Monday, April 14, 2008

Fed Will Cause Outrageously High Silver and Gold Prices

The combination of the US Treasury and the Fed are going to cause outrageously high US dollar silver and gold prices if human nature, power lust and history is any guide.

Alex Wallenwein has written on the Fed's new desires from the US federal government since it has been selling assets on its balance sheet and is getting low on assets, or close to broke/bankrupt.

"Who will bail out the FED?

SYNOPSIS: The Fed is asking Congress to allow the Fed itself to determine how much Congress (meaning you) will end up borrowing from the Fed - leaving you on the hook for repaying massive amounts of new debt via new taxes!

The current crisis is so severe, and it has already forced the Fed to reach into its own balance sheet grab-bag so deeply, that a very legitimate question arises, and the question is this: when the Fed ploughs all the way through its own balance sheet and gets to the bottom of the barrel, who will bail it out?

The point: You will bail out the Fed because, once the Fed burns through its balance sheet of US treasuries with its current Term Securities Lending Facility (TSLF), it can only get more treasuries onto its balance sheet by having Congress allow the Treasury to borrow more money from the Fed than the Treasury really needs.

We are talking monetization of the debt on steroids, here! Mega-steroids, that is.

Fed Weighs Its Options in Easing Crunch

WASHINGTON -- The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at the Fed; issuing debt under the Fed's name rather than the Treasury's; and asking Congress for immediate authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011.

No moves are imminent because the Fed still has plenty of balance sheet.


The Fed bankers, whose progenitors have already bribed our Congress to un-constitutionally turn over Congress’ exclusive power to “coin money” back in 1913, are now trying to persuade Congress to turn over its borrowing power to them as well, thus allowing the Fed to virtually borrow money from itself and issue itself IOUs for that debt.

Once The Fed has the power to borrow from itself and leave Americans on the hook for the loan,

It’s as if you gave your bank the power to put you in debt at its own, free will, without even asking you for permission!

Naturally, when your bank does that, you will be on the hook financially to pay that balance back - with interest.

This is the utter and complete raping of the American public – and guess what? Americans by and large are going to go along with it.
... "


As always, Jim Willie has written another excellent article on the big picture of the US's situation.

Lessons from Japan: Prepare for 0%
Jim Willie CB April 8, 2008


A good article he wrote back in 2003:

Japan, Argentina, Weimar, or Muddle?

Jim Willie CB
Jim Willie CB is the editor of the "Hat Trick Letter"
Apr 30, 2003

" ...
Differences between the US and Japan are very unfavorable, relating to currency valuation, bankruptcy ease, saving propensity, foreigner debt ownership, financial engineering, monetization techniques, basic integrity, and intervention willingness:

a) unlike Japan, US Economy cannot tolerate a declining US Dollar
b) unlike Japan, US Economy permits bankruptcies as a regular course of business
c) unlike Japan, US Economy depends upon consumption & spending
d) unlike Japan, much US debt is owned by foreigners, with a trade gap widening
e) unlike Japan, US Structured Finance has created a megalith monster
f) unlike Japan, US Federal Reserve is a monetization machine on steroids
g) unlike Japan, US institutions harbor widespread corruption
h) unlike Japan, US maintains a pervasive interventionist attitude
... "


Good 'ol Aubie Baltin CFA, CTA, CFP, PhD. has written another goodie:



The problem stems from the general lack of understanding that there is a fundamental difference between Real Money (Capital) that can only come from savings and Fiat Money that is created out of thin air by the FED: Fiat Money that does not come from the non consumption (savings) of real goods and services must increase prices since there is now more money chasing the same amount of goods. As Interest Rates are artificially driven lower, savings drop. Who in their right mind will forego consumption in return for an interest rate that is lower than inflation and on which, they have to pay income tax. The proof is that the US has had for the first time in its history, a negative savings rate for more than 15 years. How can we ever expect to have a balance in trade when every major country that we trade with has a savings rate of between15% and 40% while ours is minus 1%? “You cannot change other people, you can only change yourself.”


The engine of economic growth, contrary to popular thinking, is not money but real savings. If the pool of real savings is declining or stagnating, then the economy will follow suit. Economics 101 says: If you want to increase the supply of anything, increase the price (if you want more savings, raise interest rates). However, if the Fed resumes its policies of lower interest rates, which entails the creation of massive amounts of “out of thin air money, galloping Inflation must be the end result. If the pool of real savings is falling or negative like it is now, bubble activities dominate the scene raising the likelihood that the commercial banks' expansion of credit must eventually come to a halt. As is now happening. Bernanke's policies will only do further damage to the stock of savings and sound capital investment and plunge the economy into a severe and prolonged crisis.


There is no stopping this powerful gold train for some years.

This all adds up to the Fed / US Treasury creating huge amounts of USD that will jack up the USD price of gold and silver to highs that will stun people.

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