"Everything predicted by the enemies of banks, in the beginning, is now coming
to pass. We are to be ruined now by a deluge of bank paper, as we were formerly
by the old Continental paper. It is cruel that such revolutions in private
fortunes should be at the mercy of avaricious adventurers, who instead of
employing their capital, if any they have, in manufactures commerce, and other
useful pursuits, make it an instrument to burden all the interchanges of
property with their swindling profits, profits which are the price of no useful
industry of theirs. Prudent men must be on their guard in this game of Robin's
alive, and take care that the spark does not extinguish in their hands. I am an
enemy to all banks discounting bills or notes for anything but coin. But our
whole country is so fascinated by this Jack o' lantern wealth, that they will
not stop short of its total and fatal explosion."
- Thomas Jefferson
Why were the prices of the Precious Metals smashed going into the end of the year when there was ZERO fundamental data to support the free-fall?
Lost in the Holiday Headlines, along with the blatant destruction of the prices of Gold and Silver, a very ominous statistic broke the surface of denial shrouding the financial news media on December 21:
It's Official: US Debt-To-GDP Passes 100%
Yet nobody seemed to notice or care. The Eurozone has a debt crisis, NOT the USA! How can the USA have a debt crisis, they just print money to pay their bills [buy their own debt].
Or they simply raise the "debt ceiling".
Obama to Seek $1.2 Trillion Increase in Debt Limit Dec. 30
Dec. 27 (Bloomberg) -- The Obama administration will ask Congress to increase federal borrowing authority by $1.2 trillion as the nation approaches the debt limit set by law, according to a Treasury Department official.
The White House will send the request to Congress on Dec. 30, the day the debt is projected to rise to within $100 billion of the $15.194 trillion limit, the Treasury official told reporters today on condition of anonymity.
Congress will be notified under the terms of a deal to raise the limit worked out on Aug. 2 after a more than two-month standoff between the administration and Republican lawmakers that was followed by a cut in the U.S. debt rating by Standard & Poor’s. The Budget Control Act of 2011 gives Congress 15 days to pass a joint resolution disapproving the increase in the limit. The president can veto such a measure.
From Zero Hedge
As the Fed's critical H.4.1 weekly update shows (which is leaps and bounds more accurate than the Treasury's TIC international fund flow data), in the week ended December 28, foreign investors sold the second highest amount of US bonds in history, or $23 billion, bringing total UST custodial holdings to $2.67 trillion, a level first crossed to the upside back in April. This number peaked at $2.75 trillion in mid-August, and as the chart below shows the foreign holdings of US paper have been virtually flat in all of 2011, something which is in stark contrast with what the price of the 10 Year would indicate vis-a-vis investor demand. And going back further, the last week is merely the latest in a series of Custodial account outflows. In fact, in the last month (trailing 4 weeks), foreigners have sold a record $69 billion in US paper, a monthly outflow that was approached only once - in the aftermath of the US downgrade (when erroneously it is said that a surge in demand for US paper pushed rates lower - obviously as the chart shows nothing could be further from the truth).
___________________________
If "foreigners" are dumping US debt at a now record clip, who is going to be buying the new debt allowed by yet another increase in the Debt Ceiling?
It is starting to become clear why the prices of the Precious Metals had to be smashed in late December. There is nobody left to buy the US Treasury's debt but the Fed. If that is in fact the case, the Fed must print money to buy the debt and debase the Dollar forcing Precious Metals prices higher.
Oh! I get it, ...if Gold rises from a lower price on a falling Dollar, maybe no one will notice that the Fed is buying up US debt to keep interest rates low. If countries keep selling their US Treasury holdings, and stop buying new US debt, interest rates will rise...JUST LIKE IN EUROPE!
US Closes 2011 With Record $15.22 Trillion In Debt, Officially At 100.3% Debt/GDP, $14 Billion From Breaching Debt Ceiling
Spending as much time as I do writing about the Land of Fraud, I never thought I would see myself using the phrase “maximum fraud” to describe any U.S. market. Each time I thought I had witnessed the apex of human fraud, within a matter of weeks or perhaps months I would witness some even more extreme outrage.
One should never underestimate Federal Reserve Chairman B.S. Bernanke, however, when the subject turns to fraud and deceit. This is the same man who told the world (day after day) that the U.S. had a “Goldilocks economy”, where U.S. markets and house prices would keep going up forever – at the very peak of the made-in-Wall-Street U.S. housing bubble. This is the same man who then promised the world (again and again) that the U.S. economy would experience a “soft landing” after that gigantic bubble had already burst. This is the same man who has announced more “exit strategies” than Harry Houdini – with not one of them ever materializing.
Yet even the infamous “Helicopter Ben” Bernanke has outdone himself with his latest operations in the U.S. Treasuries market. For those who missed the news, foreign central banks (the largest holders of U.S. Treasuries) have been frantically dumping more Treasuries onto the market over the past four weeks than at any other time in U.S. history.
Those with even the tiniest understanding of supply/demand fundamentals understand how markets operate in such situations. When there is a sudden explosion of supply, the price buyers are willing to pay for that good plummets until enough new buyers enter the market to soak-up all of that excess supply.
So how far have U.S. Treasuries prices fallen during this “panic” in the U.S. Treasuries market? Zero. To comprehend the absolute absurdity of this situation requires adding one more piece of data to our scenario: U.S. Treasuries prices are currently at their highest level in history – despite the fact that the United States has never been less solvent.
Readers need to realize how a bond market works. Prices and yields (i.e. interest rates) move in a precisely opposite/inverse manner to each other. As yield goes up, bond prices decline in a precisely proportional manner (and vice versa). Given that yield is (supposedly) a function of risk, with the U.S. economy being less solvent than at any other time in history, this implies record-low prices for U.S. Treasuries – not all-time highs.
Realizing that many ordinary investors don’t understand the dynamics of the bond market, let me equate this situation to the world of equities with an analogy. Picture a hypothetical company with the world’s largest market-cap, which we’ll call “U.S. Treasuries Inc.”
The share price of U.S. Treasuries Inc. is sitting at an all-time high (and has been there for many months), despite the fact the company is teetering on bankruptcy. Suddenly, the largest shareholders of U.S. Treasuries Inc. all start simultaneously dumping more shares than at any other time in history. Anyone with even a modicum of market experience knows the inevitable consequence of such an event: the share-price would crash.
Understand what is directly implied here. For maximum supply to be dumped onto this market, while prices didn’t even budge slightly from all-time highs does not merely imply “high demand”. It necessarily implies infinite demand. Only where demand was literally “infinite” would we see sufficient buyers instantly materialize (at the highest prices in history) irrespective of how much new supply hit the market. And this did not simply occur over some anomalous one- or two-day period, but rather consistently for (at least) four solid weeks.
However, even if it was mathematically plausible for there to be infinite demand for U.S. Treasuries (which it is not), “infinite demand” is not a plausible explanation for what has transpired in the U.S. Treasuries market, since it is directly contradicted by other price data.
As a matter of unequivocal arithmetic, if there was infinite demand for U.S. Treasuries, yields for all maturities of U.S. Treasuries would be compressed to 0%. The fact that (even at the highest prices in history) these yields are not at 0% is absolute proof that there has never been anything close to infinite demand for U.S. Treasuries.
With that fact conclusively established, we can return to the mechanics of this market. U.S. Treasuries have plateaued at the highest prices in history. Indeed, with the yields for shorter-term maturities essentially at 0%, those Treasuries are already at their maximum theoretical price. Thus when we ask ourselves what would suddenly cause large numbers of new buyers to enter this market, we can answer that question with absolute certainty: significantly lower prices.
With much/most trading now assigned to the abominable trading algorithms, there is no possible scenario where near-infinite numbers of buyers for U.S. Treasuries could surface with zero decline in prices. To make these impossible parameters even more ludicrous, in the real world there are effectively zero buyers for U.S. dollar instruments – and infinite sellers.
China and Japan (two of the world’s top-5 economies) just announced they are phasing-out U.S. dollars from their bilateral trade. This is merely the latest in an endless series of bilateral and multilateral deals which are incrementally (but relentlessly) removing the U.S. dollar as the world’s “reserve currency”.
To date, these deals have already reduced the demand for U.S. dollars by $trillions per year. To focus on just the China/Japan deal, as an elementary reality of their new commercial arrangement, both of these nations need to hold more of each other’s currency – and less U.S. dollars. And this scenario is being repeated in one economy after another, all over the world.
Even beyond the fact that no other nations want any U.S. dollar instruments, we are confronted with the fact that there are no other (visible) buyers able to soak-up all these unwanted U.S. dollar instruments (including Treasuries). Most of the world’s largest economies are located in Europe, and what just finished happening there? The ECB conjured roughly $1 trillion out of thin air – to “lend” all that funny-money to various EU governments (to buy-up their own bonds) so that they were not immediately bankrupted by the economic terrorism being perpetrated in their debt markets by the Wall Street Vampires.
China, the world’s new economic juggernaut, has been dumping their Treasuries for over a year now. Japan’s economy requires every spare yen it can muster for economic reconstruction following the horrific disasters it suffered. And in most of the rest of the world’s economies governments are more likely to use extra dollars to subsidize exploding food prices (to prevent riots in the streets) rather than squandering their precious currency reserves buying worthless U.S. paper.
We have a seemingly intractable paradox here. In the real world there is essentially zero demand for U.S. Treasuries, while we have the recent transactions in the Treasuries market directly implying infinite demand. Fortunately we have the wisdom of the legendary Sherlock Holmes to guide us in resolving such intellectual quandries:
“When you eliminate the impossible, whatever remains (no matter how improbable) must be the answer.”
We have no visible buyers for U.S. Treasuries, yet seemingly infinite demand. More specifically, we have no visible sources of capital to even finance the purchase of all of those Treasuries. Thus the phantom-buyer of all of these Treasuries must be an entity capable of “manufacturing capital” – directly implying that this phantom-buyer has a printing-press at his/her disposal.
At the same time, we have B.S. Bernanke getting in front of microphones day-after-day insisting that he has ended all of his bond-buying – i.e. the latest episode of “quantitative easing”. The obvious question is: can we trust anything that B.S. Bernanke says?
Could we trust him when he assured us about the U.S.’s “Goldilocks economy”? Could we trust him when he insisted again and again that the detonation of the largest asset-bubble in human history would lead to a “soft landing”? Could we trust him when (every six months or so) he announced another “exit strategy” from the serial money-printing and massive expansion of the Fed’s “balance sheet”? Indeed, placing one’s faith in the words of Ben Bernanke implies the same level of naivety as trusting a Goldman Sachs banker when he says “Have I got a good deal for you!”
Given that there is no other plausible buyer for U.S. Treasuries (in the entire world) than the Fed itself, and given that B.S. Bernanke is an individual whose personal credibility is somewhere below zero, what does this imply? Very simply, the Federal Reserve (and its Chairman) are secretly counterfeiting vast numbers of U.S. dollars, and then using that fraudulent “currency” to buy all these unwanted bonds and thus prop-up the Treasuries market.
Regular readers will note that this is in no way a “new accusation” which I am leveling at the Fed. Rather, this massive market fraud has been plainly visible on several other occasions – and I have identified those occasions in previous commentaries. Thus at this point it is necessary to explain “motive”.
Why does the Fed sometimes tell the truth about its bond-buying, while most of the time it covers it up? To understand that we need to refer to the words of someone who claims to understand bankers better than most, former Goldman Sachs employee and head of the CPM Group, Jeffrey Christian.
In “The Great Gold Debate”, it was Christian who revealed one of the banksters’ fundamental Market Principles:
“One of the first things you know about intervention in [i.e. manipulation of] the currency markets…is that it’s much more effective if people don’t know what you’re doing. They only see the effects you know, I mean there are reasons why people [i.e. bankers] don’t want the market to see them coming…”
The motive for the Federal Reserve to secretly counterfeit $trillions of U.S. dollars in order to buy U.S. Treasuries and prop-up the market is obvious: it allows Bernanke and the Fed to engage in the ludicrous charade that both demand for U.S. Treasuries and the market itself are “strong” – when nothing could possibly be further from the truth. Given that the Fed has never been audited in its near-100 year history means that we can add “means” and “opportunity” along side the extremely obvious motive.
Indeed, there is no mystery at all as to why B.S. Bernanke would want to counterfeit U.S. currency in order to secretly buy-up Treasuries. Rather, given the Market Principle by which the bankers operate, the real question here is why would Bernanke ever actually admit what he was secretly doing – i.e. “announce” some of his quantitative easing?
Fortunately this is a question which has been answered on countless occasions, by numerous commentators. If we refer back to media literature at the time of “QE I”, and even more so when “QE II” was announced, we see a plethora of commentaries which were almost identical.
These commentators were quite clear that they did not expect quantitative easing to accomplish must positive “good” – but yet they proclaimed themselves to be in favor of this policy despite its dubious potential. Why? Because they considered it absolutely crucial for “the market” to see the Fed and/or U.S. government “doing something” – and so the Fed simply announced the same manipulation of the U.S. bond market in which it had already been secretly engaging.
We thus have the one-and-only “exception” to the bankers’ Market Principle that it’s always best to hide their manipulation of markets: when the sheep are spooked so badly that they are reassured to be told that a market is being manipulated.
There is yet one more reason to find this latest episode of Treasuries-fraud to be especially alarming. Generally anyone engaging in such a massive, serial fraud would make efforts to disguise their actions. Yet here we have absolutely no attempt to do so.
Had the Fed’s fraudsters allowed Treasuries prices to decline at least modestly during this latest panic in the U.S. bond market, then at least they could have made a semi-plausible claim that (somehow) a herd of new sheep had suddenly and miraculously shown up to buy that massive amount of unwanted bonds (at near-record prices). Instead we have a farce so utterly absurd that it should not fool anyone with the brain-power to be able to count their fingers and toes (with only a minimal number of mistakes): infinite buyers lining-up to buy worthless U.S. Treasuries at the highest prices in history – despite there being zero visible buyers in this market.
- Thomas Jefferson
Why were the prices of the Precious Metals smashed going into the end of the year when there was ZERO fundamental data to support the free-fall?
Lost in the Holiday Headlines, along with the blatant destruction of the prices of Gold and Silver, a very ominous statistic broke the surface of denial shrouding the financial news media on December 21:
It's Official: US Debt-To-GDP Passes 100%
Yet nobody seemed to notice or care. The Eurozone has a debt crisis, NOT the USA! How can the USA have a debt crisis, they just print money to pay their bills [buy their own debt].
Or they simply raise the "debt ceiling".
Obama to Seek $1.2 Trillion Increase in Debt Limit Dec. 30
Dec. 27 (Bloomberg) -- The Obama administration will ask Congress to increase federal borrowing authority by $1.2 trillion as the nation approaches the debt limit set by law, according to a Treasury Department official.
The White House will send the request to Congress on Dec. 30, the day the debt is projected to rise to within $100 billion of the $15.194 trillion limit, the Treasury official told reporters today on condition of anonymity.
Congress will be notified under the terms of a deal to raise the limit worked out on Aug. 2 after a more than two-month standoff between the administration and Republican lawmakers that was followed by a cut in the U.S. debt rating by Standard & Poor’s. The Budget Control Act of 2011 gives Congress 15 days to pass a joint resolution disapproving the increase in the limit. The president can veto such a measure.
The limit has already been raised twice since the act was
approved, by a total of $900 billion. It would rise to $16.394 trillion after
the latest increase.
Under the Budget Control law, the debt limit will be increased on Jan. 14, 2012,
unless Congress acts.
___________________________
The Eurozone has a debt crisis? The US would appear addicted to debt. The US has a mushrooming debt crisis, though everyone from the President on down denies it.
Just who is going to buy all this new debt? The Europeans can't afford to buy their own debt. The Japanese need all their cash [and any they can raise by selling US Treasuies] to pay for the reconstruction of their radioactive nation. The Chinese have more US debt than they want.
What's this? It would appear that "demand" for US Treasury debt is rolling over as of December 30:
As the Fed's critical H.4.1 weekly update shows (which is leaps and bounds more accurate than the Treasury's TIC international fund flow data), in the week ended December 28, foreign investors sold the second highest amount of US bonds in history, or $23 billion, bringing total UST custodial holdings to $2.67 trillion, a level first crossed to the upside back in April. This number peaked at $2.75 trillion in mid-August, and as the chart below shows the foreign holdings of US paper have been virtually flat in all of 2011, something which is in stark contrast with what the price of the 10 Year would indicate vis-a-vis investor demand. And going back further, the last week is merely the latest in a series of Custodial account outflows. In fact, in the last month (trailing 4 weeks), foreigners have sold a record $69 billion in US paper, a monthly outflow that was approached only once - in the aftermath of the US downgrade (when erroneously it is said that a surge in demand for US paper pushed rates lower - obviously as the chart shows nothing could be further from the truth).
___________________________
If "foreigners" are dumping US debt at a now record clip, who is going to be buying the new debt allowed by yet another increase in the Debt Ceiling?
It is starting to become clear why the prices of the Precious Metals had to be smashed in late December. There is nobody left to buy the US Treasury's debt but the Fed. If that is in fact the case, the Fed must print money to buy the debt and debase the Dollar forcing Precious Metals prices higher.
Oh! I get it, ...if Gold rises from a lower price on a falling Dollar, maybe no one will notice that the Fed is buying up US debt to keep interest rates low. If countries keep selling their US Treasury holdings, and stop buying new US debt, interest rates will rise...JUST LIKE IN EUROPE!
US Closes 2011 With Record $15.22 Trillion In Debt, Officially At 100.3% Debt/GDP, $14 Billion From Breaching Debt Ceiling
From Zero Hedge
...it is now official: according to the US Treasury,
America has closed the books on 2011 with debt at an all time record
$15,222,940,045,451.09. And, as was observed here first in all
of the press, US debt to GDP
is now officially over 100%, or 100.3% to be specific, a fact which the US
government decided to delay exposing until the very end of the calendar year. We
wonder, rhetorically, just how prominent of a talking point this historic event
will be in any upcoming GOP primary debates. And yes, technically this number is
greater than the debt ceiling but it excludes various accounting gimmicks. When
accounting for those, the US has a debt ceiling buffer of... $14
billion, or one third the size of a typical bond auction.
___________________________
There is one confounding aspect of all of the above: How have US Treasury prices risen relentlessly since the Debt Ceiling was first raised last September and the nation's credit rating was dropped? Is American debt "safe" just because we can print the money to pay you back? Absurd!
The US has a Debt/GDP of 100, the Debt Ceiling is going to rise by $1.2 TRILLION, and foreigners are dumping our debt...and the cost of our debt is rising and not falling?
By any measure of Economics 101, US debt prices should be falling, and interest rates should be rising. Why is this not happening?
by Jeff Nielson
One should never underestimate Federal Reserve Chairman B.S. Bernanke, however, when the subject turns to fraud and deceit. This is the same man who told the world (day after day) that the U.S. had a “Goldilocks economy”, where U.S. markets and house prices would keep going up forever – at the very peak of the made-in-Wall-Street U.S. housing bubble. This is the same man who then promised the world (again and again) that the U.S. economy would experience a “soft landing” after that gigantic bubble had already burst. This is the same man who has announced more “exit strategies” than Harry Houdini – with not one of them ever materializing.
Yet even the infamous “Helicopter Ben” Bernanke has outdone himself with his latest operations in the U.S. Treasuries market. For those who missed the news, foreign central banks (the largest holders of U.S. Treasuries) have been frantically dumping more Treasuries onto the market over the past four weeks than at any other time in U.S. history.
Those with even the tiniest understanding of supply/demand fundamentals understand how markets operate in such situations. When there is a sudden explosion of supply, the price buyers are willing to pay for that good plummets until enough new buyers enter the market to soak-up all of that excess supply.
So how far have U.S. Treasuries prices fallen during this “panic” in the U.S. Treasuries market? Zero. To comprehend the absolute absurdity of this situation requires adding one more piece of data to our scenario: U.S. Treasuries prices are currently at their highest level in history – despite the fact that the United States has never been less solvent.
Readers need to realize how a bond market works. Prices and yields (i.e. interest rates) move in a precisely opposite/inverse manner to each other. As yield goes up, bond prices decline in a precisely proportional manner (and vice versa). Given that yield is (supposedly) a function of risk, with the U.S. economy being less solvent than at any other time in history, this implies record-low prices for U.S. Treasuries – not all-time highs.
Realizing that many ordinary investors don’t understand the dynamics of the bond market, let me equate this situation to the world of equities with an analogy. Picture a hypothetical company with the world’s largest market-cap, which we’ll call “U.S. Treasuries Inc.”
The share price of U.S. Treasuries Inc. is sitting at an all-time high (and has been there for many months), despite the fact the company is teetering on bankruptcy. Suddenly, the largest shareholders of U.S. Treasuries Inc. all start simultaneously dumping more shares than at any other time in history. Anyone with even a modicum of market experience knows the inevitable consequence of such an event: the share-price would crash.
Understand what is directly implied here. For maximum supply to be dumped onto this market, while prices didn’t even budge slightly from all-time highs does not merely imply “high demand”. It necessarily implies infinite demand. Only where demand was literally “infinite” would we see sufficient buyers instantly materialize (at the highest prices in history) irrespective of how much new supply hit the market. And this did not simply occur over some anomalous one- or two-day period, but rather consistently for (at least) four solid weeks.
However, even if it was mathematically plausible for there to be infinite demand for U.S. Treasuries (which it is not), “infinite demand” is not a plausible explanation for what has transpired in the U.S. Treasuries market, since it is directly contradicted by other price data.
As a matter of unequivocal arithmetic, if there was infinite demand for U.S. Treasuries, yields for all maturities of U.S. Treasuries would be compressed to 0%. The fact that (even at the highest prices in history) these yields are not at 0% is absolute proof that there has never been anything close to infinite demand for U.S. Treasuries.
With that fact conclusively established, we can return to the mechanics of this market. U.S. Treasuries have plateaued at the highest prices in history. Indeed, with the yields for shorter-term maturities essentially at 0%, those Treasuries are already at their maximum theoretical price. Thus when we ask ourselves what would suddenly cause large numbers of new buyers to enter this market, we can answer that question with absolute certainty: significantly lower prices.
With much/most trading now assigned to the abominable trading algorithms, there is no possible scenario where near-infinite numbers of buyers for U.S. Treasuries could surface with zero decline in prices. To make these impossible parameters even more ludicrous, in the real world there are effectively zero buyers for U.S. dollar instruments – and infinite sellers.
China and Japan (two of the world’s top-5 economies) just announced they are phasing-out U.S. dollars from their bilateral trade. This is merely the latest in an endless series of bilateral and multilateral deals which are incrementally (but relentlessly) removing the U.S. dollar as the world’s “reserve currency”.
To date, these deals have already reduced the demand for U.S. dollars by $trillions per year. To focus on just the China/Japan deal, as an elementary reality of their new commercial arrangement, both of these nations need to hold more of each other’s currency – and less U.S. dollars. And this scenario is being repeated in one economy after another, all over the world.
Even beyond the fact that no other nations want any U.S. dollar instruments, we are confronted with the fact that there are no other (visible) buyers able to soak-up all these unwanted U.S. dollar instruments (including Treasuries). Most of the world’s largest economies are located in Europe, and what just finished happening there? The ECB conjured roughly $1 trillion out of thin air – to “lend” all that funny-money to various EU governments (to buy-up their own bonds) so that they were not immediately bankrupted by the economic terrorism being perpetrated in their debt markets by the Wall Street Vampires.
China, the world’s new economic juggernaut, has been dumping their Treasuries for over a year now. Japan’s economy requires every spare yen it can muster for economic reconstruction following the horrific disasters it suffered. And in most of the rest of the world’s economies governments are more likely to use extra dollars to subsidize exploding food prices (to prevent riots in the streets) rather than squandering their precious currency reserves buying worthless U.S. paper.
We have a seemingly intractable paradox here. In the real world there is essentially zero demand for U.S. Treasuries, while we have the recent transactions in the Treasuries market directly implying infinite demand. Fortunately we have the wisdom of the legendary Sherlock Holmes to guide us in resolving such intellectual quandries:
“When you eliminate the impossible, whatever remains (no matter how improbable) must be the answer.”
We have no visible buyers for U.S. Treasuries, yet seemingly infinite demand. More specifically, we have no visible sources of capital to even finance the purchase of all of those Treasuries. Thus the phantom-buyer of all of these Treasuries must be an entity capable of “manufacturing capital” – directly implying that this phantom-buyer has a printing-press at his/her disposal.
At the same time, we have B.S. Bernanke getting in front of microphones day-after-day insisting that he has ended all of his bond-buying – i.e. the latest episode of “quantitative easing”. The obvious question is: can we trust anything that B.S. Bernanke says?
Could we trust him when he assured us about the U.S.’s “Goldilocks economy”? Could we trust him when he insisted again and again that the detonation of the largest asset-bubble in human history would lead to a “soft landing”? Could we trust him when (every six months or so) he announced another “exit strategy” from the serial money-printing and massive expansion of the Fed’s “balance sheet”? Indeed, placing one’s faith in the words of Ben Bernanke implies the same level of naivety as trusting a Goldman Sachs banker when he says “Have I got a good deal for you!”
Given that there is no other plausible buyer for U.S. Treasuries (in the entire world) than the Fed itself, and given that B.S. Bernanke is an individual whose personal credibility is somewhere below zero, what does this imply? Very simply, the Federal Reserve (and its Chairman) are secretly counterfeiting vast numbers of U.S. dollars, and then using that fraudulent “currency” to buy all these unwanted bonds and thus prop-up the Treasuries market.
Regular readers will note that this is in no way a “new accusation” which I am leveling at the Fed. Rather, this massive market fraud has been plainly visible on several other occasions – and I have identified those occasions in previous commentaries. Thus at this point it is necessary to explain “motive”.
Why does the Fed sometimes tell the truth about its bond-buying, while most of the time it covers it up? To understand that we need to refer to the words of someone who claims to understand bankers better than most, former Goldman Sachs employee and head of the CPM Group, Jeffrey Christian.
In “The Great Gold Debate”, it was Christian who revealed one of the banksters’ fundamental Market Principles:
“One of the first things you know about intervention in [i.e. manipulation of] the currency markets…is that it’s much more effective if people don’t know what you’re doing. They only see the effects you know, I mean there are reasons why people [i.e. bankers] don’t want the market to see them coming…”
The motive for the Federal Reserve to secretly counterfeit $trillions of U.S. dollars in order to buy U.S. Treasuries and prop-up the market is obvious: it allows Bernanke and the Fed to engage in the ludicrous charade that both demand for U.S. Treasuries and the market itself are “strong” – when nothing could possibly be further from the truth. Given that the Fed has never been audited in its near-100 year history means that we can add “means” and “opportunity” along side the extremely obvious motive.
Indeed, there is no mystery at all as to why B.S. Bernanke would want to counterfeit U.S. currency in order to secretly buy-up Treasuries. Rather, given the Market Principle by which the bankers operate, the real question here is why would Bernanke ever actually admit what he was secretly doing – i.e. “announce” some of his quantitative easing?
Fortunately this is a question which has been answered on countless occasions, by numerous commentators. If we refer back to media literature at the time of “QE I”, and even more so when “QE II” was announced, we see a plethora of commentaries which were almost identical.
These commentators were quite clear that they did not expect quantitative easing to accomplish must positive “good” – but yet they proclaimed themselves to be in favor of this policy despite its dubious potential. Why? Because they considered it absolutely crucial for “the market” to see the Fed and/or U.S. government “doing something” – and so the Fed simply announced the same manipulation of the U.S. bond market in which it had already been secretly engaging.
We thus have the one-and-only “exception” to the bankers’ Market Principle that it’s always best to hide their manipulation of markets: when the sheep are spooked so badly that they are reassured to be told that a market is being manipulated.
There is yet one more reason to find this latest episode of Treasuries-fraud to be especially alarming. Generally anyone engaging in such a massive, serial fraud would make efforts to disguise their actions. Yet here we have absolutely no attempt to do so.
Had the Fed’s fraudsters allowed Treasuries prices to decline at least modestly during this latest panic in the U.S. bond market, then at least they could have made a semi-plausible claim that (somehow) a herd of new sheep had suddenly and miraculously shown up to buy that massive amount of unwanted bonds (at near-record prices). Instead we have a farce so utterly absurd that it should not fool anyone with the brain-power to be able to count their fingers and toes (with only a minimal number of mistakes): infinite buyers lining-up to buy worthless U.S. Treasuries at the highest prices in history – despite there being zero visible buyers in this market.
I would suggest that it is impossible to construct a more outrageous scenario, even in totally hypothetical terms. On that basis it seems entirely reasonable to dub these latest events “maximum fraud”.
___________________________
NO WAY! Fraud in the US financial markets?
This can not end well. The US is in the midst of a debt crisis of their own, yet the focus remains solely on Europe.
"Crisis takes a much longer time coming than you think, and then it
happens much faster than you would have thought."
- late MIT economist Rudiger Dornbusch
"When you look at the current situation, you can only come away thinking that
2012 is the year where the house of cards finally collapses. Sovereign
governments alone (just the G-7) will need to rollover and refinance nearly $8
Trillion of maturing debt. This is on top of probably $4-5 Trillion of "new"
debt appetite. Where does this type of money come from? What about corporate
debt? Personal debt? As you know, a fiat system cannot survive if debt in
aggregate actually declines for any length of time and here we are where the
system itself is not generating the cash flows nor profits sufficient to
increase debt.
We have hit the wall pure and simple. The wall being "debt saturation". This is why mathematically, central banks have now, and will, have NO other choice than to print, print and then continue to print. It really is simple, the "capital" does not exist to increase debt and the capital can no longer be generated from the system through work, production nor taxation to create this necessary capital. Though the Austrian economists have been laughed at and mocked year after year, this, is exactly where they predicted it would all end up. It has and 2012 is the year that the truth according to Mother Nature can no longer be hidden."
-Bill Holter, GATA
Debt saturation. We have all heard of Peak Oil. Have we now reached Peak Credit?
“A funny thing happens when you depend on expanding debt to fund your consumption: eventually the cost of servicing your rising debt reaches the limit of your income, and you can’t borrow any more, unless interest rates decline so you can leverage your income into higher debt. . . .Lowering interest rates extends the era of debt-based consumption, but it only puts off the inevitable crash when the ability to borrow runs out. Eventually the cost of servicing this lower-interest debt absorbs all your disposable income, and the borrowing skids to an abrupt stop.”
-Charles Hugh Smith
Europe has obviously reached Peak Credit, only a fool would believe that the US will not meet the same fate...it's only a matter of time.
And only a fool believes that a bubble in Precious Metals has burst. It's painfully obvious that the smashdown in the Precious Metals in late December was contrived to allow for the forthcoming fiscal shenanigans by the Fed and the Treasury to commence.
There is not, and has not been, a bubble in Gold. The price of Gold is still playing catch up with the greatest bubble of all time: The Debt Bubble.
Why Rising Debt Will Lead to $10,000 Gold
By Nick Barisheff
As presented at the 18th Annual Empire Club Outlook Luncheon Jan. 5, 2012, in Toronto, Canada
Good afternoon, it’s a pleasure to speak about gold at this Outlook for 2012.
Today, I’d like to focus on one important idea: the direct relationship between the rising price of gold and the rising levels of government debt that result in currency debasement. Since we measure investment performance in currencies a clear understanding of the outlook for currencies is critical.
In order to understand gold’s relationship, it’s important to understand that gold is money. It is not simply an industrial commodity like copper, or zinc. It trades on the currency desks of most major banks – not on their commodities desks. The turnover at the London Bullion Market Association is over $37 billion per day, and volume is estimated at five to seven times that amount – clearly, this is not jewelry demand.
The world’s central banks know gold is money: after decades of modest sales they have become net buyers since 2009. This trend strengthened in 2010 and gained momentum in 2011. They are buying gold as a counterbalance to their devaluing currencies.
As money, gold has provided the most stable form of wealth preservation for over three thousand years – it still does today. Gold has outperformed all other asset classes since 2002.
This chart clearly shows that US federal debt (purple) and the price of gold (gold) are now moving in lockstep. This correlation will likely continue for the foreseeable future. The red line represents the repeatedly violated government debt ceilings.
Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if the correlation remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and the gold price will therefore be much higher.
And it’s not just the US. Most Western economies have reached unsustainable levels of debt that will be impossible to pay off. It’s worth noting that the US Federal Reserve, unlike the European Central Bank, can create currency without restriction. The US dollar has been the de facto world reserve currency for over half a century; the rest of the world’s currencies are essentially its derivatives. Whether global debt is in euros or Special Drawing Rights issued by the IMF, the Fed, and thus indirectly the US taxpayer, may become the lender of last resort.
There are four possible ways to reduce government debt:
One: Grow out of it through increased productivity and increased exports. This is highly unlikely, as Western economies, and even China, are poised for recession.
Two: Introduce strict austerity measures to reduce spending. This has the unwanted short-term effect of increasing unemployment and reducing GDP, resulting in even higher deficits.
Three: Default on the debt. This will make it difficult to raise future bond issues.
Four: Issue even more debt, and have the central bank in question simply create whatever amount of currency is needed.
Most politicians will select option four, since few have the political will to choose austerity, cutbacks and full economic accountability over simply creating more and more currency. Almost inevitably, they will choose to postpone the problem and leave it for someone else to deal with in the future.
Last August, the world watched as the US government struggled to come to an agreement on raising the debt ceiling, and was forced to compromise and delegate the final solution to a “super committee.” Its lack of political will earned the country an immediate downgrade from the S&P. Then, the hastily convened “super-committee” failed to reach a solution.
In Europe, matters were even worse. Greece did try to write off half its debt, but Germany and France reminded the Greeks that, if they did, no one would buy their bonds. The British and Irish implemented austerity measures that raised unemployment and reduced GDP, resulting in even higher deficits. The Italians watched their bond yields rise to 7%. While the tsunami and related nuclear incident deflected attention from Japan’s financial problems, it is a temporary lull, because Japan has the highest debt to GDP ratio of any of the developed countries.
In order to compensate for slowing growth, governments attempt to devalue their currencies and thus improve export competitiveness. This can lead to a global currency war that author and Wall Street/Washington insider James Rickards discusses in his bestselling new book, Currency Wars. This process is now well underway.
A recent Congressional Budget Office report predicted the US federal government’s publicly held debt would top an unsustainable 101% of GDP by 2021. Currently, the official US debt is an astronomical $15 trillion. Yet this is only the current debt. If the US government used the same accrual accounting principles that public companies must use, unfunded liabilities like Social Security and Medicare make the real debt more than $120 trillion. This represents over $1 million per taxpayer. Obviously, this amount is impossible to repay.
It’s interesting to note that in almost every recorded case of hyperinflation, the point where inflation exceeds 50% a month was caused by governments trying to compensate for slowing growth through full-throttle currency creation. This is exactly what we are seeing today.
These events gave me the confidence to title my new book $10,000 Gold. The book connects the many trends that will be directly and indirectly responsible for both the rising debt and the rising gold price over the next five years. It will be published this year.
To make matters worse, the irreversible macro trends I discussed in last year’s Empire Club speech are still very much in place today. These include the added costs of retiring baby boomers, systemic unemployment due to outsourcing of Western jobs through globalization and rising oil prices due to peak oil. These irreversible trends will increase unemployment, lower GDP, reduce tax revenues, increase deficits further and force governments to borrow even greater amounts.
Governments find themselves between the proverbial rock and a hard place, as even austerity measures tend to negatively impact GDP. As GDP falls and debt increases, credit downgrades are likely to follow, resulting in higher bond yields followed by even greater deficits. This becomes an unstoppable descending spiral.
Loss of purchasing power against gold continued unabated last year. The US dollar and the British pound have lost over 80% of their purchasing power against gold over the past decade, and the yen, the euro and the Canadian dollar have lost over 70%.
As we remind our clients this is not a typical bull market. Gold is not rising in value, currencies are losing purchasing power against gold, and therefore gold can rise as high as currencies can fall. Since currencies are falling because of increasing debt, gold can rise as high as government debt can grow.
The sovereign wealth funds as well as the more conservative central banks will have little choice but to re-allocating to gold in order to outpace currency depreciation. This is why some central banks, particularly those of China and India, accelerated their gold buying in 2011, for a third year in a row, to nearly 500 tonnes – about one-fifth of annual mine production.
While central banks have been net purchasers of gold since 2009, the real game changers will be the pension funds and insurance funds, which at this point hold only 0.3% of their vast assets in gold and mining shares. Continuing losses and growing pension deficits will make it mandatory for them to eventually include gold – the one asset class that is negatively correlated to financial assets such as stocks and bonds. When this happens, there will be a massive shift from over $200-trillion of global financial assets to the less than $2 trillion of privately held bullion.
In considering where gold will be at the end of 2012, I looked back to my first Empire Club talk of 2005. I said then that it didn’t really matter whether gold closed the year at $400 or $500 an ounce – the trends were in place to ensure it had much further to rise. Seven years later, we can say the same thing. It doesn’t matter whether gold ends 2012 at $2,000 or $2,500, because gold’s final destination will make today’s price seem insignificant.
These can be frightening times, but gold always offers hope. We may not be able to heal the global economic problems of government debt, but individuals can protect and even increase their wealth through gold ownership. Gold bullion ownership, not mining shares, ETFs or other paper proxy forms of ownership, is an insurance policy against accelerating currency debasement. We use the analogy that – In the case of fire, would you rather have a real fire extinguisher or a picture of one?
A number of people have approached me recently and said they wished they had listened five years ago. They feel they have missed the boat, that it’s too late to buy gold. For those who feel that way, let me close with a Chinese proverb I discovered last year:
The best time to plant a tree is 20 years ago.
The second best time is today.
We have hit the wall pure and simple. The wall being "debt saturation". This is why mathematically, central banks have now, and will, have NO other choice than to print, print and then continue to print. It really is simple, the "capital" does not exist to increase debt and the capital can no longer be generated from the system through work, production nor taxation to create this necessary capital. Though the Austrian economists have been laughed at and mocked year after year, this, is exactly where they predicted it would all end up. It has and 2012 is the year that the truth according to Mother Nature can no longer be hidden."
-Bill Holter, GATA
Debt saturation. We have all heard of Peak Oil. Have we now reached Peak Credit?
“A funny thing happens when you depend on expanding debt to fund your consumption: eventually the cost of servicing your rising debt reaches the limit of your income, and you can’t borrow any more, unless interest rates decline so you can leverage your income into higher debt. . . .Lowering interest rates extends the era of debt-based consumption, but it only puts off the inevitable crash when the ability to borrow runs out. Eventually the cost of servicing this lower-interest debt absorbs all your disposable income, and the borrowing skids to an abrupt stop.”
-Charles Hugh Smith
Europe has obviously reached Peak Credit, only a fool would believe that the US will not meet the same fate...it's only a matter of time.
And only a fool believes that a bubble in Precious Metals has burst. It's painfully obvious that the smashdown in the Precious Metals in late December was contrived to allow for the forthcoming fiscal shenanigans by the Fed and the Treasury to commence.
There is not, and has not been, a bubble in Gold. The price of Gold is still playing catch up with the greatest bubble of all time: The Debt Bubble.
Why Rising Debt Will Lead to $10,000 Gold
By Nick Barisheff
As presented at the 18th Annual Empire Club Outlook Luncheon Jan. 5, 2012, in Toronto, Canada
Good afternoon, it’s a pleasure to speak about gold at this Outlook for 2012.
Today, I’d like to focus on one important idea: the direct relationship between the rising price of gold and the rising levels of government debt that result in currency debasement. Since we measure investment performance in currencies a clear understanding of the outlook for currencies is critical.
In order to understand gold’s relationship, it’s important to understand that gold is money. It is not simply an industrial commodity like copper, or zinc. It trades on the currency desks of most major banks – not on their commodities desks. The turnover at the London Bullion Market Association is over $37 billion per day, and volume is estimated at five to seven times that amount – clearly, this is not jewelry demand.
The world’s central banks know gold is money: after decades of modest sales they have become net buyers since 2009. This trend strengthened in 2010 and gained momentum in 2011. They are buying gold as a counterbalance to their devaluing currencies.
As money, gold has provided the most stable form of wealth preservation for over three thousand years – it still does today. Gold has outperformed all other asset classes since 2002.
This chart clearly shows that US federal debt (purple) and the price of gold (gold) are now moving in lockstep. This correlation will likely continue for the foreseeable future. The red line represents the repeatedly violated government debt ceilings.
Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if the correlation remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and the gold price will therefore be much higher.
And it’s not just the US. Most Western economies have reached unsustainable levels of debt that will be impossible to pay off. It’s worth noting that the US Federal Reserve, unlike the European Central Bank, can create currency without restriction. The US dollar has been the de facto world reserve currency for over half a century; the rest of the world’s currencies are essentially its derivatives. Whether global debt is in euros or Special Drawing Rights issued by the IMF, the Fed, and thus indirectly the US taxpayer, may become the lender of last resort.
There are four possible ways to reduce government debt:
One: Grow out of it through increased productivity and increased exports. This is highly unlikely, as Western economies, and even China, are poised for recession.
Two: Introduce strict austerity measures to reduce spending. This has the unwanted short-term effect of increasing unemployment and reducing GDP, resulting in even higher deficits.
Three: Default on the debt. This will make it difficult to raise future bond issues.
Four: Issue even more debt, and have the central bank in question simply create whatever amount of currency is needed.
Most politicians will select option four, since few have the political will to choose austerity, cutbacks and full economic accountability over simply creating more and more currency. Almost inevitably, they will choose to postpone the problem and leave it for someone else to deal with in the future.
Last August, the world watched as the US government struggled to come to an agreement on raising the debt ceiling, and was forced to compromise and delegate the final solution to a “super committee.” Its lack of political will earned the country an immediate downgrade from the S&P. Then, the hastily convened “super-committee” failed to reach a solution.
In Europe, matters were even worse. Greece did try to write off half its debt, but Germany and France reminded the Greeks that, if they did, no one would buy their bonds. The British and Irish implemented austerity measures that raised unemployment and reduced GDP, resulting in even higher deficits. The Italians watched their bond yields rise to 7%. While the tsunami and related nuclear incident deflected attention from Japan’s financial problems, it is a temporary lull, because Japan has the highest debt to GDP ratio of any of the developed countries.
In order to compensate for slowing growth, governments attempt to devalue their currencies and thus improve export competitiveness. This can lead to a global currency war that author and Wall Street/Washington insider James Rickards discusses in his bestselling new book, Currency Wars. This process is now well underway.
A recent Congressional Budget Office report predicted the US federal government’s publicly held debt would top an unsustainable 101% of GDP by 2021. Currently, the official US debt is an astronomical $15 trillion. Yet this is only the current debt. If the US government used the same accrual accounting principles that public companies must use, unfunded liabilities like Social Security and Medicare make the real debt more than $120 trillion. This represents over $1 million per taxpayer. Obviously, this amount is impossible to repay.
It’s interesting to note that in almost every recorded case of hyperinflation, the point where inflation exceeds 50% a month was caused by governments trying to compensate for slowing growth through full-throttle currency creation. This is exactly what we are seeing today.
These events gave me the confidence to title my new book $10,000 Gold. The book connects the many trends that will be directly and indirectly responsible for both the rising debt and the rising gold price over the next five years. It will be published this year.
To make matters worse, the irreversible macro trends I discussed in last year’s Empire Club speech are still very much in place today. These include the added costs of retiring baby boomers, systemic unemployment due to outsourcing of Western jobs through globalization and rising oil prices due to peak oil. These irreversible trends will increase unemployment, lower GDP, reduce tax revenues, increase deficits further and force governments to borrow even greater amounts.
Governments find themselves between the proverbial rock and a hard place, as even austerity measures tend to negatively impact GDP. As GDP falls and debt increases, credit downgrades are likely to follow, resulting in higher bond yields followed by even greater deficits. This becomes an unstoppable descending spiral.
Loss of purchasing power against gold continued unabated last year. The US dollar and the British pound have lost over 80% of their purchasing power against gold over the past decade, and the yen, the euro and the Canadian dollar have lost over 70%.
As we remind our clients this is not a typical bull market. Gold is not rising in value, currencies are losing purchasing power against gold, and therefore gold can rise as high as currencies can fall. Since currencies are falling because of increasing debt, gold can rise as high as government debt can grow.
The sovereign wealth funds as well as the more conservative central banks will have little choice but to re-allocating to gold in order to outpace currency depreciation. This is why some central banks, particularly those of China and India, accelerated their gold buying in 2011, for a third year in a row, to nearly 500 tonnes – about one-fifth of annual mine production.
While central banks have been net purchasers of gold since 2009, the real game changers will be the pension funds and insurance funds, which at this point hold only 0.3% of their vast assets in gold and mining shares. Continuing losses and growing pension deficits will make it mandatory for them to eventually include gold – the one asset class that is negatively correlated to financial assets such as stocks and bonds. When this happens, there will be a massive shift from over $200-trillion of global financial assets to the less than $2 trillion of privately held bullion.
In considering where gold will be at the end of 2012, I looked back to my first Empire Club talk of 2005. I said then that it didn’t really matter whether gold closed the year at $400 or $500 an ounce – the trends were in place to ensure it had much further to rise. Seven years later, we can say the same thing. It doesn’t matter whether gold ends 2012 at $2,000 or $2,500, because gold’s final destination will make today’s price seem insignificant.
These can be frightening times, but gold always offers hope. We may not be able to heal the global economic problems of government debt, but individuals can protect and even increase their wealth through gold ownership. Gold bullion ownership, not mining shares, ETFs or other paper proxy forms of ownership, is an insurance policy against accelerating currency debasement. We use the analogy that – In the case of fire, would you rather have a real fire extinguisher or a picture of one?
A number of people have approached me recently and said they wished they had listened five years ago. They feel they have missed the boat, that it’s too late to buy gold. For those who feel that way, let me close with a Chinese proverb I discovered last year:
The best time to plant a tree is 20 years ago.
The second best time is today.
Infograhic: All the world’s gold
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