The Crux Of The Problem In Gold

Posted at 6:08 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Here is the crux of the problem. Manipulation of paper can be a massive irritant to gold bulls. Manipulation of paper cannot and will not result in a sustained strong dollar. That does not mean that the devils will not try now that they are emboldened by gold.

Everything that has happened and will happen has the US dollar at its center. Many people have recently died over the petro dollar, not human rights. I believe GEAB has the best take on what the real world economic environment is out there.

When all this is over gold will have preserved buying power, not fiat currency. If you are folding you have let the gold banks mindf*ck you.

I am exhausted at emails and calls crying on my shoulder. You either have courage and survive or run scared and succumb. It is that simple. Remain in the system and you are hopeless.

GEAB should be subscribed to by all readers.

"But actually the dollar is the ultimate bubble. All the United States’ supremacy rests on dollar domination, and the whole objective of their foreign policy is to preserve this domination at all costs. However, they don’t have this option anymore. The dollar role is fading away on all sides, with sudden swap agreements or ex-dollar foreign trade (19) ; abrupt loss of confidence, in the United States included, where the Fed’s inflationary policy has led several States to authorize gold as a currency or at least to consider it (20) ; China’s progressive dumping of US treasury bonds (21) (would be this only be because it’s amazing trade surpluses have disappeared), etc. The Bitcoin (22) bubble again illustrates this distrust in the dollar as we anticipated in the GEAB n°71: “The experiment with alternative currencies […] is on the agenda in 2013. […] Two different rationales push towards these experiments. [The first is] the loss of confidence in the official currency”. "

GEAB N°74 is available! Global systemic crisis: The war has been declared between the economic-political world and financial banking interests
Public announcement GEAB N°74 (April 16, 2013) –

Last minute comments

After the deadline for this GEAB number last Saturday evening, our team has closely watched the unusual coincidence of all the market indicators’ collapsing: European, American and Asian stock exchanges, raw materials… and even and especially gold. Unfortunately we don’t have time to expand on this event but, anyway, we interpret it in line with everything we have written in this number. But where this number describes things still rather calmly, as still to come, we wonder whether these premises are not those of the collapse which we anticipated for the March to June 2013 period. Western austerity (American sequestration + the treatment of European austerity) which Chinese growth has ended up feeling with these poor numbers announced today has caused price collapse in raw materials and stock exchanges which involves a fall in banking assets, obliging the banks to close out their positions urgently to gain liquidity. There is a clearance sale of paper gold which is leading the dance. The phenomenon is all the more remarkable as, if it were a normal speculative process, falls in one market would benefit another. We are probably at the beginning of a panic in which all speculative positions are sold off. If a 2008 style collapse is really taking place, the question is: where will the trillions which were caught up in-extremis in the financial system in 2009 come from?

Depending on the method of political anticipation, dating the cracks is carried out by identifying the high-risk periods during which the slightest spark lights the powder-keg. The current period is a typical example where an impressive number of explosive factors are combining: new financial bubbles inflated by massive injections of public money, worldwide geopolitical instability, currency wars, political the beginning of the political war against “financial terrorism”, political crisis in Europe, massive unemployment and a damaged real economy, not counting of course public debt which is at its highest. It’s such a concurrence of factors that it raises the miracle that this situation carries on. We analyzed the reasons in the GEAB n°71, in particular the shared interest in keeping the United States on artificial respiration and the central banks’ disproportionate generosity. This last aspect has moved up a level with the Bank of Japan’s policy which this time, far from reducing the level of risk, on the contrary has amplified it as we explain below, and is an example of the headlong flight which serves as current policy for certain countries lacking solutions and which the GEAB readers know well: Japan, the United Kingdom and the United States.

Our team thus estimates that a new step in the system’s instability has been taken. Moreover, several discordant notes have just pierced the deafening silence jealously imposed by the financial world on the true situation, like the sudden “surprise” damage to all the supposed macro-economic indicators meant to reflect the “recovery”: United States (1), Canadian (2) and Australian employment (3), confidence numbers (4), computer (5) and mobile ‘phone sales (6), Chinese exports (7), BRICS countries’ car sales (8), etc.

clip_image001

US total retail gasoline sales. Source : EIA

The Cypriot crisis is also a good refresher course. The turmoil generated by this tiny island, even though outside the dollar zone’s world financial core, gives a foretaste of what will happen when a central knot of the system is let go. Because whilst Europe is laboriously bandaging its wounds gradually, on the contrary the “US zone” is increasingly miring itself in the processes responsible for the crisis, as if choosing a higher diving board above a swimming pool without water would make the shock less painful.

In this issue, we present the first two of the six points in the full analysis :

THE CRISIS SQUARED OR THE HEADLONG « POLITICAL » FLIGHT

“Building a new crisis on the existing one” seems to be the objective of politicians in Japan, the United Kingdom and the United States. Like these financial products which exploded in mid-air in 2008, “CDO squared” (9) are complex structures on complex structures (CDOs on CDOs) aiming to dilute the risk but actually exacerbating it, the headlong flight lead in these countries builds a kind of “crisis squared”, a new crisis on the 2008 crisis. They claim to be putting out the fire by watering it, without realizing that it’s not water but petrol which they are using.

So, from the Bank of Japan which reveals its Japanese debt repurchase plan (10) making Ben Bernanke and his QE3 green with envy. If it were not that Japan has had a painful past on this issue, we would say that the atomic weapon has been armed and that the risks of a slip are immense, with consequences at the same level as the fire power. In fact, until now the enormous Japanese debt was supportable because of very low Treasury bond interest rates, about 0.5%. Investors, mainly national institutions, accepted these poor returns because inflation was negative, about -0.5%, thus giving a real return of around 1%. But tensions are already appearing, such as the largest Japanese and global pension funds threatening to exit Japanese bonds (11).

clip_image002

5 year Japanese Governement Bonds. Source : ZeroHedge / Bloomberg

However with a 2% inflation target and a central bank determined to carry it out by doubling the currency in circulation (12) (!), Treasury bond interest rates will have to rise to around 3% to give investors a real return of 1%. On a debt exceeding 200% of GDP, this rate is insupportable since debt servicing already accounts for 40% of government receipts at current rates (13). The market is well aware of it as the four temporary trading halts in the Japanese Treasury bond market in four days due to its volatility show (14). It’s a clear warning the letting loose of uncontrolled risk. Japan is thus in an impasse: continuing this massive liquidity injection to create inflation and head either into a debt default because of insupportable interest rates (with dramatic consequences on businesses and pension funds), or into an uncontrollable spiral where the BoJ is the only player in the treasury bond market when everyone else in selling; or to stop the plan in progress and let the economy wither away. Without counting that, patriotism or not, the temptation must be strong for Japanese businesses to invest abroad to protect themselves from the yen’s freefall which is now flirting with an exchange rate of around 100 yen to the dollar.

BUBBLES ON ALL FLOORS

But, to a smaller extent, the same strategy is being tested by the United States since the beginning of the crisis. This forced illusion of a real economy in good health feeds bubbles almost everywhere. Whether it be the student loan bubble, automobile loans, the treasury bond bubble of course, or a new subprime type bubble created at Obama’s request who is now inciting the banks to lend to the least safe households (15) in order to re-launch real estate, all these areas of the economy only hold up thanks to the Fed and are disconnected from reality as we saw in the GEAB n°73. But, by paraphrasing a line from a film (16), it’s not the bubble which is significant, it’s the landing.

More…