-- Posted Thursday, 5 March 2009 | Digg This Article | Source: GoldSeek.com
A couple of bright friends reported to me some overriding themes at the
PDAC gathering in Toronto last weekend. Apparently, some surprise came to
them. They mentioned that more than a few analysts, writers, and speakers
still do not get it. They actually believe the situation with the USEconomy
and US banking system has begun to stabilize. That is like saying a college
basketball player has Michael Jordan under control, or a farmer has his
Clydesdale horse under control, or a misguided King can call back the ocean
tide, or a man has a hurricane under control as he clings to a roof rafter.
The USEconomy has entered an accelerated phase of disintegration, while the
populace has entered a new panic phase. The US stock market is under the
microscope, and it just broke a key multi-year critical support level. This
article is intended to be constructive, with a list of perceived meters and
conditions, followed by a four-step foundation for a recovery. When
finished reading the four planks, one should easily conclude that no
solution, let alone attempt, is on the correct path or is in the
works.
Therefore the plan for individuals, who have been betrayed on a colossal
scale, must defend themselves by exiting all assets and hunkering into
cash. The betrayal lies at the feet of bankers, politicians, military
brass, and corporate chiefs. By the way, cash is prescribed in that
perfectly crafted document called the US Constitution. Gold & silver are
the only forms of money that can legally satisfy debts public and private.
That near perfect document has also been betrayed, with even the last
president calling it a ‘mere piece of paper’ incredibly. The financial
problems of the nation took deep root with the Vietnam War and the
subsequent abrogation of the Bretton Woods Accord that had forged the
US$-Gold linkage. The analysts, pundits, bankers, and politicos seem to
have totally lost sight of this basic fact. Their deep error, along with
profound corruption, will be centerpieces in the next chapters written in
history. My rational and considered belief is that gold, as well as crude
oil, will be anchors to the next global reserve currencies. What better
route to stabilize both financial and commercial price systems? Those who
believe that the USDollar will prevail and survive this turmoil as the
global reserve currency are precisely as incorrect as those who believed
the US banking system could survive the mortgage debacle as it unfolded. We
are witnessing a long slow drawn-out death experience for the USDollar,
liquidation of the USEconomy, to be followed by a default by the USTreasury
Bonds. During the panic phase, the response in the gold & silver prices
will be profound, with advances to date only a prelude to a march to $2000
gold and $50 silver.
CRESCENDO AFTER ETHICS ORIGINAL SIN
The topic of fraud has clearly been in the news often in the last two
years. The mortgage fraud was for a while covered up by its framing as a
subprime problem, but no longer. The counterfeit of Fannie Mae mortgage
bonds, estimated at well over $1 trillion, has been essentially kicked
under the rug on USGovt hallways following its nationalization. The insider
trading by Goldman Sachs is an example of outstanding and impressive
executions, perpetrated with complete impunity. The maze of unscrupulous,
devious, and insidious fraudulent business units of JPMorgan is worthy of a
500-page chapter in the US financial history treatise, someday to be
written. See the complete distortion of usury costs (interest rates kept
low) by JPM, with such a volume of Interest Rate Swaps that was sufficient
to run the Bond Vigilantes out of town. Skewed cost of money is the
foundation for speculative bubbles. See the management of USTreasury Bonds
by JPM on behalf of the Federal Reserve, along with the $2.2 trillion that
they sold above and beyond the officially stated USGovt issuance of
USTreasury Bonds. That is called counterfeit evidence, the records for
which were lost in the third building at the World Trade Center. See the
management by JPM of the Bank of Baghdad. Twice as much money is missing
from the Iraq Reconstruction Fund than was stolen by Bernie Madoff, up to
$100 billion being estimated. And never overlook the financial tentacles
that extend from Afghan operations on the contraband side, to the Bank of
Baghdad as the clearinghouse.
The quiet climaxes of fraud are seen with the Madoff Ponzi Scheme and other
minor cases. If you think that authorities are still looking for where
Madoff hid the stolen money, then you must believe that the Wall Street
mission is to assist in the capitalization process for US industry. The
majority of the Madoff funds are safely placed in the same location as much
of the Wall Street ill-gotten gains. My sources report that location to be
banks within the tiny ally coastal nation north of Egypt and south of
Syria, which with the urging of the last Administration, removed all
extradition laws in recent years. Trace back to find the original sin of
the ethics violations, and you should find your feet squarely at the
abrogation of the Bretton Woods Accord that cut the linkage between the
USDollar and gold. This is an ethics violation climax of historical
proportions.
The pathogenesis of breakdown must join with fraud during the advance of
foreign debt ownership, which resulted in lost sovereignty. The hidden
placation of foreign creditors results in hidden policy that does not cater
to national interests of the United States anymore. The breakdown that
comes will enable foreign creditors to gather a wide swath of US properties
(residential homes, commercial property, factories, etc) from USTreasury
Bond and USAgency Mortgage Bond conversion to hard assets. The teamwork,
synergy, and innovation at the core financial engineering had been
concentrated in what can be described at best as a national Ponzi
enterprise of clean industry for the next millennium, and at worst on a
grand network of fraudulent financial enterprise that includes fraudulent
bonds, counterfeit bonds, narcotics, and arms dealing. The response in the
gold & silver prices to recognized official and private fraud will be
profound, with advances to date only a prelude to a march to $2000 gold and
$50 silver.
STOCKS ARE THERMOMETER
The major indexes of the US stock market are in the news daily, and viewed
by the public as perhaps the most important concurrent signal of the
crisis. Technical chart analysts warn that the breakdown below the
2002-2003 support levels sounds an extremely loud alarm, paints a large
billboard warning, and should be taken seriously as a dire development.
Novices might not recognize the pattern below in the S&P500 index, but
experienced analysts surely do. It is a long-term DoubleTop Head &
Shoulders reversal pattern. It is a Mother of Reversal Patterns. Its base
is roughly at 775, its top at 1550, which indicates a target of nearly
zero. Not only are private wealth accounts being cut down but pension funds
as well. Individuals invest much more in stocks than pension funds, which
are diversified into bonds and commercial property. All asset groups are
suffering. The public has begun to respond in minor panic to the stock
market declines, as private telephone calls testify. Expect another decline
of 25% to 35% on both the S&P index and Dow Jones Industrial Index. With
each passing month comes more specific evidence of economic deterioration
or disintegration, coupled with mammoth additional bank losses. They push
stocks down. The key drivers seem to be job loss and big financial firm
loss. See the history making $100 billion AIG annual loss, the ongoing
hemorrhage at Citigroup and Bank of America, the gigantic extensions of
cash from the USGovt to big banks.
The claptrap propaganda coming from Wall Street centers on price multiples
against earnings. The problem is that earnings are evaporating, and the PE
ratio argument is empty. The response in the gold & silver prices to the
deep stock declines, cratered pensions, and loss of life savings will be
profound, with advances to date only a prelude to a march to $2000 gold and
$50 silver.
RETAIL IS THE BAROMETER
Over 80 thousand retail stores closed in 2008. The forecast from expert
corners is for another 120 thousand retail shutdowns in 2009. Numerous
retail chains have gone out of business, with the list expected to more
than double in 2009 and 2010. Recall retail consumption had been the
boasted foundation of the USEconomy, the engine of growth to the global
economy, by inept clueless hack economists for at least a decade. The
national guidance from the economic counsel staffs continues to utter
heresy that spending is healthy, when sound economic reason dictates that
investment in productive enterprise is the key to any solution. This blight
is very difficult to hide from the American public, as they pass the
partially and completely shutdown malls, mini-malls, and small office strip
malls during their daily lives. The feedback loops are indeed vicious, as
reduced spending means job cuts, even though they are low-paid jobs. Bear
in mind that the construction and operation of retail shopping malls does
not constitute investment in an economy toward its productive capacity, but
rather creation of a pathway to liquidate and spend home equity on the path
to foreclosure and bankruptcy. In my view, retail serves as a barometer on
what to expect in the near term future. The crisis collapse in the car
industry echoes loudly the retail woes, as annual sales decline range from
40% to 50% per brand. The response in the gold & silver prices to the
blight in shopping malls, retail crash, and car collapse will be profound,
with advances to date only a prelude to a march to $2000 gold and $50
silver.
FORECLOSURES ARE THE LEADING INDICATOR
In 4Q2008, the rate of foreclosures rose by 53%. No stability whatsoever is
evident. The only good news is that the rate of FC is no longer 100% on an
annual basis. So a deceleration is in progress. Maybe in one year’s time,
the FC annual growth rate will only be 30% to 35%, with some luck. The
Mortgage Bankers Assn reported today that the mortgage delinquency rate
rose by two percentage points to 7.88% by year end 2008, and the
foreclosure rate rose to 3.3% also. The total in DQ or FC rose from 10.1%
in 3Q2008 to 11.2% in 4Q2008. So one home loan in nine is late or dead.
Also, an estimated 20% of American homes are in negative equity situations,
with loan balances in excess of their home values. As the delinquencies
convert to foreclosures, the bloated home inventory for sale will remain at
elevated levels. In fact, they are grossly under-stated, since banks are
rotating foreclosed properties on their books in order to avoid a further
flood on the bloated condition. REO properties by banks are a hot
topic.
To be sure, a few dozen or a few hundred or perhaps even a thousand home
loans might receive actual aid by the USGovt. The number of home loans to
receive some form of official aid is proposed to benefit one in nine,
coincidentally. Time will tell to what extent any new legislation on
so-called ‘cramdowns’ takes root. Bankruptcy judges might soon have the
power to dictate to a bank that it reduce home loan balances, seeking a
level of affordability relative to proved income. The home loan aid process
is incredibly slow, while the pace of economic decline is accelerating. Be
sure to know that households in foreclosure, or in delinquency, or even in
chronic insolvency from an under-water home loan do not spend money, and
generally cut back on expenses, even enter a bunker mentality under siege.
The response in the gold & silver prices to the household insolvency and
foreclosure process will be profound, with advances to date only a prelude
to a march to $2000 gold and $50 silver.
JOBS ARE THE LIGHTNING ROD
Nothing captures the attention of the public like the reports on job loss.
Sudden income loss is often devastating. The continuing claims for jobless
in the official aggregate records eclipsed the 5 million mark in late
February. When the USGovt announces back-to-back months of over 500
thousand (half a million) job losses, the public will surely notice and
scream from rooftops. Of course, the number is probably worse, since
official agencies are urged to put the best face of their tilted figures.
In the coming months, expect the number of monthly job losses to surpass
the one million mark. As that occurs, the national level of concern will
surely morph into some form of panic, with disorder to follow, and civil
disobedience rampant. Calls for extreme action by the USGovt will be made,
as though they control any solutions at all. In fact, look for their
collective actions to greatly aggravate the national economic ills, with
time release to occur down the road. After all, they sell hope. The
response in the gold & silver prices to horrendous job loss will be
profound, with advances to date only a prelude to a march to $2000 gold and
$50 silver.
POLITICIANS REPEAT HISTORICAL ERRORS
The honeymoon is almost over for the new president. His cabinet staff comes
from the same crowd within the establishment responsible for the financial
collapse. They just wear different colored jackets, coming from the Clinton
Camp instead of the Bush Camp. In my view, they are almost all turncoats to
the nation. The federal budget for next year has centerpieces of tax
increases (up 33% on income, up 100% on capital in the form of dividends),
removal of some tax deductions for home mortgages, and a $20.4 billion
defense budget increase. Obama even mentions measures that harken
protectionism. Some of these main items are in a state of flux, as the
errors of their ways are being re-evaluated. One should not increase taxes
during a recession. One should not tax capital during a capital
liquidation. One should not tax energy production during price instability.
One should not discourage home purchase during a housing bear market. One
should not increase military spending, when money is desperately needed for
domestic purposes. These are classic political errors that will render
additional harm to the current economic and financial crisis. The
Glass-Steagal Law to prevent collapse of the financial system was removed
late in the 1990 decade. Dominos can now fall, as it is joined at the hips
from banking, stock brokerage, and insurance. Its scrap was a Pet Project
of former Treasury Secretary Robert Rubin, again the Poster Boy of
financial failure and fraud (see his gold leasing multi-year project). His
was the stolen 1990 decade of prosperity. The damage is therefore certain
to run across the primary financial sectors for a long painful sequence in
time. The insurance firms are next to fall. Watch Prudential, MetLife,
Hartford, and Lincoln.
History is being actively ignored. “What experience and history teach is
this: that people and governments never have learned anything from history,
or acted on principles deduced from it.” These words were spoken by Georg
Wilhelm Friedrich Hegel (19th century German philosopher). Few observers
seem to realize that on the spectrum, the distance between Fascism (battle
cry of last eight years) and Socialism (battle cry since inauguration) is
remarkable short. Socialism shares the misery, as the successful are forced
to pay for the failures, the corrupt, and the lazy. To construe that
nationalization and absence of profit motive represent movement in the
direction of communism seems very much correct. The Politburo at the US
Federal Reserve has done its job since irrational exuberance took root. The
response in the gold & silver prices to USGovt policies that amplify the
damage to the national condition will be profound, with advances to date
only a prelude to a march to $2000 gold and $50 silver.
BANKERS FUND FAILURE & FRAUD
For over a year, a clear trend has been set in stone. The USFed and
USCongress (aid & abet) have been on course to redeem fraudulent bonds, to
fund almost exclusively the largest banks, and to deny credit supply to the
mainstream. Unwritten orders were given by the USFed and Goldman Sachs
henchmen who dominate the Treasury Dept for banks receiving TARP funds not
to lend, but rather to acquire smaller banks in distress. All this while
the regulators have been obviously given orders to sit on their hands or to
aid the acquisitions and mergers (see the FDIC and Bair efforts). By the
way, the FDIC fund is almost empty. The inescapable conclusion is that
proper credit supply to profitable and promising enterprise is being
obstructed, thus strangling the USEconomy. The nationalization of AIG and
Fannie Mae was more designed to hide credit derivative explosions, to bury
a mountain of counterfeit bonds, and to prevent a shutdown of perhaps over
one hundred thousand businesses. The AIG conglomerate insures 70k
individuals, over 100k businesses, and has 74 million customers. Without
insurance or bonded coverage, many businesses would have been forced to
close operations. The response in the gold & silver prices to misdirection
of credit toward failure and fraud, and to exclude the healthy promise of
private enterprise will be profound, with advances to date only a prelude
to a march to $2000 gold and $50 silver.
A GENERATION OF LOST WEALTH
Much talk has come of a lost decade of wealth. A hint has come in the last
few days of a lost generation of wealth, a cry which will reverberate very
soon. This is real. This is accurate. This is a legitimate claim. My
forecast is for housing prices to fall at least to those seen in 1988-1990,
maybe lower. The stock market indexes could easily fall to the same levels
they showed during those years, based upon powerful momentum and soured
psychology. One should really examine the root causes and likely
consequences from diverse liquidation amidst economic deterioration. The
USEconomy can easily be described, as a result of unchecked credit growth
combined with financial engineering hidden by a shadow banking system, to
have been little more than a phony expansion of a national bubble for a
full generation since that important 1971 year, when the USDollar broke
ties with gold. The palpable risk is for much of the accumulated wealth for
perhaps over 30 years to gradually be lost. If so, then a failure of state
is assured. If so, then the national debt in the form of USTreasury Bonds
cannot possible remain viable.
The two best single indicators in my view, among numerous, for judging the
prospect of such calamities are these. 1) The USTBond credit default swap
has risen from a mere one basis point a few years ago to a full 1.0% now.
That is a 100-fold rise, and ranks among the worst in the world, along with
the United Kingdom. 2) The BKX bank stock index has broken down in repeated
fashion, the most recent being a month ago, fully forecasted by the
Jackass. Today the Citigroup stock fell below $1 per share. The bank sector
leads the stock market lower, and confirms the breakdown below critical
support. The response in the gold & silver prices to perceived decades of
lost wealth will be profound, with advances to date only a prelude to a
march to $2000 gold and $50 silver.
1ST STEP IN RECOVERY – REMOVAL OF WALL STREET
The elite power center is still in charge from Wall Street. Their primary
objectives are to avert a credit derivative meltdown, to prevent exposure
of a bankrupt dead banking system from proper accounting, and to raid the
public till (more bailouts for fraud) as much as is possible. The USFed
still refuses to reveal usage of the TARP funds from last autumn, in full
defiance. That Goldman Sachs executives continue to appear during official
US Dept Treasury announcements on policy is a travesty. TARP fund
disbursement, along with control of surly Congressional members, was the
job of Goldman Sachs henchmen employed as underlings at Treasury. The
travesty continues. The Wall Street syndicate remains in firm control of
Treasury. They should be prosecuted, imprisoned, and ordered to give
restitution to fraud victims. Instead, they remain in control. The official
Stress Tests for big banks constitute yet another charade to endorse the
channel of public funds into private banks. The response in the gold &
silver prices to continued syndicate control of public funds will be
profound, with advances to date only a prelude to a march to $2000 gold and
$50 silver.
2ND STEP – END FOREIGN WARS
War costs generally are horrific and serve as principal cause for massive
indebtedness to the United States. This has been the case since the Vietnam
War. Hundreds of billion$ are annually allocated without question to
military budgets, war costs, foreign aid in support of military objectives,
and elsewhere, all in crippling fashion. Such chronic spending and
industrial diversion has come for a generation without debate. The next
annual budget includes yet another sizeable increase for the defense
budget. The war in Afghanistan can be best described as Waterloo with a
turban headdress. The emphasis at the national level for construction and
destruction has been centered on war initiatives, with shockingly little
awareness of the ultimate millstone placed around the national neck for the
United States. Iraq Reconstruction Funds have recently been reported to be
the object of between $50 and $100 billion in missing funds! Yet this news
item was buried on back pages. This has been a wellspring of corrupt slush
funds that even touched Henry Kissinger’s hands. The reconstruction
should be focused within the US. The response in the gold & silver prices
to misallocation of priorities and funds toward war will be profound, with
advances to date only a prelude to a march to $2000 gold and $50
silver.
3RD STEP – TRUE INFRASTRUCTURE PROJECTS
Much talk has come for infrastructure projects that would fortify the
USEconomy enough to provide traction toward recovery and sustenance. Jobs
would come on such projects. To date, the projects are something of a joke.
Some actual measures on alternative energy seem like a trifling trickle.
Look to the Obama Stimulus package to see out of every $1 in funds, we have
14 cents of pork and 11 cents of stimulus, with a lot of political garbage
typical of the last twenty years. No change in makeup and mix. In my view,
a high-speed railway from Orange County California to Las Vegas Nevada does
not qualify as manifested commitment to infrastructure. What? The USGovt
subsidizes shuttles to and from Disneyland and the Vegas casinos!!!
Thousands of bridges and tunnels and port facilities are in dire need of
repair. In my former hometown of Pittsburgh alone, several bridges are shut
down as ancient and a hazard. Pipelines for water, sewer, and energy supply
are needed nationwide. Expansion of airport facilities is sorely needed,
like concourses, jetways, and air traffic control centers, not security rat
mazes. The infrastructure should include farms to harness the wind and sun,
even to produce hydrogen gas from ocean water. Such initiatives are nowhere
to be seen, as the same old same old junk pork and garbage and home
earmarks continue to prevail. The response in the gold & silver prices to
infrastructure waste and propaganda will be profound, with advances to date
only a prelude to a march to $2000 gold and $50 silver.
4TH STEP – FACTORY RESTORATION
Any attempt to revive the nation with job creation and reconstruction would
quickly expose the majority of observers (except those who continue to
sleep) that the United States has an industrial base that is missing in
action against a backdrop of a war economy. The better description is
abandoned, dispatched, and forfeited industrial base. Unless and until the
USEconomy reinstalls its factory foundation, returns significant portions
of it from Asia (especially China), and ensures adequate training to
professional staffs, the nation cannot conceivable recover. It is that
simple, mainly because the challenge is not to put chunks of money in
people’s hands to spend. The challenge is to enable people to earn
legitimate chunks of money to spend from viable jobs. For a decade, the
nation depended too much upon raiding home equity, upon jobs centered on
the housing and mortgage industry, and upon extracting cash to spend on
whatever they wished, whether productive, necessary, frivolous, or
wasteful. The monumental and highly visible destruction, dismantling, and
deterioration of the US car industry highlights the damage done better than
any words or graph.
The USGovt must encourage job creation on the Homeland soil, for factories,
reconstruction, and alternative energy pursuits. The Dept of Homeland
Security seems much more intent on fencing the zones soon to morph into
wasteland. The industrial base is the most important structure to a
national economy, not its financial sector. The US has had its priorities
backwards for almost two decades, putting financial engineering and its
clean industry ahead of factories and their dirty effluent. The smokestacks
of Wall Street have poured out noxious gases that finally have rendered
crippling damage. The response in the gold & silver prices to continued
factor ruin will be profound, with advances to date only a prelude to a
march to $2000 gold and $50 silver.
Let’s bring back recycling initiatives, which are so productive. Here is
a factoid worth thinking about. One metric tonne of recycled paper usage
saves an average of 5 large trees, saves 30 thousand liters (~7100 gallons)
of water, and requires 60% less energy for pulp processing. Conservative is
a great element to fit into the industrial revitalization of America.
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