For a number of years people have wondered when sovereign nations will stop buying Agency and Treasury securities. As we have found out no one really has had that answer, nor does anyone currently have that answer.

It once was that the Japanese were big buyers. They haven’t been for a few years but they do roll their paper. The oil producers were big buyers but they certainly cannot be now with oil selling at $47.00 a barrel. China’s up to their eyeballs in US dollar denominated paper. Will they continue to be major buyers? We are skeptical. It also should be remembered that on average sovereign governments foreign exchange funds include 64.5% of those reserves in dollar denominated assets.

We do not expect funding to stop but it has to slow down, although rolling current paper will probably continue. These are assets that other nations own but really cannot spend. The money is essentially frozen. If these dollar assets were sold in any big way the dollar would collapse and so would the entire financial system.

Now that there are fewer dollars available to buy Treasuries and Agencies, how does the government fund its operations? Or we should say further massive deficit spending. It is conceivable that several nations could bolt from present secret arrangements. The stakes are higher than ever. We have an $825 billion plus stimulus package on the way. We believe the actual and psychological affect will last 3 to 9 months – probably 6 months. After that is over we return to the same underlying problems that has not been addressed.

We believe that currently secretly both the Fed and the Treasury are using debt instruments and that they are being monetized and that they will continue to do that as the market for securities wanes. This is immediately very inflationary and can only lead to default and devaluation. When this will happen we do not know - perhaps in one, two or three years. But, it is coming. The course has been set.

We also believe that most all nations will default and devalue as well, as elitists call for international financial regulations that will lead to a world currency.

We do not believe this world currency will happen. There are many people throughout the world who understand what it means and they will stop it. In the course of doing so there could well be world revolution.

Goldman Sachs tells us those losses in mortgages, loans, bonds, commercial real estate, credit cards and auto loans will be more than $2 trillion. We wonder how that will be covered? In addition, we projected a $1.3 trillion fiscal deficit for 2009. The CBO says $1.2 trillion and we’ve seen estimates up to $2 trillion. Then there are the losses in financial markets adding another $2 trillion. Little assistance can be expected from an economy that just slipped into depression.

Is it any wonder that financial stocks have been decimated recently? What has been called nationalization of banks, brokerage houses and insurance companies is really a privatization led by the privately owned Federal Reserve. Once that has been accomplished new world financial regulations will be implemented or at least that is what the elitists believe, almost all currencies will be devalued and a new one world currency will they hope become reality. What is incredible is that this master plan was ever even attempted. It shows you how arrogant these people are.

What we are waiting for is the end of inflation, which we believe is some ways away due to the massive amounts of money and credit being injected into the US and world economy. A time in the future when the risk is so great that borrowers will refuse to borrow in spite of easily available capital. We see that as being some time into the future, or one to three years from now. When that happens the quality of money deflates, as does the prices on the things that are normally purchased. That is caused by the end of rampant inflation and the further denigration of assets. The system ends debt accumulation and the use of credit. Governments then madly buy Treasuries hoping to save the collapsing economy.

This is accompanied by high interest rates as the public, governments and professionals sell bonds and shares to accumulate cash. Banks will be overwhelmed by cash demands, which under the fractional banking system that they’ll be unable to supply. Banks will run out of capital and eventually shut their doors as they did in the 1930s. This time, because those who caused this have another agenda, almost all currency will be devalued simultaneously and be replaced by a one-world currency that the world will totally reject. Polls currently show 90% of people will reject such a currency. That means gold and silver coins and barter will be used to transact business and everyday exchanges. This will also be accompanied by revolutions in many countries as a third world war wages in the Middle East. Not a pretty scenario, but an honest appraisal of what could well be on the way. There is no solution and there is no turning back. That point of no return was reached almost six years ago.

As we predicted a month ago at the long end interest rates would rise and they have risen. Using the 10-year Treasury note the yield has risen already from 2.16% to 2.65%. It is headed to 4% by yearend - maybe much sooner. That means 30-year fixed rate mortgages are headed back to 6-1/4 to 6-1/2%. Libor as well will not be able to hold today’s levels of 0.35% for the one-month and 1.12% for the 3-month. These higher rates will curtail business and personal borrowing activity further and cause further bankruptcies. This means further debt liquidation as well and a relentless increase in gold prices, as the flight to safety takes on a life of its own. As this evolves even banks will have to ration the availability of cash as government tries frantically to keep up with demand in what ultimately will be a Weimar scenario. Cash and gold and silver coins will be king. Cash will ultimately fail and barter will begin. You may not believe this can happen, but it has happened in untold previous societies. That is when the free market – better known as black market – begins. Just to give you an idea of what thin ice American and European banks are skating on, Bank of America, which is typical, holds $1.00 for every almost $40.00 in each account. This gearing is inane, but this is what fractional banking is all about. Read the “Creature from Jekyll Island” by G. Edward Griffith and you will find out exactly how it was foisted on the American public and how it’s carried out. If only $60 billion was withdrawn from Bank of America they’d be broke.

Those foreigners who support our debt habit have been slowing down their purchases of dollar denominated securities, particularly Treasury and Agency debt. The capital inflow is short $35 to $40 billion a month. That money flow is exiting the US markets. If foreigners cannot meet current account deficit demands how can the Treasury raise another $825 billion? The Treasury will hand the bonds to the Fed, which buys them by creating money out of thin air and spends into circulation a monetizing process.

We do not believe they’ll be a run on foreign money out of the US. We believe it will be a steady stream; lack of aggressive buying by G-20 members, or a slight falling off of participation. The leakage will come from second and third world countries.

As this transpires and monetization continues a pace, the US and Europe will struggle to further increase liquidity as inflation rages.

The move simultaneously by the G-20 to zero interest rates is close to being completed. After that the interest rate reductions can no longer be used. The mission then has to be accomplished by increasing money and credit and monetizing Treasury paper.

As a result of a slowing economy tax revenues are falling further plaguing governments’ efforts to make ends meet. Britain’s budget deficit to GDP is closing in on 10%, the US 9% and 5% in the euro zone. In deep recession already and entering depression, raising taxes is really not an option except on the wealthy. We are approaching an era of unlimited debt.

Unfortunately, even though money and credit (M-3) have been expanding in major economies by 14% for over five years this is still only the beginning of money creation. Now we are seeing the public and business cutting back on debt creation. Government has taken up the slack by aggressive borrowing, which that same public and business are refusing to expand. The only answer to this foolishness is a purging of the system. That will come in time, but the longer it is delayed the worse the affect on the economy will be. Normally, these economic and financial issues would be addressed and solved, but we are dealing with something very different this time. It’s a deliberate effort to bring down the world’s economic and financial system to implement world government and a world currency. Unless you understand what these elitists are up too, you can’t understand what is really happening. This is why so many writers, economists and analysts are so often so wrong.

US debt paper is not the only debt that is being shunned. It’s happening worldwide as 20% of new offerings are under allocated. That means buyers see increased risk and they are demanding higher yields. We are already seeing this happen. It is only beginning and it will worsen. If bonds are falling, the market is falling and commodities are unattractive, where else can one go to with investable funds? To gold and silver of course, and that is in the process of happening. As proof all gold ETF’s already have close to record 1,000 tons of physical gold on deposit, or so they say they have. The physical gold and silver market for coins and bullion has been in short supply for nine months and most of that buying uncharacteristically is coming out of Europe, which hasn’t had that kind of interest for 28 years. There are some that have taken notice of the stock market’s collapse and now anticipate the breaking of a bond market bubble.

The world economy is contracting. Deflation is moving forward but for now is being offset by monetary creation and inflation. In January house prices in San Francisco fell 44% yoy and the median price of a home in southern California fell 35% yoy. Prices are off 40% to 55% dependent on the situation and we are still not near a bottom. Prices will fall another 20% to 30% from place to place. Inflation has come down but that is temporary. Wait until the results of monetization hits the markets beginning in March and April.

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JANUARY, January 28, 2009

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-- Posted Thursday, 29 January 2009 | Digg This Article