Gold & Investment in Failure

Gold $eek

By: Jim Willie CB, GoldenJackass.com
Thursday, 2 September 2010

Many observers to the wild gyrations, deep contortions, extreme measures, and other bizarre activity in the government and banking arenas are suffering from severe confusion. The public is alarmed, even frightened, by the sequence of events, without much benefit of comprehension of what is happening or which clans are in control. The degree of deception hit a peak during the TARP Fund creation and disbursement, done behind private closed doors for the replenishment of sacred preferred stock, that bridge between corporate bonds and stock equity. The deception hit a very high pitch with the financial titan failures, the entire string of them. It has never stopped since. The economic data and promising forecasts (mere marketing group propaganda) featured Green Shoots, Jobless Recovery, and the totally vacant Second Half Recovery that is useful every initial six months to sway the ignorant masses. Just what is happening is difficult to describe succinctly. But the main description reads like an obituary. The most recent and visible distortion is not of price inflation, which has zoomed at 7% annually for a couple years, but rather the Institute of Supply Mgmt. The ISM index has somehow registered a slight increase from July to August, despite almost every single regional index faltering badly. See the careening Philly Fed, from plus 5.1 to minus 7.7 in the latest month. They ignore the weak components and present a distorted aggregate, much like retail sales.

The US banking sector died in September 2008. It has not acted like a credit distribution apparatus in two years. The US Federal Reserve has served almost the complete function, filling the gap like with the decaying commercial paper market. Its several dozen liquidity facilities testify to its urgent need to act as banking system substitute, since the real portion lies in the morgue. The major 100 banks in the US are almost without exception insolvent, and thus do not lend. Sure, they boast a positive book value, but only after given permission to use phony FASB accounting rules. They can declare their assets at any value they wish. In fact, on many debt securities, they actually declare unrealized losses as gains. See the Credit Value Adjustment scheme, an utter travesty and shameful practice mocked by accounting professors. The FDIC came out this week to announce the Q2 list of problem banks went from 775 in number to 829, from Q1. Hardly evidence of a recovery. The USEconomy suffers from a credit strangulation since the banking system at the upper levels is dead, simply stated. The main thrust of the limp activity is monetary creation, banker welfare, absurd programs, and war spending. The more money the clownish hapless awkward leaders throw at the problem, the more the Gold price will rise. Each quantum policy step lifts the potential Gold price another $1000 per ounce.

This article is an attempt to briefly describe what is happening to the United States, from an aerial perspective, regarding the foremost poorly told events, better description of critical event factors, the lost generation of industry, the official investment by the USGovt in profound failure, the confusion from broadening collectivism, the absence of a solution toward restructure and remedy, and what actual solution might include. The popular debate once centered on the banks too big to permit a failure, but that debate became distracted by the flow of events. Only liquidation of the biggest banks can enable a recovery, period!! Of course, the process is complicated, especially politically. Actually, it is more than political, since the big banks control the USGovt. The response reaction from gold & silver will give loud messages to systemic failure, as money is wasted, invested in failure, and directed to the elite troughs. One can argue that no remedy or restructure is even attempted!!

REAL STORY BEHIND FOUR FAILURES

The Bear Stearns episode was the prelude to the failure story, the opening act, the clue for the death of the US banking sector. Its story was a mere partial truth, one that avoided all the inner circle rivalries and hate relationships. The firm did not participate in the general rescue program for LongTerm Capital Mgmt in 1998. It was singled out for execution, a kill at a later date. The Bear Stearns failure was a murder execution for its long gold position and short USDollar position, if truth be told. Wall Street never enjoys or benefits from telling the truth. Deception is its calling card. The Gold price was prevented from finding a much higher legitimate value, from continued control after Bear Stearns was removed from the clique.

The American Intl Group episode was disguised from its true nature as a Goldman Sachs bailout. In fact, the record has been somewhat clearly told that the AIG nationalization enabled GSax to be first in line for credit default contract redemptions, at full price. They saved $11 billion in the nationalization and butting in line. There are advantages to acting as the USDept Treasury administrator. Many other big banks had favorable redemptions on similar insurance contracts. The wreckage of the entire US banking sector was thus covered up from the insurance perspective, preventing a credit derivative blowup. The Gold price did not react from a failure motive, as much as a perceived systemic risk motive. The over $100 billion in covered losses to AIG so far is just the beginning of investment in failure. The USGovt is managing the credit derivatives from under its rickety broken rotten wing. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

The Fannie Mae episode was one best described as averting either a mortgage bond default or a severe jump in mortgage rates emanating from the sewage treatment plant. In pulling off the nationalization of the wretch, the Wall Street controllers thus placated a crucial angry mortgage creditor. China had been selling all summer long in 2008 its Fannie Mae and other GSE bonds. China forced the USGovt hand as they made it explicit from nationalization. Rumors had been flying in late 2007 and early 2008 that China was accumulating USAgency Mortgage Bonds as part of some contract toward colonization. No more! The USGovt guarantee was implicit but soon made more explicit. The $170 odd billion in covered losses so far is just the beginning of investment in failure. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

Lehman Brothers was an unwilling sacrificial lamb for its prominence in the mortgage arena. They were an important player that got in the way. The Lehman killjob created a dustup distraction in which JPMorgan was funded $138 billion in a grand reload with USGovt money, to maintain its commodity stranglehold. They were running low on funds to defend the system and to keep America strong, the envy of the world, the beacon of hope. Also, Lehman owned a significant silver position that had gone out of control, in danger of being the object of a critical short covering event that would have rendered huge damage to JPMorgan. Therefore, JPMorgan took it over and assumed its responsibility. They drove the silver price down from $19 to $10 in the ensuing months, with no objection, criticism, or suspicion of impropriety from regulators, legal authorities, or anybody residing in South Manhattan. However, the Silver price returned to face the same $20 level, which it will easily overcome and penetrate in the next few months. Smart investors bought the silver offered at discounted price for several consecutive months.

INVESTMENT IN FAILURE

For vivid indications of failure, notice the slide into recession even after 20 months of near 0% official interest rate. The USFed has no more weapons except the Printing Pre$$, which it will reluctantly use, perhaps somewhat aware of the dire immediate consequences. Central bankers are soiling their skivvies, in utter fear. For vivid indications of failure, notice that the housing sector and commercial property sector do not respond to record low mortgage rates. The average 30-year mortgage rate across the land stands at 4.40%, silly low but uselessly low. Refinance is not an option, given the valuation declines in loan collateral. The ultimate problem is insolvency laced like cancer throughout the entire system, from housing, to households, to banks, to government fiscal situation, even to industry (long gone). The USFed cannot treat insolvency. Only liquidation can. The human toll has been great, from chronic joblessness, to mortgage delinquencies, to home foreclosures, to lost pensions, to vanished financial security. For vivid indications of failure, notice the 2.5% to 2.6% long bond yield in USTreasurys, the last bubble. The US bankers who have run the land for two decades have run out of asset bubbles to blow. Each growth period of 5 to 7 years has been driven by the next asset bubble in sequence, not industrial development or output. Money is being ruined at a rapid rate, and precious metals indicate the pace and severity. As the great bond bubble dissipates from whatever pinprick, the gold rally will move from quiet bullish to monster bullish, complete with a skyrocket event. In the next phase, do not be surprised to see the Gold price rise over $100 on a single day. The financial networks will be bug-eyed and speechless.

Plain language works best at this point. The USGovt, as demonstrated by its nationalizations, big bank rescues, grand aid packages (car industry), and support of extreme measures, has invested heavily in failure, fraud, and banker elite welfare otherwise called pillage. They also has invested in sacred wars at great cost. The USGovt has not invested much at all in business, jobs, family, and life. The flimsy shallow vacant home loan programs exemplify the lack of support and aid for the public. In fact, an argument can be made that the government and banking leadership (tightly twisted together) have contempt for the People. The current administration features a return of failed policy makers, as seen in Robert Rubin, the modern day Rasputin in control of puppet strings. His past failures qualified him for near total banking policy control. As a result, the public harbors growing resentment from the inequality of bailouts and benign neglect to households. The failure to individuals is stark with pink slips and job loss. As long as weekly jobless claims exceed 450 to 470 thousand, nobody will give much credence to any USGovt verbage about a recovery. Failure is in the wind.

GOLDEN RESPONSE TO FAILURE

The failure pertains to the US financial sector in its entirety, from banking system to credit market. The failure is exacerbated by wasted expenditures toward what are called rescues and stimulus, but is actually banker welfare payouts, their toxic bond redemption, and nationalization of failed entities. Worse, the key nationalized firms are laced with $trillion fraud. Fannie Mae remains the central clearing house for several $trillion fraud schemes. In the wake of failure has come round after round of badly spent funds. It is hard to call it money when it pours off the Printing Pre$$ without recourse, without disclosure, and without accountability. Naked bond shorting, failures to deliver bond sales, and extreme interest rate swap enforcement made for a witch's brew of grand market interference, ruin, and fraud. A prevailing sentiment persists. The consensus lunatic misguided notion is that when the volume of stimulus and rescues is sufficiently higher than a certain threshold level, that recovery follows, especially after a certain period of time. Almost no thinking takes place. The leaders are simply throwing money at the problem and crisis, responding to the next critical focal points. Never has policy been so absent, misguided, and bereft of the thought process. We are witnessing a syndicate in survival mode, in a desperate quest to save the system they exploit so thoroughly.

In response, the Gold price potential rises as USGovt funds are wasted without any path to remedy or recovery. The extreme usage of the Printing Pre$$ in the next round of Quantitative Easing, dubbed QE2, will set up crippling explosions. Each round of stimulus or bank rescue or Dollar Swap Facility setup actually puts the potential Gold price another $1000 higher. The future years will see at least $3000 Gold price, all in time. The 1980 peak Gold price, adjusted by an accurate price inflation accounting, like the Shadow Govt Statistics series, is more like $7000 per ounce. My $3000 forecast figure is a conservative number. Anyone who disputes and challenges this forecast, must provide evidence that remedy, restructure, and reform are anywhere present in the current landscape. They are not. Money is being created and wasted at a colossal pace, and while it is wasted, the Gold price in increasingly debased US$ terms rises.

Full article HERE