The Ominous Silent Canary
By Jim Willie CB
Sep 16 2010 2:28PM
Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
Alan Greenspan had full knowledge of his betrayal to the principles of sound money. He wrote early in his career about the only legitimate basis for a monetary system, namely Gold. His published works from four decades ago read like an indictment against his career for monetary crimes against the nation. His accommodation, giving the financial sector what they wanted, betrayed his mindset. He knew the nation courted disaster with a long delayed fuse. His quote is being circulated frequently and broadly lately, "Gold is the canary in the financial coal mine." Exactly, and his own words. Greenspan proved to be a great handler of the politicians, offering them obfuscation of the most erudite variety. They were so confused by his drivel to be immensely impressed. The Jackass was not impressed, not after the 2000 events unfolded to reveal the US as a patented asset bubble blower. Not after the same events revealed Greenspan to be an inflation engineer specializing in serial asset bubbles blown that put the nation at great peril. My attitude years ago was to listen to his topics of debate, to ignore the words, and to anticipate a crisis event in the sector he mentioned. It worked consistently. What Greenspan brought to the nation was a nearly complete interruption to the process of capital formation by virtue of the asset bubbles he engineered. His policies undermined capital and led to its destruction. He puffed up the finance sector at the expense of the tangible economy. Industry was forfeited in the pathogenesis of managed inflation.
The war machine has matured over the course of recent decades, saturating the nation with debt, broadening its base of theaters. The combination of domestic asset bubble development and war machine development conspired to cause erosion of US industry. Wages grew significantly after the 1973 OPEC oil price shock, which occurred simultaneously with outsized USGovt deficits largely attributed to the Vietnam War. Consequently, the US labor became overpriced, vulnerable to the globalization movement. The advent of China sealed the US fate vis-a-vis industry. The US as a nation was led to depend upon a sequence of asset bubbles. They all busted. Half the national debt of $12 trillion is attributed to war spending, a fact avoided by many analysts. Expansion of war to secure supplies for the nation might be better explained as the global stretch of the military complex in order to secure supplies for its own machine. Its objectives have come to conform more seamlessly to the Syndicate. In time, the USMilitary complex, including the defense contractors, the military service contractors, a key security interests will splinter off into a private corporation with several business segments. At the same time, the United States will slide into the Third World.
THE FINAL BUBBLE
In the aftermath of the tech telecom bubble bust ten years ago, Greenspan actively pursued the next bubble. Historical precedence dictated that a housing decline would come in 2001 and 2002. But such an event would have spawned a powerful recession that would have neutered the US banks, whose main diet had become credit derivatives. The lack of regulatory oversight enabled this strange business to expand into a mammoth hidden enterprise, a giant casino where the Wall Street banks actually placed billion$ bets against the major corporations of America. To say that constituted a conflict of interest is a gross understatement. Its sordid effects are slowly coming to fore in the United States and Europe, in the mortgage market and sovereign debt market. The awakening has led to great anger, harming the banker image irreparably, when combined with home foreclosure disgust.
Greenspan encouraged a housing revived bubble ten years ago. He actively lobbied the financial markets to believe that full support for a USTreasury rally and mortgage bond rally would ensue, given the full beneficial power of monetary policy. He spoke at conferences. He gave press conferences. He interviewed with the press. He leaned on Wall Street. He preached to the USCongress. He finally swayed the financial markets. The result was that a typical housing market correction was averted. Instead, a powerful housing market rally took place, a climax rally. It sucked in every conceivable vagrant buyer, including a homeless bum in St Petersburg Florida who bought two homes without income or assets, full exploit of the NINJA loans (no income, no job or assets). Even Fannie Mae entered the act, advertising on television to encourage the last marginal buyers to fall into the bubble trap. They succeeded, and the long list of victims grew among the wrecked, dispossessed, and bankrupted citizens.
The subprime mortgage chapter was a planned event, not by Greenspan, but by Wall Street firms. They went far beyond what the myopic caricature figure planned. They needed a steady stream of investors. Unqualified buyers served as cannon fodder to Wall Street mortgage bond merchants, offering hefty fees in bond securitization. Foreign investors were lined up for exploitation. The MERS database for title registration, intended and designed to handle the rapid trading of mortgage bonds, has been declared in several states to have no legal standing. Great implications follow for execution of home foreclosure and repossession.
Greenspan built the next asset bubble with full motive. It was a doubled chambered asset bubble, which enabled him to retire before a deep intractable crisis struck. The housing bubble grew leaps and bounds, doubling prices in some regions. The city of Miami has hosted a national jamboree for the foreclosure victims, another blight much like the tent cities. Millions each year have been tossed onto the national dump of foreclosures, left with no savings, no homestead, often with no job, and too often with no pension, and vanished hope. The other bubble was mortgage finance. A great majority of the Wall Street business model transformed into leveraging profits off mortgages, either from fees off bond securitization or obscure gains from insuring against bond failures as clients lost heavily. The parade of client lawsuits has replaced the parade of clients seeking bond issuance.
Even though off into the sunset of retirement and speaking tours, Greenspan ensured the final asset bubble. When home prices inevitably and inexorably fell, the great housing bubble would transform into a charred ruin. Note the contrast in Time Magazine covers. What a difference five years can make. The Jackass forewarned back in 2005 that a great train wreck would happen, severe enough to render the entire US banking system a wreck, from a guaranteed insolvent condition. It happened as prescribed. So behold the final asset bubble implicitly and passively designed by Greenspan, the USTreasury Bond. It has gained attention as a bubble, but again no asset bubbles are bad until they are broken. When this great bond bubble breaks, the Gold price will head toward $5000 like a heat seeking missile. Wall Street encourages asset bubbles, whose processing is an important part of their business. As the housing wreckage and the mortgage wreckage unfolded, the safe haven was grabbed and sought in USTreasurys. The current situation actually finds the bond rally to be proof positive that symptoms indicate a path toward systemic failure. The USTreasury complex is the only alternative that seems to offer investment gains inside the paper realm. Gold is the rising star on the tangible realm. Gold has begun to distinguish itself from the commodities, since the realization has come that GOLD IS MONEY.
The arrival of systemic failure was guaranteed by the Clinton Admin decision to grant Most Favored Nation status to China, our next trade rival and current bitter trade enemy. That the US nation could send industry to China, enjoy the benefits of Low Cost Solutions in sustained profit margins, remove legitimate income, replace it with debt off asset bubbles, and expect as economists promised a continued decade of prosperity testifies to the lunacy and heretical guidance of US economists. The US corporate sector seemed to grasp at an extended decade of economic good times. The result was the rise of China, the grand accumulation of $2.5 trillion in reserve assets, and the lockdown of supply chain investment and partnerships by China the world over. The decision to partner with China has not been questioned much, even now.
Witness on this side of the Pacific Ocean an embraced USTreasury Bond bubble, blessed as good, regarded as the ultimate in safe haven. In the next several months, watch a radical change unfold in the perception of the USTreasury asset, from safe haven to next high risk bubble, even a potential tragic path toward debt default. My sources tell of a 2006 Christmas effort to devalue the USDollar by 50%, but the plan blocked by China. Watch for the 50% devaluation to be pushed and pushed until it sticks. Boycott of USTreasurys will go global. The USTreasury auction process will turn into a fraternity celebration inside and no participation outside. In fact, with the proliferation of high frequency flash trading on the stock side, the isolated monetization of USTreasurys will mark a complementary bond style perversion. Talk of Greek Govt bond default will turn into a fever. Next will be Spanish Govt bond default. We will see a parade of them, including even mention of Great Britain. The year 2011 will be tumultuous, as a new currency is introduced. Germany will lead the way, and the once formidable USTreasurys will stand at great risk of yet another American sunset for a pricked asset bubble.
THE GREAT ANTI-BUBBLE IN GOLD
Behold the powerful Gold ascendancy. What consternation comes to the squirming financial anchors and their guests, the confused banter, the ideological contortions, the shallow discourse, the groundless criticism, the self-serving banter, the fiat paper ideological warfare propaganda, the negative monetary mental monotone. The struggle to comprehend the rising Star of Gold by the financial media is much more amusing than frustrating, after significant gains and respect have come. The compromised deacons committed to the ideological priesthood strive for a piece of the paper pie. It will not come. Instead, a pink slip of paper will arrive on desks, to the tune of 80 thousand jobs to Wall Street firms, according to Meredith Whitney formerly of Oppenheimer. Such reductions would comprise 10% of current workforce levels. The structural decline in Wall Street profits over the last three years began with busted bubbles, but continues with a perverse replacement of stock and bond issuance by client lawsuits. The damage extends to Europe and England. See Barclays, Credit Suisse, and Royal Bank of Scotland Group. Bear in mind that the USTreasury Bond bubble has attracted most capital from the world, as even bond offerings struggle and yield spreads widen.
Behold the powerful Gold ascendancy. What bewilderment comes from watching the minimization of the gold price advances by financial anchors and their guests, the envious avoidance, the denigration from the other corner, bizarre bubble accusations. The anchors seem not to show much respect for a 300% return on investment for gold in the 2000 decade, the clear victor among asset groups. It is only gold, the barbarian yellow metal. The 1973 movie "Paper Chase" with John Houseman and the subsequent television hit series in the following decade was cool. It featured a group of Harvard Law students struggling to succeed in a rigorous program. It was a favorite weekly show for many among the boomer generation. The gold community has turned away from the Paper Chase, the Wall Street game, the fiat charade, and the deviant vehicles on paper wheels. The USTreasury Bond is the last paper asset bubble.
My view is that acceptance of the Gold theme is much like politics or religion, should not be forced, but other opinions need not necessarily be given too much respect. A progression has been well noted of family and friends in response to the sequence of crisis events, with personal impact to them. They go through their defining moments, their watershed decision points, but usually continue committed to the paper trail. They tend to express hope that the nation can pull out of the current morass of problems. My stern replies of worsening forecasts go unheeded, each dismissed like the last, despite the string of correct systemic breakdown forecasts. Conclusion: stick with the golden friends, as we will prevail.
Gold reacts to many things not seen by the mainstream. It reacts to the extreme distress of the gradually failing financial system. It reacts to the gradually failing debt denominated monetary system. It reacts to the insolvent US Federal Reserve. It reacts to the moribund environment for capital formation. It reacts to the debt saturation. It reacts to the burgeoning federal deficits. It reacts to the 20 months of 0% that cannot kickstart the USEconomy. It reacts to the still declining housing market. It reacts to the tragic march of home foreclosures and unemployed. It reacts to the 20% of the homes mired in negative equity. It reacts to the reluctance to serve remedy, reform, or restructure by the big banks which have the USGovt finance ministry in their control. It reacts to the endless wars deemed sacred. It reacts to the absence of industrial base, dispatched to Asia. It reacts to the lack of comprehension for the gradually realized consequences of unsound money. It reacts to the consequence of two decades of a false cheap cost of money. It reacts to the gradually failed central bank franchise system. It reacts to the end of the road for additional bubbles to construct on the American landscape. It reacts to the actual lack of comprehension of money itself by the bank leaders. It reacts to the actual lack of comprehension of economics itself by the economists.
GOLD & SILVER BREAK OUT
The mainstream financial press networks cannot grasp the meaning and potential of gold. They show disdain for it. The broader comprehension of gold is superficial. They recognize the excess of government deficits and debt issuance, but not their permanence. They recognize the fast vast creation of new money, but not the need for repeated episodes of more creation, to the point of total debasement. They recognize the need for safe harbor, but still cling to the notion of USTreasury Bonds offering that safety. They recognize the need for inflation to return, but not how a chronic dependence upon inflation brought the current wreckage. They recognize the inevitability of further debt burdens, but not the path toward eventual debt default. They recognize the need to reduce the US debt to manageable levels, but not the foreign response in global revolt. They recognize the foreign angst over the USDollar and its teetering condition, but not the global revolt against it. They recognize the missing collateral reserves in the banking system, but not how gold used to serve that purpose. They recognize the precarious nature of the debt based monetary system, but not the actual requirement for a complete overhaul of the monetary system. They recognize the rise in the gold price, but not its identification as money in a moneyless world. They recognize the broken system, but believe it can be righted, if only naively by the passage of time. They confuse legal tender with money. They do not understand gold, but they will, probably at a much later date and much higher price. Today's gold investors will sell them gold in future years, since they are tomorrow's buyers at a higher price. GOLD IS BOTH THE STORE OF VALUE AND THE BALLAST IN THE BANKING SYSTEM. It offers stability, but seems like dead weight to the elite and the masses who follow them.
The gold price has broken out to new highs. This is just the beginning. The silver price has broken out to new highs. This is just the beginning. The mainstream has no idea how high the gold & silver prices can reach, showing a perplexed reaction. My response is simple. No effort has come to reform the financial foundation. No effort has come to bring remedy the broken platforms. No effort has come to restructure its workings. The first steps involve liquidation of the vast swaths of badly impaired, often worthless bonds that clutter the banking system, the major obstacles to the credit system. No effort will come either, since orders to repair the financial platforms would bring about sudden death to the big banks that control the USGovt and its finance ministries. Gold understands all this very well. Gold realizes that no Big Fix can come without removal of the entire power structure, with all the consequences. The Gold price is constantly and steadily fed strong nourishment.
The gold & silver prices have broken out to new highs, extended further on Thursday. Tremendous heights will be achieved. We will see $2000 gold, then later $3000 gold. We will see $40 silver, then later $70 silver. It is pre-ordained and written. Nothing is fixed nor will be fixed. Much money has been wasted, and more will be wasted. Each round of economic stimulus pushes the gold & silver price higher. Each round of big bank bond redemption pushes the gold & silver price higher. Each round of sanctioned official debt monetization pushes the gold & silver price higher. Each round of inaction from political delay or stalemate pushes the gold & silver price higher. The only lack of satisfaction from the leaps higher in precious metal prices comes from knowing that the world as we know it will change, as the landscape shows evidence of economic scars. Supply chain disruption, price inflation, lost financial security, social unrest, and growing chaos will make life difficult. But the alternative is so much worse than not holding precious metals (true money) in investment. Gold & silver are a vote of no confidence in the paper system. Gold & silver are life boats during a tsunami. Gold & silver are a stake in the future.
Gold fights the big political battles, but silver takes the greater spoils. Behold gold on the verge of a powerful breakout. Gold is not an inflation hedge, but rather a monetary system failure hedge. Gold is not a dead asset, but rather the ultimate form of money. Gold is not an investment without yield, but rather the a store of value serving as ballast for the global banking system. Each round of stimulus, bond redemption, bank aid, and annual government deficit lifts the gold price potential another $1000, and the silver price another $20. Silver is favored on the supply side of the price dynamics, and silver is favored on the demand side of the price dynamics. Massive supply shortages are being reported and realized. Just this week a private off market silver sale took place in the multi-million$ at a $24.50 price, according to an information source. The disparity between the physical market and paper market will remain wide, even as both price structures move higher.
JPMorgan is on the extreme defensive. While the new Financial Regulation Bill might have caused some disarray of the price suppression gamers, the bill surely has emboldened precious metals investors. By the way, a well connected contact informs that Bank of America suffered a death experience on the weekend of July 24th, but was pulled out of the fire by the USFed. That was the same time the Bank For Intl Settlements was fumbling around with cover stories regarding their 340 ton Gold Swap contract. The truth is... the BIS probably bailed out the London metal exchange, on the edge of default, which has suffered repeated gold raids. They have been forced to defend against a sequence of coordinated raids, all legal, demanding vast gold bullion and obtaining it. The BIS bailed out not commercial banks, not the Portuguese central bank, but probably the London metal exchange instead. The LBMA is struggling to avoid depleted inventory. More BIS backdoor replenishment of supply will come to the nexus in London. Expect the gold raids against London to continue until some sort of day of reckoning. Soon a big bank will fall, from the incremental drain from losses defending the gold price without success. My guess is Bank of America. It will likely soon be absorbed by the titans on Wall Street, the shadowy monoliths. Eventually only two will stand, by the time the USTreasury default approaches.
Jim Willie CB
Editor of the "HAT TRICK LETTER"
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Sep 16, 2010
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com