Bill Holter ~ I took a little break last week and plan to do the same this week but I did want to finish the year out with one last piece. The three stories that jump out at me are seemingly exclusive of each other but in reality all connected at the hip.
The first story is that of the COMEX Dec. delivery situation. As of right now, dealers barely have enough gold to make settlement. The total standing (and stood) for delivery is 667,000 ounces of gold, just under 21 tons. After deducting what has been delivered, there looks to be about 9 1/2 tons left to be delivered upon while the dealers have just less than 10 tons available. Interestingly, JP Morgan has "stopped" 97% of all deliveries so far so they are accumulating the metal. This is not a new story and we have watched it as it has unfolded all month long but may act as a spark that connects the dots.
If you recall, last January Germany "asked" for 20% of their gold back only to be told that it would take 8 years. Fast forward to present and they have only received 37.5 tons. Where the gold has come from we do not know. Did the NY Fed make the shipments? The Bank of England or Banque du France? We do know that Germany should have received somewhere close to 90 tons by now, they have not. We also know that China has imported through Hong Kong an amount of gold over the past 2 years equal to 50% of ALL gold that was mined over that time. HALF! Then of course you must add in the demand from India, Russia, Europe and the rest of the world. Demand without a doubt has equaled and most probably close to doubled "current production," the supply has had to come from somewhere. That "somewhere" is obviously the western central bank hordes. The question remains, "how much is left?"
Another truly big story is that of the relations between the US and Saudi Arabia. Saudi Arabia looks to be "restless" for lack of a better term. They have publicly voiced their discontent with the long term deal that they have had in supporting the "Petro Dollar." This past week they said that they feel like "they were stabbed in the back" by President Obama. This on its own could lead to an overnight "rollover" scenario where dollars and treasuries are dumped wholesale with no buyers standing to bid with the exception of the Federal Reserve. It is also known that Saudi Arabia has recently met with both the Chinese and Russians, gee; I wonder what was discussed in these meetings?
Lastly, the 10 year Treasury hit 3% on Friday. The CNBC talking heads of course downplayed this and said that it was a "sign of strength." "Strength" as in economic strength? Interest rates have now nearly doubled from where they were early last year. This has happened even while the Fed pumped $85 billion into the credit markets each month...and they want us to believe that they will shrink this amount. A simple question might be, "If interest rates have doubled while the Fed bought $85 billion 'extra' per month, what will happen if they truly do lessen QE from $85 billion?"
While all of these stories seem separate, I don't believe that they are I believe that they are all signs or symptoms of the same story. The "story" being the power of the US is fading very quickly. The dollar is and has been the key to this power. While initially after 1944 (Bretton Woods) the rule of the dollar globally was a no brainer, we have abused our privilege for many years. The Germans (asking for their OWN gold), Chinese, Indians, Russians etc. want gold, this is quite clear and can be seen by their ramping of imports over the last several years. A shift away from accumulating more dollar reserves is also quite clear. New alliances are being announced on nearly a daily basis and the "old world" is changing...rapidly. "Alliances" (economic, financial and military) all over the world have changed more in 2013 than any decade prior and possibly more than they have collectively since 1944. Even the British seem to be preparing economic relations with the Chinese, exclusive of the U.S.
I will leave you with few disturbing questions. What will happen if China and Japan were to come to blows over their disputed islands? Would the U.S. back Japan as per treaty? If so, would China just hit the "sell button" on their dollar and bond holdings? What would be the ramifications of an Israeli (Saudi supported) strike on Iran? Would we support it? Back away from it? What would China do? Or Russia? What will happen if (when) Saudi Arabia decides that they want something real (gold for example) for their oil? Do they really want to keep accumulating more "IOU's" from a bankrupt entity while their oil reserves deplete?
I guess that you could say "we" Americans are living for today. Or better said, our policymakers are living to "keep the doors open for business for tomorrowmorning." Foreigners on the other hand are thinking about next year, next decade, next century. I think that sometime in 2014 we will get the answers to many of the above questions. The answers will come AFTER we fail to deliver gold to someone, somewhere. Once we are known not to have the ability to deliver gold, all bets are off and the fledgling new alliances will be made fully public. We will be isolated and dollars will not be accepted for trade settlement. Our ability to print "power" will be stripped. As strange as it may sound, in my opinion this whole episode will come to a head when we fail to deliver gold. To this point we have had the ability to make delivery. It will not matter where or to whom we "fail to deliver" to, a single delivery failure will spread faster than a wildfire and our "lifestyle" will change forever. As much as we "over lived" our means in the past will be paid back by "under living" our means in the future ...until the debt is paid in full. Paying back our overconsumption will be that much harder as we have already sold the family jewels.
Andy Hoffman ~ In my view, 2013 was a key inflection point in modern history; surpassed only by 2008 in terms of irreversible economic damage, but NONE as pertains to unabashed usage of overt (and covert) money printing, market manipulation, and propaganda in a last-gasp attempt to "kick the can" that last, pitiful mile. At least - or more appropriately, as Rizzo said in Grease, the very least- the "pre-QE" efforts of 2008-11 had the semblance of (misguided) officialdom actually believing they were "saving" the world. Unfortunately, since the current crisis commenced in late 2011 - yielding QE3 and QE4 in the U.S., "whatever it takes" market support in Europe, and "quantitative-qualitative easing" in Japan, TPTB's intentions have clearly taken on a more malignant tone. In other words, whilst the inflationary after-effects of TARP and other post-2008 money printing schemes were simply consideredcollateral damage, today's collapsing currencies, rising political tensions, emerging militarism, and burgeoning financial repression are considered "weapons" to quell the nasty, acrid smell of "the 99%" daring to desire "the 1%'s" blood money.
The year started with Congress selling out America's interests with the vile "fiscal cliff deal"; in fact, nearly to the minute, given that it was passed in a rare New Year's Eve session. Ironically, the eleventh hour deal that dramatically reduced the "sequester" cuts created by the paradoxically named "Budget Control Act of 2011" - which itself, was a diluted replacement of what the "Super Committee" failed to achieve - was deemed the "American Taxpayers Relief Act of 2012." I'm still having trouble understanding that name, given the payroll tax exemption was eliminated for all Americans, whilst top earners received a significant tax increase. But then again, no budget was created by the aforementioned Budget Control Act; whilst essentially all the "sequester cuts" it earmarked for 2013 were cancelled by the October 2013 "Continuing Appropriations Act." Better yet, said act claimed $20 billion of annual budget savings on a $1.012 trillion budget; when in fact, that "budget" represented just a quarter of the government's nearly $4 trillion spending plans (let alone, that such budget savings are, as always, "back-end loaded"). Last week, I discussed this very issue in "the truth of the so-called budget deal"; yet, no one seems to care that the deal excludes the $2.8 billion of annual spending considered "essential" - and thus, not subject to negotiation.
As for the national debt, it was $14.2 trillion when Standard & Poor's stripped America's triple-AAA rating in August 2011. Today - barely two years later - it stands at $17.3 trillion today; excluding, of course, $5+ trillion of "off balance sheet" debt, and perhaps $200 trillion of "unfunded liabilities." At the time, S&P's reasoning was the following...
The downgrade reflects our opinion that the fiscal consolidation plan Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.
More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011."
The outlook on the long-term rating is negative, ". We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
-Standard and Poors, August 5, 2011
No sane person, including the most rabid government sympathizer, could opine that, according to S&P's own criteria, the U.S. credit rating should still be rated AA+ - or even investment grade, for that matter. However, as S&P's CEO was "forced to resign" immediately following that decision, and S&P itself subsequently sued by the U.S. government, the so-called leading rating agency not only didn't follow up on its own advice, but raised its outlook in June 2013 - per what I wrote in "S&P hits a new all-time low." Then again, as Matt Taibbi described earlier this year - as if we didn't already know - the ratings business is as corrupt as the Wall Street criminals that fund it.
As for the supposed "debt ceiling," it was "delayed" by the even more inappropriately named "No Budget, No Pay" act of February 2013; thus, allowing it to grow unabated until the arbitrary date of May 18th, 2013. Of course, no budget was created during that time, so "Citigroup Jack" Lew simply stole from U.S. pensioners and along with other accounting chicanery (cumulatively deemed "extraordinary measures"), pushed the debt ceiling breach into October 2013. At that point, the aforementioned "Continuing Appropriations Act of 2014" again delayed the debt ceiling - this time, until the equally arbitrary date of February 7th, 2014"; enabling said "extraordinary measures" to immediately be counted as debt (to the tune of $300+ billion), and starting the clock on a second round of "extraordinary measures" - which this time, will only last until March.
Amazingly, "Tough Talk" Boehner actually allowed the Democrats to insertfine print into the October law, enabling the President to veto any future attempts to cap the national debt. Only a 2/3rds majority of both the House and Senate can stop the President now; which I think we allknow can never happen. And thus, when a new "deal" is hashed out on February 6th - likely, with another, even more egregious misnomer of a name - there will be absolutely ZERO consternation about the debt ceiling; which, frankly, may beovertly eliminated in the same manner as it just was in Australia.
"Tapering" and all - which last week, I proved is but a mirage, the Fed now owns one-third of all U.S. Treasury bonds, and one half of all mortgage-backed securities. Overt QE amounted to more than $1 trillion this year - and likely, with covert spending was closer to $1.4 trillion. Moreover, in 2014, the current plan is to spend another $900 billion (taking Treasury and MBS holdings to 50% and 75% of their respective, outstanding totals); whilst government spending rises by 5%, excluding "off balance sheet" items, of course. Thus, I have ZERO doubt that the published national debt will be well above $18 trillion by year-end; and perhaps, if interest rates continue to rise, considerably more. Remember, each 1% increase in interest rates raises annual debt service by nearly $200 billion; and that's just on the Federal level. The nation as a whole has never been more addicted to ultra-low interest rates; and sadly, the coming wave of adjustable rate resets could make the 2006-08 "subprime" wave look like a mere ripple. Worse yet, in recent years, the Federal government has refinanced most of its debt to short-term maturities and thus is heavily sensitive to even microscopic rate changes.
Of course, I have barely scratched the surface of the infamy that 2013 was; as even the government's economic crimes and policy errors have been barely touched. Increased financial repression - across the board - has characterized a nation on the verge of a police state. Between FATCA; FBAR; the banning of certain nations from the SWIFT international wiring system; heightened attacks on offshore accounts and telling Germany it must wait until 2020 to receive a measly 300 tonnes of gold, the U.S. government has shown the entire world its lack of respect for investors, both domestic and foreign. It's no wonder Europe's largest PM storage operator - ViaMat - has kicked out American investors; which, by the way, is NOT an issue with Miles Franklin'sBrink's Montreal vault.
Moreover, the economic damage caused by the U.S. government is not all of the direct kind. As discussed in the "Most important article I've ever written," the inflation exported by the Fed's expanding QE program has caused the average global currency to plunge 20% over the past two years, with the majority occurring in the last nine months or so. Trust me it's no coincidence that social unrest has erupted in the "Fragile Five" nations of India, Indonesia, Brazil, Turkey, and South Africa, where 25% of the world's population resides; or, for that matter, many other areas. The "Final Currency War" has officially begun; and now that the Fed is committed to hyper-inflating the dollar for the sake of its Wall Street masters, all other nations are being forced to follow suit. Such is the Ponzi scheme nature of fiat currency; and no nation is a better poster child for such mutually assured destruction tactics than the "Land of the Setting Sun" itself; i.e., Japan.
Internally, both Presidential and Congressional approval ratings have reached all-time lows; in the latter case, below 10%, as each day it becomes increasingly clear how little our elected "representatives" care for America's best interests. Between the IRS and NSA spying scandals; the Russian-squelched attempt to attack Syria; and the oppressive, inept Obamacare launch, it's hard to believe there are any remaining believers in the efficacy of America's government. Heck, when combining the failures of the Bush and Obama regimes, it's difficult to find a single redeeming moment!
And then, of course, you have the political and economic carnage in the world's largest population block - Europe. Draghi officially declared the ECB's intention to create an unelected continental government when he stated he'd do "whatever it takes" to save the Euro in July 2012. And sadly, since then, the European economy has plummeted from hell to something worse. Like the U.S., both overt and covert market manipulation has temporarily masked the horror of economic reality. However, with European unemployment at an all-time high - in sync with the U.S. Labor Participation rate at a 35-year low - it's only a matter of time before reality once again steps to the fore. The people's voices will be heard decisively in the EU Parliamentary election in May 2014; and I assure you, it won't be pretty. Here at the Miles Franklin Blog, we continue to rate the PIIGS - or more appropriately, the PIFIGS due to France's cascading economic issues - as the most likely to catalyze the next,irreversible, global financial crisis. And oh yeah, I forget to mention the Cyprus "bail-in"; which, since it shocked the world in March, has been accepted as a global template for future financial crisis. Nope, nothing to worry about here!
Of course, when speaking of potential "crisis catalysts," I'd be remiss if I didn't mention India; where, also in May, major national elections could replace the ruling, Wall Street friendly leaders with more traditional, pro-gold factions. The current Indian regime is perhaps the world's most incompetent; and this year's suicidal attempt to slow Precious Metals buying is already collapsing upon itself. Silver imports will set an all-time high this year; and as for gold, smuggling has become so prevalent, it has overtaken narcotics as the nation's top illegal industry after just four months' time. PHYSICAL premiums have surged to all-time highs above 25% - thus, making a mockery of the fraudulent PAPER markets; and with the Rupee on the cusp of plunging anew, there's no telling what might happen in 2014. Remember, the Indian government made an insane promise earlier this year to provide heavily subsidized rice to roughly three quarters of the population; and thus, even a modest increase in rice prices could cause the nation's finances to implode. Sort of like the U.S. national debt's sensitivity to interest rate changes, to drive the point home.
In the interest of brevity, I've left out a whole bunch of things; sort of like Rodney Dangerfield in this hilarious clip from my all-time favorite comedy,Back to School. However, I of course must mention the most egregious - ultimately, self-destructive acts of Precious Metal suppression of our lifetimes. In November's "(End of the) Manipulation Timeline," I listed the incredible list of PM-positive headlines since "dollar-priced gold" achieved its all-time high in August 2011; and particularly, throughout 2013's heinous Cartel attacks, as exemplified by the April 12th-15th "Alternative Currencies Destruction."
Fortunately, those holding PHYSICAL gold and silver are none for the worse; aside, of course, from the anger, frustration, and helplessness of living through such blatant attacks on their net worth - whilst overvalued assets like stocks, bonds and real estate were supported by the very same entities putting the hammer to gold and silver. Personally, I increased my "stack" by between five and ten percent - in terms of ounces owned; and thus, have turned this year's lemons into lemonade. Undoubtedly, it was the mostmental strain I have ever dealt with - which is saying a lot, given the Cartel hell that was 2008. However, in the end game, both Miles Franklin and I have never been better positioned.
Moreover, if anything, TPTB have only accelerated the end game of fiat currency collapse, by stepping up the money printing whilst causing the tiny, remaining inventories of PHYSICAL gold and silver to be rapidly drained. I mean, seriously, record 2012 Chinese gold demand more than doubled in 2013; whilst even the U.S. Mint set a record high for Silver Eagle sales! Furthermore, with PM prices having been pushed well below the cost of production, the Cartel has inadvertently created what will unquestionably be years, if not decades, of reduced gold and silver production, just when it will be needed most. Frankly, when prices do finally take off - and consequently,permanently break the Cartel's bonds; I expect government nationalizations and windfall profit taxes to cause further, even more deleterious production declines.
When the ball reaches Times Square at midnight on Tuesday, no one will be happier to put 2013 behind us. It was indeed a "year of infamy"; but fortunately, one that clearly set up better times for 2014 and beyond. Of course, I say "better times" tongue-in-cheek"; as whilst higher gold and silver prices will make PM holders "richer," such events will likely coincide with a far scarier, more difficult world. The good news is the ultimate, inevitable financial crash will set the stage for a better world in the future; based onhonest money, of course. However, getting from "here" to "there" will likely be an extremely dark chapter in human history. Hopefully, you are one of the few taking actions to PROTECT assets amidst what will likely be history's largest-ever wealth transfer; and equally importantly, preparing for the difficult times ahead.
Andy Hoffman ~ After 12 years of living and breathing Precious Metals, evenI can be shocked by the criminality of the "financial Nazis" manipulating - and many cases, destroying - billions of lives. Sadly, the damage is only
beginning; as the issues that caused the 2008 crisis have since been catastrophically compounded. Worldwide debt, unemployment, and inflation are dramatically higher; whilst economic growth is substantially lower, and derivatives more prevalent. Regarding the latter, even the CFTC admitted this week that its estimate of the swaps market is likely understated by by $55 trillion.
Consequently, global money printing has never been more rampant; led by the Federal Reserve, which has exported so much inflation, the average global currency has declined by 20% in the past two years alone. Not un-coincidentally, this is when the Fed commenced "Operation Twist"; i.e., purchasing long-term Treasury securities - and subsequently, QE3 and QE4. Consequently, PHYSICAL gold and silver demand has surged to historic highs - led by China, which this year alone will either mine or import more than half of all global production. Even the U.S. Mint shattered its annual sales record for Silver Eagles; yet, we're to believe "freely-traded" gold and silver markets are reflecting the same type of fear as Lehman Brothers shares in the summer of 2008.
Since early 2012 as signified by the February 29th "Leap Day Violation," when gold was attacked during innocuous Bernanke testimony before Congress, essentially all Federal Reserve comments have been followed by Precious Metal attacks. And not just live ones; mind you but the minutes of month-old meetings. Case in point, Wednesday's FOMC statement; which in my view, was far more dovish than anticipated, given removal of the 6.5% unemployment rate "line in the sand" previously earmarked as signaling the end of zero bound rates.
To wit, the Fed now intends to keep rates "exceptionally low" until "well after the jobless rate falls below 6.5%"; in my view, signaling "ZIRP to Infinity." I mean, think about it. The new FOMC consensus for the Fed Funds rate is that it will end by 2016 - i.e., three years from now - at 1.7%, or 67% above its six-decade average of 5.2%. In fact, when "Maestro" Greenspan pushed Fed Funds below 1.7% following the "tech wreck" he created, it was the first time it was this low since 1961. And thus, given that we are supposedly amidst a rip-roaring "recovery," what does it suggest when the Fed says rates will remain this low for at least three more years?
The market initially agreed with this dovish interpretation; with PMs rising and holding their (capped) gains until miraculously, just as Bernanke's press conference concluded, gold and silver prices plunged. Quite objectively, his comments strongly validated the dovish language in the published comments; but in true Cartel form, PMs were attacked as he spoke - followed by the 138th visit from the 2:15 AMalgorithm in the past 152 trading days. Better yet, following utterly miserableeconomic data Thursday morning - including surging jobless claims, a collapsing capital spending outlook and the first year-over-year decline in existing home sales in 29 months, gold prices suddenly plummeted below $1,200/ounce, and silver to barely above $19/ounce.
Yesterday, dictionary.com dubbed privacy to be its word of the year. However, it could just as easily have been tapering, given how much attention - and misrepresentation - it has received. Frankly, it's no different than its 2010 counterpart - i.e., the Fed's supposed "exit strategy"; or, for that matter, Bennie's hallucinatory 2009 "green shoots of recovery." Even if the Fed does in fact "taper" its $85 billion/month of overtdebt monetization by a measly $10 billion, it will still be printing at an historic rate of $900 billion per year, yielding the same net effect. Coupling such printing with the aforementioned "ZIRP to Infinity"; and frankly, it's difficult to see what exactly the hype is all about.
Moreover, whether the Fed prints $50 billion, $75 billion, or $100 billion each month, massive inflation will be exported around the world. To wit, after a brief reprieve this autumn - following massive foreign exchange intervention - many foreign currencies are again in freefall mode. To wit, Thursday's FOMC announcement, irrespective of one's interpretation, catalyzed additional, massive currency declines; as not only did the Yen plunge to multi-year lows, but the "Fragile Five" currencies started to collapse anew - such as the Brazilian Real, forcing the Brazilian government to yet againintervene. Way to go, Bennie! Lucky for you, you'll be out of office when the realcarnage from your policies is witnessed.
That said the point of this article is to not only demonstrate that the Fed is incompetent, but flat out lying regarding the amount of QE they purport. The math is quite simple; but sadly, few bother to do it. That is why the Miles Franklin Blog is here; to shine the light of truth on a helplessly corrupt financial world, which for the time being has all but abandoned it.
Make no mistake what we are witnessing is the desperate attempt of the U.S. government to maintain a dying status quo; nothing more, nothing less. The concept of "new age" economics is as fallacious as the "new normal" of the late 1990s internet boom; whilst today's stock market "boom" has as little reality attached to it as the Dow in September 1929 - when Irving Fisher infamously predicted stocks had reached a "permanently high plateau." Moreover, "traders" are no smarter today than in either of those two fateful periods; only this time around, they can simply observe what the government is doing via open market operations; quantitative easing; and - of course - blatantly transparent gold Cartel activity. Fortunately, as discussed in my Elijah Johnson podcast yesterday, the forces of reality are indeed powerful; particularly those in the Physical PM markets, where a locomotive of plunging supply and exploding demand is heading toward the world at a breakneck pace. Combined with the real impact of exported inflation wreaking havoc on overseas economies and the recipe for catastrophic economic collapse are quite apparent.
Back to the aforementioned PROOF that Wednesday's "tapering" announcement is as meaningless as shredded hay, consider what Bill Holter wrote this morning...
Of course one could ask silly questions like "how do we know that $85 billion was the "real" original amount in the first place? Or, how do we know that this $10 billion so called taper doesn't sneak in the back door along with another $20 billion extra for good measure. The answer of course is "we don't, I guess we'll just have to trust them." Sort of like the $15 trillion (with a "T") extra in loans (the majority to overseas banks) that the Fed lent out in 2008 and '09...that we didn't know about until 2 years or more after the fact.
-Miles Franklin, December 20, 2013
In other words, why would anyone believe a word the Fed says, in light of both its actions and words; in the latter case, as discussed in Thursday's "Communications Breakdown?" The answer, of course, is they don't - and never will. Fortunately, one needs not speculate as to what they're doing, but simply do the math. To wit, a table I received Thursday from "Reader W," depicting the change in the Fed's publishedbalance sheet this year. In other words, since the end of 2012, it has not increased at the stated rate of $85 billion per month; but instead, $94 billion per month. Thus, the Wednesday's so-called "taper" announcement was but a ruse - as essentially the entire $120 billion of annualized "savings" was spent this year. Again, not even by accounting chicanery. Plain and simple, the Fed lied about the level of 2013 QE; and left the evidence right there in the open, for "those that would see."
However, that's not the half of it; as I can prove this pace actually accelerated in the second half of the year, to nearly $130 billion per month. And the reason this was necessitated, you ask? Easy, Bennie's moronic, ill-advised decision to hint at thepotential of tapering around mid-year. Here's how...
On May 2nd, the benchmark 10-year Treasury yield closed at an all-time low of 1.63%; i.e., essentially unchanged from the year-end level of 1.75%. As you can see below, the Fed's "balance sheet" was $3.32 trillion at the time, compared to the $4.00 trillion level reached on December 18th; i.e., "taper day." In other words, it grew by $640 billion during this 7.53 month period; i.e., a rate of exactly $85 billion per month, as purported.
Unfortunately, the giant pink elephant in the room has been entirely ignored. That is, the
massive losses incurred by the Fed's portfolio as a result of rising interest rates. To wit, from May 2nd through December 18th, the 10-year yield nearly doubled, from 1.63% to 2.94%. Consequently, the above calculations heavily understate the actual level of QE; which, in order to maintain the aforementioned $4.0 trillion balance sheet total, had to be increased by a whopping $329 billion to offset an estimated 9% capital loss.
Per the below table of the Fed's Treasury holdings, I made a rough calculation of the duration of the Fed's bond portfolio. To do so, I had to assume its mortgage-backed bond portfolio had a similar "maturity makeup." However, if anything, it was probablylonger - as I highly doubt short-term, mortgage-backed "bills" even exist. Using a simple weighted average, the Fed's average bond maturity is 10.5 years; which I'll approximate to be its overall portfolio duration, as the actual calculation is quite a bit more complex. As discussed in April's "Duration Trap," this is quite a scary development; as when the Fed started "QEing" in 2008, its average duration was just 2.5 years.
Next, I calculated the return of the Treasury ETFs "IEF" and "TLT." IEF holds Treasuries with an average maturity of 7-10 years, while TLT's average maturity is "20+" years. Thus, as the Treasuries' weighted average maturity is 10.5 years, I assumed the Fed's losses were much closer to IEF's 7.5% decline from May 2nd through December 18ththan TLT's 15.0%. There is no way of getting it
exactly right, but I believe it's safe to assume a roughly 9% capital loss in the Fed's portfolio over this period. Moreover, to guesstimate the dollar value of these losses, I utilized the midpoint of the Fed's stated portfolio value over this period, or $3.66 trillion as its "base level"; which, when multiplied by 9% yields an estimated capital loss of $329 billion. And thus, does it surprise anyone that Warren Buffett deemed the Fed "the world's largest hedge fund?"
Quite obviously, the "Fed balance sheet" chart above completely ignores these losses; and thus, they must be added to the "exactly $85 billion per month" figure submitted for public consumption. Again, the period involved was 7.53 months; so dividing $329 billion by 7.53 yields an increased monthly QE level of an astounding $44 billion. In other words, while the Fed purports to have spent $85 billion per month, it actually spent closer to $85 + $44 = $129 billion per month over this period. Moreover, if rates continue rising, which they most likely will now that the Chinese have stated their intention to stop accumulating foreign currency reserves, the new QE target of $75 billion will likely prove equally, woefully low. Just look at this morning's suspicious trading of the 10-year Treasury yield (below); as for the second straight day, a seemingly "magic" force emerged at the NYSE open to push rates down from the very, very key round number of 3.0% - above which, you can bet a veritable avalanche of "stop loss" sell orders are sitting. In other words, the exact same manipulative, government algorithms utilized to prevent gold and silver from trading above "key technical levels."
Let's face it. Government market manipulation has been taken to new levels of blatancy; which sadly, very few care about despite more than 99% of the global population being negatively impacted by it. Fortunately, actions always have consequences; in this case, via the massive inflation such parabolic money printing is exporting worldwide - not to mention, the rapid drain of physical gold and silver from West to East, which at some point soon will be understood by all.
What we are witnessing today is the final death throes of history's most hideous, destructive fiat currency regime; not to mention, the American empire itself. Economic and market volatility will only grow exponentially worse in the coming months and years; which is exactly why one needs to hold the only assets guaranteed to maintain their purchasing power when all is said and done. Particularly given the tax-related end of year selling of PAPER gold and silver accompanying this farcical "post-taper" Cartel attack, one may never see a better opportunity to protect their assets.
Bill Holter ~ Is a one way street, it didn't used to be this way but unfortunately this is what we have now. I've wanted to write about this topic for quite some time but never have because I figured that the feathers I would ruffle would take away from the message I've been trying to deliver. You all know by now that I have absolutely ZERO question in my mind that paper currencies will collapse, there may be only 1,000 people in the world who have no "nagging doubts" about this in the back of their minds...I am one of them. I mention this because I want you to know that I write from the heart, I say what I mean and try not to "hedge." I try to write like I speak (thus the horrible grades in all of my English classes) because it's the only way I know how. I have had a message based on logic and common sense that hopefully some will heed and protect them and loved ones. What you are about to read has nothing to do with "protecting yourself financially" but some will "feel better" after reading it while others may never read me again. I will "feel better" because someone sooner or later had to say "something" because for the most part very few have.
"The First Amendment" presumably (in my opinion) was the most important to our founding fathers because "it was first," maybe I am wrong and some historian will correct me. The United States was the greatest country the world has ever known because it was based on "The Constitution" written by, abided by and marveled by "people" who believed in "self-sufficiency." Nothing was ever "free" and from birth, Americans "knew" that if they worked hard they could attain "the dream," the American dream. Yes there was crime, graft, theft, violence and murder but there was always "the rule of law." There has always been a basic "fairness" in The United States not found anywhere else in the world...ever...which is what made us great!
So what's the burr under my saddle? I, as have pretty much everyone else, sat back and watched as issue after issue has gone by where the "politically correct" thing to do was to say nothing. Pick an issue, religion, race, creed, sexual preferences or whatever, it was best to say nothing...lest start up a firestorm. Think about this for a moment, 25 years ago did you ever think twice about saying "Merry Christmas" to someone in the fear of "offending" them? Offending them because they might be Muslim, Jewish or Buddhist? ...Or atheist? Saying "Merry Christmas" to someone is a way of spreading good cheer. Is it, can it, be perceived as an insult to anyone? Was it ever "offensive" to fly the American flag? What could possibly be offensive with this? Now you have homeowners associations that ban this. Would anyone ever "burn the American flag" 50 or 60 years ago after WWII or Korea? But now it is OK because it is "freedom of expression."? It's OK to burn the American flag, on our own soil as "freedom of expression" but considered "hateful, racist or bigoted" to burn the flag of another nation...? It is now even politically correct to fly the flag of another nation on our soil, what's up with this?
Without getting into the "issue" itself (not politically correct), the goofy looking (in my opinion) redneck (self-described) Phil Robertson of Duck Dynasty got lambasted over the last few days...for stating his opinion. "Opinion" as in "that which is guaranteed by the First Amendment." Do I agree with his opinion? Does it even matter? It is someone's opinion! Everyone is entitled to their own opinion under The Constitution. They are entitled to it AND they can express it in public...period, end of story. ...Unless. Unless it is counter to some "group" that claims "special status." How much has this country changed? I can remember when the Pope visited the U.S. in the past, did our President ever "kneel, bow or kiss his ring?" Not that I can ever recall. And how did our president greet the King of Saudi Arabia? With a genuflect? Yes I know, "politically incorrect" to even mention this.
Do you see what I am getting at here? We have changed as a country. What was once commonplace is now "taboo" and not politically correct, what was once unthinkable is now "acceptable?" Some may think that we have changed "for the better." I disagree...in my opinion which as of now I am still entitled to, it seems to me like we as a nation have reached an inflection point. We are more polarized now than any time in our history with maybe the exception of 1860-1865. The country is split between "socialists" (for lack of better terms) and "capitalists." We have half of the country moving toward a new way of thought and the other half that still believe in the "old" American ways and traditions.
We have a Constitution that our own government follows only when it is "convenient." Some would even like to do away with the Constitution as it is said to be an "old and outdated piece of paper." We are living in very dangerous times, the politically correct thing to do have been to remain silent. It would not surprise me if an issue like the current Duck Dynasty saga turns out to be a line in the sand where people wake up. Wake up to the fact that we as a nation must either make the decision to "stand tall" for our beliefs or let them slip away and be rewritten in the history books.
We have sunk to the bottom as a nation in too many ways to count. Our laws are "laws" that don't pertain to everyone. How many bankers have gone to jail for the fraud that led up to and has occurred since 2008? How can the Supreme Court rule that it is "constitutional" that every citizen must purchase health insurance (or anything else for that matter) or face a fine or jail time? How can the president make 14 "changes" so far to a law that was passed by Congress? Can a president arbitrarily change a law under the Constitution? I think not, a dictator however certainly can. How is it possible that Congress is offered up a 5 page piece of paper (the original TARP documents) to raid the Treasury of $700 billion and then receive a multi thousand page document with no time to even read it? We were told "we must pass this or we are all doomed" and "we have to pass this to see what's in it!"
Are we collectively as foolish and "sleepy" as those who are pulling the strings believe us to be? So far this does seem to be the case. I however do not believe it. I think that there are still enough "patriots" left that given the right "issue" will stand in defiance of those who wish to defile or destroy our Constitution. I can only hope and pray that this is correct because if it is not, our children and grandchildren will never truly know how a great country the United States once was.
Michael Lombardi ~ Something very interesting happened yesterday.The Federal Reserve said it would start "tapering" its quantitative easing program by $10.0 billion a month. In other words, the Fed will now print $75.0 trillion a month in new money instead of $85.0 trillion a month.
Firstly, the whole concept of the central bank printing money out of thin air never made sense to me because the money isn't backed by anything. The Federal Reserve says that starting in January, it will print 11% less in new money. In 2014, instead of printing more than $1.0 trillion in new money, it will print (or "create," if you prefer) $900 billion in new money.
But—and there is always a but—the Federal Reserve, through Bernanke's press conference following yesterday's meeting of the Federal Reserve governors, said it would adjust the amount of money it creates based on how the economy is faring. I take this to mean that if the economy slows again, the Federal Reserve could, and likely will, start printing even more money than it currently does.
And there is the question of the $4.0 trillion in new money the Federal Reserve's balance sheet says it has created. How does the Fed get rid of the $4.0 trillion? I don't think it can. I don't think the Federal Reserve will find anyone out there who can take the $4.0 trillion, mostly in bonds, off its hands.
What really threw me for a loop yesterday was that when the Federal Reserve said it would start printing $10.0 billion less in new money each month, the Dow Jones Industrial Average rallied 300 points. Yes, we had one of the biggest days for the stock market this year on the news that the Federal Reserve would pull back on printing! Does that make sense?
In the past, whenever the Fed talked about "tapering," the stock market would dive. Now the stock market is rallying on the news? (Is the market rigged or what?)
Dear reader, economically speaking, we are living through the most interesting times in our history. We have the greatest number of people living below the poverty line and the greatest amount of people using food stamps in American history...and a stock market that's making those participating in it richer (almost daily) if they simply ride it higher. Corporate earnings growth disappearing? Who cares anymore? The Fed's still printing $900 billion a year in new money...and that's all that seems to matter.
Why did the stock market rally yesterday on the Federal Reserve's announcement that it would taper? It rallied because Bernanke cemented what Wall Street wanted to hear; no matter what, if things get tough again, the Fed will print even more money. That's the take-home message here. The Federal Reserve will increase or decrease the amount of new money it creates depending on which the way the economy goes. It can't get better than that!
But the question as to how long a stock market can rise solely on the coattails of money printing is another story. In fact, it's a story that will not end well. Every major indicator I follow, except for the increasing money supply, is now flashing red for the stock market. The higher this market goes, the bigger the bust will be and the more damage it will cause to an already bruised consumer confidence level. In other words, this next bust is going to be a doozy
Andy Hoffman ~ Tis' the eve of yet another "most important FOMC meeting yet"; which I state in quotes, as I'm obviously being facetious. While the financial media continues its endless prattle over whether "tapering" will commence - led, of course, by the CNBC and its 20-year ratings lows - the Fed's fiat Ponzi scheme continues to exponentially expand. Whether it prints $85 billion per month, or $75 billion - or $95 billion - is completely immaterial; as in the end game, the Fed remains the "sucker of last resort," which must keep monetizing toxic mortgage bonds and cancerous Treasuries, ad infinitum. Last month's PBOC announcement that it no longer intends to accumulate foreign currency reserves was the Fed's final death knell; once and for all, guaranteeing "QE to Infinity."
As I write Tuesday morning, the benchmark 10-year Treasury yield is lurking just below 2.90%; with each minor uptick stabbing the economy like the Grim Reaper'sscythe; or better yet, Nicholas' ropes in "The Pit and the Pendulum." Any attempt to stop monetizing will exacerbate the pendulum's speed; as ultimately, it will rip the global economy to shreds - and with it, the underlying fiat currencies. Think of the pendulum as China's inexorable drive for domination; holding "all the cards," including the cash, the gold, endless Treasury bonds for sale, the world's manufacturing base, and ever-expanding trade finance agreements. Meanwhile, the U.S. government - and gold Cartel - are the pendulum's prey; helplessly waiting to bechopped by the pendulum's unyielding momentum.
Said momentum is rapidly increasing, as not only has the world's addiction to ever-increasing debt become acute, but the realization that historically low interest rates must maintain. It is becoming widely recognized particularly by the Chinese, who areacting to quickly reduce fiat currency holdings as rapidly as possible, in lieu of real items of value like gold and silver. Regarding gold, not only have the Chinese at leastdoubled last year's record import level, but they are clearly mining every last ounce of in-ground reserves, perhaps at production costs exceeding $2,000/oz.; as they prepare for the inevitable, global currency reset - after which, 'whoever holds the gold, wins.'
At this point, worldwide interest in "getting out of the system" - as Jim Sinclair deems it - has never been higher. However, on a percentage basis, only a "precious few" have yet acted on this impulse, particularly in the dumbed-down Western world; and thus, the Miles Franklin Blog continues its inexorable quest to educate before the time to act is gone. Global demand for PHYSICAL gold and silver will shatter all records in 2013; which should tell you all you need to know, given how viciously "dollar-priced gold" has been attacked by the U.S. government-led Cartel. Unfortunately (for them), attempts to crush Western sentiment have only emboldened Easterners further; particularly as the Fed's expanded QE has inadvertently exported massive amounts of inflation overseas, prompting widespread currency collapses and accompanying fiat currency fears. And trust me, it's no coincidence Bitcoin has emerged from nothing to put additional pressure on TPTB's fraudulent, dying monetary system.
To that end, I wanted to point out - yet again - that there is a gaping chasm of difference between Bitcoin the investment, and monetary platform. Governments will no doubt attack the investment with all their might - as the PBOC, Swiss National Bank, and Eurogroup are already starting to do. However, attempts to slow the advancement of "outside the system" monetary platforms will in time prove fruitless. Importantly, I'm not predicting what Bitcoin, the investment, will ultimately do. However, the fact it has become so popular is - at the least - a significant omen to the fiat currency regime. As is the amount of mainstream advertising popping up on Zero Hedge - as its use as a "go to" news source grows exponentially. Boeing, Verizon, Capital One, and Charles Schwab are clearly spending millions on the site; and the fact that - of all things - the Obama Administration's re-election campaign did so as well, should tell you just how many people are interested in viewing the real news, as opposed to MSM-published PROPAGANDA.
Anyhow, the Fed will announce tomorrow afternoon (Wednesday) whether it's time to start tapering; or alternatively, if they'll "kick the can" yet again. Bennie made it quite clear last month that he wants to wait; as frankly, the last thing he wants is to end an eight-year tightrope act by falling off the wire on his last step. Janet Yellen parroted this sentiment at last month's Senate confirmation hearing; as nothing would prove more debilitating than an economy-killing interest rate spike before she even takes office. In other words, the Fed doesn't want to change gears, but feels pressure tovalidate the stock and housing bubbles its reckless policy inadvertently created.
In the end, it's a toss-up between doing nothing, and something immaterial; which frankly, is a matter of semantics. However, what's decidedly not semantic is the catastrophic ramifications of allowing rates to rise - as the below, damning chart suggests. Remember, the BEA itself credited the 'housing industry' with more than 50% of 1H GDP growth; and as you can see, the second the dreaded "t word" was first suggested in June, mortgage applications plunged an incredible 60%, to levels not seen in a decade.
Keep in mind; this occurred amidst the benchmark 10-year Treasury yield simply rising from its
all-time, Fed-induced low of 1.4% to today's 2.9%. You'd think rates spiked a la 1980; but no, such carnage was simply caused by an infinitesimal blip from this Spring's all-time lows. If the Fed wants to accelerate the pendulum's speed, per the aforementioned analogy, they're welcome to "taper." But trust me, they know what they're up against; and if they are foolish enough to give up themselves tomorrow, you can bet they'll be ready to reverse the decision in a flash.
Anyhow, today's article title emanates from Bennie putting his foot in his mouth yet again; in this case, ironically, at an event celebrating the Fed's bicentennial anniversary. Yes, the anniversary of the destruction of the very dollar the Fed was created to protect; which even by the government's "massaged" CPI statistics, has lost 98% of its value since the scantily attended Christmas Eve vote that ratified the Fed 100 years ago.
At what was likely a multi-million dollar, taxpayer funded black tie event, Bennie espoused:
Ultimately, the legitimacy of our policies rests on the understanding and support of the broader American public, whose interests we are working to serve. For this reason, we must continue to emphasize two other essential values - transparency and accountability.
-Reuters, December 16, 2013
Which is quite ironic, given the vast majority of Americans have not a clue what the Fed does; whilst everyone feels the pain of a society in which "the 1%" own everything, while the "99%" are oppressed by ever-increasing, unyielding inflation.
I mean, can you imagine the gall of this ivory tower failure claiming the Fed's strong suit has been communication; let alone, that it could receive "support of the broader American public?" No entity is more despised globally; and in time, even comatose, reality-show addicted Americans will realize, too, that the Fed is not only the cause of its problems, but in fact, the nation's mortal enemy. Even a government agency would have difficulty screwing up so royally; but then again, to the private banks that own it, inflation is exactly what they seek. Only financial assets benefit from Fed-induced inflation - temporarily, that is - whilst the broader economy, in time, is decimated. Financial serfdom is the net result for the unwitting "99%"; and as for their kids and grandkids, hope is something they may never experience.
Sadly, the "sheeple" are not the only brainwashed segment of society; as, just as inAtlas Shrugged, those pulling the strings tend to be caught up in the hype as well. Nothing corrupts more than absolute power; and thus, the fact that most Fed governors think they are doing the right thing is what scares me most. James Turk summed up the tragedy of the Fed below, which couldn't be more spot on.
Maybe the central planners think they are doing the right thing, just like medieval doctors in the Dark Ages thought a person's health would improve by attaching leeches to suck out the person's bad blood.
-King World News, December 16, 2013
To conclude, if there was any lingering doubt that the Fed has a clue what it's doing - or, for that matter, the value of its communication skills - here are some gems from the Ghosts of Chairman's Past, and Present...
The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.
Ben Bernanke - November 200
Michael Lombardi ~ Nearly 100 years ago, on December 23, 1913, the Federal Reserve was created. The central bank was created for many reasons, such as minimizing the impacts of panics, becoming a banker of last resort and "smoothing" economic cycles.
But along the way to keeping the monetary system stable, something happened: the value of money deteriorated.
What you could buy for $1.00 in 1913 costs $23.59 today. (Source: Bureau of Labor Statistics web site, last accessed December 11, 2013.) A simple calculation would show that prices have increased by 2,259% over the last 100 years.
Something else to ponder: there have been more erratic movements in inflation since the Federal Reserve was created than in the century prior to then, when the Fed didn't exist! Since the Federal Reserve was born in 1913, there were 10 years when inflation in the U.S. economy came in at more than 10%. Between 1800 and 1912, there were only four years when inflation in the U.S. was greater than 10%. (Source: Federal Reserve Bank of Minneapolis web site, last accessed December 11, 2013.)
"What's your point, Michael?"
The unprecedented amount of paper money the Fed has created (out of thin air) since the Credit Crisis of 2008 will come back to haunt us—that's my fear.
The Federal Reserve's balance sheet has grown to about $4.0 trillion. M2 money stock, that's the supply of paper money in the U.S. economy, has gone up 27% since 2009. (Source: Federal Reserve Bank of St. Louis web site, last accessed December 11, 2013.)
And through its "quantitative easing" program, the Federal Reserve continues to print $85.0 billion per month in new paper money with no end in sight. On top of this, it's kept interest rates artificially low for years.
All this "printing" will eventually devalue the U.S. dollar and further destroy the buying power of Americans. Our lesson in history has been that the more dollars in circulation, the less those dollars buy. Sure, the official numbers don't show there's a problem with inflation (yet), but ask the average American Joe, and he won't tell you his cost of living is going down.
We are living in unprecedented times. We've never had a situation in which the Federal Reserve printed so much new money. Many people are unfazed by this because it doesn't really make a difference in their everyday life...right now.
But two serious risks have developed: 1) the stock market has become so dependent on the "easy money" policies that prevail today, that should the money printing stop or be significantly tapered, the market could crash; 2) inflation is "chomping at the bit." Yes, I understand the "official" figures don't show it, but by the time they do, it will be too late. The damage will already be done.
Bottom line: be very cautious about the stock market and prepare for some serious inflation.
Zero Hedge put out a piece yesterday that comparedChina's "money growth" (newly created) versus that of Japan and the U.S. for the month of November. Surprisingly, China created $200 billion of new debt versus $159 billion for Japan and the U.S. combined. I must say that I was greatly surprised by these numbers but it got me to thinking...
Collectively this is nearly $400 billion, do you realize how much money this is? "A lot" would be a good answer but it's always best to relate or compare one thing to another for perspective. Do you realize what $400 billion represents? Um...how about more or less 10,000 tons of gold? You know, in round numbers the total amount of gold "supposedly" held in Ft. Knox and our other depositories? Or...maybe a little bit more gold than China has accumulated during their buying spree over the last few years?
Think about this, between Japan, China and the U.S more "money" (debt) was created in just ONE MONTH than the amount of gold held by any one country...in ONE MONTH! Another way to look at this number is that it is roughly equal to the amount of gold mined all over the world...over a FOUR YEAR timeframe! You can look at this from many different angles; I wonder "why" this amount of money needed to be created? Without going into a long spiel of economics, suffice it to say..."because they have to." They "have to" because if this money is not created then the Ponzi collapses upon itself and "normal" will have a whole new meaning altogether...I might add a not too pleasant meaning either.
So back to the $359 billion in one month. In layman's terms, let me make the analogy of your credit card versus your bank account. This is similar to borrowing the entire balance of your bank account via credit card in just one month and this assumes you are not lying about your account balance. Do you see how lopsided this has become? How "free" fiat money, debt or whatever you want to call it has become? How "dear" gold really is?
I know it's hard to see how "dear" gold is right now because in dollars it is priced more or less at just $1,250 per ounce. But wait, what if newly created "money" (debt) grows by the same amount as November...for the next 12 months? This is easy to say but hard to believe, it makes all of the above descriptions and analogies TWELVE TIMES WORSE!
Yes I am a cheerleader for gold so you can read this and say, "There he goes again"...or you can reread this and verify that the math (I rounded numbers so please don't nit-pick me) and logic are correct. You can reread this piece and put in perspective how incorrectly these currency markets are in relation to gold (and silver). I have written so many times regarding the coming "re set," can you now see with the above example exactly "why" a re set is not only necessary but mandatory? Can you see the directions of Mother Nature's push for real goods versus the world's freely and literally unlimited created paper monies?
Before I finish, I do want to address those who will say that China is either going to collapse, never will, will dominate the globe or whatever. From where I sit, China has only "played the game" that was in progress. They have moved toward capitalism and fractional reserve banking...but...they figured out "how to win the game." When, not if the current fractional reserve game collapses, you can bet that Chinese banks will go down in flames with all the rest. But guess what? China "has the gold" and will sit at the head of the table when new currencies are discussed (they surely already have been) and new pecking orders are set. When this event unfolds, China WILL... (Not the U.S., not Europe, not the COMEX or LBMA, and not even 5 cigar smoking knuckleheads sitting in an ivory tower in London)... SET THE PRICE OF GOLD.
One last question, were we to get to the point where no gold is available (offered) for sale then what would its price be in dollars, Yen, Euros, Yuan or whatever? This is similar to asking what a gallon of clean drinking water would be worth in the middle of the desert. Of course you could ask the same question of a pound of rice, a bag of potatoes or even a dozen eggs in an economic meltdown. Most will say "you can't eat gold" so it will be worthless in an economic meltdown. I agree you would never use gold to "eat" because you could never get "change" back. You cannot eat silver either but those thin little 90% Silver dimes will be pretty tasty after exchanging them for food.
Andy Hoffman ~ Amidst the recent Bitcoin surge, the (Cartel-administered) Precious Metals plunge and accelerated debauchery of countless fiat currencies, analysis of the term "intrinsic value" has seen a resurgence of its own. Not a day goes by without widespread commentary on what constitutes
money - such as mine from Tuesday; which in my view, could not be a more positive development for the real money camp. Right now, I'm just happy to see active debate on the topic; albeit, for the time being, most commentators do not appear to truly understand its meaning.
In today's Generation X-dominated financial environment, perhaps 80% of participants have never even heard of the gold standard; let alone, a monetary system based on anything but fiat currency. Frankly, I'd bet the vast majority, if quizzed directly, couldn't tell you the dollar is theoretically "backed" by the full faith and credit of the U.S. government. And thus, if that same quiz posed the question as to the definition of intrinsic value, the preponderance of respondents would undoubtedly concur, "the difference between an option's strike price and the actual market price."
However, in truth, intrinsic value has an entirely different meaning. According to Wikipedia, it refers to the "value of an object, good, or service contained within itself." In other words, what worth does it have? In some ways, these measures are subjective; as indeed, some items have innate, intangible value. An originally signed Babe Ruth baseball, for example; given its uniqueness, historical significance, and universal recognition. Otherwise, it's just a worthless, used baseball. However, such outlying examples aside, intrinsic value can typically be calculated objectively; be it regarding stocks, bonds, or commodities. For financial assets, one can look to the underlying assets and/or earnings power of the issuing entity; while for commodities, the cost of production typically serves as an effective, self-correcting floor. And by self-correcting, I mean that when prices rise well above the cost of production, the market is typically flooded with supply - while conversely, when prices fall below the cost of production, supply typically dries up. This is not to say objective and subjective metrics cannot co-exist - as they often do; but instead, that the any rational investment decision-making process should start with intrinsic value.
When it comes to money, there's a good reason why all 599 previous fiat currencies have failed; and thus, why the current 182 will as well. In a nutshell, they are backed by nothing but the aforementioned "full faith and credit" of issuing governments; or more accurately, in many cases privately-owned Central banks with keys to the printing press. In the absence of a gold standard, there are no limits on how many "currency units" are printed; and sadly, today's "Big Brother" world has become so secretive, there isn't even an effective method of accounting for how many exist. Objectively, the "intrinsic value" of a dollar bill is the cost of ink, paper, manufacturing, accounting, and transportation. However, the vast majority of "dollars" are now digital - connoting near zero material and production costs; with the only remaining "intrinsic value" being the value assigned to the "full faith and credit" of the issuer.
In the real world, where creditworthiness is merit-based, "full faith and credit" is based on one's personal balance sheet, income statement, and cash flows. In other words, if you are over-indebted and cash poor - with a poor earnings outlook, to boot - it is unlikely one would accept your "IOU" as payment. This, by the way, is exactly what dollars, Euros, and Yen are - liabilities of the issuing government.
When viewing sovereign issuers, the concept is no different; except that, in the absence of a gold standard, governments have zero restrictions on how much currency they print. In other words, it doesn't matter how much debt they incur, how weak their economic prospects, how negative their deficits, or how violent their foreign policy; as irrespective, they can print unlimited currency to monetize operations. To an extent, of course - as unfortunately, such unnatural policy has the unintended consequence of inflation. And given that fiat currency is a Ponzi scheme to begin with, hyperinflation inevitably rears its ugly head.
From a pure investment standpoint, the only chanceof sovereign "full faith and credit" having any real meaning is if the issuer has little debt, favorable demographics, strong growth prospects, positive trade and budgetary balances, and a track record of safeguarding monetary value. Unfortunately, given today's "final currency war" has only just begun, it's safe to say not a single nation would meet this criteria. In other words, "full faith and credit" is at best a hollow concept; and thus, no fiat currency has any intrinsic value to speak of.
That said it's time to ask what inspired this particular topic, on this particular day. Actually, it's two events; starting with yet another egregiously negligent comment from the "Maestro" himself, Alan Greenspan. Just one day after grilling him in "No Bubbles Here" - for averring this year's equity surge is not a bubble; he deemed Bitcoin a bubble in this interview. This, from the man who on repeated occasions, over several decades - particularly after the 2000 and 2008 crashes his own policies created - claimed "it is impossible to identify a bubble until after it has burst."
However, it's not the idiocy of him making yet another "uneducated guess" of the future that was my primary focus; but instead, his reasoning. To wit, his claim of a bubble in Bitcoin was predicated on its lack of intrinsic value; which in his words, you'd have to "stretch your imagination" to infer. Furthermore, when asked if Bitcoin can be the "new gold," he flat out answered, "No, it has no intrinsic value."
Moving on, the original Money-Printer-in-Chief averred:
In order for currencies to be exchangeable, they have to be backed by something.
When we were on the gold standard, gold and silver had intrinsic value - which made people willing to exchange goods and services (for them), with no question. Alternatively, when we went into currencies, it was the backing of the currencies' issuers - whose great credit standing meant his checks could circulate as money.
-Zero Hedge, December 4, 2013
So here we have the man who managed the nation's currency operations for two decades admitting gold and silver have true intrinsic value; while at the same time, defining the dollar's intrinsic value as the "great credit standing" of the U.S. government. Tell me, objective reader; with $17 trillion of national debt, $5 trillion more "off balance sheet", $200 trillion of unfunded liabilities, $1 trillion annual deficits, a 35-year low Labor Participation Rate, stagnant real wages for four decades, a hollowed out manufacturing base - yielding a "New Employment Paradigm" of part-time, minimum wage service jobs - and an international reputation for warmongering, spying, and imperialism, how do you rate America's "credit standing?" Oh yeah, I forget to mention the Fed holding interest rates well below the inflation rate for five straight years, and overtly printing $85 billion each month to monetize toxic Treasury and mortgage-backed bonds.
Conversely, what intangible premium would you add to gold and silvers' tangible intrinsic values of $1,200-$1,500/oz. and $22-$28/oz., respectively? Do their 5,000 year track recordsof monetary value hold any value? Or the fact that global Central banks are acquiring them hand over fist - particularly wealthy ones like China, Russia, and the Arab states? How about the fact that all the world's currencies have lost essentially all their purchasing power against Precious Metals; as well as the aforementioned 599, which ultimately collapsed?
OK, I think you get my point. However, I wanted to add one more; as coincidentally, Gonzalo Lira published a fantastic piece today, regarding the various pitfalls associated with Bitcoin; which, by the way, I'll be discussing in detail in this afternoon's Miles Franklin Audioblog with Mike Krieger. Actually, I loved the article until the very end, when Lira made the following, counterintuitive statement.
Precious metals do not have intrinsic value. However, there always has been and always will be a large group of heterogeneous people who will accept precious metals-gold, silver, platinum-in payment for some good or service.
- Gonzalolira.blogspot.com, December 3, 2013
For one, gold and silver indeed have intrinsic values, as described above. Moreover, gold and silver, "in and of themselves," have been used as money for millennia; not to mention, as ornaments, status symbols, and industrial components." More importantly, as Lira himself states, people have been trading both fiat currencies and items of real value for Precious Metals since time immemorial; in my view, de facto proof of their intrinsic value.
Hopefully, the bastardized modern notions of "intrinsic value" in the currency, PM, and Bitcoin markets have been effectively refuted. If not, I urge you to do your own diligence; as ultimately, your financial survival depends on it. As for me, essentially my entire liquid net worth is held in the form of the only real money the world has ever known; which in my view, cannot be challenged by any incarnation of financial alchemy - or, for that matter, cyber-technology.
Last Comment Before the Vaunted NFP Report
12-05-2013 17:00:23 PM
Its Thursday midday, and Atlanta Fed President Dennis Lockhardt just said it's been a "slow, frustrating U.S. recovery." Worse yet, the U.S. is not yet close to an "optimal employment picture." Boy, if that's not a ringing endorsement for "tapering," I don't know what is.
Why so somber, Dennis? I mean, last week's jobless claims were just reported as having fallen below 300,000. Oh yeah, as I described yesterday, such numbers are so "seasonally adjusted," they have lost all relevance. Not to mention, the "labor hoarding" that has caused businesses to procure as many part-time, low paying positions as possible; and oh yeah, the BLS' very own comment that it is "not unusual for claims to be volatile during the holidays." Last but not least, don't forget last month's temporary decline in jobless claims; you know when California and Nevada stopped reporting amidst major computer upgrades. Simultaneously, it turns out, the Challenger Report stated, "Layoff announcements continue to run at 2-year highs; and thus, today's results are not a positive indication for tomorrow's big employment report."
And then you have the most manipulated, useless of all economic reports; i.e., third quarter GDP, which was "upgraded" to 3.6% despite most economic indicators suggesting at best, flat output. Of course, it turns out that this number, too, is severely flawed; as nearly all the nation's "growth" was due to inventory building, whilst consumer consumption was barelypositive. In other words, the 4Q number should be dramatically lower; as "growth" - if you can call it that - was borrowed from the future. You know, like government-controlled companies like General Motors posting their second-largest ever month of "channel-stuffing." Heck, I won't even mention the ridiculously low "GDP deflator" utilized - relative to actual inflation; as that's another story, for another day.
Furthermore, I'd be remiss if I didn't mention the day's other economic data; i.e., the 1.6% decline in U.S. durable goods orders. Yet again, an example of real data contradicting the "cooked" publications of the BLS, BEA, and other propaganda agencies.
Interestingly, this morning's $0.45 silver slam was fully recouped, while gold has recovered two-thirds of its Cartel-induced losses and interest rates continue to creep higher. I look forward to the "vaunted" NFP report tomorrow with baited breath; and afterwards, Miles Franklin's Minneapolis Holiday Party!
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