Jim Wille on Gold and Japan

By Jim Willie:

The entire world struggles to determine the fallout effects of the Japanese earthquake and tsunami, along with the ensuing problems. The effects are so pervasive, so profound, so critical, that it is no wonder the news networks focus on two things only. They have switched emphasis to the Libyan civil war, a pitched battle to retain a tyrant and his larcenous rule. But the news stories out of Japan focus 98% on their Fukushima nuclear complex, with hardly a peep about the long list of other economic and financial effects. This article will focus on what they leave out, dutifully reporting amidst the purposeful new vacuum in a grand distraction. The Japanese factor in early 2011 will turn out to be the most important factor to influence major global economies and the financial markets since the death of the US banking system in September 2008. Gold investors should not expect a similar commodity price meltdown like in 2008 after the Wall Street death event. Gold & Silver each sold off sharply during the ensuing months after the collapse of the US banking system, as a liquidity drain was joined by a Wall Street attack of hedge funds. This time is totally opposite. Back in 2008 no Quantitative Easing program was in place, as hyper-inflation engines had not been turned on like now. QE will be global next. The central banker pact not only endorses the monetary hyper-inflation by the USFed, it extends it globally with a loud ring. What comes next is a global inflationary recession with gusto and power. The path had already been clearly entered, but now it is fully engaged with a jet assist. Great confusion comes, equal to the harmful momentum from numerous fronts.

The impact is comprehensive and profound as several important triggers have been hit simultaneously. Economic fallout is greatest inside Japan itself. The financial impact is greatest with the United States and Japan. A point to never lose sight of in the last two weeks is that the USGovt manages a monetary nuclear reactor that is also in core meltdown, with USTreasury Bonds as the fuel rods whose radiation has a USDollar odor. The accelerating piles of debt and money have been routinely spread systematically in a grand complicated coordinated reaction, the core of which is the United States. Watch for any interruption to the massive flow of funds into the reactor, which the G-7 central bankers were keenly aware of last week, but without mention. As with all asset bubbles, the required funds grows exponentially to maintain the asset bubble, here the USTreasury Bond. The reactor cannot lose its flow, or else a meltdown occurs. An interruption had begun, was addressed, but they will not be capable of replacing it except with more toxic money, the fiat funds. The pressure on the USFed will be shared across the major central bank offices. The inflation engineers and high priests who preach on asset bubbles will face enormous challenges to avoid a nuclear financial core meltdown. They will not succeed, and Gold & Silver will be the meter for the failed efforts that lead to meltdown. Both precious metals will double in price in the next few years. Nothing is fixed and Mother Nature just kicked the elite bankers in the shins, or a point one meter higher if the truth be told.

The recession will be deeper from the supply chain disruption and higher cost structure. The monetary inflation will be more uniform and with greater volume. The major currencies within the global monetary system will suffer much more debasement, as value erodes badly. At the same time, the boogeyman image of the US Federal Reserve will be mitigated by the full chorus of central bankers eagerly coming to the Yen currency rescue. Witness Global Quantitative Easing with extreme force, the printing presses in high gear straining to produce enough funny money to build seawalls strong enough to withstand the destructive tsunami. Wreckage from previous overwhelmed platforms has begun after three decades of funny money abuse, whose waves of busted bubbles and failed assets have been doling out powerful blows for over three years. Witness the Global QE, as all major nations will help the USFed to print money, wreck currencies, destroy capital, ruin businesses, and cause an easily recognized price inflation. Of course, they will continue to aid the elite bankers who are mostly responsible for ruin. Notice how the USDollar continued to decline, going below the 76 support level for the DX index. Despite the weak futile pathetic rebound, the DX index remains the former support under 76. Three imagines come to mind on the destructive forces: a gattling gun, a daisy chain centrifuge, and overhead office building spray.

The amazing storm will contain a nasty paradox, as the Yen currency will not stop rising. Japan as a nation will lose the ability to purchase foreign assets, a means by which they could keep their currency down. A vicious cycle has begun to take shape. Inflation will originate from the four corners of the earth, come in many forms, and have staggering effect on both the global recession and global price inflation. Assets and incomes will go into worse decline, while commodities including Gold & Silver rise powerful. Actually, Gold & Silver are money, the great anti-bubble. The USTreasury Bond will be under absolute siege for months until a climax conclusion in the near future. Consider the following major effects and forces, presented in an order to reflect their importance, not their flow of domino effects in sequential destruction. For those who grow weary of Jackass comments about destruction and ruin, it is time to wake up to reality as the nightmare persists during the waking hours. Darwin is at work, removing the failures from the gene pool, including those who refuse to acknowledge the unfolding disaster and fail to take proper defensive action. Nature is very busy challenging the managers of the earth. The people must defend and salvage their life savings before it is forfeited to a unique combination of natural asset bubble wreckage forces and syndicate planned duplicity, swindles, and seizures. Beware of false messages.

YEN CARRY TRADE CLIMAX EFFECT

• The trade was to borrow near 0% Japanese Yen and fund USTBonds and US Stocks for many years. Still amazing that many elite analysts have never heard of it. The Japanese situation hastens the fast retreat. The late sellers will be ruined.
• The reversal unwind of the Yen Carry Trade appears to be entering its third and possibly final phase. The unwind has required over 12 years to complete. The YCTrade took 15 to 20 years to build into the largest, most powerful, and significant financial engine of multi-$trillion phony wealth the world has ever witnessed. Japan might next face a liquidation similar to what the United States has suffered.
• The nation of Japan will not recover from the Yen Carry Trade unwind, which will be relentless. Its creation and sustained operation kept the Japanese Industrial Miracle going for three decades. It has finished, and run its course.
• The YCTrade unwind is to be assured by the heavy Japanese selling of USTreasurys by the a wide assortment of Japanese financial entities. Call it a major unintended consequence. The unwind spells major problems for the Japanese export industries, but also for the USTreasury Bond complex.
• The entire world will continue to abandon the USTreasurys except for a few nations that wish to openly protect their export trade.

JAPAN TRIGGERS GLOBAL QE3

• Call it the EMERGENCY G-7 YEN SELLING PACT or coordinated Japanese support, no matter. It will become the biggest, most grandiose coordinated monetary initiative in modern history.
• The emergency meeting of G-7 nations was given a general purpose of dealing with Japan, but it was all about the rapid unwind of the Yen Carry Trade without a single mention of the vast perverse engine. The accord resulted in a global consensus that all nations would help to purchase USTBonds sold by Japan, from the unwind of the YCTrade.
• The G7 Yen weakening accord is a disguised USDollar rescue, since a rising Yen goes with a falling USDollar. Attempts are made to avoid the USFed being isolated as the sole buyer of USTBonds, which is inevitable. They can rescue the Yen, but not the USDollar, the new toilet paper with green embroidery.
• The USFed must monetize all the foreign central bank asset purchases of USTBonds ordered abroad, or face higher US interest rates and threatened USGovt debt default. Huge amounts of money will be handed through the New York Fed window, directly from the Printing Pre$$, a process well underway.
• A USTreasury auction was postponed so as to enable more efficient printing operations. The sales in Brussels, London, and Tokyo will be covered by the USFed. Thus foreign currency exchange rates are rising versus the USDollar still.
• The Yen Selling Pact by the G-7 emergency is better described as a Global QE3. Monetary expansion cannot be concealed, since out in the open, and blessed with global consent. The USFed is somewhat off the hook for its monetary inflation and the associated destructive effects. The major central banks have blessed the inflation as a necessity, with urgency.
• A risk of a global central bank franchise model destruction could be in intermediary stage. The monetary system is at risk of greater and sudden fractures. If sovereign bonds have been on the defensive in the last year or more, watch how central bankers will be on the defensive in upcoming months. They manage an exploit of wealth, control the power centers, oversee failure, and dole out poverty even as they corrupt markets.

EMERGENCY FUNDS FOR SUPPORT

• Tremendous emergency funds have been appropriated and set aside by the Japanese Govt for financial market rescue & support. More funds have been devoted for relief efforts, worker crews, earthquake & tsunami cleanup, body retrieval & searches, and reconstruction. The price will be even larger than reconstruction & relief efforts. A total national meltdown is being averted, or delayed.
• The initial pledge of funds was for $86 billion, to stabilize their financial market, to make regional bank liquidity available, and to fund relief efforts. They reacted to factory shutdowns, a curtailment of distribution channels, and rolling electrical blackouts. The next pledge of funds was for $183 billion, to further stabilize markets and banks. The support continued until the latest total amount is reported to be 55.6 trillion Yen, equal to almost US$700.
• No expense will be spared, as the flood of money will follow the tsunami flood waters. The price tag grows leaps and bounds on a daily basis. The deficit will be large, adding to an already enormous cumulative national debt. Japan must rebuild infrastructure as well as supply delivery systems for basics like food and factory material input.

SALE OF FOREIGN ASSETS

• Given the overloaded saturated debt situation in Japan, many assets must be sold in order to raise cash, mostly foreign. Without sales of existing actual assets, the size of the crisis and its funding aftermath would produce significant and immediate price inflation.
• Japan will sell a large hoard of USTreasury Bonds, USAgency Bonds, and possibly US Corporate Bonds. They will sell EuroBonds and UKGilts. They will sell anything that does not bear a Japan label. If they could, they would sell assets behind the Somali and Yemeni sovereign wealth funds.
• The Japanese insurance companies must also raise cash to pay for claims from the widespread damage, including to businesses. They will sell US$-based bonds and more.
• An unintended consequence is for a pinprick of the USTBond asset bubble, which has been puffed for over two years. Unlimited funds will be made available to offset the USTBond dumps in an emergency setting.

REPATRIATION EFFECT

• Compounding the current situation with flow of funds is the annual migration. The March 31st deadline approaches for the annual Japan Repatriation of cash held in foreign accounts. The requirement will add to the inflow of money into Japan from overseas.
• This annual return migration involves funds held in all foreign lands, and will force the calling home of funds from Europe, England, Asia, and the Persian Gulf.
• The effect will cause the Yen currency to strengthen relative to all fiat currencies, rendering harm to Japan's export industries. The world annually goes through this required effect, but this year should be more pronounced. Bad timing!

COMMODITY DEMAND EFFECT

• The rush to undertake reconstruction will require a wide array of commodities at a time when the commodity market is afire in price increases. From steel to cement to lumber to fuel products, the major commodities will be in enormous demand. This demand at the margin will have an aggravated effect on price.
• The effect on commodity prices will be sizeable and noticeably attributed to Japan. It will be felt primarily after the landscape settles enough for work crews to begin the massive rebuilding efforts.
• Already, critical supply shortages have been reported. They include industries not in Japan. The demand will be across the board, including food, which has an immediate effect on survival.

FOOD PRICE EFFECT

• The shortage of foodstuffs comes from both disrupted original growing locations and disrupted supply chain in delivery systems. Again, a wide variety of foodstuffs will be in enormous demand, all on a marginal increase basis.
• The region to the north where the nuclear reactor damage occurred is the site of a concentrated food growing farms.
• The price effect on several items within the commodity array will be sizeable and noticeably attributed to Japan. Global relief efforts will only aggravate the price effects.

PRICE INFLATION EFFECT

• Japan stands at risk of a hyper-inflation episode with more punch than what has begun to unfold in the USEconomy. The emergency funding for both reconstruction and financial market support will unleash price inflation from the inevitable spillover, a financial tsunami of funds.
• Also, the rising demand and supply shortage with intensify the price inflation. The tangible response of purchase at the margin will have an intense effect. The shortages are widespread already, also to be aggravated.
• Since the Japanese Debt/GDP ratio is near 200%, they cannot hike interest rates without causing a default on their bonds. The Bank of Japan will monetize the required funds to rebuild their country and later worry about consequences of hyper-inflation. If foreign asset sales are not ordered, and fresh debt monetization occurs, the price inflation will be power packed and doubly significant. So they sell assets.
• When a nation reaches saturation on debt, the new debt is monetized and hits the main street as inflation rapidly. However, it is hard for hyper-inflation to strike a nation with a rising currency. Incredibly strange crosswinds are at work. Japan has rapidly crossed the bridge from deflation to inflation.

EXPORT TRADE EFFECT

• The redemption of US$-based bonds will be staggering and sudden, compounded by the sale of other US$ assets. The effect will be a steady relentless significant rise in the Japanese Yen, a decline in the US$/Yen exchange rate, with a powerful effect on the Japanese export industries.
• A big trade deficit is coming to Japan, a new concept. The system will work to bring the Yen currency down on the tangible side while the financial side actually pushes the Yen up. A big conflict and paradox comes. The industrial factor will be perplexing, powerful, and paradoxical. Most consensus thinking will be wrong.
• As the Japanese trade deficit worsens, and gains publicity, it will result in a Yen that rises to confuse many analysts. The Yen will rise with surprising gusto and power, invited more coordinated global actions. The central bankers will be on the defensive. Diverse Japanese entities will be in a race to sell foreign assets, as the Yen rise intensifies.
• Japan will lose the funds from trade surplus used to purchase foreign assets, useful in keeping the Yen currency down. The suppression tool will vanish!!
• The lost surplus is a direct result of the rise of Chinese industry, aided by Japanese firms in important technology transfer. The newly arriving trade deficit could easily become a permanent fixture, and its funding will render damage side by side to the high government debt burden. Japan will suffer from broad deficits. Industry damage comes.
• The collateral damage to the global economy will be vast supply chain damage, both from interrupted supply and higher cost supply. As Japan slides into an inflationary recession, as industrial suppliers are strained, some will go out of business and shut down unless they receive subsidies. Those subsidies might actually come from foreign companies, who must save their suppliers that cannot be replaced easily or at all.
• Just today a friend from an upscale condominium complex reported that a certain device to maintain water & sewer levels in his complex had broken. Its replacement must come from Japan. The vendor said it will come at an indefinite future time. Ditto for General Motors on parts and thousands of other businesses that are dependent upon the high quality and reliable supply chain from Japanese industries.

GOLD & SILVER EFFECT

• With all the newly created money from Japan in direct inflation, with all the USTBond sales to undermine the USDollar, with the coordinated central bank assistance in USDollar creation, with all the commodity demand in reconstruction, the overall effect on demand for Gold & Silver will be positive and powerful but a little delayed. A giant tsunami lift has begun in precious metals prices.
• One can smell a monster midyear rally in Gold & Silver after some time to gather facts, assess the situation, and detect the positive winds. The rally might have started this week, as the evidence is just too plain and simple to the thinking man. A price breakout is seen in both monetary metals. The distractions from Wall Street and the lapdog US press must be ignored.
• The entire Japan story is huge bullish for Gold and extremely bearish for all paper currencies certain to be debased further. The G-7 Yen Selling Pact is all about coordinated currency dilution. With Japan, the United States, and the EuroZone all printing money, global monetary hyper-inflation cannot be avoided. It will be endorsed and welcomed. Gold & Silver will react.
• Attempts to deal with the economic breakdown and industrial disruptions will contribute to global systemic price inflation, which has already been initiated. Gold & Silver will react.
• Holdouts on expecting the monetary system to recover, and fiat paper currencies to stabilize, and the banking sector to revive, and the housing market to bounce back, they will totally give up and surrender. They will enter into Gold and especially Silver. Better late than never.
• Confirmation has come that mining firms are bypassing the COMEX. They choose to sell Gold & Silver mining output to investment funds like the Sprott Fund. The COMEX will find itself in increasing isolation. Their artificially low price paid for metal has sparked a wide reaction. Unknown is the amount paid in premiums over spot prices by the funds in order to facilitate the purchases. The premium prices indicate the true price, not the nonsensical price discovery at the COMEX under suppression, cash settlement, and other crooked devices.
• A quantum jump, threshold leap, and paradigm shift has taken place. The Japan incident with its staggering financial fallout represents in my opinion the most important and influential factor in global finance since the US banking system death in September 2008, complete with distraction, possibly even cover-up.

BREAKOUT !!!

See the March Gold & Currency reports within the Hat Trick Letter after placing a subscription order. A more full analysis of the rapidly deteriorating Yen Carry Trade is provided in the proprietary Gold report. This carry trade is so critical, so devastating to currency markets, such a grand threat to the USTreasury Bond bubble, that the G-7 Finance Ministers did not address it, cite its unwind, or give it any mention. Their Yen Selling Pact was all about preventing a system blowout at the USDollar nuclear reactor. Their pact was a disguised USDollar rescue doomed to failure. They must have discussed the Yen Carry Trade unwind effect at half the meeting. The Japanese fallout could be the exogenous force that breaks the USTBond bubble. It will take time. At the least they have lit a gigantic bonfire under Gold & Silver markets, where precious little metals exists in the COMEX or LBMA. The global financial crisis is spreading in a horrible contagion. Big powerful price breakouts are to be expected for Gold & Silver in the coming weeks and months. They notice the grand debasement of money, even if for emergency purposes.

The USFed is no longer isolated in the monetary hyper-inflation. However, even as a group central banks cannot stop what comes, the ruin of fiat paper, both the currencies and the sovereign debt that supports the global monetary system. In fact, their group central bank actions intensify the ruin of money itself from prolific debasement. The meter, the measuring device on the wall, is the Gold & Silver price. Today, each metal registered new record high prices for the last couple decades. By year end, look for a Gold price around $1550 to $1600 and a Silver price at least $50. Gains in silver will triple gains in Gold. The quantum jump really means that enormous breath-taking huge upward moves can and should be expected. Do not be surprised if the Gold price rises $50 in a single day, or the Silver price to rise by $2.00 on a single day, in the near future. A systemic breakdown is occurring, in the Weimarization of the USDollar. Last Thursday, the world went Weimar. Gold noticed, and its scout Silver pulls the golden bridle bit.

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in 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 . For personal questions about subscriptions, contact him at JimWillieCB@aol.com