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Dear CIGAs,

There has been a flurry of proposals this week on how to get the economy growing again.  The President has been giving speeches across the country offering up plans for more infrastructure spending, business tax cuts and credits.  The Republican plan includes keeping all the Bush tax cuts in place and rolling back spending to 2008 levels.  Basically, the Democrats want more stimulus spending and some tax cuts, and the Republicans want more tax cuts and some spending reduction.

I do not hold out much hope for either plan to lift the deeply troubled economy.  The reason?  We are dancing around the problem child—the banks. (The  financial reform bill passed in July did absolutely nothing to fix the banks or the economy.)  On the bottom of the spectrum, about 120 banks have failed  so far this year.  Underwater commercial and residential real estate loans are swamping the banks.  The trend here is for more failures than last year.  Last week, economist Nouriel Roubini of Roubini Global Economics said more than half of the 829 U.S. banks on the FDIC’s “Problem List” are likely to fail.  (Click here for more on this story.)

In July, I wrote about the cash problems the FDIC will face next year in a post called“Banking Disaster Largely Ignored By Mainstream Media.” At the current bank failure rate, the FDIC will surely be out of cash and relying on a Treasury credit line well before this time next year.  FDIC Chairman Sheila Bair appeared on CNBC with Larry Kudlow this week.  Did he ask her about the extreme stress with the banking system because of the surge in failures?  Not a chance.  The mainstream media continues to ignore this gigantic problem.

On the top end of the spectrum, there are the “Too Big to Fail” banks.  Under Congressional pressure last year, the Financial Accounting  Standards Board (FASB) changed the accounting rules for toxic assets such as mortgage backed securities.  According to a Bloomberg report, “Changes to fair-value, or mark-to-market accounting, approved by FASB today allow companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ write-downs and boost net income.” (Click here for the complete Bloomberg story.) To simply make up a value on questionable assets is nothing more than government sanctioned accounting fraud.  To abandon a major principal of accounting is a financial abomination!

Renowned precious metals expert Jim Sinclair of has written a new book called “A Pocketbook of Gold.” Sinclair sites this mark-to-market accounting scheme, allowed by FASB, as a major reason to own gold.  Sinclair wrote, “Of course, if these toxic assets, for which there is little or no market, were ever properly taken onto the banks books, it would sink them completely. . . . The FASB changes are quite simply, a (now) legal way to lie about the financial health, and more specifically about the worthlessness of trillions of dollars of toxic assets on the Banks books.  ‘Mark-to-Market’ has become ‘Mark-to-Myth.’  In truth, the situation is dire, and banks and lawmakers are trying to push back the day of reckoning. . .”

The dramatically impaired U.S. banking system is the reason why the economy is not getting better.  According to financial writer Jim Willie, who holds a PhD in Statistics, there is only one solution to break the grip of this financial crisis.  Last week, Mr. Willie wrote, “The secret to a legitimate solution is easy. The big banks must write down their credit portfolios, and accept deep losses. If that results in liquidation, so be it!! Accounting fraud is not a substitute for restructure. Nor is dispatching badly impaired assets to the USFed, whose by all accounts is a Bad Bank Repository.” (Click here for the complete story by Willie.)

The economy cannot truly be fixed with tax breaks, stimulus, more debt or small spending cuts.  We have a deep financial insolvency dilemma.  A real recovery will only be achieved by honest reporting by the mainstream media, and honest accounting by the banks.  If we don’t demand this, then we will continue to dance around “The Elephant in the Room.”


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Dear CIGAs,

Second quarter GDP growth numbers were revised down last week to a paltry 1.6% from 2.4%.  Wall Street celebrated because some were expecting “growth” to be revised even lower.  The stock market shot up on this news, but should everyone feel relieved because the U.S. got at least some growth?  Consider this–we paid dearly for that 1.6% growth.  If you add up what was spent on TARP, the stimulus bill, nearly $2 trillion spent by the Fed buying mortgage backed securities and Treasuries and all commitments to Fannie, Freddie, FHA and the FDIC, you come up with a total of about $3.7 trillion.  This is what it cost to support the U.S. financial system according to Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program. (Click here for more on this story.) 

To me, spending or committing $3.7 trillion to the American economy and getting just 1.6% growth is frightening.  Expert trader Dan Norcini had a very sarcastic take on this subject in a recent post at  He said, “The fact that it has taken gazillions of conjured-into-existence-out-of-no-where dollars (some call that stimulus) to produce this pitiful growth rate number for the quarter, seems to have escaped the attention of the equity perma bulls who have yet to come to grips with the consequences of all of this. My own view is that it should be a relatively easy matter to get that growth rate up to double the figure given us. All we would need to do to get to 3.2% growth rate is to print twice the number of Dollars and double the rate of government indebtedness.”  (Click here to read Norcini’s entire article.)

To John Williams of, anemic growth was not a surprise.  In an interview yesterday, Williams told me, “The money that was spent just went to support the banking system to help prevent a systemic collapse.  They have prevented a collapse, that’s a big plus. . . . It was not designed to stimulate the economy.  It was designed to prevent a systemic collapse.”  We did get some stimulus from the home buyers tax credit and cash for clunkers.  That’s now gone, and it probably robbed sales of cars and houses from the future.  

So where does that leave us?  We just had dismal numbers reported on jobs, housing and GDP.  Does that mean we are at a bottom?  Not a chance.  If we really were in this so called recovery, wouldn’t we have much stronger growth?  Sure we would, and the Fed also knows there is something very wrong.  It recently announced it would spend at least $10 billion a month buying Treasuries.  The Fed also suggested it would act to keep the economy from sliding further.  That doesn’t sound like a recovery to me.  It sounds like further money printing is in the cards as the economy continues to falter.   

Williams predicts the banks are going to need another “bailout.”  He also told me, next year holds a “particularly high risk for a major systemic disorder, a heavy sell off of the U.S. dollar and early stages of hyperinflation.” He also thinks the stock market is “irrational, unstable and terribly dangerous.”   

In my interview, I asked Williams where people should invest money for safety.  He would not give specific asset categories, but he did say, “You want to be in hard assets that will retain their value against inflation.”  

That sounds to me like a warning to lighten up on the stock market and buy things such as silver and gold coins.  If nothing else, be conservative and protect yourself from the downside risk.  It appears the economy is set for another slide.


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Dear CIGAs,

A little more than two months ago, banking analyst Meredith Whitney said on CNBC, “Unequivocally, I see a double-dip in housing.  There’s no doubt about it . . . prices are going down again.” I’d say unequivocally she was spot on.  A few of the hellish headlines dragging the economy down include: Existing home sales dropped 27.2 percent from June. That is a record drop and a 15 year low.  One in ten mortgage holders in America face foreclosure, according to a new report by the Mortgage Bankers Association.   U.S. home prices fell 1.6 percent in the second quarter from a year earlier as record foreclosures added to the inventory of properties for sale.  

Two months ago, in a post called “Double Dips Coming Everywhere,” I wrote, “Whitney warned as foreclosures and short sales go north, bank profits head south.”  The news stories, just this week, confirm Whitney was right again.   

A tanking housing market is not just a local issue.  Recently, one news paper in Myrtle Beach, South Carolina, explains succinctly how sour real estate problems on Main Street are traveling straight to Wall Street.  It said, “The role that mortgage-backed securities played in this nation’s economic meltdown is well-documented, both in congressional hearings and on the best-seller list.  That meltdown has led to a landmark lawsuit filed last month by an investment group that claims banks knew the securities were worthless but, driven by greed, sold them anyway.  But the Myrtle Beach area’s contribution to those toxic investments has largely been hidden in the minutiae of paperwork filed at Horry County‘s register of deeds office.  As more of the homes tied to those investments go through foreclosure, however, the path from here to Wall Street is becoming clearer.”  (Click here to read the entire article from The Sun News.)
Falling home prices and rising foreclosures are not the outcomes the Fed was looking for after spending more than $1.4 trillion buying mortgage debt.  Now, the Fed is at is again, this time, making an announcement to spend at least $10 billion a month buying U.S. Treasuries.  According to a recent Bloomberg article, it will be much more than that.  The article says,“JPMorgan Chase strategists estimated the Fed will buy about $284 billion in Treasuries during the next year.”  (Click here for the complete Bloomberg article.)

The Fed buying debt helps to suppress interest rates by creating demand.  It is no small wonder that mortgage rates fell to the lowest level on record this week!  30-year fixed-rate mortgages averaged just 4.36 percent according to government mortgage giant Freddie Mac.  Some of those cheap rates are due to low demand; but some, no doubt, are due to the Fed buying debt.  These kinds of actions by the Fed are not even close to signaling the end of a bad housing market—quite the opposite.

My favorite chart on housing says it all in one picture.  Billions of dollars in mortgage interest rate resets will be hitting the market from now until the fall of 2012.


This chart must scare the Fed as much as anything out there.  Higher interest rates due to resetting adjustable rate mortgages will mean more defaults as people are unable to make the higher payments.  The mortgage market makes up the lion’s share of the more than $600 trillion Over-The-Counter derivatives market.  This is what some call dark pools of debt with few rules, guarantees, regulations and zero public market.  This dark pool of debt is worthless, or worth a lot less, than the original sales price.  (Some experts say the true size of the OTC derivatives market is more than $1,000 trillion.)  If these securities start going sour in mass, it will be “deja vu all over again.”  Another financial meltdown would occur, and there is no guarantee the Fed could stop it as it did in 2008.  

According to John Williams of, the recent bad housing news is signaling what he calls an “intensifying depression.”  The Fed is looking, once again, like the buyer of last resort by printing money to buy trillions in debt from Treasuries to mortgage backed securities.  This is very dangerous and could spiral out of control, according to Williams.  He’s been warning about this kind of scenario for a couple of years.  In May, he wrote, “. . .eventually domestic and foreign balking at buying U.S. Treasuries should become widespread, with Fed becoming the buyer of last resort, monetizing that federal debt. Coincident with that likely will be heavy dumping of the U.S. dollar and dollar-denominated paper assets. Such should spike U.S. money supply and dollar-based oil prices. The pace of inflation would tend to pick up significantly in response to these circumstances, setting the stage for . . .  hyperinflation.”

I think the choice is coming down to defending the dollar, or printing money to buy debt, which will stem defaults and hold interest rates down.  With zero interest rates and massive money printing, it sure looks like the dollar is damned.  The only question–how much will it fall?


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Jim Sinclair’s Commentary

Slowly the Sheeple are waking up.

MOPE is becoming less effective. This is how trends start.

Dear CIGAs,

Recently, a new Gallup poll delivered some bad news to mainstream media–only one fourth of people asked believe what it says.  The Gallup story said, “Americans continue to express near-record-low confidence in newspapers and television news – with no more than 25% of Americans saying they have a “great deal” or “quite a lot” of confidence in either.”  (Click here for the complete Gallup story.)  

This is not a recent trend according to Gallup and other polls done on this subject.  Last summer, comedian Jon Stewart of the “Daily Show” was “Most Trusted” newscaster.  I wrote about this in a piece I did last year called “The Soft Truth.”  I said, “He had almost as many votes as Charlie Gibson and Brian Williams combined.  Katie Couric, according to the Time Magazine poll, came in dead last.  Boy, if that is a not a wake-up call to mainstream media, I do not know what is. . . . Doing superficial event type news programming is something I call “The Soft Truth.”  It is more or less superficial news and is cheap, fast to produce, and you will not make enemies. The news in mainstream media has mostly become just the stuff between the commercials. Then, there is what I call “The Hard Truth.” This story is not cheap, it ties up the company lawyers and management and, if done right, you will piss some people off.  And even if there are cutbacks because of advertising shortfalls, you can still ask hard questions.”  (Click here for the complete soft truth story for September of 09.) 

Do you see any reporters even asking any hard questions these days?  I guess I should be happy the mainstream media is in the tank because Internet sites like this one and many others are gaining popularity for exposing “The Hard Truth.”  I am also not exactly sure why the mainstream media acts this way.    

Maybe the press, as a whole, is just not brave enough to put out the real story.  Some journalists are doing good reporting, but often their stories are downplayed or are accused of spreading unfounded doom and gloom for telling the truth.   Maybe corporate America, which owns most of the mainstream media, is subtly distorting the news to make things look better than they really are.   The mainstream media completely missed the financial meltdown of 2008 and covered it like some unforeseen event.  There were plenty of signs we were headed for trouble, and no one wanted to report on them except a few people.  Here is what I said on CNN in March 2008.

Now, we are headed for trouble again and, yet, the mainstream media is engaged in this idiotic debate on whether or not there is going to be another plunge in the economy.  Nearly all the signs are pointing down, and difficult questions are arising about the solvency of America.  Recently, Laurence Kotlikoff, an economics professor at Boston University, cited an IMF report and said the U.S. is “Bankrupt.”  Why is this not news and at least worthy of as much equal time as the pin-headed Jet Blue flight attendant that slid down an escape hatch at JFK airport?  Please tell me why the USA being “bankrupt” isn’t of profound importance to every single American?  Every week, the mainstream media makes my point by pushing worthless cheap content.  It budgets for superficial stories (The Soft Truth) and ignores the really important stuff (The Hard Truth) that might call for some tough questions and ruffled feathers.

I worked for ABC and CNN for 9 years as an investigative reporter.  I didn’t get a story on the air without approval from the company lawyers and management.   The networks and cable are doing a lot less of that kind of work these days because they don’t want to spend the money.  Mainstream media is putting its resources on superficial stories instead of covering news that really affects your life.   So, when I hear polls that say people do not trust the mainstream media, I am not surprised.


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Jim Sinclair’s Commentary

To quote CIGA Pedro, who holds all the credentials necessary for his position as an authority, it is all about OTC energy derivatives. If BP, who had their credit reduced to one year duration, gets squeezed out they cannot hedge their already huge positions putting that entire market in the same condition as the fake electricity market was after Enron.

Right now and with the financial conditions around the world unchanged from 2008-2009, only camouflaged by the FASB capitulation, a banking crisis would be put right back on the front burner.

The environmental disaster is to the financial community, as it is to Mother Earth.

Dear CIGAs,

A little more than 2 weeks ago, the government said nearly 75% of the oil from the worst environmental disaster in history was gone!  Government scientists claim most of the oil had dissolved, dispersed or been removed.   Now, government scientists are defending their claims against a new report from University of Georgia scientists.  According to the Associated Press, “. . .  Monday, five Georgia scientists who reviewed government data said that instead of only 26 percent of the oil remaining in the Gulf, as a federal report said earlier this month, it’s actually closer to 80 percent.  “Where has all the oil gone? It hasn’t gone anywhere. It still lurks in the deep,” said University of Georgiamarine scientist Chuck Hopkinson. He headed the quick independent look by the GeorgiaSea Grant program at the estimates the White House released.”  Hopkins also said,“The Georgia team said it is a misinterpretation of data to claim that oil that is dissolved or dispersed is gone.  The bottom line is most of it is still out there, There’s nothing in the report to substantiate the 26 percent.”  (Click here for the complete AP story.) 

The scientists at the University of Georgia are not alone in their skepticism of the government’s oil calculations.  Other scientists also challenged the government assertion that nearly 75% of the oil has vanished and is no longer a problem.  Yesterday, a story by the online news site said, “I don’t believe the numbers in this report,” said Rick Steiner, a marine conservationist who retired as a professor at the University of Alaska after 30 years — including during the Exxon Valdez oil spill in 1989.  Some of the numbers are nothing more than wild guesses, Steiner said.  The most-disturbing aspect of the government report is that scientists “did not discuss any methodology it used for driving the results of its study,” Steiner said.  “There’s no way to judge the veracity of the estimates they make without knowing how they came up with them,” he said. “And for a scientific report, it’s only four pages long. I mean, come on.”  (Click here for the complete story)

How could there be such large a discrepancy among scientists?  Could the answer be as simple as the government is protecting BP?  

The government seems to be going to great lengths to control the information the public is hearing.  The University of South Florida made a startling discovery early on in the gulf oil spill.  It discovered plumes of underwater oil several miles long.  Instead of being congratulated on their scientific find, university scientists say they were told to keep quiet by Uncle Sam.  The St. Petersburg Times documented this heavy handed treatment by our public servants.  The August 10 story said, “The reaction that USF announcement received from the Coast Guard and the National Oceanic and Atmospheric Administration, the federal agencies that sponsored their research:  

Shut up. 

“I got lambasted by the Coast Guard and NOAA when we said there was undersea oil,” USF marine sciences dean William Hogarth said. Some officials even told him to retract USF’s public announcement, he said, comparing it to being “beat up” by federal officials.

The USF scientists weren’t alone. Vernon Asper, an oceanographer at the University of Southern Mississippi, was part of a similar effort that met with a similar reaction. “We expected that NOAA would be pleased because we found something very, very interesting,” Asper said. “NOAA instead responded by trying to discredit us. It was just a shock to us.”  NOAA Administrator Jane Lubchenco, in comments she made to reporters in May, expressed strong skepticism about the existence of undersea oil plumes — as did BP’s then-CEO, Tony Hayward.  “She basically called us inept idiots,” Asper said. “We took that very personally.”  Lubchenco confirmed Monday that her agency told USF and other academic institutions involved in the study of undersea plumes that they should hold off talking so openly about it. “What we asked for, was for people to stop speculating before they had a chance to analyze what they were finding,” Lubchenco said. “We think that’s in everybody’s interest. … We just wanted to try to make sure that we knew something before we speculated about it.”

“We had solid evidence, rock solid,” Asper said. “We weren’t speculating.” If he had to do it over again, he said, he’d do it all exactly the same way, despite Lubchenco’s ire.”  (Click here for the St. Petersburg Times story.) 

Why should bona-fide scientists not talk “openly about” the worst ecological disaster in history?  Who does that help?  The fishermen who probably lost their lively hood?  The tourist locations that have lost vacationers?  Real estate owners whose property values have declined?  These people and many more have been damaged by BP.  What’s the big secret here?  

In another move that appears to protect BP, the government is requiring a confidentiality agreement to gain access to study the effects of the oil spill in many areas of the Gulf of Mexico.  According to ecosystem biologist Linda Hooper-Bui, Associate Professor at the University of Louisiana, her job as an independent researcher is being made more difficult by government lawyers.  Two weeks ago, the professor wrote, “I study insect and plant communities in near-shore habitats fringing the Gulf, and my work has gotten measurably harder in the wake of the Deepwater Horizon disaster. It’s not hazardous conditions associated with oil and dispersants that are hampering our scientific efforts. Rather, it’s the confidentiality agreements that come with signing up to work on large research projects shepherded by government entities and BP . . . I am having trouble conducting my research without signing confidentiality agreements or agreeing to other conditions that restrict my ability to tell a robust and truthful scientific story.”  (Click here to read Professor Hooper-Bui’s full story.)

So why is the government working overtime to protect BP and keep American citizens in the dark?  How much is BP’s potential liability?  A hundred billion bucks?  A trillion bucks?  Who knows, but it is surely a very big number.  Could it be that a bankruptcy of BP would be a worse financial disaster than Lehman Brothers?  Some say yes!  Gordon T. Long wrote a lengthy BP bankruptcy article for “The Market Oracle.”  He said recently, “I could not have stated it any clearer than Jim Sinclair at People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP.  BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.” (Click here for The Market Oracle story in its entirety.)

The government knows that a BP bankruptcy would cause a giant financial meltdown that would probably make what happened in 2008 look tame.  That is the reason I think  the government is working so hard to protect BP.  In June, the President said, “Untold damage is being done to the environment — damage that could last for decades.”  I think the President got it right the first time.


Posted by & filed under Greg Hunter,

Dear CIGAs,

A little more than two years ago, economist John Williams of predicted a “severe recession” was coming and soon.  At the time, I was working as an investigative correspondent for CNN.  I interviewed Williams for a story about the coming financial crisis.  Most so-called experts, at the time, did not see the financial meltdown coming, let alone that all the banks were in trouble.  Williams’ assessment of the economy was spot on in 2008.  I don’t see how you can characterize what we have now as anything but a “severe recession.”   Accurate information is the first and foremost reason to use someone as a source when you are a journalist.  In my experience, what I have gotten from Williams has been stellar.  (Click here for the 2008 CNN story featuring Williams and his predictions for the President in 2012.) (Click here for

Williams also predicted 2 years ago we would have a “hyperinflationary depression”  within 10 years.  Then, about a year ago, he revised his prediction and narrowed the window to “five years.”  The day before last Friday’s dismal jobs report, Williams said, “. . . the timing of the looming U.S. financial Armageddon is coming into better focus, with increasingly high risk of it breaking within the next six months to a year.”   

“Financial Armageddon . . . within the next six months to a year.”  I called Williams to see why the odds of calamity have accelerated.  He told me on the phone last night, “What is happening now to bring the timing into focus is the economy IS turning down.  It is no longer the perspective the economy is going to turn down.  That, in turn, will eventually trigger all the problems with the dollar, the debt and the deficit.”  

For confirmation the economy is rolling over, look no further than the awful jobs report from the government last Friday.  The Bureau of Labor Statistics (BLS) reported July payrolls fell 131,000.  To add insult to injury, the June jobs number was revised downward.  The economy lost 221,000 jobs which is considerably more than the 125,000 the government reported last month. 

You want more confirmation the economy is in the tank?  Also, last week, the government revealed a record 40.8 million Americans are now on food stamps.  More budget woes can be seen at the state level.  Congress just passed an emergency aid package worth $26 billion to save teachers’ jobs around the country.  States are facing $200 billion in shortfalls in the coming months.  California is one of the worst, with a $40 billion budget hole to fill.  Commercial and residential real estate is still losing value, and set to take another plunge.  

So, what’s the government doing about the economy?  The Fed has set interest rates at near 0% for more than a year and a half.  The economy is not taking off.  According to a recent article from financial writer Jim Willie, who has a PhD in Statistics, “Never in US history has a recession struck after several extended months of emergency ultra-low interest rates. This will be the first such occurrence. The policy response from the USFed must therefore be limited. They cannot reduce the official interest rate, unless below 0% (which did happen briefly in Japan). The nation stands on the doorstep of hyper-inflation.  The only available tool within the USFed tool bag is Printing Pre$$ activity, pure monetization of both USTreasurys and USAgency Mortgage Bonds.”  (For the complete Willie article click here.)  

How much of a chance is there the Fed will just print money to pay bills?  When asked how the Fed was going to stop the slide in the economy on CNBC, St. Louis Fed President James Bullard said, “Quantitative Easing is our best bet.”  For us regular folks, QE means printing money out of thin air.  I talked about this in a recent post called “Money Printing Is Our Best Bet.”  

How fast could things go downhill when real trouble starts?  Mallory Factor at Forbes laid it out nicely in an article last week called “Collapse In Internet Time.”  Factor writes, “In an age when billions of dollars in securities are traded in nanoseconds, when a 24-hour news cycle seems long, why should national decline be exempt from what the Germans call Zeitgeist, the spirit of the age? The Book of Revelation, speaking allegorically of ancient Rome, states, “Alas! Alas! You great city, you mighty city,Babylon! For in a single hour your judgment has come.” Ancient Rome surely did not expect its sudden fall any more than the Soviet Union did in 1991, or than Americadoes now.”  (Click here for the complete Forbes article.) 

Ultimately, the immense debt and deficits of the United States will crush the dollar.  In his most recent report, Williams says, “The unfolding renewed decline in economic activity now is likely to be one of the proximal triggers for an even greater systemic solvency crisis, one that will pummel the U.S. dollar, threaten the solvency of the U.S.government and set the stage for a hyperinflation in the United States. In turn, such a crisis would exacerbate the intensifying downturn into a hyperinflationary great depression.” 

No one knows exactly when the buck will buckle, but it looks like the dollar will take a short walk off a tall building a lot sooner than later.


Posted by & filed under Greg Hunter,

Dear CIGAs,

The decade of the 1990’s is America’s modern day equivalent of the Roaring 20’s.  Back then, we were making great strides in productivity.  We had near full employment, the government had a surplus of cash and the stock market was making many people rich.  The future looked so bright in December of 1996 that Fed Chief Alan Greenspan warned investors not to get carried away with the good times.  Greenspan asked this rhetorical question, “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”  According to Yale Economics Professor Robert J. Shiller, Greenspan “. . . never actively used the words ‘irrational exuberance’ again in any public venue.”  (Click here for more from Shiller who wrote the best selling book titled “Irrational Exuberance.”) 

Oh, what a difference a decade or so makes.  Just this past week, Fed Chairman Ben Bernanke testified in front of the Senate banking panel.  In opening remarks, Bernanke said, “. . . the economic outlook remains unusually uncertain. We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.”  (Click here for a complete text of Bernanke’s prepared statement.) 

The Fed Chairman told Congress he is not sure where the economy is going?  This doesn’t sound like “green shoots” or a “recovery” to me.   It sounds like a warning things may take a turn for the worse.  The only consolation is the Fed will “take further policy actions as needed.”  That, to me, sounds like more money printing and bailouts if the economy rolls over, or maybe I should say when the economy rolls over.  

I guess I should not be surprised with Bernanke’s “unusually uncertain” comment.  After all, just last month, he said, “I don’t fully understand movements in the gold price.”   How can someone in charge of the world’s biggest gold reserve (more than 8,000 tons) be clueless about the rising price of gold?  (Click here for the Bernanke  gold comment story.)

The Chinese may be able to clear up the Fed Chief’s uncertainty about the economy and gold.  According to a Financial Times story (posted the same day as Bernanke’s Senate appearance), America is in deep financial trouble.  The head of China’s largest credit rating agency, Guan Jianzhong, chairman of Dagong Global Credit Rating, said, “The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings. . . Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.” (Click here for the complete FT article.)  

I think we are beyond the “borrowed money” phase and will go straight to “quantitative easing” or money printing when there is another meltdown.  What else would the Fed do?  Lower interest rates?  They’re already at 0%.  Raise taxes?  Sorry, that is not in their power.  The Fed printed and spent $1.75 trillion, stopping the last near collapse of the financial system, and they will do it again.  Don’t take my word for it.  Just listen to Ben Bernanke’s sworn testimony.  Again, he said, “. . . we remain prepared to take further policy actions as needed . . .”     

We have gone from “irrational exuberance” to “unusually uncertain” in just about 13 years.  This is a total repudiation of Federal Reserve policies.  Ironically, in the new financial reform legislation just signed into law, the Fed received vast new regulatory powers.  God help us.

Link to full article…

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Dear CIGAs,

There is hardly a day goes by I don’t hear some spin about the economy and how the so-called “recovery” is progressing.  Last week’s job numbers is a classic example.  It seems the jobless claims fell to an eight week low.  Here’s how the Washington Post reported the news, “The number of new jobless claims filed last week dropped by 21,000 to 454,000, the lowest number in eight weeks.  Even more promising, the number of continuing claims dropped by 224,000 to 4.4 million.”  (Click here for the entire article.)  This article and others that reported the story started with Bureau of Labor Statistics hype and ended with hope the job market is turning around.   

John Williams at is just as disappointed with the mainstream media spin as I am.  Williams is frequently interviewed by financial news networks and major publications.  I interviewed him during my days at CNN, before the meltdown Williams predicted was coming. (Click here for William’s 2008 prediction on CNN.)

In his latest report, Williams writes about last week’s jobs numbers and media hype.  He says, “More recently, following an interview on a major cable news network (not CNBC), I was advised off-air by the producer that they were operating under a corporate mandate to give the economic news a positive spin, irrespective of how bad it was.  I know from other personal experiences that these circumstances are commonplace. A simple example of recent distortion was . . . positive hype over an unexpectedly-low weekly jobless claims number. Widely known — at least I have discussed the matter frequently — is that the Department of Labor cannot adjust the weekly claims numbers meaningfully for regular seasonal variations. Accordingly, reporting around holidays invariably results in unusually large and unexpected swings in the weekly numbers. Yesterday’s data covered the onset of the Fourth of July weekend. It would not be at all unusual to see a similarly-meaningless reverse-gyration in next week’s release.”   

I say, all of this “good news” was reported when there really was no news at all.  The real news is a downturn that is now hitting the U.S.  Williams has been predicting this for months, and we are seeing confirmation.  Williams says, “. . . the economy has entered a phase of re-intensifying downturn, a circumstance that may be referred to more popularly as renewed recession, or a double-dip recession. “    

In his latest Op-Ed column, even economist Paul Krugman says, “. . . we already have painfully slow growth, very high joblessness, and intractable financial problems. And what is the Fed’s response? It’s debating — with ponderous slowness — whether maybe, possibly, it should consider trying to do something about the situation, one of these days. . . . Washington seems to feel absolutely no sense of urgency. Are hopes being destroyed, small businesses being driven into bankruptcy, lives being blighted? Never mind, let’s talk about the evils of budget deficits.  (Click here to read Krugman’s complete Op-Ed article.)

It is no secret that Mr. Krugman wants more money printing and deficit spending to “fix” the bad economy.  Whether you like this kind of action or not, people like Mr. Krugman are listened to by government officials–especially ones who want to win elections, like the one coming in November.   

Some banking analysts are betting that deficit and money printing policies are going to win out.  “Get ready for the cliff-edge,” warned Royal Bank of Scotland credit chief Andrew Roberts in a note to clients late last week.  He said “monster” quantitative monetary easing (money printing) is coming and that investors should “Be long gold. Think the unthinkable.  We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe), and for the global economy (particularly in the US/Europe),” Roberts added. “This all sounds somewhat doomsdayish, so we should update how the real economy/banking is panning out for us. It is saying: the end-game approaches.”  (Click here to read the complete article.)

In the “end-game” it looks like inflation is going to be a major player. The only question is how long will it take to play out?