3 Phases of a Bull Market and Gold- Where do you think we are today?

It is often said that there are three phases or stages to a bull market in anything; 

The Stealth Stage,

The Institutional Stage,

and the Mania Stage.

The Stealth Stage is so named because it is recognized by only those very bright early adopters who can see the changes taking place and position themselves accordingly. 

The Institutional Stage is so named because this is the time during which Institutional Money begins accumulating the asset. The smart money managers such as pension fund and hedge fund managers get on board for the coming parabolic rise in price.

The Mania Stage is so named because it is when the General Public becomes aware that the asset’s price has been rising uninterrupted for years and doesn’t want to miss out on a piece of the action. By virtue of the size of the funds coming from the public, the market becomes self-fulfilling in that the public makes the market rise and the more it rises, the more funds people throw at it until all investable funds are exhausted.

Lorimer Wilson, in his July 7, 2010 piece titled ‘Historical Silver: Gold Ratio Suggests Parabolic Top for Silver of Over $100 per Ounce!’ explains these stages this way:

“The collective demand trends of gold/silver investors effectively divide precious metals bulls into 3 distinct demand-driven stages, namely:

1. Stage One which occurs when a devaluation of the dominant currency in which gold is priced, i.e. the USD, leads to a moderate increase in the price of gold. Stage One for gold began on February 15th, 2001 when it reached a 22-year secular low of just $255.10.

2. Stage Two which occurs when the decoupling of gold from local-currency devaluation begins to outpace the dollar’s losses and gold starts rising significantly in virtually all currencies worldwide. Stage Two began on June 5th, 2005 when gold (at $417.67US) first surpassed 350 Euros for the first time.

3. Stage Three which occurs when the general public around the world starts investing in gold and this deluge of capital into gold causes it to escalate dramatically (i.e. to go parabolic) in price. We are approaching Stage Three and it will become clearly evident when the price for gold begins its daily record ascents to dramatically higher prices.”

James Turk of GoldMoney.com says that “…when gold climbed above $1,000, it only entered its second stage.” Gold first climbed above $1000 in early 2008.

John Hathaway of The Tocqueville Gold Fund sees things a bit differently. He speaks of the 4 Phases of the Gold Bull Market and defines them thusly:

· The Beginning.

· The End of the Beginning.

· The Beginning of the End.

· The End.

He believes that when we passed $1000 gold, that we entered the Beginning of the End phase.

What all of these forecasts have in common is that we have definitely passed the Stealth Stage and are approaching widespread recognition of the Gold Bull Market, similar to about 1995 when the general public began heavily investing in the stock markets a couple of years before the final parabolic ‘blow off’ phase of late 1999 and early 2000. What this means is that a wave of money is about to enter the gold market and should continue and propel the price of gold and gold equities northward for the next couple of years.

Let’s look a little closer at the parallels between today’s gold bull market and the last one of 30 years ago.

In the 1979/1980 gold bull mania phase, the price of gold rose 34.1% in the final 10 days before the ultimate top in price on January 21, 1980. In the final 20 days before the top, the gold price surged 80.3%, and in the final 30 days the gain was 95.9%. Gold nearly doubled in price from mid December 1979 to the third week of January 1980 after almost a decade long bull market. This is why I say that we’re maybe in the sixth or seventh inning time-wise but only maybe the second or third inning price-wise of this gold bull market. The greatest percentage gains come at the end of the Mania Stage. The 1970s gold bull market had to transition through the three stages and it took about 8.5 years from the time gold was detached from the monetary system on August 15, 1971.

So, where do you think we are today?

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Gold To Catch Fire

With gold and silver on the move, the Godfather of newsletter writers Richard Russell had this to say in his latest commentary, “There is only one certainty regarding paper money -- the longer you hold it, the less it will buy in terms of real goods or real money -- gold. But there's a big difference between the current precious metals bull market and the bull market of the 1970s. The 1970 bull market drew tremendous interest (I was there). Everybody I knew (even the gold haters) were watching that bull market with keen interest, particularly during the wild "blow off" days of the late 1970s, when silver was rocketing higher -- rising every day by limit up.”









Richard Russell continues:
“In comparison, today's huge precious metal bull market is greeted with yawns, that is, if it is greeted at all. I've been calling the current gold/silver market the "great stealth bull market." Ask the average man or woman on the street what's happening to precious metals, and they'll give you a blank stare and maybe a "Duh." Ask them if they own any gold or silver, and they'll give you a sheepish "Nah."
Gold (April) closed on March 2 at 1437.40, a record high. On March 9 silver closed at 36.04, highest since 1981. Yesterday both marks were bettered. Where's the excitement, where's the interest, where are the articles in the newspapers?

Time to study the chart (above). As I've been saying, gold in its advance has periodically tested its 150-day moving average over the past few years (150-day MA is shown as the blue line on the chart). Note that on the most recent "correction," gold didn't even test its 150-day MA. When I saw this, I realized how powerful the forces under gold were.

Gold is now "out in the open" with no overhead resistance and no overhead supply. So far the bull market advance since 1999 has been steady, quiet, and orderly. Except for its spectacular slow and relentless climb, there's been no excitement in the gold bull market.
I don't think this is going to continue. Some where ahead the precious metals bull market is going to turn wild and speculative. Only one phenomenon will serve to create this excitement. That phenomenon is HIGHER PRICES. The public can resist anything in markets except steadily rising prices.
As for steady higher prices and excitement, I suspect that silver is about there. As for gold, maybe not yet. But somewhere ahead gold is going to catch fire. That will be the time when the great American public will decide that they have to have some gold, maybe just a coin or two, or maybe just a few shares of GLD -- but that time is coming.”

Richard Russell is correct, a mania lies somewhere ahead and the public will be heavily engaged in the gold and silver markets. The question is will this gold and silver bull market dwarf the one from the 70’s? Time will tell, but for now just sit back and enjoy the ride.

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Everyones favorite Bears are back in part 5 of the Silver Manipulation Saga

Enjoy



You can view SilverGoldSilver's blog by clicking the link in my profile.

Will Rising Interest Rates Skyrocket the Gold Price?

The great Gold Bull Market of the 20th Century is said to have started in 1972, just after Richard Nixon announced on August 15, 1971, he was taking the United States off the Gold Standard. At that time Nixon realized foreign countries were hoarding more gold and silver-backed currency than could actually be redeemed by the precious metal's reserves we held.

Once again, gold could be traded freely allowing the market to determine its fair value. At the outset, gold prices were fixed at $42.22 per ounce but by February 1972, moved to $48.26 as trading began. From there a steady rise would ensue to levels 17 times greater than this initial trading price. On January 21, 1980, the gold spot price reached $850 an ounce.

Removing us from the gold standard did not come without an anticipated backlash. As the dollar was no longer backed by tangible assets, its value in the world markets was sure to decline and it did. Hence runaway inflation. In pre-emptive fashion, the Federal Reserve began to raise interest rates to protect the dollar.

At the same time gold trading began to spool up, the prime interest rate was at its lowest level in 12 years at 4.5%. The Fed Funds rate was 5%. These levels marked the bottom for interest rates during the period when gold began trading in earnest in 1972. Levels that would not be seen again for decades.

From that point on, both interest rates and the gold price rose steadily. By the time the gold price peaked at $850 an ounce, the Prime Interest Rate was 15.25%, 3.4 times its level when gold trading began. And the Fed Funds Rate at 15% was 3 times greater in the same period of time. With interest rates rising some 10 percentage points in 8 years, we learn the correlation between the rise in gold prices was a compounded 33% for every rise of just one point in interest rates. It must be noted, during the same period stocks rose a mere 1%.

If we now flash forward to find the next time interest rates reached an undisputed bottom, we find ourselves at a time just before Christmas 2008. On December 16, 2008 the Prime Rate moved from 4% to its current low of 3.25%. On the same day, the Fed moved its target Fed Funds Rate off of 1% to 0.00% - .25%. Where was the gold price at this key point in time? Precisely and ironically, gold was $850 an ounce.

Since December 16, 2008, both rates remain unchanged with no immediate signs of increase. Gold, on the other hand has risen from $850 an ounce to levels solidly above $1400 an ounce accounting for an annual compounded gain near 26%.

Looking back to 1972, we see rates and the gold price rose in lock-step with inflation. Today, we find ourselves in a lively debate over whether we are in an inflationary cycle or deflationary cycle. I will submit, as the markets express uncertainty over even this, the move higher in gold prices, since rates bottomed in December 2008, is more likely attributed to a safe-haven play than it is to inflation fears and rising interest rates.

Now a case can easily be made that the real gold bull market has not yet begun and will not until such time as rates begin a decided move higher. With interest rates locked in at these bottoms, there is only one way for them to go and that's up. And once that process begins, the real interest rate/inflation play can commence. So where is gold headed from here?

If history repeats, we can, once again, make the case that for each point rates rise we could see a 33% corresponding move higher in the gold price. If gold is $1400 an ounce at that time, just a 3% move higher in interest rates could see gold at $3290 an ounce based on current levels. A 4% rise would only be equal to a 12-month retracement of falling rates from December 2007 to December 2008. A repeat of such a retracement could put gold at $4375 an ounce or up 200% in just 12 months.

From there every added point to interest rates could become an explosion of its own as one single point higher in interest rates could see gold rise above $5,000 an ounce.

Is this possible?

In June of 2003, we find an example where the theory holds. As the country found itself digging out of the hole left by the Dot Coms of the 90s, interest rates had fallen to extreme lows. The Prime Rate was 4%, the Fed Funds Rate was just 1% and gold was $345 an ounce.

Again, in anticipation of inflation, the Fed began to raise rates. By June 2006, Prime was 8.25% and Fed Funds were 5.25%. Gold rose from $345 an ounce to a June 2006 high of $641.80. That translated to a 23% annualized return. As rates stopped rising and held for the next 15 months, the rise in gold price slowed to a more tempered but still pleasing, 12% annual rate. A clear indication that this move could be attributed more to rising rates and inflation fears than any other impetus.

Any way you look at it gold now has several ways to win. Rising debt, falling dollar, default, war, weak housing, stumbling markets and yes . . . rising interest rates.

Since April 2001, when gold prices hit a 22 year low of $255.95 an ounce, the gold price has risen some 400% as the gold market reacted to a myriad of various stimuli at different times. We have seen gold behave as a commodity, as for a time the gold price rose along with oil. We have seen gold prices rise in response to geopolitical unrest, 911 being case in point. And as markets have floundered we have seen the pure safe-haven play as the economy and markets became engulfed in uncertainty over rising debt a falling dollar and fear of default.

What we have yet to see is a sustained battle against inflation. A battle fought by raising interest rates. An imminent battle as the entire world works to re-inflate a global economy. When this occurs, the combined effect of rising rates, with any of the stimuli already shown to drive gold prices higher, could be explosive.


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Monetary Base Rises By Half A Trillion In 2011

Something very notable happened today receiving exactly zero recognition by the mainstream press: the process of winding down the Supplementary Financing Program ended, with either zero (assuming the entire $25 billion in 56 Day CMB matured without rolling) or $5 billion (as per the Treasury's disclosure), remaining under the SFP.
This means that the entire $200 billion buffer that had previously afforded the Treasury breathing room with the looming debt ceiling, is now gone, and next steps include such drastic measures as a partial or complete government shutdown, as no incremental funding will be available to fund the daily deficit. As a reminder, as of today the Treasury had a total of $12.24 trillion in debt, just $70 billion below the ceiling, and $14.172 of debt subject to the limit. Which is not good because as per today's refunding announcement there is $99 billion in 2, 5 and & 7 year debt coming down the line next week. Which means that while the formal debt ceiling will not be breached, the total amount of debt including the fluff not counted, will surpass $12.4 trillion by next Friday. In the meantime, the SFP unwind continues to have a major impact on the adjusted monetary base. As we have discussed in the past, excess reserves continue to go parabolic, purely as a function of the SFP unwind and ongoing QE2, which in turn is impacting the adjusted monetary base, which is now half a trillion greater year to date. As we predicted previously, excess reserves will hit $1.7 trillion by the summer. These rose by $72 billion in the past week to approximately $1.4 trillion, which means that by the time QE2 is over, the Adjusted Monetary Base will hit $2.7 trillion, a $750 billion increase in 6 months. And if QE3 gets the green light, all bets are off. And once this surging monetary base is converted from excess reserves to currency in circulation, that is the moment when Weimar comes a-knockin'.


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Silver Backwardation Near All-Time Record

With gold and silver taking off to the upside, today King World News interviewed James Turk out of Switzerland. 

When asked about the gold and silver move Turk stated, “This was great action today by any measure. All we need now is for gold to confirm by breaking above $1,445 which was its previous high. Gold looks like it is ready to run, but worst scenario gold pulls back to test support at $1,420. The odds don’t favor that, but it is possible.”
“I think today was the breakout in gold, but it is one or two days behind silver. The key here Eric is that silver remains in backwardation even though silver is at a new 31 year high in terms of price. That shows that the demand for physical silver is not diminishing even though the price is rising. What’s also important is that the length of time silver has been in backwardation is very close to a new record.”

When asked about the US dollar Turk replied, “After declining from 77 to 75.5 over the last several days, the dollar index had a small bounce today. Action like this is not unusual when taking out previous important low points which the dollar did earlier this week. The next few days or so should be critical because if the dollar index starts rolling over, downside momentum which we have been discussing recently will start accelerating. I would also add, any further drops in the dollar are going to send gold and silver rocketing higher.”

Today probably sent gold and silver bears to the nearest pub, while the bulls were left with the feeling that a big move is at hand.

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Breakaway Move coming in Gold- next stop $1500

With upside moves in gold and silver, today King World News interviewed John Embry Chief Investment Strategist at Sprott Asset Management. 

When asked about the action in gold and silver Embry stated, “Well my first thought is what took so long? We know what took so long, basically there has been a lot of activity by the bullion banks and their sponsors. But I mean to me it’s a very a simple equation, you can screw around with the paper market for a considerable period of time, but as the physical market gets tighter and tighter and this is really demonstrable in silver, I mean that is going to be what sets the price. What goes on in the physical market, when that takes over the prices are going much, much higher than they are today.

John Embry continues:
“We are on our way to $40 in silver and then I’m sure they’ll fight around the round number for a bit, but I think the upside potential in silver is many, many tens of dollars higher from here.”

When asked if gold was finally ready to take off Embry replied, “Yeah I think it is, I think the next move will take us to $1,500 in the near-term. By and large I just think we are moving higher, the question is whether we are going to get a breakaway move, a really big move like hundreds of dollars?
I’m on record as saying there will come a day when the gold price will move over $100 in a day. To date the cartel has been very effective in keeping daily gains to no more than 1%. You can see it when the gold price is up 1%, the unseen hand comes in and a lot of selling shows up.
When that breaks, and it will break, then I think you are going to see moves that will shock the people who don’t understand the true nature of the market.”

When asked about mining shares Embry responded, “I’ve seen a target on the HUI (Gold Bugs Index) of 880. Based on where we are now that would be a move of just over 50%, I could easily see that. I can see that for a simple reason, when you look at the market cap of the big cap gold stocks and compare it to the amount of money around that’s invested in other things, it would take very little movement of money to have an outsized impact on the overall gold sector.
That will happen, it’s just a matter of whether it happens next week or next month or five months from now. It’s not a matter of whether it’s going to happen, it’s wether it’s going to be very quick or take a few months to unfold.
We haven’t seen inflows into gold funds, we are still seeing outflows from a lot of dedicated gold funds. So if you start to see the public moving money into these funds, I mean the funds have to invest so they are going to have to buy these stocks. It comes quickly when it happens, as Richard Russell says, there is no fever like gold fever.”

When asked about oil Embry remarked, “I happen to share Jim Sinclair’s view that some of the stuff that is going on in the Middle-East is extremely anti-west. And if that continues and I believe it will, I think the crude oil price is heading to $150 to $200. And if that happens I think the economic implications are pretty horrifying actually.”

John Embry has been in the business for 48 years. At the beginning of the secular bull market in gold, John was the only mainstream (RBC Capital at the time) institutional individual to proclaim the bull market in gold. RBC was saying that’s not the message of the bank, so John was taking a lot of heat for his stance. Fortunately for all of us Eric Sprott hired John out of the mainstream and the rest is history. 

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World Reserve Dollar Collapse Inevitable

What will happen to the U.S. economy and the dollar in the near term? Will inflation increase dramatically? What is the outlook for gold, and where should you put your money? BIG GOLD asked a world-class panel of economists, authors, and investment advisors what they expect for the future. Caution: strong opinions ahead...
Jim Rogers is a self-made billionaire, author of the best-sellers Adventure Capitalist and  Investment Biker, and a sought-after financial commentator. He was a co-founder of the Quantum Fund, a successful hedge fund, and creator of the Rogers International Commodities Index (RICI).
Bill Bonner is the president and founder of Agora, Inc., a worldwide publisher of financial advice and opinions. He is also the author of the Internet-based Daily Reckoning and a regular columnist in MoneyWeek magazine.
Peter Schiff is CEO of Euro Pacific Precious Metals (http://www.europacmetals.com/) and host of the daily radio show The Peter Schiff Show (http://www.schiffradio.com/). He is the author of the economic parable How an Economy Grows and Why It Crashes and the recent financial bestseller The Little Book of Bull Moves: Updated and Expanded. He’s a frequent guest on CNBC, Fox Business, and is quoted often in print media.
Jeffrey Christian is managing director of CPM Group (http://www.cpmgroup.com/) and a prominent analyst on precious metals and commodities markets. CPM Group produces comprehensive yearbooks on gold, silver, and platinum group metals, and provides a wide range of consulting services. Jeffrey publishedCommodities Rising, an investors’ guide to commodities, in 2006.
Walter J. "John" Williams, private consulting economist and “economic whistleblower,” has been working with Fortune 500 companies for 30 years. His newsletter Shadow Government Statistics (shadowstats.com) provides in-depth analysis of the government’s “creative” economic reporting practices.
Steve Henningsen is chief investment strategist and partner at The Wealth Conservancy in Boulder, CO, assisting clients interested in wealth preservation. Current assets under management exceed $200 million.
Frank Trotter is an executive vice president of EverBank and a founding partner of EverBank.com, a national branchless bank that was acquired by the current EverBank in 2002. He received an M.B.A. from Washington University and has over 30 years experience in the banking industry.
Dr. Krassimir Petrov is an Austrian economist and holds a Ph.D. in economics from Ohio State University. He was assistant professor in economics at the American University in Bulgaria, then an associate professor in finance at Prince Sultan University in Riyadh, Saudi Arabia. He is currently an associate professor at Ahlia University in Manama, Bahrain. He’s been a contributing editor for Agora Financial and Casey Research.
Bob Hoye is chief financial strategist of Institutional Advisors and writes Pivotal Events, a weekly market overview. His articles have been published by Barron’s, Financial Post, Financial Times, and National Post.

BIG GOLD: A lot of economists, including the government, believe the worst is behind us economically. Do you agree? If not, what should we be on the lookout for in 2011?

Jim Rogers: It is better for those getting all the government largesse, but the overall situation is worse. More currency turmoil. State and local problems, plus pension problems.
Bill Bonner: None of the problems that caused the crises in Europe and America have been resolved. They have been delayed and expanded by more debt and more money printing and will lead to more and worse crises. Deleveraging takes time. 2011 will, most likely, be a transition year... not unlike 2010. But the risk is that one of these latent crises will become an active crisis.
Peter Schiff: To me, it's like watching someone walk into the same sliding glass door again and again. Wall Street must know by now that large infusions of liquidity from the Fed spur present consumption at the expense of investment for the future. We are an indebted family going out for an expensive meal to celebrate getting approved for a new credit card. It might feel good (at the time), but we're still simply delaying the inevitable.
Jeffrey Christian: We believe the worst is behind us economically, in the short term. The recession ended in late 2009, and 2010 saw U.S. economic growth in line with what CPM had expected, but higher than the more pessimistic consensus had been. In 2011 we expect continued expansion. We think some economists and observers are too enthusiastic about economic prospects right now.
For the U.S. in 2011, we are looking for real GDP of 2.5% - 2.8%, inflation to remain low, and for the economy to avoid deflation. Interest rates are expected to start rising, perhaps significantly in the second half of 2011. The dollar is expected to be volatile, rising somewhat against the euro but continuing to weaken against the Canadian and Australian dollars, the rupee, yuan, rand, and other currencies.
European sovereign debt issues will continue to plague financial markets, but market reactions will be less severe than they were regarding Greece in April 2010.
John Williams: An intensifying economic downturn – what formally will be viewed as the second dip of a double-dip depression – already has started to unfold. The problem with the economy remains structural, where household income is not growing fast enough to beat inflation, and where debt expansion – encouraged for many years by the Fed as a way to get around the economic growth problems inherent from a lack of income growth – generally is not available, as a result of the systemic solvency crisis. Accordingly, individual consumers, who account for more than 70% GDP, do not have the ability, and increasingly lack the willingness, to fuel the needed growth in consumption on which the U.S. economy is so dependent.
Steve Henningsen: The governments worldwide (I don’t pay much attention to economists) want us to believe that the worst is behind us because the financial system is built upon the foundation of trust and confidence. Both of these were battered badly when it was shown that much of the world’s prosperity over the past few decades was simply a mirage that, once dispersed, left behind only debt with no means of future production. Now they want us to believe that they fixed the problem via more debt.
What I will be watching for this year is sovereign and U.S. municipal debt corpses floating to the surface sometime in the months ahead.
Frank Trotter: Right now I have a somewhat dark but not dismal outlook. I think that over 2011, we will continue to experience a Jimmy Carter-style malaise that combines continuing high unemployment, tentative business investment, rising prices, low housing numbers when looked at on an absolute basis, and creeping interest rates.
As a very large mortgage servicer, we are not seeing significant improvements in payment patterns that would indicate the worst is fully behind us, and with mortgage rates moving upward, we see less ability for current mortgage holders to refinance and reduce payments.
Krassimir Petrov: No, the worst is yet to come. No structural changes have been made, no problems have been fixed. Printing money, a.k.a. Quantitative Easing, is a quick fix that has postponed the problem, yet also made it a lot worse. I would say that we are still in the early stages of the crisis and have another 4-8 years to go.
Bob Hoye: The worst of the post-bubble economic adversity is not behind us.

BG: Price inflation is creeping up, but the enormous amount of money printing hasn't really hit the system yet. Does that happen in 2011, further down the road, or not at all?

Jim Rogers: It is happening. The U.S. and CNBC lie about it. Most other countries do not lie and acknowledge it is worsening.
Bill Bonner: Most likely, substantial consumer price inflation will not show up in 2011. The explosion of money printing is being contained by the bomb squad of deleveraging. That will probably continue in 2011. But not forever.
Peter Schiff: 2010 was the year that China began cutting back its Treasury purchases in favor of gold, hard assets, and emerging market currencies. The Fed has stepped in as a major purchaser of Treasuries. This represents a new phase on the path to dollar collapse, and it will manifest in 2011 in the form of more "unexplainable" inflation – as we are now seeing in the prices of everything from corn to gasoline.
Jeffrey Christian: We are now beginning to see some increases in monetary aggregates, suggesting that some of the monetary accommodations are beginning to filter into the economy. We expect this trend to accelerate over the course of 2011. This will bring some increase in inflation, but we expect the major manifestation will be through higher U.S. Treasury interest rates as the Fed and Treasury seek to sell bonds to sterilize the inflationary implications of the monetary easing and to finance ongoing massive federal deficits.
John Williams: The problems of the money creation will become increasingly obvious in exchange-rate weakness of the U.S. dollar. Related upside pricing pressure already is being seen on dollar-denominated commodities such as oil. There is high risk of consumer prices rising rapidly before year-end 2011, setting the stage for a hyperinflation. The outside date for the onset of a U.S. hyperinflation is 2014.
Steve Henningsen: My guess is further down the road, as the deleveraging cycle continues with deflationary-housing winds in our face and the banks still hoarding money like my 9-year-old daughter stockpiles American Girl doll paraphernalia. I still expect inflation to continue in areas such as energy, bread, circuses, and whatever else provides sustenance to the Romans – I mean people.
Frank Trotter: Most research has shown that over time the increase in money supply is not a short-term economic stimulus, but rather has a moderate effect in the 18- to 36-month range. In addition, this theory contends that a growth in the monetary base – which is what has happened so far – only increases economic activity when accompanied by a decent multiplier; this is not occurring. The real risk is that with rising rates and continued soft economy, the Fed will feel obliged to continue to QE3, QE4, and so on, all of which may have a significant inflationary impact.
I am more concerned about general price inflation here in the U.S. and the potential it has to reduce global growth.
Krassimir Petrov: This is a tough one. I would have thought that price inflation would have been raging by now, but this is obviously not the case. I have the feeling that 2011 will be a repeat of early 2008, with commodity prices (CRB) making new all-time highs. A falling dollar will trigger a rush into commodities as a hedge against inflation. I am really tempted to make a totally outrageous forecast that oil could make a run for $200 as QE3 unleashes another dollar scare, or maybe even a dollar crisis.
Bob Hoye: Massive "printing" has been widely publicized and is "in the market."

BG: The U.S. dollar ended 2010 about where it started; does it resume its downtrend in 2011, or are fears about its demise overblown?

Jim Rogers: No, but further down the road.
Bill Bonner: No opinion. But there is more risk in the dollar than potential reward.
Peter Schiff: It's hard to pinpoint exactly when the dollar will collapse, but it will take a miracle to avoid that outcome in the near term. It really depends on when the creditors of the United States realize that they are not going to get their principal returned to them in real terms, but rather in grossly devalued dollars. We have already seen the average duration of U.S. Treasury debt drop below that of Greece. No one wants to buy a 30-year bond with negative real interest rates as far as the eye can see.
Jeffrey Christian: We expect the dollar to be volatile against most currencies in 2011, but that its demise has been prematurely predicted. The dollar may move sideways to slightly higher against the euro, yen, and pound, while continuing to deteriorate against the Canadian and Australian dollars, the rupee, yuan, rand, and other emerging economy currencies.
John Williams: There remains high risk of a dollar selling panic unfolding in the year ahead, as the U.S. economy tanks anew, as the Fed continuously expands its easing, and as dollar holders dump the U.S. currency and dollar-denominated paper assets. Such would be a precursor to the inflation problem.
Steve Henningsen: Similar to my thoughts last year, I still believe the dollar is headed down long-term, but it could bounce around over the next year. If sovereign debts become a problem again, like I think they will later this year, then everyone will go running back to “Mother Dollar” once again for one last hug before she lies back down on her sickbed.
Frank Trotter: As the economy waffles and the global investing community's attention is drawn from one crisis to the next, I expect the U.S. dollar to bounce up and down in the current range. After that, however, my analysis suggests that measured by the key factors of fiscal and monetary policy, combined with a significant trade deficit, the U.S. does not look as good as our major trading partners, and I thus expect the dollar to decline, perhaps significantly, in the intermediate term. Big geopolitical events may accelerate this or create a flight to U.S. dollar quality, so hold on to your hats.
Krassimir Petrov: I think the dollar resumes lower. I expect QE3 and QE4 – a dollar-printing fest that will eventually sink the dollar. Sure, all fiat currencies are in deep trouble and prone to overprinting, but the reserve status of the dollar actually makes it more vulnerable now. Whether the dollar sinks against other currencies is a fool's game not worth playing. It is like being in the hospital, where all patients are suffering from cancer, and trying to guess who will feel best at the end of next year, or trying to guess who will succumb first. That's why it is so much safer to play the dollar against gold.
Bob Hoye: Fears of the dollar's demise have been widely discussed and are "in the market." The dollar, itself, will not be repudiated – just the mavens that have been "managing" it.

BG: Gold has risen 10 years in a row, so some are calling it a bubble, yet it's roughly $1,000 below its inflation-adjusted high. What's your outlook for the metal in 2011?

Jim Rogers: It is hardly a “bubble” when very few own it still. Who knows? Overdue for a correction, but who knows?
Bill Bonner: The smart money is in gold. It will stay in gold until the bull market that began 10 years ago finally reaches its peak. It is extremely unlikely that the top will come in 2011; it's probably years in the future. In the meantime, gold is bound to have a losing year or two. Don't worry about it. Buy gold. Be happy.
Peter Schiff: The funny thing about a bubble is that when it's real, no one can see it. The same commentators who were blind to the tech bubble, the housing bubble, and now the Treasury bubble are quick to call gold a bubble. The truth is that many of them have a personal aversion to gold because they directly benefit from our fiat money system. Goldman Sachs was paid 100 cents on the dollar in the AIG bailout, which never would have happened in a gold-based system. It's a lot easier to print a billion paper dollars than dig up a million ounces of gold.
Gold will continue to climb in 2011 as the currency war continues and investors continue to seek stability. Unless there is a major sea change in the way the U.S. does business, I think the gold trade is a safe one.
Jeffrey Christian: A price of $1,550 is possible, although given the enormous investor buying pressure, prices could spike to almost anywhere. After that, we expect prices to fall back, initially to around $1,340 or $1,380. We expect gold prices to stay above $1,280 or so for most of 2011, and to average around $1,369 for the full year.
John Williams: As the U.S. dollar increasingly is debased, and where gold tends to preserve the purchasing power of the dollars invested in it, the upside to gold in the year ahead is open-ended, restricted only by any limits to the massive downside potential for the U.S. dollar. Any intermittent gold price volatility, extreme or otherwise, will be short-lived. There is no bubble – only increasing weakness in the U.S. dollar – with the gold price fundamentally headed much higher in the years ahead.
Steve Henningsen: I believe gold will once again prove the bubble-boys wrong and end the year positive (I have no idea by how much and don’t really care). However, I think this year will be more volatile and that Gold Bugs better remain seated on the precious metals express or they might get squished.
Frank Trotter: I still think that with price inflation on the rise and big political events occurring, there may be room to continue to rise. If stock markets take off, then there will be a reduction in appreciation or even a significant decline, but based on the factors I mentioned above, I don't see that as highly likely.
Krassimir Petrov: Gold still has outstanding fundamentals. I believe that over the course of 2010, the fundamentals have strengthened significantly: (1) "No Exit [Strategy] for Ben" as he unleashed QE2, and will likely unleash QE3, QE4, etc., (2) no more central bank selling of gold, (3) more central banks become buyers of gold, and (4) trial balloons for a global gold-backed currency.
I have no idea how people could even claim that gold is in a bubble – barely 1 out of 100 people have any idea about investing in gold. During the real estate bubble, every second person was involved in it. Maria "Money Honey" Bartiromo has yet to report from the COMEX gold pits; gold fund managers and analysts have yet to obtain rock-star status; and glamorous models are not yet dating the gold guys. Who is the Henry Blodget [co-host of Tech Ticker] of the gold sector, do we have one yet?
Yes, gold will eventually become a bubble, but that feels 5-8 years away.
Bob Hoye: In 2011, gold's real price will resume its uptrend.

BG: What's your best investment advice for 2011?

Jim Rogers: Buy the rmb [renminbi, the Chinese currency].
Bill Bonner: We are in a period much like the period following WWI, in which the great debts and losses of the war had to be reckoned with. It is an era of great risk. The U.S. faces many of the same challenges faced by Germany and England after WWI. Like England, it has huge debts. It is a waning imperial power. And it has the world's reserve currency. And like Germany, it is attempting to fix its problems by printing more money. This is not a good time to be long either U.S. stocks or U.S. bonds.
Peter Schiff: Don't be suckered into the idea that recovery is just around the corner. The current climate is like living in a hurricane or earthquake zone; it's important to stay vigilant because you never know when disaster will strike. Physical gold is the financial equivalent of a flashlight, first-aid kit, and store of canned goods. It's a basic way to protect yourself from any eventuality. From there, if you're looking for returns, there are plenty of foreign markets with strong fundamentals, as well as commodities that feed those markets.
Investing in the U.S. is now driven largely by force of habit. It's a habit you should resolve to break.
Jeffrey Christian:Do not invest based on what you believe, but on what you know. Gold is a market, like other markets. It rises and falls. You probably want to stay long gold on a long-term basis, but may want to cull the weaker gold assets from your portfolio in the first quarter, and put some hedges in place to protect a long-term core long gold position against the potential of significant price weakness over the next two years or so. Such a period of weakness would be an excellent time to add to one’s gold assets.
John Williams: As an economist, I look for the U.S. dollar ultimately to lose virtually all of its current purchasing power. Accordingly, for those living in a U.S. dollar-denominated world, it would make sense to move to preserve wealth and assets over the long-term. Physical gold is a primary hedge (as is silver). Holding some stronger currencies outside the U.S. dollar, as well as having some assets outside the United States, also may make sense.
Steve Henningsen: Dramamine (for volatile markets), a stash of cash (for potential investment opportunities), and move some of your assets offshore if you haven’t already.
Frank Trotter: My advice is first to look at the other side of your balance sheet – the liability and risk equation – before seeking out absolute gains. What are your goals, what resources do you already have to meet those goals, and what events (health, income stream, upheavals) might impact these risks? Place some assets to hedge these risks directly, then look to diversify globally into markets with higher growth potential than we see here at home, and that may balance your global purchasing power risk. Almost like a religion, we have had the phrase "Stocks are the only legitimate hedge against inflation" beaten into our heads. I say, look at assets that define inflation like commodities and currencies and evaluate where these fit into your risk portfolio.
Krassimir Petrov: Last year I recommended silver, and I would stick to silver again, despite the phenomenal run in 2010. Then it gets tricky. I usually don't recommend diversification, but now I would again recommend a broad portfolio of commodities. Investing in 2011 should be easy: stay out of real estate, out of bonds, out of fiat currencies, and out of stocks; stay fully invested in commodities, overweight gold and silver.
What to watch in 2011: stay focused on the sovereign debt crisis and bond yields. Spiking yields will trigger the next stage of the crisis.
Bob Hoye: Once past the early part of 2011, the best returns are likely to be obtained from the junior gold exploration sector.
[These world-class experts are right to bank on gold and silver – because the U.S. dollar keeps losing more and more of its value. Watch this eye-opening video on how China and Russia are plotting to dump the dollar… why you should be worried… and what to do about it.]

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Chernobyl-Style Yellow Rain Causes Panic In Japan

Radioactive yellow rain that fell in Tokyo and surrounding areas last night caused panic amongst Japanese citizens and prompted a flood of phone calls to Japan’s Meteorological Agency this morning, with people concerned that they were being fed the same lies as victims of Chernobyl, who were told that yellow rain which fell over Russia and surrounding countries after the 1986 disaster was merely pollen, the same explanation now being offered by Japanese authorities.

“After two days of rain in Tokyo I woke up to a thick coating of this yellow stuff all over my car. What looks like a glare between the glass and the body of the car is actually pollen. My first thought was ewe! Radioactive sludge from Fukushima, but no,” states the comment associated with this You Tube clip.

“The (Japan Meteorological) agency received more than 200 inquiries Thursday morning about yellowish residue left on roofs and elsewhere by the rain, stirring concerns that radioactive substances had fallen after accidents caused by the March 11 quake and tsunami at a nuclear power plant around 220 kilometers northeast of Tokyo,” reports Japan Today.

Officials later suggested the discoloration was caused by air-borne pollen falling with the rain. “The JMA believes the yellow patches are pollen, but has yet to confirm this,” reports the Wall Street Journal, adding that the JMA received over 280 calls after residents in the Kanto region discovered yellow powder on the ground.

“A health official at the Tokyo metropolitan government also said there is a possibility that the rain contained radioactivity but not at a level to have had adverse effects on people’s health,” adds the Japan Today report.

Given the fact that Japanese authorities have been habitually deceptive about the Fukushima crisis from start to finish, assurances that the yellow powder was merely a result of air-borne pollen particles are dubious at best. With people living in Tokyo already being told that tap water is unsafe to drink, along with contaminated vegetables and milk from certain areas near Fukushima, the fact that they were panicked by yellow rain is unsurprising.

A University of California Daily Bruin article entitled “Remembering Chernobyl,” documents how children in Belarus happily splashed around in puddles of yellow rain having been assured by Russian authorities that it was merely pollen, when in fact it was a toxic mixture of radioactivity that had been blasted from the Chernobyl plant 80 miles away.Although pollen can turn rain a yellow color, the fact that the phenomenon occurred a couple of hundred kilometers south of the radiation-spewing Fukushima nuclear plant has stoked alarm, and understandably so given the fact that victims of Chernobyl nuclear fallout in 1986 were also told by authorities that yellow rain was harmless pollen, when in fact it was deadly radioactive contamination.

Thinking back to 20 years ago, it’s the splashing in yellow rainwater that Antonina Sergieff vividly recalls.

“We all jumped in the puddles with the yellow stuff. … You don’t see (it in) the air, it doesn’t materialize. But when you see the yellow dust, you see radiation,” Sergieff said.

When these elements first reached Sergieff 20 years ago, they came in the form of yellow rain.

It was not long after that residents in her hometown knew it wasn’t simply “pollen” – which is what government officials assured them, she said.

The effects of this “pollen” soon confirmed that those puddles of yellow rain contained something far more sinister, namely iodine-131, caesium-137, strontium-90 and plutonium-239.

“Soon, people started losing their hair, pictures of deformed animals sprouted up in independent newspapers, and incidences of cancer in Belarus skyrocketed, Sergieff said. According to the U.N. brief, cases of breast cancer in Belarus doubled between 1988 and 1999, among other increases.”

With levels of radiation emitted by Fukushima now approaching those spewed out by the blast at Chernobyl, as the establishment media bizarrely pretends that the crisis is all but over, seawater samples taken around 330 meters south of the plant confirm that levels ofradioactive iodine released are the highest yet recorded.

As we have highlighted, despite UN and World Health Organization studies that claim Chernobyl led to a maximum of 9,000 deaths and 200,000 cases of radiation sickness, more contemporary studies have shown that nearly a million people have been killed from cancers caused by the disaster over the course of the last 25 years.

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Japanese estimating radioactive levels; Not actually measuring

In an another astounding clip in the wake of Japan’s nuclear power plant crisis, Yukio Edano, Japan’s Chief Cabinet Secretary, admits that they are not actually measuring radiation levels at Fukushima’s nuclear power plant (and cannot accurately do so), but are instead only “estimating” the radiation via the use of a computer simulation model.

This is a fresh admission piling on top of what has already been a cover-up of massive proportions, and coincides with his warning today that infants should not drink the tap water in the surrounding Tokyo area because levels of radioactive iodine are too high. Despite the lack of accurate measurements, the Japan Nuclear Agency reported the highest levels of radiation yet at Fukushima reactor No. 2, as well as ’13 sightings’ of neutron beams. Radiation is reportedly 1,600 times normal levels.


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BERNANKE’S CHOICE: US RECESSION OR POPULATION HUNGER?

For twelve years the US trade deficit financed the US budget deficit and held down US interest rates. From 1996 to 2008, the US trade deficit exceeded the government’s budget deficit every year. The dollars sent abroad to pay for the trade deficit were accumulated by the central banks of the trade surplus countries, who then reinvested them in US government bonds. As discussed in earlier posts, those central banks bought up the dollars entering their economies in order to hold down the value of their currencies and so perpetuate their countries’ low-wage trade advantage and their export-led economic growth.

Although this process was extraordinarily damaging to the US economy over the long run as it destroyed the United States’ manufacturing sector, it had tremendous short term appeal for the US government since it financed its budget deficit at exceptionally low interest rates.

At its peak in 2006, the United States’ $800 billion trade deficit was so much larger than the government’s $160 billion budget deficit that it caused the Fed to lose control over interest rates and, therefore, over the economy as the surplus countries’ central banks were forced to buy up hundreds of billions of dollars worth of US government bonds that had been issued in earlier years, pushing up their price and driving down their yields. Low interest rates threw fuel onto the US property bubble and the Fed was absolutely powerless to do anything about it.

The situation is entirely different today. When the US property bubble popped and the global economic crisis began in 2008, the government’s budget deficit soared and the US trade deficit shrank. This year the budget deficit will be approximately $1.5 trillion, while the trade deficit will only be around $500 billion. The trade surplus countries (led by China) will print their own currencies and accumulate this half a trillion dollars as foreign exchange reserves and use it to buy up a third of the US budget deficit. However, that will still leave a trillion dollar funding shortfall in the US government’s finances.

That’s where Quantitative Easing comes in. By printing $600 billion and buying up $600 billion of government bonds between November 2010 (when QE 2 was launched) and June 2011 (when it is scheduled to end) the Fed is plugging that funding gap. However, if QE 2 ends on June 30th, there will once again be a yawning hole in the funding of the budget deficit.

QE 2 has boosted the economy in two ways. First, by acquiring $600 billion in government bonds, the Fed has financed the budget deficit at low interest rates. Second, QE 2 has forced the investors who would have bought those bonds to buy something else instead—something else like stocks! This explains why the stock market has risen 20% since QE 2 was announced in August. Higher stock prices have created a wealth effect that has financed a pick-up in consumer spending.

If the Fed stops printing money and buying government bonds (i.e. monetizing the government debt) at the end of June, then the money required to finance the $1.5 trillion budget deficit will have to come from somewhere else and the government will have to pay more for it. In other words, money would have to come out of stocks to fund the budget deficit and interest rates would rise. This would cause a significant drop in wealth as stock prices fell and it would negatively impact the entire economy as the cost of borrowing rose for everyone.

Now that the US trade deficit is no longer large enough to finance the massive government budget deficit, the Fed has had to step in to fill that role. If the Fed carries on with QE 3 in the second half of this year, it will be for that reason. Ending Quantitative Easing would sink the stock market, drive up interest rates and provoke a new economic slump. On the other hand, since printing money causes food price inflation, the continuation of Quantitative Easing would cause food prices to continue spiking globally, precipitate new waves of food riots in the Middle-East and around the world and exacerbate the geopolitical instability that soaring food prices have already caused.

That’s Bernanke’s choice. He must choose between recession in the United States or hunger in the developing world, where two billion people live on less than $2 per day. The odds are, he’ll choose hunger.

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Fox News fabricated “Human Shield” Hoax To Sell Libya War for $100million a day

Just as Bill Clinton’s bombardment of Serbia was launched on the back of a humanitarian hoax about fake concentration camps, establishment media outlets are already busy contriving phony stories about Gaddafi using “human shields” to convince the American people that the $100 million dollar a day attack on Libya is virtuous and noble.




The latest example comes from Fox News, who completely manufactured the claim that Gaddafi was using western journalists as human shields to prevent fighter jets from bombing his compound.

When the U.S. government prepares to throw another $1 billion-plus at a new war even as Americans see their living standards eviscerated and record numbers are forced on food stamps, the propaganda necessary to sell the conquest has to be slicker than ever before.

With many starting to question the credibility of evidence that Gaddafi is abusing his own people, as so-called “protesters,” backed by US arms from Egypt, commandeer fighter jets and tanks in their bid to overthrow the government, the demonization of Gaddafi as a monster who needs to be toppled for the security of the region is imperative.

That’s why Fox News completely manufactured a claim about Gaddafi using journalists as human shields to prevent his compound from being bombed and ran it as an exclusive story yesterday.

In a piece entitled, EXCLUSIVE: Libyans Use Journalists as Human Shields, Fox News’ Jennifer Griffin & Justin Fishel wrote, “An attack on the compound of Libyan leader Muammar al-Qaddafi on Sunday had to be curtailed because of journalists nearby, Fox News has learned.”

“British sources confirmed that seven Storm Shadow missiles were ready to be fired from a British aircraft, but the strikes had to be curtailed due to crews from CNN, Reuters and other organizations nearby. Officials from Libya’s Ministry of Information brought those journalists to the area to show them damage from the initial attack and to effectively use them as human shields.”

But there’s a problem, one of the CNN journalists supposedly used by Gaddafi as a human shield subsequently appeared on CNN and labeled the claim, “Outrageous and absolutely hypocritical.”

“The idea that we were some kind of human shields is nuts,” CNN international correspondent Nic Robertson told Wolf Blitzer, adding that the 40 journalists on the tour of Libyan government buildings were free to get on and off the bus whenever they wanted.


Robertson pointed out that Fox News didn’t even send a journalist on the trip, instead dispatching a security guard, adding that the Fox News journalists in the country rarely ever leave the hotel.

“To say they didn’t go and for them to say this was government propaganda to hold us there as human shields when they didn’t even leave the hotel is ridiculous,” stated Robertson, adding that the journalists were even physically pushed back on the bus because Gaddafi’s officials wanted to get them out of harm’s way as quickly as possible.

“When you come to somewhere like Libya, you expect lies and deceit from the dictatorship here. You don’t expect it from the other journalists,” said Robertson, adding, “If I sound angry it’s because I am.”

Had it not been exposed by the commendable Robertson, the benefits of this hoax would have been twofold – on one hand, Gaddafi is made to look like a careless savage who has no concern for human life, and particularly western journalists, using them as sacrificial lambs for his own propaganda purposes. Secondly, it gives the “humanitarian” hoax behind the attack some legitimacy, suggesting that British and American bombers really do care about protecting civilians lives.

Fox News has proven itself to be a complete tool of the US military-industrial complex. Nothing it now reports about the attack on Libya can ever be trusted


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The establishment media is no stranger to inventing phony human rights atrocities in order to promote and legitimize wars.

President Bill Clinton’s depleted uranium holocaust in Serbia, the consequences of which led to thousands of cancer deaths, was manufactured for mass consumption by the helpful establishment media in a glossy package of deception based on a similar “humanitarian” hoax.

Clinton’s war was launched on the back of a fabricated controversy involving a Serbian relief camp that housed Bosnian refugees, which the media spun into being a Nazi-style “concentration camp” in which emaciated Bosnians were being imprisoned against their will.

The footage broadcast by the global media was contrived so as to make it look as if the Bosnians were inside a barbed-wire enclosure, when in fact it was the British TV news crew who were inside the enclosure and who were filming through the barbed-wire to the outside, where Bosnians had gathered. The “emaciated concentration camp victim” was in fact a man with a natural birth defect.

Publications like Time Magazine ran the hoax alongside headlines like Must It Go On?, and the public was told that air strikes were imperative to protect the civilian population. The subsequent NATO-led attacks on the country, aided by Osama Bin Laden and Al-Qaeda, with depleted uranium weapons caused civilian deaths and crippling long term health effects that dwarfed anything Slobodan Miloševic was accused of.





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The Fed Must Release Loan details as Supreme Court Rejects Appeal

The Federal Reserve will disclose details of emergency loans it made to banks in 2008, after the U.S. Supreme Court rejected an industry appeal that aimed to shield the records from public view.





The justices Monday left intact a court order that gives the Fed five days to release the records, sought by Bloomberg News' parent company, Bloomberg. The Clearing House Assn., a group of the nation's largest commercial banks, had asked the Supreme Court to intervene.

"The board will fully comply with the court's decision and is preparing to make the information available," said David Skidmore, a Fed spokesman.

The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window. The disclosures, together with details of six bailout programs released by the central bank in December under a congressional mandate, would give taxpayers insight into the Fed's unprecedented $3.5 trillion effort to stem the 2008 financial panic.

"I can't recall that the Fed was ever sued and forced to release information" in its 98-year history, said Allan H. Meltzer, the author of three books on the U.S central bank and a professor at Carnegie Mellon University in Pittsburgh.

Under the trial judge's order, the Fed must reveal 231 pages of documents related to borrowers in April and May 2008, along with loan amounts. News Corp.'s Fox News is pressing a bid for 6,186 pages of similar information on loans made from August 2007 to November 2008.


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Gaddafi sitting on 143 tonnes of gold in Libya

 

Click to play video

While the Libyan government says Western airstrikes kill civilians in Benghazi, rebels say there will be no peace with Gaddafi.

Libyan leader Muammer Gaddafi is reportedly sitting on a 143.8-tonne $6.4-billion pot of gold - enough to pay mercenaries to fight for him for years.
The gold bullion - held by the Libyan central bank and controlled by Colonel Gaddafi - is among the 25 largest reserves in the world, the Financial Times reported, citing the International Monetary Fund.
They provide the 68-year-old Libyan strongman a lifeline after billions of assets held offshore were frozen by the United States and the 27 member states of the European Union.

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Gaddafi's gold ... reportedly sitting on one of the world's top reserves.

The gold reserves are believed to have been moved from the central bank in the capital, Tripoli, to another city such as Sebha in the south, which is near Libya's African neighbours Chad and Niger, after fighting broke out, the Times reported.
While bankers told the Times that international banks or trading houses were unlikely to buy any gold believed to be from Libya, Colonel Gaddafi may find buyers in Chad or Niger.
"If a country like Libya wants to make their gold liquid it would probably be in the form of a swap – whether for arms, food or cash," Walter de Wet, the head of commodities research at Standard Bank, told the Times.
The price of gold has risen recently, fuelled by growing instability in the Middle East and North Africa.
"If the dollar remains weak and we get further unrest in the Middle East, there is a very reasonable chance for gold to test the record high," Darren Heathcote, head of trading at Investec Australia, told Reuters.
Ousted Egyptian dictator Hosni Mubarak reportedly used the 18 days of protests against his rule to move his fortune - estimated at up to $64 billion - to untraceable accounts in Western countries.
Other countries buying large amounts of gold include Iran, China, Russia and India, the Times said.
The United States holds the world's biggest gold reserves - 8965.6 tonnes, according to the World Gold Council.
Other countries with massive stockpiles include Germany with 3749.8 tonnes, China with 1161.9 tonnes, India with 614.8 tonnes and Venezuela with 401.1 tonnes.

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QE is the End of the Empire as We Know It

Each time we begin to approach the end of an announced QE period, the nervous jitters of financial markets start to set in. Will Bernanke continue with QE(n+1) or won’t he? Now it’s true that professional traders live and die by their ability to front run rumor and perception, but for long term investors who fret over such decisions, it demonstrates a fundamental lack of understanding of what QE really is. To put it succinctly, QE is an economic deal with the Devil. Once it is begun in earnest there can be no turning back. It must be played to its ultimate conclusion.

In Bernanke’s 2009 interview on 60 Minutes, he suffered a momentary lapse into honesty and stated that Quantitative Easing was effectively money printing. So why then the complicated euphemism of Quantitative Easing? Because that is what modern central banking sponsored economics is all about – the intentional obfuscation of otherwise simple economic principles to cause the eyes of normal people to glaze over. Once accomplished, the central bankers (and their financial community brethren) are able to pursue policies that greatly benefit themselves but are devastating to everyone else. .

Long term investors who worry about whether QE will continue clearly recognize the fact that everything is now correlated to the Fed’s balance sheet. What they don’t understand is how QE is related to the larger economic cycle and its mission of preventing economic recessions.

Keeping the tent inflated

Sometimes physical analogies are the most helpful in understanding complex relationships. Let’s think of the economy as a large inflated tent. The extent of the tent’s inflation is the health of the economy. Under normal economic conditions the tent is fully inflated. In the course of time, events take place that cause the need for a correction to the economic system. New technology can come along which obsoletes old industries, bad investments and debt must be liquidated etc. When this happens a free market economy will correct itself. Capital tied up in failed industries will be reallocated and invested in new businesses. New jobs will ultimately be created and people will go back to work. Of course this reorganization takes place over time and this is what a recession is – a healing process for the economy. In our tent we can think of this as a tear that forms in the fabric. While this hole is being repaired, air escapes and the tent begins to sag a little. The extent of the drooping is the extent of the recession. Once fixed, the tent and the economy go back to normal.

QE is a wholly different method of keeping the tent propped up. It does not repair the hole, but rather attempts to keep the tent inflated by pumping more air in than is escaping through the hole. This is the new money being created and pushed into the economy to offset the credit destruction in the banking system. This is a dynamic process that must be maintained. The catch is that the hole doesn’t just stay a fixed size. The tear begins to lengthen allowing greater amounts of air to escape. The economic tent begins to sag until the volume of air being pumped in is increased to overcome the outflow. This is why QE can never end. To stop now, with such a large hole, would result in a severe and frightening recession. The tent would lose a tremendous amount of air in the time it takes to make such an extensive repair.

This process continues until eventually the hole is so large that the tent collapses around the massive flow of pumping air. This is the ultimate fate of money printing as policy – a currency crisis – the endless flow of new money loses purchasing power faster than it can be created. We are left with an inflationary depression in which savings are decimated and the standard of living of most Americans is dramatically lowered.

QE is economic central planning

When an institution such as the Federal Reserve is allowed to create as much money as it wants and do with it whatever it pleases, without any oversight or transparency, then the free market and its self correcting mechanisms no longer exist. How can capital from failed business and banks be reallocated to more efficient uses when these institutions are bailed out and not allowed to fail? Prices and interest rates are the nervous system of a free market economy. They are the feedback mechanisms that direct all of the individual participants to behave in the most productive and efficient manner. There can no free market when prices and interest rates are de-linked from supply and demand. We are now a centrally planned economy run by our central bank.

But here’s the really insidious part of QE that almost no one in the general public understands: A free society cannot exist independent of free markets. There is a disequilibrium that occurs between the two and over time one will win out over the other. And so here we are, stuck in a decaying economic system that prevents resources from being used in their most efficient manner. We simply can no longer compete with freer markets in other parts of the globe. We are saddled with the weight of central economic planning much like the old Soviet Union was. There will be no recovery and no rush of new jobs created. We will live under the burden of a burgeoning Federal government that operates completely independent of the will of its citizens. It is now beholden only the money manufacturers at the Federal Reserve and will spend money as fast as Bernanke can add zeros to its account.

The problems we are experiencing have been a long time in the making. They began in earnest in 1913 with the formation of the Federal Reserve. It’s taken several generations for the Federal government and its central bank to usurp the world’s monetary system and as such few have noticed. But what’s different now is that we have hit the knee in the curve, the point at which events start to accelerate dramatically as we approach the end of the line. Those who understand QE realize that America as we knew it is already gone. Over the next decade the rest of America will become painfully aware of that fact as well.




The Dollar Will be rejected: Ron Paul

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Panic Selling in the US Dollar

With gold and silver up and the dollar down, today King World News interviewed James Turk out of London. When asked about the dollar Turk stated, “There are so many important things happening here today, but what I am focusing on is how weak the dollar has been. The key is the dollar index took out its low from last November. The way I see it that means the dollar index is going to be closing in on its all-time low of 70.79. Here is the scarey part Eric, given how poorly the dollar is trading, I think we could see that low level very quickly.”

James Turk continues:


“The precious metals are giving a clear message, namely that the dollar is in trouble. Gold and silver are near their recent highs and this shows both markets, the dollar and the metals confirming the trend.

It’s not just the charts painting this bearish picture for the dollar, the fundamentals are atrocious. With Europe on the verge of raising interest rates and the Federal Reserve set in its ways keeping interest rates low as far as the eye can see, people around the world are going to increasingly dump the dollar.

At some point there is going to be a panic as the flight from the dollar moves from the relatively orderly retreat we are currently witnessing, to a stampede. The charts are telling me that panic is about to begin. As I mentioned in a KWN blog earlier this month, I believe the next leg down in the US dollar will shock the world.”

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The US dollar has been grinding lower, what Turk is suggesting is at some point the graceful decline will turn into a panic. If he is right this will ignite the gold and silver markets.

World War III has already begun and is consuming the world one nation at a time.

 The globalists are infiltrating, corrupting, and turning the entire planet,    one nation at a time in a combined scientific-geopolitical dictatorship that will be effectively impossible to reverse once it is completed. The latest Western-fueled conflagration in the Arab world indicates an accelerated regional strategy of destabilizing and taking over target nations. Nations like Russia and China, whose interests are being directly threatened and stripped away in this malicious melee, appear powerless and unprepared.

Some nations succumb in silence behind the scenes, others are invaded, mercilessly brutalized, and assimilated into the globalist combine. The civil society overlay the globalists use to establish what amounts to a subversive shadow government is always creeping forward no matter how hard a target nation may try to ward it off. Only in the most extreme cases, such as Qaddafi’s Libya has civil society been uprooted entirely – making military intervention an acceptable and inevitable alternative from a globalist perspective.

Indeed there is a battle raging between the corporate-financier oligarchs of New York and London and their ever growing collection of globalist stooges and vassal states worldwide against the rest of free humanity. Each nation that falls to the globalists, however far from our own shores it may be, empowers and emboldens them and is one nation closer to their ultimate goal of one world government.

They have created a perfect system, a strategy of tension, where we wrestle with one battle after another, work to head-off one war after another, expose meddling and subversion in one nation after another all while their agenda moves ever forward.

We all to one degree or another help advance the globalists’ strategy of tension by playing into these contrived crises and by failing to focus on the source of our torment. The alternative media has made gains in exposing and delegitimizing the “international community” however, we must understand that the myriad of pet agendas we keep and nurture are in many ways dividing and distracting us – playing directly into the globalists’ theatrical productions.

The tragedy playing out between the duped and misled people of Israel and the besieged Palestinians is an example of where the globalists have created the perfect, unsolvable conflict from which they can perpetually wring out leverage to advance their agenda. The very fake “War on Terror” is another example. We get caught up in the details, we pick sides, we expend energy fighting these battles and we lose sight within this puppet theater of the men pulling the strings above. We become blinded and cannot understand the necessity of leaving the puppets behind, climbing up above the stage and throttling the puppet masters themselves.

We must recall how these corporate-financier oligarchs got so much unwarranted power in the first place – by controlling and regulating our lives from far above. They got it by us paying into their corrupt system for generations, as we’ve traded personal responsibilities in for corporate ready-made convenience. They will keep their power as long as we keep paying into their system, kidding ourselves that if we dance with their puppets long enough we will become the masters.

While activism, protesting, and campaigning is noble indeed, it is entirely futile until you identify and target the very source of your torment. In every case, be it Israel’s conflict with the Palestinians, the unending “War on Terror,” starving children, or even the bungling response of the “international community” over the disaster emanating from Japan’s Fukushima prefecture, the source of torment is the same: the unwarranted power wielded by myopically obsessed megalomaniacs, leveraging and squandering that power to enrich themselves at the cost of the rest of humanity.

We cannot depend on Russia, China, the other BRIC nations, or rouge nations like Iran to stand up against this expanding evil empire. In many ways they play directly into the strategy of tension themselves and run a similar risk of being folded in if their own people do not make this fundamental realization. The answer is to undermine this unwarranted power by no longer paying into their system through a full-spectrum boycott and the systematic replacement of the globalist corporate combines with local solutions.

We need not pen lengthy manifestos or declare in lofty terms our independence, we simply must begin taking the reins of our own destiny back by identifying how horrifyingly dependent we are on the globalists and rectifying it day to day by how we spend our money, time, and energy.

As a cloud of radioactive fallout blows seaward from Japan, as the Middle East convulses in engineered destabilization, as oil and food prices are manipulated by Wall Street speculators, the excuse of it being “too difficult” to boycott and replace the comfort and convenience offered to us by the corporate-financier oligarchs is beginning to ring rather hollow. Your life and the future of humanity depends on boycotting and replacing the globalists – World War III has already begun and is consuming the world one nation at a time.

We literally have nothing to lose by boycotting and replacing the globalists besides our servile dependence on their system. We will find, no matter what our pet agenda is, usurping this unwarranted authority from the global elite will infinitely advance our cause. For our various agendas are addressing but puppets upon the globalists’ stage, and by boycotting their system and excising them from our daily lives, we climb up above the theater and throttle the puppet masters themselves.

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