The Fix Is In, Stocks Set To Plunge, QE3 To The Rescue

"The Fed’s balance sheet is careening towards $3 trillion and, after the latest round of money printing ends next month, the plan is to keep it parked right there and wait to see what happens, much in the same way that a little boy would randomly mix things together from his chemistry set and then sit back and wait to see what happens."
 -Tim Iacono

When Faith In U.S. Dollars And U.S. Debt Is Dead The Game Is Over – And That Day Is Closer Than You May Think
A day is coming when the rest of the world will decide that it no longer has faith in U.S. dollars or in U.S. debt. When that day arrives, the game will be over. Traditionally, two of the biggest things that the U.S. economy has had going for it were the U.S. dollar and U.S. Treasuries. The U.S. dollar has been the default reserve currency of the world for decades. All over the globe it was seen as a strong, stable currency that was desirable for international trade. U.S. government debt has long been considered the "safest debt" in the entire world. Whenever there was a major crisis, investors would flock to U.S. Treasuries because they were considered a rock. Sadly, all of this is now changing. Today the rest of the world is losing faith in the U.S. financial system. In fact, even the United Nations is now warning of the collapse of the dollar. But if the U.S. dollar and U.S. Treasuries collapse, that will be an absolute nightmare for the U.S. economy. If the rest of the world does not want our dollars someday, then what are we going to give them in exchange for all of the oil and all of the cheap imported goods they send us? If the rest of the world does not want our debt someday, then how in the world are we going to be able to continue to consume far, far more wealth than we produce?

The rest of the world is watching the U.S. government run up record-setting budget deficits and they are watching the Federal Reserve print money like there is no tomorrow and they realize that the U.S. financial system is slowly imploding.

Our politicians continue to assume that the rest of the world will always want our dollars and our debt, but that is simply not the case.

Over the past couple of years, global leader after global leader has publicly talked about the need for a new world reserve currency.

In fact, globalist institutions such as the IMF and the World Bank have been very busy discussing what the world is going to use as a global reserve currency after the death of the dollar.

The rest of the world is not sitting around waiting to see if the U.S. financial system is going to recover. They are already making plans for the demise of the dollar. They are increasingly using other currencies to trade with. They are becoming more hesitant to buy more of our debt. They are realizing that the days of U.S. dominance are coming to an end.

UN sees risk of crisis of confidence in U.S. dollar
Rob Vos, a senior UN economist involved with the report, said if emerging markets “massively start selling off dollars, then you can have this risk of a slide in the dollar.

“We’re not saying the collapse is imminent, but the factors are further building up that we could quickly come to that stage if other things are not improving quickly on other fronts — like the risk of the U.S. not being able to service its obligations,” he told Reuters.

David Stockman: Both Political Parties are Full of Morons
By Wall St. Cheat Sheet
“For the last six months, the Fed has bought nearly 100% of this $6 billion a day that’s been issued. Once they are out of the market, where is the new bid, where is the new demand going to come from? The Chinese (NYSE:FXI) are getting out of the market because finally they are having to deal with the rip-roaring inflation they have had. The people’s printing press of China will not be buying as much U.S. debt (NYSE:TLT) because of its own internal problems.”

“When we get to real investors, what are some of the real investors saying today? PIMCO is short the bond, they’re selling, they’re not buying.

“When we get into a two-way market when real investors began to look at real risk, begin to look at the gong show in Washington and the magnitude of the gap that we are borrowing, I think we ‘re going to get a re-rating of sovereign risk. We’re going to get a huge dislocation in the global bond market, and then maybe the wake-up call will finally come.”

“The problem is not the debt ceiling. When push comes to shove, at the 11th-hour, they will do it for a couple of weeks or months and we will have a little more borrowing headroom and will be back to the same impasse where we are now.”

“The real problem is the de facto policy of both parties is default. When the Republicans say no tax increases, they’re saying we want the U.S. government to default. Because there isn’t enough political will in this country to solve the problem even halfway on spending cuts.

When the Democrats say you can’t touch Social Security, when you have Obama sponsoring a war budget for defense that is even bigger than Bush, then I say the policy of the White House is default as well.”

“That is the question that really needs to be understood better and appraised by the bond market. Both parties are advocating default even as they point the finger at each other.”

Standing at a crossroads where QE2 has ended and the US debt ceiling has been capped.  The road appears blocked at every turn...where do we kick the can next?  With the need to sell even more new debt just to pay off the old debt, and the line at the buy window getting thin, US sovereign debt default and a collapse of the US Dollar would appear imminent.  In a "free market" perhaps that would be the case.  But, in a world where the markets are rigged, the opposite of what is expected is more often the result.

A scenario of US debt default and Dollar collapse is going to come one day soon enough, but it's doubtful that it arrives this summer as expected.  No, the exact opposite is likely to occur first.  The likely near-term collapse in the financial markets is probably going to be in stocks and commodities as they are bludgeoned in an effort to solve the immediate threat to the Treasury Market and the US Dollar.

The immediate threat to the financial markets following the end of QE2 is not to the Treasury Market, but to the stock market.  It is no longer a secret that the money being printed by the Fed to purchase US Treasury debt from the Primary Lenders has been leveraged by those same banks to "levitate" the stock markets to give the "appearance" to the public that the "Fed has everything under control".

SURGING MARGIN DEBT AND THE INSTABILITY QE2 HAS CREATED
12 April 2011 by Cullen Roche
...margin debt has tended to correlate fairly closely with the direction of the equity market. And according to the latest data from the NYSE, margin debt continues to move higher. In an effort to ride the coattails of the Fed and QE2′s “can’t lose” environment, investors have dipped into their borrowings to buy equities. David Rosenberg highlights the speculative fervor that this now represents. Current levels of margin debt are now consistent with the Nasdaq bubble and just shy of the levels seen before the credit crisis (via Gluskin Sheff):

“If there is one sure way to tell that the Fed has managed to create and nurture a speculative-led rally in the equity market, look no further than what is happening to investor-based leverage growth – it’s exploding off the page. Yes, that’s right. Debit balances at margin accounts skyrocketed $20.7 billion in February. Only two other times historically have we seen leverage rise so much so fast and both times it was during a manic phase – during the tech bubble of the late 1990s and the credit bubble just a short four years ago.

To put that $20.7 billion incremental leverage in on month into proper perspective, it represents a 7.2% jump, or an increase of no less than 129% at an annual rate. And, it’s not just February – the rising use of credit to buy stocks has zoomed ahead at a 64% annual rate in the past three months. If and when the markets breaks, the problem in trying to contain the downside momentum is that there are no short left to cover, which actually helps as a shock absorber. The Fed has successfully cleaned out the short community, and the extent to which we see margins being called away may very well accentuate and downside pressure…if it should come.”

The results from QE2 are beginning to look fairly clear. Not only does this program appear to have done very little to help the real economy, but it appears to have sparked a speculative move in risk assets that creates a disturbing level of instability.

The Fed has in effect created a financing pyramid, a massive Ponzi Scheme, in an effort to delude the public into believing that there must be an economic recovery because stocks have been rising for the past two years.  Unfortunately for our bumbling Fed chairman, AND THE AMERICAN PUBLIC, this is absolute bullsh*t!  The equity markets are a very poor barometer of economic health AND wealth, but in the "CONfidence game" that the Fed is running, the public is brainwashed by the financial media into the belief that rising stocks equal a strong, growing economy.  With first quarter GDP coming in at a meager 1.8%, where is this strong, growing economy?

Today, stock prices are simply a reflection of leverage rather than an inflation of the money supply.  The money the banks have received for the Fed's Treasury purchases remain bottled up in their excess reserve accounts at the Fed.  Today, stock prices are just one more layer of a still growing debt bubble.

With this leverage financial pyramid in place, it is now easy to accept Bumbling Ben's repeatedly confident declaration that current commodity inflation is "transitory".  With his Ponzi Scheme in place the economy is disrupted and left stuck in the mud, held hostage by the casino games being played on Wall Street as paper profits change hands repeatedly, but with no net wealth created to support an economic recovery.

Ben and his Fed Head brothers are in control all right, but they are not in control much more than the rigging of these markets to meet their needs.  And their immediate need is a source of funds to purchase more US Treasury debt since their QE2 spigot is about to run dry.  An over leveraged stock market that begins to fall rapidly would certainly offer a quick source of Treasury Debt funding.  All signs are now pointing to an imminent take down of the equity markets to finance the Treasury's exploding debt needs.

“The U.S. economy is not in recovery, and what ever upside bouncing there was in retail sales and industrial production increasingly appears to have been transient in nature. In this morning’s (May 17th) reporting, April 2011 housing starts continued their broad downtrend, bouncing downhill in renewed deterioration. More important than the statistically-insignificant monthly decline of 10.6%, the annual decline of 23.9% was significant, and the six-month moving-average has declined for the last three months, pushing the historic low level seen in April 2009…

In tandem with last week’s reporting of retail sales activity gaining less than 0.1%, net of higher prices (see Commentary No. 368), production activity appears to have stalled, with housing and consumer liquidity issues leading general economic activity into what eventually should be recognized as a double-dip recession…

April Housing Starts Were Consistent with a Deteriorating Economy.”

“Commentary No. 369: April Housing Starts, Industrial Production”
John Williams, shadowstats.com, 5/17/11

QE2 has not supported an economic recovery but instead has resulted in piling more debt on unpayable Debt.  The Fed has been creating $19 Billion out of thin air for free per week to buy U.S. Treasuries on which Taxpayers must pay interest.

QE2 has supported a bad habit.  Unfortunately, like a drug addict, the stock markets and economy have come to rely on QE for their sustenance and highs.  Withdraw the QE, and the economy and the stock markets will crash.  The perfect scenario for a debt market short on funding.

Where does money fleeing a falling stock market always seek "safety"?  The US Treasury market!  Of course, it's all becoming so clear now. 

Will QE2 end in fire or ice?
By Jim Saft
With just a month to go until the Federal Reserve brings QE2 to a close, most analysts are focused on the risks to markets if interest rates shoot higher when the government is no longer buying its own debt.

But an alternative is worth considering: what if this buying binge by the Fed is followed not by that fire but by the ice of sinking yields and another lurch towards deflation.

Albert Edwards, a trenchantly bearish strategist at Societe Generale, maintains that Treasury yields are heading lower and that this will be accompanied by the mother of all busts on the stock market, taking the S&P 500, currently at about 1,325 points, to 400.

Yes, that’s right, 400.

“Despite fully acknowledging the ruination of the government balance sheets as years of excess private sector debt are transferred to the public sector, we still expect to suffer another deflationary bust that will take government bond yields to new lows before government profligacy and the Feds’ printing presses take us back to both double-digit inflation and bond yields,” Edwards said in a note to clients. “For now, we remain heavily overweight government bonds.”

The more mainstream concern is that the ending of the second round of quantitative easing will remove a key support for Treasuries and that few will be willing to buy when the Fed is not, especially given the uncertain outlook for the budget and inflationary pressure from commodities and energy.

At the same time QE2 is ending, Chinese and emerging market tightening may mean less natural appetite for Treasuries. If China decides to allow its yuan to strengthen to fight inflation, this will be exacerbated. China must buy Treasuries to recycle export dollars and keep its currency cheap. If China decides to ease up on that policy there will be fewer Treasuries purchased.

Edwards thinks, though, that this will be swamped by weak economic fundamentals and a sell-off in risk assets. Both of these forces would send Treasuries higher, even despite the absence, at least temporarily, of the Fed as a big buyer of government debt.

So, in this scenario, the money that was displaced by the Fed during QE2, money that poured into risk assets, particularly bonds, comes flooding back to Treasuries, driven by fear of an economic downturn and seeking safety from carnage in the corporate markets.

Gold and Silver might be "safer" bets than US Treasury Debt, but the demand for Treasury Debt created by a stock market take down will also create a demand for US Dollars.  A rising US Dollar will pressure the Precious Metals lower along with stocks much to the Fed's pleasure. 

The perceived demand for Treasury Debt will buy time for the US Congress locked in battle over the raising of the debt ceiling as QE2 expires June 30, 2011, but very little.  The take down in the stock markets will be fast and furious.  It's intent to scare the public into demanding more of the drug that keeps the economy afloat and stock prices high will be a great success for our financial puppet masters at the Fed.

If this scenario plays out as we move into the summer months, and falling stock prices begin to peg the "fear meter" of investors, cries for the Fed to "do something" will be loud and come from all corners.  This will set the stage for Congress to raise the debt ceiling, and open the door to the Fed's QE3 program.  Timmy Geithner's August 2, 2011 Treasury Debt Default deadline looms as a panacea for an economy strung out on the cold turkey of a QE free economy.

With gold trading higher along with silver, the Godfather of newsletter writers Richard Russell had this to say in his latest commentary, “Russell Looks ahead -- With inflation heating up as far as American consumers are concerned, the pressure is on the Bernanke Fed to "cool it" on its quantitative easing. I think the stock market (now slumping) and the dollar (now rising) are reflecting this. Thus the Fed might be setting off a temporary slump in the summer economy.


If so, Bernanke could announce, "See, if we ease up, the economy eases up as well." All of which strengthens the case for QE3. Of course, President Obama would love a late pick-up in the US economy as the nation moves into the 2012 election period.”


Russell continues:


“So the Russell crystal ball says, "Prepare for the summer doldrums (maybe even a slump), and then be ready for an economic revival in the fall and into 2012. Also get ready for all-out inflation as the Fed steps on the QE3 accelerator in late 2011.

Today's hope that another Greek bailout will "fix things" is just more wishful thinking, as the reality of the false economic recovery being sold to Americans sets in as Consumer Confidence Falls Unexpectedly in May.

The table has been set by the Fed.  The immediate funding needs of the Treasury Market far outweigh the needs of the Stock Markets.  The fix is in.  It's cold turkey for stocks, commodities, and the economy, and a good buzz for US Treasuries.  Prepare yourselves for a living hell.  Summer begins June 21.

Today, it's 1984, and what is shouldn't be, and what shouldn't be is.

Stocks Turn Higher as Crude Tops $100 a barrel- AP
Francesca Levy and Matthew Craft, AP Business Writers, On Wednesday May 25, 2011, 4:58 pm EDT
Stocks are closing higher for the first day this week, as rising oil prices offset worries about the global economic recovery.

Rising Oil prices are good for the global economic recovery?  Did I read that "headline" correctly?  Have things gotten so out of whack that rising Oil prices are a good thing?  Were we not told just recently, by no less an authority than the The President Of The United States, that rising Oil prices were a "threat" to the economic recovery?  And now they are a "good thing", eclipsing any worries about the global economic recovery?

And I always thought rising Oil prices were a drag on the economy because they made the cost of doing business more expensive...how foolish of me.

But what's this?

High energy takes a bite out of economic growth- AP
Martin Crutsinger, AP Economics Writer, On Thursday May 26, 2011, 12:14 pm EDT

WASHINGTON (AP) -- High gasoline prices, government budget cuts and weaker-than-expected consumer spending caused the economy to grow only weakly in the first three months of the year.

The Commerce Department estimated Thursday that the economy grew at an annual rate of 1.8 percent in the January-March quarter. That was the same as its first estimate a month ago.

Consumer spending grew at just half the rate of the previous quarter. And a surge in imports widened the U.S. trade deficit.
That's right, less than 24 hours after telling us that rising Oil prices "offset worries about the global economic recovery", the Associated Press is reporting to us that "high gasoline prices...caused the economy to grow only weakly in the first three months of the year".

George Orwell couldn't have written a better script.

It is noteworthy that the correlation between rising commodity prices and rising equity indexes is no accident.  "Asset Inflation" is at the root of Bumbling Ben and the Fed's conceptual "wealth effect" to jump start the economy.  The Fed believes that a strong stock market encourages individuals to borrow more against their "wealth", spend more, and drive the economy.  Nothing could be further from the truth.

Recall that the recent commodities "sell-off" [government sanctioned take down] was blamed for the coincident fall in equity indexes.  The public's growing "fear" of inflation forced the Fed to "engineer" a commodity market sell-off at the expense of the equity markets.   The Fed can not have their cake and eat it too.  No matter how successful the Fed is at providing an "illusion of wealth", if the prices of goods and services are rising faster than consumers "real" wealth, consumers are certain to cut back their spending, and harpoon the economy.  This is why we so often hear the Fed Heads speak of "containing Inflation expectations", and this is why the Fed had to "take down" the commodity markets. 

Strangely, rising commodity prices are interpreted by the financial press as "signs of economic growth", and this in turn drives stock prices higher.  Falling commodity prices are interpreted by the financial press as "signs of economic weakness", and this in turn drives stock prices lower.  The perfect example of this is the rise and fall in energy prices.  Isn't is a bit disturbing that rising Oil prices are now considered a boon for stocks?  And falling Oil prices doom for stocks?  It wasn't that long ago when a sudden jump in Oil prices could stop a Bull Market in stocks dead in it's tracks.  But that only occurred in "free markets".  Today, it's 1984, and what is shouldn't be, and what shouldn't be is.

Case in point: Today's Precious Metals trade.  The Dollar was weak all day today against not only the Euro, but the Yen as well.  Silver and Gold were under pressure from the moment the London markets opened after rising strongly overnight in Asia.  Does this make any sense?  Just last week every headline claimed that the Precious Metals were weak because of a strong Dollar.  And today the Precious Metals are weak along side a weak Dollar? 

Well of course...  We just had June options in Gold expire ahead of the second largest Gold delivery month annually.  AND at the close of business Wednesday, 94,016 Gold contracts, representing 9.4 MILLION ounces of Gold, remained open for June delivery with First Notice Day just 48 trading hours away.  Not to mention that, with just 48 trading hours remaining to make Good on all the demands for Silver delivery in May, there are 146 contracts STILL waiting for 730,000 ounces of Silver to be delivered.  How can the prices of these Precious Metals be "allowed" to rise with our CRIMEX bankers once again caught with their pants down around their ankles?

Amazing isn't it?  And the "free markets" have been blamed for the global financial crisis?  If the markets really were "free", there never would have been a global financial crisis. 

Debunking the Myth of a Free Market Run Wild
By Joel Bowman
05/25/11 Buenos Aires, Argentina – A question for you, Fellow Reckoner: Why do people so frequently demand more of the same poison to cure what ails them? Is it because they are stupid? Are they too busy with their workaday lives to notice the difference? Or are they being persistently lied to and indoctrinated?

Most likely, it’s a mixture of all three. Today, we address the third point.

One of the more pervasive myths, perpetuated – either ignorantly or maliciously – by the mainstream media, is that the market tumult witnessed over the past few years is somehow a result of the free market having “run wild.”

The argument, as you are surely familiar with it, goes something like this…

Until recent and heroic intervention by the Feds, the world had been aimlessly bobbing about on a sea of unregulated, laissez-faire capitalism. Adrift in the cold, harsh, dog-eat-dog seascape, where rules were callously discarded and government vigilance eschewed, we clueless individuals simply made our way as best we could. Of course, it wasn’t long before we lost sight of the horizon. Then, the clouds of capitalist deceit obscured our view of the stars, by which we had previously been navigating our way across the perilous oceans. Sensing our vulnerability, the greedy capitalists stealthily moved in under the cover of “free market anarchism” to rock the markets and capsize our tiny, unguarded vessel.

What followed – around 2007-08 – was the painful aftermath of a great era of free market irresponsibility. Lessons were to be learned. Regulators, it was said, had failed to protect us (mostly from ourselves). The markets had been allowed to “run wild,” fleecing all and sundry of their earthly wares. The whole system was in danger of collapsing under the weight of its own free reigns and pundits from every corner of the boat were soon crying out for some form of central guidance, some direction, some calm. This, we were told, and not without a wag of the finger, is what happens to modern, mixed-market economies when they become adulterated by the blinding whims of free market capitalism.

And it would be a nice story, with a presumably easy remedy…if only it were true. Alas…

“All these claims [about us living in a free market] are wrong,” asserts Jeffrey A. Tucker, editorial vice president of the Ludwig von Mises Institute and author of the refreshingly insightful Bourbon for Breakfast: Living outside the Statist Quo. “We live in the 100th year of a heavily regulated economy; and even 50 years before that, the government was strongly involved in regulating trade.”

Continues Mr. Tucker: “The planning apparatus established for World War I set wages and prices, monopolized monetary policy in the Federal Reserve, presumed first ownership over all earnings through the income tax, presumed to know how vertically and horizontally integrated businesses ought to be, and prohibited the creation of intergenerational dynasties through the death tax.”

Contrary to what interventionalists would have you believe, the government has not been repealing its influence in and control over our lives at all. Quite the opposite. We can see this by tracking the mammoth growth of the beast during the past century.

In the decade leading up to WWI, government spending as a percentage of GDP averaged a relatively minuscule 2.5%, give or take. By the time FDR had finished prolonging the Great Depression through the 1930s, that percentage had jumped to double digits. And today, government spending accounts for one-quarter of all economic activity in the world’s largest economy, or one in every four dollars spent (25.32%). Never during time of peace has government spending occupied so much of the GDP pie chart.

(We’ll leave aside the spurious nature of the GDP computation itself for another day but, suffice to say, GDP, as measured by the preferred “expense” method, actually rises when government spending increases. Ergo, GDP went through the roof during both the First and Second World Wars as the nation allocated capital to the manufacturing of military machinery. This led “top down” Keynesian economists to believe they had real economic growth on their hands, the origin of the “WWII cured the depression” myth. Of course, anyone familiar with Bastiat’s “Broken Window” knows this to be an entirely fallacious argument and that the destruction of capital is certainly no way to achieve prosperity.)

The very existence of the Federal Reserve itself flies in the face of any notion of free market capitalism. “For the government to authorize a counterfeiter-in-chief is a direct attack on the sound money system of a market economy,” Mr. Tucker observes.

The “alchemic temple,” as Mr. Tucker aptly describes it, used its monopoly on currency creation to pump trillions of dollars worth of credit into the supposedly laissez-faire system during the 1990s and early 2000s. This led, inevitably and with the direct collusion of Government Sponsored Enterprises (GSEs), Fannie Man and Freddie Mac, to the unsustainable expansion of the mortgage loan sector. Effectively, the government intervened to encourage – and for a while even reward – rampant malinvestment through the creation and distribution of money the free market never would have tolerated. And they have the hide to blame a free market that never existed for the subsequent implosion!

“With ‘free markets’ like this,” quips Tucker, “who needs socialism?”

Is it any wonder then that those who support the fictitious narrative above are now wondering why the financial storm the state gave birth to has not yet passed? If government intervention is the cure to crises and not their cause, surely then with Bernanke pulling levers at the Fed, Obama barking orders from the ship’s helm and Krugman spouting his Keynesian gibberish from the NYT’s editorial pulpit, we ought to have already witnessed the remarkable recovery they promised last summer. And yet home prices continue to fall – one percent per month, at last count. Unemployment, too, is in the dumps with job creation unable even to keep pace with population growth. Meanwhile, that oft-referenced statistical go-to for Keynesians – GDP growth – is lower than when Bernanke unleashed his now infamous $600 billion QE2 program.

O Recovery, Recovery! Wherefore art thou Recovery?

They say the free market had “run wild,” the implication being that if we could only elect a group of all-knowing, all-powerful bureaucrats to somehow train this savage beast, we would surely all be better off. But the free market is not like a domesticable animal; neither are the hundreds of millions of individuals, engaging in billions of individual interactions and transactions daily, who comprise it. To say that the free market ought to be tamed is really to say that those individuals who drive it ought to be tamed; that they ought to be taxed, regulated and herded along like beasts incapable of thinking for themselves.

This is, quite obviously we would think, the exact opposite of freedom and the liberty and prosperity for which free men and women strive. As such, it is surely something to freely oppose.

Joel Bowman
for The Daily Reckoning

I'd say Mr. Bowman hit the nail squarely on the head.

The debasement of world currency: It is inflation, but not as we know it
By Peter Warburton
April 9, 2001
What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.

It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.

Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.

Mr. Warburton wrote this essay 10 years ago, yet it describes succinctly what the Fed is up to right here, and right now, today.  The only difference between 2001 and 2011 is that what the Fed has been doing to the US Dollar is no longer a secret.  A 550% increase in the price of Gold, and a 1250% increase in the price of Silver since 2001 are proof of that.

GATA urges Paul to probe Fed's gold swaps; he tells CNBC he will
Submitted by cpowell on Wed, 2011-05-25 22:09. Section: Daily Dispatches
6:14p ET Wednesday, May 25, 2011

Dear Friend of GATA and Gold:

Yesterday GATA Chairman Bill Murphy and your secretary/treasurer met in Washington with U.S. Rep. Ron Paul, R-Texas, chairman of the House Subcomittee on Domestic Monetary Policy and Technology, and two of his staff members. We reviewed GATA's work and the information produced by our recent successful freedom-of-information lawsuit against the Federal Reserve and urged him to press the Fed for accountability, particularly in regard to its manipulation of the gold market, its involvement with the U.S. gold reserve, and its secret gold swap arrangements, the latter admitted to GATA by Fed Governor Kevin M. Warsh as we began our litigation in 2009:

http://www.gata.org/node/8192

Paul told us that he planned to address these issues at hearings of his subcommittee in June on legislation to audit the U.S. gold reserve, and he elaborated this afternoon in an 11-minute interview with CNBC. Paul told CNBC:

"I'd sort of like to see how much gold is actually there and whether we've made any agreements to loan out our gold or sell the gold, because there's a lot of questions about that. As a matter of fact, I'm going to have hearings on having a true audit of the gold, and they're very, very resistant to that. But if the gold is all there and there are no attachments to the gold, what's the big deal? Why shouldn't the people know that it's there?"

Paul added in the CNBC interview that his broader objectives include getting the Fed out of central economic planning, getting the United States out of its fantastically expensive foreign military adventures, and allowing people to keep more of the fruit of their labor.

GATA will be providing information to Paul's office for possible use in interrogation of the Fed.

You can watch CNBC's interview with Paul at its video archive here:

http://video.cnbc.com/gallery/?video=3000024141
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

August 2, 2011 is financial system D-day

U.S. Stocks Plunge on European Debt Worries- AP

Stocks plunged Monday after warnings about the finances of several European countries stoked fears that the region's debt crisis is worsening. The euro dipped briefly to its lowest level against the dollar in two months.

Euro zone debtors under pressure over new risks
By Kirsten Donovan and George Georgiopoulos

LONDON/ATHENS (Reuters) - Financial markets piled pressure on heavily indebted euro zone countries on Monday as investors worried about heightened risks in Spain and Greece and ratings agencies stoked new concerns over Italy and Belgium.

Italy, which has the euro zone's biggest debt pile in absolute terms, was hit by credit ratings agency Standard & Poor's decision on Saturday to cut its outlook to "negative" from "stable".

In an explanatory statement, S&P said it did not expect Rome to seek financial help from the EU or IMF due to the "absence of significant imbalances". The sheer size of its public debt effectively made it too big to bail out.

Government sources said Rome would bring forward to next month planned decrees to slice 35 to 40 billion euros ($50-$56 billion) off the budget deficit in 2013 and 2014, in an effort to reassure markets.

"We've kept things in order and the bases are all there for us to continue to do so," Economy Minister Giulio Tremonti said.

Fitch Ratings warned it may downgrade Belgium's AA+ credit rating if the caretaker government misses its deficit targets due to a lack of political consensus on a balanced budget. The country has not had a proper government since a general election last June but is enjoying an economic boom.

A weekend rout of Spain's ruling Socialists in regional and municipal elections raised fears of clashes over deficit curbs between central and local government as Madrid fights to avoid following Greece, Ireland and Portugal into a bailout.

The premiums charged by investors to hold Italian and Spanish 10-year bonds rather than safe-haven German bunds rose to their highest levels since January, at 186 and 261 basis points respectively, before easing slightly.

"The key point is that the crisis seems to be taking hold even of peripheral countries regarded as solid," said WestLB rate strategist Michael Leister.

"Sentiment is that there appears to be no end to it now Italy is being scrutinized by the ratings agencies."

Today, Euro gold climbed to a new all-time high at almost €1080. But here in the US, gold was under pressure all day "because of European debt worries". How can that be? Does the US not have debt worries of it's own that are far more significant than those in Europe?

Gold rose in Europe because of a weak Euro, and Gold fell in the US because of strong Dollar that was strong because of a weak Euro...all because of European debt worries.

Have you got that? Abbott and Costello could not be more clear if they were talking baseball.

So, today, Gold rose in Europe because of European debt worries, and fell in the US because of European debt worries.

The question begs to be asked: Why then, hasn't Gold risen in the US on US debt worries? After all, the USA has the Worlds largest external public debt. As a matter of fact, US external public debt at $14.3 TRILLION Dollars is 25% of the $59 TRILLION combined total Global external public debt. For that matter, why is the Dollar rising when the US has every intention of increasing its external public debt by as much a $2 TRILLION over the next 18 months?

Greek external public debt of $532.9 BILLION is ONLY 0.9% of the World total. By comparison, US total external public debt is a far bigger threat to the world financial system should it default than Greek external public debt is should it default. Yet Greece is considered a bigger threat because they cannot "print their way out of debt" in the manner that the US thinks it can by allowing it's central bank to fund the purchases of it's own debt.

Greek debt worries are but a pimple on an elephants ass. And the elephant in the living room, that continues to go unnoticed, is the US' mountain topping external public debt. Greek debt worries are a smokescreen, fueled by the illegitimate US debt rating agencies and the US financial news media at the direction of the US Government all to obscure the TRUTH about the US debt problem.

The US Dollar is not a safe haven from a Greek debt default. The US Dollar is merely the last domino in a daisy chain of default that will be unleashed if Greece in fact defaults on it's debt. Think of the US Dollar as the last survivor on the peak of a rooftop 18 feet high as flood waters 20 feet deep are cascading down the river valley to bury it.

How long will it be before investors shun completely ALL forms of fiat money, and instead run to the higher ground that Gold offers as safety from the tsunami of bad debt that is about to wash over the globe and drown ALL fiat currencies. What will be the tipping point that will spark a Gold rush that will push Gold and Silver prices to multiples of today's still manipulated discount prices?

The day the US Congress agrees to raise the US Debt Ceiling, will be the day that fiat money dies. Sometime between today and August 2, 2011, the global debt bubble will implode launching Gold and Silver prices towards levels not even imagined at this time. In 10 weeks or less, the Shit Is Going To Hit The Fan.

Is it just a coincidence that an across the board commodities take down was in progress as the Obama Administration suggested May 4, 2011 that the US Debt Ceiling should be raised by $2 TRILLION?  Not likely.  A $2 TRILLION increase in US debt over the next 18 months could not be more negative for the US Dollar, and in turn positive for Precious Metals and all commodities in general.  This manufactured take down of the commodities markets and specifically the Precious Metals was launched to make cover for this announcement, and to bring prices down to a level where the likelihood of them jumping to new highs when the debt ceiling is officially raised is contained.

Just the "announcement" that there is an intent to raise the debt ceiling by $2 Trillion should have created a buying panic in the Precious Metals, and firestorm of criticism in the world financial press.  But there was already a buying panic in progress, so the manufactured take down in the Precious metals and commodities had to be launched to prevent the lid blowing off of them and sending the US Dollar to a premature death.  The financial press yawned.

The world financial press was fooled into covering the false "story" of a bubble bursting in Silver and the CRB index instead of reporting on the Obama Administration's plans to increase the debt ceiling by $2 Trillion.  This false story was quickly followed by renewed "fears" of a debt crisis in the Euro Zone being reported by the western financial press.  Viola!  A $2 TRILLION increase in the US debt ceiling is covered up, the Dollar is propped up by a weaker Euro, and a march higher in the Precious Metals and Oil are halted temporarily.  A script worthy of Hollywood, all in an effort to delay the inevitable...the collapse of the US Dollar and the commensurate explosion higher in Precious Metals and commodity prices.
Will Raising the Debt Ceiling Bail Out the Banks, Again?


August 2, 2011 is financial system D-day.  Raise the debt ceiling, and the US Dollar implodes.  Fail to raise the debt ceiling, and the US Dollar implodes.  The countdown has begun.
 
It's The Debt, Stupid.

Calling Bernanke's Bluff

"A nation that is afraid to let its people judge truth and falsehood in an open market is a nation that is afraid of its people."
 - John F. Kennedy

Risk default? 'You've got to be kidding' - Geithner
NEW YORK (CNNMoney) -- Now is the time to figure out how to rein in deficits, but even if lawmakers can't come to an agreement by early August, they will need to raise the debt ceiling, Treasury Secretary Tim Geithner said Tuesday evening.

"It simply is not an option for Congress to evade the basic responsibility to protect America's creditworthiness," Geithner said at the Harvard Club in New York City.

A little help please... How does increasing the country's debt protect its creditworthiness?  $14.3 TRILLION of outstanding debt, falling tax revenues, and uncontrolled spending...isn't that enough to question America's creditworthiness?  How is $2 TRILLION more in debt going to make America a "better" credit risk?

Druckenmiller Calls Out The Treasury Ponzi Scheme: "It's Not A Free Market, It's Not A Clean Market", Identifies The Real Bond Threat
From Zero Hedge
“We hadn't heard much from legendary investor Stanley Druckenmiller since last August when he decided to shut down his Duquesne Capital hedge fund. Until today. In a must read interview, the man who took on the Bank of England in 1992 and won, says that he join the camp of Bill Gross et al, making it all too clear that all the recent fearmongering about the lack of a debt ceiling hike by the likes of Tim Geithner, Ben Bernanke and, of course, all of Wall Street, is misplaced…

The real MAD, Druckenmiller says, is letting the debt spiral out of control. As anyone with half a working brain will realize.

Mr. Druckenmiller is puzzled that so many financial commentators see the possible failure to raise the debt ceiling as more serious than the possibility that the government will accumulate too much debt. "I'm just flabbergasted that we're getting all this commentary about catastrophic consequences, including from the chairman of the Federal Reserve, about this situation but none of these guys bothered to write letters or whatever about the real situation which is we're piling up trillions of dollars of debt."

He's particularly puzzled that Mr. Geithner and others keep arguing that spending shouldn't be cut, and yet the White House has ruled out reform of future entitlement liabilities—the one spending category Mr. Druckenmiller says you can cut without any near-term impact on the economy.

Next we move to the topic of the US ponzi and why the Fed is at its core.

Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government's financial future can't really be that bad. "Complete nonsense," Mr. Druckenmiller responds. "It's not a free market. It's not a clean market." The Federal Reserve is doing much of the buying of Treasury bonds lately through its "quantitative easing" (QE) program, he points out. "The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week."

Warming to the topic, he asks, "When do you generally get action from governments? When their bond market blows up." But that isn't happening now, he says, because the Fed is "aiding and abetting" the politicians' "reckless behavior."

And blow up they will if nothing changes. Druckenmiller's conclusion:

"I think technical default would be horrible," he says from the 24th floor of his midtown Manhattan office, "but I don't think it's going to be the end of the world. It's not going to be catastrophic. What's going to be catastrophic is if we don't solve the real problem," meaning Washington's spending addiction.”
America's credit card is maxed out.  Raising the debt limit doesn't "solve the problem", it only makes it worse.  The fact that government officials, the Federal Reserve, and the financial media are encouraging Congress to raise the debt ceiling to "avoid default on our debt" should be ringing alarm bells 24/7 around the globe.  Gold prices should be escaping the stratosphere.  Try calling your banker, with your credit card maxed out, and ask him if he will raise your credit limit so you can use the money to pay off your debt.  Why do we even have a "debt ceiling" if the Congress just keeps raising it so they can spend more money the country doesn't have?

Pile of debt would stretch beyond stratosphere
By Emily Stephenson
(Reuters) - President Ronald Reagan once famously said that a stack of $1,000 bills equivalent to the U.S. government's debt would be about 67 miles high.

That was 1981. Since then, the national debt has climbed to $14.3 trillion. In $1,000 bills, it would now be more than 900 miles tall.

In $1 bills, the pile would reach to the moon and back twice.

In a 31-day month, that means the United States borrows about $4 billion per day.

In one hour, the United States borrows about $168 million, more than it paid to buy Alaska in 1867, converted to today's dollars.

In two hours, the United States borrows more than it paid France for present-day Arkansas, Missouri, Iowa and the rest of the land obtained by the 1803 Louisiana Purchase.

The U.S. government borrows more than $40,000 per second.

Strong, stable dollar good for U.S. and global economy: Bernanke
Apr 27 - Federal Reserve Chairman Ben Bernanke says the U.S. central bank could best ensure a strong dollar by creating the conditions for strong economic fundamentals. Fed officials rarely comment on the dollar's relative strength or weakness, and Bernanke's foray amounted to a defense of the central bank. He made the comments at a news conference on after the central bank's monetary policy committee meeting.



I fail to see how raising the debt ceiling makes the US Dollar stronger or more stable.  It only makes it weaker, and Precious Metals more valuable.  Yet, once again today the financial media obfuscates this truth with a barrage of sovereign debt fears in the Eurozone, today's target being Spain.  This of course forces the hand of Forex trader's who dump the Euro and buy the Dollar?  Why buy the Dollar?  The Dollar represents $14.3 TRILLION of I.O.U.s.  The US Dollar is sovereign debt hell.  Oh, but wait, the Federal Reserve can print money to pay off America's growing debt, the Dollar must be "safe".  Spain can't print Euros to pay off it's debt, the Euro is doomed.  It really is laughable.

How many times now, have we seen the US Dollar on the verge of collapse "rescued" by a "warning" from Goldman Sachs regarding the sovereign debt crisis in Europe that is then fueled by the financial press during US market hours?

Goldman Warns That Spanish Bonds, EUR Poised For Technical Breakdown
From Zero Hedge
As if Spain did not have enough to worry about with now daily protests gripping the main cities, next according to Goldman's John Noyce not only are Spanish bonds on the verge of a technical breakdown (and yields about to breakout), but due to the very high correlation between the Bund-Spain spread and the inverse EUR, it likely means that should the market start pricing in the Spanish domino, then the EUR, already lagging the move, is about to take out 1.40 rapidly. And with Spanish spreads flying as is over concerns what the Spanish elections on Sunday could mean for the country and the region, we can see something snap in advance of the weekend any minute.

Norway Stops Aid Payments To Greece
From Zero Hedge
And here comes the first domino: according to Swiss journal NZZ, the Greek bailout is about to take a turn for the worse. "Norway will first stop all further financial aid payments to the highly indebted Greece. The reason is that Greece does not fulfill its obligations descendants, the Norwegian Foreign Minister Jonas Gahr Store said on Thursday before the Parliament." And with Norway which is a member of the European Economic Area, and actually one of the few solvent and non-basket case European countries saying let the chips fall where they may, it is just the first. Look for every other country currently on the sidelines vis-a-vis Greece (and just as insolvent) to follow suit as the European experiment falls apart.
And right on cue, the Euro drops and the Dollar pops putting pressure on commodities and the Precious Metals right out of the gate this morning.  Completely ignorant of the fact that US Debt is the real global problem, not Spain, not Greece, not Portugal, not Ireland.  Is it merely a coincidence that the Precious Metals markets began to fall as this Goldman Sachs warning on Spanish debt hit the wires? This "warning" about Spain, and the subsequent financial media firestorm, is all an effort to deflect attention from the real elephant in the room:  Debt in the USA is completely out of control, and the US Dollar is completely worthless.  If as much financial media attention as given the sovereign debt problem in Europe was given the debt problem here at home, the TRUTH about the US Dollar would be known.  But Americans can not handle the TRUTH.

“None are more hopelessly enslaved than those who falsely believe they are free.”
 -Goethe

Printing and Propaganda
From Mike Krieger of KAM LP, via Zero Hedge
...the misguided Keynesian witch doctor central planners unfortunately in charge of our economic fate are attempting a grand experiment on us based on completely insane and nonsensical theories that have no chance at success. These clowns claim to have all sorts of “tools” but in reality they have nothing. When faced with a complete credit collapse of proportions never seen before in recorded history there were and are only two “tools.” It’s the two P’s: Printing and Propaganda.

We all know by now that the centrals planners believe the tail wags the dog. So the economy doesn’t lead to higher stock prices but higher stock prices will lead to a better economy. Insane? Absolutely. Is it their religion? 100%. The other important thing for investors to be aware of now when they are comparing the current state of affairs to what many lived through in the 1970’s is that the central planners have learned some lessons. What we must always remember about central planners is that they will never renege on their core philosophy which is that an elite academic and political class in their wisdom are better stewards than free humans interacting in a marketplace. That said, most people do not share their worldview for obvious reasons (who wants their lives micromanaged) so the trick of the central planners is to micromanage your life while you think you are in charge.

A tried and true strategy that TPTB have used in precious metals for years has been to create such tremendous volatility in gold and silver and especially the shares that most investors stay away since they can’t stomach it. This strategy is now seemingly being employed to a much wider spectrum of commodities...

So part of the propaganda “tool” used by the central planners is the manipulation of financial markets, which seems to increased in emphasis in recent weeks. The other consists of outright lies and disinformation. Put yourself in The Bernank’s shoes for a moment. This guy loves printing more than Hewlett Packard. He is despondent beyond belief that the markets and an increasing amount of financial commentators have criticized his precious QE insanity. Meanwhile, the economic data is starting to roll over and housing looks set to launch into another spiral lower. So what is a Bernank to do? Bluff the heck out of the markets.
Again the question begs to be asked: How much longer can they continue this farce?  I'm guess only as long as people keep believing the BS coming from the likes of Bumbling Ben Bernanke and Tiny Tim Geithner.  The financial media treat their words as gospel, I'm not so sure our creditors in China, the Middle-East, and Russia are.  If they were, why then are they buying Silver and Gold after the fools here in America on the CRIMEX sell it?  The transfer of wealth from the West to the East is in full swing.  As to the US Dollar and the Euro...it is a race to the bottom as they continue to sell their Silver and Gold into the waiting hands of the Chinese, Indians, Saudis, and Russians.

China Becomes World’s Largest Gold Buyer
Mark O'Byrne
Both gold and silver are marginally higher for the week and after last week’s gain appear to have regained their poise and are consolidating after the recent sell off.

China becoming the world’s largest gold buying nation is very important. While informed analysts have been saying that this would inevitably happen much of the commentary and most of the public remain completely unaware of the huge implications that Chinese gold demand has for the gold market.

Indeed, there continues to be a huge level of ignorance regarding the scale and sustainability of China’s, but also India’s and other large and increasingly wealthy Asian countries, demand for gold and silver bullion.

Chinese investors bought 93.5 tonnes of gold coins and bars in the first quarter. China produced 340 metric tons of gold last year and consumption was about 700 tonnes, leaving a gap of nearly 360 tonnes.

Demand is forecast to increase due to the growing wealth of the Chinese middle class and deepening inflation in China.

What is most important and rarely covered is the fact that gold ownership by the Chinese public remains minuscule. Especially when compared to other Asian countries such as Vietnam and India.
The way Gold prices have dropped recently, you'd be lead to believe that nobody wanted the stuff.  This morning again being a case in point.  Another futile raid by our CRIMEX banking cartel desperate to get out from under their massive short of Gold and Silver they have no hope of ever making delivery on.  To what lengths Bernanke and crew will go to "bluff" the public into believing their QE2 has been a success remains to be seen, but our suspicion is that over the next few short months, Bumbling Ben's Bluff is going to be called.

Silver and Gold have once again fought their way off the lows of the day induced by our criminal CRIMEX bankers and their friends in the financial media.  Key near-term levels of resistance:  In Gold - $1515.  In Silver: $35.70.  The table is almost set for rallies in both Precious Metals as we move towards the June 30 end of QE2.  Gold to $1530-40 and Silver to $41-43.  After QE2 ends, it may be wise for traders to vacate the Precious Metals, as the subsequent takedown in the equity markets, as QE2 ends to make way for QE3, could be treacherous. 

When does QE3 begin?  Well, Timmy Geithner claims  the country is good on their debt until August 2nd absent a rise in the debt ceiling.  I'd say an agreement to raise the debt ceiling on or around that date would signal that QE3 is right around the corner.  Consider, Geithner has suggested that Congress raise the debt ceiling $2 TRILLION.  Nobody is buying our debt now, except the US Federal Reserve.  In order to fund that $2 TRILLION need to ensure America's "creditworthiness", the Fed is going to have to buy a lot of US Treasuries.  Say hello to QE3 in August 2011, and expect a lift-off in Silver and Gold prices to "new highs" from lows at or near where we are now to follow quickly after QE3 is begun.

SILVER: How much longer can they possibly continue this farce?

Following the CRIMEX close Monday, Silver and Gold traded over night last night mostly flat, with a small upward bias.  At 8:30 AM this morning "news" that building permits and housing starts for April were "less than expected" was released.  This "news" only adds to the fact that the economy is NOT growing, and is likely heading back into recession.  This negative economic "news" promptly forced a sell-off in the Precious Metals.  What?  No, seriously, you should always sell your Silver and Gold when there is bad economic news!  Do you need more proof the Precious Metals markets are rigged?

I knew you did... 

Does anybody find it a bit odd, if not alarming, that the price of Silver can drop 30% in one week, but the number of ounces in the CRIMEX warehouses did not rise along with this huge drop in price?  In a real market, we should have seen huge inflows of real silver into the vaults.  Where is all this Silver that is being sold?  If supply is so overwhelming that the price of Silver must collapse, why have the warehouse inventories at the CRIMEX dropped in the midst of a flood of selling?  Shouldn't the warehouse inventories be skyrocketing?

Going into Bloody Monday, May 2, the CRIMEX warehouses claimed to hold 103,312,224 ounces of Silver ["registered" and "eligible" combined].  At the close of business on Friday, May 13, the CRIMEX warehouses held only 100,906,732 ounces of Silver.  The price of Silver dropped 30% as the supply of CRIMEX Silver fell by 2.4 MILLION ounces with demand at record highs?  So much for "price discovery" based on supply and demand. 

Does any body find it a bit odd, if not alarming, that our CRIMEX banking cartel is struggling to meet May SILVER delivery demands, yet they can flood the market with orders to sell Silver to force the price down?  If they have SO MUCH Silver to sell, how come they couldn't even come up with 5000 ounces to make good on one contract waiting for delivery yesterday?  If they have so much Silver to sell this morning, how come they can only come up with 30,000 ounces to make good on just six contracts today?  After today's tiny deliveries, 319 contract holders are STILL WAITING for delivery they asked, and paid in full, for on APRIL 30.  If they have so much Silver to sell EVERYDAY this month on the CRIMEX to force the price down, why are 319 May contract holders representing 1,595,000 of Silver STILL WAITING FOR DELIVERY of their metal?

As of the close of business Monday, May 16, the TOTAL open interest in Silver at the CRIMEX was 123,086.  At 5000 ounces per contract, 615,340,000 ounces of Silver were "in play" on the CRIMEX futures exchange.

At the close of business Monday, May 16, open in interest in the July contract [the next nearest Silver delivery month] was 65,595.  At 5000 ounces per contract, 327,975,000 ounce of Silver were "in play" on the CRIMEX futures exchange.

The CRIMEX has ONLY 32.75 MILLION ounces of "registered Silver" available to meet July delivery in their warehouses.  As of Monday, May 16, the CRIMEX only has enough Silver to cover 10% of the Silver that is currently "in play" under the July futures contract.  ONLY 10%!!!  Clearly the "potential demand" for Silver far outstrips available supply.  How can the price have fallen by 30%?  The market is rigged...

The Silver market in New York, The CIMEX division of the CME, is a blatant lie supported, and encouraged, by the US Government, the US Treasury, the US Federal Reserve, the CFTC, and the SEC.   We are on the verge of a mathematically inevitable  default by the CRIMEX banking cartel.  How much longer can they possibly continue this farce?

As per Adrian Douglas in his March 26, 2007 essay: Silver Defies the Laws of Economics

The function of the futures exchange is to allow commodity producers to establish a contract to sell their future production at a fixed price to a buyer who needs the commodity in the future. This affords producers the security of knowing there is a purchaser for his future produce and it enables the purchaser of the commodity to guarantee a stable supply. The production of commodities is fraught with uncertainties. For example, a farmer can not predict the weather; a miner can not predict a mine shaft collapse, power outage or general strike. In order for contractual commitments to be honored for delivery it is essential for the futures exchange to carry inventory. This acts to buffer the variations in supply
and demand.

If this inventory is truly buffering supply and demand variations then the Laws of Economics would require that as the inventory goes down the price must go up and as the inventory levels go up the price should drop.

The question as to why the CRIMEX banksters are dragging their feet to meet the remaining May Delivery demands remains unanswered.  If The CRIMEX warehouses contain 32.75 MILLION ounces, why has the remaining 1,595,000 of Silver contracted for May delivery still not been delivered?  Perhaps the owners of that 32.75 MILLION ounces of "registered" CRIMEX Silver have no intention of using that Silver for delivery.

Perhaps this brief explanation, courtesy of  SilverAxis, of "registered" and  "eligible" CRIMEX Silver might shed some light on the burden of our CRIMEX banking cartel to make good on contractual deliver demands:

For those who aren’t familiar with the terminology, the registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The COMEX publishes these stocks on a daily basis and they can be found here: Silver | Gold. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals (I’ll explain this another time). It is important to realize, however, that many parties holding COMEX gold and silver in registered form have no intention of making their holdings available for delivery. By this I mean that such parties are neither (1) holding a short futures position against the warehouse receipt nor (2) willing to sell their registered metal (warehouse receipts) to a party with a short futures position. Indeed, a substantial portion of those holding registered metal would have acquired the COMEX warehouse receipts by holding long futures positions for delivery. In other words, these registered stocks are held for investment and not for commercial purposes.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor. Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

This explanation of the "registered" CRIMEX supply raises yet another question:  What if the Silver that is available in the CRIMEX warehouses to meet delivery demand is NOT OWNED by the banks that are short Silver and subject to contracted delivery demands? 

It is not profitable for a bank to sit on Silver that has been contracted for delivery because of the financing and storage costs to hold it.  When the holder of a futures contract stands for delivery, he pays in cash the total cost of the 5000 ounces in each contract at the time of purchase.  Why wouldn't the bank quickly accept the cash payment for 5000 ounces of Silver and deliver it promptly?  I guess the answer to that would depend on whether the bank possessed or could gain possession of that 5000 ounces of Silver to make delivery.

This small "glitch" in the "registered" Silver supply may be just the straw that is about to break the back of our perpetually short criminal banking entity JP Morgan, and it's little brother HSBC.  It might also explain the river of rumours circulating that JP Morgan is paying up to 80% cash premiums to settle contract demands absent delivery.  Just because there might be enough Silver at the CRIMEX to meet monthly delivery demands, should they remain below 10% of current open interest, it doesn't guarantee delivery will be made or even possible to be made, if the banks that are required to contractually make delivery do not own a portion of that "registered" CRIMEX warehouse Silver.

Have delivery demands cornered our perpetually short criminal bankers JP Morgan and HSBC?  Are we witnessing a 180 degree reversal of the corner the Hunt Brothers had on the Silver market in 1980?  In 1980 the Hunt Brothers corner on the Silver market was ended when the government demanded that the CRIMEX only allow selling in futures contracts and no more buying...Silver prices crashed.  The reverse of that would see only buying in the futures markets to end JP Morgan's manipulative short position in the Silver Market.  As unlikely as a declaration by the government "to allow buys only in the futures market" might be, have we already witnessed the consequences of JP Morgan's dilemma? 

As Silver soared in price from the late February breakout at $31 towards $50, sellers in the markets were almost completely absent.  The Silver market was primarily all buy, buy, buy once Silver broke free at $31.  If market participants, and holders of actual "registered" CRIMEX Silver, recognized that JP Morgan needed Silver to cover it's short positions and meet growing delivery demands ahead of May delivery, they were going to make them pay up to get it.  That or they were going to buy up every Silver contract they could get their hands on in the hopes of graciously accepting a 50% to 80% cash premium to settle from JP Morgan, and then use these proceeds to roll to the next delivery month in hopes of fleecing the cornered JP Morgan rat again just as they had done in December 2010 and March this year.

The CRIMEX may not itself  be "technically in default" at this time, but it appears more so each day that JP Morgan [and likely HSBC] are technically in default now.  These "cash settlements" are an admission of this fact.  JP Morgan and HSBC do not control the necessary Silver inventory to meet the demands against their short positions.  The CRIMEX, the CME, and the CFTC no doubt DO RECOGNIZE that these two banks are "in default" and are threatening the credibility and the existence of the CRIMEX.  Perhaps these regulators are allowing some sort of "backdoor escape" to these banksters by way of this "managed" take down of the Silver market.  One would assume that there has been some agreed upon price at which the CME, CFTC, and CRIMEX expect JP Morgan to clean up this mess and allow the Silver markets to move forward with soon to be imposed new position limits that hopefully will put a stop to the nonsense that JP Morgan has been conducting at the CRIMEX for the past 10-15 years.  We can hope so anyways...

Jesse in his blog Jesse's Café Américain commented about the potential for a CRIMEX default in a post yesterday:

Someone asked me what it might be like if the Comex was unable to meet its deliveries, and there was a cascading effect to the metals encumbered by counterparty risk in the two big ETFs, if they were hit by a wave of redemptions as large shareholders sought to lock in supply.

I did not see their scenario of multiple days of up limits until the market clears, simply because it seems to be a few large members important to the exchange who seem to be 'holding the bag' in this case. Market solutions are for the little people and relative outsiders like the Hunt Brothers.

Rather, I would anticipate a declaration of force majeure, and a forced settlement in cash and shares of SLV, which themselves are probably representations of bullion rather than the metal itself. I do not know what the rationale for this might be, and it is not quite clear to me that they would even need one except for cosmetic purposes.

When you have power and have learned to use it with ruthless hypocrisy, the only thing you need to respond to is a greater force of power that calls you to accounts. This is one of the great lessons from the recent financial crisis. When the government and the regulators do not uphold their responsibilities, fraud becomes fashionable.

The Comex has about 32 million ounces of deliverable silver on their books, and they are dragging out the delivery process each month, as virtually no new inventory becomes available to replenish their supply.

I was a little shocked that the parabolic rise in price and the subsequent calculated smackdown in conjunction with the increased margin requirements shook no new significant inventory loose for the dealers, only more paper profits. Customer withdrawals continue as well, with almost 3.5 million ounces leaving this month.

However it transpires, if it does, it will be memorable. I am looking at the supply and demand as the numbers are published, and not at anything esoteric or private. So I would imagine that the CFTC and the least sophisticated traders in the market can see the same things unfolding. I hear things from time to time about back room discussions about the resolution of all this, and have to work to separate them from the tide disinformation, of which there is quite a bit more than you might imagine. People are very concerned about a potential shock to the credibility of the system. Of course, they may be utterly out of touch with current reality. Trust is in short supply, and the natives are growing restless.

Rumours, and disparaging talk, and theoretical discussions are well and good, but as they say, show me the money, or in this case, the bullion.

Where is it, how much of there is it, and what are they going to do when and if the supply of silver bullion drops below 30 million ounces deliverable, which is really a pittance given the size of the market? A silver futures contract on Comex is 5,000 ounces, and so that represents a mere 6,000 contracts. There are a total of 123,000 contracts open today. Last Friday the volume was an eye popping 126,000 contracts! This at times seems less a market, and more a game of musical chairs, or a shell game. And if the allegations are true about the LBMA, and their leverage, then what we have here may be a recipe for a severe market dislocation.

And this is why I expect the silver market to remain highly volatile, with some amazing moves ahead, both up and down. And stretchers perhaps, to carry out some players from the pits, as they get caught offside in high frequency moves, and an increasingly disorderly trade. And this due to the failure to reform the financial system.

Seriously...How much longer can they possibly continue this farce?

Consider this:  If JP Morgan is willing to pay up to an 80% cash premium to settle a silver contract, what does that say about the "real" price of Silver?  At $50 an ounce, an 80% premium would equal $90 an ounce Silver.  With Gold at $1575 dollars, a 17:1 Gold to Silver ratio, equal to that of the 1980 tops in Gold and Silver, would equate to $92 Silver.  Is JP Morgan telling us that Silver is underpriced by $40 an ounce?

Consider this also:  With 32.75 MILLION ounces of "registered" Silver in the CRIMEX warehouses, and 372.9 MILLION ouces of Silver "in play" in the July Silver contract, Silver availble for delivery at the CRIMEX is equal to only 10% of the Silver promised for delivery.  At that ratio then, Silver should be 10 times todays current price, or $330 an ounce.

Either way you measure it, Silver is STILL VERY CHEAP, and the path of least resistance for price under the markets present metrics, ...is UP.

Gold And Silver Down On Inflation Worries?

Gold over night retreated to $1478 and has bounced hard near our $1480 target price for a retest of Friday's lows.  Silver go pummeled again, as the emotions run high in this market still, and not only slipped below our $35.50 target, but actually made new lows near $32 over night.  Both retests of their lows, despite the fear they incite, have been constructive for these Precious Metals markets moving forwards.  If we have learned anything over the past two weeks it is that these markets no longer take weeks and months to correct, but only days and hours.  This fact is only further proof that the paper markets in both Silver and Gold are a lie that has now been exposed to the entire world, and will soon serve as the launching pad for prices deemed unimaginable just six months ago.

Patience of course is a virtue, and it is patience that must be adhered to, to take advantage of these sale prices that the criminal CRIMEX banking cabal are making available to us all.  The US Dollar looks to be reaching the zenith of it's dead cat bounce here.  Fundamentally there remains no good reason to buy this snot rag.  And every fundamental reason to purchase commodities at these sale prices.  The Fed and the CME might run this game, making the rules up as they go along, but in the end, markets can only be manipulated in the direction they naturally seek to move, and down is not natural given the Fed's money printing of the past two years.

Repeat after me:

"The markets are rigged.  The markets are rigged.  The markets are rigged."

Ahhh...  Feels better doesn't it?  What we have been witnessing the past several days is "noise in the markets" created by those seeking to hide the TRUTH through deception, and blatant lies.  Real corrections, in markets that are "free", would not drop 10-15% in a single day.  What we are witnessing, and have been victims of, are the desperate acts of "banks and government" as they attempt to cover up their failed attempt to save the economy by bailing out insolvent banks with money printed out of thin air.

Quantitative Easing, whether 1.0 or 2.0 have been dismal failures.  Interest rates have risen, housing prices have continued to fall, and the economy has begun once again to sputter.  If you are, or have been, a commodities investor/trader for the past 18 months or been invested in the stock markets, QE1 and 2 have been a huge success as much of the liquidity these programs have spun off [the money they have created] has gone exactly where it was intended, despite what the Fed says it's plans were.  The Fed is, and has been desperate, to prop up the stock markets to "boost" the confidence of the public and sustain its "wealth effect" on the economy [rising stock prices and lower interest rates will spur more borrowing and drive the economy higher].  Inflation in "asset prices" has actually been the Fed's unstated goal since QE1 began.

The problem though, in a nut shell, is debt.  In a financial system that is crumbling under the weight of too much debt, encouraging more debt is not going to fix anything except in the very short term.  You can not spend money you don't have, and hope to get rich. 

The biggest drawback to the Fed's silly QE, is that in order for it to work, the banks must lend money.  They are not.  The money the banks are collecting for their assistance in the Fed's QE program, is being kept in their "excess reserve accounts" at the Fed where they are being paid interest on it "by the Fed".  Why should they make low interest loans, if they can earn income on their reserves at the Fed? 

The Fed acts puzzled when their QE plan doesn't work.  They remain smug about inflation.  Why?  Because they know that the money the banks have received from QE is, for now and for the most part, locked up at the Fed in the banks excess reserve accounts.

How did the banks get the QE money from the Fed?  When the Treasury auctions off debt, it is ILLEGAL for the Fed to buy it "first hand" at the debt auctions.  That is what the primary dealers are enlisted to do for the Fed.  The Primary dealer is a formal designation of a firm as a market maker of government securities.  These primary dealer banks [for a list click here] buy new US Treasury Debt at auction, and then turn around and sell it to the Fed with money the Fed has created out of thin air.  The primary dealer banks agree to keep a large portion the money they receive for this Treasury Debt in their excess reserve accounts at the Fed where they are paid the miserly sum of 0.25%.  In theory, this interest payment on excess reserves serves as a cap on "inflation expectations" as the banks earn a guaranteed income from their excess reserves as a small reward for NOT lending the money into the financial system.

It is noteworthy that until October 1, 2008, the Fed was not allowed to pay interest on the excess reserves of banks held at the Fed.  AND originally, by statue, not allowed to do so until October 1, 2011.

From a Federal Reserve Board press release dated October 6, 2008:

The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.

Clearly, the Fed was looking forward in 2006 when they sought and received permission from Congress to pay banks interest on their excess reserves as a tool to control a money supply that was getting out of control, and threatening monstrous inflationary implications.  Only when the Fed's "low interest rate" plans for the economy blew up with the housing market, did they need to hurry along the authority to make interest payments on excess reserves held at the Fed as QE1 went into effect.  This, all so they could keep the creation of money from QE1, and now QE2, from seeping into the economy and setting off an inflationary firestorm.

But capping the flow of money created via Quantitative Easing into the economy did not disuade financial market participants from seeing the TRUTH of all this "funny money" the Fed was creating.  They used the Fed's "low interest for an extended period" mantra, and low margin rates to pour available funds into commodities AND stocks as a "hedge" against inflation.  Inflation the Fed was denying at every opportunity, but that every market participant recognized.  Inflation is a rise in the money supply, period.

So as the prices of commodities rose, and the "fears of inflation" rose with them, the Fed's QE plan became and even bigger failure.  The economy is floundering, the housing market is seeking new lows, interest rates are rising, and now inflation expectations are coming unanchored.  What can the Fed do to save some face, and make their QE the success it was meant to be?  Well golly gee Beav, that's simple...crash the commodity markets.

This too will fail, as it only exposes the absolute failure of the Fed's Quantitative Easing Policy.  Margin increases on the CRIMEX will ONLY effect the demand for "paper" Silver, Gold, Oil, etc.  The global demand for the real thing is, and will continue, going through the roof.  Expiration of the Fed's QE2 at the end of June is not the end of global "inflation fears".  Much the contrary, inflation is here NOW, and it is not going away anytime soon...no matter what the Fed, OR the financial headlines tell us.

This headline below from yesterday is amusing.  Are we to believe then, that stocks have been up for the past 18 months on rising commodity prices that have been deemed inflationary?  So what if interest rates rise.  Real interest rates are negative when inflation is factored in.  Interest rates will have to rise faster than inflation for them to have any "lasting negative effect" on commodity prices.  And becasue rising interest rates are a BIG road block to economic growth, it's unlikely they will keep pace with the rise in inflation and the prices of commodities moving forward from this rigged commodity takedown we are witnessing right now.

U.S. Stocks Fall as Commodities Drop Amid Concern Interest Rates Will Rise

U.S. stocks retreated, sending the Standard & Poor’s 500 Index lower for the first time in four days, as commodity producers fell amid concern that accelerating global inflation will lead to higher interest rates.

The Chinese reaction to REAL INFLATION overnight has accelerated our retest of last Friday's lows in Silver and Gold.  How many times has a hike in Chinese bank reserve requirements forced a knee jerk sell of in Silver, Gold and Oil?  Only to see them all rebound quickly on renewed US Dollar weakness?  This begs the question:  Why does the US Dollar rise when the Chinese make an effort to fight inflation, when the US Dollar is the cause of Chinese inflation?

China raises bank reserve requirements
BEIJING (Reuters) - China's central bank said on Thursday that it would raise lenders' required reserves by 50 basis points, the fifth time this year and the eighth since October.

The move increases the required reserve ratio for the country's biggest banks to a record 21 percent, another step in the government's campaign to control inflation.

KEY POINTS:

-- The central bank has been raising reserve requirements at a pace of about once a month since October.

-- The central bank relies on the rise bank reserves to soak up excessive liquidity in the economy as it struggles to issue bills.

-- The central bank has said it will use a combination of policy tools, including required reserves and interest rates, to put a lid on inflation, which clocked in at 5.3 percent in April from 5.4 percent in March.

Yesterdays sharp sell-off in commodities, though not unexpected following their sharp bounce Monday from Friday's lows, may have been instigated by news that 17 Senators are demanding immediate action by the CFTC regarding position limits to control the "Speculation" in these markets.  Apparently the $10 drop in price and the $6 bounce that followed has opened the eyes of these Senators to just how rigged our financial markets are. 

Despite all the calls for position limits by members of congress to halt the rise in Oil prices, it will be amusing if/wen new position limits are actually enacted, to watch the commodities markets move even higher as the "liquidity" that fuels the futures markets evaporates and the banks ability to "cap" prices with their naked shorts disappears.

Senators demand CFTC tackle oil speculation
(Reuters) - In a sign Congress may be losing patience with the U.S. futures regulator and high energy prices, lawmakers demanded on Wednesday the agency immediately crack down on excessive speculation in crude oil markets by hastening planned rules to limit concentration.

A group of 17 senators, in a letter to the chairman and commissioners at the Commodity Futures Trading Commission, said they wanted the agency to unveil a plan by May 23 to impose position limits in all energy futures markets, beginning with crude oil. The agency has already proposed such limits as part of the financial reform, but has not finalized them.

The senators said the recent drop in crude oil prices, which fell nearly $10 a barrel in one day last week, defy supply and demand conditions. Oil prices bounced back almost $6 a barrel on Monday, but then fell more than $5 on Wednesday. Gasoline prices slumped by more than 8 percent.

"The wild fluctuation could only be the result of rampant oil speculation, plain and simple," said Senator Ron Wyden, one of the lawmakers who wrote to the CFTC demanding action, in some of the strongest language attacking speculators since oil prices surged to a record $147 a barrel in 2008.

Some Thoughts On The Recent Commodity Correction
by Brad Schaeffer, via Zero Hedge
To understand why the Bernake’s and Geithner’s of the world view CPI through rose-tinted glasses we must remember who they are. They are wonks who have spent their entire careers lecturing and/or fidgeting with economies without actively participating in them. They are awash in data and are hardwired to extrapolate patterns from the past to predict the future. But we have only had a non-gold fiat monetary system in place since 1971 which is hardly enough time to get a handle on repeating macro-economic cycles in such an ever changing and dynamic landscape. And I want to offer something else. From the late 1940s to the mid-1980s the United States was the dominant manufacturer in the world. The reason? Of our three main foreign competitors today, China , Japan and Germany, one was mired for much of the third quarter of the 20th Century in a disastrous experiment with Maoist communism while the latter two’s urban centers had been reduced to utter wasteland as their reward for launching the most devastating war in human history. Indeed, all of Europe was digging out of the wreckage of their mass-fratricide, including a bankrupted Great Britain …once the supreme power of the world.

Into that void poured American made cars, radios, appliances, garments, food, you name it. By the mid-1950s the US was producing almost half of the world’s manufacturing output. Now we produce less than 20%. So when Bernake considers whether or not rising prices will result from printing trillions of dollars he looks back to, say 1987 when the dollar index halved yet CPI was only up 4.4% in that same year. Ergo: a falling dollar does not cause inflation. Hence QE I and II should move forward without fear.

But he is wrong on two levels. First of all, a weak dollar is usually a catalyst to prompt more exports as US goods become cheaper. And indeed that has happened as the manufacturing sector has been recovering nicely. But, those US manufacturers that once dominated the landscape are few and far between as we have surrendered our assembly lines to the forces of cheap labor overseas in favor of a service oriented economy. So now when imported goods are more expensive due to their relative strength (or less weakness) against the dollar, unlike in the past when we could shift our purchases to cheaper US-made goods, we instead are compelled to accept higher prices as we have no choice but to buy foreign-made goods. Ask Wall-Mart. (One’s house would be an almost vacant four walls if we invaded it and took away any items that don’t say “Made In USA” on them!) China, for example in 1987 produced less than 5% of the world’s goods. Now it almost a 20%. A four-fold increase.

Secondly, the definition of inflation that most people use, including the Fed, seems to be a measure of the CPI as if the two are interchangeable. Hence, people believe, if the CPI remains steady, so too does inflation. But, what is inflation exactly? Is it really price increases per se? Or are rising prices just one symptom of a larger event? “Inflation” is what the word implies: an inflation in the supply of a currency and thus a decrease in its value and eventually its purchasing power. Consumer prices are not always the best measure for a variety of reasons. Just to give one example, they tend to be ‘sticky’ in that vendors are hard-pressed to jack them up to account for lost dollar values. So they may try other approaches to mitigate the inflated currency’s impact on the bottom line such as keeping prices the same but reducing the package size. Care for some potato chips with your bag of air? How about a 1.5 pint of ice cream that for the same price (hence no measurable impact on CPI) that used to be 1.75 pints? There are many ways short of raising prices to compensate for the effects of an ever expanding supply of dollars. But real costs rise just the same.

The fact is that inflation in its traditional definition is rampant across the globe and it can in large part be attributed to the policy of almost zero interest rates in the form of a greatly expanding balance sheet of the Federal Reserve. Take China for example. They are the largest exporter to the United States and as such have a vested interest in preventing their products from becoming too expensive (although they have less to fear from competitively cheap US goods as they once did). They do this by artificially pegging the Yuan to the dollar at a fixed rate. When the Fed prints more dollars, in order to prevent their currency from appreciating as it can now buy more dollars for the same price, the Chinese must expand their own balance sheet to print the money used to buy up the excess dollars in the system and maintain their target exchange rate to keep their exports flowing.

As such, China ’s M2 is up 15.3% in April alone in part due to this phenomenon. This is an inflationary policy. There are more Yuan than there used to be. So they too are worth less, although not as less as the even more in supply US dollar. And as you would expect, since they have real inflation, prices in China are on the rise. Their CPI, in fact, shows a 5.3% inflation rate. How come their CPI shows a much higher level than ours when our dollar is depreciating faster than theirs yaun? It all depends on how you measure it. The answer is that their CPI reflects real changes in commodities prices and ours discounts their impact in favor of finished goods. So to put it simply, where their CPI places a larger import on the price of raw materials and food ours places more emphasis products like the price of a cell phone. Considering the first Motorola cell phone retailed for $3,995 in 1983, the price has clearly gone down.

Regardless of CPI though, why would raw materials be impacted by the Fed’s relentless easing? Well, commodities are traded in US dollars which is the world’s reserve currency so a refiner in, say Japan, who has to purchase crude oil for distillation must first take its Yen and buy dollars with it before going into the market to buy crude oil. The seller of crude knows that the Yen bought its counterparty more dollars and thus will it charge more dollars for its oil, lest the next time he visits Tokyo and converts his less valuable dollars back into fewer Yen he may be forced to stay in a Holiday Inn as opposed to a Ritz this visit.

To be sure, demand spurned by economic growth in the developing world is still the prime driver of raw materials price action. Complex systems like global markets are an expression of many factors. But if the supply/demand dynamic is what got dealers into the commodities market from the long-side, the Fed’s policies injected steroids into the rally and has now printed its way into a corner. It cannot initiate more easing as inflation is here. (As companies add more to their payrolls too, though good for the country as a whole, this will put ever more upward pressure on prices.) But should it start tightening by raising interest rates as I think is inevitable, making it more expensive for businesses to borrow, it could threaten the anemic recovery that is already showing signs of slowing if the Q1 numbers are any indication.

Good luck with this trade:

Treasuries Rally as Commodities Decline Eases Inflation Concern
May 11 (Bloomberg) -- Treasuries rallied, pushing yields on 10-year notes to almost the lowest level this year, as a slump in the prices of commodities and U.S. stocks eases concern that inflation will accelerate.