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