Tuesday, April 12, 2011
Marc Faber on QE2 & QE3
Deflationists and Blind Eyes
My forecast has been for a powerful Inflationary Recession to occur, a consistently laid out analysis, delivered during the last year or more in clear terms. That has been my call, and continues to be my call. The Deflationist camp is making more noises. They do not know their limitations, which are obstructed by a blind eye toward the monetary inflation. They do not understand it, so they ignore it, and attempt to encapsulate it into a convenient bottle set aside on the margin.
Gonzalo Lira will be proved wrong about price inflation showing on the official Consumer Price Inflation index. So what? The prevailing price inflation will ramp past 12% easily as he also predicts. His style is wonderful, even if a mirror is a fixture at his desk. His details in argument are strong and cogent. An anger meter is a fixture at my desk. So what? A patch firmly placed over one eye is a fixture for Rick Ackerman. In truly remarkable fashion, he seems incapable to realize that the US Federal Reserve has been the mammoth fountain of money to produce price inflation. His challenge is shallow in my view, since almost $3 trillion has been spewed into the financial system so far by the US Fed, with more to come.
In fact, since the emergency G-7 Meeting held two weeks ago, the central banks have joined forces in a Global QE movement that will propel the Gold & Silver price much higher and render deep further damage to the US Dollar.
The Deflationists paid no notice, or did not notice, or did not comprehend the importance. They are a laughing stock crew of half blind shamans.
The U.S. Fed Mouthpiece Echos
The Deflationists fail consistently to measure the flow or pace of inflation, seeming mouthpieces without realization for the US Fed and Wall Street itself, whose incessant calls of dreaded deflation have opened the political floodgate for global monetary hyper-inflation. They do not even recognize their compromised subservient support role.
The aberrant crowd of Deflationists have a blind eye to the dynamics of inflation, and how it transforms from excessive funds in the financial system, to reaction against the US Dollar, to rising commodity prices, to rising cost structure, and finally to extreme pressures for end product prices, including higher wages.
They dismiss each step of the way, and do not bother to explain their progressive errors along the pathogenesis pathway. The US Fed has passively developed followers like a Pied Piper. They are just lousy economists in the Deflationist camp. A good technical analyst on chart interpretation in no way makes for economist qualification. They cannot integrate complex systems where both asset deflation and monetary inflation coincide, collide, and conspire to produce economic wreckage and price inflation. They act sheepish when what they predict will not happen, actually comes to pass. Recall they have been preaching for three years that crude oil and gold would descend lower in prices. They serve as the bell tower in an empty village. They have also been preaching that end product prices would fall also due to low final demand. They are consistently wrong, but never apologetic. Sadly, most Deflationists cannot adequate even define deflation, even when challenged. It is a catch-word they fixate upon, that permits them to dismiss anything and everything pertaining to the ravaging complex effects of monetary inflation, whose dynamics are beyond their scope of comprehension, perhaps even recognition.
Mine are not rants, but detailed arguments with numerous factors fortifying arguments put forth toward a thesis defended on many fronts in broad fashion for over five years.
To be sure, my work includes some invective due to overflowing anger at the system having gone so far awry with deep fraud, coordinated media deception, impunity for those responsible, and elevated powers granted to them during reforms.
Rants are shallow harangues. Mine is thorough analysis put to paper. These guys should consult a dictionary, as some of their own haughty dismissals fail to address or respond to much of anything my work has put forth. The word rant might invite an accusation of shallow in the mental process.
They often argue in a circle under the pretense of confrontation, never addressing important points like the flow of the increased monetary aggregate, and its destinations with strong effects.
One analyst in particular should really stick to what he does best, that being technical chart analysis. While the historical economics books of the past are indeed enlightening in theory, little truly applies to explain all that occurs in the profound intervention and rigged financial markets led by a criminal elite class whose main enterprise is clearly war and narcotics, followed by orchestrated chaos designed to permit broad elite powers. Their past excellent work should be kept on the wall for constant reminder of true market forces, true economic forces, all of which are opposed by powerful criminal actions and heavy handed monetary policy.
The Blind Eye to Inflation
My main ongoing criticism of the Deflation camp has been their blind eye to the human response to asset deflation. Obvious home prices fell and continue to fall, and related asset backed bonds have fallen progressively into ruin. That is not the point. Their camp has consistently ignored the central bank response with multi-$trillion monetary expansion. In round #1, the excesses were tucked away in the Federal Reserve interest bearing account for the big banks. They were essentially Loan Loss Reserves of those banks, which were removed from the big bank balance sheets only to be relocated on the US Fed books. In round #2, the excesses went global with the entire commodity complex exploding upward in price. Purchase of US Treasury Bonds in the hundreds of $billions cannot be contained anymore than herding tiger cats. Most noticeable among commodity price rises was in food & energy. With most food items up 15% to 20% in price in a single year, and gasoline up 25% in several months, the pinch is on with powerful price inflation. But it appears on the cost side, as my analysis has mentioned numerous times.
What the Deflationists miss from the start is that the extreme storm conditions come from the falling asset prices and wage effects on the one side to form a low pressure zone, meeting the rising monetary expansion and counter reaction by commodity prices against the debased US Dollar in a high pressure zone.
Thus the collision and powerful storm vortex, which they miss with blind eyes. Their camp never addresses the storm conditions, ever. The Deflationists show their blind eye by overlooking, or ignoring, or never noticing the storm itself, where natural collapse meets extraordinary monetary aggregate growth in reaction. They never mention multi-$trillion central bank expansion of the money supply, which debases the value of money, even making a total mockery of money, thereby adding to the cost structure in a massive way, pressuring prices and wages. The rising stock indexes serve as evidence of the monetary inflation, which they do not recognize.
My point made consistently is that wages will not keep pace with rising costs, even made a national priority to halt the secondary inflation effects on wages.
In that sense, my analysis has joined the Deflationists, but only with one foot in their shallow pond of constructs, hardly qualifying as a School of Thought.
Since wages do not keep pace with costs, the unemployment will rise and has risen, a point made consistently here. Therefore my work cannot be carelessly labeled as over the top inflationist. Sadly, most Deflationists do not understand how to read my analysis, because they operate with a blind eye to the many sided crisis, too focused on his narrow perspective that cannot adapt to the current complex situation. The Deflationists cannot integrate into their shallow thinking the combination of inflation on the monetary side and deflation on the asset (and wage) side, surely a difficult and extraordinary situation loaded with complexity. They lost my respect long ago, the entire clan. Most of their followers in paid subscription services suffered crippling personal financial losses. A few analyst newsletter writers from their camp have learned nothing and continue their tired saw with shallow analysis and a string of wrong-footed forecasts. So be it!
Important Crux of the Matter
The heart of the matter is not the outcome, but the path to the end point. If a man and woman are destined to be placed in a cemetery crypt, is that a reason not to marry and enjoy a life together, filled with bliss and human challenge? Of course not. One should hate to be married to one of those Deflation Knuckleheads, a downtrodden and bleak crowd. The pathway is where fortunes are made and lost. The Deflationists have gotten it wrong for a long time. One should not be overly concerned about three years from now if an economic collapse takes place. That is the obvious outcome, not too challenging an issue at all. The Deflationists believe they offer wisdom in such a pronouncement. It is obvious.
The wrong-footed Deflationists have focused on for a long time, with precious little elucidation of the path to the end.
My concern is the extent to which the cost structure will rise, and then how much the end product & service price system will rise, and how much the wages will rise in compensation upon concerted demand. The Deflationists have ignored the pressure in 2007 and 2008 and never foresaw the entire Quantitative Easing movement, which was forecasted with ease in the Hat Trick Letter. The Deflationists consistently ignore the powerful effects of Quantitative Easing itself. They dismiss the human response to falling asset prices. The only conventional assets rising nowadays are stocks and farmlands. The thesis put forth that DEFLATION WILL PREVAIL BY SNUFFING OUT THE HYPER-INFLATION represents a cavalier avoidance of the entire sequence toward the end, reveals lack of comprehension of the extreme forces in conflict, and attempts to sit above the fray in arrogance beset by ignorance. Of more concern to me, and millions of people, is the important middle portion of the game, that happen from innings three thru eight. The ninth inning calls by wrong-footed blind eyed Deflationists pale by comparison to discussions on whether banksters take global control of governments, how the current monetary system is fracturing, whether new monetary forms are shoved down our throats, or how an alternative oppositional monetary system can overthrow those in regimes in power. They never discuss such lofty but important concepts, since they do not comprehend them, cannot perceive them, and cannot envision them. They retreat from such discussions.
The Deflationist themes ignore the Inflation story
The G-7 Meeting to adopt the Yen Selloff Pact was a veiled GLOBAL QE ACCORD. The pact has not even been discussed by the shallow Deflationist camp even though it is the most signficant policy directive since September 2008, more important than the original QE decision in March 2009. That is because it is Global QE, stamped and approved by the major central banks, monetary hyper-inflation gone global. The Deflationists live in a cave, unaware of such events or dismissive of them in arrogance. They instead continue to defend the wrong-footed construct of Deflation. In personal email and telephone exchanges, my habit is to constantly laugh at their pre-occupation with Deflation. On more than 40-50 occasions with certain contacts, my reply is simply WHAT IS DEFLATION?? Shallow responses come in return, unimpressive one and all.
We will continue to experience and suffer both deflation of assets and wages, during a massive storm of hyper-inflation from central banks.
The inflationary effect is a perverse factor toward the real game on stage. Do not expect wages to keep up with the rising costs. This has been a major point of mine all along, so a massive squeeze will continue. The Deflationists do not understand the reaction to the squeeze, focusing arrogantly on the endpoint. Their work is of little practical value, certainly of zero investment value. The squeeze will render harm to both households and businesses, with lost discretionary spending and lost profit margins. Their debate over which prevails misses the entire point. That is, the Deflation will continue in certain asset classes, especially housing and commercial property, while the Inflation will continue in monetary aggregate, TO MAKE A GROWING POWERFUL DAMAGING GLOBAL HURRICANE. Much end product price inflation will come. More end service price inflation will come. See shipping charges for a start. It seems obvious that the Deflationists ignore the battle and try to describe the outcome in narrow myopic terms. In a sense, they are the flat earth society.
Eloquence Laced with Ignorance
Obviously, we cannot have a Weimar-style hyper-inflation. We do live in a credit based global economy. But the reasons why differ since the current global situation is different. The Weimar conditions were local to the microcosm that was Germany. It was enclosed. The current situation has its Weimar elements, especially endorsed by the recent March G-7 Meeting. That is global Weimar by any name, given its global coordination of US Treasury Bond purchase after broad discharge from Japan. The Deflationists cannot comprehend a global Weimar concept. Ackerman makes an astonishing claim that exposes the blind eye and ignorance to current conditions outside the US Dome of Perception. His eloquence should not be confused with wisdom. A good vocabulary and command of words cannot hide wrong statements that ignore the facts and overlook the trends.
"Let me cut to the chase: Hyper-inflation occurs when people, fearing their money is about to become worthless, panic out of currency and into physical goods. This is highly unlikely to happen in the United States for several reasons. To wit: 1) Whereas Germany's hyper-inflation took several years to ramp up, today's financial markets are primed for a catastrophic collapse that could conceivably run its course in a week, if not mere hours; 2) under the circumstances, there would be no shifting of financial assets into hard goods simply because any financial assets one holds at the time of the collapse would become worthless before one could sell them; and, 3) at that point, there would be insufficient currency available to drive a hyper-inflation, since mattress money is likely to be scarce and because branch banks keep only about $25,000 to $50,000 in cash on hand. All of which implies we will go straight to deflation without the emancipating, hyper-inflationary interlude that some mortgage debtors might be hoping for.
Until now, I have been reluctant to air the simplistic argument, used by economists when they are at their most condescending, that inflation implies nothing more than an increase in the money supply. Although that is a truism that we would not argue with, it holds little value for anyone attempting to predict how a drastic increase or decrease in the money supply might play out symptomatically. While the textbook theory of it could account for the gas & groceries inflation that QE1 & QE2 have produced so far, it fails to explain logically how we would go from grocery store inflation to systemic and pervasive hyper-inflation. To repeat: Hyper-inflation would require the shifting of cash money into physical goods and assets. But other than mattress money and the relatively paltry sums of cash on hand at branch banks, there would be precious little cash to shift. And if the panicked money is assumed to come out of Treasuries and other paper assets, it begs the question of how much the paper assets will fetch on the day when there are no buyers other than the Federal Reserve? My argument is simple. I will not yield ground to any hyper-inflationist who fails to explain, if the system collapses, where the money will come from to bid tangible assets skyward."
(footnote: do not trust any analyst who writes "to wit" just like do not trust any banker named Jamie). The focus of my attention here is Ackerman, but similar criticisms are due for Karl Denninger, Mike Shedlock, Jay Taylor, and Ian Gordon.
Further Rebuttle to the Blind Eye
To begin with, 12 to 18 months ago the Deflationist camp claimed the price of crude oil and the Gold price would fall and dramatically so. Wrong on both counts. Curiously, the camp avoids defending their wrong-footed points as the months pass, while the crude oil price zips past $120 (Brent that is, since West Texas is the province of paper games), while the Gold price hurtles toward $1500. Have Deflationists not noticed? People are moving rapidly out of quickly debased paper money and into tangible goods. Conversion of US Treasuries has become commonplace among sovereign wealth funds. Have Deflationists not noticed? This is the basis of the commodity price rise and the basis of the precious metals price rise.
The US Fed has in fact picked up almost the entire slack in US T Bond purchase during the massive conversion process.
The movement is better observed outside the US Dome of Perception, where foreign US T Bond creditiors have openly halted their US Treasury bids, replaced by the US Fed printing pre$$ eagerly. Foreign sovereign wealth funds across the globe have openly expressed their dismay over the entire QE initiatives, anger of unilateral monetary policy decisions made in the United States with seeming contempt, and the consequent harsh effect on commodity prices. They have increased their gold (and even silver) purchases in conversion of US$-based assets. They have rebalanced their reserves. They have stopped bidding at US Treasury auctions. Have Deflationists not noticed?
Germany's financial collapse took several years. So is the US financial collapse, a long painful process.
What began with a subprime mortgage problem in mid-2007 spread to a full blown housing decline, a bank insolvency problem, then a sovereign debt problem, then a monetary inflation solution with severe blowback, and now a monetary system discredit problem.
The pathogenesis has so far spanned four years. Have Deflationists not noticed? Anyone who believes the US financial collapse could occur in a single week is a moron. Actually, such an observer would be a blind man and moron. The US banking system in my view suffered a death experience in September 2008. The coroner was overridden by the Financial Accounting Standards Board, thus declaring the corpse permitted to walk with props and to speak from a recorded message, pretending to be alive. After April 1st decree in 2009, the Zombies have roamed the US landscape freely. Have Deflationists not noticed? The big US banks have been operating with an Extend & Pretend policy that their crippled balance sheet overloaded with toxic credit assets will somehow recover in the next year. Instead, the Real Estate Owned (REO) residential homes on the bank books have ballooned to over one million properties. Almost half of all home sales are short sales and foreclosure sales. The entire process has been extended to the extreme over times. Have Deflationists not noticed?
Financial assets are indeed being shifted into hard assets, in particular the basic commodities. Nations are building stockpiles. The main focus has been on crude oil to the commecial side and to Gold & Silver on the financial side. But some speculation has come to the copper market (which JPMorgan seems interested in), to the coffee market due to problems in Africa, to the sugar market (which JPMorgan seems fond of), and to the cotton market from broad necessity.
Financial mavens, news anchors, and hedge fund managers have all been touting their strategies in response to runaway monetary inflation commanded from the marbled offices of the US Fed.
They respond to the devaluation of money itself. The migration to hard assets is well along. Have Deflationists not noticed?
Did somebody say there was insufficient currency to drive up and power hyper-inflation? Excuse me, but that statement truly misses the 800-pound gorilla sitting at the Deflationist dinner table. The US Fed has expanded its balance sheet to over $3 trillion. The US Fed has printed over $2.7 trillion in QE programs, with much more to come. That figure does not account for their secretive monetary extensions, like grants without collateral to fellow central bankers and friends of the syndicate.
In fact, the QE program will soon be announced as ended, since so offensive, when in fact it will be incorporated and melded completely into routine weekly activity.
The Euro Central Bank, the Bank of England, and the Bank of Japan have all joined in the paper confetti production enterprise. Have Deflationists not noticed? The spillover from the banks who hoarded the US T Bonds took place and the spilled funds hit the commodity market. The Deflationists claimed it would not happen, no spillover of any kind. They were wrong. The next spillover will be to end product prices, and to some extent wages. The Deflationists will be wrong again. But the wage hikes will not be adequate to manage the higher costs to come. The increase in money supply plays out symptomatically under their noses without much recognition or comprehension.
The next phase will be for Cost Push, which will introduce higher prices and smaller packages by vendors. Then come demands for higher wages with high pitched battles. Some will be won, many will be lost, especially given the state government union legislation that has bagun to ban collective bargaining. The workers will lose more than in the 1980 decade, when 10% and 12% salary gains were commonplace. The corporations are supposely flush with these $2 trillion in cash on their balance sheets. Let's see how much are devoted to commodity investments in counter action to the US Dollar debasement (not noticed by Deflationists) and how much are devoted to labor concessions under demand of work action (not expected by Deflationists).
My preference would be for capital investment and factory revamps, but the United States and its newfound marxism blended with fascism and oppressive regulatory impositions is not a place conducive for corporate expansion.
These are some of the dynamics underway, which are not detected by those with blind eyes. The Deflationists prefer to cling to shallow arguments of a move straight to deflation without all the intermediary steps that cannot comprehend.
Cash held by the people and investors and hedge funds pension funds and elsewhere is in a massive migration to hard assets.
Physical goods & tangible assets are rising in price. Have Deflationists not noticed? Witness the burgeoning demand for USMint coins, resulting in shortages and production shutdowns across the world. Have Deflationists not noticed? Amplifying the US Fed money output parade, the troubles in Egypt with associated threats to the Suez Canal, followed by troubles in Libya with interruptions to output, have all contributed to the movement of funds into hard assets like crude oil. Have Deflationists not noticed? As for buyers, right now the only (or primary) buyer for US Treasuries is the US Fed itself. Plenty of global funds continue to chase crude oil, industrial metals, grains, farmlands, cotton, coffee, sugar, as well as the King Gold & Queen Silver. Have Deflationists not noticed? The interesting opportunities will continue to be offered for wealth accumulation in defense of the unspeakable abuses of money. These are the middle innings of opportunity when it is still legal to build and hold wealth. Those years might be nearing an end, unfortunately as we near open confiscation after hidden confiscation.
The money to bid tangible assets skyward, my blind fools, is from the collective gaggle of central banks which are in a panic printing money without the controls to direct it where they wish.
This is not a rant, but rather a directed rebuttal of a shallow discourse laden with blind spots, shallow arguments, and arrogance. Let us gaze at the fool with a blind eye in a purple robe sitting on a self-designed throne, with zero authority and a track record of major missed events.
Gold and Silver Reaction to Monetary Destruction
The Gold price has danced above the $1440 resistance without much conviction or gusto, but certainly enough to warrant calls for a golden breakout. But Silver, WOW! How impressive! Take no prisoners, that Silver Streak! Bob Moriarty of 321Gold made a silver price top declaration at the $34 mark about one month ago. As editor he even refused to publish an article by a bright fellow analyst who was forecasting a move in Silver to the $40 mark (not me). The word censorship fits. Then BobMo casually proclaimed the $38 price to be the new Silver top. One must wonder if he has become the new Prechter in the gold community, whose calls for a gold top at $600 and at $900 and at $1000 and at $1200 and at $1400 have made him a laughingstock. Will BobMo the great censor, whose website serves more as a personal investment promotional rag, proclaim $42 to be the next Silver top, followed by $46 and finally $50 as the final final top?? He clearly does not comprehend the gradual destruction of the global monetary system, or the tremendous volume of the monetary inflation with US Dollar footprints, the discredit of sovereign debt, the diversification out of the US T Bond, and the global revolt against both the US Dollar and the Anglo banksters. That is ok, anyone can start a website.
Witness a powerful Paradigm Shift where even editors miss the big picture. This systemic disruptive change and shift has been a topic in the Hat Trick Letter for almost three years, with a consistent message offered.
And yes, the Deflationist Knuckleheads never address this Paradigm Shift. They are dull blades one and all, beset by blind eyes, although a couple are eloquent in forming sentences. They must realize their limitations.
A bright colleague remarked this week about the interplay between Gold & Silver, and how the shiny white metal takes advantage of the high level battles. He is a veteran COMEX trader and valued colleague. He wrote,
"The price of Gold is totally intertwined with the dollar and thus all Western currency. I have seen some lines drawn in the sand with Gold over the years, but this is one of the most concerted and coordinated I can remember. As demand continues to push the price up relentlessly, and the Boyz rally around to cap it, the hot money runs in Silver."
Very true even this week. Notice that when the Gold price was pushed down from $1445, the Silver price refused to budge in the mid-$38 range. Silver provided the signal of new imminent highs for both metals. In the next two days, Gold moved upward past $1460 while Silver broke to a strong clear new high approaching the exalted $40 level. Gold wins the political battles, while Silver takes triple the spoils. That pattern will continue to unfold. Whatever percentage gain Gold registers, Silver will register triple that gain. The shortages are acute and openly recognized for Silver.
Analysts like Max Keiser have brought attention to the Silver potential, urging citizens to purchase silver coins and bankrupt JPMorgan. Such rallying cries seem enthusiastic and full of vitriol, but they also seem naive on the desired outcome of a toppled titan, since the JPMorgan losses will be monetized by the US Fed and US Dept Treasury easily. Did they not monetize the big bank losses in mortgage bonds? To be sure, a global citizen movement to purchase Silver coins will render damage to JPMorgan, which will pass on the losses like dirty diapers to the US Govt, the eager storage center custodian of toxic effluent. The acute Silver shortages are in front of our noses, in the news, and point to extreme vulnerability in the US Dollar, if not the US Govt debt condition. The USMint in possible illegal manner has at times suspended the production of Silver coins to be minted. They by law are commissioned to continue to meet public demand, which means they must bid up the Silver price if required. The COMEX shortage of Silver is so widespread and in the open, that futures contracts are being settled in cash, after the contract owner signs a waiver to permit the breach of contract itself. A 25% to 30% cash settlement bonus has become the norm. Such actions in policy have lit a fire under the Silver market and lifted its price. Angry from incessant charges of currency manipulation, the Chinese have responded by purchasing large truckloads of Gold & Silver. The real manipulation is by the US Fed, whose debt monetization has gone global, whose US Dollar effect is undeniable. That is blatant manipulation of not only the sovereign debt, but the currency denominated in it, extending to the entire monetary system. The group of major fiat currencies are all attached like a floating papyrus bound by threads. They are discredited in unison, weighed down by a debt burden and rotten paper.
The Euro is rising, despite its crippled condition. The ruse of a higher interest rate set by the Euro Central Bank is really amusing. Maybe they will come through with an inflation beater rate hike of a puny 25 basis points. How irrelevant? Both the US and EU have prevailing inflation rates over 8%. The cost of money remains 7% below the prevailing price inflation, maybe 12% too low for practical commerce.
The appeal of the Euro comes from the totally obscene ruinous debased condition of the US Dollar.
The reverse beauty contest leaves the clownbuck as the gal left on stage seeking a dance partner. The toothless Euro at least has two dancing legs. The US Dollar has none, nor teeth. The newest wrinkle in currency flows is the Arab investment in Euros, as they seek anything but US Dollars. The US War Machine has targeted Libya, and turned its head from Bahrain. Just this week, Prince Turki of the House of Saud warned his princes that the Saudi Arabians must seek protection from other sources besides the United States. With the Saudis acknowledging security shortcomings, one must bring into focus the Petro-Dollar Standard, the defacto accord between the US and Saudi Arabia. They sell OPEC crude oil in US$ denomination only, and the USMilitary provides security protection for the royals in power as they accumulate great wealth. The accord is slowly disintegrating, with enormous potential impact to the US Dollar standing. The US$ DX index is flirting with yet another breakdown below critical support. Each bounce off support is met by fresh selling. It seems military underpinning for the US Dollar is slowly fading away like an old soldier after several decades.
The Gold breakout is clearly timid, lacking gusto and strong conviction. The Powerz have decided that they must contain the Gold price advance. The factors pushing up Gold are numerous. The sovereign debt decay process has led to lost integrity in the global monetary system organized as major currencies. They are all being debased by mammoth money printing initiatives with the full blessing of the governments and finance ministries.
Each paper ambush led by naked shorting of the futures contract has resulted in a slingshot lift in Silver, a veritable nasty backfire in their faces.
Those who cannot accept such a forecast of $100 Silver come from the same crowd that refused to believe last November that a $25 price would give way to a $40 price. But the Powerz cannot halt the powerful impressive advance of Silver, which will next take assault on the $50 mark. In two years, it will surpass the $100 mark, maybe sooner. The Gold price will make new highs in repeated fashion, and continue the upward movement, but it will be slow and steady toward the $2000 mark, inhibited the entire way. But Silver will be the impressive winner in the precious metals arena. At least one Silver substitute is already well over $1000 in price. That is the hint and clue of future price direction. Silver will take no prisoners while Gold shakes off its bondage. It has almost reached my $40 stated target, right on cue.
One of the most profound changes that has come to the precious metals market is the shift, whereby price discovery has moved directly to the physical market.
The paper futures market has been thoroughly corrupted.
The latest travesty is that JPMorgan is attempting to take delivery on a large portion of its short silver position. No misprint here. On their short position, that is, so that they can deliver it!! That is like making a demand to a credit card bank that the borrower intends to collect the debt from the creditor. Utterly absurd. That comedy is worth more to watch than the CFTC charade on position limits.
The other profound change is that inflation expectations are being dictated by the Gold & Silver market, not the US Treasury Bonds any longer.
The US Fed Chairman has lost an enormous amount of credibility in his focus upon the long-term US T Bond as an indication of price inflation expectations. The US Govt debt securities have lost their buyers. Not only is the US Fed monetizing US Treasuries at a $100 billion clip per month, they are also purchasing the Treasury Inflation Protection Securities (TIPS). The TIPS are supposed to act as an inflation gauge. It too is corrupted.
A bigger fool than the Deflation Knuckleheads is the US Fed Chairman Bernanke. He is a myopic professor who wrote a fine piece of revisionist history of the Great Depression, who now presides over a global monetary systemic collapse. Gold is reacting, but Silver reacts even more. As long as the insolvent big US banks remain in operation and are not liquidated, as long as toxic paper repositories rest under the US Govt roof, as long as the US Govt deficits remain well above $1 trillion annually, as long as Quantitative Easing legitimizes the debt monetization without checks, the GOLD PRICE WILL RISE INDEFINITELY. It is that simple.
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a Ph.D. in Statistics. His career has stretched over 22 years. He aspires to one day join the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com
The Inflationary Depression Moves Foreward Relentlessly
We see signs that American workers are getting worn out. Management may have squeezed the last drops of extra work that they can out of them. That has been reflected in the latest worker productivity. Since WWII the average increase has been 2-1/2% year after year, but last week's numbers were terrible, up only 0.2% per year. Europe and the US have been able in part to offset advantages of foreign producers by consistently getting better productivity results. For those of you that are new to these statistics, they are a reflection of labor productivity, or advances in the way work is done. Such previous success have allowed companies to get the job done with fewer employees and in instances to offshore some work to take advantage of cheap foreign labor. If you use a combination of labor and investment funds, recent results are only up 0.1% for 2009. Those numbers are usually about half of regular productivity numbers. What low overall numbers mean is that throwing money at manufacturing problems is not working as well as it has in the past.
Recessions tend to supply lower figures and that is understandable. We are currently in an inflationary depression and have been since February of 2009, just over two years ago. Few economists agree with us, but that is normal. A few catch up in 8 to 12 months, the rest take two or more years.
Higher interest rates tend to be a factor, a negative factor. The higher the rates the larger the impact on the use of investible funds and productivity. The negative side coming from the cost of funds. During our recent depression the cost of funds has not been a factor, because interest rates are very low. As rates eventually move higher they will negatively impact employment at the worst possible time. Those higher rates will as well inhibit the level of capital investment and will contribute to corporate insolvencies. During the beginnings of this depression employment has paid a very heavy price, as corporate profits have boomed. Unemployment rates are about half of what they were during the “Great Depression.” Current long-term unemployment is terrible and many over 40 years old caught in that web will never work again.
It is very discouraging and disconcerting when workers train foreigners to do their jobs and are then fired. The jobs go to some foreign land and the new worker is paid 20% or 30% of what the terminated worker was paid. In addition companies, especially large corporations, are taking advantage of the breaks government is offering and buying labor saving equipment so that they do not have to hire or re-hire personnel. The result as we have seen is long-term unemployment, which in many cases means permanent unemployment, particularly for those over 40 years old.
Using invested capital, interest rates and manufacturing productivity, along with monetary policy gives one a possible overview of where the economy is eventually heading. They also give you a solid view of where gold and silver and commodities are headed. In 2000 after 20 years of being in the doldrums these factors, especially monetary policy, told us that we were embarking on a long-term bull market in gold and silver. The dreadful monetary policy of the 1990s had set the stage for what we have seen since June of 2000, almost 11 years. At this juncture we are as yet anywhere near where the top is, but it certainly is not here. We are in the process of stage 2, which should take us to $2,400 to $3,000 and then stage 3 to $6,000 to $8,000, based on real inflation since 1980. Obviously that figure will be higher three to five years from now. One of the good aspects of all this is that once devaluation, revaluation and multilateral default come. There will be no further reason for the Treasury, the Fed and other central banks to manipulate gold and silver prices, if the new world reserve currency is 25% gold backed and we believe that will become reality. The elitists want another fiat currency, but nations will not stand for a repeat of what they have seen during the tenure of the US dollar. You had all better hope we are right, because a fiat alternative would create another world monetary disaster.
As we have explained many times in the past, since February 2009 the US has been in an inflationary depression. It has taken a while to get underway, but it is moving relentlessly forward.
We currently have real inflation in the vicinity of 8%, not less than 2%, which our government tells us. By the end of the year we will have 14% plus, matching 14-3/8% of 2-1/2 years ago, which was caused by an 18% increase in money and credit. Current inflation is mainly cused by a switch to quantitative easing, QE1 and $850 billion in stimulus from Congress, which will play itself out into next year. Fast on the heels of that monetary policy we will be exposed to the affects of QE2 and the $862 billion injected into the system by QE2 and stimulus 2. That will carry us into 2013. The big question is will we have QE3 and the answer is yes, officially or unofficially. Getting stimulus 3 will prove very difficult, if not impossible. That means the Fed will have to take up the slack in funding to keep the financial system afloat. Thus, next year or perhaps by the fall, the Fed will have to feed $2.5 trillion into the system just to keep it going sideways to slightly lower. Establishment economists are calling for 4% to 4-1/2% GDP growth for 2011. Remember without these monetary and fiscal crutches GDP would be minus 1% or more. Such performance will put ever-higher pressure on inflation taking 2012 to 25% or perhaps 30% in 2014. It is already in the pipeline. We know some of the inflation will be exported, but not nearly enough to make a major difference. Other nations like to blame their own inflation on others, especially now a days on the US, but it is their policies similar to those of the US, that really cause their problems. For ten years the deflationist camp has been making noises and nothing has developed. It hasn't because the Fed preempted them, which was a foregone conclusion. They will be correct in the next 3 to 5 years, but they will have lost 15 years of profits by being wrong. their timing was wrong and they should have known better.
The elitists were not about to dive directly into deflationary depression, but they should have. The most important factor in making monetary and fiscal calls is knowing the history of what these criminals have done over and over again in the past. That is the factor other economic and financial writers miss, and the result is failure. You have to understand what the elitists are after, and they are not afraid to tell you. It's world government and the only way they can affect that is by taking down the system in the strongest countries and forcing those citizens to accept world government by creating a failed system. Deflation is the shallow view of those who do not know what the missing link is. Common sense would tell you the Fed and other central banks will flood the system with money and credit in order to loot it one last time. They know the most money is made and stolen in the final sages before planned collapse. In just 2-1/2 years the Fed and Congress will have spewed $5 trillion into the system. This is an endeavor that began ten years ago. Why do you think this is being done? Not only in the US but also Europe, the UK and other countries as well. Why do you think everything possible has been done for over 20 years to keep gold and silver prices down? They had to kill the canary in the coalmine. They couldn't let the performance of gold and silver give away what they are up too. Deflationists have missed the boat because the majority of them do not know financial and economic history, so they unfortunately do not know what they are talking about. It is all about selling subscriptions. They do not care that they have cost investors billions of dollars by keeping them out of gold and silver related markets. They also have inadvertently assisted the elitists in their attempt to smoother the gold and silver markets.
Then the question arises are they misinformed and half educated, or are they consciously assisting government suppression? It is all in the fundamentals, which are irrefutable and there for everyone to see. In 52 years we have never seen such charlatanism and stupidity. Most of these people are ill prepared to write newsletters. We also never hear from them concerning their back calls, especially chartists, waviests and cyclists. For the past five years their records have been dismal, if not abominable. Most of what is written is garbage and we have to take the time to answer their dumb and outrageous theories promulgated to garner more subscribers.
The Fed and the powers behind government had a great opportunity in 1992 to fix the system and purge the excesses. The stock market had fallen a few years before and the real estate market had a severe recession starting in 1988. That was not to be. It was the same old game over again. During the late 1990s another bubble was created by the Fed in the stock market called the dotcom boom. As we predicted the fall in the stock market in the second week of April of 2000 the elitists had another opportunity to purge the system, but that was bypassed and it wasn't long after that the beginning of the real estate bubble began. As usual we were the only ones recommending the beginning of accumulation of gold and silver shares, bullion and coins. As we reflect back the elitists wanted two things, the accumulation of great wealth during this last great bubble and the final deliberate destruction of the American economy to bring about world government. It was the beginning of financial terrorism by Wall Street and banking and the dismantlement of the US economy by transnational conglomerates, with the aid and assistance of Congress. The point here is that this didn't happen overnight. This was a long-term plan hatched in 1944, that you might call the rise and fall of the American empire. Out of that destruction would come even greater riches and immense power. The plan was for the total control of the world under corporatist fascism. That is not what they called it, but that is what it was and is today.
How Inflation Violates Retiree Civil Rights
While we're on the subject of inflation's immorality, consider the impact of the dollar's destruction on retirees.
Citizens who work hard, save, and eventually retire with money in the bank are the bedrock of a stable society. In a rational world they would be held up as examples for the rest of us to emulate, and public policy would aim to create the highest possible number of self-reliant seniors.
Instead, four decades of soaring government spending, borrowing, money printing and public/private corruption have left the US with the historically-all-too-familiar dilemma of "inflate or die". Translated into policy, this means keeping interest rates at rock-bottom levels in order to ease the pressure on "consumers" who the government previously encouraged to go deeply into debt - and to convince the rest of us to leverage ourselves to the hilt with mortgages and car loans.
So a retiree who had enough interest income to live comfortably when CD rates were 7% is destitute with rates at 1%. And with the cost of living rising by far more than 1% a year, their remaining principal is evaporating. They did everything right according to the wisdom of their upbringing, but somewhere along the way society changed the rules. Now "right" is defined as taking out the biggest possible mortgage and using plastic to buy a 60-inch plasma TV from China. Saving is dangerous because it depresses consumer spending. And dependency on social programs is the norm for retirees instead of the unfortunate exception.
Seen this way, inflation and interest rates are a civil rights issue. Government, by favoring borrowers over savers, is destroying the lives of millions of people who don't deserve it and can't defend themselves. And it's creating a future generation of retirees who didn't save a dime because it seemed pointless.
The only consolation is that the mainstream media is starting to sense a story. Here's a brief excerpt from a much longer article in today's Wall Street Journal. Anyone with access to that paper should read the whole thing:
Fed's Low Interest Rates Crack Retirees' Nest Eggs
PORT CHARLOTTE, Fla.-Forrest Yeager, a 91-year-old resident of this seaside community, had been counting on his retirement savings to last until he died. The odds are moving against him.
With short-term bank CDs paying less than 1%, the World War II veteran expects his remaining $45,000 stash to yield just a few hundred dollars this year. So, he's digging deeper into his principal to supplement his $1,500 monthly income from Social Security and a small pension.
"It hurts," says Mr. Yeager, who estimates his bank savings will be depleted in about six years at his current rate of withdrawal. "I don't even want to think about it."
Mr. Yeager is among the legion of retirees who find themselves on the wrong end of the Federal Reserve's epic attempt to rescue the economy with cheap money. A long spell of low interest rates has created a windfall worth billions to banks, mortgage borrowers and others it was designed to benefit. But for many people who were counting on their nest eggs, those same low rates can spell trouble.
Mr. Yeager's struggle highlights a nagging dilemma facing Fed Chairman Ben Bernanke. The longer the central bank keeps interest rates low to stimulate the economy, the more money it pulls out of the pockets of millions of savers. Among the most vulnerable are retirees, who have few options to restore lost income on investments built up over entire lifetimes.
In 2009, according to the most recent data available from the Labor Department, average annual investment income for the 24.6 million American households headed by people 65 and older amounted to $2,564. That figure is down 34% from 2007, and is the lowest since 2003. A recent survey by the Employee Benefit Research Institute indicated that one in three retirees had dipped deeper than planned into their savings to pay for basic expenses in 2010.
Most economists agree that the Fed's interest-rate policies, together with other measures, have helped avert a much deeper economic slump. Still, the situation for savers has become progressively worse since the Fed first lowered its interest-rate target close to zero in late 2008.
As of January, the average interest rate paid on relatively safe vehicles such as short-term savings accounts, time deposits and money-market funds stood at only 0.24%. That's one-tenth the level of late 2007 and the lowest on records dating back to 1959. Such depressed rates don't come close to compensating for inflation, which was running at an annualized rate of 5.6% in the three months ended February.
Low rates don't just hurt retirees. They also penalize people of any age hoping to build up funds for the future, and discourage rainy-day savings that could make U.S. consumers more resilient to job losses and other financial jolts. Americans' net contributions to their financial assets, such as bank and 401(k) accounts, amounted to 4% of disposable income in 2010, according to the Fed. That's the lowest level since it began maintaining records in 1946-except for 2009, when people actually pulled money out.
A few thoughts:
Sorry for the rant that opened this post. But what's happening to retirees is one of this century's great injustices, and also one of the most under-reported. Maybe because it's too ideologically complex, with easy money policies - usually thought to produce good things like jobs and higher government spending - suddenly a force for destruction. That's a hard concept for most reporters to wrap their heads around.
Another reason that the plight of retirees in a low-interest-rate world isn't news is that easy money is seen as the only alternative to another Great Depression. So old folks are collateral damage in a just war. Which leads to a crucial point: Today's policymakers are not the only villains. The people who put us in this box go all the way back to the creation of the Fed in 1913, and they populate both major parties. Virtually no part of the US ruling class is immune from blame.
The WSJ article had some surprising stats, like this one: "In 2009, according to the most recent data available from the Labor Department, average annual investment income for the 24.6 million American households headed by people 65 and older amounted to $2,564. That figure is down 34% from 2007." Is that really all the average retiree makes from their savings? Two hundred bucks a month? Hope their homes are paid off...