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DERIVATIVES HAVE ALREADY BLOWN UP


 -- Published: Wednesday, 7 January 2015 | Print  | Disqus 

By Bill Holter

“Audit the Fed!”, there is now another movement within Congress to do this. Will it ever happen? Maybe, but not unless the Chinese (and rest of the world) demand it in my opinion. Let me explain this but please remember what came to light the last time back in 2010, when we found out the Fed had lent over $16 trillion (yes, with a capital “T”) during the 2008 financial crisis. Some of this $16 trillion went to U.S. banks, brokers, insurance companies and mortgage institutions …but, the majority went to FOREIGN institutions!

A full and true audit in my opinion would only do one thing, totally crash confidence in the dollar and put a permanent end to the charade we call “reserve currency status”. I do not believe Congress will ever call for a full audit for this very reason, it is known (by Congress and anyone in associated finance) just how dirty the books really are. Can you imagine the reaction when 1,000′s of S+P contracts, 1,000′s of Treasury bond contracts along with short oil and gold turn up on (“off”) their books? Can you imagine how many more “back door loans” have been made since 2008? Talk about the crazy aunt in the basement, an audit of the Fed would put an overflowing insane asylum of crazy aunts in full view! In my opinion, the only way this movement goes forward is if it is demanded by foreigners under threat of dollar boycott.

A connected topic to the audit is the recent strength in the dollar. Why has the dollar been so strong and what does it mean? First, as I mentioned yesterday, the dollar carry trade is unwinding and dollar shorts are being squeezed. The ramifications are plentiful. Foreigners are experiencing local inflation as their currencies drop versus dollar based food commodities etc.. This will not put the U.S. in any favorable light as foreigners now lose more control over internal pricing of external products. The strong dollar, and moving as rapidly as it has is also creating margin calls within the global financial system. We have not gotten news from any individual banks yet but rest assured, some have already been rendered bankrupt by being short dollars, long oil or some combination. I believe the derivatives market is no longer in danger of blowing up, I believe it already has!

This situation has not been lost on Mr. Putin as Russia suggested directly to Europe they change allegiance when it comes to trade. He has invited Europe to trade “more naturally” with their own neighbors in the new Eurasian Union. This makes perfect sense and should be viewed by Europe as an “olive branch” rather than “the hammer” of lost energy supply.

Even the timing of this proposal is prescient. Greece will vote for a new government at the end of this month. All polls suggest the party in favor of an exit from the EU is in the lead. Maybe the election will “turn” or be stolen and this is a false alarm but a Greek exit from the EU means the end to Western finance as we know it.

How could tiny Greece destroy Western finance you ask? Please follow this through as it is not complicated but is a fairly long and far reaching chain. First, a Greek exit means the $ billions of loans recently extended by the EU to keep them afloat will not be paid back. It also means default and non payment on $100′s of billion more loans extended prior to the last couple of years. Greek banks will go down and the French banks who are the most heavily exposed lenders to Greece will also be impaired. This will result in a “contagion” across Europe as others may exit, or an alternative scenario is the “core four” Germany, Netherlands, Belgium and Austria (who are by the way repatriating gold) will form a “Northern Euro” and break away.

Mr. Putin sees all of this. He knows it is cold outside and Europe is trapped by energy supply from Russia to keep warm and to keep industry running. He is offering a peaceful way out …at the expense of the U.S.. He also knows what we know, the skyrocketing dollar is pressuring everyone from the common man to financial institutions to the central banks themselves. And thus his “timing” of this offering.

Let me tie these thoughts together because it looks like something will come to a head very quickly. In my opinion, in spite of all the recent “tightening” speculation, I believe we will see by necessity a “QE 4″ shortly. The dollar cannot continue on its recent path, and in fact must reverse or a financial implosion will be exposed. Asset prices, FOREX and oil in particular have swung wildly. This has created massive margin calls whether we see them or not. An announcement of QE 4 would pressure the dollar downward and support oil prices. I personally do not believe it will be done “in time” as the internal collateral damage has already been done. I also don’t believe it will change the outcome of a monetary crisis where the last currency standing will be gold …valued at multiples of current levels in ALL paper currencies.

The point is this, dropping oil prices (which was Mr. Obama’s idea and doing according to him) are impairing all sorts of debt and institutions. Oil cannot trade sub $70 for any great length of time without folding the tent because of the leverage involved in the industry. Unless the Fed wants to preside over an all out financial deflation, they must and will be forced to “QE” with something far larger in scope than any of the previous monetizations. This is exactly how all Ponzi schemes come down. They require “new money” in larger and larger quantities in order not to be exposed. If the Fed does not want to be exposed …they must supply the money!

Going full circle and back to the top of my article, the Fed cannot afford an audit of any sort. Were this to even start, rats would be jumping ship before the auditors even set foot in the Mariner Eccles building. There would be so much front running toward the exits, the fear of looking beneath the covers alone would create a panic. Just watch, if the markets do not turn around sharply and quickly, the Fed will very soon announce a new QE “elixir”. I personally believe the new elixir is already necessary, far too late, and useless anyway because of the collateral carnage already done versus razor thin margins.

As I have mentioned for the last month, I believe the drop in oil prices was in fact originally “our plan”. Lower prices have now gotten so out of hand that “THE plan” is now in view. Current low oil prices have broken the derivative daisy chain, this is something I believe China and Russia already knew but sat back and let us create our own demise. Just as fast as the dollar has risen and the shorts were forced to cover, watch as the dollar burns out like a rocket spent of fuel (confidence) and crash back down. There is no telling “where” this level will occur but mark my words, the casinos will figure out the end game where deflation in the financial system means death to the “chips” themselves.

Please remember this, as very soon it will be understood by the masses, “gold is money, everything else is credit”!

Regards, 

Bill Holter

BILL HOLTER, Associate Writer, Miles Franklin Precious Metal Specialists

Address: 801 Twelve Oaks Center Drive, Suite #834, Wayzata, MN 55391;

Telephone: 800.822.8080, 952.929.7006; Fax: 952.476.7971

E-mail: bholter@milesfranklin.com; Website: www.milesfranklin.com

Prior to joining Miles Franklin in 2012, Bill Holter Worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards.  Later, he left Wall Street to avoid potential liabilities related to management of paper assets.  In 2006 he retired and moved to Costa Rica where he lived until 2011 when he moved back to the United States.  Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-2012.


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 -- Published: Wednesday, 7 January 2015 | E-Mail  | Print  | Source: GoldSeek.com

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