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2013 The Final Act

Friday, December 28th, 2012
http://theinternationalforecaster.com

By Bob Rinear

If you have been with us for any length of time you know that I’ve been claiming that 2013 will probably usher in some pretty ugly world markets. I’ve called it everything from a massive roll over to an outright crash. Naturally I have to have some "reason" to believe this, and I figure that today is as good as any to discuss the "why’s" of it all.

Frankly I have no idea if the big crash will occur in 2013, 2014 ,2015 or what have you. No one truly knows the future. But, I do know that enough things are already in process that the big crash is a mathematical inevitability. We have gone over the edge, we can’t walk it back. Now it’s simply a matter of waiting on the Grand Finale.

So what is it that is so egregious, that we’re going to be facing this economic implosion? The simple fact that you’re reading our letter means you already understand the unsustainable debt loads we’re under. You’re smarter than the average person because frankly most people hear the word debt and shrug it off as some form of abstract concept. Well it is neither abstract nor ignorable. It is real, it has grown to outlandish proportions, and it cannot be repaid. Ever. The single greatest transfer of wealth the planet has ever seen is in full swing, it cannot be reversed and it will play out.

Some are simply too stupid to "get it". Yeah, I know that I’m not supposed to call someone stupid, but let’s just cut the air of PC for a while shall we? There are three subsets of folks when you are talking about the economic situation we all find ourselves in. The first class is either ignorant of the situation, or if they are aware of it, are just not smart enough to understand the ramifications. The next set knows full well what is really going on and have tried to secure themselves from the ravages of it. The final set, are those that "benefit immediately" from this situation, and don’t give a rats ass about the consequences in the future. Most of our politicians fall into that category.

Let us consider Europe for a moment. The situation concerning Spain, Greece, Italy, Portugal and the other Club Med Countries is already terminal. There’s no way to fix it. The relatively "good" economies such as Germany are being taxed to support the bad economies. As we speak there are more than 6 regions that want to "break away" from this nightmare. The Scots are holding a referendum to vote on the concept of breaking away from the UK and going their separate way. The cries to "stop the madness" will continue to rise and there’s a very good possibility that Spain, Greece and possibly others will NOT be part of the Euro by the end of 2013. The great Socialist test tube experiment of joining 17 different "tribes" each with its own unique customs and languages, has indeed failed. Unfortunately, when it does dissolve, that will not be the end of the nightmare. See…the debts will still be there.

Spain has basically defaulted. Greece has defaulted. Yet to keep Goldman Sachs and JP Morgan from having to pay up on Credit default swaps, the ISDA has changed the language. They’re calling it "collective and selective default" thus not requiring GS to have to pay up. Likewise they looked at Greece and said that because their bonds would have Salvage asset value, it’s not a default. Excuse me? When you create a Credit default swap, the deal goes like this… You want to buy Greek Bonds paying 7%, but you’re afraid they might default and not pay you. So, you go to GS and buy a credit default swap. GS is basically selling you an insurance Policy. For a 1% "fee" they basically say that if Greece defaults, we’ll make you whole. But you also have to agree to give GS the physical bonds. That’s the "swap" part of the deal. GS gets the bonds because in any default there is some "salvage" value. Well, Spain and Greece have both defaulted and all the ISDA did was "fix it" so no one had to pay CDS payouts. How criminal does it get? Very.

So, part one of my theory of a pretty big market shake up is that the possibility of "Some – all" of the Euro zone to fly apart in 2013 is very real. Now, the ISDA (International Swaps and Derivatives Association, Inc.) has been able to keep their buddies at GS and JPM happy by not activating Credit default pay outs. But can they pull that off when the Euro dissolves? How many hundreds of billions are written against these bonds? If just "half" of them are forced to pay out, can GS and JPM find that much money? Does that spur another round of US bail outs because they’re "too big to fail?"  What I’m basically saying is that just because Europe is "way over there" and according to Jim Cramer "you don’t shop at Europe"…. their problems are rooted right here in the good ole US. Pension plans, Insurance companies and many other every day businesses have ties to Euro zone debt. Remember this in particular…if global activity causes the US interest rates to rise by just 3%, economic Armageddon would ensue. Yes you read that right. A 3% rise in interest rates implodes our entire system. Could the failure of Europe have that effect? It is possible.

Here in the US, we see something that can only be likened to as "get all you can while we’re still solvent". The instance of outright fraud, the complete breakdown of moral justice is now in high gear. John Corzine took a billion dollars from Customers, money that was NEVER intended to be comingled with the firms’ money and lost it/stole it. He walks a free man, heck… he might even open another fund. Solindra was NEVER going to produce a single green product. Never. It was a shell company backed/owned by political "friends" that were given half a billion dollars and in less than a year, padlocked down. It was a scam, a complete "inside job". No charges, no one goes to jail. All in all, 26 supposedly "green" companies took taxpayer money, and folded like a cheap camera. Why did they need taxpayer money in the first place? Because they were scams. They could never attract private money because no one would lend to them. But hey, if you have a brother in law in Congress… then you get millions to play with and eventually steal.

PFG went belly up after regulators there found that just like MF GLobal (Corzine’s outfit) they had mingled about 200 million worth of customer funds and lost it/blew it/stole it. Well it wasn’t lost. It wasn’t badly traded away. It was stolen in a Bernie Madoff like ponzi fashion.

Sentinel comes to mind next. After their customers sued in high court because Sentinel took customer money that by CONTRACT and by CHARTER had to be segregated. Kept separate…not mingled with the companies money for investment…Sentinel did just that. They comingled customer funds with their own, stole some, lost some, etc… But here’s where the Concept of morality, justice and any believe in a rule of law goes right down the crapper… the Court sided with Sentinel. That’s right and I wrote a lot about it when it happened. Our justice system is now made up of on the take criminals, not upholders of law and justice. They said that even though Sentinel promised not to co mingle customer funds with their own, doing it because they thought it would make the customers even more money was just a good intention gone wrong, nothing more. Are you kidding me?

So we have outright looting of the Treasury going on, and no one goes to jail. We have financial companies stealing customer funds and its swept under the rug. We have a judicial system that is now a farce, a bought and paid for circus. Shall I go on? You bet. Because our problems are no longer just "there’s too much debt". Now our problems are considerably more wide spread.

Day after day we’ve had to endure all this talk about the fiscal cliff, and the bickering between the White House and the Congress. Please understand this… Cliff or no cliff, deal or no deal… the system will fail and fail horribly. Do NOT think that just because they reach some late hour deal that all is well and we can go on partying like it’s 1999… it would be a colossal mistake. Yes we’d get a short term market boost on the news, but it doesn’t fix or change anything. I repeat, our problems can NOT be fixed. ( Okay I take that back, yes our problems could be fixed if our Government did absolutely everything right…from opening all our lands to drilling and exploration, to getting rid of the insane laws of the EPA, to getting rid of the miles of red tape that stands in the way of opening something as insignificant as a lemonade stand, to opening 12 new refineries so we could have 2 dollar gas, to blah blah blah….as you see, it isn’t going to happen)

This week, on Dec 11 and 12 the FOMC met concerning monetary policy. Remember folks, operation twist ends at the end of the year. If they had just let that expire, we would go from 80 billion a month being used to buy up treasuries and manipulate the interest rates… to "just" 40 billion. Well, just like a junkie needs ever more junk, credit markets need ever more bogus dollars. So, they announced they’d buy up 45 billion a month of Government paper, with money printed out of thin air.  Just ponder that for a second. The 45 billion a month in QE4, which will go on top of the 40 billion a month in QE3.. we’re talking about 85 billion a month which is $1.02 trillion a year. This is about a 14-15 trillion dollar economy and the FED is injecting one trillion straight into it…out of thin "AIR". 7% of our 14 trillion dollar economy is Bernanke’s printing press. Can you say inflation? Can you say hyper inflation? Start practicing, its coming.

Consider something for a moment. Since Bernanke launched his ZIRP plan (Zero interest rate policy) We have seen an explosion in the amount of  businesses that are using repo’s and reverse repo’s to create cash flow. In years gone by, a brokerage firm for instance, would deposit its customers account money in 90 day T bills. For instance in January of 2007, those notes were paying 5.1%. Most folks don’t know this, but the bulk of most brokerage income was NOT generated by trading commissions. Nope, it was by buying reasonably safe 90 day Government paper. When Bernanke took rates to virtually zero, all these places had to scramble to come up with some way to replace that missing cash. Well, as you all know, you don’t get big returns without big risk. So, what most of these outfits have turned to is the repo/reverse repo market. Don’t just think it was Corzine, or PFG or Sentinel. It’s just aboutevery bank, every brokerage, every insurance company, every union pension plan, etc. There are now so many derivatives and CDS’s, that the exposure rates are mind boggling. You’ve seen me post the charts. JPM has "assets" of say 1.5 trillion. (customer deposits) but their exposure to derivatives is 48 Trillion. The leverage factor is insane. This goes for Citi and Goldman and Banc of America, etc etc etc. Consider for a moment Goldman Sachs. If you look at “assets on deposit” versus derivative exposure, they’re at a leverage rate of over 400 times.  Am I to believe the world just continues along on its merry path and none of these over the counter derivatives go bump in the night?? Sorry, no can do.

What I’m saying is this… all of this junk is coming to a head. They can’t hide it any more, they can’t disguise it any more. One really big black swan event, one really crazy event and the cascade goes exponential. The problem however is that you cannot react to it. Consider this.. 77% of all trades now are "Algo’s" meaning computers buying and selling to each other via high frequency trading. Virtually every one of those programs is written to go "no bid" in the event of a Black swan event. What do you do if one day something wicked has happened (lets just say an atomic bomb goes off)… in seconds the entire market would go no bid. You want to sell your shares/options/futures etc… but there’s no bid. No one to buy them. What happens to all the CDS’s, the Reverse repo’s that are sitting on "off balance sheet" ledgers when something outside "normal" hits?  The entire system will lock up, and fail.

We are there. We are 3 interest rate percent from a lockup. We are one black swan event from a lockup. We are one Eurozone disaster from a lock up. We are already AT the period where firms are sweeping customer accounts, to make up for bad bets, and many more will happen. Will all this happen in 2013? I don’t know. But I do know that each and every day we march another inch closer to that swan, to that interest rate spike, to that "outside the bell curve" disaster. To the day YOUR money is no longer at your brokerage, it was stolen/lost. But unlike years gone by where you could call a human and find answers and solutions, now it’s all computers. Algo’s. Programs. My guess is that the market will start to sniff out these very real possibilities this coming year and begin fading off in advance of it.

So, what do you do? First off there’s nothing perfect. I can’t sit here and tell you that gold will make everything fine. I can’t tell you silver will make everything fine. I can’t say land, or cattle or trees or anything else will get you through this unscathed. But I feel fairly confident that you will be MUCH better off having your money in something physical, than in slips of paper with dead Presidents on them. I personally believe that having your "wealth" in gold, silver, property, weapons, ammo, trees, livestock, etc..is considerably better than having a computer entry at your bank. Think about it folks. Your supposed wealth is nothing more than computer digits. The MONEY is not there. Your bank does NOT have your money. Your mutual fund doesn’t have your money. They’ve taken that money and bought swaps, repo’s, sovereign debt, you name it. All you have in your possession is a statement that "says" you have "X" amount of money. But you really don’t and neither do they. To me that’s a very scary thing. One I don’t like being part of in this bizarro economic atmosphere.

2013 has the ability to be very unsettled for all the reasons I just outlined. It might not all unfold in 2013, it could be 2014…but the point is this…it’s coming. It cannot be stopped. As ugly as those words are, they are a mathematical certainty. Just like I learned after living through Sandy, being prepared is key. Get yourself prepared.

Hands exchanging money

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What 40 Years Of Gold Confiscation By The US Government Looks Like

Wednesday, August 22nd, 2012

Zero Hedge

The chart below, which is a time series showing the total "Gold Held by the US Treasury and the Federal Reserve" (which for all intents and purposes are interchangeable), demonstrates vividly the moment when the US government enacted Executive Order 6102, aka the "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States" order which criminalized the possession of monetary gold "by any individual, partnership, association or corporation." But not the government of course. Spot the moment after which gold confiscation by the US government (also known as USD devaluation) from its citizens was legalized.

The actual April 5, 1933 order, which in the coming years will make a repeat appearance with absolute certainty, is below.

What was the point of Executive Order 6102? It was two fold.

  • First, in order to make the confiscation legitimate, the US government required the delivery of all gold coin, bullion, and certificates to be concluded by May 1, 1933 in exchange for $20.67/ounce. Several months later, the new, official gold exchange price (which however was merely the government’s bid as nobody could actually buy gold at this price) became $35.00, which remained until 1971 when the last trace of the dollar’s pseudo convertibility into gold was wiped out by Nixon. In effect, what FDR did was to devalue the USD by 70% overnight.
  • Second, not only did the government remove the incentive for ordinary citizens to hold gold by establishing price and criminal controls over possession, it also changed the rules in the middle of the game allowing it to build up a massive gold hoard of over 8000 tons today which is maintained at Fort Knox, and is, to the best of our knowledge, unauditable by any mere mortal. Critically, it made the US government the sole source and monopoly agent of gold purchases, using reserve fiat currency it could print with impunity, beginning in 1933 and continuing through 1974 when the limitation on gold ownership was repealed after President Gerald Ford signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in Pub.L. 93-373, which went into effect December 31, 1974. In summary, the US government, which is now the largest official holder of physical gold in the world, had 40 years of uncontested zero cost gold accumulation in which it could build a gold inventory that was second to none.

As for the process the government had in place to deal with those who refused to voluntarily hand over their gold quietly, curiously there was only one case of prosecution, which however should make it very clear that holding gold in "authorized" bank safes is about the dumbest thing one can do the next time the US government decides to devalue the dollar, and change the rules.

The circumstances of the case were that a New York attorney, Frederick Barber Campbell, had on deposit at Chase National over 5,000 troy ounces (160 kg) of gold. When Campbell attempted to withdraw the gold Chase refused and Campbell sued Chase. A federal prosecutor then indicted Campbell on the following day (September 27, 1933) for failing to surrender his gold. Ultimately, the prosecution of Campbell failed, but the authority of the federal government to seize gold was upheld, and Campbell’s gold was confiscated.

The fact that the custodial bank of the 5000 ounces of gold is the bank that would subsequently become JPMorgan is not lost on us.

Finally, to those who have some gold ETF certificates in a brokerage account, which by law are the possession by DTCC’s Cede & Co. – a bank owned institution – we wish the best of luck to anyone hoping to preserve of even recover any of the invested wealth in such instruments.

And remember: when in doubt, recall Bernanke’s immortal words: "gold is not money."

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Top Investor Warns of “Financial Armageddon” as Soros Dumps Bank Stocks, Buys Gold

Tuesday, August 21st, 2012

The New American

Written by  Alex Newman

In what analysts say is another indication that the economy will get worse in the not-too-distant future, recent filings by billionaire financier George Soros show he dumped virtually all his holdings in major financial companies like JP Morgan, Goldman Sachs, and Citigroup. His multi-billion-dollar U.S. fund also loaded up on gold, with the portfolio now holding more than $130 million worth of the precious metal.

Data compiled by analysts based on Soros’ most recent 13F filing with the Securities and Exchange Commission (SEC) showed that during the last quarter, his American fund sold more than a million shares of the big financial companies with a value of almost $50 million. During that period, Soros Fund Management also more than doubled its position in the SPDR Gold Trust to nearly 900,000 shares.  

“When a major global player with direct ties to the White House, Wall Street, and the banking system starts off-loading stocks and starts stacking gold, it suggests a very serious market move is set to happen,” observed commentator Mac Slavo, a generally pessimistic analyst who follows financial news closely and has long predicted unprecedented economic chaos.

Despite his far-left political agenda, Soros has a solid track record of making wise financial moves. Americans should pay attention. “Soros is getting out of those companies which are most at risk should the financial system buckle like it did in 2008 and he’s shifting his assets into what may be the only asset class left standing when it’s all said and done,” Slavo concluded.
Major banks have already started drawing up plans for a potential financial calamity, news reports in recent weeks revealed. But Soros was hardly the only heavyweight investor whose recent actions foreshadow potential economic trouble to come.

Another billionaire investment legend, John Paulson, who successfully predicted the sub-prime meltdown and made a fortune in the process, also added a significant amount of gold to his already-gold heavy hedge fund portfolio — an increase of more than 25 percent in the last quarter worth some $700 million, regulatory filings show. Paulson’s largest holdings are in the SPDR Gold Trust, and Bloomberg reported that almost half of his U.S.-traded equities are now tied to bullion.  

Central banks around the world, meanwhile, have been on a gold buying spree in recent years that looks set to accelerate, according to analysts. The World Gold Council recently reported that central bank purchases hit a new record since they began gobbling up huge quantities of the precious metal several years ago.

If current trends continue, it will be “new territory” in terms of monetary authorities’ bullion buying that has not been seen since the 1970s. Consider that in just the first half of 2012, central banks acquired more than 250 tons of gold — about 25 percent above the same period last year. Experts expect that to continue.

There are also unconfirmed reports from metals traders and analysts that the communist dictatorship ruling over China plans to buy thousands of tons of gold, perhaps as early as this year. The regime already holds over $1 trillion in U.S. dollars and American debt, and experts say it may be seeking to diversify before a potential dollar collapse wipes out much of the value of its massive foreign reserve holdings.

In a recent interview on CNBC, billionaire investor Jim Rogers — another star — offered some context as to what may be coming.Warning Americans to prepare for “financial Armageddon,” he said the coming economic catastrophe will likely hit sometime after the upcoming U.S. elections. That is because German Chancellor Angela Merkel and President Obama, he explained, will both be facing voters soon and would prefer to maintain the appearance of normalcy — at least until then.

"The Americans and the Germans — they want to do everything they can to hold the world up until after the next election," Rogers explained during the interview, adding that the world is "drowning in too much debt" and that the solution was obviously not the creation of even more debt. After the elections, considering the wild money printing by central banks and the out-of-control government spending, "it’s going to be bad,” Rogers added.

While Rogers may sound pessimistic, a team of respected economic experts cited in news reports and a new documentary believe the looming economic calamity may hit even before the next election. According to the heavyweight analysts, they discovered a "frightening pattern" that points to an imminent meltdown of the global economy that would be unprecedented in all of history. More than a few governments are taking them seriously, too.

"What this pattern represents is a dangerous countdown clock that’s quickly approaching zero," explained Chief Investment Strategist for Money Map Press Keith Fitz-Gerald, a member of the team with a long track record of astoundingly accurate market predictions. "The resulting chaos is going to crush Americans." 

Economic trends forecaster Chris Martenson, another team member with an impressive CV, agreed with Fitz-Gerald, saying the looming dangers — largely caused by government — could potentially be catastrophic. "We found an identical pattern in our debt, total credit market, and money supply that guarantees they’re going to fail,” he was quoted as saying by Money Morning. “This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses.”

“Governments around the globe are chiefly responsible," Martenson added.
Even more alarming, perhaps, is that the “frightening” trends are not contained just within the financial system. If and when it goes down, the world’s ability to feed itself may go down simultaneously. "What’s really disturbing about these findings is that the pattern isn’t limited to our economy,” Martenson explained. “We found the same catastrophic pattern in our energy, food, and water systems as well… Food, water, energy, money. Everything."

Other economic analysts on the team offered similar gloomy forecasts. They warned Americans to prepare for a potentially devastating and even life-threatening collapse of all of the systems humanity depends on for its existence. Despite the increasing urgency of the warnings that have been issued for years, however, polls show few people are prepared to deal with such a major catastrophe.

At least the feds seem to be preparing. Also troubling and likely related to the brewing economic storm, according to analysts, are the federal government’s recent purchases of mass quantities of hollow-point ammunition and riot gear. More pessimistic commentators believe the U.S. government is preparing for an imminent, sudden collapse of the economy that would be unprecedented in human history.

Experts say that with the threat of continued ever greater “quantitative easing” — debt-currency printing — by the U.S. Federal Reserve and the European Central Bank (ECB), paper currencies could be demolished first. Other than the increasing gold purchases, analysts have pointed out as evidence that top insiders like banking magnate Lord Rothschild are preparing for such a scenario by betting hundreds of millions of dollars against the euro.

Warnings of a monetary implosion have been around for years — even decades — but recent developments may signal that the breaking point is approaching faster than ever. Governments and big banks, including most recently the government of Finland, have already begun preparing for a potential euro collapse. Analysts say the dollar has only held up so well thus far because the single European currency appears even more unstable.

Billionaire Soros, of course, has issued similar warnings of doom in recent years. As The New American reported earlier this year, the far-left financier has also been sounding the alarm bells about a potential economic collapse of the West — along with the government crackdowns that would inevitably follow in the wake of such an implosion. For the American people, experts from across the political spectrum say, the time to prepare is right this instant.

George-Soros-FED-gold

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About those high gasoline prices… look again

Wednesday, February 29th, 2012

Date: February 29, 2012
Reporting From: Santiago, Chile

In Warren Buffett’s latest round of gold-bashing last weekend, he described all the gold in the world as a useless cube that would fit snugly within a baseball infield.

If you owned such a cube, you would only be able to ‘fondle’ it… but generate no investment return.  The same ‘value’, meanwhile, would allow the owner to purchase all the productive farmland in the United States plus 16 Exxon Mobils, in total yielding over $800 billion annually.

Granted, Buffett’s views on gold are perhaps stymied by his poor experience investing in silver some 15-years ago. But still, he fails to see some obvious fallacies in his logic.

Most assets left unmanaged will fail to produce an investment return. The virtuous farmland that Buffett extols in his hypothetical example does not magically spawn corn, nurture it, harvest it, sell it, and deposit the proceeds into its owners’ pockets. Our farmland here in Chile certainly does not.

No, it takes a lot of work, a lot of experienced people, a lot of know-how, and a little bit of luck. All of this has to be managed.

Even the baseball field that Buffett references (when trying to give his investors an idea of the scale of all the gold in the world) is an asset. Simply left sitting there, a baseball field will soon be overtaken by erosion, weeds, and the dilapidation that comes with neglect.

Maintained and well-managed, however, a savvy owner of a baseball field can lease it out to the local little league. Or pull a Kevin Costner and turn it into a tourist attraction. None of this happens without appropriately managing the asset.

Even Exxon Mobil, with all of its royalties and intellectual property, requires tens of thousands of employees to manage the company’s assets, collect the profits, and ensure shareholders get paid.

Likewise, a huge cube of gold left alone in a baseball infield will fail to produce any investment return. When managed, however, gold is like any other asset– it can be leased, traded, loaned out, used as collateral, etc.
More importantly, though, the reason that many gold investors purchase the metal to begin with is because physical gold carries no counterparty risk.

Unlike paper currencies which are issued at will by corrupt central banks, or even Exxon Mobil, whose success depends heavily on the management team’s goodwill and diligence, a one ounce gold coin in your pocket will still be a one ounce gold coin tomorrow. This is the entire premise behind money as a store of value.

As my friend Tim Price told me over drinks in London several months ago, fiat currency is simply an abstraction of the concept of money; paper money conjured out of thin air cannot be real money, it’s merely an idea based on confidence and collusion.

Curiously, only a tiny percentage of worldwide money supply is actually physical paper– most ‘money’ is in digital form, simply entries in a computer… a few bits of code which constitute your net worth. In this way, our currency is actually an abstraction of an abstraction of the concept of money.

To this I would add that the entire financial system is underpinned by a complex network of hypothecated debt and derivative instruments whose notional total exceeds (by many multiples) the entirety of world GDP. In this manner, we are talking about abstractions of abstractions of abstractions.
Gold is real. It exists. And it scarcity dictates that it is a reasonable store of value, particularly in a world of abstract money.

There’s a lot of talk right now, for example, about rising oil prices which have created uncomfortably high gasoline prices. In gold terms, however, gasoline prices are in a deflationary spiral. The chart below shows unleaded gasoline prices in grams of gold since January 1976: 
20120301-36year-gas-v-gold
and for the last five years: 
20120301-5year-gas-v-gold
Priced in grams of gold, gasoline is near an all-time low. [In fact, there's a great site run by my friend Charles V. that shows this trend with a variety of commodities and retail goods.] 

Buffett (and others) argue strongly that investors should be in stocks… that a company like Coca Cola or productive farmland is a better long-term investment than a useless hunk of metal.  

He’s probably right. Except that the useless hunk of metal isn’t really an investment. It’s an anti-currency… appropriate for those who want to sit out of the market and be in cash without having to be in cash.

Until Tomorrow,

sig.jpg

Simon Black

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Return to Gold Standard? Why Price Would Hit $10,000

Sunday, October 16th, 2011

CNBC

The major countries in the world are in a race to debase their currencies in order to restart their economies. Either economic growth returns or—as some doomsayers predict—the 40-year run of fiat currencies ends.

And if under this worst case scenario the solution was to return to the gold standard of the Nixon years, the price of bullion would be worth $10,000-plus, six-times the current price, according to Paul Brodsky, co-managing member of QB Asset Management company and a self-professed ‘Gold Bug.’

To be sure, a return to the exact terms of the Bretton Woods Monetary Agreement is a near political impossibility because of the traumatic devaluation in the U.S. dollar it would cause. Yet, a move away from debt-based currencies to a system somewhat based on hard assets is not out of the picture if the global economy doesn’t recover or policy makers don’t allow for a painful deleveraging, some investors say.

“Policy makers are holding a burning match,” Brodsky said in a speech to a packed crowd at The Big Picture conference Tuesday in New York. “Baseless currencies follow the tyranny of short-term politics and so shall this."

The country’s monetary base (currency in circulation plus bank reserves held at the Fed) has tripled to $2.68 trillion, following the completion of QE2. Dividing this monetary base by the approximate 261.5 million ounces gold the U.S. Treasury is believed to own gets Brodsky to the $10,000 an ounce figure.

While “politics are likely to intervene” to stop gold from skyrocketing to this destabilizing price, that doesn’t mean bullion can’t keep surging from current levels as the devaluations continue, said Brodsky.

The money manager’s comments were par for the course at The Big Picture conference, named after the popular blog run by Barry Ritholtz.

The conference featured panels on high frequency trading, the impact of social networks and other contrarian topics one would never hear at a gathering held by a mainstream retail brokerage. Here, attendees were more likely to exchange twitter handles than business cards.

So no wonder that Brodsky’s gold prediction was among the most-talked about on the sidelines of this conference at the New York Athletic Club.

“Economic policy makers across the political spectrum have successfully maintained the debt-based monetary system since 1971,” said the money manager. “To do this they have had to marginalize the one competing currency capable of displacing it: gold.”

gold bars

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Swiss franc drops 8% on peg move with ‘strongest language used’

Friday, September 9th, 2011

Read the original article here: http://www.thecomingdepression.net/countries/europe/swiss-franc-drops-8-on-peg-move-with-strongest-language-used/#ixzz1XTjUY7eo

 

The SNB said it would buy other currencies in unlimited quantities and use all means within its power to hold to the target. This ambitious manifesto was perceived by some analysts as some of the strongest language used by a central bank in modern times.

The move immediately knocked around 8 percent off the value of the franc. The currency has soared by a third since the collapse of Lehman Brothers in 2008 as investors used it as a safe haven from the euro zone’s debt crisis and stock market turmoil.

The central bank, holding its quarterly monetary policy review on September 15th, also adds that even at rate of 1.20 to the euro, the franc was still high and should continue to weaken over time. Source: (1) Xinhua News

The Swiss are not pegging (indeed it is a near peg), but putting a floor, just to ensure the franc does not become too strong against its chief trading partner’s currency. So they are only selling francs, not buying, as the article suggests.

In any case, they are just doing what every other Western country is doing, just being more transparent about it. Bernanke printed over $600 billion in QE2, the ECB has been buying billions of euros of bonds which is the same difference.

Let’s be frank, we have been in the middle of a currency war for a long time: the US is purposely debasing their currency to make their exports more attractive and the Chinese continue to peg the remnibi to whatever the USD trades at. Tariffs make it obvious to everybody that protectionism is underway; a currency war keeps the serfs out of the loop. The only thing the serfs are left wondering about is why the cost of everything they import keeps going up. Indeed, The Swiss Franc is just like any other fiat paper currency and the Swiss know it. At the current over valuations they can buy unlimited foreign currency because they can print unlimited swiss francs. They are part of the international fiat money pyramid scheme and everyone investing/ed in Swiss Francs is calling the international bluff.

Fixed stable currencies, something you can rely on, something businesses AND governments can build their future their country around is the smart/fair way of managing economies. All this currency manipulation, up 30% one month, down 30% a few months later, is just currency manipulation to cheat in business economics.

Gold standard needed

Who uses gold as an alternative? Judging from its price, just about everyone. The monetary problems started when we all went off the gold standard. The gold standard was a means of keeping bankers and money managers honest. With the abandonment of the gold standard, it was deuces wild, and anything goes. A return to some form of gold standard means a return to some sort of sanity. These paper bailouts must end, because they are made on the backs of honest taxpayers.

The whole purpose of the gold standard is to impose restrictions on the money printers at central banks who can’t control themselves otherwise. Canada’s whole 2% CPI inflation target is a tax on everything we own, not just this year’s wages.

To object to the gold standard backing of currency is like objecting to an element of the metric system like the meter or the kilogram or any other “unit of measure”. An ounce of gold is a unit of measure based on weight to which currencies should be fixed for the purpose of HOLDING VALUE as a necessary characteristic and function of money.

Gold is money and currency is a money substitute useful for easing day to day exchanges that must be backed by a scarce resource like gold or silver to hold value.

As Henry Makow notes, “central banks like the Federal Reserve pretend to be government institutions. They are not. They are privately owned by perhaps 300 families. It is significant that the majority of these families are Jewish, how significant I am not yet sure. If they were Lutherans or Zulus, certainly our objections would be the same. ” We see he is right on the mark because once central banks were established in countries around the world, they made the push to take their currencies off the gold standard. Source: (2) Henry Makow

The Swiss central bankers cannot print their way out of trouble. They are taking enormous risks in pursuing this policy. Today, nobody can rule out that the European Monetary Union will disintegrate and the Euro will be yesterday’s fiat currency although there are very powerful forces at work to prevent this from happening.

Switzerland will find out the hard way like Iceland that it let it’s arrogant and parasitic banking establishment become too big relative to it’s economy.

The German people control the destiny of Europe and the German power elites (along with the elites in other countries) are overruling the wishes of the people and are actively going against their best interests like bankrolling the unproductive Southern Europe (Greece, Italy, Spain etc.). This usually does not end very well for anybody in Europe if history is any guide but especially for the power elites.

The Swiss now trying to shield themselves from the irresponsible countries who now trying to cheat by currency manipulation. Pegging must continue with more countries continuing to peg. Then, only then, the Global markets will survive and each country will be responsible for how they done “business” over the past 20 or 30 years.

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The Battle For Libya Is Almost Over… As Is The Battle For Its 144 Tons Of Gold

Monday, August 22nd, 2011

Zero Hedge

Following a 6 month stalemate in which neither side had attained any advantage, it suddenly took just a few days for the Libyan rebel forces to steamroll unopposed into Tripoli. While we are confident that the political aftermath of this outcome will be very much comparable to what is happening in Egypt right now, many wonder why it is that the Libyan situation has progressed with such speed. Perhaps the answer can be found in the 143.8 tons of gold held by the Libyan Central Bank. Granted it is nowhere near close the 366 tons of gold that Venezuela supposedly has per the WGC, most of it likely held offshore and not being repatriated, the question of where the global gold cartel may find some of the much needed physical to satisfy Chavez’ demands has been now answered. Of course we assume that said gold has not already departed Libya in direction Caracas over the past 6 months. Which, in retrospect, we probably should, as it would explain why gold is now at $1875 and rapidly rising.

and gold:

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Apmex Starts Reverse Inquiry: Seeks To Buy “Any Quantity” Of Silver From Clients At $3 Over Spot

Wednesday, April 27th, 2011

ZERO HEDGE

Over the past hour Zero Hedge has been inundated with reader comments notifying us that Ampex has, validating theearlier post speculating about a possible silver shortage at the metals distributor, launched a “reverse ïnquiry” in which it will pay “you $3.00 over the current spot price of Silver for your Silver American Eagles. ANY year, ANY quantity!” and “We will pay you $38.00 over the current spot price of Gold for your Gold American Eagles. ANY year, ANY quantity!” So aside from this first public confirmation that one of the biggest wholesale retailers of precious metals is now inventoryless [sic], we can certainly see why Asia has decided to take silver down in the afterhours electronic session.

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Why Investers Are Buying Silver As If There Is No Tomorrow

Monday, April 25th, 2011

The American Dream

The price of silver has been absolutely exploding lately.  It has reached heights not seen since the Hunt Brothers attempted to corner the silver market over three decades ago.  But this time there are no Hunt Brothers to blame for the stunning rise in the price of silver.  So exactly why are investors buying silver as if there is no tomorrow right now?  Well, the truth is that there are a lot of reasons.  Investors have been flocking to precious metals such as gold and silver as the value of paper currencies has declined.  The euro is incredibly weak right now and the U.S. dollar appears to be on the verge of a major collapse.  In fact, the entire financial system is highly unstable right now.  In such an environment, investors seek some place safe to park their money, and right now gold and silver are seen as safe harbors.  But gold and silver have not been going up in price at the same pace.  So why is silver outperforming gold so significantly?

The price of silver has increased by more than 150% over the past 12 months.  But the price of gold has only gone up about 30%.

If you invested $100 in the S&P 500 ten years ago it would be worth about $107.48 today.

If you invested $100 in gold ten years ago it would be worth about $569 today.

If you invested $100 in silver ten years ago it would be worth about $1037 today.

Clearly something is going on with silver.

Many people are convinced that this is part of a correction that is long overdue.  Geologists tell us that there is approximately 17.5 times as much silver in the crust of the earth as there is gold.  But today the price of an ounce of gold is about 30 times higher than the price of an ounce of silver.

That would seem to indicate that the price of silver still has a lot of room to grow relative to the price of gold.

In addition, silver is a key industrial commodity and it is constantly being used up.  Today, silver is used in a vast array of products and medicines.  The following is an excerpt from an official U.S. government report that describes just some of the ways silver is used in society today….

Silver’s traditional use categories include coins and medals, industrial applications, jewelry and silverware, and photography. The physical properties of silver include ductility, electrical conductivity, malleability, and reflectivity. The demand for silver in industrial applications continues to increase and includes use of silver in bandages for wound care, batteries, brazing and soldering, in catalytic converters in automobiles, in cell phone covers to reduce the spread of bacteria, in clothing to minimize odor, electronics and circuit boards, electroplating, hardening bearings, inks, mirrors, solar cells, water purification, and wood treatment to resist mold. Silver was used for miniature antennas in Radio Frequency Identification Devices (RFIDs) that were used in casino chips, freeway toll transponders, gasoline speed purchase devices, passports, and on packages to keep track of inventory shipments. Mercury and silver, the main components of dental amalgam, are biocides and their use in amalgam inhibits recurrent decay.

Estimates vary, but many experts are now projecting that at current consumption rates we will run out of silver at some point during this century.

On the other hand, we are not facing a similar problem with gold.  Gold, because it has traditionally been so expensive, is not used in many products at all.  The total amount of gold on earth just continues to increase each year.

Silver is also considered to be a lot more accessible for smaller investors.  Not many average Americans can afford to do much investing in gold because it is so expensive.  But just about anyone can afford a few ounces of silver.

As investors around the globe have watched the Federal Reserve create endless amounts of money and as they have watched the  U.S. government borrow endless amounts of money the hunger for precious metals has grown.

The following is what John Browne had to say about the current situation in a recent commentary….

Today, with the Federal Reserve treating the greenback as a never ending lottery ticket for deficit spending politicians, many investors feel the U.S. dollar is good for nothing. As a result there is an increasing international pressure to remove the U.S. dollar’s reserve status. Given that there is no widely accepted alternative to the dollar (the euro has many problems of its own), this is creating fears of an international currency crisis, which has fueled interest in precious metals.

As the U.S. dollar and other paper currencies continue to decline, the demand for precious metals such as gold and silver is only going to increase.

Most investors are not stupid.  They know that the European debt crisis is approaching a meltdown.  They know that U.S. government debt is not sustainable.  They know that all of the paper currencies around the world that are backed by nothing will continue to decline in value just like they always have.  All of the major central banks have been recklessly printing money.  In such an environment it only makes sense to put your wealth into hard assets.

But there is another layer to all of this.  Many now view investing in precious metals as a way to rebel against the Federal Reserve and other central banks.  All over the globe people are waking up to how unjust the banking system is.  Since central banks such as the Federal Reserve are almost completely unaccountable politically, many individuals have sought other ways to protest the system.  Getting out of “Federal Reserve Notes” and into precious metals is one small way to do that.

In any event, what is clear is that the price of silver is likely to continue to go up over the long-term.  Silver is used in thousands of products and we are slowly running out of it.  Meanwhile, the central banks of the world are absolutely flooding the globe with paper currency.  What all of that adds up to is a much higher price for silver.

So what do all the rest of you think about the price of silver?  Please feel free to leave a comment with your opinion below….

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When Gold Becomes Money Again

Wednesday, March 30th, 2011

By Addison Wiggin

 

On the night our documentary I.O.U.S.A. made its nationwide premiere in August 2008, the film was followed up by a live panel discussion, broadcast via satellite. Our friend David Walker, the former US comptroller general and “star” of the film, took part…along with several other luminaries.

At one point, the question was asked: Might America’s trading partners one day sell off their US Treasury holdings?

Impossible, said Warren Buffett. In fact, he insisted, they couldn’t…because they’d need to convert it into some other currency, which would be little better than the dollar. No one else chimed in to challenge the assertion.

“Buffett’s answer assumes that there is no alternative,” author, friend and local Baltimore resident Bill Baker writes in his 2009 book Endless Money: The Moral Hazards of Socialism, “because for generations, all the world’s currencies have been backed only by the promise that governments would accept them in payment of taxes.

“But that ignores a currency that has been used effectively by man for thousands of years: gold. China and other countries might exchange their US dollars for it now.”

Indeed, China is quietly building its gold reserves. They totaled 600 metric tons in 2004. Then in April 2009 came an announcement they’d grown to 1,054 metric tons. And the buzz from Beijing is that the central bankers want to grow that stash another tenfold.

Meanwhile, China has trimmed its US Treasury holdings for three months in a row. The January total was $1.15 trillion – down 1.75% from October.

These are the first steps toward what Baker sees as the “remonetization” of gold – coming soon to a country near you.

History is a pendulum.

“Once gold and silver had been written into the Constitution,” Baker says, “no one might have thought that it would be replaced by paper within 60 years.” But the pendulum swung, the Union issuing its infamous greenbacks during the Civil War.

Then the pendulum swung back, the greenbacks’ critics were “able to successfully push for an agenda of gold resumption. But before the London Economic Conference of 1933, the world would be shocked by Roosevelt’s rejection of the gold standard.” The pendulum swung again.

Now, “a series of crises such as was the case in Rome might ultimately bring the pendulum back toward gold,” Baker writes.

In other words, we’re approaching the end of the Great Dollar Standard we wrote about in The Demise of the Dollar. The only world anyone below the age of 40 has ever known – in which all the world’s currencies float freely against each other – is nearly over.

And Baker is investing accordingly.

In late 2010, he began accumulating shares of a tiny gold miner called Orezone. “Our cost basis is 78 cents, and now it’s $3.61,” Baker tells us on a wintry afternoon in his office on the outskirts of Baltimore. “I’ve sold off two-thirds of the shares that I own, and it’s still one of our largest positions. I can’t keep it down!”

It’s a good problem to have. And Baker has it because he’s willing to go further afield than your typical money manager…as far afield as Burkina Faso.

We’ll pause here to place it on a map, so you can get your bearings. (If you were a geography geek growing up, you might remember it as Upper Volta.)

“I read these other quarterlies from these hedge fund managers,” Baker tells us, surrounded by family pictures, CDs of composers like Brahms and rafts of company research. “They’ll get really absorbed in the macroeconomic picture, but they don’t really know what they’re doing, so they just buy GLD [the gold ETF].

“Or they’ll hire two all-star Canadian analysts. Then I look at what they own, and they own Gabriel Resources because John Paulson owns it. It’s safe. Or they bought some big South African company because it’s cheap based on reserves in the ground when they ran it through their stock screener.

“They don’t have a coherent philosophy about really kicking the tires and really finding these companies that people don’t know about.”

Baker does. His firm, Gaineswood Investment Management, has taken sizeable positions in tiny gold miners working well off the beaten paths of the Americas, Australia and South Africa.

Burkina Faso is smack in the middle of a geological formation called the Birimian Trend…the richest source of growth for gold miners in recent years.

Even better is how many miners in West Africa have consolidated their holdings. “In Canada, you might have a district filled up with 12 companies. One company might have each block, or half a block. But in West Africa, these guys own all of it. They’ve got a lot of time, a lot of land, and now they’ve raised a lot more money, so they can keep going after it…and we’ll keep getting these upside surprises.

“That’s our philosophy, to find opportunity where, for example, this one outfit has found 1.2 million ounces of gold. But with all the new discoveries they’re making, they’ll probably come out and say we have 2, 2.5, and next year they’ll say, well, we have 3, 3.5, 4… and it isn’t over yet, because of this whole giant region that’s been unexplored.”

Before we go any further, we’d better make something clear: Bill Baker isn’t your typical gold bug. Nor is he your typical stock market bear.

“The timing or eventuality of financial calamity is unable to be forecast,” Baker writes in Endless Money. “At best, it might be like a hurricane warning: The tempest may strike here, it may hit there, it may be downgraded to a tropical storm or it may go elsewhere entirely.”

But that doesn’t mean investors should fail to prepare for financial calamities…or the demise of paper currencies. Financial calamities are becoming increasingly likely in this overly indebted world of ours…and the death of paper currencies is becoming increasingly certain. The best time to prepare is ahead of time.

Regards,

Addison Wiggin,
for The Daily Reckoning

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