass-Steagall and the deregulation of derivatives via the Commodity Futures Modernization Act. Ted thinks he can work with Gary because Ted is a gentlemen, but he should know better. These people do not think like he thinks. They are greedy, slimy animals. Never in a million years will they decrease position limits for the COMEX silver market without continuing the various exemptions enjoyed by the commercial shorts even though they have absolutely no legitimate business purpose to hedge other than pure manipulation. In fact, it is most likely that any reduction in position limits by the CFTC will be used to suppress the large specs, and thereby to strengthen the positions of the large commercial shorts. But Ted is serving an important function in that he is documenting the rampant fraud and manipulation, and putting officials on notice, so they do not have the excuse that they were ignorant. We commend him for this. That way, when the trials and recriminations start, we will know who to prosecute and we will also know the precise nature of their crimes. This is why we always put links to Ted's articles in the IF. He is intelligent and well-meaning, and that is more than we can say for most newsletter writers who are little more than Illuminist disinformation specialists, or just plain idiots, with few exceptions.

The Chinese, on the other hand, might very well accomplish what the CFTC regulators have refused to do, which is to break the paper log jam created by the Illuminist cabal in the silver futures market. The Chinese just made it legal for their citizens to buy silver, probably so they can protect themselves from the idiot QE (Quantitative Easing) monetary debauchery being perpetrated against them and the rest of people in the world, including Americans, by Buck-Busting Ben. Even though China's hands are just as filthy-dirty as America's, we can only say: Go, China!!!

Speaking of COMEX gold and silver futures, it appears that the Illuminati have solved their physical gold and silver inventory shortage which was causing them great headaches as massive demands for physical delivery were received. At first, they just lied about their inventory. The inventories did not change even as hundreds of requests for physical bullion were settled month after month, often with the help of central banks like the ECB and other outsiders like the Canadian mint. Now, instead of using physical bullion, they can hand you an ETF contract instead. So they are trading paper for, well, more paper! Pretty slick, eh? They want to give investors the convenience of having an interest in a publicly traded security so they will just hang onto it and not demand physical delivery. But therein lies the trap. These ETF's have leased large portions of their bullion out to the bullion banks for purposes of gold and silver suppression. They do not have what they say they have any more than the COMEX does, and if you hold on to your ETF contract, you may well become the next victim of a Madoff-like Ponzi scheme.

What this means, oh precious members of the hard money community, is that you should demand delivery of your metals from the ETF's assuming that this is possible pursuant to your contract. Otherwise, here is what the system looks like: You buy a COMEX gold or silver contract with cash. You demand physical delivery of your gold or silver. Instead, they hand you an ETF contract. Unless you can demand the metal from the ETF, the ETF will simply hand you back cash instead when you liquidate your position, and you will be left hanging right where you started, with a pile of depreciating cash and no physical metals. If you try to hold on to your ETF position to at least get the appreciation in value of precious metals, you may never be able to cash it in, because the ETF's may well turn out to be nothing more than Ponzi schemes. If the sponsors do not have the metals, they will not be in a position to cash out all the shares. And the COMEX can just hand out as many ETF shares as they please, because no one will be checking the legitimacy of these contracts, especially the ETF sponsors, who will be in cahoots with the COMEX.

Theoretically, under such a system where you are run around in paper circles leading to nowhere, you could buy and sell gold and silver in any quantity, no matter how vast and ludicrous, because there would never be a requirement anywhere in the system to produce the actual physical bullion! This is unadulterated BS poppycock!!! They can just short gold and silver forever and keep handing out ETF contracts to satisfy requests for delivery, and no one will be the wiser as there will never be enough ETF liquidations to empty the ETF's cash pot until it is too late and the Ponzi scheme blows up. If the Illuminists need a technical advisor, they can always consult with Pat Kiley.

Thursday, August 20, 2009


Monetization of USTreasurys In Isolation
By: Jim Willie CB,
Monetization of USTreasurys is occurring in a profound blatant fashion. Such action infuriates the Chinese creditors, while at the same time creates a huge rift between the US Federal Reserve and the USDept Treasury. The rift is political and will come to a head when Chairman Bernanke is due for renewal of his post in a few months. China exerts its constant pressure on the USFed to end the Quantitative Easing efforts. Like doctors, they wish to apply a tourniquet to a gaping leg wound that bleeds a red river onto the pavement. The term is a funny euphemism, a sophisticated economist term for Heavy Duty Money Printing that results in destruction of a currency if not kept under control. The USDollar stewards are NOT demonstrating control, discipline, or even anything remotely resembling honesty or integrity. The USDept Treasury wants to continue funding the federal deficit, and for yucks, add any and every conceivable new program onto the books while the federal insolvent bankruptcy makes marginal additions not so noticeable.

The USFed engages in almost immediately permanent operations to snag the primary dealer USTreasurys gatherings bid at auction, for a simple shell game shuffle. The USFed engages in a sneakier but still obvious hidden bidder game with foreign central banks. They use USDollar Swap Facilities (with gargantuan funds) and bid heavily on the USTreasurys, evidence being the ‘Indirect Bid’ component. If not for the USFed buying most of the USTreasurys issued, the long-term interest rates would be rising quickly and with alarm. If not for the USFed heavy buying, the USDollar would be doing a swan dive off a cliff into rough waters. As has been claimed in past work, the USGovt stewards of the wrecked buck can save the USTreasury or save the USDollar, but not both. Their monetization efforts here and abroad indicate a clear intention to save the USTreasury Bond. They put the USDollar at grave risk. The Weimar Territory lies directly ahead!

The USDollar remains firmly stuck at the cliff’s edge. It cannot recover, as the 80 level offers stiff resistance. The Powerz seem to prevent the breakdown but they cannot engineer a rally for recovery with any gusto. Two notable technical factors bear importance. The downtrendline is becoming clear, which worked to make the 80 level more stubborn. Also, the moving average crossover that occurred in early June still casts a dark cloud over the entire USDollar trading. The US$ DX index is stuck in a bear market, unable to bounce, and now is running out of time. Resolution is demanded. A key point must be mentioned. We are fast in the land of the non-linear, where discontinuous events occur, and disjointed price movements are highly likely. The ground from under the currency market is shifting in an unstable fashion. See the British Pound Sterling in the last week. It has jumped up and fallen down by 200 basis points in several days. Even the Euro has shown unstable movement. That is akin to a hanging lamp in your study, or a displayed chandelier in the living room, and see it shift to and fro in grand swings. Something big is coming and soon. All billboards scream it!!

Wednesday, August 19, 2009

One Last Shakeout, The Battle Royale

Central banks are NOT ordinary gold investors
Central banks run the world's biggest Ponzi scheme, issuing bits of paper that people will accept in return for real goods and services. If you enjoyed this privilege to the tune of a few trillion dollars that finance an empire, expending a few tonnes of gold to keep it going would be a no-brainer.

Central banks do not sell gold to get a few billion of their own fiat money in return, money they probably would throw on top of the stack of half a trillion freshly printed notes that rolled off their presses just that morning. No, central banks sell gold to make it appear that the paper stuff is more desirable than its true supply and demand fundamentals would allow. And when the game looks like it's coming to an end, the central banks can always buy back the gold.

It is not a problem to buy back the gold at even $50,000 per ounce when any amount of paper currency can be printed.

What is a big problem is if the currency loses its value so fast that no one will sell the central banks any gold for any amount of paper. (Try buying gold with Zimbabwean dollars.)

If that happens, the central banks lose and the people win, because when the music stops the people have the gold and the central banks are stuck with the depreciating paper.

Central banks have to use their gold to support their Ponzi paper creation, but they have to control the destruction of their currency's purchasing power so they can still buy their gold back with their own paper before the game ends and they have to start a new one.

When the paper currency has little purchasing power left but the central banks have bought back their gold, they can introduce a new currency and start the cycle all over again.

In this way they leverage their gold instead of having something honest like one-for-one backing in a classical gold standard. They have even found ways of having more leverage by selling paper promises for gold to make it look as if they have 10 or 20 times as much gold as they really have.

There is another problem. What if someone else with a large amount of worthless paper currency gets the idea to buy back your gold before you do?

Do you ever wonder why China kept so quiet about the 450-tonne increase in its gold reserve over the last five years? Clearly China would not want to tip off the Western central banks that it was going to beat them at their own game. If China has admitted to acquiring 450 tonnes of gold, it probably has a lot more than that.

This is all about world dominance. Whoever has the most gold is king.

Trade of the Century?
QB Asset Management
First, we tweaked the calculation of our Shadow Gold Price (SGP) from Federal Reserve Bank Liabilities divided by official gold holdings to Monetary Base (MB) divided by official gold holdings.

The change in our calculation produced a change in value of our Shadow Gold Price, yet we believe this new calculation is more robust and intellectually honest.

As the SGP implies, an ounce of gold would fetch almost $6,000 if we lived in a world characterized by disciplined money issuance. In effect, people and governments around the world would have been exchanging their Federal Reserve Notes for gold to the point that it would take 6000 bills to buy an ounce. The Shadow Gold Price solves for the price of an ounce of gold if the US dollar were still pegged to gold and its rise reflects the inflation of the Monetary Base. (Gold used to actually be the US Monetary Base prior to 1971, when the US and other governments abandoned the Bretton Woods Agreement that imposed monetary discipline on their money printing.)

Obviously this appears to be a crazy gold price within the context of the $900-plus price at which gold has been trading recently on global exchanges (though we do remember its rapid move from $35 to $880 the last time around). We are under no illusions that the price of Comex gold will rise to track what we see as its intrinsic value (not because it shouldn’t, but because we expect external market forces with great interests in protecting the sovereignty of fiat currencies to step in before that occurs, see "Potential Endgame – A Managed USD Devaluation" below).

Potential Endgame – A Managed USD Devaluation
As we first hypothesized last fall, we think there is a growing likelihood that policymakers will see the handwriting on the wall for the US dollar and act to preempt the utter economic chaos they will have wrought from copious money printing. The pragmatic solution would be to formally devalue, and peg, the US dollar to gold.

It would work like this: The Fed would monetize gold at a substantial premium to its current nominal price. As we quantified through the SGP, the gold price peg would have to approximate $6000/oz to remediate all past monetary inflation. We doubt this would occur. It would be more likely that the Fed would announce a public tender for privately held gold at, say, $3000/oz. Any gold tendered would be funded with the creation of new Federal Reserve Notes.

While this would be massively inflationary it would also be discrete in its application. In other words, once the Fed acquired enough gold from the free market at $3,000/oz, a gold price peg for the dollar could be established and maintained. The solvency of the banking system would be reestablished by such measures, as most assets would appreciate in nominal dollar terms to the point that loan books, etc. would once again be fully-secured. In addition to establishing a peg, far more stringent reserve requirements would likely (hopefully) be placed on the banking system. Clearly, the banks would not like this but at least they would live to fight (inflate) another day.

Will this actually happen? It is hard to say but it seems likelier with each passing day. We think formal recognition of true inflation is the only way out. To the extent that policymakers begin to understand this, they could either administer the drug in a willy-nilly fashion, which clearly risks hyperinflation at a time when all of society is woefully over-leveraged or take control of the situation and mandate inflation by decree as a one-time shock to the system. The latter solution would be politically expedient and make policymakers appear to save the day. Raising interest rates and contracting the Fed's balance sheet would indeed be the purest solution that would, eventually, right the ship and make the economy more sustainable. However that would engender a period of broad economic hardship, and so we place close to zero probability on its being pursued as a policy objective. We would now give better odds that there will be a managed US dollar devaluation vis-à-vis gold than a protracted tightening or draining of the monetary supply.

Why Gold Will Break Above U.S. $1,000
By: Neil_Charnock
Currently the US shorts are at extreme levels and should be closed out by this time of year. They are usually safely closed out by now however they have not had a decent exit point to date this financial quarter and remain short at dangerous volume. If the POG shoots upwards soon as I suspect we will see a monumental short squeeze. This would not happen without a serious battle as both sides have deep pockets. There is risk we see down side initially before a blast off in the POG due to this factor.

We view gold and silver in historic inflation adjusted terms and they are very cheap – don’t be fooled by precious metal prices quoted in 2009 dollar terms. The upside potential is great from here, when gold breaks US$1,000 many people will be shocked. Savvy investors have accumulated metal and stocks on each pull back and near the end of each consolidation phase in this Gold Bull to date and I suggest you might consider joining them.

Tuesday, August 18, 2009

It's Inflation Stupid

What happened Monday in the Precious Metals Markets? Was the market gripped by fear, panic? Were frustrated Bulls flushed out of the market by a CRIMEX press of their huge short position? Or did US Dollar strength in the face of a global dump in the equity markets simply spook the Precious Metals into a sell-off?

I found it intensely amusing that the global sell-off in stocks Monday was blamed on "concerns" that US consumers are too skittish to sustain, let alone ignite, a global economic recovery. This was reported as news? LOL, doubts about any recovery have been numerous for weeks, and all ask the same question, who is going to drive this "recovery" the US Government persistently predicts "is coming"? US consumers are too focused on paying down debt, and keeping their jobs to spend more money they don't have. It should come as a shock to no one that US consumers are not going to pull the global economic recovery forward. In fact, the US consumer is going to ultimately get left behind if and when a global recovery takes root.

That being said, consider for a moment the real root of the current rally in stocks that began back in March. Endless lip service has been paid to the "green shoots of recovery" story that has supposedly lifted stocks off their lows and to recent yearly highs. Never mind the fact that these green shoots have been fertilized with pure manure, as in phony economic statistics conjured up to give the appearance of "growth" even though they just show that the pace of economic decline has slowed at best. The headline writers have convinced gullible global investors that everything is Hunky Dory. Happy Days will soon be here again. NOT!

Well then what has driven stock prices higher? It's Inflation Stupid. It's no coincidence that the current rally in stocks that began in March coincides exactly with the most recent top in the US Dollar. It is no secret that the Dollar has been falling weekly since the Fed announced their Quantitative Easing plans for this Summer back in the middle of March. The Fed is clearly debasing the nations money supply. A debased money supply equals Inflation. This Inflation is just beginning to gain traction in the asset markets. The green shoots of recovery are turning brown, withering and dying from a fertilizer overdose. We prefer to refer to this fertilizer as bullshit.

So what's your point? The point is simple. Yesterday's global sell-off was certainly sparked by the "realization" that the American consumer is in dire straits and will not be leading the next global economic recovery. But this revelation is unlikely to short circuit the current rally in stocks and commodities because Inflation is ALIVE AND WELL.

It is also worth considering that Monday's global stock sell-off had less to do with the American consumers sentiment and more to do with American bank failures. Bank failures across the country are beginning to accelerate, and the size of the banks failing is getting substantially larger. The bank failure story, and the dwindling insurance fund at the FDIC should be on every investors radar. Renewed fears of a banking crisis may be just the catalyst the Precious Metals Markets need to get them over the hump.

The CRIMEX is sitting in a very precarious position as the Precious Metals enter their season in the sun between September and January. Any catalyst that might spark a surge in the Precious Metals will catch the CRIMEX hugely on the wrong side of the market. The ensuing short squeeze could be legendary. Clearly the CRIMEX goons have made every effort to set up a wall to stifle the seasonal advance in the Precious Metals knowing that the seasonal effects on these markets will most certainly take Gold through $1000, even without any "fear catalyst" driving it forward. Today's CRIMEX bet is bigger than the one they made in 2005 to keep Gold bottled up below $450. That August 2005 CRIMEX bet is now a legendary failure as Gold subsequently rose 62% from $450 to $730 over the following eight months. Imagine a 62% rise in the Gold market should the CRIMEX fail in it's efforts to hold the market back here at $1000...

BB&T buys Colonial bank; 4 other banks fail
NEW YORK ( -- Troubled Colonial BancGroup will be bought by rival BB&T Friday, the government said after state regulators closed the bank whose assets had been frozen by a federal judge.

The Montgomery, Ala., bank, which has 346 branches spread across Florida, Alabama, Georgia, Nevada, and Texas, is the sixth largest bank failure in U.S. history and by far the largest failure of 2009.

With $25 billion in assets and $20 billion in deposits, Colonial is 100 times larger than the typical bank to have failed this year.

Regulators want Guaranty bids by Monday
NEW YORK (Reuters) - U.S. banking regulators have asked prospective buyers of struggling Texas bank Guaranty Financial Group to submit bids by Monday, the Financial Times reported, citing people familiar with the matter.

Guaranty is the second-largest publicly traded bank in Texas, with about $16 billion in assets, according to its website.

Last month, the lender said there was "substantial doubt" that it can continue as a going concern after loan losses and write-downs left it short of capital.

CIT Group records $1.68 billion 2Q loss
NEW YORK (AP) -- Commercial lender CIT Group Inc. said Monday in a regulatory filing it lost $1.68 billion in the second quarter, and again warned it might have to file for bankruptcy protection if it fails to restructure its business.

Losses mounted in the quarter as the embattled New York-based lender as borrowing costs exceeded income from lending to customers, and as it set aside more money to protect against future loan losses.

In its quarterly report to the Securities and Exchange Commission, CIT said there is still "substantial doubt" about its ability to continue operating.

Just last month, CIT was bailed out with a $3 billion loan from some of its largest bondholders as it faced a cash crunch. It also launched an offer to repurchase $1 billion in outstanding debt that was successfully completed Monday, helping to stave off a potential bankruptcy filing.

Despite the completion of the tender offer, CIT is still facing some challenges. It could continue to struggle with liquidity issues as more debt is due to mature next year.

Coming Soon: Banking Crisis of Historic Proportions
We have a confluence of five factors that have the potential to create damage to banking not seen in 80 years, and that includes the Great Depression. We'll hit these factors one at a time.

First Factor: Banks Are Not Doing Enough Business

Commercial bank credit growth has dropped to 2%...

Now, it is a good thing that banks are conserving capital, since they need to increase capital to offset bad loans.

But, if asset valuations deteriorate (and that is quite possible), the banks need to increase earnings to "earn their way" out of their problem. Interest paid by the Fed for reserves on deposit there (by the commercial banks) are not producing nearly the same level of income as new credit issued commercially under our fractional reserve banking system with much higher interest .

If credit issuance does not increase year over year, banks can not improve their financial condition unless the quality of their existing loan portfolio improves.

Second Factor: Banks Are Failing at a Rate Not Anticipated Two Months Ago

...150 banks are in trouble. Some of these will be larger than many of the 77 (mostly community) banks that have gone under FDIC receivership so far in 2009.

Banks mentioned as being in trouble by Bloomberg (here) include Wisconsin’s Marshall & Ilsley Corp. (MI), Georgia’s Synovus Financial Corp. (SNV), Michigan’s Flagstar Bancorp (FBC), Chicago-based Corus Bankshares Inc. (CORS), Austin-based Guaranty Financial Group Inc (GFG), and Colonial BancGroup Inc. (CNB) in Montgomery, Alabama.

Third Factor: Defaults Are Going to Increase for Several More Quarters

With home mortgage foreclosure rates remaining very high (and possibly increasing) and with the bulk of the commercial real estate defaults yet to come, the failure rate of banks is likely to increase further in the next nine to twelve months, not decline. The situation will be compounded if commercial and industrial (C&I) loans also default at higher rates because of a weak or non-existent recovery.

Fourth Factor: The FDIC Is in Trouble

Rolfe Winkler (here) points out that the accelerating rate of bank failures may exhaust the Deposit Insurance Fund (DIF) at the FDIC, requiring that agency to draw on its credit line with the Fed. Rolfe calculates that the FDIC is currently on the hook for $8.3 trillion in insured deposits, had only $41.5 billion in reserves as of March 31 and has drawn that lower since.

Since only a small portion of deposits actually are paid out of DIF (failed banks have assets that cover most deposits), FDIC needs only a small fraction of covered deposits in reserve.

However, less than 0.05% is most likely several fold too small in a distressed banking system. The section title says the FDIC is in trouble. That is a polite way of saying they are bankrupt.

Fifth Factor: We May Be Going to Historic Lows in Bank Credit

Because we are approaching the one year anniversary of a growth spike in bank credit in September, 2008 (see the first graph in this article), there is likely to be continued pressure on the year-over-year growth rate. The year over year growth of credit may be driven much lower than the current 2% within the next couple months due to the negative effect on comparison due to the spike a year earlier.

Without a strong recovery, there is little hope of a good outcome for the non-oligarchy banks. With a return to recession, in 2010 (and possibly 2011 and 2012) there could be carnage in regional and local banks not seen since the early 1900s, and maybe even worse than what occurred then.

Gold and Why Gold Now
By Darryl Robert Schoon
Modern banking is essentially a Ponzi-scheme on a global scale. Bernard Madoff’s Ponzi-scheme was but a smaller, private version of the public model used in the world today. What people do not understand is that bankers loan money which doesn’t exist and then receive compounding interest and repayment of previously non-existent funds in return.

While this might be considered an abomination and nightmare, it is a wet-dream for bankers and those who profit from such a system. Charging interest on the loaning of gold and silver was believed to be a sin during the Middle Ages, but, today, the charging of interest on the loaning of money that didn’t previously exist and the receiving of the previously non-existent principal back plus interest is considered nothing less than a miracle—at least by the bankers who profit thereby.

The very birth of paper money was conceived in sin. In its genesis, central banking’s paper money was always a fraud. Believed to be backed by equal amounts of gold or silver, in actuality it was never so, no more than were the demand deposits of savers available upon demand in banks.

When US depositors rushed to the banks between 1930 and 1933 to withdraw their savings, they found the banks didn’t actually have their money and thousands of banks were forced to close.

This is what happened to Bernie Madoff’s clients when they requested their money en masse in 2008. This was Bernie Madoff’s nightmare. It is also the nightmare of all bankers because—just as with Bernie Madoff—the depositors’ money isn’t really there.

When the Great Depression alerted savers to the fact that the banks didn’t actually have their money, bankers and government decided something had to be done to prevent bank runs from occurring in the future.

So, they created the FDIC, the Federal Deposit Insurance Corporation, which would maintain a fund composed of bank insurance premiums that would protect depositors against any losses up to a certain proscribed amount.

But while Americans now believe their savings are backed by premiums paid into the FDIC fund, no such fund exists; and, although the FDIC regularly reports how much money is in the FDIC fund, the fund itself, like modern economics, is a fraud.

The following is an excerpt from an article, The Mythical FDIC Fund, by William M. Isaac, former Chairman of the FDIC. It should be titled:



By William M. Isaac

William Isaac, former Chairman of the Federal Deposit Insurance Corporation, (FDIC)

…When I became Chairman of the FDIC in 1981, the FDIC's financial statement showed a balance at the U.S. Treasury of some $11 billion. I decided it would be a real treat to see all of that money, so I placed a call to Treasury Secretary Don Regan:

Isaac: Don, I'd like to come over to look at the money.
Regan: What money?
Isaac: You know . . . the $11 billion the FDIC has in the vault at Treasury.
Regan: Uh, well you see Bill, ah, that's a bit of a problem.
Isaac: I know you're busy. I don't need to do it right away.
Regan: Well . . . it's not a question of timing . . . I don't know quite how to put this, but we don't have the money.
Isaac: Right . . . ha ha.
Regan: No, really. The banks have been paying money to the FDIC, the FDIC has been turning the money over to the Treasury, and the Treasury has been spending it on missiles, school lunches, water projects, and the like. The money's gone.
Isaac: But it says right here on this financial statement that we have over $11 billion at the Treasury.
Regan: In a sense, you do. You see, we owe that money to the FDIC, and we pay interest on it.
Isaac: I know this might sound pretty far-fetched, but what would happen if we should need a few billion to handle a bank failure?
Regan: That's easy - we'd go right out and borrow it. You'd have the money in no time . . . same day service most days.
Isaac: Let me see if I've got this straight. The money the banks thought they were storing up for the past half century - sort of saving it for a rainy day - is gone.
If a storm begins brewing and we need the money, Treasury will have to borrow it. Is that about it?
Regan: Yep.
Isaac: Just one more thing, while I've got you. Why do we bother pretending there's a fund?
Regan: I'm sorry, Bill, but the President's on the other line. I'll have to get back to you on that.

Sunday, August 16, 2009

You Call This A Recovery?

Regarding Jobless Benefits
More than 6.2 million Americans are receiving jobless benefits, the government said Thursday -- 140,000 fewer than the previous week. Counting people taking advantage of an unemployment benefits program enacted by Congress, 9.25 million people received unemployment compensation in the week that ended July 25, down about 100,000 from the week before, as new claims rose but some recipients ran out of benefits and fell off the rolls, economists said.

The nonprofit National Employment Law Project has calculated that 540,000 people will exhaust their emergency benefits without finding work by the end of September. And by the end of the year, it predicts 1.5 million will run out.

The Statistical Recovery
By: John Mauldin, Millennium Wave Advisors
What we can see is that we are down 6.7 million jobs since the beginning of 2008! We have roughly eliminated the job growth of the last five years. And that does not take into account the 150,000 new jobs that are needed each month just to maintain the employment rate because of the increase in population. It took 55 months once the 2001 recession was officially over to get back to the previous employment peak. That is 4.5 years, gentle reader, and we are further down now and faced with massive deleveraging. It is going to take a lot longer this time. Let's look at some of the reasons why.

By the middle of next year (2010), when I think we will finally hit an unemployment bottom, we will be down close to 8 million jobs, wiping out all the jobs created since the middle of 2004. Unemployment is likely to be more than 10%, unless they keep playing games with the number.

Assume that we will need 9 million jobs over the next five years (150, 000 jobs a month for 60 months) and add the 8 million lost jobs. That means we have to add 17 million jobs in the next five years to get back to the 4.5% unemployment of 2007, let alone the under-4% we saw in 2000.

That means we need to grow employment by about 12% over the next five years. But it's worse than that. What is known as U-6 unemployment is over 16%. There are another approximately 8.8 million people who are either working part-time but want full-time jobs...

Let's make the assumption that the part-time workers want to go to full-time (which they say they do). Typically employers will increase the hours of part-time employees before adding new workers. That will be a major drag on potential job growth. It is the equivalent of creating at least 4 million jobs, except that no new jobs are created. Plus, those who want jobs but are not looking will come back into the market if jobs are available. That adds another 2 million. Now we are seeing the need for 23 million new jobs in five years, to get back to the "Old Normal."

That is an increase of 15% total employment from today's levels over the next five years. That type of jobs growth will only happen with significant economic growth. Normally, you should expect the economy to rebound to at least 3% trend GDP growth. That is what has happened historically. But we are not in the Old Normal. We are entering the era of the New Normal, where looking back at historical trends will prove to be misleading at best.

On average, and VERY roughly, you would think you would need a minimum of 15% real GDP growth over five years to get us back to what we think of as acceptable levels of unemployment. Actually you would need more, as productivity growth lessens the need for more workers. Oh, and add in the Boomer-generation workers who are not going to retire because they now cannot afford to.

Hunky Dory
By James Howard Kunstler
A broad consensus has formed in the news media and among government mouthpieces and even some "bearish" investors on the street that "the worst is behind us" in this tortured economy. This view is completely crazy. It will only lead to massive disappointment a few weeks or months from now, and that disappointment might easily transmute to political trouble. One even might call the situation tragic, except a closer look at the sordid spectacle of what American culture has become -- a non-stop circus of the seven deadly sins -- suggests that we deserve to be punished by history.

The reason behind this mass delusion is not hard to find: it's based on wishing, especially the wish to retain all the comforts, conveniences, luxuries, and leisure that had become normal in American life. These are now ebbing away in big gobs for most of the population -- while a tiny fraction of the well-connected pile on ever larger heaps of swag, enjoying ever more privilege. Those in the broad bottom 95 percent were content as long as there was a chance that they, too, could become members of the top 5 percent -- by dint of car-dealing, or house-building, or mortgage-selling, or some other venture enabled by easy credit and a smile. Those days and those ways are now gone. The bottom 95 percent are now left with de-laminating houses they can't make payments on, no prospects for gainful work, re-po men hiding in the bushes to snatch the PT Cruiser, cut-off cable service, Kraft mac-and-cheese (if they're lucky), and Larry Summers telling them their troubles are over. (If I were Larry, I'd start thinking about a move to some place like the Canary Islands.)

Too many disastrous things are lined up in the months ahead to insure that we're entering a new phase of history: The Long Emergency.

Here, in the dog days of summer, it seems to me that the situation in the USA is so fundamentally bad, so unpromising, so booby-trapped for failure, that I wonder if there has ever been a society so badly deluded as ours. We're prisoners of our wishes, living in a strange dream-time, oblivious to the forces gathering at the margins of our vision, lost in a wilderness of our own making.

“Experts” Never Learn
By: Peter Schiff, Euro Pacific Capital, Inc.
There is an inexplicable, but somehow widely held, belief that stock market movements are predictive of economic conditions. As such, the current rally in U.S. stock prices has caused many people to conclude that the recession is nearing an end. The widespread optimism is not confined to Wall Street, as even Barack Obama has pointed to the bubbly markets to vindicate his economic policies. However, reality is clearly at odds with these optimistic assumptions.

Rising U.S. stock prices – particularly following a 50% decline – mean nothing regarding the health of the U.S. economy or the prospects for a recovery. In fact, relative to the meteoric rise of foreign stock markets over the past six months, U.S. stocks are standing still. If anything, it is the strength in overseas markets that is dragging U.S. stocks along for the ride.

In late 2008 and early 2009, the “experts” proclaimed that a strengthening U.S. dollar and the relative outperformance of U.S. stocks during the worldwide market sell-off meant that the U.S. would lead the global recovery. At the time, they argued that since we were the first economy to go into recession, we would be the first to come out. They claimed that as bad as things were domestically, they were even worse internationally, and that the bold and “stimulative” actions of our policymakers would lead to a far better outcome here than the much more “timid” responses pursued by other leading industrial economies.

At the time, I dismissed these claims as nonsensical. The data are once again proving my case. The brief period of relative outperformance by U.S. stocks in late 2008 has come to an end, and, after rising for most of last year, the dollar has resumed its long-term descent. If the U.S. economy really were improving, the dollar would be strengthening – not weakening. The economic data would also show greater improvement at home than abroad. Instead, foreign stocks have resumed the meteoric rise that has characterized their past decade. The rebound in global stocks reflects the global economic train decoupling from the American caboose, which the “experts” said was impossible.

Though the worst of the global financial crisis may have passed, the real impact of the much more fundamental U.S. economic crisis has yet to be fully felt. For America, genuine recovery will not begin until current government policies are mitigated.

No More Giveaways; No More Recovery
By Bill Bonner
So, the feds aren’t taking any chances. Yesterday came news that the Fed would continue buying bonds at least through October. And they are not likely to raise rates either. The banks can borrow at practically zero interest…and use the money to buy Treasury bonds. The 10-year yields about 3.7%. In effect, they’re lending the money back to the people they got it from…and earning 3.7% for their trouble.

But, take away the stimulus spending…and the stimulating low interest rates…and what have you got? You’ve got is an economy entering a depression.

Oh, there’s the rub, isn’t it? If the feds hand out money so people can buy automobiles, people buy automobiles. If they don’t give out the money, people don’t buy automobiles. If they buy automobiles, of course, it looks like the economy is recovering. But take away the giveaways, and the recovery disappears.

Solution: keep giving away money!

Hold on…something wrong here. If you could generate economic prosperity by giving people money so they could buy things…why not give them money to buy everything? Why just autos?

So, the feds are encouraging people to buy autos. Set aside the fact that buying too many autos and other things is what got them into trouble…

…if giving people money so they could buy things actually made people prosperous, welfare recipients would be the richest people on the planet. Obviously, it doesn’t work that way. What makes people rich is the ability to earn money…not their ability to get handouts. And remember, too, the feds don’t really have any money to hand out. They can only get money by taking it from its rightful owners – either in taxation or loans. Or, they can print it up themselves. In any case, the money adds nothing real or extra to the economy. It merely distorts the economy…twists it…misleads it…and makes it a bigger mess than it was already.

A Grand Unified Theory of Market Manipulation[Fascinating]
Precision Capital Management LLC
The theory for which we have the greatest supporting evidence of manipulation surrounds the fact that the Federal Reserve Bank of New York (FRNY) began conducting permanent open market operations (POMO) on March 25, 2009 and has conducted 42 to date. Thanks to Thanassis Stathopoulos and Billy O’Nair for alerting us to the POMO Effect discovery and the development of associated trading edges. These auctions are conducted from about 10:30
am to 11:00 am on pre-announced days. In such auctions, the FRNY permanently purchases Treasury securities from selected dealers, with the total purchase amount for a day ranging from about $1.5 B to $7.5 B. These days are highly correlated with strong paint-the-tape closes, with the theory being that the large institutions that receive the capital injections are able to leverage this money by 100 to 500 times and then use it to ramp equities.

Is This Statisitically Reasonable?
By Karl Denninger
Aug. 5 (Bloomberg) -- Goldman Sachs Group Inc. made more than $100 million in trading revenue on a record 46 separate days during the second quarter, or 71 percent of the time, breaking the previous high of 34 days in the prior three months.

Trading losses occurred on two days during the months of April, May and June, down from eight in the first quarter, the New York-based bank said today in a filing with the U.S. Securities and Exchange Commission. The company made at least $50 million on 58 of the 65 trading days during the quarter, or 89 percent of the time.

Just two days of losses in the entire quarter?

There are a lot of very good traders in the world, but nobody has that sort of record on any sort of consistent basis unless they've managed to rig the game.

U.S. banks to make $38 billion from overdraft fees: report
(Reuters) - Banks in the United States are poised to make $38.5 billion in customer overdraft fees this year, the Financial Times said, citing research by Moebs Services.

A large portion of the revenue is likely to come from the most financially stretched consumers, according to the paper.

It said the research showed that many banks have increased charges on overdrafts and credit cards in order to boost profits.

The median bank overdraft fee rose this year by one dollar to $26, the paper said, citing the Moebs data.

"Banks are returning to a fee-driven model and overdraft fees are the mother lode," Mike Moebs, the company's founder was quoted by the paper as saying.

Overdraft fees accounted for more than 75 percent of service fees charged on customer deposits, the paper cited Moebs as saying.

Wednesday, August 12, 2009

A Vote Of Confidence = A Kiss Of Death

Fed says economy leveling out; rates stay at lows
WASHINGTON (AP) -- The Federal Reserve delivered a vote of confidence in the economy Wednesday, saying it would slow the pace of an emergency rescue program and indicating the recession appears to be ending.

The central bank also held interest rates steady at record lows, with a closely watched bank lending rate near zero, and again pledged to keep them there for "an extended period" to nurture an anticipated recovery.

Fed Chairman Ben Bernanke and his colleagues said the economy appeared to be "leveling out" -- a considerable upgrade from their last meeting in June, when the Fed observed only that the economy's contraction was slowing.

The Fed said it would gradually slow the pace of its program to buy $300 billion worth of Treasury securities and shut it down at the end of October, a month later than previously scheduled.

It has bought $253 billion of the securities so far. The program is designed to force interest rates down for mortgages and other consumer debt and spur Americans to spend more money.

The Treasury-buying program's effectiveness has been questioned on both Wall Street and Capitol Hill, with critics saying it looks like the Fed is printing money to pay for Uncle Sam's spending binge.

The US Economy had a massive monetary stroke in 2007. The stroke caused a seizure that stopped the flow of credit throughout the economy. In it's aftermath, the fiat money doctors have propped up the perpetually deteriorating economy with massive infusions of Monopoly Money. The US Economy has effectively been on life-support for the last 18 months.

And now the grand and glorious Federal Reserve tells us they are confident the Economy will survive. They tell us ignorant spendthrifts that the Economy appears to be "leveling out". The last thing friends and loved ones of a stroke victim want to hear is that the patient is leveling out. A flatline usually signals the patient is dead.

The US Economy, as we have known it for years, is dead. Problem is, nobody wants to admit it, let alone accept the Truth. Vote of confidence? Isn't that what the owner gives the coach just before he fires him. A vote of confidence for the US Economy is a kiss of death.

Batten down the hatches folks, the backside of hurricane is about to make landfall.

Entering the Greatest Depression in History[MUST READ]
by Andrew Gavin Marshall
While there is much talk of a recovery on the horizon, commentators are forgetting some crucial aspects of the financial crisis. The crisis is not simply composed of one bubble, the housing real estate bubble, which has already burst. The crisis has many bubbles, all of which dwarf the housing bubble burst of 2008. Indicators show that the next possible burst is the commercial real estate bubble. However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.

While the bailout, or the “stimulus package” as it is often referred to, is getting good coverage in terms of being portrayed as having revived the economy and is leading the way to the light at the end of the tunnel, key factors are again misrepresented in this situation.

At the end of March of 2009, Bloomberg reported that, “The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year.” This amount “works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.”

Gerald Celente, the head of the Trends Research Institute, the major trend-forecasting agency in the world, wrote in May of 2009 of the “bailout bubble.” Celente’s forecasts are not to be taken lightly, as he accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1998 Russian economic collapse, the 1997 East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001 recession, the start of a recession in 2007 and the housing market collapse of 2008, among other things.

On May 13, 2009, Celente released a Trend Alert, reporting that, “The biggest financial bubble in history is being inflated in plain sight,” and that, “This is the Mother of All Bubbles, and when it explodes [...] it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world.” Further, “This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the 'Bailout Bubble' explodes, the system goes with it.”

Celente further explained that, “Phantom dollars, printed out of thin air, backed by nothing ... and producing next to nothing ... defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the "Bailout Bubble" pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.” Celente elaborated, “Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war,” and that, “While we cannot pinpoint precisely when the 'Bailout Bubble' will burst, we are certain it will. When it does, it should be understood that a major war could follow.”

"The Royal Scam"[WHAT IF?]
The real magic of a good Con is not to get the money. It's to do it in such a way that the Mark thinks he knows what happened, thinks he saw the Con you're pulling, when in fact, the real Con is somewhere else. There's a saying: “Before the scam, you have the dream and they have the money; while afterwards, you have the money and they have the dream.” If you want to know the real Con, when it's all over, find out who walked away with the money. Before then, you won't know.

Toxic assets still festering
WASHINGTON ( -- The economy may show signs of life, but so-called toxic assets are still a major threat to any recovery, a bailout watchdog group warned on Tuesday.

If the economy worsens and unemployment rises further, the troubled assets on bank balance sheets could lose even more value, according to the Congressional Oversight Panel, which keeps tabs on the $700 billion bailout of the financial sector.

The report reminds Congress that the bailout was initially pitched to help deal with troubled assets, hence the name: Troubled Asset Relief Program. Yet the TARP program has not relieved banks of their troubled loans.

The bailout money has instead been used to help banks boost their capital to withstand future losses. Capital injections help ease pressure and potentially free up money for lending -- but the toxic assets are still festering.

"If the economy worsens...then defaults will rise and the troubled assets will continue to deteriorate in value," the report says. "If the losses are severe enough, some financial institutions may be forced to cease operations."

We broke the bank!
The United States is functionally bankrupt. Our collective capacity to deal with this astonishing fact is seemingly nonexistent. Our national politics have become show business, exhibiting a complete refusal to strategically respond to this reality.

Let's look at the simple numbers of our national debt. Our on-the-books national debt is $11.6 trillion. But off-the-books federal debt, including Medicare and Social Security, is $107 trillion. This is not a made-up number; this is the money we should have in the bank, according to the federal government's own accountants, to pay for our current promises to our retirees and future retirees, and this doesn't include unfunded obligations that we have to the pensions and benefits promised to federal workers and veterans. Nor does it include huge unfunded pension and benefit obligations for other public employees at levels below the federal government.

But let's just add the $11 trillion to the $107 trillion, and we get $118 trillion. These are big numbers but still just fifth-grade math. Now our total annual national output, or gross domestic product (GDP), is about $14.3 trillion. Total federal receipts, or income if stated in business terms, are about $2.5 trillion. This means that our debt to federal income ratio is about 47, and that ratio assumes that the federal revenues are free to retire the obligations, which they are not. We must pay for defense and a myriad of other programs. Again, in business terms, there is no free cash flow to pay these massive obligations.

Our total national private net worth, according to the Federal Reserve Board, is about $51.5 trillion. That means our federal unfunded liabilities represent 2.3 times our collective net worth. That's pretty darn broke.

Monday, August 10, 2009


There is pathetic, and then there is "patently pathetic" flim-flam on the CRIMEX. Today fell under a new category of "blatant, criminally obvious" flim-flam on the CRIMEX. Look at the chart posted above from This is a snapshot of "fearless criminals" at work. This is a crime being committed in broad daylight infront of the eyes of millions. Where is the outrage?!

Seriously, what fundamental issue changed this morning that would support a blast higher in the US Dollar and a dump of Gold at exactly 8:20AM est? There were NONE!

Friday the markets had to endure the financial news talking heads euphoric reading of another dismal non-farm payrolls report. ONE QUARTER OF A MILLION jobs disappeared from the economy. This was nothing to celebrate. The unemployment number fell ONE TENTH OF ONE PERCENT because the jobs market is so bad over 300,000 Americans gave up looking for work. This is nothing to celebrate.

Be that as it may, this euphoric "reading" of the July Jobs Report scared the crap out of many weak dollar shorts and they covered their bets that the US Dollar was heading lower from multi-month lows hit last week. This week opens with a most revered "Fed Meeting" looming, and the Dollar Shorts convinced that the recession is over and we are "on the road to economic recovery"! And if the recession is over the Fed must be about to signal a rise in interest rates...

So, more weak Dollar Shorts cover their bets that the Dollar will be going lower from here. A rising Dollar pressures Gold. And who's to say the Fed wasn't out there this beautiful Monday morning using some of those Euros they got in their last Dollar Swap with the ECB to buy some Dollars to "prop it up"? Maybe the weak handed shorts had nothing to do with this "sudden rush" into the Dollar at EXACTLY 8:20AM est this morning.

Two stories out over the weekend hardly spell strength for the US Dollar:

Geithner Asks Congress to Increase Federal Debt Limit
Washington -- U.S. Treasury Secretary Timothy Geithner asked Congress to increase the $12.1 trillion debt limit on Friday, saying it is "critically important" that they act in the next two months.

Mr. Geithner, in a letter to U.S. lawmakers, said that the Treasury projects that the current debt limit could be reached as early mid-October. Increasing the limit is important to instilling confidence in global investors, Mr. Geithner said.

The Treasury didn't request a specific increase in the letter.

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Mr. Geithner said in a letter to lawmakers.

Mr. Geithner said the that it is "clearly a moment in our history" that requires support from both Democrats and Republicans for the increase.

"Congress has never failed to raise the debt limit when necessary," Mr. Geithner said.

The non-partisan Congressional Budget Office said Thursday the federal government's budget deficit reached $1.3 trillion through the first ten months of fiscal 2009, on track to reach a record high of $1.8 trillion for the 12-month period.

This is freakin' outrageous!

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Mr. Geithner said in a letter to lawmakers.

And the first three letters of the word "confidence" spell what? CON! How does authorizing the US Government to go FURTHER into debt instill confidence? America can not pay it's debt to the World, so if we take on more debt we can? I think I am going to puke...

Deficit grew by $181 billion in July
Bailouts for financial firms and billions in tax revenue lost because of the recession drove the deficit to a record $1.3 trillion in July, according to the independent Congressional Budget Office (CBO).

Tax receipts that have fallen due to the poor economy and increased spending to save car companies, banks and mortgage firms were major contributors to the federal deficit, according to CBO, which provides official budget numbers for Congress. The federal deficit grew by another $181 billion in July.

Falling tax receipts and increased spending on bailouts for auto companies and the financial sector and for the economic stimulus package added to the deficit, according to CBO.

Spending through July of 2009 has increased by $530 billion, which is 21 percent over the same period in 2008. The bailout money for banks, Freddie Mac and Fannie Mae accounted for almost half of the spending increase. Unemployment benefits have more than doubled, Medicaid spending has grown by a quarter and Medicare spending has increased by 11 percent.

Tax revenue for the first three quarters of 2009 has fallen by approximately $350 billion, or 17 percent compared to the same period last year, due mostly to the effects of the recession on payroll, income and corporate taxes. A third of the decline is due to tax breaks in the stimulus, including the middle-class tax cut that President Obama campaigned on during last year's election.

The independent budget scorekeeper has projected the deficit to reach $1.8 trillion by the end of the fiscal year, Sept. 30. The deficit in 2008 reached $455 billion, which was a record at the time.

Is this revelation, mostly overlooked by the financial news media, US Dollar positive news? LOOOOOOOOOOOL! I know, that was a dumb question. Yet the Dollar rose today, and the price of Gold fell.

Stay the course folks, ...THE TRUTH IS POUNDING ON THE DOOR NOW.