The Beginning Of A Great Economic Drama

Posted at 3:13 PM (CST) by & filed under General Editorial.

Dear Friends,

There is absolutely no question in my mind that gold will trade at $1650 on or before (probably much before) January 14th, 2011.

Regardless of what financial TV or popular analysts claiming never to have made an error say, we are correct.

Stay the course. Do not let your guard down. Protect yourself as the most significant dislocation economically in world history for major nations is at our doorstep. In fact it is one foot through your door already. Are you prepared?

You ask why? Then read on!

There seems to be some degree of assumption that each action by the Fed brings the credit lockup closer to being corrected.

There are many challenges to this assumption.

Will banks use funds to patch up their pillaged balance sheet or actually start loaning in a progressive manner? The answer is balance sheet as they really have no alternative.

As in the case of AIG below, is any cash bailout enough to bail out losers? We need to remember that what OTC derivatives do not do to financial or any other entity, the drop in earnings will. Whatever is left over litigation will pick the bone clean of.

Regulators went from 12 to 1 leverage to 40 to 1 leverage where a 2-½% change in total asset value would bust financial institutions. The losses taken are not bookkeeping, but are hard and real.

The only thing bookkeeping did was allow these losses to be maintained in full value because they were OTC derivatives, not listed derivatives with a clearinghouse guarantee. Clearinghouses demand losers pay in and winner are paid out daily while there is no such facility for OTC derivatives. Because of no clearinghouse function, banks and other entities carried the declining value in OTC derivatives at full value at 40 to 1 leverage.

The bailout funds are simply putting a thumb into the leak in the dyke as more holes open up from earnings declines, slow business and serious litigation.

The TIC report is looking quite bad, indicating that dependence on non-US entities to finance a budget deficit that is about to go ballistic cannot be depended on.

All that we have seen is emergency action without limits to hold financial zombies from being discovered by the general public.

The US Fed is in fact holding up the entire world that is near and dear to them. One of the methods is through swaps, which are a form of OTC derivatives and just like the disease, are off balance sheet items.

There is no limit to what the US Fed and Treasury will do in the next few months. It will be discovered in the not too distant future that the US dollar has moved into critical oversupply. At that point expect to the see the US dollar drop like a stone and gold trading at $1200 and $1650.

The US dollars will see.72 again prior to .62 and .52.

The limiting factor to the present terminal financial condition under the Fed and Treasury bandage bailout is the US dollar. There is no escaping the event of publicly recognized dollar oversupply, the ineffectual nature of bailouts and the appearance of hyper-inflation in the midst of non-recovering business conditions.

Keep firmly in mind that retired Chairman Volcker has described this situation as “We have a failed financial structure.” He went on to describe the condition of the financial situation as “Code Blue.”

What you see now is only the beginning of a great economic drama, out of control and nowhere nears its end.

This is it. It is now!

Gold is the only entity that has the capacity of insuring your future buying power, maybe even more.

Enough said.

Respectfully,
Jim

AIG Already Running Through Government Loans
By Mary Williams Walsh, | 30 Oct 2008 | 06:51 AM ET

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analyst’s say at least part of the shortfall must have been there all along, hidden by irregular accounting.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Mr. Vickrey says he believes AIG [AIG  1.64    0.09  (+5.81%)   ] must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.

But losses on that scale do not show up in the company’s financial filings. Instead, AIG replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.

Mr. Vickery and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout.

More…