A golden comet now lights up the sky; an omen of what is in store for our future.  Gold is up just over 50% during the last 1-year period.  Given the buying strength we are seeing lately, especially from central banks, we will likely see gold in the $1600 range quite soon.

Of course, there will be road-bumps along the way; but the general course will take us to $1650 and then into the $3000-5000 range.  Where Gold goes beyond there depends on the monitary policies of the United States and what kind of thinking takes hold as all of this inflation begins to hit hard where it hurts.

The beautiful thing about gold, is the fact that it gives us all a clear omen, which allows the wise and observant among us, a chance to prepare for difficult times ahead.  This golden comet will become ever more brilliant with the passage of time.  Perhaps most of us will soon realize what is occurring and what they must do to deal with the situation.  This situation isn’t going to go away on it’s own and nobody is going to solve the problems  it creates for us in our stead.

Gold Swiss Stair Formation Following Wedge Breakout

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…

The price of gold has cleared the former all-time high, reaching into the $1040 (USD) range for the first time in the history of the yellow metal.  The chart below illustrates how gold formed and broke through a bullish inverted head & shoulders formation, broke through the top of a consolidation wedge, and broke through a wedge in the MACD indicator.

With an RSI reading of 70, gold is one hot commodity.  This should start ringing some alarm bells at major money centers around the world.  It is becoming ever-more apparent, that we are experiencing a serious rout of inflation which could very well turn into a devastating wave of hyper-inflation in due time.

Gold Breakout Chart: October 7, 2009

As of September 25, gold has broken through two long-term formations and sits at the neckline of an inverse head & shoulders formation.

Given that gold closed the week at the neckline of such a long-term Head & Shoulders formation, after having shown such resilience over the past few weeks, it is time we prepare ourselves for a significant move, further into unknown territory. The chart above indicates that gold is acting like a coiled spring, ready for the slightest trigger, to send it into launch mode; bringing the price into the $1200-1300 USD range.

When I look at this chart, I am reminded of the 2002-2003 period, when gold was hovering around the $375 range in a large wedge formation. At the time everyone was thinking, “this must be it for gold, it’s already had such a run from $250, the bull run surely must be over by now.”

I remember seeing the wedges, similar to the current chart, though less volatile than the current price fluctuations. I remember seeing a good-sized wedge in the MACD which had broken to the upside. In fact, it was at this time that Jim Sinclair, the CEO of Tanzanian Royalty Exploration and the author of Jim Sinclair’s Mine Set had a contest for gold community members to draw the relevant trend lines on an Investors Business Daily gold chart that he provided. The prize for this contest was a one ounce gold coin.

Well, I took Jim up on his offer and drew formations similar to those on the attached chart. Including a MACD breakout precisely like the one on the current chart. I made the chart simple yet elegant and intuitive and fortunately for me; out of all of the hundreds of charts sent in to his fax, he chose mine as the winner. What a great feeling that was and what an appreciation I gained for the power that each of us has to understand what is going on in the economic world with elegant simplicity not endless complexity.

It was even more rewarding to see gold advance to $450 by late 2004 and then $700 by 2006. What you have to realize, when you are studying these charts, is the fact that the underlying forces which propel gold skyward have not changed. The governments and central banks of the world continue to employ their disastrously flawed Keynesian economic models which create welfare, warfare and ultimately massive inflation.

Politicians love having all of the “free” money, hot off the printing press, to buy votes, line the pockets of their associates and bail out their friends. That is why these leftist notions of a nanny state taking care of us from cradle to grave, often embraced by Republicans and Democrats alike, is not going to solve the problems it was intended to solve.

This is because everything has a cost, yes even the nanny state, corporate welfare and the like. As the price of the yellow metal rises the buying power of the savings of billions of individuals decreases; so they are in effect robbed in broad daylight by the Keynesian inflationary policies. Is it any wonder that the standard of living continues to decline all over the western world.

“We can’t solve problems by using the same kind of thinking we used when we created them.” –Einstein

One of these days, it may dawn upon people, en mass; that in general the government doesn’t solve problems, it only creates problems. So the only way to truly solve problems is by strictly limiting the role of government to that of a referee and letting the free market bring about the solutions we need.

Had the free market been allowed to act upon zombie banks years ago, when the problems first arose; these banks would have never become “too big to fail.” Had the free markets been allowed to act, unhindered, in the health care field, we would have more choices and less people unable to get the help they need.

Unfortunately, with the public school educated populace; the first place they turn whenever their is a problem is the government. So we have the Hegelian dialectic, “(problem) oh goodness, what a dreadful problem! — (reaction) what are they going to do about it? — (solution) the policies that were originally sought, but did not find the political support are now widely supported and then implemented without much opposition.”

It really saddens me to see my countrymen repeating this cycle over and over again, unaware and uncaring of the fact that it makes their lives much more difficult and constrained. I often wonder when it will become apparent to them that all of this nonsense isn’t working. Will it be when gold is at 3,000? 5,000? 10,000?

I can’t say for sure when decisive action will be taken; but if history is any indicator, inevitably there will come a point at which the pull of the massively centralized state on people’s lives distorts the culture of these people to such an extent that they decide they’ve had enough of it. This would be the point where they realize that it costs so much more to live in a massive welfare state than the benefits that are derived from it and the productive individuals either demand real change, or they pull up anchor and head for some place which will suit their needs.

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.’

read full article…

It looks the yellow metal is preparing for another increase. Tonight it is moving above the key $1000 level to $1008 USD. Based upon the inverted Head & Shoulders formation on the medium-term chart, the target on this move is approximately $1379. If this indeed occurs, it means a tremendous selloff in the US Dollar; because gold almost always acts in inverse of the US dollar.

The extent to which the dollar falls relative to the other currencies depends on how much gold increases relative to those currencies. As has been predicted for years, we are moving from a confidence based economy into a hard asset based economy.

Over then coming weeks, I expect we will see some shocking dollar corrections in the currency markets; which will begin to wreak havoc over the daily lives of billions of people. We are likely to see civil unrest, rapid increases in prices for everyday items and shortages.

Elliott Wave Formation in Gold as it Reacts off of its all-time high at $1037.

Gold broke out of the recent consolidation wedge, confirming some recent bullish activity.

You rarely hear about the true nature of the dilemmas our financial system faces. Only recently, as the real economy begins to implode, do the financial media talking heads even discuss such matters.  Judging by the lack of concern amongst most of the people out there; they probably do not realize just what kinds of sums we are dealing with.

Here is what 1 Trillion dollars would look like, in hundred dollar bills, on forklift pallets double stacked:

1 Trillion Dollars in Hundred Dollar Bills on Forklift Pallets

Imagine $201 Trillion Dollars on forklift pallets; because that is the number that our top commercial banks are toying around with on a daily basis. Read the rest of this entry »

Ever since the beginnings of fiat money, economies have pulsated between polar opposites: paper and tangibles. The Romans started out with pure gold and silver coins; but with the decline of their economy, they diluted the precious metal content until there was virtually no precious metals in the coins.

There comes a point where it becomes painfully obvious that a society cannot function without economic discipline; meaning there must be controls on the issuance of money. The most reliable method known of today is to make all paper money backed by precious metals, or to use precious metal coins themselves for commerce.

We are in the final phases of the paper-promise-based economy; the point at which perceptions can no-longer be papered over to continue this fiat game. Confidence is lost, without which you cannot operate a system of paper-promises. This is where natural law re-asserts itself and real value overtakes fantasy value in the minds of people everywhere.

It happens quickly, when the game is finally up; there are many examples of hyper-inflation throughout history to give you an idea of how it turns out. The velocity of money increases dramatically when hyperinflation hits, meaning people quickly spend the money they have while it still has value; this causes prices to further escalate in a vicious cycle. In Weimar Germany, when all of the chickens came home to roost, their Papiermark was 1 Trillion to a single US Dollar.

Just imagine what would happen if a significant number of the trillions upon trillions of US Dollars in the system today were mobilized to purchase tangible assets. When you factor in the tremendous amount of money creation taking place throughout the world, the prices of these tangible assets will necessarily go up tremendously when the money hits the real economy.

Reliable sources indicate that the MOPE (Management of Perception Economics) cannot last much longer. The game is likely up in late 2009, going into 2010. We are likely to see a year of perilous decline in the value of the US Dollar. It will be an incredibly bad year for the ill-prepared.

The Final Definition of Inflation According To the Law of Relativity

Jim Sinclair | Jim Sinclair’s Mine Set

Inflation equals money squared.

Eventually no speed of creation of money can maintain the economic stabilizing graviton and according to the law of physics we all fall into the Weimar black hyperinflation hole.

The wormhole at the “process event horizon” (the fall of Lehman Brother and the pending fall of CIT) is from commodity money to commodity money.

The wormhole travels through economic pain and suffering.

YOUR SAFE SHIP IS GOLD BULLION for the transitional trip from commodity money through Weimar hyperinflation and back to commodity money.

As sure as E=MC squared rules in physics, hyperinflation, the black hole of the Bernanke electric money printing press, is here and now accelerating to the speed of light that even at that speed must fall into the black hole in the distorted (by Bernanke) of the financial space – time continuum.

There is no escape from the hyperinflationary result of the infinite quantity of money being created to fill the void of value in the now more than one quadrillion dollars worth of value-less OTC derivatives created from 1991 to 2009.

For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.

By Ambrose Evans-Pritchard | UK Telegraph

Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.

A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year.

Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. “The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb”, said the Teachers Union of Ireland.

Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc.

“Something has to give,” said Professor Colm McCarthy, the report’s author. “We’re borrowing €400m (£345m) a week at a penalty interest.”

No doubt Ireland has been the victim of a savagely tight monetary policy – given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.

As the International Monetary Fund made clear last week, Britain is lucky that markets have not yet imposed a “penalty interest” on British Gilts, given the trajectory of UK national debt – now vaulting towards 100pc of GDP – and the scandalous refusal of this Government to map out any path back to solvency.

“The UK has been getting the benefit of the doubt, both in the Government bond market and also the foreign exchange market. This benefit of the doubt is not going to last forever,” said the Fund.

France and Italy have been less abject, but they began with higher borrowing needs. Italy’s debt is expected to reach the danger level of 120pc next year, according to leaked Treasury documents. France’s debt will near 90pc next year if President Nicolas Sarkozy goes ahead with his “Grand Emprunt”, a fiscal blitz masquerading as investment.

There was a case for an emergency boost last winter to cushion the blow as global industry crashed. That moment has passed. While I agree with Nomura’s Richard Koo that the US, Britain, and Europe risk a deflationary slump along the lines of Japan’s Lost Decade (two decades really), I am ever more wary of his calls for Keynesian spending a l’outrance.

Such policies have crippled Japan. A string of make-work stimulus plans – famously building bridges to nowhere in Hokkaido – has ensured that the day of reckoning will be worse, when it comes. The IMF says Japan’s gross public debt will reach 240pc of GDP by 2014 – beyond the point of recovery for a nation with a contracting workforce. Sooner or later, Japan’s bond market will blow up.

Error One was to permit a bubble in the 1980s. Error Two was to wait a decade before opting for monetary “shock and awe” through quantitative easing.

The US Federal Reserve has moved faster but already seems to think the job is done. “Quantitative tightening” has begun. Its balance sheet has contracted by almost $200bn (£122bn) from the peak. The M2 money supply has stagnated since January. The Fed is talking of “exit strategies”.

Is this a replay of mid-2008 when the Fed lost its nerve, bristling over criticism that it had cut rates too low (then 2pc)? Remember what happened. Fed hawks in Dallas, St Louis, and Atlanta talked of rate rises. That had consequences. Markets tightened in anticipation, and arguably triggered the collapse of Lehman Brothers, AIG, Fannie and Freddie that Autumn.

The Fed’s doctrine – New Keynesian Synthesis – has let it down time and again in this long saga, and there is scant evidence that Fed officials recognise the fact. As for the European Central Bank, it has let private loan growth contract this summer.

The imperative for the debt-bloated West is to cut spending systematically for year after year, off-setting the deflationary effect with monetary stimulus. This is the only mix that can save us.

My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.

Mr. __________,

I am writing today to ask that you co-sponsor S.604: Federal Reserve Sunshine Act of 2009. This is a very important bill for ensuring oversight and accountability in the Federal Reserve, by allowing the GAO to perform an audit.

So-far, six of the seven representatives from our state have pledged their support for the House version of this bill, HR1207. The bill already has more than enough votes to pass in the House of Representatives. At the last count it had 237 votes.

This kind of legislation is very popular with the people of our state and the nation in general. We are ready to see some real changes in Washington D.C. and that means a real challenge to the unchecked power of the Fed.

In order to restore the reputation, both domestic and international, of our government and monetary system, it is essential that the public and the Congress be allowed to know what is going on at the Federal Reserve.

The Federal Reserve Board has become a de-facto fourth branch of government, it is un-elected and in many ways more powerful than the Congress. There are also many Constitutional questions as to whether the Congress even has the authority to establish a central bank; though that is a topic for future legislation.

Most Americans feel very strongly, as do I, that it is time we took the first step, on our path to transparency. This means a complete Audit of the books and records of the Federal Reserve Bank.

Please join the cause of Liberty and co-sponsor this bill.

Thank You,
Chris Case