Fearing An Even Worse Inflationary Depression Ahead
Thursday, September 1, 2011
The debauching of currencies worldwide goes on with great abandon, and of course, leading the pack in the US, UK and Europe. What these countries and others are doing is awakening the hidden forces of inflation and destroying the value of their currencies. In Europe the Germans, over the past six months, have said at the polls they do not want to continue to subsidize the semi-solvent nations of the euro zone and will not participate in Eurobond offerings. Germans are rightly upset with the value of the euro and the illegal purchase of bonds in the market belonging to Italy and Spain.
Since the 1960s credit and money creation has run rampant making a mockery of sound money – a global system dependent on unrestrained credit. Wall Street and the City of London love such an environment in spite of the distortions, because such policies encourage speculation and greater profits.
One must remember that the very brightest have hatched this monetary abomination. They had full knowledge of what the results of their work would eventually lead too. Now these same people are surprised at the results of their looting of the system. Everything seems to be cheap to them and we ask in that context to what? Can they be so naive as to believe government statistics? We do not think so. Thus, what they are doing is being done deliberately. We find it hard to believe that in this environment of instability that somehow stocks and bonds are cheap. If that were so how does one explain gold selling at $1,900.00 an ounce and silver at $50.00?If gold and silver as a reflection to today’s monetary mess are so meaningless to Wall Street, why is it they and their privately owned Federal Reserve, along with the “President’s Working Grouping on Financial Markets” have to manipulate the prices of gold and silver? It is because they reflect a debauched financial system. Just this past week we saw a raid by government and its owners and partners in crime over just a 3-day period, take gold from $1,900 an ounce to $1,700 an ounce. A very dumb way to do things, but nevertheless this is what they did. Exposing what government was up to for all to see. In your face manipulation. Then again desperate people do desperate things. We put out a buy recommendation on Wednesday for Thursday morning when gold entered the $1,700 to $1,725 area. It reached that objective, and as we predicted made a U-turn to finish the week at $1,830.60. That was more than a $100 turnaround. It won’t be long again that gold will be again testing $1,900 and silver $44.00 and then $50.00. These conspirators may believe they are masters of the universe, but they are not.
Few believe that Keynes was a fascist but he was. It is not such a giant step from Fabian Socialism to corporatist fascism. Remember, these were the Wall Street operators who in part financed Adolph Hitler. A recent current reflection shows international reserve holdings up by more than $3 trillion. That is from dollar purchases to keep their US dollar foreign exchange earnings and their own credit creation. It should be noted that US dollar foreign exchange reserves over the past three years fell from 70% to 59%. That is quite a reduction.
In Europe as we have mentioned before, we have the catalyst for the bursting of the global debt bubble, as the six insolvent nations find they cannot find refinancing or financing at a reasonable cost. All we can see is uncertainty and refusal. The solvent nations have had enough. The debt they are funding could render them insolvent as well. These solvents are buying assets that can never be repaid. Austerity is being forced on these hopeless nations, which caused a slowing economy and lower revenues, which is the antithesis of what the economies need. This dooms the economies to failure as their economies are essentially strangled.
Once the dominoes begin to fall the options and derivatives will fall and fail as well and that will bring the whole house of cards down. A great deterioration of debt is taking place worldwide, and continues to be delayed by the creation of money and credit from central banks. Confidence is definitely declining in policies of different countries and their debt accumulation. Politicians and bureaucrats have for the most part bashed away from the problems, which has made the problems worse. It is still more important to them to parade toward world government than to fix these underlying problems. In addition, their incompetence stands out like a beacon. Leadership only does what the financial sector tells them to do. Bond sales to subsidize debt are not the answer. Purging the system is the answer, but that is not the course the financial sector wants to take. The Germans know that. They are familiar with confronting adversity. They also know that Eurobonds are not the solution. They also know that the euro has already been damaged enough. Germany believes the financial situation is out of hand, and getting worse via monetization.
In the US we see the Fed for the past three years lending money to the banks at zero interest rates and then allowing the banks to lend back to the Fed at higher rates, establishing guaranteed profit with no risk and in turn depriving borrowers of loans. Can you imagine the inflation when these funds become monetized? It just so happens that Fed figures now show excess reserves are beginning to leave the Fed. That means money should flow into the economy via new loans. Over June, July and August about $8 billion flowed out. That should end up in more loans. On the other hand the funds are monetized when they are loaned and that adds quickly to inflation. As they say, you cannot have your cake and eat it too. Inflation will start accelerating shortly. This is a way for the Fed, who we believe is orchestrating this, to in stealth get QE 3 underway.
If banks start lending to small and median sized businesses unemployment would not increase and there could be a recovery accompanied by much higher inflation. If that does not work we can expect a major war to bail the elitists out. That in finality would end the American dream.
It is obvious with each passing day that the US, UK and Europe are headed toward financial and economic failure. Many believe it will happen quickly, but it won’t. Government, Wall Street, banking and the Fed have no permanent answers, only containment, at an unacceptable price. These facts are why they cannot stop the rise of gold and silver. Even raising margin requirements hasn’t stopped gold and silver from going higher. It’s become a virtual cash market, which if continued could cause an exodus from the Comex directly into the cash market. Today’s big buyers do not need margin and that has been something new to the market over the past couple of years. The tempo of their buying has picked up as well. When the government, Wall Street and banking drive gold and silver prices down as they have over the past 4 months, all they are doing is giving buyers an opportunity to buy more cheaply. If this isn’t dumb we don’t know what is.
The insiders should have taken the opportunity to purge the system in the early 1990s and the early 2000s, but they were not interested in that and as a result we have what we have today. For the past few years credit has been drying up and the price of homes have fallen depriving the homeowner of extracting equity to use to pay the bills. Credit card credit is still available, but limits have been reduced and interest rates are considerably higher. Americans now know they can no longer easily extract capital from the system, as their assets, their homes, continue to fall in value. They know millions of homes are in foreclosure and millions more are on the way, which means housing recovery is many years away. All of the social palliatives and tax breaks the public has come to rely on only extend the time line. All of the economists and analysts are aware of all this, but they say little or nothing, because if they tell the truth they will be out of a job. This is how the situation is perpetrated. They all know the government, the BIS, the Bank for International Settlements, and the FASB have allowed businesses, particularly the financial sector to carry two sets of books. If you do that you will end up in jail.
Not only does the American public have trouble believing the government and Wall Street, but also business has the same problem. It is not surprising that business has cut back on spending, but a good part of what they do spend is spent in foreign countries. In fact government’s need to borrow has the affect of crowding out corporate borrowers. Look what has recently happened to junk bonds, often there isn’t even a bid. Another aspect is government statistics, something we have been writing about for the life of this publication. There are no coincidences and nothing happens by chance. The US government lies about everything. Just look at the GDP figures. The second quarter was just revised downward form 1.3% to 1%. We projected 1-1/2% nine months ago. There will be another revision next month that should take 1% to 0.8%. These are not previous optimistic estimates, they are downright lies. This has been happening for years. Next months revisions won’t be dealt with for a whole year. In retrospect reports are usually off 5% to 6%. The public can look and guess, but business has to make hard decisions based on these numbers. This same problem applies to unemployment and the Consumer Price Index.
The inflationary depression is still with us and has been for 31 months and it is going to get worse in the month’s ahead. We are again looking at a $1.7 trillion deficit. Revenues did better recently, but they will fade lower in the month’s ahead. The elderly in America face yields of 2% or less for the next two years, or more. QE 3 started in June with the $300 billion rollover of treasury bonds that came due by September. We figure if no stimulus comes from Congress the Fed will have to create and monetize some $2.3 trillion more dollars, which can only mean worse inflation. We called QE 2 and stimulus 2, as well as QE 3 a year ago May. The Fed has not said anything about the $16.1 trillion they lent out, nor why none of it has been paid back. What about the $1.2 trillion that we ladled out to Wall Street and banking? It could be that QE 3 if announced in September could counter a falling stock market, at least temporarily. The timing could be perfect if even by accident. Then again, all markets and currencies are under pressure versus silver and gold. We could see gold shortly at $2,000 to $2,200 with silver at $60 to $70. By March gold could be $3,000 to $3,200 and silver $100.00. This may seem implausible to you, but we have been correct 98% of the time for 22-1/2 years.
Many nations have terrible problems. The euro zone could soon collapse because German citizens refuse to do any more bailouts. Politicians are being blamed for the problems, but that is only partially true. The bankers caused these problems. Both have been irresponsible. The politicians having no problem taking orders from the bankers due to the juicy payoffs. Thus far in August the Sarkozy-Merkel meeting was a farce, other than mentioning a Tobin tax. No one wants to cut spending because the EU economy might collapse. As the Fed and the ECB create trillions out of thin air gold is being again thought of as a world reserve currency. The ECB has violated the EU Treaty by buying billions of dollars of Spanish and Italian bonds. On September 9th or 15th a judicial ruling will come from the Federal Constitutional Court of Germany in Karlsruhe. We will not see the Court produce a political decision to bail the sovereigns and the banks out. We will find out if it is legal for the ECB to bail out member nations. This decision has been blocked out in the media almost totally. When we mention it on radio no one knows what we are talking about. We believe their decision will be that the ECB cannot act unilaterally in buying such debt. That means unless the sovereigns bail out the six problem countries they will be forced into bankruptcy, which three of them should have done already.
September and the final quarter of 2011 is going to be a wild and wooly affair. If you are not yet into gold and silver related assets you had best start getting involved. If you own them buy more. You have no idea how really wild this is going to get.