What can I say that has not already been said? I can only say one again, "What a joke." Outside of that, NO COMMENT.
Seriously? Consider the frozen credit markets for a moment relative to the commodity markets. No credit = no money. No money = no demand. No demand = No rise in prices. Sadly, it appears as simple as that for the futures markets and the CRIMEX.
“Here’s the deal at the moment the way I see it…
*Demand for physical gold is astonishing and yet the price goes nowhere. The dichotomy between the "real" gold market and the Comex is widening.
*The US Government is petrified of gold rising to any degree because of its importance, in that a sharply rising price will shed light on "Dracula" … or the hideous inflationary forces set in motion by Comrade Paulson’s bailout.
*The gold price suppression scheme is SO childish, yet most on Planet Wall Street fall for it, or eat it up because it is in their interest to do so … See No Evil, Hear No Evil, Speak No Evil
*They fall for it because they refuse "to go there" when it comes to understanding just how much the US has meddled with the gold price and in other financial markets.
*Gold, a barbaric relic? Hardly … to the contrary it is becoming more relevant than ever.
*The Gold Cartel has rendered the most widely watched barometer of US financial market health, gold, dysfunctional. The mainstream gold pundits come up with one silly notion after another why gold is not flying.
*The rigging of the price of gold was one of the main contributors to the financial market disasters of the day and GATA warned the world in our WSJ ad on Jan 31, 2008.
*The Gold Cartel is all over the price of gold because a few key ones are SHORT. The US Government is implementing another bailout of sorts to protect them and their own Gold Cartel position.
*I would much rather be making money with my gold, silver and sizeable share positions; however, each passing day The Gold Cartel proves how right GATA has been for a decade.
*For the most part the US financial market press refuses to give GATA the time of day. I guess they realize once we shine the light on Dracula to the general public, he is a goner. Anyone who can add 2 plus 2 can see what is occurring at the moment.
*It is only a matter of time before THE LIGHT is directed on The Gold Cartel and they will recoil.
*Several months ago we received reports that bullion dealers in the MidEast were making it much more difficult for buyers over there. Unfortunately similar reports are coming my way on a daily basis from all over the world that this trend is picking up speed. It appears governments and bullion banks are not banning gold, just making it very difficult to purchase.”- From yesterday’s Midas report by Bill Murphy of LemetropoleCafe.com
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It has been interesting reading the comments about this market in the financial press of late. The majority of gold pundits for the most part seems to be reading the same talking points which as usual are utterly and completely wrong. To hear them say it, gold as a safe haven is finished, over, kaput, pushing up daisies, swimming with the fishes, surfing its last wave, worm food, ad infinitum, ad nauseaum.
What these mindless robots seem unable to grasp is that the Comex is NOT the gold market. It is a paper market which has been the recipient of large speculative buys by commodity index funds. These funds take large positions in an entire gamut of commodities based on the weightings of those particular commodities in the various commodity indices that they use as a benchmark. It some cases it might be the Goldman Sachs commodity index. In others it is the Reuters/Jefferies CRB index; it still others it is the Dow Jones Commodity Index. That means they buy gold, silver, crude oil, corn, wheat, nat gas, sugar... etc... in the same percentage terms as they are weighted in those indices. For example, if the weighting in one of these indices for gold happens to be 5%, then for every million dollars of client money invested, they are required to buy $50,000 worth of gold futures contracts at the Comex. When these funds get redemption requests from clients, who now want out of the commodity sector, they are forced to sell FUTURES across the board to generate the cash needed to send back to their clients. That is why, for the most part, the entire commodity complex is sinking whether it is corn or soybeans or wheat or platinum, etc. If $20 million of cash is required to meet client redemption requests, then $20 million of commodity futures must be sold REGARDLESS OF THE FUNDAMENTALS IN THAT PARTICULAR MARKET. In other words, it is FORCED liquidation on account of redemption requests. That has NOTHING TO DO with the real physical gold market where demand remains at unprecedented levels, levels so high that it is producing serious shortages of bullion for would-be buyers. This is what is producing the increasing dichotomy between the Comex and the real gold market. I would go as far as saying that we are for all practical purposes seeing a BLACK MARKET in gold beginning to develop.
-Dan Norcini @ http://www.jsmineset.com/home.asp
_______________________________________
What we need now is a three-prong approach. Retail gold and silver investors, who we are very proud of for their steadfast commitment to gold and silver in the face of outrageous and brutal beatings, must continue to strip the dealers of all their gold and silver. Then, those who are well-heeled, such as non-Illuminist hedge funds and institutional investors, as well as non-Illuminist wealthy individual investors, must start paying cash for COMEX gold and silver bars by executing contracts for purposes of taking physical delivery, as opposed to speculating, thus emptying out the cupboards of the commodity exchange. Producers should, individually or in groups, start the process of vertical integration, buying out smelters and dealers so they can sell their production at far more profitable retail levels, thus siphoning supply away from the wholesale gold and silver markets and breaking the fraudulent commodity exchanges run by big commercial banking interests that are forcing them into ruin. If we all work together, we can break the back of the cartel and achieve the profits, which our investment wisdom and steadfast commitment to the cause of precious metals deserves. We would like to see some of the money being pumped into the gold and silver ETF's going into the purchase of gold and silver resource stocks, as they desperately need your help to support stock prices. Otherwise, they will be forced to dilute themselves into oblivion by selling an inordinately large number of shares to finance their operations. With oil down now, and the Illuminists forcing the credit markets open again, and hyperinflation on its way at ever-increasing levels, there could be a real bonanza waiting for us in the resource sector.
-Bob Chapman, The International Forecaster http://news.goldseek.com/InternationalForecaster/1224099655.php
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GOLD & SILVER AWAIT THEIR EXALTED STATUS
We are witnessing the disintegration cited in my recent forecasts. It is a systemic failure, marred by lost confidence and trust in the entire financial system. Expect foreigners soon to pull the rug from under the American syndicates in control. Several key meetings have already concluded, totally unreported in the US press, which occurred in Berlin Germany. Consider it the Anti-G7 Meeting. Implications are profound, and involved the Shanghai Coop Org tangentially, since its member nations possess so much new commodity supply. Consider it the Anti-NATO group. An important and powerful alternative financial system is soon to spring into action, including high-level bilateral barter. Those who expect the current US Regime to continue their financial terror are in for a big surprise.
Expect defaults in the COMEX with gold & silver, whose prices for paper vastly diverge from physical, to the anger of foreigners watching. They hold massive precious metals assets. Disparities now contribute to powerful forces, sure to break the current system. Grand systemic changes come. THE RESULT WILL BE A BREATH-TAKING DISCONTINUITY EVENT.
Ironically, the more inner anguish felt on the falling gold & silver prices, the closer we are to a new financial framework, with the USDollar relegated to a Third World role. A REPLACEMENT GLOBAL RESERVE CURRENCY HAS ALREADY BEEN DECIDED UPON. Its launch awaits the proper moment. The Americans are last to know, as usual. The US leaders are under the illusion of being in control!
-Jim Willie CB
http://news.goldseek.com/GoldenJackass/1224227280.php
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As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism.” However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.
-Dr. Ron Paul, U.S. Congressman
http://news.goldseek.com/RonPaul/1224161701.php
Thursday, October 16, 2008
Tuesday, October 14, 2008
Chopper Ben Cleared For Take-off
Why would anybody continue to buy the Dollar? Any day now you'll be able to stand outside of a bank with a pillow case and catch them for free as they fall from the helicopter overhead. Unlimited Dollars available at negative interest rates, damn...that's better than free money. Excuse me while I pause here to make a shopping list...
.......
.......
...hmmm, the only thing I have on this list is Gold and Silver. I hope I can find some.
Bull Market Reset
Right now, the dollar is looking strong because of the massive repatriation of U.S. dollars now underway as a result of global U.S. denominated asset de-leveraging. So it looks like the dollar is strengthening. This is however a temporary illusion, and the fact is that this is a perfect opportunity to unload U.S. dollars and everything denominated in same. When the export of dollars to the U.S. eases, the greenback will plunge.
As all of the world’s currencies weaken in tandem with the U.S., since they are all tied to some degree to that ailing foreign reserve standard, gold will slowly at first, and then suddenly, surge into new record territory. These are the events that have irrevocably set the stage for $2,000 gold, and though many skeptics may marvel at the audaciousness of this sentiment still being echoed after all these years, it is now imminent and definite.
So the first great opportunity presented by this crisis, besides the last minute premium available for USD, is in physical gold. Not only is this the best strategy for capital preservation versus holding cash, it’s the next great opportunity to buy low and sell high.
http://news.goldseek.com/GoldSeek/1224001438.php
http://news.goldseek.com/GoldSeek/1224001438.php
Equity rally to pop the bond bubble, buy precious metals
The US bond market was closed yesterday for Columbus Day, while US stocks enjoyed their biggest rally since the stock market crash in 1929. That ought to be enough to caution anybody who thinks the problems are over in capital markets - after the 1929 rally markets lurched lower for several years.
However, the record equity rally is not going to be good news for the bond market as it returns from holiday. ...the US bond market has formed a double top in its charts and is dangerously overbought. It is another bubble set to crash.
With equity prices up an equally massive sell off in the bond market is therefore about to happen, precipitating another crisis. How will governments fund their massive bank bailouts if the bond market ceases to function?
For when investors suffer huge losses on bonds today they are hardly likely to want to buy new government debt, unless it carries a much higher coupon payment. That means interest rates will have to go up at a time when the world is facing a recession, probably its worst in a generation or two. That will make the recession deeper and longer.
I am afraid that will be a double-whammy for investors and yesterday’s rally in equities will prove a sucker’s rally as bond holders will sell at depressed prices and then have to cover their margin calls by selling equities again. This is a downward spiral.
With bonds no longer a safe haven then only gold and silver will be left - expect a rally in precious metals of unbelievable proportions... http://news.goldseek.com/GoldSeek/1223998200.php
Stocks turn lower as profit-taking sets in
NEW YORK (AP) — Wall Street turned lower Tuesday as investors were pleased with the government's plans to spend $250 billion to buy stock in private banks but still collected profits from the previous day's massive advance.
Profit-taking started creeping into the market after the Dow surged more than 400 points at the opening, and it was expected that some investors would take some money out of the market after such a massive gain. Moreover, it was anticipated that Wall Street would continue to see jittery trading in the weeks and perhaps months ahead because of worries about the weak economy.
"We don't know if the bottom is in," said Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, referring to the market's advance Monday after huge losses last week. "We certainly expect heightened volatility for a fair amount of time while we sort out just exactly what's going on."
"The tone is cautious," Anderson said. "I don't think anybody is pile driving into the market and doubling up."
The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses.
"This begins to penetrate the core of the problem," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.
But, he said, "there will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession."
Ah, but... Always beware of the "but". This isn't profit taking. This is the smart money hitting the road with the dumb money's cash. Another "bailout", another euphoric rush, another crash. Sounds like a drug addiction to me. Except this is an addiction to debt. Seriously, consider the difficulty in weening a loved one off of a drug or alcohol addiction. Is giving them more of their vice going to break their habit? NO! Of course not. Is throwing more cheap money at, and creating more debt going to fix a debt addiction? LOOOOOOOOOOL! I rest my case...
CFTC 'looking into' gold market as well as silver
Dear Friend of GATA and Gold:
Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission, who has been amazingly conscientious and cordial in correspondence with many GATA supporters, told two of them by e-mail today that the commission is not only investigating the silver market, which was announced on September 25 (http://www.gata.org/node/6672), but is "alsolooking at other markets, including the gold market, as part of our ongoing efforts."
Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission, who has been amazingly conscientious and cordial in correspondence with many GATA supporters, told two of them by e-mail today that the commission is not only investigating the silver market, which was announced on September 25 (http://www.gata.org/node/6672), but is "alsolooking at other markets, including the gold market, as part of our ongoing efforts."
Since Chilton is associated with producing interests, farm interests (http://www.cftc.gov/aboutthecftc/commissioners/bchilton.html), he may be expected to be more skeptical of financial/manipulative interests than other CFTC commissioners. And since he is a member of the commission's Democratic minority, he may have less influence than commissioners allied with financial interests. But our side plainly has gotten his attention and that of his agency, and everyone who has agitated with the CFTC should feel good about that.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Monday, October 13, 2008
Rearranging The Deck Chairs On The Titantic
I began my morning like I do every morning. I opened a refreshing can of Vanilla Coke and settled into the comfy chair behind my home office desk. As I perused the morning headlines, one quickly captured my attention: European, Asian markets bounce back. It was 8:10 AM est.
A rally late Friday on Wall Street, overnight gains in Asia and coordinated attempts by European and U.S. authorities to prop up the banking system brought a measure of relief to markets after investor panic sent world equities markets spiraling downward last week.
"Putting an end to the run on the financial system as well as getting the interbank lending market working again are priorities but there is much healing to be done," said Divyang Shah, an analyst at Commonwealth Bank of Australia.
"The initial stock market reaction has been positive but the key will be on whether the sentiment boost can be sustained," Shah added.
The latest coordinated move emerged earlier when five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.
http://ap.google.com/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD93PI1FG0
After recovering from the scintilating sensation of having Vanilla Coke go up my nose, I reread the following over:
"...five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions."
Unlimited U.S. Dollar funds to financial institutions? Are they freaking nuts? No, just desperate. I quickly deduced the implications for Gold and Silver and brought up my charts in anticipation of a raging Gold Bull on my screen. Nope. Gold was nearly $30 off it's overnight high in Asia. "What a freaking joke," I bellowed.
"When will this bull shit ever end? How can Gold be down? The Dollar is down, the Yen is up, Oil is up and Gold is down?"
Silver was even up 4% and Gold was down, and the world's monetary authorities had just declared the death of the dollar. Go figure, nothing new really. Gold continued to go down, the low today actually below Friday's. What a load of crap. And the Dollar reversed from down to up as the day progressed, and the DOW moved higher in one day than it had ever done in history.
I kept asking my self, "Are people really this stupid?"
"Do they really think that this is 'the answer'?"
"Do people really believe that all the worlds financial problems can be fixed behind closed doors during a weekend in Washington?"
Not a freaking chance! Cheap money, and lots of it created this crisis. More of the same in never gonna fix it, it can only make it worse. The sheep are being lead to slaughter. I have no pity for the lot of them.
From the Bear Stearns Bailout up to and thru this mornings flood of US Dollars across the globe and at every stop in between, there has been instant euphoria in the markets quickly followed by another downdraft. Will it be any different this time? I doubt it. This rally too shall pass. The fuse on the Gold rocket has now unabashedly been lit. We sit back and wait...
Dow sees biggest runup ever
NEW YORK (CNNMoney.com) -- Stocks rallied Monday afternoon, with the Dow up over 800 points during the session, as investors bet that the worst of the credit crisis is over, following a series of global initiatives announced over the last few days.
Stocks were buoyant Monday as investors welcomed a global effort to unfreeze the credit market and get money flowing through the system again. Although stocks reacted positively, credit markets barely budged.
http://money.cnn.com/2008/10/13/markets/markets_newyork/?postversion=2008101315
AND THERE'S THE RUB. The credit markets barely moved.
The financial crisis will soon abate, but the real crisis will soon begin
"Mises, then, pinpoints the blame for the cycle on inflationary bank credit expansion propelled by the intervention of government and its central bank. What does Mises say should be done, say by government, once the depression arrives? What is the governmental role in the cure of depression? In the first place, government must cease inflating as soon as possible. It is true that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the government waits for this, the worse the necessary readjustments will have to be. The sooner the depression-readjustment is gotten over with, the better. This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom.
Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should, from the point of view of economic health and ending the depression as quickly as possible, maintain a strict hands off, "laissez-faire" policy. Anything it does will delay and obstruct the adjustment process of the market; the less it does, the more rapidly will the market adjustment process do its work, and sound economic recovery ensue."
Clearly, in response to the current financial crisis the US government -- and most other governments, for that matter -- is doing exactly what Mises and other great economists of the "Austrian School" claim should NOT be done. Specifically, the US government is trying to prop up unsound business situations; it is bailing out and lending money to business firms in trouble; it is attempting to prop up prices; it is trying to inflate again in order to boost the economy; and it is rapidly increasing its own expenditures.
http://news.goldseek.com/SpeculativeInvestor/1223913355.php
The End is Nigh
The big question is, how are they going to pay for it? If they pay for it by issuing debt, the debt of the USA (already $9 trillion and rising rapidly) will soar. Already they have lifted the debt ceiling to around $11.5 trillion to accommodate the $700 billion bailout, the bailout of Freddie and Fannie, AIG and a host of others. The other way is to print money as it would be the Federal Reserve who would take the equity positions by injecting funds directly into the banks. Remember the Federal Reserve is essentially a private corporation and they basically can do whatever they want. In Canada the Bank of Canada is agent of the Government of Canada.
Either way is potentially inflationary or hyperinflationary impact of massive Fed injections should not be underestimated. Whether you effectively print money or borrow it via debt (we put less chance that this will happen because the huge dependence on foreign lenders who will become increasingly reluctant to finance the USA’s financial mess) both should result in a falling US dollar and rising gold prices. The Federal Reserve has already turned its balance sheet into a junk bond portfolio and will see it deteriorate further.
http://news.goldseek.com/UnionSecurities/1223907753.php
Gold's The Real Treasure... So Why Did Investors Dump it For Treasuries?
...all of this is HORRIBLY dollar negative
However, investors, mindlessly seeking “safety” above all else, are selling gold and plunging into Treasuries. It’s mind-blowing. They’re selling an actual storehouse of value—one that’s been used for millennia—to buy Treasuries when:
They’re yielding less than the current rate of inflation
The US Government just took on a potential $5+ trillion in additional liabilities.
The US Central Bank—the Federal Reserve—is virtually tapped out.
The US budget deficit is expected to hit $400 billion this year and $500 billion the next.
Which would you rather own… a government guarantee from a government that is not only virtually bankrupt but at an all-time low in voter confidence and whose central bank has announced it will print money ad infinitum… or a finite resource that has been used by mankind for millennia as a currency and storehouse of wealth?
To me the answer is clear. And it’s clear to a lot of "real" gold investors too. Paper gold may be plummeting, but demand for real bullion is red hot. Several dealers I’ve spoken to are having difficulty meeting investor demand for bullion. Heck the US Mint even stopped selling Golden Eagles because it couldn’t mint them fast enough.
No, gold is the real treasure. And it’s going to go a lot higher in the future. I cannot predict when this will reverse. But at some point gold’s quality as an inflationary hedge will override its association with commodities. When it does, gold will erupt upwards past $1,000 and on its way to $2,000. The US Treasury and Federal Reserve can inflate the dollar all they like. But they can’t produce gold.
http://www.kitco.com/ind/Summers/oct092008.html
Bond Market Collapse is Imminent
Imagine a country such as Venezuela announced that it was bailing out an investment bank, then just days later said it was nationalizing its mortgage industry, and then just days later that it was bailing out its biggest insurance company, and then just days later its government pledged 700B$ to inject into its failing banks, and then just days later its stock market fell 20%. Would you feel comfortable having your money invested in such a country, in its stock market, in its bond market or in its currency?
I hope you answered “No” or “Hell, No!” to the above question! So why should you feel any different about the situation if the country is called “America”?
Imagine that instead of living through this nightmare yourself you were watching this complete financial drama unfolding in Venezuela. Who in his right mind would predict that Venezuela would experience massive deflation as a result of creating massive amounts of money and credit out of thin air? So why is it different for America? The laws of economics are not country specific.
Because the Cartel hit gold and silver in the middle of the night on Thursday October 9 many started invoking deflation theories. This is nonsensical and the bond market is about to confirm it!
We have seen the mega-shorts on TOCOM reduce their shorts in gold and silver to next to zero. They know what is going to happen to the prices of precious metals!
Many investors are starting to think that after this stock market rout and with a G7 package things will begin to improve. That is not the way things work! 20 years of excesses with even more monetary excesses about to be heaped upon us as a “rescue package” do not get unwound in 5 days. This is just the beginning. The bond market is the biggest market in the world (if we ignore the ridiculous, unregulated casino peddling OTC derivatives!). When the bond market heads south the money that has to find a safe haven somewhere else is in the trillions. Just a small percentage of this capital will blow the precious metals to unimaginable levels.
The authorities keep saying that they will “use all tools available to them”. They only have one…it’s an electronic version of the printing press. They will spin it in many different ways using jargon like “increased liquidity” and “injection of capital” and “buying equity stakes” and “buying toxic debt” but it all translates to “create more money out of thin air”. Gold and silver and the mining equities will be the place to be and soon thereafter commodities in general.
Clarity will come when the metals reach new highs and at that point a child of six will be able to say where to invest. Of course, that is the greatest incentive for the Gold cartel to prevent new highs being achieved! But new highs are already being achieved in the retail market and on e-bay. The silly manipulation on the COMEX will soon end. You can help it end if you buy a contract and stand for delivery...
http://news.goldseek.com/GoldSeek/1223911533.php
Gold Prices Getting Fishier And Fishier
There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.
The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.
The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year?
http://www.istockanalyst.com/article/viewarticle+articleid_2698527.html
Here's what I think. Global governements know they would have a serious struggle on their hands if they tried to take our Gold away from us. So, instead they try to make it VERY hard for us to get any. Stop and think about that. It's not as crazy as you think. Buy what you can, when you can, and take delivery. Lift-off in Gold is fast approaching. The fuse has been lit. Thanks Ben, Thanks Henry...burn in Hell.
A rally late Friday on Wall Street, overnight gains in Asia and coordinated attempts by European and U.S. authorities to prop up the banking system brought a measure of relief to markets after investor panic sent world equities markets spiraling downward last week.
"Putting an end to the run on the financial system as well as getting the interbank lending market working again are priorities but there is much healing to be done," said Divyang Shah, an analyst at Commonwealth Bank of Australia.
"The initial stock market reaction has been positive but the key will be on whether the sentiment boost can be sustained," Shah added.
The latest coordinated move emerged earlier when five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.
http://ap.google.com/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD93PI1FG0
After recovering from the scintilating sensation of having Vanilla Coke go up my nose, I reread the following over:
"...five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions."
Unlimited U.S. Dollar funds to financial institutions? Are they freaking nuts? No, just desperate. I quickly deduced the implications for Gold and Silver and brought up my charts in anticipation of a raging Gold Bull on my screen. Nope. Gold was nearly $30 off it's overnight high in Asia. "What a freaking joke," I bellowed.
"When will this bull shit ever end? How can Gold be down? The Dollar is down, the Yen is up, Oil is up and Gold is down?"
Silver was even up 4% and Gold was down, and the world's monetary authorities had just declared the death of the dollar. Go figure, nothing new really. Gold continued to go down, the low today actually below Friday's. What a load of crap. And the Dollar reversed from down to up as the day progressed, and the DOW moved higher in one day than it had ever done in history.
I kept asking my self, "Are people really this stupid?"
"Do they really think that this is 'the answer'?"
"Do people really believe that all the worlds financial problems can be fixed behind closed doors during a weekend in Washington?"
Not a freaking chance! Cheap money, and lots of it created this crisis. More of the same in never gonna fix it, it can only make it worse. The sheep are being lead to slaughter. I have no pity for the lot of them.
From the Bear Stearns Bailout up to and thru this mornings flood of US Dollars across the globe and at every stop in between, there has been instant euphoria in the markets quickly followed by another downdraft. Will it be any different this time? I doubt it. This rally too shall pass. The fuse on the Gold rocket has now unabashedly been lit. We sit back and wait...
Dow sees biggest runup ever
NEW YORK (CNNMoney.com) -- Stocks rallied Monday afternoon, with the Dow up over 800 points during the session, as investors bet that the worst of the credit crisis is over, following a series of global initiatives announced over the last few days.
Stocks were buoyant Monday as investors welcomed a global effort to unfreeze the credit market and get money flowing through the system again. Although stocks reacted positively, credit markets barely budged.
http://money.cnn.com/2008/10/13/markets/markets_newyork/?postversion=2008101315
AND THERE'S THE RUB. The credit markets barely moved.
The financial crisis will soon abate, but the real crisis will soon begin
"Mises, then, pinpoints the blame for the cycle on inflationary bank credit expansion propelled by the intervention of government and its central bank. What does Mises say should be done, say by government, once the depression arrives? What is the governmental role in the cure of depression? In the first place, government must cease inflating as soon as possible. It is true that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the government waits for this, the worse the necessary readjustments will have to be. The sooner the depression-readjustment is gotten over with, the better. This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom.
Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should, from the point of view of economic health and ending the depression as quickly as possible, maintain a strict hands off, "laissez-faire" policy. Anything it does will delay and obstruct the adjustment process of the market; the less it does, the more rapidly will the market adjustment process do its work, and sound economic recovery ensue."
Clearly, in response to the current financial crisis the US government -- and most other governments, for that matter -- is doing exactly what Mises and other great economists of the "Austrian School" claim should NOT be done. Specifically, the US government is trying to prop up unsound business situations; it is bailing out and lending money to business firms in trouble; it is attempting to prop up prices; it is trying to inflate again in order to boost the economy; and it is rapidly increasing its own expenditures.
http://news.goldseek.com/SpeculativeInvestor/1223913355.php
The End is Nigh
The big question is, how are they going to pay for it? If they pay for it by issuing debt, the debt of the USA (already $9 trillion and rising rapidly) will soar. Already they have lifted the debt ceiling to around $11.5 trillion to accommodate the $700 billion bailout, the bailout of Freddie and Fannie, AIG and a host of others. The other way is to print money as it would be the Federal Reserve who would take the equity positions by injecting funds directly into the banks. Remember the Federal Reserve is essentially a private corporation and they basically can do whatever they want. In Canada the Bank of Canada is agent of the Government of Canada.
Either way is potentially inflationary or hyperinflationary impact of massive Fed injections should not be underestimated. Whether you effectively print money or borrow it via debt (we put less chance that this will happen because the huge dependence on foreign lenders who will become increasingly reluctant to finance the USA’s financial mess) both should result in a falling US dollar and rising gold prices. The Federal Reserve has already turned its balance sheet into a junk bond portfolio and will see it deteriorate further.
http://news.goldseek.com/UnionSecurities/1223907753.php
Gold's The Real Treasure... So Why Did Investors Dump it For Treasuries?
...all of this is HORRIBLY dollar negative
However, investors, mindlessly seeking “safety” above all else, are selling gold and plunging into Treasuries. It’s mind-blowing. They’re selling an actual storehouse of value—one that’s been used for millennia—to buy Treasuries when:
They’re yielding less than the current rate of inflation
The US Government just took on a potential $5+ trillion in additional liabilities.
The US Central Bank—the Federal Reserve—is virtually tapped out.
The US budget deficit is expected to hit $400 billion this year and $500 billion the next.
Which would you rather own… a government guarantee from a government that is not only virtually bankrupt but at an all-time low in voter confidence and whose central bank has announced it will print money ad infinitum… or a finite resource that has been used by mankind for millennia as a currency and storehouse of wealth?
To me the answer is clear. And it’s clear to a lot of "real" gold investors too. Paper gold may be plummeting, but demand for real bullion is red hot. Several dealers I’ve spoken to are having difficulty meeting investor demand for bullion. Heck the US Mint even stopped selling Golden Eagles because it couldn’t mint them fast enough.
No, gold is the real treasure. And it’s going to go a lot higher in the future. I cannot predict when this will reverse. But at some point gold’s quality as an inflationary hedge will override its association with commodities. When it does, gold will erupt upwards past $1,000 and on its way to $2,000. The US Treasury and Federal Reserve can inflate the dollar all they like. But they can’t produce gold.
http://www.kitco.com/ind/Summers/oct092008.html
Bond Market Collapse is Imminent
Imagine a country such as Venezuela announced that it was bailing out an investment bank, then just days later said it was nationalizing its mortgage industry, and then just days later that it was bailing out its biggest insurance company, and then just days later its government pledged 700B$ to inject into its failing banks, and then just days later its stock market fell 20%. Would you feel comfortable having your money invested in such a country, in its stock market, in its bond market or in its currency?
I hope you answered “No” or “Hell, No!” to the above question! So why should you feel any different about the situation if the country is called “America”?
Imagine that instead of living through this nightmare yourself you were watching this complete financial drama unfolding in Venezuela. Who in his right mind would predict that Venezuela would experience massive deflation as a result of creating massive amounts of money and credit out of thin air? So why is it different for America? The laws of economics are not country specific.
Because the Cartel hit gold and silver in the middle of the night on Thursday October 9 many started invoking deflation theories. This is nonsensical and the bond market is about to confirm it!
We have seen the mega-shorts on TOCOM reduce their shorts in gold and silver to next to zero. They know what is going to happen to the prices of precious metals!
Many investors are starting to think that after this stock market rout and with a G7 package things will begin to improve. That is not the way things work! 20 years of excesses with even more monetary excesses about to be heaped upon us as a “rescue package” do not get unwound in 5 days. This is just the beginning. The bond market is the biggest market in the world (if we ignore the ridiculous, unregulated casino peddling OTC derivatives!). When the bond market heads south the money that has to find a safe haven somewhere else is in the trillions. Just a small percentage of this capital will blow the precious metals to unimaginable levels.
The authorities keep saying that they will “use all tools available to them”. They only have one…it’s an electronic version of the printing press. They will spin it in many different ways using jargon like “increased liquidity” and “injection of capital” and “buying equity stakes” and “buying toxic debt” but it all translates to “create more money out of thin air”. Gold and silver and the mining equities will be the place to be and soon thereafter commodities in general.
Clarity will come when the metals reach new highs and at that point a child of six will be able to say where to invest. Of course, that is the greatest incentive for the Gold cartel to prevent new highs being achieved! But new highs are already being achieved in the retail market and on e-bay. The silly manipulation on the COMEX will soon end. You can help it end if you buy a contract and stand for delivery...
http://news.goldseek.com/GoldSeek/1223911533.php
Gold Prices Getting Fishier And Fishier
There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.
The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.
The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year?
http://www.istockanalyst.com/article/viewarticle+articleid_2698527.html
Here's what I think. Global governements know they would have a serious struggle on their hands if they tried to take our Gold away from us. So, instead they try to make it VERY hard for us to get any. Stop and think about that. It's not as crazy as you think. Buy what you can, when you can, and take delivery. Lift-off in Gold is fast approaching. The fuse has been lit. Thanks Ben, Thanks Henry...burn in Hell.
Thursday, October 9, 2008
Dark Side Of The Moon
Surprised to see Gold and Silver down this morning? You shouldn't be. Both have floundered so much during this Mother of All Financial Crisis' that nothing should be surprising any more. Gold this week has now hit ALL-TIME highs in the Euro, British Pound, Canadian Loonie, and Australian Dollar. Why not in US Dollars? Damn good question. Perhaps it is because of the recent "strength" in the US Dollar and the destructive weakness in the currencies above. I would suggest then that Gold in US Dollars is weak this morning on further strengthening in these currencies and profit taking in Gold in those currencies as well. The Yen is off it's recent highs this morning, and that is probably pressuring US$ Gold as well. If the Yen can be kept below 101.50, Gold in US$ should remain supported here, and continue to move higher, much higher, shortly. It has been a strange week indeed with Gold moving higher with a rising Dollar, and now falling with a falling Dollar. Focus on 920 Gold now. That is the launch pad. Do not be surprised to see a big move in Gold following the London close this morning at 11AM est.
7 Trillion Reasons to Own Gold
The first $700-billion bailout is already perceived as a failure. At some point, Uncle Sam will have to mount ANOTHER bailout to recapitalize the banks or risk the entire system falling apart.
That second (or third … or fourth … ) bailout is probably going to be very expensive. The question is, how much.
Part of last week’s bailout package included a provision to raise U.S. Federal Insurance Deposit Corporation insurance to $250,000 per individual per bank.
This means the FDIC is now insuring about $5.2 trillion in deposits … but it only has $45 billion in its insurance fund.
And while $250,000 may seem like a lot, nearly a third of small-business accounts still won’t be entirely covered!
...the U.S. may follow the lead of central banks in Ireland and Greece and guarantee ALL deposits in ALL banks while it sorts out the good banks from the bad banks and recapitalizes the good ones.
That is enormously expensive and potentially very inflationary.
Remember, there is about $7 TRILLION deposited in U.S. banks.
Even if the U.S. doesn’t have to pay up on all or even most of that money, providing blanket coverage would send the potential debt of the U.S. soaring.
That, along with recapitalizing the banks deemed worthy enough to save, could send U.S. printing presses into overdrive.
And a lot more dollars in the system should drive up the price of gold.
Bullion lending by central banks all but dries up
Central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market, in a move that on Tuesday sent the cost of borrowing bullion for one-month to more than twenty times its usual level.
The one-month gold lease rate rocketed to 2.649 per cent, its highest level since May 2001 and significantly above its five-year average of 0.12 per cent, according to data from the London Bullion Market Association.
Gold lease rates for two, three and six months and for a year also jumped to levels not seen in the last seven years.
Traders said the jump reflects the fact that central banks – mostly European – have almost completely stopped lending gold in the last few days and are not rolling forward old leases after maturity. This is because of fears that some borrowers might not repay their bullion loans if they are engulfed by the financial crisis.
This is huge news! Particularly the rise in Gold lease rates. It should be noted that when Gold was taken down following the Bear Stearn's bailout, Gold lease rates briefly went negative. The banks were literally giving Gold away to the bullion banks be sold in an effort to suppress the price of Gold and raise much needed cash. That nonsense appears to have finally come to an end. The banks must now be terrified that the Gold they leased out over the past seven years may NOT be returned as there appears to be little to buy to replace that which was borrowed and sold by the bullion banks. Could the banks begin to demand delivery from the CRIMEX forcing a default? One can only imagine the heights to which Gold could rise should that scenario unfold.
Bataan Death March Tickertape
By Jim Willie CB
GOLD DEFAULT DEAD AHEAD: The COMEX and London Metal Exchange are living on borrowed time in their corrupt gold game. They sell paper gold, and precious little actual gold metal. See a refreshing straightforward interview aired on CNBC of all places (click here). It is by Jurg Kiener, CEO of Swiss Asia Capital. He points out the dual market for gold, one paper and one metal. He expects soon the US ‘gambling price’ gold market in COMEX and LME to default. By that he means a return suddenly to physical price determination. He is quoted to say THE GOLD PRICE WOULD DOUBLE VERY QUICKLY, LIKE IN DAYS AFTER THE EXPECTED METAL DEFAULT. One should expect the interview to be lifted and removed from their website within days, after they realize the explosive nature of his words.
USDOLLAR RALLY AS SIGNAL OF DEATH: Few seem to comprehend that the USDollar is rallying recently as a result of the imminent death of itself and the USTreasury Bond. A vast liquidation is underway of speculative trades, and of US bank assets. For years many analysts properly understood that the USEconomy is debt dependent. Now credit is drying up, and being denied even to good credit risk customers. The USEconomy is falling off the cliff, and evidence mounts. See car sales in September, down almost 30% by Toyota, down 34% by Ford. Layoffs by the tens of thousands are next, right down the vertically integrated car industry layers. As the USEconomy and US bank system continues in death spiral, the USDollar rallies, during unspeakable ruin to US fundamentals. Recall that the tide went out along the shores in Indonesia and Thailand right before the great tsunami hit almost three years ago. Ditto here! The banking crisis and extreme distress that remains stubbornly unfixable in the Untied States urgently motivates foreigners to quickly assemble, implement, and announce a replacement world currency basket. Watch for a euro currency split soon, where Nordic version will compete viciously against the dead USDollar.
HUGE RISK OF LOSING WORLD RESERVE CURRENCY: As preface, the world banking structure rests atop a world currency foundation denominated in USDollars, with USTreasury Bonds and USAgency Mortgage Bonds serving the primary role as financial instruments. These toxic building blocks are all really bad lego blocks. Foreigners must respond very soon, to replace the US$ as global reserve currency, or else risk a similar implosion to their banking systems. Many USAgency Bonds have been replaced by USTBonds, not much of an upgrade. If the USTreasurys soon suffer in the heart attack seizures underway, foreign economies will be at risk of serious deterioration. So foreigners are working toward a solution. One might be announced soon, with a new world reserve basket announced, based upon the Euro, Russian ruble, Japanese yen, and newly crowned Gulf dinar. The common theme is these are all currencies from nations boasting export surplus. They are taking action, but behind the scenes, like in Berlin. The consequence to the USEconomy is dire. The beleaguered nation would be forced to attract foreign capital, and bid up foreign currencies in order to purchase crude oil. The word inflation would soon be replaced in the press networks with the word “hyper-inflation” as the Untied States enters the Third World overnight. It seems that the vast majority will be caught blindsided.
Jim Willie touches ALL the bases in this recent essay. Please read it in full. If you questioned that the USA was doomed, you will now be convinced that it is. Only God can save us now...
Tuesday, October 7, 2008
Release The Choppers
On May 29th, 2008 I brought to your attention the limits on the Fed's ability to "bailout banks". In my post Nothing Left But The Stench we learned the following about the Fed's balance sheet:
Bernanke's Nightmare Chart
by Gary North
The Federal Reserve System on December 17 began a unique experiment: debt swaps with large commercial banks. The FED is now swapping at face value highly marketable U.S. Treasury securities in exchange for discounted mortgages. Nothing like this has ever been attempted before. It represents an innovation in central bank policy. It is called the Term Auction Facility (TAF). The initial offer was for $20 billion in swaps.
The rate charged is about 2%. This is why the FED has cut the FedFunds rate to 2% – not to stimulate the economy directly but to make available TAF loans at low rates.
Here is how the game is played. The borrowing banks can place the borrowed Treasury debt on their books at close to face value. This looks as though the banks are meeting their capital requirements.
What is really going on? Deception on a massive scale – a fully legal deception that the U.S. government's bank auditors understand and go along with.
With this as background, let us consider the words of the Federal Reserve System as of May 2.
In addition, the Federal Open Market Committee authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) auctions. Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations, beginning with the Schedule 2 TSLF auction to be announced on May 7, 2008, and to settle on May 9, 2008. The wider pool of collateral should promote improved financing conditions in a broader range of financial markets.
Deciphering the FedSpeak, we learn that the FED is swapping U.S. Treasury securities for packages of loans on just about anything. I suppose this could include cars, if the FOMC decides the asset meets its wider standards.
Consider these words: "The wider pool of collateral should promote improved financing conditions in a broader range of financial markets." Let me translate.
The wider pool of eligible capital for swaps will allow banks to convince government auditors – wink, wink – that the assets on the banks' books need not be marked to market with a discount. Therefore, the banks will not have to call in loans in order to bring their loan-to-capital ratios back into line with regulations.
HOW LONG CAN THE GAME GO ON?
It can go on for as long as the Federal Reserve System has U.S. Treasury debt to swap. As Hamlet said, "There's the rub."
In November, 2007, two weeks before the first TAF auction was held, the Federal Reserve System held about $800 billion in Treasury debt. As of May 1, it held $539 billion. "May day! May day!"
The Federal Reserve's "creative financing" to bail out banks that have invested in creatively financed mortgages has a limit. The limit is its portfolio of Treasury debt.
It took from 1914 until November 2007 for the Federal Reserve to accumulate $800 billion worth of Treasury debt. It has take from December 17 to the end of April for the FED to divest itself of $260 billion of this portfolio, a decrease of one-third. In its place, it has placed AAA- rated mortgages.
At the current swap rate, the Federal Reserve System will be out of Treasury debt in December of 2008. But by adding car loans to the list of eligible paper, the FED has guaranteed that this rate will accelerate.
http://www.lewrockwell.com/north/north624.html/
To which I commented:
Doing the quick math exposes how close the Fed is to running out of Treasury debt to swap for this trash so as to perpetuate the bank fraud that Wall Street has brazenly accepted as "the end of the credit crisis". From December 2007 through April 2008 the Fed had swapped out $260 BILLION of it's $800 BILLION Treasury debt kitty. Two more auctions in May at $75 Billion each raised the total swapped out at the end of May 2008 to $410 Billion. Now add three more $75 BILLION auctions in June and the Fed will have exhausted $635 BILLION of its $800 BILLION in Treasury debt reserves. Almost 80% of the Fed's Treasury debt that it took 93 years to accumulate will have evaporated in SIX MONTHS! Pfft, gone!
As the Federal Reserve blows thru its assets to perpetuate a collosal bank fraud, the US Congress sits silent on the sidelines oblivious to the economic madness destroying this country's future for possibly the next two generations. The credit crisis is certain to sink this country. The leadership vaccum in Washington will see to it that it remains sunk.
Treasury Announces Supplementary Financing Program
Washington- The Federal Reserve has announced a series of lending and liquidity initiatives during the past several quarters intended to address heightened liquidity pressures in the financial market, including enhancing its liquidity facilities this week. To manage the balance sheet impact of these efforts, the Federal Reserve has taken a number of actions, including redeeming and selling securities from the System Open Market Account portfolio.
The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve. The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program, which will provide cash for use in the Federal Reserve initiatives.
Announcements of and participation in auctions conducted under the Supplementary Financing Program will be governed by existing Treasury auction rules. Treasury will provide as much advance notification as possible regarding the timing, size, and maturity of any bills auctioned for Supplementary Financing Program purposes.
http://www.ustreas.gov/press/releases/hp1144.htm
Self-Fulfilling Prophesy & The Fed is Already Bankrupt
In any case, Bernanke and the Fed know there is a significant chance that things could blow up and thus the helicopter engine is already being warmed up. I know some people have talked about the Fed already dropping money from helicopters but in reality that has not been the case (except as I discuss below). So far, all that has taken place with the various “credit facilities” and bailouts is a substitution of assets. No new money was created as a result. For example, when a bank borrows under a credit facility, it is exchanging an illiquid asset (such as certain agency MBS securities) for Treasury securities held by the Fed. The bank then goes into the market to sell the Treasury securities and uses the cash proceeds to meet liquidity needs.
But at this point it is no longer enough. A not-so-secret secret of our monetary system is that most Federal Reserve Notes — the actual paper money that people are now trying to withdraw in larger and larger droves — are physically held offshore (presumably by foreigners). Indeed, this statement on the FRB New York website is pretty shocking in light of what could imminently happen:
The Federal Reserve estimates that the majority of the cash in circulation today is outside the United States.
As an aside, the latest Factors Affecting Reserve Balances report (from Sep 25) indicates that an absolutely massive $472.8 billion of Federal Reserve Notes (59%) are now collateralized by non-federal (federal includes Freddie Mac, Fannie Mae, Federal Home Loan Bank, etc.) securities. In effect, this means the Federal Reserve itself is virtually bankrupt and the U.S. government will likely need to soon provide direct backing for Federal Reserve Notes if there is any hope of saving the monetary system. When considering this, it seems pretty silly that people are actually withdrawing Federal Reserve Notes from the banking system to hide under the mattress. And in fact, the Federal Reserve looks to continue even further along the current path to insolvency with the announcement just this Monday (virtually ignored by the media due to the focus on the $700 billion bailout plan) that the Term Auction Facility will be doubled from $150 billion to $300 billion.
But now let me discuss the first real preview of what a helicopter operation involving the Fed and Treasury will look like. This seems to have gone unnoticed by the media, but the U.S. Treasury Dept. has started to lend directly to the Fed under its Supplementary Financing Program. The way this program is explained is that the U.S. Treasury issues Treasury securities to the public and deposits the cash proceeds with the Fed. But in reality, what seems to be happening is that the U.S. Treasury is issuing Treasury securities to the Fed and then the Fed is exchanging these Treasury securities with banks for non-federal debt securities. In just the first week of operation, the U.S. Treasury Department has in essence loaned $160 billion directly to the Fed. Sure sounds like insolvency to me!
http://silveraxis.com/todayinsilver/2008/10/02/self-fulfilling-prophesy-the-fed-is-already-bankrupt/
The Fed is Bankrupt: Update on the Helicopter - The Secret Death of the Fed
Up until two weeks ago when the $700 billion bailout package came out of virtually nowhere, the Federal Reserve seemed content to continue swapping its liquid Treasury securities portfolio for the illiquid assets of banks, slowly destroying the Fed’s balance sheet in the process. But the impending failure of AIG and the actual failure of Lehman Brothers apparently did some serious damage to the Fed’s plans, because the most important monetary decision of this entire crisis was made in a big hurry, with virtually no fanfare. I suspect the Fed finally started looking more than a few days ahead and suddenly realized that it might quickly and completely run out of Treasury securities (see below).
So, the Fed and Treasury announced a seemingly innocuous Supplementary Financing Program on September 17. In reality, it was nothing less than a clandestine federal bailout, a de facto government takeover of the Federal Reserve that will officially materialize as such only at a later date. This radical “program”, which is by far the most extreme of all the Fed and Treasury actions in terms of monetary consequences, has received very little coverage so far in the media, on Wall Street, on Main Street, in the Capitol, or on the Internet. But I suspect this could soon change now that the $700 billion bailout package has been penned into law. Indeed, the Treasury bailout legislation seems to be the fuel for the Supplementary Financing Program, which is nothing less than the biggest monetary helicopter lift since the Weimar experiment with the printing press.
http://news.goldseek.com/GoldSeek/1223400153.php
Who's Bailing out Whom?
This just in. I hope you are sitting down.
The news that should be driving gold prices to the moon is out! The Federal Reserve released its latest weekly monetary data after the market closed Thursday.
The Federal Reserve has just expanded its balance sheet more in one month than it has in almost all of its first 86 years of existence. I am not kidding. Its assets, which represent the cumulative reserves the Fed has "created," totaled less than $700 billion at the turn of the millennium and continued to expand by about $50 billion per year after that, up until this month. In September alone, reserve bank credit inflated by almost $600 billion. It is a record, and has already affected the monetary base.
Up until September, the Fed had been careful to sterilize its liquidity provisions by selling Treasuries, reverse repos or simply by lending its securities off balance sheet. So while it has extended credit since August 2007, it has not monetized much of the liquidity.
Besides, usually, other factors offset the Fed's injection of "liquidity," such as cash withdrawals from the banking system (represented by an increase in "currency in circulation") and other activities that may increase money flows back into the Fed... like the money raised by the Treasury for the Fed under its recently created "Supplementary Financing Program."
Since announcing this new program two weeks ago, the Fed has received about $350 billion from the Treasury. Additional factors of decrease include about $80 billion in deposits that came into the Fed during September via reverse repos and "other" deposits, a $26 billion decline in outstanding repos and about $4 billion in currency (cash) leaving the banking system. The NET factor of increase to reserve bank credit for the month of September was about $170 billion. That is money created out of thin air... unsterilized.
http://www.safehaven.com/article-11453.htm
Bernanke's speech on economic conditions
WASHINGTON, D.C. -- Federal Reserve Chairman Ben Bernanke spoke Tuesday afternoon about current economic and financial conditions at the annual meeting of the National Association for Business Economics.
The following is a transcript of his remarks, as posted on the Federal Reserve Web site.
http://money.cnn.com/2008/10/07/news/economy/bernanke_remarks/index.htm
Inflation’s New Upward Trend
In our 3rd October email alert we wrote: "The Fed expanded its balance sheet by $254B during the one-week period ending 1st October, which follows a $204B expansion during the preceding week. As a result, the Fed's balance sheet has grown by almost 50% within the space of just two weeks. This, we believe, is unprecedented."
Last week's money creation by the Fed won't appear in broader money-supply data until the end of this week, but the week-before-last's expansion of the Fed's balance sheet has given the True Money Supply (TMS), our preferred monetary aggregate, a substantial boost. In fact, it has pushed the year-over-year (YOY) TMS growth rate from 3.75% to 7.0%, thus signaling a new major upward trend.
http://news.goldseek.com/SpeculativeInvestor/1223395882.php
Gold: Misconceptions vs. Reality
Ask yourself if you own some gold. Then ask the guy next to you if he owns any. Odds are the answer is “no”. The GLD gold ETF (the largest gold ETF in the world) has a market cap of just $16.7 billion. Compare that to the S&P 500, which has a market cap of $11.63 trillion (and that doesn’t even include equities outside of the S&P 500 or overseas equity markets obviously). Which asset seems overowned: equities or gold? You don’t have to be a rocket scientist to know the answer to that question.
Nobody owns gold, just as very few owned “stocks” in the early 1980s when you wanted to actually be buying them ahead of what would be the biggest and longest secular bull market in equities in history. Instead, people were loaded up with oil and gold back in the early 1980s, and then lugged them around for the next 20 years in a secular bear market. The fact that gold is so under-owned as an investment is precisely the quality one looks for in trying to find assets that are just beginning big secular bull markets and why gold has much further to go to the upside than anyone can currently imagine.
http://www.minyanville.com/articles/dow-gold-GLD-equities-spx-oil/index/a/18547/from/yahoo
And now the choppers full of money Bumbling Ben has promised us for so long are now fueled and fully loaded. Let the implosion of the US Dollar begin...and the explosion of the price of Gold commence.
Bernanke's Nightmare Chart
by Gary North
The Federal Reserve System on December 17 began a unique experiment: debt swaps with large commercial banks. The FED is now swapping at face value highly marketable U.S. Treasury securities in exchange for discounted mortgages. Nothing like this has ever been attempted before. It represents an innovation in central bank policy. It is called the Term Auction Facility (TAF). The initial offer was for $20 billion in swaps.
The rate charged is about 2%. This is why the FED has cut the FedFunds rate to 2% – not to stimulate the economy directly but to make available TAF loans at low rates.
Here is how the game is played. The borrowing banks can place the borrowed Treasury debt on their books at close to face value. This looks as though the banks are meeting their capital requirements.
What is really going on? Deception on a massive scale – a fully legal deception that the U.S. government's bank auditors understand and go along with.
With this as background, let us consider the words of the Federal Reserve System as of May 2.
In addition, the Federal Open Market Committee authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) auctions. Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations, beginning with the Schedule 2 TSLF auction to be announced on May 7, 2008, and to settle on May 9, 2008. The wider pool of collateral should promote improved financing conditions in a broader range of financial markets.
Deciphering the FedSpeak, we learn that the FED is swapping U.S. Treasury securities for packages of loans on just about anything. I suppose this could include cars, if the FOMC decides the asset meets its wider standards.
Consider these words: "The wider pool of collateral should promote improved financing conditions in a broader range of financial markets." Let me translate.
The wider pool of eligible capital for swaps will allow banks to convince government auditors – wink, wink – that the assets on the banks' books need not be marked to market with a discount. Therefore, the banks will not have to call in loans in order to bring their loan-to-capital ratios back into line with regulations.
HOW LONG CAN THE GAME GO ON?
It can go on for as long as the Federal Reserve System has U.S. Treasury debt to swap. As Hamlet said, "There's the rub."
In November, 2007, two weeks before the first TAF auction was held, the Federal Reserve System held about $800 billion in Treasury debt. As of May 1, it held $539 billion. "May day! May day!"
The Federal Reserve's "creative financing" to bail out banks that have invested in creatively financed mortgages has a limit. The limit is its portfolio of Treasury debt.
It took from 1914 until November 2007 for the Federal Reserve to accumulate $800 billion worth of Treasury debt. It has take from December 17 to the end of April for the FED to divest itself of $260 billion of this portfolio, a decrease of one-third. In its place, it has placed AAA- rated mortgages.
At the current swap rate, the Federal Reserve System will be out of Treasury debt in December of 2008. But by adding car loans to the list of eligible paper, the FED has guaranteed that this rate will accelerate.
http://www.lewrockwell.com/north/north624.html/
To which I commented:
Doing the quick math exposes how close the Fed is to running out of Treasury debt to swap for this trash so as to perpetuate the bank fraud that Wall Street has brazenly accepted as "the end of the credit crisis". From December 2007 through April 2008 the Fed had swapped out $260 BILLION of it's $800 BILLION Treasury debt kitty. Two more auctions in May at $75 Billion each raised the total swapped out at the end of May 2008 to $410 Billion. Now add three more $75 BILLION auctions in June and the Fed will have exhausted $635 BILLION of its $800 BILLION in Treasury debt reserves. Almost 80% of the Fed's Treasury debt that it took 93 years to accumulate will have evaporated in SIX MONTHS! Pfft, gone!
As the Federal Reserve blows thru its assets to perpetuate a collosal bank fraud, the US Congress sits silent on the sidelines oblivious to the economic madness destroying this country's future for possibly the next two generations. The credit crisis is certain to sink this country. The leadership vaccum in Washington will see to it that it remains sunk.
I guess the game could not go on long enough. Sadly, the Fed's stash of Treasuries did not last until December. On September 17, 2008 the Fed realized and accepted the impossible...they were flat broke. The Federal Reserve of the USA was bankrupt. And then the US Treasury rode to the rescue...
September 17, 2008HP-1144Treasury Announces Supplementary Financing Program
Washington- The Federal Reserve has announced a series of lending and liquidity initiatives during the past several quarters intended to address heightened liquidity pressures in the financial market, including enhancing its liquidity facilities this week. To manage the balance sheet impact of these efforts, the Federal Reserve has taken a number of actions, including redeeming and selling securities from the System Open Market Account portfolio.
The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve. The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program, which will provide cash for use in the Federal Reserve initiatives.
Announcements of and participation in auctions conducted under the Supplementary Financing Program will be governed by existing Treasury auction rules. Treasury will provide as much advance notification as possible regarding the timing, size, and maturity of any bills auctioned for Supplementary Financing Program purposes.
http://www.ustreas.gov/press/releases/hp1144.htm
Self-Fulfilling Prophesy & The Fed is Already Bankrupt
In any case, Bernanke and the Fed know there is a significant chance that things could blow up and thus the helicopter engine is already being warmed up. I know some people have talked about the Fed already dropping money from helicopters but in reality that has not been the case (except as I discuss below). So far, all that has taken place with the various “credit facilities” and bailouts is a substitution of assets. No new money was created as a result. For example, when a bank borrows under a credit facility, it is exchanging an illiquid asset (such as certain agency MBS securities) for Treasury securities held by the Fed. The bank then goes into the market to sell the Treasury securities and uses the cash proceeds to meet liquidity needs.
But at this point it is no longer enough. A not-so-secret secret of our monetary system is that most Federal Reserve Notes — the actual paper money that people are now trying to withdraw in larger and larger droves — are physically held offshore (presumably by foreigners). Indeed, this statement on the FRB New York website is pretty shocking in light of what could imminently happen:
The Federal Reserve estimates that the majority of the cash in circulation today is outside the United States.
As an aside, the latest Factors Affecting Reserve Balances report (from Sep 25) indicates that an absolutely massive $472.8 billion of Federal Reserve Notes (59%) are now collateralized by non-federal (federal includes Freddie Mac, Fannie Mae, Federal Home Loan Bank, etc.) securities. In effect, this means the Federal Reserve itself is virtually bankrupt and the U.S. government will likely need to soon provide direct backing for Federal Reserve Notes if there is any hope of saving the monetary system. When considering this, it seems pretty silly that people are actually withdrawing Federal Reserve Notes from the banking system to hide under the mattress. And in fact, the Federal Reserve looks to continue even further along the current path to insolvency with the announcement just this Monday (virtually ignored by the media due to the focus on the $700 billion bailout plan) that the Term Auction Facility will be doubled from $150 billion to $300 billion.
But now let me discuss the first real preview of what a helicopter operation involving the Fed and Treasury will look like. This seems to have gone unnoticed by the media, but the U.S. Treasury Dept. has started to lend directly to the Fed under its Supplementary Financing Program. The way this program is explained is that the U.S. Treasury issues Treasury securities to the public and deposits the cash proceeds with the Fed. But in reality, what seems to be happening is that the U.S. Treasury is issuing Treasury securities to the Fed and then the Fed is exchanging these Treasury securities with banks for non-federal debt securities. In just the first week of operation, the U.S. Treasury Department has in essence loaned $160 billion directly to the Fed. Sure sounds like insolvency to me!
http://silveraxis.com/todayinsilver/2008/10/02/self-fulfilling-prophesy-the-fed-is-already-bankrupt/
The Fed is Bankrupt: Update on the Helicopter - The Secret Death of the Fed
Up until two weeks ago when the $700 billion bailout package came out of virtually nowhere, the Federal Reserve seemed content to continue swapping its liquid Treasury securities portfolio for the illiquid assets of banks, slowly destroying the Fed’s balance sheet in the process. But the impending failure of AIG and the actual failure of Lehman Brothers apparently did some serious damage to the Fed’s plans, because the most important monetary decision of this entire crisis was made in a big hurry, with virtually no fanfare. I suspect the Fed finally started looking more than a few days ahead and suddenly realized that it might quickly and completely run out of Treasury securities (see below).
So, the Fed and Treasury announced a seemingly innocuous Supplementary Financing Program on September 17. In reality, it was nothing less than a clandestine federal bailout, a de facto government takeover of the Federal Reserve that will officially materialize as such only at a later date. This radical “program”, which is by far the most extreme of all the Fed and Treasury actions in terms of monetary consequences, has received very little coverage so far in the media, on Wall Street, on Main Street, in the Capitol, or on the Internet. But I suspect this could soon change now that the $700 billion bailout package has been penned into law. Indeed, the Treasury bailout legislation seems to be the fuel for the Supplementary Financing Program, which is nothing less than the biggest monetary helicopter lift since the Weimar experiment with the printing press.
http://news.goldseek.com/GoldSeek/1223400153.php
Who's Bailing out Whom?
This just in. I hope you are sitting down.
The news that should be driving gold prices to the moon is out! The Federal Reserve released its latest weekly monetary data after the market closed Thursday.
The Federal Reserve has just expanded its balance sheet more in one month than it has in almost all of its first 86 years of existence. I am not kidding. Its assets, which represent the cumulative reserves the Fed has "created," totaled less than $700 billion at the turn of the millennium and continued to expand by about $50 billion per year after that, up until this month. In September alone, reserve bank credit inflated by almost $600 billion. It is a record, and has already affected the monetary base.
Up until September, the Fed had been careful to sterilize its liquidity provisions by selling Treasuries, reverse repos or simply by lending its securities off balance sheet. So while it has extended credit since August 2007, it has not monetized much of the liquidity.
Besides, usually, other factors offset the Fed's injection of "liquidity," such as cash withdrawals from the banking system (represented by an increase in "currency in circulation") and other activities that may increase money flows back into the Fed... like the money raised by the Treasury for the Fed under its recently created "Supplementary Financing Program."
Since announcing this new program two weeks ago, the Fed has received about $350 billion from the Treasury. Additional factors of decrease include about $80 billion in deposits that came into the Fed during September via reverse repos and "other" deposits, a $26 billion decline in outstanding repos and about $4 billion in currency (cash) leaving the banking system. The NET factor of increase to reserve bank credit for the month of September was about $170 billion. That is money created out of thin air... unsterilized.
http://www.safehaven.com/article-11453.htm
Bernanke's speech on economic conditions
WASHINGTON, D.C. -- Federal Reserve Chairman Ben Bernanke spoke Tuesday afternoon about current economic and financial conditions at the annual meeting of the National Association for Business Economics.
The following is a transcript of his remarks, as posted on the Federal Reserve Web site.
http://money.cnn.com/2008/10/07/news/economy/bernanke_remarks/index.htm
Inflation’s New Upward Trend
In our 3rd October email alert we wrote: "The Fed expanded its balance sheet by $254B during the one-week period ending 1st October, which follows a $204B expansion during the preceding week. As a result, the Fed's balance sheet has grown by almost 50% within the space of just two weeks. This, we believe, is unprecedented."
Last week's money creation by the Fed won't appear in broader money-supply data until the end of this week, but the week-before-last's expansion of the Fed's balance sheet has given the True Money Supply (TMS), our preferred monetary aggregate, a substantial boost. In fact, it has pushed the year-over-year (YOY) TMS growth rate from 3.75% to 7.0%, thus signaling a new major upward trend.
http://news.goldseek.com/SpeculativeInvestor/1223395882.php
Gold: Misconceptions vs. Reality
Ask yourself if you own some gold. Then ask the guy next to you if he owns any. Odds are the answer is “no”. The GLD gold ETF (the largest gold ETF in the world) has a market cap of just $16.7 billion. Compare that to the S&P 500, which has a market cap of $11.63 trillion (and that doesn’t even include equities outside of the S&P 500 or overseas equity markets obviously). Which asset seems overowned: equities or gold? You don’t have to be a rocket scientist to know the answer to that question.
Nobody owns gold, just as very few owned “stocks” in the early 1980s when you wanted to actually be buying them ahead of what would be the biggest and longest secular bull market in equities in history. Instead, people were loaded up with oil and gold back in the early 1980s, and then lugged them around for the next 20 years in a secular bear market. The fact that gold is so under-owned as an investment is precisely the quality one looks for in trying to find assets that are just beginning big secular bull markets and why gold has much further to go to the upside than anyone can currently imagine.
http://www.minyanville.com/articles/dow-gold-GLD-equities-spx-oil/index/a/18547/from/yahoo
And now the choppers full of money Bumbling Ben has promised us for so long are now fueled and fully loaded. Let the implosion of the US Dollar begin...and the explosion of the price of Gold commence.
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