Monday, September 20, 2010


An historic week in Precious Metals is now behind us. Gold closed the week at a new ALL-TIME high. Silver closed the week at a 30 year high. Fantastic! Higher prices ahead are built into these markets now. How difficult the road to achieve them remains to be seen. The Rat Bastids of the CRIMEX will not go down without a fight, and a tsunami of paper Precious Metals will rise to meet overwhelming demand for Gold and Silver bullion.

The more worthless paper these crooks sell in their futile effort to stop the rise in Silver and Gold, the higher their price will ultimately go. Last time I checked, it was against the law to sell something you do not own. But with the entire world financial system, a system based on monopoly money, the rule of law is suspended to protect the lies at it's foundation. Once the cover on this global scam is finally peeled back to reveal the true lies of the global financial system, the Precious Metals will to soar to heights now only dreamed about.

The Rat Bastids have opened the week on the offensive ahead of tomorrow's Fed meeting. Speculation that the Fed will announce more Quantitative Easing measures at their meeting this month seem misplaced. Though it would appear as inevitable that the Fed is going to have to step up their new role as buyer of last resort sooner rather than later.

The Federal Reserve’s Next Moves …
by Larry Edelson
Make no mistake about it: In the weeks and months ahead, you are going to see Fed Chief Ben Bernanke pull out nuclear-sized bombs to try and destroy the debt crisis that is affecting the world.

But wait you say, hasn’t the Fed already shot all of its bullets?

My answer: No, it hasn’t. The Federal Reserve has far more fire power than almost anyone believes. Mind you: It will not alter the fate and destiny of the economy. But it will alter the way the economy goes down in flames.

Fed Weapon #1: The Fed can print as much money as it wants. There is no limit to how much it can print. Everyone knows that, but few believe the Fed will print unlimited amounts of money.

Don’t kid yourself. There is no legal or political body the Fed has to answer to. So it can and will print fiat money ad infinitum.

Fed Weapon #2: The Fed could also take some of that money and begin buying stocks and real estate for its own account. There is nothing to prevent the Fed from doing that either.

It could buy a trillion dollars or more of stocks and real estate. It can park those assets on its balance sheet, for as long as it wants. Investors who sell their stocks and real estate to the Fed effectively receive money that previously did not exist.

Moreover, the Fed could even set the prices at which it will buy stocks and real estate, at levels well above current market values. It could, in essence, buy anything it wants, at any price it wants, park the assets on its balance sheet, and wait for as long as it needs to before putting the assets back up for sale.

Mind you, the economy would still continue to sink in the interim. But the Fed is hoping that by buying time, the economy would eventually rebound enough for things “to get back to normal” — so to speak — and then, as I noted, it would unload its assets and drain money back out of the system.

Fed Weapon #3: The Fed could lower the bank reserve requirement — which is currently 10% for all bank liabilities over $55.2 million — all the way down to zero.

In effect, it could tell banks that for every $10 of customer deposits it holds, not one penny has to be parked at the Fed anymore as collateral.

While that does not guarantee that banks will start to aggressively lend again, it does add further liquidity to the system.

But that’s not all …

Fed Weapon #4: The Fed could penalize banks for not lending to the economy! Yes, that’s right. For instance, right now the Fed pays banks 0.25% on the excess funds they park with the Federal Reserve, funds that are above and beyond what is required to be held at the Fed as reserves.

But as we all know, banks have not been in a lending frame of mind. For a variety of reasons. One of those reasons however, is this current policy of paying banks a risk-free 0.25% on their excess funds that they’re keeping with the Fed.

So instead, the Fed could simply do a 180 — and tell banks that it is no longer going to pay them any interest on their excess reserve funds.

The Fed can even go a step further, and effectively tax or penalize banks for not making loans out to the general economy.

Fed Weapon #5: The Fed can engineer a “default on the sly” on all government obligations, effectively inflating away America’s debts, by DEVALUING THE U.S. DOLLAR, forcibly and clandestinely.

Of course, the consequences of the four preceding strategies will likely devalue the dollar.

But lest the value of the dollar does not fall enough, the Fed can print up ever more dollars, sell them in the open market … buy other currencies … and put much more pressure on China to revalue its currency higher (and the dollar lower).

In short, the Fed can do whatever it wants, whenever it wants. It does have plenty of ammo left.

Last week we witnessed a massive intervention in the currency markets by the Bank of Japan in an effort to take some froth out of the Japanese Yen. In truth, this intervention was more about propping up the US Dollar than it was capping the Yen. Humorously, the Dollar has as of today, less than one week later, given back all of it's gains that resulted from the Bank of Japan Yen intervention. There was a strong bid in the Dollar as US markets opened this morning, but this would appear to be Fed rigging ahead of their revered meeting this week.

The Dollar is standing on one leg. Central banks from around the world are now lining up to prop the Dollar up, and weaken their local currencies in the process, in a race to the bottom of the currency barrel. The theory being that a weaker local currency will encourage more exports. It is becoming clearer by the day that the US Dollar is a pariah holding back true global growth, and it must eventually be eliminated [along with the US Federal Reserve] if the World is to ever dig itself out from under this global financial crisis whose root cause is the debt burden represented by the US Dollar.

Colombia central bank buys dollars, peso falls
By Jack Kimball and Nelson Bocanegra
BOGOTA, Sept 15 (Reuters) - Colombia's central bank on Wednesday started purchasing what it said would be at least $20 million daily for the next four months to help ease the rise of its currency, becoming the latest Latin American economy to intervene in its market.

The move left the door open for more measures to curb the peso's COP=RR appreciation and followed intervention by Brazil to ease the real's climb and Peru's buying dollars to curb the sol.

"The Board of Directors of the Central Bank decided to resume the accumulation of international reserves. To do this, it will purchase daily at least $20 million through competitive auctions for at least four months counting from (Wednesday)," the bank said in a statement on its website.

The peso, one of the region's strongest performing currencies this year, fell 1.43 percent to a low of 1,817 pesos per dollar from Tuesday's close after the bank's announcement. The local unit closed down 0.89 percent at 1,807.1 on Wednesday.

The Colombian peso has soared 12.5 percent against the dollar this year, the sol PEN=PE has risen more than 3 percent and the real has rallied 4.5 percent since June. Brazil's currency weakened 1 percent on Wednesday after the government threatened to step up intervention.

Latin America's emerging market economies are struggling with appreciation. Regional powerhouse Brazil is aggressively buying dollars, Peru is tightening deposit requirements and Chile has warned it may also have to intervene.

Peru's central bank purchased $21 million on Wednesday, while on the other side of the world, Japan sold yen to battle an appreciating currency, which risks reducing demand for exports and damaging growth.

The peso's appreciation hurts Colombian exporters, who receive earnings in dollars but pay costs in pesos.

“Currency warfare is the most destructive form of economic warfare."
-Harry Dexter White, US Representative to Bretton Woods, 1944

Currency wars set to break out as volatility grows
By David Uren
GET set for an outbreak of currency wars with the potential to shake global confidence as markets move towards the volatile October period.
The long-standing debate between China and the US is again at a flashpoint, while Japan is aggrieved that China's central bank is pushing up the value of the yen.

The investors' flight from the euro may also gather speed under renewed concerns over the sovereign risk.

The Australian dollar, which is being pushed higher as investors assess the strength of Australia's economy and the prospect of further rate rises, is set to be buffeted by changing market assessments of risk.

A confluence of international meetings over the next six weeks will elevate market concerns into the political domain.

The International Monetary Fund is meeting in Washington early next month, followed by the G20 finance ministers and central bank governors later in the month, and the G20 leaders' summit in Korea in early November.

The case for owning physical Precious Metals could not be any clearer now. As global central banks cut off their noses to spite their faces, Gold and Silver will only climb higher as locals seek to protect their wealth from a global currency debasement. Next stop, global Hyperinflation as all confidence in fiat currencies is lost.

How Hyperinflation Will Happen[MUST READ]
by Gonzalo Lira
Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy.

This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.

But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)

It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—

—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.

In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

So this is how hyperinflation will happen:

Japan, and much of the "emerging" global economies want a stronger Dollar to improve their exports and in turn their local economies. Unfortunately, the US, though they don't come right out and say it, want a weaker Dollar to improve exports of US products and improve the US economy.

"You can't have your cake and eat it too."

The fate of the US Dollar clearly hinges on the Chinese and their management of the Yuan. The Chinese are coming under increasing pressure from the US to allow their currency to appreciate. It must certainly infuriate the Chinese that Japan is allowed to "intervene" in the currency markets to weaken the Yen, but the Chinese are to be considered "currency manipulators" because they chose to purposefully keep their currency weak. China will, in time, allow the Yuan to rise versus the Dollar. It is in their best interests in the long term, and considering the rising inflation on the mainland, it will become imperative that the Yuan rise. In fact, the Chinese Yuan is rising presently.

Following recent announcement that inflation in China is escalating [+4.2% June to July] the Yuan has seen steady appreciation the last three weeks and again this morning touched a new 17 year high versus the US Dollar.

American politicians, hardly knowledgeable of the ebb and flow of global currency, have convinced themselves that a rise in the Chinese Yuan will translate into a momentous rise in manufacturing jobs here in the US. This is a pipe dream... Even if it were to come to pass, it would take years for this "transformation" in manufacturing jobs to occur. A rise in the Yuan will in fact put immense pressure on the US Dollar.

The US Dollar that is presently the World's "global currency". A falling US Dollar will create a momentous rise in inflation quicker than it will create any jobs. In fact, it is entirely possible that a falling Dollar will only exacerbate an already decimated US jobs market. US Politicians should be careful of what the wish for. A nightmare scenario might develop because of their impudence and impatience. Their "dreams" of "creating" 500,000 new jobs overnight dashed upon the rocks of a rising tide of inflation, or worse, a tsunami of US Government induced Hyperinflation.

US-China clash over yuan escalates, risking superpower stand-off
By Ambrose Evans-Pritchard
US Treasury Secretary Tim Geithner has issued his harshest attack to date on China’s currency policy, the latest move in an escalating superpower clash across the gamut of commercial and strategic relations.

We are very concerned about the negative impact of (China’s) policies on our economic interests,” he told a Congressional hearing on Beijing’s use of exchange intervention for trade advantage.

“The pace of appreciation has been to slow. The undervalued renminbi helps China’s export sector. It encourages out-sourcing of production and jobs from the United States. By continuing a rigid exchange rate, China is impeding the adjustments needed to secure sustainable global growth,” he said.

The tough talk comes amid concerns that the global currency order is unravelling, with countries breaking ranks in a `beggar-thy-neigbour’ use of 1930s-style devaluation to help exporters and shore up their economies.

Japan became the latest country to intervene this week, carrying out massive dollar and euro purchases to weaken the yen. Sander Levin, chair of the US House Ways and Means Committee, called the move “deeply disturbing”, chiefly because it muddies the political water and lets China off the hook.

Mr Geithner’s ire follows a move by US trade chief Ron Kirk to file two cases against China at the World Trade Organization, alleging bias against US steel producers and credit card companies. Mr Kirk said he was “fighting for the American jobs threatened by China’s actions.”

Trade expert Gary Hufbauer from Washington’s Peterson Institute said the tensions risk triggering a dangerous clash.” The US and China are now adversaries, not enemies, but if the Obama administration pushes this trade agenda the way it is now doing, we will end up antagonists,” he said.

Professor Hufbauer said the White House has lost faith in “quiet diplomacy”, irked that the yuan has hardly moved since Beijing ended the dollar peg in June. This is spiced by populist fever before the mid-term elections in November.

“The US trade deficit with China is widening, yet the Chinese are still accumulating reserves at remarkable rate, beyond their needs. They know that growth in China’s coastal provinces is their passport to political stability, but this is incompatible with US political stability,” he said.

“We have grievances piling up in tyres, aluminium, paper, and steel, and it has all come to a head. Of course, China is getting an unfair share of the blame from this anti-globalisation mood on Capitol Hill. The truth is that when the US curbed imports of Chinese tyres, sales went to Brazil and Mexico instead, not to US producers,” he said.

Jiang Yu from China’s foreign ministry echoed the point. “Appreciation of the renminbi will not resolve the deficit between the US and China and will not resolve US domestic unemployment. Pressure will not only fail to solve the problems; it could have the opposite effect,” she said..

Congress wants tough stance with China over trade
Martin Crutsinger, AP Economics Writer
WASHINGTON (AP) -- Congress is pressuring the Obama administration to take a tougher stand with China over trade practices that they say have cost Americans millions of jobs.

Democrats and Republicans on committees in the Senate and House told Treasury Secretary Timothy Geithner on Thursday that China is manipulating its currency. They said that and other practices have led to a huge trade gap between the two countries and job losses in the United States.

Geithner said the administration was ready to work with Congress on an effective strategy. But he cautioned that the government should not take any action that would wind up hurting U.S. companies and businesses by triggering retaliation by China, an important trading partner.

Members of the Senate Banking Committee said they were frustrated because the administration failed to cite China as a currency manipulator in its latest report. Instead, the White House took the same position as previous administrations in simply urging China to move faster to allow its currency to rise in value against the dollar.

American manufacturers contend that the Chinese currency is undervalued by as much as 40 percent. That has given Chinese companies a tremendous competitive advantage -- making U.S. products more expensive in China and Chinese goods cheaper in the United States.

Under a 1988 law, the Treasury Department is required to submit a currency report to Congress every six months and cite any country that it finds is manipulating its currency to gain trade advantages.

A number of senators complained that the Obama administration, like previous administrations, failed to identify China as a currency manipulator.

"At a time when the U.S. economy is trying to pick itself up off the ground, China's currency manipulation is like a boot to the throat of our recovery," Sen. Charles Schumer, D-N.Y., said. "This administration refuses to try and take that boot off our neck."

The ONLY boot on the throat of the US Economy is the US Dollar itself. And the foot inside that boot belongs to the crooked for profit bank the US Federal Reserve. If the US Congress are indeed serious about lifting the boot off the "throat of or recovery" they must get truly serious about breaking the shackles of the Constitutionally ILLEGAL US Federal Reserve. The US Congress' continued reluctance to pull back the curtain on this 100 year old fraud is a bigger threat to US soverignty and it's economic base than the Chinese ever could or would be. It is high time the US Congress admit the failure of their Creature From Jekyll Island and restore real constitutional money to the core of our financial system.

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