Quixote2
22nd April 2010, 07:20 PM
http://www.financialsense.com/fsu/editorials/willie/2010/0422.html
The Devaluation of the US Dollar
by Jim Willie, CB. Editor, Hat Trick Letter | April 22, 2010
The need is urgent. The recognition is broad. Supply & Demand of American debt paper demand price adjustment. The USGovt avoids the topic like the plague. The billboard fact of the matter, as USCongressional politicians like to say, is that the USDollar must be take a downward revaluation of significant magnitude in order to even begin to offer a semblance of equilibrium and balance. Natural forces are aligned against those in power who resist the adjustment. Imbalances are too magnificent. They invite continued global revolt and financial insurrection.
Coming out of the once revered New York Fed, now just a stepping stone from Goldman Sachs to the power center, is William Dudley. He hints of big USDollar devaluation, from a sideways message. The US bankers have very limited options, given the perverse systemic insolvency, and the sluggish if not moribund economy. Goldman Sachs alumnus William Dudley hints at the endgame, rather than Exit Strategy, involving a steep USDollar devaluation. He seems to concede the near permanent near 0% official interest rate. Dudley spoke of FOREX pressure to push the USDollar exchange rate down. Whether it is planned or forced upon them, the US$ is heading lower and Dudley seems to acknowledge the fact. The endgame is inevitable, due to colossal deficits, huge unfunded obligations, and the desperate need to stimulate the moribund USEconomy. He might even be implicitly urging Americans to stop saving. Dudley lays out the failed effects of monetary policy when he said, "What I would like to do today is to explain in some detail the logic underlying this expectation that economic conditions will warrant exceptionally low levels of the federal funds rate for an extended period. There has to be a further demand impulse, be it a decline in household saving rates, a rise in business investment relative to profits, a further expansion of fiscal stimulus, or an improvement in the net trade balance via an increase in exports relative to imports. The fact that our foreign indebtedness is for the most part denominated in our own currency is a huge advantage in the event the dollar were to come under significant downward pressure."
The New York Fed is hardly a bastion of leadership or integrity these days, not after its prominent role in producing a Wall Street meltdown from unbridled bond fraud in the last few years, complete with September 2008 climax. If truth be known, that is when the US financial structure died, never to be revived. Fresh toxic USDollars, swirling among fresh toxic USTreasury paper, laced with improperly accounted for mortgage securities among the financial firm assets, burdened by heaps of foreclosed properties sitting on bank balance sheets, is NOT the formula in the US witch's cauldron for any revival, resuscitation, or recovery in the US banking system. In fact, the Jackass will go so far as to claim that the US Federal Reserve and USDept Treasury have not made a single attempt to reform, remedy, or restore health to the US banking system. They have done everything conceivable to enable vast channels to flow to Wall Street firms, to divert away from US Main Street firms, and to steer official reform to give the financial ruling body even more power, after they brought about a collapse with their wondrous financial engineering. Their reform initiatives actually tighten their grip of power and control. One of the most funny, yet tragically true assessments in the last few years about the financial engineering topic came from former USFed Chairman Paul Volcker. He said the only meaningful contribution by the financial sector in the last 20 years was the automatic teller machine. He has been marginalized, if not silenced, since he made critical remarks, as part of his counsel to reinstate the Glass Steagal Act that separates large financial sectors.
Prospects look bleak for the USGovt finances, which must greatly devaluate the USDollar and accept lower value for its sovereign debt in the form of USTreasurys. Action must be taken, if not from higher long-term interest rates, then from a lower US$ exchange rate. In fact, a higher interest rate imposes damage to foreign creditors and Wall Street speculators, surely to USEconomy participants. It raises USGovt borrowing costs too. But a US$ devaluation harms foreign creditors and USEconomy participants from higher import costs, higher commodity prices. The US$ devaluation spares Wall Street the most pain, which can short the US DX index with advanced notice and insider information, their speciality. Worse, the USDollar must be devalued according to the federal guarantees for mortgage agency debt (see Fannie Mae & Freddie Mac) and credit derivative backstops (see JPMorgan and AIG, but also Fannie Mae). Implications to gold are immediate and powerful, once monetization is no longer hidden. Gold is ready for a quantum jump upward in price.
RICKARDS, GOLD & GRAND PRESSURES
Jim Rickards is cited in the Hat Trick Letter at times. As senior managing director for market intelligence at Omnis, he commands respect. His viewpoint is usually high level but effective, without too many details, but with aggregate arguments containing much credibility and legitimate force. He describes the gold market, the USDollar, the debt situation in the United States, and the Chinese angle. He begins with a preface. The perverse aspect of the USDollar is that since it is the global reserve currency, its USGovt debt is not priced like a Third World debt security, with interest rate near 10%. Instead, the near 0% rate creates unsustainable forces in the credit market, while it encourages a global revolt against the USDollar. The adjustment process will propel the Gold price much higher, multiples higher.
The following are points made by Rickards in synopsis, elaborated upon by my commentary. He explains that obviously not enough gold & silver exists to cover the physical demand if holders of paper certificates in unallocated accounts demand delivery. He refers to the now open admissions that 100:1 leverage is used in gold inventory management at the metals exchanges. For every gold ounce in inventory, 100 gold ounces are claimed in futures contracts held. He all but describes a plank of any Ponzi Scheme. The fractional practice mimics the commercial banks with reserves and loans outstanding, a shared lethal flaw. For banks, they admit their fractional banking practice, but not the gold bankers who appear to run a criminal syndicate. Most likely only a small fraction of claims could be covered with the practical physical supply available, Rickards admits. Cash settlement would have to be enforced in the majority of cases, known as technical default. The terms of cash settlements would not be advantageous, to say the least. In fact, he omits to mention that the widespread policy used since December in London has been for cash settlement of long gold futures contracts, with a 25% bonus. That item was mentioned three months ago by the Jackass, and confirmed at the CFTC hearings. We have before us a technical gold default in London, without the publicity. The hitmen already arrived at the London exchange, demanding gold delivery and laying waste to their inventory, whose demands were based upon distrust.
The price of forced cash settlement, to relieve and unwind the huge undisclosed leverage (called fraud by most), would be set as of a record date, limited the effect of a run on gold & silver. Rickards points out the failure to properly reward paper gold investors with such settlement dictums. Months of settlement for shams like the SPDR StreetTracks GLD and Barclays SLV fund would take place, even as the gold & silver prices would zoom upward. That redemption price would be much less than the current physical price, which would continue to run higher apart from the defaulted settlement of the paper claims process. In other words, the settlement in cash would be both a contract violation of owning physical metal and a denial that claims the best price, basic contract fraud, a technicality Rickards spares the exchanges in accusation. There is more here than meets the eye, based upon technicalities. If holding metal holdings are in an unallocated account, they are likely to be considered an unsecured creditor position and used with banker discretion (read: leased & sold). The fractional banking techniques have been revealed, laden with risk. The 100:1 leverage is reckless no matter what commodity or asset it involves, leaving little room for error. The gold bankers are in a bind of their own making.
Move to the impact on the USDollar and the official US debt obligations. In no way can the existing real USGovt debt be paid off without inflating the currency in which the debt is held, even to the point of hyper-inflation. Rickards regards the risk as unavoidable, since valuation of a national currency must eventually reflect its fundamentals. Furthermore, if the USFed's mortgage assets were marked to market, the USFed itself would be declared insolvent (a point made months ago by the Hat Trick Letter, confirmed by Rickards). Anything involving paper claims payable in USDollars (stocks, bonds) is a 'Rope of Sand' in his words, a complete illusion that is fraught with risk. A $5500 gold price per ounce would be sufficient to back up the money supply (M1) as an alternative to hyper-inflation and an inflationary issuance of the currency. Either powerful price inflation is permitted, or a five-fold rise in the Gold price is permitted, in his opinion. A great point!! The pressures are unavoidable, and alternative directions might not exist. He presents a gold target price is $5000 to $10,000 per troy ounce in current issue USDollars. The break point will be when the US debt can no longer be rolled over, from REPOs or formal USTreasury auctions. He does not make the comparison. This is the typical Third World debt risk factor, which US Presidents (like Clinton & Bush II) and USFed Chairmen (like Greenspan & Bernanke) ignored for years. The Rubin Doctrine calls for putting off today's crisis by mortgaging the future. At the pace seen, the USGovt will not be in any position to finance its debt or honor its future obligations without taking drastic action on the backing or nature of the currency. Debt must be discounted via the US$ currency in denomination.
The gold picture in China has turned powerfully positive for the Gold price, in the view of Rickards. China needs about 4000 tonnes of gold for a proper reserves ratio, but only has 1000 tonnes today in possession. China cannot fulfill this goal even by taking all of its domestic production for the next 10 years. They wish to take the IMF gold from pledges, but political resistance is clear. They wish not to push up the Gold price from open market accumulation in gigantic volumes. He overlooks that official Chinese gold ownership extends far beyond the Peoples Bank of China and Sovereign Wealth Funds. My sources tell of the Chinese owning 3x to 5x more gold than 'Officially' proclaimed, something either overlooked or ignored by Rickards. The Chinese people are showing a strong preference to hold gold personally, not as part of lunatic funds managed and corrupted by fund managers as in the West. Their public purchase investment is mammoth, a major element of global gold demand, outlined in the Hat Trick Letter.
An aside. The Chinese do not favor or manage Exchange Traded Funds, the greatest single device in the last ten years to control, corrupt, and negate the public demand factor. Just look at the natural gas price and its ETFund performance, that does not reflect any parallel track path. The ETFunds lately have served as great price control devices, principally by Goldman Sachs. Toss in their GS Commodity Fund, whose abusive control was demonstrated in the summer of 2004 leading to the presidential re-election. The GLD gold Exchange Traded Fund is widely criticized for defrauding at both ends. They provide gold bullion to London, thus assisting in gold delivery demands, which constitutes the illicit removal of investor gold. They provide GLD shares to the London and COMEX, thus offsetting gold short contracts, which constitutes illicit share dilution. Investor GLD lawsuits should come, but their investors in my opinion are among the most lazy and dopey and gullible in existence. The fine print of their ETFunds might actually contain murky language that permits such burning the fund at both ends, with metal and shares. In time, the GLD and SLV funds will be gutted. Greenlight Capital had a recent epiphany and exited GLD in favor of real physical gold rather than its illusion. Others will follow, unless they remain lazy and dopey and gullible.
From 1950 to 1980, Rickards mentions how the USTreasury gold supply declined from 20,000 to 8000 tonnes, basically moving a large amount from the United States to Europe, where the elite reside who control the US central bank. The Chinese are frustrated that they cannot obtain sufficient gold at reasonable prices as Europe did. Beijing leaders wish to survive the currency wars and the reworking of international finance. Private ownership of gold is of paramount importance to their entire society at all levels of power. Rickards believes that holding investor gold in a bank correlates the investor to the banking system, and puts the investor at the mercy of the banker whims, the very risks which must be avoided. These are the points made by Rickards.
The Devaluation of the US Dollar
by Jim Willie, CB. Editor, Hat Trick Letter | April 22, 2010
The need is urgent. The recognition is broad. Supply & Demand of American debt paper demand price adjustment. The USGovt avoids the topic like the plague. The billboard fact of the matter, as USCongressional politicians like to say, is that the USDollar must be take a downward revaluation of significant magnitude in order to even begin to offer a semblance of equilibrium and balance. Natural forces are aligned against those in power who resist the adjustment. Imbalances are too magnificent. They invite continued global revolt and financial insurrection.
Coming out of the once revered New York Fed, now just a stepping stone from Goldman Sachs to the power center, is William Dudley. He hints of big USDollar devaluation, from a sideways message. The US bankers have very limited options, given the perverse systemic insolvency, and the sluggish if not moribund economy. Goldman Sachs alumnus William Dudley hints at the endgame, rather than Exit Strategy, involving a steep USDollar devaluation. He seems to concede the near permanent near 0% official interest rate. Dudley spoke of FOREX pressure to push the USDollar exchange rate down. Whether it is planned or forced upon them, the US$ is heading lower and Dudley seems to acknowledge the fact. The endgame is inevitable, due to colossal deficits, huge unfunded obligations, and the desperate need to stimulate the moribund USEconomy. He might even be implicitly urging Americans to stop saving. Dudley lays out the failed effects of monetary policy when he said, "What I would like to do today is to explain in some detail the logic underlying this expectation that economic conditions will warrant exceptionally low levels of the federal funds rate for an extended period. There has to be a further demand impulse, be it a decline in household saving rates, a rise in business investment relative to profits, a further expansion of fiscal stimulus, or an improvement in the net trade balance via an increase in exports relative to imports. The fact that our foreign indebtedness is for the most part denominated in our own currency is a huge advantage in the event the dollar were to come under significant downward pressure."
The New York Fed is hardly a bastion of leadership or integrity these days, not after its prominent role in producing a Wall Street meltdown from unbridled bond fraud in the last few years, complete with September 2008 climax. If truth be known, that is when the US financial structure died, never to be revived. Fresh toxic USDollars, swirling among fresh toxic USTreasury paper, laced with improperly accounted for mortgage securities among the financial firm assets, burdened by heaps of foreclosed properties sitting on bank balance sheets, is NOT the formula in the US witch's cauldron for any revival, resuscitation, or recovery in the US banking system. In fact, the Jackass will go so far as to claim that the US Federal Reserve and USDept Treasury have not made a single attempt to reform, remedy, or restore health to the US banking system. They have done everything conceivable to enable vast channels to flow to Wall Street firms, to divert away from US Main Street firms, and to steer official reform to give the financial ruling body even more power, after they brought about a collapse with their wondrous financial engineering. Their reform initiatives actually tighten their grip of power and control. One of the most funny, yet tragically true assessments in the last few years about the financial engineering topic came from former USFed Chairman Paul Volcker. He said the only meaningful contribution by the financial sector in the last 20 years was the automatic teller machine. He has been marginalized, if not silenced, since he made critical remarks, as part of his counsel to reinstate the Glass Steagal Act that separates large financial sectors.
Prospects look bleak for the USGovt finances, which must greatly devaluate the USDollar and accept lower value for its sovereign debt in the form of USTreasurys. Action must be taken, if not from higher long-term interest rates, then from a lower US$ exchange rate. In fact, a higher interest rate imposes damage to foreign creditors and Wall Street speculators, surely to USEconomy participants. It raises USGovt borrowing costs too. But a US$ devaluation harms foreign creditors and USEconomy participants from higher import costs, higher commodity prices. The US$ devaluation spares Wall Street the most pain, which can short the US DX index with advanced notice and insider information, their speciality. Worse, the USDollar must be devalued according to the federal guarantees for mortgage agency debt (see Fannie Mae & Freddie Mac) and credit derivative backstops (see JPMorgan and AIG, but also Fannie Mae). Implications to gold are immediate and powerful, once monetization is no longer hidden. Gold is ready for a quantum jump upward in price.
RICKARDS, GOLD & GRAND PRESSURES
Jim Rickards is cited in the Hat Trick Letter at times. As senior managing director for market intelligence at Omnis, he commands respect. His viewpoint is usually high level but effective, without too many details, but with aggregate arguments containing much credibility and legitimate force. He describes the gold market, the USDollar, the debt situation in the United States, and the Chinese angle. He begins with a preface. The perverse aspect of the USDollar is that since it is the global reserve currency, its USGovt debt is not priced like a Third World debt security, with interest rate near 10%. Instead, the near 0% rate creates unsustainable forces in the credit market, while it encourages a global revolt against the USDollar. The adjustment process will propel the Gold price much higher, multiples higher.
The following are points made by Rickards in synopsis, elaborated upon by my commentary. He explains that obviously not enough gold & silver exists to cover the physical demand if holders of paper certificates in unallocated accounts demand delivery. He refers to the now open admissions that 100:1 leverage is used in gold inventory management at the metals exchanges. For every gold ounce in inventory, 100 gold ounces are claimed in futures contracts held. He all but describes a plank of any Ponzi Scheme. The fractional practice mimics the commercial banks with reserves and loans outstanding, a shared lethal flaw. For banks, they admit their fractional banking practice, but not the gold bankers who appear to run a criminal syndicate. Most likely only a small fraction of claims could be covered with the practical physical supply available, Rickards admits. Cash settlement would have to be enforced in the majority of cases, known as technical default. The terms of cash settlements would not be advantageous, to say the least. In fact, he omits to mention that the widespread policy used since December in London has been for cash settlement of long gold futures contracts, with a 25% bonus. That item was mentioned three months ago by the Jackass, and confirmed at the CFTC hearings. We have before us a technical gold default in London, without the publicity. The hitmen already arrived at the London exchange, demanding gold delivery and laying waste to their inventory, whose demands were based upon distrust.
The price of forced cash settlement, to relieve and unwind the huge undisclosed leverage (called fraud by most), would be set as of a record date, limited the effect of a run on gold & silver. Rickards points out the failure to properly reward paper gold investors with such settlement dictums. Months of settlement for shams like the SPDR StreetTracks GLD and Barclays SLV fund would take place, even as the gold & silver prices would zoom upward. That redemption price would be much less than the current physical price, which would continue to run higher apart from the defaulted settlement of the paper claims process. In other words, the settlement in cash would be both a contract violation of owning physical metal and a denial that claims the best price, basic contract fraud, a technicality Rickards spares the exchanges in accusation. There is more here than meets the eye, based upon technicalities. If holding metal holdings are in an unallocated account, they are likely to be considered an unsecured creditor position and used with banker discretion (read: leased & sold). The fractional banking techniques have been revealed, laden with risk. The 100:1 leverage is reckless no matter what commodity or asset it involves, leaving little room for error. The gold bankers are in a bind of their own making.
Move to the impact on the USDollar and the official US debt obligations. In no way can the existing real USGovt debt be paid off without inflating the currency in which the debt is held, even to the point of hyper-inflation. Rickards regards the risk as unavoidable, since valuation of a national currency must eventually reflect its fundamentals. Furthermore, if the USFed's mortgage assets were marked to market, the USFed itself would be declared insolvent (a point made months ago by the Hat Trick Letter, confirmed by Rickards). Anything involving paper claims payable in USDollars (stocks, bonds) is a 'Rope of Sand' in his words, a complete illusion that is fraught with risk. A $5500 gold price per ounce would be sufficient to back up the money supply (M1) as an alternative to hyper-inflation and an inflationary issuance of the currency. Either powerful price inflation is permitted, or a five-fold rise in the Gold price is permitted, in his opinion. A great point!! The pressures are unavoidable, and alternative directions might not exist. He presents a gold target price is $5000 to $10,000 per troy ounce in current issue USDollars. The break point will be when the US debt can no longer be rolled over, from REPOs or formal USTreasury auctions. He does not make the comparison. This is the typical Third World debt risk factor, which US Presidents (like Clinton & Bush II) and USFed Chairmen (like Greenspan & Bernanke) ignored for years. The Rubin Doctrine calls for putting off today's crisis by mortgaging the future. At the pace seen, the USGovt will not be in any position to finance its debt or honor its future obligations without taking drastic action on the backing or nature of the currency. Debt must be discounted via the US$ currency in denomination.
The gold picture in China has turned powerfully positive for the Gold price, in the view of Rickards. China needs about 4000 tonnes of gold for a proper reserves ratio, but only has 1000 tonnes today in possession. China cannot fulfill this goal even by taking all of its domestic production for the next 10 years. They wish to take the IMF gold from pledges, but political resistance is clear. They wish not to push up the Gold price from open market accumulation in gigantic volumes. He overlooks that official Chinese gold ownership extends far beyond the Peoples Bank of China and Sovereign Wealth Funds. My sources tell of the Chinese owning 3x to 5x more gold than 'Officially' proclaimed, something either overlooked or ignored by Rickards. The Chinese people are showing a strong preference to hold gold personally, not as part of lunatic funds managed and corrupted by fund managers as in the West. Their public purchase investment is mammoth, a major element of global gold demand, outlined in the Hat Trick Letter.
An aside. The Chinese do not favor or manage Exchange Traded Funds, the greatest single device in the last ten years to control, corrupt, and negate the public demand factor. Just look at the natural gas price and its ETFund performance, that does not reflect any parallel track path. The ETFunds lately have served as great price control devices, principally by Goldman Sachs. Toss in their GS Commodity Fund, whose abusive control was demonstrated in the summer of 2004 leading to the presidential re-election. The GLD gold Exchange Traded Fund is widely criticized for defrauding at both ends. They provide gold bullion to London, thus assisting in gold delivery demands, which constitutes the illicit removal of investor gold. They provide GLD shares to the London and COMEX, thus offsetting gold short contracts, which constitutes illicit share dilution. Investor GLD lawsuits should come, but their investors in my opinion are among the most lazy and dopey and gullible in existence. The fine print of their ETFunds might actually contain murky language that permits such burning the fund at both ends, with metal and shares. In time, the GLD and SLV funds will be gutted. Greenlight Capital had a recent epiphany and exited GLD in favor of real physical gold rather than its illusion. Others will follow, unless they remain lazy and dopey and gullible.
From 1950 to 1980, Rickards mentions how the USTreasury gold supply declined from 20,000 to 8000 tonnes, basically moving a large amount from the United States to Europe, where the elite reside who control the US central bank. The Chinese are frustrated that they cannot obtain sufficient gold at reasonable prices as Europe did. Beijing leaders wish to survive the currency wars and the reworking of international finance. Private ownership of gold is of paramount importance to their entire society at all levels of power. Rickards believes that holding investor gold in a bank correlates the investor to the banking system, and puts the investor at the mercy of the banker whims, the very risks which must be avoided. These are the points made by Rickards.