Sunday, March 02, 2008

Open Discussion on Gold, Silver and equities

I think this will be the week (3 March 08) that Gold breaks the $1,000 mark, and silver crosses the $20 threshold. Additionally, I feel pretty strongly (this week)the DOW and S&P will fall below key downside support levels (NOTE: Stock Index Futures are falling hard as I pen this quick message--could be a very UGLY Monday).

Sunday 7:30PM Update: OUCH! Asia Indices tanking--Asia Pacific Indices -- Japan's Nikkei currently down 545 points (>4%); most others down ~ 3%

What are your thoughts?

Lastly, here is an interesting Video Clip--very unusual to see/hear this type of Doom & Gloom from the Main Stream Media (maybe they are finally waking up to reality)

CNN Money: John Williams "Inflationary Depression Coming"


Anonymous said...

I would have to agree. Gold/Silver up and stocks down

See richter report:

... In the U.S., there have been two very scary developments. First, it has been widely reported that the so-called monoline bond insurance companies are now insolvent. These are the companies which provide insurance against bonds defaulting. Without such insurance, the bond market dries up. The bond market is already showing signs of serious problems. Of particular concern is the municipal and governmental bond market. Defaults of such bonds are very rare, and they are actually relatively safe investments, even now. I don't like bonds in general these days because most generate negative true returns on income after one factors in inflation. The big concern is this: If the monoline bond insurers collapse, then it will become difficult, if not impossible, for many cities and counties to sell their bonds. This could have a very damaging effect on their ability to provide services and to maintain infrastructure. New York Governor Eliot Spitzer gave the monoline bond insurance companies a deadline to get additional capital and to "get their houses in order." By late February, there were rumors about bailouts and various deals to save the bond insurers. The outcome is still uncertain. If they are unable to get their acts together, we will most likely see some or all of them broken up into smaller entities, and the damaging effect on municipal and corporate bonds will reverberate through our entire economy.

Another disturbing issue is that of our banking system's apparent insolvency. We live in a system of fractional reserve banking. This means that our banks do not have to maintain reserves to back all of the money supposedly deposited in them. Recent news reports have revealed that the reserves held by the major U.S. banks have dropped into negative territory. According to an article in England's "Financial Times," U.S. banks have been "quietly borrowing massive amounts of money" from the Federal Reserve in recent weeks. They have been using a new vehicle called the "Term Auction Facility," a lending mechanism introduced by the Fed during the past two months. In essence, the banks have negative reserves and are being kept afloat by the Fed. How is the Fed able to do this? By creating more and more fiat money out of thin air. That's reassuring, isn't it?!

On February 26, the FDIC announced that it is going to bring back 25 retirees from its division of resolutions and receiverships. An agency spokesman stated that the FDIC is going to increase its staff "for preparedness purposes." Obviously, the FDIC expects to have BANK FAILURES this year. Many of the people the FDIC is bringing back out of retirement worked for the agency during the 1980s and early 1990s. During that time period, more than 1,000 financial institutions failed. I guess it does make sense to bring back people with experience in dealing with banking failures!

Fed Chairman Bernanke spoke before Congress on two consecutive days in late February. He gave clear signals that the Fed is not done cutting interest rates. This means more monetary inflation. It was interesting to hear his statement that "inflation expectations" remain "well anchored." This is how low we have sunk: A very smart man who has a PhD. in economics is able to keep a straight face and talk about "inflation expectations," as if the public's expectations about future prices control inflation. ANY serious student of economics knows that inflation is always a monetary phenomenon caused by central banks and governments. They create too much new money and credit relative to the available good and services in the economy. Prices ALWAYS rise as a result of this. Inflation has NOTHING to do with the "expectations" of the general public. It has EVERYTHING to do with the actions of people like Mr. Bernanke.

Mr. Bernanke and his friends at the Fed are the very people who are responsible for the inflation which is now being manifested in a raging bull market for commodities. The Fed has been inflating the money supply in an attempt to help out the bankers and the people on Wall Street. It hasn't helped. The markets are LOWER than they were last October. However, Bernanke and friends have succeeded in hurting people on fixed incomes, as well as everyone who is trying to save dollars in bank accounts. As a result of this insane money printing, the U.S. Dollar has now reached an ALL-TIME LOW vis a vis most other currencies. Since 2000, it has lost more than 40% of its purchasing power. This is NOT an accident. It is because the Fed and our government have been using inflation as an official tool of monetary policy.

Brett said...

I understand how other countries who have gone through periods of hyperinflation, do so as their governments print money to pay for their operating costs as well as to pay off debt. It is devastating to the economy, but is a benefit to the government in that they pay off their loans.
Hyperinflation may benefit those in serious debt so I can see a benefit to our government if that were to happen.

I have been fearing future hyperinflation here, but how likely is it, when our government does not print the money and it's not in the Fed's best interest to do so? I don't see any way for hyperinflation to benefit the Fed -- and they're the ones who control the money supply.

I don't know much about all this, so here is my question: If they can't print the money and they're not going to quit spending it, at some point, our government must face one of two options: 1 - They go bankrupt or 2 - They begin printing their own money, declare it the new legal tender and pay the Fed with it.

Is that accurate or am I missing something?

Anonymous said...

Friend of mine is high up at a mid-sized midwestern bank. This guy is extremely conservative and does his research. He said don't buy any US financials (stocks) for at least the next year and things in the mortgage markets are going to get much worse. For this guy to say things are bad means things are going to get really tough. Puts goosebumps on my arms just thinking about it. Gotta stay anonymous on this one.

Randy said...


Regarding your questions: "If they can't print the money and they're not going to quit spending it, at some point, our government must face one of two options: 1 - They go bankrupt or 2 - They begin printing their own money, declare it the new legal tender and pay the Fed with it."

The Fed is NOT going to allow (within their powers)the gvt to go bankrupt--that is their cash cow (no pun intended) and the fed banking system would crash w/the US Gvt.

The Fed loses nothing by printing, as it costs them nothing to do so. They (the controlling fed banks) get the money first (when it is most valuable--remember inflation lags monetary creation) and they can use it to buy assets of tangible value to secure their longer-term interests.

As for the Gvt printing their own money (as they should) -- it will never happen until we see a revolt of the masses -- The Fed banking system OWNS the Government through monetary policy and foreign affairs to support the economy.

Pres. Kennedy tried to restore Gvt printed money (w/Silver certificates) and we all know what became of him ~ 6 months later.

My thoughts: We(US Policy and Fed banking system) will hyperinflate the dollar into oblivion. People will SCREAM for change and a break from the pain. Over time this pain and a call for some relief will allow the US to propose/institute a "Stable" NEW Currency to replace the US Dollar--The Amero


Randy said...

Anon 3:40,

Thanks for the info--yes it is quite scary, but I imagine as things continue to spiral downward, this type of mindset will begin to prevail among high level bankers (it may already be so today?)...

I have a relative who is a huge big whig w/Deutche bank and we've discussed the downturn a few times (last time during xmas holidays).

I don't really know if he's being coy, but he tries to downplay the issues.

Though he admits we have major problems, he feels SWF's will save the day for banks. I adamantly disagreed, as this is much bigger than just banks... We've got massive derivative issues, Future Bond turmoil, housing has much more to collapse, CDO/CDS issues, Collapsing Dollar, Rising Oil, Significant Inflation Waves etc... This problem is HUGE!

Thanks and keep us up to date