GEAB N°54 is available! Global systemic crisis: Autumn 2011 – Budget/T-Bonds/Dollar, the three US crises which will cause the Very Serious Breakdown of the global economic, financial and monetary system

 

 

 

- Public announcement GEAB N°54 (April 16, 2011) -

 

The 15 September 2010, GEAB N°47 issue was headed « Spring 2011: Welcome to the United States of Austerity / Towards the very serious breakdown of the world economic and financial system ». Yet at the end of summer 2010, most experts believed first, that the debate on the US budget deficit would remain a mere subject of theoretical discussion within the Beltway (1) and secondly, that it was unthinkable to imagine the United States engaging in a policy of austerity because it was sufficient for the Fed to continue to print dollars. Yet, as everyone has been able to see for several weeks, Spring 2011 really did bring austerity to the United States (2), a first since the Second World War and the setting up of a global system based on the ability of the US engine to always generate more wealth (real from 1950 to 1970, increasingly virtual thereafter).

At this stage, LEAP/E2020 can confirm that the next stage of the crisis will really be the “Very Serious Breakdown of the world economic, financial and monetary system” and that this historic failure will occur in autumn 2011 (3). The monetary, financial, economic and geopolitical consequences of this “Very Serious Breakdown” will be of historic proportions and will show the crisis of autumn 2008 for what it really was: a simple detonator.

The crisis in Japan (4), the Chinese decisions and the debt crisis in Europe will certainly play a role in this historic breakdown. On the other hand we consider that the issue of government debt of countries on Euroland’s periphery is no longer the dominant European risk factor here, but it is the United Kingdom which will find itself in the position of the “sick man of Europe” (5). The Eurozone has in fact established and keeps improving all the monitoring systems needed to address these problems (6). Management of the Greek, Portuguese and Irish problems will therefore take place in an organized fashion. That private investors must take a haircut (as anticipated by LEAP/E2020 before summer 2010) (7) does not belong to the category of systemic risks, displeasing the Financial Times, the Wall Street Journal and Wall Street and City experts, trying every three months to rerun the “coup” of the early 2010 Eurozone crisis (8).

In contrast, the United Kingdom has completely missed its attempt at “preventive budgetary amputation surgery” (9). In fact, under pressure from the street and particularly more than 400,000 British who roamed the streets of London on 03/26/2011 (10), David Cameron is forced to lower his target for reducing health care costs (a key point of his reforms) (11). At the same time, the Libyan military adventure has also forced him to rethink his goals for Defense Ministry budget cuts. We already mentioned in the last GEAB issue that the British government’s financing needs continue to rise, reflecting the ineffectiveness of the measures announced whose implementation is proving very disappointing in reality (12). The only result of the Cameron / Clegg (13) duo policy is currently the relapse of the British economy into recession (14) and the obvious risk of the ruling coalition imploding after the next referendum on electoral reform.

In this issue, our team describes the three key factors that mark out this Very Serious Breakdown of autumn 2011 and its consequences. Meanwhile, our researchers have begun to anticipate the progression of the Franco-Anglo-American military operation in Libya which we believe is a powerful accelerator of global geopolitical dislocation and that it usefully illuminates some of the current tectonic changes in the relationships between major world powers. In addition to our GEAB $ index, we expand on our recommendations for dealing with the dangerous quarters to come.

Basically, the process that is unfolding before our eyes, of which the US entry into an era of austerity (15) is a simple budgetary expression, is a continuation of the balancing of the 30 trillion of ghost assets which had invaded the global economic and financial system in late 2007 (16). While about half of them had disappeared in 2009, they have been partially resurrected since then due to the volition of the major global central banks, and the US Federal Reserve in particular and its “QE 1 and 2″. Our team considers, therefore, that 20 trillion of these ghost assets will go up in smoke beginning autumn 2011, and very brutally, under the combined impact of the three US mega-crises in accelerated gestation:

. the budgetary crisis, or how the United States plunges willingly or by force into this unprecedented austerity and takes whole swathes of the global economy and finance with it

. the crisis in US Treasury bonds, or how the US Federal Reserve reaches the “end of the road” which began in 1913 and must face up to its bankruptcy whatever accounting sleight of hand is chosen

. the US Dollar crisis, or how the jolts in the US currency that will characterize the ending of QE2 in the second quarter of 2011 will be the beginnings of a massive devaluation (around 30% in a few weeks).

Central banks, the global banking system, pension funds, multinationals, commodities, the US population, Dollar zone economies and/or dependent on trade with the United States (17) … everyone structurally dependent on the US economy (of which the government, the Fed and the federal budget have become central components), assets denominated in dollars or commercial dollar transactions, will suffer the head on shock of 20 trillion in ghost assets purely and simply disappearing from their balance sheets, from their investments, and causing a major decline in their real incomes.

 

 

Remittance of funds by US immigrant workers to their countries of origin (first number in local currency at the dollar exchange rate end 2008/second number: the same, at the exchange rate end 2010) – Source: Wall Street Journal, 04/2011

Around the historic shock of autumn 2011 which will mark the definitive confirmation of significant trends anticipated by our team in previous GEAB issues, the main asset classes will experience major upheavals requiring the increased vigilance of all players concerned for their investments. In fact, this triple US crisis will mark the true exit from the “world after 1945″ which saw the US play the role of Atlas and will, therefore, be marked by many shocks and aftershocks in the quarters which follow.

For example, the dollar may experience short-term effects of strengthening value against the major world currencies (especially if US interest rates rise very quickly following the ending of QE2), even if, six months after that, its 30% loss of value (relative to its current value) is inevitable. We can, therefore, only repeat the advice that has appeared at the head of our recommendations since the beginning of our work on the crisis: in the context of a global crisis of historic proportions like the one we are experiencing, the only rational objective for investors is not to make more money, but to try to lose as little as possible.

This will be particularly true for the coming quarters where the speculative environment will become highly unpredictable in the short term. This short term unpredictability will be particularly due to the fact that the three US crises that trigger Very Serious Breakdown in the world in autumn are not concurrent. They are very closely correlated but not linearly. And one of them, the budget crisis, is directly dependent on human factors with a big influence on the timing of the event; whilst the other two (whatever those who see the Fed officials as gods or devils think (18)) are now, for the large part, included in the significant trends where US leaders’ actions have become marginal (19).

 

The budget crisis, or how the United States plunges willingly or by force into this unprecedented austerity and takes whole swathes of the global economy and finance with it

The numbers can make the head spin: “6 trillion in budget cuts over ten years” (20), said the Republican Paul Ryan, “4 trillion in twelve years” retorted the 2012 candidate Barack Obama (21), “all this is far from sufficient”, bids one of the Tea Party referents, Ron Paul (22). And anyway, sanctions the IMF, “the United States is not credible when it speaks of cutting its deficits” (23). This unusually harsh remark from the IMF, traditionally very cautious in its criticism of the United States, is in any case particularly justified in terms of the psychodrama which, for a fistful of tens of billions of dollars, nearly shut down the federal state absent any agreement between the two major parties, a scenario that will, moreover, soon take place again over the federal debt ceiling.

The IMF is only expressing an opinion widely shared by creditors of the United States: if, for a few tens of billions USD in deficit reduction, the US political system reached that degree of paralysis, what will happen when, in the coming months, cuts of several hundred billion dollars a year will be required? Civil war? This is the new California governor Jerry Brown (24) opinion in any case, who believes that the United States is facing a regime crisis identical to that which led to the Civil War (25).

 

 

Public and private sector borrowing (1979 – 2010) (in red: public/in blue: private) – Source: Agorafinancial, 04/2011

The context, therefore, is no longer mere paralysis but really an all-out confrontation between two visions of the country’s future. The closer the date of the next presidential election gets (November 2012), the more the confrontation between the two sides will intensify and take place regardless of any rule of good behaviour, including safeguarding the country’s common good: “Whom the gods would destroy they first make mad”, says the ancient Greek proverb. The Washington political scene will increasingly resemble a psychiatric hospital (26) in the coming months, making “the bizarre decision” increasingly likely. If, in order to reassure themselves about the dollar and Treasury bonds, Western experts repeat in turn that the Chinese would be crazy to get rid of these assets which would thus only hasten their fall in value, it’s that they haven’t yet understood that it’s Washington and its political mistakes that can come to the decision that hastens this fall. And October 2012, with its traditional annual budget vote, will be the ideal moment for this Greek tragedy which, according to our team, won’t have a happy ending because this isn’t Hollywood, but really the rest of the world which will write the scenario’s sequel.

Whatever the case, by political choice, by closing down the federal government or by irresistible outside pressures (27) (interest rates, IMF + Euroland + BRIC (28)), it is really in autumn 2011 that the US federal budget will massively shrink for the first time. The continuation of the recession coupled with the ending of QE2 will cause interest rates to rise and thus significantly increase federal debt servicing costs, against a backdrop of falling tax revenues (29) caused by a relapse into a deep recession. Federal insolvency is now just round the corner according to Richard Fisher, president of the Federal Reserve Bank of Dallas (30).

Read more in GEAB:
. The budgetary crisis, or how the United States plunges willingly or by force into this unprecedented austerity and takes whole swathes of the global economy and finance with it
. The crisis in US Treasury bonds, or how the US Federal Reserve reaches the “end of the road” which began in 1913 and must face up to its bankruptcy whatever accounting sleight of hand is chosen
. The US Dollar crisis, or how the jolts in the US currency that will characterize the ending of QE2 in the second quarter of 2011 will be the beginnings of a massive devaluation (around 30% in a few weeks)

 

 

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Notes:

(1) An American term for Washington’s politico-administrative heart, situated in the middle of the local ring road, the Beltway.

(2) From grim cuts in the US overseas aid budgets to reductions in social programmes; public organizations and whole sections of the US population (Latinos, the poor, students, retirees, …) will now be severely affected by what is still only a drop in the bucket of adjustments needed. The grassroots demonstrations are beginning with students at the forefront. Sources: House of Resentatives, 04/13/2011; Devex, 04/11/2011; HuffingtonPost, 04/13/2011; Foxnews, 04/14/2011; Foxbusiness, 04/12/2011

(3) The world banking system (including Europe), still under-capitalized and mainly insolvent, is also one of the components of this Very Serious Breakdown of autumn 2011.

(4) In GEAB N°55 our team will give its anticipations on the world nuclear question, using the political anticipation method as a decision-making tool on the subject.

(5) The magnitude of the United Kingdom’s budgetary crisis is far more serious than the current British leaders are telling who, however, claim to have told the truth. There are in fact two ways of lying to a people: deny the existence of a problem (the position of Gordon Brown’s Labour) or only tell part of the truth (clearly the choice of the Cameron/Clegg pair). In both cases, the problem is not resolved. Source: Telegraph, 03/26/2011

(6) And from now and the definitive establishment of Euroland as the main European engine at the European summit of 11 March last, the four countries that do not participate in the “Euroland +” financial stabilization pact, i.e. the United Kingdom, Sweden, Hungary and the Czech Republic, will be asked to leave the room during discussions on financial and budgetary matters related to the pact. EU Observer of 03/29/2011 describes the panic which then seized the delegations of these four countries whose leaders play the thugs in front of the media and in speeches intended for their respective public opinion, but they well know they are now confined to a second-rate European role.

(7) Source: Irish Times, 03/22/2011

(8) A very pertinent and very amusing must read article by Silvia Wadhwa, CNBC’s European correspondent, which makes fun of the caricatural anti- Euroland and anti-German articles of his colleagues in other Anglo-Saxon media, and rightly points out that differences in economic situations are bigger between US states than within Euroland and the debt problems of Greece or Portugal are nothing compared to those of a state like California. Source: CNBC, 04/12/2011

(9) We will come back to the British case in more detail in the GEAB N°55, barely a year after the Conservative/LibDem victory.

(10) This protest against cuts is the largest demonstration in London for over twenty years and has been accompanied by serious violence against “symbols of wealth” with attacks against HSBC, the Ritz Hotel and Fortnum & Mason for example. As we have repeatedly emphasized in the GEAB, it is quite significant to note that this historic demonstration in the UK hardly made the headlines and then became invisible 48 hours after it happened. When a few thousand Greeks or Portuguese demonstrate in Athens or Lisbon on the other hand, we are entitled to an avalanche of shocking pictures and comments describing these countries on the brink of chaos. This “two weights and two measures” mustn’t deceive the clear-sighted observer. On the one hand, there are serious difficulties that are now managed within a powerful group, Euroland; on the other, there are major problems that can no longer be managed by a completely isolated country. Believe the media or think for yourself to guess the rest! Source: Guardian, 03/26/2011

(11) Source: Independent, 04/03/2011

(12) Moreover the financial markets realize this and no longer really believe the British government’s martial message of austerity, again leading to a downward spiral in the British Pound. Source: CNBC, 04/12/2011

(13) Nick Clegg has become the most hated politician in the United Kingdom for having betrayed nearly all his campaign promises one by one. Source: Independent, 04/10/2011

(14) And to push British households into a loss of purchasing power only similar to that of the post-World War I crisis in 1921. Source: Telegraph, 04/11/2011

(15) As the Europeans have done since 2010.

(16) Average estimate by LEAP/E2020 made in 2007/2008.

(17) Beyond traditional foreign trade, the chart below shows the extent of the reduction in transfers to their countries of origin by immigrant workers in the United States, because of the declining US Dollar. This reduction will increase further from Autumn 2011.

(18) In the US today, the diabolic vision is the most common among public opinion, unlike 2008 when the Fed officials seemed to be the last resort. This psychological change, as we have pointed out, is not meaningless and contributes significantly to limit Fed officials’ leeway. And it’s not the US Central Bank’s historic legal defeat, which forced it to reveal the recipients of hundreds of billions of dollars in aid distributed after the 2008 Wall Street crisis, which will improve this situation, quite the opposite. A little story, revealed by RollingStone magazine, illustrates the US people’s worsening grievances against its central bankers: beneficiaries of this Fed aid are two wives of leading Wall Street figures who have created a custom-made instrument allowing them to collect 200 million USD from the Fed to buy failed securities … the profits go to them and the losses to the Fed! Sadly, this is just one example among many that are currently circulating on the Net and have now definitively shattered the respect of US people for its benchmark monetary institution; an explosive situation in the context of the current crisis. Source: Rollingstone, 04/12/2011

(19) The dollar’s fate, like US Treasury bonds, is now largely in the hands of operators around the world who will take a very “clinical” look at the exit from QE2 which was forced on the Fed during the second quarter of 2011. It’s the Fed’s collective opinion (already heavily criticised), not the way it is “presented”, which will be decisive.

(20) Source: Politico, 04/04/2011

(21) Source: Boston Herald, 04/13/2011

(22) Source: Huffington Post, 04/11/2011

(23) And all the more so since they continue to break the records of financing needs for their deficits, and that the deficit forecast for the next decade by Obama commitments amounts to 9.5 trillion USD. On one side, he devises policies that increase the deficit, on the other he announces reduction targets… hardly credible, really! Sources: CNBC, 04/13/2011; Washington Post, 03/18/2011

(24) Brown is an original US character with a great deal of political experience having previously served as governor of California from 1975 to 1983, and was twice a candidate for the Democratic Presidential nomination. His opinion on the ruinous state of the US political system is, therefore, not to be taken lightly. Source: CBS, 04/10/2010

(25) For those who find the picture risqué, our team reminds that one of the Civil War’s main causes was the irreconcilable vision of what the federal state and its role should be. Today, around budget issues, the role of the Fed, military expenditure and social spending, we are once again seeing the emergence of two diametrically opposed visions of what the federal state should be and what it should do, with its procession of growing institutional blockages and an atmosphere of hatred between political forces. Many illustrations have been given in previous GEAB issues. Source: Americanhistory

(26) How else can one describe people who are barely able, and by dint of repeated crises, to cut a few tens of billions from a budget, and who suddenly announce that tomorrow they will cut thousands of billions of dollars from this same budget? Fools or liars? In any case irresponsible, because the constraints that require these deficit reductions in any case are building up.

(27) Global government debt is at its highest since 1945 and, at 10.8% of GNP, the US has become the leading major country in terms of government deficits. Sources: Figaro, 04/12/2011; Bloomberg, 04/12/2011

(28) Regarding the BRIC countries (now BRICS with South Africa), it is very interesting to note that their third summit, which took place on the Chinese tropical island of Hainan, is finally enjoying significant media coverage from the Western media. We were one of the first and few Western publications to mention the first summit (at Ekaterinburg) three years ago and emphasize the importance of the event, but until now the major international newspapers persisted in considering the BRICs as a simple acronym without serious geopolitical clout. Obviously things have changed. Moreover from Libya to the dollar, the Hainan summit clearly positioned itself as a counterweight to the US and its surrogates (fewer and fewer in this case having regard to what is happening in Libya). As regards the dollar, the BRICs have decided to accelerate the process allowing them to use their own currencies for their trade: another sign that we’re rapidly approaching a severe monetary shock. Source: CNBC, 04/14/2011

(29) Those who still believe in an improvement in US economic conditions, beyond the effect of QE2 “doping”, should dwell on the moral of the SMEs in the US which have begun to deteriorate significantly and the fiction of the upturn in employment which will be sharply corrected (even in official statistics) from summer 2011. And we refer to previous GEAB issues regarding the fiscal crisis of the federated states. Sources: MarketWatch, 04/12/2012; New York Post, 04/12/2011

(30) Source: CNBC, 03/22/2011

 

Gold and Silver Launched to New Record Highs by 50 Factors

Edification is not the word that comes to mind when observing an interview with Larry Fink of Blackstone this morning on network financial news. It was inspirational if not humorous, and somewhat pathetic. Of course the interviewer treated him like royalty, when just a syndicate captain, a Made Man. As a cog within the US financial hierarchy, he was asked why Gold is approaching record price levels near $1500 per ounce. He gave his best 10-second answer, showing no depth of comprehension but an excellent grip of propaganda laced with simplistic distortion. He said, “GOLD IS RISING FROM ALL THE GLOBAL INSTABILITY, AND NOT FROM INFLATION AT ALL.” Sounds good, but it lacks much reflection of the world of reality burdened by complexity and interconnectivity that the enlightened perceive.

At least he did not babble about Gold being in an asset bubble. It cannot, since Gold is money. It is curious that all the analysts, bankers, fund managers, corporate chieftains who did not advise on Gold investment over the last ten years are precisely whom the financial network news appeals to for guidance in the current monster Gold bull run. They knew nothing before, and they know nothing now. The major US news networks carry the Obama water while the USCongressional members carry the USBanker robes and show respect with genuflection before the priests. But guys like Fink are their harlot squires. Poor Ben Bernanke, despite his high priest position, does not gather a fraction of respect that Alan Greenspan did even though Alan presided over the collapse. The wild card possibly later this year or 2012 will be a national movement to force mandatory wage gains, and thus avert a national economic collapse. The squeeze is on in a powerful manner to both businesses and households.

ANOTHER STRONG GOLD BREAKOUT

As long as Quantitative Easing programs are in place and actively pursued, Gold & Silver prices will soar. The programs are urged by exploding budget deficits and absent USTBond demand. That translates to a ruined USDollar currency. Gold & Silver respond to the debasement and ruin. Efforts will become ridiculously stretched to save the USDollar, but will fail. QE will go global and secretive, assuring tremendous additional gains in the Gold & Silver price. No effort to liquidate the big USbanks will occur, thus assuring the process will continue until systemic breakdown then failure. The more extraordinary the measures to save the embattled insolvent fraudulent USDollar, the more the Gold & Silver price will soar. It is that simple. Gold & Silver will soar as long as central banks continue to put monetary inflation machinery to work. They are attempting to provide artificial but coordinated USTreasury Bond demand. In the process their efforts will continue to push the cost structure up further. In my view, since the Japan natural disaster hit with financial fallout, the Global QE is very much in effect, but not recognized as a global phenomenon. It pushes up Gold in uniform fashion worldwide.

50 FACTORS POWERING THE GOLD BULL

1.USFed is stuck at 0% for over two years and printing $1.7 trillion in Quantitative Easing, otherwise called monetary hyper inflation. They are not finished destroying both money and capital.
2.USFed tripled its balance sheet, with over half of it bonds of exaggerated value, while it gobbled up toxic mortgage bonds as buyer of last resort. The mortgage bonds have turned worthless. The USFed waits for a housing revival to bail itself out, but it will not arrive.
3.Debt monetization has gone haywire, as over 70% of USTBond sales from the USFed printing press. The QE was urgently needed, since legitimate buyers vanished. Even the primary dealers have been reimbursed in open market operations within a few weeks.
4.PIMCO has shed its entire USTreasury Bond holdings, seeing no value. They joined many foreign creditors in an unannounced buyer boycott in disgusted reaction to QE which is essentially a compulsory unilateral debt writedown.
5.Growing USGovt deficits have run over $1.5 trillion annually, with absent cuts, obscene entitlements, endless war. The prevailing short-term 0% interest rates are out of synch with exploding debt supply and rising price inflation.
6.Unfunded USGovt liabilities total nearly $100 trillion for medicare, social security, pensions, and more. The obligations are never included in the official debt. It represents insult to injury within insolvency.
7.Standard & Poors warned that USGovt could lose AAA rating in lousy credit outlook, one chance in three within the next two years. Ironically, the announcement came on the day when the USGovt exceeded its debt limit. The network news missed it.
8.State & Municipal debt have collapsed, as 41 states have huge shortfalls, and four large states are broken. They might receive a federal bailout. It could be called QE3, maybe QE4.
9.Coordinated USTBond purchases from Japanese sales have relieved the USFed, as other major central banks act as global monetarist agents. The sales by Japan are vast and growing. Witness the last phase in unwind of Yen Carry Trade, where 0% borrowed Japanese money funded the USTreasury Bonds and US Stocks.
10.Quantitative Easing, a catch word for extreme monetary inflation and debt monetization, has become engrained into global central bank policy, soon hidden. It is so controversial and deadly to the global financial structures that it will go hidden, and attempt to avoid the furious anger in feedback by global leaders. This is the most important and powerful of all 50 factors in my view.
11.The FedFunds Rate is stuck near 0%, yet the actual CPI is near 10%, for a real rate of interest of minus 9%. Historically a negative real rate of interest has been the primary fuel for a Gold bull. This time the fuel has been applied for a longer period of time, and a bigger negative real rate than ever.
12.The USGovt claims to have 8000 tons of Gold in reserve, but it is all in Deep Storage, as in unmined ore bodies. The collateral for the USDollar and USTreasury debt is vacant. It is in raw form like in the Rocky Mountain range or Sierra Nevada range.
13.Fast rising food prices, fast rising gasoline prices, and fast rising metals, coffee, sugar, and cotton serve as testament to broad price inflation. So far it has shown up on the cost structure. Either the business sector will vanish from a cost squeeze or pass on higher costs as end product and service price increases.
14.The entire world seeks to protect wealth from the ravages of inflation & the American sponsored QE by buying Gold & Silver. The rest of the world can spot price inflation more effectively than the US population. The United States is subjected to the world’s broadest and most pervasive propaganda in the industrialized world.
15.The European sovereign debt breakdown with high bond yields in PIIGS nations points out the broken debt foundation to the monetary system. The solutions like with Greece in May 2010 were a sham, nothing but a bandaid and cup of elixir. Spain is next to experience major shocks that destabilize all of Europe again, this time much bigger than Greece. The Portuguese Govt debt rises toward 10% on the 10-year yield, while the Greek Govt debt has risen to reach 20% on the 2-year yield.
16.Germany is pushing for Southern Europe bank climax in their Euro Central Bank rate hike. Europe will be pushed to crisis this year, orchestrated by the impatient and angry Germans. They have no more appetitive for $300 to $400 billion in annual welfare to the broken nations in Southern Europe.
17.Isolation of the USFed and Bank of England and Bank of Japan has come. The small rate hike by the European Central Bank separated them finally. The Anglos with their Japanese lackeys are the only central banks not raising rates. With isolation comes all the earmarks on the path to the Third World.
18.The shortage of gold is acute, as 51 million gold bars have been sold forward versus the 11 million held by the COMEX in inventory. Be sure that hundreds of millions of nonexistent fractionalized gold ounces are polluting the system. Word is getting out that the COMEX is empty of precious metals.
19.Such extreme Silver shortage has befallen the COMEX that the corrupted metals exchange routinely offers cash settlement in silver with a 25% bonus if a non-disclosure agreement is signed. The practice cannot be kept under wraps, as some hedge funds push for fat returns in under two months holding positions with delivery demanded.
20.China has begun grand initiatives to replace its precious metal stockpiles. They are pursuing the Yuan currency to become a global reserve currency. As they build collateral for the Yuan, they are also elevating Silver as reserves asset.
21.A global shortage of Gold & Silver has been realized in national mint production. From the United States to Canada to Australia to Germany, shortages exist. Many interruptions will continue amidst the shortages, which feed the publicity.
22.The Teddy Roosevelt stockpile of 6 billion Silver ounces was depleted in 2003. He saw the strategic importance of Silver for industrial and military applications. The USEconomy and USMilitary will turn into importers on the global market.
23.The betrayal of China by USGovt in Gold & Silver leases is a story coming out slowly. The deal was cut in 1999, associated with Most Favored Nation granted to China. But the Wall Street firms broke the deal, betrayed the Chinese, and angered them into highly motivated action. No longer are the Chinese big steady USTBond buyers, part of the deal also.
24.Every single US financial market has been undermined and corrupted from grotesque intervention, constant props, and fraudulent activity. The degradation has occurred under the watchful eyes of compromised regulators. Fraud like the Flash Crash and NYSE front running by Goldman Sachs is protected by the FBI henchmen.
25.The USEconomy operates on a global credit card, enabling it to live beyond its means. The USGovt exploits the compulsory foreign extension of credit in USTBonds, by virtue of the USDollar acting as global reserve currency. Foreign nations are compelled to participate but that is changing.
26.The USMilitary conducts endless war adventures for syndicate profits. They use the USTreasury Bond as a credit card. The wars cost of $1 billion per day is considered so sacred, that it is off the table in USGovt budget call negotiations, debates, and agreements.
27.Narcotics funds have proliferated under the USMilitary aegis. The vertically integrated narcotics industry is the primary plank of nation building in Afghanistan. The funds keep the big US banks alive from vast money laundering.
28.No big US bank liquidations have occurred, despite their deep insolvency. Any restructure toward recovery would have the liquidations are the first step. The USEconomy is stuck in a deteriorating swamp since the Too Big To Fail mantra prevents the urgent but missing step.
29.The unprosecuted multi-$trillion bond fraud over the last decade has harmed the US image, prestige, and leadership. The main perpetrators are the Wall Street bankers and their lieutenants appointed at Fannie Mae and elsewhere. They bankers most culpable remain in charge at the USDept Treasury and other key supporting posts like the FDIC, SEC, and CFTC.
30.The ugly daughters Fannie Mae and AIG are forever entombed in the USGovt. They operate as black hole expenses whose fraud must be contained. The costs involved are in the $trillions, all hidden from view like the fraud. Fannie Mae remains the main clearinghouse for several $trillion fraud programs still in operation.
31.The US banking system cannot serve as an effective credit engine dispenser, an important function within any modern economy. It is deeply insolvent, and growing more insolvent as the property market sinks lower in valuation. The banks lack reserves, and hide their condition by means of the FASB permission to use fraudulent accounting.
32.The big US banks are beneficiary of continuous secret slush fund support from the USGovt and USFed. Their sources and replenishments have been gradually revealed. The TARP Fund event will go down in modern history as the greatest theft the world has ever seen, easily eclipsing the biggest mortgage bond fraud in history.
33.The insolvent big US banks continue to sit at the USGovt teat. The vast umbilical cord of banker welfare has not gone away. Goldman Sachs still is in control of the funding machinery.
34.The shadow banking system based upon credit derivatives keeps interest rates near 0%. The usury cost of money is artificially low near nothing. As money costs nothing, capital is actively and rapidly destroyed.
35.A vast crime syndicate has taken control of the USGovt. A vast crime syndicate has taken control of the USMilitary. A vast crime syndicate has taken control of the USCongress. A vast crime syndicate has taken control of the US press networks.
36.A chronic decline of the US housing sector keeps the USEconomy in a grand decline with constant deterioration. With one million bank owned homes in inventory, a huge unsold overhang of supply prevents any recovery of housing prices. Home equity continues to drain, and bank balance sheets continue to erode.
37.Over 11 million US homes stand in negative equity. The sum equals to 23.1% of households. They will not participate much in the USEconomy, except when given handouts. They have become downtrodden.
38.The USEconomy will not benefit from a export surge. The US industrial base has no critical mass after 30 years of dispatch to the Pacific Rim & China. The industry must contend with rising costs in offset to the falling USDollar, which is cited as providing the mythical benefit. Then can export in droves if they do so at a loss.
39.A global revolt against the USDollar is in its third years. The global players work to avoid the US$ usage in trade settlement. Several bilateral swap facilities flourish, mostly with China. If China supplies products, then the Yuan currency will be elevated to global reserve currency.
40.Global anger and resentment over three decades has spilled over. The World Bank and IMF have been routinely used by the US bankers to safeguard the USDollar and Anglo banker hegemony. Neither financial agency commands the respect of yesteryear.
41.A middle phase has begun in a powerful Global Paradigm Shift. The transfer moves power East where the wealth engines of industry lie, far from the fraudulent banking centers. The next decade will feature the Chinese as bankers, since their war chest contains over $3 trillion.
42.The crumbling global monetary system was built on toxic sovereign debt. Legal tender has been nothing more than denominated debt posing as legitimate by legal decree. That is what word FIAT means. The system is gradually breaking in an irreversible manner.
43.The global central bank franchise system has been discredited. It is a failure, which is not recognized by the bank leaders still in charge. The stepwise process of ruin continues with a new sector falling every few months. Next might be municipal bonds.
44.Witness the final phase of a systemic cycle, as the monetary system has run its course. It is saturated with debt from faulty design. The deception cited in the mainstream media focuses upon the credit cycle which will renew. It will not. It will break of its own weight and lost confidence.
45.The recognition has grown substantially that suppression of the Gold price has been the anchor holding fiat system together. The Chinese realize that Gold, when removed, leads to the collapse of the US financial system. They realize it more than the US public. But the syndicate in control of the USGovt understands the concept very well, as they designed the system.
46.The institution of a high level global barter system might soon take root. Gold will sit at its central core, providing stability. No deadbeat nations will participate. That includes the United States and several European nations. The barter system will be as effective as elegant.
47.The movements spread like wildfire in several US states to reinstitute gold as money. In a few states, led by Utah and Virginia, progress has been made for Gold to satisfy debts, public & private. Consider the movement to be in parallel to the Tenth Amendment movements.
48.Anglo bankers have lost control in global banking politics. The phased out G-7 Meeting is evidence. China has wrested control of G-20 Meeting, and has dictated much of its agenda in the last few meetings. The US has been reduced to a diminutive Bernanke and Geithner being ignored in the corner.
49.New loud stirrings by Saudi Arabia seek a new security protector. If security is no longer provided by the USMilitary, then the entire defacto Petro-Dollar standard is put at risk. Remove the crude oil sales in USDollars exclusively, and the US sinks into the Third World with a USDollar currency that cannot stand on its own wretched wrecked fundamentals.
50.The IMF solution to use SDR basket as global reserve is a final desperate ploy. By fashioning a basket of major currencies in a basket, they attempt to enforce a price fixing regime. It is a hidden FOREX currency exchange rate price fixing gambit that will invite a Gold price advance in uniform manner across the currencies bound together. This ploy is being planned in order to prevent the USDollar from dying a horrible death at the expense of the other major currencies. By that is meant at the expense of the other major economies which would otherwise have to operate at very high exchange rates.
THE BIGGEST UPCOMING NEW FACTORS

Introduction of a New Nordic Euro currency is near its introduction. The implementation with a Gold component will send Southern European banks into the abyss, marred by default. The new currency has the support from Russia and China, even the Persian Gulf. In my view, it is a USDollar killer. The first nations to institute a new monetary system for banks and commerce will be the survivors. The rest will slide into the darkness of the Third World.

Gold & Silver seem to be the only assets rising in price, an extension of a terrific 2010 decade. The exceptions are farmland and the US Stock market. However, stock valuations are propped by constant and admitted USGovt support. Their efforts are mere attempts to keep pace with the USDollar decline, as stocks merely maintain a constant purchase power.

A hidden overarching hand seeks the global Gold Standard as the bonafide solution. Darwin is at work, but Adam Smith turns a new chapter. The crumbling monetary solution demands a solution. Further investment in the current system assures a devastating decline into the abyss of insolvency and ruin.

Soaring Gold and Silver Prices Amidst Inflationary Pressures

Neither government nor anyone is smarter than the markets. As they say the trend is your friend. All you have to do is get on for the ride. It’s really as simple as that. The trick is picking the trend. We were fortunate enough to pick gold and silver in June of 2000. We went long and stayed long all those years only occasionally making a trade. Every time there was a correction we recommended further purchases.

It has been unfortunate that the US government, other central banks, including the Federal Reserve, chose to attempt to manipulate those markets. They did retard the progress of these two metals and they are still doing so, but in the end they will fail, because the markets are far bigger than they are and the collective wisdom of investors will always triumph over the narrow desires of petty elitists.

There certainly are two sides to every market. On one side you have the vested interests, who generally do not really understand the functions of gold and silver historically, they’ll never understand and don’t really care to understand. This might be called the establishment viewpoint. In fact the entrenchment is so deep that people who believe in gold and silver are scorned and some brokerage houses won’t even allow trades in gold and silver shares, coins and bullion. We ran into this problem as long ago as the early 1960s. In fact it forced us to become a principal of a firm as long ago as 1968. The rise of gold and silver threatens the status quo. If you see the values of gold and silver you threaten the fiat system and how it fleeces the investors.

Then we have those who should know better who attempt to out guess the precious metals market and in that process prove to be consistently wrong costing their subscribers and others losses and as important lost opportunities. All to often it is the pursuit of fame and challenging a market that cannot be challenged. Usually unfortunate decisions are due to a lack of knowledge or a penchant to sensationalize in order to capitalize. This often leads to some pretty dumb decisions. Over the last $500 move in gold, and $30.00 move in silver we have seen 96% of letter writers, economists and analysts render wrong decisions. We do not find that surprising, because most of them have never been in the belly of the beast nor do they know history, particularly economic and financial history.

For many years we have faced the deliberate and gradual destruction of our economic and financial system by those who want to be mega-rich and to implement world government. The global monetary system is being deliberately imploded, particularly in the US, UK and Europe, the regions of great success over the past 1,000 years. Creating and forcing an edge does not work. Such opportunities come naturally if you are doing the right thing and understand the history and reasons why things are happening the way they are. There is a big picture, but you have to understand all the facets that make the picture complete. Those who wallow in mediocrity can and do cost investors lots of money and lost opportunities.

Gold and silver are intimately intertwined in our lives as a standard and store of value, but there are those who have told us over the centuries that fiat money is better. History has proven over and over that is not true. Such thinking has destroyed many civilizations.

As we write we are at the end of another week of record prices for gold and silver. Every day we think of what could have been already and will eventually be. Yes, we predicted these prices long ago, but we never envisioned the actions by central banks and particularly the US government to destroy gold and silver markets. We knew they’d be unsuccessful, but 20 years of figuring was such a terrible waste of human energy. In August of 1988 we wrote about market manipulation in “Bull & Bear” and everyone thought we were insane. We proved to be right and at that time we didn’t even know there was an Executive Order called, “The President’s Working Group on Financial Markets.” This instrument in the misuse of power has been used by Wall Street, banking and government to destroy our free markets and will continue to do so, as long as we allow it to enrich the financial interests that for so long have controlled our nation.

We are seeing and have been seeing for years a flight from currencies and particularly a flight from the US dollar into gold and silver. That will continue as long as currencies remain fiat. Secret meetings are being held at this very moment by elitists to give the world another bogus fiat currency, as a world reserve currency.

In reference to real money the silver trap JPMorgan Chase and HSBC have been trapped in is in all probably coming to a close. We see default somewhere between $48.00 and $60.00. The losses could be as high as $150 billion. No one knows how settlement will be carried out. There could be total default, partial default or the government could step in and supply the capital for a bailout. We do not know whether Congress or the people, will sit still for another bailout. Coming on the heels of other monetizing bailouts there could be real trouble over this monetization. JPM and HSBC could say they were just taking orders from the Fed and the Treasury and things went bad. They did this in the lawsuit a number of years ago brought by Blanchard where a secret deal was made to shut Blanchard up. It included not only JPM, but the Illuminist controlled Barrick Gold as well. If any of the three avenues of escape are used the result will be a devastating blow to the dollar.

There is no question that there is an acute silver shortage, so much so that rather than taking delivery of silver, that sellers such as JPM and HSBC don’t have, that bonuses from 25% to 80% are being offered. There is no question in our minds that the Fed has been behind all this and that is why there could be some kind of government bailout. You can see why Rep. Ron Paul and Senator Rand Paul want to audit and investigate the Fed. Is it any wonder the US dollar is falling and all currencies are rising versus the dollar, even the Mexican peso. Adding insult to injury the US created civil war in Libya and it is not going well. NATO forces are so inept that they are bombing the wrong troops. Then again we wouldn’t expect anything less then FUBAR. As a result the other Arab allies of the US, the petro dollar strongholds, are having second thoughts about the US and the dollar. They are buying gold, silver, commodities and of all things euros, in spite of Europe and the euro zones horrible financial condition. If the oil producing nations in the Middle East start using other currencies such as the euro for selling oil the dollar and the US will be in a world of hurt.

As silver breaks out to new highs gold does as well. Gold’s breakout is no surprise. The war over the last two years between gold and the dollar, as world reserve currency, has been won hands down by gold. Gold is now getting strength from the perception, that inflation is higher than official sources care to admit and that inflation is gaining upward momentum. The situation in the silver market and its unbelievable strength also has to be helping gold on the upside. Additional assistance is coming from the newsletter writers where the overwhelming majority has been telling readers to sell gold and silver or wait for a correction that never comes. From a contrarian viewpoint this is very bullish, because these nitwits are trying to sell subscriptions, have been wrong every year for five years. It is no wonder we are getting nasty reports of newsletters renewing subscriptions with a credit card on file when the subscriber does not want to renew. The subscribers do not have a phone number to call and when they email the box is always full. If any of you subscribers have experienced this let us know the details. If it persists we will start publishing the names of the fraudsters. Desperate people do desperate things.

Incidentally, if cover or default does not occur in silver there will be a quick explosion to $100.00. We will see just how insane these elitists really are. Such an event would quickly take gold to $2,400 to $3,000 an ounce. The physical market will lead the way and eventually the real market. Futures, options, derivatives and ETFs will become a non-factor due to corruption and probably stop trading unable to satisfy contracts. If that is allowed to happen gold and silver would fully assert themselves as the only real money, particularly gold. All currencies would visibly be compared to gold, as would inflation and finely people would have a real guideline of value. The faith and reliability of the Fed would be shunted to the background as Congress finally takes a hard look at what the Fed has been up to for so long. Major changes should be on the way, because finally it will be recognized that the Fed had created a systemic collapse of the monetary system that has affected the entire world. It will be recognized the Fed destroyed the financial system, but in that process supplied resources to keep insolvent institutions afloat, some of which just happened to own the Fed. Until those institutions are allowed to go bankrupt there can be no recovery. The system has to be purged. On the other hand for now the Fed has plans to continue quantitative easing and it still remains to be seen if Congress is serious about budgetary reductions. As long as the status quo remains in tack gold and silver will rise.

Gold and silver have again broken out to new higher ground. We believe these successes are being caused by a continued flight to quality that has been going on for 11 years. As we have said previously gold has proven over the past two years that it is the only international currency. Silver in shorter supply certainly in part is reflecting the JPM and HSBC positions. The new expediting factor for both metals is the specter of much higher inflation caused by QE1 and stimulus 1 for 2011, more added inflation from QE2 and stimulus 2 in 2012 and the recognition that QE3 is on the way. In 2013, that could take us to hyperinflation. We predicted these events almost a year ago. Those things considered we know from history that gold and silver are the best reflective items of inflation. We also know that since 1980 real inflation would put gold near to $8,000 an ounce. Both metals are now reflecting the eminent arrival of QE3. If Congress will not pass stimulus 3 then we believe the Fed will have to create at least another $2.5 billion in money and credit to keep ship America afloat. Don’t expect the label to be QE3; it will be called something else, but it still will purchase Treasuries, agencies, toxic waste, etc. to keep the system and major banks and Wall Street in business. It will make no attempt to assist the economy. The mantra will be save the government, Wall Street and banking – more of the same. They will stand in to fund rising budget deficits as interest rates slowly rise in the real market. That will be allowed to attract more foreign buyers. Something has to be done as government spends 8 times tax receipts. If you do not expect QE 3 then you don’t understand what is really going on. Yes, we know this is a scam and a Ponzi scheme, but many as yet do not understand it. Debt again is going to expand exponentially and in that process so will inflation. PIMCO and other foreign interests have already have already stopped buying Treasuries, which leaves the Fed as buyer of close to 85%. That is a terminal situation. In fact our prediction of a 10-year US note trading at a yield of 4-1/4% by the end of the year is very possible. We also predicted at the same time, two months ago, that by the end of 2012 it could be yielding 5-1/4% to 5-1/2%. Again that is very conservative. Japan has to be a seller of Treasuries. We do not know how much they sold over the past few weeks, but it was substantial and it will grow probably to $300 billion, against a bill of $500 billion to $1 trillion to fund earthquake damage. At the same time these circumstances will exert downward pressure on the dollar and upward pressure on inflation, gold and silver. These events will cause the Treasury and the Fed to loosen its tight control over bond, gold and silver markets, as free market action takes more control from them. We will find out later that the Fed has spent between $900 billion and $1.7 trillion on QE2, so get ready for it. As well, few believe that inflation is 2.10% when most believe it is 8% to 9-1/2%. As a result we do not expect an official elevation of interest rates anytime soon. We see a very rocky road ahead for the economy and higher gold and silver prices.

Libya: All About Oil, or All About Banking? If the Gaddafi government goes down, it will be interesting to watch whether the new central bank joins the BIS, whether the nationalized oil industry gets sold off to investors, and whether education and health care continue to be free.

Several writers have noted the odd fact that the Libyan rebels took time out from their rebellion in March to create their own central bank – this before they even had a government. Robert Wenzel wrote in the Economic Policy Journal:

I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising. This suggests we have a bit more than a rag tag bunch of rebels running around and that there are some pretty sophisticated influences.

Alex Newman wrote in the New American:

In a statement released last week, the rebels reported on the results of a meeting held on March 19. Among other things, the supposed rag-tag revolutionaries announced the “[d]esignation of the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and appointment of a Governor to the Central Bank of Libya, with a temporary headquarters in Benghazi.”

Newman quoted CNBC senior editor John Carney, who asked, “Is this the first time a revolutionary group has created a central bank while it is still in the midst of fighting the entrenched political power? It certainly seems to indicate how extraordinarily powerful central bankers have become in our era.”

Another anomaly involves the official justification for taking up arms against Libya. Supposedly it’s about human rights violations, but the evidence is contradictory. According to an article on the Fox News website on February 28:

As the United Nations works feverishly to condemn Libyan leader Muammar al-Qaddafi for cracking down on protesters, the body’s Human Rights Council is poised to adopt a report chock-full of praise for Libya’s human rights record.

The review commends Libya for improving educational opportunities, for making human rights a “priority” and for bettering its “constitutional” framework. Several countries, including Iran, Venezuela, North Korea, and Saudi Arabia but also Canada, give Libya positive marks for the legal protections afforded to its citizens — who are now revolting against the regime and facing bloody reprisal.

Whatever might be said of Gaddafi, the Libyan people seem to be thriving. A delegation of medical professionals from Russia, Ukraine and Belarus wrote in an appeal to Russian President Medvedev and Prime Minister Putin that after becoming acquainted with Libyan life, it was their view that in few nations did people live in such comfort:

[Libyans] are entitled to free treatment, and their hospitals provide the best in the world of medical equipment. Education in Libya is free, capable young people have the opportunity to study abroad at government expense. When marrying, young couples receive 60,000 Libyan dinars (about 50,000 U.S. dollars) of financial assistance. Non-interest state loans, and as practice shows, undated. Due to government subsidies the price of cars is much lower than in Europe, and they are affordable for every family. Gasoline and bread cost a penny, no taxes for those who are engaged in agriculture. The Libyan people are quiet and peaceful, are not inclined to drink, and are very religious.

They maintained that the international community had been misinformed about the struggle against the regime. “Tell us,” they said, “who would not like such a regime?”

Even if that is just propaganda, there is no denying at least one very popular achievement of the Libyan government: it brought water to the desert by building the largest and most expensive irrigation project in history, the $33 billion GMMR (Great Man-Made River) project. Even more than oil, water is crucial to life in Libya. The GMMR provides 70 percent of the population with water for drinking and irrigation, pumping it from Libya’s vast underground Nubian Sandstone Aquifer System in the south to populated coastal areas 4,000 kilometers to the north. The Libyan government has done at least some things right.

Another explanation for the assault on Libya is that it is “all about oil,” but that theory too is problematic. As noted in the National Journal, the country produces only about 2 percent of the world’s oil. Saudi Arabia alone has enough spare capacity to make up for any lost production if Libyan oil were to disappear from the market. And if it’s all about oil, why the rush to set up a new central bank?

Another provocative bit of data circulating on the Net is a 2007 “Democracy Now” interview of U.S. General Wesley Clark (Ret.). In it he says that about 10 days after September 11, 2001, he was told by a general that the decision had been made to go to war with Iraq. Clark was surprised and asked why. “I don’t know!” was the response. “I guess they don’t know what else to do!” Later, the same general said they planned to take out seven countries in five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.

What do these seven countries have in common? In the context of banking, one that sticks out is that none of them is listed among the 56 member banks of the Bank for International Settlements (BIS). That evidently puts them outside the long regulatory arm of the central bankers’ central bank in Switzerland.

The most renegade of the lot could be Libya and Iraq, the two that have actually been attacked. Kenneth Schortgen Jr., writing on Examiner.com, noted that “[s]ix months before the US moved into Iraq to take down Saddam Hussein, the oil nation had made the move to accept Euros instead of dollars for oil, and this became a threat to the global dominance of the dollar as the reserve currency, and its dominion as the petrodollar.”

According to a Russian article titled “Bombing of Lybia – Punishment for Ghaddafi for His Attempt to Refuse US Dollar,” Gadaffi made a similarly bold move: he initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Gadaffi suggested establishing a united African continent, with its 200 million people using this single currency. During the past year, the idea was approved by many Arab countries and most African countries. The only opponents were the Republic of South Africa and the head of the League of Arab States. The initiative was viewed negatively by the USA and the European Union, with French president Nicolas Sarkozy calling Libya a threat to the financial security of mankind; but Gaddafi was not swayed and continued his push for the creation of a united Africa.

And that brings us back to the puzzle of the Libyan central bank. In an article posted on the Market Oracle, Eric Encina observed:

One seldom mentioned fact by western politicians and media pundits: the Central Bank of Libya is 100% State Owned. . . . Currently, the Libyan government creates its own money, the Libyan Dinar, through the facilities of its own central bank. Few can argue that Libya is a sovereign nation with its own great resources, able to sustain its own economic destiny. One major problem for globalist banking cartels is that in order to do business with Libya, they must go through the Libyan Central Bank and its national currency, a place where they have absolutely zero dominion or power-broking ability. Hence, taking down the Central Bank of Libya (CBL) may not appear in the speeches of Obama, Cameron and Sarkozy but this is certainly at the top of the globalist agenda for absorbing Libya into its hive of compliant nations.

Libya not only has oil. According to the IMF, its central bank has nearly 144 tons of gold in its vaults. With that sort of asset base, who needs the BIS, the IMF and their rules?

Read Ellen Brown in The Global Economic Crisis

All of which prompts a closer look at the BIS rules and their effect on local economies. An article on the BIS website states that central banks in the Central Bank Governance Network are supposed to have as their single or primary objective “to preserve price stability.” They are to be kept independent from government to make sure that political considerations don’t interfere with this mandate. “Price stability” means maintaining a stable money supply, even if that means burdening the people with heavy foreign debts. Central banks are discouraged from increasing the money supply by printing money and using it for the benefit of the state, either directly or as loans.

In a 2002 article in Asia Times titled “The BIS vs National Banks,” Henry Liu maintained:

BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies. The BIS does to national banking systems what the IMF has done to national monetary regimes. National economies under financial globalization no longer serve national interests.

. . . FDI [foreign direct investment] denominated in foreign currencies, mostly dollars, has condemned many national economies into unbalanced development toward export, merely to make dollar-denominated interest payments to FDI, with little net benefit to the domestic economies.

He added, “Applying the State Theory of Money, any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation.” The “state theory of money” refers to money created by governments rather than private banks.

The presumption of the rule against borrowing from the government’s own central bank is that this will be inflationary, while borrowing existing money from foreign banks or the IMF will not. But all banks actually create the money they lend on their books, whether publicly-owned or privately-owned. Most new money today comes from bank loans. Borrowing it from the government’s own central bank has the advantage that the loan is effectively interest-free. Eliminating interest has been shown to reduce the cost of public projects by an average of 50%.

And that appears to be how the Libyan system works. According to Wikipedia, the functions of the Central Bank of Libya include “issuing and regulating banknotes and coins in Libya” and “managing and issuing all state loans.” Libya’s wholly state-owned bank can and does issue the national currency and lend it for state purposes.

That would explain where Libya gets the money to provide free education and medical care, and to issue each young couple $50,000 in interest-free state loans. It would also explain where the country found the $33 billion to build the Great Man-Made River project. Libyans are worried that NATO-led air strikes are coming perilously close to this pipeline, threatening another humanitarian disaster.

So is this new war all about oil or all about banking? Maybe both – and water as well. With energy, water, and ample credit to develop the infrastructure to access them, a nation can be free of the grip of foreign creditors. And that may be the real threat of Libya: it could show the world what is possible. Most countries don’t have oil, but new technologies are being developed that could make non-oil-producing nations energy-independent, particularly if infrastructure costs are halved by borrowing from the nation’s own publicly-owned bank. Energy independence would free governments from the web of the international bankers, and of the need to shift production from domestic to foreign markets to service the loans.

If the Gaddafi government goes down, it will be interesting to watch whether the new central bank joins the BIS, whether the nationalized oil industry gets sold off to investors, and whether education and health care continue to be free.

Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back.

“Libyan Rebels” Create Central Bank, Oil Company

As analysts debate possible motives behind President Obama’s United Nations-backed military intervention in Libya, one angle that has received attention in recent days is the rebels’ seemingly odd decision to establish a new central bank to replace dictator Muammar Gadhafi’s state-owned monetary authority — possibly the first time in history that revolutionaries have taken time out from an ongoing life-and-death battle to create such an institution, according to observers.

In a statement released last week, the rebels reported on the results of a meeting held on March 19. Among other things, the supposed rag-tag revolutionaries announced the “[d]esignation of the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and appointment of a Governor to the Central Bank of Libya, with a temporary headquarters in Benghazi.”

The Gadhafi regime’s central bank — unlike the U.S. Federal Reserve, which is owned by private shareholders — was among the few central banks in the world that was entirely state-owned. At the moment, it is unclear exactly who owns the rebel’s central bank or how it will be governed.

The so-called Interim Transitional National Council, the rebels’ self-appointed new government for Libya purporting to be the “sole legitimate representative of Libyan People,” also trumpeted the creation of a new “Libyan Oil Company” based in the rebel stronghold city of Benghazi. The North African nation, of course, has the continent’s largest proven oil reserves.

The U.S. government and the U.N. have both recently announced that the rebels would be free to sell oil under their control — if they do it without Gaddafi’s National Oil Corporation. And the first shipments are set to start next week, according to news reports citing a spokesman for the rebels.

But the creation of a new central bank, even more so than the new national oil regime, left analysts scratching their heads. “I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising,” noted Robert Wenzel in an analysis for the Economic Policy Journal. “This suggests we have a bit more than a rag tag bunch of rebels running around and that there are some pretty sophisticated influences.”

Wenzel also noted that the uprising looked like a “major oil and money play, with the true disaffected rebels being used as puppets and cover” while the transfer of control over money and oil supplies takes place. And other analysts agreed.

A popular blog called The Economic Collapse used sarcasm to express suspicions about the strange rebel announcement. “Perhaps when this conflict is over those rebels can become time management consultants. They sure do get a lot done,” joked the piece, entitled “Wow That Was Fast! Libyan Rebels Have Already Established A New Central Bank Of Libya.”

The blog also commented, sarcastically again, on the possibility of outside involvement. “What a skilled bunch of rebels — they can fight a war during the day and draw up a new central bank and a new national oil company at night without any outside help whatsoever. If only the rest of us were so versatile! … Apparently someone felt that it was very important to get pesky matters such as control of the banks and control of the money supply out of the way even before a new government is formed,” read the piece.

Even mainstream news outlets were puzzled. “Is this the first time a revolutionary group has created a central bank while it is still in the midst of fighting the entrenched political power?” wondered CNBC senior editor John Carney. “It certainly seems to indicate how extraordinarily powerful central bankers have become in our era.”

But some observers are convinced that the central bank issue was actually the primary motivation for the international war against Libya‘s dictatorship. In an article that has spread far and wide across the web, entitled “Globalists Target 100% State Owned Central Bank of Libya,” author Eric Encina maintains that the world’s “globalist financiers and market manipulators” could not stand the Libyan monetary authority’s independence, explaining:

Currently, the Libyan government creates its own money, the Libyan Dinar, through the facilities of its own central bank. One major problem for globalist banking cartels is that in order to do business with Libya, they must go through the Libyan Central Bank and its national currency, a place where they have absolutely zero dominion or power-broking ability. Hence, taking down the Central Bank of Libya (CBL) may not appear in the speeches of Obama, Cameron and Sarkozy but this is certainly at the top of the globalist agenda for absorbing Libya into its hive of compliant nations.

And when Gadhafi is gone and the dust has settled, according to Encina, “you will see the Allied reformers move in to reform Libya’s monetary system, pumping it full of worthless dollars, priming it for a series of chaotic inflationary cycles.” The future of Libya’s vast gold stockpiles could also be in jeopardy, he noted.

Numerous other analysts and experts have also pointed to the central banking issue as one of the top factors leading up to the Western backing of Libyan rebels. Monetary historian Andrew Gause, for example, recently shared his concerns about the matter publicly.

Other points made in the rebels’ odd announcement last week included preparations to send Gadhafi to the U.N.’s International Criminal Court for trial, the selection of diplomats to send abroad, and the desire for other governments to recognize the Transitional National Council as the legitimate new rulers of Libya. France has already done so, and other governments may soon follow suit.

Of course, the U.S. government claims to have very little knowledge about who the rebels actually are. But the U.S. Commander of NATO forces recently admitted to the Senate that hints of al Qaeda involvement have been detected among the rebels. The terror group was created, armed, funded, and trained by the U.S. government decades ago, as Secretary of State Hillary Clinton admitted even recently. But since then, it has targeted American embassies and other U.S. targets.

As The New American reported over the weekend, elements of al Qaeda and affiliated terror groups are indeed among the leadership of the revolution. But despite that fact, the U.S. government and the international coalition are providing air support and weapons for the new central-bank-creating rebels. Where the conflict goes from here is uncertain, but Western regimes have vowed not to let Gaddafi remain in power.

The West Versus China: A New Cold War Begins on Libyan Soil

 

The question as to why US-led NATO forces are determined to engineer a regime change in Libya is now becoming clear. While media pundits and political experts still argue over whether the Libyan rebel gangs are actually being backed and directed by US, UK and Israel intelligence agencies, broader long-range Western policy objectives for Libya are being completely ignored.

One only has to read the strategic briefings in U.S. AFRICOM documents to realise the true endgame in Libya: the control of valuable resources and the eviction of China from North Africa.

When the US formed AFRICOM in 2007, some 49 countries signed on to the US military charter for Africa but one country refused: Libya. Such a treacherous act by Libya’s leader Moummar Qaddafi would only sow the seeds for a future conflict down the road in 2011.

NATO: Reduced to a mere private security force for western corporate interests.

According to former Reagan cabinet official Dr Paul Craig Roberts, the situation with Qaddafi is much different than the other recent protests in the Arab world. “Why is NATO there?” has become to real question, says Roberts, who fears that risky involvement stemming from American influence could lead to catastrophic breaking point in Libya.

CHINESE INTERESTS IN LIBYA

According to Bejing’s Ministry of Commerce, China’s current contracts in Libya number no less than 50 large projects involving contracts in excess of 18 billion USD. What is even more revealing here is that due to the recent instability in the North African region, China’s investments have taken a serious hit. The recent political turmoil in the region has caused China’s foreign contracted projects  to drop with new contracts amounting to $ 3,470,000,000, down 53.2%. Among them, the amount of new contracts in Libya, down by 45.3%, 13.9% less turnover; to Algeria, the amount of the contract fell 97.1%, turnover decreased by 10.7% – all within the first 2 months of this year.

 WHY WE ARE IN LIBYA: a revealing interview with Dr Paul Craig Roberts.

 

In addition to the numerous Chinese investments in Libya, the North African nation has also recently completed one of the most expensive and advance water works projects in world history- Libya’s Great Man Made River.  This 30 year venture finished only last year, gives Libya the potential for an agricultural and economic boom that would certainly mean trouble for competing agri-markets in neighbouring Israel and Egypt. It could also transform Libya into the emerging “bread basket” of Africa.

With global food prices on the rise, and Libya possessing a stable currency and cheap domestic energy supply, it doesn’t take an economic genius to see what role Libya could play in the global market place.

                 
VALUABLE ASSET: Libya’s Great Man Made River.

AFRICOM: CHILD OF PNAC

Founded under US President George Bush Jr, AFRICOM is a subset of the larger neo-conservative Project for a New American Century (PNAC). Central to AFRICOM’s strategic goals is to confront the increasing Chinese influence on the continent. One AFRICOM study suggests that China will eventually dispatch troops to Africa to defend its interests there:

“Now China has achieved a stage of economic development which requires endless supplies of African raw materials and has started to develop the capacity to exercise influence in most corners of the globe. The extrapolation of history predicts that distrust and uncertainty will inevitably lead the People’s Liberation Army (PLA) to Africa in staggering numbers…”

So we have a vocalised fear on the part of US military planners, of a military confrontation with China… in Africa. Today it’s Libya, but tomorrow, it will be in Sudan. Does this sound a little familiar?  Well, it should…

THE NEW COLD WAR WITH CHINA

What the Chinese economic data (above) does show clearly is that the strategic policy objectives outlined in Washington’s AFRICOM documents, particularly those ones designed to confront and minimise China’s economic interest in Africa- are working very well as a result of instability in the region.  ’Destabilisation’ as a tool of control has always worked for colonial powers. Engineered chaos can then be managed by a strong military presence in the region.

In effect, what we are witnessing here is the dawn of a New Cold War between the US-EURO powers and China. This new cold war will feature many of the same elements of the long and protracted US-USSR face-off we saw in the second half of the 20th century. It will take place off shore, in places like Africa, South America, Central Asia and through old flashpoints like Korea and the Middle East.

 

AFRICOM: Outlining America’s new military playground.

What makes this new cold war much deeper and more subtle than the previous one, is that it will not be cloaked in a popular ideology like ‘Capitalism vs Communism’.

This new war centres around one single issue- natural resources. The capture and control of the world’s remaining resources and energy supplies will be the theme which will govern- and literally fuel, all major conflicts in the 21st century. It will be fought through numerous proxies, and on far-flung pitches across the globe but it will never be spoken of by the White House Press Secretary or the Foreign Office in Downing Street.

   Early reports out of Libya confirm that “Rebels” are being backed and directed by Western intelligence agencies.

INSURGENTS NOT PROTESTORS

The great PR spin trick in the run-up to NATO’s carpet bombing run in Libya was the West’s ability to characterise Libya’s violent armed gangs as mere protestors. The average American, British or French media consumer equated the Libyan uprising with those previously in Tunisia and Egypt. The reality of course was that they were anything but.

However, the bells of freedom and democracy had indeed rung, so all that was really needed at that point was a clever WMD-like diplomatic trick to dazzle the rows of intellectually challenged diplomats at the UN in New York City. The ‘No Fly Zone’ was repackaged and worked well enough for politicians to get their foot in the door to their respective War Rooms.

It seems to have worked so far but with NATO civilian body bags already beginning to pile up, the next phase- ground troops and a NATO military occupation of Libya, will be somewhat more complicated to execute without sustaining heavy political fallout. All of these complexed efforts are used to shroud western corporate and military long-term agendas in the region, all part and parcel of these new Resource Wars with China.

HISTORICAL AMNESIA 

Few will argue that the average western observer and mainstream media consumer suffers from chronic historical amnesia. For Americans in particular, relevant history only extends as far back as the previous season of Dancing With the Stars, or American Idol.  Some might argue that this is by design, that on whole the masses have been conditioned to be passive actors in the new media-rich modern democracy because it makes managing the herds much easier.

The lessons of Afghanistan and Iraq have yet to return home for the US and Great Britain- both projects are still going concerns for the massive cartel of western corporations. This has allowed ambitious bureaucrats in Washington, London and Paris to try their hand again in Libya. In time however, Americans and Europeans will come to learn what every citizen and subject already learned many times over throughout world history. In theory it may work, but in practice, “Occupation” is a paradox. The US-UK may draw plans in private to occupy an Iraq or a Libya indefinitely but history doesn’t jibe with these imperial ambitions.

It will end one day, and end badly because the Neo-Roman Anglo-American Empire with all its legions abroad, cannot manage its fragile domestic affairs back at home. First comes the fall of the Senate, then the rise of the Caesar, and finally the collapse of the Denarius($) at home. The once great empire goes out with a whimper- too fat and too bankrupt to carry on.

Back in the day, the citizens of Rome cared little about the details of military largess and conquest abroad. There only interest was that the glory of Rome was upheld and for bread and circuses at home. As the Great Resource Wars of the 21st century continue to rage on unabated, one question comes to mind: what will mindful citizens in the aggressor countries do to change this present course of history?

Judging by the ease at which the West managed to pull of their latest heist in Libya, I would say… very little right now.

Rising Interest Rates Could Jolt Stock Markets

Jon D. Markman writes: Stocks traded with all the precision of a baseball skipping into the Boston Red Sox outfield over the past week, which is to say it was pretty sloppy. The major equity averages settled near the flat line, but it was a mess getting there after the European Central Bank raised rates for the first time since mid-2008, there was a 7.1 magnitude aftershock in Japan, and Texas Instruments Incorporated (NYSE: TXN) bought a rival chip maker at incredible premium.

By far the most important economic news of the past week was the European Central Bank’s decision to raise interest rates for the first time in two years. The central bank is run by a Frenchman, Jean-Claude Trichet, but it has aspirations to be considered in the same league as the old Bundesbank, which ran monetary policy in a brilliant, sober fashion for Germany in that country’s postwar heyday.

One of the primary aims of the Bundesbank was to avoid the sort of runaway hyperinflation that ravaged the Weimar Republic in the 1920s and ultimately led to the emergence of the Third Reich. It’s the aim of every central bank to prevent the debasement of the currency, of course, but Europeans tend to take this a lot more seriously than Americans.

The Bank of England and U.S. Federal Reserve both decided this week not to raise rates as their leaders say that “core inflation” — which does not include energy or food prices — is not a problem. They hand-wave energy and food prices because they believe that pops like NYMEX crude oil at $110 and corn prices at $7.50 a bushel are transitory, and that real inflation pressure comes primarily from higher wages and home prices, both of which are indeed quiet.

Yet the ECB is signaling that inflation may indeed be stirring, and that the Fed, the BOE and the Bank of Japan may soon need to shift their stance.

History tells us periods of rising rates are not really a problem for economic growth, as they indicate an economy strong enough to thrive without monetary crutches. But history also tells us that equity markets tend to freak out anyway when the central banks start raising rates.

Two of the most serious bear markets and crashes of the past 30 years were in fact kicked off by the start of rate-rising regimes. The most vivid came in the summer of 1987, when brand-new Fed chief Alan Greenspan pulled the switch that led to the Black Monday crash in October of that year.

Now before you start worrying, you need to know the initial adjustment periods may be a jolt to the system, but they seldom change the major trend of the market. And there really is no hard-and-fast rule about how equities will perform at such periods. Some rate-rising starts have led to nothing more than a sharp slam on the brakes before a long upswing, while others have led to nothing more than rather dull multi-month soft spots, such as the first ten months of 2004.

The bottom line: The most fearful thing about the transition from quantitative easing to rate raising will be the fear of the transition. Growth may slow a bit, but should pick up again. As long as the credit markets remain open, which I expect, then there could be a broad-market flat spot or slip, but at the same time some groups — such as energy, health care and precious metals — should outperform, allowing nimble investors to keep their portfolios on track.

The StrataGem model we run at Strategic Advantage excels at times like these, helping us focus on the stronger sectors and avoid the rest. In 2004, a year when the Dow Industrials were up only 3.1% — and that was entirely due to a 7% gain in November and December — StrataGem was up 44%.

Latin American mobile phone giant America Movil SAB de CV (NYSE: AMX) was a typical holding of the model back then, and is back in our model this month. It rose over 200% in 2004-2005 while the S&P 500 was virtually flat, and I would expect a reprise of that kind of action should another transitional, rate-change market emerge.

Stock Scarcity
The Standard & Poor’s 500 Index finished the week with a slim loss of 0.3%, but that followed a gain in the prior two weeks of 4.2.%. Most sectors fell in value, with consumer staples leading and industrials lagging.

Another big story of the week was a crash of the dollar and the rise of commodities, as gold jumped 4.8%, silver rose 8.5%, and crude oil rose 5%. The buck hit a new three-year low against a basket of currencies.

Retailers were the only major corporate story of the week, as several major chains announced stronger-than-expected, same-store sales figures for March. The biggest was Bed Bath & Beyond Inc. (Nasdaq: BBBY),which pulled back the sheets to reveal a 10.5% gain. Super-discounter Costco Wholesale Corporation (Nasdaq: COST) announced some of the better numbers, and shot up 3.7% to a new all-time high.

Market internals show that the indexes are rising more due to a lack of sellers than any intensity on the part of buyers. This is how an oversold condition can persist for much longer than bears believe likely. People just don’t want to feed their shares into the market because they are increasingly optimistic about the future.

Another factor: All the mergers of large companies lately are taking supply out of the marketplace. Something like $95 billion in big merger deals have been announced in just the past two weeks. That means the shares of several large companies will no longer be available, so people who owned them are being forced to buy something else.

It may be hard to believe we could have an equity scarcity factor, but it’s the truth. As an example, if you were a large pension fund and owned both Texas Instruments and National Semiconductor Corporation (NYSE: NSM), what happens after they merge? Do you overweight TXN? No, you don’t. Your investment consultant says you can only have a maximum of, say, 1% of your money in a single stock. So you have to go out and buy some other chip manufacturer, feeding the rally.

Even more interesting, from the standpoint of risk, is that the markets that were embraced for their low risk three weeks ago are now the laggards! Funny, huh?

That would be, for instance, sober-sided iShares MSCI Switzerland Index Fund (ETF) (NYSE: EWL), whose market has not yet exceeded its February high, while risk-besotted iShares MSCI Spain Index (ETF) (NYSE: EWP) is cruising.

The message of the moment, as interpreted by Mr. Market: Take risks.

Utilities Power Up

My model has been high on utilities since August of last year, but went heavily into them at the start of April. That’s proven a smart move. This week’s big hero for us has been Calpine Corporation (NYSE: CPN), unique among its peers for its entrepreneurial approach to wholesale power generation and management.

This approach made the Silicon Valley-based, new-age power producer a darling of investors during the tech bubble, though it subsequently crashed and went bankrupt like many of its neighbors. It came public again at the start of the bear market — awful timing — and crashed again, sinking to $4.50 at the March 2009 low from a high of $23 in mid-2008.

Once credit markets recovered, however, the lights came back on at Calpine and shares took off, almost tripling in two months. The stock consolidated for the next two years until breaking out again in January, when it started to go on another tear. Shares were up 3% on 3 million shares traded on Thursday in an otherwise weak market.

CPN was a key reason the StrataGem portfolio knocked out a “mirror” day, when it goes up the same amount that the broad market goes down — in this case, +0.3% vs. -0.3%. We have not had enough of these in 2011, but keep the faith and you should start to see more of them. They tend to occur most frequently when the portfolio is overweight in a single sector — such as utilities or energy — that is in favor in an otherwise soft or negative month.

What’s unique about CPN is that it owns 92 natural gas-fired and geothermal power plants in 20 states — no coal, no nuclear — and sells the steam, electricity and renewable energy credits to companies and cities on a contract basis. Its profitability is not limited by county or state regulators, and it is a prime beneficiary of the incredibly low and declining price of natural gas.

The bottom line, though, is that investors are showing they want this stock on every dip, as it has been amply supported at its 13-, 30- and 50-day averages over the past four months. Note that in weeks like mid-March, when other stocks were stressed, it toe-tapped the 50 DMA but ended in the middle of its range. And when risk appetites were whetted again later that month, it plowed back into a leadership role.

I’m anxious to see how Calpine turns out in this cycle because it embodies many characteristics that can make a stock successful. It was formerly bankrupt, which means it naturally has a lot of skeptics and disbelievers. And it bombed again in the 2008 bear market, which means even people who gave it a second chance had reason to hate it again.

But now it has cleared a multiyear resistance point, which means CPN has cleared out a lot of selling pressure. It has shown recently it can exhibit relative strength both in weak periods (mid-March) and stronger periods (late March to early April).

Combine that with management that is incentivized by owning a lot of shares, the potential for rising margins due to the declining cost of its primary input, leverage to the improvement of U.S. industry, and a time frame in which it is moving from losses toward positive earnings, and you have the makings of a stock that could have a lot of success this year. Calpine announces earnings April 29. You can buy CPN on dips toward the 30-day average (now $15.50) if you don’t own already.

Buy gold, buy silver, have faith.

Silver, the Canary in the Gold Mine

By Darryl Robert Schoon       Apr 12 2011 9:42AM www.drschoon.com

Silver, the Canary in the Gold Mine was my talk at a Gold Standard Institute symposium in Canberra, Australia in November 2008. The topic could well describe today’s gold and silver markets.

Today, both silver and gold are achieving record highs but silver’s accelerating price indicates silver may indeed be the canary in the gold mine, the leading indicator for gold’s long-awaited explosive move upwards, a move the Fed and major bullion banks have colluded since the 1980s to prevent.

WHEN ELEPHANTS FLY, IT WILL BE TOO LATE TO BUY

In 1979, the price of silver accelerated along with the price of gold. Silver had spent 1977 and 1978 hovering between $4 and $5 but in 1979 silver began to move upwards—as did gold.

In late January, silver moved to $5.94. Six months later, silver tripled, trading in the $16-$18 range before beginning a meteoric ascent in December, doubling from $17 to $34 , rising 33% on the first trading day in 1980 and peaking January 21st in intraday trading at over $50 per ounce, almost a 1,000 % rise in a year.

Silver (black): gold (red)

http://news.silverseek.com/SilverSeek/1174871399.php

On January 21st, gold also peaked at $850. The simultaneous top of both gold and silver is all the more metaphysically coincidental because the factors driving the two metals were far different, i.e. the gold price was being driven by inflation while the Hunt Bros.’ squeeze attempting to corner the silver market was responsible for the spectacular ascent of silver.

Now, three decades later, a similar scenario is about to unfold, albeit with a different ending. The current decade will not only repeat what happened in the 1970s but it will bring to its inevitable end that which was set in motion in 1971.

The end of paper money is now in sight.

1970s REDUX
History does not repeat itself, but it does rhyme.
                                 Mark Twain

On August 15, 1971 President Nixon announced that the US would no longer convert US dollars to gold. For the first time in history, money was no longer gold or silver or convertible to either. On that day, because of Nixon’s actions all money everywhere became but government issued coupons with unknown expiration dates.

The reason behind Nixon’s extraordinary action was that US gold reserves had been virtually emptied by US overseas military spending. The massive outflow of US dollars needed to maintain America’s global military presence had far outweighed any corresponding inflow from America’s significant positive balance of trade.

By 1971, it was clear the US owed more far gold than it possessed. The closing of the gold window by Nixon constituted the largest monetary default in history. Now, thirty years later, the final consequences of that default are unfolding.

After 1971, governments everywhere borrowed, printed and spent even more money as gold no longer was a constraint on the global money supply. Additionally, gold was no longer exchanged in order to rectify global trade imbalances.

It was Milton Friedman—the monetary poster boy of the right—who advised Nixon to cut all ties between the dollar and gold. Friedman, like Keynes—the monetary poster boy of the left—was a strong believer in fiat money and Friedman advised Nixon that floating exchange rates would balance global trade flows. Friedman was wrong.

The 1971 cutting of ties between money and gold instead led to increasingly unbalanced trade flows, rapid increases in government debt, and by the late 1970s, increasingly high rates of inflation.

In January 1978, US inflation measured 6.84 %. In January 1979, it was 9.28 % and by January 1980 inflation had risen to 13.91 %. Gold, the traditional refuge from monetary inflation, rose accordingly. In 1978, the average gold price was $193.40. In 1979, it was $306; and in January 1980, gold spiked to $850 with inflation peaking two months later at 14.76 % in March.

In August 1979, President Jimmy Carter appointed Paul Volker to head the Fed hoping to control inflation. Volker’s aggressive rate increases brought down both inflation and the price of gold (note: Volker was also responsible for the demonetization of gold in 1971).

Today, aggressive rate increases to prevent high inflation are almost impossible. As inflation moves higher—and irrespective of distorted US figures, it is already doing so—higher Fed rates would end the Fed’s liquidity-driven recovery and cause payments on the now astronomical US debt to rise to unsustainable levels.

Expect, then, that gold will move far higher before the Fed is finally forced, if ever, to raise rates. This long-delayed reaction will cause gold to move even higher as a slowing US economy would more than offset any potential rise in the US dollar until the US dollar crashed; and, in such an event, gold would be the only safe haven left standing.

The reason why gold is not rising as rapidly as silver as in the 1970s is because since the 1980s the Fed has focused on keeping the price of gold low à la Gibson’s paradox; and, as a consequence, instead of rising equally with silver, gold is lagging and silver is leading.

Silver, however, is clearly the canary in the gold mine and as the below chart shows, silver has now broken out.

http://jessescrossroadscafe.blogspot.com/

Such a breakout of silver indicates gold could soon follow. This time gold’s explosive rise would again be fueled by rising inflation and an unexpected variant of the Hunt Bros. silver squeeze in the 1970s.

Inflation is already here. Excessive central bank liquidity and loose monetary policies since 2008/2009 have unleashed global inflationary pressures that cannot easily be controlled.

Just as inflation drove gold to a high in 1980, it will do so again today, three decades after Nixon literally pulled the gold out from under the world’s monetary foundation. Inflation is now about to finish what Nixon started, the end of fiat money is in sight.

Increasingly consumed by inflation, today’s paper currencies will worthlessly inflate ad infinitum and disappear like cotton candy into monetary oblivion like all fiat currencies. This time is no different. Gold and silver will again soar and, as in the 1970s, a short squeeze will again be a factor.

Unlike the 1970s, however, it will not be silver that is squeezed. This time it will be the bullion banks who have colluded with central banks to keep prices of gold and silver low; for as silver and gold rise, at a certain point the bullion banks will be forced to cover their enormous short positions (see below) driving gold and silver higher.

CAPITALISM’S COMING CAULDRON
THE PARADIGM SHIFTS

The collapse of paper money will make the 2008 collapse of financial markets seem like the prelude it is. Capitalism, i.e. economies based on the substitution of debt-based capital for gold, is possible only when capital, i.e. paper money issued by a central bank, is itself tied to the precious metal. In 1971, that changed.

It was the removal of gold from capitalism’s monetary foundation that sent capitalism’s endgame into motion. Thirty years later, it is reaching its destined end. What will also end is the vast inequities the system encouraged and abetted.

Nobel winner Joseph Stiglitz recently observed that the top 1 % in the US now receives 25 % of America’s income and controls 40 % of its wealth. This is to be expected as capitalism rewards those closest to the spigots of credit, i.e. bankers, and those who employ them.

All others are but temporary winners as over time the house cannot be beat—at least not until the house burns down. However, the fire has been lit—the house itself did it in 1971—and the banker’s house of cards has been burning ever since. Paper burns, gold and silver don’t.

Last week, I received an email from an 8th grade middle-school student. His school project was to interview an expert on his chosen subject, the 2008 financial collapse. He discovered that most experts had not foreseen the collapse. As I had, he approached me for some answers.

On my TV show, http://www.youtube.com/user/SchoonWorks#p/a/u/0/S2vUXrmt1tU, I provided some insights about the collapse and our present circumstances. The student was sincere and intelligent and his generation will be among those who will have to deal with the coming economic rendering. They will also be among those who will help rebuild this country.

On February 8th, the title of my blog was “Severe Earth Changes Coming”. On February 19th, a 6.3 earthquake struck New Zealand. On March 11th, a massive 9.0 earthquake devastated Japan and was followed by a 7.4 quake on April 8th. These are only the beginning. More changes are on the way.

Humanity is in the midst of a momentous paradigm shift. Governments will fall, natural disasters will increase and the present world will pass away, paving the way for the better world that is to come.

Buy gold, buy silver, have faith.

Bokmärk / Dela

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Who Would Sell Gold or Silver Now?

The following is an excerpt from the March Issue of The Dollar Vigilante (TDV).

Mainstream media, the majority of the public and value investors all believe that the precious metals are in a bubble. But that is because they do not understand the foundations underpinning a move into hard assets.

In this regard there are two camps:

The camp who believes that we live in a grand new world where governments can centrally plan economies better than the free market itself and where acceptance of government-sponsored, unbacked fiat paper monies is just a normal, unquestioned part of life.
The camp who sees central banks as being artificial and dangerous and who are quite surprised that this era of unbacked fiat currencies has lasted this long (nearly 40 years since the “Nixon Shock” on August 15, 1971)
Those in Camp #1 will never buy precious metals until it is already too late and the fiat currencies have all collapsed.

Those in Camp #2 will never sell their precious metals until they see an indication that the unpayable debts and deficits of the majority of western nations have reached a resolution – either by default (bankruptcy of the nations) or by hyperinflation (bankruptcy of the currency).

Which brings about an interesting state of affairs. Unlike any and every other bubble in the history of mankind, the holders of precious metals will not sell their holdings for fiat currency, at any price.

They may sell their precious metals to buy another asset which they deem as being undervalued in terms of gold or silver – which may mean they sell their precious metals, briefly, for fiat currency but then quickly sell that fiat currency in favor of another asset.

But for those who own precious metals for safety and/or profit against the assured demise of the global financial system there is no price at which they would sell their precious metals in favor of fiat currency.

Of course if someone offered you $10,000 per ounce today for your gold you would be crazy not to accept it. However, most holders of gold would sell at $10,000 and then immediately sell the fiat currency and repurchase the gold at the current market price near $1,400 to buy even more gold.

However, the great majority of people who hold precious metals as a hedge against the destruction of the US dollar reserve based financial system will never sell their precious metals, at market price, until they see a resolution of the debts of the western nations.

GOLD/SILVER SHORTAGES

This amazing scenario is playing out as we speak.

Reports have been coming in from all corners of the world over the last few months stating shortages in physical gold and silver bullion.

The operating capacity of domestic gold refineries in India have reached very low levels due to scarcity of scrap. Currently domestic gold refineries are operating between 25-30% of their installed capacity as against 35-40% around the same time last year. According to Ajay Mitra of the India and Middle East office of the World Gold Council, “Used gold sales have declined steadily in the last one year as consumers are holding jewellery in anticipation of higher prices.”

They aren’t so much anticipating “higher prices” of gold & silver as they are anticipating “lower prices” in their fiat currency. Until there is any indication that the ongoing, systematic destruction of fiat currencies worldwide will cease then there is no reason for anyone to sell their precious metals in favor of holding the fiat currencies.

Canada’s biggest bullion bank, ScotiaMocatta “sold out” of all its silver coins and bars in January. They have apparently sourced some new supply of silver coins but as of the time of writing they still show 100 oz. Silver Bars as being “sold out”.

Eric Sprott, one of the smartest men in the precious metals business stated that he expects gold to hit $2,150 and silver to hit $50 this year citing extreme shortages and great challenges to secure 15 million ounces of silver for his fund. He stated that “no supply exists in volume except from the margin of immediate producer output”.

MOVE INTO BULLION AND PRODUCERS THIS YEAR

Up until this year it has been relatively safe to “play” in things such as gold/silver ETFs, futures and other “paper” assets. TDV believes that 2011 will be the last year in which it is still relatively easy to find and purchase gold/silver bullion and that those who have not yet begun to do so consider making this move immediately.

TDV issued a Special Report to subscribers entitled “How to Own Gold” on November 8, 2010 which includes more specific details on how and why to move into bullion products.

As well, as Eric Sprott pointed out above, one of the only liquid sources of gold and silver bullion now and in the future may be actual producers. The TDV Portfolio available to subscribers contains numerous large, mid and small cap producers. These equities may rise exponentially if it becomes clearer to the public that they are one of the only sources of accessible bullion available on the market.

Remember to diversify geographically to reduce political risk. We attempt to include miners from different parts of the world as part of this strategy. To date we have miners in Papua New Guinea, Ghana, Canada, Brazil, Nicaragua and more included in the TDV Portfolio.

U.S. general sees no military outcome in Libya

AJDABIYAH, Libya (Reuters) – Libyan rebels said five of their fighters were killed when NATO planes mistakenly bombed a rebel tank column and a top U.S. general said they were unlikely to be able to oust Muammar Gaddafi by force.

With daily skirmishes near the contested port of Brega in eastern Libya making little impact on the front line and rebels unable to end a brutal government assault on the western city of Misrata, NATO admits its mission to protect civilians is tough.

In rebel-held eastern Libya, wounded rebels being brought to a hospital Ajdabiyah said their trucks and tanks were hit on Thursday by a NATO air strike outside Brega, where fighting has dragged on for a week.

It was the second time in less than a week that rebels had blamed NATO for bombing their comrades by mistake after 13 were killed in an air strike not far from the same spot on Saturday.

At the same time, the rebels have accused NATO of being too slow to order air strikes they have come to depend on in their uprising to end more than four decades of Gaddafi rule.

NATO said it was investigating an attack by its aircraft on a tank column in the area along the Mediterranean coast on Thursday, saying the situation was “unclear and fluid.”

Asked if a stalemate was emerging in the seven-week-old conflict, the head of U.S. Africa Command General Carter Ham said: “I would agree with that at present, on the ground.”

He told a Senate hearing in Washington the United States should not arm the rebels without a better idea of who they were and when asked how the war would end, said: “I think it does not end militarily.”

There was little likelihood that rebels would be able to fight their way to Tripoli and oust Gaddafi by force, Ham said.

Medical workers carried blood-soaked uniforms from hospital rooms in Ajdabiyah, gateway to the insurgent stronghold of Benghazi in the east, after wounded fighters were ferried back from Brega.

“It was a NATO air strike on us. We were near our vehicles near Brega,” wounded fighter Younes Jumaa said from a stretcher at the hospital.

Nurse Mohamed Ali said at least five rebels were dead.

“NATO are liars. They are siding with Gaddafi,” Salem Mislat, one of the rebels, said.

A rebel commander said it appeared to be a case of “friendly fire” and said it did not cause tension with NATO although the rebels wanted an explanation.

Rebels had brought about 20 tanks out of storage and were advancing with them along the coastal desert strip that divides Ajdabiyah and Brega when they were hit, he said.

“We would assume it was NATO by mistake, friendly fire,” Abdel Fattah Younes told a news conference in Benghazi, speaking through an English translator.

AIR STRIKES CAUSE STALEMATE

Rebel spokesmen told Reuters Gaddafi forces killed five people and wounded 25 in an artillery bombardment of the isolated and besieged western city of Misrata on Wednesday.

The barrage forced the temporary closure of Misrata’s port, a vital lifeline for supplies to besieged civilians, the spokesmen said, reporting fighting on a key road to the port as government forces tried to advance.

Libya’s third city rose up with other towns against Gaddafi in mid-February and has been under siege for weeks after a violent crackdown put an end to most protests elsewhere in the west of the country.

A rebel spokesman told Reuters people in Misrata were crammed five families to a house in the few safe districts, to escape weeks of sniper and artillery fire.

U.N. Secretary-General Ban Ki-moon expressed concern about deteriorating conditions for civilians in Misrata and Zintan in the west, and Brega in the east.

He said the situation in Misrata was particularly grave with the city under heavy bombardment and shortages of food, water and medical supplies.

Turkish Prime Minister Tayyip Erdogan said Turkey was working on a “road map” to end the war in Libya which would include a ceasefire and the withdrawal of Gaddafi’s forces from some cities. Turkey has held talks with envoys from Gaddafi’s government and representatives of the opposition. A rebel spokesman said later the rebels rejected talks with Gaddafi and demanded he leave power.

OIL PRODUCTION CUT

The civil war has cut Libyan oil output by 80 percent, a senior government official said on Thursday, as rebels and Gaddafi’s forces traded exchanged accusations over who had attacked oil fields vital to both sides.

Supply worries stemming from the attacks helped drive U.S. and Brent crude futures to their highest in 2 1/2 years on Friday.

Rebels say government attacks on three different installations in the east have halted production of the oil they desperately need to finance the uprising against Gaddafi.

The government accused Britain of damaging an oil pipeline in a strike against the Sarir oilfield which killed three guards. NATO denied the alliance carried out any air strikes in the area and said forces loyal to Gaddafi were responsible.

Shokri Ghanem, chairman of the government National Oil Corporation, told Reuters Libya’s production had fallen to 250,000 to 300,000 barrels per day compared with 1.6 million before the uprising.

Oil traders said a cargo of crude, worth around $112 million was headed for China after setting sail from the rebel-held port of Marsa el-Hariga near Tobruk on Wednesday.

The trial deal was likely to clear the way for Europe to resume badly-needed purchases of Libyan oil but traders said it could be a long time before exports reach substantial levels.