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adjust freely from grassroots' level up
The financial weapon of mass destruction has exploded.
March 3rd 2009
Hans Schicht http://www.hansschicht.net
Financial essays http://www.gold-eagle.com/research/schichtndx.html
World in Upheaval
Don't make a mistake:
The present financial crisis is not a temporary phenomenon soon to be brought under control. This crisis is an integral part of the greater picture of the ongoing Demise of the West.
Look at:
- The moral decay, corruption, decadence, apathy and permissiveness of modern society. - The entrenchment of interest groups and the cartels. - The degradation of standards. - The calcification of the institutions. - The alienation between government and people - The sitting burocrats, not able or not wanting to make changes when and where necessary or create new directives where needed. - Copy heads, all of them, leaning one upon the other, smothering whatever new initiatives and ideas in the but. Never admitting when wrong.
-Then there is loss of trust in the institutions, in the government and loss of trust between the people themselves. Trust is the glue that holds society and a civilization together. Once trust is lost, society disintegrates and civilization dies.
The West has lost its lust for life, its stamina and its vision of the future. Lost its capacity and elasticity to adapt, to change and to live. Its systems calcified, its blood veins blocked and itsengine seized up. The West is tired and terminally ill.
In nature a healthy animal does not get ill because of ticks. Only then, when the animal itself is not healthy, will the ticks take the upper hand and multiply. Same goes for society, where the sucking parasites have gotten the upper hand and are killing the host. Parasite number one, the Banker, followed by the entrenched burocrats, politicians, the lobbyists, the lawyers and all these that take unrightfully advantage of unaffordable social rights and laws.
There is the concentration of capital at the top in the hands of an unassailable elite barricaded in untraceable holding companies, covered by the anonymity of share and bond holdings. They control the world's finances. They control the media to serve but their own interests. They manipulate of what once were free markets.
Once in the good old times the family formed the corner-stone upon which society rested and where-upon the economy prospered from the ground up, from grassroots. The burger held the money, the gold and the silver. These times are gone. Today, all and everything is being controlled upside-down, directed from the top. The base of prosperity, the family entrepreneur is no longer.
Three hundred years ago the Banker, The Merchant of Debt obtained the permission to establish the Bank of England, coupled to the exclusive right to issue the nation's currency. In the time span of three hundred years the Merchant managed to copy and establish his Central Banks in all the countries of the world and issuing their national currencies. He absconded with the people's hard asset money, the gold and the silver, substituting it with worthless fiat paper, printed at no cost to him. And thus the Merchant of Debt usurped all the riches of the world in exchange for nothing.
How on earth is it possible that people and government, already burdened under a yoke of phantom paper and debt, are now crying for even more phantom money and phantom credit, the same that got them into this mess? Will they never learn?
Why don't they turn in the first place to him, the Merchant of Debt, who stole all their gold and silver and claim their real money back, directly from him, instead of being further force-fed to death with ever greater amounts of his worthless phantom money and credit? That would settle the matter once and for all, instantly. And would the Merchant refuse, the consequences will be his. Then the people will take back by force what was once legally theirs.
In Central Europe, centuries ago, subjugated and exploited by the Roman Church by putting the fear of God in people, the revolting masses ransacked the opulent churches, burnt the golden icons and put the priests on the stake. The French stormed the Bastille and guillotined their aristocracy. Not to forget the Communists and what happened in Russia and China. Once people get into a rage, they will do anything. And I tell you, lately I have done a lot of travelling around the world and talked to many: workers, middle class and even well established society. With all of them I encountered a strongly growing sentiment, first of unbelief and then of flaring anger, damnation and hatred against all what is banking. Finally people are waking up, realizing that they are being systematically robbed and unsuspectedly being enslaved in the Merchants chains of debt. And then to think, that we are only at the beginning of the crisis! How is it all going to turn out once the crisis really starts to bite, the economies collapse and breadlines form?
You have seen nothing yet. There will be no peaceful solution! Blood is going to run in the streets and the forces of order will succumb under the waves upon waves of demonstrators boiling with rage. All these Savil Row politicians, muppet burocrats, eurocrats and whatever rats with their TV-smiles, will fall by the way like dominos. They have nothing to smile about, the situation is dead serious.
And thus the Merchant of Debt has ruled the world for the last few hundred years, because he is Caesar and he holds the gold and who holds the gold, rules. Let the people find out who the Merchant really is by passing a law, that from now on all share and bond certificates must be on name, while declaring all bearer shares and bonds illegal. That would open up the Merchant's spider web of anonymity to public scrutiny and help to find out where he has hidden his gold and silver!
However, things have not exactly turned out the way the Merchant of Debt planned. His Robber Barons have become rather independent. They have thrown all prudence overboard, running wild in pursuit of their own riches and not their Master's. The Master has lost control. And in their greed the Barons are in the process of taking the whole of Western Finance over the cliff with them.
Why try to repair and resurrect a system, that has proved fraudulent in the core from the outset and has but served to enrich the Merchant of Debt and his lackeys? Why reappoint the same criminals, that got us into this mess in the first place?
There are fairy tales and fairy tales I cannot believe in. For instance, the Reichstag Fire that brought Hitler into power. The Tonkin accident, that gave the USA the excuse to invade Vietnam. And where are the 8000 tons of gold that should be in Fort Knox or wherever? They are gone! Where are Sadam's Weapons of Mass Destruction that started the Iraqi war? And what about the events of the 9th of September 2001? After reading all the comments and analyses of the latter and hearing that even a former Italian Prime Minister and a Japanese MP expressed serious doubts, I cannot see the Twin Tower collapse but as a planned political power grap. All lies! Who can still believe in a government, the news media, statistics, or the value of paper money? Once trust is gone, it is gone forever.
I cannot believe anything anymore.
The same way I cannot see the election of Obama and the near unchallenged nomination of his cabinet as anything else than well planned before hand from "above". A Cabinet made up out of the same old entrenched mafia that got America into this mess in the first place. The same way as Reagan had to accept Bush Senior as Vice President, in order to get the necessary support from "above" to be able to run for president, …same for Mr. Obama! Yes, Mr Obama, would you like to become president? You are the man with the best chances. Not to worry, we will finance your campaign. But with the condition that you take Biden as your Vice-President, Hillary as your Secretary of State and the following Goldman Sachs people into your cabinet. And do not dare to interfere with what they are doing!
Obama, Obama, Fata-Obama! When the Fata will have faded, the world will be in a bigger mess than ever before.
Could I be wrong? I have never seen such a fast and smooth nomination of a cabinet by an incoming President. Looks too well organized before hand. The only whimper of hope the world has left is, that Obama, the moment he might feel strong enough on his own, might have the guts to kick off his chains of bondage and go his own way. But then, as what Chavez said: if Obama does not follow up, they will kill him.
Neither Obama, neither the Rescue Plans (rescue whom?) will be able to change the course of history. The money-spine of finance, where everything turns around and depends on, is kaput, broken by the loss of trust. And as they say there is nothing more dead than a dead love, so is nothing more dead than a trust betrayed.
With its money spine broken, the West has had it. Not the slightest chance of recovery. The West had become so corrupt and calcified, that nothing will help. No recession, neither depression. The world will see nothing but disintegration.
People have forgotten, that rights are subject to obligations and responsibility. That without morals, trust and discipline society cannot exist. There is no other way than the hard way for people to learn to think again and become responsible again for their own deeds, not to be dependent on leaders running around like a bunch of headless chickens.
The West will have to pass through decades if not ages of upheaval and chaos on its road of decline, before a new age might dawn. Revolution and war will witness the disintegration of empires and mass migrations.
For me there is only one great historian, Oswald Spengler, who in 1911 wrote his "the Decline of the West" (Untergang des Abendlandes). He sees the history of mankind like the life-cycles of societies playing out over hundreds of years. Each with its own characteristics, just like the life of an individual. From an awakening in the spring, to the creation of culture in the summer, to civilization and expansionism in autumn, to finally freeze up in the winter of disintegration, decay and death. Spengler compares the Egyptian, the Babylonian-Assyrian, the Islamic and the Western civilizations next to one another. The Fall of the West, however, will see a rather different and faster ending than its predecessors.
-Firstly, there are the extraordinary technical achievements unique to Western Civilization, speeding up the succession of events into high gear. Everything is happening faster and faster.
-Secondly, there is the high degree of specialization in all layers of western society. Notwithstanding that some people may be highly intelligent, specialization leaves little chance of keeping up with what is overall happening. Only few people are still capable to analyse and understand what is going on in this world, the rest belongs to the utterly confused masses.
-Thirdly, where the decline of a civilization is playing out in a full world, with no spot on the planet not covered by humans, the present scenario has no precedent in history.
-And lastly there is the West's self-induced dependence on a most fraudulent system of virtual currencies without any intrinsic value, that is fast imploding and not gradually slipping in value like the metallic currencies of the past.
A currency is something all and everything is related to and depends on. A currency is like the spine of a nation, of a civilization, and when that spine collapses, then everything related to and dependent on, is destined to collapse.
Out of the blue, the world has entered the great unknown. Nothing to refer to, nobody in control, nothing to hold on to and nobody to trusts, while the sequence of events is speeding up.
The world is rudderless, the governments in utterly confusion and the people becoming desperate. The financial weapon of mass destruction has exploded.
While the Robber Barons and the old guard politicians doing their utmost to save their own buds by trying to keep the status quo for as long as possible through massive injections of fiat paper and virtual credit, the master culprit, the Merchant of Debt himself, has retreated into hiding, not in anyway to be identified with the present crisis.
Injections will not help the economies. Hyper-inflation will take over. The fury of the people will throw the old guard politicians out and hopefully the Robber Barons in jail. The State will nationalize all banking business and major industries. And being burocrats, they will make an even a bigger mess out of finance than the bankers before.
The State is taking over. All kinds of controls will be instated: import-export controls, price controls, currency transfer and payment controls, production controls and people controls. In the end, with all the planned public works, subsidies and an corresponding ever growing burocracy, everybody will be on the State's payroll. Dislocations and shortages of everything will become the rule of the day.
The Merchant of Debt might try to make a come-back in a last effort to regain power by selling his digi-gold scheme to the State, together with the licence to manage it. Tentatively, three times already, the Merchant's World Gold Council and the Merchant's Council on Foreign Relations, has published the digi-gold proposal already in view of testing public opinion. It claims to be a resurrected gold-standard, where the State keeps the referent gold in custody, but where the public will have no claims on the bullion and will hold but nothing as a virtual gold card. Digi-gold, based on what gold? Must be fantasy gold, as the world's treasuries are empty having leased out the nation's bullion, never to see it back. And no bullion will come from the side of the Merchant either, who will not think about ever surrendering his own hidden hoards.
The idea is to trick people into just one plastic card per person each for all financial needs. Obligatory all personal information would be added to the card, thus making every person for hundred percent a slave of Big Brother State. Let us hope such Orwellian plan will not succeed.
In the slide to the bottom, it will be each country and each man for his own. Under internal and external stress, old Alliances, Super Powers and whole Nations will brake up. No more globalization. No more reserve currencies. No more free borders, free trade or easy migration. No more banks except to facilitate the general flow of money. No more BIS, Bank of International Settlements, no more IMF or World Bank.
No more stock exchanges and financial markets, notafter they cheated the hell out of everybody! Currencies will retreat behind their borders. No more Dollar and Euro. May-be a local Zim-Dollar, a Rus-Mark or a Yuan left, besides gold and silver circulating anonymously in international grey-markets.
New trade-agreements, mostly barter deals, bypassing the old Anglo-Saxon dominance, are being signed daily. The world's resources are being carved up between the eventual new powers of the 21st Century. Resources will be the (war) game of survival in the 21st century.
Only there on earth, where the people will still have some individuality left, abide morality, discipline and tradition and still have their town markets and themselves are able to provide for their basic needs, only there will civilization have a chance to survive.
The world will not fall into depression. Depression does not fit in with the present mood. People are nervous, unsure and agitated. The panic of survival, the people pressure and hyper-inflation will spur government and people into high gear. Inflation works like a whip: people have to work harder and harder to stay in the same place, that in contrast to depression.
But as always, there will be some individuals, dye-hard freedom lovers, with an instinct for survival, that will manage, some way or another, to escape from under Big Brother's controls, keep their independence and freedom and survive by using their brains, backed up by an secret stash of freedom money of precious metals and or some high value industrial metals and may be some high quality precious stones. They will be the pioneers that will lead the world to a new and hopefully better future.
There is no way that mankind will be able to survive with today's dog-eats-dog mentality. That only leads to ever more warmongering, guaranteed suicide and mutual annihilation.
Man has no other choice than to try to ascend, at the least one step up, on nature's ladder of evolution, to finally start living as can be expected of an intelligent human being. Mentality has to change. People have to learn to think again, talk to one another and trust one another again. If not, man will simply be discarded by Nature as a miscarriage to descend into a state of ever slaving and warring ant-societies.
People are their own greatest enemies. Their own weaknesses have destroyed many a prosperous society. Keeping the human weaknesses in mind, I have a few suggestions for the benefit of future generations:
A world made up out of a manifold of small States, - united in a New World Council, - limited from around six to ten million people, where everybody can feel part of and where the leaders will always be in the limelight, will provide for a much smoother ride into the future, than a world where only a handful super-powers are constantly at one another's throat.
A currency must be resistant to fraud. Only hard assets like gold or silver, that have their own independent, intrinsic value are money. Fiat money should be declared illegal. Subject to standards of weight and purity private enterprise not government should be responsible for coinage and emission. Money has to be able to circulate and adjust freely from grassroots' level up and not be dictated from the top. Moneys role is to passively facilitate and not to guide the economy.
All what constitutes debt and interest must be outlawed. Participation in ventures should be restricted to personal share holding on name and not held by a company.
No more down payments, short selling, options, futures and derivatives. Cash only on the deal!
Markets must be transparent, published on the internet and standardized.
So far the suggestions.
In closing this essay, I would like to add a few thoughts about a subject, that has nothing to do with finance, but with western materialism. A contrarian interpretation of the Essence of Time might help people to get away from all the present destructive materialism to regain their footing.
2009 has been declared the Year of Astronomy by the United Nations. I wonder if they are referring to the stars, or to the astro-economics of modern finance: the astronomical losses, the astronomical derivative numbers, the rescue packages, budget deficits or the threatening astronomical hyper-inflation?
But jokes aside, except for some great technical advances, Science is stuck in a cul-de-sac with aged ideas. Since the beginning of the 20th century, Science has not managed to make any significant progress in explaining the basic workings of the Universe. Science is getting ever more stuck in their own confusion and stubbornness by persevering in the wrong direction. So why celebrate the Year of Astronomy when there is nothing really to celebrate?
The calcification of the Scientific Establishment is just as much a sign of the Decline of the West as the West's own decadence, imploding finances and economies turning sour. Since Einstein's Relativity, the Planck Constant and Heisenberg's Uncertainty Principle, no further great advances have been made. The erroneous explanation of the cosmic Red-Shift, leading up to the Big Bang, has been a major mistake by Science. The prima-dona academic establishment is refusing to look at any new ideas that might undermine their holy grail. The worst mistake Science ever made, is to go on using hundreds of equations containing a time factor, without ever having defined what time really stands for.
Well, I got news for them. And here I am feeling as sure as Bruno even when standing on the stake still refusing to retract his brilliant view of the cosmos.
After years of deliberation I have come to the definition of Time, A definition, that overturns many a holy grail:
Time is the force that moves and changes the whole Universe, with all it contains, with the absolute speed of light, into the future.
-The definition makes Time absolute and Space relative, without invalidating Einstein's mathematics of Relativity. Time and Space just changes places.
-In parallel, multiplying Einstein's equation of the atom with all the atoms the Cosmos might contain, the definition of Time brings the whole of the Universe, like the atom, under one, most simple, equation and well TE=M.TA2 , made up out of three dimensions of Time and no more.
-It disposes of the Big Bang Theory and returns to Fred Hoyle's Steady State Universe.
- It shows an Universe, not consisting of matter where only by pure chance matter is creating life sporadically, but the other way round, where it is the Force of Time (the Force of Life?) that creates matter and with it the whole Universe.
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America is too delusional to fix economy
By James West
http://www.MidasLetter.com
January 22, 2009
... among them is a foolish and all-pervasive American pride that precludes the first step in the recovery of any junkie whose behavior has become a threat to themselves and those around them, which is an unqualified admission and acknowledgement of destructive behavior.
... Obama acknowledges his absence of economic comprehension with the appointment of the same foxes who busted up the chicken house in the first place. Their solution? Print more money!
... America has evolved from a nation of conscientious savers to one of rapacious self-absorbed consumers. Buy now, pay later, is the most destructive marketing strategy ever devised by American retailers and creditors.
The Chinese grow more influential over American foreign and fiscal policy because we cannot afford to annoy the largest servicer of American debt. That's why we tolerate the human rights abuses in China. That's why we have nothing to say about the invasion and occupation of Tibet.
... and that, right there is the most dreadful outcome of American voluntary financially enslavement to China. The values and principles it has espoused since the American revolution become ever so hollow and faint as the country loses not only its conviction as to the sanctity and righteousness of democratic freedom, but also its ability to defend them abroad, and ultimately, to practice them at home.
substitute "debtor economies" for "emerging market economies."
The current fiscal and monetary plans of the Obama administration arrogantly assume we can print unlimited amounts of dollars and borrow unlimited amounts of money to solve this economic crisis; meanwhile, the history of the world would suggest that you can't. "On the other hand, one would be wise not to push too far the conceit that we are smarter than our predecessors". I continue to watch the charts of long term U.S. Government Bonds and the $ Index. If these simultaneously start failing the next leg of the financial crisis has begun. The biggest ponzi scheme of all the $U.S. and U.S. Treasury Market will have begun to unravel. "A probable explanation for the more severe contractions in emerging market economies is that they are prone to abrupt reversals in the availability of foreign credit." Given what happened to Great Britain this week, I think it is fair to substitute the phrase "debtor economies" for "emerging market economies."
The engines are revving, as gold watchers await the price inflation skidmarks on the economic tires.
Zombie Banks & Gold Trigger
by Jim Willie, CB. Editor, Hat Trick Letter, December 4, 2008
The USGovt and financial system is growing deep commitments to support dead entities. Their business models have failed. They are bankrupt. Although with faulty business model, often l aced with fraud, they have been fully adopted by the USGovt and US Federal Reserve. They are considered too big to fail. Or one should say, they are too connected to the power structure, or they are too intertwined with explosive financial devices, or one from their own tribe is running the Dept of Treasury. Capitalism embraces the Darwinian principles bound by survival of the fittest. The United States bears absolutely no resemblance to such principles anymore, at least at the upper corporate echelons. The system is giving colossal support to zombie banks and soon zombie corporations. The Wall Street banks continue to receive money without any restrictions whatsoever, even grants after meetings held before dawn, but Detroit carmakers must produce a plan for reform. Under what conditions did Citigroup receive untold billion$? Did they make concessions, or just pull a string? Hidden motives abound, even for the Citigroup last minute bailout.
The climax of this charade in ass-backward policy will be the nationalization of the mortgage system. It is a fully neglected problem, soon to need powerful aid in the nation's largest program in its history. Its prelude was the adoption of the Fannie Mae & Freddie Mac couple, despite its well-known fraud, perhaps directly due to the desire to cover its fraud. Foreigners like China demanded the USGovt backstop of the fat failed duo, which gave the fraud kings political cover. The many foreign funds would have continued to dump the F&F label bonds en masse without the official takeover. Instead, they have shifted from USAgency Mortgage Bonds to USTreasury Bonds.
The US financial structure deeply invests in failure, and is fully committed to the ruling elite, to the exclusion of the mainstream public. Ever since Clinton appointed Robert Rubin of Goldman Sachs to the post of Secy Treasury in 1992, the USEconomy and US financial structure has suffered mortally wounds. That decade of prosperity was stolen from Fort Knox, a major piece to the Strong Dollar Policy having been the gold carry trade enacted by Rubin. These insiders borrowed gold at a lease rate pushed down by Rubin, and bought USTreasury Bonds. Since borrowing costs were the biggest component to business profitability, economic growth ensued. Time revealed the gaping wounds, however. Their actions over eight years resulted in a stock boom and bust, a clear and loud signal at the end of their reign, of a failure soon evident in a wrecked national financial foundation.
In the last year, clearly the new business model is governed by reaction to failure that the Strong Dollar Policy produced. The manufacturing base left town for Asia, starting in 2001. Again, thanks to Clinton for pushing the Chinese Most Favored Nation status. In the first few years since its passage, $23 billion in US corporate investment was put in place inside China. At its peak, Wal-Mart owned 160 manufacturing plants, in direct opposition to founder Sam Walton's ‘Made in America' slogan. The corporate titans sidestepped higher US labor costs and strict US labor unions by leaving the country in a grand movement. The moron US economists hailed the move as a ‘Low Cost Solution' in typical wrong-footed fashion. They somehow overlooked that much less employment in the United States would have consequences rooted in debt growth and foreign debt dependence. By year 2006, fully 60% of Chinese trade surplus was derived from US corporate subsidiaries located in China, exporting products to the West. Here we are, stuck in the present, as the great US consumer economy has virtually collapsed. The stewards of the US money wellspring have decided to backstop or acquire numerous failures. The preservation of jobs and the system itself is their stated motive. Instead, they have guaranteed the failure and collapse of the system, all in time. Viable enterprise is being denied capital, which has been re-directed to failed enterprise. This fact has escaped the US economists, clearly the worst in the world.
GREAT JOKE, SAD TO BE SO TRUE
Lawrence Livermore Laboratories has discovered the heaviest element yet known to science. The new element, Governmentium (symbol=Gv), has one neutron, 25 assistant neutrons, 88 deputy neutrons, and 198 assistant deputy neutrons, giving it an atomic mass of 312. These 312 particles are held together by forces called morons, which are surrounded by vast quantities of lepton-like particles called peons. Since Governmentium has no electrons, it is inert. However, it can be detected, because it impedes every reaction with which it comes into contact. A tiny amount of Governmentium can cause a reaction that would normally take less than a second, to take from 4 days to 4 years to complete. Governmentium has a normal half-life of 2 to 6 years. It does not decay, but instead undergoes a reorganization in which a portion of the assistant neutrons and deputy neutrons exchange places. In fact, Governmentium's mass will actually increase over time, since each reorganization will cause more morons to become neutrons, forming isodopes. This characteristic of moron promotion leads some scientists to believe that Governmentium is formed whenever morons reach a critical concentration. This hypothetical quantity is referred to as critical morass. When catalyzed with money, Governmentium becomes Administratium (symbol=Ad), an element that radiates just as much energy as Governmentium, since it has half as many peons but twice as many morons.
The above is not my original creation, the rest is my addendum. If the above does not make you laugh as much as cry inside, you aint human. The missing portion of the substance known as corruptium, which leads to radiated energy into channels almost entirely into the power source, once damaged heavily by exposure to light, but now covered by czar tissue.
GUARD FROM CURRENCY COMPETITION
The USEconomy is in the early stages of disintegration, not yet recognized as such. The USFed is not helping the system, but rather draining the system, in order to fund Wall Street bailouts, to redeem its fraud, and to ward off foreigners in a global dollar swap policy. The competitive currency devaluations are in full swing. The competing currency war is best seen from the standpoint of official interest rate by nations. Yesterday, desperate rate cuts were ordered atop previous desperate rate cuts done on November 6. The Euro Central Bank cut this time by 75 basis points to 2.5% (last time by 50 bpts). The Bank of England cut this time by 100 basis points to 2.0% (last time by 150 bpts). Even the central bank of Sweden cut by 175 basis points. The rate cuts one month ago were a parade, a cavalcade of discredited bankers, who have increasingly lost confidence of the public. The confusion on monetary policy is aided by observation of the money supply figures, which are growing rapidly. The irony in my mind is that the monumental money supply growth has not entered the mainstream economy, but does not result in economic response, zero traction. The reason is that the USFed has directed funds only to New York banks, thus feeding a black hole. The central bankers are not asleep at the wheel as much as operating a machine with a built-in breakdown mechanism after a few decades. Their time is up. The Gosbank board is worth another view.
NEW LIGHT ON MOTIVE TO EXTORT & DIVERT
Mr Mortgage is astute in analyzing banks and balance sheets. He explains a prima facie motive for the Czar Paulson confiscation of $125 billion, in the scrapping of the TARProgram first tranche. See the article entitled "America's Mark-to-Model Banking System (revisited)" (CLICK HERE). He points out that everybody is focused on Level-3 assets, which are the obscure asset backed bonds veiled in price model chicanery, loaded with leverage, but worthless beyond argument. The subprime loans are laced within this level of asset, given cover by false AAA-ratings and obscured by bond packaging, often structured with leverage. What has not received with much publicity is that the Level-2 assets might result in similar volume losses to banks, but not yet realized. They are loaded down by Alt-A loan portfolios. To be assigned an Alt-A loan, a borrower must have inconsistent records of income, typical of the self-employed, or have a blotch in the credit history, like with a judgment against, or have incomplete records required by bankers from their many unique situations. The Level-2 assets are soon to explode onto the scene, with losses that in all likelihood will eclipse the subprimes losses. Could it be that Czar Paulson might have changed course on TARP fund usage when he realized that the US banking system is due for the next painful round of crippling losses? He might know the US banks are zombies, surely not revived by a cover by a tarp.
Details are in the article, with analysis to be included in the December Hat Trick Letter report due out in mid-December. Let it be clear that the Level-2 assets held by banks are much larger in magnitude than the subprime loan portfolios, like 8x to 10x larger. Wachovia is in possession of $160 billion in Level-2 assets on their books, most likely dominated by Pay Option adjustable rate mortgages. A mere 7.5% writedown in Level-2 assets on bank balance sheets would equal the total writedowns by banks worldwide to date!!! Some argue without basis that the Alt-A mortgages have a significantly lower default rate. NOT TRUE! As of October 2008, serious delinquencies for Alt-A pools that include Option ARMs averaged 20.3% for the 2006 vintage loans and 17.5% for the 2007 vintage, up from 16.9% and 12.2% six months ago, all according to Moodys. These delinquency rates are equivalent to subprimes, and indicate equally high defaults. Thus the volume of bank losses should be expected to be much bigger.
Paulson must be aware of these facts and figures. Instead of throwing Congressional funds into a black hole, he enabled a selected diversion of funds to the member banks of the Federal Reserve Bank system, an elite group of less than a dozen banks. For instance, Wells Fargo is a major mortgage provider, yet was not doled out any confiscated funds. In doing so, he enabled executive bonuses to be given whose size is on par with those of last year, despite performance by executives that resulted in the death of the Wall Street business. My forecast is for three waves to hit US banks, of equal or INCREASING magnitude, from three delineated risk levels. First was subprime, done. Next is Alt-A, in progress. The last wave will be from conventional primes, sprinkled with car loans and credit card losses.
The last wave of significant bank losses will also include the commercial mortgages, whose bond spreads reacted very badly to the Paulson confiscation and diversion for elite benefit. The total volume of commercial mortgages is not very large by comparison. However, the blight will be unmistakable, as office buildings might go empty, and projects left incomplete. Notice the CMBX index rose over 300 basis points since late October alone. The commercial mortgage backed bond index tells the tale of betrayal well. The news media does not. The justification offered by Czar Paulson was that purchase of bank stocks offered a 12x leverage to the big banks, enough to facilitate loans. Except that privately, the banks were ordered not to lend to the public, but rather to save funds for bank acquisitions like National City. Only in America can a group be responsible for wreckage of the banking system, get away with rampant fraud with export, yet its executive icon be put in charge of the rescues, relief efforts, and dispensation of money. The system is broken. Those in charge of the solution are actually making the situation worse.
STRANGE SIGNALS
Numerous onerous signals can be detected. One must ignore the public statements of improvement. In past articles, the point has been made that the US Federal Reserve has engaged in truly massive Cash Management Bill sales, to the tune of several hundred billion$, with $145 billion more between October 2 and 15 alone. THESE ACTIONS DRAIN THE MAINSTREAM PRIVATE SECTOR OF BANK FUNDS, which is precisely the opposite of what Chairman Bernanke claims. He is not flooding the system with liquidity, but rather draining the system in order to subsidize the insolvent Wall Street banks and broken major financial firms. Rob Kirby in private conversations calls it suffocating a man in his living room by placing a bag over his head, when the room is being injected by huge oxygen tanks. Mine is to describe it as filling a vast swimming pool, by diverting water from the neighborhood homes and businesses, then declaring the pool for aristocratic usage only, except for certain peon individuals who are permitted to swim in the shallow section wearing a giant hefty bag for a swim suit. In neither example, is the person gaining benefit.
The USTreasury Bond credit default swap used to trade at a cost of only 1 or 2 basis points. That means the cost was 0.01% or 0.02%, translated to be $1000 or $2000 per $10 million of USTBonds. Nowadays, the CDSwap cost has risen to almost 50 basis points, far higher than government debt for Germany, England, and France. Investors are taking out protection for the unthinkable, a USTreasury default. The risk premiums for such protection have nearly doubled from levels seen two months ago after the collapse of Lehman Brothers. Contrast the USTBond insurance cost with some of the member states. CDS data on some states: Michigan at 192 basis points, California at 165 bpts, Nevada at 164 bpts, New Jersey at 150 bpts, Ohio at 104 bpts. Foreign nation Slovakia has sovereign bond insurance cost at 150 bpts, by comparison.
Many dismiss the threat of a USTreasury default, but they do so in blind faith. They ignore confirmation signals, such as the in the 30-year USTreasury swap spread. It has been negative for a few weeks. Some call this development inconceivable, illogical, impossible. Yet it is the reality. The swap contract exchanges a floating rate for a fixed rate, and pays a price to do so. Imagine paying a small fixed amount to render an adjustable ARM mortgage loan with a fixed rate, a similar concept. Some experienced analysts have interpreted this as meaning that investors are somehow reckoning that they are more likely to be redeemed on their USTBond investments by a private counter-party than by the government itself! One can call this event the ‘proverbial canary in the coalmine' as a threat to the current system. Last week, arguments were put forth that the central bank franchise concept is in danger of demise. Evidence in the signals supports the view. Currency wars are heating up, even as investors are anxious about fiat currencies in general, and their offered debt securities. The Iceland situation rocked the system, to be sure.
Former Harvard University endowment fund investment manager, now PIMCO co-executive, Mohammed El-Erian frequently offers an opinion. He believes US bank officials are making big errors by attacking problems one item at a time, as opposed to treating the problems in an aggregate fashion, from a systemic approach. He makes a key point: A flight to liquidity is occurring, not a flight to quality or a flight to safety, as a global phenomenon takes place toward vast liquidations. He is a system wonk, never forget. He also claims the bank system is again functioning because of the TARP equity purchases at a premium, and placement of funds directly into capital structure. He must not have noticed that over 85% of the TARP funds in the initial tranche went to executive bonuses to select Fed Reserve banks.
The laws of Supply & Demand have not gone away. Yet we have grand disparities to pressure price structures. A) The supply of USTreasury Bonds is huge, yet yields are low and price is high. That is ass backwards. B) The creation of truly vast sums of USDollars is huge, needed to pay for the bond swaps, bailouts, stimulus packages, and nationalizations. Yet the USDollar index rises, due to liquidations and payouts. That is ass backwards. C) The demand for physical gold and silver is huge, motivated by crisis, yet their prices are determined by corrupt paper pricing systems. That is ass backwards. Soon, all three stresses on price structures will be addressed. A strange day occurred on Monday. Gold was down hard, the euro currency was down a little, but the pound sterling was down 500 bpts. Some attributed it to lousy economic news in England. Not completely so! Another factor might be at work. A clearer perception of a struggling UK Economy would not take down the gold price. My sources tell of possible shipments of gold from England to the US-based COMEX, in order to satisfy gold demands for delivery. It is hard to verify. Time will tell.
REACTION TO DISINTEGRATION
If you do not believe the claim of economic disintegration, you have not been paying attention to the many USEconomic signals. The housing prices continue down in an accelerated speed. The Case Shiller September decline for 20 cities was 17.4%, still rising monthly. The home foreclosures continue to grow at a monstrous pace, with no letup. The various regional Fed reports such as the Empire State, the Philly Fed, the Richmond Fed, along with the ISM manufacturing and ISM service indexes are not indicating recession. They are indicating collapse, falling far lower than even keeled 50 levels. My preference is to label it as DISINTEGRATION. When the credit lines are interrupted, when the USFed is acting as the main bank to fund non-lending hamstrung banks, those credit lines are not just broken, but favored toward the insiders, the system is dysfunctional. When short-term credit is hampered, distribution channels are interrupted for necessities that keep an economy running. Letters of credit for shippers are routinely refused when US banks are involved. Consumers finally have fallen down, the indefatigable US consumer, the engine of the world economy. Give me a break! They never were the engine of global growth. They were the lopsided lamb which spent household equity, burning the furniture figuratively, to fund Asian industrial expansion, not to mention the Asian foreign reserve funds. A bonfire to burn home equity is far from an engine, the only thing in common being combustion.
The Asian sovereign wealth funds grew in lockstep with the insanity of manifested US consumer mentality. In the same manner, the Persian Gulf sovereign wealth funds (and private sheik accounts) grew from oil revenues. Never have consumer sentiment measures been so low. To heck with claims of economic depression risk. The palpable risk is for disintegration. The USFed, with its drainage of private sector bank capital to fund Wall Street bond swaps, almost guarantees the slide into disintegration. AS THE SYSTEM DEGRADES FURTHER IN ITS STRUCTURAL INTEGRITY, A PANICKY RESPONSE IS ALMOST ASSURED TO PRODUCE INFLATION FAST. Gold & silver will respond.
RELUCTANT NATIONALIZATION OF MORTGAGES
The national situation will continue to degrade. With New York bankers hogging the trough, the rest of the herd with lesser pedigree is starving. Only after objections to the TARP confiscation and theft has the USFed installed new programs to address Asset Backed Commercial Paper and other pools such as for car loans and credit cards. They must realize that they are strangling the entire USEconomy. In time a panic climate will set in. A turning point is coming for reflation. Slowly, the banking officials and legislators will realize that the ultimate source of the problem for the USEconomy is falling home prices, foreclosures, and the straightjacket that homeowners find themselves with negative home equity. To date they only talk about deeply impaired mortgage bonds, with short-sightedness. Just Thursday, the hapless Secy of Inflation Bernanke admitted that 15% to 20% of US homeowners are underwater on home loans, living with negative home equity. THIS IS THE ULTIMATE PROBLEM BEHIND THE INSOLVENT BANKS.
Bankers will not lend when borrowers are insolvent. Bankers will not lend when their own balance sheets decline each quarter due to falling home prices, the effect being to push their mortgage bonds down further in value. The great majority of homeowners facing foreclosure who accept federal help in mortgage repayment plans actually pass through a revolving door. They face foreclosure only a few months later. WHY? Because the late payments are put onto the loan balance, the fees are sometimes waved, the interest rate is reduced in many cases, BUT THE LOAN BALANCE REMAINS ABOVE THE HOME VALUE. The unsuccessful USGovt HOPE NOW program calls for VOLUNTARY banker reduction in the loan balance. To date, the great majority of troubled home loans are NOT reduced. Thus the revolving door. A big jump has been seen in recent home loan refinances, with lower mortgage rate. This is good news, but fails to address the ultimate problem of insolvent households. The priority must be the achievement of bank solvency and actual home loan balance reductions with federal reimbursement.
THE NEXT MAJOR STEP IS MONTHS AWAY, BUT IT WILL FEATURE NATIONALIZATION OF MORTGAGES, REDUCTION IN LOAN BALANCES, WHOSE COSTS ARE COVERED BY THE US CONGRESS. More pain is needed to reach a consensus on such a huge new program. The nationalization of mortgages will ultimately cost at least $2 trillion.
After blowing $8.5 trillion so far in US Federal Reserve programs, Federal Deposit Insurance Corp programs, Treasury Dept programs, and Federal Housing Administration programs, none of which address the ultimate problem of insolvent homeowners, the stage is set for a radical solution, the final solution to the problem. See the SFGate table of details on this colossal sum of money, which to date roughly doubles the entire USGovt federal debt up to 2008 (CLICK HERE). With nationalization and meaningful loan balance reductions to a few million mortgage loans, a bid can only then be finally placed under home prices. Mortgage bond losses will be stemmed. Bank ruin will be halted. Of course, the solution is radical. But so is the problem. The people lack a solid representation in the USCongress anymore.
THE MORTGAGE NATIONALIZATION WILL FINALLY PERMIT REFLATION, SURE TO RESULT IN HYPER-INFLATION. THE GOLD PRICE WILL REACT IN A CLEAR AND UNMISTABLE MANNER. Now that most foreign central banks have moved to extremely accommodative official interest rates, the USDollar is less at risk from relative monetary competition. They are by now fully aware of the risk to their own banking systems and economies. The global move to reflation, if not hyper-inflation, is soon to be triggered. The maneuver in October to install a globally available USDollar Swap Facility was a deft insurance policy planted by the USFed to assure that foreign banking systems are laced with USTBonds. They can less easily abandon the USDollar as the global reserve currency. The entire, at least Western, world will be joining in the process.
GOLD IN EURO TERMS
The last several months have put too much focus on the US perspective. The gold price has consolidated in euro terms. The real fireworks for gold lie ahead. The COMEX gold & silver markets are certain to endure major assaults. Their phony low price invites heavy demand, if not destruction much like an outstretched rubber band. The swallow of the bitter hyper-inflation pill will assure the rise in gold price. The engines are revving still at 10 thousand RPMs, as gold watchers await the price inflation skidmarks on the economic tires. They are coming. Patience has been sorely tested. With the shift of power away from the US and toward Europe in the Western world, the price of gold should be viewed more often in euro terms. It has not fallen badly, but instead has consolidated. The bullish divergence is clear. A U-shaped reversal pattern requires a move above 650 euros to ignite a rally. Before long, gold will run up in all currencies.
Jim Willie, CB
Le tour du monde en quatre-vingts jours
Around the World in Seven Deadly Bubbles
http://blogs.zdnet.com/Foremski/?p=326
Around the World in Eighty Days
http://en.wikipedia.org/wiki/Around_the_World_in_Eighty_Days_(book)
Addendum to: Douglas let me join him under conditions that I only listen as he meet with a half dozen old bald gray bearded men that teach in the Boston area.
... [that] is not the "story," but the domino effect like that once Vietnam reason given by Kissinger about that part of the world falling piece by piece.
Next year the US economy will break down into a depression much worse than the 1929 era.
At that point the US populace will not stand for "business as usual" in regards to US foreign policy.
No more will the US populace support foreign aid and foreign wars.
The Middle East will no longer have any US military protection.
Iran will quickly take control of Iraq and its oil fields.
Iran will invade and take all other nations with oil fields.
The oil nations of Russia, Middle East, and Latin American will gather together and deny the US and western Europe of oil, causing their economics to further collapse.
China will be a non-player in these events as the government focus on preventing a mass peoples revolt to out them from power.
The good news for the US will be the government to rally in a correct way to do what they should have been doing all these years.
The US will focus on the technologies for energy creation so that each year we will ramp-up ways to generate electricity without needing the import of foreign oil.
The US manufacturing base lost to over-seas will be rebuilt up.
The US will become a boom-country full of excitment.
Addendum: The enemy of my enemy is once again my enemy.
Situation: Oil
Location: Afghanistan
Players: United States, Russia, Iran, Al-Qaida and the Taliban
History: Taliban forced Russia out of Afghanistan
Lesson Learned by Russia: Join with the Taliban, force USA out of Afghanistan and share Afghanistan with the Taliban.
America's: Second Vietnam
-end-
RPMonitor.ru | © Russky Predprinimatel Foundation
NIKOLAI KONDRATIEV AS THE MIRROR OF THE GLOBAL CRISIS.
Part 1 - The global economy is facing a long recession
http://www.rpmonitor.ru/en/en/detail.php?ID=11609
Part 2 - Economic surfing: sliding down the long declining wave
http://www.rpmonitor.ru/en/en/detail.php?ID=11610
Part 3 - Re-formatting of global economy
http://www.rpmonitor.ru/en/en/detail.php?ID=11611
U-TURN
The Revenge of Economic Planning?
Mark Golansky's old forecast is coming true in the times of the New Great Depression
http://www.rpmonitor.ru/en/en/detail.php?ID=11511
The US press reports nothing on these important developments [with] Americans the last to know.
Foreign creditors will form new committees, which will be recognized in time as the Receivership Committee. Foreigners are watching in horror. Decisions have already been made, with Americans the last to know.
Foreigners must cut off a cancerous body part, the one attached to the United States. Foreigners must cut off flow from a toxic systemic organ, the one attached to the United States. CUT IT OFF OR RISK DEATH. They must disconnect of USDollar from the global currency system attached intimately to their own financial and economic systems.
They must, to survive.
ARAB GOALS & MOTIVES
Arabs clearly lust to control and manage a global gold trading center. It will be in Dubai in the United Arab Emirates. The new Gulf dinar currency will pave the road to that center. The Gulf Coop Council is biding time, cutting time delay deals, warding off pressure by the USGovt, appeasing with weapons contracts from the USMilitary, and is working behind the scenes to create a new dinar currency. The new Gulf dinar is likely to be primarily gold in its backing. So, foreign nations will soon be forced to purchase the dinar for all or most of crude oil payments. This forces the purchase of gold in order to purchase crude oil. The demand for gold will thus fortify the global banking system, by means of commodity settlements. Many details are unknown, but the basic structure has been slowly come to light. A new motive flashes red in front of Arabs to institute some changes FAST. The crude oil price is down, cut in half from July. Their revenues are sharply reduced. Russia figures into the complex deal to launch the dinar. The Saudis and small sheikdoms need security protection. The next chapter will involve protection amidst a gold-backed currency, not a military-backed currency, in Saudi eyes.
How many times have we seen the US stock market go down, non-government bond yields rise, the USDollar rise, and the USTBond yields fall? That has been the norm in the last few weeks. These are death signals, not investment signals. The USEconomy cannot afford liquidation and constricted credit, a well-known fact, seemingly forgotten today. These signals come amidst falling confidence, more bank distress measures, more job loss, more home foreclosures, and lately, trouble with letters of credit at port facilities.
Financial markets, including the USDollar, have yet to factor in the deep USEconomic recession. The USDollar rally flies in the face of deteriorating fundamentals. See job cut announcements at Caterpillar, Merrill Lynch, General Motors, Chrysler, several Wall Street firms including Goldman Sachs today. Weekly jobless claims at...
... the USEconomy is accelerating in its decline, certain to produce a recession and huge USGovt deficits. That deficit is likely to at least double and possible quadruple next year. USTreasury Bond issuance cannot conceivably finance all, or at least half, of the commitments. The printing press will do the rest, which will cut down the US$ valuation. The USDollar decline lies ahead, when the distortions slow or come to an end. Gold will soar on the other side of this liquidation.
The gap between the physical gold market and paper gold market is widening. An example bears this out. In Toronto this week, a major off-market gold transaction took place. The price paid was $1075 per ounce on the physical transaction. Its volume was in the multi-million$. There was no US involvement in the transaction, and the settlement was in euros. Enormous repositioning is ongoing by the groups that will participate in the new, partially gold-backed currency. My take is this movement is from a large financial entity with global activity, and ties to central banks. It might be tied to the upcoming split in the euro, into a Nordic Euro and trashed Latin Euro. The Nordic version might contain a gold component. This and other transactions are taking place with European settlement. They are being satisfied in the alternative market, far from the distortions of COMEX. This was a physical transaction with the real metal being moved. Big shifts occur behind the scenes. A couple of months ago, 400 metric tonnes were moved into storage with the Royal Canadian Mint by a sovereign entity.
The more massive the paper manipulation, the more violent the coming correction. The asylum managers are losing control of their paper-physical arbitrage. Watch the gold lease rates, and silver lease rates, which have each more than tripled in the last two months. Lease rates precede price movement. Bullion bankers, including central banks, are reluctant to lease their physical supply. This time is no different, an event to come after the COMEX criminality is swept aside, or simply overwhelmed in return. One well-informed source, with over two decades of gold market experience, actually expects arrests to take place among COMEX officials before long.
John Embry of Sprott Asset Mgmt has raised the possibility of a December gold futures contract default. He is not predicting it, or claiming it as certain, but rather mentions how talk centers on the December gold contract as having extreme stress for actual delivery. Pressure is building. The December contract not only is end of quarter, but end of year. He suggests a possible default. He said, "there is probably going to be such an event to change perceptions." He cited a possible force majeure that could act as a "seminal event that defines the whole situation." He explained that the physical gold price would then dictate the paper gold price, a return to normalcy, and with a gigantic move up in the gold price. Right now the paper gold market is overwhelming the physical side, but the physical side is constricted on supply. He explained that hedge funds are being unwound on a massive scale, slaughtered by margin calls. The long side must call for delivery on many contracts. He also expects there will be many questions on the Exchange Traded Funds soon as well, although those are surely not as important as the COMEX contract defaults.
(above, copied & pasted not in order presented in article)
http://www.financialsense.com/fsu/editorials/willie/2008/1023.html
doug
Harry Schultz Letter http://www.hsletter.com/
September 21, 2008
Harry Schultz of the International Harry Schultz Letter is an enterprising traditional gold bug who has adopted much of the radical critique. Schultz is quite often cautious about gold's short-term prospects. But for some months he has been positively apocalyptical about financial system risk.
Writing on Tuesday with gold around $780, Schultz was once again relatively cautious about gold near-term prospects: "Gold bullion has so far held crucial $750 uptrend line support from its July 2005 low, helped by an extreme oversold condition and rapidly deteriorating troubles in the financial markets. However, we repeat that the constancy of any gold rebound-cum-reversal will depend largely on the U.S. dollar, which requires a two-day close below December $78.30 to destabilize the bulls, and again below $76.70 to confirm a significant U.S. dollar top. Unless these levels are breached, any strength in gold bullion will remain suspect."
The US Dollar Index closed at 77.67 on Friday.
But Schultz also warned: "As the U.S. dollar moves back to the receiving end of its own 'misdemeanors' and its July rally-leg teeters dangerously, it's less likely that global central banks, frantic to exit huge U.S. dollar reserves, will act with the same former restraint and co-ordination. In fact, we could see a mad dash for the U.S. dollar fire escape and potential 'moon-shot' for gold."
"When the gold's all gone, the market will go nuts"
Dear Friend of GATA and Gold:
In an interview with The Gold Report, Sprott Asset Management's chief investment strategist, John Embry, expresses his disgust with the recent suppression of gold and silver prices and explains his optimism for gold's long-term prospects. If gold doesn't sell for more than $1,000 per ounce or so, Embry suggests, there simply won't be any available. The interview with Embry is headlined "When the Gold's All Gone, the Market Will Go Nuts," and you can find it at GoldSeek here:
http://news.goldseek.com/GoldSeek/1221251834.php
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Posted Friday, 12 September 2008
Source The Gold Report 09/12/2008
John Embry, Chief Investment Strategist for Sprott Asset Management and renowned industry expert, has researched the sector for 30 years. He expresses disbelief as he explains today's irrational pricing in this exclusive interview with The Gold Report. He attributes gold's alarming distress to "violent intervention by the paper players." But he's convinced they can only hold prices down for so long and forecasts four-digit gold by January 2009. Juniors present the best opportunity to leverage the coming gold price explosion.
The Gold Report: In our last interview you said gold would unquestionably detach from the dollar. Ten months later, gold is still tethered.
John Embry: The downturn in both gold and silver was literally preposterous in magnitude relative to the rise in the dollar. This was a violent intervention by the paper players. Three U.S. banks on COMEX shorted something like 8,000 contracts in a very short time. That's more ounces than all the world's miners produce in a month.
TGR: Can they keep doing that forever?
JE: No, they can't. This is similar to what happens when you compress a spring. You hold it down but when it comes up, it springs back hard. We'll see a violent reaction in the gold price soon.
TGR: Will we have to wait six months or six weeks?
JE: If gold hasn't moved up by the end of this year, I would be very surprised. People don't realize how distressed the gold mining industry is. Even at $1,000, miners weren't doing very well. At $800, the entire industry is in crisis. Costs have risen so much, nobody's making any real money. In fact, some mines are starting to close.
TGR: Could mines reopen when gold reaches $850 or $900?
JE: Gold would have to be at least $1200 before mines reopen.
TGR: Is now the time for the majors to start acquiring?
JE: I don't understand why the majors aren't acquiring because I've never seen anything like the discrepancy in value between the big cap stocks and the small stuff. Many interesting smaller companies are trading for a song; whereas, Agnico-Eagle and Goldcorp and Kinross are aggressively valued.
TGR: Some of the juniors have lost 80%.
JE: If you had told me we'd see this kind of carnage in the juniors while the gold was still north of $800, I would have said impossible. One of the reasons is that investors are giving up and gold funds, ours included, are under redemption pressure. This creates forced selling with insufficient buying and that leads to the most depressed prices since this cycle began in 2000.
TGR: How long can this go on?
JE: I don't know but I've got some that actually are selling below the cash on their balance sheets.
TGR: Should investors wait for gold to go above $1,000 before investing in the juniors?
JE: Things have gone much farther down than I could have imagined in my worst nightmare. If you are confident that the gold price is going higher, this is an ideal time to be picking away and buying a diversified list of very good quality, cheap juniors. I've made the most money in my life buying things that are out of favor because there's no downside risk, certainly from a fundamental standpoint. When the worm turns, these things could double very quickly. When that happens it'll be hard to buy. Start picking away now, as long as you share my opinion that the gold will see a hefty price rise over the next 12 months.
TGR: How does an investor determine which juniors merit a closer look?
JE: It all revolves around the people and the asset. I look for companies with strong financial support, a legitimate project with a 43-101 resource and sound management. Using those criteria, you can make a reasonable evaluation of what the net asset value is. You can put in your own gold prices while knowing that they're not going to be cash-starved.
TGR: Do we have to work through this panicked selling before stocks will change?
JE: As long as people are abandoning the sector and taking money out of these funds, then there's a lot of irrational selling. The fund manager has no choice but to sell. This is creating a phenomenon where prices don't make much sense. The larger cap stocks are the ones being bid up; they trade because generalists buy them. There's a far bigger pool of capital prepared to buy them. That's why you've got this remarkable discrepancy in valuation between the little guys and the big guys.
TGR: Other people we've interviewed are concerned about a real crash in the overall markets.
JE: We've already had the crash in the junior gold shares. That brings up the naked short selling of these stocks. I think there are grounds for a suit. A lawyer has been phoning me on this subject. Someone is trying to bring a suit against the perpetrators. There has clearly been nefarious activity in these stocks because they get driven down to a level where they can't put their head up without getting pounded back down again.
TGR: If the market crashes, it'll pressure the gold funds.
JE: That assumes that the gold price doesn't explode. If the market crashes, the authorities are going to pour so much money into the system to try to avert economic disaster. Money has to go somewhere. Some of it will go to gold. If the gold price heads higher, you've got the cheapest gold stocks in history. Maybe they won't get dragged down in the crash. Maybe the big caps are going to crash.
TGR: Big caps gold stocks?
JE: Big caps period. Investors have already abandoned the illiquid stocks and huddled in the big caps.
TGR: A lot of people are saying that they see a slowdown in deflation. Do you agree?
JE: I think the problem is potential deflation because I am a great believer in Austrian economics and we've had the greatest credit abuses in history. There's an awful lot of debt and you're stuck creating more of it to keep the momentum going. The real issue here is, can you do it? There is a good argument for a deflationary spiral like the Great Depression. On the other hand, this time paper money isn't anchored. Everything's fiat and the government can create it with the stroke of a pen or the touch of a computer key. If you really want to pin me down, I'd say we're going to have a hyper inflationary depression. The value of money will be destroyed and economic activity will grind to a halt. It'll be the worst of all possible worlds-- a South American meltdown. If that happens, the one thing I want to own is gold. I have been investing more in bullion recently than in stocks. I already own some stocks. But I do believe that if bullion performs as I expect it to, the stocks will do well. If you go back to the 1930s, the best performing things on earth were the gold stocks.
TGR: They went down in the beginning.
JE: They did, but these have already gone down. That would make the case that we had the bear market in gold. I guess they could go down 90% from the peak prices, but still the risk/reward heavily favors the reward side. That is not true for large cap stocks, particularly those that make up the indices.
TGR: But if the price of gold doesn't turn around, don't a lot of juniors risk bankruptcy?
JE: If they're not in production and are fairly careful, they can gear back. The ones in production and losing money are at the greatest risk of bankruptcy. If gold doesn't turn soon, they won't be able to finance their operations. A lot of these guys lose money and just kept going out and raising more. They just keep losing money, so they close the mines. That's also very bullish for gold. We're going to have less and less gold in production.
TGR: What about the juniors that aren't in production?
JE: I'm not worried about the ones that have real ore bodies and have gotten pounded down to where they're trading at $10, $15, or $20 an ounce in the ground.
TGR: Because they'll be taken out?
JE: They'll be taken out or they've hit bottom and, as long as they have enough capital to move forward, they can gear down. Small, quality gold shares are proxies for a higher gold price. The problem is that the gold price is so severely suppressed vis a vis other commodities that the whole business has become uneconomical.
TGR: What percentage should an investor have in bullion and in what form?
JE: If the worst happens and everything goes to hell in a handcart, you want bullion. So the core of your portfolio has to be bullion. Depending on how much money you've got, you can decide what percentage you want to wager on the upside.
TGR: So you recommend a core holding of bullion. Do you believe people should have coins?
JE: Absolutely. I'm a big believer in coins and actually have them in addition to physical gold as part of my position.
TGR: Would the balance be in producers and exploration companies?
JE: I can't pound the table for any of the large cap producers because they don't represent terrific relative value. However, when the gold price goes up, they're going to go up in price. My view is that some of the smaller ones will go up a lot more. It depends on what your goal is. If you only want to protect yourself, own nothing but bullion. But if you want some leverage and to make some money, then you should probably get some intermediate and smaller gold stocks that have been really taken to the wood shed and pounded.
TGR: Could the powers that be continue to drive gold down?
JE: They have a financial crisis of epic proportions and the last thing they want is for gold to become the go-to asset, so they've been throwing everything at it but the kitchen sink. That strategy has resulted in unprecedented shortages of physical gold. Half the bullion dealers and coin dealers in America can't get it.
The U.S. Mint suspended production of Gold Eagles. They claimed it was due to a shortage of blanks. I don't believe that. I think it's a physical shortage. COMEX has created an irrationally low price and people are coming out of the woodwork buying it.
TGR: And they can't replace it.
JE: The fact is that all this stuff at central banks has been leased and swapped and sold into the market. It's gone; it's not coming back. So we're running out. The question is when will it be completely gone--that's when the market will go nuts.
TGR: Are you forecasting that for January of 2009?
JE: That's when we'll have four-digit gold--maybe higher four digits. As this credit crisis unfolds, the gold market can come into its own again. Attempts to discourage people by pounding the gold will end. When everyone realizes what's going on, I think it'll have a salutary effect on the gold price.
TGR: John, as usual, we appreciate your time.
JE: It's always best to talk when things are at their worst because I think that's when the opportunity is the greatest. When we have another conversation six months from now, I think it'll be a much happier one.
John Embry is chief investment strategist at Sprott Asset Management. Embry, an industry expert in precious metals, has researched the gold sector for over 30 years and has accumulated industry experience as a portfolio management specialist since 1963. He joined SAM as Chief Investment Strategist in March 2003 with focus on the Sprott Gold and Precious Minerals Fund and the Sprott Strategic Offshore Gold Fund, Ltd. Prior to joining Sprott, Embry was Vice-President, Equities and Portfolio Manager at RBC Global Investment Management, a $33 billion organization where he oversaw $5 billion in assets, including the flagship $2.9 billion Royal Canadian Equity Fund and the $250 million Royal Precious Metals Fund.
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The GOLD Report is Copyright © 2008 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
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"Of all the polite topics of conversation, the state of one's intestines is probably at the bottom of most people's lists. Let's face it: Irritable bowel syndrome, constipation, gas, diverticulitis and colon cancer are simply not things we like to discuss. And yet, as the old expression goes, death begins in the colon. Don't believe it? Ask any coroner. Autopsies often reveal colons that are plugged up to 80 percent with waste material." - Vegetarian Times, March, 1998
Why I Regularly Cleanse My Colon.
My personal story and why I'll never forget my first colon cleanse.
"I can't believe this stuff was inside me"
Open post to rover_az
Date: June 03, 2008
rover_az: "Take it to PM as you were told."
pcNews: "ok, i PM'ed those concerns to IH Admin"
and,
day 20... still no Admin will acknowledge my PMs
"The Johnny Rotten [seed] of Economics. Keep it up."
http://www.kirbyanalytics.com/
6/18
Rob Kirby
Some Thing[s] That Need To Be Said
Articles like the following have begun surfacing in recent days:
RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:23pm BST 18/06/2008
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.
"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets….
Interestingly, these dire market pronouncements coming from "establishment sources" - if we took them at face value - would be consistent with fiat cash [and bonds] being "king".
This is, no doubt, EXACTLY what Central Banks - the reckless creators of endless amounts of fiat money - would like us to believe.
These claims are completely at odds with the following glaring examples of currency debasement:
Money Supply Growth [China and U.S.]:
Thomson Financial News
China end-May M2 money supply up 18.07 pct - central bank
06.12.08, 3:58 AM ET
BEIJING (XFN-ASIA) - China's broad money supply, or M2, was up 18.07 pct year-on-year at 43.62 trln yuan at the end of May, the central bank said.
In April, M2 was up 16.94 pct year-on-year at 42.92 trln yuan.
In a statement on its website, the central bank said M1 rose 17.93 pct year-on-year to 15.33 trln yuan at the end of May. M1 was up 19.05 pct in April….
U.S. Money Supply chart compliments: www.nowandfutures.com
The CRB Index provides further evidence that fiat money is being debased at a parabolic rate:
Let us also not forget the latest assessment of the Global Derivatives Market:
The Bank for International Settlements [BIS] recently reported that that outstanding derivatives now exceed one quadrillion in notional:
$1.14 Quadrillion In Derivatives--
What Goes Up…
Kevin DeMeritt
President, Lear Financial
Quadrillion? That's a number only astronomers use, right? You know…as in the North Star is "just" a couple of quadrillion miles away.
But, ominously enough, Earth's economists are actually starting to use it, too. No, not to discuss the amount of dollars out there (though it might feel like the Fed just pumped a quadrillion greenbacks into the economy). The Bank of International Settlements recently reported that the amount of outstanding derivatives has now reached the $1.14 quadrillion mark ($548 Trillion in listed credit derivatives plus $596 trillion in notional [or face value] OTC derivatives).
Ladies and gentlemen, these derivatives referenced above are virtually ALL PROXIES for fiat U.S. dollars. Using one ounce of common sense, anyone should be able to see that when ANY GOOD is produced in quantities such as this - their relative value CANNOT AND WILLNOT GO UP - long term.
What is outlined above is a RECIPE for HYPERINFLATION. Typically, at the leading edge of a hyperinflation, shortages of staple goods begin to appear - like this:
Forget oil, the new global crisis is food,
BMO strategist Donald Coxe warns credit crunch and soaring oil prices will pale in comparison to looming catastrophe
Alia McMullen, Financial Post Published: Monday, January 07, 2008
I would submit that the price of crude oil is in fact BEING FORCED HIGHER for the expressed purpose of DESTROYING DEMAND because "it must be" - due to shortage. As oil maverick T Boone Pickens says,
"Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million," he said. "It's just that simple. It doesn't have anything to do with the value of the dollar."
I would suggest that Pickens is "off the mark" when he says it does not have anything to do with the dollar. On the contrary, IT HAS EVERYTHING TO DO WITH THE DOLLAR!
Incremental inelastic global oil demand is coming from China [China subsidizes the price of oil which explains its price inelasticity]:
Subsidized oil product prices led to diesel shortages last fall because small independent Chinese refiners (called "teapots") were unable to pass on higher oil feedstock costs. State-owned refineries, which operate at a loss, were also pinched by higher crude prices. Although the Chinese are now expanding their refining capacity, they have taken a "measured approach" to meeting subsidized internal demand. China set for 400,000-bpd oil refinery output rise (Reuters, January 9, 2008) tells the story --
Lest we forget, China's robust ECONOMIC MIRACLE was indeed "seeded" by WESTERN FIAT MONEY - so it really "IS" all about the dollar:
Western markets have been at least subconsciously aware of this for a decade. More than half of the $1.1 trillion in foreign direct investment that has flowed into China since 1995 has not been foreign at all, but money recirculated through tax havens by various local businessmen and governing officials looking to avoid taxation. Of the remainder, Western investment into China has remained startlingly constant at about $7 billion annually. Only Asian investors whose systems are often plagued (like Japan's) by similar problems of profitability or (like Indonesia's) outright collapse have been increasing their exposure in China.
Ladies and gentlemen, it always "HAS BEEN" about the dollar - and how many of them that are being created!
Of course we should not be surprised when Central Bank shills have the audacity to tell us that fiat money is "going up in value" - in light of what they've done to OUR MONEY - it's a Central Banker's wet dream.
day 10... still no Admin will acknowledge my PMs
Five Minutes to Midnight on the Peak-Oil Clock
or,
Nuclear power is better than no power
http://www.dvice.com/archives/2007/09/shift_nuclear_power_is_better.php
When a house of paper money burns
Credit, the fertilizer of human debt
5/27 Daryl Robert Schoon - THE SHELL GAME
Modern economics is not rocket science. In fact, it's not science at all. It's a game, a confidence game. Once paper passed for money, economics became an elaborate shell game designed to hide the fact paper had been substituted for silver and gold. Debt ratings are an attempt to quantify confidence in paper assets and are an essential part of the game. The shell game is called "Where's The Money?" The answer is simple, it's not there.
The question "where did the money go during the Great Depression?" has now been answered to my satisfaction. During the Great Depression, money essentially disappeared and, as a consequence, consumer and business demand collapsed as did prices, beginning a downward coreolis-like spiral that was to suck the global economy into an economic black hole.
My study of the Great Depression began in the 1990s and the subsequent collapse of the dot.com bubble provided a real-time corroboration of assumptions about the connection between loose credit, excessive speculation, and financial bubbles; and, now, in 2008, one of my most troubling questions about the depression has been answered--where did the money go during the Great Depression?
Plunge In US Commercial Property, an article by Daniel Pimlott posted on FT.com (Financial Times) May 21, 2008 provided a critical clue:
Commercial property prices in the US in February saw their sharpest decline since records began nearly 15 years ago as sources of finance for deals has dried up, according to data from Standard & Poor's out yesterday.
The value of commercial buildings fell 1.03 percent between January and February, the largest monthly decline since at least 1993, when the industry was just emerging from a deep slump.
The fall in national property prices comes as banks have retrenched on lending due to credit crisis and the slowing economy, causing the volume of deals to slow sharply. The market for commercial mortgage-backed securities, which until last August was a major route to cheaper borrowing, has largely ground to a halt.
Sales of commercial properties were down 71 per cent in the first quarter compared with a year earlier, according to data from Real Capital Analytics.
The fact that sales of US commercial real estate fell an astounding 71 % from 1st quarter 2007 to 1st quarter 2008 is shocking and the implications are quite serious. The cause of the slowdown, however, provided the very clue I was seeking.
Commercial property prices in the US...saw their sharpest decline…as sources of finance for deals has dried up… as banks have retrenched on lending due to credit crisis…
DURING THE GREAT DEPRESSION
MONEY DID NOT DISAPPEAR
CREDIT DID
The answer to: Where did the money go in the Great Depression? is found in the metaphor of the shell game. It is now clear that money didn't disappear during the Great Depression, credit disappeared.
The money was never there in the first place. Money had been replaced by credit in the shell game introduced by the Federal Reserve in 1913 when the Federal Reserve began issuing credit-based Federal Reserve notes in place of the savings-based money from the US Treasury.
For details on how the shell game is run, Professor Antal E. Fekete's description of the check kiting scheme between the US Treasury and Federal Reserve provides crucial information for those perhaps wishing themselves to live off the earnings of others.
It is epitomized by an elaborate check-kiting conspiracy between the U.S: Treasury and the Federal Reserve. Treasury bonds, contrary to appearances, are no more redeemable than Federal Reserve notes. It's all very neat: the notes are backed by the bonds, and the bonds are redeemable by the notes. Therefore each is valued in terms of itself, rather than by an independent outside asset. Each is an irredeemable liability of the U.S: government. The whole scheme boils down to a farce. It is check-kiting at the highest level. At maturity the bonds are replaced by another with a more distant maturity date, or they are ostensibly paid in the form of irredeemable currency. The issuer of either type of debt is usurping a privilege without accepting the countervailing duty. They issue obligations without taking any further responsibility for their fate or for the effect they have on the economy. Moreover, a double standard of justice is involved. Check-kiting is a crime under the Criminal Code. That is, provided that it is perpetrated by private individuals. Practiced at the highest level, check-kiting is the corner-stone of the monetary system.
GOTTERDÄMMERUNG The Twilight of Irredeemable Debt, Antal E. Fekete, April 28, 2008
http://www.professorfekete.com/articles%5CAEFGotterdammerung.pdf
THE STUDY OF MODERN ECONOMICS IS SIMILAR
TO THE STUDY OF RELIGION IN A TIME OF IDOLATRY
In the shell game of modern economics, credit replaces money and when credit gives rise to speculative bubbles, the collapse of those bubbles leads to the defaulting of debt which causes credit to disappear and the economy to collapse.
The credit based shell game, however, is nearing its end. The historic credit contraction that began in August 2007 is still in progress. Despite the efforts of central bankers, credit is still disappearing and, just as in the Great Depression, the credit contraction is continuing to spread causing more and more debt to default.
Credit, the fertilizer of human debt, when no longer available effectively spells the end of the legalized shell game masquerading as modern economics; but the kreditmeisters, their global confidence game now damaged by an unexpected lack of confidence on the part of the marks, sic investors, however, will not give up their scam easily.
THE CONUNDRUM OF THE KREDITMEISTERS
Those running the shell game, the central bankers and their codependent brethren, investment bankers, are terrified of losing their day jobs, They have lived well for three hundred years (since the establishment of the Bank of England in 1694) leveraging the productivity of others and we can be assured they will do everything in their considerable power to keep their lifestyle intact..
At this time the central bankers are collectively engaged in financial triage as they attempt to replace the credit that is rapidly being withdrawn in the face of ever increasing amounts of defaulting debt.
Following the same play book they used in the aftermath of the dot.com collapse, the Fed has quickly cut rates from 5.25 % to 2 % but this time they will not ignite a housing bubble as they did the last time. This time, they will do worse. This time, they will burn down the house.
BURNING DOWN THE HOUSE
In the long run, there is no short run
In retrospect it will all be clear, the mistakes, the reasons, the excuses, the results. Now, however, in the beginning of the collapse, events appear more problematic, the outcome still unknown. Nonetheless, even in the fog of unexpected events, certain things can be known and safely predicted; and, one of them is that we are now on the road to hyperinflation.
Appointing "Helicopter Ben" Bernanke to head the Federal Reserve now is akin to sending Sammy the Bull, the mafia hit-man, to negotiate with the Palestinians and Israelis; and when the news comes back that Sammy the Bull shot and killed the Palestinians and Israelis at the negotiating table, we should not be surprised--just as we should not be surprised that Ben "the printing press" Bernanke is erring on the side of excess in the current economic crisis by providing even more credit, by shoving even more debt based paper into now a burning house.
WHEN A HOUSE OF PAPER MONEY BURNS
Hyperinflation is to inflation like pneumonia is to a cold. Though similar, the former is much more consequential; and whereas pneumonia can sometimes kill, hyperinflation is a veritable death sentence. Hyperinflation always ends in the total destruction of paper money. In hyperinflation, the value of paper money reverts to its mean--ZERO.
The past is indeed prologue when it comes to humanity, printing presses, and the recurrent desire of governments to turn paper into gold; which through the alchemy of central banking is possible--though only for a limited time.
While central bankers and governments do not intend to cause hyperinflation anymore than drunk drivers intend to crash, they are nonetheless responsible for the decisions that lead to hyperinflation and deflationary depressions.
The United States has experienced high rates of inflation in the past and appears to be running the same type of fiscal policies that engendered hyperinflations in 20 countries over the past century.
Professor Laurance Kotlikoff, Federal Reserve Bank Review St Louis July/Aug 2006
The US is the largest economy in the world and the US dollar is the world's reserve currency. Its central bank, the Federal Reserve, is the most influential, and Ben "the printing press" Bernanke is its chairman. We should not be surprised at what is now going to happen to the US, the US dollar and the world economy.
As the Fed is busy bailing out international investment banks with America's money, we should be more concerned with what is going to happen to us; because when the US dollar goes up in smoke, the US economy will go down in flames and the world economy will stumble badly, if not collapse completely.
Hyperinflation will destroy both the US dollar and the US economy and the world will not be unaffected. Professor Kotlikoff's warning about a US hyperinflation was published in 2006; and, now in 2008, US printing presses under Fed chairman Ben Bernanke are running faster than they've ever been run before.
HYPERINFLATION IS LIKE STEPPING OFF A CLIFF.
YOU ONLY EXPERIENCE IT AFTER YOU'VE GONE TOO FAR
Friedrich Kessler, a law professor at Harvard and at Boalt Hall UC Berkeley described the onset of hyperinflation during the Weimar Republic in Germany.
It was horrible. Horrible! Like lightening it struck. No one was prepared. You cannot imagine the rapidity with which the whole thing happened. The shelves in the grocery stores were empty. You could buy nothing with your paper money.
From Fiat Paper Money, The History And Evolution of Our Currency $28.50 by Ralph T. Foster, tfdf@pacbell.net (510) 845-3015 This book, a primer on the end game, is everything you wanted to know about fiat paper money and were too afraid to ask.
At Session III of Professor Fekete's Gold Standard University Live in February, I discussed the possibility of a sequential or simultaneous hyperinflationary deflationary depression, the economic equivalent of having both a severe heart condition and a possibly fatal cancer at the same time. Such is not impossible; in fact, it is increasingly likely.
I highly recommend the thorough and studied analysis of hyperinflation and concurrent possibilities in John Williams' Hyperinflation Special Report, Shadow Government Statistics, Series Issue No. 41, April 8, 2008, http://www.shadowstats.com/article/292. John Williams also references and recommends Ralph T. Foster's Fiat Paper Money, The History And Evolution of Our Currency noted above.
The critical question should now be asked: What can we do?
THE PARACHUTE OF GOLD AND SILVER
JUMPING OUT OF UNCLE BEN'S SPUTTERING HELIPCOPTER
The following is from The Nightmare German Inflation, Scientific Market Analysis, 1970, which describes the extreme hyperinflationary conditions during the Weimar Republic in the 1920s:
The ones who fared best were the small minority who had the foresight to exchange marks into foreign money or gold very early, before new laws made this difficult and before the mark lost too much value.
The difference between 1920s Germany and today is that there are no longer any currencies convertible to precious metals. In the 1920s, when hyperinflation destroyed the German mark, other currencies were still tied to gold. Today, this is no longer the case. Today, only gold and silver will offer guaranteed monetary refuge during the coming crisis.
A hyperinflation is a monetary phenomena caused by the rapid printing of money not convertible to gold or silver. The inflation of the paper money supply happens gradually, but hyperinflation is itself a sudden-onset phenomena. Suddenly and unexpectedly, inflation becomes hyperinflation and unless you are already prepared, it is already too late.
Today, we are moving closer to the end game, the resolution of past monetary sins when the banker's shell game is exposed for what it is--a monetary abomination, a parasite on the economic body that over time kills the host on which it feeds.
Be aware. Be careful. Be safe.
Have faith.
Note I: I now have a blog, Moving Through The Maelstom with Darryl Robert Schoon. My first blog discusses the underlying reasons for our increasing series of crises.
see http://www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=106
Note II: I will be speaking at Professor Antal E. Fekete's Session IV of Gold Standard University Live (GSUL) July 3-6, 2008 in Szombathely , Hungary. If you are interested in monetary matters and gold, the opportunity to hear Professor Fekete should not be missed. A perusal of Professor Fekete's topics may convince you to attend (see http://www.professorfekete.com/gsul.asp ). Professor Fekete, in my opinion, is a giant in a time of small men.
Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
blog www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81
Quiz: Personal Attack (a bouncing ball)
Question: Whom was attacked?
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
R:o)se
Anyone Seen My Gold?
Guess Who Goes to Washington -- Anybody Seen Our Gold?
Le Metropole Members,
(MIDAS note: the ad is also served at The Matisse Table)
Wall Street Journal agrees to print full-page ad from GATA
Submitted by cpowell on Fri, 2008-01-18 21:46. Section: Daily Dispatches
1:45p PT Friday, January 18, 2008
Dear Friend of GATA and Gold:
This month GATA will place a full-page advertisement in The Wall Street Journal calling attention to the international central bank scheme to suppress the price of gold and to GATA's conference in Washington in April.
The ad was devised with great care by GATA's Board of Directors over the last several weeks and The Wall Street Journal today confirmed to GATA that it will publish the ad as submitted. In the belief that this ad can strike a profound blow against the rigging of the gold market and all related markets, GATA has cobbled together assets valued at the more than quarter-million dollars to be charged by the newspaper for printing the ad and expects to convert them to U.S. dollars and make payment to the newspaper next week.
You can see the advertisement here:
http://www.gata.org/files/GATA-AD-01-14-2008.pdf
Please distribute the ad to anyone who might be interested in it.
GATA is not asking for contributions to underwrite the ad particularly. But if you approve of GATA's work generally (and would like to help us get our children back), you can learn how to support GATA financially here:
http://www.gata.org/node/16
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Join GATA here:
Vancouver Resource Investment Conference
Sunday-Monday, January 20-21,2008
Vancouver, British Columbia, Canada
http://www.cambridgeconferences.com
GATA Goes to Washington -- Anybody Seen Our Gold?
Thursday-Saturday, April 17-19, 2008
Hyatt Regency Crystal City, Arlington, Virginia
http://www.gata.org/washington
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Help Keep GATA Going
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GATA is grateful for financial contributions, which are federally tax-deductible in the United States.
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2008 - a year pregnant with risk
http://www.freebuck.com/articles/daanj/071225daanj.htm
by Daan Joubert
With one day to go to Christmas and 6 days to the end of 2007 - what a tumultuous year; but not a patch on what 2008 will bring - I would like to place a few market risks for 2008 on record. Let's begin with a review of the background to the disaster that is likely to unfold next year in the US and thus by implication also for the rest of the world; with varying effect and duration depending on local circumstances and exposure to various credit sludge.
Since 1994, US households increasingly had been adding debt at a faster rate than the increase in their disposable income. By 1999 the trend was so marked and so well-established that I could write that if the trend is sustained, the US is on the way to major problems. On the other hand, if households stopped making new debt at such a rate, the economy would slide into recession - something Clinton with his winning slogan in 1992, "It's the economy, stupid.", would never allow to happen. As we now know, the debt binge continued unabated and in fact since 2000 it increased as other sources of cash dried up
[See: http://www.gold-eagle.com/gold_digest_99/joubert121399.html and also http://www.freebuck.com/articles/daanj/060622daanj.htm ]
· The perceived wealth of the late 90's had a marked effect on the price of property - with coastal regions at the forefront of the property bull market. After the Wall Street collapse of the early 2000's and the rate cuts down to 1%, the property market really took off. As people used the low rates to migrate upwards to more expensive homes, a vacuum developed at the lower end of the market where buyers were scarce and often did not qualify for a mortgage. Mortgage brokers, who were being squeezed by funding banks for more issuances of mortgages, exploited this sub-prime segment and lowered qualification criteria until in many instances there were no criteria at all
· The reason why brokers were being pushed for more mortgages lies in the very low interest rates. Investors were keen on and paid good commissions for investments that offered substantially better returns than ruling money market rates. It was a global phenomenon - this demand for high return investments - and US banks made the most of it. However, foreign investors or US pension funds did not want to be proxy owner of mortgages on 500 US houses, having to collect monthly installments and to act when a home buyer goes into default. The banks therefore sliced up into tranches a large number of accumulated mortgages, had these rated by ratings agencies who concocted a transmutation of BBB and even worse rated mortgage debt into AAA rated investment paper, based on some statistical alchemy that was premised on the infantile assumption that the relatively low rate of default of the past would hold true indefinitely into the future. The banks sold these ‘mortgage derivatives' - CDO's and MBS's (Collateralised Debt Obligations and Mortgage Backed Securities) - much of which has become known as toxic waste, to unwitting fund managers and investors who naively believed in the transmutation
· The assumption was ludicrous; anyone who took an objective look at how many US households were being mired deeper and deeper in debt would recognise the fact. An important reason for the over-abuse of easy credit by households - apart from the example set by the Federal Government - can be traced back to the Clinton years. In an attempt to boost the economy and sustain a strong dollar policy, the CPI number was being ‘cooked' to reflect lower than actual inflation. However, since increases in wages and in Social Security are tied to official CPI figure, incomes of pensioners and many people who relied on sub-prime mortgages to own a house, lagged behind their rising real cost of living. To maintain their living standard and for some just to survive, they had to take on more and more credit. Living on debt became a US habit
· Meanwhile, back at the ranch, the banks themselves were keen for higher returns than what they could obtain from normal lending activity. Taking advantage of a very high level of liquidity - translation: lots of money floating around looking for good returns - hedge funds and other forms of investment vehicles proliferated. A bank would put a billion or two into a fund and then sell more shares in the fund to investors keen to get onto the bandwagon. With the larger pool of money, the bank would now gear up through derivatives of some kind, earning good profits - while the strong bull trends of recent years held. In addition, they were being paid management fees by investors in the fund as well as taking a larger cut of profits when the returns were particularly good. Massive profits were being made as investors scrambled to obtain high-return investments and prices of these investment derivatives soared. It really looked like a win-win situation - for the banks and the investors - until the wheels came off
· This had to happen sooner or later. The squeeze of higher rates on rising levels of debt, with wages lagging the true cost of living, and ARM's - the preferred mortgage according to Sir Alan - starting to kick in at much higher than original teaser rates, put an increasing number of marginal households in the position where they could no longer balance their budgets, even with new credit. For many, the decision on what to do as fixed living expenses ate into disposable income was easy. They had bought a house with no money down and so had no equity stake in it and when it started to cost more to own the house - higher installments, rising rates and taxes and having to do more maintenance as time passes- than the rental they had paid earlier, a move back to the ‘old place' looked very attractive. When prices failed to increase at expected rates and therefore the anticipated cushion on the mortgage evaporated, ceasing to pay installments on the mortgage actually looked like the best option
· As defaults mounted, expert insiders knew they had a problem on their hands. A PR campaign by government and institutional spokespeople first told the US that the problem was a minor one limited to a few under-performing mortgages; the economy was safe as can be. However, as some people knew well, the real problem was not the mortgages themselves, but the domino effect once the defaults started to mount. Keep in mind the rating agencies had dressed low quality mortgage credit in a new AAA suit that appealed to uninformed investors. However, now the chickens spawned by a cooked CPI, by artificially low rates and pleas for consumers to ‘Spend, Spend and Spend" to save the US economy, by lax regulation of mortgage practices to keep the property bubble from being pricked, are coming home to roost. No wonder the AAA suit came to look tattered, more like BBB-; so that the dominoes began to wobble
· Two interlocked things started to happen. Nobody wanted anything to do with the mortgage derivatives; demand was gone, prices were dropping fast and banks and their hedge funds were stuck with stocks of mortgages and their derivatives for which there was no market. Further, many pension and other mandated funds who bought into this derivatives market in pursuit of higher returns, found they have to sell their ‘investments', because these were no longer of investment grade, as required by their charters. On all fronts, holding mortgages and CDO/ABS derivatives were a no-win situation, losing value day by day - in real terms, even while models used to price them tried to maintain the pretence that these products were close to fully priced.
· Strangely, there is little news of forced sales by funds that are compelled to sell parts of their portfolio which gets down-rated to below investment grade. It is very quiet on that front and the possibility exists that banks are quietly buying back all the junk that comes onto the market in order to prevent low prices being made public and thereby down-rating their own holdings of the toxic watse. They might even be doing such to forestall any lawsuits that could be launched by buyers of garbage who bought in the belief that it was truly AAA rated and thus, like Treasuries, impervious to default
· It is clear from the above the early estimate of $200 billion for the sub-prime sludge is a fraction of the problem. The pyramid of derivatives piled on top of this amount - to be augmented as the contagion of defaults spreads through higher rated parts of the mortgage market - increases the full amount at risk by a factor one can only guess at; perhaps 10 times? $2 trillion at risk? Consider the practice of default swaps; a means of taking out insurance on credit paper one holds on the off-chance it may lose value or become worthless. The credit swap market seems to have two main player groups - pension funds and others who saw the premiums earned by issuing insurance in a market that has very low risk as money from home. This income could be earned without laying out a significant amount of money. These players cannot really be blamed for taking on the insurance role to augment their income; who in their right mind would not do so for AAA rated and thus gold plated paper? Secondly there are specialised credit insurers who, also with relatively little capital, insured vast amounts of credit instruments on the assumption they would never have to pay on any claims, beyond a few exceptions, on such high grade investments. Given low risk, premiums were also low and the key to success was to insure large volumes of credit. Because of the low perceived risk, these insurers were themselves rated AAA by the agencies. In the consistent bull market of the previous decade, many pension fund managers did what seemed the right thing to do. they purchased, for their higher returns, AAA rated CDO's, insured with an AA rated insurer, while they had the funds to do so. After that, they went for credit swap insurance on the AAA rated paper, thus earning an income that did not require a large outlay of money. For many of these managers it is now a case of, "Welcome to the nightmare!"
· Two concepts are becoming popular in the wake of this mess; the black swan analogy [See: http://en.wikipedia.org/wiki/Black_swan_theory] and long tailed events. It was long believed swans were white - until black swans were discovered; an unexpected event. Probability curves have fat bellies and long thin tails. The fat belly is crowded with events that have a high probability of happening, but out on the tail of the curve events happen rarely and, if the tail is long enough, the probability of those events are so rare one would be foolish to lay out money to bet on their happening in a lifetime. In the investment market, AAA rated investments were like white swans - the odds of a AAA going into default were so negligible nobody considered them and insurance was thus very cheap, so that a holder of remotely questionable AAA debt was foolish not to insure. Yet today we have an epidemic of black swans and a shower of long tailed events - things nobody really could imagine happening. (Except some did warn of disaster ahead, but they were not heeded). No wonder the markets cannot hope to cope with this extreme situation
· Finally, banks operate under a rule that says if the bank has X amount of own capital, then it can lend out Y amount, much larger than X. The ratio Y/X is known as capital adequacy, and there is an upper limit to Y/X that used to be rather tight and strictly enforced. When a bank suffers a loss, the loss has to be covered from its own capital, not from the money of depositors. This enforced limit exists so that a bank would not extend loans beyond a point where there is still a good probability that it could cover a loss without risking the survival of the bank. So, if a bank has capital X and loans outstanding of Y and then suffers a loss, which is then written off against X to bring its capital to X1, it has to call in loans to bring the total amount on loan down to Y1. Doing so is very traumatic for lenders who have to find money to repay their loans. Also, when a bank has to do this, it sends a most disturbing message into the market and a bank run on it and even on other banks is not unlikely.
With this background, we can begin to look at recent events and then speculate about what is likely to happen during 2008.
Much of the chain of events is already evident from the above discussion. Here we only list a few highlights, largely because of their relevance for 2008.
a) The CDO mess blew up to place the value a whole pyramid of derivatives in doubt; as derivatives lost value, easy credit dried up so that the mortgage market experienced a liquidity squeeze, which has now spilled over into other markets. Central Banks try to alleviate the squeeze by adding liquidity, with little success
b) Money center banks have had to rescue some hedge funds they had started and which were rapidly sinking. The outlook for some hedge funds was poor, even with their ‘investments' still ‘marked to model' and thus not reflecting the worsening market situation. Much is being done behind the scenes to forestall a fire sale of poor quality paper that would thereby set a low ‘true market price' to replace ‘mark to model'
c) Investors shun corporate term loans (typically 30 days), widely used by corporations to fund work in progress. The reason: lenders are not sure whether the corporation whose bonds they hold has exposure to the toxic waste market and therefore prefer to play safe. The change in this market represents progress from a credit squeeze to a confidence squeeze; much more difficult to alleviate, even with Central Banks adding more liquidity to the economy. Institutions hoard cash in case they have to rescue one of their own funds, else they may have to write down a real loss which would force them to look for fresh capital in a difficult market, while corporations starve for cash
d) Some banks have already admitted to writing off large amounts of losses, compelling them to seek equally large capital injections in order to avoid having to call in loans. The sums involved ($billions) appear to be freely available from oil producers in the middle east and investor funds in China, among others; countries mostly not very US friendly, but nobody complains about that as long as the banks are rescued. In fact, Wall Street cheers when age-old US institutions sell off to foreigners. The loans are typically of a two tier nature - initially, there are convertible shares, mostly with very high interest rates (11% in at least one case), thus offering the investors a high return until there is a conversion to shares in the bank at what would be a very good price should the markets return to normal during the next few years. In this way, foreign investors obtain a far better than average return combined with the prospect of a large stake (from about 5-10% in cases so far.) in venerable US financial institutions at what may well be a bargain price. Only a few banks so far have come clear on their positions, yet there is widespread awareness in the markets that the ones that have made public their losses until now, are certainly not the only banks/institutions/funds that are in trouble. It is very human to think the banks that have come forward with a statement on their losses are those that can afford to do so. Others, in real deep trouble, have said nothing - yet - while they desperately search for means to recover from their situation. What used to be a crisis of confidence has now transformed into a crisis of survival, with the capital base of institutions and funds under threat. That would imply that even the massive amounts of funds that have been pumped into the market by Central Banks, working together in concerted fashion, will not solve the problem. It is not funds that are needed, but investment. The ECB has announced that $500 billion is available, while a rumour floats around that if need be the total amount available from the Central Banks is really unlimited. The problem is that if a bank or fund is in real trouble with its own capital being eroded, getting a loan does not help; it needs fresh capital, which is only available if an investor can be persuaded to make a definite purchase of a share in the bank. With $billions needed in one go, sources of that kind of money are very limited - and almost certainly foreign based.
e) Exacerbating the problem is the fact that the rules for capital adequacy were relaxed during the boom years when little went wrong in the financial markets, so that banks could feed the demand for credit. This meant that for a fixed amount of capital, as the years passed, banks could lend out more into the growing demand for credit. While few of the loans outstanding went bad, this was fine - banks were coining profits like never before. However, now these banks are sailing into two headwinds: many more than usual of their clients are going into default and the money lent to them have to be written off. Secondly, a good many banks, themselves in pursuit of high gains in the derivatives markets, have also sought to either invest in these markets or to start up funds to play those markets, relying on heavy gearing to boost the profits. With these investments in CDO's and in hedge funds also trouble and having to write off losses, the banks are suffering a double whammy on their capital base
2008
That is how 2007 is rushing to its close, just a week away. This gloomy end to 2007 spells nothing good for 2008 - not if, as some others and I suspect, what we have seen so far is only the beginning, the tip of the proverbial iceberg. If so, 2008 is going to be a chilly year for US financial institutions and many others; for investors and for the general household.
So, what can we expect of 2008 if what has been happening sets a trend?
· Despite the Bush/Paulson (or is it Paulson/Bush?) plan to slow the rising incidence of foreclosures by freezing installments on certain selected mortgages ( a measure that is bound to have its own negative effect on CDO's etc), forecasts by informed sources anticipate the number of foreclosures to mount as more and more mortgages pass out of their teaser period into being subject to the ruling rate. ‘Easy' mortgages were the rule from late 2005 to early 2007 and many of these are due to mature to higher rates in 2008, with disastrous results for the home owners, and for owners of CDO's, etc.
· Banks have had to ‘sell' even up to a 10% share to investors who could provide the amount of funds needed to secure their capital - and this on write downs flowing from losses during and just after 3Q of 2007. There is widespread suspicion that the write-offs will be as great, or even greater, at the end of 4Q 2007 - with further large losses to come in 2008. How long, then, before one of two events, or both, happen: a major financial institution fails on capital adequacy and either calls in its loans, or simply folds. In both cases, a wave of potential counter-party claims erupt all over the market place with great destabilizing effect. Alternatively, the government has to step in and institute measures to protect the US financial system before it falls under the control of perhaps not the most friendly of foreign investors
· There has been a spike in the (official) US Inflation rate - and it is not clear whether this is a one-off event or a new trend. It would not surprise at all if the US dollar were to resume its weaker trend - the rally over the days prior to Christmas coincided with the coordinated blast of liquidity from a group of Central Banks and the firmer dollar clearly was part of their strategy. With the US situation looking frail, it would not do if the dollar were to plunge even lower and thereby give a boost to the inflation ogre, thereby demanding higher US rates.
· Higher inflation - so recorded despite cooking the statistics - requiring higher rates from the Fed, would be a death blow to the US economy at this stage of the melt-down and freeze-up in the financial system. A strong dollar policy was never needed as much as now, but now that would be a really tough challenge to surmount. Central Banks can do much to boost the dollar for a short period, but with fundamentals so far out of kilter, the odds of their doing so for the medium term appear rather thin. If the dollar goes - when? - the wheels will really start to come all the way off
· It is clear from the preceding discussion and above comments on 2008 that we are in a precarious multi-factorial situation. There is no single factor that one can watch and follow to see which scenario unfolds and how; to gauge the degree of unfolding risk. The analogy is more like a number of dominoes standing in a circle - if any one of them goes over, the rest all fall down. In real life, the dominoes represent, among others, US households and their ability to add even more debt and spend; the foreign investor who has to decide whether keeping his dollar investments intact and putting even more funds into dollar assets is a wise thing to do; the ECB who has to judge what effect its decisions will have on the US situation; Asians, with the Chinese very prominent, whose official policy towards the US and investments in dollar assets are of critical importance to what will happen; the US government and how they react to real and perceived threats to national security and the stability of US markets - and the degree to which the PPT can maintain the pretense of a strong Wall Street to show that all is OK and normal; no need to worry. Finally, to what extent can US banks and financial institutions manage to keep the ‘going into liquidation' wolf from the door
· One should remember that the US has not been above board to Asian investors, in China in particular, in recent months. Just before the CDO mess blew up, a senior US official - a member of cabinet no less! - flew off to China to inform them of the advantages of investing in AAA rated US mortgage derivatives. No need to guess what the Chinese now think of that suggestion. Add to that recent news that CDO's were specially designed so that toxic waste mortgage, under AAA camouflage, could be sold to naïve and trusting foreign investors and fund managers. As was mentioned earlier, there has been relatively little - if any - reaction from Asia on the subject of being stuck with rapidly devaluing investments. However, it is as certain as can be that their investors will react to this development at a time of their own choosing and in a manner that will not be pleasant to US interests.
· Recent news abounds with articles on first time losses at US major banks; on insurers of US credit instruments that are very much over-extended should the melt-down in the credit market continue. For example, MBIA insures about $700 billion of debt; if only a fraction of that amount arrives at the front door as claims, MBIA won't have a hope of settling them - not without mortally depleting its capital base, however large that is. The other large insurers are in the same boat: when the markets were calm and bullish, it made sense to gear up as much as possible on the available capital. That was the way to ensure good profits and sky-high bonuses; why worry about black swans, which do not exist in this new and wonderful economy! No wonder the ratings agencies assigned the insurers AAA ratings; they faced such low risk. Now it seems likely that S&P and Fitch and Moody's may decide, in view of their fiasco with the CDO ratings, to play it safe and reduce the ratings on insurers. That implies the debt they have insured would also be down rated and, if ratings drop far enough, it means that pension and other funds which hold that debt may be forced to sell. Should this come to pass in 2008, a massive amount of erstwhile safe credit derivatives, including municipals, would be dumped within a short time. That would really tear apart the US credit markets with little hope that even greater injections of liquidity would solve the problem. The most likely course of action sees the Fed buying up all the lower rated debt that come onto the market in an attempt to rescue the financial markets; yet, by doing so, they may well cut the legs from under the dollar.
There is more one can add to these dismal scenarios, but the above should suffice to paint a bleak picture of the prospects for 2008.
Other factors to ponder
The core problem is the US credit situation and what flowed from it - as laid out above. But this mess is not happening in isolation; there are ramifications across the whole economic landscape. Some of them are:
· How will members of pension schemes react when they hear of multi-million and even multi-billion dollar write-offs against their retirement money
· The dollar gained much over the past week, primarily, one assumes, with concerted support from a number of Central Banks who feel that a stronger dollar will alleviate the problems being experienced in the credit markets; they need foreign investors to feel confident of their US investments, not worried about a currency collapse. But can support last? Once the dollar resumes its slide - as seems inevitable - the pressure on the US balance of payments and on US inflation will increase again. The last thing the US now wants is higher (official) inflation that would necessitate raising rates and placing many households deeper in trouble
· The foreign factor cannot be disregarded. There is a theory that Asian and other large holders of US financial assets cannot afford to let the dollar drop because that would result in their reserves being down valued. However, there is also a widely respected saying that it is foolish to throw good money after bad. If dollars can be used to fund major and long term contracts for food and oil and resources, thereby using their current value to the full, why use them to purchase US assets that are bound to lose intrinsic value and even more as the dollar sinks. Couple that to the chagrin foreigners must feel over being caught in the CDO scam and one can imagine they will relish payback time when they have the US over a barrel. 2008 might just be that time!
· As markets turn more fragile, the US government might feel compelled to step in and try to keep matters on even keel. However, governments all over are well known for their propensity to unleash the law of unintended consequences. Watch what comes out of Washington in election year 2008 to stop the rot; do not be surprised when this law comes into play, with negative effect on the US economy and on relations with countries on which floundering US institutions rely to supply funds for their rescue.
A long review and a ‘stick my neck out' effort. But the risks for 2008 appear so clear cut that it seems safe to take the chance. Even if this analysis misses the boat by a wide margin, the fact remains that 2008 will be a most interesting year, full of surprises of the more unpleasant variety. Almost certainly, some of the items mention here will be among them.
Best wishes for 2008
daan
daanj - at - telkomsa.net
25 December, 2007
Roodepoort, South Africa
Please rate this post: G, PG, PG-13, R, NC-17
Note: Responsible Bladder Control is NOT Required
Testing Meatloaf Removal (wondering whom deleted it)
"Susie924 can be a flaming red head."
(from) #msg-3434502
"Susie924 is a tall redhead married to Churak."
(from) #msg-3434986
ok, need a picture of a Mr. Churak to deserve a flaming red head.
rose
Cogito ergo periculosus amotio tabellae
Hi Mr. Churak,
On the Q&A board resides a post by Douglas, if posted today would be deleted.
If permission granted, I will reference it.
Back then it was taken less than lightly by Mr.Zumbrunnen.
The post date in the year of the Chinese Green Wooden Chicken,
when iHub Founder Mr. Brown held this IH jewel as absolute king.
The impact of nuclear attacks on U.S. cities
http://blogs.zdnet.com/emergingtech/?p=522
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No hunting! No trespassing! No Entry!
BEST AND WORST OF TRED BARTA
Colorado Elk
Signs, signs.. Everywhere are signs. as the song goes.
How do we gain access to public land in today's overly privatized world
where so many of the best areas to hunt are blocked off by private interests?
Tred shows us how to play the game and beat the system on an elk hunt.
http://www.versus.com/
Tuesday, February 20, 2007 1:00AM - 1:30AM
Wednesday, February 21, 2007 2:00PM - 2:30PM
Coast Guard modernization effort beset with problems
A multibillion-dollar effort to modernize the Coast Guard's fleet has suffered delays, cost increases, design flaws and, most recently, the idling of eight 123-foot patrol boats that were found to be not seaworthy after an $88 million refurbishment. The sidelining of eight of 10 Miami-based cutters worsens a patrol-boat crisis while the Coast Guard is preparing for the exodus of Cubans that could happen when dictator Fidel Castro is no longer in power, Coast Guard leaders acknowledge. More broadly, congressional critics warn that early mistakes in the 25-year modernization program -- the Coast Guard's largest contract ever -- are hobbling the service's transformation into a frontline homeland security force.
Full Story
http://www.boston.com/news/nation/articles/2006/12/10/coast_guard_modernization_effort_beset_with_pr...
The Regathering Storm
For the past year, a secret has been slowly spreading among Taliban commanders in Afghanistan: a 12-man team of Westerners was being trained by Al Qaeda in Pakistan for a special mission. Most of the Afghan fighters could rely only on hearsay, but some told of seeing the "English brothers" (as the foreign recruits were nicknamed for their shared language) in person. One eyewitness, a former Guantanamo detainee with close Taliban and Qaeda ties, spoke to NEWSWEEK recently in southern Afghanistan, demanding anonymity because he doesn't want the Americans looking for him. He says he met the 12 recruits in November 2005, at a mud-brick compound near the North Waziristan town of Mir Ali. That was as much as the tight-lipped former detainee would divulge, except to mention that Adam Yahiye Gadahn, the notorious fugitive "American Al Qaeda," was with the brothers, presumably as an interpreter.
Another Afghan had more to say on the subject. Omar Farooqi is the nom de guerre of a former provincial intelligence chief for the Taliban; he now serves as the Taliban's chief Qaeda liaison for Ghazni province, in eastern Afghanistan. He says he spent roughly five weeks this past year helping to indoctrinate and train a class of foreign recruits near the Afghan border in tribal Waziristan, and among his students were the English brothers. The 12 included two Norwegian Muslims and an Australian, along with nine British subjects, says Farooqi. Their mission, Farooqi told news-week, will be to act as underground or-ganizers and operatives for Al Qaeda in their home countries-and their year-long training course is just about finished.
Full Story
http://www.msnbc.msn.com/id/16240565/site/newsweek/
Guardian OC Grenade & Extraction Unit
Guardian Protective Devices is one of many pepper spray manufacturers. Last year while attending a Counter-Terrorism Conference, there were many law enforcement and military geared equipment manufacturers. Guardian Protective Devices was one of the companies represented. I had the opportunity to meet and speak with Herb Schreiber, President of Guardian Protective Devices. Herb certainly has a passion for providing equipment that helps protect those that go into harms way. Herb showed me several of their products, which I was itching to get my hands on. A few months ago, I finally did get my hands on some of their products. Herb was kind enough to send me several O.C. Grenades and Extraction Units.
Full Story Can Be Viewed At:
http://www.borelliconsulting.com/evals/other/guardian.htm
SOG Knives SEAL Revolver
Awhile back I did a Tactical Equipment Review on the SOG SEAL Revolver. That was right after it had been introduced and the review specifically addressed how well suited it was for military / law enforcement use. Since that time I've enjoyed the SOG SEAL Revolver KNIFE on a number of occasions. I have to admit that it's quite handy to have a knife blade and a saw both contained in one grip, and neither is a folding blade. This week's Recreational Review is going to take a look at the SOG Knives SEAL Revolver in its various formats and blade finishes. I think you'll see that this is quite a versatile tool that is well worth its cost and weight.
Full Story Can Be Viewed At:
http://www.borelliconsulting.com/recevals/toolknife/sogsealrevolver.htm
Pentagon Flashlights In The Field
Most of the people I know didn't buy their "tactical" flashlight specifically to use on a camping trip. The large majority of them (if not ALL of them) bought that first light to put on their gunbelt or on their equipment vest. It was only when they were actually going to go camping, already in possession of the light, that the realized how well suited the flashlight would be to the field conditions normally experienced during that couple nights spent under the stars. I purchased my first tactical light in the mid-nineties, and it was certainly to put on my gunbelt. Here lately though, I've found myself examining the whole spectrum of "tactical" lights in an effort to find the one I feel is most suited to my needs during recreational outings. One of my most recent acquisitions is the Pentagon X2 Xenon. While this flashlight is quite comparable to some other manufacturers' basic designs, for some reason this one seemed to stand out.
Full Story Can Be Viewed At:
http://www.borelliconsulting.com/recevals/lighttools/pentagonlight.htm
H&K Knives from Benchmade
You know, there was a time when I felt that having a manual safety on a knife meant that the knife was obviously over designed. Then in 1999 I was asked to review an assortment of folding lockblade knives for law enforcement duty use. Two of them had secondary locks that prevented an unintentional UNlock of the blade. It wasn't until 2003 that I actually saw a folding lockblade knife that had a manual safety which had to be deactivated to open the blade. Now, it seems that such items are becoming almost fashionable. When I received the two Heckler & Koch knives that are the subject of this week's review, the first thing I noticed was that both had a manual safety. Both are automatic, though, and that manual safety is a very nice feature to have when you consider the possible alternative of the thing accidentally opening in your pocket. There are things down there you don't want a sharp knife opening at or into!
Full Story Can Be Viewed At:
http://www.borelliconsulting.com/evals/knives/bmhkknives.htm
Privatization of National Security
During most of the twentieth century, a strong and well-funded military had limited need for private contractors. But, post-Cold War cuts in defense spending and staffing along with the changing nature of national defense gave rise to the critical need to turn to Private Military Contractors (PMCs) to offer expertise and supplement U.S. military resources.
Determining the appropriate roles for both government resources and PMCs was the topic of discussion at the McCormick Tribune Foundation's conference on "Understanding the Privatization of National Security," held at Cantigny Park in Wheaton, Ill., on May 11-12, 2006. Forty distinguished legal scholars, first responders, military personnel and other representatives of the private and government sectors were on hand to define and refine the key issues.
Two main areas of concern framed the discussion. First, the roles assumed by PMCs and their resulting responsibilities and, second, the legal and humanitarian concerns that arise from private contractors assuming certain tasks.
Full PDF Version (750 KB)
http://rs6.net/tn.jsp?t=ofs7ezbab.0.x645ezbab.6ttnmsn6.16619&ts=S0203&p=http%3A%2F%2Fwww.mcc...
Beretta CX4 Carbine
http://www.borelliconsulting.com/evals/guns/berettacx4.htm
Great Lakes machine guns raise ire in Canada
http://www.theglobeandmail.com/servlet/story/RTGAM.20060928.wlakes28/BNStory/National/home
5.11 Tactical Pants & Shorts
I have always found it humorous that the 5.11 Tactical pants and shorts are SO well known in the military and law enforcement industries, but not as popular amongst the recreational outdoor crowd (at least in my area). Why? Because, as I understand it, the 5.11 Tactical Pants were originally designed for rock climbing. The expanding waist, the hidden internal kneepad pockets and the strap on the rear pocket for D-rings... all design features to make the pants more comfortable and of greater utility value for the climber. This week we're going to take a look at the pants, and both lengths of shorts and how they perform out their in the elements.
http://www.borelliconsulting.com/recevals/apparel/511pantsshorts.htm
Beretta PX4 Pistol
Sometimes it takes a company a few years to evolve a new design. Beretta's M9 / 92F 9mm handgun - and the subsequent .40S&W caliber versions - was, and still is, an excellent design. That said, is there always room for improvement? Yes. Otherwise the firearms industry would be stuck with flintlock rifles and handguns. There are several notable design evolutions incorporated in the Beretta PX9 and PX4 pistols. The closed side, the rotating barrel and the polymer frame with interchangeable backstraps all help the handgun bring Beretta into the new millennium.
http://www.borelliconsulting.com/evals/guns/berettapx4.htm
#73675 on The Question and Answer Board (MATT)
deleted per request of JalapenoBuckaroo
Interests/Hobbies: Fish, Hunt, Shoot And.... Fart
Signature:
searchlight (suggested retail price $1,595)
http://www.borelliconsulting.com/evals/lights/helios.htm
Rose of The Neanderthal Man
Phil (Bullrider) #msg-12779903
Rose #msg-12785720
doug
List of crew-served weapons (US Armed Forces)
http://en.wikipedia.org/wiki/List_of_crew-served_weapons_of_the_U.S._Armed_Forces
1 Squad automatic weapon/automatic rifle
2 Machine guns, Automatic grenade launchers, autocannons
3 Sniper/marksman rifles
4 Missile launchers
5 Mortars
6 Artillery
7 Mine dispenser
8 Mine related
If Shoe Won't Fit, Fix the Foot?
Cosmetic Toe & Foot Amputation Surgery to Wear High Heels
Women are getting their toes (or parts of their toes) amputated in order to wear
high heel shoes with pointed boxes, like Manolo Blahnik and Jimmy Choo's.
$2,500 per toe, for the surgery.
The toe is cut open, bone is removed and then the toe is sewed back up.
The tip of the toe shrinks.
The procedure is similar to the way shrunken heads were made in the Amazon
when the skull inside the head was removed, leaving only soft tissue.
After toe(s) amputation the remainer of the normal foot on a women will still
not fit correctly onto these pointed toe shoes because their feet are too wide
in the middle and rear portions for the extreme narrow width that these
high-end fashion shoes are only made for. The five metatarsals or bones in
each foot are then bunched together with a rubber band around them just as
bandages or casings are used to create Chinese bound feet.
IH feet lover men (kiss and lick women's high heel shoes) also like to kiss
and lick the neked foot of women, but find feet with horribly disfigured
amputated toes to be unappealing like GLOP.
But to put this into perspective, there are people who do things to their bodies
that are far more shocking than anything related to wearing high heels.
(See the Extreme Body Modification website.)
:(
Russia to show Americans how Old School counter-terrorism is done in Iraq
"In Iraq, the Russians are about to show the Americans how it's done. Or at least try to. After four Russian embassy personnel were recently murdered by terrorists, many experienced counter-terrorism professionals expected the Russians to act. Russia, over some two centuries, has developed some very successful techniques for dealing with terrorists. When confronted with terrorist attacks like this, the Russians go in and play by terrorist rules. They terrorize the terrorists. Back in the 1980s, for example, Islamic terrorists in Lebanon kidnapped a Russian diplomat. The Russians (then the Soviets, a distinction without much difference in these matters) quickly found out which faction had their guy, kidnapped a relative of one of the kidnappers, and had a body part delivered to the Islamic kidnappers. The message was, release the Russian diplomat unharmed, or the KGB (Soviet secret police) would keep sending body parts, and grabbing kinfolk of the kidnappers. The Russian diplomat was released. Apparently that lesson has been forgotten, at least in some parts of Iraq. This time around, the Russians let the Americans and Iraqis deal with retrieving their four diplomatic personnel. The Russians blame the Americans for not getting their guys back alive, and now say that they will show the Americans how to proceed in these matters. That may be a little more complicated than the Lebanon operation. Back then, Lebanon was in chaos, in the middle of a civil war. These days, there is a pretty strong government in Iraq, with over 250,000 security personnel. And then there are 150,000 coalition troops. All of these people may not have been able to find the four Russian embassy staff, but they can get in the way of Russian secret police searching for the kidnappers. Not that it's impossible for the Russians to do what they want to do, but it will be under more complicated conditions. Then again, the Iraqi government and the Coalition may simply give the Russians a free hand, with the usual admonition to avoid making too much of a mess. Moreover, Russia has developed a lot of contacts in the Middle East over the years, and seems prepared to call in some favors to get the job done. Whatever the case, it's going to be an interesting example of Old School counter-terrorism."
Gary Jackson
Blackwater Tactical Weekly
http://www.blackwaterusa.com
Diamonds are a man's best friend to put an edge on!
EZE-LAP Diamond Products, Inc.
http://www.eze-lap.com/
Horace: sapere aude! (Epist., I. ii .42.)
Antal E. Fekete
Professor Emeritus, Memorial University of Newfoundland
... And God created gold...
And God saw that gold was good, and he ordained it as primordial money. The gold coin was to be the savers' guardian angel and the producers' patron saint, they being the pillars of society. It was also meant to be the protector of the wage-earners, the most vulnerable protagonists of the drama of Human Action. The role of gold in the economy is that of regulator of the quantity and quality of debt. Gold has continued to be money as well as obstruction to the Debt Tower of Babel for over five thousand years. Until man in his infinite conceitedness wanted to be wiser than God. He sought to overthrow the monetary rule ordained by God. He set out to build the Debt Tower of Babel that was to reach to Heaven. Pilfering savers and plundering producers was the inevitable result of the activation of the fast-breeder of debt triggered by the elimination of gold money.
Seven gaunt cows devouring seven fat ones
Not only did man overthrow what he called "the yoke of gold"; he also sought to obliterate whatever wisdom previous generations have accumulated through painstaking research and careful experimentation with the sharp instrument of credit, the cutting edge of progress but which can also hurt its careless wielder. The monetary system of the Brave New World has feet of clay planted in a pile of rotting paper. It is animated by a false doctrine, the Quantity Theory of Money, a.k.a. monetarism, preaching that gold can safely be overthrown provided that it is substituted by a "quantity rule". The fundamental error in this is the assumption that gold is there in the first place to limit the quantity of money. Yet the role of gold is to regulate the quantity, not so much of money, but of debt. In falsifying science man has frustrated the only hope to rectify the error. This brings to mind the old adage that "if God wanted to punish someone, He would make him mad first".
In previous essays of this series I have discussed how speculation and warehousing combine to meet the ever-present challenge of the fickleness and niggardliness of nature. Warehousemen must ration scarce storage space among competing uses. According to the Genesis the first warehouseman, Joseph of Egypt, provided for the seven lean years by storing the grain surpluses of the seven fat years, following his interpretation of the Pharaoh's dream: seven gaunt cows devouring seven fat ones.
Supply-shocks
Briefly stated, man is in a continual struggle with supply-shocks in the market. They come in two varieties: bumper crops and crop failures. The former is the Nemesis of producers, the latter that of consumers. Either way, the whole society suffers. However, supply-shocks can be mitigated through foresight, organized speculation, and intelligent warehousing. The fulcrum is the activity of warehousemen who, following the example of Joseph, allocate scarce storage space in a most efficient manner in order to provide for future contingencies.
Their talisman, enabling them to perform this job successfully, is the basis. It is a seismographically most sensitive instrument to provide information in a most concentrated form. It makes for an early warning system exposing potential supply shocks threatening society. Moreover, the basis also digests information such as the producers' estimate of what is a good price for their product, comparing it with the speculators'. The basis picks up all signals, including producers' forward sales and speculators' purchases of futures contracts, bringing the two into balance. The question arises how this can be accomplished. After all, the basis is the spread between the nearby (rather than distant) futures price and the cash price. The answer is: through arbitrage. Floor traders hedge their sales and purchases of distant futures as they simultaneously do the opposite transaction in nearby futures. The basis registers and harmonizes all signals coming from all markets trading that particular commodity. One cannot help but admire this fine communication system through which potential supply-shocks, ever present due to risks inherent in nature, are mitigated by the "invisible hand"as directed by the basis.
Speculation versus gambling
But there are false prophets, in economics no less than anywhere else. They preach that in exactly the same way as speculation can counter the untoward effects of supply-shocks, it can also meet the challenge of demand-shocks. Just as speculation can face risks inherent in nature, it can also face risks artificially created by man. However, in God's own dictionary a fine distinction is made between speculation and gambling. When man meets risks artificially created by other men (including the government), it is not speculation. It is gambling. It is akin to bets placed by the gambler on future events which may appear to be random but aren't: they are rigged artificially by the casino owner for his own benefit. The false prophets, being apologists for government-induced gambling, are anxious to blot out this distinction.
Why is speculation successful in reducing risks inherent in nature, but a miserable failure when used to reduce risks artificially created by men? Why is it that when the government wants the speculative markets to reduce the fluctuation of foreign exchange and interest rates, or that of gold and silver prices -- all caused by foolish policies of the self-same governments -- the result is always contrary to purpose?
To answer this question we need to consider that in the case of risks inherent in nature all speculators start off with an equal chance to be successful. No "inside information" is available to anyone. The playing field is level. Not so in the case of risks artificially created by government in deliberately destabilizing foreign exchange and interest rates. Here speculators pit their wits against that of central bankers. The latter think they can manipulate the former. A closed group of men tries to outsmart an open group. But the closed group consists of paid hands who don't have to face the music of accumulating losses. All losses have been underwritten in advance by the government and are covered from the public purse. The open group on the other hand consists of speculators who risk their own capital which, if lost, will force them to quit. Their role is taken over by others with better mental equipment to outsmart the same central bankers. This is how George Soros could single-handedly bust the Bank of England while it was trying to uphold the value of the British pound. The Soros incident was not the first episode of devaluation in the wake of speculative onslaught, following solemn government pledges that the pound would never be devalued. Major landmarks are: 1931, 1948, 1968. Before 1931 a paper pound fetched exactly one gold sovereign. Seventy-five years later, in 2006, it took one hundred paper pounds to buy the same sovereign. Apparently, Mr. Soros knows something that Mr. Brown, the Secretary of the Exchequer, does not.
The rise of the gold basis
When in the early 1970's governments in their wisdom discarded gold from the international monetary system, not only did they cut adrift foreign exchange and interest rates. They also let the genie of the gold basis out of the bottle. Treasury officials were confident that they could control it by giving speculators the run of the house. The fundamental feature of the gold market is contango. When threatened to go into backwardation, the falling gold basis would create powerful incentives for people to accept the futures market's offer to absorb all carrying charges and, on the top of it, to pay a handsome bonus. Surely speculators would fall over themselves in trying not to miss this bonanza in gold. In the event Treasury officials have misinterpreted market behavior so completely as only economists imbued with government omnipotence could. The genie has its own agenda. It will at one point refuse to take orders from Aladdin Greenspan or Helicopter Ben (or whoever is put in the Chair at the Federal Reserve Board). The rise of the gold basis will be followed by its fall, bringing about the downfall of the Establishment.
God created basis. He wanted to help men fend off blows from the prodigality or frugality of nature. Like the creatures of Prometheus they would perish without fire. The basis, in the case of agricultural commodities, is just that mythological fire stolen from heaven. It is the Creator's gift to his creatures to help them survive devastating supply-shocks.
Demand-shocks
By contrast, the gold basis is not a gift of God. It is a scourge of God to punish conceited governments pretending to be omnipotent and omniscient. Powerful men want to manipulate their neighbors inducing them to behave in a way prejudicial to their own welfare. They want to enslave them by taking away their ability to protect themselves and to provide for their own happiness and survival, especially in view of the eventuality of disasters caused by foolish government policy. They hire economists who parrot the line that demand-shocks can be met in the same way as supply-shocks: through organized speculation.
Therein lies a great error. The gold basis has risen, but its rise is to be followed by a fall and, later, by the downfall of governments trying to play God as they gamble with the welfare of their subjects. The fall of the gold basis tells us that God's gold cannot be drowned in a sea of paper gold. The price of the former will tend to infinity while that of the latter will keep falling to zero. The genie of the gold basis will crush the government through demand-shocks waiting in the wings of the gold market.
The fall of the gold basis
As a mental experiment let us arrange all goods in a linear order starting with agricultural commodities exposed to supply-shocks to the greatest extent, reflecting the fickleness of nature. Next in line are base metals and other minerals, as well as energy-carriers which are exposed to supply-shocks to a lesser extent. Finally at the far end of the spectrum we put the monetary commodities virtually immune to supply-shocks. Gold, in particular, has a stocks-to-flows ratio which is a high multiple variously estimated between 50 and 80. An increase in the flows, however large, would hardly cause a ripple, considering the size of stocks. To state the case differently, suppose new gold fields were discovered more prodigious than those of Witwatersrand. Or suppose that processes were developed whereby gold molecules suspended in the infinite oceans could be distilled and gathered economically. Such events could in no wise have an untoward effect on the value of gold, so huge are existing stocks relative to incremental flows. This fact alone shows that it was sheer madness to discard gold from the monetary system. The monetary commodity must be immune to both supply and demand-shocks. God has kept His side of the covenant by helping man control supply-shocks. Governments haven't: they have artificially magnified demand-shocks through foolish monetary policies.
The upshot is that the basis risk is much higher for gold than for non-monetary commodities. The fall in the gold basis, whenever it comes, will have nothing to do with assumed supply-shocks. Even if governments threatened to dump all their remaining monetary gold, the result (after the news wore thin) would be counter-productive. The dumped gold, and more, would be readily absorbed. People would not allow the government to trick them out of their golden life-saver. Rather, they would behave as predicted by the ancient Greek monetary scientist Xenophon. In his treatise entitled The Revenues of Athens he wrote that, after people had satisfied all their artistic and industrial needs for it, they would derive just as much pleasure in digging a hole in their own backyard and burying their surplus gold there, rather than entrusting it to public warehouses or, heavens forbid, to government treasuries.
It has always been that way. It will be that way in the future, too. Whenever the government wants to trick people out of their possession of gold, the basis turns negative. It then falls into a pit and no one will hear it to hit bottom. The number of instances of this happening strains the counting ability of monetary historians. Every episode of a hyperinflation in which paper currency has self-immolated furnishes such an example.
Putative gold basis
"Hey, wait a minute", you may interject. "Is this not an anachronism? How could you talk about gold basis under a gold standard?" Well, you are right. Gold basis is a new concoction, barely 35 years old. There was no gold basis before 1970, as there were no futures markets in gold. The world's first gold futures market opened in the Winnipeg Commodity Exchange in 1970. The contract called for the delivery of the 400 oz. (12.5 kg) international ‘good-delivery' gold bar, the one central banks of the world have been using to settle international imbalances with one another in the good old days. I meant the putative gold basis in the previous paragraph, that is, whatever the gold basis would have been if there had been a gold futures market at the time of hyperinflation.
In 1971 I went to Winnipeg to be witness to history. I purchased a seat on the exchange. I was interested in studying the variation of the gold basis on the floor first hand. At that time gold ownership and trading was still a crime in the United States pursuant to a Presidential Proclamation dating from 1933. F. D. Roosevelt nationalized (read: confiscated) monetary gold. In Canada gold ownership and trading has always been legal. Canada was chosen as testing grounds by the U.S. Treasury to see how the market would react, in preparation for the legalization of gold ownership in the U.S. four years later. The gold futures market in Winnipeg was a robust carrying-charge market. Its wide basis reflected the popularity of gold futures with gold investors. Buy orders came in a steady stream from all corners of the world. In the absence of gold futures this demand would have shown up as demand for cash gold, the greatest threat to the value of the U.S. dollar. The U.S. Treasury was satisfied that paper gold would do nicely, thank you very much, and gold futures trading in the U.S. was duly allowed to commence in January, 1976.
Bribe money
I have always felt that the gold basis was an anomaly. It certainly did not belong to the same category as the basis of agricultural commodities. It was not a bonus rewarding good husbandry. It was more like the Trojan Horse planted by a bankrupt government that wanted to take through deception what it couldn't by force. I always looked at contango as bribe money, to induce people to take the promise instead of the real thing. It is remarkable and important that under the gold standard there was no need for bribes. People were happy to accept the promise at face value. The credibility of central bankers has in the meantime been reduced to a zero. They are the spinmasters of the "greatest fool" game. The greatest fool is the player who will hold the bag of worthless banknotes when the music stops. Gold futures trading has been introduced in order to make people believe that the possibility of hyperinflation has been eliminated for good.
We may grant that gold futures trading has materially added to the longevity of the regime of irredeemable currency. But while the central bankers are buying time, sand in the hour-glass of the gold basis keeps trickling down. When it runs out, the trickle of cash gold from warehouses will have become an avalanche that could no longer be stopped. The gold futures market will be bankrupt, along with the regime of irredeemable currency. Treasury officials will cry "foul play"and will scurry around looking for "rogue traders" everywhere. That is, everywhere except in the Treasury and in the White House where the real culprits hide. When the present unconstitutional monetary regime of the U.S. comes unstuck, the responsibility for the disaster will have to be assigned to the President and the Secretary of the Treasury. They have betrayed their oath to uphold the Constitution of the United States of America, as far as its monetary provisions are concerned.
I have never ever wavered in my conviction that such will be the denouement of the drama unfolding before our eyes. Any other outcome, however widely prophesied, whether the inflationary or deflationary variety, appears unlikely to me.
Fools treat promises with greater respect than the issuer himself
I reject the Quantity Theory of Money. It is an essentially linear theory trying to explain an essentially non-linear phenomenon. Consequently, I do not believe that there is a causal relationship between the central bank's inflating the money supply and an increasing price level. No doubt, the newly created money could go into commodities; but it could, and would, also go into bonds, equities, and real estate. It is true that paper currency will ultimately self-immolate. An irredeemable promise to pay, it has been gushing forth in the aftermath of the break of the dam, the 1933 reneging on the promise to redeem the dollar in gold at the rate of slightly over 1/20 oz. It does not matter that hardly anybody alive today has any direct memory of that event. What does matter is that the central bank has neither the intention nor the means to meet this obligation. It simply refuses to give anything of value in exchange for its own notes. It should not come as a surprise then that these notes will, at one point, be unacceptable to the producers in exchange for real goods and real services. This is plain logic. There has never been an exception to the truism: if the issuer treats his own promises with disdain, then it is only a matter of time before the public will do likewise. Nor does the truth of this syllogism depend on the quantity of promises issued, or on the rate of increase in their issuance. It is still valid even if the rate of increase in the issuance of new promises is declining, or if no new promises are issued. It follows that a quantum increase in prices is not a necessary condition for the imminent self-destruction of the monetary system. Nor can the increase in prices be relied upon to predict the timing of such an event. Then what can?
I am suggesting it to you that the gold basis can.
Aladdin Greenspan whistling in the black hole
Expect the regime of irredeemable currency to put up a desperate and vicious fight for survival. There may be times when the gold basis bounces back. But its decline, on the average, is relentless. The dead-cat-bounce is still to come. I have been a student of the gold basis for 35 years. In the early 1990's I made the pilgrimage to the World Trade Center in New York City to meet the Director of Research at Comex. I asked him what explanation he had for the vanishing contango and for the relentless fall of the gold basis. He cited a couple of ad hoc reasons, having to do with the low and falling interest-rate structure, and its effect on the declining carrying charge. But he had to admit that he knew of no theoretical explanation for the phenomenon of continuing erosion even in the face of rising interest rates and increasing carrying charges.
My own explanation is that the shrinking contango and the persistent fall in the gold basis is a measure of the vanishing of gold into private hoards. Monetary gold together with the output of the gold mines is disappearing. Aladdin Greenspan was whistling in the black hole when he testified before a Congressional committee saying that central banks stood ready to sell more gold to quash flare-ups in the gold price. The irrefutable fact is that selling gold makes the central bank's balance sheet weaker, not stronger. The bank would replace its best assets for the worst. It would exchange an asset that is the liability of no one for the liability of devaluation-happy governments. Central bankers are helpless. They are in a catch-22 situation. Selling gold into a rising market would be the coup-de-grâce to their fiat money scheme. They hope against hope that inundating the world with paper gold in the form of gold futures, options, ETF's and other derivatives, existing or yet to be invented, will save their skin. It won't. Not forever, anyhow.
So I advise my audience to ignore the siren song of the Quantity Theory of Money. Focus attention on the falling gold basis. It is a foolproof indication of the disappearance of monetary gold still available to the public as insurance against economic disasters. The fact is that the vast majority of the people lives in a fool's paradise. They haven't given a thought to purchasing such insurance while they are busily building their homes right on the financial fault line.
As a further refinement I call attention to the silver basis which, if my analysis is correct, will fall first. Not because monetary silver has been "consumed", as trumpeted by the cheerleaders of the get-rich-quick crowd. It hasn't. But, as the silver basis shows, silver is going into hiding even faster than gold. Why? Basically because central bankers have less scope for bluffing in the silver market. The cupboard is bare and the kitty is empty when they are looking for more silver.
Sapere aude!
I will not go out on one limb to make predictions about timing beyond repeating what I have already said. The indication for the imminent collapse of the international monetary system will be the "last contango in Washington": the fall of the silver basis. It will be followed by the fall of the gold basis. These events will indicate that the irredeemable dollar has entered its death throes -- regardless what the inflation numbers say. Woe to all fiat currencies whose principal backing is the irredeemable dollar. Controlling their quantity can and will do nothing to save them.
I am fully aware that it is dangerous to question the validity of the prevailing Quantity Theory of Money. I am willing to stake my professional reputation, as Galilei has staked his when he saw no wisdom in the prevailing geocentric cosmology.
I close this series of essays on the basis with Horace: sapere aude!
(In English translation: dare to be wise; Epist., I. ii .42.)
References
A.E. Fekete, What Gold and Silver Analysts Overlook
A.E. Fekete, Bull in Bear's Skin?
A.E. Fekete, Ultracrepidarian Musings
A.E. Fekete, Monetary versus Non-monetary commodities
A.E. Fekete, The Last Contango in Washington
Tom Szabo, The Silver Basis
Copyright 2006 © by A. E. Fekete
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Havana Corner: Cohiba's 40th Anniversary Smoke
March 03, 2006
http://www.cigaraficionado.com/Cigar/CA_Features/CA_Feature_Basic_Template/0,2344,1406,00.html
The newest Cohiba was unveiled today in Havana,
setting a new record in the cigar world for a young smoke.
The humidor of 40 cigars is selling for 15,000 euros (about $18,000).
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