Friday, May 20, 2011

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.”

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 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.

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