Tuesday, March 30, 2010

Solve The Problem: End The Fed

Deflation in assets that have been bought with debt put the banks at risk, and thus the Fed's bailout of the banks. Inflation in essential goods and services put the public at risk, and thus the Fed's suppression of the price of Gold. In either case the Fed talks out of both sides of it's mouth, and looks to have it's cake and it eat too.

The Fed claims to "fight inflation" when in fact their existence is predicated on the creation of it. The Fed is, to put it simply, a money machine. It might attempt to stop the "effects" of inflation [rising prices], but under the old definition of inflation, an artificial increase in the supply of money or credit, it's job is clear: Create MORE inflation, not less of it.

The essence of the Federal Reserve Act, passed by a vote in Congress in 1913, is that the government conferred legal legitimacy on a cartel of the largest bankers that permitted them to inflate the money supply at will while providing for themselves and the financial system liquidity in times of need. This ability to "inflate at will" then insulated the bankers from bad loans and the overextension of credit.

The Federal Reserve Act guaranteed the banks could have their cake and eat it too. It privatized profits and socialized losses. It created a form of financial socialism that has benefited the rich and the powerful, and stolen from the masses. Since the inception of the Fed, the US Dollar has LOST 95% of it's purchasing power. If that isn't inflation, I don't know what is.

What excuse could the cartel of bankers have given Congress to pass such a law that was in direct conflict with the Constitution's definition of money, and who controlled and created it? The bankers claimed that the Fed would protect the monetary and financial system against inflation and violent swings in market activity. It would stabilize the system by providing stimulus when it became necessary and pulling back on inflation when the economy became overheated. Or so they were lead to believe.

In 1914 the Comptroller of the Currency made an incredible promise by way of defending the Federal Reserve Act:

"Under the provisions of the new law the failure of efficiently and honestly managed banks is practically impossible and a closer watch can be kept on member banks. Opportunities for a more thorough and complete examination are furnished for each particular bank. These facts should reduce the dangers from dishonest and incompetent management to a minimum. It is hoped that the national bank failures can hereafter be virtually eliminated."

History has proven that may have been the Mother Of All Empty Promises. Shockingly, the colossal bank failures of the 1930s Great Depression didn't open the eyes of Congress and persuade them to repeal the Federal Reserve Act then and there. If today's growing number of bank failures don't persuade the Congress to at the very least audit the Federal Reserve, then our financial system is indeed doomed to destruction.

Hans F. Sennholz (February 3 1922 – June 23 2007) was an economist from the Austrian school of economics who studied under Ludwig von Mises. He has called the Fed "the most tragic blunder ever committed by Congress. The day it was passed, old America died and a new era began. A new institution was born that was to cause, or greatly contribute to, the unprecedented economic stability in the decades to come."

The Federal Reserve Act of 1913 has done exactly the opposite of what it promised when passed. Our financial system lay today in virtual ruin, the country hopelessly consumed by ever expanding debt. Only one path can lead to financial freedom for America and that is the path that leads to the destruction of the US Federal Reserve.

(Information in the above essay was found in JUST the first two chapters of Ron Paul's best selling book End the Fed. I suggest you obtain a copy of this book and read it today.]

Gold Imports by India Jump Before 1 Million Weddings
March 29 (Bloomberg) -- Gold imports by India, the world’s biggest consumer, jumped this month as jewelers stockpiled the metal to meet wedding-season demand, a trade group said.

Purchases until March 25 were between 28 tons and 30 tons, up from 4.8 tons a year earlier, said Suresh Hundia, president of the Bombay Bullion Association.

Demand may stay strong, fueled by as many as one million marriages planned for April and May, he said, supporting a 21 percent gain in global prices in the past year. Gold is bought during marriages as part of bridal trousseau or gifted in the form of jewelry by relatives. The wedding season in India runs from November to December and from late March through early May.

“Even a marginal increase in the global price won’t hurt demand as the rupee is gaining” shielding local buyers from variation in prices of gold denominated in dollars, Hundia said.

India’s rupee rose to its strongest level since September 2008 today on speculation the nation’s pace of economic growth is luring overseas investors to domestic equities. Gold on the Multi Commodity Exchange of India has dropped 1.7 percent this year, compared with the 1.3 percent gain in the global price.


China Gold Demand May Double Within Decade, WGC Says
March 29 (Bloomberg) -- Gold consumption in China may double within the next 10 years, boosting prices as supplies fail to keep pace with booming demand from investors and the jewelry industry, the World Gold Council said.

“China has an insatiable appetite for gold, which looks likely to continue in an environment where domestic mine supply lags behind demand,” the council said in a report today.

Chinese demand from investors and the jewelry industry, which account for 80 percent of purchases in the country, reached 423 tons in 2009, while domestic mine supply was 314 tons, according to the group’s data.

The output shortfall will create a “snowball effect” as the country’s production fails to keep pace with the annual leap in consumption, the report said. China’s gold output rose 8 percent a year from 2006 to 2009, it said.

Higher mine development costs, potential supply disruptions, tougher safety regulations and depleting ore bodies could put a much higher floor under the gold price, according to the council.

“Near-term inflationary expectations and rising income levels are likely to support the investment case for gold as an asset class, especially given that Chinese consumers are high savers and are looking to gold to protect their wealth,” the council’s report said. “Jewelry and investment growth are expected to be the chief drivers of demand.”

IMF rejects investment house bids for gold
Dear Friend of GATA and Gold:
Today we welcome Frank Holmes, CEO of U.S. Global Investors in San Antonio, Texas, to the ranks of tin-foil hat wearers, rent-seeking parasites, and charlatans, on account of the interview he has just given to Alex Steele of Kitco News.

First, Holmes disclosed that his friend Eric Sprott, CEO and senior portfolio manager for Sprott Asset Management in Toronto, who may own Canada's largest collection of tin-foil hats, recently tried to buy gold from the International Monetary Fund and was refused. Coincidentally, GATA learned this week on the best authority that a financial house far bigger than Sprott also recently tried to purchase gold from the IMF, also was refused, and wasn't very happy about the refusal.

Gold Cartel Acting like a Cornered Rat
By Andy Hoffman
All, Things are coming at me at a whirlwind pace, but I just wanted you to know how maniacal, blatant, and dangerous the Gold Cartel (read: US Gov’t) is getting as it gets backed into its final corner.

Supply fears start to hit Treasuries
The bond vigilantes are finally flexing their muscles. A long period of stability for the US government bond market showed signs of cracking this week as a lack of investor appetite for new debt sent the benchmark 10-year yield to its highest level since last June.

For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent.

Falling inflation, rising unemployment, the housing market slump, the Federal Reserve’s policies of a near zero overnight borrowing rate and its purchase of up to $1,700bn in bonds have all helped keep Treasury yields near historic lows.

But this week the mood shifted as yields for $118bn of new US debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the UK bond market after the government’s budget ahead of a general election expected in May failed to resolve doubts over future spending and debt reduction.

The term “bond vigilantes” was coined in the 1980s when bond investors pushed up long-term yields to force central banks into taking action to curb inflation. This time, bond investors are less worried about inflation: they are fretting about huge fiscal deficits and the looming bond supply needed to finance them.

“Everyone thought we would see rising rates due to higher inflation, but it appears the bond vigilantes are demanding a higher real rate due to concerns about Treasury issuance,” says George Goncalves, head of fixed income strategy at Nomura Securities.

Worries about the debt loads of developed economies have come into focus this year amid the crisis threatening Greece and other members of the eurozone periphery.

The fact that German Bunds have outperformed both Treasuries and gilts in recent months highlights this increasing worry over public debt. Germany’s budget deficit is much lower than the US and UK and inflation there is also expected to remain low.

“The spotlight on Greece only helped to reveal that the US’s kitchen – with Federal and state budget balances – was itself full of cockroaches,” says William O’Donnell, strategist at RBS Securities.

It hasn’t helped that the US announced a big overhaul of its healthcare system this month, adding to worries about the scale of US spending.

Moreover, the Fed completes its bond buying programme next week, leaving the market to absorb the supply of new debt on its own. Next week’s March employment report, which economists say could see 150,000 jobs created, also looms as a test for bond market sentiment.

“The environment for debt auctions has turned negative,” says Rick Klingman, managing director at BNP Paribas. “Long-term rates are rising and it is no coincidence that this has occurred after the passage of healthcare reform and the end of Fed buy-backs.”


CBO report: Debt will rise to 90% of GDP
President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.

In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president's budget would generate a combined $9.75 trillion in deficits over the next decade.

"An additional $1.2 trillion in debt dumped on [GDP] to our children makes a huge difference," said Brian Riedl, a budget analyst at the conservative Heritage Foundation. "That represents an additional debt of $10,000 per household above and beyond the federal debt they are already carrying."

The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it's headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO's deficit estimates.

That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America's debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.


Treasury says it will begin selling Citi shares
NEW YORK (AP) -- The Treasury Department said Monday it will begin selling the stake it owns in Citigroup Inc., which could result in a profit to the government of about $7.5 billion.

The government received 7.7 billion shares of Citigroup in exchange for $25 billion it gave the bank during the 2008 credit crisis. It said it will sell the shares over the course of this year, depending on market conditions.

Like any investor, the government will likely hold on to its shares if prices fall steeply. However, Citi shares have steadily been rising with the broader market in recent months, which means the Treasury Department stands to pocket a hefty profit.

The government has been trying to unravel the investments in made in banks under the $700 billion Troubled Asset Relief Program, or TARP, that came in at the height of the financial crisis. Citi, one of the hardest hit banks during the credit crisis and recession, received a total of $45 billion in bailout money, one of the largest rescues in the program. Of the $45 billion, $25 billion was converted to the government's ownership stake in the bank.

The Treasury paid $3.25 a share for its stake.

New York-based Citi repaid the other $20 billion it owed the government in December.

The Treasury had been planing to sell 20 percent of its stock at the time when Citi was selling new shares late last year. At a price of $3.15 a share, the government would have lost $158.7 million on the sale, so it opted not to participate in the deal at that time but to unload all of its 7.7 billion shares over the course of this year.


Sell the shares to whom?! In order to sell something, you must have a buyer. 7.7 Billion shares? Selling all that would depress the price, who would by? The Fed? Of course!

Consumer Confidence in US Improves on Job Prospects BusinessWeek
Consumer confidence rebounds in March MarketWatch
Consumer Confidence Up in March Atlantic Online
The consumer confidence index rose to 52.5 in March from 46.4 in February. Confidence had dropped significantly in February from 56.5 in January. Read complete survey.

The gain in confidence was above forecasts. Economists expected the index to rebound to 51.0. See forecasts for major U.S. indicators.

The February confidence index was revised up from the initial estimate of 46.0.

The present situation index rose to 26.0 from 21.7, while the expectations index improved to 70.2 from 62.9.

Lynn Franco, director of the Conference Board's consumer research center was cautious about the pick-up, saying that consumers continue to express concern about current business and labor market conditions.

"Their outlook for the next six months is still rather pessimistic," Franco said.

Only 18.3% of consumers expect better conditions in six months. More than 67% believe conditions will be the same in September.

Consumers' assessment of the labor market was also pessimistic. Those saying jobs are "hard to get" declined to 45.8% in March from 47.3% in February while those saying jobs are "plentiful" increased to 4.4% from 4.0%.

This is further proof that the headlines are meant to deceive, and the financial press is merely a propaganda tool of the government. We are lead to believe that "consumer confidence" is up on "job prospects". What a load of rubbish. Statistical anomalies at best. In reality, consumer confidence hasn't budged and remains mired in despair. Part-time, Tempoary Census Takers jobs do not an economic recovery make. Avoid the Kool-Aid.

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