Monday, May 10, 2010

Hyperinflation Receives "Go For Throttle Up"

-Larry Kudlow - the interminable CNBC defender/apologist of fiat currency and the U.S. financial system

''Gad, how the advocates of fiat paper money have tried to hold gold back. It was like trying to hide the truth. But ultimately, the truth will out. And it's outing now."
-Richard Russell, editor of Dow Theory Letters

"The implications of this formidable strength in gold are immense, for what this means is that it has arrived at the point where it no longer matters much what the dollar and stockmarkets do - it's going up anyway."
-Clive Maund

...And so, the hyperinflationary trigger event we have all been waiting for has arrived. The European Monetary Union will conjure up $1 TRILLION out of thin air in an "attempt" to bail out the Euro and the country's that call it money.

The European Monetary Union [EMU] represents 16 nation's under a common currency. If all the nation's face a mounting sovereign debt crisis, how does creating more debt solve the problem? How does creating $1 TRILLION out of thin air strengthen their common currency, the Euro?

"I think it's obvious what's going to move the market today, considering what went on in Europe this weekend," said Peter Boockvar, chief market strategist with Miller Tabak & Co.

The European rescue package, valued at more than $1 trillion, has three main components. The biggest provision will use nearly $570 billion to create government-backed loans meant to shore up confidence in shaky credit markets.

"Europe has taken its playbook from the [U.S.] Fed[eral Reserve]," Boockvar said. "It's chosen to inflate its way out of the debt problem rather than really deal with it."

This weekend's nuclear option by the EMU does NOTHING to strengthen the Euro and the balance sheets of the nations that call it money. Far from it.

Prior to the "awakening" of the Greek Debt Crisis late this past Winter, the Euro was being sought after by global investors and central banks as an alternative to owning US Dollars. Now that this belief has proven futile, some investors are rushing back to the Dollar for safety [temporarily]. But those that were seeking an alternative to the Dollar are now rushing to the ultimate alternative currency...GOLD. The decision by the EMU to, in effect buy up the bad debt of it's member nations, has sealed it's currency's fate, and given the green light to the new reserve currency of the world, Gold, to rise far above the ashes of the global fiat money system as it goes down in flames.

EU sets up massive euro defense against markets
BRUSSELS (AP) -- The European Union and the International Monetary Fund pledged a massive nearly $1 trillion defense package for the embattled euro Monday, hoping to finally turn back relentless attacks on the eurozone's weakest members and allow the continent to resume its hesitant economic recovery.

Under the three-year aid plan, the EU Commission will make euro60 billion ($75 billion) available while countries from the 16-nation eurozone would promise bilateral backing for euro440 billion ($570 billion). The IMF would contribute an additional sum of at least half of the EU's total contribution, or euro250 billion, Spanish Finance Minister Elena Salgado said.

"We shall defend the euro whatever it takes," EU Commissioner Olli Rehn said after an 11 hour-meeting of EU finance ministers. The meeting capped a hectic week of chaotic sparring between panicked European governments and aggressive markets.

The massive sums come after a week of political posturing and soothing words by euro zone leaders that had no impact on global investors. In the end, even longtime skeptic Germany realized Europe had to show the money after financial attacks on Greece's debt seemed poised to spread to Portugal and Spain.

"We are placing considerable sums in the interest of stability in Europe," Salgado said after the meeting.

"We are facing such exceptional circumstances today and the mechanism will stay in place as long as needed to safeguard financial stability," the ministers said in a statement.

Of course, it would have been easier to just come out and say, "It is our intention to inflate our debt problems away." But that would have been too obvious. It was much more important to give the illusion of "great action" being taken by committing to spend money that does not exist. American equity investors fell hook, line, and sinker for the magic of money creation. Few recognised the US Federal Reserves involvement in this "European Bailout". Once again the Fed has committed to spending the American taxpayer's money without Constitutional authority reserved for Congressional appropriation ONLY. Once again, Americans have been robbed in broad daylight under the pretense of "saving the financial system".

Federal Reserve opens credit line to Europe
WASHINGTON (AP) -- The Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent.

Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan also are involved in the dollar swap effort.

The move comes after the European Union and International Monetary Fund pledged a nearly $1 trillion defense package for the embattled euro, hoping to calm jittery markets and halt attacks on the eurozone's weakest members. The ECB also jumped into the bond market Sunday night, saying it is ready to buy eurozone bonds to shore up liquidity in "dysfunctional" markets.

The Fed's action reopens a program put in place during the 2008 global financial crisis under which dollars are shipped overseas through the foreign central banks. In turn, these central banks can lend the dollars out to banks in their home countries that are in need of dollar funding to prevent the European crisis from spreading further.

The Fed said action is being taken "in response to the reemergence of strains in U.S. dollar short-term funding markets in Europe," and to prevent the spread of that strain to other markets and financial centers.

A so-called "swap" line with the Bank of Canada provides up to $30 billion. Figures weren't provided for the other central banks. The arrangements are authorized through January 2011.

The Fed said action is being taken "in response to the reemergence of strains in U.S. dollar short-term funding markets in Europe," and to prevent the spread of that strain to other markets and financial centers." Good freaking luck! What goes around comes around. I suspect that by January 2011, America will be staring down the jaws of a sovereign debt crisis of it's own. Who will be there to bailout America?

When the Global Debt Shuffle Hits Home
by Jason Zweig
It took the Dow Jones Industrial Average 62 long, grinding years to close above 582.69 for the first time. On Thursday, the Dow (NYSE: ^DJI - News) plunged by 582.69 points in less than 420 seconds.

The market's terrifying drop was more than a technical trading glitch. It was a warning that the U.S. economy is playing a dangerous game. After all the massive bailouts, the federal debt is exploding.

Overall U.S. government debt now stands at 92.6% of projected 2010 gross domestic product, according to the International Monetary Fund.

The U.S. now has a heavier debt burden than several of the overleveraged countries that have been branded with the scornful nickname "the PIIGS." Portugal's debt, according to the IMF, is 85.9% of its GDP; Ireland's, 78.8%; Italy, 118.6%; Greece, 124.1%; Spain, 66.9%. Perhaps there should be a new acronym, with the U.S. added to Portugal, Ireland, Italy, Greece and Spain: "PIG IS U.S."

But joining this club is no joke. Economists Carmen Reinhart and Kenneth Rogoff, authors of "This Time Is Different: Eight Centuries of Financial Folly," have shown that a rise in government debt above 90% is associated with a decline in economic growth of roughly one percentage point per year.

Yes, in recent months, there's been a lot of bullish talk about how the American balance sheet has been cleaned up. Total consumer debts, according to the Federal Reserve, have dropped by $160 billion since the third quarter of 2008, while total business debt is down by more than $150 billion. And banks and other financial institutions owe $1.4 trillion less than they did in late 2008.

Those debts haven't disappeared. They have merely been shifted onto the books of the federal government—in what may be the highest-stakes shell game ever. On Sept. 30, 2008, total U.S. public debt stood at $5.8 trillion. By the end of 2009, it had surpassed $7.8 trillion. So far this year, it has swollen by an additional 8%; total U.S. public debt outstanding now exceeds $8.4 trillion.

There's no sign of a slowdown in debt growth. "These processes are not linear," warns Prof. Reinhart. "You can increase debt for a while and nothing happens. Then you hit the wall, and—bang!—what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big." The results can unfold in a cascade of what Prof. Reinhart has called "the deadly Ds": downturns, deficits, more debt, downgrades, even default.

The U.S. has advantages many of the PIIGS lack. Our economy is far more diversified, and the Treasury finances much of its debt domestically, making us less vulnerable to the whims of foreign investors.

But, adds Prof. Reinhart, "we cannot take for granted that these things happen only in places like Greece but can't happen here. If you flood the markets with more and more debt, its value is going to go down. We are silly to fool ourselves into believing otherwise."

It really is "just a matter of time" before this sovereign debt contagion comes home to roost at the feet of it's progenitors, the US Federal Reserve. Count on it. When is anybodies guess, but I would guess far sooner than anybody might "expect". It is inevitable and unavoidable. Today's act of utter desperation by the EMU to slow down the destruction of the European Monetary Union, as it wilts under the weight of it's own debt, is little more than a butter-fly bandage placed on a sucking chest wound. The world financial system is a corpse. Pump all the blood [liquidity] you care to into the dead body, and it will simply run out all of the holes.

Greek Tragedy Could Have Multiple Acts
By Desmond Lachman
In a manner all too reminiscent of Federal Reserve Chairman Ben Bernanke’s initial dismissal in early 2007 of the subprime loan loss problem, President of the European Central Bank Jean-Claude Trichet keeps insisting that the Greek economy constitutes only 2 percent of the European economy. He does so to assure markets that Greece poses no real threat to the European economic recovery and to detract attention from the very large amount of Greek sovereign debt being held by European banks.

In deciding on the timing of an exit from the Federal Reserve’s extraordinary monetary policy easing, Bernanke would do well to ignore Trichet’s reassurances. The body blow that a Greek default would deliver to the European banking system—together with the contagion that it would unleash on Spain, Portugal, and Ireland—would have major reverberations throughout the global economy.

In considering the timing of the Federal Reserve’s exit strategy, Bernanke would make the gravest of errors were he to underestimate the potential fallout of a Greek failure on the U.S. and global economies. For not only would a further shock to the European banking system diminish U.S. export prospects by tipping the European economy back into recession and by materially weakening the euro, it would also all too likely be accompanied by a return in spades of risk aversion in global financial markets.

Gold thus far has been unmoved by today's EMU bailout announcement. Weakness in the Dollar has put a bid back under global commodities, particularly Silver. Silver has become a much more potent proxy of late as an inverse of the US Dollar. Gold has disconnected from the Dollar as it takes it's rightful place at the top of the currency mountain. Silver, though recently lagging Gold, should reignite soon as the Dollar's grossly weak fundamentals drag it back to earth.

Silver exploded higher on Friday just after noon EST. Traders were puzzled until a review of the days press releases was performed:

May 7, 2010
CFTC’s Division of Market Oversight Issues Advisory Regarding Intraday Speculative Position Limits
Washington, DC – The U.S. Commodity Futures Trading Commission’s (“CFTC”) Division of Market Oversight (“DMO”) today issued an Advisory to alert market participants with respect to their ongoing legal obligations to comply with speculative position limits. Speculative position limits apply to positions held on designated contract markets (“DCMs”) and on exempt commercial markets (“ECMs”) with significant price discovery contracts (“SPDCs”) (collectively, “exchanges”).

Speculative position limits provide for the maximum size of the net long or short position that any one person may hold or control in futures at any point in time. In enforcing speculative position limits, the Commission and exchanges rely on information generated by the Commission’s Large Trader Reporting System (“LTRS”) or on equivalent large trader reporting systems maintained by individual exchanges. Under the LTRS, daily reports are filed at the end of the trading day (“as of the close of the market”).

In this Advisory, DMO reaffirms that, irrespective of the end-of-day applicability of the LTRS, speculative position limits apply on an intraday basis as well as an end-of-day basis. This applies to both Federal limits for certain agricultural commodities, set out in Commission regulation 150.2, and any exchange limits imposed in accordance with the core principles for DCMs or ECMs with SPDCs. A trader whose position exceeds the applicable speculative position limit at any time during the day is in violation of the Commodity Exchange Act and CFTC regulations, even if the position is subsequently reduced to a level within the applicable limit by the close of the market for that day. Accordingly, intraday speculative position limit violations have been and continue to be subject to Commission enforcement action as violations of the Act.

Was this press release a warning to JPMorgan and cronies that the CFTC is on to their little game at the CRIMEX?

by Karl Denninger
WASHINGTON (Dow Jones)--The U.S. Commodity Futures Trading Commission issued a warning to the market on Friday to remind participants that speculative trading limits apply throughout the trading day as well as at the end of trading.

Timestamp, 11:15 Central time

Now let's look at two charts.,-GOLDSILVER-Spikes.html

Check out the charts linked at the post above. Mr. Denninger makes a pretty strong case that the CFTC warning issued Friday implied a bit of impropriety in the Gold and Silver futures pits.

Perhaps Friday’s short-covering style jump higher in Silver might be attributed to a probe into the largest trader in the New York silver futures market:

Feds probing JPMorgan trades in silver pit
By MICHAEL GRAY, The New York Post
Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.

The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.

The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.

The probes are far-ranging, with federal officials looking into JPMorgan's precious metals trades on the London Bullion Market Association's (LBMA) exchange, which is a physical delivery market, and the New York Mercantile Exchange (Nymex) for future paper derivative trades.

JPMorgan increased its silver derivative holdings by $6.76 billion, or about 220 million ounces, during the last three months of 2009, according to the Office of Comptroller of the Currency.

Regulators are pulling trading tickets on JPMorgan's precious metals moves on all the exchanges as part of the probe, sources tell The Post.
The New York Post continues to be the ONLY mainstream media outlet covering this revealing story.

Ed Steer's Gold and Silver Daily [] shared this GATA commentary on the U.S. Treasury Department's Office of the Comptroller of the Currency (OCC) just released Q4/2009 bank derivatives report:

Well, the U.S. Treasury Department's Office of the Comptroller of the Currency (OCC) has just released the Q4/2009 bank derivatives report... and there was no good news in it. As I [and others] have pointed out many times in the past, five large U.S. commercial banks, led by JPMorgan of course, hold 97% of all U.S. bank derivatives. GATA board member Adrian Douglas gives an executive summary of what's in it... and you need to pay particular attention to the gold and other precious metals derivatives for Q3/09 compared to Q4/09. If you go to Table 9 on page 31 of the OCC's Q4/09 report, you will note the absence of HSBC USA in the top five banks holding significant precious metals derivatives... it's now in 6th place. That's because Wells Fargo moved up from #6 to #5 because its overall derivatives total is larger than HSBC's. Wells Fargo has no precious metals derivatives all. In the 'Other Commercial Banks' category in Table 33... the lion's share of the derivatives position showing there belongs to HSBC. As Table 33 also shows, Bank of America and Citibank have virtually disappeared as players in the precious metals derivatives game... at least as far as this report is concerned. It's virtually all JPM and HSBC. The GATA headline reads "In Treasury report, shocking evidence of silver price suppression"... and the link to the article is here.

I urge you peruse this report by Adrian Douglas.

"-- The notional value of derivatives held by U.S. commercial banks increased $8.5 trillion in the fourth quarter, or 4.2 percent, to $212.8 trillion.

Imagine: an increase of $8.5 trillion in notional value of derivatives in just three months. "

Lost in the Greek Debt Crisis was Friday's Non-farm Payrolls Report. The US financial news media wanted you to believe that "the most jobs in four years" were created in April 2010. Hardly... let's review some overlooked facts that debunk the illusion of "significant" jobs growth:

Non-farm payrolls jump in April
U.S. nonfarm payrolls grew at the fastest pace in four years in April as private sector employers ramped up hiring, raising the strong possibility the labor market recovery may be picking up steam.

KEY POINTS: * Employers added 290,000 jobs in April, the Labor Department said. It revised figures for February and March to show 121,000 more jobs were added than previously thought. * The unemployment rate rose to 9.9 percent as the size of the labor force increased.

Can we believe the employment numbers?
by Anthony Cherniawski, The Practical Investor, LLC
Nonfarm payroll employment rose by 290,000 in April, the unemployment rate edged up to 9.9 percent, and the labor force increased sharply, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in manufacturing, professional and business services, health care, and leisure and hospitality. Federal government employment also rose, reflecting continued hiring of temporary workers for Census 2010.

Despite the rosy numbers, the unemployment rate rose to 9.9%. Census workers count for 48,000 and the CES Birth/Death Model registered 188,000 fictitious new jobs. The real number of new hires is probably closer to 54,000. In addition, the number of marginally attached workers rose by 177,000 and discouraged workers rose by 203,000. I don’t call this a good report.

Table U-6, which includes discouraged workers not counted in the headline figures, suggest the real unemployment percentage rose from 16.9% to 17.1%.

“Birth/Death” Numbers Show Unemployment Is Not Improving As Assumed
By Douglas McIntyre
Factor in the birth/death numbers and the count on people who were “unattached” to the work force who became attached last month and real job growth was less than 50,000.

The government headline made the improvements in the jobless number look relatively good:

Nonfarm payroll employment rose by 290,000 in April, the unemployment rate
edged up to 9.9 percent, and the labor force increased sharply

Census Bureau hiring accounted for 66,000 of the 59,000 government jobs created in April but the plug number of the month is the +188,000 represented by the “birth/death” model According to Anecdotal Economics, ”That’s the BLS best-guess of how many net new jobs were invented by maybe some of the more than 9.2 million people involuntarily working part time or by maybe some of the more than 6.7 million people unemployed for more than six months.”

There are still over 15 million unemployed people in the US, so even if the economy adds jobs at the rate of 300,00 a month, unemployment will remain above standard “recovery levels” well into 2014. The number of long-term unemployed move up (27 weeks or more) to 6.7 million. This will almost certainly mean that Congress will have to extend tens of millions for un-budgeted dollars for unemployment insurance.

The number of people marginally attached to the work force rose to 2.4 million from 2.1 million in March, showing the level of capitulation of the those unemployed for over a year. However, 195,000 people were added to the pool through “reentry”. That is a process of people’s unemployment running out in many cases. And, it means that the work force will have to absorb an additional 105,000 people according to the April snapshot.

Why April's Unemployment Rise Shows Workers Hopeful Again
On the day following the U.S. stock market's nearly 1,000 point intraday plunge, the Labor Department reported that employers added 290,000 jobs in April, the biggest monthly gain since March 2006. While it remains to be seen what effect it will have on investors who are focused on the sovereign-debt crisis in Europe, this is good news for recession-weary job seekers. The unemployment rate jumped to 9.9 percent last month, from 9.7 percent in March, as hopeful workers flooded back into the job market to search for jobs.

You have got to be kidding... Only in America could the bleating financial news media find a way to spin "rising" unemployment as a positive to those already unemployed. "...hopeful workers flooded back into the job market to search for jobs." Wouldn't that suggest that an already tight jobs market was tightening further? Wouldn't that suggest that the competition for jobs just got a bit more crowded? It is absurd enough that the unemployed "not actively seeking work" are not counted as unemployed, but to suggest that more people looking for work is good for your job prospects is positively rediculous.

The worst part is that more people may actually be out looking for work based on the false pretense that "real" people are finding "real" jobs. 188,00 phantom jobs were created in April by the Labor Department to purposely mislead the public into believing the economy is creating jobs.

"Disgusting", is all I can add to this bogus jobs report. I can see now why it was lost in the Greek Debt Crisis coverage Friday. It wasn't news at all...

As I put this post to rest, it appears mighty effort is being used over at the CRIMEX to keep a lid on Gold today. Gold mustn't be allowed to sound the siren call of hyperinflation. With today's EMU announcement of a $1 TRILLION debt bailout of Europe, Gold and Silver have officially been given classification as the Best Investment Opportunity Of A Lifetime. Buy any and all dips in price.

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