Wednesday, November 30, 2011

Gold And Silver Lift-off: Hyperinflation At The Starting Gate


"The government that robs Peter to pay Paul can always count on the support of Paul."
 -George Bernard Shaw


Ahhhhhhh....the smell of desperation in the morning.

Ladies and Gentlemen, the shit has hit the fan. 

When we Precious Metals market watchers awoke early this morning, we were not surprised to find that Gold had lost $26 in overnight trading.  We were, however, shocked by the rapid recovery in the price of Gold that commenced at 6AM est. when Gold suddenly spiked higher by $16 an ounce in only 15 minutes.

News supporting this sudden move higher in the price of Gold quickly followed:

China Begins Monetary Easing, Lowers Reserve Ratio By 50 bps: Gold, Crude, Futures Spike
From ZeroHedge
It appears that China has already forgotten its close encounter with inflation as recent as a few months ago leading to assorted riots, and is instead far more concerned with the collapsing housing market. As a result it just announced a 50 bps reserve ratio cut, well in advance of when most commentators thought it would happen, on what is now the start of a monetary policy loosening cycle. The kneejerk reaction is for futures to surge and gold to spike, and crude to pass $100, even as the EURUSD was once again drifting lower overnight. And while this is beyond bullish for commodities, we doubt equities will remain bid unless Europe mysteriously fixes itself overnight too. Which won't happen. More from Reuters: "China's central bank cut the reserve requirement ratio for its banks on Wednesday for the first time in nearly three years to ease credit strains and shore up activity in the world's second-largest economy." Naturally, this ties Bernanke's hand even more as Chinese inflation will now be stoked internally in addition to importing any excess inflation to be generated by the Chairman, likely leading to an even faster spike in global inflation the next time we get US-based quantiative easing. Look for Chinese-based purchases of gold to surge.

Recall now, how Gold reacted late last Winter, and early this past Spring when China had acted several times to increase their banks reserve ratio...IT TANKED.  China cuts their banks reserve ratio today...and the price of Gold soars.

And if we Precious Metals market watchers were shocked by Gold's 6AM est "rapid recovery", we were most certainly awed by a $31 spike higher in the price of Gold between 8AM and 8:30AM est. 

Fed, central banks slash dollar borrowing costs
By William L. Watts and Greg Robb, MarketWatch
FRANKFURT (MarketWatch) — The U.S. Federal Reserve slashed the cost of emergency dollar loans to foreign banks as the world’s major central banks took coordinated action to prevent Europe’s debt crisis from triggering a global liquidity crunch.

The moves were announced in statements issued simultaneously by the U.S. Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada and the Swiss National Bank.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said.

The move lifted equities, while the dollar tanked.

The announcement, which appeared to take investors by surprise, comes as European banks saw the cost of obtaining funding in dollars in the interbank market rise to a three-year high as the debt crisis prompted institutions to hoard cash. Read more: ECB fails to offset bond buys amid bank stress.

The measures are “aimed at the funding strains faced by European banks in what was becoming a modern-day run on the banks ... The world, in fact, has been playing a game of hot potato with European bank debt as well as European sovereign debt, and the only player with oven mitts to hold the hot potato is the world’s central banks,” said Tony Crescenzi, strategist at PIMCO, in emailed comments.

In Wednesday’s action, the central banks agreed to lower the pricing on existing temporary U.S. dollar liquidity swap arrangements by 50 basis points, putting the new rate as the U.S. dollar overnight index swap rate plus 50 basis points.

The pricing will apply to all operations beginning Dec. 5. Access to the swap lines, which had been scheduled to expire in August, was extended until Feb. 1, 2013.


In other words...THE SHIT HAS HIT THE FAN.

Here Comes The Global, US-Funded Liquidity Bail Out
From ZeroHedge
As expected, the Fed has just bailed out the world once again:

FED, ECB, BOJ, BOE, SNB, BANK OF CANADA LOWER SWAP RATES - BBG


ECB, FED other major central bank to lower the pricing of existing USD liquidity swaps by 50BPS

And as we have been writing every single day, the worldwide dollar crunch is now confirmed:

At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar,


This means that the global situation is far, far more dire than the talking heads have said. Luckily, when this step fails, which it will, Mars can always come and bail us out.

Why ask why when the real question is "WHY NOW?"

Could the following three stories answer that question?

With Bank Of America On The Verge Of Breaching $5.00, Our Question Of The Day Is...
From ZeroHedge
... how many of the top 50 holders presented below, will be forced to sell once we get a 4 handle?

Bank of America, AMERICA'S LARGEST BANK, at just pennies above $5.00 a share, sits on the edge of an abyss.  Below this level, Bank of America stock is "non-marginable," meaning any stock owned on margin would need to be liquidated.  For a floundering bank owned by many of the nation's highly leveraged hedge funds, such an event could lead to an implosion of the company's stock.  Mutual funds with charters prohibiting ownership of stocks below $5.00/share would be forced to dump the stock en masse.

After the market close Tuesday, Bank of America and 14 other banks were downgraded by Standard And Poor's, including JP Morgan, Morgan Stanley, Citigroup, and Goldman Sachs:

Standard And Poors Reviews 37 Global Banks, Downgrades Bulk - Full List Attached

Did A Large European Bank Almost Fail Last Night?
From ZeroHedge
Need a reason to explain the massive central bank intervention from China, to Japan, Switzerland, the ECB, England and all the way to the US? Forbes may have one explanation: "It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue." Granted the post is rather weak on factual backing and is mostly speculative, but it would certainly make sense. That said, it harkens back to our original question: just how bad was the situation if the global central banking cabal had to intervene all over again, and just what was not being told to the general public? Lastly, and most important, slapping liquidity bandaids on solvency gangrenes does nothing but buy a few days at most. Furthermore, we now expect the stigmata associated with borrowing from the Fed to haunt each and every European bank as vigilantes will now use the weekly ECB update on borrowings from the Fed as a signal to hone in on this and that weak Italian and French, pardon, European bank.

Global Central Banks Ring Gold Buyers' Bell
From the Desk Of Peter Schiff
Today’s unprecedented announcement by the world’s most powerful central banks was a loud and clear bell ringing to buy precious metals. The move, disguised as an attempt to help the fragile state of the global economy, is in reality a move to prop up failing banks in Europe and the US.
By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation. The result? The dollar will weaken, inflation will rise, and gold will soar. Gold was up more than $30 today, and the dollar got crushed.

I urge you to take 7 minutes to watch the video I recorded exclusively for my subscribers a few hours ago. It explains, in plain language, what happened today – and what is the likely outcome for your portfolio. This may be one of the most important economic events of the year.





Ron Paul Statement On The Fed's Bailout Of Europe
From Ron Paul, via ZeroHedge
The Fed's latest actions in cooperating with foreign central banks to undertake liquidity swaps of dollars for foreign currencies is another reason why Congress needs enhanced power to oversee and audit the Fed. Under current law Congress cannot examine these types of agreements. Those who would argue that auditing the Fed or these agreements with central banks harms the Fed's independence should reevaluate the Fed's supposed independence when the Fed bails out Europe so soon after President Obama promised US assistance in resolving the Euro crisis.

Rather than calming markets, these arrangements should indicate just how frightened governments around the world are about the European financial crisis. Central banks are grasping at straws, hoping that flooding the world with money created out of thin air will somehow resolve a crisis caused by uncontrolled government spending and irresponsible debt issuance. Congress should not permit this type of open-ended commitment on the part of the Fed, a commitment which could easily run into the trillions of dollars. These dollar swaps are purely inflationary and will harm American consumers as much as any form of quantitative easing.

The Fed is behaving much as it did during the 2008 financial crisis, only this time instead of bailing out politically well-connected too-big-to-fail firms it is bailing out profligate government spending. Citizens the world over deserve better than this. They deserve sound money that cannot be manipulated and created out of thin air by central planners who promise printed prosperity. Fiat money caused this European crisis and the financial crisis before it. More fiat money is not the cure. The global fiat currency system has proven itself a failure, we need real monetary reform. We need sound money.


...and from National Inflation Association...

The Federal Reserve along with the European Central Bank, Bank of Canada, Bank of Japan, Bank of England, and the Swiss National Bank are all lowering their U.S. dollar swap rates by 50 basis points! This is going to create massive worldwide monetary inflation and flood the world with U.S. dollars!

The Fed claims that these coordinated actions will enhance their capacity to provide liquidity support to the global financial system in order to "ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity."

It was also announced this morning that arrangements have been made to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. Although the Fed said, "there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar" at this time, the stage is now set to create massive worldwide monetary inflation in other fiat currencies as well. The whole entire global fiat currency system could soon come to an end. The only solution to the upcoming hyperinflationary crisis will be a global digital gold backed currency.

NIA believes China will soon announce that they have dramatically increased their gold holdings to backup their rapidly growing foreign currency reserves, which have now reached $3.2 trillion. China's central bank just announced this morning that they are lowering their reserve requirement ratio by 50 basis points to 21% from 21.5%!

Foreign Currency Liquidity Swaps (aka Global Bail Out Plan B) FAQs
From ZeroHedge
Those wondering about the global Fed bailout (this is not the first time, recall How The Federal Reserve Bailed Out The World) can read the FAQ from none other than the source of the global liquidity tsunami itself.

Frequently Asked Questions: Foreign Currency Liquidity Swaps

What is the purpose of the foreign currency liquidity swap lines?


The foreign currency liquidity swap lines are designed to provide the Federal Reserve with the capacity to offer liquidity in foreign currencies to U.S. financial institutions should the Federal Reserve judge that such actions are appropriate.

Which central banks are participating in these arrangements?
The Federal Open Market Committee has authorized arrangements between the Federal Reserve and the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. In addition, these foreign central banks are also establishing bilateral swap arrangements with one another.

Why are these swap lines being implemented?
These swap lines are being implemented as a contingency measure, so that central banks can offer liquidity in foreign currencies if market conditions warrant such actions. These lines provide the Federal Reserve with the same ability to provide foreign currency, should the need arise, as foreign central banks currently have through the existing dollar swap lines with the Federal Reserve to provide dollar liquidity in their jurisdictions.

Why is the Federal Reserve establishing lines for these five currencies and with these five central banks?

These five currencies are used globally and account for the bulk of the foreign currency funding of U.S. financial institutions.

In what manner would foreign currency liquidity be provided?
There has not been a decision to activate the foreign currency liquidity facilities. If the Federal Reserve were to decide to offer liquidity in foreign currencies to U.S. financial institutions, the details of the operations would be determined at that time in light of the prevailing circumstances.

Will activity under the liquidity swap arrangements be disclosed to the public?

Yes, the aggregate swap activity in each currency with foreign central banks will be published weekly. They will be found on the Federal Reserve Bank of New York’s Foreign Exchange Swap Agreement webpage Leaving the Board. In addition, any liquidity-supplying operations in foreign currencies would be subject to the same disclosure requirements as the Federal Reserve’s dollar-based activities.

For how long are the swap arrangements expected to be in place?These swap arrangements, along with the existing U.S. dollar swap arrangements, have been authorized through February 1, 2013.


"Nothing has changed. The “world” is not 2% better off than it was yesterday simply because the Federal Reserve has made its own worthless paper “cheaper” for other banks."
Inflation is defined as an increase in the money supply. Deflation is a decrease in the money supply. Prices are a SYMPTOM of increases or decreases in the money supply. This is very, very basic stuff. Unfortunately, in world-improving, highly socialist "institutions" such as Harvard, Yale and Princeton the last few sentences may as well have been written in Nepalese. They speak a language called Keynesian and have a religious belief that drawing pictures on pieces of paper can make everyone rich. They probably also stomp up and down on a bag of chips to make more chips, too.

For months the Germans and Europe had everyone on edge. Would a western nation actually default, have its entire banking system collapse, impoverish almost all middle class savers and reduce the size of their monstrous socialist welfare governments by a massive amount, throwing millions into the streets unemployed and penniless? The answer, once again, was no. It was no surprise to us here, as we have always stated that was the much more likely route chosen. Every other time in history when a democratic overindebted government with a fiat currency was faced with collapse or hyperinflation they always fire up the choppers. The reason is simple. It's the easiest way out for the politicians. Obama would much prefer the dollar goes into hyperinflation - something he can blame on greedy corporations, or China, and whip the rich-haters into a frenzy - than to walk up to the Presidential podium and go down in history as the President "in charge" when the US empire collapsed.

They've been doing this for millennia. They weren't fiddling as Rome burned because the government took responsibility and undertook a self-imposed discipline. Rome was alight because the government overspent massively on military excursions, bread and circuses and used coin-clipping and other means to devalue the currency. That all might sound familiar to Americans today except coin-clipping has been replaced by computerized fiat note creation.

And so, today along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, the Fed announced it is cutting the penalty that it charges over a basic rate from 100 basis points to 50 basis points.

It sounds innocuous enough. But what that statement really means is that every major western money-printer will do whatever it takes to ensure that capitalism is never allowed to take place. It's no longer "too big to fail", it is "to fail is not allowed". Entire legions of zombie banks and nation states will continue to lurch forward, completely dead on the inside, but animated by endless amounts of fiat money that will only ensure a hyperinflation of all western fiat currencies.It is possible they could keep this game going for a few more years. Probably not much longer than 3 or 4, however. And it could happen much sooner than that, so to not prepare now is the height of risk-taking. We've been preparing by owning precious metals and the companies that mine or explore for gold and silver. As all the western central banks have shown their outright commitment to printing money we believe that it will ignite a gold and silver stock bubble that will be one for the ages. And, as we've outlined for subscribers over the years, we will then hope to "cash" in our stocks at ludicrous gains and look to get into hard assets once again in preparation for the final hyperinflationary crack-up collapse.


...and From James Mc on Planet GATA via http://www.lemetropolecafe.com

All of those newly-emboldened small spec gold shorts are getting a hard lesson in trading against the trend. By my reckoning they handed over half of their entire windfall profit from the last go-around in about 15 minutes this morning. Their short covering was also a likely contributor to the $35 rise. The good news for them is that the cartel always comes to their rescue at 2%, which today is $1,753.20 basis Feb. The bad news is they are stuck in a horrible, if not downright dangerous trade. It would be a miserable feeling always wondering if TODAY is the day the cartel fails, and gold blasts off to the moon. I'm sure too Working Group members weren't tipped off in advance on this global CB liquidity injection. It was just a total coincidence that commercial gold shorts were busy covering 12,000 contracts last week.

There's one reason why gold isn't $3,000 bid this minute: a cartel price management program which never allows a whiff of inflation (gold) to guide future expectations.

The Dec. 2013 Comex gold futures are only showing a $13 premium to spot. With all of the crises (and liquidity) being created a $400 premium would be more appropriate. Actually, a $400 higher spot price would be more appropriate right now. If the $1,780 area is indeed the yearly price capping area the cartel has their hands full the next 20 trading days. We're only $30 away, or, by their methodology, less than one more 2% day away.

A fire has just been lit under Chinese gold investors. Also Japanese, European, and all other CB nations signed on to this deal. Buying physical gold is probably a very conscious thought right now for global investors. That already tiny Comex inventory suddenly looks even tinier.


James Mc

Is the news a surprise to anyone who lives on Planet GATA? Gold was taken down from the $1900 level for this very reason. As the central bank powers make these accommodative moves, they wanted gold off the inflation radar screen and not to be a focus of attention. The same stinkin’ drill they have pulled for SO long. The same 2% drill they have implemented for SO long.

Got Gold to hold?


Got Silver to squeeze?

There are no more excuses not to...it is not too late to accumulate.

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