By Peter B. Meyer – 20th of April 2013
Was Cyprus the beginning of the collapse? No, it is just part of the process. The collapse began in 2007 with the demise of the subprime mortgage market. That led to the collapse of the prime mortgage market in 2008, which led to the collapse of Lehman Brothers and Bear Stearns. Cyprus, it turns out, needs to find another $6 billion to meet the terms of its bailout deal. Under the original deal, the EU & IMF were going to lend Cyprus $10 billion as long as the government could shore up $7 billion. That's why they're taking a hefty cut from uninsured bank deposits. But, that's not going to be enough: A "debt sustainability analysis" by the European Commission says the actual figure Cyprus has to cough up is $13 billion.
So! $13 billion from the government, plus $10 billion from the EU and the IMF -Cyprus' bailout is now more than the entire country's GDP! How all this money has to be paid back is still a greater mystery. And where the extra $6 billion is supposed to come from, no one is saying. The Cypriot central bank has a gold stash of 13.9 metric tons and the European Commission is "suggesting" they unload about 10 tons of it. Which would raise all of $523 million - a laughing matter if it weren’t so serious.
Christine Lagarde M.D. of the IMF asserted the Cyprus crisis was driven by the bloated banking sector, which exceeds the country’s GDP by a factor of 7- and for this reason, it was ‘unsustainable’. But that’s a peanut compared to Luxembourg’s banking sector as those exceeds its GDP by a factor of 23. Cyprus and Luxembourg aren’t the only countries in the EU with a grossly disproportionate banking sector. Austria, and Malta have big banking sectors too, relative to their GDP. Luxembourg is the largest international private banking sector in Europe and is home to over 150 banks, including the European Investment Bank- a financial institution of the EU. Along with Austria, it has often been referred to as one of the Eurozone’s biggest champions of banking secrecy. But lately, Luxembourg a founder member of the EU and the euro will now with Austria ‘open’ its banking information on its assets to other EU member states, which total more than $1 trillion.
"Recent quotes from numerous politicians and experts seem to show a complete misunderstanding of what a bank investor is. "They seem to view stockholders, bondholders and depositors -particularly large depositors - all as investors in the bank.” A depositor is not an investor in a bank. Rather, the depositor is a consumer of the bank's financial services and expects to be protected by the banking regulators from fraud. When you deposit money in a bank, you do not view it as an investment in the bank. You are depositing it to consume the bank's services, to keep your money safe.
If it weren't for the government printing press, the world would have seen a global run on the dollar and a collapse of the global banking system. We're still suffering the consequences of these things today. It is not known where we are in terms of the timeline - maybe halfway? But when this process ends, we'll see a total flight from the U.S. dollar, as the dollar reserve world’s currency underlies the entire banking system, whether in Cyprus, the EU or the U.S., all reserves are in dollars. Eventually, people will flee the dollar system as a whole.
Are you safe holding large deposits of cash in your account? The Cypriot government is going to take 60% of deposits in accounts of more than €100,000. And that might even not be enough! In contrast; it is estimated the dollar has lost 25%-40% of its purchasing power over the last four years. So every person holding dollars, or likewise euros, during that time was subject to a 25%-40% haircut, in other words, a loss almost as bad as a depositor in Cyprus.
To make things worse, it's not as though the actions of our central banks are a secret. The Fed and the ECB have flat out said, "We're increasing the monetary base here by 30% or as much as necessary." Well, if you increase the monetary base by 30%, sooner or later, you increase the amount of money in circulation by a much larger measure. That trend is going to continue, and it's going to get worse. If you hold more dollars or euros than you absolutely need to pay your bills, you're a fool. What is the best suggestion? It depends on your cash needs. But "don't hold a lot of dollars."
EU and US are bankrupt and are insolvent except for the printing press. They increase of the money supply by around $1 trillion each a year – all this paper money is massively inflationary. They steal the purchasing power you've accumulated in your savings. By holding on to large amounts of dollars or euros or any other paper currency, you have solicited to be robbed by your government. Talking about how much money is safe to hold in your checking account, the answer is just enough to cover your obligations.
You shouldn't have cash in the bank, period; it is useless to look for a "safe" bank in your own country. Then you better look for a safe currency, like gold and silver, or real estate as productive assets, apartments or farms.
If you need a bank for your savings one way or another, take one outside your country of residence if you live in the US or EU. For example, there are still Swiss banks that will open an account for a foreigner, if you can convince them to do it. But you definitely do not want a Swiss or Liechtenstein bank that has any presence in the US or EU. Alternatively think about Malaysia, or Thailand. These are completely non-tax-haven types of places – and that might make them suitable.
“The Keynesians are right, governments of the world have cured what ails the global economy with their virtual printing presses, and the next boom is a done deal.” That doesn't mean gold can't or won't go lower - just that if it does, the fundamentals say it's a buying opportunity. Experience has shown that when gold sells off for the wrong reasons, unless you can persuade yourself that governments around the world can print money forever with no adverse consequences, gold and silver usually bounce back, so nothing has changed, except for our opportunities. Better be prepared for the opportunity that now is shaping up, and don't hesitate when you see your desired price target arrive, to change your worthless paper money for the real kind.
Remember the long-term trend is still up. It’s that whole “ever growing money supply” thing. And you don’t buy gold to get rich, you buy it to stop from being poor, to preserve our wealth. It’s the great equalizer, against the government’s money printing machine. Over the long-term for hundreds and thousands of years, holding gold has paid off. Last week’s selloff has done little to change that.
Remember what was written in my previous essay about short selling: “The volume is without precedent and has all the characteristics of a panic liquidation driven by naked short selling. There is no way to know where or when the liquidation will end, but it will inevitably do so, probably sooner, rather than later."
As written in a comment earlier: “You don't need a crystal ball to anticipate how the global fiscal and monetary mess will shake out; you only need to understand the system as it is today and the political ‘wishdom’ and ‘incentives’ that drives the system. All signs point to continued government deficits, stimulus, no entitlement program reforms, chronic zero interest rate policies and austerities. Only when these facts change, it will be time to sell your gold and silver. These facts have not changed.
By Peter b. Meyer – 14th of April 2013
Imagine if governments had to do business in a gold-backed currency instead. They would have to borrow less, spend carefully, and pay back their debts on time. Now in its place of controlling themselves, they try to control your access to gold instead. Unlike the dollar and euro, etc., gold is no slave to someone else's balance sheet. Nobody can downgrade 5,000 years of history. Gold has never gone to zero. Stocks and paper money can't make that claim.
Simply put, the “value” of money is declining. “The market is flush with cash and it doesn’t need your savings”, says the Fed. If you're not careful, you'll have your future stolen from right under your nose. But by owning gold and silver to protect your self, and those eventually with certainty will rise against any paper currency. Why? Governments can't "make" gold. Contrary to paper wealth, they can create that overnight. But they also can destroy it overnight. That gives them a lot of freedom they shouldn't have.
Well, for sure the world's money system is being deliberately destroyed. And so, the monetary signals that guide the markets – which in a free market are supposed to represent the supply and demand decisions of billions of people – all signals became totally wrong. Despite frequent denials these distortions in the markets are the result of intentional manipulations of currency values around the world by central bankers, crafted in response to the demand for competing export opportunities, easy money and cheaper credit for governments. The world is indoctrinated to believe that paper money - the symbol of wealth can deliver all the benefits of the free market. Which of course is nonsense.
When gold prices hit $1,917.50 an ounce on August 23, 2011, a gain of more than $500 an ounce in less than 8 months, capping a rise over a decade from $272 at the end of December 2000, the Federal Reserve panicked. With the US dollar, the world’s reserve currency, losing value so rapidly compared to the world Gold standard for money, the FED’s policy of printing $1 trillion annually in order to support the impaired balance sheets of banks and to finance the federal deficit was placed in danger. Who could believe the dollar’s exchange rate in relation to other currencies when the dollar was collapsing in value in relation to gold and silver?
As gold topped $1,900, Washington put out the story that gold was a bubble. As the Elite finances the media they fell in line with this propaganda. “Gold looking a bit bubbly” declared CNN Money on August 23, 2011. “Their attack on bullion is an act of desperation that, when widely recognized, will doom its policy. So, the Fed used its dependent “banks too big to fail” to short the precious metals markets. By selling naked shorts in the paper bullion market against the rising demand for physical possession, the Fed was able to drive the price of gold down to $1,750 and keep it more or less capped there until recently, when a concerted renewed effort on April 2-3, 2013, drove gold down to $1,557 and silver, which had approached $50 per ounce in 2011, down to $27/ounce. Allowing the FED to extend the time that it can print money to keep the house of cards standing.”
“The Fed realized that its massive purchase of bonds in order to keep their prices high, and thus interest rates low, was threatened by the dollar’s rapid loss of value in terms of gold and silver. The Federal Reserve was concerned that large holders of US dollars, such as the central banks of China and Japan and the OPEC sovereign investment funds, might join the flight of individual investors away from the US dollar, thus resulting in the fall of the dollar’s foreign exchange value and thus collapse in US bond and stock prices.”
Nevertheless educated people could understand that the US government could not afford the long and numerous wars and realize what was in the cards, those used the bargain opportunity to exiting the dollar for gold and silver. So, for the Russians and Chinese, whose central banks have more dollars than they any longer want, and for the 1.3 billion Indians in India, the low dollar price for gold that the Federal Reserve has engineered was the best opportunity they ever could have imagined. They realized that the Federal Reserve has given them a splendid discount of $350-$400 an ounce for gold much less than it was two years before.
The manipulation of the bullion market is illegal, but as government is doing it the law will not be enforced. However the orchestration against bullion cannot ultimately succeed. It is designed to gain time for the Federal Reserve to be able to continue financing the federal budget deficit by printing money and also to keep interest rates low and debt prices (bonds) high in order to support the banks’ balance sheets. Debasing the currency has been the preferred method of kings and princes throughout the centuries. It is politically easier. The United States and the rest will default on its current obligations via this method.
“When the Fed can no longer print due to dollar decline which printing would make worse, US bank deposits and pensions could be grabbed in order to finance the federal budget deficit for a couple of more years. They will do anything to stave off the final catastrophe.” It is obvious clear that the concerted attack on gold and silver is the warnings sign on the wall that trouble is approaching. The values of the dollar and financial assets denominated in dollars are in doubt.
“Evidence of how badly the situation has become can clearly be seen in how the price of the petro-dollar, the post-Bretton Woods, post-Nixon’s closing of the ‘gold window’ in 1971 price of oil has not been allowed to trade - NOT according to free market principles - but rather the dead-market interference of Wall St. and Washington insiders who profit mightily from this rent-seeking corruption.”
“Iraq, Iran and Libya all wanted to trade oil outside of the Saudi-American petro-dollar fixed pricing scheme and all paid dearly for it.” It's logical to assume that when you create more of something, you dilute the value of what's already in existence. That's exactly what has happened to the US dollar since the 2008 financial crisis hit.
But one cannot spend more than is earned; commentators, and economists tell you, austerity or stimulus is the proper path to "recovery." The argument is fraudulent. Neither will work. If you owe more than you can pay, you can neither save nor spend your way out. When debt is bad, it is bad. Un-payable. Terrible. Useless trying it.
However Governments will do whatever they need to do, to stay in business. But in the long run, all governments get themselves into Cyprus-like messes. And all governments have one overriding concern: to remain in power.
Governments are nothing more than instruments used by insiders to take advantage of the outsiders the people. Those who control the government (insiders) use its police power for their own purposes. That does not mean that they can get away with anything they want. Ultimately, they depend on the sheep-like complacence and credulity of the masses to maintain their authority.
But the insiders risk losing everything if they run out of money. Without money, they cannot buy votes. They cannot continue to divert resources to themselves. And they cannot afford their phony programs and humbug redistribution systems, either.
In short, without access to money, everything falls apart. So a government, such as Cyprus, will do anything – including stabbing its major industries in the back – to keep the cash flowing. Cyprus is a tax haven and a money center. Clipping bank accounts is ruinous for its business. But if that's what it takes to stay in business, that's what the Cypriot insiders will do. But this brewing Cyprus issue is far bigger than anyone imagines. Wait till: “the orchestrated reopening of Cypriot banks creates two euros despite claims to the contrary.”
The “deposit tax” the EU and IMF imposed on Cyprus, was a condition of a bailout loan. Politicians in northern Europe, including German Chancellor Merkel, need to convince the voting public that bailouts won’t cost them a cent.
“It will be interesting to see how, exactly, the Cypriot government plans on ever reopening its banks. A devastating bank run is exactly what to expect immediately after banks reopen. Permanent psychological damage was done the moment the deposit tax (theft) was proposed. Cyprus’ role as an international banking hub is finished. So to mitigate a run of depositors out of Cyprus, government authorities will feel they have to impose capital controls."
Depositors in Spain and other PIIGS countries will be watching closely. “If EU and IMF officials think they can control a panicked crowd of depositors -- now that they’ve opened Pandora’s box -- they are mistaken.”
Spaniards, Greeks, Portuguese and Italians should fear capital controls as much as a deposit tax. Some depositors will run for the border -- just in case capital controls arrive in their own country. “Spain’s banks have not yet been properly restructured, and until they are, the problems won’t go away.” The government has a massive majority but, like France, barely seem to grasp they are supposed to lead. “As befits the land of Machiavelli, Italy has bypassed the leadership problem completely by failing to form a government at all.”
Greece festers in depression, in Ireland, and Portugal they want debt relief, and just obtained debt extension for a 7-year period. If they would have gone broke the EU would have broken up. While Portugal’s post court intervention implicates, the government must immediately find an additional 1.3 billion Euros in cuts or face the consequences. After having already cut some 13 billion from the budget. Thus therefore another debt relief is in the make!
When it comes to Germany; “there is a mild-mannered Professor Bernd Lucke in Hamburg who is no populist but apparently very, very popular. An economics scholar who has created the “Alternative for Deutschland” Party which is not merely anti-Euro but coolly coherent in its well-considered plans to engineer Euro-euthanasia - end the bailout death spiral and reduce simmering north-south tensions.”
With some polls indicating their support might be about 25%, the simple metric is that they must hold above 5% by the autumn elections to enter the German Parliament. This milestone alone ought to sufficiently splinter the vote to unseat Mrs. Merkel...The Euro crisis has reached a new stage. Things are now multilateral.
As a “progress report suggests all may not be quite on the road to recovery that has been previously reported by the EU.”
In short: “The Eurozone probably won’t collapse due to one massive calamitous event. Rather, the single currency, having been built on sand, is increasingly likely to be subject to that slow slicing terror of death by a thousand cuts...”
Cyprus said it would finance its bailout by selling €400 million in gold reserves, Reuters reported.
And store your physical gold and silver offshore – outside the EU - in a place with a strong tradition for protecting international investors’ property that could risk upsetting other countries for relatively little reward. This makes it a harder target for confiscation by your government.
By Peter B. Meyer – 11th of February 2012
Germany’s repatriation of its gold is just one of the many warning signs that the entire global paper-money system is collapsing under the weight of the heavy burden of debt. It is clear; eventually the dollar has to lose its status as the world's reserve currency. And so the USA loses its power to print money to ‘pay’ their debts, while the debt bomb continues to grow, America and the world will face a severe financial crisis.
“With the exception only of the 200-year period of the gold standard (1714 to 1914 in Britain), practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people.” — F. A. Hayek
This isn't the first time US allies have demanded the return of their gold. In the late 1960s and early 1970s, as the Vietnam War was increasing America’s spending and inflation, the world lost faith in the U.S. to cut its budget deficit, and reverse its trade shortfall.
This was a time when foreign governments could legally redeem their paper dollars for gold. So French President Charles de Gaulle began doing just that. In 1965, he took $150 million of his country's dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France. Spain did the same, redeeming $60 million of U.S. dollar reserves for gold. Some other nations followed suit. To stop a run on Fort Knox, President Nixon ended the direct convertibility of the dollar to gold on August 15, 1971.
Apparently Germany now is clearly questioning whether America is still a reliable borrower. Essentially, it asks its gold back because it has doubts whether the Federal Reserve still has it. The gold, if still present, may have been leased out by the US as security for others. That’s the reason Germany talks about a 7-years period to return its gold home. It must be terrifying when allies essentially say: "We don't trust you anymore. Give us our gold back."
The impact of Germany's repatriation on the dollar revolves around an unanswered question: why will it take seven years to complete the transfer? The popular explanation is that the Fed has already re-hypothecated all of the gold holdings in the name of other countries, earmarked as collateral for a host of different lenders. If so, then perhaps Germany politely asked for a seven-year timeline in order to allow the Fed to save face, and to prevent other depositors from demanding for their own gold back – in other words a 'run' on the Fed.
Of course the FED can print more dollars and buy gold on the open market to make up for any shortfall, but this would increase the price of gold, causing another gold price spike, confirming the dollar's decline.
Anyhow it's a big change; it means that the USA is losing their ability to finance it, as government spending is based on debt. That must going to be an absolute nightmare. When a country as the US is going bankrupt, because it has a trillion-dollar or even more annual deficit and no political will to stop the spending, then it's important to buy gold.
But wait, it is even worse as the true budget deficit may have swollen to over six times the official figure to $6.6 trillion in new obligations during fiscal 2012, according to John Williams of ShadowStats.com -- who analyzed the 2012 financial statement of the United States Government. By applying generally accepted accounting principles (GAAP) to the budget.
America has to take into account its future obligations for Social Security and Medicare. That's alarming enough -- more alarming is how the number exploded in 2012: Why the increase? It reflects, says Mr. Williams, "deteriorating economic conditions, some likely more realistic reporting on the liabilities tied to Obamacare, and possible consolidation of troubled entities, such as Fannie Mae and Freddie Mac into the federal government's numbers."
A $6.6 trillion deficit "represents about 45% of annual GDP," reckons Eric Sprott. "And this year, the real deficit might be double digits." - "We know where this is going, we know they can't meet their obligations -- which means somewhere along the line, either government-pensioned employees, someone on Social Security, someone who thinks they're going to get health care, they're not going to get it. And that's fairly predictable." The day that realization hits is one of several scenarios for "a breakdown of the financial system that drives people to gold and silver." The world's money system is being deliberately destroyed! And so, the monetary signals that guide the markets have become distorted.
Meanwhile the U.S. Mint has run out of silver. It ran out of freshly minted silver Eagles and had to suspend sales. When the mint cannot keep up with demand for physical bullion -gold and silver-, something is totally wrong with the spot prices. It makes no sense that there would be so much preference for physical bullion that the mint can't keep up with demand, unless the spot price is being manipulated to keep it artificially low?
Without being a conspiracy theorist, but knowing how economics work, you really become suspicious as the demand for physical bullion a sure signal delivers that the marketplace does not trust the futures price. The futures market pricing for gold and silver is becoming more and more irrelevant. And the shortages in physical gold and silver are sure signs that something has gone terribly wrong!
“We're not talking about the failure of a single bank – though it seems more and more likely that a single bank (UniCredit) will be first. We're talking about the failure of an entire system, the largest system of credit and banking on Earth.
The paper currency system we have in place means there is no actual limit to the size of the bailout that can (and in my view, will) be organized. Yes, the ECB has rules against bailing out countries. But those rules will be changed, you can bet on it. The Federal Reserve cannot allow U.S. money-market funds to lose $500 billion. It cannot allow Europe's entire economy to collapse. Whatever the other risks – inflation, a panic out of euros and dollars – anything will be tolerated except a complete collapse.”
“My core recommendation is for you to own plenty of gold (and silver) bullion. Consider this: Total central bank gold purchases in the third quarter more than doubled over the third quarter of 2010. This is the world fleeing to gold. This is the death of the U.S. dollar as the world's reserve currency.” Wrote Porter Stansberry.
Whereas the credit markets aren't fooled either. Greek one-year bonds now yield 1,006%. And Portuguese sovereign spreads are up 200 basis points to 1,200 bps (12%) over German government debt.
Nonetheless central banks keep doing everything in their power to save Greece. But that doesn't mean that they begin to address the other tenuous European Union members like Portugal, Italy, and Spain.
“I've been expecting stocks to go on a tear higher. It was enviable, given the Federal Reserve's suicidal monetary policies. Recently, legendary value investor Seth Klarman did a great job of explaining why the Fed's policy is so dangerous. As he writes:
“[Fed Chairman Ben] Bernanke and Draghi [the head of the European Central Bank] seem intent on buying back bonds indefinitely, whether or not their actions deliver an economic recovery and in spite of any unpleasant side effects. It is clear after four years and counting that their efforts have not delivered as predicted. Only a zealot would continue on with a plan that is not working and, in defiance of reason, massively expand it… The greatest danger? How swiftly market participants have come to accept some actions as normal. What could possibly go wrong? Well, just about everything: markets distorted, future returns diminished, moral hazard snuffed out, new bubbles inflating, caution abandoned, inflation unleashed. When investors come to believe that downside tail risk has been extinguished, it emboldens them to pay higher prices, thereby accepting more risk with less return.”
Thanks to all these manipulations: The Chinese bought Gold on the dip two months ago. With prices at the low end of a six-month trading range, gold imports to China via Hong Kong set a monthly record in December of 114 metric tons.
“Even more impressive are the annual totals. China imported 834.5 metric tons last year -- a 94% increase from the 2011 total. That's more gold than the entire stash held by the Bank of Japan.
Remember, the Chinese government keeps its lips sealed when it comes to gold imports. So these figures via Hong Kong are the best we have to go on. The real numbers are undoubtedly higher.
"It's pretty obvious that China's leaders seem intent on significantly reducing their reliance on the dollar and U.S. Treasuries. That leaves them with only one viable option: Transform their own currency into a globally accepted currency, “says Byron King.
The research director at the People's Bank of China said a little over a year ago: "No asset is safe now. The only choice to hedge risks is to hold hard currency -- gold."
Be warned: in the west gold investors soon may face another serious problem, named capital controls that will be put in place, consequently consider investing abroad before it's too late.
From Canada comes a different symptom of inflation: As of today, the Royal Canadian Mint has ceased distribution of pennies. The Finance Ministry announced the move a year ago, saying it cost 1.6 cents to make a 1-cent coin, from which 35 billion will remain in circulation.
A final note: China is awakening to the problems of air pollution. The engineering solution to solve this is by increasing the use of catalytic converters on its fleet of diesel engines. This can only be good for platinum and palladium demand and pricing, going up. So as an alternative to buying gold and silver, buy and add other precious metals platinum and palladium to your inflation protection war chest.
By Peter B. Meyer - 26th of December 2012
The Russian economist Kondratieff discovered, that economic cycles are more powerful than government. And, while government can alter the impact of a smaller "normal" bubble, it is helpless in the wake of a true "Super-Bubble." According to Kondratieff, the government's act is a hopeless charade. The real economic cycle is going to run its course, no matter what government does.
In the 1930s, Russian economist Nikolai Kondratieff produced his theory to explain that TRULY HARD TIMES come in broad cycles, or "Super-Bubbles." These "Super-Bubbles" are typically made up of several smaller or "normal" bubbles.
Now, there is another Super Bubble2 brewing and waiting to explode, it is the derivatives bubble, which huge size lays between US$ 600 trillion and 1.5 quadrillion (1,500 trillion). As comparison GDP of the whole world together is about 65 trillion. Warren Buffet coined this as ‘financial weapon of mass destruction’.
To be more precise, the government can control events for years, even decades. The government can postpone financial devastation, but not to prevent it happening. As Kondratieff said, governments cannot resolve whatsoever, as the real economic cycle is going to run its course, no matter what the they undertake.
A chilling conclusion, in fact, Russian leader Joseph Stalin had Kondratieff executed to avoid that his theories would not undermine Russian citizens' faith in government. But the run of history proved, Kondratieff was right. The government is helpless to stop the natural path of economic cycles.
What happened during the last 25 years is exactly this. We've had a series of financial bubbles fueled by government spending and easy money. Governments have used its power to print money in order to stave off financial devastation. The trouble comes, once too much money is printed and pumped into the economy, and things honestly viewed, don’t get better.
By Peter B. Meyer – 19th of December 2012
They cannot print gold, but yes, they can print as many billions of paper money as the Central Bankers choose to do; they never could do that with gold, as gold cannot be created out of thin air. That's why gold and silver, as a currency, have withstood the test of time. After all, gold is "the once and future money!"
The Fed will continue purchasing $40 billion a month in mortgage-backed securities. It will also continue with its $45 billion-a-month purchases of long-term Treasuries, totaling $85 billion a month! As they run out of short-term securities, they continue with the long-dated Treasury purchases without selling any bonds to offset them, called sterilization of money supply, this directly is stimulating inflation. Even worse, keeping interest rates near zero until unemployment falls below 6.5%, from its current 7.7%, is the first time a major central bank ties its monetary policy directly to an economic indicator.
This move is essentially a fourth round of quantitative easing (QE4) that will increase the Fed's balance sheet from the current $2,86 to $4 trillion in one year by adding more than $1 trillion in paper assets. It’s actually counterfeiting money on a grand scale.
By Peter B. Meyer – 7th of December 2012
Gold and silver always remain a buy, it just depends what price you want to pay. Remember in 2008-2009 you couldn't get away from the "flight to safety" trade and the "fear" trade. Flight to safety pertains to a proverbial "run for the exits!" mentality. This trade has investors fleeing equities and commodities and heading towards bonds and dollars/euros. Today the same scenario of 2008 is happening again.
At that time there was the fear trade going on. Once government stimulus spending cranked up, fears of inflation sparked renewed interest in precious metals. This is what fueled gold from a low around $750, in November 2008, to a high over $1,900/ounce in 2011.
With the potential fiscal cliff fallout in the near future, soon the revival of both trades is expected. Only today a blue print is available from what happened at the end of 2008, so this time you can take advantage of any pullback in the price of gold and silver. Likely gold could head towards $1,550/ounce and silver under $30/ounce. But don't expect those bargain prices to stay long. So take advantage of what is learned in 2008 and buy some precious metal on the cheap.
Bernanke, speaking at a Washington press conference, said policy makers are focusing "primarily" on the outlook for jobs in deciding whether to ease further, and more action would be needed without "sustained improvement in the labor market." Payrolls grew at the slowest pace in a year in May, and the jobless rate has been stuck above 8% since February 2009.
"If job growth doesn't pick up from the recent soft readings in the next few months, then the Fed would likely do more and do a full scale asset-purchase program," said Dean Maki, chief U.S. economist at Barclays Plc. in New York and a former Fed economist. "They're prepared to take further action."
That action meanwhile has materialized with the implementation of QE3.
"… the continuing global economic crisis (and much worse to come) would be a great excuse for Obama to open the floodgates on all kinds of really, really stupid ideas."
The bottom line: "There are no political solutions. The economic problems are bigger than any politician (can solve). There's no way out."
Conclusion: "You've got to continue accumulating gold and silver to protect yourself from financial chaos, and you've got to diversify yourself internationally to protect yourself from government chaos."
China has already become a net-seller of Treasuries and is diverting more of its reserves into gold. The Chinese government recently approved banks holding gold as a reserve asset and made it easier for banks to trade gold amongst themselves.
When compared with the size of the real, underlying debt problem, this Fiscal Cliff discussion is really just a sideshow. As far as can be told; the United States and the EU are broke. Each of both is underwater to the tune of 16 trillion. But that number blows out to over 85 trillion — roughly five times US - GDP — when taking into account unfunded liabilities for social securities. More important, the size of the debt is increasing much faster than is GDP “growth” itself a phony baloney number that counts government spending as if it was real, productive investment.
“The real federal deficit for this year — including unfunded Medicare and Social Security obligation — is more than $7 trillion,” observes Bill Bonner. “That’s 21 times the amount of additional growth for the same period. It is as if you got a $1,000 raise and spent an additional $21,000.”
The US Empire’s pursuit is costly, all that warfare and policing of countries without any economic benefit. Managing other people’s business is a drag. Before long you end up with a bloated, lethargic bureaucracy, one that needs a constant and growing supply of tax revenues just to keep from collapsing under its own weight. That’s why the whole discussion about the fiscal cliff is so absurd. “Equating tax hikes and spending cuts in the US with a “Fiscal Cliff” is like calling a spot of exercise and a balanced diet “Caloric Armageddon” for the morbidly obese.”
“If you follow Ron Paul’s statements, the US is already over the cliff. Congress and the class of leeches who support them have only shown their true colors. They’re completely ineffective at managing the finances of the government, let alone direct the economy.”
“Let’s leap off the cliff. And get back to inventing the future. Forget trying to manage the past.”
Despite these fallbacks, the long-term trend for gold and silver remain the same. Gold is seen to eventually reach more than $5.000 an ounce and silver over $150 an ounce.
But bear in mind; the higher the price the greater the chance governments will confiscate it. As only a small percentage of the population act prudently by purchasing precious metals, they surely will be seen as ‘speculators’ who took advantage of the devaluing of the dollar/euro and helped to destroy U.S. dollar and euro! Of course this isn’t the truth but to keep the zombies happy the government will be poised to do something about it.
For example they could institute a windfall tax of 90% to eliminate the gains on gold and silver. Or they may confiscate it under the contention ‘in the interest of national security’. So what can you do to avoid this fate?
NEVER invest in gold funds or ETFS; because these are transparent and open to inspection, moreover these aren’t as good as the real stuff.
At present, in most cases government doesn’t have any track record of cash purchased precious metals. And when stored in private safes it will be even harder to tax it.
Another safe road is the purchase of ‘rare coins’. Those too are good possibilities of wealth conservation. And at least more likely an anti confiscation hedge, as gold coin ownership during the period 1933 – 1975 was not illegal declared. This of course isn’t a guarantee that rare coins will be treated the same way this time, however much less likely; at least it is another possibility. To the contrary Silver billion and coins are less likely to be confiscated, because silver has a wide industrial application.
In this video after 2nd till the 10th minute Peter Schiff speaks about the future of the US economy and the strength of the US dollar. Where is the dollar collapse he has publicly predicted? Peter Schiff, CEO of Euro Pacific Capital, is also asked what happens to his earlier comments about hyperinflation.
By Peter B. Meyer – June 20, 2012
Central bankers around the world hold their hands on the print button of their presses. So it’s easy to predict a rise in precious metal prices over the next 2 years. It is similar to what happened many times over in the past. After 2008’s market meltdown, central bank action sent precious metals soaring. For instance, gold jumped 25% in 2009. But in a good year for gold, silver can do even better. In 2009 while gold jumped 25% the price of silver jumped over 50% from $11 to $17 per ounce.
Now is the time to look at silver again. Sprott the largest commodities trader on the globe, says: “The €100 billion the European Union granted to Spanish banks last week is just the beginning… The problem is much bigger than Central Bankers and Governments can deal with – the whole banking system is much larger than the countries involved.”
All sovereigns have large deficits; they lack excess funds to bailout their banks, as their own credit worthiness is under water. With continued European bailouts and strong demand for precious metals, gold and silver prices should soar, after their recent floundering. Sprott thinks the recent ‘low’ gold and silver price is originated by the central banks that are controlling the prices for precious metals, because a high gold price indicates the central banks performance is lousy.
Sprott says: “All of the data is incredibly positive for precious metals. I focus on gold because the silver data is so poor that we get, but when you see China buying 100 tons of gold in April, Iran’s buying, Turkey’s buying… Kazakhstan announces they’re going to go from 12% of reserves in gold to 15% - all of the data speaks to HUGE VOLUMES OF PHYSICAL GOLD BEING ABSORBED… way beyond the ability of the miners to provide that gold. Which makes me think the central banks are continuing to lease or to supply the gold into the market somehow.”
In addition to ongoing problems with Europe's financial system and growing demand for metals, there's another reason, metals - in particular silver- will soar. In short, the world is out of silver.
Sprott says, “Aggregate investment demand for silver between 2000 and 2009 was 293.8 million ounces (according to the GFMS, the world's foremost precious metals consultancy). Using his own numbers, Sprott compiles the silver holdings for seven large investors, including himself, iShares, Silver Trust, ZKB, GoldMoney, etc. Just those seven entities own 519.6 million ounces of silver… That's 225.8 million missing ounces. And again… That's only seven investors. It doesn't include central banks, individuals, hedge funds, etc.“
It's obvious, as Sprott notes, silver data has been "very, very misstated." Sprott ends his speech saying, "There's $22 billion of silver available in the world, of which the ETFs already own half, and between you guys and us we probably own the other half... Which means there's nothing left."
Sprott states, the world's silver supply would be gone "in a nanosecond" once the people realize there isn't as much metal as we believe, "because it's a very small amount of money." He also noted, there's a shortfall in the world's gold supply.
The message is clear: Buy gold and silver coins and bullion now, for as much as you’ve liquidity available and keep doing so till the prices escalate.
By Peter B. Meyer – 7th of April 2012
Readers wonder why the gold and silver market prices don’t increase as much as in the recent past. This finds its origin in the manipulation of prices by our leaders in charge; they want to keep gold prices artificially low. According to the Financial Times, the amount of gold getting traded every year in London alone was about 125 times more gold than we get out of all the world's mines each year. That's double all the gold mined in history! It's estimated that some six billion ounces of refined gold are in human possession around the world. Global gold production is approx 80 million ounces a year, an annual supply increase of about 1.3%.
Certainly gold and silver will both still have an important role to play as the central bank-induced printing continues, while more is anticipated. Central bank printing will never stop, so both gold and silver will continue to appreciate in all fiat currencies over time. The manipulation in the gold and silver market is designed to suppress the prices for both metals, to reduce the value and divert interest of mainstream investors who see gold and silver as alternative currencies; that is the reason for the recent hold back of their respective prices.
For clever people, it means an opportunity to continue accumulating both metals at much cheaper nominal prices than they would be otherwise. The volatility of price fluctuations may be unsettling, however this ultimately won’t change the underlying fundamental direction of both metals, which is upwards.
Gold is probably the most signaling instrument, to judge the value of the paper money system, which entirely is based on faith. Certainly anything and everything that could cast doubt on the current monetary system would be controlled if it can be carried out.
To put this in perspective: If the gold price suddenly were to rise to $5,000 an ounce, all sorts of troubling questions would emerge for our leaders. Such as, is there something wrong with the dollar and the euro? Is the world economy falling apart? A rapid spike in the price of gold would certainly cause people to question the current state of the world’s fiat based money system, and that would be the beginning of the end of paper money, which is without value and only based on faith.
To prove whether gold is controlled, the first question is, why should the price of gold NOT be controlled? The Bankers and Traders on Wall Street use super computers to control the so-called ‘free market’ in their favor. Actually it has become a casino in which the odds are always in their favor. They want you to spend your money on stocks - instead on gold and silver.
Underlining the concept of faith-based fiat money system the management of the price of gold is a matter of confidence-based responsibility for those in power. To prove this, some well-known facts about managed numbers: The quantity of money is managed. Interest rates are regulated, to reduce the price of money to almost zero. When interest rates are near zero, the risk tolerances and preferences are being directed towards taking on higher risk. The price of oil is openly managed, through strategic releases. So is the price of food and energy managed via subsidies.
Official statistics are massaged and managed, like the ones for GDP, inflation, new employment creation and unemployment, just to tell the public a rosier story than the truth, to better manage those perceptions. Of course the most dramatic impact is the management and the price of money. High gold and silver prices illustrate bad management of the currency and that should be avoided, in the opinion of our leaders. The price of gold has always been an object of interest for governments and central bankers. The reason is simple to understand: Gold is an objective measure of the degree good or bad for management of fiat money.
Gold is a threat to Central Bankers’ power. To bring the price control of gold to an end by bureaucratic power, will only come about through an outside phenomenon. Meanwhile the Central planners and their proxies are actively continuing to manage the price of gold. The main offender appears to be the U.S. authorities, as the manipulation is most apparent in the U.S. open gold market. For the most part, this 'management' has resulted in letting the price of gold slowly rise, but not too much, or too quickly.
Whenever paper money is being governed poorly, the price of gold becomes an important barometer. And this is why the actual price of gold is obviously be 'managed.' Or 'influenced.' Or 'manipulated.' Whichever word is used, to express this kind of occurrence.
Gold is not a fashion; it’s a commodity with the unique ability to represent tradable wealth. Where paper money and others can be duplicated, gold cannot. Where food commodities become spoiled, gold keeps its shine. And where oil gets burned to fumes, gold cannot be destroyed.
There is an interesting game playing out around gold, and the suspicion is that the possibility of eventual re-monetization motivates theses moves. Eventually the gold price suppression will prove to be a most unfortunate mistake, providing short-term political and market cover for excessive money printing, while sacrificing long-term advantage to those taking the other side of the suppression trade, like China does. They take the “long term view” when it comes to gold accumulation. They believe they can trust gold more than US Treasuries and other sovereign bonds. They know the power of gold and silver; they have their eyes focused on becoming the world’s reserve currency backed by gold. The Chinese demand for gold is just starting to affect the global gold market. So far China has had little impact on world gold markets. Because of ample Chinese domestic gold production to cover their appetite and satisfy domestic demand, which over the past several years has grown strongly, to make China the largest gold miner in the world. Consequently, in contrast to other markets in which China has become an important source of demand, it so far had little impact on the demand of gold on the world market.
About a year ago the balance between Chinese gold production and demand began to change. Chinese mining companies were unable to produce enough gold to satisfy the growing domestic demand; with the result that China began importing gold.
Whether our leaders like it or not they’re working against the market, where the rest of the world is buying gold and silver. The power of precious metals, the strong demand from others will let the prices for gold and silver climb. Their argument still is, to hold gold and silver as the world’s best non-inflatable currency option.
“Recent central bank behavior, including that of the US Fed... may as well induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.” Says Eric Sprott the commodities expert.
Eventually gold and silver will be recognized as currencies, and when central banks continue with their printing, both gold and silver will continue to appreciate in all fiat currencies. The censored prices will remain as long the futures market is manipulated. Meanwhile clever gold and silver investors, like China continue to accumulate both metals at much cheaper nominal prices, with the help of our stupid leaders.
Bear in mind: Gold and silver have an ever more important role to play as the central bank-induced printing continues, and more printing is on it way.
As Mark Faber recently expressed: "Well, basically I think that the whole bailout and the money printing will not create long-lasting wealth, nor will it create healthy economic growth. And if I look at the world, then I see essentially well-to-do people that have done unbelievably well and I see the middle class and working class that hasn't done well. And I think somewhere down the line, we will have a massive wealth destruction that usually happens either through very high inflation, or through social unrest, or through war, or credit market collapse.
Maybe all of it will happen but at different times.”
Tags: Gold, Silver, managed prices, economy
By Peter B. Meyer – 15th of February 2012
“We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. - The worst-case scenario is a collapse of the financial system.”
"The magnitude of developed world’s indebtedness and trade deficits suggest that the US and EU will eventually wind up with double-digit interest rates and hyperinflation."
"This is the kind of environment where gold often outshines all other asset classes," Those are the frightening conclusions from three experts. Hyperinflation is a scary thought. Technical definitions vary, but while it could be argued that mild inflation can be a sign of a growing economy, hyperinflation is certainly never a good thing. But most people say that it will not happen this time. They make this claim because they believe the FED and the Central Bankers have the capacity and the foresight to prevent this.
Consumer purchases making-up 70% of GDP, meanwhile have declined, which means the money is not yet in circulation, and is therefore being used to pay back debt or is being saved in banks, as it’s obvious no one is investing. Sooner rather than later, the money shall have to come back into circulation, and to all intents and purposes this shall enter a period of hyper-inflation i.e. lots of money chasing a few goods.
According to the Federal Reserve Board, the money supply in the United States has almost tripled over the last 6 months, increasing by 271%, as similarly is the case in the EU. In normal circumstances, this increase in the base will create too much liquidity in the system, which will increase lending, spending, and inflation. In the current environment, is said, “this is not happening”. The money created by the Fed and CBs is stored in banks’ vaults or technically, kept as deposits in the banks. To be used for what? If the banks didn't lend the money out, what did they do with it? Well, in Europe the banks did lend the money back to the people they borrowed it from. In June the banks bought $75 billion worth of government bonds and lent nearly $30 billion directly to European governments.
Now you understand why the banks are doing so fine. They earn money without taking the risk of lending to the real economy. But what good does it do for the economy? NONE. Only it created higher bonuses for the bankers themselves, to make money on taxpayers account. Doesn’t that look like a scam?
The main problem never has been tackled; the amount of debt owed continues to increase at a faster and accelerating pace, which is exceptionally dangerous because the debt growth is, compounded that results in ever faster growing debt expansion. And that's happening right now, because additionally money is borrowed to pay the interest over earlier debt. And that has been going on for the last 40 years.
To oppose against the hypothesis that the gold standard or currencies backed by gold not is required, it's important to realize that fiat money is the worst kind of money whenever it has been used. History showed that fiat money has been a great failure. In fact,EVERY fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well. To underscore this better, the performance of fiat currencies in the past century has been dreadful. The US dollar has lost 97% of its purchasing power in the last century alone.
But what has changed? If anything, the monetary setting of today is worse than that of the 20th century, for at least in the earlier part of that century there was still a gold standard. Really, up until 1971, there was some semblance, however weak, of an international gold standard. Thus putting up a valuable resistance to printing infinity quantities of paper money, as is the case now, and done by the feds and other central bankers around the world. As example, look at Zimbabwe to understand where al this will lead.
The monetary restraints on today's central bankers are too lenient. Hence, the threat of inflation is far more lethal. Paper monetary systems have a tendency to blow up, in what is commonly called a hyperinflation. They are really not so rare, looking again at the 20th-century experience. There is the famous German hyperinflation of 1922-23, where price inflation was 3,422% in 1922 alone and where, in January 1923, one could buy a dollar for 20,000 marks - but by early November it took 630 billion marks to buy that same dollar! The numbers are simply staggering and hard to comprehend. Yet, Hungary's hyperinflation of 1945-46 was even more spectacular, with price inflation of 19,800% per month.
The huge un-payable debt owed by the U.S. and the EU is an invitation to repeat the German Weimar experience. Inflation got so bad in this period that German citizens were literally using stacks of marks to heat their furnaces.
A brief overview of the marks per one U.S. dollar exchange rate:
• April 1919: 12 marks
• November 1921: 263 marks
• January 1923: 17,000 marks
• August 1923: 4.621 million marks
• October 1923: 25.26 billion marks
• December 1923: 4.2 trillion marks.
There are lots of things that can happen along the way. It was not that long ago - 1996, that Argentina became the 'Weimar Germany' of South America.
This is not to say hyperinflation is yet imminent, but viewed today's inflationary climate this rapidly is becoming a severe thread, as result of too much printed liquidity that not can be taken out of the financial system quickly enough. This points to men madedangers particularly Bernanke's FED that’s followed by all other Central Bankers the world over with their respective money printing. It points to the weakness of the dollar/euro - or any paper currency in general. But in reality, the global currency market is nothing more than a race to the bottom. That’s the argument for holding hard assets like gold and silver, because they can’t print those.
What happens in a hyperinflation is that people start buying things, anything, and everything, desperately getting rid of their money, spending all their cash to stock up on things that are going to cost more in the future or even tomorrow, because their money is going to be worth less every day if it isn’t spent immediately. As a result, prices rise like they were rocket-propelled in response to this increased demand. The result is that everybody who has any money that they were not able to spend is gradually bankrupted.
If accepted; that gold is acting like a currency, in a world where central banks in many countries are bent on depreciating their own paper money; one could conclude that gold and silver will rally against all these currencies.