October 1, 2011
Gary North | LewRockwell.com

You probably missed any media coverage of the September 26 speech by Federal Reserve Board of Governors member Sarah Raskin. The media ignored it. You would be wise not to ignore it.

There were a few brief news reports about it. There was no detailed analysis. The media usually ignore speeches by any FED Board member other than Bernanke.

Raskin’s speech reveals what is slowly dawning on the public. The economy is getting worse, and the FED is powerless to stop it.

Her speech was an attempt to reassure her listeners that the FED really does know what it’s doing, contrary to the evidence. The Federal Reserve has spent 45 months trying to deal with the sagging U.S. economy. Nothing is working. It looks as though nothing will work. But she wants us to believe that it’s not the FED’s fault. She did not say whose fault it is.

I have offered a line-by-line analysis of her speech. If you have money in a retirement fund, you would be wise to read it. I have posted it here.

I do not expect many people to read it. People are too busy. Bernanke knows this. The other Board members know this. They give their speeches, which get little coverage. They receive little criticism. They receive little applause. They have little power.

The Federal Open Market Committee has the power. Every eight weeks, the FOMC makes decisions in closed-door sessions that affect a billion people.

Then why read speeches by members of the Board of Governors? Officially, they are the government’s only source of indirect control over the FOMC, which is made up of presidents of the regional Federal Reserve banks, who in turn are appointed by regional FED banks, which are privately owned.

Members of the Board are appointed by the President. Their organization’s Web address ends in .gov. Legally, the Board is in charge of the entire system. This is a convenient myth for public consumption. Operationally, the Board acts as the mouthpiece of the New York Federal Reserve Bank. The New York FED is the most important private economic organization in the world.

Board members are apologists for the New York FED. When I say “apologists,” I mean this in the theological sense: “apologetics” – the defense of the faith. I do not mean it in the sense of offering an apology. The FED never says it is sorry for anything it has done. That would be perceived by Congress and the public a sign of weakness.

THE SYSTEM OF REPRESENTATION

The main spokesman for the FED is the Chairman of the Board of Governors: Bernanke. He is legally the agent of Congress. He is operationally the barrier between Congress and the New York Federal Reserve Bank.

This is how all government agencies work, and the Board of Governors is a government agency. The head of every cabinet-level department is appointed by the President and confirmed by the Senate. He serves at the convenience of the President. He imposes the President’s wishes on the bureaucracy.

In a pig’s eye.

The Secretary of Education is close to impotent to change any major policy. There is only one way to change policy: stop all funding to every branch of the bureaucracy that implements the old policy. Fire them all. Sadly, this is illegal. They are protected by Civil Service law.

Well, then, just stop the funding the old policy. Shut down the departments. Move all employees to other departments.

Legally, this can be done. It is never done. There would have to be hearings before both houses of Congress. Endless hearings. The American Federation of Teachers would scream bloody murder, meaning the nearly permanent senior officers in the AFT would scream bloody murder. The hearings would go on for years. Then the President leaves office. His reform program ends.

The bureaucracy cannot be fired. The newly appointed Secretary of Whatever goes out on the hustings to give speeches to special-interest groups related to the Department of Whatever. He has little authority over the day-to-day operations of the department. His task is to defend the budget and the reputation of “his” department.

Officially, the departmental Secretary is the agent of the Administration. Operationally, he becomes the agent of the department he oversees for a few years. He will leave. The employees will remain. If you want to grasp this system in two minutes, watch this segment from Yes, Minister.

Members of the FED’s Board of Governors are appointed for 14-year terms. We read:

The full term of a Governor is 14 years; appointments are staggered so that one term expires on January 31 of each even-numbered year. A Governor who has served a full term may not be reappointed, but a Governor who was appointed to complete the balance of an unexpired term may be reappointed to a full 14-year term.

Once appointed, Governors may not be removed from office for their policy views. The lengthy terms and staggered appointments are intended to contribute to the insulation of the Board – and the Federal Reserve System as a whole – from day-to-day political pressures to which it might otherwise be subject.

There is no industry-related agency of the U.S. government that is more insulated from politics. Therefore, there is no agency that is more completely under the domination of the industry that it is supposed to control. (The CIA and the NSA are not representatives of industries. They are separate fiefdoms.)

If the United States Army were this insulated from politics, the USA would live in a militarized society. The Army would run the show. Its only major rivals would be the Air Force, the CIA, the NSA, the FBI, and the Federal Reserve. To imagine that Congress would have any say in such a society would be naive. The defense industry would be the premier industry in the society.

Our society is a bankers’ society, meaning a handful of large banks. The supreme mark of this is the openly announced independence of the Federal Reserve from politics. No other agency of government has publicly claimed this degree of independence from politics, which means independence from the voters.

In every textbook on history or politics that mentions the FED, the author assures the readers that this utterly undemocratic arrangement is for the good of the people. The fact that the arrangement is a flagrant violation of the religion of democracy, which governs all tax-funded educational institutions, is never mentioned in polite circles.

So, our elected officials are not the operational agents of the voters in matters of banking. They are the operational agents of the big bank cartel.

Until the crash of 2008, most voters were unaware of this system of representation. But that crash changed the old climate of opinion. The reason was Ron Paul. His candidacy for the Republican nomination for President in the second half of 2007 got the message out. Then the crash and the bailouts confirmed his message.

This had not happened in the history of the Federal Reserve. The FED’s Board is now playing defensive politics. Yet, legally, it is not a political institution.

This is why people should pay more attention to speeches by members of the Board of Governors.

RASKIN’S SPEECH

I will only go over the highlights here. I have covered the speech in detail elsewhere.

Like all members of the Board, she is burdened by the inescapable reality of the sagging economy. Unemployment is over 9% two and a half years after the beginning of the recovery. This has never happened before.

Housing prices are still falling. The bubble that popped in 2006 is still in decline. There is no sign that we are close to the bottom.

Consumer spending is stalled. This is a mark of government and central bank policy failure for a Keynesian economist. The only worse mark is falling spending.

She praised the FED for falling interest rates. She claimed that the FED’s monetary policies have achieved this positive result. What she, Bernanke, and other Board members never mention is this: falling interest rates are the universal mark of a recession in progress. Investors buy bonds in order to lock in an interest rate. They see this as safe-haven investing.

Falling rates since 2007 have been the result of investors who have moved their capital to government bonds. But FED officials claim that FED policies achieved this. So, Mrs. Raskin said this.

Rather than reviewing the vast academic literature regarding the effect of conventional monetary policy, I will simply pose the counterfactual question: What would have happened to U.S. employment if monetary policy had failed to respond forcefully to the financial crisis and economic downturn? Economic models – the Fed’s and others – suggest that if the federal funds rate target had been held at a fixed level of 5 percent from the fourth quarter of 2007 until now, rather than being reduced to its actual target range of 0 to 1/4 percent, then the unemployment rate would be several percentage points higher than it is today. In other words, by following our actual policy of keeping the target funds rate at its effective lower bound since late 2008, the Federal Reserve saved millions of jobs that would otherwise have been lost. Of course, substantial uncertainty surrounds various specific estimates, but there should be no doubt that the FOMC’s forceful actions helped mitigate the consequences of the crisis and thereby spared American families and businesses from even greater pain.

The FedFunds rate is the rate that applies to banks’ overnight lending to each other. Demand for this type of short-term funding collapsed in 2008. Banks have increased their holdings of excess reserves to $1.7 trillion. This is why we are not seeing hyperinflation. Bankers are afraid of another recession. They want money in the bank.

The FED can take credit for having given credit to big banks in the big bank bailout of October 2008, which was opposed by voters. The FED could argue along these lines.

It is true that interest rates fall in a recession. The last time in American history that we have seen rates this low was in 1933. But, because the Federal Reserve bought nearly worthless Fannie and Freddie bonds at face value from the government after Hank Paulson unilaterally nationalized the mortgage market in September of 2008, and because the FED swapped at face value its portfolio of highly liquid T-bills for illiquid toxic corporate bonds held by large banks, we are not in a depression. Which do you want: low interest rates with 9% unemployment or 12% unemployment. Those were our only choices in 2008 and 2009. Trust us.

But this is not the Party Line at the FED. The Party Line is that the FED’s increase of about $2 trillion in its portfolio was the source of bank stability, corporate survival, and an acceptable though unfortunate unemployment rate of 9.1%. The FED pushed down interest rates – rates that would have stayed high, contrary to all historical records of recessions. That saved the American economy and the world economy.

Raskin heaped great praise on the FED.

Given the magnitude of the global financial crisis and its aftermath, the Federal Reserve clearly needed to provide additional monetary accommodation beyond simply keeping short-term interest rates close to zero. Consequently, like a number of other major central banks around the world, the FOMC has been deploying unconventional policy tools to promote the economic recovery.

This is exactly what we would expect from one of five members of a government Board that governs monetary policy, and which is supposed to be held responsible for failure. But, as the video from “Yes, Minister” indicates, no one is ever supposed to be held responsible in a government agency. She thinks they deserve a round of applause.

My FOMC colleagues and I have recently been faced with complex decisions about the use of unconventional policy tools under extraordinary economic and financial conditions. And while we may not all agree with every decision, I believe that the public can have a very high degree of confidence in the fundamental integrity and soundness of our decisionmaking process.

My response is to give them a standing zen ovation: the sound of millions of one-handed people clapping.

CONCLUSION

Mrs. Raskin offered no evidence for hope of reduced unemployment, revived business investing, or increased consumer spending. She was remarkably silent on these issues. She reaffirmed the decision of the FOMC. It will be mid-2013 before the FED dares reverse its present policy of twisting.

In August, we decided to be more specific about the timing, and our two most recent meeting statements have indicated that “economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”

So, we are still in the swamp of low growth. We will remain in it for a long time, politically speaking. She has issued President Obama a challenge: run your campaign in a stagnating economy.

She offered no analysis of the labor market. Yet her speech was entitled “Monetary Policy and Job Creation.”

This was a defensive speech. It indicates that the FED has no plan to get the economy back on track.

Falling long-term interest rates are the preliminary sign of a looming recession.

What will the FED do when recession hits next year, as seems likely? What rabbits will they pull out of the monetary hat?

The FED is on the defensive. Investors should take heed.

Gold benefits from: out of control sovereign debt, nanny states, media mind control, war, over-the-counter derivatives, unfunded liabilities, trillion dollar deficits, accounting fraud, artificially low interest rates, quantitative easing, loss of confidence in governments and paper assets. Gold benefits from these things because it allows imbalances to get out of control in a major way.

In just 5 years the gold market has bid up the price by $1000. It is likely that, in the next 10 years, the gold price will rise to at least $15,000.

Oh, and did I mention that nothing meaningful or effective has been done to address those issues listed above, which help to create a bull market for gold. That’s why these kinds of great movements of civilizations can last for a decade or more; because of the unwillingness of societies to solve their problems until its too late.

Gold is Not in a Bubble

Gold is mistakenly thought of as being in a “bubble”; however, gold has a history of being a currency of last resort when confidence-based systems fail. So when you have vast sums of “wealth” worldwide tied up in confidence systems, such as the US-Dollar and the US reputation is subsequently crushed, what you see in gold is actually a deflation of a world-wide bubble of confidence in paper assets.

If you consider the trillions and trillions of dollars, still tied up in questionable confidence-based paper assets, why should $1600 be the ceiling for gold? The US and other major debtor nations never stop raising their debt ceilings and never address the underlying problems, so why would gold stop reflecting these problems anytime soon?

What I believe you will see, over the long-run, is that the next 10 years will look like the last 10 years; but sharper to the up-side and more violent in its volatility as things become increasingly more unstable.

Gold went from around $250 – $1600 during this 10 year period (a 560% increase); it will likely go from $1650 – $15000 during the next 10 year period (an 800% increase).

Why Gold May Eventually Reach $15,000

Jim Sinclair is well known for his prediction of the rise in gold to nearly $900 in the 1980’s. The formula Mr. Sinclair used was roughly: the price gold would have to reach, in order to make the gold held by the United States equal to the amount owed to foreign creditors, on the international balance sheet of the US.

In the 1980’s that “balanced” value was $900. Today the “balanced” value would be $15,000+.

Jim Sinclair | Jim Sinclair’s Mine Set

Assumption:

Because gold is held by many central banks, once as a reserve currency but now as an inventory currency, it functions as a swing asset to balance the International Balance sheet of the US.

Central banks are sellers of dollars but still hold, by default, large dollar inventories.

China has hedged its dollar position 50% through commitments to long term dollar commercial agreements, pay in, mineral, and energy deals internationally. That is an act of pure genius.

We can assume other central banks still hold 90% of their reported dollar positions, on average unhedged by commercial obligation positions.

In crisis times, the US dollar price of gold ALWAYS seeks to balance the International Balance Sheet of the USA.

Therefore:

Take 90% of international US dollar debt less China and then add 50% of the US debt owned by China. Then divide that number by the ounces supposed to be owned by the US Treasury. The result is where gold wants to go.

In 1974 this gave me $900 gold. Now you do your homework, and submit your analysis to me. Do this, and I will give you Angels going to that price by a little known technique of Jesse Livermore that only works on gold after it has broken to a new high above all resistance.

Little by little I am passing on all that I have learned from Jesse through Bert to those that read every day in thanks for your support of me and mine.

Jim

When you evaluate recent data, with the above formula, you get the following:

source: Jim Sinclair’s Mine Set

Using the methodology you specified in your article today, I get a target price for gold of: $15,600.

Most current TIC report: http://www.ustreas.gov/tic/mfh.txt

Total Foreign Holdings of Treasury Securities: $4,479.2 Billion
-Less : China – Mainland (1,144.9)
-Plus: 50% of China – Mainland 572.5

Adjusted Foreign Holdings of Treasury Securities $3,906.8 Billion

Number of Fine Troy Ounces held in Custody by the US Mint for the US Treasury: http://www.usmint.gov/downloads/about/annual_report/2010AnnualReport.pdf

Note to Financial Statements 6, “Custodial Gold and Silver Bullion Reserves”, page 59
Statutory value @ $42.2222 per FTO $10,574,053,000
Number of FTO 250,438,229

Valuation of Gold required to equal Adjusted Foreign Holdings of Treasury Securities
Adj Fgn Holdings $3,906,800,000,000
Number of FTO Gold at US Mint 250,438,229

Gold price Valuation $15,600

The Option to Protect Yourself is Still Available

So all of those people who complain about having missed their chance to protect themselves from what is to come are full of shit. Even if you can only spare a hundred or so dollars at a time to get a 1/10 ounce gold coin, or buy a few shares of a gold mine each month, you can benefit greatly by protecting yourself from the coming rout of inflation.

One interesting fact, is historically quality shares in gold mines have held a 3x leverage to the price of gold. This means that if gold goes to $15,000, the likely return on the share price would be at least 2400%. Junior gold miners can have an even higher level of leverage, given that their share prices tend to stay suppressed and then eventually explode when the fundamentals take over as gold rises.

Gold will be there for you to use when the value of everything else is called into question. It does not require anyone to perform on their obligations, as all paper assets do. Given that we are living in a vast sea of empty promises, is it any wonder that people are choosing gold and other precious metals to protect themselves?

Gijsbert Groenewegen | Groenewegen Report
Posted Jul 1, 2011

Increasing credit risk will cause much higher interest rates across the borders

The Belgian/French bank Dexia, with a ¤4.3bn or $6bn+ exposure (according to S&P’s Corp) to government debts in Greece, has back stopped (guaranteed) $17bn in municipal bonds in the US according to an article in the WSJ. As a result of the problems in Greece interest rates of municipality bonds in small towns in the United States used to finance municipal facilities like schools, bridges, ice rinks etc are being pushed up. S&P warned last month of a possible downgrade of Dexia’s investment- grade credit ratings. It looks indeed like Lehman revisited when one of the victims of the CDO crisis in the US was a small town in Norway which had bought “triple A” CDO s. And don’t forget the exposure of AIG to the housing market through the Credit Default Swaps (CDSs) that were never going to be called because of the triple A status of the CDOs, and how it almost bankrupted Goldman and others.

While other investors are stepping in to buy those bonds, they are demanding sharply higher yields as compensation for the increased risk following a possible downgrade of Dexia’s credit rating. As a result, borrowing costs for some municipalities are now the steepest since the financial crisis. Some cost of borrowing are tripling and quadrupling in a matter of weeks.

Dexia is obliged to buy as much as $17 billion in municipal bonds if investors withdraw during the remarketing or rollover process. Some $400 million has already been taken back though in those cases, allowing Dexia to increase the interest rate paid by the municipalities whilst at the same time it can demand an accelerated pay back schedule. Some municipalities are trying to replace Dexia with other banks though the refinancing is likely to lead to much higher interest rates in some cases from 3% to 12% which increase borrowing costs by tenth of thousands of dollars which in turn leads to very high fees for the related facilities.

With the QE2 ending on June 30 (the Fed has bought 85% of all treasury issuances this year!!) and higher credit risks higher interest rates could bring down the markets. If we break above the 4.80% level on the 30-y Treasury bond we will break out of the downtrend since 1981 and could see much higher interest rates with all its obvious consequences for the financial markets and economies.
Read the rest of this entry »

Martin Armstrong’s history has shown his mastery at truly understanding the laws of economics. He has predicted many of the pivotal economic events over the past few decades and has developed a highly sophisticated PI-cycle forecasting system, capable of cutting through the bullshit; becoming more aware of what is really going on in the world of economics.

On July 31, 2010 Armstrong published a newsletter issue titled Staring Into the Abyss in which he detailed his latest predictions for our future.  I have transcribed this newsletter, from its type-written form, so it will be searchable and more useful to the community.

Staring into the Abyss

Original PDF Version

by Martin A. Armstrong

When all is said and done, no matter how we spin the story, we are in the final stages of the collapse of Western Society as we know it. By that I do not mean the sky will fall and people will be running through the streets naked fighting over 2 week old bread. That did not even happen with the fall of Rome, nor with Communism in China and Russia. It is possible that our political ruling class become so desperate that they take the tyranny path to extort every dime from the people hoping to hold on to fleeting moments of past glories. When it is all said and done, we will ask how was this citadel of the earthly powers of man fallen, and laying motionless and prostrate on the ground before all the great empires that have expired before it. The answer will be the same. Debt and fiscal mismanagement. Our greatest problem has been our arrogance and presumption that we have conquered history and the laws of practical economics do not apply.

When empires die, the clash between private and public assets swings into hyperactive mode. Those who see the Dow crumble and fall to 1400 because that is what happened in 1929, fail to ever understand that such an event took place because of deflation that was created by the fact that the dollar rose to extreme levels when everyone else was defaulting in 1931. This is why Roosevelt confiscated gold and devalued the dollar by raising gold from $20 to $35. Money was still something tangible. Today, we are looking at a massive sovereign debt default on a worldwide level.

Under a situation from the European view in 1931, the only thing to survive was tangible assets. That is not only gold, but shares in corporations with tangible value. velocity is always the key for as it declines due to people hoarding money you get deflation. When people are afraid the money will become worthless (paper or debased coinage) they spend it faster before it depreciates and that creates hyperinflation at the other extreme. It all depends on where the confidence resides – with government or within the private sector. We are headed into the later.

I have been working at full speed to get this book complete. I have passed the 300 page mark and I am deeply in debt to those assisting me from outside to get me the reference material I need to ensure this is more than just an opinion, but also authoritative.

Adam Smith in his Wealth of Nations wrote in his final volume about Public Debt and what he asked was why people had ever considered lending money to government was safe or that their debt was somehow quality. I have been working on this issue in great detail. Smith stated that never had any government ever paid off its debt and that was in 1776. He was correct. I am assembling all the defaults that are a subject that no one seems to want to talk about.

Yet, there are stark and monumental conclusions that emerge from such a long list of defaults. Society does not end as the doomsday crowd portray. This seems to be just their desire or opinion. Many seem to wish disaster upon the world for they feel cheated and did not become rich with the crowd. But those sorts of claims are truly the exception. The fall of Rome ended in disaster as people fled cities and the population of Rome itself fell from 1 million to just 30,000. That was what the Romans called suburbium and why we still today call moving out of the city to the suburbs. The flight took place because of the collapse of the Rule of Law and unprecedented taxation that set in motion a migration that eventually lead to feudalism. Read the rest of this entry »

Judging by the way they are spending money in Washington DC, you’d think these politicians and central bankers are living in a fantasy world. When you give a government the ability to borrow endless sums of money, you tend to get this kind of disconnect from reality.

What the people don’t seem to realize is the fact that money creation is a hidden tax. When they do this reckless kind of spending; it isn’t magically creating new wealth to add to the system. Instead, it is actually stealing from the people who save their money and lowering the standard of living for the middle/lower class.

The Federal Government is overrun by thieving, self-serving scoundrels who pass ridiculously expensive, unrealistic and unconstitutional legislation. They stand up in front of the population, with a straight face, and tell them the new programs are actually going to save them money; however, history shows that these kinds of claims are rarely true. In fact, government programs usually cost many multiples of the amounts estimated by government bean counters.

The populace of this country is now dominated by left-wing socialists, who fail to understand the economic trouble we are in. All you need to do, in order to spend us further into the ground, is throw the plethos a few crumbs. In the case of “health care reform,” they gave pre-existing condition reform and a few other reforms which were sought by a fair chunk of the population. There is no doubt that reform was needed; but this reform further destabilizes both the health care system and even more pivotally, the economy.

There is a very strong chance that we will have hyperinflation in the United States of America sooner rather than later.

Healthcare Bill to Cause U.S. Hyperinflation By 2015

Source: PRNewswire

FORT LEE, N.J., March 20 /PRNewswire/ — The National Inflation Association – http://inflation.us – today issued a warning to all Americans of a potential outbreak of hyperinflation in the U.S. by year 2015 caused primarily by the healthcare bill and rising interest payments on our national debt.

Medicare was created in 1966 at a cost of $3 billion per year and the House Ways and Means Committee estimated in 1966 that in 1990 the cost of Medicare would reach $12 billion per year. Instead, the actual cost of Medicare in 1990 was $107 billion (792% more than what was projected) and today Medicare costs $408 billion annually. In 2003, the White House Office of Management and Budget estimated that the Iraq War would have a total cost of $50 to $60 billion. So far, we have already spent $713 billion on the Iraq War (over 1,000% more than what was projected).

The Congressional Budget Office is estimating that the healthcare bill will cost $940 billion over the next 10 years, but if history is any indication, the actual cost will likely be several trillion dollars. NIA believes the healthcare bill will be the final nail in the coffin of the U.S. economy and will just about guarantee that we will see hyperinflation by the year 2015.

The U.S. government last week reported a record monthly budget deficit for February 2010 of $220.9 billion. Total tax receipts for the month were only $107.5 billion compared to outlays of $328.4 billion. The total U.S. deficit for the first five months of fiscal year 2010 was $651.6 billion, with tax receipts of $800.5 billion and outlays of $1.45 trillion. The deficit was up 10.5% for the first five months of fiscal year 2010 over the same period in fiscal year 2009.

We are now at a point where if the U.S. government taxed Americans 100% of their income, the tax receipts generated would not be enough to balance the budget. Likewise, if the U.S. government cut 100% of its spending including defense, but kept paying Social Security, Medicare and Medicaid, we would still have a budget deficit. NIA believes it will be impossible for the U.S. to have a balanced budget ever again.

The U.S. national debt is now $12.67 trillion of which $8.061 trillion is public debt. Due to the Federal Reserve’s artificially low interest rates of 0% to 0.25%, interest payments on our national debt last month were only $16.9 billion, an interest rate of only 2.548% on our public debt. The reason for the spread between our 2.548% interest rate on the public debt and the federal funds rate of 0 to 0.25% is that a portion of our national debt is made up of long-term bonds at higher interest rates.

Our debt ceiling was recently raised to $14.3 trillion, which we are on track to reach in less than a year, sending our public debt up to about $10 trillion. If the Federal Reserve raises the federal funds rate up to just 2% during the next year, NIA believes the interest rate on our public debt could rise to 5% and our annual interest payments will likely rise to $500 million or 23% of projected 2010 tax receipts of $2.165 trillion.

The White House is not projecting for interest payments on the national debt to break the $500 million mark until fiscal year 2014. By then, even if we go by White House projections that the deficit will be cut to $828 billion in 2012, $727 billion in 2013 and $706 billion in 2014, in 2014 we will still be looking at a national debt of over $18.5 trillion with a public portion of around $13.14 trillion. We find it shocking that the White House is projecting an interest rate on our public debt in 2014 of only around 4%.

All of this means that the While House expects the Federal Reserve to leave interest rates at artificially low levels almost indefinitely. However, we know it will be impossible for them to do so without creating a huge outbreak of inflation in the prices of food, energy, clothing, and just about everything else Americans need to live and survive. In order to prevent hyperinflation, we need interest rates to be higher than the rate of inflation.

NIA believes the real rate of U.S. inflation to already be approximately 5%. If the Federal Reserve doesn’t raise the federal funds rate to above 5% in the short-term, in our opinion, an outbreak of double-digit inflation is inevitable. By 2014, it is possible the Federal Reserve will be forced to raise the federal funds rate up to above 10% and the public portion of our national debt could exceed $15 trillion. Therefore, in 2014 we could see the interest payments on our national debt reach $1.5 trillion, about triple what is currently being projected and 43% of the government’s projected tax receipts that year of $3.455 trillion.

Besides the cost of the healthcare bill and rising interest payments on our national debt, another major catalyst for hyperinflation will be social security payments, which adjust to the CPI-index. As the government’s CPI-index rises, so will the social security payments that it owes. This could cause a death-spiral in the U.S. dollar. Inflation is still the last thing on the minds of most Americans, but soon it will be their primary concern.

To receive NIA’s latest updates about inflation and the economy, sign-up for the free NIA newsletter at: http://inflation.us

About us:

The National Inflation Association is an organization that is dedicated to preparing Americans for hyperinflation. The NIA offers free membership at http://www.inflation.us and provides its members with articles about the economy and inflation, news stories, important charts not shown by the mainstream media; YouTube videos featuring Jim Rogers, Marc Faber, Ron Paul, Peter Schiff, and others; and profiles of gold, silver, and agriculture companies that we believe could prosper in an inflationary environment.
Contact: Gerard Adams, 1-888-99-NIA US (1888-996-4287), editor@inflation.us
SOURCE National Inflation Association

THE GLOBAL BANKING CRISIS CONTINUES…

STAGE 2: EUROPEAN SOVEREIGN DEBT UNDER ATTACK

Taken together, the Icelandic and Greek financial crises can be seen as the second stage of the larger global banking crisis.  The first stage of the global banking crisis, which began in late 2007, was centered in the European and U.S. mortgage and mortgage derivative market.  The second stage began with Iceland’s monetary and fiscal crisis in 2009 and continues with the current Greek crisis, and is centered in European sovereign debt.

The global crisis banking crisis is a multi-phase global economic crisis caused by years of over-borrowing followed by the current deleveraging.  This deleveraging was, of course, set in place by all those who gambled with their own and other people’s money.  As time passes, more and more of these gamblers will be unmasked and there will be more countries, companies, industries, and individuals who will lose face and capital in coming months and years.  We anticipate that these problems will continue as various sectors delever over the next six to eight years.

Many believe that the other European nations will act to bail out Greece, and then perhaps Spain or other over-levered nations in Europe who experience debt problems.  We disagree.  In our opinion, the International Monetary Fund (IMF) is the lender who will bail out the damaged European nations.  In our opinion, it is too hard for European nations to go to their taxpayers and tell them that they are directly or indirectly guaranteeing the debt of a foreign country. Read the rest of this entry »

source: jsmineset.com

Jim,

Armstrong sees the Gold bull market lasting until roughly 2016 (17.2 years starting in 1999). Is it at this point that you see the USDX bottoming at .5200?

Is it at that point when you see the Federal Reserve Gold Certificate put in place? According to cyclical analysis it would come at the low point business wise of the 17.2 cycle.

How long do you think this world monetary system will take to be implemented?

I guess once again the US will lead the process.

Do you think China (or India) will take a major role in it?

Will it be done under the IMF umbrella?

After the Federal Reserve Gold Certificate is in place, do you believe that the world´s economy can enjoy some period of stability (with the exception of geopolitical considerations)?

Best regards,
CIGA Christopher

Christopher,

I see the USDX bottoming between .4600 and .5200, yes. I have learned not to argue with Armstrong on cycle timing. Gold should have a temporary high point between January 14th and June 25th, 2011.
Implementation is not a process, it is a surprise.

The US will not necessarily lead the process. By then the IMF will be the Western World Central Bank, if not in name, certainly in function.

China and India will play a major role by demand via back financial channels.

It will likely be done under the IMF umbrella as part of a Super Sovereign Currency.

After the Federal Reserve Gold Certificate is in place the world’s economy should be able to enjoy a period of stability for a considerable amount of time, but with a total rearrangement of positions of national economic powers moving towards Asia and do not forget Jakaya Kikwete and the common market of sub Sahara African countries of merit and leadership. They are there.

Regards,
Jim

As I write to you this evening, the very real prospect of hyper-inflation, a catastrophic currency event, is staring down the vast world of US dollar-denominated paper promissory notes. Gold is behaving like a bright comet in the sky, grabbing the attention of the keen observer and giving them an edge over others who are too distracted to look up.

The confidence model is rapidly crumbling, after many years of neglect; the US dollar bubble is finally bursting in an awesome way. If there were genuine integrity, then surely such a model would do; but the lack of sufficient moral fortitude in the hearts of men, makes it virtually impossible to have a confidence based economy for very long; because the confidence is merely an illusion and the model can only be sustained as long as the illusion persists.

On the daily chart, we see panic buying (and short covering) driving the price of gold to well above $1200 dollars. Major central banks, such as the Indian central bank, have become large-scale buyers of Gold.

It looks like my original medium-term target of $1379 is going to be upon us relatively soon. Our next target may soon be followed by a touch of the inflation-adjusted high of $1650, followed by a period of consolidation.

Gold Daily Chart: December 21, 2008 - December 2, 2009

The picture becomes clearer if we look at the inflation-adjusted monthly chart, showing the gold price action clear back to 1970. Considering official inflation statistics, we can see that gold has yet to move past its previous high, despite a vast expansion in monetary aggregates, which has occurred during the past several decades.

Gold Monthly: 1970 - 2009: $1650 Price Objective

Nobody can say for sure what will happen with the short-term fluctuations. But longer-term it is quite clear that the price of gold will move into the $5,000 range, as the reality of the need for hard assets sets in. It doesn’t take but a few billion dollars worth of gold purchases to create a significant increase in the gold price. Given all of the trillions of dollars already in circulation and the trillions planned for bailouts; the target of $5,000 will likely turn out to be a conservative target, once the dust has all cleared.

Henry Blodget | BusinessInsider.com

PIMCO’s Bill Gross with a great monthly letter. Here are the key points:

• Over the past 30 years, paper asset prices rose 2X as much as they should have based on economic fundamentals
• This was the result of leverage
• The asset price rise in turn pumped up the economy’s fundamentals (Soros’s reflexivity)
• The government wants to restore the “old normal” (2007) not the “new normal” (slower growth as asset prices return to trend)
• Therefore… The Fed will keep rates at 0% for at least 18 months into sustained 4% growth
• Next year, when the inventory restocking effect wears off, 4% will be tough

Bill Gross:

[I]n a New Normal economy (1) almost all assets appear to be overvalued on a long-term basis, and, therefore, (2) policymakers need to maintain artificially low interest rates and supportive easing measures in order to keep economies on the “right side of the grass.”

Let me start out by summarizing a long-standing PIMCO thesis: The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades. Stock and home prices went up – then consumers liquefied and spent the capital gains either by borrowing against them or selling outright. Growth, in other words, was influenced on the upside by leverage, securitization, and the belief that wealth creation was a function of asset appreciation as opposed to the production of goods and services…

My point: Asset prices are embedded not only in our psyche, but the actual growth rate of our economy. If they don’t go up – economies don’t do well, and when they go down, the economy can be horrid.

To some this might seem like a chicken and egg conundrum because they naturally move together… if long term profits match nominal GDP growth then theoretically stock prices should too.

Not so. What has happened is that our “paper asset” economy has driven not only stock prices, but all asset prices higher than the economic growth required to justify them…

[L]et me introduce Chart 2 a PIMCO long-term (half-century) chart comparing the annual percentage growth rate of a much broader category of assets than stocks alone relative to nominal GDP. Let’s not just make this a stock market roast, let’s extend it to bonds, commercial real estate, and anything that has a price tag on it to see if those price stickers are justified by historical growth in the economy.

more…

During the boom years of globalization and credit expansion, a tremendous amount of over-capacity was created. Now that consumers are tapped out and the bills are coming due, we see economic phenomena such as: idle shipping vessels, idle dock cranes and shipyards running out of orders for new ships to build.

These are the kinds of outcomes you see when people become driven by the irrational forces of the current international fiat money system. Supply and demand are not as effective when you have government and monetary authorities toying with foreign exchange rates and creating vast sums of fiat; this wreaks havoc on markets and causes the severe imbalances we have been seeing as of late.

One of the most telling signs, of how crippled world economy has become lately, is a vast fleet of idle cargo ships off the coast of Singapore. With trade dropping off around the world, the price to charter these ships is now a tiny fraction of what it was in better times; many ships cost 1/10 of what they once did.

Unless we replace our monetary system with sound hard-asset-based money, it is likely that we will continue to see these kinds of severe imbalances for many generations to come.

Revealed: The ghost fleet of the recession

Simon Parry | UK Daily Mail

The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination – and is why your Christmas stocking may be on the light side this year.

The tropical waters that lap the jungle shores of southern Malaysia could not be described as a paradisical shimmering turquoise. They are more of a dark, soupy green. They also carry a suspicious smell. Not that this is of any concern to the lone Indian face that has just peeped anxiously down at me from the rusting deck of a towering container ship; he is more disturbed by the fact that I may be a pirate, which, right now, on top of everything else, is the last thing he needs.

His appearance, in a peaked cap and uniform, seems rather odd; an officer without a crew. But there is something slightly odder about the vast distance between my jolly boat and his lofty position, which I can’t immediately put my finger on.
Then I have it – his 750ft-long merchant vessel is standing absurdly high in the water. The low waves don’t even bother the lowest mark on its Plimsoll line. It’s the same with all the ships parked here, and there are a lot of them. Close to 500. An armada of freighters with no cargo, no crew, and without a destination between them.

My ramshackle wooden fishing boat has floated perilously close to this giant sheet of steel. But the face is clearly more scared of me than I am of him. He shoos me away and scurries back into the vastness of his ship. His footsteps leave an echo behind them.

Navigating a precarious course around the hull of this Panama-registered hulk, I reach its bow and notice something else extraordinary. It is tied side by side to a container ship of almost the same size. The mighty sister ship sits empty, high in the water again, with apparently only the sailor and a few lengths of rope for company.

Nearby, as we meander in searing midday heat and dripping humidity between the hulls of the silent armada, a young European officer peers at us from the bridge of an oil tanker owned by the world’s biggest container shipping line, Maersk. We circle and ask to go on board, but are waved away by two Indian crewmen who appear to be the only other people on the ship.
‘They are telling us to go away,’ the boat driver explains. ‘No one is supposed to be here. They are very frightened of pirates.’

Here, on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers – all should be steaming fully laden between China, Britain, Europe and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.

They are a powerful and tangible representation of the hurricanes that have been wrought by the global economic crisis; an iron curtain drawn along the coastline of the southern edge of Malaysia’s rural Johor state, 50 miles east of Singapore harbour.

It is so far off the beaten track that nobody ever really comes close, which is why these ships are here. The world’s ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world’s economies.

So they have been quietly retired to this equatorial backwater, to be maintained only by a handful of bored sailors. The skeleton crews are left alone to fend off the ever-present threats of piracy and collisions in the congested waters as the hulls gather rust and seaweed at what should be their busiest time of year.

Local fisherman Ah Wat, 42, who for more than 20 years has made a living fishing for prawns from his home in Sungai Rengit, says: ‘Before, there was nothing out there – just sea. Then the big ships just suddenly came one day, and every day there are more of them.

‘Some of them stay for a few weeks and then go away. But most of them just stay. You used to look Christmas from here straight over to Indonesia and see nothing but a few passing boats. Now you can no longer see the horizon.’

The size of the idle fleet becomes more palpable when the ships’ lights are switched on after sunset. From the small fishing villages that dot the coastline, a seemingly endless blaze of light stretches from one end of the horizon to another. Standing in the darkness among the palm trees and bamboo huts, as calls to prayer ring out from mosques further inland, is a surreal and strangely disorientating experience. It makes you feel as if you are adrift on a dark sea, staring at a city of light.

Ah Wat says: ‘We don’t understand why they are here. There are so many ships but no one seems to be on board. When we sail past them in our fishing boats we never see anyone. They are like real ghost ships and some people are scared of them. They believe they may bring a curse with them and that there may be bad spirits on the ships.’

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