Gold & Investment in Failure
By: Jim Willie CB
Thursday, 2 September 2010
Many observers to the wild gyrations, deep contortions, extreme measures, and other bizarre activity in the government and banking arenas are suffering from severe confusion. The public is alarmed, even frightened, by the sequence of events, without much benefit of comprehension of what is happening or which clans are in control. The degree of deception hit a peak during the TARP Fund creation and disbursement, done behind private closed doors for the replenishment of sacred preferred stock, that bridge between corporate bonds and stock equity. The deception hit a very high pitch with the financial titan failures, the entire string of them. It has never stopped since. The economic data and promising forecasts (mere marketing group propaganda) featured Green Shoots, Jobless Recovery, and the totally vacant Second Half Recovery that is useful every initial six months to sway the ignorant masses. Just what is happening is difficult to describe succinctly. But the main description reads like an obituary. The most recent and visible distortion is not of price inflation, which has zoomed at 7% annually for a couple years, but rather the Institute of Supply Mgmt. The ISM index has somehow registered a slight increase from July to August, despite almost every single regional index faltering badly. See the careening Philly Fed, from plus 5.1 to minus 7.7 in the latest month. They ignore the weak components and present a distorted aggregate, much like retail sales.
The US banking sector died in September 2008. It has not acted like a credit distribution apparatus in two years. The US Federal Reserve has served almost the complete function, filling the gap like with the decaying commercial paper market. Its several dozen liquidity facilities testify to its urgent need to act as banking system substitute, since the real portion lies in the morgue. The major 100 banks in the US are almost without exception insolvent, and thus do not lend. Sure, they boast a positive book value, but only after given permission to use phony FASB accounting rules. They can declare their assets at any value they wish. In fact, on many debt securities, they actually declare unrealized losses as gains. See the Credit Value Adjustment scheme, an utter travesty and shameful practice mocked by accounting professors. The FDIC came out this week to announce the Q2 list of problem banks went from 775 in number to 829, from Q1. Hardly evidence of a recovery. The USEconomy suffers from a credit strangulation since the banking system at the upper levels is dead, simply stated. The main thrust of the limp activity is monetary creation, banker welfare, absurd programs, and war spending. The more money the clownish hapless awkward leaders throw at the problem, the more the Gold price will rise. Each quantum policy step lifts the potential Gold price another $1000 per ounce.