Monday, February 7, 2011
James Turk - We are far from the end of this bull market
Two Views on The Bernank
This morning, there are two radically different views on a speech Federal Reserve chairman Ben Bernanke gave on Thursday - the view from the mainstream media in the United States, and the view of the mainstream media in the rest of the world.
Both are referring to the same speech The Bernank gave at a luncheon at the National Press Club in Washington - but the American media is focussing on an obvious political nonstarter: The idea that the budget ceiling will not be raised.
The foreign media, on the other hand, is focussing on something that really matters: How the U.S. is exporting inflation, especially food price inflation, which is leading to social unrest.
Bernanke’s vehement denial of the obvious is what the media in the rest of the world is talking about.
The New York Times reports in the lead of its story,
The Federal Reserve chairman, Ben S. Bernanke, warned Congressional Republicans on Thursday not to "play around with" a coming vote to raise the government’s legal borrowing limit or use it as a bargaining chip for spending cuts.
In remarks after a luncheon speech here, Mr. Bernanke sided with the Obama administration in the fight over the debt ceiling, which the government is on course to hit in April or May, saying it should be raised without conditions. Some Republicans have insisted on immediate spending cuts in exchange for raising the limit.
It was the first time that Mr. Bernanke, who in contrast to his predecessors has avoided taking sides in partisan debates on fiscal matters, had spoken out on the debt ceiling issue. His willingness to do so suggested a desire by the central bank to prevent Washington lawmakers from toying with bond markets that have been volatile since the European debt crisis last year.
Contrast those lead paragraphs with these from the UK’s Telegraph (not exactly a bastion of Lefty thinking):
Ben Bernanke, the chairman of the US Federal Reserve, has dismissed the idea that the central bank’s policies are to blame for the rise in global food prices to a record high that helped trigger political unrest in Egypt.
Mr Bernanke said that the rapid growth of developing economies was behind the increase in food prices, rather than the Fed’s decision to embark on a second, $600bn (£371bn) round of printing money. "Clearly what’s happening is not a dollar effect, it’s a growth effect," Mr Bernanke said in a rare question and answer session with journalists at the National Press Club in Washington on Thursday.
The United Nations Food and Agriculture Organization (UN FAO) has warned that high prices, already above levels in 2008 which sparked riots, were likely to rise further.
The Times and the rest of the American mainstream media is focussed on a non-issue - while the rest of the world is focussing on something that matters: Food price rises, and the perception that America is exporting inflation.
The American financial media’s thing about the Federal government debt ceiling is sort of silly - everyone knows that the debt ceiling will be raised.
The last time either party brought issues of government finances to a head - back in 1995, with the two Federal government shutdowns - the political cost was catastrophic for the party that pulled the trigger, in that case Newt Gingrich’s Republicans.
So for all their posturing, everyone knows the history. When it gets to crunch time, the Republicans won’t make the same mistake twice: They’ll fold, and sign off on raising the Federal government debt ceiling.
The debt ceiling is a non-issue: It’s political theater. Perhaps the U.S. mainstream media is focussing on it precisely because it is theater, and not substantive.
But food price inflation is real. The riots in Egypt are real - and they have nothing to do with "muslim extremists", or even Mubarek’s dictatorship: They’re about food prices, plain and simple, which have been steadily rising ever since the Federal Reserve’s loose money policies and various versions of QE have driven commodity prices to the moon.
American media is concentrating on political theater - fiddling while Rome burns, as it were - while foreign media is focussed - rightly - on what matters: The cause of mass unrest.
The Hourly G fully expects severe, high inflation to kick the American economy in the short term. Because the mainstream media is playing down fears of inflation, and (as in the case above) ignoring altogether the likely culprit for food price inflation, which is causing civil disturbances around the globe, expect the American people to be vastly surprised when inflation boils over.
This inflation shock that’s coming might well prove to be worse than the inflation shock of ‘79.
Food Prices Aren't Rising…Fiat Currencies Are Collapsing
4 February 2011
We have spoken often about what will be the first real domino to fall in causing a chain reaction ending up in massive global political and financial change. Often we follow our predictions with a statement something along the lines of, "but, in actuality, the defining primary event will likely come from somewhere that no one expects".
I think it's safe to say that no one expected TEOTMSAWKI (The End Of The Monetary System As We Know It) would begin in Tunisia!
It appears that people, including Americans and westerners, are willing to put up with all manners of oppression, taxation and economic stagnation until it reaches the point where they are so impoverished that they cannot even afford to eat.
It is, at that point, that they finally fight back against their oppressors as was the case in Tunisia - and which set off a chain reaction of protests and uprisings in Yemen and Egypt along with other related uprisings in Algeria, Lebanon and Jordan.
It is still far too early to begin to make any conclusions about these new developments caused partially by rising food prices in the Arab world but there are three very possible outcomes that all threaten the tenuous US dollar based financial system:
- The worst case scenario: Many of the current governments in the Arab world are overthrown, giving way to the democratically elected devils they didn't know, who delve the entire Middle East into war. This has any number of potential outcomes including nuclear war. It could also drag the US military into hostilities which would further increase the pace of US dollar monetary inflation (needed to pay for further war) which would further hasten the dollar hyperinflation.
- The wave of Arab uprisings moves into Saudi Arabia and the other Middle East/Arab major oil producers causing an overthrow of American friendly governments resulting in an end to the "oil for Treasury bonds" agreement. This could result in the oil region not reinvesting its profits into Treasury bonds causing further weakness in bonds, and prompting the Federal Reserve to contemplate QE3 in order to prevent rates from rising too dramatically, or to the 11.1% mark where the US government may become technically insolvent as interest rates overtake all tax income (minus social security payments).
- Rising food prices and potential for government collapse in other key US Treasury bond holding states such as China, Japan and other Asian countries result in those countries selling Treasury Bonds and dollars in order to increase the value of their currency in order to reduce the prices of imported food items to keep their populations at bay inducing the same results as in (2) above.
Most mainstream media accounts of rising food prices usually state that the "growing world population" is responsible for the rise in food prices but there is no statistical evidence that growing population correlates to rising food prices.
In fact, food prices have gone down in price, when adjusted for inflation as per the chart above, over the long term even as populations increased as technological advances enable producers to produce more food at less expense.
The reason food prices are now rising all around the world is because central banks have been inflating the money supply in every country in the world at very high levels.
It is difficult to get Egyptian money supply figures, especially since internet access has been cut off by the Egyptian Government making access to the Central Bank of Egypt's website (www.cbe.org.eg ) impossible but we found this report from Lindsay Vacek from the University of Reno (see report here) who had done a country study of the Egyptian money supply up to 2007.
Ms. Vacek's report shows that the Egyptian money supply grew from 200 billion pounds to 600 billion pounds from 1995 to 2007 - a threefold increase in just over a decade. A recent news article (www.tradearabia.com/news/eco_191183.html) also stated that the Central Bank of Egypt reported total money supply was at 961 billion pounds in 2010. An increase of over 50% since 2007.
This is massive monetary inflation and is, undoubtedly, the main reason why many Egyptians are having trouble even being able to pay for food. Inflation hurts the poorest people the most because poor people generally don't have assets and in an inflationary environment those who own real assets (gold, stocks, real estate) see the rise of the price of their assets offset the rise in prices.The Dollar Vigilante released a Special Report on "How to Own Gold and Silver" this week to subscribers in which we detail how to own gold & silver bullion safely and securely (Subscribe today to receive this Special Report - 90 day 100% Money Back Guarantee on Subscriptions).
The government and financial establishment on November 9th made it clear that they are declaring war on the precious metals. They are about to find out that this time they are not up against one or two brothers, but the brotherhood of all of humanity who is turning its back on this failed centrally planned financial system and returning to an honest, free-market money.
Egypt Is Just The Beginning For Gold's Next Move
4 February 2011
This phenomenon, originated in Tunisia, a nation of 10 million, and now raging in Egypt, of 85 million has spread to Yemen, population 25 million and Jordan, population 6 million is no mere regional political shift: this is the beginning of America's loss of control over the region.
That the democratic process even got a foothold in the tribal and historically despotically governed middle east is due to a series of historical power plays, and not so much to a nascent and organic inclination towards the idea of democracy. When oil emerged to become the most strategic substance on earth after the second world war, the United States, armed with the economic windfall from the war machine, set about toppling governments and seeding insurrection through the offices of the C.I.A., bolstering governments that were 'incentivized' to protect U.S. interests, and destroying those that were not.
Back then, before the light-sped connected world, the C.I.A. could operate with impunity, given the backwards communications systems in those days, and the relative lack of education of their targets.
It is unlikely Mubarak would have lasted as long as he did without overt U.S. support, and tacit Israeli support. Egypt and Saudi Arabia have been the two moderating influences in the volatile regional mindset that inclines naturally towards the harsh brand of Islamic orthodoxy that characterizes the rest of the region. There is deep resentment against the U.S. hegemonic strategy that has determined the current Middle East order.
That resentment, now finding expression in a unified regional protest, is transforming itself into a force of self-determination, and the Muslim brotherhood and Al Qaeda are most likely to recognize and capitalize on that force.
The implications for the United States, Saudi Arabia and Israel are seismic. This brand of revolution, that starts peacefully and ends up violent, is the archetypal early stage of total regional reorganization. This could be the first stage of an elevated conflict that would see a war ignite between Saudi Arabia and the rest of the Islamic region, where the outcome would be a dramatic rise in Islamic fundamentalism, as the Saudis would be accurately portrayed as the puppet of the decadent and imperialistic West and Egypt would fall to the Muslim Brotherhood, already the largest political opposition group in Egypt.
Algeria, Syria, Morocco, and other North African countries will begin to feel incrementally emboldened, and in theory, it mightn't be long before new strategic alliances with Russia and China tipped the balance of power towards and Islamist brand of socialism. China especially would welcome its chance to strengthen the financial dependency it already receives from the United States with a military dependency as well.
How many more active theatres of war can the U.S. afford to fight, considering its $14.3 trillion debt and feeble economy?
Obama has been upstaged by Egypt at exactly the moment when the plan was supposed to be to focus on the employment picture while shilling for the economic recovery. To find the dictatorship that has long been subsidized by successive White House administrations crumbling and sending oil and gold prices higher completely derails the script. Despite the White House and Hilary Clinton's feckless distancing from their long time ally (urging a 'peaceful transition to democracy'), the historic relationship and its bearing on the rise and staying power of the Mubarek regime will be amplified in the weeks to come. The outcome will be the widespread perception, both internationally and domestically, that the U.S. has been up to its old tricks and can't be trusted.
Though the issues play as superficially unrelated in the cooperative press, they are not. It is domestic grievances that ignited North Africa, it is domestic grievances that dog the Obama administration and the U.S. Federal Reserve. While the crushing poverty that plagues Egypt is only marginally present in the United States, the widespread deterioration in the standard of living that has affected the majority of Americans since 2008 is a substantial ratio of the population.
Like the collapse of the U.S. dollar now underway, the collapse of American influence in the Middle East is underway, and both are slow, long-drawn processes slowed by intermittent attempts, in both cases, to deter the inevitable.
Right now, its an all out effort to portray the Egyptian revolution as an Egyptian problem contained within that countries borders, with only look-alike conflagrations surrounding it. Just as there is an all-out effort to downplay the profound implications of the U.S. out of control debt and once again prematurely achieved borrowing limit.
Gold is, as is its historical habit, starting to throw off the cumbersome shackles of futures market derived negative price influence, and reasserting its role as the only trustworthy barometer of both political stability and monetary integrity. Since both of those are now in advanced stages of disability, there is renewed impetus behind gold demand now that is probably stronger than at any point in its ten year bull market rise.
There are more U.S. dollars, less U.S. GDP, less security in the Middle East, less security in Iran, no security still in Afghanistan, diminishing security and stability in Pakistan.
Japanese debt has been downgraded, and U.S. debt is threatened. The jobs data and consumer spending data coming out of the United States are weak and insubstantial, and bank failures continue apace. GDP growth was negative in the U.K, there is 25% unemployment in Spain, and without China's intervention, the debt auctions of both Portugal and Spain would have been utter failures.
Commodity prices are ratcheting upward, and the price of gasoline remains at all time highs.
If that isn't gold price positive, I don't know what is.
Silver’s Supply and Demand in China
Importantly and unknown to most analysts and people in the world is the fact that China was a net exporter of silver for many years – indeed China was a major component of global silver supply. This changed in 2007 when China became a net importer of silver.
The demand figures released by the General Administration of Customs in China overnight show the massive turnaround in China from large silver exporter to large silver importer.
China has gross exports of 1,575 tons of silver last year, down 58 percent from a year earlier, said customs. China’s gross imports of silver increased 15 percent to 5,159 tons in 2010, the customs agency said.
A longer term perspective is as ever important as are the net figures.
In 2005, China was a net exporter of nearly 3,000 tonnes (3 million kilogrammes) of silver. Last year, in 2010, China imported more than 3,500 tonnes of silver.
Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010 (see table above).
Demand for silver in China has risen sharply in recent months and years. Growing middle classes and savers in China, India and other Asian countries have been turning to “poor man’s gold” and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.
Today buyers in China, Asia and internationally can buy some 50 ounces of silver for every one ounce of gold. The gold silver ratio today is 49.3 (gold at $1,342 per ounce divide by silver at $27.20 per ounce) meaning that 49.3 ounces of silver can be bought with every one ounce of gold.
Gold is increasingly unaffordable to the “man in the street” in China and wider Asia and this is leading to increased purchases of silver as a store of value, rather than gold. With the price of gold set to remain high in the coming years, this will continue.
Chinese and most Asians have experienced the decimation of their life savings through currency debasement and hyperinflation and unlike westerners understand the importance of owning gold and silver.
Besides huge demand for silver as a savings vehicle and a store of value in China, there is also very significant industrial demand in China and internationally.
There remain a huge range of industrial applications for silver. While demand from the photography sector has declined, demand from the medical, solar energy, water purification and many other sectors continue to rise significantly.
Today industrial uses account for 44% of worldwide silver consumption and in conjunction with investment and store of value demand, industrial demand continues to grow.
Investors and savers in the western world should familiarise themselves with monetary history and why paper currencies always depreciate over the long term and why gold (and also silver) are vital in order to protect and preserve savings and wealth over the long term.
Silver Breaks its Golden Shackles
Editor of Market Force Analysis
Board Member of GATA
Since September 2010 silver has broken its golden shackles. The algorithmic trading that kept the price of silver subdued for seven years has been completely annihilated.
On Friday silver closed in complete backwardation on the Comex. Spot silver closed at $29.075/oz while FEB 2011 closed at $29.064/oz and DEC 2015 closed at $29.026/oz. I believe this is the first time in history that this has happened. Silver traded in backwardation between the spot price and futures contract up to one year out during the blatantly manipulative precious metals bashing of January, but now the entire futures structure is in backwardation. This is a sure sign there are shortages of silver because it means that buyers will pay a premium for silver delivered sooner rather than later.
Signs of shortages have also been apparent from a shrinking silver inventory on the Comex in the face of rising prices. The registered inventory stands at a paltry 43 Mozs. In addition there is lots of anecdotal evidence that there are tight supplies everywhere. There are reports of refineries refusing to take new orders due to insufficient silver feedstock.
News out of China recently showed that China's net imports of silver quadrupled in 2010 to 3,500 tonnes (112 Million ozs). China has traditionally been a silver exporter. For example, in 2005 China made net exports of 3,000 tonnes of silver.
The US mint reported last week a record month in silver eagle sales in January of 6.4 million ozs.
This update of my previous work adds more fuel to the fire that the dynamics of the silver market have dramatically changed. Because silver has been suppressed for so long we do not know what its free market price should be, but we are going to find out soon and I strongly suspect it will be many multiples of the current price.....read article in full
Senior US Marine Says "Multiple Platoons" Are Headed To Egypt
A senior member of the US Marine corps is telling people "multiple platoons" are deploying to Egypt, a source tells us.
There is a system within the US Marines that alerts the immediate families of high-ranking marines when their marine will soon be deployed to an emergency situation where they will not be able to talk to their spouses or families.
That alert just went out, says our source.
This senior Marine told our source that the Pentagon will deploy "multiple platoons" to Egypt over the next few days and that the official reason will be ‘to assist in the evacuation of US citizens."
Our source was told that "the chances they were going over there went from 70% yesterday to 100% today.".......read on
Cheney Calls Mubarak A Good Friend, U.S. Ally
Former Vice President Dick Cheney on Saturday called Egyptian President Hosni Mubarak a good friend and U.S. ally, and he urged the Obama administration to move cautiously as turmoil continued to shake that nation's government.
Cheney's comments came a day after President Barack Obama pressed Mubarak to consider his legacy and exit office in a way that would give his country the best chance for peace and democracy.
Cheney said the U.S. should take measured steps in public, and suggested that too much pressure could backfire.
"There is a reason why a lot of diplomacy is conducted in secret. There are good reasons for there to be confidentiality in some of those communications. And I think President Mubarak needs to be treated as he deserved over the years, because he has been a good friend," Cheney said at an event commemorating the centennial of President Ronald Reagan's birth.........read on