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Thursday April 2nd 2015

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Wednesday Q&A

Q: We learned that the FED gave some trillions to foreign banks.  With them allowed to operate mostly in secret, would it not be possible for them to open obscure bank accounts anywhere in the world and electronically deposit any amount of money in them and use that for any purposes – buy / control property, media, heads of state, etc.?

David Schectman’s Answer:

I don’t see why not. Central banks, led by the Federal Reserve, and their hoard of “too big to fail” partners have put all of us in a very bad place. The TBTF banks gamble with our money and then fall back on the central banks (or tax payers) to backstop their losses.

We have no privacy but the Fed works in the dark, behind closed doors. They refuse to be audited. They are unelected bureaucrats making financial decisions that favor the banks and Wall Street, not the people, and nothing is ever done. Ron Paul tried for years and his son Rand is still trying but to no avail.

Expect nothing good from the banks and you will not be disappointed.

 

Q: Every time I hear anyone talking about the FED and how their policies will affect the markets, economy, etc., I am in awe that someone does not question, “While it is obvious that a free market economy would automatically keep everything in balance – avoiding the bubbles and crashes, etc., how is it possible that a handful of (idiot / criminal) bankers have almost total control of the markets and economy?”

Andy Hoffman’s Answer:

The answer is simple – power.  The people running the government and Central banks (and in today’s rigged world, the financial markets) have the power to do so – and equally important, the incentive, as it enables a status quo in which they retain not only such power, but wealth.  With each passing day, Joe and Jane Sixpack have less and less say in how things are run, and less and less ability to protest.

Naturally, “the powerst that be” will not act against their own interests, which is why we are fortunate to have “Economic Mother Nature” in our corner.  In time, all these economic and market manipulations and deformations will be swamped by reality – just as they always are.  This time around, said powers that be have more potent weapons to fight Economic Mother Nature.  However, as you can see by the ongoing collapse in global economic activity, currencies, commodities, and social stability – and conversely, the parabolic explosion in debt – they are decidedly losing the war.  In time, they will be destroyed completely, a la Napolean at Waterloo or General Custer at Little Big Horn.

Q: I follow your comments about the status of the world and it seems to me the only way out of this mess is to re capitalize the “world” using gold.   The major countries (including China) would agree on a new value for gold.  Probably north of 20,000 per ounce and all currencies would be backed by gold.   Essentially gold would be the reserve currency.   I hope the US has 8000 plus tons of gold because any country that doe not have gold would be in a world of hurt.    In this process, the US overnight would have to balance their budget and live within their means.

Regards,

Jim in Phoenix 
Bill Holter’s Answer:

Yes Jim, this is my thought process and I believe that of the “rest of the world” also.  Revaluing gold higher versus currency has worked before and is a natural cure or medicine.  The problem with this as you say “I hope the U.S. has the 8,000 plus tons.  A world of hurt is an understatement for many reasons.  If the gold is gone, we would then be known worldwide as fraudsters.  And what about foreign gold we are supposedly holding?  Is that also gone?  The U.S. would not be invited to any table, be it financial diplomatic or otherwise.  The scary thing is the nuclear arsenal, owning gold is not a required part of the launch sequence.  No matter how this shakes out, it will be a very different world, ALL OVER the world

THE GREATEST SHOW ON EARTH!

It is pretty much a given that we are living the end times of a three ring financial circus.  If you doubt this, only a small amount of research on your part will confirm this.  The odds in my opinion are quite high we will witness some sort of military confrontation as usually occurs when business deals go bad.  The three leading acts today are Greece, Ukraine and special guest under the Big Top is Austria.  We don’t want to slight the tensions in the Middle East but that is already in the military stage, today let’s look more closely at the financial stage.

Greece has already begun raiding public pensions to run even day to day operations.  The current estimate is they will run out of cash before the end of April.  It is no wonder they are having high level meetings with Moscow and will meet with Mr. Putin this coming Monday.  It has been said they are not looking for a handout.  This may be so but they will certainly be talking about running a pipeline through their country.  As I have said all along, broke is broke, they simply cannot make payment on what they have already borrowed from the West.

The West, led by Germany may be able to restructure terms or even offer the Greeks more current cash.  Any deal made will not solve anything as whatever Greece accepts (if they do) will also need to be paid back.  Paying one credit card off with another one does not lower your balance, on the contrary, the total balance rises and this is the problem.  Greece as recently as 2010 was the shining star of Europe, just as a bank rated AAA on a Friday afternoon is bankrupt on Monday morning, so went Greece.

What is being missed here is Greek debt is held widely by German and French banks …and by the ECB itself.  When Greece does finally default, these already undercapitalized banks will capsize, but this is only part of it.  Just as happened back in 2008, there may be 10 times the amount of CDS (insurance) written versus their debt, now we are talking $3.5 trillion.  Do you know of any entity on the planet that could make good on this policy?

Before finishing on Greece, James Turk did an interview yesterday with King World news where he theorizes there will shortly be a “crossover” of debt owed the ECB and Greek banking deposits.  The banks have bled down to 130 billion euros while the ECB holds nearly 100 billion worth of Greek debt.  James believes a “bail in” of Greek banks will occur before the bank balances are too small to cover the debt.  I believe this “crossover” has already happened.  I say this because many of the deposits are small.  I just don’t believe there are enough large deposits left to steal in order to cover the debt owed the ECB.  Can they really bail in small deposits of widows or retirees without a massive proletariat revolt?  I can envision small depositors of all ages out in the streets with pitchforks hunting down anyone who even looks like a banker!

Another financial tent which will fold is Ukraine.  The situation here is less cut and dry than Greece because Russia is involved.  A little refresher for you, Russia lent Ukraine $3 billion+ at the end of 2013.  They did this to try to help stabilize the country, within two months “their guy” was out and “our guy” was in.  Ukraine has payments due on debt in June and they do not have the funds (nor their gold as this has already been pilfered).   This debt held by Russia comes due at the end of this year and because it was written under “English law”, any restructuring must be approved by Russia.  The odds of Russia allowing a restructuring are virtually zero because they know any extra funds will be used to restart Ukraine’s assault on the Russian population of the east.  The risk of a default by Ukraine has risen greatly.  Just as with Greece, it is not only so much about the amount of debt itself, it’s about how much CDS “insurance” has been written.  Just as Greece is just another link in the derivatives chain, so too is Ukraine.  Any default will involve $1 trillion plus when derivatives are taken into account, are there a spare trillion or more (or even multiples of this) for any of these links should they break?

It is much more complicated than this but Russia will not aid the West at their own expense.  Please understand this, it is not about the money for Russia, the entire episode is about leverage, both financial and political.  You can add the leverage gained of debt problems to the fact Russia is a huge supplier of gas to Europe, who do you think Europe will side with when push comes to shove?

Under the Big Top but receiving the least amount of attention or press coverage is Austria and their banking problems.  It seems the collapse of Hypo-Alpe Adria bank is reaching the next level, it was only a matter of time.  Pfandbriefbank Oesterich AG is the next potential casualty .  They have a 600 million euro payment in June (lots of June deadlines?) but won’t be able to make this without invoking “guarantees”.  One of these guarantees comes from the state of Carinthia itself, already unwilling and they say unable to perform.  This is not even a large number, but, it affects the whole system in a domino effect where bank A owes bank B who owes bank C and down the line.

You should look at this as an illustration of just how thin the margins really are, a 600 million euro shortfall can have such a large impact?  The fear is if Hypo doesn’t pay, Pfandbriefbank will not be able to either.  What is really interesting is the 2 year debt of Pfandbriefbank is trading at around 95 cents, down nearly 15% since just last week.  The debt market is already smelling this one out!  Also please keep in mind that Austria was supposed to be one of the “strong” European countries (rated AAA) and Hypo was highly rated right up until their announcement of impairment, what other overnight surprises might we see?

To refresh your memory, Austrian bank problems were triggered when Switzerland broke their peg with the euro.  Many real estate loans were taken out in Swiss francs because the interest rate was so low.  Once the franc revalued higher, many of these loans were greater in value than the underlying real estate itself through no fault of the borrower other than to have borrowed in francs.  Obviously another area where the revaluation has done damage is to the bank’s balance sheets.  The lenders are now effectively short francs while those whom have sold derivative insurance against a lower euro or higher franc are now sitting on huge losses.  Trust me when I use the term “chain reaction” because this is already in motion!

This “three ring circus” as I have dubbed it is by no means all there is, it does however have a finite time frame.  Greece and Ukraine owe monies before the end of June.  Pfandbriefbank also has a payment due in June.  Will any of these payments actually get done?  None of them?  I’d like to point out the obvious here, in neither of these three situations does the ability to pay exist without “help” from another source.  How long will these “sources” be available and what happens when they are no longer?  To this point it has been a hell of a show, it is best not to stay to watch the final act!

THE ULTIMATE “TRAPPED RATS”

It wasn’t until the late 1990s when I first had enough money – or better put, currency – to purchase anything other than life’s necessities. Consequently, my first investments were tech stocks during the internet mania, despite not having the slightest understanding of their fundamentals. Oh, I picked the brains of the young, up-and-coming telecom analyst at Southcoast Capital in New Orleans – where was an oilfield service equity analyst from 1998-99. However, no matter how hard I tried, there was no way I’d ever grasp the technology, valuations, or long-term outlooks of the fly by night, Wall Street-juiced companies of the largest financial bubble the world had ever seen. Fortunately, I was conservative enough to pull out at the first sign of trouble, in April 2000; and believe it or not, aside from Precious Metal miners – which I ran kicking and screaming from four years ago – I have not owned a stock since.

On that day in April 2000, my bubble-calling “career” began. In the big picture, my calls have been as right as rain; but intermittently, have earned me derision and loathing, as the loan Cassandra in a world of Pollyanna’s. The same occurred in 2005-07 when, despite my wife (an attorney at the time) and I having built up a nice nest egg, I would not yield to friends and relatives’ relentless nagging to buy a house. I could not have been more vocal that housing was a massive bubble ready to burst; and when I finally ceded to my wife’s desire to own a home in May 2007, I did so under the condition that it was not in the high cost, high property tax state of New York, but out in Colorado; where not only were the cost of real estate and living in general dramatically lower, but where I could see myself for decades to come.

A year later the bubble burst, although the subsequent anger, frustration, and fear of said friends and relatives didn’t even earn me a brief “leave of absence” from Cassandraville. Heck, even when “dollar-priced gold” and silver reached their interim, Cartel-created peaks in 2011, I barely received a nod of recognition, as the vast majority of people had neither funds to invest, nor the slightest understanding or interest in real money. And undoubtedly, when the “big one” eventually washes over American shores – perhaps, as soon as this year – I fully expect to be equally stigmatized; which is why I long ago stopped speaking of such matters to those close to me, and why I’ll quietly stand in the background – aside from this blog, of course – amidst financial carnage that will undoubtedly put 2000 and 2008 to shame.

In 2000, the global economy peaked, having been artificially inflated by three decades of unfettered money printing; as the “credit card” of history’s largest fiat Ponzi scheme was fully charged up global governments, municipalities, and individuals alike. In 2008, Central banks were forced to step in and charge up their own “credit cards”; and care of record low interest rates and the emergence of maniacal, stock-supporting “PPT” initiatives, corporations, too, charged up their “credit cards” with a variety of counter-productive schemes like management-enriching buyback programs; leaving us where we are today – with the global economy at its indisputably low point of our lifetimes; industrial overcapacity so deeply ingrained, it could take decades to unwind; and the majority of governments, municipalities, institutions, corporations, and individuals up to their eyeballs in debts that are mathematically impossible to repay.

Consequently, Central banks have engaged in ZIRP, NIRP, and QE “to Infinity” schemes to prevent this debt from becoming not just unpayable, but unserviceable as well. Which in turn, has launched the politically-driven, economically suicidal “final currency war” into its nuclear stage – fueling violent waves of inflation, deflation, social unrest, and geopolitical instability. It’s only a matter before the hyperinflationary match finds its fuse; and whether that fuse is oil, Greece, the Fed, or otherwise, we assure you it’s coming.

Below are perhaps the only charts one needs to see to understand just how dire the situation has become – depicting how the Fed’s maniacal financial repression has accomplished nothing but “kicking the can” a decade or so, whilst fostering the aforementioned currency wars; unprecedented wealth inequality; and a mountain of debt that will inevitably, spectacularly crash. But scariest of all, is the simple observation that in both 2000 and 2008, the Fed had the ammunition to “fight” the market declines – and subsequent recessions – with rate cuts and QE; whilst today, rates are at ZERO, and the Fed’s balance sheet has ballooned to $4.5 trillion, leaving it with no ammunition to fight far more dangerous recessionary forces, and far higher debt loads. In other words, it is completely and utterly impotent, which is why it now relies principally on increasingly transparent jawboning, market manipulation, and propaganda schemes. Even former Fed governor Kevin Warsh admitted yesterday that “the markets think they have Yellen’s number; that she will never allow markets to go down. They think the good times can last forever, and that is a very dangerous development; particularly as we tried negative real rates in the mid-70s and early 2000s, and both times it ended badly.”

And that isn’t just the case in the States, but the entire Western world, where rates are being “ZIRPed” to Infinity; and in much of Europe, “NIRPed” -as incredibly, more than €2.2 trillion of European sovereign bonds are now trading at negative yields, suicidally tempting fate by assuming Draghi’s insane, open-ended QE program will bail them out before hyper-inflation inevitably comes to town. And this morning’s European “deflationary” reading (of -0.1%) notwithstanding, hyperinflation will certainly arrive; as it already hasin countless second and third world nations, and shortly will in “first world” nations like Greece; and inevitably the “naked emperors” themselves – in Japan, the UK, continental Europe and the “reserve currency” wielding United States.

This time around, I have consciously avoided the word “bubble” like the plague; as despite equity, fixed income, and other “favored” assets trading at historically high valuations – amidst the worst economic fundamentals of our lifetimes – what is occurring today is, in many ways, the polar opposite of 2000 and 2008. Back then, public participation in the equity and real estate bubbles was extremely high. However, today’s “99%” are vastly poorer due to those crashes – with significantly weaker “confidence” due to inexorably plunging real income; dramatically higher debt loads; and a calcified mistrust of Washington and Wall Street, who they increasingly blame for their misfortunes. No, today’s “bubble” has been created entirely by TPTB, for TPTB, at the expense of all others. And whilst its inevitable implosion will be spectacular and far-reaching, the direct impact will be felt disproportionately by the “1%” that benefitted from it. As for the rest of us, we will be treated to an exponential acceleration of the unstoppable, downward, global economic spiral; as well as increasingly inflationary monetary policies that wipe out whatever remains of our net worth’s; aside, of course, from those wise enough to escaped to the timeless purchasing power salvation of real money.

What will be the catalyst that permanently destroys the “doomsday machine” – as David Stockman puts it – that are the bubble-fostering, economically deforming monetization and market manipulation practices of the world’s leading Central banks? Who knows, but the list of potential catalysts is as broad as it is deep. James Turk believes Greece will blow up in the next two weeks, given the sheer weight of its unfunded debt obligations and a rapidly growing loss of hope in its ability to negotiate with a “jack high” hand. Let alone, as its citizens grow angrier, and more revolutionary, with each passing day. Will it be the plunging oil price, given how much economic activity, social stability, and debt repayment depends on high prices? Or perhaps a geopolitical event – “black swan” or otherwise – in the Ukraine, Yemen, or Syria? Or simply an explosion of currency war activity, as the inexorably rising dollar – not due to U.S. economic strength (see today’s horrific Chicago PMI print of 46.5), but a global flight to liquidity – causes massive inflationary tsunamis in some parts of the world, and deflationary one in others?

My crystal ball is as good as yours. However, one thing I am sure of, is that via hyperinflation or crash, the real losses in financial assets will be historic. And conversely, the real gains in Precious Metals unprecedented. And rest assured, the “ultimate trapped rats” that the world’s “leading” Central banks have become will be destroyed, like hundreds before them; but not until they have monetized everything not nailed down with freshly printed, hyper-inflating currency. Which is why, with Precious Metal prices having been driven below their cost of production, and sentiment to its lowest level in two decades, by a maniacal Cartel desperate to kick the monetary can as far as possible, the reasons to own physical gold and silver have never been greater.

EVEN SHERLOCK HOLMES WOULD LAUGH!

As history’s largest, most destructive credit, construction, and asset bubble inflates to unprecedented levels, the disconnect between asset valuations and time-honored, irrefutable economic laws has widened beyond any semblance of sanity. Joseph Goebbels infamously stated that “if you tell a lie big enough and keep repeating it, people will eventually come to believe it”; and nowhere is this more obvious than (PPT-supported) “market responses” to Central banker comments. Or heck, even rumors of such comments, irrespective of how unfathomably wrong Central bankers have been in essentially all they’ve predicted.

To wit, this (Monday) morning’s “top story” from MSM lackey Yahoo! Finance trumpeted “world stocks gain after Yellen signals gradual rise in rates” – referring, of course, to her “conveniently” timed speech Friday afternoon, just 15 minutes before the NYSE close, in which she said…wait for it…absolutely nothing incremental. Let alone, the secondary byline that “Chinese stocks soared on hopes for more economic stimulus measures.” Not to mention, according to Zero Hedge, a false PBOC rate cut rumor – which, as usual, didn’t reverse the markets’ gains when it was proved so.

To the contrary, care of the most manipulated markets in history, gold and silver investors have been subjected to “rumor-based” waterfall declines hundreds of times over the past decade; which not only didn’t pan out (such as the countless “bid Laden captured” and “IMF to sell its gold” rumors in 2003-09), but wouldn’t have been “bad news” anyway – as frankly, “gold bearish” news is simply not possible in the terminal stage of a fiat Ponzi scheme. Highlighting the point, when bin Laden was actually captured in May 2011 – assuming the official story is true – “dollar-priced gold” was $1,500/oz, en route to an all-time high of $1,920/oz just four months later. Not to mention, when the IMF finally sold its (likely double-counted, perhaps non-existent) 200 tonnes of gold to India in November 2009 for $1,040/oz, not only did the gold price not budge downwards, but a year later it breached $1,400/oz. In other words, the game of manipulating the prices of “favored” assets higher with “positive” rumors – and “un-favored” assets downward with “negative” rumors – has been going on for more than a decade.

Of course, the most comical aspect of such manipulations – which, per today’s article’s namesake, “even Sherlock Holmes would laugh at” – is that even the most jaded establishment apologist would have to agree that the supposedly “incremental” information that potential rate hikes will only be “gradual”; let alone, new Chinese monetary and economic stimulus, are about as Precious Metal bullish as one could imagine. Not to mention, on a weekend when the only material headline was that the Euro Group essentially laughing at the “details” of Greece’s latest “reform” proposal, calling it “vague” and “piecemeal.” And oh yeah, escalation of the Yemeni hostilities we warned of Friday, and news that the Australian government is proposing to tax bank deposits, taking its beleaguered monetary system one step closer to “NIRP-dom.”

Here in the States, we’re told that yet another perma-bullish think tank, the “National Bureau of Economic Research,” expects 3.1% (fraudulently calculated) GDP in 2015, despite an horrific first quarter in which the Fed’s own tracking model is currently predicting 0.2% growth. Yes, 3.1% – despite, nearly across-the-board, the worst economic data since the 2008 crisis, including this morning’s pathetic, less than expected consumer spending report, depicting a paltry 0.1% increase in February, following a 0.2% decline in January. Not to mention, the Dallas Fed Manufacturing Index plunging from -11.2 in February to -17.4 in March, despite being “expected” to have improved. Where such 2015 “growth” is going to come from is beyond me; as doing simple math, if first quarter GDP turns out to grow by the Fed’s projected 0.2%, a 3.1% result for the full year would require average growth in the final three quarters of 4.2%, compared to the full-year 2012, 2013, and 2014 growth rates of 2.3%, 2.2%, and 2.4%, respectively. Let alone, that such “growth” is fictitious in the first place, per this weekend’s Audioblog, “the hideous ramifications of economic data fabrication.”

Again, Sherlock Holmes would be rolling over in his grave if he saw such lame, painfully transparently attempts to whitewash reality; like for instance, smashing gold and silver prices (with the same “Sunday Night Sentiment” and “2:15 AM” EST algorithms as always) on expectations the Fed will raise rates from zero gradually – if at all; or that the Chinese government is preparing to print money like drunken sailors.

I mean, what part of Whirlybird Janet’s comical press conference
last week could even be remotely interpreted as “gold negative?” Or, for that matter,
coherent?

“Just because we removed the word patient from the statement, it doesn’t mean we’re going to be impatient. Moreover, even after the initial increase in the target Funds rate, our policy is likely to remain highly accommodative.”

Again, the reason we discuss such lies, inconsistencies, and blatant manipulations so often is to disseminate a truth you won’t receive from biased mainstream sources – who so desperately want to believe “Economic Mother Nature” can be defeated; and at that, an extremely angry, scorned woman. Only by understanding such truth can you act to protect yourself from the mathematical certainty of what’s coming; such as a broken “New York Gold Pool,” yielding an unprecedented gold and silver price surge. To wit, as PPT-supported stocks soar to valuation levels not seen at the 1929, 2000, or 2007 tops, dollar-priced paper gold prices continue to be capped at multi-year lows. Meanwhile, year-to-date physical withdrawals from the Shanghai Gold Exchange, which Koos Jansen (easily, the top Eastern Hemisphere gold analyst) uses as a proxy for overall Chinese demand, are not only 7% above last year’s record levels, but 33% above 2013′s then-record levels.

Conversely, evidence of the “peak gold” we wrote of last month – and heck, Goldman Sachs last week – gets stronger each day; as exemplified by a study released this weekend, validating my assertion of 19 months ago (when gold and silver were $1,300/oz and $21/oz, respectively), that a 10%-20% gold production decline may wind up being conservative when all is said and done. I urge you to read said article from August 2013 – i.e, “junior mining – and future production – death“; as well as said study, describing 589 public Canadian miners with less cash on hand than the C$50,000 minimum listing requirement, and cumulative working capital of negative C$2.2 billion. As far back as 2012 (as you’ll read in my article), I predicted more than half of Canada’s then 1,800 junior miners would be bankrupt within 12-18 months. Effectively, they are; and by this time next year, it’s entirely possible that more than three-quarters of the original 1,800 will have died, with the remaining few having extremely limited capital – and oh yeah, no one to sell a discovery to even if they miraculously make one, given that the massively unprofitable, highly indebted majors are on the cusp of a massive consolidation/cost cutting initiative themselves.

To that end, this weekend’s news that “evil personified” itself, Barrick Gold – which as of now, is anticipating production to fall by a whopping 40% from its 2014 high by 2020, and lower thereafter – has hired Canada’s former Foreign Affairs Minister, John Baird, and none other than former U.S. House Speaker Newt Gingrich to its “international advisory board.” Certainly they’re not there to institute financial discipline, given they have absolutely zero experience in cutting costs. And neither is the Board Chairman that appointed them, John Thornton; who, after being assuming that role less than a year ago, gave himself a 30% raise in 2014 – to a whopping C$12.9 million – despite the company having lost C$550 million, C$10.6 billion, and C$2.9 billion over the three years he served on its board. John Thornton, by the way, was co-CEO of Goldman Sachs in 2003-04 (after having developed its European M&A business in the 1980s and 90s); whose raison d’etre – aside from manipulating markets, buying politicians, and destroying sovereign governments – is generating M&A fees. Thus, the combination of one of Goldman’s top M&A executives taking over Barrick’s Chairmanship, and the hiring of senior U.S. and Canadian politicians, in my view, couldn’t make it more obvious that Canada-based Barrick, the world’s largest gold miner, is again in discussions with U.S.-based Newmont Mining, the world’s second largest. And when they do inevitably merge, the entire cash-starved PM mining sector will likely follow suit, ASAP, triggering a capital spending – and potentially gold production – wave rivaling the historic oil consolidation of the early 2000s.

Back to the lies even Sherlock Holmes would blush at, I see that Treasury Secretary Jack Lew – whose esteemed resume includes being the Chief Operating Officer of Citigroup in 2006-08, whilst it received the biggest taxpayer bailout in global history – this morning claimed “it is critical that China continues to move to a more market-determined exchange rate and a more transparent exchange rate policy.” And this, just three weeks after the White House that employs him posted an official press release that the “strengthening dollar is a headwind for U.S. growth.” Let alone, from a government whose “Exchange Stabilization Fund” – charged with covertly “dealing in gold and foreign exchange to stabilize the exchange value of the dollar” – is perhaps the least transparent “currency management agency” on the planet.

Or how about Germany’s Finance Minister, Wolfgang Schaeuble – after Mario Draghi, Europe’s second most powerful banker – making the shocking statement this weekend that “we have too much Central bank money around the world, and too much debt” – but “nevertheless, this is not a criticism of the ECB’s monetary policy, which has to defend its inflation target.” Not a criticism, you say? Well what part of “too much Central bank money” is not self-incriminating – when Germany, by far, has the most influence over ECB policy?

Well, at least he was telling the truth; which is more than our newest Fed Chairman turned public advocate – Helicopter Ben himself – was doing when his blog debuted this weekend, claiming he was “concerned about those seniors” he threw under the bus by lowering rates to zero in 2008, and keeping them there for his entire chairmanship. And as for Janet Yellen, in her supposedly “gold-bearish” press conference Friday afternoon, she actually made the jaw-dropping, massively PM-bullish statement that “cash is not a convenient store of value.” Frankly, I have no idea what she really believes, other than what she is told to believe by her masters in Washington and on Wall Street.

With all this in mind, today’s key takeaway should be that you can only fool so many people for so long – like, for instance, blaming horrible February data on “the weather,” but reporting surging home sales in the regions with the worst weather patterns. At some point, there’s no one dumb enough to be fooled; at which point, the only way TPTB will be able to avert instantaneous economic and market implosion will be the unprecedented, overt”QE to Infinity” that all fiat Ponzi schemes inevitably succumb to. At the pace the lies – and debts – are escalating, it’s difficult to believe that time is far off. And when it arrives, if you haven’t already protected yourself, it will certainly be too late.

DUCK AND COVER…WHAT COULD POSSIBLY GO WRONG?

I can still remember being in elementary school and the alarm going off in the middle of class, it was time to practice “duck and cover”.  Another practice drill was when all six grades would march to the basement of the building and huddle in the boiler room, a potential nuclear war at any time was very real to us in the old days.  It’s different today, everyone “knows” a nuclear war can nor will ever happen.  It can’t happen because our leaders driving the bus are too smart to ever go down that road …right?

In case you have only been watching mainstream media, you may not be aware  another “little war” has broken out in the Middle East between Saudi Arabia and Yemen.  I mentioned “mainstream media” above because …there is almost NO MENTION of this.  More coverage has been given to an airliner crashed by a depressed pilot and Mr. Obama’s recent golf trip. What is happening is so complicated it boggles the mind.    The underlying cause can be said to be religious, between the Sunnis and Shiites but this line is quite blurred because of other alliances.

To bring you up to speed, Saudi Arabia is predominantly Sunni, Iran is predominantly Shiite.  This pits the two against each other.  Yemen had a Shiite president until 2012 and he was replaced by a Sunni.  The country is split, mostly Shiite in the north and Sunni in the south.  A new name (Al Qaeda, ISIL, ISIS etc.), the Shiite (Iranian backed) “Houthi” have sprung up from the north and forced the president out of the capital, his whereabouts are unknown.  Yemen has been and is going through a civil war.

The problems as I see them are: first, Yemen controls a choke point of oil transportation from the Red Sea, logistically they can prevent a goodly percentage of oil from reaching world markets.  This in my mind is secondary to what potentially could be “drawn in”.  If this expands and truly becomes Saudi Arabia versus Iran then assuming our ties with the Saudis remain (remember they just joined China’s competing infrastructure bank against U.S. wishes), it will become the U.S. versus Russia backing Iran.  A side oddity is the U.S. providing airstrikes in support of Iranian fighters against the ISIS advance in Iraq.  Could we support Iranian troops in one country yet cut them down in another conflict?  I suppose yes and should not be surprising given our foreign policy thought process, it could be said it is even probable?  This is the danger in the Middle East, it is religious and thus the hardest type of fire to put out.

This is not the only place the U.S. and Russia are facing off, don’t forget Ukraine and other borders to Russia.  NATO (the U.S.) has been amassing hardware all around the Russian border and our Congress just overwhelmingly voted 348-48 to supply Ukraine with military hardware.  Mr. Putin and Russia have previously said if we arm Ukraine, they will consider it an act of war.

This is insanity!   It was reported yesterday the U.S. is sending 50 Abrams class tanks to Ukraine, not smart in my opinion.  Sending arms to Ukraine will not work to defeat Russia, it will however get a war started which is exactly what the U.S. has been trying to do over the last several years.

I don’t want to write a book about either the Middle East situation or the direct aggression on the Russian border, rather we should look at “why”.  Why is the U.S. pushing so hard for a war which cannot be won and can only go nuclear with all the follow on repercussions.  In short, because we “have to”.  The game is over and Washington knows it.  The game of course is dollar hegemony.  The game of “reflation” is lost and gone until we can reset the system with a new currency.  You see, each time we had a recession in the past, the Fed would (could) reflate the economy and thus the markets.  It did not work this time as you know because we reached “debt saturation” levels in the economy back in 2007 and now finally on the Fed and Treasury levels.  Adding more debt no longer works as a medicine, rather, it is lethal.

It is my opinion that war is necessary and will be used to “cover up” what has really been done.  Will people even care about their 401K’s in the middle of a world war?  Will they care if the dollar implodes in value?  Of course they will but, these and any other bad events will be blamed on “the war”.  You will hear “our plans would have worked and were working if not for the war”.  Will investigations of anything be demanded?  No, “it was the war’s fault”!

There are a couple of possibilities still left for the world to avoid war.  First, and seemingly possible in light of recent actions, our allies could simply abandon us.  They might even join together and demand the U.S. just stop.  Europe could turn away and tell us they do not want war with Russia.  Until this week I thought it was possible for Saudi Arabia to turn toward China and thus Russia, I may have been wrong as demonstrated with their attacks on Yemen with U.S. support.

Another possibility is somehow the rest of the world makes it financially impossible for the U.S. to wage war.  It is possible for our markets to be “crashed” and our ability to borrow denied.  This could be a concerted effort or even in the form of some sort of “truth bomb”.  Our entire system is a lie.  The banking system is a lie where mark to fantasy is the rule, our economic reporting is false and so are all markets.  Our rule of law is breaking down.  Should the lie of the “American way” be somehow exposed, allies would not back us nor will there be any support internally to aggress further overseas.

The U.S. has worked very hard over the last year(s) to isolate Russia in nearly every way imaginable and to war with them, we have succeeded in isolating ourselves more and more.  The question is whether we have isolated ourselves to the point where the entire world will no longer support us and instead stand against us.

As I started this piece with “duck and cover”, it was foolish then and of course still foolish.  What we so feared then, and maybe even irrationally, we should absolutely fear today.  Our leaders of the past were rational, they also had options and a viable system to live in.  Today, our leaders are irrational with no options available in a system which must be changed and cleaned up.  If you ask the question, “what could possibly go wrong?”, the answer is, it already has, and unfortunately we will bear the consequences.  As good and easy as it was in the past to live as an American, I believe it will be an unpleasant and hard (if not impossible) task from here.

 

Audio Blog # 88 – The Hideous Ramifications of Economic Data Fabrication

CASH IS TRASH

After last week’s air tragedy, maybe a poor thought process but please stay with me.  Would you ever get on an airplane if there was no pilot?  Would you be confident of reaching your destination safely?  Of course not.  Whether you know it or not, you are living in an economic and financial “airplane” with Janet Yellen as the pilot.  The sad thing is this, even she admits the airplane is broken, I’ll explain why shortly.

Mrs. Yellen gave a speech Friday for the San Francisco Fed.  The full text can be found here.  Before getting into the particulars, I must say it is “sad” to see our “pilot” go back and forth while not saying much of anything…and what was said was largely incorrect or misinformation.  In short, I believe Mrs. Yellen was pandering to Wall Street with her continual line of “we will raise rates later but not yet, and when we do is will be gradual” (my paraphrase).  As I have written many times before, the Fed cannot raise rates and if they did the markets will not even be open for trade within two weeks!

First and foremost, let’s look at a few of the Fed’s assumptions.  They assume unemployment is 5.5%, the economy is growing and inflation is “too low” and well below 2%.  Let’s pull these assumptions apart and then put them back together.  Unemployment is not 5.5%, this is total fallacy.  The workforce participation rate is plumbing 40 year lows now and those “not looking for work” …because they cannot find any are just thrown in a heap and forgotten about.  This has the effect of making the “potential” workforce smaller than it really is, a statistical gimmick for the ages.  If unemployment was calculated as it once was back in 1980, the rate would be above 17% as calculated by John Williams Shadow Stats.  The 5.5% number is a hilarious fabrication Joseph Goebbels would be ashamed of!

Next, we have the economic growth rate.  Friday’s final 4th quarter report claimed 2.2% growth, if you look at the Fed’s OWN MODEL, the first quarter is growing at .2% (NOT two percent, POINT two percent!).  If we go one step further and look at “how” the growth rate is calculated, we see there is an “assumption” for inflation.  The way it works is the inflation assumption is deducted from the nominal growth rate to arrive at a real growth rate.  If inflation is low, it’s only a small deduction to growth.  If inflation is high, the deduction to growth will be greater.  For example, if we have nominal growth of 3% and inflation at 1%, the real rate is 3% minus 1% =2%.  But what if the inflation rate is really 5%?  Now we get 3% minus 5%= a negative 2%, or contraction …otherwise known as recession…and herein lies the problem!

The Fed uses BLS statistics for their models and uses CPI and PPI numbers in their calculations.  These are NOT true inflation numbers.  Yes, they are massaged, twisted and just plain made up, but this is not the “fallacy”.  The definition of inflation or deflation has nothing to do with “prices”, price movement is the result, not the cause.  The growth of, or the contraction of the money supply is the definition of either inflation or deflation.  Janet Yellen knows this, Bernanke and Greenspan knew this …they don’t want YOU to know this.  They don’t want you to know this because if you did, then you would know we have not had a single quarter since 2007 with real growth!!!

Now that we have that out of the way, let’s look at a few of her quotes and finish with a “Q+A” mind blower.  Mrs. Yellen contends “With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year.”  She followed this by saying …the economy in an “underlying” sense remains quite weak by historical standards.  So which is it?  Strong or weak?  Of course, all of this was prefaced by admitting to “extraordinary monetary ease” over the last six years and then later spoke about the timing of rates hikes being difficult because of the “long lag times”.  Does six years qualify as “long”?  I can still remember studying money and banking in college, the “lag time” was generally considered six to nine months, has so much changed in the thirty years I’ve been out of school?  (The answer of course is yes, it has).

Another quote, and an obvious case of “mental lag” on her part, she said, “An environment of prolonged low short-term rates could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield”.  Really?  Ya think?  Are you saying that abnormally low short term interest rates tend to blow bubbles faster than Lawrence Welk?

Before getting to the real fun, let’s look at what I think was a first admission on the part of the Fed regarding their balance sheet.  Mrs. Yellen said “But if growth was to falter and inflation was to fall yet further, the effective lower bound on nominal interest rates could limit the Committee’s ability to provide the needed degree of accommodation. With an already large balance sheet, for example, the FOMC might be concerned about potential costs and risks associated with further asset purchases.”  Do you understand what she just said?  In my own blunt words, she said “if the markets were to turn down and economy further down from here, since interest rates are already at zero …there is nothing we could do.  We have already expanded our balance sheet to the limit and would risk bankrupting even ourselves with further bond purchases.  We are out of ammo”!  Sad, but very true, the Fed can only rely on falsified data to portray growth and can only threaten higher rates, but never deliver them.

Lastly, during the Q+A session Mrs. Yellen made the comment “cash is not a convenient store of value”.  After it was all said and done, CNBC’s Rick Santelli went off on a rant and can be seen here. 

If I may interpret for you, Mrs. Yellen is saying they not only “want” to debase the dollar and create inflation, they absolutely MUST debase and devalue the dollar in or to “reflate” and KEEP REFLATING!  There is no other alternative but we already knew this.  We knew she knew this, what was shocking is she actually said this!  Let me finish with a three word translation for you,  “Cash is trash”.  Janet Yellen, 3/27/14.

A2A with Andy Hoffman of Miles Franklin

Over the course of this 35-minute podcast with Turn Ferguson, Andy discusses issues such as:

  • the global crises that concern him most
  • the potential (inevitable?) Chinese yuan devaulation
  • why he only owns precious metal and not the mining shares
  • fundamental factors that are driving oil prices lower
  • the likelihood of precious metal confiscation and/or profit taxes

CLICK HERE For the Interview

World Economies Imploding, QE4 Ahead, Gold Market Turnaround | Andy Hoffman

Please CLICK HERE to listen to the interview on Finance and Liberty

YEMEN, THE NEWEST BLACK SWAN

By my estimation, the “official starting point” of the government’s commandeering of financial markets was September 17, 2001, when stocks were blatantly supported upon re-opening after the 9/11 attacks. Since then, the level of manipulation has gradually expanded – often, via PPT “trial balloons” following dramatic events like the Enron and Worldcom bankruptcies a year later. All along, the gold Cartel was doing its regular, day-to-day thing (albeit, less maniacally than today); but regarding stocks, the PPT – officially, the “President’s Working Group on Financial Markets” – was still utilized more for “emergency situations” than “day to day operations.” The 2008 crisis altered that status quo forever – although, as I have discussed ad nauseum, it undoubtedly took “TPTB” by surprise. And thus, their immediate reaction more closely resembled a “deer in headlights” than an orchestrated manipulation machine. Hence, the extremely sloppy, public debate regarding TARP; the collapse of major financial firms like Lehman Brothers, AIG, and Fannie Mae; and of course, plunging markets despite their best manipulative efforts.

Eventually, the gargantuan fiscal and monetary easing measures – and undoubtedly, covert operations like the “secret $16 trillion” Federal Reserve loans we learned of years later – enabled financial markets to temporarily rebound. However, by mid-2011, the world was in full-blown economic, financial, and market crisis – culminating with the U.S. itself losing its (ridiculously undeserved) triple-A credit rating. At this point, which I deemed the “point of no return,” the U.S. led a global effort to better organize market manipulations; as signified by the infamous “operation PM annihilation I” Precious Metal raid of September 6th, 2011 – when “dollar-priced gold“, having just hit an all-time high of $1,920/oz, was “mysteriously” smashed hours after one of the most PM-bullish news events of our lifetime; i.e, the Swiss National Bank’s ill-fated decision to peg the Franc to the dying Euro.

At that point, the rigging of stocks, bonds, and PMs increased dramatically – as not only had TPTB mastered the newest “weapons of mass financial destruction” (i.e., derivatives and HFT algorithms), but the global QE movement was shifted into sixth gear. In the U.S., the Fed launched its “Operation Twist” monetization scheme in September 2011, followed by QE3 in December 2012. Meanwhile, Mario Draghi made his equally infamous “whatever it takes” speech in July 2012 (whilst the ECB simultaneously bailed out the Spanish banking system); while in Japan, “Abenomics” was actively discussed throughout Japan’s 2012 election campaign, before being formally launched on April 4th, 2013 – which, “coincidentally,” was just a week before the historic “closed door meeting” between Obama and the heads of the top “TBTF” bank CEOs, on April 11th, 2013 – in which the stated agenda featured the “stability of the financial system.” That very day, Goldman Sachs issued a rare “short sell” recommendation” on gold, which was trading at $1,580/oz at the time; and what a surprise, on Friday, April 12th and Monday, April 15th – the “alternative currencies destruction” was launched.

In attempting to “reflate” markets so aggressively – and in doing so, create a mythical “wealth effect” economic recovery (not possible in a peak debt environment), the potential for a “market accident” – such as surging interest rates or Precious Metals – was extremely high. Thus, the rigging of such markets has since gone berserk – particularly in stocks, bonds, and Precious Metals – causing the greatest economic “deformations” in history. Moreover, said peak debt, coupled with collapsing economic activity and the resulting social and geopolitical unrest, inadvertently caused the “final currency war” to explode in nuclear fashion; yielding unprecedented global currency implosions, and with them, a whole new litany of horrifying ramifications – including an acceleration of the downward global economic spiral, yielding an historic commodity crash, explosive geopolitical tensions, and political revolutions throughout the world. And here we are today, in March 2015, just 3½ years after said “point of no return,” with the world at its low economic point of our lifetimes; debt not only at historic highs, but rising parabolically; the “final currency war” more explosive than ever; and global social discontent at unprecedented levels due to the inflation and wealth disparity caused by such suicidal monetary policies. Clearly, the root cause of this economic hell is the global fiat currency Ponzi scheme that commenced with the gold standard’s abandonment in August 1971; and equally clearly, its terminal stage is upon us. Thus, it wouldn’t surprise me if its final meltdown commences any day, either via collapsing of its own weight, or one of many potential “black swan” events.

As a career financial markets professional, it was very painful weaning myself of the stock investments that made up the entirety of my portfolio until four years ago. Actually, I sold my last non-mining stock in April 2000 – rightfully expecting the global economy to weak ad infinitum. However, I held major positions in PM miners until the spring of 2011 – when I finally gave up, realizing just how hopelessly suppressed they were. I’m still able to enjoy the thrill of the markets via my holdings of physical gold and silver – although obviously, less so lately. However, attempting to “analyze” what remains of “markets” has become near impossible due to said manipulation. Obviously, some markets continue to trade “freely” – and others, partially so; like, for instance, the world’s largest, most important commodity, crude oil. Others, like stocks, bonds, copper and Precious Metals, for example, barely resemble “markets” anymore – but in the latter case, fortunately, the inexorably bullish fundamentals of physical supply and demand will ultimately usurp TPTB’s best manipulative efforts. Ultimately, “Economic Mother Nature” will regain her footing in all financial markets; obviously, more quickly in some than others. However, as each successive market is “lost” to her powers, the odds that the others – all of which are in some way, shape, or form are entwined – doing so increase dramatically, particularly as TPTB have no control over said “black swan” events.

In recent months, I have dedicated a great deal of ink – and airwaves – to the historic crude oil price collapse, and the “unspeakable horrors” it would catalyze. Economically, the global impact is devastating – even in the United States of Fraudulent Economic Data, where despite the Fed’s own tracking model anticipating 0.2% first quarter GDP growth, “island of lies” diffusion indices like the “PMI Services Index” continue to portray a “mythical services boom,” with absolutely no support from real, empirical data.

Obviously, the oil plunge’s impact is exacerbating the Ukrainian crisis, yielding the collapse of the Russian Ruble and Ukrainian Hyrvnia currencies; heightened military activity; and explosive Cold War rhetoric, particularly as Obama recently admitted America’s role in said plunge. Today’s fiery U.S. condemnation by Vladimir Putin – not to mention, the downgrade of Ukraine’s credit rating to “imminent default” status – exemplifies just how unstable the situation has become; and given Ukraine’s geopolitical importance as a continental energy hub, the ugly state of today’s energy markets clearly has the potential to blow the situation sky-high. Which, by the way, is exactly what we warned of a year ago, whilst the MSM propagandized “de-escalation.”

Of course, Ukraine no longer qualifies as a “black swan” situation, as it has been escalating for more than a year now. Will it catalyze World War III, as Paul Craig Roberts anticipates? Who knows? However, what no one was watching until yesterday was the instability in a nation far more geopolitically important, if that was in fact possible; i.e, the tiny OPEC nation of Yemen, which just happens to share a border with not only Saudi Arabia, but the narrow strait separating the Red and Arabian Seas; i.e, the world’s fourth largest oil supply “chokehold.”

Like many Middle Eastern nations, Yemen has had a checkered history of political instability. And thus, it should be no surprise that now, following said historic oil price collapse, a bloody coup attempt has occurred, throwing the entire Middle East into disarray. Consequently, WTI crude prices are back above $50/bbl, having surged from a six-year low of $42/bbl last week despite some of the ugliest inventory builds in recorded history. To which, I point out what I have written for the past six months; i.e., “barring hyperinflation or Mideast war,” oil prices have nowhere to go but down.

Ironically, it was just Tuesday morning when I penned “the stock crash to end all stock crashes” – which, by the way, was not a short-term prediction; but, to the contrary, a broad analysis of how overvalued psychotic Central policies have caused stocks to become. Since then, the “Dow Jones Propaganda Average” has plunged 400 points; whilst gold – despite vicious Cartel contesting – has pushed back above the last month’s respective “lines in the sand” of $1,200/oz gold and $17/oz silver. Trust me, the PPT will fight tooth and nail to prevent stocks from materially declining. However, if they fail – let alone, if the Cartel, too, has trouble suppressing gold and silver – the Fed can always use said decline (“due to” the Yemeni War) as its excuse for the inevitable “Yellen Reversal” – and with it, the QE4 America’s debt addiction so desperately needs. Not to heal itself, mind you (it will only make it sicker); but conversely, to avoid it instantaneously dropping dead. Which, of course, it mathematically must; at which point, if you haven’t already protected yourself with physical gold and silver, it will already be too late

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