Monday, September 12, 2011
By Ambrose Evans-Pritchard:
First we learn from planted leaks that Germany is activating "Plan B", telling banks and insurance companies to prepare for 50pc haircuts on Greek debt; then that Germany is “studying” options that include Greece's return to the drachma.
German finance minister Wolfgang Schauble has chosen to do this at a moment when the global economy is already flirting with double-dip recession, bank shares are crashing, and global credit strains are testing Lehman levels. The recklessness is breath-taking.
If it is a pressure tactic to force Greece to submit to EU-IMF demands of yet further austerity, it may instead bring mutual assured destruction.
"Whoever thinks that Greece is an easy scapegoat, will find that this eventually turns against them, against the hard core of the eurozone," said Greek finance minister Evangelos Venizelos.
Greece can, if provoked, pull the pin on the European banking system and inflict huge damage on Germany itself, and Greece has certainly been provoked......read on
Whenever it suits Team Titanic from the increasingly tense helm, more phony comparisons are trotted out in baseless news stories posing as legitimate analysis. The latest propaganda plank is that the current financial climate, worse by the week, resembles 2008 and therefore bodes badly for the Gold & Silver prices. The implicit inference has no basis. In the final months of that fateful 2008 year, when Lehman Brothers served as the flagship going down in icy waters, writing the epitaph that marked the historic death event for the US banking industry, not yet recognized, the precious metal price fell by a huge amount in a liquidity drain amidst a grand crisis. While the current climate does resemble that fateful cardiac arrest and death event, followed by the coroner being paid off to falsify the death certificate (see the FASB accounting rules change enacted in law April 2009), the differences are so profound as to warrant a better description. The delineation should help investors to realize that the Gold price will zoom on repeated upward jaunts undeterred, the opposite of the controlled demolition in early 2009. That past raid was led by Wall Street assaults on hedge fund clients and gigantic USFed loans well over $10 trillion to buddy bankers. They engineered a fire sale for a global asset grab, a secretive aggressive shopping spree with illicitly obtained funds without USGovt permission. Nowadays three years later, the same central bankers are on the defensive, presiding over a failed franchise system. We see the exact opposite today.
SIDETRACK ON FALSE 1980 COMPARISON
Sidetrack for a moment in an amble as preamble. Remember back a few years when the Gold bull market was slamming through several barriers. Take for instance just one such barrier, the $1000 barrier. Numerous clients and acquaintances asked the Jackass if the thousand dollar level would mark the end of the bull market in Gold, as in a psychological end of the road. My response was Hell No!! When pressed further my explanation was that the entire system was going to experience a convulsion that would endure a few years, with recognition coming later on, much later on, with debasement of money to become a veritable public sport in acts of desperation, that would culminate in government debt defaults across Europe and extended finally to the USGovt, the wicked Competing Currency Wars waged in the open even as government deficits spiral out of control. The response from dozens of people listening to the harangue in justification for a $1500 then $2000 Gold price was disbelief, raised eyebrows, and openly stated doubt, and open admissions that they simply could not see that happen. They missed each leg up, and will continue to miss other uplegs. In fact, in a few years, we will sell to them at double and triple the current Gold price, and four to six times the current Silver price.
Some people dutifully have recited the nonsense spouted by the US financial press and Wall Street maestros that a repeat of 1980 was underway, certain to fall once again for a decade of fizzle. My rebuttal was full of laughter and accusations of actions like human sheep, led away from the highly nutritious trough. Some even admonished me that the USDollar has done well for the nation. Most expected the system to right itself, to rectify its own imbalances. They did not comprehend the exhausted potential for another virtuous asset bubble (USTBond is a tombstone bubble), and did not comprehend the absent US industrial base (shipped to Asia and China). Without legitimate income sources, the USEconomy will sink in quicksand, as the factories would have served as ropes to pull out. The moves in the Gold price past $1500 put to rest such stupid comparisons to 1980. While the Hunt Brothers tried to corner the paper Silver market, the current marquee billboard title is the drainage of the COMEX of metal inventory, the Asian raids on the metal, heightened global investment metal demand, and lost confidence in the monetary system itself. This chapter has been characterized by a run on metal, not a gathering of paper contracts, daring Wall Street to change the rules. May the 1980 comparison rest in peace, yet another distraction, diversion, and lie.
CONVINCING GOLD PRICE PERFORMANCE
The performance of Gold in the last three years has proven to demonstrate loudly and visibly that the potential price in future years is likely to be more like $2500, then $3000 and higher. The reason is simple. Nothing is being fixed, no remedy even attempted, the debasement of money continues, the ruin of the monetary system spreading like a Texas wildfire, the bailouts making headline news almost every week, and Gold actually being the ONLY, the ONLY good performing asset. The bigger question is no longer whether Gold will repeat the 1980 decline and multi-year fizzle, but nowadays whether climbing aboard the Gold train at the $1800 to $1900 price will offer much upside potential. In other words, is it too late to enter the Gold investment trade? My answer is that if a rise from $1800 to $2500 and then a zoom past $3000 seems attractive, sure, climb on. By the time $2000 is surpassed, the upward moves in the Gold price will be justified by widespread openly discussed debate about whether the Western monetary system and sovereign debt structure is permanently broken. The next hotly discussed topics will be whether almost all efforts to treat the severe ills actually make the problem worse and actually add to the potentially higher Gold price. The next year will see the arrival of more realistic debate over a Gold Standard, the dreaded solution.
In my opinion, as publicly stated in a recent article, the panic phase has begun. The American people have begun to sense the broken nature of the system, the suppose curative cream of new debt actually adding to the debt saturation problem, the USGovt deficit as never to be reduced, the grotesque imbalances growing worse, the global disputes turning uglier, the system fracturing before our eyes. The people are awakening to the systemic failure. They are at last showing fear and sensing some doom. They are painfully and openly more aware that the system cannot rectify itself, due to a broken policy apparatus, due to ineffective economic counsel, due to corrupt bank operations, due to unprosecuted fraud, due to an endless housing decline, due to a vanishing Middle Class in America. These are the elements of systemic failure. In doing so, they have not only pushed aside the stupid comparison of the Gold market to 1980, but are embracing the notion that Gold indeed has no upper limit in price, can rise almost forever, as long as no limitations are put on money creation, debt monetization, federal stimulus, and permitted bond fraud. With each new poorly constructed bailout, the potential Gold price rises further! There will be no end to the stream of futile proposed solutions implemented. The Powerz will try everything except the true solution, a Gold Standard. Yet such a standard imposed would dissolve half the US banking system, ignite hyper-price inflation, result in profound shortages, eliminate large tracts of private wealth, and deliver the United States as a nation into the Third World.
Finally, forecasts of Gold reaching over $5000 in price are seen as reasonable, and hardly silly. Such high potential makes a lot of sense, as the PIGS sovereign debt crisis spreads to Italy and the USGovt debt hurtles toward a ripe $2 trillion annually. Both European and US deficits and bailout bills will be staggering, coming down the pike. The tax revenues have turned down in recent months. The levitation support by the USFed has been removed to some extent. The USEconomy has hit the skids suddenly and emphatically. All kinds of federal programs will be hastily put in place to address the problem. My stated Panhandle Doctrine will be applied in another round to consumers. My twin Parasite Doctrine will be applied in another round to the financial sector. The Obama Jobs Plan is taking shape, another gutless errant ineffective exercise in stupidity, futility, and misdirection. Prepare for an annual $2 trillion federal deficit, as all engines for austerity and budget cuts will be abandoned in a bold reversal to address an emergency. The Gold price will zoom past $2000 per ounce when it becomes crystal clear that more USGovt stimulus and spending is next, not less. Ironically, watch the $2 trillion budget deficit go hand in hand with the $2000 gold price arrival. The United States will be last to enact austerity. Heck, the Standard & Poors debt downgrade has been relegated to the back pages. Its ratings agency Chairman has been replaced by a Citigroup executive, the bandaid applied. If truth be told, the USGovt has already exceeded the new debt limit in violation. But the story is not deemed newsworthy.
When the additional $1 trillion in USGovt deficit for just the October to December quarter is reported on the books, the debt limit might return as a story, especially when the official debt limit must be lifted to $17 or $18 trillion to give it some wiggle room. That wiggle is the patient going through convulsions and cardiac arrest, legs twitching, body gyrating, with the death of debt default more visible than ever before in future years. The patient's eyes will not turn glassy gray, but rather bold red from red ink. The Wall Street controllers are simply buying time, loading up on USGovt Credit Default Swaps and private gold positions. See the Carlyle Group Initial Public Offering. Jim Sinclair revealed back in March 2009 that the private Wall Street executive accounts reside in the Carlyle Group as investments. Conclude that the investment banks are being gutted with a firm USGovt guarantee and backstop, while the private accounts go long long long in Gold, and probably Silver too.
DIFFERENCES FROM 2008
Continue the theme of wrong comparisons. Wall Street desperately needs bad thinking, distractions from the best paths, and baseless analysis to be promoted. The Boyz have more work to do. The following outlined points serve as merely a preamble to the profound differences between now and 2008. Deutsche Bank CEO Josef Ackerman shocked the continent this week with his frank comments about the financial system teetering once more toward a breakdown just like in 2008. However, many analysts astute in the art of deception have grabbed the story and run in the wrong direction. He was not saying Gold will suffer a 25% price decline. Ackerman was instead saying that a string of Lehman Brother failures lies directly ahead. Although he did not actually make that conclusion in explicit words, that is what he meant, as insolvent trees stand helpless to the financial winds.
Consider the numerous changes in the landscape that have taken place in the last three years. This is an impressive list of changes. Nothing is the same, only the proximity of another extraordinary sequence best described as failure events where the Fiat Team suffers more heart attacks in the Emergency Room and Intensive Care Ward. Both selective New York and London banks have been pushed on gurneys through the ER and IC doorways. Next is the string of 20 European Lehman lookalikes, that actually topple some US banks across the big pond. It will make great theatre, but more like a Greek Tragedy.
- USGovt debt limit breached again and again, to be pushed out forever
- three years of 0% rates, a skein of QE initiatives for over a full year
- a ripe $4.7 trillion in rescues, bailouts, stimulus, all failed to right the ship
- the USFed openly admitting to have no more available tools, a spent arsenal
- central banks joining the Global QE, showing desperation (Swiss, Japanese)
- open disputes and revolt between Euro Central Bank and German Bundesbank
- consolidation of Wall Street banks turns sour, with poster boy Bank of America
- insolvent big US bank stumbling around, the banks responding to lawsuits
- Bank of America seeks cash infusions to stave off bank failure
- Royal Bank of Scotland serves as London poster boy of bank failure
- Bank of New York Mellon charges fees for bank deposits
- Western Economy not responding to stimulus, entering recession again
- budget austerity arrives in force, with attempts to reduce spending
- advent of sovereign bond busts turned viral after Dubai in November 2009
- the Southern Europe sovereign debt crisis spread from Greece to Italy and Spain
- the spotlight of crisis shines on France, a PIGS lookalike
- distrust among banks, seen in absence of inter-bank lending
- Credit Default Swap contracts openly cited, no longer a hidden domain
- USTreasury long-term bond yields at 2%, not 4%
- widespread stock market declines usher in panic
- housing decline turned chronic, causing despair among the people
- monstrous climb in bank owned homes taken in foreclosure, the Shadow Inventory
- the MERS title database discredited in court, having zero legal standing
- hidden rise in strategic home mortgage defaults, as people demand proof of title
- active avoidance of meaningful home loan balance reductions
- USGovt files lawsuit against 17 big US banks for bond fraud restitution
- a hefty $90 billion frozen (stolen) from Libyan Funds
- a hefty $60 billion sequestered from Egyptian Funds
- the entire North Africa & Middle East in turmoil
- the fizzle of the Tax on Air we breathe, as the $trillion fraud Carbon Tax fades
- the USGovt political gridlock and stalemate prevents progress
- Too Big to Fail policy toward big US banks becomes a challenged mantra
- US politicians openly mocked for their empty battle cries for job creation
- Obama's biggest accomplishment the Health Care plan, a cripple to small business
- new Gold exchanges open for trade in competition
- the COMEX being drained of its Gold & Silver inventory
- abusive diversion of GLD & SLV holdings during backdoor removal of inventory
- THE ONLY SIMILARITY TO 2008 IS BROKEN CONDITION AGAIN !!!
GOLD PREPARES FOR ASSAULT ON $2000
Put aside the Gold correction news. That is today's news, soon to become yesterday's news. It is merely a healthy consolidation, compressing the ground so that it supports more weight and higher prices. The Powerz said in May that Gold was a dead trade, only three months before yet new highs were established. Tomorrow's news will center on USGovt stimulus, heading off a recession, the transition back to bigger deficit spending, the better understood Global QE, and the inability for the USEconomy to find its footing and generate anything resembling growth. Recall that a 0% economic stall in official calculations represents a MINUS 5% RECESSION, since the lie on inflation adjustment is at least 5% conservatively.
The most accepted facts in the financial sector going into the autumn months are:
- a permanent 0% rate providing unending fuel for the Gold bull market
- economic recession accepted as the next immediate crisis
- an exhausted USFed without tools, credibility, or spirit
- a USGovt debt limit always at the doorstep
- political strangle and useless fiscal policy
- debt applied as solution to a system saturated in debt
- an insolvent system unable to respond to amplified liquidity
- Western banking system ready for 20 Lehman episodes
- the ruin of money accelerating among all major currencies
- the USTreasury Bond bubble almost run its course
- panic setting in across the society, marked by worry, anger, and despair
- lost trust of public officials, whose talk about jobs and housing is empty
- giving up on US housing for a recovery ever
- the powerful grip of hyper-inflationary recession an imminent reality
- decline in Oil price as signal of the deep recession and lost demand
- rise in Gold price as signal of inflation and systemic ruin of money
- Gold seen as the only asset without debt risk, the only bonafide safe haven
- A divergence between empty COMEX price and premium paid for physical buyers.
It helps to take the big picture approach and to ignore the narrow immediate viewpoint actively promoted by the US financial press. They never liked or respected Gold over the entire 2000 decade, despite its 300% gains. They will not like or respect Gold in the next few years when it doubles again. They will be scratching both heads when its price surpasses the $2000 mark, the days of ambushes in May and August long forgotten. The recent breakout occurred with heavy volume, a confirmation signal. More consolidation is needed before an assault on the $2000 level is to be achieved. The certainties are of more ruin of money, continued endless bailouts, and much more stimulus, even misdirected initiatives with wasted money. The benefits will be spurious and vaporous.
A healthy bull market will retest the highs. Even if the highs are not overcome, the bull is still alive and well, actually healthy. The consolidation is always doubted and misunderstood, as nothing has changed in this respect in the ten years of the bull run. The Brown Bottom in 2001 was established when the compromised (not mental midget) Gordon Brown sold the British gold bullion in the central bank. The fuller story was that the sale facilitated a secret bailout of Deutsche Bank, which was huge short in gold bullion. That story will be told after D-Bank goes belly up in the next round of bank failures. The Gold top is not yet known, as each round of ruinous monetary and debt creation enables yet a higher potential limit. Some clueless analysts out there who pretend to understand the gold market actually proclaimed a Head & Shoulders bearish reversal pattern in progress in late August. How incredibly clueless, and totally ignorant of the fractured fundamentals! Their following will vanish surely. Instead, the $1900 breakout was revisited and retested. The current consolidation will permit an all-out assault on the $2000 level this autumn, complete with severe psychological damage. What a pleasure to see that the May ambush of Gold is long forgotten, the effect overcome with the passage of time and the pathogenesis of the financial crisis continuing its course.
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a Ph.D. in Statistics. His career has stretched over 22 years. He aspires to one day join the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com
Was it AAA rated financial products or those elements and produce that have been the backbone of trade and commerce for over 5,000 years?
Seems my decision to turn off the TV after the towers fell, check the silver price and commit to buy more was a good call.
US$ chart from Across the Street blog: