Currency Balloons

Given the state of most media reporting, it’s sometimes tough to know whether to laugh or cry. Here’s a story from last week about a surge in gold bullion purchasing in Germany in August and September:

     German Bullion Dealers Report Major Increase in Sales

Christian Brenner, Chief Executive of Philoro Edelmetalle GmbH: “Already in August we noticed an increase on orders compared to the previous months, but September… September beats it all. From a German viewpoint it’s the strongest month of 2014.”. At their head office in Austria they also register an “overproportional high level” of revenue.

At the end of the article, there is a stumbling attempt to explain the recent surge with no mention of its real reason. Here’s a chart of the Euro showing it losing over 7% of its “value” in August and September, in the context of a 10% loss since May:

It would seem clear that at least some people in Germany and Austria noticed that someone was letting the air out of their Euros and decided to convert to real money.

It was the same for the Japanese in August and September, but much worse overall since the Japanese government has been hellbent on devaluing the Yen for two years. Here’s a chart showing the loss in “value” of the yen of more than 31% in the last three years:

Yen20141007Since these losses in “value” are measured against the biggest balloon of them all, the US Dollar, this is the source of what you may have been hearing lately about the “strong Dollar”! In other words, the “strong Dollar” is simply the result of other major governments succeeding in intentionally letting air out of the balloons known as their currencies.

They are doing this in an attempt to create inflation! Unlike regular people, who like it when prices drop and they can get good deals, governments, being the largest debtors on the planet, want inflation so that their debts can be repaid in cheaper and cheaper currency as time passes. In case you haven’t noticed, that’s a form of grand theft: I’ll borrow money from you today, and pay it back with cheaper money later.

Well so what, you might say. If they are all doing that, what’s the big deal? Continue reading

More shackles readied for deployment

Darth Summers made a speech on Nov. 8 to a gathering of economists at the IMF. My guess is that they had Darth (OK, Larry) give the speech because he doesn’t currently hold a position with any institution that could then be blamed and hated for the policy promoted in the speech. (Here’s the speech, though I don’t recommend it.) However, I think it wise to consider the speech an official announcement of the latest wicked that this way comes.

The policy is that savers will soon be hit with negative interest rates. Now Larry didn’t say this directly, he slithered around it and offered the “clear justification” for it. But in reviews of what his admirers called a “brilliant” speech, the admirers were quite clear in their understanding: negative interest rates…in cashless society! That was the full policy implication.

So people would have to pay the bank interest on their own savings. So if the negative interest rate were -3%, if you had $100 in your account, you’d have to pay the bank $3 in interest. And just in case anyone had any ideas of getting their savings out of the banks, well, get their savings out into what? In a cashless society, your money would simply be an electronic entry in an account. Getting your money “out” would mean spending it. Which is the problem that Summers and his fiends say they are trying to solve: how to get people to spend, spend, spend their money. They say there isn’t enough “aggregate demand.” Don’t have any money? Then borrow some, it’s really cheap. But in any case, spend!

Of course, this would also mean that when the government borrows money, the interest rate would be negative for them as well. The more money they borrowed, the more money they would collect as the lenders paid them interest!

Now it goes without saying, though I’ll say it anyway, that if you went to borrow some money, this negative interest rate thing would not apply to you. You’d still have to pay interest on your loan. This negative thing would only be for them, that is, the banks and governments. Oh, and large corporations, how could I leave them out. But not you or me. Whether borrower or lender be, either way, we’d have to pay. Know what the average interest rate consumers are paying on their $846 billion in outstanding credit card debt? 13%. Do you think the banks are going to give up that bonanza?

Now any rational person might think: They’ll never do it! Negative interest rates would wreck every pension fund in the world. And so they would: pension funds are all dependent on collecting interest to meet their future obligations. But too bad. If people can’t collect pensions, then they’ll have to stay in the workforce. And with all that competition for jobs, companies can pay lower and lower and lower wages. Why do you think they outsource work across the world! Do you think this paragraph goes to far? Then consider this: Collecting Donations For Wal-Mart Employees That Cannot Afford Thanksgiving Dinner?

At the Wal-mart on Atlantic Boulevard in Canton, Ohio employees are being asked to donate food items so that other employees that cannot afford to buy Thanksgiving dinner will be able to enjoy one too.

So, they think that taxing people’s savings, both in their bank accounts and in their pensions, will get the economy on a sound footing again. Because that’s what these policies are, they are taxes, part paid to government and part to the banks. So why don’t they just say that? Two reasons: first, people tend to get angry about new taxes and they tend to vote out whoever levies new taxes; and, the group at the Summers speech are economists, and all economists know that raising taxes squelches economic growth. So they can’t call it a tax or everyone would point out that the policy is anti-growth. Which it is. But logic left the room of mainstream economics years ago. They maintain their lofty positions as Machiavelli advised: they serve their governing masters well. So these policies have nothing to do with logic. The governing masters keeping their power, that’s what it’s all about. And these economists know who spreads the caviar on their toast points. These policies are designed only to preserve the powermonger status quo.

Plus, they are fairly sure it will be a long time before the public catches on. They can just repeat over and over that this is for jobs and growth, and the majority, desperate for good news, will believe it. And in this ploy, the economists are likely correct. They have been engaged in multi-$trillion Quantitative Easing (money printing) for years and, according to a Reuters poll, three quarters of Americans don’t even know what QE is. And people weren’t asked to explain it, they were given a multiple choice question, so 20% could have answered correctly just by random choice!

Twelve percent of respondents thought QE was a computer-assisted program that the Fed uses to manipulate the dollar. Another 11 percent thought it was part of the Dodd-Frank Wall Street reform legislation enacted following the crisis.

So the economists of The Powers That Be figure they can obfuscate their way through just about anything.

So let’s get this straight. These thieves want to steal people’s savings and pensions. So that people must remain as wage slaves till they drop, filling a growing labor pool being paid wages that are declining in all of the developed economies. And they’ll be great fodder for the upcoming war economy, grateful for the opportunity to build weapons that kill in better and better ways. While the rich and powerful get more caviar, as shown on the chart below. The dark brown line is the average stock price of retail for the rich: Tiffany, Coach, and LVMH. Those stocks have risen 500% since their 2009 lows and are over 30% above their former peak in 2007. The blue line is Macy’s, Kohl’s, and JC Penney, where the disappearing middle class shops. Those stocks are up 100% since 2009 and are still 30% below their former peak in 2007:

QE effect on shoppers

That is a great demonstration of who is receiving all that newly printed money and who is not. These folks want more slaves. And the ability to bomb into chaos any region that does not offer up its people into the slave pool.

It’s Bail-In time

The posts Upcoming Thefts by Big Money and Update on Metals, Deposit Confiscation, and Capital Controls explained how the authorities have made is perfectly clear that their new Bail-In regimen would confiscate deposits from regular folks in an attempt–which will ultimately fail–to keep the bankrupt banks and bankrupt governments afloat. I enter as evidence the bankruptcy of the City of Detroit. Ellen Brown has written an excellent post on the topic that everyone should read, especially anyone who tends to think the current financial/legal/political system is a trustworthy custodian.

What’s happening is this: in the Detroit bankruptcy, the banks have been ruled to have “super-seniority,” that is, the banks get taken care of first, everyone else comes after that. Why? Because the banks sold Detroit derivatives and the banks got Congress to pass a law in 2005 that derivatives have seniority over all other obligations. So Detroit’s pensioners–the retired firefighters, police, water workers, garbage collectors, etc.–will get whatever crumbs might or might not be left after the super-senior derivative sellers and senior bondholders get their take. The first proposal had pensions being cut to ten cents on the dollar.

The banks convinced Congress that derivatives are “systemically important” so that’s how they got this super-seniority scam in place. Since there are over $700 trillion worth of derivatives out there in the world and that’s more than 10 times larger than then entire world economy, that means the banks will ultimately get all of everything before anyone else gets any of anything every time there is trouble. And there will be a lot of trouble. Particularly if they start a big war. Think about it: we have a system where money is debt and almost all countries and banks have way too much debt and the banking and government debt system is cross-linked to all financial institutions and pension funds and insurance companies across the globe. What will that look like when institutions in one country decide to not pay the institutions in another country because the two are at war, or since no one will be sure which countries will be left standing at the end of the war, everyone will gets suspicious about the value of everyone else’s currency? Trouble will take on entirely new dimensions. And we’ve all been told who has seniority in terms of dibs on assets, and that “who” is not you and me.

Or from another vantage point, please consider this: it has taken over a year for the bankruptcy trustee for MF Global, which stole $1.6 billion from its depositors, to even figure out where the money is. And he has only been able to figure out where 80% of it is. Not because anyone was hiding it, but because assets now get lent to someone who lends them to someone else who lends them to someone else…and so forth. This is how complicated the financial system has become. Think about what this will look like when the amounts are literally millions of times larger than MF Global and spread across the globe in countries which are no longer on speaking terms.

And as a friend just pointed out to me in an e-mail, it’s really now in the banks’ best interest to have cities like Detroit go bankrupt so that the banks can get all of their money from derivatives right away.

I wonder if that’s why Detroit isn’t getting a bailout from the State or Federal governments–that the banks want their money now.

And the City of Detroit gets relief from its debts. So government and banks bail in (steal!) the money from regular folks, game set and match. Ah, the public-private partnership in action!

It’s dangerous out there folks. Please take action accordingly. Soon!

From Ellen’s post, The Detroit Bail-In Template: Fleecing Pensioners to Save the Banks:

In Cyprus, the depositors were “bailed in” (stripped of a major portion of their deposits) to re-capitalize the banks. In Detroit, it is the municipal workers who are being bailed in, stripped of a major portion of their pensions to save the banks.

Bank of America Corp. and UBS AG have been given priority over other bankruptcy claimants, meaning chiefly the pensioners, for payments due on interest rate swaps they entered into with the city. Interest rate swaps – the exchange of interest rate payments between counterparties – are sold by Wall Street banks as a form of insurance, something municipal governments “should” do to protect their loans from an unanticipated increase in rates. Unlike ordinary insurance, however, swaps are actually just bets; and if the municipality loses the bet, it can owe the house, and owe big. The swap casino is almost entirely unregulated, and it is a rigged game that the house virtually always wins. Interest rate swaps are based on the LIBOR rate, which has now been proven to be manipulated by the rate-setting banks; and they were a major contributor to Detroit’s bankruptcy.

Derivative claims are considered “secured” because the players must post collateral to play. They get not just priority but “super-priority” in bankruptcy, meaning they go first before all others, a deal pushed through by Wall Street in the Bankruptcy Reform Act of 2005. Meanwhile, the municipal workers, whose pensions are theoretically protected under the Michigan Constitution, are classified as “unsecured” claimants who will get the scraps after the secured creditors put in their claims. The banking casino, it seems, trumps even the state constitution. The banks win and the workers lose once again.

Ellen’s full post is here.

More cycles

Yet another instance of the accelerating flood cycle: a photo from the devastating Himalayan floods, indicating a stance people might wish to take during these times:


* * *

Despite being surrounded by the cyclic nature of physical life (breathing, heartbeat, blinking, day/night, tides, seasons, birth/death … and the less visible or invisible: sound waves, radio waves, x-rays, microwave cooking, evolution … and for a fun contemplation of large astronomical cycles, see this and this), for the most part, people tend to ignore cyclicality in favor of seeing life as a straight-line progression. This is unfortunate for at least two reasons: first, because all form is cyclic—form emerges, flourishes to some extent, and dissolves; second, because there are some not-so-obvious cycles that offer understanding for what is otherwise quite mysterious. In fact, here at Thundering Heard, we are on a path to discuss the biggest cycle of them all for people, a cycle that, once grasped, contains the answers to “little” questions like the meaning of life, why are we here, and so forth. But first, let’s get more adept at seeing the cyclic aspect of life and how important it is.

The Sunspot Cycle

There is a peak of sunspot activity every 10 to 13 years, with 11 years being the average for each cycle. A chart of the peaks and troughs of sunspot activity from 1926 to 2009 looks like this:


Let’s look at the three peaks labeled A, B, and C.

The peaks of sunspot activity often really “rev people up” financially, that is, there is typically an excitation of human activity that leads to a financial market bubble that coincides with the sunspot peak.

Three peaks ago, the peak in 1980, labeled A above, coincided with the peak of the commodity price boom and price inflation that took place in the 1970s after Nixon defaulted on the US promise, made near the end of World War 2, to always support conversion of Dollars into gold. Those were the days when the so-called Misery Index (inflation plus the unemployment rate) was tracked in daily newspapers, and mortgage rates in the US rose to 18%.

Here’s a closer look at the last two peaks of sunspot cycle activity:


The cycle peak labeled B was in 1990 and corresponded with the peak in Japan of bubbles in their stock and real estate markets. This was the time when it was generally held that Japan Inc. would rule the world, or at least own it; that its economy would soon be the largest in the world. A single block of downtown Tokyo real estate was said to be worth more than all of the real estate in California. Now that’s a bubble! (We’ll see in our next post on cycles why that Japan bubble grew so large when we cover another cycle that also contributed to this Japan peak. When multiple important cycles converge, the results can be gargantuan.) Following that peak, Japan experienced what has come to be called The Lost Decade, though it has now run for two decades. Both their stock and real estate markets lost 75% of their “value” after that peak, and they still have not come anywhere close to recovering their former glory as Japan has been mired in nearly constant recession ever since.

The sunspot peak labeled C aligned with the peak in the internet/technology stocks in the Spring and Summer of 2000, another famous bubble. Again money flowed, this time into, Webvan,com, Geocities,com,, and many others, most of which had little going for them except an idea and a web site. Little or no sales, no profits—who cared! They were going to the moon. It was a New Paradigm. If you thought it was insane, you “just didn’t get it.” And the thing is, that craziness for internet stocks had been in play for a few years; that hoopla could have ended in 1998 or 1999. But it didn’t. It ended when the sunspot cycle peaked in 2000.

Looking back, it would have been great for the participants in those bubbles to be aware of the sunspot cycle peak. They could have sidestepped a lot of trouble. So what’s going to happen this time around? Well, for a few years, I have thought that  this economic cycle might hang on into the peak of the current sunspot cycle, called Solar Cycle 24, which was projected for August 2013. But Amon Ra may have thrown us a curve ball. It looks like this cycle will not have the usual single large peak, but rather a dual peak like Solar Cycle 14 from the early 20th Century. According to solar physicist Dean Pesnell of NASA’s Goddard Space Flight Center:

“This is solar maximum. But it looks different from what we expected because it is double peaked.” Pesnell noted similarities between the current cycle and Solar Cycle 14, which happened between February 1902 and August 1913 and experienced a double peak. If the two cycles are in fact twins, he said that “it would mean one peak in late 2013 and another in 2015.”

Here is a chart that shows the peak in 2000 plus our current cycle:


If the NASA guy is right, there should be a bubble peak in either 2013 or 2015. But a bubble in what? Here are some clues:

  • Lots of savings accounts pay only 0.01% in interest.
  • Mortgage rates got near 1% in Japan and 3% in the US. (Would you lend money to a stranger for 30 years for 3% interest? Neither would banks, which is why almost all mortgages need a guarantee from a government program or the banks won’t make the loan.)
  • Short-term interest rates in Germany and Switzerland recently went negative. That’s right, if you wanted to lend money to Germany or Switzerland on a short term basis, you had the pay them for the privilege.

If you think these phenomena don’t make a lot of sense, you are right. But it points to the culprit that has all the hallmarks of a monster bubble: the world government bond market. The bull market in bonds has been running for over 30 years. On May 2, if you wanted to lend money to Germany for 10 years, they would pay you an interest rate of 1.2%; the US, 1.6%. And if you wanted to lend Switzerland money for 10 years in December, they were paying a whopping 0.4%. Japan? 0.45%.

And in the case of Japan in particular, they are working very hard to devalue their currency, to make sure the yen falls in value. So the question is, who in their right mind would lend to these countries for such a pittance in interest, especially while most of them are printing money to intentionally debase the value of their currencies!?! You get a very poor interest rate and, if you get your capital back, it will be in a currency that will have fallen in value over 10 years. Yet, that is what institutions and people are doing. Recently, if you wanted to get a reasonable interest rate on 10-year government bonds, then you would have lend money to the country of Rwanda; they paid 7% on a recent offering of 10 year bonds. Best of luck getting your capital back 10 years from now.

When this bubble bursts, the consequences will be huge. This is not a bubble in one country, like Japan in 1980, or in one sector of the economy, like tech stocks in 2000, we’re talking about government bonds, worldwide! This is the market that supports military spending, education, transportation, and just about every safety net (in the US: Social Security, Medicare, Food Stamps, Medicaid, Unemployment Insurance, and so forth) on the planet. And you get this paltry interest rate when you might not even get your capital back in 10 years. A number of governments are on a clear trajectory for bankruptcy; there is a good chance that bond buyers will not get their capital back! And yet they lend huge amounts of money to these governments. Especially Baby Boomers, they have been pouring money into bond funds. Just like they poured money into stocks in 2000, and real estate investments in 2006. Oh well.

When do I think the bond bubble will pop? This year! 2013. I don’t think it can last to 2015. In fact, the bubble pop may have already started. And guess which institutions count government bonds as their major “stable” capital: banks. Yet another reason to watch out for the banks!

Furthermore, the solar cycle might actually peak this year. The NASA guy might be wrong about the dual-peak forecast.

What will it mean if this bubble pops? It means interest rates will rise, possibly a lot. This will strongly increase the amount of interest governments must pay on their debts. Their deficits will skyrocket.

Mortgage interest rates are closely tied to the government bond market, so mortgage rates will rise as well. (US mortgage rates rose from 3.88% to 4.35% just over the last week!) And if government deficits skyrocket, programs will need to be cut, so the massive support they are currently providing for the mortgage market will be in jeopardy, threatening even further rate increases.

Still, two cycles that we will discuss in the next post about cycles argue for that 2015 date.

* * *

I would like to make one thing very clear: If you woke up tomorrow and heard that a large “systemically important” international bank had collapsed, causing chaos in the rest of the financial system, and that most banks would be closed for some number of days, would you really be surprised? Probably not. Many people are starting to get the idea that the system is not exactly solid. I am certainly in that camp. So when I talk about August 2013 or some month in 2015 as the month when the real systemic collapse will commence, please know that, in my view, the more-than-sufficient conditions are in place for that full system collapse to happen at any minute. Discussions like the one above are an attempt to get a handle on probabilities. In terms of preparation, acceleration is not to be trifled with: I think that everyone should be doing what they can to be prepared now. If it turns out there is more time for preparation, fabulous, this type of preparation takes awhile and I’m sure we can all use the time. But that time may be short indeed. As the photo at the top of the post shows, when change arrives in your area, it may be monumental change.

Accelerating Truth

Most people have been trained to internalize only those ideas that come from honchos, that is, political and religious big shots, “experts,” very rich people, celebrities, etc. The powermongers capitalize on this when faced with criticism of the system by often resorting to what the logicians call ad hominem attacks, that is, they deflect attention from the criticism by attacking the person delivering it, attempting to undermine that person’s credibility. They characterize the malcontents as crazy, unpatriotic, uninformed, uneducated, or as crackpots, charlatans, imbeciles, demons, and so forth, while never addressing the issue at hand.

So for a more general public understanding of the nature of our system, it helps when people considered to be honchos start publicly discussing what is in fact going on. Other honchos are less likely to try to pull the ad hominem attack on one of their own. In other words, truth about the nature of our system needs to emerge from the blogosphere and into the mainstream. This process is accelerating.

Below is a link to an amazing video showing Columbia Professor Jeffrey Sachs speaking to a conference organized by the US Federal Reserve:

     Columbia Economist Dr. Jeffrey Sachs speaks candidly on monetary reform

He begins by reporting that he was just at a meeting with foreign ambassadors at the UN who were asking:

“Why are we taking advice from the people who have managed the financial system so badly?”

He goes on to say that while people expect economists to talk about statistics and monetary issues, that the real problem with the system is as follows:

We have a mountain of criminal and fraudulent behavior…The amount of utter criminality and financial fraud is absolutely enormous…This is what’s called the American financial system at the moment.  It’s an unregulated essentially lawless environment…

This is a profound failure of government…

I regard the moral environment as pathological…

We have a corrupt politics to the core. Both parties are up to their necks in this. It really doesn’t have anything to do with right wing or left wing. The corruption, as far as I can see, is everywhere.

Sachs follows that by saying that he meets with the top Wall St CEOs on a regular basis and the common feature he observes is that these people believe they can do anything they want, legal or not, with impunity. And that given their takeover of the politicians and regulators, they are correct!

Now this isn’t coming from MIT’s Prof. Noam Chomsky–who, let’s face it, was decades ahead of all of us in pointing out the criminality of the corporate/political system–it’s coming from a highly respected Columbia professor.

For a few years now, the money printing central banks such as the US Federal Reserve (the central banks have directly printed at least $16 trillion and counting) have been told by bloggers that this money is not supporting jobs and the economy, but rather that it is going to the rich who are bidding for financial assets and causing bubbles in multiple asset markets including stocks, bonds, and real estate. People like Ben Bernanke, his henchman, and academic and Wall St economists have denied this.

But now we find out, from a Freedom of Information Request by Bloomberg and from a leaked Fed document, that the banking insiders who advise the Fed are finally saying the same thing that the continuously-discredited bloggers have been saying all along: that the money printing is creating bubbles in farmland prices and student loans, and:

There is also concern about “an unsustainable bubble in equity and fixed-income markets given current prices.

And for years, bloggers have said that the central banks cannot possibly stop printing more and more money or the whole edifice will crumble, another charge that is roundly derided. The Fed has claimed repeatedly that it has the tools to undo all the money printing so that it will never cause a problem. But now their own banker advisory panel says that if the Fed stops printing, it “may be painful for consumers and businesses…” and thatthe Fed may now be perceived as integral to the housing finance system.” In other words, if the Fed stops printing, the “housing finance system” will collapse. Which it would. In a heartbeat.

People like Matt Taibbi of Rolling Stone have been stalwart in documenting the ongoing manipulations in the interest rate, municipal bond, derivatives, and oil markets. And others have offered very strong evidence of manipulation of the stock market and precious metals markets. Taibbi recently wrote that “everything is rigged.” The US Bond market, the largest in the world, is certainly rigged: the Federal Reserve itself buys 75% of the bonds issued by the US Treasury. And the Fed announces, at the start of each month, which days it will be buying bonds through the Wall St firms in the coming month. The stock market always rises on those days. Always. Why? Because the Wall St firms take that money, leverage it up by further borrowing, and buy stocks. The Fed wants exactly that: they believe that a rising stock market makes people feel a “wealth effect” and therefore they will go out and spend more money in the real economy.
So finally, along comes one the largest banks in the world, Deutsche Bank, saying:

We would stress that we fully understand why the authorities wouldn’t want free markets to operate today as the risk of a huge global default and unemployment cycle would still be very high.

And a recent member of the Federal Reserve Board, Kevin Warsh, said that their money printing is not working and they are losing credibility:

…over the last several years, [the Fed] has over-promised and under-delivered, and the bank’s most important asset – credibility – is under attack.

One would think that, if their strategy isn’t working, that they have other tools they can bring to bear. That’s what they tell us. But Warsh says, “There is no Plan B.”

Bloggers have been warning that European banks are insolvent and getting worse all the time. Now the European Central Bank itself admits that the “euro zone’s slumping economy and a surge in problem loans were raising the risk of a renewed banking crisis.”

Here is an interview with the President of the Chicago Mercantile Exchange, that place where they trade paper and electronic instruments that have an increasingly tenuous connection with physical things like gold, silver, copper, oil, etc. From the interview:

What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products (ed: futures) trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold.  That’s going to show you, people don’t want certificates, they don’t want anything else.  They want the real product.

Then there is the supposed eternal juggernaut of the Chinese economy that will keep all the other floundering countries afloat. Much of that juggernaut has been propelled by debts taken on by local governments to promote the economy in their areas. But now the Financial Times reports this:

A senior Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash.

Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governments as a result of his concerns.

Last but not least, an insider is finally speaking up about nuclear power plants in the NY Times:

All 104 nuclear power reactors now in operation in the United States have a safety problem that cannot be fixed and they should be replaced with newer technology, the former chairman of the Nuclear Regulatory Commission said on Monday…

The position of the former chairman, Gregory B. Jaczko, is not unusual in that various anti-nuclear groups take the same stance. But it is highly unusual for a former head of the nuclear commission to so bluntly criticize an industry whose safety he was previously in charge of ensuring.

This system is coming apart at the seams. Insiders and whistlebowers are finally describing the details. The US Government realizes this and is desperately trying to keep whistleblowers from telling the truth by filing charges against them and trying to ruin their lives. Ultimately, it won’t work. I just hope that everyone reading here takes those actions they need to take. By the time the collapse is on the television Nightly News and Page 1 of the newspapers, with the system honchos all claiming “No one could have seen this coming,” it will be too late.

Cliff Posers, and the Incredible Shrinking US Pie

If the politicians in Washington DC didn’t bring suffering to so many people, their posing with respect to this “fiscal cliff” would be laughable.

First, none of them intends to do anything substantive about the biggest problem of all: the Trillion Dollars the US spends each year on its war machine to maintain its rapidly fading pretense that Earth is part of the US Empire.

Second, none of them are including in their fake calculations the five additional bailouts that they all know are either already in play or right on the doorstep. The four new ones:

  • US Postal Service—losing $ billions every quarter
  • FHA—after “quasi-government” housing stimulus and campaign-finance corporations Fannie Mae and Freddie Mac went bust because they had enabled millions of insane mortgages, the FHA took over their role and rose from relative obscurity to be the new Federal backer extraordinaire of insane mortgages. As predicted by honest observers, it now needs a bailout.
  • PBGC—the Pension Benefit Guarantee Corp is now operating in the red.
  • Student Loans—with the default rate now going exponential, everyone involved in this $ Trillion market will need a bailout. Check the trend on this chart of the 90-day default rate:


The government headline admits that 11% of these loans are in default, but a reading of the fine print says it’s closer to 22%. That’s 22% of a $ Trillion in loans.

And the bailout that is already well underway:

Social Security—What? Some politicians claim the SSA is good through 2033. Strange claim, given that SSA will run $162 billion in the red for 2012. Well, they say it’s “only” a $47 billion deficit because there was a special payment from the Treasury of $115 billion to offset the “temporary” payroll tax cut. And if you think this year is some exception, the deficit for 2011, before the payroll tax cut, was $46 billion. One of the largest problems for Social Security is this: as cash was paid into the program into what was supposed to be the Social Security Trust Fund, the government spent that money and put IOU’s in the Trust Fund. Well, given the ultra-low interest rates paid on government IOU’s due to the low interest rate regimes run by Greenspan and Bernanke, the Trust Fund is earning at least $700 billion less in interest over the next 10 years than they thought they would be earning. So that thing about SSA being OK though 2033? Oops. For a look at the unhappy calculations, see this.

So how did this happen?

Here is a huge contributor: As reported by the World Bank, government statistics collected from around the world—and pretty much everyone agrees that government stats are just a bit biased to the upside—say that the global economy grew by a total of 9% from 2001 through 2011. By those same stats, in 2001, the US economy was 32% of the total world economy. By 2011, the US economy was just 22% of the world economy. That’s a huge 32% reduction in global market share for the US. These calcs are here.

So the question is: How does a country have its economy shrink by 32% in terms of its share of the world economic pie and yet keep spending a $ trillion a year on war and keep all of its benefit programs and government agencies intact? Doesn’t this lead to some type of breaking point? Normally, yes. But so far, the solution has been simple: the country borrows the money. In 2001, the US owed $6 Trillion. Now it owes over $16 Trillion. But won’t people stop lending to such a country? Yes, but the Federal Reserve prints up new money and buys the excess new debt authorized by Congress and issued by the US Treasury. For the next three years, the Fed admits to planning to buy virtually all of it. See Treasury Scarcity to Grow as Fed Buys 90% of New Bonds. Simple? Yes. Sustainable? Not in the recorded history of this planet.

So when you hear the cliff posers from both parties trying to score political points, remember that what they aren’t talking about is far larger than what they are talking about. And that what they aren’t talking will have a far bigger impact on all of us.

Gold Goes Mainstream

Gross: Stock and bond managers today must be alchemists: turn lead into gold. NOT likely. Too much lead (bubbled assets).
–Tweet from Bill Gross, Founder of PIMCO, which manages $1.8 trillion


“Do you own gold?” “Oh yeah. I do…There’s no sensible reason not to have some.”
–Ray Dalio to the Council on Foreign Relations

This is being written to put the precious metals market in a larger context for those people who still see the world proceeding much as it has proceeded in the past, a world without the large financial and supply chain disruptions that we foresee.

Strong multi-year upmoves in the price of any asset, aka a secular bull market in that asset, go through three stages:

  1. The speculative, early-proponent phase during which the mainstream investment community ignores or derides the potential of that asset.
  2. The mainstream phase, where the mainstream decides that exposure to that asset is a good idea for just about everyone.
  3. The mania phase, where just about everyone feels that they must own that asset and will tell you so when you meet them by chance in the supermarket.

Phase 1 for gold has been marked by derision from the mainstream investment community. Quoting Keynes, they call gold the “barbarous relic.” Otherwise-intelligent economic commentators such as Nouriel Roubini have been calling for a price top in gold for several years. Some who are old enough to have experienced the gold bull market of the 1970s have been saying, “We heard all this before in the 1970s, anyone who buys gold now will regret it later.” All of these people have been wrong all along as gold and silver have powered higher in price.

During most of Phase 1, the major central banks of the world have been sellers of gold, preferring to buy government bonds of various countries (such as Greece and Spain!) to “get a return” on their money. Gold has been a far better investment for the last 12 years. Over the last three years, central banks have become net buyers of gold, to the tune of hundreds of tons per year. Most but not all of this buying has come from Asia as the western central banks have been preoccupied with printing money in a mad scramble to keep their markets afloat.

Gold has been in Phase 1 since 2001. Most in the financial community regard it as an annoyance when their clients ask about it. The price increased from $256 in 2001 to $1,911 in August, 2011.

A couple of weeks ago, Ray Dalio gave a presentation to the CFR. He was asked if he owned gold, and he said, “Oh yeah. I do.” This marked the start of Phase 2, the mainstream phase.

Who is Ray Dalio? Most people in the investment community respect him as the best active hedge fund manager on the planet. We mentioned his firm, Bridgewater Associates, in a previous post. They manage about $140 billion. Ray is highly respected in both financial and political circles.

And the CFR is the Council on Foreign Relations. If you had to pick one organization that has the most influence on the mainstream political thought in the US, it would have to be the CFR. It was founded by the Rockefellers. You have to apply for membership. There are currently 4,700 members, including Bill Clinton, Robert Zoellick, Janet Yellen, Paul Wolfowitz, Lloyd Blankfein, Jamie Dimon…in other words, the CFR is the public face of The Powers That Be/Were.

Now that all of these mainstream movers and shakers have heard from what some consider the smartest money man on the planet that owning gold is a good idea, well, if we haven’t yet convinced you to get rid of a mainstream financial advisor such as a broker, said broker is likely to be calling you in the not-too-distant future with their “innovative” idea that you should get some gold. Of course, being mainstream, they will likely advise you to own it in paper rather than physical form, which will be a big mistake, but that will be their advice. And they will advise that you put a maximum of 5% of your assets into gold or gold mining stocks. In normal times, this would characterize the mainstream phase for gold, during which its price would rise steadily for years.

More evidence that we’ve entered the mainstream phase comes from Bill Gross, known to many as the “Bond King.” Gross founded PIMCO, which manages over $1.8 trillion. Yes, that’s trillion with a T. Almost all of the money is in conservative bond funds. But here’s a tweet this week from Gross:

Gross: Stock and bond managers today must be alchemists: turn lead into gold. NOT likely. Too much lead (bubbled assets).

Note that Gross, the Bond King, is saying that stocks and bonds are bubble markets. That money managers should turn that lead into gold. Though he also says that’s not likely.
Those who hate gold claim gold is in a bubble. Great examples of bubble markets are internet stocks in 1998 through early 2000; or real estate running up to 2006; or government bonds now. Gold, on the other hand, has had a nice steady rise for years, nothing meteoric or bubble-like at all. And here is someone, Bill Gross, who may know more about bonds than anyone on the planet, saying that bonds and stocks are the bubble, not gold.

Gold can’t possibly enter a bubble until it enters Phase 3, the mania phase. During this phase, you will be regaled on a regular basis from media sources and individuals with stories of people who got rich from gold and silver. Like the stock day traders of the year 2000, or the real estate flippers of 2006, there will be lots people trading gold on a daily basis, probably at gold trading shops like the day trading shops that were operating in 1999. People will be quitting their jobs to trade precious metals to “make their fortune.” 90% of people who talk about gold will assure you that it is the surest thing on earth to guaranteed riches. CEOs of gold mining companies will be like rock stars, getting interviewed by Charlie Rose. That’s what a bubble looks like. How many people do you know who own gold and silver?

Now, with the acceleration that is all around us, it is unlikely that we will proceed through these three phases of a secular bull market as we would in normal times. It is far more likely that gold will have a meteoric rise quite soon. But if you think that the world will proceed in a conventional manner in the years to come, we have outlined the path of the precious metals for you.