MIKE

Posts Tagged ‘inflation’

by Tyler Durden
12/23/2011
ZeroHedge

Yesterday, we breached the topic of the real decoupling that is going on: that between the macro and the micro (not some ridiculous geographic distribution of the US versus the world), by presenting David Rosenberg‘s thoughts on why Q4 GDP has peaked and why going forward it is energy prices that are likely to be a far greater drag on incremental growth than the preservation (not the addition as it is not incremental) of $10 per week in payroll taxes (which only affects those who are already employed), even as company earnings and profit margins have likely peaked. Today, following up on why the micro is about to return with a bang, and why fundamentals are about to become front and center all over again, albeit not in a good way, is, surprisingly, Morgan Stanley’s Mike Wilson, who has issued his loudest warning again bleary eyed optimism for the next year: “Think of 2012 as the “payback” year….when many of the extraordinary things that happened over the past 3 years go in reverse. I am talking about incremental fiscal stimulus, a weaker US dollar, positive labor productivity, and accelerated capital spending.” Said otherwise, 2012 is the year when everything that can go wrong in the micro arena, will go wrong. And this is why Morgan Stanley being bullish on the macro picture! As Wilson says, his pessimistic musing “tells the story for what to expect in 2012 assuming the situation in Europe doesn’t implode. In other words, this is not the macro bear case.” If one adds a full blown European collapse to the mix, then the perfect storm of a macro and micro recoupling in a deleveraging vortex will prove everyone who believes that 2012 will be merely a groundhog year (in same including us) fatally wrong.

Lastly, when it comes to predictions Morgan Stanley (which called the EURUSD short the hour Goldman put it on as a long) should be taken far more seriously than Goldman, which merely wants to be on the other side of its clients.

The complete very troubling forecast from Morgan Stanley:

by Tyler Durden
11/23/2011 14:52 -0500
ZeroHedge

Earlier this morning the anti-gold brigade was foaming in the mouth on the news that the German central bank had for the first time in a year sold gold. As it turns out they were half right: the bank indeed sold gold: a ‘whopping’ 150,000 toz or about $250 million worth… But not in the open market, and not even to natural buyers of physical like Sprott and everyone else not infatuated with voodoo theories of infinite repoability of debt. They sold it to the German ministry of Finance… to mint commemorative coins. Coins which we are now confident will be promptly mopped up by the general public. Following the sale Germany will be left with a modest 109,194,000 troy ounces, enough to allow the country to gladly tell Europe to do some anatomically impossible things and to fall back to a hard asset baked currency if and when it should so desire.

From the WSJ:

Germany has lowered its gold reserves for the first time in almost a year, selling 150,000 troy ounces in October while central banks of developing economies continued to beef up their bullion holdings in a bid to diversify their foreign reserves.

 

Bundesbank, the central bank of Germany, reduced its reserves to 109.194 million ounces in October, from 109.344 million ounces in September, according to International Monetary Fund data seen by Dow Jones Newswires.

 

A spokesman for Bundesbank confirmed 150,000 ounces of gold had been sold to the Ministry of Finance to mint commemorative coins. The last time Germany’s reserves were lowered was in December 2010, when the Bundesbank reduced total holdings by 27,000 ounces, from 109.371 million ounces.

This simply means that any fears of the demise of the Bundesbank’s gold are greatly exaggerated:

“There is no reason to start speculating about the future of German gold reserves,” he said. “The German gold reserves are there for the impartial Bundesbank…There is no reason to change that.”

 

The Bundesbank spokesman told Dow Jones Newswires that all gold sold by the Bundesbank since 2004 had been only for the minting of commemorative coins.

 

Germany is the world’s second-largest official gold holder, with about 71% of its foreign reserves held in bullion, according to the World Gold Council. The only country with higher reserves is the U.S., at 261.499 million ounces.

As for the others…

Other central banks added to their reserves. Russia, a regular buyer from its own domestic market, continued its program of gold accumulation, lifting its reserves by 627,000 ounces to 28.005 million ounces.

 

Kazakhstan also reported significant additions in a second consecutive month of gold buying. Its reserves totaled 2.366 million ounces at the end of October, up from around 2.265 million ounces in September.

 

Recent purchases by the official sector have helped drive gold prices higher, because those purchases absorb supply and boost market sentiment.

 

“Day to day, gold is still trading against the dollar, but in the long run, this is very gold-positive,” said VTB Capital Andrey Kryuchenkov. “Central banks are diversifying, and it has intensified to a rate that nobody had expected.”

So while everyone is obviously seeing the writing on the wall, various theoretical economists who would be broke 10 times over in the real world if they put their money where their mouth is continue to preach what nobody cares about:

Read the entire article HERE.

by Adam Taggart
November 10, 2011, 10:14 pm
ChrisMartenson.com

Turd Ferguson is a funny guy.

But there’s one thing this irreverent, acerbically goofball forecaster is stone-cold serious about: the need to build personal exposure to the precious metals.

For him, it’s a straightforward mathematical certainty that the global economy must collapse under the weight of the excessive (and exponentially compounding) credit amassed over the past several decades. The debt is simply too large to be serviced.

As a growing number of analysts (including Chris) are predicting, Turd sees the replacement of the world’s current monetary regimes as the endgame to this story. And he believes we are watching that endgame unfold in real-time now.

In this interview with Chris, Turd discusses his reasons why gold and silver offer the best prospect for preserving wealth through the coming devaluation of world currencies, despite his strong conviction that the markets for these metals are heavily price-manipulated.

In fact, it’s precisely due to this manipulation that Turd is able to predict short-term price movements in gold and silver as confidently as he does:

Believe me, if you looked at my trading account and looked at my success in trading corn, or soybeans, or crude, or something like that: I make choices just as badly as the average guy.  The reason why I am successful in forecasting gold and silver is because they are manipulated.

Because once you understand that the bullion banks, particularly JPMorgan in silver, are in there trying to stack the deck in their favor, then you use some simple technical analysis.  And you begin to see where they’re going to act, where they’re going to place some sell orders to try to start cascading waterfall selling by tripping stocks.  It’s not real hard.  I mean, its pretty basic stuff.  But once you admit to yourself that if this does take place, it makes forecasting where price is going pretty easy…

We see this quite often where the prices of gold and silver – they decline rather sharply after hours, after COMEX trading hours, on the Globex because volume is so thin there.  A little bit of money thrown at the market – any new paper shorts can have a rather dramatic impact…

And that is where the manipulation has a lasting impact.  And you can’t get that money back… And it takes a whole bunch of new buy orders, a whole bunch of new speculative longs and commercial longs to come in and bid it back up to where it was before that raid. And so, they’re always going to be in there.  Again, I guess the ultimate question is at who’s behest are they doing this?  But, nonetheless, they’re in there controlling price, managing the assent, if you will, to create this illusion that there’s still confidence in the dollar, that all is well.  And that it’s okay to go buy a new car.

Turd sees the precious metals as a true barometer of the dollar’s devaluation as the Fed pursues its policy of negative real interest rates — which is challenging for the average consumer to see, when the dollar may strengthen on a relative basis versus other fiat currencies and the government-published CPI is artificially low. In his opinion, the government is well aware of the signaling function of the PMs, and therefore feels it needs to manage their ascent in as drawn-out and orderly a process possible in order to prevent the frogs in the pot (i.e., the citizenry) from noticing that the water is getting a lot hotter.

The important mission here, in Turd’s mind, is to realize that the economic reality we have come to accept as “normal” is over, and to take protective action. And once you have done so, to try to help those around you wake up to that fact — a major challenge, as most people don’t want to think about it, and the entrenched status quo powers are aggressively marketing that ‘return to normalcy’ is just around the corner:

The last thing I would add to that, Chris, and one that’s challenging, and I’m sure you’ve seen this too in working with your subscribers is where we are headed is unlike anywhere where we’ve been, at least in recent memory. I mean, there may be some octogenarians out there that remember what it was like before the Great Depression and during the Great Depression and before World War II. But it’s a world like that where we’re headed to.

All I’ve ever known, all my friends and family, even my parents really have ever known is this hegemonic United States that was the world power, and provided the world’s reserve currency.  And we could print as much as we wanted to, and then export the inflation to all the other poor staff that had to – took our dollar.  And so we bought their cheap stuff.  And those days are over, and it’s a really hard concept.

If you haven’t had personal experience with something else, it’s a really hard concept to get your arms around.  That the United States isn’t going to be this huge economic and military superpower.  Just because it always has been doesn’t mean that it always will be.  And as we talked about, the numbers and the fundamentals suggest that it’s not always going to be.

And so you got to kind of prepare yourself that tomorrow’s not going to be like today, that we’re in a new paradigm.  And try to intellectually figure out, okay, how do I survive and prosper in this new world knowing that it’s coming?  And that’s what we try to do. I know that’s what you try to do.  And it’s our job, Chris, to try and help as many as we can.

Click the play button below to listen to Chris’ interview with Turd Ferguson (runtime 47m:19s):

Read the entire article HERE.

Interview by James Turk
The Gold Report
November 7, 2011

A war-mongering U.S. government could be less than 18 months away from decimating the last 5% of value left in the dollar, says Richard Maybury, the author of the U.S. & World Early Warning Report. Until some new exchange-traded-fund-like basket of natural resources provides a store of value, this “juris naturalist” has some advice about how to protect your wealth during the coming collapse.

The Gold Report: Richard, last month, you made a presentation at the Casey Research/Sprott Inc. “When Money Dies” Summit entitled “The War that Will Kill the Dollar.” You explained that the corrupting influence of power had sent our country’s leaders shopping for war, disregarding Westphalian respect for sovereignty and hastening the collapse of society. What are the signs that we are reaching a critical point? And, is there any way we can change course?

Richard Maybury: You can see the signs very clearly in the Middle East and North Africa. The Federal government is involved in several wars there that have nothing to do with America. One of the best examples is Libya. U.S. officials are taking credit for Moammar Gadhafi’s death just a year after they were bragging about having tamed the threat. Now Libya is a mess. It will very likely be taken over by some sort of Islamic government that isn’t going to be very friendly to America.

TGR: Why do we, as a country, do this? If it’s not going to end well for us, what’s the economic or political reason to get involved?

RM: The U.S. government gets into wars in far corners of the world that have nothing to do with America because the leaders like getting into wars. That is how presidents achieve greatness in the history books. A president has no prayer of going down in history as great unless he has won a war. Look at Mount Rushmore. All four presidents featured there won wars. That seems to be the number one criteria historians use for deciding whether someone is a great president. It constitutes an automatic incentive to go out looking for wars.

TGR: What is the incentive for the American people to go war shopping?

RM: Nothing. It’s absurd. During the First Gulf War, people had a tremendous good feeling about going to war with Iraq. They would come home from work, order a pizza, sit in front of their TV sets and watch the war like it was a football game. War became a form of entertainment.

TGR: Is there anything we could do to incentivize our presidents to act peacefully?

RM: I doubt it very much. People go into politics because they seek political power. Once they get the power, they naturally want to use it on somebody. What is the point of having power if you can’t use it? So, no matter what kinds of controls you put on, future presidents will find a way around it.

The ideal situation would be one where war is used as a last resort. Westphalian sovereignty, a set of agreements dating back in the 1600s, established the precedent that the European powers would only go to war in self-defense. You had to have a clear and present danger before you could go to war. And, even then, it was supposed to be the last resort. That was the basis of international law up until this year. That isn’t to say that the Westphalia treaties weren’t violated a lot of times, but they helped. After Iraq, Serbia and now Libya, it is pretty clear that the policy is we can just go out and hit anybody we want for any reason we want as long as we believe the other guy is up to no good.

TGR: If this is the new reality, then let’s talk about some of the economics around it. War is expensive. You have pointed out that since the Federal Reserve was created in 1913, the dollar has lost 95% of its buying power. You said, “War destroys currencies.” It usually leads to governments printing more dollars to pay for guns and tanks. How much debt and overprinting can the country take before the velocity of economics, which is something that you also talked about in association with how quickly dollars are exchanged, catches up with reality and the dollar loses that last 5% of its value?

RM: Velocity refers to the speed at which money changes hands, and it is a measure of money demand. When people don’t really want the money, they start trading it away faster, trying to get their hands on things they do want, things that have value that they trust. The cost of this war in the Islamic world will continue going up. At some point, it’s going to be a major contributor to people losing what confidence is left in the dollar and people all over the world will start dumping it. This is a psychological thing. It’s about emotions, so it is hard to pinpoint when they will lose all confidence in the dollar.

TGR: What would it look like if that last 5% were gone? Are we talking about hyperinflation? Are we talking about banks collapsing? Are we talking about bartering? What would it look like?

RM: We are talking about all of that. It would be chaos. We saw it in Zimbabwe when the Zimbabwean dollar became worthless because the government printed so many that people wouldn’t accept them anymore. The country experienced enormous runaway inflation where prices were rising 50% a day before the Zimbabwe dollar collapsed.

It would probably start with someone somewhere in the world selling off his dollars and begin trading them for whatever it was he had confidence in. The foreign exchange value of the dollar would fall. Other people would notice; they would get scared and start selling their dollars. The foreign exchange value of the dollar would drop more. This process would continue until you have panic around the world to get out of dollars. Americans would be the last ones to get involved. We are always the last to know what is happening to America. Suddenly Americans would wake up one morning and find that a gallon of milk that cost $4 the day before costs $6 today. The next day they would find that it costs $12. And the next day they would find that it costs $36. That is when Americans would realize that they are in deep trouble; their dollars are about to become worthless.

TGR: Of course the Fed wants to avoid that scenario. You describe yourself as a follower of Austrian economics made famous by the Nobel laureates Friedrich Hayek and Ludwig von Mises. They describe financial systems as complex processes run by billions of constantly changing individuals rather than something that can be manipulated from a central point, which seems to be what is being attempted right now. If that is the case, what will be the outcome if the central government tries to force a more Keynesian control of the flow of money?

RM: They will mess it up even worse than they already have. The world has been living under Keynesian economics since 1971 when Nixon took the dollar off the gold standard. John Maynard Keynes was a semi-socialist. He believed that the way to fix the economy was to print a whole bunch of dollars and dump them out there. This has been standard procedure for the past 40 years. All currencies have been dropping in value during that time. Another round of quantitative easing (QE) could further speed the rate at which the money circulates, something that has the same effect as increasing the supply of dollars, creating a larger demand for goods and services and having an inflationary effect. I think Fed officials are dropping hints about the next QE because they are trying to cause velocity to rise, a secret QE if you will.

TGR: What if the stealth QE campaign doesn’t work? What form might a real QE3 take?

RM: It is hard to tell what they will do. One of the myths that everyone is taught is that the government has some sort of tremendous understanding of economics and the ability to make adjustments to economic activity. The term fine-tuning is used sometimes. Actually, we are talking about a group of human beings who don’t know much more about real economics than anybody else. They think they do, but they don’t. They just bounce around from one attempt to control things to the next, making a mess of the country. The economy is not a machine. It is people, human beings. It is a biological system, not a mechanical system. But, the government treats it like a mechanical system, so they are always making mistakes.

TGR: If war and hyperinflation are the inevitable future, how can investors survive or maybe even thrive during a time like this? What are the opportunities? Natural resources? Commodity equities? Where can we be safe other than putting that $100 bill under the bed?

RM: Well, I wouldn’t put $100 under the mattress, at least not for very long, because it will soon become worthless. But commodities, stocks of raw materials firms, gold and silver and platinum coins have value. Generally, I try to see the world in terms of two kinds of investments: dollars and non-dollars. You definitely want non-dollars, things that do not have their value tied to the value of the dollar. An example of a dollar asset is something like a bond or bank CD. Their values are tied directly to the value of the dollar. If the dollar falls, then their values fall.

Gold is a non-dollar asset. When the dollar falls, usually gold rises. The same is true with silver and oil. All of these things have values that are not tied to the dollar. My advice is to invest in non-dollar assets. Gold would be at the top of the list, silver and platinum and then oil.

TGR: In your Early Warning Report Newsletter, you predicted that gold will top $3,000/ounce (oz), silver will hit $50/oz and oil will exceed $300/barrel. Gasoline will go to $9/gallon. When will we see these rises? And what will be the catalysts that take them there?

RM: The next QE, which I expect to come along no later than March, could set off a flight from dollars. Then we could see those predictions realized within 18 months.

TGR: You said that once we have had this loss of the entire value of the dollar and people are looking for another way to trade, money could be based on some collection of metals with currency acting as a receipt for the tangible gold, silver, platinum and whatever else happens to be in that basket. What would that transition look like? How painful would that be? How would it be orchestrated?

RM: It doesn’t have to be painful. The markets are moving in that direction. People trade exchange-traded funds (ETFs) for practically everything now. I can envision a mutual fund or an ETF that is a collection of various things. It could be gold, silver and platinum. It could have oil in there. It might include Swiss francs. It could even have various patches of real estate. The ETF itself would then become a currency, not because anybody has it planned that way, but because the markets will see that there will be a demand for something that is a non-dollar asset that is easily tradable and seen as a store of value. There would probably be hundreds of these baskets of assets at the start. Some would work better than others would; the less workable ones would shake out. You might wind up with maybe a half dozen ETFs or mutual funds that are baskets of various assets circulating in the world. They would essentially become the currencies.

TGR: Would investing in ETFs now be a good way to prepare?

RM: No. I don’t know of any that are arranged that way. It may be a while until somebody catches the idea and decides to give it a try.

TGR: What about the precious metal equities? Would that be a good way to prepare?

RM: Yes. There are lots of good precious metal stocks. I own quite a few. That is another way to protect yourself. However, be sure to deal with a broker who really knows natural resources. You have to have some skill in picking those stocks. It’s not like going down and buying a gold coin where you just walk into the coin dealer and tell him I want a handful of American Eagles or Canadian Maple Leaves. You really have to know what you are doing when you are buying gold stocks.

TGR: Any final thoughts you want to leave with The Gold Report readers?

RM: The world has changed. When you look at the news and you say to yourself, “My God, America isn’t what it was; the world isn’t what it was,” have the confidence to know you are right. We are probably not going back to what America or the world was anytime in my lifetime. Therefore, you want to start learning everything you possibly can about this new condition and adapt to it.

TGR: Thank you for sharing your thoughts.

RM: Thank you, JT. I appreciate being here.

by Tyler Durden
11/05/2011 22:49 -0500
ZeroHedge

Going back to the annals of brokeback Europe, we learn that gold after all is money, after the G-20 demanded that EFSF (of €1 trillion “stability fund” yet can’t raise €3 billion fame) be backstopped by none other than German gold. Per Reuters, “The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves — including foreign currency and gold — would be used to increase Germany’s contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion).” And who would be the recipient of said transfer? Why none other than the most insolvent of global hedge funds, the European Central Bank.

Also, in addition to gold, the ECB had set its eyes on that other “fake” currency that DSK had succeded in protecting throughout his tenure, all his other undoings aside, “The Welt am Sonntag newspaper, citing similar plans, said 15 billion euros would come from special drawing rights (SDR) that the Bundesbank holds.” Naturally, these discoveries prompted a prompt and furious rebuttal from the very top of German authorities: “Germany’s gold and foreign exchange reserves, which the Bundesbank administers, were not at any point up for discussion at the G20 summit in Cannes,” government spokesman Steffen Seibert said. The WSJ adds, “A plan to have the International Monetary Fund issue its special currency as a powerful weapon in Europe’s efforts to contain the widening euro-zone debt crisis was blocked by German Chancellor Angela Merkel, according to a report in a German newspaper.”

There are three observations to be made here: i) when it comes to rescuing insolvent countries, Germany is delighted to sacrifice euros at the altar of the 50-some year old PIIGS retirement age; ask for its gold however, and things get ugly; ii) the Eurozone, the ECB and the EFSF are dead broke, insolvent and/or have zero credibility in the capital markets, and they know it and iii) due to the joint and several nature of the ECB’s capital calls, while Germany may have had enough leverage to tell G-20 to shove it, the next countries in line, especially those which are already insolvent and will rely on the EFSF for their existence once the ECB’s SMP program is finished, may not be that lucky, and in exchange for remaining in the eurozone, the forfeit could well be their gold.

WSJ brings details on how German SDRs would be used as a temporary (temporary as in European financial short selling ban, and temporary reduction of initial margin to maintenance for everyone to appease MF Global clients) backstop for Europe:

The idea of using SDRs to fight financial contagion isn’t new. When the collapse of Lehman Brothers in 2008 unleashed a financial crisis, the G-20 in 2009 approved a $250 billion SDR allocation to help backstop efforts to fight the spread of the crisis.

 

The European Central Bank has been buying euro-zone bonds in an effort to keep borrowing costs of weakened members from exploding. But the ECB’s efforts are considered by some experts to be outside of its central mandate to maintain price stability. And the ECB has said that its special measures – buying euro-zone debt — should be temporary and limited in scope. That is another reason why some people are advocating the IMF play a greater role in propping up weakened euro-zone members and become the lender of last resort.

 

Speaking to reporters at the close of the Cannes summit, Merkel indicated that G-20 leaders agreed in principle that the IMF and EFSF could work together, but the summit could not agree on any specifics.

 

“We have an interesting process ahead of us and the discussion is not yet concluded,” she said.

Reuters brings more on the the logical German reaction to the EFSF and ECB’s extortion attempts:

“We know this plan and we reject it,” a Bundesbank spokesman said.

 

Seibert said several partners had raised the question in Cannes whether SDRs could be used to strengthen the EFSF but Germany had rejected this plan and discussions at Monday’s Eurogroup on Monday would not discuss this topic.

 

The newspapers had said the issue was taken off the agenda at the G20 following Bundesbank opposition but that it would be debated on Monday at a Eurogroup meeting of euro zone finance ministers.

Why will it be debated? Because when at first you don’t succeed, try, try again. Germany may be crossed off the list, but here is who is next in order of appearance. Sooner or later, Europe will stumble on that one “leader” whose gold is less valuable than their political stability, because after all, a “united”, “EMUed” Europe has the biggest MAD trump card of all.

Read the entire article HERE.

BY JIM WILLIE
10/26/2011
Financial Sense

The feverish positive sentiment has left the Gold & Silver market in the last two months. Raised margin requirements during falling prices alongside naked short ambushes in the COMEX, coupled with permitted asset damage from debt monetization conducted more in secrecy will always help to dampen enthusiasm. But with the billboard message on the European subway walls and boulevards and news magazines stating the obvious, that the European debt crisis has no solution, that Germany has no more checks to write in funding the bailouts, that Greece is set to default, that leaders in political spheres are opposed by bank leaders where the final decisions are made, the GOLD & SILVER PRICES ARE SET TO ZOOM. Only the dummies sold in the last round of ambushes and interrupted recoveries. The precious metals have suddenly awakened. The old defended range for the two metals was easily overrun as a splash of reality hit the market faces. A mad scramble is likely from here onto the end of year, as people realize that hyper-inflation is the solution on any massive bailout with clearer gigantic needs, and as people realize that a broad string of bank failures will drive gigantic flows into safer places since sovereign bonds will go from sacred to toxic. The powerful decline in September, down $200 in gold and down $10 in silver suddenly have presented a ripe easy recovery without resistance. A powerful reversal is near and coming. Many investors will rush back in, paying higher prices than where they unwisely sold. Many investors will rush in, seeing banks and government bonds as ugly options.

FRAUD LACED IN THE SYSTEM

Before delving into the easy 15% upside opportunity in gold and easy 25% upside opportunity in silver, a topic begs to be covered. The topic is fraud. While discussion and analysis of fraud in US high finance can fill volumes, an entire set of encyclopedias, from just the last generation, direct attention to the fraud of investment funds and fraudulent bank accounting. My desire is to cite specifics on how investors have been duped into not participating in major moves up in commodity prices, like crude oil and precious metals gold & silver. My desire is to cite specifics on how the big banks avoid reporting 75% cuts in profits by fabricating the most absurd of accounting profits that even financial newscasters dispute as valid. The various funds to participate in the black gold and yellow gold asset plays have been congames. The defense by the big US banks against utter and complete insolvency have been congames. The public must avoid the ETFund investments. The public must avoid the perception that the big US banks are anything but dead.

PINPOINT FAILURE OF U.S. CAPITALISM

A opening argument against fraud and misrepresentation goes far beyond the Wall Street practice of pandering toxic bonds with AAA ratings. It goes far beyond promoting a fund that actually is critical in shorting oil and gold, rather than investing in them as investors intend. It goes far beyond deceiving about a price inflation between 7% and 11% since year 2005. It goes far beyond hiding an economic recession that started in 2007 and never ended. It goes far beyond news coverage of foreign wars like in Libya, when $90 billion in Qaddafi parked funds have been frozen, probably never to be released by Western banks. It goes far beyond $50 billion gone missing from the Iraq Reconstruction Fund with direct $2.3 billion payment handed to a fellow who received the highest medal of honor to a private citizen. The biggest problems that plague the United States Economy, its financial system, and its capitalist structure relate to ineffective usage of brainpower, co-opted assets & capital, and enormous investment in the corrupted system.

Clearly the United States has untapped resources, deep riches, broadly spread. The nation has significant land, including agriculture, timber, and water resources. The nation has significant untouched oil & gas deposits, and natural energy in wind, sun, and geothermal pockets. The nation has significant knowledge and technology, some of which has never been used that could dramatically reduce a wide range of expenses. The nation has 300 million people who have a great deal of their time and energy ready for productive usage. The nation has enormous untapped resources. However, the investment and capital devoted to support the fraudulent system is staggering. Just look for instance at the CNBC and Bloomberg financial news center facilities. They are not devoted to industry that produces jobs directed at value added enterprise. Just look at the entire Wall Street and hedge fund and asset management sector. It is not directed at value added enterprise, but rather to shuffling of securities certificates. A Chinese economist remarked a year or more ago that of the $14 trillion US Gross Domestic Product, perhaps half was not legitimate since merely related to transfers of debt securities and other debt paper products. What a great point! The USEconomy might be exaggerated by double in legitimate size, a fact underscored by the industrial base that has been moved to Asia since 1980, first with the Pacific Rim and finally with the Chinese buildup. Just look at the vast network of consumption centers, like Wal-Mart and Target and Best Buy, the retail chains that do not invest in value added enterprise. Recall that 70% of the USEconomy is devoted to consumption, as some sort of sick religious exercise that all too often has resulted in home equity converted to things bought. America has spent its capital tragically and now finds its many sectors insolvent. The conclusion is that a large part of American capital is devoted to the syndicate and beholden to the advertisers. Resources do not mean much when the capital and brainpower is co-opted and dedicated to fraudulent enterprise and even to self-destruction.

Let’s consider some specifics. Larry Ellison of Oracle, Steve Jobs of Apple, and Bill Gates of Microsoft never finished college. They were productive, as Gates is given a pass for innovation in monopoly development and marketing theft to build a stodgy empire that has stagnated in the last decade happily. When young minds attend college, they emerge hungry to make a mark, to put a stake in the ground, to create an organization, to build wealth and to make a legacy. All too often, the best & brightest are hired by the bad guys. An entire generation of brilliant young minds has been largely co-opted. Microsoft took genius minds, as the Jackass knew of several who applied there. They produced co-opted software technology, source code theft during partnership ventures, little or no innovation unless one considers bundling to smother Netscape and Norton. Also Goldman Sachs took genius minds, as the Jackass knew none, but a couple wannabees. They produced insider trading in finance technology, derivative devices that enabled concealed debt, exchange traded funds that enable control of a market, and so much more. A Forbes Magazine editor once sat next to Gates on an airline flight. During the conversation, Gates admitted that his chief rival in hiring the best minds that America had to offer came from Goldman Sachs. So the best graduates pursue permitted monopoly and fraudulent finance. Also the Defense Contractors took genius minds, as the Jackass knows of one in particular. They specialize in weapon systems and the attendant equipment. The trickle down benefits are an illusion, as the end product is a structure in smithereens. Benefits trickle down in seven to ten stages. Destruction trickles down in two or three stages, with Senate kickbacks and cost overruns the chief icing.

The biggest problems in the US are

• diverted intellect toward fraud, theft, and monopoly enterprise
• war and destruction, in pursuit of dominance over rubble landscape
• absent industry after 30 years of off-shoring factories to Asia
• really dumb kids, whose perspective is both shallow and limited.

When the Jackass was in Digital Equipment Corp from 1980 to 1993, many of us shook our heads when Intel, then many others, including DEC, opened manufacturing plants in the Pacific Rim. Ours were Taiwan, Hong Kong, and Singapore. One of my little accomplishments was to streamline online testing of factory output in quality control procedures. We had one major success with clients on their manufacturing sites that produced monitors and memory among others. The initial strategy on the national movement to off-shore was “just manufacturing” but many of us kept shaking our heads, thinking “no way, next comes Research & Development.” Within only two years, the DEC site in Taiwan had a leading R&D center that ultimately developed a world class computer monitor, a smart monitor with loads of options. Patents were filed, and the business segments upstream were set to flourish. Capital was attracted to Asia by the boatload. The United States has huge resources. But as we have see in the last two decades, they have been tapped, and they will be tapped, but by foreign nations and foreign firms. For a disgusting sign of the times, look to the California high speed rail project. The California Legislature eventually had to install new laws to limit the contract funds and contract jobs going to China. Most stimulus aid foreign jobs. Even stimulus toward the infrastructure in a key project aided China more than the US. Sadly, most new jobs in the USEconomy are devoted to health care and retail. So we are becoming a nation of hospital orderlies and cash register clerks, whose products tend to be bedpans and checkout lines. No need for college on those fronts.

FUND GROWTH DESPITE INEFFECTIVENESS

Exchange Traded Funds are generally a profound fraud laced with deception and extremely slippery prospectus language. Many lazy investors are being duped. The flagship GLD fund is the worst perpetrator in my view. Many analysts and industry experts have offered details on all manner of problems, irregularities, and anomalies, like unstable bar lists, like shorted shares by management, like bullion metal inventory shipped to the COMEX, like vault fees without stored metal. Turn to the flagship crude oil fund. The popular crude oil ETFund has lost over half its value relative to tracking the commodity price. Funds might be regularly abused by managers to short the commodity and keep the price down, an old game with an easy fingerprints. Such practice would fly in the face of investors, who sometimes feel betrayed, when they discover what is happening under their desks. The investors think they are investing in gold or crude oil in a fund, but those in charge of management and fiduciary responsibility are working hard toward the opposite objective. Investors are duped into shorting the same assets they invested in, indirectly. The total volume of Exchange Traded Funds is fast approaching $2 trillion, but not well invested. The invested funds all too often support the system that wishes to keep down the commodity prices, so that paper financial products are encouraged. The GLD fund managed by HSBC receives the most attention on widespread illicit activity, from fraudulent drainage of its gold inventory toward the COMEX to meet delivery demands through massive shorting. The fund has never been subjected to the scrutiny of a full audit by an independent agency.

EXCHANGE TRADED FUNDS DO NOT TRACK

Another big fraud is the crude oil investment tracker. The United States Oil Fund (USO) was introduced as a vehicle for investors to track the crude oil price. When it began, the ETF had a 1:1 price relationship with the New York crude oil from the futures exchange, a close match. Its expense ratio was a mere 0.45% in overhead. What a huge change since inception! The active month crude oil contract trades between $85 and $95, but the USO fund has been bobbing around recently in a lowly ratio to crude oil below 40%, with a plunge below 30% in October. The penalty for investing in the oil ETF has come to 60% to the dopey lazy investor. The investors did not invest in crude oil at all. They benefited not at all from any rise in crude oil over the last three years. 

Analysts defend the fund, claiming that rollover from current nearby contracts has eaten up value, along with administrative costs. That seems a lie. The successive monthly contracts do ramp down, but by the month’s end, the difference should be very small. In all likelihood, just like GLD but to the extreme, the USO fund is being brutally abused to short the crude oil price on the West Texas contract. Recall that the WTIC oil price has consistently been $15 to $25 below the North Sea Brent oil price for months. Blame is placed for the gross differential on surplus storage at the Cushing Oklahoma facilities, but that too seems a lie. Look instead for a fishy finger on extreme Wall Street activity with futures contract shorts, perhaps even backed by the official Strategic Petroleum Reserve storage supply on oil slick cover. Notice in the ratio of USO/WTIC, the quantum decline in early 2009 corresponded to the extreme drop from $135 to $40 per barrel. Conclude that the USO fund might have been instrumental in generating some extreme profits on the downside when they drove down the crude oil price. Even more leverage is deployed with futures options.

One can see the other smaller quantum declines circled on the graph. Even they are outsized, since 6% is not the cost to roll into the current nearby month. The spread from successive months is typically only 30 to 60 cents, well under 1%. See for yourself from the INO website on the CL crude oil futures contract (CLICK HERE). However, between those sudden drops one can notice a steady ramp in decline. That is where the fraud and abuse lies, since they should be flat horizontal, acting like a true tracking fund. There is no tracking. Funds are in high likelihood removed regularly in illicit shorting programs, to sell the crude oil contract with investor funds. Just speculating, but this is an old game.

A final comment on the lavish expense ratios. For the SPDR Gold Shares (GLD) it is 0.40%, which does not seem like much. However, the size of the fund is about $55 billion, making 0.40% a hefty $220 million. That is a big fee to charge for mismanagement. At best it is badinvestment decisions, but at worst it is fraud such as from shorting the shares, the money drawn out to sell into the gold market. The metal inventory from short programs would go straight to the COMEX, as some intrepid reporters have revealed from insider sources. Conclude that investors are violated coming and going. Only total idiots and morons invest in such funds, of course along with lazy folks, cheered on by intellectual clowns like Adam Hamilton of Zeal Intelligence, who seems never to have identified a fraud in his entire career.

BIG BANK FRAUDULENT ACCOUNTING

Let me introduce you to my little friend, said the infamous Scarface. The little friend for the giant US banks is the Debt Value Adjustment, which fabricates profits from bond decay. The success is in placating really stupid investors, who rush in, only to see the bank stock fall by the afternoon sesssion. The accounting fraud committed by JPMorgan is typical. Instead of taking a loss on their own declining corporate bonds, or doing nothing, they posted a queer profit in a Debt Value Adjustment of $1.9 billion, equal to 29 cents per share. The JPM bond yield spread has widened by 200 basis points versus the USTreasury Bond. The bank colossus paid out $1 billion in legal expenses for bond investor lawsuits. They raided $96 million from Loan Loss Reserves, which will be needed later, like in bond fraud investor settlements. They cut 1100 in bank staff. They posted a $700 million decline in investment banking profit. Their biggest line item of profit was the fiction of a $1.9 billion profit from their decaying corporate bonds. It is not a profit & loss event at all. If they default on the corporate bond, imagine the accounting profit could be maximized. Only in American bank accounting!! Blessed as good by the FASB and USCongress!! JPMorgan is a wreck, as their businesses are tanking. Their tight grip on the Silver market could be loosened in time. 

Profits announced by the big US banks are phony. A laundry list of tainted supposed profits came in the last two weeks for the entire crew of giant insolvent us banks. The Debt Value Adjustment (DVA) deception is the main common thread of deception. Citigroup posted $1.9 billion in Debt Value Adjustments, the same amount JPMorgan posted for DVA in a parade. This item is so corrupt as to be indefensible by any rational person. They take the fallen value of their own corporate debt, cite how they could buy it back at a lower cost, and book the difference as profit. But the debt is not bought back, only pretended. Similar games are played with bond spreads widening, but keep the argument simple. Imagine a corporate bond rising in principal, but not as fast as USTBonds, booked as a profit since the spread has worsened. So if the corporate bond fails altogether and goes to zero, the DVA would maximize the profit for the dead firm. In my book, dead firms do not buy back their debt. As a statistical analyst, the Jackass always prefers to carry an argument or method to the extreme to reveal its legitimacy or flaw.

Bank of America also posted a $1.7 billion DVA profit, but the winner was Morgan Stanley, which has the highest risk of death. They posted a hefty $3.4 billion fictional profit from a non-event adjustment to their corporate debt, the same Debt Value Adjustment. Without such tainted profits, the big US banks would have shown their dead decaying matter more clearly. Worse, during a time when mortgage assets and lawsuits are all the rage, they raided their Loan Loss Reserves, more phony profits. Bank of America even listed litigation losses while raiding LLReserves in the amount of $1.6 billion. Citigroup snatched back $1.4 billion in LLR, while Wells Fargo snatched back $0.8 billion in LLR. The big US bank quarterly reports were worse than dreadful, as they were corrupted and phony, the rot visible. Amazingly, the Bloomberg financial news identified the practice as questionable but legal, calling them poor quality profits!! Poor quality indeed. They are too kind. In March they called outgoing Egyptian leader (emperor) Mubarek a prolific saver, for having accumulated $60 billion. Maybe they will call the pilfered Libyan funds sticky, when not returned. 

DERIVATIVES DUMPED ON DEPOSITORS WITH USFED BLESSING

Bank of America dumped its derivative book, possibly preparing for a restructure. The dumping ground is likely a pitstop en route to the USGovt toxic vats. The USFed applauds while the FDIC complains. Raids of assets preceded the Lehman Brothers failure, alert students of history note. This event might be no different. Bank of America engaged in devious accounting. Not only did they call their own corporate bond decay a phony profit, butthe firm shifted much of its mountain of derivatives held on its balance sheet as of June 30th. They moved it to their retail bank. Just last week, Moodys downgraded the bank holding company from A2 to Baa1. The retail bank was downgraded more gently to A2 from Aa3. The collateral backstopping will next be done fully and effectively by the bank’s $1.041 trillion in deposits. A bank run has been rumored at the big lumbering insolvent bank. Its website was down for several consecutive days, inhibiting usage of funds. Furthermore, the insurance agency to the depository base is very angry, namely the Federal Deposit Insurance Corp. The FDIC is another dead entity, devoid of funds, posing as a Wall Street harlot, this time betrayed by its brethren. The USFed favored the shift on the books, so as to give relief to the bank holding company (in their words). Conclude that depositors are forced to backstop its $53 trillion derivative book, as clients continue to depart. Savings accounts and certificate holders might be wiped out on a liquidation.

Bank of America already had the threat of failure looming due to deep insolvency from mortgage and litigation losses. Until now, the operations like the retail banks would not be affected and could be spun out to a new entity, even sold. Shareholders would be wiped out and holding company creditors like the bondholders would take losses. The derivative shift changed everything. Bank analyst Chris Whalen calls it either criminal incompetence or abject corruption by the USFed. Dumping derivatives into the depository business segment goes in diametric opposition to Dodd Frank resolutions. So much for Financial Regulatory Reform if not enforced. The US Federal Reserve and Federal Deposit Insurance Corp are in deep disagreement over the transfers. The USFed favors moving the derivatives to benefit the bank holding company, while the FDIC objects since it must pay off depositors in the event of a bank failure made more likely. The FDIC will attempt to reject this brazen move. The corrupted USFed will argue not to disrupt the financial markets further. Witness the justification for a Dodd Frank resolution and ruling.

The 2005 bankruptcy law was revised to permit derivatives counter-parties to be given the first in line position. They grab assets first in a little known feature of the bankruptcy reform that favored the banks. This truly devious bold move amounts to a direct transfer from Merrill Lynch derivatives risk to the USGovt via the FDIC. It means depositors will be made whole only after derivatives counter-parties have seized collateral. Depositors are lined up for a legalized raid, better yet a theft. Recall back in September 2008, that Lehman Brothers failed over a weekend after JPMorgan grabbed its collateral in a basic daylight raid. Expect another TARP type of bank bailout, as the Wall Street firms jockey to slide their derivative exposure under carefully crafted shells. The bad news for them is that they have over $200 trillion left, even after this ugly maneuver to shift the Merrill Lynch exposure.

GOLD & SILVER READY TO REBOUND

The Gold market is on the verge of a powerful move. The reversal base has been created. The $1620 level was tested successfully a few times. The uptrend has been defended and should continue in a powerful surge upward. The Chinese have been buying with both hands on the physical market, as the London traders report. They took full advantage of the horrendous display of market interference, as the gold contract margins were hiked in repeated fashion during the price declines. It was engineered. The nasty ambush appears over. A bullish divergence is clear, as the daily stochastix showed positive signals while the price was forming a flat bottom near the $1600 level. A powerful reversal is in progress, one that echoes the reversal in the Euro currency from 132 up to 140. Gold had fallen on the back of the Euro decline. Now the Gold price is rising from lack of resolution witnessed and confirmed in Europe. The gap to fill should be swift, easy, and loud. The gap from $1670 to $1770 is a full hundred points. As it is filled, the naysayers on Gold will have to defend why they advised clients to abandon the only true safe haven in the financial universe, Gold, along with its little brother Silver.

The growing economic recession will reveal many dead objects in the flotsam & jetsam, much like a tide going out to sea. That is a primary function of recessions, to clear the deck of bad debt and start anew, to plow the soil and permit nutrients to work again. Gold will shine. Gold is not loaded with the fraudulent traps and snares built by Wall Street from the devious risky paper realm. Gold has no fraud from counter-party risk. Gold is legitimate money. The United States will be forced back to the Gold Standard, but it will be the currency used over a landscape that features rubble, ruin, and discontent. Be sure that every measure will be taken to save the current system, to debase the major currencies in every way possible, at the greatest allowable volume. The USDollar and other majors will be wrecked in the process, and Gold will be lifted in value in corresponding opposite fashion. The Western leaders have no desire to reform, to yield power, and to install a viable sound monetary system. Banks should become utilities, not casinos and helms of market control. A grand disruption cometh!

The Europeans provided the trigger on Tuesday for the big $50 move up in the Gold price, and the $1.50 move up in the Silver price. Their bankers, politicians, and commissioners are in deep discord. No solution exists. Big bond losses are coming. Big banks that are already insolvent will topple. The Greek Govt debt will default. They are trying to make the default orderly. The gang in crisis resolution talks could not be more in discord. The Germans want out of the obligation of being the savings account of last resort to use. The Germans are actually working toward a new alliance with Russia and China, with Persian Gulf support. They look East as they see the West in shambles. If the Euro banks benefit from a big bailout from a $2 trillion filled fund, at minimum, then the monetary debasement will be great for Gold. Tremendous leverage would be the only means of supplying that volume of funding. The Europeans dislike the Geithner concept of heavy leverage usage. If the Euro banks do not fail to secure funding, and cannot recapitalize, a string of bank failures will rock the continent. The contagion will slam London and New York like a tsunami. The crisis would intensify to a new dangerous level that brings talk finally of systemic failure from banking system collapse, which will be great for Gold. Those who jumped or were pushed off the Gold locomotive in September are the real losers. If they relied upon the leverage inherent to the rigged futures contract game, shame on them. Let them climb aboard on the legitimate rail cars that feature physical Gold bullion benches, not the paper fake asset.

Finally, attention has grown on the gathering storm of Italy. Their debt is being downgraded steadily, just like Spain. The Italian prime minister seems like a clown in a suit, calling the crisis a fiction written by the press. They reject austerity measures, as their debt runs out of control. The nation of Italy must fund over EUR 200 billion of debt before the end of 2012, from rollover. Their bond yield has surpassed the 6.0% level known to serve as the alarm bell. Then tack on fresh debt. The Greek domino could easily push over the Italian domino, which lies next to the fragile Spanish domino. The European Monetary Union will break. Germany announced the return of the Deustche Mark, the date unclear for re-launch. It will be priced for conversion at one Euro to 1.95 DMarks, the same as the 1999 exchange rate when the ill-fated Euro was born. Regard this vehicle as a transitional currency to a new gold-backed currency, the USDollar Killer, the ticket to the Third World. Details are in the October Gold & Currency Hat Trick Letter report. These are exciting times, but dangerous times, full of risk, but full of opportunities.

Read the entire article HERE.

by Dave Brown, Gold Senior Reporter
Thu, Oct 20, 2011
Gold Investing News

Even as spot market gold prices have traded at historical highs over the past few months, central banks are increasing positions and demonstrating support for the precious metal.

Earlier this week, the World Gold Council released an update on its official gold holdings indicating the Bank of Thailand reported an increase for its gold reserves of 9.3 tonnes in August following the net purchases of 28 tonnes during the first half of the year. These purchases combine to represent 4.2 percent of the total foreign reserves and an increase of gold holdings to 136.9 tonnes. This might seem of interest for gold investors as the Bank of Thailand may continue to add to the position during short term fluctuations in gold prices to the downside, given the still relatively modest percentage of foreign reserves in gold that it has. In terms of a monetary policy, Thailand has maintained its interest rate level for the first time this year, terminating the longest consecutive period of increases since 2006. A weakening global economy and the worst floods in five decades are seen as impediments for growth in the South East Asian nation.

Regional peer, Vietnam has recently re-authorized gold trading on foreign accounts in order to narrow the difference between domestic and international gold prices following a recent increase in demand for gold in Vietnam. The State Bank of Vietnam changed its policy following a careful collaboration with its domestic gold jewellery industry and commercial banks.

South American demand

The central bank of Bolivia reported an increase of 7.0 tonnes in gold reserves bringing its total to 42.3 tonnes of gold. The country is holding approximately 21.3 percent of its foreign reserves in gold with its last reported gold acquisition dating to last December when it also reported a 7.0 tonne increase. Bolivia has recently been in the news as a result of strong environmental protests and declining political support for the leader Evo Morales. Mr. Morales’ socialist agenda appears committed to reducing the country’s poverty; however, requisite infrastructural progress, mining activity and gas development which are critical for economic growth are generating protest movements. Although the administration’s second term in office is due to end in early 2015, some observers are uncertain that stability in the South American nation will be maintained until a new election.

Russia adding gold to its reserves

Russia has also increased its gold position to 841.1 tonnes, adding 8.0 tonnes of gold to its reserves during the summer months of July and August. Russia has been consistently adding to its gold reserves for 52 consecutive months.

Gold dispositions

The central bank of the Philippines recorded a decrease in gold reserves of 10.3 tonnes, bringing its total to 147.8 tonnes of gold. Recently the central bank of the Philippines decided to protect growth by maintaining the benchmark interest rate at 4.5 percent, keeping with the monetary policy demonstrated by South Korea and Indonesia.

Sri Lanka has reduced its gold reserves to 8.1 tonnes as the result of selling 9.3 tonnes of gold. The country has followed other Asian examples in maintaining a cautious monetary policy; however, Mr. Anoop Singh, Director of Asia Pacific Department from the IMF indicates in a press briefing last month, “Sri Lanka has introduced new fiscal reforms to broaden the tax base, to remove exemptions, to bring these in line with international standards, and I think we can be quite confident the government and the central bank remain confident to carry forward these reforms.” Facing such uncertainty in the global economic context, the country is also modestly holding 4.6 percent of its foreign reserves in gold.

Read the entire article HERE.

BY CRIS SHERIDAN
10/19/2011
Financial Sense

The Government Accountability Office (GAO) just released its findings from their second audit of the Federal Reserve revealing a well-established revolving door and numerous conflicts of interest between the Fed and top banking executives, most of whom sit on its board.

As revealed in The Sanders Report, which should probably be mandatory reading for the Occupy Wall Street movement, specific board members directly profited from removing restrictions or giving certain banks access to cheaper Fed loans while simultaneously holding stock in that company. Although such actions would’ve normally been restricted by the Fed’s own internal regulations to prohibit such obvious conflicts of interest, waivers were issued instead to certain individuals allowing them to maintain their financial relationships with companies like the most-beloved Goldman Sachs.

What is most troubling, however, aside from the numerous incidents cited in the report, is how completely non-transparent the Fed is when compared to other central banks around the globe. Here’s an astonishing list of examples from The Sanders Report mentioned above (emphasis mine):

The central bank in Australia prohibits its directors from working for or having a material financial interest in private financial companies located in its country. If such regulations were in place at the Fed, the CEO of JP Morgan Chase and many other bank executives would be prohibited from serving on the Fed’s board of directors. (See page 65 of GAO report)

The central bank in Canada requires its directors to disclose any potential conflicts of interest as soon as they are discovered; avoid or withdraw from participation in any real, potential, or apparent conflicts of interest; and cannot vote on any matters in which there is a conflict of interest. If these regulations existed at the Fed, Stephen Friedman would have been required to immediately resign from Goldman’s board, sell his Goldman stock, or resign from the Fed’s board of directors. Instead, Mr. Friedman was allowed to financially benefit from the increase in Goldman’s stock while it received approval from the Fed to become a bank holding company and received billions in emergency Fed loans. (See page 46 of GAO report)

The central bank in Canada also prohibits its directors from having affiliations with entities that perform clearing and settlement responsibilities in the financial services industry or serve as dealers in government securities. The Fed does not. These regulations would have prevented both Friedman and Dimon from serving on the Fed’s board of directors. (See page 46 of GAO report)

The directors of central banks in Australia, Canada, England and the European Union all have to disclose potential conflicts of interest and must disclose its conflict of interest policies on the internet. The Federal Reserve does not. (See page 47 and 49 of GAO report)

Unless you have time to read all 127 pages of the GAO release, I highly encourage you to read the 5 page Sanders Report instead. Given how ugly and incriminating this information is, the Fed should start thinking about some high-profile firings or, at least, putting together a top-notch public relations team…if they haven’t already.

If they don’t do something, expect to see protesters showing up at the Federal Reserve Bank in New York pretty soon (conveniently located down the street from Zuccotti Park at 33 Liberty Street).

By the way, for those of you who believe our banking institutions are the root of our financial problems, I pose to you the following questions:

Q: Which is the largest bank in the nation?
A: Our central bank, the Federal Reserve

Q: Who is primarily responsible for supervising and regulating the banking industry?
A: The Federal Reserve

Q: Who is reponsible for maintaining financial stability?
A: The Federal Reserve

Q: Who lowered interest rates to artificially low levels and helped foster a speculative housing bubble?
A: The Federal Reserve

Q: Who said on live television in 2005 that we weren’t in a housing bubble and that we wouldn’t see a recession? (click here for video)
A: Federal Reserve Chairman Ben Bernanke

(BTW, if you think that a housing bubble and market crash weren’t seen by others years earlier, click here)

Q: Who now bails out the banks with money printed out of thin air and raises the cost of living for everyday Americans?
A: The Federal Reserve

Of course, it wouldn’t be fair to blame the Federal Reserve for all our problems, but holding their feet to the fire to implement far greater transparency and a comprehensive elimination of various conflicts of interest with member banks is a good place to start.

Read the entire article HERE.

OCTOBER 18, 2011
The Daily Bail

This story from Bloomberg just hit the wires this morning.  Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers.  Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties.  Now the Fed and the FDIC are fighting as to whether this was sound.  The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.  You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan.  Even worse, The Total Exposure Is Unknownbecause Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

This is a recipe for Armageddon.  Bernanke is absolutely insane.  No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks.  His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began.

Original Article HERE.

*****Bloomberg By Bob Ivry, Hugh Son and Christine Harper – Oct 18, 2011*****

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”

Accommodating Clients

Jerry Dubrowski, a spokesman for Charlotte, North Carolina- based Bank of America, declined to comment on the transfers or the firm’s discussions with regulators. The company “continues to accommodate the needs of our clients through each of our multiple trading entities, including Bank of America NA,” he said in an e-mailed statement, referring to the company’s deposit-taking unit.

Barbara Hagenbaugh, a Fed spokeswoman, said she couldn’t discuss supervision of specific institutions. Greg Hernandez, an FDIC spokesman, declined to comment.

Bank of America posted a $6.2 billion third-quarter profit today, compared with a loss of $7.3 billion a year earlier, as credit quality improved and the firm booked one-time accounting gains. The lender rose 7.3 percent to $6.47 at 1:54 p.m. in New York trading, making it the day’s best performer in the Dow Jones Industrial Average. Credit-default swaps on Bank of America eased 10 basis points to a mid-price of 380 as of 11:49 a.m. in New York, according to broker Phoenix Partners Group.

Moody’s Investors Service downgraded Bank of America’s long-term credit ratings Sept. 21, cutting both the holding company and the retail bank two notches apiece. The holding company fell to Baa1, the third-lowest investment-grade rank, from A2, while the retail bank declined to A2 from Aa3.

Moody’s Downgrade

The Moody’s downgrade spurred some of Merrill’s partners to ask that contracts be moved to the retail unit, which has a higher credit rating, according to people familiar with the transactions. Transferring derivatives also can help the parent company minimize the collateral it must post on contracts and the potential costs to terminate trades after Moody’s decision, said a person familiar with the matter.

Bank of America estimated in an August regulatory filing that a two-level downgrade by all ratings companies would have required that it post $3.3 billion in additional collateral and termination payments, based on over-the-counter derivatives and other trading agreements as of June 30. The figure doesn’t include possible collateral payments due to “variable interest entities,” which the firm is evaluating, it said in the filing.

Dubrowski declined to comment on collateral or termination payments after the downgrade.

‘Be Prepared’

Bank of America’s rating is now four grades below the one Moody’s assigned to JPMorgan Chase & Co. (JPM), the biggest U.S. bank by deposits at midyear, and a level below the rating given to Citigroup Inc. (C), the third-biggest. Bank of America is the only U.S. lender that lacks a rating of A3 or higher among the five firms listed by the Office of the Comptroller of the Currency as having the biggest derivatives books.

“We had worked very hard over the course of the last nine months to be prepared to the extent that we did receive a downgrade, and feel very good about the way that we’ve minimized the potential impact” Bank of America Chief Financial Officer Bruce Thompson said in a conference call today with analysts. “Since the downgrade, we have not seen any change in our global excess liquidity sources.”

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

Dodd-Frank Rules

Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation.

The legislation gave the FDIC, which liquidates failing banks, expanded powers to dismantle large financial institutions in danger of failing. The agency can borrow from the Treasury Department to finance the biggest lenders’ operations to stem bank runs. It’s required to recoup taxpayer money used during the resolution process through fees on the largest firms.

Bank of America benefited from two injections of U.S. bailout funds during the financial crisis. The first, in 2008, included $15 billion for the bank and $10 billion for Merrill, which the bank had agreed to buy. The second round of $20 billion came in January 2009 after Merrill’s losses in its final quarter as an independent firm surpassed $15 billion, raising doubts about the bank’s stability if the takeover proceeded. The U.S. also offered to guarantee $118 billion of assets held by the combined company, mostly at Merrill. The company repaid federal bailout funds in 2009 with interest.

‘The Normal Course’

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

The moves by Bank of America are part of “the normal course of dealings that we’ve had with counterparties since Merrill Lynch and BofA came together,” Thompson said today.

‘Created a Firewall’

Moving derivatives contracts between units of a bank holding company is limited under Section 23A of the Federal Reserve Act, which is designed to prevent a lender’s affiliates from benefiting from its federal subsidy and to protect the bank from excessive risk originating at the non-bank affiliate, said Saule T. Omarova, a law professor at the University of North Carolina at Chapel Hill School of Law.

“Congress doesn’t want a bank’s FDIC insurance and access to the Fed discount window to somehow benefit an affiliate, so they created a firewall,” Omarova said. The discount window has been open to banks as the lender of last resort since 1914.

As a general rule, as long as transactions involve high- quality assets and don’t exceed certain quantitative limitations, they should be allowed under the Federal Reserve Act, Omarova said.

In 2009, the Fed granted Section 23A exemptions to the banking arms of Ally Financial Inc., HSBC Holdings Plc, Fifth Third Bancorp, ING Groep NV, General Electric Co., Northern Trust Corp., CIT Group Inc., Morgan Stanley and Goldman Sachs Group Inc., among others, according to letters posted on the Fed’s website.

The central bank terminated exemptions last year for retail-banking units of JPMorgan, Citigroup, Barclays Plc, Royal Bank of Scotland Plc and Deutsche Bank AG. The Fed also ended an exemption for Bank of America in March 2010 and in September of that year approved a new one.

Section 23A “is among the most important tools that U.S. bank regulators have to protect the safety and soundness of U.S. banks,” Scott Alvarez, the Fed’s general counsel, told Congress in March 2008.

Read the entire article HERE.

By Jeff Clark
October 5, 2011
BIG GOLD

It may not feel like it after a 12% correction in the past 30 days, but Mike Maloney – founder of GoldSilver.com – is convinced that we’re in a gold bull market that will be life changing for those who participate. I interviewed him for our current edition of BIG GOLD and am sharing some of what we talked about here. You may be shocked at what you read, because he’s devoted a larger allocation to gold and silver than we have. See why he’s convinced a bubble is ahead for precious metals, how high prices will go, and why he stores some gold overseas.

Jeff Clark: For those who don’t know you, why is Mike Maloney such a big believer in gold and silver?

Mike Maloney: Around 1999, my mother needed help with the estate my father had left her. My sister and I interviewed a dozen financial planners and picked the one that had the most glowing recommendations and gave him control of the assets. He lost about 50% of them in the next year and a half. What I’ve found is most financial planners get it wrong. They’re always chasing yesterday’s news. To be fair, there was a market crash, but with 50% of her assets gone by 2001, I ripped everything away from him, moved it to cash, and started studying the economy like crazy.

I discovered that the people concerned about budget deficits and trade imbalances at that time were in the precious metals sector, the hard money advocates. All the rest of the economists and newsletter writers didn’t really care. Concerns about international trade imbalances and how they were going to come back to bite us one day were coming from the hard money analysts. They also wrote about monetary history, something I just fell in love with. The fact that things just repeat over and over again is amazing.

I have hard data from 1918 to today, and anecdotal evidence before 1918, that shows that throughout history a society has a certain amount of real money – gold and silver. Then they either come out with debased coinage, or paper representations of gold and silver and expand the currency supply, which eventually cause prices to rise. People then realize there was something wrong with the currency and they rush back toward gold and silver to protect their purchasing power… and in doing so, they bid up the value of the gold and silver in the country until it matches the value of the circulating medium.

It appears to me this process has been going on since 407 BC, with the first great inflation in Athens. I have charts in my book, Guide to Investing in Gold and Silver, starting in the year 1918, showing the value of the gold held at the United States Treasury compared to the value of all of the base money or paper currency, and it was a 1:1 ratio.

Jeff: So history shows that the value of gold eventually equals the value of all paper money in circulation?

Mike: Yes. Back then, the US dollar was a claim check on real money – gold. Base money was the number of US Treasury gold notes in circulation. Before World War I, base money equaled the value of the gold held at the US Treasury. Then we established the Federal Reserve and did a bunch of deficit spending for WWI, expanding the currency supply, so now there wasn’t enough gold to cover all the dollars they printed. In 1934 the price of gold was changed to $35 per ounce and the values of base money and gold at the Treasury were once again in equilibrium.

Then we expanded the currency supply to pay for WWII, Korea, and Vietnam, and in the ‘70s the price of gold rose until its value at the Treasury exceeded base money. But, for a short time in 1980, the value of gold at the Treasury not only exceeded the base money, it surpassed base money plus outstanding credit card balances. This is important because credit cards are replacing cash in circulation, so you must include it if you want to estimate a price target.

Jeff: So how high do gold and silver go?

Mike: When I finished the book, it required a $6,000 gold price to cover base money plus outstanding revolving credit. I’m not saying that that’s going to happen, but if history were to repeat, that would be the price.

However, since the book was written, Bernanke created a whole bunch of base money to bail out the banks, and now it takes a $15,000 to $20,000 gold price. One caveat is that $1.6 trillion of excess currency is sitting on banks’ balance sheets. It has yet to enter circulation, and if it never does, then this price target changes. My point is that prices are a moving target. Putting a dollar figure on them is an exercise in stupidity, I think, because the dollar is always changing. You can’t use it as a measuring stick.

My target for gold is that it should be equivalent to 1/40 of a single-family, medium-priced home, or two shares of the Dow. So gold will probably buy you about 12 times more stocks and 3 times more real estate in the future than it does now. So those are my prices.

And silver will leverage you to that. There is more gold on the exchanges and with the dealers that investors can buy than there is silver. Their current prices do not reflect this. Gold is way too cheap compared to dollars, and silver is too cheap compared to gold.

Jeff: Sounds like it’s not too late to buy gold and silver.

Mike: No. What investors need to be aware of is that we are on the last legs of our currency system. History shows that the world sees a brand-new monetary system every 30-40 years – and ours is 40 years old. Right now all currencies on the planet are backed by debt. All of the previous transitions were baby steps from something (gold) to nothing (debt). In order to give confidence back to the currencies, we’ll have to go from nothing (debt) to something (most likely gold again) in one big, huge, gigantic leap. This will cause an economic convulsion the likes of which the world has never seen.

The end of this precious metals bull market will be marked by panic buying. Gold and silver will be going into an astronomical bubble one day, probably the biggest bubble in financial history. That is why I think gold and silver are still fundamentally undervalued.

Jeff: Investors reading this might be a little skeptical that a bullion dealer is telling them to buy gold and silver. Do you mind sharing what percentage of your assets is held in gold and silver?

Mike: My personal portfolio is 100% in gold and silver. I have no other investments. I am completely committed to this because I absolutely believe it. I spent 2-1/2 years writing what is now a bestselling book on gold, and I opened a precious metals dealership. There isn’t anything I do, no action I take, that isn’t somehow connected to gold and silver.

Jeff: What separates GoldSilver.com from other bullion dealers?

Mike: Everybody at GoldSilver.com invests in gold and silver. They have all been invested in precious metals since I started the company in 2005. Everyone is absolutely committed and very knowledgeable. So we are all on the same side of the boat as Casey Research. If you become a gold and silver client, you’ll know we’re invested just like you are. We’re walking the walk and talking the talk.

We also have a team of researchers who are constantly analyzing where we are in this bull market. It’s in our best interest to try to find the top of this bull market and sell when the time is right. I believe we can multiply your winnings by letting you know what we’re doing when it comes time to sell. The way I’ve set up my company is that if you don’t win, I don’t win.

Another thing you should know is that I am not a gold or silver bug. I couldn’t care less about these metals. They are just in their cycle right now and will be the best performing asset for the coming years – period – just based on history.

There are these brief moments in history where the safe-haven asset also becomes the asset class with the single greatest potential gains in absolute purchasing power. We’re in one of these cycles right now; as the currency supply gets ramped up and people realize there is something wrong with it, they’ll rush back toward gold and silver and bid the price up until it matches the value of the currency supply.

Jeff: You’re increasing the number of storage facilities outside the US; why should a US citizen consider storing bullion outside the country?

Mike: Some investors are concerned about “confiscation,” which is technically incorrect. The US government never confiscated gold; they “nationalized” it. In 1933, they bought it from US citizens at full face so that the Treasury could hold it as an asset for the entire nation. That’s the very definition of nationalization.

Jeff: Are you saying you don’t think gold could be confiscated?

Mike: It’s possible, but I don’t believe it would happen in the United States. More than half of our currency resides outside the border. We’re the only country in that situation. If Obama passed an executive order today once again nationalizing gold, I believe that banks and brokerage houses around the world would suspect something was wrong with the dollar, and they would immediately dump their dollars and buy gold and silver. That would cause the dollar to fall to zero and send gold and silver to infinity in a matter of weeks. I would hope there is someone in the government smart enough to know this. If so, then it makes nationalization very unlikely.

Jeff: Good point.

Mike: But I do believe that it is good to have some geographical diversity. I think we’re going to see governments trying to limit our financial freedom even more than we’ve seen since 9/11. They’ll do this by instituting such draconian capital controls that today’s IRS will seem magnanimous by comparison. I want to be able to travel freely and have access to my funds no matter what happens. Therefore, I keep some of my gold in offshore storage accounts in several countries.

Jeff: But why go to the hassle and bother with the reporting requirements?

Mike: Because if you’ve got ownership outside the country, you may be able to retain it, even in a nationalization. The point is, we don’t know the future. All we can do is look at what’s happening, try to figure out what governments are going to do, and then protect ourselves with a little bit of diversity. And of all the assets you could own offshore, I believe none are safer than physical gold or silver.

Jeff: Do you think foreign storage puts a target on my back with government officials?

Mike: Well, they want to make sure you’re declaring any capital gain. And I do think that precious metals investors will see some sort of windfall profit tax when the government tries to punish those nasty gold speculators that caused the dollar to crash. They will always point the finger anywhere but where it belongs – which is squarely at the government and the Federal Reserve. People are just trying to protect themselves from government stupidity and the Fed by buying gold and silver.

I think the reason they require the reporting is to make it difficult for people to cheat on their taxes. I don’t think it’s going to make you any more of a target than anybody else if you report everything. If you play within the rules, you’re not a target. I myself walk the straight and narrow. I make sure I comply with everything the IRS and the Treasury require.

Jeff: What about the small investor? Do you have any advice for the person who has limited funds?

Mike: Yes. It only takes $40 to become a silver investor. Regardless of what your income level is, you’re going to come out much better in the end. And once you take the leap and become an investor, your mindset changes and you find yourself starting to plan. A lot of people are not really planning on the future that much – but once you buy an ounce of silver and become educated, you give yourself a tremendous advantage over the rest of the population.

So just buy small quantities of silver. It has such leverage to it. And silver will probably go into some sort of super-spike that you will want to catch, which means you probably need some sort of guidance. That’s where subscribing to newsletters such as yours is very, very important for anybody who’s going to get into this.

Jeff: Thanks for your time, Mike. And we appreciate the discount you’re offering our readers.

Mike: You’re very welcome.

Read the entire article HERE.