Silver Futures Index $SILVER (SILVER)

[Pro-Life]

Hat Trick Letter: The High Cost of 0% Rate
By Jim Willie CB
Feb 9 2012 10:26AM
http://www.GoldenJackass.com

http://www.kitco.com/ind/willie/feb092012.html

The interminable extension by the US Federal Reserve on the 0% rate into 2014 represents history in the making, making pure heresy in monetary policy. Worse, it forces foreign central banks to adopt the same destructive policy in the Competing Currency War. Accommodation on interest rates must be temporary, but is made a fixture. The financial system is irreparably broken, the symptom being endless financial crisis. The risk trade is coming back, whose corollary message is to back up the truck to buy GOLD. Many are the messages behind the 0%. Other nations like Japan have been criticized for its adoption. But when the United States is the adoptive parent custodian, it is supposedly all good. Stimulus is a ruse, as destruction of working capital is the constant refrain in a tragic opera. The unintended consequences abound, but mostly not perceived or comprehended well. Few even in the financial community are aware of the powerful leverage mechanisms that enforce the artificially low interest rate. Introduce the Interest Rate Swap contract, upon which heavy reliance is the norm. While Europe is embroiled in austerity, the United States is besieged by central bank apologies for failure disguised less and less with each passing month and each dismissed speech.

The solution is Gold & Silver investments, as all things paper will lose value either from erosion or theft in fraud. The MFGlobal case is far from finished. We have seen this Madoff movie before, but few recognize its sequel starring Jon Corzine and similar supporting cast. The protection is with Gold & Silver, in physical form. The next wave will feature the Gold investors painted as financial terrorists. Refer to the New York Times article with FBI contributors. This is highly disturbing to anyone who holds the Constitution as sacred.

HIDDEN MESSAGE OF PERENNIAL 0% RATE

The 0% official Fed Funds rate has been almost three full years in entrenched policy, when originally promised as temporary. No exit strategy here. Greenspan once stated that it should never be held fixed so low for more than six to nine months. He implied the system would be broken otherwise, subjected to pressures that would distort the valuation mechanisms beyond repair. My view is that extending 0% as monetary policy into year 2014, five years of accommodation, is a gross admission of failure. Bernanke constantly apologizes for stimulus having failed, for an economy unable to recover. The main effect of 0% policy is sustenance of the surprising weakness, draining capital from the system, and improperly pricing the debt which is at high risk. The reality is that the USEconomy is stuck in harsh deep recession of minus 3% to minus 5% GDP. The reality is that the USGovt debt burden is stuck in fast escalation at well over $1 trillion annually, while demand for the debt securities is vanishing. The heavy hidden reliance upon monetary inflation devices for USTBond demand has become a fixture in the financial landscape. Its marquee banner reads failure.

SYSTEMATIC DESTRUCTION OF CAPITAL

The fixture of 0% as monetary policy carries with it an admission that money is worthless. No directive by the flailing discredited US central bank could say it better. Money has no cost because it is not worth anything, being paper in basis and backed by no collateral. The latest travesty is the upcoming dissolution of Fannie Mae itself. What miracle they might conjure up to make its rotten ramparts and acidic paper and corrupt core go away. Fannie will be buried at sea (of liquidity). The cast of economists cannot comprehend the heavy cost of 0% in the widespread systematic destruction of capital. Marginal business units shut down, turn off the equipment, lay off the workers. The costs rise from the rising price of commodities. The material costs rise from basic hyper monetary inflation, due to the unilateral USFed paper factory output. The essence of retired capital and its broad capital destruction is a foreign concept to economists. They still believe the USEconomy will enjoy the benefits of continued 0% stimulus. How wrong, how backwards, how tragic!! The 0% policy destroys capital and furthers the deterioration process.

UNINTENDED CONSEQUENCES

A repeated message since so important. Focus on suppressed long-term interest rates and their damaging consequences. The US leaders boast of benefits from ultra-low interest rates. Suppressing the 10-year bond yield has dire consequences. Some but not all of them appear unintended. The power centers want unlimited easy money for sure. But in doing so, they permit some horrendous developments like feeding a cancer.

¦- Savers are given nothing in interest yield, slowing the economy with asset erosion
¦- Banks hold home inventory, making housing market clearance impossible
¦- Big banks continue their USTreasury Bond carry trade schemes instead of business capital formation
¦- Investment banks are encouraged to continue speculation, rather than to invest in business formation that create jobs
¦- The USFed further expansion of its balance sheet to buy toxic assets, as rot sets in
¦- The USGovt is not discouraged from deficit reduction, sure to lead to systemic failure
¦- The free money helps to conceal in vast turnover the toxic paper held under the USGovt roof, as in Fannie Mae, and other fraudulent mills such as MFGlobal lookalikes in the sovereign debt securities and their related derivatives.

ALTERNATE NEMESIS TO AUSTERITY

The Europeans are dealing with austerity measures in government budgets. The sovereign debt securities remain a constant problem, although in recent weeks the bond yields have come down to manageable levels, like below 6% in Italy and Spain. Few economists and bank analysts seems to realize that austerity plans put in place result in lower economic activity, more job cuts, fewer large scale projects, and thus higher deficits down the road. The austerity plans are Poison Pills, one and all, designed perhaps to enable installation of unelected Goldman Sachs technocrats in prime minister posts. The Greek situation is testimony, as budget cuts, asset sales, and massive amputations have resulted in worse fiscal deficits. So bring on more of the same!! The plague in the United States is of an opposite type. The budgets are unrestrained, notwithstanding the charades. The integrity is lost while foreign creditors have jumped ship. Instead, the urgent calls within the hollowed (not hallowed) Untied States are for continued 0% policy in order to make the mammoth gargantuan debts and fraudulent toxic paper coverup more cost-free. What incredible opposites exist in Europe and the North America!! The US controls the global reserve currency, having turned its printing press into a well-oiled national shrine. In no way does the USEconomy have the advantages that Japan boasts, like export trade surpluses, a diverse industrial base, and a nationalist fervor that abhors outsourcing. Japan forced JGBond investment by the unions, and the USGovt will do something similar with private pension funds.

ULTIMATE JET ASSIST FOR GOLD

Back in 2003, the gold community made it well-known that the negative real rate of interest was the underlying jet asset kick starter ignition system for the Gold bull market. Take the baseline interest rate, subtract the baseline price inflation rate, and arrive at the real rate of interest. At 2% or 3% for long-term interest rates, at 8% or 10% for accurate honestly measured price inflation, the real rate of interest is calculated in the minus 5% to minus 7% range. Investment in commodity resources, especially Gold & Silver, is the best protection and smartest reaction to the negative real cost of money. The USEconomy is mired in quicksand amidst vast capital destruction. The actual Gross Domestic Product is in a chronic recession of minus 3% to minus 5% for four years running. That explains the absent job growth. Take the payroll tax withholding series to see the steady decline in national income, not easily masked.

GOLD & SILVER READY TO SOAR

Check out the obvious reversal pattern on the Gold chart in full view. It has a 200-point potential rise, which would take the Gold price to 1950. All solutions discussed are bogus and founded in funny money output, new debt, toxic bond redemption, and cost-free recapitalization of banks. No more liberated gold bullion like from Libya via mercenary wars on the horizon. Its 144 metric gold tonnes proved useful to the London and Wall Street Boyz. Syria ain’t got no gold to release. When the 1750 defended flank is overrun, the rise in the Gold price will be rapid. It will capture global attention again. Gold is real money, easily noticed during a time when sovereign debt has turned toxic.



Check out the obvious reversal pattern on the Silver chart in full view. It has a 7-point potential rise, which would take the Silver price to 42 per ounce. The large gap between 32 and 40 has been filled halfway, the next half to be filled in the following several weeks, possibly very quickly. When the 35 defended flank is overrun, the rise in the Silver price will be rapid, more rapid than Gold since the gap will offer little resistance. The rise will capture global attention again. Silver is not just an industrial metal. It has outperformed Dr Copper easily.



THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS

By Jim Willie CB
Editor of the "HAT TRICK LETTER"
Hat Trick Letter
February 08, 2012