Status Report: US Dollar

A September 2009 report from Sprott Asset Management, titled “Safe Harbour No More”, provides a good summarization of what is happening and may happen with respect to the US Dollar. The following are the key points:

• “Upon reflection, it’s quite obvious how tenuous it is to back up one’s currency with a pile of paper issued by another country, but this is exactly how the world of international currency has worked for decades. And it has worked quite well…until now.”
• Over the last six months there has also been a substantial increase in anti-US dollar rhetoric from China, Japan, Russia, France, Brazil, and even the United Nations. Reading between the lines, it appears the US dollar hegemony has finally broken, and what happens next will have major consequences for the global economy.
• Chart A illustrates the USD’s value versus other major world currencies since 2000. You will remember that one year ago, following the collapse of Lehman Brothers, the USD experienced a strong rally as the world flocked to it as a safe haven. Back then, nobody complained about owning US Treasuries – they were the ultimate safe asset for anyone looking to park large amounts of capital. Now that the panic has subsided, however, the international investment community has begun to question that choice. They have watched the US Government abuse its ‘world reserve currency’ privilege by printing debt and currency by the boatload.



• To fully understand the debt predicament currently faced by the United States, it’s best to look at the numbers. US Government revenues for the 12 months ended August 31, 2009 were US$2.2 trillion from all sources ($2,157,940,000,000).1 According to the US Department of the Treasury, the current outstanding debt as of August 31, 2009 is US$11.8 trillion ($11,812,870,150,873.53).2 To this we must add the unfunded promises that the US Government has made to its citizens. While there are no bonds, bills or notes issued to support these promises, they represent real commitments that will require US dollars to honour them in the future. The National Center for Policy Analysis (NCPA) estimates that the unfunded portion of the US Social Security program totaled $17.5 trillion as of June 2009 ($17,500,000,000,000). The NCPA also estimates that the aggregate unfunded promises for Medicare total a whopping $89.3 trillion ($89,300,000,000,000).3 Table A summarizes this data (see page 2).



• So how will this US debt crisis ultimately resolve itself? Let’s consider the options. It would appear from our analysis that the spending ‘promises’ are the crux of the problem now facing the US Government. If there isn’t enough new capital in the current environment to fund new Treasury bill issues (as we argued in “The Solution… is the Problem”), then there certainly isn’t enough capital to pay for the US’s unfunded future obligations. The choices, therefore, are bleak:
• 1. Default on Medicare promises. (Unlikely given the current debate in Washington to expand medical coverage.)
• 2. Default on Social Security promises. (Unlikely given the increasing average age of the voting public.)
• 3. Put forward a credible plan to balance the budget. (Unlikely given the most recent budget projections.)
• 4. Default on outstanding debt. (Unthinkable)
• *CONCLUSION* None of these options are feasible for the US Government. So they realistically only have one option left – to print their way out of their debt crisis.

Status Report: Gold

With gold still above $1,000, you would think the International Monetary Fund announcement to sell 403 metric tons of gold would be *extremely bearish*. Per the announcement, the value of this gold should bring in around $13 Billion – but in the global economic sea of paper money, this is pretty much chump change. Here is why this announcement is not bearish: *THE GOLD WILL NEVER HIT THE MARKET!* Even before whatever paper pushing will be necessary to formalize the sale, *China* is already talking about purchasing the entire lot! (See China Weighs Purchase of IMF Gold and China weighs purchase of IMF gold -report for details). Is it possible this is all a show to allow China to reduce its US Dollar exposure?

Status Report: Real Estate

Moody’s recently came out with bleak projections for housing, which is pretty much a match for what has been predicted in The International Forecaster.

• “For many reasons, the rebound will be disproportionately small compared to the decline,” Moody’s said this week in its latest outlook on the residential market. “It will take more than a decade to completely recover from the 40% peak-to-trough decline in national home prices.”
• “On a regional basis, Moody’s said hard-hit states such as Florida and California will be among the last to recover and “will only regain their pre-bust peak in the early 2030s, well after the nation does.” Meanwhile, a decimated Wall Street will weigh on New York’s recovery, although the state’s overall price decline will be less severe.”

The following provides Moody’s analysis on when housing regions will rebound to recent peaks:

UPDATE: Audit the Federal Reserve

http://www.auditthefed.com

• H.R. 1207: Federal Reserve Transparency Act of 2009 now has 292 co-sponsors, up from 289 last week.
• S. 604: Federal Reserve Sunshine Act of 2009 now has 28 co-sponsors, up from 25 last week.

Street Fight – CNBC’s Fast Money with Simon Hobbs (9/23/09)

http://www.cnbc.com/id/15840232?video=1273696446&play=1

Peter Schiff on Fast Money CNBC Sept 17 2009

http://www.youtube.com/watch?v=w_jZs3nNqz8

Ron Paul – TIME Interview (9.17.09)

http://www.youtube.com/watch?v=v75fgTNwPlY

Financial bubble predictor Peter Schiff announces run for US Senate (9/17/09)

http://www.youtube.com/watch?v=LNEKjTV0N_Y

Peter Schiff: Americans must prepare for deepening unemployment, inflation and possible breadlines (9/16/09)

http://www.youtube.com/watch?v=LhPpzWZDyx0

Celente: Revolution next for U.S. (9/14/09)

http://www.youtube.com/watch?v=JhaEc_4zuFI

Buy Stocks Because U.S. Dollars Will Be “Worthless,” Says Faber (9/22/09)

http://finance.yahoo.com/tech-ticker/article/338419/Buy-Stocks-Because-U.S.-Dollars-Will-Be-%22Worthless%22-Says-Faber

• Marc Faber, editor of The Gloom, Boom & Doom Report is, by his own account, “ultra-bearish” on the long-term fundamentals of the U.S. market. (Discussed in detail in this clip.)
• However, in the near term, Faber sees plenty of money-making opportunities in stocks. Sure, prices aren’t as cheap as they were in March, yet he’s confident, “in this environment cash will become worthless.” As a result, he says investors are, “better off being in equities,” for the next two to three years.

The Fed’s dollar conundrum (9/22/09)

The central bank has flooded the world with dollars to avert collapse and start a recovery. But what if the U.S. economy doesn’t reap the rewards?
http://money.cnn.com/2009/09/22/news/economy/fed.financing.fortune/index.htm?postversion=2009092217

• Yet skeptics warn that a major driver of the recovery in stock and bond markets — a round of unprecedented emergency money printing by the Federal Reserve — could actually slow the healing of the real economy.
• Critics focus on the fact that low U.S. interest rates enable investors around the globe to borrow dollars for next to nothing and invest them elsewhere at higher rates.
• This bet — known as the dollar carry trade — appears to be one of the forces pushing down value of the dollar. Though there are few reliable figures on the size of the carry trade, the dollar’s trend has clearly been down since stock and bond markets revived.
• The resulting investment flows are potentially unstable, prompting talk of new asset price bubbles — particularly in commodities such as oil and gold, and the economies of faster-growing emerging markets.
• That sounds like an unpleasant arrangement, but Americans may have to get used to it. The Fed, which is expected to hold interest rates steady when it wraps up a two-day meeting Wednesday, has said it anticipates keeping its fed funds rate near zero for an extended period.
• That could mean months of a currency-depressing, growth-stunting carry trade — an echo of Japan’s experience during two decades of on-again, off-again zero interest rates.

Global rebalancing to weaken dollar, quietly (9/22/09)

http://www.reuters.com/article/usDollarRpt/idUSLL68602920090922

• Twenty-four years ago today, major nations called for depreciation of the dollar to rebalance the global economy. Now, as another effort at rebalancing looms, the dollar will again bear the brunt — though officials will try to ensure its fall is less dramatic this time.
• That’s the implication of U.S. President Barack Obama’s announcement this week that he will push world leaders for a new global “framework” in which the United States would cut its huge trade and budget deficits.
• They are unlikely to issue an explicit call for the dollar to fall. In fact, the U.S. Treasury may continue proclaiming its “strong dollar policy” in an attempt to keep the markets calm.
• No one in the G20 wants to risk a freefall of the dollar that could disrupt global trade as it recovers from recession. And in contrast to the 1980s, developing nations such as China are now challenging the dollar’s long-term role as the world’s top reserve currency.

FDIC considers borrowing cash from banks (9/22/09)

Insurance fund that protects depositors is quickly running out of money
http://www.msnbc.msn.com/id/32963393/ns/business-the_new_york_times

• Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.
• Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.
• Under the law, the F.D.I.C. would not need permission from the Treasury to tap into a credit line of up to $100 billion. But such a step is said to be unpalatable to Sheila C. Bair, the agency chairwoman whose relations with the Treasury secretary, Timothy F. Geithner, have been strained.
• “Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”

U.S. to push for new economic world order at G20 (9/21/09)

http://www.reuters.com/article/topNews/idUSTRE58G34Z20090921?sp=true

• The United States will urge world leaders this week to launch a new push in November to rebalance the world economy, but there are doubts national governments will bow to external advice.
• A document outlining the U.S. position ahead of the September 24-25 Group of 20 summit in Pittsburgh said exporters, which include China, Germany and Japan, should consume more, while debtors like the United States ought to boost savings.
• “We call on our finance ministers to launch the new framework by November,” the document said, signaling a determined effort to maintain momentum for change created by last year’s global financial crisis.

Revealed: The ghost fleet of the recession anchored just east of Singapore (9/16/09)

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html#ixzz0RLcNgkkI

• You may wish to know this because, if ever you had an irrational desire to charter one, now would be the time. This time last year, an Aframax tanker capable of carrying 80,000 tons of cargo would cost £31,000 a day ($50,000). Now it is about £3,400 ($5,500).
• Between them, they manage about half of the world’s chartering business. The bonuses are long gone. The last to feel the tail of the economic whiplash, they – and their insurers and lawyers – await a wave of redundancies and business failures in the next six months. Commerce is contracting, fleets rust away – yet new ship-builds ordered years ago are still coming on stream.
• Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a ‘crisis of historic dimensions’. Last month the company reported its first half-year loss in its 105-year history.

Fidelity, Vanguard Said to Plan Emergency Bank for Money Market (9/19/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=a8wiCA9.CbZ0

• Fidelity Investments and Vanguard Group Inc. are among firms planning to set up an emergency pool of cash aimed at preventing a repeat of the run on money-market funds a year ago, said two people familiar with the plan.
• Funds would pay a fee to an entity called the Liquidity Exchange Bank, building a cash reserve that would help them handle investor withdrawals during a crisis like the one last September, said the people, who asked not to be named because the information wasn’t public. The bank, which would buy securities at face value from the funds, could also apply for emergency support from the Federal Reserve discount window.

The stock market rally is just another bubble – and it’s set to pop (9/21/09)

http://www.moneyweek.com/news-and-charts/economics/central-banks-have-inflated-yet-another-bubble-93813.aspx

• But the ‘real’ economy is telling a different story. And it’s one that could spell a very sticky ending for the current rally…
• The free and easy money being dished out by the world’s central banks is finding its way into assets, particularly financial assets such as stocks and bonds. That’s great for asset prices, as the surge in stock market since March has demonstrated.
• But so far, it’s not having much impact on the ‘real’ economy. In other words, the money is being pumped into financial assets, but it’s not being loaned out to businesses and individuals to fund business expansion and investment, or increased consumption. In fact, businesses and individuals are still in cutback mode, and show no real sign of coming out.
• So it seems we’re having a surge in financial assets that has no backing in economic reality. There’s a name for that – a bubble. “Instead of getting consumer inflation from all this central bank liquidity, we are seeing asset price inflation and we all know that usually does not end well for investors,” Steven Ricchiuto of Mizuho Securities told the Financial Times this weekend.

Fed buys $4.05 billion in Treasurys (9/21/09)

http://www.marketwatch.com/story/fed-buys-1799-billion-in-treasurys-2009-09-21-113310

• The Federal Reserve Bank of New York bought $4.05 billion in Treasurys on Monday, the sole buyback this week as the central bank slows down its purchase program.

Fed Rejects Geithner Request for Study of Governance, Structure (9/21/09)

http://www.bloomberg.com/apps/news?pid=20601109&sid=adjvXg1zP.zY

• The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said.
• Some top central bank officials, after agreeing to the review, saw a potential threat to Fed independence after the Treasury released the proposal, two of the people said. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”

HSBC bids farewell to dollar supremacy (9/20/09)

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6211858/HSBC-bids-farewell-to-dollar-supremacy.html

• The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.
• “The dollar looks awfully like sterling after the First World War,” said David Bloom, the bank’s currency chief.
• “The whole picture of risk-reward for emerging market currencies has changed. It is not so much that they have risen to our standards, it is that we have fallen to theirs. It used to be that sovereign risk was mainly an emerging market issue but the events of the last year have shown that this is no longer the case. Look at the UK – debt is racing up to 100pc of GDP,” he said.
• A monetary policy of near zero rates – further juiced by quantitative easing – is completely incompatible with circumstances in most of Asia, the Middle East, Latin America, and Africa. Divorce is inevitable. The US is expected to hold rates near zero through 2010 to tackle its own crisis.
• The Fed’s super-loose policy is turning the dollar into the key funding currency for the next phase of the global “carry trade”, taking over the role of Japan during its period of emergency stimulus.

Hedge Funds’ ATM Moves From Tokyo to Washington (9/18/09)

http://www.bloomberg.com/apps/news?pid=20601110&sid=apUH.Ybqzwh8

• China’s real problem is how quickly the dollars they hold in great quantity are getting all the respect of pesos these days. Sound like hyperbole? Not when you consider what may be the hottest investment of 2010: the dollar-carry trade.
• Move over Japan. Investors spent a decade borrowing in zero-interest-rate yen and putting the funds in higher-yielding assets overseas. It’s the U.S.’s turn to flood the world with cheap funding and the risks of this going wrong are huge.
• The perils of the carry trade were seen in October 1998. Russia’s debt default and the implosion of Long-Term Capital Management LP devastated global markets. It was a decidedly panicky and messy period culminating in the yen, which had been weakening for years, surging 20 percent in less than two months.
• Now imagine what might happen if the world’s reserve currency became its most shorted. Carry trades are, after all, bets that the funding currency will weaken further or stay down for an extended period of time. It’s also a wager that a central bank is trapped into keeping borrowing costs low indefinitely.

Governments Lead $22 Billion in Sales of Dollar Bonds (9/18/09)

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.fsJEBUcLRM

• Germany and Austria led governments and companies in Europe selling $21.7 billion of bonds in the U.S. currency this week to take advantage of the reduced cost of exchanging the proceeds back into euros.
• The sales were the most since February, according to data compiled by Bloomberg, and also allowed nations including Spain and Belgium to attract a wider range of investors at a time when they need money to fund fiscal-stimulus programs amid the deepest recession since the 1930s.

Putin says new global reserve currencies would benefit U.S. (9/18/09)

http://en.rian.ru/russia/20090918/156177687.html

• The creation of several global reserve currencies would not harm the interests of the United States, Russian Prime Minister Vladimir Putin said on Friday.
• Speaking at an annual investment forum in Russia’s Black Sea resort of Sochi, the prime minister said the imbalance of money supply in the United States compared with the rest of the global economy was one reason for the current financial crisis.
• “There is only one solution – a long-term agreement on common rules of conduct or on several global reserve currencies. To my mind this poses no threat to the U.S. economy, which would only benefit from it in the future,” Putin said.
• A Kremlin aide predicted on Tuesday the establishment of five or six currency unions based on new reserve currencies within the next 10 years.
• A UN Conference on Trade and Development report released in early September said the dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation.
• It said UN member states should agree on a global reserve bank to issue the currency and to monitor the national exchange rates of its members.

The dollar’s in the dumpster, and nobody’s worried — for now (9/18/09)

http://latimesblogs.latimes.com/money_co/2009/09/dollar-falling-foreign-currencies-euro-yen.html

• “A strong dollar is in America’s best interest,” the Bush and Obama administrations have repeatedly assured us.
• And yet for most of this decade the dollar has been sliding. Now, the greenback again is one of the world’s currency weaklings. But global financial markets, and governments, seem to be taking it in stride.
• The dollar has taken a renewed pounding over the last two weeks, driving the DXY index — which measures the buck’s value against six other major currencies — to nearly a one-year low.
• The big question is how low the dollar will go. For now, it’s still above the worst levels (or best levels, depending on your perspective) of 2008. But it’s getting closer to those depths. If it breaks through, there will be a new torrent of speculation about the dollar losing its status as the world’s primary currency, and about the risk that that would entail for an economy so dependent on foreign creditors.
• Americans have been warned for decades about a possible dollar panic if the world were to lose faith in us. The current decline is no panic. Neither we nor the rest of the world can afford for it to turn into one.

FDIC to consider ways to replenish deposit fund (9/18/09)

http://finance.yahoo.com/news/FDIC-to-consider-ways-to-rb-3498288019.html?x=0&sec=topStories&pos=1&asset=&ccode=

• U.S. bank regulators are considering tapping a line of credit with the U.S. Treasury Department and may explore other lesser-known options to replenish the dwindling fund that safeguards bank deposits.
• “We are carefully considering all our options, including borrowing from Treasury,” Bair said, referring to the agency’s $500-billion line of credit with the Treasury Department. She was speaking at a global finance conference in Washington.
• So far this year, 92 U.S. banks have failed, compared with 25 during all of last year and only three in 2007. Those failures have whittled the balance of the insurance fund down to $10.4 billion from $45 billion a year ago. The FDIC is careful to note that it has $42 billion in reserves to handle failures over the next year.
• FASB met last month to discuss whether to force companies to value nearly all financial instruments on their balance sheets, including loans, at market value, and to reflect them in earnings. Banks oppose such a change. FASB is expected to release a proposal in the first half of 2010.

“Option” mortgages to explode, officials warn (9/17/09)

http://www.reuters.com/article/wtUSInvestingNews/idUSTRE58G5U320090917

• The federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset.
• “Payment option ARMs are about to explode,” Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama’s administration to discuss ways to combat mortgage scams.
• “That’s the next round of potential foreclosures in our country,” he said.
• Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These “underwater” mortgages have been a driving force behind rising defaults and mounting foreclosures.

Fed bought $25.45 billion net in agency MBS: report (9/17/09)

http://www.reuters.com/article/businessNews/idUSTRE58G5SY20090917

• The Federal Reserve bought $25.45 billion net of agency mortgage-backed securities in the latest week, the New York Fed said on its website on Thursday.
• That was up from the previous week’s net purchases of $18.8 billion.
• The purchases brought the U.S. central bank’s purchase of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system to roughly $861.9 billion since January.
• The Fed aims to buy up to $1.25 trillion of agency MBS in a bid to bring down mortgage rates and to stimulate the battered housing sector and the overall economy.

Dollar May Fall Further After Reaching Lowest in Almost a Year (9/17/09)

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aABBJcLqBQ9E

• The dollar may extend its decline after sliding to the weakest level versus the euro in almost a year as an increase in America’s industrial output encouraged investors to shift funds to higher-yielding assets.

China may ban export of gold, silver (9/16/09)

http://www.commodityonline.com/news/China-may-ban-export-of-gold-silver-21219-3-1.html

• How could China affect the price of gold? We live in China and spend a lot of time with local industry leaders and policy makers. We hear repeatedly that the time has come to think seriously about how to survive the perceived dollar devaluation. In some cases we note serious concern, and in other cases absolute dread over a perceived dollar crash.
• There are persistent rumors that the export of silver has already been banned. Gold could be next.
• Thus China, which only yesterday was the lowest per-capita consumer of gold in the world, is bidding to become the biggest. Some analysts believe it will pass India – the top dog since forever – as early as 2010. Clearly, the government believes the country is strengthened if everyone who can holds some hard currency.

Kinross Says Gold Industry Faces Reserve Crisis (9/16/09)

http://www.bloomberg.com/apps/news?pid=20601082&sid=atxJ5yqO73DY

• Kinross Gold Corp., Canada’s third- largest producer of the precious metal, said the gold industry is facing a crisis of declining reserves as investor demand outpaces supply.
• “We may be in the midst of a perfect storm in terms of price and industry dynamics,” Tye Burt, chief executive officer of the Toronto-based company, said at a conference in Denver today. “Globally production has been in decline since the peak of 81 million ounces in 2001 to 77 million ounces last year, and we see that decline continuing long term.”

Dollar Pessimism Highest in 18 Months as Growth Outlook Rises (9/16/09)

http://www.bloomberg.com/apps/news?pid=20601103&sid=anmNAjuBNyno

• Investors turned the most bearish on the dollar in 18 months as signs of a recovery in the global economy reduced demand for the currency as a refuge, a survey of Bloomberg users showed.
• The world’s main reserve currency will fall and Treasury yields will rise over the next six months, according to 1,851 respondents in the Bloomberg Professional Global Confidence Index. Their outlook on the economy improved for a second month, after saying it worsened every month since the index began in November 2007.

Alan Greenspan warns of US inflation risks (9/8/09)

http://www.theaustralian.news.com.au/business/story/0,28124,26042538-5018001,00.html

• THE US economy may witness double-digit inflation in a few years unless the central bank tightens up its monetary policy, Alan Greenspan warned.
• “Unless we roll in this whole degree of expansion, we will be in trouble,” the former chairman of the Federal Reserve told a conference in Mumbai via videoconferencing.
• “I am not talking 3-5 per cent inflation, I am talking double-digit inflation in the US.”
• He said inflation in the US may begin to pick up sometime in 2012 unless measures were taken to roll back the huge monetary base.

• Today some 16 million homeowners have negative equity, which for them is a nightmare. Most of those who speculated in real estate have been wiped out and commercial speculators are next. By the end of 2012, 70% of Americans with home loans will have negative equity and those who own homes outright will suffer losses in equity of 40% to 70% of the value of those homes. The largest source of Americans net worth will be wiped out. You might call it the pauperization of Americans. Couple this with no jobs or poor paying jobs, due to free trade and globalization, lower wages, higher inflation, and a deflationary depression, and you have the stuff revolutions are made of.
• When Sir Alan Greenspan is alarmed by what the Fed is doing in regard to the expansion of money and credit and monetization, you know we have a serious problem. Failing to stop will lead to hyperinflation and Sir Alan says, “If the Fed doesn’t stop we are not looking at 3% to 5% inflation, but double digit inflation.” Excess bank reserves have fallen 50% in a year. As long as the banks won’t increase lending the Fed has to increase monetization. The intransigence of banking to lend is worsening. The rate of growth was minus 4.89% last week, as consumer credit fell 4.2%.
• One of the Fed’s contentions is simply absurd. It claims all of this money and credit they are creating isn’t really new expansion, but the use and employment of commercial banks’ surplus reserves. That is a circular argument, because the banks are technically broke and that bank money the Fed is using was lent to them by the Fed. The bad assets on the banks’ books more than offset the asset, which is why the Fed is buying those assets, such as CDO’s, and won’t tell us what they are paying for them. It is another state secret.
• Those so-called reserves are helping to fund the purchases of Treasuries and Agency debt and mortgage backed securities. That is those CDO’s whose losses the American taxpayer will have to eventually pay for. Every time the Fed borrows those funds they are monetized. The money the banks’ receive is lent to brokerage houses, 21 of them, and they use those funds to loan to those houses, which invest it at the whim of the Fed to manipulate markets. This is an increase in the money supply. Those at the Fed would have us believe that inflation is driven by expectations and the degree of pressure on resources. What foolishness, they know only the Fed can create inflation. They are trying to tell us prices are not related to money, which is a lie, of course they are.
• All the monetary creation ruins the value of savings and the formation of savings and at the same time destroys the value of the dollar. In addition, once banks start increasing lending, if ever they’ll start their own brand of inflation. Present policy is doomed to failure. All the elitists are doing is buying time. When that time runs out the game is over.
• Until the next election the economy should go sideways to slightly better. Next summer through November should be best, but that will be the end of somewhat better times. The parallel movement you are seeing is the result of a massive injection of money and credit over the past year. Next year you will see the results of 80% of the stimulus program. This period should have been spent redesigning the international monetary system, but instead it was used to pick a right spot to finally destroy the world economy, as we have known it. In finality it will be every country for itself. Some will survive and some won’t. The world is going to be full of revolution. This coming year will be full of rising unemployment though not at the rates seen this year. More foreclosures and bankruptcies, a fall in the dollar and other social and monetary shocks. More countries will move away from the dollar as it relentlessly weakens versus other major currencies and gold and silver.
• Issues over this next year will be as much social and geopolitical as financial and economic. Starting next month we will see the dollar on the USDX Index at 71.18, or at least by year end. We recommended dollar shorts at 89.5. Friday’s close was 76.44. Dollar creation has been and will continue to be out of control in the midst of another Keynesian experiment. The future may become clearer in late 2010. Will we stay in inflation or hyperinflation or will we finally be headed into deflationary depression?
• We must prepare ourselves to see through the morass of propaganda, lies and the manipulation of economic data to save our lives and our wealth from control or chaos. Due to the changing forces no one can predict which way things will head. All we know is none of them are good. You are for certain not going to get the truth from the mainline media, nor any government agency, nor from Wall Street and banking. You have to go to alternative talk shows, the Internet and to the International Forecaster as well as a small handful of other truthful publications.
• There is no question that worldwide the economy, monetary and financial systems are like a ship no longer able to steer itself at sea. Any untoward event could send any part of the system on to the rocks. In every country debt is disturbing if not colossal. The idea that government can replace corporate America and consumerism is ludicrous. As we said in January that an $800 billion stimulus package was not enough, and that Congress would be asked late this year or early next year for an additional $2 trillion. Either that or banks would have to increase lending or a combination of both to again delay the inevitable collapse. That, of course, is in addition to the $2.5 trillion being injected into the economy in deficit spending and by the Fed.
• Do not be deceived. What we are seeing is a global problem that is very evident in Europe and Asia as well. What happens when blocks of unemployment checks run out? The public is already learning that unemployment is not 9-7/8% in the US. It is more like 21% and in China it is 30 million just among factory workers, never mind what it is at the countryside. Government funds creating temporary employment won’t work and neither will hiding the truth whether it is in NYC, Tokyo, London or Paris.
• October will bring a winter of discontent, a new period of adjustment as hundreds of thousands of Americans lose their unemployment checks. This is accompanied by mounting home foreclosures and private and public bankruptcies. Corporate bankruptcies are already at a record high. This is a worldwide phenomenon. The opportunity to save the system is long past as we predicted in June 2003. In fact, things have degenerated so badly that we now have a dollar carry trade and corporate financial statements that are mark-to-model, which hides trillions in near worthless assets. In October, the corporations will have to deal with Basel III and the new FASB rulings, which demand full accounting of balance sheets. That should be a telling event if it ever comes to pass. We will know in two weeks.
• In a similar vein it is obvious that the Fed and Treasury are allowing a controlled decent of the dollar. If that is correct we can expect a major defense of the dollar at 71.18. The price of recovery is a lower dollar. This lower dollar is a tax on Americans who hold 98% of their assets in dollars. That means a lower value for those assets in terms of gold and other major currencies.
• All that money from out of thin air the Fed is using is being used to revive housing by keeping interest rates down. Part of that is the $8,000 break for first-time homeowners, which will distort markets in the long run. This secret purchase of mortgage debt puts more pressure on the dollar and it creates a fake sense of security in the markets. A blank check can only lead to disaster. In part, TARP and other funds lent to banks are being used to again gamble in the markets. This is why defensive money is buying gold and stronger, safer currencies. All the while the value of the dollar is shrinking. This is why we recommend gold and silver shares and coins and for those with large holdings, Canadian and Swiss Treasuries.
• In the second quarter the Fed accounted for almost 50% of US Treasuries. That is $164 billion worth versus the combined foreign household UST purchases of $10 billion and $29 billion, they and primary dealers.
• Now the question arises how long can this go on? Everyone is cutting their purchases of US Treasuries, households alone by 40%. At this stage even higher interest rates won’t help, especially if inflation rises substantially, as we believe it will.
• The FDIC is going to ask wealthy banks to put up more money to support the agency and pay for failing banks.
• Here we are just six months after Dow 6,600 and trailing the trailing price earnings ratio is 26.5 times earning. The P/E on earnings per share is 184.2 times. The price to dividend is 53 times, where it was at the 2007 highs. The price to book is 2.3 times.
• Trading in bullish Perot Systems Corp. options jumped to a seven-year high Sept. 18 before Dell Inc. said today it will buy the company for $3.9 billion.
• Calls giving the right to buy Perot stock climbed to 2,539 contracts, or 242 times the four-week average, according to data compiled by Bloomberg. Only 10 puts traded that day, the data show. The shares, which rose 0.1 percent to $17.91 on Sept. 18, rallied 66 percent to $29.68 at 9:15 a.m. in pre-market New York time today.
• Call options, which convey the right to buy stock at a specified price by a certain date, are often more lucrative than speculating on shares of takeover targets. The value of the contracts may multiply when the underlying shares rise by a few percentage points. [This, of course, is very obviously mostly all insider trading. Let’s see what our illustrious SEC does about this.]
• Americans are overwhelmingly angry at the U.S. government and is nearly as let down by the lack of ideas from both political parties, a new poll by Rasmussen Reports revealed Tuesday. Sixty-six percent of voters in a national poll said they’re angry at the policies of the federal government, including 36 percent who counted themselves as very angry. Thirty percent are not really angry, including 10 percent of whom say they aren’t angry at all.
• Web of Debt author Ellen Brown: LANDMARK DECISION PROMISES MASSIVE RELIEF FOR HOMEOWNERS AND TROUBLE FOR BANKS A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS.
• The development of “electronic” mortgages managed by MERS went hand in hand with the “securitization” of mortgage loans – chopping them into pieces and selling them off to investors. http://www.huffingtonpost.com/ellen-brown/landmark-decision-promise_b_292333.html
• “The best month of the year for car sales is being quickly followed by what could be the worst month of the year,” noted Edmunds.com CEO Jeremy Anwyl. “Cash for Clunkers was supposed to prime the pump, but that is a physics concept, and economics is quite different. Demand has dropped off significantly since the program ended.”
• On Monday as we expected gold was down $6.00 to $1,003.20; the October contract fell $5.90 and the access market rose $1.20. During the day gold sold as low as $995. Spot silver closed at $16.84, off $0.20. December was off $0.18. Gold open interest fell 4,669 contracts to 463,776, but silver rose 7 to 125.001. The net commercial short position as a percentage of OI was minus 49.2% on 9/15//09, the lowest in four years. The HUI fell 6.44 to 417.57 and the XAU fell 2.01 to 166.02. The shares were up $0.20 down $0.20. As the LEX column in the Financial Times disparaged gold, chief economics commenter Martin Wolf, a Bilderberger, said we are headed for worldwide inflation. We have to point out again that we have an expensive technical move in gold technically under way, but we see an explosive short covering rally by commercials. We could go to $1,700. Just on this move followed by another quick move to $2,500. Phase 2 could be over very quickly. These moves could be accompanied by the revelations that Comex has little or no gold and silver, and that the ETF’s, GLD and SLV, do not have all the actual metal either. Remember, you heard it here first. Comex is giving ETF shares as delivery and the ETF’s won’t allow an outside audit. This is another Ponzi scheme. Do not hold any ETF or gold certificates of any kind, only bullion, coins and shares. Once the first fraud is proven the roof will fall in on all of them. We are your shepherds, we will keep you out of harms way. Remember 90% of so-called gold experts think gold is going to $900, and they will be wrong again. Again we will be among the few who are right. It won’t be long before the cowardly lion, the Fed, will show how corrupt it really is. The gold and silver speculators are finally going to have their day. Who would have imagined that Germany could not get its gold back from the US Treasury, or Dubai and Hong Kong from London; or that China would be pushing their citizens to buy gold and silver and dump dollar, or that banking stimulus would have been as massive as it has been?
• Britain is clocking up debt at a rate of £6,017 per second as the Government struggles to balance the books. With tax receipts plummeting because of the recession, state borrowing grew by £16.1 billion last month – almost twice the entire budget for the 2012 Olympics.
• Net borrowing for the first five months of the financial year stood at £65.3 billion, compared with £26.1 billion at the same stage last year. Total borrowing soared past the £800 billion mark for the first time and total state debt as a proportion of national output reached 57.5 per cent.
• Britain posted the biggest budget deficit for any August since modern records began in 1993 as the recession destroyed tax revenue and welfare costs soared. The 16.1 billion-pound ($26.3 billion) shortfall compared with a deficit of 9.9 billion pounds a year earlier.