Saturday, October 31, 2009

The Recent Gold Price Action Is Saying The Fed And Other Western Central Banks Are in Desperation Samba Mode

Over the years governments have been selling their gold to keep the gold price down. To keep the canary in the coal mine from making noises. Well, they are running out of gold to sell. They can't make gold like they can fiat tokens. The US Treasury probably has well less than half of what they say they do. There has not been a public audit of the gold in the US Treasury since the '50s. Why would they change the name of the account that the gold is in, for the second time, to "Deep Storage". Because they sold their gold and took as collateral stakes of some kind in mining companies so that they now own gold in the ground that has not been mined yet? Future history will tell.

If you are not up to speed on this story/concept, check out

Bill H's opinion from Le Metropole Cafe
A site for the nitty gritty, the low down. The scoop.

"They can't do it again.

To all; if as I suspect the next leg of the GFC (global financial crisis) is unfolding now, what can we expect to see in the form of government response? More of the same? Can the Fed blow up its balance sheet again? Yes, and I feel sure they will. Can Treasury guarantee and borrow another $13 trillion or even more if necessary? I think not. What about the value of the Dollar? Stocks? Gold?

The "green shoots" lie as I call it is very long in the tooth and being disproven more and more on a daily basis. The only thing that has been accomplished since last fall has been a slowing of the economic and asset structure's decline and they bought some time. Yes we have had an inventory rebuild which will be the driving force behind positive quarterly GDP numbers that the brain dead will cheer and point to as "recovery". It is not. The next "resetting" of mortgage rates is again beginning and will be as bad or worse than what we saw last year. Commercial real estate loans from the "03-'06 timeframe are now coming due with property values declining and refinancings not available, this will be a disaster. The banking industry which cooked their books for Q2 and 3 will again be facing reality.

What happened last year to create "the perfect storm" is unfolding again but this time it's a little different. The banks are already financially crippled so it won't take much to push them over the edge. More importantly, the Treasury is bloated, debt drunk and thus crippled to the point where THEY will become the center of attention. Last year the Treasury put "the family jewels" on the line in order to "save the system". In reality, all they did was to buy some time. The Treasury is stuck! They already have huge borrowing needs just to keep the doors open and the system afloat, they do not have the ability to "borrow more" in order to whitewash "GFC 2".

In this next stage, the solvency and credit quality of the U.S. Treasury will come front and center. The fact is the U.S. is broke, period. We have been broke for quite some time but no one would say it. It didn't behoove anyone to say it so it wasn't said. This next wave of the GFC will make the U.S. bankruptcy too obvious for even an idiot to misunderstand. I expect the crisis to unfold similar in manner to what we saw in summer of '08. Negative announcements (insolvencies), bankruptcies, etc. will pop up left and right like popcorn kernels popping.

Next, we will hear about more fiscal stimulus, banking and systemic guarantees by the Treasury and Fed. BUT this is where it will be different from last year. The Treasury will have its credit shut off by the rest of the world, the Federal Reserve will be the sole buyer of Treasuries in their "virtuous circle" of monetization. Stocks will collapse, bonds will collapse and thus interest rates will explode. I believe the current "the Fed will tighten" fantasy may get a short lived Dollar rally started that will abort once sanity prevails and people realize that this is not an option. The market however WILL TIGHTEN for the Fed by liquidating Treasuries.

In short, the fears of all central bankers in an overlevered fiat world will come to fruition because this time it won't be about the banks, the insurers, car manufacturers, unemployment, housing, bankruptcies, states, nor municipalities. Yes, yes it will be about all of these but most of all it will be about the Treasury! The Treasury put themselves in the crosshairs for years and years by over leveraging themselves and then devaluing the currency with Fed help, and it worked for nearly 100 years. But they really did it this time didn't they?

For years the debt would increase even if they told us we had a surplus budget. They sold our Gold to quiet the alarm bells. They borrowed and spent and borrowed and spent because "that's the way they always did it". But they over did it and piled on so much debt that even a devaluation of 50% won't do the trick. The debt can NEVER be paid back in current Dollars. What they have done over the last couple of years was suicidal, unfortunately it is our own funeral we will be watching. Regards, Bill H."


Peter Schiff's wrap up for the week (Oct. 30, 2009):


Thursday's gold price action was a serious "in your face" "go the hell" to western hemisphere central banks. Entities are getting more desperate to get their hands on the real thing. Gold itself. No shady ETFs or anything of that sort. It's getting so almost nobody can be trusted on Wall Street. Since the older "developed" economies are either in big trouble or literally broke, in the process of moving down to third world status, gold is moving from the Western hemisphere to the eastern hemisphere. He who has the wealth has the gold. He who has the gold makes the rules. It's paradigm shift time.

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