Aren’t Silver and Gold in a bubble?

The premise of this question whether or not silver and gold is in a bubble is wrong which would define gold as an investment. Although it takes even professional financial experts to wrap their heads around this: How can real money be too expensive?? You better get some as long as you still can do so with our fiat currencies…as “they” are debasing the currencies in small increments.

How can you anybody talk about “gold in a bubble”? For example 100 years ago a brand new man’s suite cost ca. $20. Today it costs a four digit Dollar amount or in other words exactly the price of 1 oz of gold. That means in terms of lawful money the gold price remained the same – 1 oz of gold. In legal tender, price got inflated from $ 20 to whatever the price of gold is right now.

purchasing power

this example shall clearly illustrate what real money is. We all have been conditioned to believe that this monopoly printed paper would be worth anything. But it is not. It represents debt. The more of it you have, while you may be thinking yourself getting rich – the more debt you will be liable to, …public debt. That’s the trick. After an almost parabolic rise in the valuation of gold and silver lately, one may ask him-/herself “How much upside is left?”, “Is Gold in a bubble? If so, when will the bubble burst?” During all these years we have met buyers and non-buyers. The latter thought back then already, that gold and silver must certainly be in a bubble. Today they know better…
This chart illustrates Gold London (USD) since 19.03.2001


gold price

 

Today I came across an interview with one of the most successful investors in the world, Jim Rogers, and I could not have answered the question better than him, whether silver is in a bubble or not: “If silver would continue to go up like recently without collapse of the US Dollar, I would be worried.”
…mmh, a lot of content in that short statement. Something to think about…

In order to put this into perspective, if – and how much – is gold and silver really overvalued, or in other terms, if – and how much – upside is still left, here are some milestones to break even with first on the way up:


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As you can see, gold is nearing its inflation-adjusted 1980 high- and that peak was a spike that lasted only one day.In the right column you can see the return needed to reach those levels.

From their 1971 lows to January 1980 highs, gold rose 2,333% (!), while silver advanced an incredible 3,646%. This table applies those  past gains to our 2001 lows and shows the prospective returns from current prices.

CPI

Instead of using the manipulated Consumer Price Index (CPI) as a measure for inflation, let us implement John Williams’ Shadow Government  Statistics, whose data is much more realistic. This is what is left as your potential upside until the real inflation adjusted former all-time highs.will be broken even with:

CPI

As you can see, gold and silver are still far undervalued, and the upside left is HUGE. So, if you were hesitating getting into the market and trying to do ‘market-timing’ by waiting for those commodities to come down, forget it, this is not going to happen. The past has proven over and over again, that people attempting to do market timing have lost more money with trying to time the market, than through corrections while being invested into the same.
And for now, compared to how much “confetti” has been produced, gold and silver is cheap! Gold in a bubble? No, it is not the Gold and Silver that is in a bubble it is the printed paper, we (still call it money).

In order to get some gold and silver simply go to Gold Souk.

The constant purchasing power of Gold and why Gold is NOT an investment

often I receive that question and this one: “What do you think about the new Utah money where people are able to pay taxes and their goods and services they sell in gold and silver coins?”

Utah just legalized gold and silver as a currency, where you can see the big difference between “legal” and “lawful”. Bear in mind that gold and silver is the only “lawful” money. Some regions in the world want their money to be “lawful” again, so e.g. in Utah. Gold and silver will now be exempt from state capital gains tax in Utah. However, Utah does not have the power to exempt it from Federal capital gains tax. (No tax or legal advice) After all, when gold prices go up you actually aren’t making money. You are simply retaining your purchasing power as the U.S. dollar goes down. Fiat currencies are unconstitutional. The Federal Reserve Bank is acting unlawfully (to use polite wording) and is literally stealing the wealth of all Americans and other people around the world through inflation or in other terms “legalized confiscation” by debasing the world’s reserve currency.

But why is the purchasing power of gold constant and ever lasting?

For example 100 years ago a brand new man’s suite cost $20. Today it costs a four digit Dollar amount or in other words exactly the price of 1 oz of gold. That means in terms of lawful money gold the price remained the same – 1 oz of gold, and with it the purchasing power of gold. In legal tender, price got inflated from $ 20 to whatever the price of gold is right now.

purchasing power

In the long term it is even better: During thousands of years one ounce of gold could buy you, half a year of free housing, free transport, free food, free staff at home.

For further information go to Gold Souk.

Let us put that into perspective for the last 10 years and other currencies also, so that you can see, how much you have been robbed. Here is the annual performance of Gold measured in various fiat currencies:
currencies

As you can see, in average an “investment” – in order to be one – would have had to outperfrom e.g. 18.4 % p.a. in USD or 18.3 % p.a. in GBP or 14.6 % p.a.  in EUR during the last decade. But the reality is, that investments cannot even ‘break even’ with lawful money, which is Gold (and silver).

Enjoy, prosper and profit from constant purchasing power!

Gold Souk

 

Shadow Gold Price currently at $20,645 per ounce

The Shadow Gold Price

shadow gold price

Nothing can explain the fair price of gold better than the Shadow Gold Price, because it “disinfects” the price of gold from any price manipulation. But what in the world does Shadow Gold Price mean?

The Shadow Gold Price indicates the fair value or in other terms unmanipulated “price” of gold.

Here are the 7 definitions of the SGP – Shadow Gold Price:

To identify the intrinsic value of the dollar today, we examine the corollary – the intrinsic value of gold in dollar terms, which we dub “The Shadow Gold Price” (SGP). To do so we assume that Federal Reserve Bank liabilities are again exchangeable into gold (recall, FRB reserves are bank assets – the stuff that used to have to be gold).  One would simply divide the dollar amount of current Fed liabilities by official gold holdings. This calculation, while simple, is intellectually honest and produces a breathtakingly large “equilibrium” gold price of approximately $9,500 per ounce today ($2.5 trillion divided by US official gold holdings of 8100+ metric tons).

M1 Money Supply vs. U.S. Gold Reserves: The U.S. M1 money supply consists of currency and bank deposits. As of 9/29/2011, the U.S. government currently holds approximately 260 million ounces of gold. If the government were to back each dollar in circulation with gold as numerous governments are now considering around the world, the result would be a shadow gold price of $8,102 per ounce (M1 $2.1 trillion / 260 million ounces). This represents potential symptoms of ongoing inflation and corresponding near-future gold price increases.

Comparing Gold Bull Markets: Many gold experts agree that gold is currently in a bull market. However, to put the current bull market into perspective, in the 1970s gold prices rose from $35 to $850 per ounce, which was an increase of approximately 24 times. The low price of the current gold bull market in 2001 was $255.95. It is useful to compare magnitude increases between similar market phenomena to determine the potential phase of development a trend may be in within a given economic cycle. In this case, if we multiply today’s gold price of $1,620 (as of 9/29/2011) by the same factor (24), the current gold price would be $38,880 per ounce. This may seem high, but the inflationary environment of the 1970s triggered a flight to the safety of gold that has a high probability of occurring again.

Global Money Supply vs. Global Gold Reserves: As currency devaluation continues in many of the developed economies due to irresponsible fiscal and monetary policies, global governments may be forced to back their currencies with gold either wholly or fractionally. Assuming governments pay market prices to acquire their gold, and given total reported global M1 money supply of approximately $19.2 trillion, and given total reported gold reserves by all global financial institutions of approximately 930 million ounces, the resultant gold price today would be $20,645 per ounce.

The Dow/Gold Ratio: The Dow Jones Industrial Average converted into ounces of gold is commonly called the “Dow/Gold Ratio”. This ratio was at “1” when gold peaked in 1980, which indicated that the index value of the Dow and the price of an ounce of gold in 1980 were the same price. To bring the Dow/Gold Ratio back into balance today based on the Dow’s level of 11,153 as of 9/29/2011, the price of gold would need to be $11,153 per ounce. This imbalance between the Dow and the price of gold suggests that the stock market is over-inflated and a significant downward correction is likely in the near future.

U.S. Trade Deficit vs. U.S. Gold Reserves: If the U.S. trade deficit is not reversed, the U.S. will eventually become insolvent because no individual or nation can survive by perpetually spending more than their income. However, if the U.S. trade deficit is reversed, dollars will flow back into the U.S. and contribute to domestic price inflation as the money supply expands. Based on the 2011 cumulative trade deficit of approximately $10 trillion (up from $6 trillion in 2007), and given U.S. gold reserves of approximately 260 million ounces, if the $10 trillion of foreign-held dollars were to be rapidly unloaded into circulation within the United States, the price of gold today could increase to as much as $38,462 per ounce.

U.S. Government Debt vs. U.S. Gold Reserves: According to the Government Accountability Office (GAO), as of June of 2011 the U.S. Government’s balance sheet is overwhelmed with approximately $61.6 trillion in future liabilities for Medicare and social security. If the dollars required to pay for those entitlement programs were soundly backed by gold, and given U.S. gold reserves of approximately 260 million ounces, the price of gold would need to be $236,923 per ounce.

 

Can We Predict the Day of the USD / GBP and EUR Collapse and the Price of Gold?

shadow gold price

First of all the question contains a mistake within itself. The mistake is the presumption that real intrinsic money could rise or fall, although its purchasing power remains constant. It is the presumption that an inflated, debasing currency could be used as benchmark to measure the ROI on gold and silver.

One ounce of gold is one ounce of gold, period. Regardless what governments decide or print on their legal tender promissory notes.

But back to the question. Before FIAT currencies return to their intrinsic value which is zero, Gold will of course “rise” on its way in terms of Dollars, Euros or whatever FIAT currency you use until the reset of the monetary system will appear. That is when you will not be able to buy anything any more with FIAT currencies. Neither will you be able to buy gold and/or silver any more(!)

Therefore it is imperative that you put yourself on Gold-Standard now. Many countries around the world are increasing their gold reserves massively. What is good for a government / country cannot be bad for the individual.

Here is why:
 Gold Souk

And it is not too late to get into the markets before the shadow gold price will become reality in terms of current spot price. Enjoy and profit from your precious metals!

A Simple Guide to Buy Pamp Suisse Gold Bars

Individuals who invest or buy Pamp Suisse gold bars find them an attractive option because they are more stable and secure investments. Generally, the value of gold does not suffer the shocks and the after effects of inflation or economic downturns which other commodities like petrol and cash suffer frequently. The growing interest in gold has also broadened the options and the avenues that buyers can access when buying gold bars. Gold commodities tend to outperform common stock. In the recent past and even at the moment, gold commodities have performed quite remarkably apart from a few down turns which are forecasted very rarely. This pattern has been observed a few times in the past century and, therefore, investors can trade comfortably in Pamp gold bars.

Prospective buyers and investors who buy Pamp Suisse gold bars are good investments for prospective buyers who want to get full value for their money. The entire range of products are all made to the highest standard of quality.

In fact, the Pamp trademark is an icon of quality and excellence.

No matter where one buys the products, one can be assured of getting quality because all the gold bars come with assay certificates. These are standard marks of quality that assures buyers of good investment.
Individuals who want to buy  Pamp Suisse gold bars might also be interested in knowing what kinds are available in the market and what they cost. These considerations are very important because gold commodities are among the costly items that are found in the market hence the buyer needs to find the right ones to satisfy his needs. Prospective buyers of Pamp gold bars for commercial or domestic use have several options to choose from. Those who want small weights can buy any 1 Oz gold bars, I gram, 2.5 grams, 5 grams and 10 grams. Still, those who want considerably large bars can try out the 100 grams bars and one kilo bars.

The buyer needs to assess his or her needs closely and match them with corresponding products that are both cost effective and satisfy their individual needs. Ultimately, the decision to buy Pamp Suisse gold bars rests with the buyer and the purposes for which a customer buys them. Domestic workers may prefer the smaller Pamp gold bars because of convenience and suitability. The small bars are tailored for ornamental and collection purposes as evidenced by their small sizes. On the other hand, firms or institutional investors may prefer the kilo plus weights. Prospective buyers with commercial motives can also purchase some of the large bars which are commonly held as reserves or investments. These bars are suitable for those who do not want to sell them right away but use them as stock for future trading. Another significant aspect that may influence a buyer’s choice is the ability to turn the gold bars into money.

Individuals who buy Pamp Suisse gold bars light weight stand a good chance of liquidating their bars unlike those individuals who possess heavy gold bars.

Prospective buyers who do not find the gold bar weights that they want can check what other dealers offer online. There are many gold dealers online who can avail the type of weights that they want. Astute investors may have a mix of some of the commercially viable. Some hold them in order to secure their investment and the main purpose is to minimize overall risk on gold commodities. Whether one wants to buy gold bars  for investment or just as collectibles, the priceless range of gold bars can satisfy and give the prospective buyers full value for their money.

FIAT currencies in a bubble, gold coverage ratio currently at 9% only

Let me show you today, how and when the past Shadow Gold Prices became reality:

Focus on the Coverage Ratio!

251832

 

As you can easily see, there is something more to it than just its name….”shadow gold price”. Also – by using the shadow gold price – you can see whether or not gold is in a “bubble”. Any time the Coverage Ratio is exceeding 100 % like in 1980, only once then, gold was in a bubble. With a Coverage Ratio of 9% we are far away from that. To the contrary: FIAT currencies are in a huge bubble, which is going to burst, that is for sure.

monetary base

 

But why aren’t people preparing better? The main reasons are fear and ignorance. People are scared to admit reality to themselves and think the government will protect them forever. They would rather stick their heads in the sand like ostriches and ignore the inevitable.

Don’t be like them.
 Don’t become a statistic.

Go and get some precious metals, as long as you can still do so! Here is my trusted source especially for silver, but also for all other precious metals such as gold, silver, palladium, platinum.

Become wealthy or even more wealthier during the collapse of the economic system by accumulating gold and silver at least until the coverage ratio will break even with a 100.

Enjoy, profit and prosper from your silver and gold!

Gold Standard: How to put yourself on the Gold Standard

Governments used to back the legal tender currency by Gold. This is what is called Gold Reserve or Gold Standard.

Healthy economies usually have or better have had a Gold Reserve between 30 and 40 % of their monetary base. Switzerland for example – until they were kind of forced into the International Monetary Fund, which prohibits to link currency to gold (the Gold Standard) – had a law in place that for every additional Swiss Frank printed Swiss Central Bank had to buy Gold worth 40 Rappen, which means 40 %. That is how and why the Swiss Frank became such a stable and strong currency.

What used to be good for Governments to “hedge” (build a fence around their monetary system for the protection purposes), the Gold Standard, cannot be bad for the individual.

That is why in order not to be completely exposed to inflation tax, one should hold 30-40 % of all liquid assets in precious metals. This range is valid for politically stable times. In unstable times however, like now, that percentage should be increased way higher, so that you only keep cash for short term (< 6 months) living expenses.

No matter what financial tsunami comes along and destroys further remainders of what is left of people’s wealth, you will be protected by your physical gold and silver, which serve you like a rock in the sea.

Important: Do not store your gold and silver with a bank or any other outsourced storage facility! You need direct access to your private Gold Reserve and only you – I cannot emphasize this enough – only you know where your Gold and Silver is.

storage of gold

Always remember: The one with the Gold is the one who makes the laws. So if you would store it with third party, this would transform your Gold Standard into paper gold because all you will be getting is a paper receipt. Then there is the danger of allocation below 100 % which means, the storage facility lends or even sells your gold because they believe, that not all clients will ever withdraw their stored gold at once.

If you respect these guidelines and rules you and your family will be safe no matter what happens.

Where to buy your Gold Reserve for your Gold Standard?

Well you can do this either on a monthly basis with silver (instant delivery) or via lump sums. And the best address I know for accomplishing this: Gold Souk.

They do deliver worldwide.

Enjoy, prosper and profit from your Gold Standard!

The Secret Return To The Gold Standard in 2015

A silent conspiracy will make gold a new currency starting January 1, 2015. Central banks and governments are buying gold by the metric ton… Gold Standard 2015.

If you hold any dollars and/or Euros, here’s what you must do now to prepare — and earn a 670% windfall as gold soars to historic highs.

Brian Hicks quote:

“Four times a year, a secret cabal of powerful well-dressed men quietly streams into a small city on the border of Switzerland and Germany.

Carrying overnight bags and attaché cases, they discreetly check into a round high-security tower in this sleepy European city.

They’re the world’s only elite ring of financial rule-makers who come from places as disparate as Tokyo, London, and Washington, D.C., for the irregular meeting of the most exclusive, secretive, and powerful supranational club in the world.

This secret syndicate rarely pops upon the “grid” — once every decade or so.

Yet their sole purpose is to coordinate and, if possible, control all monetary activities in the industrialized world by creating financial rules and regulations that silently change our financial landscape…

So secretive and eerie, the names of its members are not published anywhere. But you can bet the U.S. has a representative appointed by the Fed. So does China, England, and other influential countries.

This powerful group has long been considered the most exquisite and private money clubs in the world, according to Time Magazine.

The Economist calls them “the club of bank supervisors.”

But the New York Times said it best when it labeled them as “the secretive panel that establishes global banking standards.”

Now they’ve met and hatched a new set of financial rules. One new rule, in particular, is about to set off the most profound change to your finances in 42 years…

So historical, this new financial rule demands gold be brought back into our financial system as money.

A massive, inevitable gold-buying operation is already under way as central banks and governments prepare for this secret return to the gold standard…

Because even though this is the most significant news for banks — and gold prices — in over 40 years, only the most connected insiders are positioning themselves for the dramatic changes that are coming.

I firmly believe this is the biggest story of my career.

It’s also the best opportunity you will ever have to strike it rich.

This isn’t guesswork. The new “gold standard” rule is in place. Gold prices are already moving higher…

Gold will easily soar beyond $2,000, even $3,000 an ounce… and it has the potential to hand you an easy 670% profit on a golden platter.

And all of this is due to this secret cabal’s machinations that will set off a series of events starting as soon as January 1, 2013.

But if you think you’ve missed out on the current gold bull market, you haven’t — not by a long shot.

My name is Brian Hicks.

brian_side

 

I’ve put together this short presentation to tell you this fascinating story… why this is a unique and historical situation… who’s behind it — and why…

And most importantly, how it will increase your net worth over the next 12 months.

No one else will tell you about this profitable opportunity, and there’s nothing anyone can do to stop the imminent sixfold gold profits you’re about to see by early next year.

In short, everybody knows gold is a safe investment — but few Americans realize it’s about to become even safer and more important than paper currency, starting January 1.

History in the Making It’s Official: Gold is Money

While this secret gold standard story is barely making news, it stands to be the most significant and lucrative gold story in our lifetime.

John Butler, Managing Director at Deutsche Bank in London, agrees: “In what might be the most underreported financial story of the year… will be an important step in the re-monetisation of gold and this should be strongly supportive of the gold price. Stay tuned.”

Thing is, few Americans even realize there’s this powerful secret club that silently cooks up financial rules, like the one that brings gold back in our money system…

But on June 18, the Federal Reserve (and the Office of the Controller of the Currency) through its website already issued firm warnings to all banks to implement the new rules that make gold a legal currency.

I’m prepared to tell you right here all I know about this powerful central banking cabal’s inner workings — and how their actions will lead to the most profitable gold opportunity for investors like you.

But first there a few things you need to know…

This powerful banking cartel is simply known in deep financial circles as the “Basel Committee on Banking,” because their closed-door meetings are held not in Washington, or London, or Beijing, or some renowned city…

But in Basel, a little quiet city in Switzerland near the German border.

As the highest authority in banking supervision, it’s the committee’s role to define capital requirements and banking standards through a set of rules adhered to by all banks on the planet.

Yet, through their quiet existence, this banking cabal has only issued three sets of banking rules that become the “banking mantra.”

It’s the third and newest set of rules that puts gold back in our money system.

And according to Bloomberg, this historic ruling will take effect in many G20 countries as soon as January 1, 2013.

Now, to understand the magnitude of the new banking rules and gold’s reentry as money, I must take you back a bit…
How Gold Regains “Money” Status in the Next 3 Months (Gold Standard)

You see, their first set of banking and financial rules issued in 1988 was called Basel I.

The second, issued in June 2004, was called Basel II.
Basel’s Effect on Gold Price

gold price

 Both sets of rules were issued to help banks mwill begin its journaintain a certain level of capital to safeguard against financial meltdowns.

Yet these same rules encouraged banks to hoard toxic mortgage-back securities and government bonds as money.

As you and I know, both sets of rules backfired due to the number of crises we’ve seen since over the last decade alone.

These rules created a gaping hole that allowed the entire system to collapse right through it.

Johns Hopkins University School of Advanced International Studies released a recent study to show how both previous Basel rules failed miserably.

Let me show you how…

Banks have always used government-backed securities, like bonds created from real estate loans or Treasury bonds, as collateral to finance loans and lend people money.

These securities have always been rated First-Class Assets, according to the old banking rules.

In other words, U.S. Treasury bonds and mortgage-backed securities were considered as good as cash.

In fact, government bonds and mortgage bonds were better than cash for the banks — because banks could hold interest-paying bonds and then make loans that were backed by those bonds.

Banks were making money both ways!

But as we learned in 2008, there was a fatal flaw in this arrangement…

Bonds are basically promissory notes: They are just promises to pay back money that’s been lent. And when people stop paying those loans, bonds can lose value quickly… like when mortgage holders started defaulting in 2008.

That’s why, after the collapse of Lehman Brothers in September 2008, banks suddenly lost faith in the value of securities tied to the United States real estate market and government. Without this collateral for lending, the market seized up and the financial crisis erupted.

If you understand the debt situation in Europe — that these countries have so muchdebt that they may not be able to pay off their bonds —  it’s easy to see that another financial crisis could happen all over again, bigger than any meltdown we’ve seen.

So, the secret banking cartel stepped in to “cancel” the old banking rules and derail this life-threatening fiasco.
Gold: The Last Asset Standing

Bottom line: Gov’t bonds and mortgage-backed securities — the darlings for the last 40 years of banking security — are toxic!

And it’s all because bonds are tied to fiat currency and “bad debt.”

Just consider this: The value of German bonds, seen as a shelter from Europe’s debt storm during the last two years, has started to tank, according to the New York Times…

It’s hard to see why a banker would want to tie up money in sovereign bonds,” adds Phillip L. Swagel at the University of Maryland’s School of Public Policy.

To fix this problem, the high-level Basel banking cartel secretly met recently and issued a third and new set of rules that historically brings gold back in our money system as the new backdrop of banking security.

But what’s so historic about this new banking rule?

Let me show you so you understand how rewarding this will be for your pocket…

As I said before, mortgage and sovereign bonds were always First-Class Assets for banking security.

But here’s what most people don’t know…

Gold had always been disrespectfully rated a Third-Class Asset.

What this means is means banks can use only 50% of its value as capital. So if a bank has $10,000 worth of gold, when it comes time for lending, the gold would be worth just $5,000 as collateral.

In other words, the “old” banking rules cut the value of gold by half of its actual market value.

So, the more Third-Class Asset a bank holds, the less money it can lend.

Banks were discouraged to hold gold as an asset. That’s why they flocked to government bonds and mortgage-backed securities.

But all that’s about to change — and gold will easily double in value because of this new rule.
New Gold Banking Rules that Can Fund Your Retirement

As soon as January 1, 2013, things will change completely and gold will be rerated a First-Class Asset, thanks to the influence and financial power of this banking mafia ring.

For the first time, banks will be allowed to hold bullion in their vaults and rate it among their First-Class Assets.

In other words, gold will be just as good as money.

Banks are already preparing for the full implementation of gold’s dominance as the new First-Class security for banking, Reuters quietly reported.

This means from now on, PHYSICAL gold will carry its full weight alongside cash in the global banking system.

It will be considered “money” in virtually the same way as cash or government bonds, or even better.

And according to the Federal Reserve, all U.S. banks must adhere to this new banking rule.

It’s pretty easy to see that gold is about to get a lot more valuable.

But that’s just half of this historical story…

You see, under the new rules, a bank’s First-Class Asset must rise from 4% to 6% of its total assets, which means banks will have to replace a huge chunk of their existing paper currency with gold.

This move will push gold prices even higher and create staggering profits for early investors like you…
“No asset is safe now,” adds Zhang Jianhua of the People’s Bank of China. “The only choice to hedge against risks is to hold hard currency — gold.”
For one thing, gold performs a major job that no fiat currency — or any other financial instrument, for that matter — can do.

Gold is a safe haven and better collateral than government bonds or cash-based assets tied to devaluing currencies.

Here’s the thing: In 1913, the U.S. dollar was, well, a dollar. And gold was U.S. $20 an ounce.

Today, almost 100 years later, the dollar has lost 95% of its purchasing power — while gold has soared 8,000%.

The biggest gold-buying spree we’ve seen over the last four decades is going on right now, as banks have begun to stockpile more of it.

In fact, the World Gold Council revealed net central bank purchases in 2011 exceeded 455 tonnes (14.5 million ounces), the largest purchases since 1965.

And it reported banks will purchase 700 tonnes (22 million ounces) of gold for this year alone…

All in preparation for gold’s reentry into our financial system as “real money” — a covert operation instigated by the most powerful financial alliance in the world.

Let me tell you more about this powerful little-known banking cartel… who they really are… and how on earth it’s possible for them to take such a historic stance on gold’s reentry in our money system.
“The Club of Bank Supervisors” — The Economist

You see, membership to this club is restricted to a handful of powerful men who determine the daily interest rates, the availability of credit, and the money supply of the banks in their own countries.

Let me be clear: This group has nothing to do with the yearly and well publicized meetings of CEOs, billionaires, politicians, and journalists who gather at the Economic Forum in Davos, Switzerland…

In fact politicians are not welcomed into this club. No surprise Fritz Leutwiler, former head of this secret alliance once said, “I have no use for politicians, they lack the judgment of central bankers.”

The Basel banking syndicate I’m referring to — secretly established by the central-bank governors of the G-10 Countries at the end of 1974 to regulate banking activity — is far more exclusive.

That’s why former IMF Managing Director Pierre-Paul Schweitzer called them the “best club in the world.”

But Time Magazine puts it this way: “Among the world’s temples of high finance, no other organization has risen to such authority and influence in such an unpretentious way…”

According to Edward Jay Epstein, investigative journalist and former political scientist professor at Harvard, who researched the dark corners of this secret club and toured its headquarters…

“…They sought complete anonymity for their activities. At first their headquarters were in an abandoned six-storey hotel, The “Grand et Savoy Hotel Universe”, with an annex above the adjacent Frey’s Chocolate Shop in a little Swiss city on the French and German border.

There purposely was no sign over the door identifying them, so visiting central bankers and gold dealers used Frey’s, which is across the street from the railroad station, as a convenient landmark.

It was in the wood-paneled rooms above the shop and the hotel that decisions were reached to devalue or defend currencies, to fix the price of gold, to regulate offshore banking, and to raise or lower short-term interest rates.

And though they shaped “a new world economic order” through these deliberations (as Guido Carli, then the governor of the Italian central bank, put it), the public, remained almost totally unaware of the club and its activities…”

Edward Jay Epstein
Copyright © 1983 by Harpers Magazine.
All rights reserved.

Today they’re based in this high-security, 18-story tower in Basel, Switzerland, in what is considered the World’s Central Bank.

basel

As Epstein reveals: “The tower is completely air-conditioned and self-contained, with its own nuclear-bomb shelter in the sub-basement… a triply redundant fire-extinguishing system (so outside firemen never have to be called in)… a private hospital, and some twenty miles of subterranean archives.”

There are suites of offices reserved for the central bankers, each with coded speed-dial telephones that, at a push of a button, directly connect the club members to their offices in their central banks back home.

Some insiders call it “the central bank for central banks.”

And all member countries within this group — like Canada, the United States, England, China, Germany, Saudi Arabia, Mexico, Brazil, Singapore, South Africa, Japan, Korea, France, Italy, Spain, Australia, and Argentina, to name a few — are bound to implement its banking recommendations.

Which means as a new First-Class Asset, gold would be the new backstop for debt, currencies, and bank equity capital from Europe to South and Central America, North America to the Middle East and Asia.

I can’t stress enough how important this ruling is.

Gold prices are likely to double by next year — and open the floodgates to massive profits for you at the same time.Gold’s Historic Reentry as Money

Consider this: In the U.S. alone, the Fed has laid out the requirements for the new rule, leaving no bank untouched…

Which means JP Morgan, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Citigroup, MetLife Inc. PNC, SunTrust, U.S. Bancorp, and others will have to conform to the new gold rule, according to a story buried the Wall Street Journal.

The FDIC also distributed a firm notice to all banks to accept the new banking requirements for gold immediately.

Here’s what’s already happening, even as Americans are going about their daily business without a clue…

Banks like JP Morgan, Wells Fargo, and Capital One Financial Corp. are leading the way in positioning themselves to implement the new rules, Bloomberg reports:

JPMorgan has even started allowing clients to use gold as collateral in some transactions where traditionally only Treasury bonds and stocks have been accepted.

CME Group, the world’s largest derivatives future exchanges (90% owner of the Dow Jones Industrial Average), now accepts gold as collateral.

European-based LCH Clearnet — the second-largest clearer of bonds in the world, which serves major international exchanges and provides services across 13 government markets — has announced it will accept gold as collateral.

Germany’s cabinet is pushing ahead quickly with the introduction of the requirements for banks under these new banking rules, confirms CNBC…

And Deutsche Bank is already drafting its strategy to comply with the new requirements and make it standard.

UBS, Switzerland’s largest bank, is also applying all of the new banking rules.

In fact, the secret gold-buying spree among central banks, governments, and institutional investors is creating one of the most surefire profit opportunities the world has ever seen…
“Central Bank Purchases Of Gold Soar; Demand Should Continue in 2012″  — Barron’s

There’s no doubt the secret return to the gold standard is incredibly important news.

It’s amazing to me that this story is being ignored by the mainstream media. It’s almost as though they don’t want you to know about it…

Anyway, here are the only public figures I could get my hands on:

Turkey alone has added over 123 tonnes (3.9 million ounces) since last October.

Mexico has purchased over 100 tonnes (3.2 million ounces) since February 2011.

The Philippines added 32 tonnes in March, its second-largest monthly purchase ever. Largely under the radar is the fact that it’s buying some of its local production.

Russia continues buying, adding 15.5 tonnes in May. Total reserves now stand at 911.3 tonnes (29.2 million ounces), the highest level since 1993.

Thailand has raised its holdings by more than 80% since mid-2010.

South Korea has bought 40 tonnes since May 2009, an increase of 180% (3.3 million ounces).

China refuses to say how much gold it is buying.

Regardless of how you look at it, that’s a lot of gold already bought.

Is this the buildup to a gold shortage?

Time will tell. But consider this…

The largest U.S. gold production was the Cortez mine in Nevada that produced $1.42 million ounces of gold last year, while the Grasberg mine in Indonesia — the largest producing mine in the world — pulled a modest $1.44 million ounces as well.

Yet just the few central banks mentioned above have secretly bought 39 million ouncesof precious metals and hid them in their vaults in preparation for what’s to come.

Keep in mind this excludes the U.S., with its 8,133 tonnes, and other nations like China that don’t regularly report their secret gold-buying activity…

According to the World Gold Council, there is a significant number of purchases that have not been reported publicly — and whose buyers couldn’t be identified due to confidentiality restrictions.

This large number is a surprise,” said UBS analyst Edel Tully. “This information is very bullish. And no doubt the market will be busy speculating on the identity of such buyers.”

This gold-buying spree is so historic, it has created what may seem like a secret Gold Cold War that you won’t hear about in the mainstream media.
The Gold “Cold War”

Towards the end of last year, Venezuela ordered the repatriation of 211 tons of its gold reserves held in Switzerland, Britain-based Barclays Bank, JPMorgan Chase and Canada’s Bank of Nova Scotia.

Its reason? To reduce exposure to debt-laden economies like the U.S. and those of Europe.

Recently, the German Federal Audit Office criticized its central bank’s auditing controls regarding its 3,400 tons of gold (the majority of which is held in the Federal Reserve Bank of New York, Paris and London).

German lawmakers are concerned about what would happen if they need to access their gold urgently.

I would not be surprised if Germany follow Venezuela’s footsteps and have their gold repatriated to Germany.

Over the last two years alone, central banks that rid themselves of gold have completely turned around and begun buying back gold in staggering quantities…

As I said before, it’s all just preparation for the “new gold banking rules” set to take effect in the next few months.

In fact gold has now become the most valuable asset and has started a modern-day gold rush that will potentially send gold’s price soaring over the next year, creating new wealth for early investors like you.
Gold: From $1,600 to $8,890 an Ounce

This is a treble win for gold. It’s a major endorsement of its role in our financial system by the highest global financial authority.

It’s now time to invest in gold again.

In fact over the next two years, gold could be sitting safely at $8,890 an ounce.

Now, before you tell me I’ve gone bonkers… $8,890 may well end up being a conservative estimate when you adjust for inflation.

Hear me out…

When the gold window was closed in August 1971, it had already risen from its fixed price of $35 an ounce to $42 an ounce. By the time gold peaked in 1980, it had soared to $850, rewarding early investors with a 2,400% return.

My guess is, had I made such forecast in 1971… you wouldn’t have believed me.

Well, mark my words today: We will see gold’s price setting record highs in just a few months… making investors like you rich along the way.

If $8,890 an ounce is a tough pill to swallow, then consider the prediction of Mike Maloney, a precious metal investor and revered historian on monetary history and economics…

He has run calculations showing that if history repeats — and gold covers the same portion of the currency supply that it did in 1934 and 1980 — we should see prices of at least $15,000 per ounce within the next three to five years.

And other insiders are predicting around the same price point: between $10,000 and $15,000.

And it’s not far-fetched, given the importance and remonetization of gold right now…

In short, insiders are silently and secretly getting ready to use gold as money in the next few months — and everyday folks have no idea.

But you won’t be one of them.

Here’s how to prepare for your profit windfall from the secret return to the gold standard…

Here’s What You Must Do Now to Secure a Sixfold Windfall

Even If You Don’t Buy an Ounce of Gold

There are a few recommendations I can make now. And I’d suggest you do it while you have time — to secure your family’s future and ensure you live comfortably while these changes erupt in America’s financial system.

Of course you can invest in gold coins or bullion. In fact, I think you should. Converting your paper money into gold before further dollar devaluation is a no-brainer.

+++unquote

Here is a reliable source where you may buy it: Where-to-buy-silver.com

For further information about the coming Gold Standard 2015 go to http://www.where-to-buy-silver.com/index.php?option=com_content&view=article&id=66&Itemid=205

FIAT money / Intrinsic Money

FIAT money / intrinsic money

There’s no shortage of villains in the story of our current economic distress within this FIAT money system…

The Fed, Wall Street investment banks, CEO felons, dishonest academics,
and gutless and corrupt politicians. It’s absolutely true that many of these
people belong in jail.

However, the biggest villain of all is not a person, but a SYSTEM.
Specifically, the FIAT money system.

People seem to forget that the dollar’s barter exchange value has been circulated
for decades and hundreds of trillions of dollars worth of products and commodities
have changed hands through the use of dollars every decade. The fact that the dollar as FIAT money is “just” an exchange barter tool since 1963 (the date when they pulled the coinage in circulation taking the silver and gold out of the public’s hands) has not changed.

Does anyone think the massive expansion of the economy based on FIAT money would have taken place using gold as the barter tool over the same time period?

Individual’s assets in 1955 were rather sparse and bare compared to the individual’s
assets today. Inflation has taken root over the last 20 years due to the spiral of run-away
growth and the effect of greed and unethical oppertunity applied from and due to the boom periods where cash flowed as king and as time went by he who could cheat the other guy first walked with the kingdom of the booty. (within government expansion the before mentioned was done quite well)

Let me show you why the rich are getting richer while everyone else is getting taken to the cleaners and ground into the dirt. And why nothing will change until we attack the problem at its root. Here is how it works:

FIAT money

And here is how to accumulate intrinsic money:

FIAT money

 

Result of petrodollar warfare: Ditching the Dollar for Gold!

Result of petrodollar warfare: Ditching the Dollar for Gold!

Petrodollar warfare

Most oil sales throughout the world are  denominated in United States dollars (USD).


 

According to proponents of the petrodollar warfare hypothesis, because most countries rely on oil imports, they are forced to maintain large stockpiles of dollars in order to continue imports. This creates aconsistent demand for USDs and upwards pressure on the USD’s value,regardless of economic conditions in the United States. This in turn allegedly allows the US government to gain revenues through seignorage and by issuing bonds at lower interest rates than they otherwise would be able to. As a result the U.S. government can run higher budget deficits at a more sustainable level than can most other countries. A stronger USD also means that goods imported into the United States are relatively cheap. Another component of the hypothesis is that the price of oil is more stable in the U.S.than anywhere else, since importers do not need to worry about exchange rate fluctuations. Since the U.S. imports a great deal of oil, its markets are heavily reliant on oil and its derivative products (jet fuel, diesel fuel, gasoline, etc.) for their energy needs. The price of oil can be an important political factor; U.S. administrations are quite sensitive to the price of oil. Political enemies of the United States therefore have some interest in seeing oil prices denominated in pretty much anything but the US dollar.

 

Petrodollar warfare

http://www.youtube.com/watch?v=6u7KnXyrKmQ This transaction wasn’t an easy one, as oil is priced in U.S. dollars within this petrodollar warfare.

Therefore, two big banks had to mediate the deal between the two parties:

Petrodollar warfare: India’s state-owned UCO Bank and Turkey’s state-owned Halkbank helped ensure a smooth and legal transaction between Iran and India..Both banks don’t have any business with the US and there- fore are less vulnerable to sanctions. According to the report, an Indian delegation has spent time in Tehran andfinalized the details of the transactions. The annual capacity of trade between these two countries is 12 billion dollars. With gold trading at around $1668,that is around 7.2 million ounces of gold.

This happened shortly after Iran and Russia announced they would trade using
their own domestic currencies as opposed to the U.S. dollar. EU officials recently
announced an “oil embargo on Iran” beginning on July 1st. Consequently, tension is
steadily rising in relations between the West and Iran…Oil is steadily rising as well.
The embargo agreement means any bank dealing with Iran would be unauthorized
to participate in transactions associated with American or European financial institutions.

India’s choice to pay for Iranian oil with gold will push gold even higher
— while keeping the value of the dollar on a steady decline.

Do you have your gold, whether or not you want to use it one day for buying oil or gas?

For further information, where to best purchase precious metals, go to www.where-to-buy-silver.com.

Quantitative Easing 3

as you probably know, we are one of the very few publications in the world that not only predicted the 2008-2012 financial crisis, but told the world why it was virtually inevitable.

Today we face a crisis of a totally different dimension: Again most people will have a hard time believing it. And it is even more difficult to give people the rationale for the steps they must take to secure their own financial futures in the face of an escalating financial apocalypse. Wall Street joined hands with corrupt politicians in both political parties to create a vast tsunami of free money in terms of quantitative easing (all credit) that eventually destroyed the global financial system.

TODAY the FED went ALL-IN on Quantitative Easing 3. Let Peter Schiff explain to you what this Operation Screw (Twist) is all about and what it means to all of us.
Here is the link:

http://www.youtube.com/watch?v=LS879r7xeLc&utm_source=ZohoCampaign&utm_campaign=QE3_2012-09-20&utm_medium=email

quantitative easing

And here comes THE analyst who predicted precisely the crash of 2008. Read what Chris Martenson has to say today regarding the implications of QE3 (quantitative easing 3):


Understanding the Implications of Quantitative Easing 3

by Chris Martenson
Tuesday, September 18, 2012

 

Executive Summary

  • We’ve now entered a new era of economic and fiscal descent; expect the next stage to be prolonged and bumpy
  • Why only two possible economic outcomes remain at this point (and one of them has a 90%+ chance of occurring)
  • How the recent liquidity measures announced by the world’s largest central banks will impact:
    • stocks
    • bonds
    • gold & silver
    • other commodities
    • real estate
  • Why adopting a wealth preservation strategy is critical right now (and why so many will fail to do so)
  • Why this is not (yet) the moment to go “all in” in exchanging paper assets for hard ones (but do get started if you haven’t already!)

Part I: The Trouble with Printing Money

QE3 (Quantitative Easing 3) reflects a colossal failure to address our predicament

For a while now, I have been expecting a coordinated, global central bank action that would seek to print more money out of thin air, or “QE” (Quantitative Easing), as it is now called.  Now we have two of the most important central banks, that of the U.S. and in Europe (ECB) having committed to open-ended, limitless Quantitative Easing.

In Part I of this report, we analyze the actions themselves, and then in Part II we discuss the implications to individuals and those with responsibilities to manage money.

The most recent announcement came from the Fed, and it had these features:

  1. The creation of $40 billion a month out of thin air to purchase agency mortgage-backed securities (MBS)
  2. The continuation of Operation Twist, which uses short-term Treasury bills and notes on its books to purchase long-term Treasury paper (that’s 10- and 30- year bonds)
  3. When MBS payments come in – the Fed holds over $840 billion dollars of those – they will buy still more MBS paper (‘rolling’ the payments into new MBS, as it were).
  4. Taken together, the Fed will expand its balance sheet holdings of long-term assets (i.e., “debt”) by ~$85 billion per month through the end of the year…but wait!  There’s more…
  5. This time, unlike the prior two QE efforts, the actions will be taken without any pre-defined limit.
  6. Quantitative Easing will continue until the labor market improves “substantially,” whatever that means.  But wait…there’s even more!
  7. If deemed necessary, the Fed will “purchase additional assets” and “employ other policy tools.”
  8. As if all that weren’t enough, for good measure, the Fed committed to a six-month extension of the 0.0% to 0.25% target range for the Fed Funds rate until at least mid 2015.

That laundry list can be summarized as ‘we will do whatever it takes.’  If anyone was still wondering if the Fed would ‘allow’ deflation to happen on its watch under Bernanke, perhaps the above points in combination with QE 1 and QE 2 will settle their minds.

But will it work?

Well, that all depends on what your definition of ‘work’ is.

Without context, I really don’t know how to explain the importance of these recent actions.  In order to address the implications of this historic move – remember, now is the time to keep a journal, as your future relatives will want to know all about what happened ‘back then’ – I’m going to rewind this story back a few years.

Review of How We Got Here

Since the very beginning of my public writings, I have leaned heavily towards the path of inflation, by which I mean money printing or its electronic equivalent, because even a cursory review of history will show that leaders have always chosen a little money printing today and the possibility of inflation tomorrow over the immediate pain of having to live within their means or with the consequences of their poor decisions.

That was just a fancy way of saying ‘humans will be humans,’ and while our technology has advanced tremendously over the past few decades, our DNA blueprints are virtually identical to those found in people living 50,000 years ago.  History can tell us much.

Our current predicament has its roots way back in the early 1980s, when something changed in our collective psyches that allowed us to abandon thrift and savings in favor of spending and borrowing.  This first chart, which references the U.S. (but in reality could apply equally well to most developed countries) show how borrowing has outpaced income (debt vs. GDP).

quantitative easing

In order to believe that the Fed or any other central bank can get us back to ‘normal,’ you have to believe that it is normal for borrowing to exceed income and (here’s the kicker) that it can do so forever.  Many people cling to the thin hope that somehow the Fed and its related entities across the globe can get us safely back on the yellow line in the above chart, angling forever upwards at 45 degrees.

Well, if it’s not possible for you, personally, to forever borrow more than you earn without someday getting into financial difficulty, it is not possible for two or ten or 310 million of you to do so.  The math does not change simply because a nation is involved instead of an individual.

To really drive home the point that what our leaders have accepted as ‘normal’ and are endeavoring to resurrect is anything but normal, I find it useful to present this chart, which shows how the total credit market debt (that’s everything) in the U.S. has doubled and then doubled again and again and again over the past four decades:

quantitative easing

What ‘getting back to normal’ requires is that we find a way to continue expanding debt exponentially with a doubling time of around 8 years.  That’s what the last forty years have seen, and that’s the period during which every single leader at the Fed and in DC grew up and developed their views around ‘how the world works.’

Unfortunately that’s not how the world actually works.  In the real world your income and expenditures have to eventually balance, and the only question is whether this is accomplished through diligence or catastrophe.  The prior forty years were an admirably sustained departure from reality, but like all teenage road trips fueled with a pilfered credit card, the practices of those times were unsustainable and destined to end.

Hopefully by widening up our lens a little bit, we can more easily appreciate that instead of being ‘normal’, the vast expansion of debt was actually quite abnormal, and therefore attempts to resuscitate its prior trajectory are (1) certain to fail and (2) going to make the final crunch a lot more painful and damaging than it otherwise needs to be.

And oh, by the way – world oil is trading at $114 per barrel.  Recoveries are tricky business at half that price.

Quantitative Easing Will Lift Stocks and Commodities

While left out of the official FOMC (Federal Open Market Committee) policy statements, but not Wall Street Journal editorial pages, is that a primary goal of the Fed is to boost stock prices.  The stated reason is that the so-called wealth effect will lead households to view their rising portfolio statements and go out and spend more money.  An underlying reason has to also be the fact that pensions, endowments, and other long-running actuarial pools of money are being destroyed by too-low rates of interest on bond holdings and desperately need stock-market gains to cover some of the shortfall.

Quantitative Easing and its distant cousin Operation Twist both serve to lift stock prices.  Quantitative Easing does this in two ways – first by dumping money into the financial system, which then has to go somewhere and do something, so some of it ends up in the stock market, and second by driving down interest rates, which has the tendency to push money into stocks.

Operation Twist, which is balance-sheet-neutral for the Fed (short-dated securities are traded for long-dated securities – it’s a swap) only serves to drive down interest rates on the long end of the curve.  No new money is created.

As we can see, stocks respond well to both types of stimulus:

quantitative easing

As we might also note, when the stimulus ends, stocks respond unfavorably.  It would seem that the Fed is now trapped and that if it ever pulls away from the market there will be a rout of historic proportions.

Commodities really only respond to new money, which makes sense.  Lower interest rates on the long end of the curve do not change the preference for commodities much, and so Twist might be expected to do little, if anything, for commodities.  That’s exactly what we see in the data:

quantitative easing

While the Fed may not be too pleased with rising commodity prices (with all that’s going on in the world with unrest, drought, and $114 Brent crude), it seems quite likely that rising commodity prices stand a good chance of being a feature of QEternity, or whatever this new program will finally be branded.

The Trouble with Printing Money

It is against the larger backdrop of borrowing and spending well beyond our means that we need to interpret this most recent effort by the Fed to print our way back to prosperity.

One way to look at the $40 billion per month in new printing is to compare it to individuals and households.  Remember, money only comes into your life through effort, and that’s why it has value and can function as a store of value.  Once upon a time you could make the choice as to whether to work to find money (by mining gold or silver) or work to earn money by farming or practicing a trade, craft, or service.  Note that work was always involved.

What does it mean that the Fed can just up and print $40 billion per month indefinitely without performing any work whatsoever?

Well, let’s put that in context.  If an individual earns $50,000 per year, then each month the Fed is effectively printing up the yearly output of 800,000 such individuals.  Said another way, if you earn $50k, then you’d have to work for 800,000 years to earn the same amount of money the Fed prints each month.

Given that the median household income is ~$50k, this means that after one year of MBS purchases, the Fed will have printed up as much money as 9,600,000 households will have earned.  Presto!  Just like that, the Fed is effectively creating the exact same purchasing power as nearly 10 million US households, or 25 million people (I’m rounding a bit here).

And nobody had to do anything except push a key on a computer a couple of times.

While the Fed can wrap this magic act in all sorts of covering language about dual mandates, maximum employment, and price stability, the simple fact remains that money printed out of thin air cannot, has not, and will not ever lead to prosperity.  How could it?  It arises without any effort at all, no work performed, no goods transformed or lives improved, no land planted and tended well, no services rendered, and no capital formed.  It is just conjured into existence.

It is just new money tossed after bad debts, with both remaining to work their different insidious effects on the economy and our daily lives.  If printed money could lead to prosperity, trust me – some culture would have worked it out long ago, because people every bit as clever and determined as those alive today (and with the same DNA software installed) have tried it again and again.

If it could work, then we should just print every household up a nice $1,000,000 check each year and let everybody stay home, take vacations, and drive nice cars.  It’s just an absurd notion, and this is why you should keep a journal – you live in absurd times.

Conclusion

How does all this end?  Like it has every other time in history, with a final destruction of the currencies involved.  That’s my best guess.

This is why I view all of the QE efforts to date, and those that will certainly follow, not only with suspicion but as a series of unforgivably narrowly-conceived efforts that will combine into one of the most colossal failures ever experienced by humanity.

In Part II we analyze how the recently-announced liquidity measures by the world’s largest central banks will impact major asset classes (stocks, bonds, precious metals, commodities, real estate). And at a higher level, we look at why – at the dawn of this next phase of our economic and fiscal descent – prioritizing wealth preservation is essential. I remain convinced that the fate of most will be to lose most of their wealth during this process by trusting that the majority cannot be wrong when that is exactly the most likely case.

Part II: Understanding the Implications of Quantitative Easing 3

How will the major asset classes react?

A Process, Not an Event

Okay, the ECB and the Fed are now in the game with unlimited, open-ended commitments to print as much money as necessary to get back to the same rates of GDP growth we had in prior decades. I should note that the ECB actions, at least, will be fully sterilized, meaning that they won’t boost the money supply – at least that’s the plan right now. Soon enough, Japan is going to have to join the fray simply because it cannot afford a stronger yen here; it will have to print because it is first, second, and last an export economy.

After that, it is anybody’s guess as to how long China will put up with its massive $3.2 trillion in foreign exchange reserves being debased willy-nilly, but my vote is ‘not long.’

These latest rounds of Quantitative Easing are certainly unnerving and may prompt many of you to want to accelerate your own private efforts at financial, emotional, and physical resilience. By all means, use these moments to focus your attention and efforts. But also be aware that we are experiencing what is certain to be a very long process rather than some dramatic event.

For reference, note that one of the most dramatic and rapid inflationary processes of the last century took six years to unfold. How long would it have taken if every country and every currency surrounding the Weimar republic was engaged in the same dynamic of overprinting? And what if the Weimar also happened to be the world’s reserve currency? I don’t know, but I am certain it would have taken longer than six years. Without a frame of reference, it can be really hard to get one’s bearings, particularly in this case with competing currencies found right over the borders.

quantitative easing

My point here is that as dramatic as these recent Quantitative Easing announcements have been – and they are historic – the effects are going to take many months and years to play out. It is my view that we are much closer to the beginning of this crisis than the end.

In fact, unless something magically changes and we can get back to cheap oil somehow – and I truly believe magic would have to be involved, for that to be possible – we are never going back to ‘how things were.’  It is a new world, and our most pressing predicament happens to be that we have a money system based on debt, which requires perpetual exponential expansion to function well.  It is not functioning well right now, and that should be completely obvious.

The mystery is that so many continue to divine the Fed tea leaves as though the right combination of interest rates, liquidity, and thin-air money could somehow, in isolation, overcome the steady erosion in the quality of oil, mineral ores, fisheries, soil, and aquifers.  They cannot, and the longer we overlook this most basic of concepts, the worse the eventual disappointments will be.

Get yourself mentally prepared for a very long and bumpy ride.

What’s Really Going On Here?

Another possibility is that the Fed and the ECB have plenty of intelligent people inside their walls who perfectly well understand that things are seriously off the rails.

Here’s how Bob Janjuah of Nomura Securities put it (emphasis mine):

In terms of my thoughts, I think historically important events may be unfolding. I think that by their actions both Fed Chairman Bernanke and ECB President Draghi may have belied how deeply worried they are about our economies and the financial system.

In short, I see fear in their actions.

But what really concerns me is that their only responses are to effectively say “we give up”, as they abandon the search for “real” solutions to our ills.

Instead, by their actions, we can now clearly see that the only solutions that are offered by the Fed and the ECB are the extension of the same failed policies that got us into our financial and economic despair in the first place. Namely MORE debt, MORE bubbles and MORE monetary debasement.

… I am deeply worried that what Bernanke is now de facto saying is that the real underlying economic and jobs situation is much worse than we all think, that he has no idea how bad or for how long this situation will get or will last, and that as a result the only tool left is a permanently open monetary spigot.

(Source)

I share Mr. Janjuah’s view that the calm words of the monetary authorities are belied by their actions (remember, lying is one of their stated tools) and fear, if not panic, is driving them.

They may not have the views on energy and the environment that we do, but they know that something is desperately wrong with everything they thought they knew about how the world works. I’m sure it is deeply troubling to them that their trillions have not yet really fixed anything, and they are increasingly concerned.

If the only tool left is a permanently open monetary spigot, then we can all just settle down and wait while the dollars/euros/yens/etc. glide paths eventually intercept with zero. In the meantime, we need to prepare and control our risks as best as we can.

For now, I am relatively certain that there’s a sizable gap between what we are being told and what the authorities are saying. As we move along, that gap is certain to grow.  Because let’s face the facts here; the incredibly intertwined predicaments of demographics, national insolvency, debt, falling net energy, and increasing environmental pressures cannot possibly be addressed by a few Fed officials sitting around a mahogany table every six weeks deciding how much thin air money to inject into the economy.

It’s Binary – There Are Only Two Outcomes

What it comes down to is two outcomes – either the Fed’s plan works, or it fails. There’s not a lot of middle ground on this one. The major problem is that neither outcome is favorable. Here they are:

  1. The Fed ‘succeeds’ and destroys the value of money (which I give a 91% chance only because I don’t want to give the next one a double digit chance of happening)
  2. The Fed fails and everything crashes in a deflationary spiral (9% chance)

Let’s start with the second one first. The way this would play out is that despite tossing hundreds of billions of dollars, and then trillions, into ‘the economy,’ the Fed’s efforts fail.  And the next thing you know, selling begets more selling, a liquidity event seizes the markets, counterparties begin to fail in domino fashion, governments get squeezed, taxes are hiked, the economy plunges, and it just gets worse from there.

Eventually all the trillions of dollars of excessive debt built up over generations will be washed away, but the process will look and feel exactly like a gigantic catastrophe for everyone. Dreams will be dashed, institutions broken, careers ruined, and our collective sense of what’s possible will take an enormous blow that will not recover for generations.

I certainly understand the very sincere desire by the Fed to avoid this path.

However, the other path involves printing enough to prevent Path #2 from being our destiny. In doing so, the Fed would slowly become the entire market, the purchaser of last resort, the place ‘investors’ look first for their clues on where to place their bets. There will come a point after which the Fed cannot possibly unwind its balance sheet because to do so would crash the markets and initiate a quick hop over onto Path #2. Maybe we’ve already passed that point of no return?

Looking at this chart of the Fed’s current and projected balance sheet, keep in mind that the $800 billion level it started from back in 2008 was built up over 90+ years of operation. Four years later, it has tripled, and it’s on its way to quadrupling by the end of 2013.

quantitative easing

When the Fed does this, one of the effects is that vast gobs of excess reserves are created within the banking system, which will someday come roaring out seeking something, anything to do besides remain parked at the Fed earning 0.25%.

quantitative easing

Another function of the modern Fed is to keep the money supply growing – no matter what. I think they’ve done an admirable job here, because the Great Recession cannot really be detected on this next chart except by the rapid upwards bump it takes in that last gray bar to the right.

quantitative easing

Also of note in this chart is the inflection point circled in red, which coincides with an important moment in the current crisis, the time when Greenspan’s Fed implemented the infamous “sweep program” allowing banks to effectively dodge the 10% reserve requirement almost entirely. Without such a ‘hindrance,’ there was no effective limit on how much credit a bank could issue, and therefore no effective limit on how much money could be created within the banking system.

Briefly, if you have a demand account (either checking or savings) at a bank, you are part of the sweep program. What happens is that each night at 12:00, each bank must take a snapshot of all of the money its depositors have with the bank and prove that they have 10% of that amount set aside in reserve. However, the sweep program allows banks to set up dummy non-demand accounts for each demand account it holds, sweep the demand money into that account at 11:59, take their reserve snapshot (hey, there’s nothing there!), and then sweep the money back into the demand accounts. Without having to keep 10% in reserve, the banks are free to hold absolutely nothing in reserve, which effectively explodes the lending opportunities for banks.

If banks that are required to hold 10% in reserve can suddenly reduce that to just 1%, then the amount that can be lent goes up by a factor of eleven. [Math Note: $100 in deposits can be turned into $900 of loans under a 10% reserve requirement, but can support $9,900 of loans under a 1% requirement]

The reason we go into all of this detail here is to note that the combination of enormous excess reserves held by banks and a non-existent reserve requirement means that the tinder has been carefully laid, gasoline spread all about, and onlookers anxiously awaiting the spark.

Should that spark be struck, then the theory is that the Fed will simply reverse its balance-sheet holdings, take back all of that excess cash, and that will be that. In reality, by the time the Fed gets in gear, those excess reserves will be supporting an extraordinary amount of new borrowing, meaning it won’t be so simple to claw it back. (Heck, I’ll be right in there borrowing money as fast as possible to buy things with, myself.)

Where We Go from Here

If we accept the proposition that we are now four years into this financial and economic crisis and that all of the trillions spent to date have forestalled but not prevented the inevitable conclusion (which involves massive losses and tightened belts at a minimum), and we have convinced ourselves that the central banks will simply keep printing because that’s all they have left, then what we expect to happen next is really pretty straightforward.

Unless the course is radically altered, the end game here is the destruction of the involved currencies and enormous fiscal crises for the afflicted countries. Between here and there exist a lot of time and territory, and we still need to know what to do with our wealth and our efforts in the here-and-now.

Here’s how I see things at the moment.

Stocks

The stock market loves fresh money and low interest rates. They should go higher, especially in those countries that manage to engineer their currencies to go the lowest.

A case in point is the Zimbabwe stock index, which expanded exponentially in 2006 and 2007 for no other reason than that the currency was collapsing.

quantitative easing

(Source)

It’s worth pointing out here that Zimbabwe’s industrial producing and its overall economy were collapsing at this point, indicating that one can certainly have rising asset prices and collapsing activity at the same time. It is also worth noting that even as Zimbabwe was experiencing capacity utilization rates that had declined to just 10% and unemployment of 80%, inflation was raging. Some point to idle capacity in workers and industry as a reason that inflation cannot really take off, but Zimbabwe proves otherwise.

In a world of stable money, it is unthinkable to have a smashed economy, high unemployment, and a rising stock market. However, in a world of debased money, such an outcome is not only possible, but likely.

With that said, I am not in a position to want to buy stocks hand-over-fist just yet. I remain unconvinced that $40 billion per month is sufficient to overcome all the other forces at play, and I will wait to see just how serious the Fed and ECB are.

I think the markets are waiting, too. I expected more of a pop with follow through than we got, meaning that the markets had already pretty well priced in the QEternity announcement.

Still, stocks, especially those positioned with strong balance sheets, good cash flows, and selling essentials (rather than purely discretionary) should do better than average during the next few years.

Bonds

In the near term, the Fed has the firepower to continue to drive long-term interest rates lower in the U.S. I am less convinced that the ECB has the political mandate to keep the Portuguese, Spanish, and Italian bond markets under control, but we’ll see. In for a penny; in for a pound. It really wouldn’t make much sense for the ECB to do anything less than everything necessary, but time will tell.

Over the longer term, I would not be caught dead holding bonds in a regime of currency debasement. Might as well directly burn your money for warmth or donate it to your favorite charity while it still has some use. Back in the 1970s, when the world was going through a similarly difficult period of financial and monetary recklessness, bonds were known as ‘certificates of confiscation’ meaning your eventual return would be swamped by inflation.

As painful as it might be for certain pensions, endowments, and other long-horizon funds, I would forgo the meager returns offered by longer-dated government paper here and stick to the short end. The percent or two difference in yields is just not worth the risk.

Commodities

Here the story is clear enough for food and fuel, two things that sustain a fairly constant demand regardless of circumstances. Combined with reduced output for grains (due to what appears to be an increasingly unstable weather system) and steadily higher costs to produce marginal new oil (with Iraq being something of a lone exception here), the new QE efforts have a very good chance of igniting truly outstanding price hikes in food and fuel over the coming years.

I am less bullish on iron, copper, cotton, and other items for which the demand can vary enormously depending on economic conditions. Harking back to Zimbabwe again, the demand for such items fell as food and fuel consumed ever-greater proportions of disposable income.

Land

I remain a huge fan of productive land (both farm and woodland), but if and only if adequate water is part of the equation. Without some form of water, preferably adequate surface water, perhaps captured in the farm pond method mentioned by Joel Salatin, the value of land will be defined by rainfall, an increasingly dodgy prospect. If you are thinking of moving to a non-traditional IRA and buying land with the holdings (as I am), then now is a good time to get that process rolling, because I would plan on a full year to get the vehicle in place and find land to buy.

Gold

Well, at the risk of being a broken record, gold is my favorite and preferred way to protect your wealth during a period of active currency debasement and/or the unwinding of too much leverage (debt). It is the only monetary asset that is not simultaneously your holding and somebody else’s liability – a very important attribute during times when control fraud runs rampant and unquantifiable counterparty risk exists.

Be sure that your core position in physical gold is safely secured, and then think about your answer to this question: How much of my wealth do I want to be absolutely sure will not go to zero because of a systemic crash? Your response should first be allocated to your homestead and the remaining balance to gold and to a lesser extent silver.

My expectation is for gold to go a lot higher from these levels. Will it go lower by next month? I really don’t know. But I have very few doubts over the mid to long term because every single fiscal and monetary step being taken right now is increasing the odds of an eventual fiscal and/or monetary crisis in the US. We’ve not yet even remotely reached the blow-off phase for gold, because most people I talk to in the U.S. still look at me funny when I mention gold, many offering such pearls as you can’t eat it, you know as if that were some sort of useful retort born of insight. To counter, I will sometimes ask them to eat a dollar bill for me, even offering to sweeten that up to a ten spot if they balk, but so far I’ve had no takers.

Lurking in the realm of possibility is the idea that gold may be remonetized in response to some form of global currency crisis. If this happens, then gold will going a lot higher than any of us can currently imagine, both in current dollar terms and especially in whatever future debased terms will exist in that moment of crisis.

Silver

Silver has been on a very good run of late, ever since breaking up out of its year-long wedge pattern. From a 10-20 year standpoint, I am as bullish on silver as anything you could name, mainly because all known ore bodies of commercial value will have been depleted by the end of that period. And then what? Industrially silver is irreplaceable for certain applications in electronics and healthcare.

How much is an industrially irreplaceable precious metal worth, when it will someday be depleted? More. A lot more.

And if silver ever gets remonetized…again, who knows?

It is time to start moving even more out of fiat money, especially U.S. dollars, euros, and yen. There’s no panic, no real urgency, so no need for quick, rash decisions. Instead, pretend as if someone has rung a bell and said, time for the next phase of this adventure to begin.

All Aboard! (…the USS Risktanic)

As for the final act of all this, which I truly believe ends in enormous fiscal crises for the U.S., Japan, and much of Europe, it will do what every great financial panic has always managed to do – destroy most of the wealth for most people.

That’s what great bear markets do after things have gotten out of balance and need to be reset. In such an environment, he who loses least gains the most.

In the great game of ‘risk on, risk off’ where big money managers shuffle, trot, and then stampede back and forth between risky asset (‘risk on’ = stocks, certain currencies except USD and JPY, and oil of late) and ‘risk off’ assets (VIX, government bonds from safe countries, USD, and JPY).

However, with the Fed mispricing money itself and bonds, it has had the effect of piling everybody into increasingly risky asset stances even though those are ultimately no safer than the places that were just vacated. The Fed has openly stated that its goals are to get people back into the stock market and to drive up the price of financial assets because they favor the wealth effect that the Fed imagines will follow.

Instead, what they are doing is buying temporary asset gains at the expense of forcing additional risk on portfolios.

Progressing from the outside in, investors will leave the riskiest assets first, and then progressively work their way towards the center. The very center of this bubble machine, the core of the monetary particle accelerator, is the U.S. government bond market.

If I read history correctly, the progression of the final act will be to herd everyone towards the center of an increasingly unstable nuclear reactor, where the most wealth of the most people can be vaporized. This is not Machiavellian; it is simply a truism that decades of excessive claims have to be abandoned and massive losses have to be taken.

If not by a process of default and deflation, then it must happen via a process of creating additional claims that inflate away with the rest. You know where I stand on those probabilities (9:91).

The tragedy here is that it is all so completely obvious and avoidable. There’s no law (yet) requiring anybody to keep their money in U.S. Treasury bonds vs. in gold or farmland or other tangible assets, the utility of which cannot be debased via the actions of Fed and ECB staffers.

Yet I remain convinced that the fate of most will be to lose most of their wealth during this process by trusting that the majority cannot be wrong when that is exactly the most likely case.

Conclusion

Between the Fed’s QEternity program and the ECB’s OMT (Outright Monetary Transactions) program, it seems clear enough that whatever is spooking and bedeviling the central banks, it is sufficient to cause them to up the ante here.

If these moves mark anything, it is that we are now in a new phase of the crisis. On one hand, it is a more boring part, because almost everybody has experienced dramatic baseline shift over the years and now yawns at news that would have caused them to run around like their hair was on fire just a few years ago. On the other hand, it also reveals that the crisis is far more serious than anybody in power really cares to admit or possibly even understands.

This entire trajectory is perfectly and obviously unsustainable; therefore, every attempt to sustain it is a big waste of time, energy, and resources. Instead, we really should be having a very honest conversation about what we can and cannot afford, where we want to position our resources (yes, I am talking about setting national and even global priorities), and where we want to be in twenty years, and then applying ourselves towards those things.

These attempts to sustain the unsustainable are getting more desperate and have perhaps slipped past the point of being absurd. Yet here we are.

It is my contention that the future holds more and more money printing and that the central banks are very far from throwing in the towel. I’m standing by to observe a full deflationary breakdown sweep the land.

I cannot say for sure, but the chance of experiencing a very disruptive future seems quite high and getting higher. If you live in South Africa, Libya, Afghanistan, Iraq, Iran, Syria, Spain, Portugal, Greece, China, Japan, or any of a dozen other places, perhaps you’ve already experienced the first waves of disruption.

I worry that by treating symptoms and not causes, the Fed, et al., are delaying the arrival of something that only grows worse with time, so I question the wisdom of this path.

You should use this most recent Quantitative Easing program as another gentle wake-up nudge to keep going with your plans and preparations. Resiliency and engagement are the operative words. We can use the comments area here on the site to address specific ideas, comments, and questions. I will be happy to do what I can to help address your questions and be part of the conversation.

Someday I will be going “all in,” which means emptying my bank accounts of cash to apply towards other purposes, but that time is not quite upon us. I had thought this Quantitative Easing announcement might be bigger, and I think it eventually will be, but for now it’s not quite there yet.

When I do go “all in,” I will, of course, send out an Alert.

~ Chris Martenson

I have nothing more to add. For your individual wealth protection you know what to do…..
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