-- Posted Friday, 2 August 2013 | | Disqus
“To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end.”
Friedrich Hayek, 1933
Gold Investors have suffered through nearly two years of Price Takedowns, as have the Gold Miners.
But a number of Developments in the Economy, Financial Markets and Mining Sector are coalescing and should impel Gold Prices to begin their launch up to new highs soon, despite ongoing Cartel (Note 1) Price Suppression attempts.
Here we focus on the Key Triggers which will determine the Timing of the launch.
One Key Trigger is Credit Expansion, as Hayek points out, which goes hand in hand with Monetary Expansion.
Credit Expansion, to Sovereigns and others around the world, will inevitably bring a Collapse upon itself. Bill Bonner explains
“…The US now operates on a type of money better suited to the Paleolithic Age. A credit-backed money system has never worked in the modern world… and none has ever survived a full credit cycle. The credits expand until the debt is far too heavy. Then, when interest rates rise, the cost of carrying the debt goes up until the system falls apart.
…We consider the plight of the average person. In 1950 the typical working man was able to support a family. Today he can barely support himself because the costs of his main expenses have gone way up. He has to work about twice as long to pay for a new car and a new house.
…How did the feds’ funny money system affect the average family’s wealth?
The Money Makers
We can begin by wondering what would have happened if the US had kept its pre-1971 money system. Then the amount of credit was limited. National accounts were settled in gold. Whatever the feds may tell you, when push comes to shove, it is gold we trust.
In 1971 France had accumulated more dollars than it wanted. Its clever chief economist, Jacques Rueff, urged the French to take their dollars forthwith to the US Treasury and demand gold. But after August 15, it was too late. The gold window had slammed shut. France had to keep its dollars and hope for the best.
Since US dollars were now the cornerstone of the international monetary system, they were in demand. The US dollar itself became America’s No. 1 export, with the highest margins of any export item ever produced.
Say’s Law, however, tells us that “products are paid for with products” – you have to produce things in order to be able to buy things. That is normally true. But not when you’re printing up the world’s reserve currency. Then you have the exorbitant privilege of needing only to produce “money.”
The factories that would normally have fabricated the products needed to buy other products from other people in other places decamped to other places themselves. Between 1978 and 2010, the Bureau of Labor Statistics tells us the that the US lost 78% of its workers in the garment industry, 69% of those in “primary metals,” 67% of those in the textile industry and 26% of those in “transportation equipment.”
To look at it another way, the accumulated trade deficit since 1971 is roughly $8 trillion. That’s how out of balance the products-for-products exchange has been.
The foreigners produce the products; Americans produce only money. Imagine that the labor component of the products is 50%. That means US workers have lost out on $4 trillion worth of income. Share that out among the entire male workforce and each one would be $80,000 richer. More importantly, had it not been for the wholesale loss of American manufacturing, Americans would now have more jobs and higher wages.
Credit-based money is easy money. And easy money easily becomes more debt. Debt impoverishes. It doesn’t make people richer.”
“What’s America’s No. 1 Export?,” Bill Bonner,
Diary of a Rogue Economist, 08/01/2013
Bonner then goes on to explain, albeit indirectly, why the private for profit Fed (owned by Globalist Mega-Bankers) has fought so hard to avoid being audited and/or abolished.
“Where Did the Money Go?
Then why do we have this credit-based money?
Because governments are essentially a way for the insiders (who control the police power of the state) to take power and money from the outsiders.
Bullion-based money is a natural limitation on the ability of the elite to rob the rest of the population. It’s relatively harder to fiddle with gold and silver coins than it is to mess with paper money....”
Deepcaster and Bonner agree that the Credit-Backed Money System until inevitably “Fall Apart.” The question is “When?” Deepcaster’s answer is “Soon.”
But consider that the anticipation of the Credit Money Systems’ Collapse will Ignite a Gold launch, because Gold, as Real Money, is the Antithesis of Fiat-Currency based Credit! That is why the “Smart Money” is already increasing, demanding delivery of Physical Gold. Consider:
- Comex inventories of Physical are declining rapidly (reportedly about 2 months left at current drawdown rates), as are LBMAs.
- Germany demanded its Physical be returned but is now getting only one-seventh per year.
- The bullion banks are no longer net short Gold.
- The Indian Central Bank/Government has taken ten steps to contain Gold demand, but (ironically) smuggling has now reportedly increased tenfold).
- China, the world’s largest producer is dramatically increasing imports of Physical.
- Gold has risen from the low $1200s to the low $1300s in the last month.
- Gold futures are in backwardation (especially when increasing premiums for delivery of physical are considered, a signal of current supply shortages).
Of the foregoing, The Critical point is the increasing demand for Physical and Delivery of Physical, and the Prospective Inability of Comex, LBMA, and other Depositories, to actually deliver Physical Metal.
Another positive Trigger for a Gold launch is the (highly likely) continuation of QE (The Fed’s Buying Treasuries and Mortgage-Backed Securities) into 2014 with no tapering (though they will likely talk tapering on occasion) and that should support Treasuries in its current Trading range for a few more months. But the long-term Trend for Treasuries is down, and, indeed, has already begun.
However, Continuing Fed-generated QE will likely become relatively ineffective in 2014 (or perhaps sooner) to support U.S. Treasuries. Non-U.S. Central Banks and Big Investors are already dumping U.S. Treasuries by the carload. Thus, at some point even The Fed will be unable to save U.S. Treasuries, which will than tank (Rates Spike).
And when Rates Spike (as they have already begun to do) that will be a visible sign Hyperinflation is upon us, and there will be an even greater rush to Gold. Indeed, Real U.S. Inflation is already Threshold Hyperinflationary at 9.38% (Note 2).
Then, interest rates for all credit transactions will rise dramatically. And that will likely be one Catalyst for our Forecast Equities Crash (see our recent Alerts for Timing and Forecasts). This is but one reason The Fed has no choice but to continue QE and to continue it until Hyperinflation collapses the $US; consequently Gold will skyrocket. Legendary Jim Rogers’ assessment is correct, “Run for the Hills.”
And The Crash will bring Defaults on Paper Assets. We already saw counterparty defaults on Paper Assets in the 2006-09 Crash, and we will see them again, as The Bond Market Crashes. Yet another Trigger for a Gold Launch.
And The Crash will lead to an even greater distrust of Wall Street and the Financial System. The public is already fed up with the Financial Services World’s shenanigans and immunity, thus far, from serious punishment.
“The nice thing about being in the financial services world is that you never really have to say you’re sorry. Screw over customers, botch foreclosures, run afoul of important regulations, and violate some important rules---and the worst you’ll have to do is pay some fines or settlements. It’s a cost of doing business…
Joshua Rosner, a financial analyst and co-author of Reckless Endangerment, in March, estimated that the company’s litigation expenses since 2009 have totaled $16 billion.”
“JPMorgan Chase’s Crazy Fine Tally”
Nina Strochlic, The Daily Beast, 05/08/2013
So consider how the Markets reflect the current state of the financial system including The Triggers for a Gold Price launch.
S&A Short report provides an overview
- Interest rates are spiking higher.
- NYSE margin debt is at an all-time high.
- Investor Sentiment (a contrary indicator) – as measured by the AAII Sentiment Survey – is overwhelmingly bullish.
- The Volatility Index is trading near its lowest level in six years.
- The Nasdaq Summation Index is in “nosebleed overbought” territory and is trading at its highest level in 10 years.
- The bullish percent index for the S&P 500 is overbought.
- The percentage of S&P 500 stocks trading above their 50-day moving averages (DMAs) just turned down.
- The daily and 60–minute charts of the S&P 500 have extensive negative divergences on both the MACD momentum indicators and the relative strength index.
And, we should add that a Bank of America Merrill Lynch study shows the Professionals have begun bailing from Equities while ‘Mom and Pop’ are buying, an indication of a Major Top.
In sum, the Markets and the “Triggers” signal the Gold launch is approaching ever closer (see Deepcaster’s August Letter and recent Alerts for Timing).
Finally, one last Trigger is already signaling a Gold launch is impending – the price of The Quintessential Inflation Asset, Crude Oil.
The recent elevated (over $100/bbl) Oil Price can be explained by considering the following: that Equities and Bonds are artificially elevated, Fiat Currencies are losing Purchasing Power due to ongoing QE, and many Commodities Prices are depressed until just now due primarily to China’s slowdown, and Gold & Silver Prices have been depressed by The Cartel (Note 1).
Therefore, only Crude Oil has been recently seen as a most reliable store of value to sophisticated Investors. Thus it is not surprising to us that WTI Crude has approached the $110 level recently notwithstanding the Economic slowdown. Part of this strength is due also to QE-generated Real Price Inflation, and to recently reported above-ground supply drawdowns.
Because Crude is essential, with relatively high inelasticity of demand, and because it gets used up, it is not easily subject to price manipulation though, for sure, its Price is manipulated. Thus a spiking Crude Price provides yet another Signal that Hyperinflation is impending, and thus a Gold Price Moonshot is impending.
Some week soon, The Cartel will no longer be able to sustain its Paper Gold Price Takedowns.
August 1, 2013
Note 1: We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of Intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.
Note 2: Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported July 16, 2013
1.36% / 9.38%
U.S. Unemployment reported July 5, 2013
7.6% / 23.4%
U.S. GDP Annual Growth/Decline reported July 31, 2013
1.62% / -1.75%
U.S. M3 reported July 15, 2013 (Month of May, Y.O.Y.)
No Official Report / 4.43% (i.e., total M3 Now at $15.198 Trillion!)
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-- Posted Friday, 2 August 2013 | Digg This Article | Source: GoldSeek.com