- Like a petulant child raging around because it got one
candy when it expected two, the market threw a tantrum yesterday when it
only got a quarter of a percent rate cut yesterday when it was hoping for
more - but what good would it have done if rates had been cut by half a
percent, or even a full one percent? Is it really wonderful to undermine
the dollar so much that it completely collapses? Is that what the stockmarket
really wants, or is simply that like the spoiled brat that doesn't get
the instant gratification it seeks, the market can't see past the end of
its nose? Whatever, the news from the Fed yesterday caused a nasty convulsion
that may mark the end of the "Santa Claus" rally - it was unspeakably
cruel to withhold treats like this in the runup to Christmas.
-
- In recent years the US economy has morphed into a vast
sinkhole for international finance and savings. Like some giant industrial
vacuum cleaner with its brush removed the nozzle of this voracious beast
has found its way into every nook and cranny of the world's economy, hungrily
sucking up any loose funds that are not securely nailed down. What have
the funds been used for? - to balloon already gargantuan Federal and State
deficits and to maintain an orgy of consumer spending at home by citizens
who are actively encouraged and enticed to spend every last penny they
have and to borrow to the hilt and spend still more, to increase military
spending to unimaginable levels that exceed that of the rest of the world
combined, this purportedly to defend the Homeland from a bunch of discontented
eccentrics who occasionally cause explosions, and to finance wars of occupation
in far flung lands.
-
- The reason for the financial earthquakes this Summer
and Fall, which are but mild tremors compared to what is looming, is that
the rapacious nozzle of the vacuum cleaner has not been able to locate
and suck up sufficient funds to meet its exponentially expanding needs,
as foreign hosts, growing tired of having the lifeblood sucked out of them
and realizing that they have been conned over the sub-prime mortgage paper
and are never going to be repaid, have started to choke off the supply
of funds. The result is that extraordinary emergency measures have had
to be taken to prevent the banking system going into instant seizure and
collapse, which have only been partially successful to date - and they
had better be successful, because if we see a credit gridlock and major
banks failing, the consequences could push the world economy over the cusp
from a highly inflationary environment into a deflationary implosion, which
needless to say would be disastrous. These emergency measures have principally
involved a dramatic and hyperinflationary ramping of the money supply,
the catastrophic consequences of which will emerge later. This is the reason
for the unfolding collapse of the US dollar, which has two key advantages
for the United States - it progressively diminishes the real debts owed
to overseas creditors and it makes other economic power blocs, such as
the European Union, much less competitive in world markets.
-
- A stark example of this is provided by EADS, the makers
of the Airbus aircraft. EADS was severely wounded by the superjumbo delays
fiasco, and the otherwise glamorous image of this aircraft has been dented
by Singapore Airlines' laughably prissy decision to ask its customers who
pay a grand sum for a double bed on the flight to refrain from doing what
comes naturally, on the grounds that other passengers or crew might overhear
them. It recently emerged that EADS, which has always had its production
centered in Europe, might partially relocate it into dollar zones or even
the US itself - Boeing must be really laughing about this - hats off to
a falling dollar! The weakening of the European Union is a way to ultimately
undermine the Euro, which is the only currency that presents a serious
alternative to the US dollar, and must therefore be crippled.
-
- A low dollar will make US business, what's left of it
after outsourcing that is, suddenly competitive, and turn up the heat on
Europe. Faced with a suddenly plunging dollar, other countries and power
blocs are scrambling to pump up their own money supply, in order to weaken
their own currencies and maintain a competitive advantage. Thus the rate
of competitive devaluation around the world has moved up one whole order
of magnitude on the Richter scale, with huge inflationary implications,
an effect of which must be a flight into hard assets such as gold and silver.
The writer receives endless Emails from people declaring that "they"
will never allow gold and silver to rise a lot, because this would expose
the failure of their economic policies, and that they will use every means
at their disposal to prevent it, such as selling off bank reserves, including
those that they don't own or don't even exist, naked shorting etc. So let's
get two things clear.
-
- One is that it doesn't need gold and silver going up
a lot for the failure of economic policies to be obvious - just ask shareholders
in Citigroup or Fannie Mae or Freddie Mac. "They" are as thick
skinned as a Rhinoceros and couldn't give two hoots whether gold and silver
go up a lot or not. The other is that when there is sufficient demand for
gold and silver by buyers who insist on physical delivery, then no amount
of convoluted shenanigans or skullduggery can stop their prices rising.
If you buy a rare and expensive painting such as a Monet or a Rembrandt,
you don't go home from the auction house with a scrap of paper saying that
you own it - you want the thing under your arm, to have and to hold, to
admire, even if it is wise to put it in the safe in between times. If you
buy gold it should be the same, you should be able to gloat over your treasure
- and picking up gold bars regularly strengthens the forearms. Goldfinger
wouldn't have accepted certificates in place of his gold, and neither should
you. If memory serves correctly Goldfinger preferred gold to women and
occasionally enhanced the attractiveness of women (to himself) by spraying
them with gold paint. It is not recommended here that gold bugs go quite
this far, even if the wife could do with a makeover.
-
- There is an old saying that goes something like "If
you owe the bank a large amount of money you have a problem, but if you
owe the bank a huge amount of money the bank has a problem". This
neatly sums up the situation now existing between the world superdebtor,
the United States, and the rest of world. By suddenly ramping its money
supply still further and dropping interest rates in an effort to avert
a credit crunch, the US has thrown down a gauntlet to the rest of the world
and has effectively said "The collapsing dollar is your problem -
and if we go down we'll take you all with us, so you'd better help out
or it's your funeral" The US is testing the resilience of the world
economy to the limit and the world is already starting to crack.
-
- Evidence of this was provided by an Abu Dhabi fund stepping
in to partially bail out the ailing Citigroup about two weeks ago, a surprise
development that ignited the just ended strong rally on US stockmarkets.
The timing if this move is thought to be no coincidence - the broad US
stockmarket was on the point of breaking down completely. The driver for
this unusual move was that Mid-Eastern fiefdoms have vast amounts invested
in the London and US stockmarkets, and have a lot at stake if they should
plunge, and it is therefore easy to get them to come running to the rescue.
Scrupulous German savers meanwhile look on with dismay, realizing belatedly
that they have been conned, the money that they assiduously stashed away
for many years having been sucked up rapidly by the giant vacuum cleaner
and blown by the US government on military expansion and overseas adventures
and by US consumers on property speculation, giant flat screen TVs, SUVs
and the good life generally. Like a truck driver with a cargo of perishables
who finds that his refrigeration has failed, the Chinese are stuck with
trillions of dollars of atrophying US financial junk in the form of dollars,
Commercial Paper and T-bonds etc, and are scrambling with almost indecent
haste to convert these into something tangible before their value ebbs
away, an example of this being their recently publicized interest in buying
the mining giant RTZ. The US message to China is also clear - if we go
down, you lose your biggest export market.
-
- A major complication for the US financial system, specifically
the major US banks, is now beginning to rear up, which is an impending
tidal wave of lawsuits by overseas banks and financial institutions seeking
redress for the massive losses they have incurred as a result of buying
vast quantities of Commercial Paper that included a generous helping of
sub-prime mortgage loans, that had been carefully packaged - spliced and
diced - to make them more palatable to naïve and trusting foreign
buyers, with the collusion of US rating agencies who presented them as
being of much higher quality than was actually the case. The problem for
US banks is that they can be legally forced to buy them back at face value
if it can be shown that fraud was involved in the origination process.
If that happens the banks will face ruin. The only alternative is that
the big US banks can simply brazen it out by declaring themselves to be
beyond international law and say "Let the buyer beware - you bought
this rubbish, more fool you - tough luck, we're buying nothing back, it's
your problem so get lost". In reality they would of course couch this
message in diplomatic language. What a great post UN job this would make
for Kofi Annan, who could make the best of delivering the right hook in
a velvet glove, with his slow modulated android-like voice. However, we
can be reasonably sure that overseas investors and banks would not take
kindly to this approach, and the US banks would find themselves quarantined
as an international financial pariah which would also lead to them facing
ruin.
-
- Thus, there is now no way out of the enormous hole that
they have dug for themselves, the towering sides of which are now starting
to collapse in upon them. What we are currently witnessing is a fascinating
process of procrastination and obfuscation, with everyone right up to,
or should that be right down to the President getting involved. The chief
purpose of this is twofold - to allow the many spread across the Mortgage
and Real Estate industry, the rating agencies and Wall St involved in the
fraudulent aspects of the sub-prime scam time to cover their tracks and
destroy as much evidence as possible, and to try to hatch a way to renege
on the contractual obligations pertaining to the original loans, perhaps
by issuing "updated" versions whose small print protects the
issuer from liability relative to the original loans, in the hope that
the gullible foreigners who are belatedly wising up won't read it. Finally
lawyers can be expected to feast on everyone involved, producing documents
extending to thousands of pages and dragging the whole sordid business
out possibly for years, which of course plays into the hands of the perpetrators
of the scam, some of whom will probably have died of old age before the
legal processes are concluded, if they ever are.
-
- What makes the current situation so profoundly dangerous
is that the US stands to gain the most, or rather lose the least, from
a global economic meltdown in the near future. Furthermore, from the standpoint
of the maintenance and enhancement of global Anglo-US hegemony there are
two threats that require to be dealt with urgently. One is the alternative
currency to the US dollar, the Euro, which, as mentioned above, can effectively
be undermined and crippled by first laying economic siege to the Eurozone
with a weak dollar. Saddam paid the price for trying to trade oil in Euros
by losing first his country and then his life. The other is the rapid ascent
of China which promises to become a global superpower in its own right.
The way to deal with China therefore is simply to pull the plug on its
economy before it has weaned itself off dependence on the US as a primary
export market. According to the logic of the chess game they are playing
there are thus compelling reasons for the Anglo-US elites to let the world
economy implode now. In a situation of chaos, they have the military capability
to impose their will virtually anywhere in the world, except China and
Russia, and have established a vast network of hundreds of military bases
around the world, and particularly in Asia, to do just that.
-
- The takeover of Iran with its enormous oil reserves,
is only a matter of time, with the fabrication of it presenting a threat
as the pretext. Iran has recently upped the stakes by only accepting payment
for its oil in Euros - treading the same path as Saddam. It will be easy
to come up with a pretext to invade Venezuela and secure its vast oil reserves
- this is also only a matter of time. Russia cannot be attacked directly
because of its arsenal of aging nukes, so it will be encircled and placed
under prolonged economic siege. CNN recently aired many times a program
by "The Mistress of Pathos" Christiane Amanpour, titled "Czar
Putin", which depicted Russia as a one-party country, effectively
a dictatorship, with a tightly controlled media. This, of course, is in
marked contrast to the US, which is a two-party country with a syndicated
media in the control of those closely affiliated with the government. With
the US dollar collapsing, the vast US debts will simply evaporate, and
the currency crisis and general confusion will provide the perfect opportunity
to amalgamate the US, Canada and Mexico into a single economic trading
entity, in effect one country, with the dollar being ditched in favor of
a new currency, the Amero. The Mexicans, who are currently regarded by
many Americans as a nuisance will, with their cheap labor, become important
bedrock support for the new enlarged country, and viewed in this context
the prolonged influx of Mexican immigrants makes sense. The Constitution
of the United States has already been overwritten and thus consigned to
the dustbin of history by the Patriot Acts, under the provisions of which
dissenters at home will be dealt with very harshly indeed.
-
- Those in power in the United States who were responsible
for creating the conditions that led first to the stockmarket boom of the
90's, then to the Tech Bubble, and then compounded the accumulating problems
by dropping interest rates almost to zero, creating the environment that
bred the carry trade speculative mania, the derivates pyramid and the housing
bubble must have known the consequences of their actions, must have known
that it would ultimately lead to an almighty train wreck - they are not
that stupid, so the question is why they allowed these things to happen.
Either they were guilty of short-termism - let's party today and to hell
with tomorrow - or these developments were part of a grand plan that was
meant to lead to the major crisis facing the world today. The writer has
not - as yet - been invited to listen in on meetings of the inner sanctum
of the Federal Reserve or the Pentagon, or MI6 in London, and therefore
does not know for sure what the "grand plan" is and can only
speculate on what their ultimate intentions are. Thus it is not known,
for example, if the Federal Reserve will continue to expand the money supply
exponentially and continue to drop interest rates in an effort to bail
out the major US banks, which would cause the dollar to collapse further
leading to hyperinflation, or whether they will suddenly and unexpectedly
ramp interest rates in the not too distant future, purportedly to support
the dollar, causing credit gridlock and an economic meltdown, but whichever
track they send the train down it will still end up going over a cliff.
-
- Doom mongers have been having a field day in recent weeks
and months, and already have some large carcasses to pick over, and can
look forward to truckloads of them as the unfolding financial plague spreads
like the Black Death. The writer considers himself a realist rather than
a doom monger, but can see no escape from the coming debacle, and thus
this article might too be classified as being in the doom monger category.
A sad irony for gold and silver investors in Canada and the US is that
$3000 - $5000 an ounce gold may ultimately be scant compensation for financial
and societal breakdown if you have government agents breaking your door
down with a sledgehammer and demanding to know, on pain of death, where
you have it stashed away.
-
- We will now look at yesterday's reaction in the markets
to the less than expected rate cut with a view to what it portends.
-
- More follows for subscribers
-
- Clive Maund
- resourcecharts@yahoo.com
-
- http://www.kitco.com/ind/maund/dec132007.html
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