Morgan Stanley Deconstructs The Funding Crisis At The Heart Of The Recent Gold Sell Off, And Why The Gold Surge Can Resume
From ZeroHedge
A week ago, we touched upon the likelihood that the recent gold sell-off was
driven primarily due to a quirk in liquidity provisioning in which gold plays a
key role via its "forward lease rates", or the Libor-GOFO differential.
Specifically, in "As
Negative Gold Lease Rates Collapse, The Gold Sell Off Is Likely Coming To An
End" we said, "In a nutshell, negative lease rates mean one has to
pay for the "privilege" of lending out one's gold as collateral - a prima facie
collateral crunch. The lower the lease rate, the greater the use of gold as a
source of liquidity - and since the indicator is public - it is all too easy for
entities that do have liquidity to game the spread and force sell offs by those
who are telegraphing they are in dire straits and will sell their gold at any
price if forced, to prevent a liquidity collapse." Said otherwise, the lower
lease rates drop, and they recently hit a record low for the 3M varietal, the
likelier it is that gold may see substantial moves lower. Today, Morgan
Stanley's Peter Richardson recaps precisely what was said here, in a note titled
"Recent fall in gold prices points to bank funding costs." Granted, MS only
looks at the first part of the equation - the dropping lease rates, and ignores
the re-normalization in gold, aka the tightening in lease rates. Well, with the
3M forward lease rate now almost back to unchanged, it appears our speculation
that the gold sell off, with spot at $1575 on the 15th, is over were correct,
and gold is now $40 higher, and just below the critical 200 DMA that everyone
saw as the catalyst of gold going to $0. So what does MS have to add to our
analysis? Well, much more optimism for one, because not only does the bank think
we are right that the collapse in negative lease rates (i,e., the flattening to
practically unchanged) mean the sell off is over, but such a normalization of
the gold lease market has "the makings of a renewed upward assault
on the recent all-time high.... Our current gold price forecast for 2012 of
US$2,200/oz remains in place under these circumstances." Qed.
The key highlight of Morgan Stanley's hypothesis of what negative gold lease rates imply for gold:
more
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London Trader - We are Witnessing a Historic Bottom in Gold
DJ US Nov Housing Starts Surge 9.3%
Tue Dec 20 08:30:23 2011 EST WASHINGTON (Dow Jones)--U.S. home building surged to the highest level in 19 months during November and construction permits grew, encouraging signs for a part of the economy struggling to get back on its feet.
Home construction last month increased 9.3% to a seasonally adjusted annual rate of 685,000 from October, the Commerce Department said Tuesday. The results were better than forecast. Economists surveyed by Dow Jones Newswires expected housing starts would rise by 0.3% to an annual rate of 630,000.
The increase in November was driven by a 25.3% increase in multi-family homes with at least two units, a volatile part of the market. Construction of single-family homes, which made up about 65% percent of the market, rose only 2.3%.
Net EUR Short Position Soars To All Time Record, Implies "Fair Value" Of EURUSD Below 1.20, Or Epic Short Squeeze
It was only a matter of time before the bearish sentiment in the European
currency surpassed the previous record of -113,890 net non-commercial short
contracts. Sure enough, the CFTC's COT report just announced that EUR shorts
just soared by over 20% in the week ended December 13 to -116,457. This is an
all time record, which means that speculators have never been more bearish on
the European currency. Yet, the last time we hit this level, the EURUSD was
below 1.20. Now we are over 1.30. In other words, the fair value of the EURUSD
is about 1000 pips lower, and has been kept artificially high only due to
massive repatriation of USD-denominated assets by French banks (as can be seen
in the weekly
update in custodial Treasury holdings, which just dropped by another
$21 billion after a drop of $13 billion the week before). This means
that the spec onslaught will sooner or later destroy the Maginot line of the
French banks, leading to a waterfall collapse in the EURUSD, which due to
another record high in implied correlation will send everything plunging, or if
somehow there is a bazooka settlement, one which may well include the
dilution of European paper, the shock and awe as shorts rush to cover will more
than offset the natural drop in the EUR, potentially sending it as high as the
previous cycle high of 1.50. If only briefly.
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Fed May Inject Over $1 Trillion To Bail Out Europe
As first reported here, two
weeks ago European banks saw the amount of USD-loans from the Fed, via the
ECB's revised swap line, surge to over $50 billion - a total first hit in the
aftermath of the Bear Stearns failure prompting us to ask "When
is Lehman coming?" However, according to little noted prepared remarks by
Anthony Sanders in his Friday testimony to the Congress Oversight Committee,
"What the Euro Crisis Means for Taxpayers and the U.S. Economy, Pt. 1", we may
have been optimistic, because the end result will be not when is Lehman coming,
but when are the next two Lehmans coming, as according to
Sanders, the relaunch of the Fed's swaps program may "get to the $1 trillion level, or
perhaps even higher." As a reference, FX swap line usage peaked
at $583 billion in the Lehman aftermath (see chart). Needless to say, this
estimate is rather ironic because as Bloomberg's Bradely
Keoun reports, "Fed Chairman Ben S.
Bernanke yesterday told a closed-door gathering of Republican senators that the Fed won’t provide more aid to European banks beyond the swap lines and the discount window -- another Fed program that provides emergency funds to U.S. banks, including U.S. branches of foreign banks." Well, between a trillion plus in FX swap lines, and a surge in discount window usage which only Zero Hedge has noted so far, there really is nothing else that the Fed can possibly do, as these actions along amount to a QE equivalent liquidity injection, only denominated in US Dollars. Aside of course to shower Europe with dollars from the ChairsatanCopter. Then again, before this is all over, we are certain that paradollardop will be part of the vernacular.
Historical ECB swap line usage with the Fed, and projected assuming $1+ trillion in use. Just to put it all into perspective.
For all those lamenting the ECB's lack of willingness to print, fear not: the almighty Chairsatan has vowed to valiantly take his place when needed. As in 2 weeks ago. From Bloomberg:
Which is why all those wondering if gold should be bought now or the second after the ECB starts printing, we have one piece of advice: just look at the chart above. It says all one needs to know.
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Jim Rickards - This Will Send the Price of Gold to the Moon
From Eric King
Beware the Coming Bailouts of Europe
Ron Paul
Prison Planet.com
Tuesday, December 20, 2011
The economic establishment in this country has come to the conclusion that it is not a matter of “if” the United States must intervene in the bailout of the euro, but simply a question of “when” and “how”. Newspaper articles and editorials are full of assertions that the breakup of the euro would result in a worldwide depression, and that economic assistance to Europe is the only way to stave off this calamity. These assertions are yet again more scare-mongering, just as we witnessed during the depths of the 2008 financial crisis. After just a decade of the euro, people have forgotten that Europe functioned for centuries without a common currency.
The real cause of economic depression is loose monetary policy: the creation of money and credit out of thin air and the monetization of government debt by a central bank. This inflationary monetary policy is the cause of every boom and bust, yet it is precisely what political and economic elites both in Europe and the United States are prescribing as a resolution for the present crisis. The drastic next step being discussed is a multi-trillion dollar bailout of Europe by the European Central Bank, aided by the IMF and the Federal Reserve.
The euro was built on an unstable foundation. Its creators attempted to establish a dollar-like currency for Europe, while forgetting that it took nearly two centuries for the dollar to devolve from a defined unit of silver to a completely unbacked fiat currency note. The euro had no such history and from the outset was a purely fiat system, thus it is not surprising to followers of Austrian economics that it barely survived a decade and is now completely collapsing. Europe’s economic depression is the result of the euro’s very structure, a fiat money system that allowed member governments to spend themselves into oblivion and expect that someone else would pick up the tab.
A bailout of European banks by the European Central Bank and the Federal Reserve will exacerbate the crisis rather than alleviate it. What is needed is for bad debts to be liquidated. Banks that invested in sovereign debt need to take their losses rather than socializing those losses and prolonging the process of adjusting their balance sheets to reflect reality. If this was done, the correction would be painful, but quick, like tearing off a large band-aid, but this is necessary to get back on solid economic footing. Until the correction takes place there can be no recovery. Bailing out profligate European governments will only ensure that no correction will take place.
A multi-trillion dollar European aid package cannot be undertaken by Europe alone, and will require IMF and Federal Reserve involvement. The Federal Reserve already has pumped trillions of dollars into the US economy with nothing to show for it. Just considering Fed involvement in Europe is ludicrous. The US economy is in horrible shape precisely because of too much government debt and too much money creation and the European economy is destined to flounder for the same reasons. We have an unsustainable amount of debt here at home; it is hardly fair to US taxpayers to take on Europe’s debt as well. That will only ensure an accelerated erosion of the dollar and a lower standard of living for all Americans.
Originally appeared at http://paul.house.gov/
Oblivious Because of Mainstream Media
By Greg Hunter’s
USAWatchdog.com
I think most people are simply oblivious to the enormous dangers the world economy faces. Oh, I think we will all get through Christmas and New Years without a meltdown, but all bets are off in 2012. A new acquaintance of mine told me last Friday, “Isn’t the economy getting better?” I just looked at her and shook my head in the negative. Then she said, “I guess if it was getting bad, the media wouldn’t tell us the truth.” I shook my head in the affirmative. My new friend is 75 years old and gets a Social Security check every month. She’s pretty sharp, but I don’t blame her for being misinformed. She gets her news the old fashioned way—from the mainstream media (MSM).
There is no wonder so many are in the dark and completely unprepared for the next crash. The front page of USA TODAY, last week, touted a headline that read: “Are We There Yet?” The article said, “The economic signs are encouraging, but we’re a long way from a comeback.” It covered recent upticks in auto and home sales. It also said the unemployment rate recently fell to “8.6%.” The USA TODAY story went on to say, “Although the decline was partly due to a 315,000 drop in the labor force as discouraged job seekers simply gave up, employment is up an average 321,000 a month since August, according to the Labor Department’s household survey. Most encouraging: Much of the hiring appears to be by small businesses, which typically fuel job growth in a recovery.” Wow, the fact that 315,000 people “simply gave up” seemed completely glossed over. Why did more than 300,000 people give up? Maybe it’s because there are precious few jobs. And what about the 400,000 people every week filing unemployment claims? Never let the facts get in the way of positive spin to please the advertisers. The USA TODAY story closes with a business professor who said, “I have a lot of confidence in the future.” (Click here for the complete USA TODAY story.)
I am happy for him, but for a little balance and more accurate reporting, maybe the newspaper could have also quoted an economist who wasn’t so optimistic? John Williams of Shadowstats.com can provide that balance. In his latest report, Williams calls the recent unemployment numbers “nonsensical hype,” and “. . . help-wanted advertising has been in monthly decline since May of this year.” The report goes on to say, “November retail sales and industrial production both showed renewed faltering in the U.S. economy, reflecting the impact of the structural impairment of consumer liquidity. Although the headline CPI inflation number was flat for November, underlying detail showed the still spreading impact of high oil prices. Inflationary pressures continue to be from Federal Reserve polices, not from strong economic activity. As the Fed increasingly is pushed to support the banking system, the central bank’s actions should accelerate the pace of U.S. dollar debasement, as well as the pace of rising U.S. inflation and precious metals prices.” (Click here for the Shadowstats.com home page.) Inflation, by the way, is running at 11% annually. (According to Williams, that would be the true inflation rate if it were calculated the way Bureau of Labor Statistics did it in 1980 or earlier.)
The economy is so weak, the Fed is going to be “pushed to support the banking system!” That means the Fed will print money to continue bailing out the banks, and not just the banks here, but overseas as well. The Fed recently opened up a new round of bailouts for European banks with what are called dollar swaps. The head of the International Monetary Fund (IMF), Christine Lagarde, warned last week of the global damage that could happen if the sovereign debt crisis in the Eurozone spun out of control. FT.com reported, “There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating.” (Click here for the FT.com story.)
One escalation could be the long rumored credit rating cut of French sovereign debt. The Guardian UK reported over the weekend, “France could be stripped of its triple-A credit rating before Christmas, raising new doubts about the survival of the euro, analysts have predicted. Standard & Poor’s – one of the three top rating agencies – is expected to cut France’s rating within days, in a move that would weaken its ability to raise funds on financial markets.” (Click here for the Guardian UK story.) A rating cut to Europe’s second largest economy is not a sign of a turnaround—quite the opposite.
Finally, the USA TODAY story mentioned housing making a significant comeback next year. The story said, “After adding virtually nothing to — or subtracting from — economic growth in recent years, “You’re talking about housing finally being a meaningful contributor to the overall economy” in 2012, Mesirow Financial’s (Diane) Swonk says.” I guess the editors didn’t think it was important to mention the gigantic ongoing foreclosure crisis in the U.S. On the same day as the USA TODAY story was published, CNBC reported, “Despite a seasonal slowdown in overall foreclosure activity, and a process still bogged down and backed up by the “robo-signing” processing scandal, the U.S real estate market is about to be hit by another surge of bank repossessions, according to a new report from the online foreclosure sale site RealtyTrac. As banks resubmit millions of documents and courts begin hearing cases again, the backlog of over four million delinquent loans will start surging through the pipeline again.” (Click here for the complete CNBC story.) What effect will these foreclosures have on home prices and retail sales? I’ll bet it will not be positive for new home sales.
Listen, there is nothing wrong with putting positive facts or quotes in a story, but when you ignore something as big as a foreclosure crisis with “more than four million delinquent loans,” you are not writing an unbiased story. You are creating propaganda that gives a completely false picture of the economy. If you are reporting the news, your job is not to make people feel good. It is to give them the facts and analysis that delivers a clear picture of what is truly going on. The MSM is simply not doing its job. In the next meltdown, the excuse “Nobody saw this coming,” will not be credible and neither will the MSM. After all, that was what they said in 2008.
The Federal Reserve Has been CHECKMATED! QE to Infinity
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GOT GOLD YOU CAN HOLD?
GOT SILVER YOU CAN SQUEEZE?
IT'S NOT TOO LATE TO ACCUMULATE!
The key highlight of Morgan Stanley's hypothesis of what negative gold lease rates imply for gold:
Firstly, we think negative lease rates are highlighting a sharp increase in the demand for gold as collateral for US dollar loans at a time of reduced liquidity in the traditional US dollar interbank funding market. The more negative the lease rates the higher the cost of funding using gold as security.
Secondly, access to this collateral on a scale indicated by the rise in GOFO can only emerge if the providers of liquidity to the leasing market are prepared to increase the stock of lent gold in circulation. This development points to the central banks, the largest custodians of above-ground stocks and the traditional providers of liquidity to the gold-leasing market. Aware of acute funding pressures in the traditional interbank market, it seems increasingly likely to us that central banks have increased the quantum of gold available for use in a non-traditional funding market, at least until the measures to alleviate bank-funding stress in the US dollar swaps market have been successful. The recent easing in the scale of negative gold lease rates, suggests that demand for this source of short-term funding might be easing, but has not disappeared, even after the raft of measures announced by the ECB and the earlier coordinated intervention by the six central banks.Said otherwise: we likely have smooth sailing for now, as banks will not proceed to cannibalize each other for a bit. But keep a very close eye on on that LIBOR-GOFO spread: the second it collapses, it may be time to step away from the market…
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London Trader - We are Witnessing a Historic Bottom in Gold
From Eric King
With many investors worried the price of gold could head
lower, today King World News interviewed the “London
Trader” to get his take on the gold market. The source stated, “The Chinese have continued to take delivery of both
physical gold and silver directly from the ETF’s GLD and SLV. They are also
going directly to producers. Entities are bypassing the COMEX altogether and
going straight to gold mining companies. Every single month producers have a
certain amount of gold and silver they sell. Normally they sell it to the
bullion banks and the bullion banks, of course, leverage this gold and sell up
to 100 times that in paper markets to control prices.”
The London Trader
continues:
“They (bullion banks) hold that little bit of
physical gold and claim they are backed up on their position to the CFTC. I
have all my large buyers now going to producers and saying to them, ‘Look, don’t
sell it to the bullion banks, we’ll buy it from you.’ So we are buying directly
from the producers and this includes some sovereign entities which are doing the
same thing.
We’re struggling to get the physical out of these
guys (producers) because they have so many people banging on their door, saying,
‘Sell it to us direct.’ What these buyers are doing is essentially taking gold
out of the system, which means the bullion banks can’t leverage that gold
anymore.
So this is a huge, dynamic shift that wasn’t there
before. Now we are working on one other thing. We’re beginning to offer them
forward contracts. If you are a sovereign entity, what you are saying to these
producers, especially on new projects, is, ‘Why don’t you sell the gold to me in
12 months? Here’s the cash, just provide it to me 12 months from now.’
These buyers are now cutting off future gold supply
from the bullion banks....
“This is a huge, tectonic shift in price dynamics
going forward because it is taking price discovery away from the bullion banks.
These large Chinese buyers and sovereign entities which are doing this are going
to have a massive impact on the market.
Interestingly, so many people are bearish on gold
right now and looking for a collapse in the price of gold. They don’t
understand what is happening in the physical market. The bullish fundamentals I
just described to you have enormous implications.
We are making a historic bottom right now. The paper
gold, or virtual gold market, has diverged so far from the physical market that
it’s no longer a credible marketplace. That’s the key thing that came out of a
very important meeting I was in yesterday where we had some serious players.
The people I was meeting with are all on the buy side and have been since the
lows last week.
There are massive physical orders, sitting, waiting
for any more discounts, and yet everyone else seems to be short. So you have
huge fuel for a rally here.
You have to keep in mind this recent plunge was
orchestrated with borrowed gold and that borrowed gold is now gone. That’s why
gold can’t go much lower. Any dips in price will be aggressively purchased. As
I said earlier, right now we are witnessing a historic bottom.”
The
London Trader previously told KWN on October 21st that China had
purchased a massive amount of physical gold at the lows of the October 20th
session. That marked the dead low for the price of gold in October and gold
rallied roughly 10% in the following 8 trading sessions.
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THIS HEADLINE IS A BLATANT LIE:
Tue Dec 20 08:30:23 2011 EST WASHINGTON (Dow Jones)--U.S. home building surged to the highest level in 19 months during November and construction permits grew, encouraging signs for a part of the economy struggling to get back on its feet.
Home construction last month increased 9.3% to a seasonally adjusted annual rate of 685,000 from October, the Commerce Department said Tuesday. The results were better than forecast. Economists surveyed by Dow Jones Newswires expected housing starts would rise by 0.3% to an annual rate of 630,000.
The increase in November was driven by a 25.3% increase in multi-family homes with at least two units, a volatile part of the market. Construction of single-family homes, which made up about 65% percent of the market, rose only 2.3%.
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From Dave in Denver, The Golden Truth
After an 8 month price correction that has
been mistakenly taken to be a new bear market by those who are clueless, like
Dennis Gartman, it appears that the gold bull is kicking at the gate:
"Interesting" from my viewpoint because I have pointed to some indicators that likely signal that we are near or at a bottom and that the next extended move higher in gold will likely take us to a new record nominal high in gold.
One of these signals as discussed yesterday is gold breaking its 200 dma to the downside. Currently the 200 dma is around $1618 using the Comex continuous futures contract (this would correlate to around $1615 on a spot price basis).
Another signal would be the current long/short Commitment of Traders (COT) structure of the hedge funds (large specs) and the big banks (commercials). For the duration of the gold bull market, market bottoms have been associated with a low relative net long position being taken by the large specs and a low relative net short position being taken by the price manipulating bullion banks. That this is the case is indisputable. Currently the large specs have a very low net long position and the banks have low net short position. I rehypothecated Ted Butler's latest remark on the COT structure from Ed Steer's Gold & Silver Daily:
One indicator that I have not seen commentary on is the COT set-up in the euro, and tautologically, the inverse set-up in the dollar. Currently, the large spec hedge funds are record short the euro, which means they also are very long the dollar vs. the euro. Conversely, the big banks are primarily the entities which would take the other side of the hedge fund bet, meaning the big banks are very long the euro and very short the dollar. This is very very bullish for gold.
Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold. They don’t understand what is happening in the physical market. The bullish fundamentals I just described to you have enormous implications - London bullion traderHere's the short interview which is the source of that quote: LINK It is a must-read and the report of large "entities" going directly to gold producers in order to source large quantities of bullion is consistent with other industry insider accounts of this. I linked one a couple weeks ago.
"Interesting" from my viewpoint because I have pointed to some indicators that likely signal that we are near or at a bottom and that the next extended move higher in gold will likely take us to a new record nominal high in gold.
One of these signals as discussed yesterday is gold breaking its 200 dma to the downside. Currently the 200 dma is around $1618 using the Comex continuous futures contract (this would correlate to around $1615 on a spot price basis).
Another signal would be the current long/short Commitment of Traders (COT) structure of the hedge funds (large specs) and the big banks (commercials). For the duration of the gold bull market, market bottoms have been associated with a low relative net long position being taken by the large specs and a low relative net short position being taken by the price manipulating bullion banks. That this is the case is indisputable. Currently the large specs have a very low net long position and the banks have low net short position. I rehypothecated Ted Butler's latest remark on the COT structure from Ed Steer's Gold & Silver Daily:
I think the gold COT structure is back to a bullish set up, especially if the improvements after the cut-off are what I think them to be. As such, gold may also be at a price bottom, especially considering the bullish signals (or lack of bearish signals) coming from the gold physical market (ETF holdings, etc.). But to be fair, while gold is near bullish COT readings over the past year or so, on a much longer historical basis there may still be room for further liquidation. My personal sense is that we probably shouldn’t see big further speculative long liquidation in gold and may, in fact, be good to go to the upside. But if the COT structure in gold is bullish (as I think), then silver’s structure is screamingly, super-duper bullish.Combined, the 200 dma plus the COT signals are quite bullish for gold.
One indicator that I have not seen commentary on is the COT set-up in the euro, and tautologically, the inverse set-up in the dollar. Currently, the large spec hedge funds are record short the euro, which means they also are very long the dollar vs. the euro. Conversely, the big banks are primarily the entities which would take the other side of the hedge fund bet, meaning the big banks are very long the euro and very short the dollar. This is very very bullish for gold.
Take a look at this chart rehypothecated from http://www.barchart.com/
Wednesday, December 7, 2011
Will A Euro Short Squeeze Launch Gold And Silver Higher?
(click on chart to enlarge)
The green line that
goes below zero starting in May is the short position of the large specs. You
can see how the hedge fund position has shifted from long to short this year.
The red line is the long position of the big banks. Why would the euro begin to
move higher again rather than collapse, like everyone seems to think will
happen? Because I have said all along that I wouldn't be surprised if the EU
figures out a way to save itself from extinction. Hell the U.S. is already
printing money to bail out Europe via the up to $1 trillion currency swap
facility arranged by the Fed. This is a de facto QE because it increases the
size of the Fed balance sheet until the swap unwinds, if it ever does. This is
printing and this dollar bearish. Just wait until the Fed has to start printing
to fund 2012 Government spending programs...Don't forget, what's bearish for the
dollar is bullish for gold...
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Will A Euro Short Squeeze Launch Gold And Silver Higher?
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From ZeroHedge
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Fed May Inject Over $1 Trillion To Bail Out Europe
From ZeroHedge
Bernanke yesterday told a closed-door gathering of Republican senators that the Fed won’t provide more aid to European banks beyond the swap lines and the discount window -- another Fed program that provides emergency funds to U.S. banks, including U.S. branches of foreign banks." Well, between a trillion plus in FX swap lines, and a surge in discount window usage which only Zero Hedge has noted so far, there really is nothing else that the Fed can possibly do, as these actions along amount to a QE equivalent liquidity injection, only denominated in US Dollars. Aside of course to shower Europe with dollars from the ChairsatanCopter. Then again, before this is all over, we are certain that paradollardop will be part of the vernacular.
Historical ECB swap line usage with the Fed, and projected assuming $1+ trillion in use. Just to put it all into perspective.
For all those lamenting the ECB's lack of willingness to print, fear not: the almighty Chairsatan has vowed to valiantly take his place when needed. As in 2 weeks ago. From Bloomberg:
For those wondering what all this means, we remind you that there was a roughly $6.5 trillion synthetic (duration mismatch) USD short as of 4 years ago, as we reported at the time. That short has gotten substantially larger following a 4 year regime of the USD as a funding currency courtesy of ZIRP. Which means that any time the liquidity shortage threatens to collapse the system, the first thing to go stratospheric will be the USD as the global financial system scrambles to cover its short. It also means that anything the Fe and/or ECB can do from a pure printing standpoint will be peanuts compared to the utter carnage unless the dollar short is not preserved. Which naturally means that it is up to the Fed to continue drowning the world in either nominal dollars, or swapped ones, such as under the form of a USD-EUR swap, which is nothing but a forward operations. In essence, with the FX swap lines, the Fed engages in the ultimate currency warfare tool: it sells dollars to the entities most needy. And it does so, because if it doesn't, said needy entities will implode, and the hollow financial dominoes will topple, leading to a mess that not even infinite synthetic or real printing of binary of paper dollars, euros, or anything else will do to fix.European financial companies led by Royal Bank of Scotland Plc were borrowing about $538 billion directly from the Fed when the central bank’s emergency loans to all banks peaked at $1.2 trillion on December 2008, according to a Bloomberg News examination of data released by the Fed under last year’s Dodd- Frank Act and earlier this year under court-upheld Freedom of Information Act requests.
The Fed hasn’t provided any estimates of how large the swap lines might get, said David Skidmore, a Fed spokesman. He declined to elaborate.
“To get above $600 billion wouldn’t be a stretch,” said Desmond Lachman, a former International Monetary Fund deputy director who’s now a resident fellow at the American Enterprise Institute, a conservative public-policy center in Washington. “You’re talking about a European banking system that is huge in relation to that of the United States.”
Josh Rosner, a banking analyst with New York-based Graham Fisher & Co., said the Fed’s swap lines may end up helping Europe support banks that might not deserve emergency loans.
“As a result of this commitment of financial support, we’re now supporting undemocratic approaches implemented largely by authorities who have demonstrated an ongoing inability to either recognize the scope and scale of the problems or come to a consensus on the proper approach,” Rosner said.
The ultimate size of the swap lines is “unknowable at this point,” he said.
Which is why all those wondering if gold should be bought now or the second after the ECB starts printing, we have one piece of advice: just look at the chart above. It says all one needs to know.
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Jim Rickards - This Will Send the Price of Gold to the Moon
From Eric King
With investors concerned about the recent plunge in gold and silver
and continued uncertainty regarding the European situation, today King World
News has released part II of the eagerly anticipated interview with KWN resident
expert Jim Rickards. KWN expert, Rickards, has gained international recognition
for his deadly accurate predictions regarding moves by central planners. Here
is a small portion of what Rickards had to say about gold, QE3 and more:
“Well, you see the Treasury shorting the dollar in the form of taking SDR
notes. You see printing in order to get the dollar back down against the euro.
You see more printing to break the peg if China chooses to repeg, which I
believe they will. And, of course, the IMF has its own printing press to print
SDRs.”
Jim Rickards
continues:
“By the way the European Central Bank will start
printing as soon as they see deflation, which we can expect in the first quarter
based on the fact that Europe seems to be slipping back into a recession. So
with printing from the ECB, printing from the Fed, printing from the IMF, the
Treasury shorting the dollar and the currency wars in full swing, how can this
mean anything other than the price of gold going up a lot.
So it looks like we are going to get flooded with
dollars. One other thing I would add to that, which I think is extremely
bullish for the price of gold, I’ve been talking about QE3, but there is
something even more insidious than that which we may see. It’s called NGDP
targeting.
NGDP stands for Notional Gross Domestic Product.
Targeting just means that the Fed is going to pick a target for growth in NGDP
and then print as much as it takes to hit that target.
Now notional GDP is not the same as real GDP. In
other words, notional GDP is real GDP plus inflation. If the Fed targets NGDP,
what they are really saying is they don’t care about inflation anymore, they’ve
given up. I’ve said all along the Fed wants inflation and this is a way of
getting it. It’s also a way of destroying the debt by cheapening the
dollar.
...Targeting notional GDP, it’s just a fancy way of
saying printing or QE forever. I’m using the phrase QE3 to mean more printing,
but I actually think what the Fed is going to do is target NGDP....
“That means no limits, no time limit, no quantity
limit, just a target. And since real growth is not great, the target is going
to be mostly comprised of inflation. That’s going to send the price of gold to
the moon.”
In part I of Rickards blockbuster
KWN interview he let King World News listeners globally know what would trigger
QE3: “I was one of the ones going back to March of 2011 saying that QE3
was not coming in the summer. When QE2 was over in June, a lot of voices were
saying things are desperate, the Fed’s got to print, they’ve got to monetize the
debt and you are going to see QE3. I said no you are not going to see it and
that turned out to be the case.
But here we are six months later and what I’ve said
is that the key to QE3 is not economic conditions in the United States, it’s the
cross rates. Look at the euro/dollar cross rate and look at the Chinese Yuan
cross rate and that’s your green light (for QE3).
It’s a little bit of an estimate, but to me the key
level is 1.30 (on the euro). With the euro 1.30 or higher, that is going to
accomplish the Fed’s purpose of a cheap dollar, so we will not see QE3.
But now that the euro has breached 1.30 and if you
see it at that level or going lower, 1.28, 1.27, trading in there, then you are
going to see QE3. That’s going to cheapen the dollar and get the euro back up
again. So, yes, it (the euro) has traded down, but I view that as a temporary
phenomena and something that is going to be a trigger for QE3 from the
Fed.
As for Europe, they will get this done over the next
couple of months. There has been a lot of talk asking why doesn’t the ECB
monetize the debt? That’s not their job, but they will print money when the
time comes. The signal for that is deflation. You’ve got to see deflation in
Europe in the price indices and that’s the signal for the ECB to print.”
In
part II of his King World News interview, Rickards has more to say about exactly
what the central planners are up to and how it will impact the gold market as
well as global markets. Part II of the KWN Jim Rickards interview is available
now and you can listen to it by CLICKING HERE.
Jim
Rickards’ new book Currency Wars: The Making of the Next Global Crisis has just
officially launched and has made the New York Times Best Seller list for the
second week in a row! Make sure to order your copy today!
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Prison Planet.com
Tuesday, December 20, 2011
The economic establishment in this country has come to the conclusion that it is not a matter of “if” the United States must intervene in the bailout of the euro, but simply a question of “when” and “how”. Newspaper articles and editorials are full of assertions that the breakup of the euro would result in a worldwide depression, and that economic assistance to Europe is the only way to stave off this calamity. These assertions are yet again more scare-mongering, just as we witnessed during the depths of the 2008 financial crisis. After just a decade of the euro, people have forgotten that Europe functioned for centuries without a common currency.
The real cause of economic depression is loose monetary policy: the creation of money and credit out of thin air and the monetization of government debt by a central bank. This inflationary monetary policy is the cause of every boom and bust, yet it is precisely what political and economic elites both in Europe and the United States are prescribing as a resolution for the present crisis. The drastic next step being discussed is a multi-trillion dollar bailout of Europe by the European Central Bank, aided by the IMF and the Federal Reserve.
The euro was built on an unstable foundation. Its creators attempted to establish a dollar-like currency for Europe, while forgetting that it took nearly two centuries for the dollar to devolve from a defined unit of silver to a completely unbacked fiat currency note. The euro had no such history and from the outset was a purely fiat system, thus it is not surprising to followers of Austrian economics that it barely survived a decade and is now completely collapsing. Europe’s economic depression is the result of the euro’s very structure, a fiat money system that allowed member governments to spend themselves into oblivion and expect that someone else would pick up the tab.
A bailout of European banks by the European Central Bank and the Federal Reserve will exacerbate the crisis rather than alleviate it. What is needed is for bad debts to be liquidated. Banks that invested in sovereign debt need to take their losses rather than socializing those losses and prolonging the process of adjusting their balance sheets to reflect reality. If this was done, the correction would be painful, but quick, like tearing off a large band-aid, but this is necessary to get back on solid economic footing. Until the correction takes place there can be no recovery. Bailing out profligate European governments will only ensure that no correction will take place.
A multi-trillion dollar European aid package cannot be undertaken by Europe alone, and will require IMF and Federal Reserve involvement. The Federal Reserve already has pumped trillions of dollars into the US economy with nothing to show for it. Just considering Fed involvement in Europe is ludicrous. The US economy is in horrible shape precisely because of too much government debt and too much money creation and the European economy is destined to flounder for the same reasons. We have an unsustainable amount of debt here at home; it is hardly fair to US taxpayers to take on Europe’s debt as well. That will only ensure an accelerated erosion of the dollar and a lower standard of living for all Americans.
Originally appeared at http://paul.house.gov/
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I think most people are simply oblivious to the enormous dangers the world economy faces. Oh, I think we will all get through Christmas and New Years without a meltdown, but all bets are off in 2012. A new acquaintance of mine told me last Friday, “Isn’t the economy getting better?” I just looked at her and shook my head in the negative. Then she said, “I guess if it was getting bad, the media wouldn’t tell us the truth.” I shook my head in the affirmative. My new friend is 75 years old and gets a Social Security check every month. She’s pretty sharp, but I don’t blame her for being misinformed. She gets her news the old fashioned way—from the mainstream media (MSM).
There is no wonder so many are in the dark and completely unprepared for the next crash. The front page of USA TODAY, last week, touted a headline that read: “Are We There Yet?” The article said, “The economic signs are encouraging, but we’re a long way from a comeback.” It covered recent upticks in auto and home sales. It also said the unemployment rate recently fell to “8.6%.” The USA TODAY story went on to say, “Although the decline was partly due to a 315,000 drop in the labor force as discouraged job seekers simply gave up, employment is up an average 321,000 a month since August, according to the Labor Department’s household survey. Most encouraging: Much of the hiring appears to be by small businesses, which typically fuel job growth in a recovery.” Wow, the fact that 315,000 people “simply gave up” seemed completely glossed over. Why did more than 300,000 people give up? Maybe it’s because there are precious few jobs. And what about the 400,000 people every week filing unemployment claims? Never let the facts get in the way of positive spin to please the advertisers. The USA TODAY story closes with a business professor who said, “I have a lot of confidence in the future.” (Click here for the complete USA TODAY story.)
I am happy for him, but for a little balance and more accurate reporting, maybe the newspaper could have also quoted an economist who wasn’t so optimistic? John Williams of Shadowstats.com can provide that balance. In his latest report, Williams calls the recent unemployment numbers “nonsensical hype,” and “. . . help-wanted advertising has been in monthly decline since May of this year.” The report goes on to say, “November retail sales and industrial production both showed renewed faltering in the U.S. economy, reflecting the impact of the structural impairment of consumer liquidity. Although the headline CPI inflation number was flat for November, underlying detail showed the still spreading impact of high oil prices. Inflationary pressures continue to be from Federal Reserve polices, not from strong economic activity. As the Fed increasingly is pushed to support the banking system, the central bank’s actions should accelerate the pace of U.S. dollar debasement, as well as the pace of rising U.S. inflation and precious metals prices.” (Click here for the Shadowstats.com home page.) Inflation, by the way, is running at 11% annually. (According to Williams, that would be the true inflation rate if it were calculated the way Bureau of Labor Statistics did it in 1980 or earlier.)
The economy is so weak, the Fed is going to be “pushed to support the banking system!” That means the Fed will print money to continue bailing out the banks, and not just the banks here, but overseas as well. The Fed recently opened up a new round of bailouts for European banks with what are called dollar swaps. The head of the International Monetary Fund (IMF), Christine Lagarde, warned last week of the global damage that could happen if the sovereign debt crisis in the Eurozone spun out of control. FT.com reported, “There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating.” (Click here for the FT.com story.)
One escalation could be the long rumored credit rating cut of French sovereign debt. The Guardian UK reported over the weekend, “France could be stripped of its triple-A credit rating before Christmas, raising new doubts about the survival of the euro, analysts have predicted. Standard & Poor’s – one of the three top rating agencies – is expected to cut France’s rating within days, in a move that would weaken its ability to raise funds on financial markets.” (Click here for the Guardian UK story.) A rating cut to Europe’s second largest economy is not a sign of a turnaround—quite the opposite.
Finally, the USA TODAY story mentioned housing making a significant comeback next year. The story said, “After adding virtually nothing to — or subtracting from — economic growth in recent years, “You’re talking about housing finally being a meaningful contributor to the overall economy” in 2012, Mesirow Financial’s (Diane) Swonk says.” I guess the editors didn’t think it was important to mention the gigantic ongoing foreclosure crisis in the U.S. On the same day as the USA TODAY story was published, CNBC reported, “Despite a seasonal slowdown in overall foreclosure activity, and a process still bogged down and backed up by the “robo-signing” processing scandal, the U.S real estate market is about to be hit by another surge of bank repossessions, according to a new report from the online foreclosure sale site RealtyTrac. As banks resubmit millions of documents and courts begin hearing cases again, the backlog of over four million delinquent loans will start surging through the pipeline again.” (Click here for the complete CNBC story.) What effect will these foreclosures have on home prices and retail sales? I’ll bet it will not be positive for new home sales.
Listen, there is nothing wrong with putting positive facts or quotes in a story, but when you ignore something as big as a foreclosure crisis with “more than four million delinquent loans,” you are not writing an unbiased story. You are creating propaganda that gives a completely false picture of the economy. If you are reporting the news, your job is not to make people feel good. It is to give them the facts and analysis that delivers a clear picture of what is truly going on. The MSM is simply not doing its job. In the next meltdown, the excuse “Nobody saw this coming,” will not be credible and neither will the MSM. After all, that was what they said in 2008.
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GOT GOLD YOU CAN HOLD?
GOT SILVER YOU CAN SQUEEZE?
IT'S NOT TOO LATE TO ACCUMULATE!
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