Friday, February 10, 2012
Stephen Leeb on QE3 & Gold
The High Cost of 0% Rate
By Jim Willie:The interminable extension by the US Federal Reserve on the 0% rate into 2014 represents history in the making. It is the adoption of pure heresy in monetary policy, making it mainstream. Worse, it forces foreign central banks to adopt the same destructive policy in the Competing Currency War. Once upon a time, the highest priests from the central bank would admit in a guiding tone that accommodation on interest rates must be temporary. Nowadays it is engrained in the market mindset and permanent in monetary policy. The chronic 0% means the entire financial and monetary system is totally irreparably broken. The old pendulum where the tilt was toward bonds during recession, then toward stocks during recovery, that is all gone, shattered by the endless financial crisis. One must incorporate a new thinking, that the entire financial and monetary system is totally irreparably broken, then adapt in fierce defense. Larry Fink of Blackrock private equity firm made news today by suggesting that 0% bond yields offer no return on investment. How true! He did not offer any accurate reflection of reality that the financial structures are broken, nor that all attempts at remedy were flimsy and misdirected. He gave the ALL IN signal for buying stocks in 2012, thus putting on the risk trade. The immediate ancillary signal is to back up the truck and load up with GOLD also.
Many are the messages behind the 0%. Other nations
have been criticized for its adoption. But when the United States is the
adoptive parent custodian, it is supposedly all good. So Orwell lives, and
the ghost of Goebbels floats. Stimulus is a ruse, as destruction of working
capital is the constant refrain in a tragic opera. The unintended
consequences abound, but mostly not perceived or comprehended well. Few even
in the financial community are aware of the powerful leverage mechanisms that
enforce the artificially low interest rate. Introduce the Interest Rate Swap
contract, whose devices were deployed to the tune of $8 trillion worth in the
early months of 2011. The public was told the USGovt
debt downgrade at the hands of Standard & Poors
was contradicted. Nonsense!! The Interest Rate Swap went to work overtime,
and the S&P executives were forced out of their leather chairs and
marbled offices for their insolence. While Europe is embroiled in austerity,
the United States is besieged by central bank apologies for failure disguised
less and less with each passing month and each dismissed speech.
The solution is Gold & Silver investments, as
all things paper will lose value either from erosion or theft in fraud. The MFGlobal case is far from finished. We have seen this
Madoff movie before, but few recognize its sequel starring Jon Corzine and
similar supporting cast. The transfers of money immediately before the MFG
bust indicates up to $108 billion of money might have been stolen, not $1.2
billion or even $600 million. The Madoff losses are also triple the official
$50 billion figure. The crime scene looks like a parallel. The protection is
Gold & Silver, and certainly not with futures contracts spewed or
tethered from the tainted COMEX arena. The next wave will feature the Gold
investors painted as financial terrorists. Refer to the New York Times
article with FBI contributors. This is highly disturbing to anyone who holds
the Constitution in hallowed terms.
HIDDEN MESSAGE
OF PERENNIAL 0% RATE
The 0% official Fed Funds rate has been almost three
full years in entrenched policy, when originally promised as temporary. No
exit strategy here. Greenspan once stated that it should never be held fixed
so low for more than six to nine months. He implied the system would be
broken otherwise, subjected to pressures that would distort the valuation
mechanisms beyond repair. My view is that extending 0% as monetary policy into year 2014, five years of
accommodation, is a gross admission of failure. Bernanke constantly
apologizes for stimulus having failed, for an economy unable to recover. The
main effect of 0% policy is sustenance of the surprising weakness, draining
capital from the system, and improperly pricing the debt which is at high
risk. The reality is that the USEconomy is stuck in
harsh deep recession of minus 3% to minus 5% GDP. The reality is that the USGovt debt burden is stuck in fast escalation at well
over $1 trillion annually, while demand for the debt securities is vanishing.
What remains is the Quantitative Easing, a bizarre term to give respect to
abject monetary hyper inflation by any other name.
The heavy hidden reliance upon monetary inflation devices has become a
fixture in the financial landscape. Its marquee banner reads failure.
JAPAN
CRITICIZED FOR ZIRP AND QE
United States is vulnerable to much worse criticism
than Japan. For many years, the cracks and criticism, laced with disrespect,
have been lodged at Japan for their lost decade. The US on the other hand,
had a Stolen Decade of Prosperity in 1990. Harken back to the pilfered Fort
Knox gold treasure, the absent inspections from independent audits, the
vacating of the fort and its replacement with nerve gas, long after the
futures contracts and 0% gold lease rate was installed that enabled a few
$trillion in illicit Wall Street profits, tucked away in untouchable offshore
accounts. The Japanese demonstrated
how the 0% rate is permanent, the Zero Interest Rate Policy fixed once
installed. They still have it. The little powerhouse in Asia cannot move
out of the zero percent corner. They have advantages
like trade export surplus, a vast industrial sector, and nationalist mindset
that abhors outsourcing. Ironically, the 0% rate was
enforced in Japan by mandatory postal union pension support of government
bonds, and other pension systems directed toward government bonds. In the
United States, the dependence has been on hidden usage of the printing press,
secretive QE programs with deceptive cloud cover like Operation Twist. The USGovt will soon resort to forcible investment of pension
funds and possibly bank certificates of deposit.
So the Japanese resorted to political pressure
offset by industrial strength. The US resorted to the machinery of the
monetary press exclusively, during endless empty chatter about job growth and
business creation, with little knowledge of how to accomplish either. While
Japan had 0% stuck as policy with trade surplus, the US has 0% stuck with QE
hyper monetary inflation dependence under the dark specter of monstrous
annual deficits that tack on an extra $1.3 to $1.5 trillion each year. The
American powerhouse, exaggerated in size due to hedonics, imputations, and
debt paper shuffling, overridden by numerous $trillion frauds committed with
impunity, also cannot move of the zero percent corner. Japan had no added
weight from war costs. So the US debt burden is much greater, owing to the
export of freedom and Orwellian principles on truth, coupled with fascist
principles on aggression.
STIMULUS IS A
RUSE, EXCEPT FOR SPECULATION
That 0% rate called stimulus is like calling bank
aid a grand assist to the homeowners. It is like calling mortgage contracts
protective of individual rights. It is like calling the Fannie Mae
nationalization an exercise to continue the American Homeowner dream. It is
like calling NAFTA the bond in worker alliances. It is like calling the
Chinese low cost solution good for the cost structure and American consumer.
It is like more of the parade of propaganda deceptions and lies, like Green
Shoots of USEconomic expansion, Exit Strategy from
0%, and delayed QE3. The constant in US political economics is unspeakable
deception and colossal ruin amidst chapters of mammoth frauds. The only
stimulus from 0% is the continued leaning toward more Wall Street jobs and
not factory jobs. Businesses struggle with oppressive federal regulations, poor
domestic demand, rising costs, and a pool of unqualified potential workers.
They borrow less and less as the months and quarters pass. Despite the
favored leaning toward speculation in the financial sector, even investment
banks are shedding jobs by the thousands. The nation has lost the concept of
capitalism, business formation, capital creation, during a grotesque economic
deterioration process in full bore swing. Laws are more directed toward
confiscating wealth and forcibly sharing it than creating it, that is when
not focused on efforts to censor information.
SYSTEMATIC
DESTRUCTION OF CAPITAL
The fixture of 0% as monetary policy carries with it
an admission that money is worthless. No directive by the flailing
discredited US central bank could say it better. Money has no cost because it
is not worth anything, being paper in basis and backed by no collateral. The
deep storage gold does not count on the USDept
Treasury balance sheets, a thin fig leaf to cover the absent genitalia of the
once sturdy Uncle Sam. The 0% policy serves as a monkey wrench in the
machinery. See the bank owned housing that cannot exit inventory status,
encouraged by sub-4% mortgage rates. Imagine ultra-low mortgage rates that
cannot bring about either clearance of inventory or a market recovery. The
latest travesty is the upcoming dissolution of Fannie Mae itself. What
miracle they might conjure up to make its rotten ramparts and acidic paper
and corrupt core go away. Fannie will be buried at sea (of liquidity).
The cast of economists cannot comprehend the heavy
cost of 0% in the widespread systematic destruction of capital. Take the
small company whose costs are rising. It must close down the marginal
elements of the business, and turn off the equipment, lay off the workers.
The costs rise from the rising price of commodities, from metals to energy to
lumber to cement, even executive lunches. The material costs rise from basic
hyper monetary inflation, the ugly side to the unilateral USFed
paper factory output. Business equipment, from computers to communications to
widget makers to packaging devices, they are slowly turned off and retired.
The essence of retired capital and its broad capital destruction is a foreign
concept to economists. They still believe the USEconomy
will enjoy the benefits of continued 0% stimulus. How wrong, how backwards,
how tragic!! The 0% policy destroys
capital and furthers the deterioration process. The gains to US exports
are a drop in the bucket. The outsourcing continues apace, even with the
dynamos Cisco Systems and General Electric.
UNINTENDED
CONSEQUENCES
A
repeated message since so important. Focus on suppressed long-term interest
rates and their damaging consequences. The US leaders boast of benefits from ultra-low
interest rates. They believe that Americans are better off than the Europeans
who are in shock from rising rates, a flash of reality during a debt crisis.
Take the time to review some powerful consequences of interest rates kept low
for years, in violation of permission to rise at least to the prevailing
price inflation rate. Suppressing the 10-year bond yield has dire
consequences. Some but not all of them appear unintended. The power centers
want unlimited easy money for sure. But in doing so, they permit some
horrendous developments like feeding a cancer.
1) Savers are given nothing in
interest yield, slowing the economy with asset erosion
2) Banks are encouraged to continue
holding their home inventory, which makes impossible any housing market
clearance and recovery
3) Big banks will continue their
USTreasury Bond carry trade schemes to replenish capital instead of business
capital formation in partnership with the business sector
4) Investment banks are encouraged
to continue their speculation and machinations, rather than to invest in
factories, plant and equipment which would produce jobs
5) The USFed further expansion of
its balance sheet to buy toxic assets instead of serving as a foster agent to
the banking intermediary system
6) The USGovt is not discouraged
from deficit reduction, since it believes it has unlimited time for remedy,
thus assuring massive inflation, debt default, and systemic failure
7) The free money helps to conceal
in vast turnover the toxic paper held under the USGovt roof, as in Fannie
Mae, and other fraudulent mills such as MFGlobal lookalikes in the sovereign
debt securities and their related derivatives.
ALTERNATE
NEMESIS TO AUSTERITY
The Europeans are dealing with austerity measures in
government budgets. The sovereign debt securities remain a constant problem,
although in recent weeks the bond yields have come down to manageable levels,
like below 6% in Italy and Spain. Few
economists and bank analysts seems to realize that austerity plans put in place
result in lower economic activity, more job cuts, fewer large scale projects,
and thus higher deficits down the road. The austerity plans are Poison
Pills, one and all, designed perhaps to enable installation of unelected
Goldman Sachs technocrats in prime minister posts. The Greek situation is
testimony, as budget cuts and massive amputations have resulted in worse
fiscal deficits. So bring on more of the same!! The plague in the United
States is of an opposite type. The budgets are unrestrained, notwithstanding
the endless chatter in the USCongress and White
House. War cost cuts will be resisted, my ongoing call. The Super Committee
was a gross failure in full view, an aborted maneuver to install a Politburo
but with a cleaner nameplate. The US financial theater does not urgently call
on budget reduction, or eradication of waste, or fewer foreign embassies and
air bases, or related prudence and discipline, in order to win creditor
approval and to maintain integrity. The integrity is all lost while foreign
creditors have jumped ship. Instead,
the urgent calls within the hollowed (not hallowed) Untied States are for
continued 0% policy in order to make the mammoth gargantuan debts and
fraudulent toxic paper coverup more cost-free.
What incredible opposites exist in Europe and the North America!! The US
controls the global reserve currency, having turned its printing press into a
well-oiled national shrine.
ULTIMATE JET
ASSIST FOR GOLD
Back in 2003, the gold community
made it well-known that the negative
real rate of interest was the underlying jet asset kick starter ignition system for the Gold
bull market. Take the baseline interest rate, subtract the baseline price
inflation rate, and arrive a the real rate of interest. At 2% or 3% for long-term
interest rates, at 8% or 10% for accurate honestly measured price inflation,
the real rate of interest is calculated in the minus 5% to minus 7% range.
Money is not only free for Wall Street speculators, it has negative cost to
smart investors who devote their valuable funds to gold, silver, oil, metals,
and other commodity resources, realizing full well that these hard assets
will rise in value fast from the negative real cost of money. The USEconomy is mired in quicksand, not just mud. The mis-calculation of inflation in the adjustment to the
Gross Domestic Product is also a travesty in sixth grade arithmetic. Take the
nominal GDP to measure the economic size, subtract the true CPI as measured
by the superb Shadow Govt Statistics gurus, and
arrive at a chronic recession of minus 3% to minus 5% for four years running.
That explains the absent job growth. Take the payroll tax withholding series
to see the steady decline in national income, not easily masked.
GOLD &
SILVER READY TO SOAR
Check out the obvious reversal pattern on the Gold
chart in full view. It has a 200-point potential rise, which would take the
Gold price to 1950. All solutions discussed are bogus and founded in funny
money output, new debt, toxic bond redemption, and cost-free recapitalization
of banks. No more liberated gold bullion like from Libya via mercenary wars
on the horizon. Its 144 metric gold tonnes proved
useful to the London and Wall Street Boyz. Syria aint got no gold to release. When the 1750 defended flank
is overrun, the rise in the Gold price will be rapid. It will capture global
attention again, enough to dismiss once more the vacuous shill self-serving
nitwit calls for Gold's demise.
Check out the obvious reversal pattern on the Silver
chart in full view. It has a 7-point potential rise, which would take the
Silver price to 42 per ounce. The large gap between 32 and 40 has been filled
halfway, the next half to be filled in the following several weeks, possibly
very quickly. When the 35 defended flank is overrun, the rise in the Silver
price will be rapid, more rapid than Gold since the gap will offer little
resistance. The rise will capture global attention again, enough to dismiss
once more the vacuous shill self-serving nitwit calls for Silver's demise and
relegation to an industrial metal.
THE HAT TRICK LETTER PROFITS IN THE CURRENT
CRISIS.
Weekend Chillout - Chained edition
With all the news about Iraqi secret prisons, and the FBI branding almost everyone a potential terrorist this week it is a wonder we are not in chains already.
Obama Invokes NDAA due to "Threat" that Iran poses
Yes best to see Iran as a threat, as it has never invaded another country in living memory and has no nuclear weapons, unlike a near neighbour that has done both.
Also nice to see that Timmy and Clinton get to oversee the starvation of Iran by food and fuel embargoes, much more fun than money printing and laughing over the murder of presidents.
Also nice to see that Timmy and Clinton get to oversee the starvation of Iran by food and fuel embargoes, much more fun than money printing and laughing over the murder of presidents.
Keiser Report: Black Holes & Gold Hills
RussiaToday on Feb 9, 2012
In this episode, Max Keiser and co-host, Stacy Herbert, discuss the latest discoveries of blackholes in the financial universe and the populations growing permanently poorer as a result. In the second half of the show, Max talks to Dr. Yanis Varoufakis about financial horror, a currency from which you can't escape and the Greek situation.
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