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Sunday, March 8, 2009

Gold and the Coming Panic

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.

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......
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.

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. Long Article cont' Here

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