Saturday, June 20, 2009

June 20.09 commentary.

 
Good morning Ladies and Gentlemen;
 
First of all, I would like to report that 4 banks were closed. One was closed on Thursday night and 3 were closed on Friday night, bringing the total this year to 40 banks.
 
 
The total liability to the FDIC will be 1.5 billion dollars.
 
Last night, the banks involved were from Willmington, North carolina, Kansas  and Georgia.
The bank closed on Thursday night was a small bank.
 
Gold closed up by 2.20 to 935.50 but silver did not participate closing down by 3 cents to 14.19.
 
The open interest on both gold comex and silver comex hardly budged.
 
The big news came after the market closed with the release of the Committment of Traders Report:
 
The Gold Committment of Traders report was constructive...

*The large specs reduced their longs by 13,098 contracts and increased their shorts by 1,033.

*The commercials increased their longs by 2,120 contracts and decreased their shorts by 15,559.

*The small specs decreased their longs by 3,667 contracts and reduced their shorts by 119.

The reduction by the commercials was SUBSTANTIAL. What it means is less clear as The Gold Cartel was an aggressive seller on all trades approaching $940 and right above that mark.

 
end.
 
The commercials certainly covered a huge amt of their shorts.  However, they were still supplying the paper comex gold.  The large specs reduced their longs as they just did not want to play with the crooks.
However some other players are taking on cartel members.
 
The key to all of this is really the physical market over in London England.  It is when these guys run out of metal to give to sovereign nations requesting gold, the game will come to an end.
 
The 5 nations that are officially buying gold are;
 
1.China
2.Russia
3.Ecuador
4.Venezuela
5 Brasil
 
The other big news of the day was the passage of the IMF bill in the Congress which will allow the IMF to sell 403 tonnes of gold to help with the current global crisis.
 
First the report:
 
Obama Administration pushes IMF gold sales through House by tieing it to security bill

The U.S. House of Representatives has passed a bill which included an expanded credit facility for the IMF and effective U.S. approval for the proposed IMF sale of 400 tons of gold.

Author: Lawrence Williams
Posted: Friday , 19 Jun 2009

FUNCHAL, MADEIRA -

The Obama administration has pushed a bill through the U.S. House of Representatives approving $106 billion in supplemental funding, primarily for the Iraq and Afghanistan 'security' efforts, but attached to it was also an expanded credit facility for the International Monetary Fund (IMF) of a massive $108 billion which included an agreement to allow U.S,. members of the IMF Board to agree the proposed $13 billion sale of 400 tons of IMF gold to shore up its finances.

In theory the US. approval of the IMF gold sale, which still has to pass through the U.S. Senate would be the final hurdle in the gold sale actually going ahead. But despite this there was virtually little or no impact on the gold market. In part this may be because of scant publicity being given to this part of the funding approval, but also in that firstly the gold market has largely discounted the IMF gold sale anyway, and secondly in that the IMF has said it will dispose of its gold in an orderly manner through a system such as the Central Bank Gold Agreement which limits sales volumes in a given year.http://www.mineweb.co.za/mineweb/view
/mineweb/en/page72068?oid=85171&sn=Detail
-END-

Here is what one commentary stated on this subject:

The Obama administration went to great lengths to get the IMF its billions. Last week, congressional leaders received a letter that made a firm connection between global economics and global security. "We know from the 1930s that a protracted global economic slump can foster undesirable and unforeseeable reactions to hardship and adversity," it stated. "Financial hardship and poverty breed desperation, which helps terrorist networks to attract new recruits with messages of hate, violence and intolerance."

The letter then urged Republicans and Democrats to support the president's request for IMF funding. "We believe that the current instability poses a significant risk to the long-term prosperity and security of the United States." It was signed by Secretary of State Hillary Clinton, National Security Adviser James Jones, and, most notably, Secretary of Defense Robert Gates.

 

end.

 

Many of you know my thoughts of this.  The gold has never been sequestered and i doubt very much that it exists. I strongly believe that the IMF gold is double counted with official sovereign gold.  They will `sell`the gold that has already been leased.  The market yawned on this because they know the gold does not exist.

Here are some commodity and currency prices that were traded yesterday:

The yield on the 10 yr T note dropped to 3.78%.

The dollar fell .34 to 80.24.

The euro rose .0039 to 1.3947. The pound was very strong, rising .0145 to 1.6499. The yen went up .53 to 96.16.

Crude oil lost $1.82 to $69.55.

The CRB lost 4.06 to 252.79.

 

end.

 

On Thursday, the long bond fell a huge 3 full points.(300 basis points)  It gave a little back yesterday.

All printed money yesterday,  came in to support bonds and the Dow.

 

In economic news, the deterioration in California is now alarming.  Its unemployment rate jumped to 11.5%.  If you were to use Williams, shadow government figures, you would find that there rate exceeds 20%.

 

First the article:

California's May jobless rate hits record 11.5 pct 

SAN FRANCISCO, June 19 (Reuters) - California's unemployment rate jumped nearly half a percentage point in one month to a record 11.5 percent in May, and Governor Arnold Schwarzenegger on Friday warned the economy would not recover quickly. 

Led by a drop in government jobs -- a reflection of the state slashing its own payroll to try to cope with a mounting budget gap and the possibility it will run out of cash, the May rate was nearly 2 percentage points ahead of the national 9.4 percent rate, the California Employment Development Department reported. 

California's May rate of 11.5 percent compared with a revised 11.1 percent in April, 6.8 percent a year earlier and the previous record of 11.2 percent set in March of this year. 

"A full recovery will not happen overnight -- it will take time, which only further underscores the need to continue the economic stimulus measures I fought for in the February budget," Schwarzenegger said in a statement aimed at pressuring lawmakers to hammer out a budget deal.

-END-

During the first few days of July, a huge number of bonds have to be rolled over and there are no buyers for those bonds.  California  must declare bankruptcy.  I was informed by Don Jack, that a state cannot go into Chapter 9, only smaller municipalities or cities.  Only companies can go into Chapter 11.

This will be interesting to see how this plays out.

There is another article that shows that 8 states are now in record unemployment:

Eight States See Record Unemployment - AOL Money & Finance

 

you can read this article if you have time. end

Not only is Washington receiving less money but also the majority of the states.

The states are not getting their sales tax and thus they must lay off workers.  This in turn sets off a spiral as demand collapses.

 

 

The next problem that is occuring in the market place is the rise in long term mortgage rates.  I urge you to read the following article.  Press on the blue to get the article:

 

Mortgages getting more expensive by the day

here's your next leg down in our whole system:http://zerohedge.blogspot.com/2009/06/we-have-mortgage-lift-off.htmlthe first chart shows the "spread" or interest rate differential between the interest on a conventional 10-yr mortgage and the yield on the 10-year Treasury bond. As that spread becomes wider, and today it spiked a lot higher, it means the market is less willing to provide money for mortgages. It also means that any hope of a housing recovery is doomed.

***

 

We are rapidly approaching June 30.09. On that date, we will see what happens with all the credit default swaps owed on General Motors.  It is believed that $1.6 trillion of these derivatives exist.

The second event will be the quarterly matching of the interest rate swaps.  This will be the first quarter that we have seen huge swings and a downward spiral in bond prices  (upward spikes in interest rates).

Interest rate swaps were done to keep interest rates in the general market artificially low and they have doing this for over 15 years.

The banks must make collateral deposits to offset their negative positions.

The total interest rate swaps are around 410 trillion dollars with JPMOrgan our industry leader at around 66 trillion dollars.

I wish everyone a grand weekend.  And I wish all our Fathers out there a happy Fathers day.

 

speak to you on Monday

Harvey.

 

Wednesday, June 17, 2009

June 17.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Not much action today.
 
Gold closed up by 4.10 to 935.10 and silver rose by 16 cents to 14.27.  The open interest on the gold comex continues to contract, falling by 2500 contracts.  Silver OI also fell by 2370 contracts as some the weaker longs vacated. This should set up gold and silver to rise this week and attempt to break the 960 gold resistance and 16.00 silver.
 
This is from the latest Ted Butler paper.  I am in the process of sending the commissioner another complaint
along these lines.  I will forward the complaint to you  when I am finished. Please take a close look at these two graphs:

The following two charts attempt to put the size of the concentrated short position in COMEX silver and gold into some perspective. It’s one thing to say the short positions in silver and gold are out of line with all other commodities, and quite another to represent that graphically. All source data are from the CFTC itself, taken from their most recent Bank Participation Report for positions held as of June 2, 2009. Bank Participation Report-END-

What Ted is presenting is EXACTLY what I have told the CFTC over the past many months. The CFTC’s general version is these concentrated positions are hedged. I said OK, then compare those concentrated positions in gold and silver versus all the other commodity markets. I went on to say that I bet that concentration far exceeds those in other commodity markets … that it just doesn’t hold water that a few banks get all the orders to go short in gold and silver, but is not the case in the other commodity markets. It is your smoking gun, a VERY visible one, that something is not kosher here. Why bother having anti-trust laws if the CFTC is going to allow this type of trading to occur?

From Ted’s latest, which says it all…

The first graph depicts the percentage of the entire futures market that US banks hold gross on the short side. The data is taken, without alteration, directly from the Bank Participation Report. In doing so, the graph severely understates the true percentage held short in the silver and gold markets by the US banks, because it includes all spread positions. If all spreads were removed, as they should be, the percentage of concentration held by US banks in silver and gold would be 50% larger (half again) of the amounts shown.

The second graph takes the number of contracts listed in the Bank Participation Report, converts them to standard units of trade and then compares them to world annual production.

I am sending this part of the MIDAS to the CFTC and request that they explain why the so-called hedging activity in gold and silver is so dramatically different among just a few banks than in the other commodities markets.

end.

Here are some key economic data for today:

What the heck happened late in the day to the euro? It was trading up about .0055. An hour later this afternoon it was up .0147 to 1.39611.

The yield on the 10 yr T note also gyrated late, rising to 3.66% after taking out 3.60% to the downside earlier in the day.

The dollar fell .66 to 80.18. The yen rose .41 to 95.59 and the pound rose modestly to 1.6412.

Crude oil went up 56 cents per barrel to $71.03.

The CRB gained .76 to 256.61.

In summary today, the dollar got hit, mortgage bonds fell in price (rose in yield).  Oil rose as did most of the CRB. It looks like the printed money went solely to prop up the Dow.

US consumer  prices rose a paltry .1% last month:

U.S. consumer prices edge up in May 

WASHINGTON, June 17 (Reuters) - U.S. consumer prices rose at a slower-than-expected pace in May despite higher gasoline costs, and fell over the past 12 months by the most since 1950, according to government data on Wednesday. 

The Labor Department said its closely watched Consumer Price Index edged up 0.1 percent after being flat in April, below market expectations for a 0.3 percent increase. Compared to the same period last year, consumer prices fell 1.3 percent, 
the largest decline since April 1950.

end.

 

The problem is that I do not trust any of their data.

This next data is very shocking.  When we say current account deficit it means the summation of two separate deficits:

 

1. the trade deficit

2. the service sector deficit.

 

We know that the trade deficit is 29 billion per month.  It looks like the service account deficit is in horrific shape  in the service side of things as usa  companies need foreign services far greater than foreign companies need usa services.  This is truly a bad number:\

08:30 Q1 current account balance ($101.5B) vs. consensus ($85.0B)
Q4 account balance was revised to ($154.9B) from ($132.8B). 
* * * * *

US Q1 current account deficit smallest since 2001 

WASHINGTON, June 17 (Reuters) - The U.S. current account deficit shrank in the first quarter to $101.5 billion, the smallest deficit since the fourth quarter of 2001, a Commerce Department report showed on Wednesday. 

The deficit declined from an upwardly revised $154.9 billion in the fourth quarter and compared with analysts' forecasts for a first quarter gap of $85.0 billion. 

The first quarter deficit equaled 2.9 percent of gross domestic product, a sharp drop from 4.4 percent in the fourth quarter, and the lowest since 2.8 percent in the first quarter of 1999, a Commerce department official said.

-END-

as an aside note the spin  "the usa current account deficit shrank in the first quarter to 101.5 billion"

and the "deficit declined from an upwardly revised 154.9 billion in the 4th quarter compared to forcasts of 85 billion dollars."

Note:  how can there be green shoots with these numbers?

end.

 

Mortgage applications plummeted again last month:  (again no green shoots)

U.S. mortgage applications plunge to near seven-month low 

NEW YORK (Reuters) - U.S. mortgage applications fell for a fourth consecutive week, with overall demand plunging to its lowest level in nearly seven months, data from an industry group showed on Wednesday. 

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 12 decreased 15.8 percent to 514.4, the lowest since the week ended November 21, 2008. 

A rise in mortgage rates in recent weeks had sapped demand, particularly for home loan refinancing, but the direction of rates reversed course last week. 

Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said borrowers who are considering refinancing their current mortgage are now reevaluating their decision, given the swift and sharp rise in mortgage rates over the past few weeks. 

"When rates move in volatile swings like this, it is critical (that) borrowers look for competitive rates -- competition in this environment keeps mortgage companies honest," he said…

end.

This is the big story of the day:  China is selling usa bonds because of fear of devaluation:

(again no green shoots)

China sells US bonds to 'show concern'

A decision by China to reduce its US Treasury holdings suggests concern about the US attitude towards its economic woes, Chinese economists were quoted as saying in state media Wednesday.

The remarks, coming after US data showed a modest decline in Chinese investments in US government bonds, were in contrast to an earlier statement in Beijing which had said the recent sell-off was a routine transaction…http://www.breitbart.com/article.php?id=CNG.6cc88b76aff9be3f90f62526a3107ec9.31&show_article=1-END-

I would like everyone to hear Ron Paul in a radio address where he now has over 227 sponsors to audit the Fed:

Click here: Revolutionary Politics » Blog Archive » Ron Paul Discusses HR1207 and the $ on Gold Seek Radio (6/10/09)

 

end.

Finally we are seeing the usa mint catching up with demand:

Mike Zielinski: U.S. Mint ends gold, silver coin rationing

Submitted by cpowell on 06:56PM ET Tuesday, June 16, 2009. Section: Daily Dispatches9:52p ET Tuesday, June 16, 2009

Dear Friend of GATA and Gold (and Silver):

Coin market watcher Michael Zielinski, proprietor of the Mint News Blog, reports tonight that the U.S. Mint has ended its rationing of gold and silver coin sales, an indication that supply and demand are moving toward some balance. Zielinski's report is headlined "Gold and Silver Eagle Bullion Allocation Programs End" and you can find it at Mint News Blog here:http://mintnewsblog.blogspot.com/2009/06/gold-and-silver-eagle-bullion.html

 

This is the latest commentary from Garic on the economy for the past week:

Garic…

The current correction in Gold started when the BLS reported a fraudulently less weak than expected non-farm payrolls report. The bond market cratered as fears of Fed tightening increased. Since last Thursday the correction has totally changed its form. Miraculously, the long bond which Gold had been correlated with bottomed last Thursday right as the last auction of the week was priced. Since Thursday the Gold markets correction has correlated with a correction in all other commodity’s and the stock market as the dollar and bonds rallied. During the past week economic news has been extremely disappointing for the "green shoots" propaganda department in the White House. Industrial production has made new lows. The National Association of Home Builders (NAHB) reported extremely disappointing traffic and sales figures for the month of June. Mortgage applications for refinancing and purchases have collapsed. The New York Manufacturing Fed index rolled over. Weekly retail sales were very disappointing. Green Shoots have withered. Meanwhile the Federal Reserve’s primary dealers who bought last week’s auctions have made out like bandits. Option speculators in inflation plays have been burned once again during this quadruple witching cycle.

For those of us that fear the unprecedented fiscal and monetary recklessness of our government leaders will lead to a catastrophe in the Treasury market and or the value of the $ U.S., the fundamental situation has gotten worse. We are just experiencing one more option expiration cycle where the option market makers and Federal Reserve primary dealers steal all the public money they can. Personally I want time on my side with my precious metals investments. Every day that the government prints more dollars and borrows more money for the benefit of Wall Street and not main street the risks grow. Green shoots have started to wither; real consumer income continues to fall as American jobs have been sent to China. The average American cannot service the unprecedented debt he has taken on. Consumption is 70% of GDP and it has hit a brick wall. The Treasury’s balance sheet will continue to deteriorate and the Fed will continue to print dollars to finance it. How many dollars will it take to buy one ounce of Gold once this becomes common knowledge?

***

end.

The Federal debt continues to climb rising to 11.406 trillion tonight.

I pointed out to you a few days ago a situation where two men were arrested crossing from Chiassco Italy to Chiassco Switzerland.  Chiassco is a duty free port and many counterfeit things are stored and sold there.

 

The two men has 134 billion in usa bearer bonds in a false bottom briefcase.  The story is getting international attention.  Here is what Jim Sinclair says on the matter:

Let’s talk street smarts. There is nothing mysterious about this. This is not your cookie cutter type of counterfeit operation, if they are, in fact, fakes.

Governments in times of war counterfeit the opponents currency and government bearer bonds to balloon the money supply, inflicting injury by inflation. These instruments, even not in official figures, act the same as a massive increase in the money supply. $134 billion is not massive by today’s standards but how do you know this is the only suitcase? Nobody is that stupid with funds of this size, even if counterfeit. You can be sure there is more where this came from. The probability then is that the $134 billion is not all of it and might just be the tip of the iceberg.

The above is common knowledge amongst intelligence services.

These are bearer bonds so you only need to have a few purchased in the market to successfully kill the serial number by counterfeiting your own serial numbers.

You use these counterfeit instruments to make loans in modest amounts at various less-than-ethical international operations, preferably those that specialize in illicit funds. Lay a hundred million on the banker and get all the loans you want.

If the government bearer bonds are real then some big guy is making a run for it. This is top dog money, and would indicate a serious and well informed reasoning on the part of the entity running for the hills. People with this type of money are not usually stupid. That amount of real bearer bonds is a reach for drug funds. It would be governmental.

Yeah, mysterious, only to the naive world.

The Mysterious Case of the Seized Bearer Bonds, Worth $134 Billion 
Sat Jun 13, 2009 at 03:50:09 PM PDT

The US media has been generally silent about $134 billion in bearer bonds seized by Italian police at the Swiss border. On June 8, AsiaNews reported:

Italy’s financial police (Guardia italiana di Finanza) has seized US bonds worth US 134.5 billion from two Japanese nationals at Chiasso (40 km from Milan) on the border between Italy and Switzerland. They include 249 US Federal Reserve bonds worth US$ 500 million each, plus ten Kennedy bonds and other US government securities worth a billion dollar each.

Italian authorities have not yet determined whether they are real or fake, but if they are real the attempt to take them into Switzerland would be the largest financial smuggling operation in history; if they are fake, the matter would be even more mind-boggling because the quality of the counterfeit work is such that the fake bonds are undistinguishable from the real ones.

Karl Denninger has been following the story, and it appears to be true that this vast sum was, in fact, seized.

It is a mystery why the story is receiving coverage in Europe and Asia, but not in the US. Rumors have been swirling about possible involvement of the Japanese, Chinese, and/or Korean governments, with the last being more likely if the bonds are counterfeit. Whether real or fake, the apparent fact of the smuggling raises all kinds of questions, with no easy answers. Mr Denninger applies his considerable intelligence to the matter, in Sherlock Holmes fashion:

More…

Ok. time to go.

I will probably not give a commentary tomorrow as I am taking my bride to a concert.

If I have a chance late in the day I will put one out.

Harvey.

 

 

 

 

 

 

 

 

 

Tuesday, June 16, 2009

June 16.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Gold closed up  by 4.30 to 930.40.  Silver closed up by 4 cents to 14.11.
 
The open interest on the gold comex fell by 9000 contracts to 374000.  Silver's OI also fell by 3000 contracts to 106000.  Again the cartel fleeced some weak speculators.
 
Yesterday's big drop in gold was caused by a Russian minister extoling the virtues of the usa dollar.
 
Today the Russian premier dispelled any notion that Russia is enamoured with the usa dollar:
 

The big news on the dollar was Russia’s President Medvedev making a U-Turn on the dollar from what his Finance Minister said yesterday…

02:45 Russian President Medvedev says world needs new reserve currencies -- Reuters
Russia says world economy does not need currency turbulence, calls for cautious approach to global currency. Says rouble, yuan, commodity currencies, gold deserve to be included in SDR basket. Kremlin says 2010 too early for rouble free float, decision should depend on economic recovery. - SA London 
* * * * *

DJ Russia May Diversify Reserves From Dollar - Kremlin 
YEKATERINBURG, Russia (AFP)--Russia may shift its reserve funds investments from dollars to bonds issued by China, India and Brazil if they reciprocate the move, the Kremlin's chief economic advisor said Tuesday.

The comments came as the four rapidly developing nations - dubbed the BRIC - held their first-ever summit in bid to shore up their market potential through cooperation. 
* * * * *

Note that Medvedev's economic adviser Arkady Dvorkovich mentioned gold in his statement in this coverage…

"The Shanghai group members released a summit declaration saying that global "multi-polarity is irreversible," a reference to their opposition to perceived U.S. domination in international affairs…….

"At the same time, Medvedev pushed against U.S. domination of financial markets by calling for new global reserve currencies to complement the dollar……

"No currency system can be successful if we have financial instruments denominated in just one currency," Medvedev said."Dvorkovich also proposed revising the way the International Monetary Fund's obligations are valued. He said the ruble, the yuan and gold should be part of a revised basket of currencies to form the valuation of the IMF's special drawing rights (SDRs), international reserve assets that supplement countries' existing official reserves…"-END-

 

As you can see yesterdays move and for that matter,  every move by the usa is totally manipulative and occurs constantly day in and day out.

Today, printed money went to the bonds .  They left gold and silver alone but the Dow suffered badly. The dollar suffered marginally. The commodities were also hit pretty hard despite  the  softening dollar.

Here is a summary of some commodities and the dollar:

The yield on the 10 yr T note dropped to 3.66%.

The dollar fell .49 to 80.71. The euro went up .0068 to 1.3844 and the pound rose to 1.6410. The yen gained 1.20 to 96.43.

Crude oil fell 7 cents to $70.55.

The CRB lost .68 to 255.19.

end.

Just checked the Federal Debt and it hit 11.4 trillion on the button tonight. It went up by 25 billion dollars from yesterday.

The ECB came out with their weekly statement on gold sales.  The total sold  .94 of a tonne.

Europe is not selling. It is only the USA that is supplying the metal.

In other economic news, housing starts got a little boost as did newly issued permits:

US housing starts, permits jump in May 

WASHINGTON, June 16 (Reuters) - New U.S. housing starts and permits rebounded in May from record lows as ground-breaking for multifamily units surged after tumbling the prior month, a government report showed on Tuesday. 

The Commerce Department said housing starts jumped 17.2 
percent to a seasonally adjusted annual rate of 532,000 units, from April's revised 454,000 units. Ground-breaking for multifamily units surged 61.7 percent. Multifamily unit starts fell 49.4 percent in April. 

Compared to the same period last year, housing starts dived 45.2 percent. 

Analysts polled by Reuters had expected an annual rate of 490,000 units for May. 

New building permits, which give a sense of future home construction, rose 4.0 percent, the biggest advance since June last year, to 518,000 units in May. That compared to analysts' forecasts for 500,000 units. Compared to the same period a year-ago, building permits plummeted 47 percent.

-END-

However, industrial output tumbled 1.1% in May which is more troubling as it indicates that the manufacturing sector is totally decimated:

U.S. industrial output tumbles 1.1 pct in May 

WASHINGTON, June 16 (Reuters) - U.S. industrial production slid a steeper-than-expected 1.1 percent in May from the prior month with output off sharply at factories, utilities and mines, a Federal Reserve report showed on Tuesday. 

Economists polled by Reuters were expecting a 0.9 percent decline after a revised 0.7 percent drop in April, initially reported as a 0.5 percent decrease. 

The data suggest that any slowdown in the pace of the recession that many economists have pointed to in recent weeks may be uneven. 

The capacity utilization rate for total industry, a measure of slack in the economy, fell to 68.3 percent, the lowest level on records dating back to 1967.

end.

Roubini claims that the ECB undestimated the crisis in Euroland:

00:53 Roubini believes ECB underestimates the crisis says Handelsblatt -- Bloomberg
Per Bloomberg, Handelsblatt reports Nouriel Roubini believes the European Central Bank underestimates the effect of the economic crisis on Europe, while the U.S. Federal Reserve acts more aggressively. The newspaper adds that Roubini is more skeptical than most on an economic recovery. - SA London 

end.

The Swiss are now calling for a gold backed currency:

Swiss Call for Return to "Healthy" Gold-Back Currency

http://goldnews.bullionvault.com/gold_dollar_061520094Today three Swiss politicians from the center-right SVP called for a "healthy currency" referendum to reverse the 1999 vote which cut the link between Switzerland's currency, the Franc, and the partial backing of its central-bank Gold Bullion holdings.

end.

Howard Katz came out with a great article that I will highlight for you.  Basically, the usa has been underestimating M1 by 740 billion dollars.  Here is the article:

HOWARD KATZ DISCUSSES GOLD AND POSTS A STUNNING ADMISSION BY THE FED THAT AFFECTS GOLD (http://ca.mc882.mail.yahoo.com/mc/compose?to=howardkatz@myfairpoint.net)

How do you prevent being robbed? You place your assets out of the currency being depreciated. There are many goods you can buy. But most of them have certain peculiarities which make them unsuitable as a store of value. Some (like the grains) are bulky and expensive to store. Some (such as art and rare coins) require expertise. Many are not traded on any organized markets. Of all these economic goods, two (gold and silver) have proven over the years to be safe and reliable stores of value. If your government depreciates your currency, then everything you own that is denominated in the currency (such as T-bills, certificates of deposit, corporate bonds, etc.) also gets depreciated.

Furthermore, we can refine this idea of protecting ourselves. This is the theory of the commodity pendulum. Since 1963, the U.S. (and world) economy has been fluctuating wildly. First (1963-1971) commodities went down in real value. Then (1971-1980) they went up in real (and nominal) value. Then (1980-1999 they went down again. And now (1999-?) they have started the second upswing. In principle, stocks and bonds move opposite to commodities (although there is a bit of an overlap, which is tricky).

The strategy is to be long commodities when they are making their upswing. Then when commodities top out, switch over to stocks and play stocks or real estate for their upswing. For example, I called the top in gold in 1980. Then in 1982, I switched over and became a bull on the stock market. In this way you can have the best of both worlds. A person who bought gold in 1970 and has held it to the present has done nicely and has protected himself from the decline in the value of the U.S. dollar. But a person who could switch from commodities (meaning gold) to stocks at the right time has come out way ahead of the game.

Today we are in a massive upswing of the commodity pendulum (which I guestimate at about 20 years). Gold has multiplied by a factor of 4. But we are still early in the pendulum. The (grand cycle) top in the stock market may have occurred in October 2007. If this is the case, then we will see commodity prices rise explosively and something like a 20%-30% annual rise in the Consumer Price Index (U.S.). This will force the Federal Reserve to tighten, and that will lead to a serious decline in stock prices. For example, in 1974 U.S. prices rose by 12.3%. The yield on the 20 year bond rose from below 6% to almost 9% and the S&P 500 fell from 120 to65.

DOLLAR TECHNICALS

This long term situation is about to explode. For years, gold bugs have warned that the irresponsible fiscal and monetary policies being followed by the U.S. Government would result in a decline in American wealth and in American power in the world and a rise in the price of gold. They are going to be proven right in spades - HERE, NOW.

I expect you were disappointed in gold over the past fortnight. The decline of the first week of June was due to the dollar rally. But during this past week gold was dull. There was little volume in the gold stocks, and they sat all day with little movement. What must be happening in the gold market is that the gold traders are in a daze. The dollar was down sharply on Tuesday and Thursday, but gold did not respond. The gold traders are saying, "This isn't happening. The dollar didn't really go down today." It is this kind of disbelief that I want to see as a prelude to the big rally. It is characteristic of all markets which are ready to make a major move. Low volume and small price movements (small real bodies in candlestick parlance) are often a prelude to an explosive situation. 

IMPORTANT BULLETIN

I have just received the following e-mail from the St. Louis Fed. Concerning the U.S. money supply (M1):

Half of all transaction deposits at banks do not appear in M1 due to retail deposit sweeping. Adding these back into M1 causes M1 to be larger than the monetary base. (In retail deposit sweeping banks reclassify checkable deposits as savings deposits so as to reduce statutory reserve requirements. Within certain legal bounds, such behavior is acceptable to the Fed. Bank customers are unaware that such reclassification is occurring.)

In short, the Fed is lying about the money supply. They are counting demand deposits (which are money) as time deposits (which are not money). This is the reason that, although the monetary base more than doubled last autumn, the money supply made a much smaller gain (16%) and in fact the reported money supply fell below the monetary base. This is impossible because the base is a part of the money supply, and a part cannot be greater than the whole.

Transaction deposits are demand deposits plus other checkable deposits. Thus the reported number (June 1, Fed Release H-6) is $740 billion. If an equal amount is being counted as time deposits (savings deposits), then the true figure for transaction deposits is $1.48 trillion, and the true U.S. money supply is $2.34 trillion, not the reported$1.6 trillion. This is an increase in the money supply of 70% over the past year, which beats the previous record of 16.9% in 1986.

This is a staggering piece of information. Much of the gold bug community has been warning of rising prices (except for a few crackpots who have bought the establishment line and are shouting "depression"). Bernanke is making us 10 times as right as we ever thought we would be. The concept that the U.S. has just increased its money supply by 70% in one year is simply not the America we have all known. It can't be happening. But it is happening.

end.

 

Speak to you tomorrow

Harvey.


 

 

 

 

 

 

 

 

 

 

Monday, June 15, 2009

June 15.09 commentary.

 
Good evening Ladies and Gentlemen:
 
Gold closed down by 12.60 to 926.60.  Silver fell badly to 14.07 a drop of 87 cents.
 
The open interest on gold comex fell by 5000 contracts to 383600.  The silver comex OI rose instead of falling, rising by 200 contracts as speculators are taking on the banks.
 
I would like to bring to your attention two key events which will occur on June 30.09.  Besides triple witching on options, this date also brings the credit default swap of General Motors to be finally paid.
 
From our vantage point, 1.6 trillion dollars of credit default swaps were written on GM by, AIG, JPMorgan, Goldman et al as to the survival of GM.  These players lost and they must pay out to hedge fund and others this gigantic sum.
 
There is no doubt that Bernanke and Geithner are planning how they are going to load AIG with the funds to pay out everyone.  This will be very interesting to watch.
 
I wrote to you on Saturday, the huge number of interest rate swaps underwritten by the 4 banks, namely JPMorgan at 66 trillion followed by Goldman Sachs, Citibank and Bank of America.
 
As I explained to you the volatility kills these guys and they have to put up more collateral to their counterparties.
They must come up with money at quarter end and the quarter ending June 30.09 will be a dilly as we saw huge swings in the interest rates.  The 10 yr treasury rate has zoomed all the way from 2.50%  to 4.00%.
The long bond has gone from a yield for 3.50% to 4.76%.
 
This is why we are no witnessing turmoil in the credit markets and the powers to be are trying to raise the usa dollar and thus lower yields on bonds to rescue these banks.
 
For e.g.  this story today, a few days after these guys were willing to trash the usa dollar:
 

From Russia With Love: Moscow sparks a U.S. dollar rally

 
end.
 
There is a grat article written by Jake Towne.  This gentleman is running for congress and he is the spitting image of Ron Paul.  The article is on the London Gold Pool which was in existence from 1961 through to 1968.  I have reprinted it for you to read:

R.I.P. - The London Gold Pool, 1961-1968

Most of the public is still unaware of that the gold price is currently suppressed by governments and central banks in collusion with bullion dealers. Even fewer realize that suppression of the price of gold has plenty of historical precedence. The following is the story of the London Gold Pool.
by Jake Towne, the Champion of the Constitution
(libertarian)
Sunday, June 14, 2009

fedseal"When gold speaks, all tongues are silent." -Italian proverb

This article will briefly review the history and aftermath of the infamous London Gold Pool. For those unfamiliar with monetary history, let me quickly establish the events framing the London Gold Pool.

In 1933, the FED's monetary inflation caused the Great Depression which was also America's first bankruptcy. FDR plundered the American people's gold and one month later outlawed the private possession of gold, an illegal act that existed until 1975. From 1933 onwards,America was on a "gold bullion standard."   A "gold bullion standard" exists when gold coins are not minted and owned by the people, but large international transactions with foreigners are handled in gold bar. However, the FED, America's central bank, continued inflating the monetary supply which debases the currency and likewise increases the foreigner's redemption of gold.  (emblem)

brettonFollowing the chaos of World War II, the heads of the world's 44 industrialized nations gathered in New Hampshire, and made the Bretton Woods agreement. The Bretton Woods agreement made the dollar the world's reserve currency, and stipulated that all member nations' reserves had to consist of either physical gold or currency convertible into into gold (domestically the private ownership of  "monetary" gold remained a felony until 1975). These member countries then had a "gold exchange standard" and manipulated their currencies on their national level, often trying to devalue their currencies at the same or slightly higher rates than what the dollar was being devalued, or inflated, at.  (photo of the Bretton Woods hotel used for the conference)

The Bretton Woods system began to break down very quickly. In the 1950s, the United States found itself having to redeem vast sums of gold. In the recession of 1958, the FED created $2.25 billion of excess credit, which was redeemed by foreign central banks. This annual loss of 2,000 metric tons of gold still remains the largest known loss of gold in one year by any nation in history - currently, on paper the United States is still the largest official owner of gold at about 8,100 metric tons categorized as "Custodial Deep Storage Gold." (see note 1)

By 1971, President Nixon had declared America's second bankruptcy.  The FED had inflated the money supply by too much to fund the Vietnam War and President Johnson's "Great Society," and America was no longer able to redeem foreign-held dollars into gold. The world entered the twilight zone of freely floating exchange rates. In between 1958 and 1971, the several governments and central banks fiendishly created the London Gold Pool to suppress the price of gold.

THE LONDON GOLD POOL

In October of 1960, gold trading on the London gold exchange reached $40/ounce, which was $5 higher then the central bank's target price. Rampant speculation that a Kennedy presidency would lead to more inflation, along with the building of the Berlin Wall and the U-2 spy plane incident, triggered fears about economic stability.

To curtail these fears, President Kennedy pledged in February 1961 that America would maintain the official price to our foreign creditors, and the price of gold fell to $35/ounce. Fearing a relapse, the international bankers of the BIS and the FED-US Treasury secretly formed the London Gold Pool. Each member of the Pool would pledge some of their gold to keep the London market suppressed. The Bank of England would dump their gold on the London market whenever necessary, and at the end of each month the other members would reimburse the BoE in accordance with the percentage of the pool they owned. The members were:

  • g50% - United States of America with $135 million, or 120 metric tons
  • 11% - Germany with $30 million, or 27 metric tons
  • 9% - England with $25 million, or 22 metric tons
  • 9% - Italy with $25 million, or 22 metric tons
  • 9% - France with $25 million, or 22 metric tons
  • 4% - Switzerland with $10 million, or 9 metric tons
  • 4% - Netherlands with $10 million, or 9 metric tons
  • 4% - Belgium with $10 million, or 9 metric tons  (Photo)

By acting in secret, the governments hoped to stagnate the market and keep potential buyers away. In 1962, a series of events involving Soviet sales of gold led to a change in strategy by the Pool. They found themselves able to profit off the changes in gold supply, and at one time in 1965 the Pool even reached $1.5 billion, or a five-fold increase over the initial Pool gold. However, the Vietnam War expenses after 1965 combined with the French shipping its' $3 billion in gold from the New York FED to Paris, and leaving the Pool in 1967 led to catastrophic losses.

The FED's meeting minutes from December 12, 1967 reveal the full extent of the central bank's panic. Here are several excerpts:

martin"The announcement on Thursday, December 7, of a $475 million drop [422 metric tons - auth] in the Treasury's gold stock seemed to have been accepted by the markets as about in line with prior expectations of the costs of the gold rush following sterling's devaluation. What the market did not know, of course, was that only a $250 million purchase of gold from the United Kingdom saved the United States from a still larger loss in the face of some foreign central bank buying... The logistical acrobatics of providing sufficient gold in London were performed with a minimum of mishaps, although the accounting niceties were still being ironed out.

"Of greater concern, however, was the fact that the drain on the pool was accelerating again... the measures taken by the Swiss commercial banks and by some other continental banks to impede private demand for gold worked quite well, although it was clear from the start that such measures could serve only as a stop-gap until some fundamental change was agreed upon. Persistent newspaper leaks--mainly from Paris--about current discussions on this subject and their reflection in gold market activity Monday and today pointed up the need for speed in reaching a decision. " (3-4/107) (photo of then-FED Chairman William Martin)

On page 15/107, the group then discusses placing "restraints on access to the London gold market" and it was commented that Italy and Belgium were "not prepared to stay in the gold pool indefinitely if that would mean continued substantial gold losses." The group did agree to then implement "some program of restraints on demand, particularly in the London market, should be worked out; in the meantime, all of the participating countries were willing to stay in the pool... In particular, the British were concerned that limitations on access to the London market, by diverting demand elsewhere, would work to the detriment of that market which for the past 13 years had been the world's principal market for gold."

These excerpts also serve to remind us all that the central banks love their hold on the money power. However, from some of their perspectives, they may well believe they are simply doing "what's best," blindly disregarding the fact that all of their interventions and controls are only made necessary from their prior meddling with the free market:

"Although the German case was the most striking example of central bank operations following the meeting in Frankfurt, the availability of forward cover into guilders and Belgian francs at reasonable rates had also helped to reassure the [gold] market." (7/107)

"Under Secretary [of Treasury] Deming, who had led the U.S. delegation to Frankfurt, made the necessary arrangements, and the group met with him in Basle yesterday. Meanwhile, representatives of the countries in the gold pool met in Washington last week to make a preliminary review of possible additional measures to keep the gold market situation under control. Not unexpectedly, the gold pool also was the main topic of conversation at the regular Basle [Switzerland, the home of the BIS - auth.] meeting on Saturday and Sunday, and it was discussed in detail by the governors on Sunday evening." (12-13/107) (see note 2)

On pages 13-14, the FED also mentions the "gold certificate plan" which I personally believe is a likely prototype for the emergency fall-back position of today's gold cartel after the price of gold spikes on the modern futures market. A particularly damning passage concerning the erosion of America's sovereignty from Congress to the unelected Treasury Department to the cabal of international bankers is here:

"Governmental structures differed among countries, and the United States was almost unique in assigning to the Treasury sole responsibility for external matters involving gold. In many countries the central banks had primary responsibility in that area, although they often were required to consult with their governments. Moreover, central bankers commonly felt that they had greater knowledge and understanding of the practicalities of gold markets than did officials of their governments. Accordingly, it was probably the view in most countries that a meeting of central bank governors was the most appropriate forum for discussions of the type in question. The governors recognized, of course, that in the United States the Treasury had central responsibility with respect to gold, and accordingly they were willing to meet with Mr. Deming yesterday." [Deming, of course, was quite literally a FED stooge, just like today's Timothy "Turbo Tax" Geithner, see note 2]

Following these minutes, on Sunday, March 17, 1968, the London Gold Pool collapsed and the global gold markets were closed for several weeks. The central bankers then decreed a "two-tier" gold price for "monetary" gold at $35/oz. and "non-monetary" gold. This system remains in place to this day, although it is clearly just an accounting sham.(see notes 3 and 7)

golTHE AFTERMATH OF THE LONDON GOLD POOL

On Monday, March 18, 1968, Congress removed the 25% gold reserve backing requirement for Federal Reserve Notes. In April, despite further panicked attempts to suppress it, the gold price reached $44/oz. The price was then kept bottled up by actions by the Swiss, American, and English central banks, including massive gold sales from the Soviets to the Swiss and gold redemptions by America.

By 1971, more than half of the gold illegally stoled by FDR from the people had been delivered overseas, mostly winding up in the vaults of European central banks. On August 15, 1971, President Nixon was forced to declare national bankruptcy and closed the Gold Window. This meant foreigners could no longer redeem dollars for gold.

The world's central bankers and governments rushed to Washington, D.C. and made the Smithsonian Agreement, where, against all reason, all parties agreed to go on pretending as if the gold window had never been closed and merely set new fixed exchange rates. Finally, with the gold price at $90 and the turmoil resulting from the debasement of the dollar leading to a major recession, the system of fixed exchange rates completely collapsed, marking the final nail in the coffin of the Bretton Woods monetary system. From this point onward, all currencies "floated" against each other, opening wide the door to non-stop currency debasement, inflation, and FOREX market speculation. (note 4)

In 1974, New York's COMEX futures market was opened to gold trading, paving the way to the "paper gold" derivatives and ETF's of our modern day. In December 2008, the nominal value of all gold derivative contracts was $395 billion USD, or roughly equivalent to 15,000 metric tons of gold. In 2007, the last reported year, the LBMA, or the London gold market, exchanged over $20 Trillion USD in gold - the 2008-9 annual market turnover will likely dwarf this.

summersMy message is a third American, possibly global, possibly even final, bankruptcy is imminent in the coming years as I first clearly denoted in this series. Similar to the closing of the gold window in 1971 being preceded by the demise of the London Gold Pool, this bankruptcy has been preceded by former Treasury Secretary and current Director of the National Economic Council Larry Summer's gold price suppression plan enacted in the 1990s. (photo) (see note 5 and 6)

The "Summers Suppression Plan" has been bolder, more clever and more clandestine than the London Gold Pool, but may well be on its last legs. Though they may wear Brooks Brother suits and meet in corporate boardrooms and the highest political offices in the land, those who suppress gold are no different than mafia thugs in suits. For in doing so, they also suppress the free market and the prosperity it could deliver if the "money power" once more resides with We the People. More on Summers Suppression Plan in the upcoming parts of the Money Matrix series.

In the meantime, please mark my words. When gold speaks again, the Summers Suppression Plan will be no more.  As sure as night follows day, its fate is the same as that of the London Gold Pool.

meJake Towne is running for U.S. Congress in Pennsylvania's 15th District in the 2010 election as a citizen unaffiliated with any political parties.  Jake also writes at www.LibertyMaven.com and www.CampaignForLiberty.com A master campaign presentation for internet viewing is available.  [Reach the Author Here!] 

 
end.
 
 
Today all the printed money went to keep the dollar and bonds up.  They had to trash gold and silver.  There was not enough money left for the Dow so the Dow fell by 185 points.  Here are some figures:
 

The dollar was on fire, rising .83 to 81.16. The euro dropped .0226 to 1.3788. The pound fell .0133 to 1.6306. The yen gained .63 to 97.28.

The yield on the 10 yr T note is 3.73%.

Crude oil fell $1.42 per barrel to $70.69.

The CRB lost 7.09 to 255.16.

 

end.

The NY Manufacturing Index was released today and it was badly negative.  This is manufacturing in the NY area:

 

NY Fed manufacturing slump deepens in June-NYFed 

NEW YORK, June 15 (Reuters) - The slumping factory sector in New York state shrank at a more severe rate in June than during the previous month, the New York Federal Reserve said in a report on Monday. 

The New York Fed's "Empire State" general business conditions index fell to minus 9.41 in June from minus 4.55 in May. Economists polled by Reuters had expected a June reading of minus 4.5. 

The index was launched in July 2001. 

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. 

The fall in the main index came as shipments dropped into negative territory, coming in at minus 4.84 in June from positive 1.29 in May. 

New orders remained negative at minus 8.15 but not quite as bad as May's 9.01. 

Inventories fell further, hitting 25.29 versus May's 21.59, continuing a liquidation of stockpiles that many economists say is necessary before the economy can recover…

-END-

As many of you know, I consider the TIC number as the most important statistic.  Today we saw total outflow of 53 billion dollars and the recepients of this money was China, Japan, Korea and Russsia:

 

April Net Foreign Sales Of Long-Term US Secs $8.8B

WASHINGTON (Dow Jones)--Net foreign sales of long-maturity U.S. securities totaled $8.8 billion in April, following purchases of $36.5 billion the month before, according to a U.S. Treasury Department report released Monday. 

Meanwhile, the report shows that China, Japan and Russia - three large purchasers of U.S. Treasurys - all trimmed their holdings of U.S. debt. 

The monthly Treasury report highlights cross-border acquisitions of securities with maturities of more than one year including nonmarket transactions such as stock swaps and principal repayment on asset-backed securities. 

The closely watched figure, excluding transactions that don't occur on an open market, recorded net purchases of $11.2 billion in long-term U.S. securities, after purchases of $55.4 billion in March, according to the monthly Treasury International Capital report, known as TIC. 

The report's most comprehensive category, "monthly net TIC flows," includes nonmarket flows, short-term securities and changes in banks' dollar holdings. This measure of net foreign capital outflow was $53.2 billion in April, versus an inflow of $25.0 billion the previous month. 

Financial market analysts consider the monthly data from the Treasury Department to be a significant but imprecise gauge of how easily the U.S. can finance its trade deficit. The April TIC flow compares with the $29.16 billion trade deficit during the month. 

Within the long-term securities category, foreign net purchases of U.S. Treasury notes and bonds totaled $41.9 billion in April, compared with net purchases of $55.3 billion the month before. 

Private foreign investors bought a net $24.8 billion in Treasury notes and bonds in April, after buying $26.7 billion in March. Meanwhile, foreign official institutions such as central banks bought a net $17.1 billion of these Treasurys, compared with net purchases of $29.0 billion the month before. 

Net foreign sales of debt issued by U.S. government-sponsored agencies like Fannie Mae and Freddie Mac totaled $2.5 billion in April, compared with sales of $15.6 billion in sales in March. 

For U.S. equities, net foreign purchases totaled $4.6 billion in April, compared with purchases of $13.2 billion the previous month. 

For corporate bonds, net foreign sales were $9.7 billion, versus purchases totaling $3.5 billion the previous month. 

China remained the largest holder of U.S. Treasury securities, having surpassed Japan late last year. China decreased its holdings to $763.5 billion in April from 767.9 billion in March. Japan, the second-largest holder of U.S. Treasurys, also decreased its holdings. It held 685.9 billion in April compared to $686.7 billion in holdings in March. Russia, meanwhile, slighlty cut its holdings from $138.4 billion in March to $137.0 billion in April. 

The TICs data, typically released around the 11th business day of the month, can be found on the Treasury's Web site at: http://www.treas.gov/tic. With each monthly release, Treasury revises the previous month's data as well. 

The next report, covering May, is scheduled for release on July 16.

-END-

This is Bill Holter's commentary on the TIC report which echoes mine:

To all; the TIC numbers came out this morning for April, they were a negative $53.2 billion for the month. This is now 3 of the last 4 months revealing capital outflows from the US. Common sense should tell you that if the U.S. is in a position where it needs more capital inflows to survive and the opposite is occurring, the end must be near unless something dramatic changes immediately.

Last week the "BRIC" nations were verbally trashing the Dollar and calling for it's demise. This week however is a different story with the Russian and Brazilian finance ministers announcing "there is no alternative to the Dollar". (I can think of a few if they would care to listen). Last week the Japanese minister of finance announced that the Dollar was the greatest, safest, and most liquid market on earth and that the U.S. could rely on their continued purchases. Something is definitely afoot as I see it.

What could possibly change the BRIC views 180 degrees within the span of a week? A massive change in U.S. fiscal responsibility? No, not that. A massive load of Gold being delivered TO Ft. Knox rather than FROM? I haven't heard about this one either. How about fear? Maybe these financial "pitbulls" were called off because TPTB are not ready to pull the plug for another week or month or whatever. Maybe these guys figure if the system comes down they might receive blame for all the worthless Dollars that have been accumulated on their watch? I don't have the answer here but something is definitely going on behind the scenes that we are not privy to.

If you do the math on these TIC numbers, they show an outflow of over $260 billion for the first 4 months of the year. This has happened at the same time the Treasury has been chomping at the bit to borrow huge sums in the credit markets. This just does not add up! When will the "thread" that we have been hanging on by since last September break? I believe it already has and that all this borrowing by Treasury has been used to maintain the status quo until those running the casino can get their affairs in order. The "owners" required time to extricate themselves from poisonous positions and to "readjust" holdings to benefit from the horror that is coming.

The above paragraph is speculation on my part. One now must guess or speculate because the numbers don't crunch. The markets are not reacting in any logical manner. Sometimes markets will do this when news is already "in the market". In this case however, I don't think the TIC numbers are anywhere near "in the market". In fact, if actual logic is used (the rarest of all commodities on Earth presently) to analyze the situation, the ultimate outcome is the insolvency and bankruptcy of the U.S. Treasury (I'm pretty sure THIS is not yet in the market) This is what the math says but what do I know? I still think 2+2=4 and never learned "new math". Regards, Bill H.

end.

 

Please note that during the past 4 months over 260 billion dollars have been redeemed by Eastern nations.  This is occuring at the same time that the treasury is borrowing huge amts of dollars from bonds printed.  Geithner has resorted to quantitative easy or the printing of money to purchase the bonds.

 

Garic notices something strange:  In April the government announced that 58 billion dollars of bonds were bought by foreigners.  Yet  with one looks at the TIC report , only 2 billion was purchased.

So it looks like the usa government is buying bonds and putting them as if foreign purchases.  Here is the story:

Garic…

On Friday I suggested the Federal Reserve may be monetizing more Treasury debt than they are publicly acknowledging. During the month of April the Federal Reserve reported an increase of $58B in holdings of Treasury’s in the line item: "Marketable securities held in custody for foreign official and international accounts (1)"http://www.federalreserve.gov/releases/h41/Current

This morning the Treasury Department released its April report on Treasury International Capital Data. The report shows Long Term and Short Term net purchases of Treasury Bills and Notes by official accounts of $5B. If you add in private international accounts there is a net reduction of $2.3B. Clearly the numbers don’t come anywhere close to matching up. My conclusion is the international accounts at the Fed which are purchasing Treasury’s are not international capital (recycled trade deficits) but are actually domestic purchases in off shore accounts (fraudulently reported budget deficit monetization). The bottom line is while the Federal Reserve is discussing exit strategies, they are buying up to $233B monthly in Treasury Security’s which conveniently is close to our total monthly budget deficits. With total domestic debt to GDP close to 400% and corporate, consumer, financial and government debts continuing to come due at accelerating rates, any attempt to exit from the current strategy of borrowing unlimited amounts of Treasury’s and the Fed monetizing that debt would crash the debt/derivatives markets immediately. Of course if the Fed agreed to be audited, my accusations could be cleared up easily.

***

end.

The Home building sentiment continues to sink.  No green shoots here:

U.S. home-builder sentiment slips in June 

WASHINGTON (Reuters) - U.S. home-builder sentiment slipped in June, a private survey showed on Monday, as higher mortgage rates and an ongoing credit crunch dampened expectations for the sector. 

The National Association of Home Builders/Wells Fargo Housing Index slipped one point to 15 from 16 in May. Analysts had expected the index to climb by one point. 

The deep slump in the U.S. housing market has shown some signs of abating. However, the NAHB said consumer anxiety over jobs and the economy's health has created an uncertain picture for the sector's recovery. 

"Home builders are facing a few headwinds, including expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans," Joe Robson, the chairman of the trade association, said in a statement. 

Earlier this year, Congress authorized an $8,000 tax credit for first-time home buyers and home builders have called for that credit to be expanded beyond this year. 

While rates on 30-year mortgages touched record lows in April, they have climbed since then on hints the U.S. recession, now in its 18th month, may be drawing to a close. 

Rates on 30-year mortgages rates, which touched a low of 4.78 percent in April, reached 5.59 percent last week, the highest level since November, according to mortgage finance company Freddie Mac.

end.

This is not good:  credit cards defaults are on the rise:

 

Capital One credit card defaults rise in May 

* U.S. credit card default rate rises to 9.41 percent 

* International card default rate rises to 9.77 percent 

* Shares fall 1.8 percent to $23.50 in premarket trading 

NEW YORK, June 15 (Reuters) - Capital One Financial Corp's U.S. credit card defaults rose in May as unemployment increased and Americans struggled to pay their debts, the company said on Monday. 

Defaults climbed even though the issuer of MasterCard and Visa credit cards changed its customer bankruptcy accounting and now is waiting longer to declare the debts of bankrupt customers uncollectable. 

In a regulatory filing, Capital One said the annualized net charge-off rate for U.S. credit cards -- debts the company believes it will never collect -- rose to 9.41 percent in May from 8.56 percent in April. 

The company said the accounting change had improved its charge-off rate by 50 basis points. Excluding the change, the rate would have been close to 10 percent. 

Still, Capital One is performing better than bigger rivals American Express Co , Citigroup Inc and Bank of America Corp , whose default rates already exceed 10 percent…

-END-

 

Nobel prize winner Paul Krugman states that stagnation looks like it will be here for quite some time:

 

19:37 Paul Krugman says the "risk for long term stagnation is really high" in an interview 13-Jun - Guardian 
In an extensive interview with Will Hutton of the The Observer, Paul Krugman discusses the current economic situation in comparison to Japan's lost decade of the 1990s. Krugman says that the risk of an all out collapse of everything has receded a lot in the past few months, but says the risk of long term stagnation is really high, noting that the first year of this crisis was much worse than Japan's of the 1990s. He adds that the zero bound in terms of monetary policy is real, that there are situations in which ordinary monetary policy loses traction and that we are in such a situation now. Near the end of the interview he is quoted saying, "the buzz I'm getting is that a second round of stimulus (for the U.S) might well come on the agenda." He defines "the buzz" as what you hear from people who talk to people who talk to people.
Reference Link 

end.

Mike Whitney;s latest paper on the "American Empire is Bankrupt"

 

by

MIKE WHITNEY
Counterpunch
Saturday, June 12, 2009

Federal Reserve boss Ben Bernanke is getting ready to pull another rabbit out of his hat and he’s hoping no one figures out what he’s up to. Here’s the scoop; the Fed chief needs to "borrow up to $3.25 trillion in the fiscal year ending Sept. 30? (Bloomberg) without triggering a run on the dollar.

But, how? If the stock market keeps surging, investors will turn their backs on low-yielding US Treasuries and move into riskier securities hoping for better returns. The only way to attract more buyers to US debt is by raising interest rates which will kill the "green shoots" of recovery and make it harder for people to buy homes and cars. It’s a conundrum.

In the next year, China will buy roughly $200 billion T-Bills while the oil-producing states and the rest of the world will add about $300 billion to their cache. That leaves more than $2 trillion for the domestic market where cash-strapped investors are likely to avoid government debt like the plague. So, who’s going buy that mountain of low-yield government paper?

The banks.

The Fed has been helping the banks raise reserves for the last year. In fact, excess bank reserves have skyrocketed from $96.5 billion in August 2008 to $949.6 billion by April 2009. Nearly a trillion bucks in less than a year. But, why? Are the banks expecting to expand lending at the fastest rate in history in the middle of a depression?

Of course not. Master illusionist Bernanke is just arranging the props for his next big trick. The fact is, Bernanke anticipated the current wave of deflation and set up a straw man (the banks) to deal with it so it wouldn’t look like he was simply printing more paper to finance the deficits. As soon as rates on 10 year notes hit 4 per cent, the banks (that are borrowing money at 0 per cent) will probably start to purchase Treasuries and keep the housing and retail markets from crashing even faster. It’s called "the old switcheroo" and no one does it better than the Fed.

Bernanke pulled a similar stunt after Lehman Bros flopped and he and Paulson decided that it was time to dump $700 billion worth of garbage assets on the public. The Fed chief and Treasury figured out the only way they could hoodwink congress was to foment a crisis in the credit markets and then moan that if they didn’t get $700 billion to buy up toxic assets in the next 48 hours "there wouldn’t be an economy by Monday".

Congress swallowed it hook, line and sinker, and weeks later funds were allocated for the Troubled Asset Relief Program (TARP) Of course, no one in the financial media noticed that the storm in the credit markets was NOT caused by "troubled assets" at all (for which TARP funds have NEVER been used) but by skyrocketing LIBOR and TED spreads and other indicators of market stress. Market Ticker’s Karl Denninger was the only blogger on the Internet who figured out that Bernanke had deliberately caused the crisis by draining over $100 billion from the banking system just 10 days after Lehman defaulted.

As soon as Paulson and Bernanke had pulled off their multi-billion dollar heist, the Fed chief created lending facilities (completely unrelated to the TARP) which provided government guarantees on money markets and commercial paper. This lowered LIBOR and TED spreads immediately and relieved the stress in the credit markets. The crisis had nothing to do with toxic assets. To this day, none of the junk securities have been purchased from the banks under the TARP program. $700 billion has vanished in a puff of smoke. Poof!

-END-

The IMF states that the worst is not over:

 

IMF says worst not over 

LONDON (Reuters) - The head of the IMF questioned on Monday any debate about when to roll back stimulus spending, saying the world economy had yet to weather the worst of a recession that claimed a record number of European jobs. 

The 16-country euro zone lost a record 1.22 million jobs in the first quarter, official data showed. Employment during the first quarter fell 1.2 percent year-on-year, the deepest annual drop since measurements started in 1995. 

Even if some form of economic recovery is not far off, analysts say unemployment will climb for many months to come. 

Underlining the fragile state of the global economy, an influential economist said China would not see a rapid rebound and South Korea's finance minister said its economy was still sliding, although the pace had slowed. 

But in southern Italy, Group of Eight finance ministers meeting at the weekend described their economies in the most positive terms since the collapse of U.S. bank Lehman Brothers nine months ago heightened the world's worst financial crisis since the Great Depression of the 1930s. 

"Their (G8) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious," International Monetary Fund chief Dominique Strauss-Kahn said during a visit to Kazakhstan. "The large part 
of the worst is not yet behind us." 

Pressure has been building in the G8, particularly from fiscally conservative nations such as Germany and Canada, for plans to wind down stimulus as soon as it is no longer needed. 

But ministers in Lecce differed over how quickly to start rolling back state spending plans and hiking interest rates. 

Treasury Secretary Timothy Geithner indicated the United States was unlikely to tighten policy soon, saying: "It is too early to shift toward policy restraint."…

end.

This next newspaper report by Gretchen Morganstern is quite alarming and I urge you all to read this thoroughly:

Gretchen Morgenson: Debts Coming Due at Just the Wrong Time To get a fix on how much workremains to be done, consider the substantial amount of short-term debt coming due at financialcompanies in the next year or two. As you absorb these figures,keep in mind that many of the entitiesthat bought this debt when it was issued aren’t around now — they’ve either left the market or are gone, casualties of the crisis.

As a result, they’re not around to step up and buy the debt again. So issuers can’t roll it over. They’ll be forced to buy back the debt, at a time when they’re already wallowing in other forms of troublesome debt and short on liquidity. ..Barclays Capital has analyzed financial company debt among United States institutions coming dueover the next decade. During the rest of the year, for example, roughly $172 billion in debt will mature;in 2010, an additional $245 billion comes due. That amounts to about $25 billion a month in debt rolling into a market with a shortage of buyers willing to invest in it…Of the $172 billion coming due by year-end, Barclays says, $123 billion was floating-rate debt. And of the $245 billion maturing next year, some $141 billion pays a variable rate…

This much is evident: it is too soon to celebrate the end of the banking crisis. Less debt is the answer, but shrinking balance sheets is hard.

http://www.nytimes.com/2009/06/14/business/14gret.html?_r=1&ref=business

There is very important point in Ms. Morgenson’s story. For example, institutions that generated revenueby lending out securities — their own or their customers’ — took that cash and invested it in these shorttermbank obligations. Once again, they captured the spread between their capital costs and interest on the debt they purchased. Now, however, many of these institutions have curtailed the securities lending game.

-END-

From the ECB regional bankers today:

11:06 ECB's Papademos says Euro area banks may face $283B more losses by end 2010 -- Bloomberg
Per Bloomberg, ECB's Papademos says loss estimate has 'considerable' margin of error. Says credit cycle hasn't reached trough yet, with risks to financial stability remaining high. Headlines - SA London 

end.

I urge you all to watch this video of Congressman, Kirk on China:

You have to watch this video clip of Rep Kirk on FOX saying that China plans to buy the equivalent of twice the gold in Fort Knox. He says this is 80 B$...either his math is wrong or he knows something we don’t about how much gold is left in Fort Knox!http://www.youtube.com/watch?v=PUl9DedlQJw&eurl=http%3A%2F%2Fsilverbearcafe.com%2Fprivate%2F06.09%2Fftknox.html&feature=player_embeddedend.

Many has asked my thoughts on the disappearance of Canadian Gold and silver from the Mint.

I truly believe that it is not stolen by leant out by our illustrous authorities in the leasing game and they cannot get their stuff back.

 

I cannot see how someone could steal that quantity of metal under the noses of mint officials, but then again anything is possible.

 

see you tomorrow

Harvey.

 

 

 

 

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