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Handicapping The Collapse

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I’ve Got 1000 Telephones That Will Not Ring.~ Bob Dylan

by Jim Willie

“Scattered diverse and almost uniformly unfavorable and dangerous events are unfolding, as the global economy and financial structure undergoes the equivalent of endless earthquakes and bombardment of solar emissions. Reporting is difficult, since information is distorted toward the sunny side. Events are moving fast, as quickly as the danger level is rising. As conditions worsen, the hype and spin has risen almost out of control. The political machine, tied at the hip to the banking apparatus, has ramped up the growth story even as the strain on the information spin has become more visible and subject to heavy criticism. A re-election year is always fraught with risk of unmasked falsehoods making headlines. For some reason the Mayans have been lifted in prominence despite their cultural vanishing act. Like calling the dodo bird the epitome of future evolution in the aviary world of ornithology. The Jackass prefers the eagle, hawk, and falcon. Nonetheless, the list of acts on stage is replete with stories of collapse. A review is useful. Keep in mind that whatever happens to Greece will serve as vivid preview of what is to come in Italy, Spain, and perhaps France. Much more ruin comes. Witness the great unraveling. The only winners will be tangibles, like gold, silver, crude oil, and farmland.

 $Trillion USGovt Deficit Locks 0% Rate: Few analyst seem to report a basic factor. The USGovt cannot afford a higher rate on borrowing costs than 0%, not now and not ever. So it will become permanent. This is the New Normal with ugly warts. There can be no Exit Strategy, since the government finances dictate no change. A normal borrowing cost would mean the debt finance cost would rival the defense budget in cost, and overshadow the Medicare cost. The USGovt deficit thus locks the 0% rate and puts the USFed in a monetary straitjacket. They refuse to discuss it, but instead wiggle around with feeble explanations of its continued policy. Notice the extension into 2014 of the accomodative 0% rate. What a farce! What a tragedy! What a pathetic excuse of a central bank! A vicious cycle is underway where the gargantuan federal deficits require continued 0% costs to finance them, but the 0% cost of money has its own heavy effect and damaging toll. The biggest insurance policy to the gold bull market is the USGovt and its runaway deficits.

The 0% cost of money makes for a grotesque distortion in asset prices, all of them. Nothing is properly priced. The free money results in rising cost of everything rising. All categories rise inexorably within the cost structure. Wages do not, thanks to the forfeit of industry to Asia, in particular to China. So the squeeze on capital continues unabated and with ferocity. Capital is killed. By that is meant that marginal businesses and segments of business units within larger corporations will gradually respond to higher costs (equipment, materials, fuel, shipping) by closing the businesses. Workers are cut, but more importantly capital is retired, equipment is turned off, and capital is liquidated. A truck or machine or computer or telephone system might be sold off. The rising costs and more rigid final product prices dictate business shutdowns, since the profit margin is squeezed, then goes negative, forcing business decisions. The destructive effect on working capital from 0% money remains the singlemost blind spot of American and Western economists. They call it stimulative, when it is the exact opposite. They are badly educated. They are compromised by their paychecks. They are dead wrong, blind to the death of capital beneath their arrogant noses.

Heavy Reliance On Monetary Inflation: As foreign creditors continue to shed USTreasury Bonds, the USGovt is left with a growing and near total dependence upon the US Federal Reserve to purchase its debt. It has no choice but to rely upon the inflation machinery apparatus to buy the USTBonds. Few bond dealers wish to continue, but their hope is not to be stuck with inventory, should the USFed stop buying. The dealers are acting as middlemen and nothing more. China continues to unload USTBonds, the latest month showing more of the same recent pattern. As Valery Giscard d’Estaing called it, the US benefits from the “Exhorbitant Privilege” of abusing the global reserve currency to finance its own debt in an unaccountable manner. Worse, the United States though the powerful forces of the Competing Currency War, has forced all major central banks to participate in the heretical 0% money policy. Nations that opt not to play the game will suffer from a rising currency exchange rate and damaged export industry. The major central banks are collusive in their policy, the effect being a Western world capital destruction slow burn. See the Global QE as it involves the US, Britain, Europe, and Japan not only in setting interest rates absurdly low, but in vast bond purchases wrapped in monetization schemes. Once upon a time 20 to 30 years ago, such schemes were called highly destructive and extremely unwise. Today they are normal tools. Gold will benefit from such powerful monetary inflation and debasement of money itself. 

Collapse of Sovereign Debt Foundation: The con game is impressive. They call debt money. The entire foundation of the current monetary system is a complex array of paper currencies backed by sovereign debt. The problem for its managers is that the sovereign debt is crumbling. The degradation process began in late 2009 when Greece showed its first visible wide cracks in the debt facade. The preliminary event was the Dubai debt breakdown; call it the fuse. So the financial press, banking leaders, and political marionettes insist on calling this chapter a global financial crisis. It is more like a global monetary system collapse, if truth be told. But in today’s age the truth is a dangerous commodity, kept down in value by a cooperative subservient press, devoted fully to the syndicate and its dark motives. Holding like pillars the debt-based monetary system are the major banks. Their profound insolvency serves as proof positive of the broken structures of the monetary system itself. This is so plain to see. A mere FASB paper mache glued onto a rotten pillar does not permit it to bear weight. The legitimate matter behind the pillars is surely being siphoned as mass to other locations, while the farce of patch solutions continues with each passing month. The inescapable fact is that the world requires a new monetary system. To put it into place requires the liquidation of the old banks and sovereign bonds, which would mean making paupers and vassals out of the elite masters. So the game goes on.

US Economy Moribund Without Income: The concept of a jobless recovery is a bad joke. Such a concept does not appear in economics textbooks or its legitimate lexicon. The expectation of recovery without vast income machinery is a fantasy. The decision to ship US industry to Asia in the 1980 decade saw a climax in the 2000 decade with the advent of China. In doing so, the USEconomy lost its legitimate income sources and turned to inflating assets to power the national economy. It was the singlemost destructive trend in modern United States history on a financial basis. Income was replaced by debt, and the rest is history, where economists should be forced to inscribe the epitaphs. Stimulus programs at the USGovt level are mere plugs for state deficits. Infrastructure projects turn out to be funnels for Chinese contracts. As Kurt Richebacher told me in August 2003, as best recalled, “A nation that lacks industry is doomed, as it must at least dominate in transportation and steel, but the United States does not anymore.” The financial press and banking leaders curiously serve up endless nonsense in viewpoints, that the US consumer is the engine. It is not. The engine is industry, and the USEconomy sorely lacks it. Unless and until the USEconomy brings back industry, factories, and all the supply chain encoutrements, the nation will remain moribund and without adequate income. The latest data, the December trade gap, shows a record setting $52.5 billion monthly deficit. This is not an economy in recovery. The rising energy prices are yet another crippling factor. A loud echo can be heard in Japan, where the nation is shocked by the reality of steady trade deficits, never seen in recent history. The power structure is to be turned on its head.

Barter System Coming: The current system must be replaced. Watch for signs of a vast comprehensive barter system with wide participation. It will involve deals between nations at the highest levels. It will involve deals between corporations at the middle levels. It will involve deals with individuals at the lower retail levels. It will be more fair. It will relegate banks to utilities, a much more useful function. It will lock up deadbeat nations that attempt to take in valuable products in return for toilet paper that accumulates in a rancid pile subject to acidic decay. The new barter system must have a financial core in order to handle the short-term transactions and payments required. That core will be gold based. The United States will not be at the center of this new system. In fact, the US risks being shut out if it does begin soon to join the movement. Being an outsider nation looking in will result in high price inflation and more rampant shortages. Demand for gold will rise as the new system falls into place. The system has been endorsed and put into the implementation stage by Germany, Russia, China, and the Persian Gulf. The trigger for launching the barter system, so told to the Jackass by one of its participating architects and engineers, is the broad perception that the current system has collapsed. That day is nigh.”

The Economy: “Handicapping the Collapse”

[Running ‘Cause I Can’t Fly]

Black Swans From New Normal

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by Jim Willie CB
June 22, 2011

Mohammed El-Erian is given credit for the phrase ‘The New Normal’ to mean an altered state of perceived instability within the normalcy realm, as in crisis being called normal, like endless crisis. As buddy Jim Mess in Europe says, just like trying to redefine what debt default is, it sounds like high octane prevarication. El-Erian is considered one of the good guys. He managed to slip away from Harvard University without much smear, where he served on the management team of the giant multi-$billion endowment fund. If truth be told, Harvard hatched the Enron monster from its Business School as a project, funded by Citigroup, where JPMorgan created all the off-shore companies to hide their dealings. Building #7 in Lower Manhattan contained the records until it fell from structural sympathy. Harvard successfully made money all the way on the Enron runup, but also successfully shorted Enron all the way down. So El-Erian is hardly squeaky clean. He does give a good interview though, does not deal much in varnished truths, and is an avid NYMets baseball fan. At PIMCO, he worked on the team to direct the biggest bond fund in the world to turn its back on the entire USTreasury Bond complex. In fact, their Total Return Fund, its flagship bond fund, is net short on USTreasurys as a group. That means they own a raft of Credit Default Swaps for USGovt debt default and an assortment of other vehicles like the TNX and TYX that track the 10-year and 30-year bond yield. They recognize an asset bubble when they see one, and even invest in Gold.

The other person relevant to the article title is Nassim Taleb, who coined the term Black Swan. Generally it refers to the extreme oddity that passes through view, shows up on the radar, the extreme warning signal being dire, but is largely ignored by the masses, regarded as the exception or outlier event. THE BLACK SWAN HAS BECOME THE NATIONAL BIRD!! When a few black swans appear, the alert analysts pay heed and express their warnings. When an armada of black swans appear, the message is clear. A systemic failure is in progress, and the important foundations are crumbling. In 2009 and 2010, it was clear that numerous black swans were sighted and identified. In 2011, something highly unusual and extraordinary has occurred.

The black swans can be organized into groups. They are numerous within each important economic and financial camp. The Armada of Black Swans, well organized into regiments, has become dominant enough to be considered the New Normal.

During the global financial crisis (which has earned a widely used GFC acronym), tragically the state of crisis has become an engrained latticework on the reality mosaic. A quick review at a high level should cause alarm, except for the gradual pathogenesis that dictates the pace of systemic failure in progress. If the list below were presented as a Wall Street Journal forecast in 2006, the author would have been subjected to laughter, derision, and mockery. Yet here and now, the organized groups of black swans are visible everywhere one looks. Worse, they are carrying nuclear slingshots, and defecate highly toxic green blobs into the liquidity streams that we have grown so dependent upon.

QE TO INFINITY

Quantitative Easing will continue for obvious reasons. Many were outlined in the last two articles. The QE2 will continue seamlessly, extending beyond the June 30th deadline. It will change in complexion slightly to become QE3, with some added twists like to include some municipal bonds.

Later the entire financial initiatives will morph into a Global QE, since all major central banks will face the same plight. They will all purchase USTreasury Bonds or face extinction, in order to support their own balance sheets.

The credibility of the US Federal Reserve has undergone major damage. In the next year, it will be totally destroyed. The factor ignored by many analysts is that the USFed balance sheet has expanded recklessly, and insolvency is its unavoidable condition. If the US housing market does not revive, then the US banks will go deeper into insolvency, carrying perhaps two million homes on their books at some point in the future. The resulting effect on the USFed balance sheet is permanent ruin.

The USTreasury Bond default might possibly come, as warned by a great reliable inside source in 2008, from the USFed resignation as central bank for the USGovt. They are not subject to bank regulations, to reserves ratios, to collateral requirements on loans, or to anything for that matter. They managed the secret handouts of $12 trillion under the cover of TARP Fund dispensation. They rescued foreign banks even though that is not under their charter. They orchestrate the narcotics money laundering effectively, certainly not in their charter either. The USFed does have owners, and they cannot be pleased. The turnaround in the housing market never occurred. Its prospects look worse with each passing month. If the USGovt or the Elite operating as handlers for the captive USGovt decide to convert private property into collectivized syndicate ownership, and use their Fannie Mae device as agent for the process, then perhaps the USFed might serve as a facilitator to the vast Collectivism project. The United States Government might someday own the majority of homes in the nation, maybe even commercial buildings and shopping malls too. The disenfranchised can always go camping, as in the Favored Environmental Managerie Amorphous camps.

ARMADA OF BLACK SWANS

Consider the following black swan specimens, each of which is astounding, each alarming, each serving as one more added element to the ruined situation. The swan organization is admittedly rough, but the regiments are put in sensible order. Any small handful of these signals would qualify as forewarning a profound crisis. Not anymore, since crisis is the new normal. Not anymore, since black swans adorn the entire landscape. A healthy white swan gradually suffers from toxic exposure, quickly to turn black from a putrefaction process. Apologies for overlooking at least a dozen other important other black swans, as time and space did not permit the exhaustive catalogue process. Emphasis was given to the United States ponds and its migratory bird population.

USTREASURY BOND SWANS

  • USGovt debt ceiling standoff, with actual violations

  • Over 75% of USTreasurys auctioned bought by the USFed in debt monetization

  • Turnaround from primary bond dealers to POMO repurchase by the USFed is 3 weeks

  • Foreign banks form 12 of 21 primary bond dealers

  • PIMCO owns no USTreasury Bonds, even short

  • Global boycott of USTBond by creditors, some net sellers

  • Foreign creditors owns the majority of USGovt debt

  • A fixture of $1.5 trillion annual USGovt deficits

  • Greenspan and David Stockman warn of USGovt debt catastrophe

  • USMint officers admit Fort Knox has been shut down for 30 years, as in zero gold

USFED SWANS

  • QE permanence, otherwise called QE to Infinity, worked into standard policy

  • Bank of England urges more bond buying

  • Cost of money 0% for two full years, implication being destroyed capital

  • Chairman regards monetary hyper-inflation as being zero cost

  • Ron Paul pushes for a USFed audit, an end run to pay down USGovt debt

  • USFed owns more USTBonds than any other creditor

  • Competing Currency War has Euro weakness mean USDollar as all circle the toilet

USGOVT SWANS

  • USGovt could shut all operations but still be have a budget deficit

  • USGovt could confiscate all income but still have a budget deficit

  • USGovt must cover AIG payouts on Greek Govt debt default from CDSwaps

  • US Postal Service stops all payments into their pension system

  • New York Fed refuses to disclose the destination of $6.6 billion stolen from Iraqi Reconstruction Fund

  • Federal Worker Pension Funds and G-Funds confiscated (called borrowed)

  • USMint runs out of gold & silver metal to make coins

  • Endless war accepted as sacred, whose costs are crippling

  • Council on Foreign Relations enables a foreign nation to control US foreign policy

  • Breaches to USGovt communications via WikiLeaks

COMEX SWANS

  • GATA Gold Rush 2011 in London Savoy Hotel on August 4th will feature the COMEX whisteblower Andrew Maguire

  • Silver futures contracts settled almost exclusively in cash, often with 25% vig bonus

  • Gold & silver futures contracts often settled with GLD & SLV shares

  • Umpteen margin increases for gold & silver futures contracts, but reductions in USTBond futures contract margin requirements

  • Brent versus West Texas crude oil price has a $20 spread

  • Every time Bernanke assures US financial markets, gold & silver rise in price

  • Elimination of Over The Counter gold & silver contracts due in mid-July

BANK SWANS

  • Chronically insolvent USFed and EuroCB, balance sheets ruined

  • FASB accounting rules permit banks to grade their own test exams

  • Stress Test for banks had almost no stress, a sham

  • Dependence by Wall Street banks on naked shorting USTBonds and narco funds, the former called Failures to Deliver, the latter recognized by the United Nations

  • Shadow housing inventory held by banks over one million homes

  • Wall Street firms in court on the defensive, JPMorgan foreclosed soldiers

  • Wall Street firms banned in Europe on bond securitization and issuance

  • Strategic mortgage defaults by homeowners on the fast rise

  • Gold holdings by tyrant Arab rulers targeted by New York & London banks

  • War over Libya grabbed $90 billion in Qaddafi money by New York & London

  • PIGS sovereign debt default in Europe to have impact ripples that reach US banks

  • Standard & Poors reminds the players what constitutes a debt default

  • No liquidation of big US or London or European banks since Lehman Brothers

  • Much of dimwitted US population believes the propaganda that Gold is a bubble

USECONOMY SWANS

  • USEconomic indexes fall off the cliff, see Philly Fed, Empire State, ISMs

  • Rampant systemic insolvency in banks, homes, federal government

  • US housing resumes its powerful bear market

  • US land title system in the disintegration process, see MERS on mortgage titles

  • Unemployment at 20% across the Western world, economic misery index hit 30%

  • USGovt economic stimulus never contains stimulus

  • Main non-military innovation in the United States is bond fraud

  • Shrinking US trucker industry from $4 gasoline and diesel

  • China begins to export price inflation to the United States

  • Killing state worker union pensions as part of the state budget shortfalls

  • Gulf of Mexico off limits for oil drilling

  • 1 in 7 Americans is on Food Stamps, whose debit cards are good JPMorgan business

  • media blackout on the Fort Calhoun near nuclear plant meltdown in Nebraska

FOOD & WEATHER SWANS

  • Food price inflation is staggering but denied

  • Floods across Midwest & Plains states to interrupt with planting & harvest

  • Australian floods have interfered with coal industry and agriculture

  • Fukushima and Northwest US infant mortality, with vulnerable milk next

  • Big volcanoes like in Chile and Iceland disrupt weather and air travel

EUROPEAN SWANS

  • German bankers at war with Euro Central Bank

  • Germans abandon the EuroCB, leaving it to Goldman Sachs, see Draghi

  • Spanish banking system has yet to write down squat on housing credit assets

  • Portugal, Italy, and Spain sure to follow Greece into a debt default

  • Belgium has had no government for a full year

  • Ireland prints more money per capita than the USFed

  • US & NATO to part ways

CHINESE SWANS

  • G-8 Meeting is pushed aside, as the Anglos deal with broad insolvency

  • G-20 Meeting takes center stage in a power play, led by China and the BRICs

  • China buys discounted PIGS sovereign debt, to redeem later in central bank gold

  • Chinese FX reserves exceed $3 trillion held in sovereign wealth funds

  • China owns most world major ports, as part of a strangulation process

  • China conducts the great Idaho experiment, toward re-industrialization of America

HIDDEN SWANS

  • Swiss faces hundreds of $million lawsuits, for refusal to deliver Allocated gold

  • Saudi Arabia cuts new deal for Persian Gulf security protection, see Petro-Dollar

  • Citigroup has high hidden exposure to Greek Govt debt default

  • Chinese vengeance over reneged USGovt gold & silver lease, as part of the Most Favored Nation granted status, has motivated its extreme pursuit of precious metals

  • Containers hold $300 to $500 billion in EuroNotes at Greek port warehouses

  • Internet strides light years ahead of USGovt regulatory hounds at syndicate offices

  • Chemtrails, storm steering, lingering droughts, fallout falling, haarps a playing

GOLD & SILVER BREAKOUT IN ALL CURRENCIES

The great spring 2011 precious metals consolidation is coming to an end. In no way is the Quantitative Easing program coming to an end, otherwise known as hyper monetary inflation. Printed money is being abused to cover bank insolvency and to redeem toxic bank assets. The central banks are taking down the QE billboards.

They will continue with their debt monetization in order to manage the financial system collapse in an orderly manner. As David Malpass adroitly said on Bloomberg Financial News, the debt monetization known as quantitative easing will quietly become an integral but hidden part of the USFed monetary policy.

The central bank must find a way to cover the $200 billion in monthly USTreasury auctions, to roll over the obligated primary bond dealer inventory, and to lap up the mountain of toxic mortgage bonds that prevent an all-out cave-in of the bank balance sheets. The reality is that nothing has been fixed, nor attempted in solution. The grotesque insolvency of banks, households, and government is the marquee message. Without continued monetization, the system would collapse rapidly and disorderly. However, with continued monetization, with a QE chapter by another name or conducted behind the same curtains, the system will collapse in a gradual and orderly manner. The USFed has no more credibility. The announcement on Wednesday that the New York Fed refused to provide details on stolen Iraqi Reconstruction Funds is the latest blatant syndicate action that screams criminality. Witness the early stage of another uniformly applied global Gold bull market breakout.

The Gold price has hit record highs in the British Pound Sterling, where their banks are insolvent, their economy is in reverse, price inflation is ramping up, and their currency is facing grandiose debasement. The SterlingGold price smells monetary ruin. The global breakout is manifested first in the most broken non-American locations, since the spring ambush orchestrated in the COMEX has put huge pressure on foreign currencies. The Competing Currency War still leads the desperate USFed officials to slam foreign currencies and to place financial press attention on their declines.

The EuroGold price smells monetary ruin. The attention has been squarely on the Greek battle to avoid debt default. Every news story about the USEconomy faltering is following immediately by a story of Greek bailout impasse or Athens challenge to ingest suicidal austerity pills or riots on the Athens streets. The differentiation of EuroBonds with greatly varying bond yields has permitted the Euro to trade on speculative merit. The Greek default threat surely pushes down the Euro. But the prospect of a higher Euro Central Bank interest rate leaves speculators to buy the Euro, since proper pricing mechanisms are in place on the sovereign bond yields. The European investors are clearly flocking to Swiss banks on the paper investment side, but their pursuit of Gold is enormous. The Euro Monetary Union is running on fumes. The pain in Spain is hardly on the wane. The Gold price will rise and break out soon enough.

The YenGold price smells monetary ruin. The situation in Japan is terrible, complicated, and tragic. The advent of trade deficits will aggravate the outsized cumulative debt burden on the nation. The paradox is starting to show itself. Their trade deficits will force the national insurance firms and banks, even the Bank of Japan, to sell existing US$-based assets in a political compromise. They do not want to monetize more debts. They do not want to create worse federal budget deficits. They will compromise by selling foreign assets to finance the reconstruction and dislocation costs. The paradox will manifest itself with a rising Yen currency in the face of worsening deficits in every conceivable crevice. As their nation slides into the sea, both literally and with red ink, and the salt on the wounds coming in the form of price inflation, the Gold price will rise and break out soon enough.

Last to break out will be Gold in US$ terms. The Gold price smells monetary ruin on home turf, not to be deceived by any USFed head fakes. Perhaps a sudden awakening to the obvious continuation of QE2 and merge into QE3 could enable a Gold breakout in double quick fashion, ahead of other currencies. Much more stability is seen in the Gold price rise in US$ terms, as the destruction is more stable, the monetary ruin more understood, the federal budget debate more openly futile, and the national insolvency more publicized. The early May high of 1563 will easily be surpassed, all in time. The impetus might be QE163 or a liberated USGovt deficit from a raised debt limit or a failed USTreasury auction or a big US bank failure or a spike in mortgage rates or a plummet in housing prices or a longer parade than the current stream of miserable USEconomic data. The Gold price rose toward $1550 following the vacant FOMC meeting on Wednesday, where the main purpose was to put us to sleep.

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Black Swans From New Normal

[Gold Speculator]

Deflationists & Blind Eyes

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by Jim Willie

My forecast has been for a powerful Inflationary Recession to occur, a consistently laid out analysis, delivered during the last year or more in clear terms. That has been my call, and continues to be my call. The Deflationist camp is making more noises. They do not know their limitations, which are obstructed by a blind eye toward the monetary inflation. They do not understand it, so they ignore it, and attempt to encapsulate it into a convenient bottle set aside on the margin. Gonzalo Lira will be proved wrong about price inflation showing on the official Consumer Price Inflation index. So what? The prevailing price inflation will ramp past 12% easily as he also predicts. His style is wonderful, even if a mirror is a fixture at his desk. His details in argument are strong and cogent. An anger meter is a fixture at my desk. So what? A patch firmly placed over one eye is a fixture for Rick Ackerman. In truly remarkable fashion, he seems incapable to realize that the US Federal Reserve has been the mammoth fountain of money to produce price inflation. His challenge is shallow in my view, since almost $3 trillion has been spewed into the financial system so far by the USFed, with more to come. In fact, since the emergency G-7 Meeting held two weeks ago, the central banks have joined forces in a Global QE movement that will propel the Gold & Silver price much higher and render deep further damage to the USDollar. The Deflationists paid no notice, or did not notice, or did not comprehend the importance. They are a laughing stock crew of half blind shamans.

USFED MOUTHPIECE ECHOS

The Deflationists fail consistently to measure the flow or pace of inflation, seeming mouthpieces without realization for the USFed and Wall Street itself, whose incessant calls of dreaded deflation have opened the political floodgate for global monetary hyper-inflation. They do not even recognize their compromised subservient support role. The aberrant crowd of Deflationists have a blind eye to the dynamics of inflation, and how it transforms from excessive funds in the financial system, to reaction against the USDollar, to rising commodity prices, to rising cost structure, and finally to extreme pressures for end product prices, including higher wages. They dismiss each step of the way, and do not bother to explain their progressive errors along the pathogenesis pathway. The USFed has passively developed followers like a Pied Piper. They are just lousy economists in the Deflationist camp. A good technical analyst on chart interpretation in no way makes for economist qualification. They cannot integrate complex systems where both asset deflation and monetary inflation coincide, collide, and conspire to produce economic wreckage and price inflation. They act sheepish when what they predict will not happen, actually comes to pass. Recall they have been preaching for three years that crude oil and gold would descend lower in prices. They serve as the bell tower in an empty village. They have also been preaching that end product prices would fall also due to low final demand. They are consistently wrong, but never apologetic. Sadly, most Deflationists cannot adequate even define deflation, even when challenged. It is a catch-word they fixate upon, that permits them to dismiss anything and everything pertaining to the ravaging complex effects of monetary inflation, whose dynamics are beyond their scope of comprehension, perhaps even recognition.

Mine are not rants, but detailed arguments with numerous factors fortifying arguments put forth toward a thesis defended on many fronts in broad fashion for over five years. To be sure, my work includes some invective due to overflowing anger at the system having gone so far awry with deep fraud, coordinated media deception, impunity for those responsible, and elevated powers granted to them during reforms. Rants are shallow harangues. Mine is thorough analysis put to paper. These guys should consult a dictionary, as some of their own haughty dismissals fail to address or respond to much of anything my work has put forth. The word rant might invite an accusation of shallow in the mental process. They often argue in a circle under the pretense of confrontation, never addressing important points like the flow of the increased monetary aggregate, and its destinations with strong effects. One analyst in particular should really stick to what he does best, that being technical chart analysis. While the historical economics books of the past are indeed enlightening in theory, little truly applies to explain all that occurs in the profound intervention and rigged financial markets led by a criminal elite class whose main enterprise is clearly war and narcotics, followed by orchestrated chaos designed to permit broad elite powers. Their past excellent work should be kept on the wall for constant reminder of true market forces, true economic forces, all of which are opposed by powerful criminal actions and heavy handed monetary policy.

THE BLIND EYE TO INFLATION

My main ongoing criticism of the Deflation camp has been their blind eye to the human response to asset deflation. Obvious home prices fell and continue to fall, and related asset backed bonds have fallen progressively into ruin. That is not the point. Their camp has consistently ignored the central bank response with multi-$trillion monetary expansion. In round #1, the excesses were tucked away in the Federal Reserve interest bearing account for the big banks. They were essentially Loan Loss Reserves of those banks, which were removed from the big bank balance sheets only to be relocated on the USFed books. In round #2, the excesses went global with the entire commodity complex exploding upward in price. Purchase of USTreasury Bonds in the hundreds of $billions cannot be contained anymore than herding tiger cats. Most noticeable among commodity price rises was in food & energy. With most food items up 15% to 20% in price in a single year, and gasoline up 25% in several months, the pinch is on with powerful price inflation. But it appears on the cost side, as my analysis has mentioned numerous times. What the Deflationists miss from the start is that the extreme storm conditions come from the falling asset prices and wage effects on the one side to form a low pressure zone, meeting the rising monetary expansion and counter reaction by commodity prices against the debased USDollar in a high pressure zone. Thus the collision and powerful storm vortex, which they miss with blind eyes. Their camp never addresses the storm conditions, ever. The Deflationists show their blind eye by overlooking, or ignoring, or never noticing the storm itself, where natural collapse meets extraordinary monetary aggregate growth in reaction. They never mention multi-$trillion central bank expansion of the money supply, which debases the value of money, even making a total mockery of money, thereby adding to the cost structure in a massive way, pressuring prices and wages. The rising stock indexes serve as evidence of the monetary inflation, which they do not recognize.

My point made consistently is that wages will not keep pace with rising costs, even made a national priority to halt the secondary inflation effects on wages. In that sense, my analysis has joined the Deflationists, but only with one foot in their shallow pond of constructs, hardly qualifying as a School of Thought. Since wages do not keep pace with costs, the unemployment will rise and has risen, a point made consistently here. Therefore my work cannot be carelessly labeled as over the top inflationist. Sadly, most Deflationists do not understand how to read my analysis, because they operate with a blind eye to the many sided crisis, too focused on his narrow perspective that cannot adapt to the current complex situation. The Deflationists cannot integrate into their shallow thinking the combination of inflation on the monetary side and deflation on the asset (and wage) side, surely a difficult and extraordinary situation loaded with complexity. They lost my respect long ago, the entire clan. Most of their followers in paid subscription services suffered crippling personal financial losses. A few analyst newsletter writers from their camp have learned nothing and continue their tired saw with shallow analysis and a string of wrong-footed forecasts. So be it!

IMPORTANT CRUX OF THE MATTER

The heart of the matter is not the outcome, but the path to the end point. If a man and woman are destined to be placed in a cemetery crypt, is that a reason not to marry and enjoy a life together, filled with bliss and human challenge? Of course not. One should hate to be married to one of those Deflation Knuckleheads, a downtrodden and bleak crowd. The pathway is where fortunes are made and lost. The Deflationists have gotten it wrong for a long time. One should not be overly concerned about three years from now if an economic collapse takes place. That is the obvious outcome, not too challenging an issue at all. The Deflationists believe they offer wisdom in such a pronouncement. It is obvious. The wrong-footed Deflationists have focused on for a long time, with precious little elucidation of the path to the end. My concern is the extent to which the cost structure will rise, and then how much the end product & service price system will rise, and how much the wages will rise in compensation upon concerted demand. The Deflationists have ignored the pressure in 2007 and 2008 and never foresaw the entire Quantitative Easing movement, which was forecasted with ease in the Hat Trick Letter. The Deflationists consistently ignore the powerful effects of Quantitative Easing itself. They dismiss the human response to falling asset prices. The only conventional assets rising nowadays are stocks and farmlands. The thesis put forth that DEFLATION WILL PREVAIL BY SNUFFING OUT THE HYPER-INFLATION represents a cavalier avoidance of the entire sequence toward the end, reveals lack of comprehension of the extreme forces in conflict, and attempts to sit above the fray in arrogance beset by ignorance. Of more concern to me, and millions of people, is the important middle portion of the game, that happen from innings three thru eight. The ninth inning calls by wrong-footed blind eyed Deflationists pale by comparison to discussions on whether banksters take global control of governments, how the current monetary system is fracturing, whether new monetary forms are shoved down our throats, or how an alternative oppositional monetary system can overthrow those in regimes in power. They never discuss such lofty but important concepts, since they do not comprehend them, cannot perceive them, and cannot envision them. They retreat from such discussions.

The Deflationist themes ignore the Inflation story. The G-7 Meeting to adopt the Yen Selloff Pact was a veiled GLOBAL QE ACCORD. The pact has not even been discussed by the shallow Deflationist camp even though it is the most signficant policy directive since September 2008, more important than the original QE decision in March 2009. That is because it is Global QE, stamped and approved by the major central banks, monetary hyper-inflation gone global. The Deflationists live in a cave, unaware of such events or dismissive of them in arrogance. They instead continue to defend the wrong-footed construct of Deflation. In personal email and telephone exchanges, my habit is to constantly laugh at their pre-occupation with Deflation. On more than 40-50 occasions with certain contacts, my reply is simply WHAT IS DEFLATION?? Shallow responses come in return, unimpressive one and all. We will continue to experience and suffer both deflation of assets and wages, during a massive storm of hyper-inflation from central banks. The inflationary effect is a perverse factor toward the real game on stage. Do not expect wages to keep up with the rising costs. This has been a major point of mine all along, so a massive squeeze will continue. The Deflationists do not understand the reaction to the squeeze, focusing arrogantly on the endpoint. Their work is of little practical value, certainly of zero investment value. The squeeze will render harm to both households and businesses, with lost discretionary spending and lost profit margins. Their debate over which prevails misses the entire point. That is, the Deflation will continue in certain asset classes, especially housing and commercial property, while the Inflation will continue in monetary aggregate, TO MAKE A GROWING POWERFUL DAMAGING GLOBAL HURRICANE. Much end product price inflation will come. More end service price inflation will come. See shipping charges for a start. It seems obvious that the Deflationists ignore the battle and try to describe the outcome in narrow myopic terms. In a sense, they are the flat earth society.

ELOQUENCE LACED WITH IGNORANCE

Obviously, we cannot have a Weimar-style hyper-inflation. We do live in a credit based global economy. But the reasons why differ since the current global situation is different. The Weimar conditions were local to the microcosm that was Germany. It was enclosed. The current situation has its Weimar elements, especially endorsed by the recent March G-7 Meeting. That is global Weimar by any name, given its global coordination of USTreasury Bond purchase after broad discharge from Japan. The Deflationists cannot comprehend a global Weimar concept. Ackerman makes an astonishing claim that exposes the blind eye and ignorance to current conditions outside the US Dome of Perception. His eloquence should not be confused with wisdom. A good vocabulary and command of words cannot hide wrong statements that ignore the facts and overlook the trends.

He wrote, “Let me cut to the chase: Hyper-inflation occurs when people, fearing their money is about to become worthless, panic out of currency and into physical goods. This is highly unlikely to happen in the United States for several reasons. To wit: 1) Whereas Germany’s hyper-inflation took several years to ramp up, today’s financial markets are primed for a catastrophic collapse that could conceivably run its course in a week, if not mere hours; 2) under the circumstances, there would be no shifting of financial assets into hard goods simply because any financial assets one holds at the time of the collapse would become worthless before one could sell them; and, 3) at that point, there would be insufficient currency available to drive a hyper-inflation, since mattress money is likely to be scarce and because branch banks keep only about $25,000 to $50,000 in cash on hand. All of which implies we will go straight to deflation without the emancipating, hyper-inflationary interlude that some mortgage debtors might be hoping for.

Until now, I have been reluctant to air the simplistic argument, used by economists when they are at their most condescending, that inflation implies nothing more than an increase in the money supply. Although that is a truism that we would not argue with, it holds little value for anyone attempting to predict how a drastic increase or decrease in the money supply might play out symptomatically. While the textbook theory of it could account for the gas & groceries inflation that QE1 & QE2 have produced so far, it fails to explain logically how we would go from grocery store inflation to systemic and pervasive hyper-inflation. To repeat: Hyper-inflation would require the shifting of cash money into physical goods and assets. But other than mattress money and the relatively paltry sums of cash on hand at branch banks, there would be precious little cash to shift. And if the panicked money is assumed to come out of Treasurys and other paper assets, it begs the question of how much the paper assets will fetch on the day when there are no buyers other than the Federal Reserve? My argument is simple. I will not yield ground to any hyper-inflationist who fails to explain, if the system collapses, where the money will come from to bid tangible assets skyward.” (footnote: do not trust any analyst who writes “to wit” just like do not trust any banker named Jamie). The focus of my attention here is Ackerman, but similar criticisms are due for Karl Denninger, Mike Shedlock, Jay Taylor, and Ian Gordon.

FURTHER REBUTTAL TO THE BLIND EYE

To begin with, 12 to 18 months ago the Deflationist camp claimed the price of crude oil and the Gold price would fall and dramatically so. Wrong on both counts. Curiously, the camp avoids defending their wrong-footed points as the months pass, while the crude oil price zips past $120 (Brent that is, since West Texas is the province of paper games), while the Gold price hurtles toward $1500. Have Deflationists not noticed? People are moving rapidly out of quickly debased paper money and into tangible goods. Conversion of USTreasurys has become commonplace among sovereign wealth funds. Have Deflationists not noticed? This is the basis of the commodity price rise and the basis of the precious metals price rise. The USFed has in fact picked up almost the entire slack in USTBond purchase during the massive conversion process. The movement is better observed outside the US Dome of Perception, where foreign USTBond creditiors have openly halted their USTreasury bids, replaced by the USFed printing pre$$ eagerly. Foreign sovereign wealth funds across the globe have openly expressed their dismay over the entire QE initiatives, anger of unilateral monetary policy decisions made in the United States with seeming contempt, and the consequent harsh effect on commodity prices. They have increased their gold (and even silver) purchases in conversion of US$-based assets. They have rebalanced their reserves. They have stopped bidding at USTreasury auctions. Have Deflationists not noticed?

Germany’s financial collapse took several years. So is the US financial collapse, a long painful process. What began with a subprime mortgage problem in mid-2007 spread to a full blown housing decline, a bank insolvency problem, then a sovereign debt problem, then a monetary inflation solution with severe blowback, and now a monetary system discredit problem. The pathogenesis has so far spanned four years. Have Deflationists not noticed?  Anyone who believes the US financial collapse could occur in a single week is a moron. Actually, such an observer would be a blind man and moron. The US banking system in my view suffered a death experience in September 2008. The coroner was overridden by the Financial Accounting Standards Board, thus declaring the corpse permitted to walk with props and to speak from a recorded message, pretending to be alive. After April 1st decree in 2009, the Zombies have roamed the US landscape freely. Have Deflationists not noticed? The big US banks have been operating with an Extend & Pretend policy that their crippled balance sheet overloaded with toxic credit assets will somehow recover in the next year. Instead, the Real Estate Owned (REO) residential homes on the bank books have ballooned to over one million properties. Almost half of all home sales are short sales and foreclosure sales. The entire process has been extended to the extreme over times. Have Deflationists not noticed?

Financial assets are indeed being shifted into hard assets, in particular the basic commodities. Nations are building stockpiles. The main focus has been on crude oil to the commecial side and to Gold & Silver on the financial side. But some speculation has come to the copper market (which JPMorgan seems interested in), to the coffee market due to problems in Africa, to the sugar market (which JPMorgan seems fond of), and to the cotton market from broad necessity. Financial mavens, news anchors, and hedge fund managers have all been touting their strategies in response to runaway monetary inflation commanded from the marbled offices of the USFed. They respond to the devaluation of money itself. The migration to hard assets is well along. Have Deflationists not noticed?

Did somebody say there was insufficient currency to drive up and power hyper-inflation? Excuse me, but that statement truly misses the 800-pound gorilla sitting at the Deflationist dinner table. The USFed has expanded its balance sheet to over $3 trillion. The USFed has printed over $2.7 trillion in QE programs, with much more to come. That figure does not account for their secretive monetary extensions, like grants without collateral to fellow central bankers and friends of the syndicate. In fact, the QE program will soon be announced as ended, since so offensive, when in fact it will be incorporated and melded completely into routine weekly activity. The Euro Central Bank, the Bank of England, and the Bank of Japan have all joined in the paper confetti production enterprise. Have Deflationists not noticed? The spillover from the banks who hoarded the USTBonds took place and the spilled funds hit the commodity market. The Deflationists claimed it would not happen, no spillover of any kind. They were wrong. The next spillover will be to end product prices, and to some extent wages. The Deflationists will be wrong again. But the wage hikes will not be adequate to manage the higher costs to come. The increase in money supply plays out symptomatically under their noses without much recognition or comprehension.

The next phase will be for Cost Push, which will introduce higher prices and smaller packages by vendors. Then come demands for higher wages with high pitched battles. Some will be won, many will be lost, especially given the state government union legislation that has bagun to ban collective bargaining. The workers will lose more than in the 1980 decade, when 10% and 12% salary gains were commonplace. The corporations are supposely flush with these $2 trillion in cash on their balance sheets. Let’s see how much are devoted to commodity investments in counter action to the USDollar debasement (not noticed by Deflationists) and how much are devoted to labor concessions under demand of work action (not expected by Deflationists). My preference would be for capital investment and factory revamps, but the United States and its newfound marxism blended with fascism and oppressive regulatory impositions is not a place conducive for corporate expansion. These are some of the dynamics underway, which are not detected by those with blind eyes. The Deflationists prefer to cling to shallow arguments of a move  straight to deflation without all the intermediary steps that cannot comprehend.

Cash held by the people and investors and hedge funds pension funds and elsewhere is in a massive migration to hard assets. Physical goods & tangible assets are rising in price. Have Deflationists not noticed? Witness the burgeoning demand for USMint coins, resulting in shortages and production shutdowns across the world. Have Deflationists not noticed? Amplifying the USFed money output parade, the troubles in Egypt with associated threats to the Suez Canal, followed by troubles in Libya with interruptions to output, have all contributed to the movement of funds into hard assets like crude oil. Have Deflationists not noticed? As for buyers, right now the only (or primary) buyer for USTreasurys is the USFed itself. Plenty of global funds continue to chase crude oil, industrial metals, grains, farmlands, cotton, coffee, sugar, as well as the King Gold & Queen Silver. Have Deflationists not noticed? The interesting opportunities will continue to be offered for wealth accumulation in defense of the unspeakable abuses of money. These are the middle innings of opportunity when it is still legal to build and hold wealth. Those years might be nearing an end, unfortunately as we near open confiscation after hidden confiscation. The money to bid tangible assets skyward, my blind fools, is from the collective gaggle of central banks which are in a panic printing money without the controls to direct it where they wish. This is not a rant, but rather a directed rebuttal of a shallow discourse laden with blind spots, shallow arguments, and arrogance. Let us gaze at the fool with a blind eye in a purple robe sitting on a self-designed throne, with zero authority and a track record of major missed events.

GOLD & SILVER REACTION TO MONETARY DESTRUCTION

The Gold price has danced above the $1440 resistance without much conviction or gusto, but certainly enough to warrant calls for a golden breakout. But Silver, WOW! How impressive! Take no prisoners, that Silver Streak! Bob Moriarty of 321Gold made a silver price top declaration at the $34 mark about one month ago. As editor he even refused to publish an article by a bright fellow analyst who was forecasting a move in Silver to the $40 mark (not me). The word censorship fits. Then BobMo casually proclaimed the $38 price to be the new Silver top. One must wonder if he has become the new Prechter in the gold community, whose calls for a gold top at $600 and at $900 and at $1000 and at $1200 and at $1400 have made him a laughingstock. Will BobMo the great censor, whose website serves more as a personal investment promotional rag, proclaim $42 to be the next Silver top, followed by $46 and finally $50 as the final final top?? He clearly does not comprehend the gradual destruction of the global monetary system, or the tremendous volume of the monetary inflation with USDollar footprints, the discredit of sovereign debt, the diversification out of the USTBond, and the global revolt against both the USDollar and the Anglo banksters. That is ok, anyone can start a website. Witness a powerful Paradigm Shift where even editors miss the big picture. This systemic disruptive change and shift has been a topic in the Hat Trick Letter for almost three years, with a consistent message offered. And yes, the Deflationist Knuckleheads never address this Paradigm Shift. They are dull blades one and all, beset by blind eyes, although a couple are eloquent in forming sentences. They must realize their limitations.

A bright colleague remarked this week about the interplay between Gold & Silver, and how the shiny white metal takes advantage of the high level battles. He is a veteran COMEX trader and valued colleague. He wrote, “The price of Gold is totally intertwined with the dollar and thus all Western currency. I have seen some lines drawn in the sand with Gold over the years, but this is one of the most concerted and coordinated I can remember. As demand continues to push the price up relentlessly, and the Boyz rally around to cap it, the hot money runs in Silver. Very true even this week. Notice that when the Gold price was pushed down from $1445, the Silver price refused to budge in the mid-$38 range. Silver provided the signal of new imminent highs for both metals. In the next two days, Gold moved upward past $1460 while Silver broke to a strong clear new high approaching the exalted $40 level. Gold wins the political battles, while Silver takes triple the spoils. That pattern will continue to unfold. Whatever percentage gain Gold registers, Silver will register triple that gain. The shortages are acute and openly recognized for Silver.

Analysts like Max Keiser have brought attention to the Silver potential, urging citizens to purchase silver coins and bankrupt JPMorgan. Such rallying cries seem enthusiastic and full of vitriol, but they also seem naive on the desired outcome of a toppled titan, since the JPMorgan losses will be monetized by the USFed and USDept Treasury easily. Did they not monetize the big bank losses in mortgage bonds? To be sure, a global citizen movement to purchase Silver coins will render damage to JPMorgan, which will pass on the losses like dirty diapers to the USGovt, the eager storage center custodian of toxic effluent. The acute Silver shortages are in front of our noses, in the news, and point to extreme vulnerability in the USDollar, if not the USGovt debt condition. The USMint in possible illegal manner has at times suspended the production of Silver coins to be minted. They by law are commissioned to continue to meet public demand, which means they must bid up the Silver price if required. The COMEX shortage of Silver is so widespread and in the open, that futures contracts are being settled in cash, after the contract owner signs a waiver to permit the breach of contract itself. A 25% to 30% cash settlement bonus has become the norm. Such actions in policy have lit a fire under the Silver market and lifted its price. Angry from incessant charges of currency manipulation, the Chinese have responded by purchasing large truckloads of Gold & Silver. The real manipulation is by the USFed, whose debt monetization has gone global, whose USDollar effect is undeniable. That is blatant manipulation of not only the sovereign debt, but the currency denominated in it, extending to the entire monetary system. The group of major fiat currencies are all attached like a floating papyrus bound by threads. They are discredited in unison, weighed down by a debt burden and rotten paper.

The Euro is rising, despite its crippled condition. The ruse of a higher interest rate set by the Euro Central Bank is really amusing. Maybe they will come through with an inflation beater rate hike of a puny 25 basis points. How irrelevant? Both the US and EU have prevailing inflation rates over 8%. The cost of money remains 7% below the prevailing price inflation, maybe 12% too low for practical commerce. The appeal of the Euro comes from the totally obscene ruinous debased condition of the USDollar. The reverse beauty contest leaves the clownbuck as the gal left on stage seeking a dance partner. The toothless Euro at least has two dancing legs. The USDollar has none, nor teeth. The newest wrinkle in currency flows is the Arab investment in Euros, as they seek anything but USDollars. The US War Machine has targeted Libya, and turned its head from Bahrain. Just this week, Prince Turki of the House of Saud warned his princes that the Saudi Arabians must seek protection from other sources besides the United States. With the Saudis acknowledging security shortcomings, one must bring into focus the Petro-Dollar Standard, the defacto accord between the US and Saudi Arabia. They sell OPEC crude oil in US$ denomination only, and the USMilitary provides security protection for the royals in power as they accumulate great wealth. The accord is slowly disintegrating, with enormous potential impact to the USDollar standing. The US$ DX index is flirting with yet another breakdown below critical support. Each bounce off support is met by fresh selling. It seems military underpinning for the USDollar is slowly fading away like an old soldier after several decades.

The Gold breakout is clearly timid, lacking gusto and strong conviction. The Powerz have decided that they must contain the Gold price advance. The factors pushing up Gold are numerous. The sovereign debt decay process has led to lost integrity in the global monetary system organized as major currencies. They are all being debased by mammoth money printing initiatives with the full blessing of the governments and finance ministries. Each paper ambush led by naked shorting of the futures contract has resulted in a slingshot lift in Silver, a veritable nasty backfire in their faces. Those who cannot accept such a forecast of $100 Silver come from the same crowd that refused to believe last November that a $25 price would give way to a $40 price. But the Powerz cannot halt the powerful impressive advance of Silver, which will next take assault on the $50 mark. In two years, it will surpass the $100 mark, maybe sooner. The Gold price will make new highs in repeated fashion, and continue the upward movement, but it will be slow and steady toward the $2000 mark, inhibited the entire way. But Silver will be the impressive winner in the precious metals arena. At least one Silver substitute is already well over $1000 in price. That is the hint and clue of future price direction. Silver will take no prisoners while Gold shakes off its bondage. It has almost reached my $40 stated target, right on cue. One of the most profound changes that has come to the precious metals market is the shift, whereby price discovery has moved directly to the physical market. The paper futures market has been thoroughly corrupted.

The latest travesty is that JPMorgan is attempting to take delivery on a large portion of its short silver position. No misprint here. On their short position, that is, so that they can deliver it!! That is like making a demand to a credit card bank that the borrower intends to collect the debt from the creditor. Utterly absurd. That comedy is worth more to watch than the CFTC charade on position limits. The other profound change is that inflation expectations are being dictated by the Gold & Silver market, not the USTreasury Bonds any longer. The USFed Chairman has lost an enormous amount of credibility in his focus upon the long-term USTBond as an indication of price inflation expectations. The USGovt debt securities have lost their buyers. Not only is the USFed monetizing USTreasurys at a $100 billion clip per month, they are also purchasing the Treasury Inflation Protection Securities (TIPS). The TIPS are supposed to act as an inflation gauge. It too is corrupted.

A bigger fool than the Deflation Knuckleheads is the USFed Chairman Bernanke. He is a myopic professor who wrote a fine piece of revisionist history of the Great Depression, who now presides over a global monetary systemic collapse. Gold is reacting, but Silver reacts even more. As long as the insolvent big US banks remain in operation and are not liquidated, as long as toxic paper repositories rest under the USGovt roof, as long as the USGovt deficits remain well above $1 trillion annually, as long as Quantitative Easing legitimizes the debt monetization without checks, the GOLD PRICE WILL RISE INDEFINITELY. It is that simple.

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DEFLATIONISTS & BLIND EYES

[Investor Cafe]

Post Nuclear Japan, Pre Disaster United States

without comments

by Michael Collins

The Japanese disaster at Fukushima I is a human tragedy of striking proportions. As many as ten thousand citizens may be dead in the general catastrophe, with many more at risk for radiation poisoning at levels yet to be determined. The fact that Japan is a highly organized and wealthy nation in no way diminishes the intensity of the losses and pain experienced by the victims. (Image)

Political and economic implications will emerge rapidly. As the whole world watches, the Japanese experience creates windows of opportunity to learn how to avert future meltdowns at nuclear ticking time bombs placed throughout Europe, the United States, India, and China.

Events have overwhelmed the highly professional Japanese bureaucracy. In a late Saturday night report by CNN, the chief cabinet minister said that he presumed that there was a nuclear meltdown in reactors one and two, with three on the way. A nuclear regulatory official hedged by referring to the “possibility” of a meltdown, which he said could not be confirmed since workers couldn’t get close enough to see. The same regulatory official told CNN,

“We have some confidence, to some extent, to make the situation to be stable status,” he said. “We actually have very good confidence that we will resolve this.” March 12

Experts outside the government referred to the situation as desperate given the use of saltwater as a last resort for cooling the nuclear material.

See interactive map at International Nuclear Safety Center

Japanese Energy and Economic Disruption

Eighty percent of Japanese energy relies on imports. Nuclear plants provide about 30% of the electric production for the industrial base. The loss of the Fukushima I plant, for example reduces the nuclear output by 10%, just for starters. It also derails the big plans Japan has for nuclear power through 2050. Over 60% of domestic needs will be met by a robust nuclear program according to one optimistic estimate.

The following graph shows the contributions electrical production:

Assume a 20% loss of nuclear power production with the elimination of Fukushima’s 10% contribution and other reactors that may go offline due to preemptive safety precautions. Japan faces a near term energy shortage. The loss of 20% of nuclear production, for example, could translate into a 6% percent reduction of overall electric production. Hydroelectric and renewables are not capable of rising to the occasion as replacements. That leaves thermal/fossil plants. More imports and more pollution will go hand in hand for the next few years. Japan will pay much more attention to the Middle East, the source of 90% crude oil imports, with less focus on planned spread of nuclear plants.

This is speculation. The situation may be much worse. One thing is certain. The government regulator’s confidence that “we will resolve this” seems far-fetched at best.

The damage to plant, equipment, and infrastructure led to the shut down of several automobile plants. United States exporters will feel the impact of lower Japanese corporate revenues. China, Japan’s top trading partner, may well see the loss of investment and export opportunities. In addition, China may have a new competitor for crude oil due to the disruption to Japan’s overall energy supply system.

Still mired in the great stagnation since 1985, healthcare costs, rebuilding requirements, and the implosion of energy production in the Fukushima Prefecture will hit the domestic economy very hard in short order.

As if that weren’t bad enough, exports faltered in January. The country showed a 500 billion Yen trade deficit for the first month of 2011, the first drop in a string of sizable surpluses since February 2009. Japan’s people and economy are in for hard times. (Graph)

What if… Lessons for the United States

What would happen if a massive earthquake hit one of California’s nuclear plants? California represents 13% of the US GDP, 12% of the population, and ranks number eighth in global economies. Seismic disasters are not a new phenomenon in the Golden State.

Certainly, energy companies, politicians, and regulators considered this possibility. The United States Geological Survey (USGS) produced scientific research for years fine tuning the timing, intensity, and inevitability of future earthquakes. USGS states, “the chance of having one or more magnitude 6.7 or larger earthquakes in the California area over the next 30 years is greater than 99%.” The chance for a magnitude 7.5 or greater earthquake is set at 46%. (USGS)

Was anyone paying attention? Apparently not. The seismic risk map shows the danger of earthquakes for the state.

California’s two nuclear power plants are located on or near major fault lines. The Diablo Canyon facility is of particular concern. Californians have been anywhere from upset to outraged at the Diablo Canyon nuclear facility from the start. More than two million people get electricity from the plant. Designed to withstand a 7.5 magnitude earthquake, there are reasons to be less than confident in this estimate. The plant operator, PG&E, completely misinterpreted blueprints in the initial construction of “certain crucial pipe supports in the reactors containment room.” The misinterpretation involved constructing the pipe supports in a “mirror image” of the intended design.

Diablo Canyon is just 2.5 miles from the Hosgri Fault, a major portion of the San Andreas Fault. Construction proceeded despite the discovery of this massive fault early on.

Recently, PG&E executives diminished the importance of the Shoreline Fault less than an mile offshore from the nuclear plant. This fault was discovered in 2008. The Santa Barbara Independent reported that, “Nuclear Regulatory Commission (NRC) officials and PG&E executives have insisted there’s no cause for alarm; the plant, they maintain, is designed to withstand far more force than the new fault” will generate.

The Independent interviewed USGS Chief Scientist, Tom Brocher. He noted the possibility that the Shoreline Fault runs under Diablo Canyon’s reactors is “speculative” but not ruled out. Brocher said, “You’re bringing into the picture the possibility that an earthquake could crack the ground surface. This would be a disaster beyond anything we’ve seen in Japan:

“The prospect of such a calamity — with two nuclear reactors operating above ground and pools of spent fuels so dangerous they have to be kept submerged in water at least five years before they can be moved to steel-reinforced concrete casks — is the stuff of nightmarish disaster scenarios.” Nick Welsh, Santa Barbara Independent.

Sitting Ducks

As meltdowns and nuclear disaster continue in Japan, we should anticipate the impact of similar disasters at one or several of those red dots from the interactive global map of nuclear facilities. Natural events, plant failures, and sabotage provide an array of scenarios that can cripple a region or entire nation.

The potential of nuclear catastrophes is dismissed by energy company sponsored and nuclear friendly government reports claiming probable nuclear plant safety in the face of well-documented risks. The nuclear firms and Japanese authorities vouched for the safety of Fukushima I. All of that was to no avail.

Nevertheless, the administration’s proposed energy solution, the American Power Act, contains provisions for nuclear industry bailouts which are central to future energy needs. The industry largesse will help achieve the act’s goal of a 60% increase in power from nuclear reactors.

Will someone please calculate the probability for – we are doomed.

We are led by fools.

END

Post Nuclear Japan, Pre Disaster United States

[The Money Party]

Written by testudoetlepus

March 14th, 2011 at 9:38 am

The International Forecaster – February 2011 (#8)

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The following are some snippets from the most recent issue of the International Forecaster. For the full 31 page issue, please see subscription information below.

US MARKETS

The world is awash in dollars and that is being reflected in the USDX, which are six major currencies versus the dollar. The loss of value is being loudly trumpeted as the IMF says a replacement must be found. This is the same IMF that has been foisting non-gold backed SDRs on us since 1969. Every time they have tried this it has been a failure. We can give the Illuminists an ‘A’ for effort, but what they do not get is that the professionals and investors see right through it. Another batch of fiat currency is not going to solve the world’s currency crisis, which can only be saved by gold backing. Needless to say, the mainstream media will never talk about this in realistic terms, because the elitists control them. The denigration of currencies versus gold and silver are advancing apace, as the elitists day after day try to suppress gold and silver prices.

The major media is as complacent as ever because they are totally controlled. It is not ignorance or incompetence. It is control. The media tells us the stock market is headed higher, but fails to tell us why. The reason is manipulation by the US government, and those who control it, and funds swamping the market via QE2. This is an economy where few jobs are being created, unemployment remains steady and we are told that a rising stock market means recovery, which is far from the truth. Propaganda flourishes as well as physiological warfare. There is no truth for the American people and the people of the world, it is all controlled and capsulated for consumption and control. There is no real recovery; it is all smoke and mirrors to mislead the public. Government and the media declare there is no inflation, but yet it abounds. This is the same media that has ignored the climb in gold and silver prices for 11 years. They have few explanations as to why gold and silver prices are rising. It is because the value of fiat currencies are falling versus gold and silver, but that is not the explanation we hear. We are told a number of absurd falsities.

Gold and silver are just now beginning to break out of government instigated doldrums, which has been government induced by those who own the Fed. None of the old tricks and nostrums is working anymore, so new tactics are being taken. You have seen ongoing attacks on gold and silver that has been going on since 1988, and in the last 15 years they have been relentless. As of late the theme is destroy the gold and silver shares to make people believe that there is little value there, to shake novices out of their positions. The psywarfare plan is to force down gold and silver share prices and gold in order to destroy silver prices so that JPM and HSBC can cover their shorts. It hasn’t worked and won’t work. Needless to say, we get the usual from CNBC, CNN, MSNBC and Fox. Is it a bubble or a craze? Again, what else would you expect from a media which is usually wrong.

The debt and inflation will become more terse as we struggle forward. Government knows it has to cut Social Security, Medicaid and Medicare, screwing the participants and better enabling government to control and reduce these benefits. Allowing government to renege over and over again does not instill confidence in its citizens. There are mammoth cuts coming, but the military industrial complex will experience few. This is how the elitists keep their empire by threat of force. Just look around you and look at the Patriot Act and Homeland Security or the new Gestapo the FBI. Yes readers, you already live in a police state.

As Americans overlook these developments and the fact that anyone who criticizes government is a terrorist, price inflation is destroying their purchasing power and it’s being done deliberately, as a result of saving a broken banking system that only catered to the wealthy and connected. Loans are available, but generally only to AAA corporations and fellow elitists, as interest rates begin their devastating rise into the future. That needless to say will be accompanied by a falling dollar and higher gold and silver prices. Many other countries have duplicated these events, so not only will the US dollar fall in value, but also so will the currencies of most every other country versus one another and particularly versus gold and silver. In case you missed it, or forgot, versus nine major currencies over the past 10 years on average gold has appreciated 15-1/4% annually and silver 20-3/8% annually, thus, these facts are nothing new. They have just been hidden from you. As a result of the loss in purchasing power and ever building debt we have seen demonstrations and riots throughout Europe for the past two years. That has been followed for the same reasons, plus price inflation, in the Middle East with the overthrow of the governments of Tunisia and Egypt. Several more monarchies and dictatorships are on the verge of falling as well. In the US the attempt to radically change retirement benefits and unions has led to demonstrations in Wisconsin, Indiana and Ohio. We believe in time as unemployment rises with prices and there is no economic recovery that demonstrations will increase and they could, as they have elsewhere, turn violent. If police in the US fire on civilians or beat them into submission there will be retaliation and law enforcement will get decimated.

There is absolutely no way the dollar and other currencies can be saved. That is why the prices of gold and silver move relentlessly upward. There already is waning confidence in the dollar and many other currencies, and that is why the USDX, the dollar index, as a yardstick, is inferior to measuring all currencies versus gold and silver. You may not realize it now, but you are living through the collapse of fiat money systems. The future of monetary and fiscal matters will take many twists and turns, some good, some bad. It is far too early to make solid predictions on what routes will be taken. At this juncture it is easy to see where we are headed, but the future is more difficult. It could be inflation, hyperinflation, deflationary depression and another contrived war to distract people from the more important issues of the economy, finance and economic survival. In the meantime in reaction to such events gold could go to $5,000 or $10,000 and silver $100 to $500, as the flight to quality becomes a stampede.

Our studies and intelligence tells us that the elitists running the show deliberately planned a collapse so they can form a world government. For them everything is on the line. If they lose they’ll lose everything. If we lose the same could be true. We are not going to lose, because to many people worldwide already know what they are up too and that what we are experiencing was planned that way. Why do you think QE1 financial sectors were saved in the US and Europe and in QE2 the US government was bailed out. It is very obvious to thinking people as to what is taking place. The edifice that underlies elitist power has been bolstered as the US and European economics are being allowed to fail. Tough decisions will have to be made to save the dollar and the economy and that is not going to happen because those running the show behind the scenes do not want that to happen. The route being presently taken is that of the Fed funding all Treasury and Agency needs including deficit spending. In such a scenario gold and silver prices have no limits to the upside. It could also be that the majority of your gold and silver holdings may never be sold due to the ongoing turmoil the world may be buried in.

The stock market in Dow terms is about 12,400 due to trillions of dollars being poured into the economy via the Fed and QE1 and QE2 and via the manipulation of “The President’s Working Group on Financial Markets.” The insiders know what is going on but investors and the public do not have a clue. How is it that denizens of Wall Street get richer and the poor get poorer? It is because Wall Street and banking control the government. The question arises is the market overpriced? Of course it is, but hundreds of billions of dollars are available to Wall Street and banks to speculate in their rigged game. Can you imagine that it is possible for several banks and brokerage houses every day for months to have no losing trading days? Of course that is not normally possible. That can only happen when they create the inside information. They are slaughtering the average investor. Will the market collapse again? Of course it will, but the timing is very difficult. Perhaps if there is an announcement that QE2 is over and there will be no QE3, maybe major unrest in the Middle East will cause a correction, or perhaps a realization that there will be no further recovery, or perhaps we’ll see demonstrations in the US similar to those in the Middle East? After adding tax-pork legislation of $862 billion last year the administration is asking for $200 billion more. What the Fed has done with zero interest rates and quantitative easing at least temporarily is put a floor under the market. Eventually that floor will crumble as real interest rates climb further and perhaps QE comes to an end. Needless to say, were that to happen there would be total collapse. The US and for that matter, European economies cannot survive without major stimulus. In Europe the financially healthy nations are supplying $1 trillion to six poorer nations knowing full well $3 to $5 trillion is needed. German Chancellor Ms. Merkel says Germany will hold the euro together. Last week in elections in the Hamburg region the voters sent her a warning by crushing CDU candidates. If the CDU wants to be thrown out of office they will continue to advocate more support for sick members of the euro zone. We think the support by Germany is at an end and that means it is only a matter of time before the euro is history. In this regard the G-20 meeting went nowhere, as sick nations demanded that the solvent nations stop exporting so much. One asks where does it end.

Eventually the Dow will fall. When that will begin we do not know, but if it follows history it should fall to 6,650 and then to? Dow 3,200. It could fall lower, but 3,200 is the goal. The damage wreaked on the economy by deficit spending and QE will take years to correct. The longer the upside continues on the Dow the higher gold is going to go because in terms of gold the US dollar and other currencies will continue to fall. That is why the US Treasury and the Fed and other central bans want so desperately to stop gold and silver from going higher, which gets more difficult with each and every day.

That brings us to the performance of gold and silver shares, which have been under attack by government consistently for the past 15 years. You have major shares prices reflecting in many instances reserves at $300 an ounce or at 25% of gold market prices. Many of these operating companies are reporting profit increases of 20% to 40%. We have been involved in mining shares for 51 years and those who try to put a P/E ratio on producing mines are pursuing a futile quest. The reason is the enormous leverage in these shares that you are now seeing. In 1980 producers saw P/E’s of 350 times earnings. Gold is the perfect hedge against the collapse in value of other assets, currencies and inflation. For 6,000 years it has had no peers. Silver runs a close second as a store of value. Gold and silver are a reflection of the real value of currencies and are the most stable assets in the world. The proof of the dominance of gold and silver over the past ten years has been performance. Versus nine major currencies the average currency has lost 15-1/4% annually versus gold and 20-3/8% versus silver. There have been no assets that can come close to matching that consistent return and the trend is still upward. We wonder why CNBC, CNN and Bloomberg don’t site these statistics on their programs? You all know why, it is because the elitists behind the scenes own the media. So as a result you get totally managed and slanted news. There is never dissension and truth.

We have talked about an eventual market correction. We have just seen over the past six months the breaking of the bond market bubble and real estate continues its downward slide. That leaves gold, silver and commodities as the select investments.

In recent years real estate has proven to be a poor hedge versus inflation, as it still resumes its downward journey. It has become illiquid at market prices and can only be liquidated at severely reduced prices. Over the next few years massive inventory overhang will take prices lower and then there will be years of stagnation. That doesn’t sound like a very good investment to us.

We just saw the 10-year note fall from a yield of 2.20% to its current yield of 2.60%. We believe rates over the next two years could reach 5% to 5-1/2%. If we are correct that means 30-year fixed rate mortgagees could move to 6-1/2% to 7%. It also translates into large bond losses. The biggest question is will there be a QE3 and hyperinflation? We do not know for sure, but all the signs point in that direction. That means as inflation rises so do gold and silver related assets. Will we then see a flight to quality to gold and silver? Yes, we will. They will be the only game in town. We have been in an inflationary depression for two years. Next is higher inflation, probably hyperinflation and then deflationary depression. In all these environments gold and silver related assets will be the only place to be. These are the truthful facts of life today and a clear snapshot of where we are headed. Get your house in order, because if you do not you won’t like the consequences.

THE INTERNATIONAL FORECASTERSATURDAY, FEBRUARY 26, 201102/26/11 (8) IFE-MAIL ADDRESSESFor correspondence to Bob:bob@intforecaster.comFor subscription and renewal; technical support, log in problems, etc.:info@intforecaster.comCHECK OUT OUR WEBSITEhttp://theinternationalforecaster.com/RADIO APPEARANCES:To check out all of our radio appearances click on this link below:http://theinternationalforecaster.com/Radio_Interviews

International Forecaster February 2011 (#8) – Gold, Silver, Economy + More

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