Saturday, February 12, 2011

Fiat Kilogram

From the NY Sun:

A ‘new urgency’ is how the New York Times, in a marvelous editorial this week, describes the rush to redefine the official kilogram. That famous weight and measure turns out to be what the newspaper describes as a cylinder of platinum and iridium maintained by the International Bureau of Weights and Measures. It is kept there under three glass domes accessible by three separate keys. It is, the Times notes, more than 130 years old and is what the paper calls “only remaining international standard in the metric system that is still a man-made object.” The “new urgency” comes from the discovery that the official cylinder may be losing mass, which, the Times says, “defeats its only purpose: constancy.”

Of course, we could let the confounded kilogram just float. After all, we let the dollar just float, its creation and status as legal tender a matter of fiat, its value adjusted by the mandarins at the Federal Reserve depending on such variables as they from time to time share, or not, with the rest of the world and, in any event, as would have floored the Founders, who granted the Congress the power to coin money and regulate its value and did so in the same sentence in which they also granted the Congress the power to fix the standard of the other weights and measures, like, say, the aforementioned kilogram.

The Founders, many of whom promptly went into the Congress, turned around and regulated the value of the dollar at 371 ¼ grains of pure silver. The law through which they did that, the Coinage Act of 1792, noted that the amount of silver they were regulating for the dollar was the same as in a coin then in widespread use, known as the Spanish milled dollar. And they said a dollar could also be the free-market equivalent in gold. They never expected the value of the dollar to be changed any more than the persons who locked away that cylinder of platinum and iridium expected the cylinder to start losing its mass.

But here in the modern age, the members of the Federal Reserve Board don’t worry about how many grains of silver or gold are behind the dollar. They couldn’t care less. And when the value of a dollar plunges at a dizzying rate, the chairman of Federal Reserve, Ben Bernanke, goes up to Capitol Hill and, in testimony before the House, declares merely that he is “puzzled.” No “new urgency” to redefine the dollar for him. The fact is that we’ve long since ceased to define the dollar, and it can float not only against other currencies but against the 371 ¼ grains of pure silver.

So why not the kilogram? After all, when you go into the grocery to buy a pound of hamburger, why should you worry about how much hamburger you get — so long as it’s a pound’s worth. A pound is supposed to be .45359237 of a kilogram, of course. But if the Congress can permit Mr. Bernanke to use his judgment in deciding what a dollar is worth, why shouldn’t he — or some other PhD from Massachusetts Institute of Technology — be able to decide from day to day what a kilogram is worth? Why, not to put too fine a point on it, is the New York Times so concerned about the consarned constancy?

No doubt some will cavil that the fact that the dollar floats makes it all the more reason for the kilogram to be constant. But we would say, what’s so special about the kilogram. Maybe they should both float. If the fiat dollar floats, one has no idea what it will be worth when it comes time to spend it. If the kilogram — that basic unit of weight of all that we buy by weight — also floats, it will be twice as hard to figure out what whatever we’re buying will be worth. So what if, when we unwrap our hamburger, the missus has to throw a little more sawdust in the meatloaf.

To those who would say that would be unfair, if not completely deconstructionist, let us compromise. Let’s go to a fiat kilogram, that is, permit the kilogram float, but apply the new urgency to fixing the dollar at a specified number of grains of — and we might as well pick something essentially inert — gold. To those who say it would be ridiculous to fix the dollar but let the butcher hand you whatever amount of hamburger he wants for a kilogram or a pound of the stuff, we say, what’s the difference as to whether it’s the measure of money that floats or the measure weight.

For that matter, one could go whole hog and fix the value of both the kilogram and the dollar but float the value of time. You say you want to be paid $100 an hour. That’s fine by your boss. But he gets to decide how many minutes in the hour. Or how long the minute is. You know you’ll get a kilogram of meat for the price a kilogram of meat costs. But you won’t know how long you have to work to earn the money. It strikes us as a risky deal. But speaking here for The New York Sun, we say if people are going to insist that the whole point of the kilogram is its constancy, then we’re going to say that there’s no point to it without, as well, a constant dollar.

Is there a glimmer of hope for the USA? - probably not...

Tipping Point

Cycles guru Martin Armstrong discusses the revolution in Egypt and the impact it will have on the region and the here

Pricing The World In Gold

Adrian Ash
9 February 2011
Equities, housing, commodities and bonds viewed through the prism of what money once was...

WHAT WOULD the world look like if, as a handful of economists, investors and politicians hope, gold really was money again?

In a word, cheap...ish. Cheaper, at least, than much of it was a decade ago.

Long used (together with silver) as a means of exchange and unit of account, gold had already lost those functions by the time it ceased backing the world's currency system in 1971. But gold retains the third function of money - as a store of value - now beating, now lagging the unbacked fiat money (i.e. created at will) which replaced it.

Since then, gold's value has also varied more widely against other, competing stores of wealth as well as cash, amplifying the swings in its relative worth against equities, real estate, commodities and government bonds.

Perhaps you've seen theabove chartbefore, for instance. Simply dividing the Dow Jones Industrial Average by the Dollar-price of gold per ounce, the Dow/Gold Ratio might sound an arbitrary yard stick. But it tracks the relative worth of US equities againstan increasingly popular, if still minority store of wealth, gold bullion. Dividends are excluded, leaving just the market-price - rather than income or earnings potential - of business assets in the world's largest economy, measured by a lump of dumb metal.

Why? Because unlike corporate equity, gold doesn't do much. It can't even rust, much less grow (or shrink) its return-on-capital-employed. And from the recent low (7.2 ounces per Dow unit, hit in Feb.2009), US stocks have gained 20% vs. gold. (Priced in nominal dollars, they've risen 73% in the last two years.) The historic low stands beneath two ounces of gold, the all-time high above forty. Today, the Dow/Gold Ratio sits just shy of nine - a little beneath its 12-decade average of ten.

Note those two lows (or rather, peaks for gold), hit in the mid-1930s and early '80s. Because they show up elsewhere, as well.

The average US home - a term so broad, it's quite possibly worthless beyond the very broadest historical sweep - has averaged 202 ounces of gold over the last 120 years, at least on the data we've constructed from a collection of sources to cover more than a century's worth of different housing, styles, sizes, locations and amenities.

Let's put the methodological doubts to one side, though. Currently priced around 112 ounces, US housing hasn't been this cheap in three decades, dropping over 75% from the 2001 high (478 ounces; the 1971 peak was 485 ounces). Returning to the very lowest prices on BullionVault's series would see residential property lose another third. It hit 77 ounces in 1980, just above the 1934 low of 71 ounces. Whatever the national US housing stock gained in utility or comfort over that time, in short, non-rusting gold priced it just as lowly amid first a deflationary and then an inflationary depression.

Commodities are a separate matter. Because they have never been cheaper in terms of gold, slumping by more than 70% since 2001, even as the much-touted "commodity super-cycle" took energy, base metal and now food prices to record highs in terms of the Dollar.

Buying commodities in the hope of growing your capital means you're "selling human ingenuity" reckons SocGen strategist Dylan Grice, and (over the last 300-odd years) he's got a point. Because raw materials are "generally cheaper to produce over time [as] human innovation has lowered the cost of production." Yet ironically, Grice's point is best made in gold, that least ingenious, least human of all pricing yard sticks. Indeed, the difference between gold-priced commodities and gold-priced stocks or housing is that raw materials failed to surge and recover their previous highs after the 1970s' bear market. For the last six decades and more, gold has grown consistently more valuable in terms of the world economy's natural-resource inputs.

Our chart takes the Reuters-Jefferies CRB index - a weighted basket of the 19 most heavily traded raw materials, including aluminum, crude oil, live cattle, orange juice, and gold itself - and divides it by the Dollar-price of gold. As with housing and stocks, gold's most dramatic gains and highest valuations came during economic turmoil, outpacing the price of industrially useful natural resources even amid the severe cost-inflation of the 1970s as well as during the last four years of global financial crisis. Further back, once again, the Great Depression also saw gold's relative worth rise sharply against raw materials, as commodity prices sank but gold was revalued higher by governments, who - then tied to its physical limits as money - were desperate to devalue currency and so reduce debt burdens in a bid to reflate the economy.

Last in our little survey of gold's relative worth, therefore, come government bonds. There's a problem here, because governments are constantly paying old and raising new debt, issuing bonds with a vast range of maturity dates which (unless they default) all revert in the end to par value, redeeming $100 (or £100, €100 and so forth) for every $100 originally lent by investors.

A broad price basket is hard to construct, in other words, with the various indices - such as those offered by S&P and Dow Jones - also including annual yields to give "total returns", and only running back a few years at best.

One solution is to weigh gold's total value against the sum total of debt outstanding - the par value of government bonds in issue. Data from the International Monetary Fund, running from 1980, at least enables us to cover the world's "advanced" economies. And here, based on what we may as well call the "market capitalization"of gold - and in contrast to stocks, housing and industrially useful resources - government debt looks very highly priced, albeit on a mere three-decade horizon.

All the gold above-ground - swelling to some 165,000 tonnes or more today, and including central-bank reserves and that mass of jewelry used to store wealth in Asia, as well as the coins and gold bars more typically favored by Western investors - has been swamped, in terms of relative value, by advanced-economy government debt. Back in 1980, their nominal cash values were pretty much identical. Yet the doubling of gold's Dollar-price from that year's (then) record high, plus the two-thirds increase in above-ground gold stockpiles over the last 30 years, has still left the metal worth less than one quarter of what it was at the start of the '80s in terms of rich-world government debt.

That debt, now 18 times larger in Dollar terms at $36 trillion, has swollen from 25% of those rich-world economies' GDP to more than 87% of their annual output. There's very much more of it around in 2011 than in 1980. On a relative basis - and given that the par value of debt outstanding cannot fall without default or "restructuring" - gold's steady appreciation against equities, US housing and raw materials has barely begun to play out against government bonds.

Adrian Ash

Global Business - Non Consuming Passion

This week on Global Business, Peter Day hears from Chandran Nair, Management Consultant and Founder of The Global Institute for Tomorrow.

He is also the author of a book called Consumptionomics: Asia's Role in Reshaping Capitalism and Saving the Planet.

In the book he argues that for years the engine of global capitalism has been fuelled by consumption, but that the world will not be able to cope with the expansion of this style of consumption in the developing world and therefore a new model has to be found. Click on BBC image to go to the podcast.

$8,000 Gold by 2013-2015 May be Too Cheap

From Resource Invester:

CAPE TOWN, South Africa -- Speaking at the Mining Indaba conference, James Turk forecast that gold could reach $8,000 per ounce by 2013-2015. He added that that may be too conservative.

Turk, the founder of digital gold currency GoldMoney, said individuals should own bullion not as an investment, but as a wealth preserver.

“Gold is not a commodity. It is not volatile. It is not an investment. Gold is money,” Turk told an audience of nearly 1,000 delegates.

He illustrated gold’s ability to retain its purchasing power by comparing the price of oil in British pounds, US dollars, German marks, euros and gold. Only gold had maintained its purchasing power since 1950, with massive losses for the currencies, especially the pound.

“Gold is a form of money that holds its value over time,” said Turk, adding, “capital is a precious resource that is best preserved with gold.”

He explained gold’s fundamentally different character as a tangible asset that was accumulated, or saved, rather than consumed. It’s value derives from its utility as a medium of exchange for things like food, shelter and communication.

“Gold as money is a mental tool that enables economic calculation unchanged through human history,” Turk told the audience of mining and investment professionals.

Turk bases his forecast on a long-range view of boom-bust cycles. He believes we are currently moving through a bust of epic proportions as individuals, companies and governments are forced to restore balance to their balance sheets.

“The bust has not yet peaked and you should own gold to preserve wealth until it has.”

He projected the cycle via a ratio of the Dow Jones Industrial Average to gold. He asserts that the ratio will again revert to one, and that’s where his $8,000/oz prediction lands.

Turk said that a collapse of the dollar was inevitable because the United States, among other countries, was in a structural crisis that could not be avoided via interest rate increases.

“The US is not suffering from a cyclical deficit, but a structural one. It is a path to hyper-inflation.

“Japan’s credit rating has just been cut. It is probably the first slow fuse to be lit.”

Turk laid his thesis against the strong correlation of the Federal Reserve’s monetization of US debt with the S&P 500. Since the launch of quantitative easing, the correlation has been almost perfect.

Meanwhile, he pointed out that the US appears to have entered a “debt compounding” phase. As a result, the country is now extremely vulnerable to even moderate increases in interest rates which have begun to move up.

“We cannot replicate the previous [1980s] high interest rate cure for mismanagement of the economy,” Turk concluded. He believes the US currency will inevitably collapse as a consequence.

Jubilant scenes in Egypt's Tahrir Square

Is Algeria next?

From the BBC:

Riot police have been deployed in the centre of the Algerian capital, Algiers, ahead of a planned anti-government rally.

The government has banned the protest, but opposition and rights groups say they intend to go ahead with the march.

Algeria - like other countries in the region - has recently witnessed demonstrations for greater freedoms.

On Friday, police stopped people from gathering to celebrate the fall of Egypt's President Hosni Mubarak.

The BBC's Chloe Arnold in Algiers say the authorities want to avert any popular uprising similar to those in Tunisia and Egypt.

"We are ready for the march," Mohsen Belabes, a spokesman for the small Rally for Culture and Democracy (RCD) opposition party, said.

"It's going to be a great day for democracy in Algeria," he told Reuters news on

Jim Chanos - China is a big construction site

Whilst I am not in total agreement with Jim, his view is compelling. At some point you must run out of people you can move from the Chinese countryside to the cities, and Chinese construction has been ahead of demand for many years, as previously reported in this blog here & here.

Relevance to Bullion:

If China does suffer a significant slump this will no doubt put downward pressure on the AUD$ causing bullion prices to rise in AUD$ terms. Also if the slump is prolonged it will cause lower base metal prices and mine closures, with 75% of mine supply silver coming from primary base metals mines this could cause supply side constraints in a already very tight silver market.

Still plenty of mileage in the gold bubble

From Arabian Money:

There is nothing like a price correction to challenge your faith in a long-term investment. Is the game up? Is it time to sell-out? To answer these questions gold and silver investors need to go back to the original rationale for their investment and ask if it still stands.

So has the world decided to stop printing money and raise interest rates to squeeze inflation out of the system? Has there been a collapse of bond, equity and real estate markets on the back of rising interest rates? Is the world and his wife an investor in precious metals?

Rare investment class

You will still struggle to find individual investors holding gold, and silver is much rarer. They generally still prefer residential property, despite its five-year decline in key markets like the US. And if somebody does own precious metals then it is as a relatively small percentage of a portfolio that is dominated by equities and bonds.

No matter that since the end of 2000 stocks are up nine per cent, bonds 67 per cent, while gold has quadrupled in value and silver is up five-fold. Serious investors will still turn to you and say that they don’t like gold because it does not pay interest. Who cares if you have quadrupled your on


Jeff Berwick, The Dollar Vigilante
9 February 2011
Barack Obama, Ben Bernanke and other government officials always talk about the importance of "confidence" to the economy. But that is because they are confidence men (aka. conmen) playing a confidence game (congame).

Economies based on a free market financial system don't rely on confidence, but rather on mutual interests. A free market economy, with a free market money (gold, most likely), would not need confidence to run effectively. All it would need is for the government to bud out, and you would never see another recession for as long as you lived. Governments and their central banks create the recessions and depressions that they say they exist to circumvent. No one would ever lose confidence in the value of gold if his government waffled or waged war. The President of the US would never extort the President of China to devalue his gold because it is hurting the US economy to have Chinese gold worth so much.

But in this world hoisted on a paper foundation that governments abuse to abrogate economic wealth for themselves, the slope is slippery and what people like Bernanke are concerned about isn't really a loss of confidence. They are concerned about an increase in perception. An increase in perception that the entire financial system is an unnatural, centrally planned, ponzi scheme. A perception that grows larger now every day.

One need look no further than Treasury yields.

On January 20, the yield differential between two and thirty-year Treasury paper exceeded 4% for the first time since Bloomberg records on the data began in 1977. At its height for the day, the difference touched 4.02%. On the same day, the difference in the yield between two and ten-year Treasury debt paper hit 2.82%. That is only 10 basis points (0.1%) below the multi-year record high of 2.92% set on February 18, 2010.

Under an un-manipulated financial system it is standard thought that a steepening yield curve is said to be a feature of an economy "recovering" from recession. In a recession, short-term yields are said to "stagnate". When the recession ends, the longer end of the curve rises first - "once the demand for capital is re-established by growing economic activity".

These are the same texts and economic thought that most mainstream economists and people such as Ben Bernanke all adhere to. There is only one problem with that. These texts don't take into account situations where a central bank holds its controlling rates at zero and directly monetizes government debt in an attempt to hold interest rates down.

Today, rising yields show only one thing: An increasing concern over the validity of the debt. Or, in other words, a loss of confidence in the entire monetary system.


Is it any wonder that people are losing confidence in this system? The annual raising of the US debt ceiling has been in the news of late and was used by the US politicos to point fingers at each other, as always, but in the end it will be raised, yet again. How could it not? They'd be out of work if the US Government couldn't continue to borrow ever increasing quantities of money.

Being slightly masochistic we decided to go to the US Government's own website and see what they had to say about the debt limit.

In the Congressional Research Service's, "Report to Congress", it starts off with the following header: WHY HAVE A DEBT LIMIT?

If they had any sense of pride they would have just left the remainder of the page blank and left it as a poignant, sarcastic remark on the stupidity of having a debt limit when you just meet annually to raise it again. But, sadly, they continued on to come up with fanciful, hypothetical reasons why they have a debt limit and finished with the following:

"In the words of one author, the debt limit "expresses a national devotion to the idea of thrift and to economical management of the fiscal affairs of the government."

Only in government can things get so completely twisted. According to the US Government, the most indebted entity that has ever existed with debts so large they could never, under any circumstance, pay, they somehow tie having a fungible debt ceiling as being an expression of the national devotion to the idea of thrift!

Let's ponder that sense of thrift for a moment.

In 1940 the debt ceiling of the US Treasury was $49 billion. With a population of 132 million, that's $370 per person. The present debt ceiling is $14 trillion. With a population (2009 est.) of 305 million, that's $45,901 per person.

Since 1940 the US population has risen by a little over 100%. The debt ceiling has risen by 285 TIMES.

And even that is only achieved with smoke & mirrors fraudulent accounting.

When the US Government's numbers are calculated under Generally Accepted Accounting Principles (GAAP) the total owed via debt or liability is over $70 TRILLION or $229,500 per person. Or $918,000 for a family of four - just in US Government debt.

Now, that's thrifty!

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.

Buying Silver While It's Still Relatively Cheap

The Mogambo Guru
9 February 2011
James Cook of Investment Rarities reminds us, in his Market Update newsletter, that the silver inventory held above ground totals 1.4 billion ounces, and that annual industrial use of silver is 900 million ounces, so that a year and half's worth of silver exists, "although a third of it is destined for industrial consumption," which has been increasing its use of silver by 18% in 2010.

And it surely will be used in industrial consumption, because as Mr. Cook says, "it's hard to fathom all the bullish aspects credited to silver. You have a rare metal used in so many important industrial applications as to be termed miraculous," so much so that "the billions of ounces mined over 2,000 years are gone forever."

In fact, I am considering raising money to launch a Discovery Channel special, which will be a revealing new documentary that blows the lid off the explosive situation in silver, beginning with how things would have been worse a long time ago if the Neanderthals had invented electrical generation and a distribution network, both silver-consuming, 100,000 years ago.

And ditto those Renaissance hotshots who everybody thinks are so hot, but couldn't even come up with a good cell-phone, or how Thomas Edison can invent a light bulb and the phonograph, but not take the logical next step of inventing the CD and CD player, which would have produced much better sound quality than those stupid, scratchy, tinny wax cylinders of his.

Now, as interesting as all this is, it is not enough to enthrall us because we have such short attention spans, but as soon as we say, "Bah! Show me how to make money on it!" and reach for the remote control with which to change channels, our ears prick up in sudden rapt attention when he says, "The disappearance of this hoard should have sent the price to much higher levels. It didn't."

This seemed so odd that Theodore Butler went to "track down the reason" and, as I understand it, discovered the gigantic short futures position in silver, and all of that slimy, illegal rigging of the silver futures markets, and by extension, all the rigged markets, and all of it made possible only because the foul Federal Reserve created the excess money to finance it all! Hahahaha!

Of course, rigged markets are nothing new, and again our interest wanes, and soon we are beginning to think of pizza, and our stomachs gurgle, "BurrRRRrrRRrrRRp!"

This was unfortunate, because while we were distracted, we almost missed the whole point, which is making a lot of money without working. And on that subject, the aforementioned Theodore Butler writes that JP Morgan, apparently the biggest naked short-seller of silver futures and thus the biggest price suppressor, looks like it has decided to get out of the business of depressing the price of silver by creating and selling so much "paper silver" futures out of thin air, and has unexpectedly "covered roughly 4,000 contracts in the past month and 8,000 contracts in the last two months, the equivalent of 40 million ounces" of silver.

Familiar with the explosive results of suppressed prices that stop being suppressed, I am beside myself in Greedy Mogambo Glee (GMG) in anticipation of silver shooting to the moon, and I am humming the tune "We're in the money! We're in the money! We got a lot of what it takes to get along!"

Mr. Butler, who is much more professional than I, calmly and cautiously opines that "This holds profoundly bullish implications for the future of silver prices," which may have something to do with the fact that covering a naked short position when the price of silver is rising means taking a loss, and, "In the history of the silver manipulation going back to 1983, never has the big concentrated silver short ever covered shorts on rising silver prices."

I am always impressed with the use of the word "never," probably because of that time when I was young and full of hormones, when I asked Debra Sue, the hottest girl in the tenth grade and who knew it, too, to go out with me, but she pretended not to hear me, but who told her friend Jessica, who told her friend Mary, who told her boyfriend Bob, who was my friend, who told me that Debra Sue said she would never - never! - go out with me because she thinks I am "icky."

Sure enough, she never did go out with me! Or even acknowledge my existence, for that matter, except to once say to me, in the hallway outside of the chemistry lab, "Get out of my way, creep!"

That girls think I was creepy is not interesting, not surprising to anybody, but probably the most interesting fact about silver is that it is "used in tiny amounts in its multitude of applications. This makes much of its usage insensitive to price."

If you are not sure what being "insensitive to price" means, imagine that you are the CEO of a company manufacturing Mogambo Hair-Growing Machines (MHGM) under license from Mogambo Interstellar Enterprises (MIE).

In the course of production, you use one ten-thousandth of a cent of silver per unit, meaning that you use 10 cents worth of silver a day to make a full day's run of 100,000 units, most of which are defective because my design is bad and I insist that you use the cheapest and shoddiest of materials and labor so as to keep profit margins high enough to make the most money on the front-end before people find out what a worthless rip-off my stupid hair-growing machine really is, and people stop buying the damned things because word gets around that they don't work.

In my defense, the business plan looked good on paper, but my lack of ethics as the price of greed is neither here nor there, and the point is that you are "insensitive to price" if the price of silver doubles to 20 cents a day. "Ho-hum," you would say, unconcerned about such a trifle.

And you don't care if the price triples to 30 cents a day, either, as would be evidenced by another bored "ho-hum" were you even told of this trifling news.

Ditto if the price quadruples to 40 cents a day, or quintuples to 50 cents a day.

And you don't even care if the price of silver goes up by a thousand-fold to cost you $100 per day, even though there will plenty of people who will care if the price of silver is $29,000 an ounce!

And now with China, a third of the world's population is going to want electrical and electronic things that all must have silver in them, insensitive to price as those things are, the upper end on the price of silver is so hard to imagine that I don't even try, and I just buy it now while the price is still ludicrously low.

Whee! This investing stuff is easy!

The Mogambo Guru

for The Daily Reckoning

Mythology & Offical Nonsense

By Jim Willie:

With the advent, then the continuation of the Quantitative Easing exercise in hyper-inflation and capital destruction, the US Federal Reserve has perhaps taken its deeply damaged reputation as a central banker and decimated it into shreds. They have lost the respect of the world, more so outside the nation's borders than inside. The financial sector and politicians seem unable to stop showing deep reverence for the post, even licking the Chairman's boots whenever he appears before the USCongress. Recent hints of contempt in WashingtonDC are encouraging. He has not made a single correct forecast on major items. The USFed in short has lost control. See the rising bond yields, which torpedo the housing ship, badly listing as a derelict vessel. The USFed seems thoroughly content to rescue the big US banks, whose wretched condition cannot possibly be rectified, even if such a rescue results in global price inflation and revolts. The decision made after recognition that a recent QE chapter has failed is clearly to repeat it. When QE2 is exhausted or deemed a failure, expect QE3 at the doorstep. This behavior exhibits insanity. The February package of Hat Trick Letter reports includes a special report entitled "USFed as Agent of Destruction" that elaborates on the deep damage.

The USFed balance sheet reads like a Fannie Mae lookalike, with perhaps $1 trillion in negative value, if priced to market. No wonder they altered their rules for a major dump on the USDept Treasury. The next chapter should see a default in USGovt debt, as it spirals out of control, supported mainly by the monetization engines, the stuff of hyper-inflation. Meanwhile, back at the inflation farm, a widening array of economic mythology has sprung up, replete with nonsense and deep deceptions like shallow walls to defend the monetary press. The new myths extend from the standard Second Half Recovery dupe, the Jobless Recovery insult, the Green Shoots absurdity, and the Exit Strategy refrain that ushered in QE2. The inflation engineers must defend their craft, which has destroyed the USEconomy and rendered its banking system insolvent, as well as households. By the way, Ben aint no Atlas, holding up the world. He aint no Poseidon, controlling the oceans and all their liquidity. He sure aint pretty like Aprhodite neither, even though his bust might serve as a fine pin cushion. Hey! Don't mention pins when standing near the USTreasury Bond bubble!

The Hat Trick Letter has warned fully and repeatedly. The price inflation that has begun to show itself in clear terms will be passed off with pure economic deception, and extreme statistical fraud. The effect of higher prices will be called economic growth. The price inflation within the adjustment process with full motive will grossly under-estimate the actual rising price rate. Therefore, the adjustment off the nominal economic activity will be grossly inadequate. The 10% to 12% price inflation will be called 3% to 4%, and thus a 6% to 9% error in the Gross Domestic Product will be made. The consequence will be that a powerful recessionary surge downward will be called a positive 4% to 5% GDP growth. Credit goes to the stat rats who betray my field of expertise. The deception will calm public fears on the highly destructive effects of Quantitative Easing #2 and its price inflation side effects. Actually it is more like direct effects. No longer are the QE1 effects isolated to excess bank reserves held by the USFed. They were not excess anyway, since US banks simply held their loan loss reserves at the USFed. The main point is that price inflation will rise sharply, called economic growth, a process already begun. The USGovt and Wall Street handlers will ignore it, under-state it, and herald the return of growth as success of policy. The reality will be less growth, in a deeper decline into recession. It has been my contention for the entire seven years of the Hat Trick Letter that the topic of inflation has been the most egregiously misunderstood and most common used deception device used against the American people, as the USEconomy has deteriorated in grotesque fashion for 20 to 30 years. They have been told to hedge against that inflation by home ownership, which has backfired in a national catastrophe. The underlying cause of the deterioration is massive monetary inflation and price inflation, manifested structurally as an over-priced US labor market that has sent jobs to Asia since the first migration phase to the Pacific Rim in the 1980 decade. The semanal event was the Vietnam War, which urged the broken Bretton Woods accord.

The justifications, explanations, and clever deceptions have been and will continue to be widespread. They are many, like singers in a chorus, each with voices like Sirens leading men and their ships to the rocks and a watery grave. Destruction awaits those attracted by their serene tones. My ear is tuned to detect them and to record their many deceptions. Let's touch on the wrong messages made on the US Public Address systems one at a time and dismiss them. They are trumpeted by the USGovt, by the Wall Street bank staffers, by the USFed Chairman and most Board members, by the US Financial press, by the market mavens, and by numerous others, all of whom did not foresee the wreckage and charred ruins like the burning of Troy. To be sure, the principal player was Alan Greenspan, whose charisma and eloquence made him the Helen of Troy for our modern day. Both his visage and utterances more resembled Mr Magoo.

A) Rising prices are proof that the USEconomy can handle the higher costs. Not true! They are an indirect effect of massive monetary inflation, as surplus loose money sloshes until it makes higher priced items. A direct effect comes from a falling USDollar in whose terms commodities are priced.

B) Rising commodity and material costs mean more profits all around. Not true! The exact opposite is the case, since profit margins are being squeezed. Businesses are making this statement openly.

C) Rising prices mean the USGovt and USFed stimulus applied is finally working, as the system is coming alive. Not true! It signals the arrival of the nightmare, in the form of price inflation that the banking leaders said would not arrive. They boasted a year ago that the monetary inflation would not have a spillover effect. That spillover effect is precisely broadly rising prices, most evident in food & energy. Witness the spillover.

D) Rising prices mean final demand has arrived, which is pushing up the prices. Not true! Final demand remains weak. Businesses do not anticipate a big rush of new demand, as their business investment is modest to non-existent. Consumers are strapped with weak income and no more home equity to raid.

E) The USEconomy is least vulnerable to price inflation effects, since strongest and most resilient. Not true! The chief export in recent years from the United States had been mortgage bond fraud, along with the usual fare of USTreasury Bond empty paper. The chief export in the current period is commodity price inflation. The USEconomy remains a major importer, and thus will import the price inflation, a process already begun with both commodities and finished products. The US is the originator of massive monetary inflation. Since its economy is deteriorating and stifled, the resilience is born of weakness. Its back door will usher in that price inflation.

F) The housing decline has kept prices in check from powerful deflation effects. Not true! The housing decline has guaranteed that the rising cost structure cannot be handled by the entire system. With the resumption in housing price decline, the insolvent banks will grow deeper in insolvency, while the households will fall more broadly into insolvency. Demand will not meet the higher prices required by corporations to even remain in business. Watch more job cuts and business shutdowns, since they must but cannot pass along the higher costs to customers.

G) Higher prices in the stock market is prologue and harbinger for the growth of the USEconomy and corporate profits. Not true! The massive monetary inflation has spewed new phony money into the system. It leaks through an array of sieves. It finds paths of least resistance. Almost no resistance exists toward the stock market, especially with the Working Group for Financial Markets openly pushing up stocks, no longer in hidden fashion. The USDept Treasury finally admitted as much.

H) Being a food producer, the USEconomy does not see rising food prices. Not true! For five years, the USEconomy has turned into a net importer of food products, although only slightly. The farm sector has seen their costs from diesel and other energy sources rise uniformly. The farm end product prices (like corn, wheat, soybean, cotton) are controlled on the commodity exchanges, not by farmers. So higher product and costs mean much higher prices at the US dinner tables.

I) Rising producer costs is obvious. The miracle of not ending up in final product prices results in success of the system. Not true! If final products cannot have higher costs passed on, that means the businesses suffer important profit margin squeeze. In parallel, the lack of job or income growth means that households suffer important squeeze also on discretionary spending. The squeeze is systemic, not a success, resulting in lower demand and business layout cutbacks.

J) Jobs will come eventually. Not true! This propaganda mantra is losing its mojo totally. Be prepared for a brief rejoice followed by the horrors of recognition that the USEconomy is suffering from broadbased price inflation and continued powerful deterioration. Monetary inflation destroys capital, a concept our clueless cast of economists cannot seem to conceive. In response to failure from monetary inflation, they order more in higher volumes. Prepare for QE3.

Homes turned out to be leveraged financial assets after all. Notice that the housing sector is not rising in price, as almost every commodity in the universe is rising rapidly, from rice crude oil to gold to cotton. Actually gold is not a commodity, but rather MONEY, being pursued as the global monetary system fractures and crumbles. Some Jackass warnings went back to 2006, calling the home nothing but a leveraged futures contract that had no callable feature for banks, but offered renewable reloads known as refinances. Along with a drawdown in account balance (home equity) came a foreclosure notice to millions of unwary investors. So much for the American Ownership Society! It was more like a siren call to the marginal buyers and minorities to lose all their life savings. The great majority of victims never read the great warning by Thomas Jeffersona about banks.

The clueless cast of US economists have lost their way so badly that they no longer comprehend legitimate income. They insist on USGovt programs to put more cash in people's hands, from tax credits, jobless benefit extensions, home equity loan interest deductions, anything to put green in grubby hands. Talk of helicopter cash drops never materialized. The economist and bank leaders never seem concerned about the origin of money put in hands. They seem ignorant that credit extension and monetary inflation are almost always the source. They US economists ARE totally ignorant of the founding principles of capitalism, led by a mindless stream of expectation indexes. They fund elite bankers, redeem fraud-ridden bonds, create liquidity facilities to grease the debt system, erect channels for corporate paper, bail out dead corporations, feed the Working Group for Financial Markets in their stock market support, reload JPMorgan after the Lehman killjob for more commodity market price suppression, and much more. All these devious endeavors are funded by funny money or tainted money. Nowhere is open debate about a grand revival of US industry, a return of factories to US shores, a reversal of the PacRim outsourcing that reached a climax with the Chinese low-cost solution, followed by the current national insolvency. The nation has lost its way on basic capitalism, whose mantle China has picked up from the ground. Their many factories produce not only shiny useful products, but legitimate income. The clueless cast of US economists would do well to read basic textbooks on capitalism, capital formation, and the other cycle. It starts with business investment, then hiring, then value added, then worker income, then consumer spending. The United States must shed its devotion to asset bubbles and the Virtuous Cycle espoused by the USFed, which ends in systemic ruin, a ruin they cannot even recognize.

The recent history of enforcement against insider trading and excess speculation is criminal. Its pursuit of insider trading reads like a cheap spy novel. Right after the Lehman failure came attacks by Wall Street firms against their own hedge fund clients. Their trading investment positions were open to see. Wall Street banks cut the credit lines on hedge funds with prominent long positions in assorted commodities, including crude oil, gold, and silver. The attack was complete and vicious, leading to widespread liquidations. Many commodity prices fell hard. Obviously, Wall Street firms gobbled up the positions forced into liquidation on margin calls. The attack was followed by a ban on shorting the big US bank stocks. An exception was granted for Goldman Sachs, since they were busy doing God's work. My guess is their god is money, and their lord breathes fire not love. The last few months have seen a sequence of arrests and prosecutions against insider trading, except that no Wall Street firm is implicated. Those conducting the investigations are of Wall Street pedigree, to be sure. In my view, moves against insider trading are disguised attacks against Wall Street competitors and opponents to the heavy handed naked shorting of important commodities led by the titans in South Manhattan.

Not a single effective prosecution took place after the May 2010 flash trading controversy, despite ample evidence that the malfeasance went far beyond insider trading. The illicit practice involved raids of the trading exchanges, deep looks at the order stacks, and front running of placed positions. The SEC and CFTC investigators should take a closer look at JPMorgan and Goldman Sachs orders placed in front of the actions taken by the Working Group for Financial Markets, aka the Plunge Protection Team. Furthermore, investigators should take a closer look at the common Wall Street practice of naked shorting of USTreasury Bonds. The evidence lies in the nearly $1 trillion in Failures to Deliver in the bonds. The inventive Wall Street firms found a way to produce instant liquidity from which they fund a large portion of their business operations, like meeting payroll and covering overhead costs.

A high paradox is kept a dirty secret by the USGovt and USFed. Low interest rates hurt savers, to be sure. However, the low prevailing interest rates actually slow down the USEconomy, not stimulate it. The total typical income from savers through bank CDs and bond fund income is in the neighborhood of $850 billion annually, in usual times with normalized bond yields. Compare that figure to the estimated $620 billion paid in interest for consumer loans, student loans, and revolving credit also in usual times. Higher bond yields put more legitimate income in the hands of savers, which more than compensate for the higher interest payments made. This grand deception must be kept quiet. The Wall Street fraud kings want that 0% rate, since it fuels their USTreasury carry trade. Free money can redeem their disastrous errors that tarnish balance sheets. It produces income without work, the great advantage of the elite.

Numerous are the important events taking place behind the curtains, behind the closed doors, the stratospheric ploys, under the cover of intrigue. They are reviewed in the Hat Trick Letter issues with analysis. China is gobbling up COMEX gold & silver, draining the London supply chain. The widely done but hardly publicized practice of settling COMEX precious metals contracts in cash with a 20% bonus has caught the eye of many. So gold & silver contracts contain little metal anymore, mainly paper. The recent tactic of building Dollar Swap Windows to gobble up Southern Europe sovereign debt at discount by the Chinese was outlined in the last article. They will likely convert much of those ruined bonds to gold bullion, with the aid of the IMF harlot. A global shortage of silver has grown acute. Several nations have announced skyrocketing silver coin demand, and outright shortages at the official mints. The latest tactic reported by intrepid analysts is that China has been gobbling up SPDR shares from the GLD gold exchange traded fund. They intend to convert GLD shares directly to gold, according to the London Deep Throat broker. Massive deliveries of gold bullion from this SPDR, managed by HSBC, have been reported in recent weeks. Gold bullion is exiting the fund inventory vaults in high volume, an order of magnitude greater than only two to four months ago. Apparently, the Chinese have noticed a faster method to acquire vaulted gold than the COMEX. Central banks in the Eastern world are loading up with gold bullion, not reporting all their accumulation, as they prepare and executive the Paradigm Shift. Power will move eastward. An excellent source informs me that China is accumulating gold at least 5x faster than the official figures indicate, maybe up to 10x faster. Russia posts some official numbers, more as chicken bones tossed before the feet of conmen. These topics are analyzed in the private newsletter Hat Trick Letter reports.

While the silver price leaps toward its high at $31/oz with reflex ease, the gold price struggles. My long held belief has been that on the Supply side argument, silver beats gold, and on the Demand side argument, silver beats gold. My forecast has been and will continue to be that the gains in Silver price will be around triple to the gains in the Gold price, due to tremendous shortages and colossal demand. So far, so good since last summer. It is my firm contention that China has been very busy buying silver. They probably are motivated by yet another USGovt betrayal. The Most Favored Nation status granted to China in 1999 apparently had at least two possible important components. In return for diverse industrial buildup, direct foreign investment, and shared technology, China appeared to have promised years of deep USTreasury Bond support. The side deal demanded by Wall Street appears to have been a large lease of Gold & Silver bullion left over from the Mso Tse Tung era. Recent demand for its return by the USGovt to China, as part of the lease contract, appears to contain a betrayal. Wall Street sold the leased hoard into the precious metal market, so it appears. To those who dispute the allegations, take note of the track record of profound fraud by the Wall Street banksters. Sale of the Chinese gold & silver came during and after sale of Fort Knox, and sale of the European swaps as well.

The Silver price has advanced handsomely since July 2010. Its gains have outdistanced those fo Gold. In the last two weeks, the rebound for Silver has embarrassed that of Gold. Thanks to Adrian Douglas for the fine chart, not showing the dimension of time but instead the paired prices of Gold & Silver. The chart exhibits clearly the falling Gold/Silver ratio. He wrote, "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. I strongly suspect it will be many multiples of the current price." Here, here!! Bring it on!!

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 . For personal questions about subscriptions, contact him at

The March Towards Capital Controls is Quickening

By Simon Black:

In the late 1920s, the economy of the Weimar Republic was beset by numerous fiscal troubles. The global depression spread quickly to Germany, undermining the government's ability to make its reparation payments from the Great War.

Fearing a return to hyperinflation, many Germans who had spent the last decade building up a small fortune during the Weimar Republic's own 'Roaring 20s' decided to pack up and leave; they remembered the days when banknotes were used as wallpaper and had no desire to repeat the experience.

In 1931, Chancellor Heinrich Bruning imposed a 'flight tax', which levied a 25% tax on the value of all property and capital for Germans leaving the country.

Total revenue collected from this tax amounted to roughly 1 million Reichsmarks (RM) in its earliest days ($56 million today). By the late 1930s under Hitler's rule, flight tax revenue soared to RM 342 million ($21.5 billion today) as more people headed toward the exits.

This flight tax constitutes one of the earliest modern examples of capital controls. They've evolved substantially since the days of Hitler, but the end goal is the same- governments controlling the flow of capital across borders.

Governments impose these for a variety of reasons- rapidly developing nations may want to restrict the flow of capital into their country, preventing 'hot money' from pumping up prices and affecting local markets. We see this today in places like Brazil and Thailand.

In other instances, bankrupt governments seek to trap capital within their borders, maximizing the amount available for subsequent taxation or other forms of confiscation. This tactic is usually employed when lost confidence has impaired the government's capability to borrow.

We're seeing strong indications of both examples today, though the latter is the most alarming. As I scan the headlines and hear from colleagues in the US and Europe, it's clear to me that the march towards stricter capital controls is quickening its pace.

The British government, for example, just announced an increase to its bank levy that taxes UK-domiciled banks on their worldwide balance sheets. In response, HSBC has indicated that it may move its headquarters elsewhere.

I suspect the British government will enact legislation to discourage or prevent this from happening, likely with a modern day corporate flight tax (albeit with a more patriotic sounding name).

Capital controls can take a variety of other forms- including taxation on outward remittances, restrictions on the movement of financial instruments, bureaucratic approval processes for foreign transactions, reporting requirements for foreign assets, and government control over banks.

This last is important- when politicians and bankers are in bed with each other, banks can be compelled to loan a portion of their deposits to the treasury at unrealistic terms, sticking bank customers with sub-optimal yields below the rate of inflation.

In the US, I think retirement accounts will be the first to go. They're the easiest to grab because most people hold their retirement accounts domestically with a large financial institution that will happily sell every customer down the river when the government comes calling.

The way they'll do this is simple- the next time there's a market meltdown (bear in mind that insiders are selling like crazy right now...), the government will step in with new legislation that requires these institutions to invest a portion of their accounts in the 'safety' of government securities.

Insider politiconomists like Teresa Ghilarducci have already strongly advocated for government managed retirement accounts in the US, and we've seen numerous examples of other bankrupt nations from Argentina to Hungary moving to seize their citizens' pensions.

The next step would be against retail bank accounts, specifically setting up provisions that discourage moving money overseas... and eventually restrict it altogether.

This would happen through new approval processes at the banking level, additional reporting requirements for foreign accounts, and disincentives for foreign banks to accept US customers.

Curiously, all of these have started to happen.

For example, while there are still a multitude of banks around the world who happily accept US customers, Americans are unwelcome at most foreign financial institutions thanks to continuous threats and pressure from the IRS. As one banker in Hong Kong told me recently, 'they are very scaaaaary'...

Also, the new HIRE Act legislation imposes additional reporting requirements and restrictions for foreign accounts that gradually phase in over the next two years.

This certainly jives with the timeline of the US government's ticking debt bomb; at a minimum, the market will require higher yields, and politicians will need cheap sources of capital to continue financing their waste.

I've said before- it's imperative that everyone establish a foreign bank account, even with a small deposit. There are several banks like Caye Bank in Belize where you can open an account through the mail with just a nominal deposit.

This way, if you ever need to move the bulk of your funds in a hurry, you'll at least have the established infrastructure to do it.

For US taxpayers, I think the more immediate threat is to your retirement account. If you have an IRA, you can set up an Open Opportunity structure, take back control over your own savings, and be free to move your funds overseas.

(I think this is a no-brainer; you can read more about how to protect yourself with an Open Opportunity structure from my friend Terry Coxon's book Unleash your IRA, which he's now offering at a steep discount for Sovereign Man readers.)

Government playbooks are limited- when confidence falters, new taxes fail to produce substantial revenue, and inflation causes a loss of popular support, capital controls are the answer. Problem is, we live in a world where legislation passed late at night can take immediate effect while we all sleep.

I know it's easy to kick the can down the road, but as the political and economic support for capital controls is spreading around the globe, I would urge you to take action immediately.

Mubarak Resigns - Military takes over

The Egyptian Vice President has announced on state TV that President Murbarak has resigned and power has been transferred to the military the story live on Al Jazeera TV

Robin Griffiths on Chinese Gold imports

Robin Griffiths discusses the Gold price action and Chinese gold imports with Eric King of King World News......listen here

Weekend chillout

This weekend's chillout is inspired by the Max Keiser post below which could be goodnight for silver manipulators because silver is going to the Moon!

Andrew Maguire Bombshell Information Within Two Weeks

For those not familiar with the name Andrew Maguire, you can catch up by reading the NY Post articles from early 2010, video of the CFTC hearing where GATA mentions Andrew's allegations, The Keiser Report discussion and the King World News interview with Andrew.

NY Post & here
Max & here
King World News interview with