Saturday, February 6, 2010

It's Time To Thank The CRIMEX

Frustrated? YES!

Thankful? Are you nuts?

No, I truly am thankful. Think about it...for just a moment. The CRIMEX goons have drilled the "price" of Gold and Silver lower. What have they accomplished? In reality, very little. Unless you're looking to buy Gold and Silver. The goons have handed us an opportunity we can only be thankful for.

Silver at 2006 prices. Thank you, thank you, thank you. Do these NY Knuckleheads really believe that drilling the price of Silver is going to make investors buy less of it? I bet the phones were ringing off the hook all day around the globe with investors looking to buy Silver in QUANTITY. The goons have increased physical demand and successfully forced a further decrease in the supply of Silver by rigging the "price" of their paper Silver lower.

Send these morons a Valentine's Day card and tell them you love them!

The price of Gold has returned to "the floor" at 1045 that was, in theory, established when the Indians announced their 200 tonne purchase of IMF at that price last Fall and sent Gold
roaring higher into December. Will an announcement be forthcoming that another central bank has scooped up the remainder of the IMFs 400 tonne Gold
sale this past week at "floor prices"?

The CRIMEX goons had shorted Gold the whole way up from 1045 to 1226. Are they satisfied now that they have brought "prices" back "to the ground floor" and increased demand for physical Gold in the process? Further depleting the supply of metal to rig their CRIMEX game.

Is it time to put the CRIMEX on suicide watch? Have their partners in crime at London's LBMA hung themselves already? Our favorite economic commentator, Jim Willie, thinks their demise may be close at hand:

Breakdown Of The Gold Market
By: Jim_Willie_CB
A great disconnect exists in the gold market between the exchange futures contract price (the paper price) and the gold bullion paid price for transactions (the physical price). The differential in price is growing wider, enough to place tremendous pressure on the gold market itself. Look not to the gold premium paid for purchases, but to high volume purchases in the tens of million$. In mid-December, almost every demand for gold contract delivery was matched by a cash delivery, complete with 25% bonus premium offered. The officials even produced a new ledger item called 'Cash For Delivery' that was necessary to balance their badgered books. It prompted little attention. Some call it a basic bribe. Others call it a technical default.

Fast approaching is the event of GAME OVER for London, a condition that has already reached critical level, according to a key reliable source of information with London connections and direct experience with its market events. How long can a major metals exchange sell contracts but have miniscule supply of gold in their vaulted possession? The paper gold market and the physical gold bullion market have finally separated in a practical manner, meaning actual gold has almost no role anymore in London paper contract settlement. The absence of gold in London requires extraordinary tactics to settle contracts and to obtain gold bullion. Red tape procedures delay delivery for individuals, and bribes accompany gold delivery demands as standard practice. The London Bullion Market Assn has almost zero gold, its supply having been drained in high volumes since early December, a process currently in acceleration. The opportunity to convert fiat money into precious metal at prices considered reasonable is also vanishing.

The Fed as Giant Fiat Currency Counterfeiter [excellent read]
By: Robert_Murphy
...the US Treasury is a distinct entity from the Federal Reserve. When the US federal government runs a budget deficit, it can't simply have the Fed print up enough $100 bills to cover the shortfall. No, the Treasury always covers its budget deficits by issuing debt, referred to as Treasuries. These are bonds, IOUs sold by the Treasury to outside investors who lend the Treasury money today in the hopes of being paid back in the future.

But wait, there's more to the story. One of the main buyers of this Treasury debt is the Federal Reserve itself. This phenomenon is especially pronounced during emergencies such as major wars and the current financial crisis. Indeed, in the second quarter of 2009, the Federal Reserve was the effective buyer of some 48 percent of the new Treasury debt issued that period, as part of its "quantitative easing." It's true, the Fed doesn't show up at the Treasury auctions and directly buy the new T-bills and so forth, but private dealers pay higher prices for the Treasuries knowing that the Fed is waiting in the wings to pick them up.

At this point let's review exactly what happens when the Federal Reserve buys Treasuries from private dealers. Let's say the Fed wants to buy $1 million worth of T-bills from Joe Smith. So it writes Joe a check for $1 million, drawn on the Fed itself. Joe hands the T-bills over to the Fed, where they end up on the asset side of its balance sheet. Joe then deposits the check in his personal checking account, which goes up by $1 million.

"If nothing else, the Fed's massive buying of Treasury debt pushes up the auction price of the Treasuries, meaning the federal government can borrow at cheaper interest rates."
So at this point the Fed has increased the money supply by $1 million. In normal times, because of the fractional-reserve banking system, Joe's bank would lend out $900,000 of the new deposit to another customer, so that the money supply would grow even further. But that's not what interests us in this article, so we'll leave that train of thought.

What we want to focus on is the effect of the Fed's purchase on the US Treasury. By entering the bond market and buying Treasuries (with money created out of thin air), the Fed pushes up the price of the bonds. That of course means that their yield drops. So, for example, if the Treasury issues a T-bill promising to pay the holder $10,000 in 12 months, then the auction price determines how much money the Treasury actually gets to borrow now in exchange for this promise to pay back $10,000 in one year. If the demand is such that people pay $9,901 for each T-bill with a face value of $10,000, then the Treasury gets to borrow money for a year at an interest rate of 1 percent.

Already we see why the folks at the Treasury are big fans of the Fed's "quantitative easing" program, in which Bernanke decided it was in the national interest to begin adding more than a trillion dollars' worth of Treasury debt to the Fed's balance sheet. If nothing else, the Fed's massive buying of Treasury debt pushes up the auction price of the Treasuries, meaning the federal government can borrow at cheaper interest rates.

Now, if this were the whole story, it would be fishy... Sure, the Fed would create new dollars (which would push up dollar prices of goods and services) in order to keep the Treasury's borrowing costs low. But still, the Treasury would have to pay some interest on its debt, especially for longer-dated debt with higher yields, like 10-year Treasury notes.

Ah, but we're not done yet. Not only does the Fed's accumulation of Treasury debt artificially push down the interest rate, but the Fed gives the interest payments right back to the Treasury! After all, interest is how the Fed "makes money." It writes checks on itself (created out of thin air) and accumulates assets, and then earns the interest and (in some cases) capital gains on the assets. But after the Fed pays its employees, pays its electric bill, and throws the staff Christmas party, it remits the excess earnings back to the Treasury.

For example, in fiscal year 2008 the Federal Reserve distributed to the US Treasury some $31.7 billion (page 173) of its net earnings. To repeat, much of this money consisted of interest payments that the Treasury paid out to the holders of its debt, who just so happened to be the Fed for much of it. So not only is the official rate of interest kept artificially low by the Fed's money-creation, but the interest payments themselves are largely refunded to the Treasury, to the extent that the Fed ends up holding the Treasuries rather than outsiders.

"But after the Fed pays its employees, pays its electric bill, and throws the staff Christmas party, it remits the excess earnings back to the Treasury."

All right, so the Fed (a) suppresses the interest rate on Treasury debt and (b) refunds virtually all of the interest payments on Treasury debt held by the Fed. And remember, the way the Fed does this is through creating new dollars out of thin air, in order to buy the Treasury debt from the original investors who lent money to the Treasury. Therefore the Fed is clearly giving aid to the US government's deficit spending at the expense of everyone holding assets denominated in US dollars.

Still, the one thing holding back the complete recklessness of the feds is that they still have to pay off the principal of their bonds when they mature, right? In other words, all we've really shown is that the Fed allows the Treasury to run deficits virtually at zero interest expense, at least for debt held by the Fed.

Sorry, ... When the Treasury securities held by the Fed mature — so that the Treasury has to pay back the face value in principal — the Fed rolls over the debt. Over time, the nominal market value of the Fed's holdings of Treasury debt continually grows. Barring a sudden reversal in this policy, the Treasury knows that it will never have to pay off this debt.


Federal Reserve earned $45 billion in 2009 -
Jan 11, 2010 ... The Federal Reserve made record profits in 2009, as its unconventional efforts to prop up the economy created a windfall for the government.

This is all the proof you need that the fed IS monetizing the debt. And Bumbling Ben Bernanke had the audacity to sit in front of the Congress and declare, "We will not monetize the debt."

Bullshit Ben!

U.S. Deepening Debt Crisis, Be Afraid of Bernanke Reappointment
By: Michael_Hudson
If the economy deteriorates in the L-shaped “hockey-stick” rut that many economists forecast, what political price will President Obama and the Democrats pay for having returned the financial keys to the Bush Republican appointees who gave away the store in the first place? Reappointing Federal Reserve Chairman Ben Bernanke may end up injuring not only the economy but also the Democratic Party for years to come. Recognizing this, Republicans made populist points by opposing his reappointment during the Senate confirmation hearings last Thursday, January 27 – the day after Mr. Obama’s State of the Union address.

The hearings focused on the Fed’s role as Wall Street’s major lobbyist and deregulator. Despite the fact that its Charter starts off by directing it to promote full employment and stabilize prices, the Fed is anti-labor in practice. Alan Greenspan famously bragged that what has caused quiescence among labor union members when it comes to striking for higher wages – or even for better working conditions – is the fear of being fired and being unable to meet their mortgage and credit card payments. “One paycheck away from homelessness,” or a downgraded credit rating leading to soaring interest charges, has become a formula for labor management.

As for its designated task in promoting price stability, the Fed’s easy-credit bubble has made asset-price inflation the path to wealth, not tangible capital investment. This has brought joy to bank marketing departments as homeowners, consumers, corporate raiders, states and localities run further and further into debt in an attempt to improve their position by debt leveraging. But the economy has all but neglected its industrial base and the employment goes with manufacturing. The Fed’s motto from Bubblemeister Alan Greenspan to Ben Bernanke has been “Asset-price inflation, good; wage and commodity price inflation, bad.”

Beware Counterfeiters [excellent read]
By: Kevin Bambrough & David Franklin
Long time readers know that we have written about gold many times over the last ten years, starting with an October 2001 article entitled “All that Glitters is Gold”. We first invested in the precious metal based on the belief that central bank sales were filling a fundamental supply deficit that existed in the gold market. We also wrote that if you believed in gold as a financial instrument you might envision a gold price appreciation of 45% to US$400 per ounce, or even higher, as investors sought to protect their wealth in the ‘bear market’ that followed the 2000 stock meltdown. What a difference nine years have made. In 2010, Central Banks are now close to becoming net buyers of gold while mine output continues to decline. With major indices returning nothing to investors over the last ten years it has been a lost decade for stocks but an excellent decade for gold.

Gold’s recent appreciation in US dollars has led some market commentators to question its fair value. This is nothing new for gold – it has been criticized and downplayed as an asset ever since it came off its previous peak in 1980 of US$850 per ounce. In our view, however, it is not gold’s value that is in question; it is the value of paper money.

Let us consider the supply and demand fundamentals of paper money. Clearly, the supply of paper money is technically infinite. This has, of course, not always been the case. For millennia, money was commodity based - its value was linked to goods produced from land and labour. It was impossible to counterfeit wheat, nickel, copper or other commodities and therefore impossible to counterfeit money. Money was viewed as a link to, or representative of, productive capacity. If you had money, you had the right to trade it in for something real, and therefore possessed real wealth.

Historically, gold, principally because of its preciousness, has been the commodity into which paper money has been convertible. Each paper note represented tangible, stored gold and included a promise to convert that piece of paper into a specific quantity of gold on demand. That “promise” provided an inherent protection to the holder and ensured that governments couldn’t print money indiscriminately.
The link between paper money and gold has been lost for many decades. With respect to the US dollar, the world’s reserve currency, it was severed during the last century during two stressful economic periods. The first official break took place during the Great Depression. The second break took place during the Nixon-era in the 70s. These events are instructive and warrant brief consideration.

While there are several contributing factors to the Great Depression, it was the money supply growth in the preceding years under the supervision of the Federal Reserve that was, in our opinion, the greatest contributor. The Federal Reserve System was created in 1913 on a promise of stabilizing the banking system. What followed instead was an unprecedented growth in fractional reserve banking, as well as the money supply, which helped fuel the roaring 20’s. The aggressive money printing created inflated values in bonds and stocks, which peaked in 1929. When the market began its precipitous slide, and the public began to realize that stock and bond values were artificially high, the populace began to convert its cash holdings into gold. The government lacked the ability to satisfy that demand and was thus forced to renege on the currency’s founding promise of gold convertibility. It’s important to point out that without this original promise of convertibility for citizens, the currency may never have been adopted.

The counterfeiting continues on a by-weekly schedule. The government will be selling a record high amount of debt next week. “The "refinancing" will be comprised of $40 billion of three-year notes, $25 billion of 10-year notes and $16 billion of 30-year bonds.” The Fed must be destroyed, or the country most certainly will be. Forget Greece and Portugal, Italy and Spain...they have nothing on the debt bomb the US Fed has built.

Problems at "Club Med" only receive the headlines from our irresponsible financial press because it deflects attention from the debt bomb ticking in our own backyard. If the PIGS could print money to pay off their debts the way the US Treasury and Fed do, there would be no Euro zone debt crisis...or would there? How much longer will the World stand idly by as the USA debases the global reserve currency by $1 TRILLION every six months? What gives the USA the right to "just print money to pay off their debts" and get away with it?

20 reasons Global Debt Time Bomb explodes soon
By Paul B. Farrell, MarketWatch
Yes, 20. And yes, any one can destroy your retirement because all 20 are inexorably linked, a house-of-cards, a circular firing squad destined to self-destruct, triggering the third great Wall Street meltdown of the 21st century, igniting the Great Depression II that George W. Bush, Ben Bernanke, Henry Paulson and now President Obama have simply delayed with their endless knee-jerk, debt-laden wars, stimulus bonanzas and bailouts.

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