ECON 12/07 IS J. P. MORGAN GETTING SQUEEZED IN THE SILVER MARKET?

Missed this one over the weekend...

dd
==========================

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/12/06/benzinga668905.DTL

J.P. Morgan Getting Squeezed In Silver Market? (SLV, JPM)
Scott Rubin

Sunday, December 5, 2010

It is widely known that J.P. Morgan (NYSE: JPM) holds a giant short position in silver. Furthermore, some observers are accusing the bank of acting as an agent for the Federal Reserve in the market - every tick higher in the price of silver undermines confidence in the U.S. Dollar. A lower silver price helps keep the relative appeal of the U.S. dollar and other fiat currencies high.

By selling massive amounts of paper silver in the futures market, JPM has been able to suppress the price of the precious metal. It is believed that these short positions are naked (i.e. they are not backed by any physical silver). In fact, reports indicate that JPM is short more paper silver than physically exists in the world.

An article by Max Keiser which appeared in the Guardian on December 2, 2010 claims that the size of the short position is 3.3 billion ounces of silver.

In recent days, rumors have been swirling on the internet that JPM's massive short position is about to blow up in their face in the form of an almighty short squeeze and potential COMEX default as large traders demand physical delivery of silver that COMEX does not have in their vaults.

J.P. Morgan is currently under investigation by the CFTC for allegedly manipulating the price of silver. The investigation into the bank can be traced back to November 2009 when London metals trader and whistleblower Andrew Maguire contacted the CFTC to report market manipulation prior to it actually occurring.

Maguire had been told by J.P. Morgan commodity traders that the bank was manipulating the price of silver and subsequently reported this to the CFTC. He also gave the CFTC two days' notice about an impending silver manipulation that would take place around the Nonfarm payrolls number on February 5, 2010.

The manipulation played out EXACTLY as Maguire had predicted. You can find the emails between Maguire and Ramirez here. Shortly after this information came to light, the whistleblower was involved in a bizarre hit and run accident in London which caused him and his wife to be hospitalized.

The price of silver has absolutely exploded in recent months as these reports have surfaced and it is clear that blood is in the water. The predator (J.P. Morgan) has now become the prey. Every tick higher in the price of silver brings more pressure on the bank to cover their short position. This in turn puts more upward pressure on the silver price.

It is not clear if JPM has been actively trying to reduce their exposure or not - but something is definitely going on. The price of the widely traded iShares Silver Trust ETF (NYSE: SLV), which tracks the spot price of the precious metal, has exploded in recent months.

On August 23rd, the SLV closed at $17.61. The ETF closed on Friday at $28.60 and the price of silver is now trading at 30 year highs. Over the last three months, SLV is up over 47%.

In the overnight futures session on Sunday night, silver is currently trading 2.27% higher at $29.935. SOMETHING IS GOING ON. Making matters worse for JPM is the fact that a viral campaign (Crash JP Morgue Video) to buy physical silver and "crash" the bank is now spreading like wildfire on the internet. Just Google Crash J.P. Morgan Buy Silver.

Furthermore, it appears that significant physical silver shortages are developing in the marketplace and the metal is being sold well over spot where it is available. Shortly after popular financial blog ZeroHedge posted the "Crash The JP Morgue" video (linked to above), the website which created the video, goldsilvergold.com, reported that it was sold out of inventory and will not be taking new orders until December 6.

Another report indicates that JPM may really be on the ropes with their short silver position and are attempting to hedge themselves by buying $1.5 billion worth of copper. According to the Telegraph, the bank has bought "between 50% and 80%" of the 350,000 tonnes in reserve at the London Metal Exchange.

ZeroHedge opines that "JP Morgan is now intent on cornering the copper market, as the monopolist firm stretches its FRBNY-facilitated muscles in an attempt to stem the massive losses incurred via its silver short."

Readers who are interested in learning more about this story are encouraged to do follow up research and post comments. Those who wish to participate in squeezing the living daylights out of JPM, may want to consider buying physical silver, silver futures and SLV.

Keep a close eye on this market during the coming week...

New Law Allows Treasury To Diminish Gold And Silver Eagle Production

Missed this yesterday, too...

dd
==========================

http://goldandsilverblog.com/gold-and-silver-treasury-secretary-public-demand-0124/

How Much Gold and Silver Will the Treasury Secretary Determine is Sufficient to Meet Public Demand?
December 6, 2010

A bill, which seeks to provide greater Congressional oversight for circulating coin compositions, may have implications for the quantity of United States Mint gold and silver bullion coins that are available to precious metals investors.

The bill H.R. 6162 Coin Modernization, Oversight, and Continuity Act of 2010 primarily establishes rules for the Secretary of the Treasury to provide biennial reports to specified committees on the costs related to circulating coins, and make recommendations for new metallic materials or procedures. A final section of the bill deals with "meeting the demand for gold and silver numismatic items", although the implications seem to extend to bullion coins.
Following the cancellation of the 2009 Proof Silver Eagles, the United States Mint sought greater flexibility to produce numismatic versions of the coin. The Director of the United States Mint requested such authority be granted to the Secretary of the Treasury at a hearing of the Subcommittee on Domestic Monetary Policy and Technology on July 20, 2010. The chairman of the subcommittee Melvin Watt was the one who introduced the bill H.R. 6162.

The following is Sec. 4 of the bill:
Subsections (e) and (i) of section 5112 of title 31, United States Code are each amended by striking ‘quantities’ and inserting ‘qualities and quantities that the Secretary determines are’.

Here's how the law authorizing American Silver Eagles currently reads (emphasis added):

(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities sufficient to meet public demand, coins which— (1) are 40.6 millimeters in diameter and weigh 31.103 grams; (2) contain .999 fine silver; (3) have a design— (A) symbolic of Liberty on the obverse side; and (B) of an eagle on the reverse side...
And here's now the law would read if the bill H.R. 6162 is enacted (emphasis added):
(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities and qualities that the Secretary determines are sufficient to meet public demand, coins which— (1) are 40.6 millimeters in diameter and weigh 31.103 grams; (2) contain .999 fine silver; (3) have a design— (A) symbolic of Liberty on the obverse side; and (B) of an eagle on the reverse side...

A similar change occurs for subsection (i), which deals with American Gold Eagles.
The inclusion of the word "qualities" was necessary to accomplish the presumed goal of the legislation to allow the issuance of numismatic versions of the coins, but what about the added phrase "that the Secretary determines are sufficient"?

Is the amount of gold and silver bullion coins that the Secretary determines are sufficient to meet public demand different that than amount which will actually meet public demand?

Even under the strict existing standard, there have been extended periods of time when full public demand was clearly not being met. The sale of Gold and Silver Eagle bullion coins have been completely suspended for brief periods, and rationed for considerably longer periods. Most recently, Gold Eagles were subject to rationing from December 2009 until March 2010, and Silver Eagles were rationed from December 2009 until September 2010.

What will happen if the standard becomes less strict and more indefinite?

US Mint Bullion Programs at the Treasury Secretary's Discretion
Besides the American Gold and Silver Eagles, no other US Mint bullion programs carry the requirement to be produced in quantities sufficient to meet public demand. The language varies, but each program is effectively left to the discretion of the Secretary of the Treasury.

The 24 karat American Gold Buffalo coins, carry the requirements, "Not later than 6 months after the date of enactment of the Presidential $1 Coin Act of 2005, the Secretary shall commence striking and issuing for sale such number of $50 gold bullion and proof coins as the Secretary may determine to be appropriate, in such quantities, as the Secretary, in the Secretary’s discretion, may prescribe."
The subsection dealing with American Platinum Eagles reads: "The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time."

And, the recently issued 5 ounce America the Beautiful Silver bullion coins: "The Secretary shall strike and make available for sale such number of bullion coins as the Secretary determines to be appropriate that are exact duplicates of the quarter dollars issued under subsection (t)"

Granted that there is no public demand requirement, but how is the Treasury Secretary doing with these other gold and silver bullion programs?

Inventories of the American Gold Buffalo bullion coins were completely depleted by the end of September 2010. At that point, the US Mint indicated that no further inventory of 2010-dated bullion coins would be made available.

The American Platinum Eagle has not been available in bullion format for more than two years. After final inventories were exhausted in late 2008, the US Mint indicated that the 2009 release would be delayed. The 2009-dated bullion coins were eventually canceled. The US Mint has not provided any information on 2010-dated bullion coins, and none have been issued to date.

The America the Beautiful Silver Bullion Coins went on sale to authorized purchasers today. The supply was so limited that the US Mint urged primary distributors to keep prices reasonable. Market forces took precedence and the bullion coins have been selling for double the silver value, or more.

Conclusion
So what is the difference between "quantities sufficient to meet public demand" and "quantities that the Secretary determines are sufficient to meet public demand"?

In practice, we shall see if this represents a different standard, but at this point the change in wording makes me uncomfortable. I want the supply of gold and silver bullion coins to be determined by demand in the marketplace, not determined by unspecified criteria established by the Secretary of the Treasury.

As the bill has already been passed in the House and Senate, and only requires the President's signature to become law, it seems too late to do anything other than brace for the possible repercussions.

Still playing catch-up...

dd
================

http://www.marketwatch.com/story/is-gold-in-a-perfect-bullish-storm-2010-12-06

Dec. 6, 2010, 3:27 a.m. EST
Is gold in a perfect (bullish) storm?
Commentary: Alarming economic news combines with Chinese import demand
By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) — A good week for gold — especially because China finally seems to be chiming in.

On Friday, gold for February delivery Gold 100 Oz (Comex) Commodities Exchange Centre (GCG11 1,427, +11.00, +0.78%) finished at $1,406.20, only $3.10 below the November 9th record close, having risen $42.20 or 2.94% on the week. The gold shares responded with enthusiasm, with ARCA GOLD BUGS (HUI 590.99, +9.43, +1.62%) leaping nearly 8%. In recent years, gold shares have not always conformed bullion’s action. When it happens, it’s generally regarded as bullish.

Significantly, this was not just a move in U.S. dollars. In fact, gold in sterling, euros, and yen hit record highs during the week.

Of course, the week also saw plenty of alarming economic and financial news from both Europe and America, all tending to cast doubt on the commitment of the European Central Bank and the Fed to the integrity of their respective currencies.

Australia’s usually very sober webzine The Privateer was even moved to make a joke:

“On Sunday, December 5, the venerable CBS ‘current affairs’ program 60 Minutes will be airing an interview with Fed Chairman Ben Bernanke. We suggest a suitable intro would be the helicopter scene in ‘Apocalypse Now’ - complete with the full sound track.”

That’s a reference to Bernanke’s famous graphic endorsement of inflationary policies. Read more on Bernanke's remarks on additional easing.

However, the news that most excited the gold bugs came not from the Atlantic basin but from China, and may not yet have been fully appreciated by the market. The head of the Shanghai Gold Exchange told a conference there that Chinese imports of gold for 2010 through October were 209.7 tonnes, compared to 45 tonnes for the whole of 2009.

This is a bombshell — and not just because China has never disclosed its gold imports before. One of the correspondents on Bill Murphy’s LeMetropoleCafe website said that he had “always been skeptical of the Chinese demand story in world gold-price formation, on the grounds that Chinese production growth has kept pace with reported consumption — and a 45-tonne import number for 2009 vindicates this stance…

“But 209 tonnes in 10 months is a horse of a different color…It means China might actually be capable of getting into India’s league as an importer.”

(India, of course, has long been the world’s largest importer of gold by a wide margin.)

Veteran gold observer Jeff Christian of CPM Group told the Wall Street Journal:

“Everybody in the gold market knew there was a surge in investment demand, but they didn’t know it was China.”

Standard Bank offered some calculations on Friday concluding that investment demand for gold in China “may be as high as 180 tonnes in 2010 — a rise of 70% year over year.”

What’s happening? The Shanghai official attributed the surge to inflation fears amongst the Chinese public. These are not going to be assuaged anytime soon. ( See Dec. 2 column.)

Not to be upstaged, according to LeMetropoleCafé, an official of the Bombay Bullion Association on Friday suggested Indian imports this year might be 700 tonnes, 46% above last year. A strong rupee this week apparently enabled the Indians to keep buying from overseas — UBS reported on Thursday above-average sales to India.

The bugs argue that because of this Chinese and Indian news, gold is in a radically different posture than it was around the end of 2008. Then, western buying motivated by the financial crisis was met by heavy selling from traditional importing markets. Now, in contrast, the importers are buying.

As a LeMetropoleCafé correspondent remarked on Friday, gold seems to have met a Perfect (bullish) Storm.

Time to warm up those speakers...

dd
==========================

Jim Rickards Interview, Part II (Audio)

A Return To A Gold Standard? Ben Bernanke A Greater Threat To National Security Than Osama Bin Laden...

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/12/7_Jim_Rickards__Part_II.html

ETA- here's a transcript of part of it:

Jim Rickards - Swiss Bank Client Denied His $40 Million in Gold

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/12/7_Jim_Rickards_-_Swiss_Bank_Client_Denied_His_$40_Million_in_Gold.html

In an exclusive King World News interview, Jim Rickards told KWN that he was informed that a client of a major Swiss bank requested to take his one ton of physical gold that he owned outright out of the bank, and the bank would not give him his gold. The client had to use his lawyers and threaten to go public in order to eventually get his gold.

“I Obviously can’t mention the names of the individuals or the banks involved, nor is there any need to. But just the bare bones which was reported to me was that an individual had a ton of gold, it’s about $40 million, so a $40 million position of physical and simply wanted the gold. Now this was not paper gold, it was not unallocated gold, it was not a gold future or a gold forward, gold option or Comex gold. This was just good old fashioned gold where he owned it outright, it was in effect a warehouse receipt is what they give you.”

Right, meaning he had his gold put there and they gave him the receipt and the gold is supposed to be sitting there.

“Correct and upon request to move the gold...the bank demurred, the bank said, ‘Well, no, not so fast’ and he said, ‘What do you mean?’ Anyway, long story short I could see that taking a day or two...This took thirty days to complete delivery. Now if the gold is sitting there it shouldn’t take thirty days. Oh, and by the way I should add that the individual had to threaten to go public, in effect say I’ll call Reuters or I’ll call King World News or I’ll call Dow Jones and let them know that you don’t have the gold, you’re not good for it.”

And he had his lawyers get involved?

“Correct, and through all of that eventually the individual did get his gold, but this is something that should have taken two days, three days, a week at the most, although I would say even a week is a long time. But it took thirty days, and it took lawyers, it took threats of publicity, it took a lot of pressure to do that, which my inference is that that gold was not there. The bank had to scramble, go out and find it somewhere before they could make good delivery.”

Right, so they had either leased it out or they had done whatever with it?

“Correct.”

...Right, but this gets back to what Felix Zulauf said on King World News, and you are saying the same thing here which is to make sure you are outside of the system, just don’t even deal with a bank.

“Correct, because the governments control the banks. I mean lately it looks like the banks control the government, that’s probably true as well but there may come a time, and I think there probably will, where the government is going to order the banks to freeze the gold. In other words, not make the gold available to customers. It’s still here, it’s still yours, but sorry we’re rejigging the system and we’re not going to let you take it out right now.”

Regarding the Fed (Santa Bernanke) liquifying the world, “Why all of these non-banks? Why is the Fed lending to GE and Harley Davidson?...It was basically an unlimited call on the taxpayers money or what’s left of it and it really is an outrage. It should be a crime, I mean it is a crime in my view...It’s clearly not going to be prosecuted, but the way the regulators have become captive to the banks and the non-banks, and the way people leverage off balance sheets, the way they in effect lie about their financials, the way they hide their liabilities and expect to be able to march up to the Fed and get all the money whenever they want at zero interest whenever they need it, no wonder the Chinese are going to gold.”

There is a great deal more to part II of Jim’s must here interview.

In case you missed it, here were a few quotes from part I of the Jim Rickards interview:

"The US has 72.8% of its reserves in gold...China has 1.6% of its reserves in gold...What does that tell you about what the United States thinks is money."

"For over six years China has operated in the gold market through stealth. They basically have had secret agents working through SAFE (State Administration for Foreign Exchange) and other agencies."

"This is the complete corruption of the Fed."

Jim also talked about the contempt that the Fed has for the citizens of the United States.

To hear the riveting interviews with Jim Rickards on King World News click here for PART I & PART II

Eric King
KingWorldNews.com

http://www.miningmx.com/news/gold_and_silver/Silver-to-stay-one-up-on-gold-say-analysts.htm

Silver to stay one up on gold, say analysts
Reuters | Tue, 07 Dec 2010 10:36

[miningmx.com] -- AS SILVER climbed above $30 an ounce on Monday for the first time since 1980, traders and analysts were cautiously bullish about the metal's ability to keep outperforming gold and stay at 30-year highs.

Momentum traders and retail investors have been piling into the white metal this year, which has risen with gold as a safe haven amid a eurozone debt crisis and the prospect of further monetary easing by the Federal Reserve and central banks.

Silver is also becoming a favourite play for investors betting on a swift economic recovery and greater demand for industrial commodities. Traditionally, about half of the world's silver production is consumed by manufacturers and other industrial users.
While gold has grabbed investors' attention this year with its rally to record highs at almost $1,430 an ounce, silver has quietly outpaced those gains on a percentage basis. A $100 investment in silver at the beginning of the year would now be worth about $180, versus $130 for a similar investment in gold.

The rally in silver - up nearly 80% this year versus gold's 30% gain - has narrowed the gold-to-silver ratio to less than 48, its lowest level since the first quarter of 2007 and a point at which more analysts were beginning to call silver overvalued.

At over $30 an ounce, silver is at its highest level since 1980 when a physical squeeze briefly sent it above $50 an ounce in the Hunt Brothers' infamous attempt to corner the market.

The Hunts were later convicted of conspiring to manipulate silver prices.

Is the traditionally volatile and speculative silver sustainable at 30-year highs?

BUY
Frank McGhee, head precious metals trader at Chicago-based Integrated Brokerage Services LLC, said silver prices are going to stay at high levels and prices could rise as high as $35 an ounce.

"The market is extremely well bid. The funds are obviously adding the support underneath the market, but the continued Chinese expansion and virtually what would have been considered run-away inflation in the US, if those (China) numbers were occurring here, are continuing to drive consumption.

"You've got dwindling above-ground stocks, you've got tremendous interest in the market, you've got the Fed now talking about QE3 ... all of that has silver still attempting to get back to the equivalent level as it should have been with gold at $1,400 an ounce," he said.

Physical silver held by the world's largest silver-backed exchange-traded fund, iShares Silver Trust (SLV), held near an all-time high of 10,893.68 tonnes set on November 23.

The US Mint's American Eagle silver coins sales rose to a record above 4 million ounces in November, as economic uncertainty prompted individual investors to bet on silver and gold as safe havens.
"We're looking at silver moving into a deficit position next year, mainly because we continue to see the global recovery continuing and that means the industrial part for silver will grow," said Bart Melek, global commodity strategist at BMO Nesbitt Burns in Toronto.

In November, respected precious metals research and consulting firm GFMS said silver is likely to rise above $30 an ounce in 2011, lifted by strong investment buying and recovering fabrication demand.
For 2010, silver fabrication demand is expected to rise 10% as a recovery in industrial uses, record coin demand and slight growth in jewelry off-take offset losses in photography and silverware fabrication.

"There're a few factors - strong industrial demand, and mine production is not exactly setting the world on fire. Most silver is mined as a by-product of copper/zinc/lead mine production. Copper production has been disappointing, so perhaps that has affected silver output too," said David Thurtell, an analyst at Citigroup in London.

SELL
Other analysts said there are few fundamental reasons to support silver's sharp rally, and the speculative commodity could sell off quickly similar to its previous rallies.

"I am not sure what has moved this market to this 30-year high. To the best of my recollection, the use of silver has diminished over the years for different products such as photography and in the X-ray field," said George Nickas, a broker of FC Stone in New York.

"I don't know if it's (related to) the inquiry by the CFTC on the short positions of the two major banks that it has been studying over the last two years," he said.

Late in October, JPMorgan Chase & Co and HSBC Holdings were hit by two complaints from traders accusing the banks of conspiring to drive down silver prices.
They claimed that the firms reaped up to hundreds of millions of dollars of illegal profits.

Some precious metals advocacy groups claimed that governments, central banks and commercial banks have colluded to keep the price of silver weak. However, conventional investors view that as a conspiracy theory with very little evidence to back up the claim.

"These metals are getting overbought, but they seem to be in their own upside world. The fact that Bernanke said the economy may need more stimulus, and with the European debt crisis and concern about European currencies, people are buying precious metals as an alternative to currencies," said Donald Selkin, chief market strategist of National Securities Corp in New York.

"Rightly or wrongly, there is very good strength there. A lot of hedge funds have big positions in these metals, and their price has become a function of investment demand rather than demand for their usage.

They've become investment vehicles with the ETFs and other investment vehicles.
But, to me, it seems like a very crowded trade," he said.

http://blogs.forbes.com/robertlenzner/2010/12/06/silver-about-to-begin-new-sustained-uptrend/

Silver About To Begin New Sustained Uptrend
Dec. 6 2010 - 11:44 pm

Silver prices reached the $30 price level yesterday, leading my main silver guru, Anathan Thangavel, Managing Director of Lakshmi Capital, to flatly predict “a new sustained uptrend.”
Thangavel flatly warns the big short interest in silver; its time to get out of the way or be slaughtered.

He reckons “managed money” accounts which keep recasting their long positions, will gain confidence at the $30 mark and load up.

We told you silver could spike to $40 or $50 on November 11– getting on to a month ago. After dipping to a fraction above $25 it has rallied strongly again along with gold as the markets react to Fed Chairman Bernanke suggesting QE3 may be needed.,

Guru Thangavel reports that the huge short interest in silver– unreported and ignored by all the print media including the WSJ and the Lex column of the FT, has not been at all covered.

In other words, sooner or later the banks, who are short silver, will have to do something about it. Meanwhile, the CFTC investigation into possible chicanery in the silver market continues in secret.

In short, silver looks to make new highs along with gold. We reckon you should consider position in SLV, the silver ETF, or SLW, Silver Wheaton or a precious metals mutual fund from US Resources.

GLD, the gold bullion ETF and GDX, the gold mining stock ETF, which rose twice the gain of gold itself, are due to keep making new highs.

Silver is a coiled spring and is grossly undervalued. Even at the historical 16:1 gold/silver ratio silver should be trading today at $88, and that is without JPM's huge naked short position. It's getting ready to bite and JPM is going to get bit in the nether regions. When that happens it's going to take off so fast it will leave you breathless.

Dozdoats said:

http://blogs.forbes.com/robertlenzner/2010/12/06/silver-about-to-begin-new-sustained-uptrend/

Silver About To Begin New Sustained Uptrend
Dec. 6 2010 - 11:44 pm

Silver prices reached the $30 price level yesterday, leading my main silver guru, Anathan Thangavel, Managing Director of Lakshmi Capital, to flatly predict “a new sustained uptrend.”
Thangavel flatly warns the big short interest in silver; its time to get out of the way or be slaughtered.

He reckons “managed money” accounts which keep recasting their long positions, will gain confidence at the $30 mark and load up.

We told you silver could spike to $40 or $50 on November 11– getting on to a month ago. After dipping to a fraction above $25 it has rallied strongly again along with gold as the markets react to Fed Chairman Bernanke suggesting QE3 may be needed.,

Guru Thangavel reports that the huge short interest in silver– unreported and ignored by all the print media including the WSJ and the Lex column of the FT, has not been at all covered.

In other words, sooner or later the banks, who are short silver, will have to do something about it. Meanwhile, the CFTC investigation into possible chicanery in the silver market continues in secret.

In short, silver looks to make new highs along with gold. We reckon you should consider position in SLV, the silver ETF, or SLW, Silver Wheaton or a precious metals mutual fund from US Resources.

GLD, the gold bullion ETF and GDX, the gold mining stock ETF, which rose twice the gain of gold itself, are due to keep making new highs.

Click to expand...

He may be considered a guru but why would he tell folk to consider ETF's. Not very smart for a guru.

look at the price of silver this morning.

http://www.kitco.com/charts/livesilver.html

fairbanksb,

The ETFs are of some use to investors/traders, who want to get into and out of silver positions without the hassle of handling physical silver. For most people though, buying physical silver and taking possession of it is definitely the way to go. Especially as it seems supplies of physical are tightening up...


Guess I ought to post the charts today... reload the thread and the charts will refresh.

dd
========================

US$ Being Heavily Shorted In The FX Market

http://kingworldnews.com/kingworldn...me_Weighted_Bank_Positions_in_Currencies.html

Weekly Poll of Volume Weighted Bank Positions in Currencies





With tremendous volatility in the currency markets, King World News has exclusively obtained one of Faros Trading’s critical charts from their Institutional Weekly Position Poll. This is the only FX poll of its kind which gathers reports from banking institutions around the world on the banks positions and their net client positions in the currency markets.

Douglas Borthwick, Managing Director of Trading at Faros commented, “As the poll shows (above), the most interesting position change is the adding to longs in the Aussie Dollar, even given the price action of last week. We noted that short-term macro also bought back some of their short position in the Euro and also moved from short to small long in the Sterling. The short US dollar trade remains intact.”

Here is a more detailed explanation from Faros to better understand the chart above:

The Faros Weekly Position Poll reflects the current market position for three primary categories of asset managers; Macro funds with a short term focus, Macro funds with a medium term focus and Real Money funds that are traditional long only equity or bond fund managers with an active FX overlay program. Macro short term funds are traditional systematic Commodity Trading Advisors (CTAs) who trade the market very technically and very actively. Macro medium term funds trade the market with a technical backdrop and with consideration to fundamental analysis and hold their positions longer. Real Money managers take a longer term view with a
purchasing power parity based approach backed up by sound fundamental analysis.

The Faros Weekly Position Poll is the only volume-weighted bank poll of how the market is positioned in a selection of currency pairs. A significant number of both U.S. and international banks participate in the poll. In order for the poll to more accurately reflect the market, each bank’s answers are weighted according to its share of global daily volume, based on the 2010 Euromoney FX survey. The poll is on a scale of -5 to +5, with -5 being very short, +5 very long. The total is weighted 50% macro short term, 25% macro medium term, and 25% real money. The table below reflects the week over week change. One ‘+’ is a change of 0.5 - 1 point, ‘++’ is a
change of 1 – 2 points, ‘+++’ is a change of 2 – 3 points, etc.

http://news.goldseek.com/RickAckerman/1291705260.php

Big Squeeze Is On In Gold and Silver
By: Rick Ackerman, Rick's Picks
Posted Tuesday, 7 December 2010

Gold and Silver swept all obstacles aside Monday, pushing already steep rallies into hyperdrive. Even a firm dollar failed to check the buying spree. At the opening bell, we were looking for Comex February Gold to surge to at least $1425; however, by day’s end it had done even better, rallying $24 to peak intraday at 1429.40. And although March Silver fell 11 cents shy of our minimum projection of 30.465, there was such power behind the nearly $1.00 rally that the target seems all but guaranteed to be reached during the night session. All of this must have come as bad news to technically oriented bears who saw a head-and-shoulders top forming in February Gold. Look at it now (in the chart below) and you’ll see that the last two days’ price action have transformed the pattern into chopped liver.



We hesitate to break out the bubbly at this point, however, because the steep pitch of bullion’s ascent is manifestly unsustainable. This implies that it won’t be pretty when the move swoons into a correction. Even so, in the days ahead, Rick’s Picks will try to provide Hidden Pivot benchmarks that long-term investors and swing traders can use to hedge bullish exposure in precious metals. We are somewhat exposed ourselves via an 800-share stake in Silver Wheaton (SLW) that was showing a paper profit of $21,376 at yesterday’s high, 40.99. Our forecast has been calling for a minimum 41.65 in the stock, but it has gotten there more quickly than we’d expected, requiring a likely adjustment today or tomorrow. Still, certain widely followed gold stocks appear to have room to move, assuming a 622.78 projection for the Gold Bugs Index (HUI) materializes. The index topped yesterday at 591.71, driven by a 10-point rally, but the Hidden Pivot target at 622 implies a further five percent before HUI is due for a rest.

Bullion’s Anti-Bulls

Bulls should keep in mind that there are some powerful players with a compelling interest in seeing gold throttle back. Chief among them are bullion bankers who make billions of dollars by lending gold that they themselves have effectively borrowed for nearly nothing from the U.S. Treasury. These players have always been able to keep a lid on gold by manipulating “paper” gold in futures markets. However, with the buying frenzy starting to feed on itself, odds are growing that some very large buyers, including such sovereign entities as Russia, China, India and Saudi Arabia, will be eager to take delivery on futures contracts rather than simply rolling them forward. The futures exchanges, presumably at the behest of the U.S. government, have been known to change margin rules in mid-game to put the kibosh on uppity buyers. In this case, however, the buyers are not mere speculators; rather, they are central banks and sovereign funds with enormous exposure to dollars. For that reason, we shouldn’t expect them to be come discouraged merely because U.S. futures exchanges have increased margin requirements for precious-metal contracts.

Yet another vid (posted yesterday) from Max Keiser in the "Crash JPMorgan Buy Silver" series. This one's a spoof of the Hitler bunker scene from the movie Downfall. Freaking hilarious, but the language may offend some- be warned...

dd
==========================

http://www.youtube.com/watch?v=I0mhX9hpq3g&feature=player_embedded

'Toon Time...

dd
===========================

http://www.dailyreckoning.com.au/gold-plated/2010/12/07/

Gold Plated
By Dan Denning • December 7th, 2010

--How can it not be good news that gold and silver are making new highs? Spot gold made an intra-day high at $1.427.01. But it’s also making all-time highs in pounds. sterling. and multi-year highs in Japanese yen. That’s pretty clear. Paper money is in a bear market.

--It gets worse. The U.S. government can’t even print money correctly. More than a billion dollars worth of new one hundred dollar bills (the Ben Franklins) have had to be locked up in a vault in Ft. Worth Texas. The bills are so high tech that the printers printing them couldn’t handle all the tricks. Ten percent of the entire $100 billion supply was corrupted.

--Or 100%. depending on what you think of paper money.

--Seriously though. of course there can be fraud in precious metals too. There was a big kerfuffle earlier this year when a rumour circulated on the Internet that the United States government sold gold plated tungsten bars to foreign central banks in the 1970s. Gold and tungsten have the same specific gravity.

--If you put them both in a container of water. they’ll displace the same amount of water. And because they have about the same density. a gold-plated tungsten bar looks and feels like a gold-plated gold bar. Counterfeiting Federal Reserve notes is a lot easier. Or least it used to be.

--But here is the question: is gold the new oil? Let’s put the question to you in two charts. The firsts shows crude oil zooming past a falling S&P in the first quarter of 2008. Oil futures and hard assets became the “go to” investments as the market fell. But oil prices (which hit hard at the gas pump in the real economy) peaked out about one quarter later and then crashed.



--Fast forward to today and the chart below. It shows gold versus the S&P 500 since March of 2009. That’s about when the great Bernanke reflation (and China credit boom) began lifting stocks. Gold is set to cross the S&P. The question we’re asking is simple: has gold become the default hard asset to flee to when investors give up on stocks?





--The answer to the question will tell you if gold’s move higher is driven by speculators or by something else. What’s “something else?” Well. gold is money. Oil is not. That’s a key difference between the two commodities.

--Ministers are meeting in Europe to decide how to expand Europe’s bailout fund from €750 billion to something much larger. The Germans are against it. But given the debt problems in Spain. Portugal. and Italy. everyone else seems to be for it. It’s an impasse. The euro is twisting in the wind.

--By the way. that’s another plus for gold. The US dollar index actually moved up yesterday. It measures the dollar’s strength (or weakness) against a basket of currencies. When gold is making new highs against all paper money. even as the dollar gains ground against other paper. you have a strong bull market.

--So why so worried?

--Soaring commodity prices and pie-in-the-sky optimism (a billion tonnes of Pilbara ore to China) are the same indicators you saw in 2008 just before the market rolled over and fell. When commodity investments become momentum plays instead of contrarian plays (where you have to hold your nose and buy). then you should be aware of the danger in the market.

--But here is where the nefarious Ben Bernanke comes in. Our colleagues in the US published a chart (which you’ll see below) showing that 30-year bond yields in the U.S. are higher than 30-year mortgage rates. Is a home borrower in the U.S. a better credit risk than the American government? Is that what the chart is telling us?

--The chart is telling us something more surprising: the Fed has lowered U.S. short-term and long-term rates to the point where it is driving investors into other riskier assets by necessity. The proof of this is that more money has flowed out of bond funds than in to them in the last two weeks. Those are the only two weeks of negative inflows in bond funds since February of 2009. according to the Wall Street Journal.

--If Ben Bernanke can attack the entrenched position of investors in the bond market. he may be able to drive them straight back into the waiting arms of the stock market. You’d see the S&P break out above 1226. We dialled up Slipstream Trader Murray Dawes to ask him about this level.

--Murray says 1226 is high point of the range on this bull move for the S&P 500. “To me this is a warning that it could be another false break.” Murray’s theory of price action is based on these false breaks. Right now. he sees the S&P trading action as an indication that the market is very risky. He says it would have to break out above 1255 for him to reconsider the position.

--If you haven’t seen how Murray evaluates the price action on the Australian market. check out the free charting presentation he put together last Friday afternoon. We’ve posted in on YouTube.

Dan Denning
For The Daily Reckoning Australia

http://seekingalpha.com/article/240147-gold-prices-should-stay-high-for-years-to-come

Gold Prices Should Stay High for Years to Come
December 06, 2010
It's about time the contrarians realize that the world has changed.

Gold continues to climb, closing at over $1400/oz this past Friday. And the word on the street is that this run is far from over.

Gold imports into China have soared this year, turning the country, already the largest bullion miner, into a major overseas buyer for the first time in recent history. China's hunger for gold (see Where the Billionaires Invest) shot gold prices to new levels this past week when the Shanghai Gold Exchange said that China's gold imports jumped almost fivefold in the first 10 months from the entire amount shipped in last year.

But despite record nominal gold prices, gold miners just can't keep up with the demand. And that's not a bad thing for us junior precious metals investors.

Time to Shine

It means that due to the demand of gold, and the limited available supply of low cost gold mining, prices should remain high for years to come - regardless of strong economic numbers (see The Next Big Boom.)

Back when gold fell to the low levels between 1997 and 2001, gold miners had to mine ore with the highest grades just to stay alive. During this time, many of them shut down. But things have changed.

With record high prices, gold miners are shining brighter than ever and are gradually mining lower grade ore. But mining lower grade ore not only means lower output, but higher costs as well. In the past five years, the average recovered grade has declined a whopping 30% - dropping from 1.8 grams per ton down to 1.3 grams per ton.

To add more fuel to gold prices, twice as much ore has to be found just to replace the gold being produced at current grades. The replacement ore being found are now averaging only 0.60 grams per ton. That means that what used to be considered wasted rock, are now being reevaluated as actual gold reserves.

It's no wonder the the junior gold market is flying and the dollars being spent on drilling and exploration are starting to skyrocket. If you take a look at this past year, drilling amongst the gold junior explorers has been hitting incredible numbers leading to incredible gains in share prices as budgets and financings for drill programs increases.

The Juniors Dominate

Just this past week, Evolving Gold (EVOGF.PK) hit 405.4 Meters at 1.31 gpt (grams per tonne) sending its stock up over 17% on the day. But even the previously stagnant penny stocks have seen tremendous climbs in share prices.

The list of juniors hitting big numbers and making incredible gains in the past months has been tremendous. The days of the junior mining explorers soaring on drill results are back. For months, we have talked about how the small cap market, in particular the junior miners, are going to make a big splash and create a lot of wealth for investors.

Both the S&P Midcap 400 and Smallcap 600 climbed to new highs this week, outpacing the performance of the larger S&P 500 by over 10%, which remains below its November closing high. Hedge funds and institutions are beginning to diversify their money into riskier, more profitable plays (see Doubling Down for the Big Bang.)

The Hottest Gold Plays

Africa remains one of the most productive and promising gold mining continents in the world.

Barrick Gold's (NYSE: ABX) African Barrick spin off, for example, has major plans in Africa - particularly in Tanzania, where Canaco Resources (CANWF.PK) has hit some strong grades. African Barrick already has four producing gold mines in Tanzania with tens of millions of ounces in resources.

Tanzania is one of the hottest gold exploration plays right now. With the African Barrick spin off earlier this year by Barrick Gold, things may just be heating up. Junior companies exploring in Tanzania have now turned into a target for many investors, as African Barrick's focus remains in Tanzania.

Other companies exploring in Africa have been hitting high grades and climbing significantly in share price. African Gold Group, Canaco Resources, Sunridge Gold (SGCNF.PK), and Great Quest Metals (GQMLF.PK) have all climbed to record highs this year and many of them are up well over 100%.

Canaco Resources, for example, traded as low as $0.36 earlier in the year but closed this Friday at $4.75! That's a gain of over 1200%! If you would have invested only $10,000, you could have made a return of $120,000 in less than a year based on those numbers.

See why do we love the juniors?

Of course, not every company has that potential and not everyone with great drill results will turn into a mine. But it goes to show you that drill results from these juniors can give you a serious return on your investment if timed the right way.

Disclosure: We do not own any shares in the companies mentioned

http://www.safehaven.com/article/19229/chinas-bubble-and-commodities

China's Bubble and Commodities
By: Steve Saville | Mon, Dec 6, 2010

Below is an excerpt from a commentary originally posted at www.speculative-investor.com on 2nd December, 2010.

The most vociferous commodity bulls tend to be China bulls, and rightly so given that the price gains achieved across the industrial commodity complex over the past 12 months can only be justified by making the assumption that China will continue its rapid growth. China's importance to the commodity world stems from the fact that the bulk of its growth involves fixed-asset investment, which means that the growth is commodity-intensive. The risk to the bullish case is that a substantial chunk of this growth in fixed-asset investment is linked to a building boom that, to put it mildly, does not appear to be sustainable. To put it more bluntly, China's current building boom ranks with the construction of Qin Shi Huang's tomb* as one of history's all-time great examples of mal-investment.

One of the most prominent bears on China is Jim Chanos, a hedge fund manager who became well known about 10 years ago after making a large bearish bet against a highly regarded company (Enron) that he correctly identified as a giant scam. Chanos lays out his reasons for being bearish on China -- and, by extension, on commodities such as iron-ore that rely heavily on Chinese demand -- in the interview posted HERE. One of the key points is that a lot of the residential and commercial buildings that have been constructed in China over the past few years remain empty, and yet new buildings continue to go up at a frenetic pace. There appears to be a complete absence of traditional return-on-investment considerations, especially in the residential property market, in that investors often have no intention of generating any rental income from the houses and apartments they purchase. Renting is thought to be pointless, because even if a tenant could be found the yield would be so low that it wouldn't be worth the trouble. Instead, the plan in very many cases is simply to buy a property, hold onto it for a few years, and then sell it for a large profit. In other words, in China today the "greater fool theory" is being put into practice on a phenomenal scale.

Monetary inflation is invariably one of the driving forces behind a major investment bubble, the reason being that a steep multi-year upward trend in prices could never occur within an important sector of the economy (such as real estate) without a veritable flood of new money. The new money and its price-related effects don't spread evenly over the economy; rather, some prices always rise faster than others, which can set in motion a self-reinforcing feedback loop (an increase in price attracts investment/speculation that leads to an additional increase in price, etc.) that eventually reaches bubble proportions. If the money-supply growth that supports the bubble then slows or stops, the bubble bursts and the consequences of years of poor resource allocation come to the fore. Alternatively, if the monetary authorities decide to keep the money supply growing rapidly in an effort to indefinitely postpone the 'day of reckoning', the eventual result will be hyperinflation.

China has possibly now reached a critical juncture where the monetary authorities are forced to make a choice between keeping the fixed-asset investment bubble going and thus risking hyperinflation, or addressing the mushrooming inflationary pressure by slowing/stopping the monetary expansion. The choice is being forced upon them at this time by sharp rises in food prices and the social unrest that such price rises foment in a country where a large section of the population spends about half its income on food. We suspect that they will try to avoid hyperinflation and will, instead, attempt to gradually deflate the fixed-asset investment bubble.

The thing is, bubbles never deflate gradually. This is why we remain concerned about downside risk in the industrial commodities whose supply/demand equations have come to be dominated by Chinese demand.

The commodities that would be most adversely affected by the bursting of the China bubble and the consequent reduction in Chinese commodity consumption are the industrial metals. Oil also looks vulnerable to us, but uranium does not because we expect that China's plans to increase its nuclear power generation capacity will remain in place almost regardless of what happens in the real estate market. We doubt that gold would be adversely affected beyond short-term knee-jerk reactions, because gold is mostly held for wealth-preservation purposes and therefore tends to fare relatively well when economic problems abound.

*In the third century BC, about 700,000 workers laboured for almost 4 decades to build the final resting place of Qin Shi Huang, China's first emperor. The work included the sculpting of the famous Terracotta Army of Xi'an.

GREAT bunch of finds, Doz. Thank you so much.

Your parlay of articles exposes the problem that is different this time: with the Dollar heavily shorted, it is difficult for the Fed to back-door cover JPMs short positions with short-term paper as they have in the past. When they try to do so under such conditions, determined foreign Dollar-holders just hit any bid on silver as a hedge to their weakening Dollars. That is what we are seeing in silver AND gold, IMO.

I read one idiot this morning puzzling over silver, saying, "the fundamentals don't support this rise, so we are in a bubble". I don't know what fundamentals he is looking at, but the real fundamental with silver is that the Chinese are done playing Dollar Monopoly, especially after Bernanke's obvious unrepentant attitude on 60 Minutes.

http://www.freedominourtime.blogspot.com/

MONDAY, DECEMBER 6, 2010
Take Pity on Goliath

“Oh, it is excellent to have a Giant’s strength, but it is tyrannous to use it like a giant.”
Shakespeare, Measure for Measure, II:2

How does one simultaneously swagger and simper? Is it possible for someone to beat his chest even as his lip quivers in self-pity? Apparently so, given the evidence provided in Charles Krauthammer’s December 3 column. http://www.washingtonpost.com/wp-dyn/content/article/2010/12/02/AR2010120204561.html

Krauthammer is a conservative of the post-George W. Bush variety — that is, an unreconstructed totalitarian nationalist. In an essay calling for the execution of WikiLeaks founderJulian Assange (after a show trial, if possible, but by extra-judicial means if necessary), Herr Krauthammer blusters about the majesty of the Imperial State even as he whines about the besetting dangers it faces and the consummate injustice that has been done in exposing a handful of its criminal secrets.

Exhibit “a” in the column is the disclosure, by way of WikiLeaks, that Washington allowed its Yemeni puppet regime to take the blame for a hideous atrocity — the December 2009 cruise missile massacre of dozens of civilians, including 21 children.

“The Yemeni president and deputy prime minister are quoted as saying that they’re letting the United States bomb al-Qaeda in their country, while claiming that the bombing is the government’s doing,” Krauthammer complains in a Goebbels-worthy misrepresentation of the matter. “Well, that cover is pretty well blown. And given the unpopularity of the Sanaa government’s tenuous cooperation with us in the war against al-Qaeda, this will undoubtedly limit our freedom of action against its Yemeni branch, identified by the CIA as the most urgent terrorist threat to U.S. security.”

Perhaps we are to believe that the 21 Yemeni children slaughtered via remote control belonged to an al-Qaeda youth auxiliary. Then again, for a militarist like Krauthammer the operative principle in dealing with Muslim children appears to be “nits make lice.”

The point here, I suppose, is that those children are simply invisible to Krauthammer. Their deaths should play no role in the calculations of imperial power, and the real scandal is not that they were annihilated but rather that the crime and attempted cover-up were publicly disclosed.

The course of boldness and valor for the Regime in Washington, Krauthammer apparently believes, is to cower behind a tiny, embattled Arab puppet government that is expected to take the blame when the CIA slaughters innocents.

Appropriately, Krauthammer is featured in a new book entitled Underdogma: How America’s Enemies Use Our Love for the Underdog to Trash American Power. The book is a manifesto of sorts (Unser Kampf, perhaps?) for the Beltway-controlled “Tea Party Patriots” group. It was written by Michael Prell, a neo-con PR whore who has been employed by the likes of Israeli Prime Minister Benjamin Netanyahu and Canadian Prime Minister Stephen Harper.

Prell’s book peddles the conceit that “America” — meaning the Regime in Washington — is the victim of those who resent its power. The author complains that “some people’s natural love for the underdog has warped into an automatic, blind, irrational hatred for those who have more power.” That “hatred” is supposedly manifest every time someone complains about the innocent people killed, maimed, or tortured as a result of State policy, or — in the case of WikiLeaks — when whistle-blowers expose a handful of the Empire’s crimes.

In his contribution to the book, Krauthammer condemns Barack Obama’s purported desire to “curtail the power” of the American State. Given that Obama has escalated the Afghan war, expanded the use of Death Drones, claims the power to order the summary execution of American citizens suspected of terrorism, and has dramatically enhanced the domestic police state, one is led to wonder where he has curtailed government power in any way.

It’s also worth wondering why Krauthammer wouldn’t want to curtail the power of someone he considers an ideological enemy. But of course, the real problem for Krauthammer and his ilk isn’t the accumulation of dictatorial power in the presidency, it’s that the power currently resides in the “wrong” hands. As Lenin would put it, the only relevant question to them is “who does what to whom.”

Back in the 1980s, when Krauthammer was George F. Will’s understudy in the role of the conservative punditocracy’s pedant-in-chief, he would occasionally recite from the wisdom of 18th century British statesman Edmund Burke. In a 1793 address, Burke expressed the sentiments of an authentic patriot who understood that loving one’s country does not mean celebrating the unlimited power of the government ruling it.

“Among precautions against ambition, it may not be amiss to take one against our own,” warned Burke. “I must fairly say I dread our own power and our own ambition. I dread our being too much dreaded… Sooner or later, this state of things must produce a combination against us which may end in our ruin.”

About a century and a half later, American patriot Garet Garrett updated that admonition and applied it to the emerging American empire. “Is it security you want?” asked Garrett of the architects of the national security state and those who supported that monstrosity. “There is no security at the top of the world.”

Krauthammer, who celebrates the might of the Imperial State even as he insists that it faces a dire — nay, existential — threat from a handful of Yemeni rebels, unwittingly embodies the paradox Garrett described. To be a pundit in the imperial power structure one must be willing to play Grover Dill to the Regime's Scut Farkus -- that is, to be the vicious little punk who orbits the neighborhood bully, taunting and threatening his victims and whining piteously when someone dares to strike back. Few have played that role more convincingly than Charles Krauthammer.

“Nobody roots for Goliath,” observed Wilt Chamberlain, who spoke from experience. Krauthammer and others who peddle the toxic amalgam of bullying jingoism and collectivist self-pity -- more than a few of whom profess to be Bible-believing Christians -- insist that Goliath is the virtuous victim.

"...There appears to be a complete absence of traditional return-on-investment considerations, especially in the residential property market, in that investors often have no intention of generating any rental income from the houses and apartments they purchase. Renting is thought to be pointless, because even if a tenant could be found the yield would be so low that it wouldn't be worth the trouble. Instead, the plan in very many cases is simply to buy a property, hold onto it for a few years, and then sell it for a large profit. In other words, in China today the "greater fool theory" is being put into practice on a phenomenal scale..."

Let's see, we did something similar in Fla and other fun places and all agreed it was stupid.

It will interesting to see if the Chinese are smarter.

Troke,

I don't know if the question is "more smart" or "less greedy," to paraphrase the old beer commercial.

Take a look at this from Noland, you might enjoy it...

dd
==========================

http://www.atimes.com/atimes/Global_Economy/LL07Dj02.html

Dec 7, 2010
CREDIT BUBBLE BULLETIN
Kicking the can
Commentary by Doug Noland

So, are policymakers making things better - or is policymaking simply kicking the can down the road? While this aspect of policy has not been adequately scrutinized, I am of the view that the Federal Reserve's 2007 easing signals (beginning with the August 17, 2007, discount rate cut following an unscheduled meeting) directly contributed to the severity of the 2008 global financial crisis.

Recall that the CRB Commodities Index traded from about 300 in September 2007 to a record high of 474 by July 2008. Crude oil prices almost doubled to trade to US$147, a destabilizing price shock for an increasingly susceptible US economy. Global liquidity overabundance had the emerging markets on a rip. And in the face of a mounting crisis, US stocks were on a mini-roar. The S&P500 rallied to a record high in October 2007. Liquidity-driven market excess - across the spectrum of asset classes all across the globe - had created unparalleled systemic vulnerability. In the end, the global financial system came to be detached from fundamentals. Instead, they were hinged tenuously on one gigantic "risk on" liquidity trade.

Sometimes it does seem like deja vu all over again. I have addressed the discomforting parallels between the eruption of subprime problems in the spring of 2007 (the first crack in the mortgage/Wall Street finance bubble) and this past spring's Greek crisis (the initial crack in the global government finance bubble).

It is worth noting that an aggressive loosening of monetary policy in 2007 - and into 2008 - had no positive effect on the underlying quality of US mortgage credit, although it likely prolonged the mortgage issuance boom (total mortgage credit expanded almost $1.1 trillion during 2007!). Irreparable damage had been done during the bubble. Aggressive "activist" policymaking could only prolong market distortions and speculative excess.

The reemergence of financial stress with the Greek crisis incited an aggressive response from the European Central Bank (ECB) (liquidity support), the Fed (the second round of quantitative easing - or QE2), and global central bankers more generally (reluctance to move away from overly stimulative policies). Clearly, liquidity operations, the Greek bailout, and ultra-loose financial conditions did not improve the credit quality of Ireland's debt (or that of Portugal, Spain, and others). Yet, succumbing to market demands, the ECB on Thursday (again) postponed the initiation of its "exit strategy" to at least April 2011. The markets triumphed yet again in a skirmish with policymakers - and celebrated with a big, emboldened rally.

This summer's introduction of QE2 (and the death of "exit strategy") fostered a dramatic loosening of financing conditions. Treasury yields collapsed. Mortgage and municipal borrowing costs sank to record lows. Meanwhile, corporate credit spreads dropped to levels not seen since before the 2008 crisis. Corporate issuance boomed, with record junk sales. The S&P500 has rallied about 21% off of this summer's lows and the S&P400 Mid-Cap index has gained 27%. Such a financial backdrop should be constructive for confidence, spending, and economic recovery, and recent data has, unsurprisingly, been generally upbeat. But Friday's US non-farm payroll report provided a timely reality check.

Considering the unmatched degree of fiscal and monetary stimulus, US economic performance remains ominously dismal. Rising mortgage yields and a rising tide of austerity throughout municipal finance portend challenges for an economy already at 9.8% unemployed.

We've been witnessing further evidence of the seductiveness of bubbles. Massive fiscal stimulus and ultra-loose monetary policy are supporting the most tepid of recoveries. Meanwhile, inflating securities prices ensure investors and analysts view the glass as at least half full. Policymaking works to inflate stock prices, and then policymakers take comfort that buoyant markets are a confirmation of the adeptness of their policies. Is it not apparent that the big winner here is financial speculation?

The bubbling Chinese economy faces its own issues. Entrenched bubbles scoff at "tinkering" and timid policymaking - and China's mighty credit bubble is proving no exception. On Friday, China's Politburo released a statement proclaiming that next year they "will adopt proactive fiscal policies and prudent monetary policy". The country's officials are increasingly aware that aggressive tightening is warranted. Home price inflation has proved resilient, while general consumer price inflation has become well-entrenched. Food price spikes have emerged as a serious problem.

When I read of Chinese policy moves intended to suppress credit and financial flows going to speculative endeavors - while actively promoting lending to more productive enterprises and to ensure ongoing economic expansion - I am reminded of the failed course of US monetary management in the latter years of the "Roaring Twenties". It is the nature of bubble economies that they become credit gluttons. Credit growth and financial flows grow increasingly unwieldy - and the greater the inevitable imbalances the greater the overall credit expansion required to sustain the boom. Efforts to sustain boom-time prosperity - while at the same time attempting to harness asset inflation and suppress increasingly destabilizing speculation - are prone to spectacular failure.

Chinese authorities recognize they have a problem - a serious monetary dilemma compounded and complicated by the US's QE2. The Politburo statement adds further evidence that more aggressive tightening measures will commence in 2011. Yet the markets have turned numb to such warnings. And I'll be the first to admit skepticism that the Chinese will administer the necessary harsh medicine. Chinese authorities have waited too long and allowed "terminal" bubble excess to gain a powerful foothold. With the Fed and ECB kicking the can down the road, the markets can be forgiven for believing that Chinese policymakers will lack the fortitude to truly tighten system credit and liquidity.

Global markets could be at a bit of a crossroad here. Commodities are on the move again, and mounting inflationary pressures - especially in China and Asia - are a serious issue. And it wouldn't take much renewed dollar weakness to push this issue to the forefront. The European peripheral debt crisis has muddied the waters somewhat, but the upward bias on global yields was back in play this week. The US municipal bond market has stabilized. Yet the small decline in yields following the big spike higher would seem to suggest further vulnerability. A huge list of municipal issuers is lined up to sell debt.

The gamey US stock market has placed a big wager on the "risk on" trade. With QE2 in the early phase, greed has thus far held fear at bay. It surely won't take months of disappointing data to spark QE3 banter. And there's nothing like a world of synchronized speculative asset markets to embolden those banking on global policymaker liquidity backstops - the Fed, the ECB, BOJ in Tokyo, the People's Bank of China ... Perhaps US equities will begin to decouple from global asset inflation when the fragile US economy and credit system come to be viewed as relatively more vulnerable to surging commodities prices and rising global yields.

An important facet of my thesis holds that - with the post-Greek crisis global focus on structural debt issues - the US is in the process of becoming a major focal point. In the grand scheme of things, Ireland may be only loud noise. Gold, silver and commodities prices don't seem to be signaling sustainable dollar strength or overall confidence in the way things are heading.

It took months for mortgage credit contagion to spread from subprime to attack the heart of the US credit system. Perhaps it's a stretch to analyze in terms of an unfolding bursting of a global government finance bubble - as opposed to a European peripheral debt crisis. I just don't think so. And I fully expect that after market ebbs and flows - and near panics that incite more speculator-emboldening central bank market interventions/liquidity injections - the markets will inevitably discipline Washington. In the meantime, we are left with a game of counting the number of global policymakers kicking the can down the road.

Which is why I grit my teeth and hold PM-related investments, which have outperformed cash significantly for me since 1999...

dd
===========================

http://seekingalpha.com/article/240249-is-quantitative-easing-the-cause-of-the-rally

Is Quantitative Easing the Cause of the Rally?
December 06, 2010
Rolf Norfolk

Tyler Durden at Zero Hedge thinks so, and offers the following graph to illustrate the correlation:



Correlation is not the same as causation: I'd be a little happier about this theory if the mechanism could be explained. How exactly did the Federal Reserve's purchase of government bonds force up stocks?

I suppose the effect was indirect, in that the stock market recovered confidence when it saw that interest rates would be kept low with this extra demand for government credit, so making debt-fuelled market speculation cheap and easy. Also the fear of a banking sector collapse eased as the policy of official support at all costs became clear.

I guess the new bubble is in government credit, and will continue to inflate until a weak seam in the fabric splits. Keynes said, "Markets can remain irrational longer than you can remain solvent"; similarly, governments can stay irrational longer than you can afford to short their darlings. I'd be in no hurry to bet on a market reversal, even though it "should" happen and the present state of affairs is not tenable indefinitely.

Which is why I grit my teeth and hold cash.

Dozdoats said:

Yet another vid (posted yesterday) from Max Keiser in the "Crash JPMorgan Buy Silver" series. This one's a spoof of the Hitler bunker scene from the movie Downfall. Freaking hilarious, but the language may offend some- be warned...

dd
==========================

http://www.youtube.com/watch?v=I0mhX9hpq3g&feature=player_embedded

Click to expand...

My ears blushed but this one hit my funny boned. Although there is nothing funny about the mess we are in the text overlays on the movie scenes fit to the proverbial 'T'. I just about spewed all over my monitor.

The 50,000 Foot View- Twice The Credit, Twice The Crash As 1929?

http://www.financialsense.com/contributors/david-galland/the-popular-delusions-of-crowds

THE POPULAR DELUSIONS OF CROWDS
Submitted by David Galland on Mon, 6 Dec 2010

///snip
... I will step back to what the corporate types like to call the “50,000-foot view” and note that the totality of what’s hitting the newswires these days falls almost frighteningly within the scope of the intractable crisis we have been so ardently warning you about.

As a refresher, or as fresh information for those of you new to these musings, though the storyline of this crisis stretches back many years, it is still pretty straightforward. The kernel of the crisis was planted decades ago when Americans first began to look to the government to solve every problem, large and then even small.

As this attitude that government was all-powerful served the interests of the politicians, they took every opportunity to encourage it. For example, while in campaign mode, aspiring politicians energetically position themselves as being the best qualified to solve what ails, then layering on the cream and cherries of new benefits to be dredged from the public trough so that they can be delivered to voters.

As the election records make clear, the myth of an all-powerful government works even more to the favor of entrenched politicians – with each new year served giving the incumbent added firepower come election time. Not so much because their constituents actually like their representatives – but rather because they have been made to understand that the longer a politician serves, the higher their rank within their party and on the committees that dole out the goodies. It is for this reason that the career politicians invariably build their advertising campaigns about their special ability to deliver the pork, and voters keep returning them to office in order to take advantage of that fact.

Over time, this attitude of looking first to the government for what might be termed a better life gave rise to any number of fictions. For instance that money could endlessly be created out of thin air as needed to deliver on political promises… but especially in situations that might be considered an “emergency.”

The problem is that there’s always an emergency – and ironically, over time, those emergencies have emanated from the past deeds of the politicians themselves.

For its part, the government has a range of tools it can bring to bear as problem-solvers – coercion, taxation, regulation, directed spending, monetary policy, drone-fired bombs, cheap loans, and so on, and so forth. When the dot-com bubble began to pop, the tools used by the government included ratcheting interest rates lower and actively encouraging loose credit.

The flood of cheap money and loose credit set the stage for the housing bubble, which is best seen as part and parcel of a bubble in private debt. Of course, the government was not shy about increasing its own spending… because of the 9/11 emergency, and because there is always another election right around the corner.

With the prices of housing soaring and everyone feeling like the party could go on indefinitely – mostly because the lower cost of interest allowed them to more easily service a higher level of debt – the total amount of debt in the economy began accelerating.



Unfortunately, the party ended with the crisis that began unfolding in 2007, after which the availability of credit dried up and the housing bubble began to unwind. Thanks to derivatives and other modern financial innovations that allowed leverage, it quickly became apparent that the problems were not just bad but acute.

Naturally, because it’s what we Americans now know, the populace turned to the government to fix the broken machine of the economy. With barely a moment’s hesitation, all of the king’s horses (asses) and all the king’s men set to the task. The scale of the problems was so big, however, that so had to be the government’s response.

Viewed even from 50,000 feet, what then followed beggars the imagination. From the Fed lending out $3 trillion or so to pretty much anyone who raised a hand – foreign banks and private corporations included – to the government takeover of entire industries... to sending checks to hundreds of thousands of individuals… to guaranteeing bad loans by the boat load… to allowing the banks to transfer hundreds of billions of dollars in toxic real estate loans onto the balance sheet of the Fed… to dropping interest rates to zero… to providing cash incentives for car buying or installing alternative energy equipment (among others)... to extending unemployment benefits to two years… and on, and on, and on.

While the consequences of these extraordinary actions are many, with many more to come, the most obvious result has been an annual government spending deficit in excess of $1.4 trillion – with no clear way to reduce that deficit in the years ahead. In fact, with the increasing takeover of the medical system just ahead of the first waves of retiring baby boomers, the deficits are likely to stay at these elevated levels, or even worsen, in the years just ahead. Especially given that the interest rates being paid out on all the debt are at historic lows. Meaning they are an anomaly that can’t last long. And once they start to rise, the deficits will begin to run out of control and the endgame will begin in earnest.

While woefully inadequate, that’s the big-picture look of how we got here – now a quick look at where we’re headed next.

And that, as our own Bud Conrad has steadily pointed out, is to a sovereign debt crisis, which in turn leads to a currency crisis.

What’s going on in Europe, which very much followed the U.S.’s lead in trying to fix everything – versus letting all the malinvestment follow the natural path that a free market would have dictated – is just a preview of what’s going to happen here in the U.S.

And this is where it gets interesting. You see, when the eurozone was established, there were certain controls put into place to avoid a willy-nilly printing up of new money by the central banks of its constituent economies. Thus, when faced with demands to repay its debt, Ireland can’t just whip up the tens of billions it needs… but rather must accept a bailout from the EU, along with all the attached strings.

As Bud Conrad explains in his article in this month’s edition of The Casey Report, the eurozone’s problems now revolve around debt that is simply too big to cover. And so, for the reasons you’ll read, the odds are high that the euro will blow up. After which the Irish, the Italians, and the Spanish can get back to the serious business of printing up tons and tons of their own local currencies to meet their oversized obligations.

In other words, the unbacked fiat currency of the euro will be annihilated and replaced by the unbacked fiat money of a bunch of countries, and the race to the bottom will begin in earnest.

Meanwhile, back here in the U.S. where there are no restrictions on how much money the Fed can create, Bernanke and friends are already leaning heavily on the monetary levers. Because they can. And, as Ben’s60 Minutes appearance makes clear, they’ll continue to lean on those levers until Congress decides enough is enough (Ron Paul not being named to head the oversight committee would be a step in the wrong direction) or, more likely, the lever breaks.

Which is to say, when each new wave in money printing is met by a demand for higher and higher interest rates from prospective buyers of U.S. Treasury instruments. Around the same time, we’ll begin feeling the impact of increasing prices that must follow from the Fed’s monetary inflation.

At which point the U.S. dollar as currently constituted will follow the euro into the trash bin of history.

There is, of course, much more to it than that – for instance, the widely accepted notion that the “big countries” of Europe, the United States, Japan, and maybe China are too big to default on their debt will be proven false. That’s because ultimately, the fiction rubs up against the reality that the debt that is a hallmark of this crisis not only hasn’t been resolved, it’s been made worse by all the bailouts. For example, the solution being foisted on woefully indebted Ireland is to layer on another $100 billion or so of debt.

I guess when you get right down to it, this crisis had it seeds in the madness and popular delusion of crowds. But it’s going to end up on the rocks of the reality that money doesn’t come from nothing, and that there’s no such thing as a free lunch. Sooner or later the tab comes due.

The tab is now sitting on the table in front of us all. While the bankrupt governments of the world will continue to pretend they are good for it… it’s becoming increasingly clear to just about everyone that they are not.

(Where does North Korea fit into this construct? Only as a reminder that Black Swans, while rare, are also real. While we can’t know where the next surprise is going to come from, the way things are lining up, the odds are that it won’t be a pleasant surprise when it comes.)

And it’s not just the federal governments in trouble… it’s pretty much everyone. Including, for instance, here in the U.S., the states.

Dozdoats said:

Yet another vid (posted yesterday) from Max Keiser in the "Crash JPMorgan Buy Silver" series. This one's a spoof of the Hitler bunker scene from the movie Downfall. Freaking hilarious, but the language may offend some- be warned...

dd
==========================

http://www.youtube.com/watch?v=I0mhX9hpq3g&feature=player_embedded

Click to expand...

dd...that video is absolute classic...)))
thanks...

o)<

mike

http://www.financialsense.com/contributors/d-sherman-okst/fact-fiction-and-finally-the-fix

FACT, FICTION & FINALLY THE FIX
Submitted by Davos Sherman Okst on Mon, 6 Dec 2010

Fiction: In this 60 Minutes clip ( http://www.cbsnews.com/video/watch/?id=7120553n I'll put up what there is of a transcript in the next post- dd) Bernanke tells Scott Pelley, “The other concern I should mention is that inflation is very, very low…”

Fact: There is massive inflation!





Fiction: ‘Unemployment is 9.8%, if we didn’t take these drastic measures it would be 25% like it was during the Great Depression.’

Fact: Unemployment is, once again at “depressionary” levels - pushing 25%.





Fiction: In this video Bernanke says about the biggest bubble in the world (the housing bubble) which he never saw and still denies: “I guess I don’t buy your premise it’s a pretty unlikely possibility we’ve never had a decline in house prices on a nationwide basis.”

“…never had a decline in house prices on a nationwide basis.”

Fact: Housing prices have declined on a nationwide basis.



Hearing The Bernanke fiction that he is 100 percent certain he can stop hyperinflation was as reassuring as hearing his continued commitment to continue Quantitative Easing.

I know hyperinflation is ugly. I know stopping this train wreck years ago would have been the correct thing to do. The fact is – we are beyond any fix. Things like cutting government spending will only increase unemployment. We are bankrupt when: What we take in with taxes doesn’t pay the bills. When we borrow and that and the taxes still don’t pay the bills. Now we counterfeit so we don’t default.

Game over!

I know re-valuing the dollar would have been faster and less painful. But the facts are that we have a professor who studied the Great Depression and if he doesn’t know that housing prices declined, or that there is massive inflation now, or that unemployment is at “depressionary” levels - then we have to realize that correcting what he messed up isn’t going to happen.

The guy is either working for an elite few – or, more likely – he’s an economic imbecile.

Whatever the case is – I’m happy. The only way the economy is going to get fixed is if consumers (who make up 67% of GDP) consume. Right now consumers are either maxed out, working part time hours in their full time positions, or they are unemployed. Consumers have shed 600 billion in debt, 20 billion was of that was willingly. On a governmental level: Our debt – on and off balance sheet will choke the life out of any prosperity.

The clock MUST be reset. That is the ONLY fix.

The Bernanke just pulled the reset lever.

Gold and silver are still affordable. If you missed my read “Nobel Award in Darwin Economics” this chart should explain a lot.





If you think there will be deflation I’d encourage you to look at money as seashells and look at The Bernanke as the gold miners on pages 96 & 97 of “Mean Markets and Lizard Brains” book. Basically it explains that the habitants of the highlands of Papa New Guinea used seashells as a currency. Gold miners from Australia wanted to hire them to mine gold, the highlanders didn’t want paper money - they wanted shells. Plane loads of shells were flown in. Supply increased, their purchasing power crumbled, they experienced hyperinflation.

Our dollar will be re-valued vis-à-vis unstoppable hyperinflation. Old debt will be washed away. Consumers will once again be able to consume.

In Summary: My faith in the 5Gs: (G*(religious edit)d, Gold, Guns, Grub & The Government Will Continue to Screw It Up) remains strong.

http://www.cbsnews.com/stories/2010...14229.shtml?tag=currentVideoInfo;segmentTitle

Dec. 5, 2010
Fed Chairman Ben Bernanke's Take On The Economy
Talks to Scott Pelley About Unemployment, The Deficit and Pressing Economic Issues

Fed Chairman Bernanke On The Economy
Fed Chairman Ben Bernanke discusses pressing economic issues, including unemployment, the deficit and the Fed's controversial $600 billion U.S. Treasury Bill purchase. Scott Pelley reports.

VIDEO
Interview with Fed Chairman Ben Bernanke
On "60 Minutes" this week, Scott Pelley interviewed Fed Chairman Ben Bernanke, discussing a wide range of economic issues. "60 Minutes Overtime" presents unaired excerpts from that interview.

Chairman of the Federal Reserve Ben Bernanke (CBS)
(CBS) Friday's unemployment number was a troubling surprise -up from 9.6 percent to 9.8 percent. The economists who decide such things say the recession ended in 2009.

But this is the worst recovery the nation has ever seen. Ben Bernanke is concerned. As chairman of the Federal Reserve, Bernanke has enormous power over the world economy. And he has used that power in ways that the world has never seen.

During the panic of 2008, he committed trillions of dollars to rescue the financial system. And the Fed dropped interest rates nearly to zero.

Now, in a new move that has become controversial, Bernanke intends to commit another $600 billion to hold down interest rates.

Chairmen of the Fed rarely do interviews. But this week, Bernanke feels he has to speak out because he believes his critics may not understand how much trouble the economy is in. We wanted to know whether we're headed for another recession, whether Congress should extend the Bush tax cuts.

But first we wanted to talk about unemployment which has been at 9.5 percent or more for 16 months.


Interview with Ben Bernanke
On "60 Minutes" this week, Scott Pelley interviewed Fed Chairman Ben Bernanke, discussing a wide range of economic issues. "60 Minutes Overtime" presents unaired excerpts from that interview.


Chairman Ben Bernanke: The unemployment rate is just not going down. Unemployment is just about the same as it was in mid-2009, when the economy started growing. So, that's a major concern. And it looks that at current rates, that it may take some years before the unemployment rate is back down to more normal levels.

Scott Pelley: We lost about eight million jobs from the peak. And I wonder how many years you think it will be before we get all those jobs back?

Bernanke: Well, you're absolutely right. Between the peak and the end of last year, we lost eight and a half million jobs. We've only gotten about a million of them back so far. And that doesn't even account the new people coming into the labor force. At the rate we're going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of say five or six percent.

Four or five years. And Bernanke told "60 Minutes" something else that makes that even more painful.

Bernanke: The other aspect of the unemployment rate that really concerns me is that more than 40 percent of the unemployed have been unemployed for six months or more. And that's unusually high. And people who are unemployed for such a long time, their skills erode. Their attachment to the labor force diminishes and it may be a very, very long time before they find themselves back in a normal working position.

Bernanke was appointed in 2006 by President Bush and reappointed by President Obama. He grew up in Dillon, S.C., the son of a drugstore owner. He studied economics at Harvard and MIT and chaired the economics department at Princeton.

Pelley met Bernanke Tuesday (Nov. 30) in the Thompson Library on the campus of The Ohio State University. He was in Columbus on one of his frequent trips to hear how people are coping with the economy.

Earlier in the day he heard from the CEOs of Ford and IBM but also from small business owners who told him they were having trouble getting financing from banks.

Pelley: The major banks are racking up profits in the billions. Wall Street bonuses are climbing back up to where they were. And yet, lending to small businesses actually declined in the third quarter. Why is that?

Bernanke: A lot of small businesses are not seeking credit, because, you know, because their business is not doing well, because the economy is slow. Others are not qualifying for credit, maybe because the value of their property has gone down. But some also can't meet the terms and conditions that banks are setting.

Pelley: Is this a case of banks that were eager to take risks that ruin the economy being now unwilling to take risks to support the recovery?

Bernanke: We want them to take risks, but not excessive risks. We want to go for a happy medium. And I think banks are back in the business of lending. But they have not yet come back to the level of confidence that, or overconfidence, that they had prior to the crisis we want to have an appropriate balance.

Bernanke's first interview ever as Fed chairman came in 2009 shortly after the panic.

It was then that he gave "60 Minutes" and Scott Pelley a rare opportunity to see the Federal Reserve headquarters in Washington, D.C.

Last month, Bernanke announced the Fed's intent to buy $600 billion in U.S. Treasury securities, which is supposed to have the effect of lowering rates on long term loans for things like cars and homes.

Bernanke wanted to emphasize that these are the Fed's own reserves. It's not tax money. It does not add to the federal deficit.

(CBS) Pelley: What did you see that caused you to pull the trigger on the $600 billion, at this point?

Bernanke: It has to do with two aspects. The first is unemployment. The other concern I should mention is that inflation is very, very low, which you think is a good thing and normally is a good thing. But we're getting awfully close to the range where prices would actually start falling.

Pelley: Falling prices lead to falling wages. It lets the steam out of the economy. And you start spiraling downward.

Bernanke: Exactly. Exactly.

That's deflation and that's what happened in the Great Depression.

Pelley: How great a danger is that now?

Bernanke: I would say, at this point, because the Fed is acting, I would say the risk is pretty low. But if the Fed did not act, then given how much inflation has come down since the beginning of the recession, I think it would be a more serious concern.

Critics of Bernanke's Federal Reserve have the opposite worry: they say the $600 billion and holding down interest rates could overheat the recovering economy, causing prices to rise out of control.

Pelley: Some people think the $600 billion is a terrible idea.

Bernanke: Well, I know some people think that but what they are doing is they're looking at some of the risks and uncertainties with doing this policy action but what I think they're not doing is looking at the risk of not acting.

Pelley: Many people believe that could be highly inflationary. That it's a dangerous thing to try.

Bernanke: Well, this fear of inflation, I think is way overstated. We've looked at it very, very carefully. We've analyzed it every which way. One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that's what we're gonna do.

Pelley: Is keeping inflation in check less of a priority for the Federal Reserve now?

Bernanke: No, absolutely not. What we're trying to do is achieve a balance. We've been very, very clear that we will not allow inflation to rise above two percent or less.

Pelley: Can you act quickly enough to prevent inflation from getting out of control?

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

Pelley: Do you anticipate a scenario in which you would commit to more than $600 billion?

Bernanke: Oh, it's certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks.

(CBS) Pelley: How would you rate the likelihood of dipping into recession again?

Bernanke: It doesn't seem likely that we'll have a double dip recession. And that's because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can't get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that's the primary source of risk that we might have another slowdown in the economy.

Pelley: You seem to be saying that the recovery that we're experiencing now is not self-sustaining.

Bernanke: It may not be. It's very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining.

The debate on Capitol Hill this week is over whether to extend the Bush tax cuts, which would likely increase the budget deficit.

Bernanke wouldn't answer that question directly, but he certainly made one thing clear: he told us cutting the budget deficit must be done he said but it shouldn't be done right now.

Bernanke: We need to pay close attention to the fact that we are recovering now. We don't want to take actions this year that will affect this year's spending and this year's taxes in a way that will hurt the recovery. That's important. But that doesn't stop us from thinking now about the long term structural budget deficit. We're looking at ten, 15, 20 years from now, a situation where almost the entire federal budget will be spent on Medicare, Medicaid, Social Security, and interest on the debt. There won't be any money left for the military or for any other services the government provides. We can only address those issues if we think about them now.

Bernanke makes a point of remaining silent on specific proposals that Congress might consider, so we were surprised when he did offer up a big idea for making the economy grow.

Bernanke: Cleaning up the tax code, for example. The tax code is very inefficient. Both the personal tax code and the corporate tax code. By closing loopholes and lowering rates, you could increase the efficiency of the tax code and create more incentives for people to invest.

Recently, Bernanke has been facing hostility from the most conservative members on Capitol Hill. Some are calling for reducing the Fed's role. But Bernanke understands that his job is not a popularity contest.

Pelley: How concerned are you about the calls that you're beginning to hear on Capitol Hill that would curb the Fed's independence?

Bernanke: Well, the Fed's independence is critical. The central bank needs to be able to make policy without short term political concerns. In order to do what's best for the economy. We do all of our analysis, we do all of our policy decisions based on what we think the economy needs. Not based on when the election is or what political conditions are.

Like many economists, Bernanke believes it was the Federal Reserve itself that instrumental in causing the Great Depression with its tightfisted monetary policies.

So, he did exactly the opposite. In the panic of 2008, the Fed put up $3.3 trillion. And just this past week, the Fed revealed who got emergency help.

It turns out there were 21,000 transactions - including loans and purchases - with financial firms including Citigroup, Morgan Stanley, Goldman Sachs, major industrials companies including GE, and even to foreign banks, including the Bank of England. Most all the loans have been paid back.

(CBS) But it was a historic transfusion of cash in a global system that was bleeding to death. We asked Bernanke what would have happened if the Fed hadn't acted.

Pelley: What would unemployment be today?

Bernanke: Unemployment would be much, much higher. It might be something like it was in the Depression. Twenty-five percent. We saw what happened when one or two large financial firms came close to failure or to failure. Imagine if ten or 12 or 15 firms had failed, which is where we almost were in the fall of 2008. It would have brought down the entire global financial system and it would have had enormous implications, very long-lasting implications for the global economy, not just the U.S. economy.

But it's also true that the Fed was the regulatory watchdog of the largest banks when crazy lending led the world to crisis.

Pelley: Is there anything that you wish you'd done differently over these last two and a half years or so?

Bernanke: Well, I wish I'd been omniscient and seen the crisis coming, the way you asked me about, I didn't. But it was a very, very difficult situation. And the Federal Reserve responded very aggressively, very proactively.

Pelley: How did the Fed miss the looming financial crisis?

Bernanke: There were large portions of the financial system that were not adequately covered by the regulatory oversight. So, for example, AIG was not overseen by the Fed.

Pelley: The insurance company.

Bernanke: The insurance company that required the bailout, was not overseen by the Fed. It didn't really have any real oversight at that time. Neither did Lehman Brothers, the company that failed. Now, I'm not saying the Fed should not have seen some of these things. One of things that I most regret is that we weren't strong enough in putting in consumer protections to try to cut down on the subprime lending problem. That was an area where I think we could have done more.

Pelley: The gap between rich and poor in this country has never been greater. In fact, we have the biggest income disparity gap of any industrialized country in the world. And I wonder where you think that's taking America.

Bernanke: It's a very bad development. It's creating two societies. And it's based very much, I think, on educational differences. The unemployment rate we've been talking about. If you're a college graduate, unemployment is five percent. If you're a high school graduate, it's ten percent or more. It's a very big difference. It leads to an unequal society and a society which doesn't have the cohesion that we'd like to see.

Pelley: We have talked about how the next several years are gonna be tough years in this country. But I wonder what you think about the ten-year time horizon. Fifteen years. How do things look to you long term?

Bernanke: Long term, I have a lot of confidence in the United States. We have an excellent record in terms of innovation. We have great universities that are involved in technological change and progress. We have an entrepreneurial culture, much more than almost any other country. So, I think that in the longer term the United States will retain its leading position in the world. But again, we gotta get there. And we have some very difficult challenges over the next few years.

http://www.financialsense.com/contributors/axel-merk/debunking-bernanke-myth

DEBUNKING BERNANKE’S MYTH
Submitted by Axel G Merk on Tue, 7 Dec 2010

In his interview with “60 Minutes”, Federal Reserve (Fed) Chairman Ben Bernanke suggested it is a myth that quantitative easing implies printing money. With all due respect, Mr. Bernanke, if it looks like a duck and quacks like a duck, it is a duck!

Bernanke argues his policies do not amount to printing money, as neither currency in circulation, nor money supply has increased. This analogy is a bit like giving a loaded gun to a kid, then telling your friends that it’s not a deadly weapon because the shots that have been fired haven’t killed anyone. Granted, we are exaggerating here because, after all, it’s only money we are talking about. Yet, printing money may destroy one’s purchasing power and thus one’s life’s savings.

Indeed, the Fed doesn’t only print money, but prints “super money”. The money the Fed prints is more powerful than currency in circulation. It’s money made available to the banking system. When the Fed buys government bonds, or any other security, from a bank, the Fed credit’s the bank’s account at the Federal Reserve, with the amount due. That “money”, however, is merely an entry on the computer system at the Fed – it’s literally created out of thin air. It’s not physically, but electronically printed. A bank with cash in its hands can create new loans; those loans may be deposited elsewhere by the person taking the loan; money created by the Fed out of thin air can have a multiplier effect of 1:100 by the time it makes its way through the economy. The loaded guns handed to the kids are not a water pistols, but automatic weapons.

The kids, of course, are the banks. So far, the latest scolding (the 2008 financial crisis) remains fresh in their minds, and they are thus reluctant to pull the guns’ safety. But make no mistake about it: the banks are being handed potent weapons. Indeed, the Fed would love to see the banks pull the trigger and hand out more loans. It turns out the banks are not finding enough creditworthy borrowers.

Truth be told, the money does make it somewhere, but the Fed cannot control where the money flows (have you ever tried to control a little kid? Please do not try this at home). Instead of flowing to where the Fed would like to see all that freshly printed money go, it ends up in assets with the greatest monetary sensitivity: precious metals, commodities, as well as outside of the U.S. dollar. Courtesy of the Fed’s “mythical printing”, gasoline is as high as $3.50 a gallon at some gas stations in California.

The money doesn’t “stick” where the Fed would like it to because the Fed is fighting market forces. Consumers would love to get their house in order – quite literally: without massive fiscal (read: cash-for-clunkers) and monetary (read: credit easing, monetary easing) intervention, over-extended consumers would downsize further. However, “downsizing” implies foreclosures and bankruptcies: promoting such a course of events could well be political suicide for policy makers. Well, it appears Bernanke believes that if you simply throw enough money at the problem – trillions of dollars worth - you might just get some of that money to flow where you want it.

Bernanke brushed off his critics, arguing those critical of his policies are not considering the risks should nothing be done, namely deflation. We are not quite as concerned as Bernanke is about lower wages, as that may well be an answer to reduce the oversupply of the unemployed. But it is not the argument of deflation or inflation we are most concerned about. Let’s remember: in the run-up to the financial crisis, bad things happened. This is not the place to argue whether it was the bad banks, bad consumers, bad regulators or bad politicians causing the crisis (in the spirit of the season: let he who is without sin cast the first stone!). No, the real problem is that the massive and ongoing intervention by policy makers led us to believe that there is a magic wand – the Fed’s printing press included – that can fix our sorrows. Because the government has come to the rescue with such great force, the financial reform bill may not be worthy of its name; our system is no better than before the crisis; on top of that, we may be setting ourselves up for a much worse crisis further down the road. Beyond regulatory reform, there is also no incentive to engage in fiscal reform as the Fed helps financing the government deficit.

On that note, the reason we are far more optimistic about the Eurozone than most is because the sense of urgency hasn’t gotten lost there. Real reform is implemented as the European Central Bank (ECB) has reduced liquidity (that’s the opposite of money printing – just as mystical) by hundreds of billions of euros this year. Yes, there are real problems in Europe, but there’s a wonderful dialogue between the markets and policy makers. Policy makers don’t like the medicine they are prescribed by those “speculators”, but structural reform is greatly expedited. In contrast, in the U.S., we are merrily printing money because – well, in our assessment, U.S. policy makers simply believe they can still get away with it.

It turns out the ECB’s divergence from the Fed is not a recent, but a decade old phenomenon. In an effort to impose structural reform, the ECB has kept the Eurozone on a far tighter leash than the Fed has kept the U.S. economy. As a result, European consumers are generally far less leveraged than U.S. consumers (with notable exceptions in some regions). In the U.S., if monetary policy were to be tightened, it may well throw the U.S. economy into a depression; in contrast, those European consumers that stopped spending won’t cut back much further. Quite the contrary, German consumers in particular are starting to embrace the holiday spirit after years of holding back. In more mundane terms: the euro may well outperform the U.S. dollar because less money is being printed in the Eurozone.

This leads us to the future: in our assessment, the Fed’s worst nightmare may well be that this mythical money makes its way through the economy. Bernanke said he could raise interest rates in “15 minutes” should the economy need to be tamed. That’s a cute pun on a TV program called “60 Minutes”, but ignores a philosophical and a practical challenge: Bernanke has extensively argued that tightening monetary policy too early after a recovery took place was a key policy mistake of the 1930s; to us, it appears highly unlikely that the Fed will apply any 15 minute policy to the U.S. economy.

Let’s give the Fed the benefit of doubt for a moment – after all, we believe the men and women at the Federal Reserve Open Market Committee (FOMC), the group that decides on monetary policy, has the best of intentions. Here’s the challenge: by fighting market forces, we keep, or quite possibly expand, the extensive leverage in the economy. As a direct result, the U.S. economy is exceedingly sensitive to monetary policy. Think of it this way: if you have no debt, you couldn’t care less about interest rates. If you have loads of credit cards bill, in addition to a large mortgage, the amount of sleep you get every night may be highly correlated to interest rates. So if the Fed gets its wish and we get strong economic growth, how on earth is the Fed going to mop up all the liquidity they are saturating the economy with? The technicalities aside (we have issues with those, too), we have grave concerns that as soon as the Fed would indeed start tightening, it would have a far more amplified effect than they anticipate, causing the economy to plunge rather sharply.

In a “best case” scenario, we may end up with a rather volatile Fed policy in the years to come, bouncing back and forth between full-speed ahead and applying the emergency brakes. As it turns out, very little, if anything, has really worked according to the “best case scenario” in recent years. In this context, please pardon our assessment that the risks of quantitative easing far outweigh the potential “benefits.”

What are those “benefits” anyway? At the risk of great simplification, it’s all about home prices. Millions of homeowners are under water. To remedy the situation, homeowners can downsize (the healthiest from a macro point of view, but politically not an option); pay down their debt (may happen individually, but real wages haven’t gone anywhere in a decade, thus making it an unlikely option); or, alternatively, the Fed can employ its mythical printing press in an effort to push up the price level. The “benefits” thus go to those with too much debt; the pain goes to those who have been savers, including pensioners. The policies are rewarding speculation; not just any, but the type of speculation that chases the next great intervention by policy makers, not the next great business opportunity. Asset classes have become increasingly correlated as a result.

Excessively accommodating monetary policy fosters capital misallocation; those in desperate need of yield may be buying ever longer-dated and riskier securities. The greatest bubble in monetary history may have been in the making, a bond bubble (see our analysis Bond, Junk Bond – Casino Royale).

Talking about myths, there is a myth that Bernanke continues to promote: the myth that the Fed can fight inflation. Even central bank super-hero Paul Volcker, who is credited with “beating inflation” in the early 1980s, merely got the annual inflation rate back down to earth. When central bankers pat themselves on the back for “beating” inflation, we never come back down to the price level before inflation started – monetary super-heroes are those who can stop the bleeding.

To end this on a conciliatory note, we agree with Bernanke that one should never underestimate the determination of the Fed. However, that’s because, in our assessment, inflation is not primarily a function of the “slack in the economy”, the “output gap” as economists like to call it, but a function of inflation expectations: if consumers and businesses believe we will get inflation, they will push for higher wages and prices. And because the Fed has the power of the printing press, it’s the Fed that can control inflation expectations – if it only has the will. When Volcker “beat” inflation, many were skeptical about his determination until proven wrong. Now it’s Bernanke that has empathetically called for inflation to rise. Again, some are skeptical; we believe those skeptics will be proven wrong. Indeed, longer-term inflation expectations have been ticking upward ever since Bernanke said in August that the Fed will “strongly resist” inflation expectations falling too low.

In this context, investors may want to consider diversifying beyond the U.S. dollar to mitigate the risks of the Fed’s policies.

People need to protect themselves from the dollar going down and hyperinflation
coming, AND not delay doing so if stock market does not go down right away or a lot.

The two record-breaking fastest growing stock markets in the world, in their day,
were the Wiemar Republic and Zimbabwe, right before their currencies fully took
off into hyperinflation and collapsed.

We could see our stock market here surge upward, or at least not collapse, if
we have a repeat of that here, especially if we see money rushing out of bonds
looking for a better return in equities.

Got God, Grub, Guns & Gold?
Panic Early, Beat the Rush!

- Shane

I have a question for everyone. LEt's say someone wanted to buy a large amount of silver (not just 5 or 10 ounces). I mean if someone were to buy 5,000 ounces that person just can't take delivery of that at home because there's just too much. Can't just put it in the safe deposit box. IF they're just wanting to make some $ and not necessarily hold onto it are there any specific ETFs that someone recommends? I think I saw on here a few days ago that the ETFs (some? all?) weren't backed and people were going to get screwed on them?

Thoughts/opinions on what to do or how to go about it??

What difference does it make?

They can get squeezed all they want and the gov will bail them out, they are too big to fail.

5000 ounces is five 1000 ounce bars. That's about as much room as five loaves of bread would take up. Below is a pic of a 1000 ounce bar.

Personally I'd rather buy 'junk' silver. That comes in at 715 ounces per $1000 face value bag, so to get 5000 ounces you'd need essentially 7 bags (6.993007 if you want to be picky). Tulving is still selling dimes and quarters at spot. A $1000 face bag of 90% silver is about the size of a bowling ball, and weighs about 53 pounds. Were it me I'd get a decent safe and take delivery...

The only silver ETF I'd trust is Sprott's, and the premium on that is too high IMHO. You might want to look into CEF, Central Fund/Canada, though there is gold exposure there as well as silver.

And James Turk's GoldMoney handles silver, we have an account with him for overseas storage of some of our metals. See http://goldmoney.com/ .

I wouldn't mess with MONEX, they'll worry you to death trying to get you to leverage your metal.

You might consider talking to Dillon Gage and see what they can do for you if you really really don't want to handle your own metal ( http://dillongage.com/Default.aspx ). PM me if you want a contact name/number there.

They (Tulving) don't have 1000 ounce bars right now, their 100 ounce .9999 bars are listed selling at $.79/ounce over spot. APMEX is listing the big bars at $.29/ounce over spot ( http://www.apmex.com/Product/59804/99750_oz_Silver_Bar_999_Fine___BUNKER_HILL_Bar.aspx ) if you want to go for bars. There are depositories that will store your metal for a fee, but 5k really isn't that much and it's as much hassle to mess with a depository (and pay fees) as to take delivery IMHO. But then there's the issue of assay sometimes required to sell 1000 ounce bars... what a pain all around big bars are.

FWIW...

dd

Cheval said:

I have a question for everyone. LEt's say someone wanted to buy a large amount of silver (not just 5 or 10 ounces). I mean if someone were to buy 5,000 ounces that person just can't take delivery of that at home because there's just too much. Can't just put it in the safe deposit box. IF they're just wanting to make some $ and not necessarily hold onto it are there any specific ETFs that someone recommends? I think I saw on here a few days ago that the ETFs (some? all?) weren't backed and people were going to get screwed on them?

Thoughts/opinions on what to do or how to go about it??

Click to expand...

Buying silver, or gold for that matter, as an investment, has worked out for
me, but that's not primarily why I bought it, so I can't talk much to that, if
that's your primary purpose. I've traded gold/silver in futures market years
ago, but won't advise anyone inexperienced to try and do so. My survival
reasons for buying physical over the last decade necessitated my avoidance
of any/all paper versions.

I'm not a fan of any ETF's, not if you are buying silver as insurance against
dollar collapse, as an ETF then would be like buying ETF's of food, water, and
guns & ammo, instead of buying the real stuff and bringing it safely home.

Personally, if I wanted 5000 ounces, I'd buy seven bags of junk silver, each
will be $1000 face value of pre-65 common silver coins, each bag 715 ozs of
silver. Total silver with those seven bags is then 715 X 7 = 5,005 total ozs.

www.tulving.com still has them at spot with FREE fast shipping today.

Maximum amount of delivered silver, for dollar spent, and in form ideal for
most future bartering. No known cheaper silver, including shipping, IMO!

BTW, if I was going to own, as an gold and/or silver investment, anything
that's paper based, I'd buy shares in Tocqueville Gold Fund, up 56% ytd...
http://www.tocquevillefunds.com/gf_overview.html

Got God, Grub, Guns & Gold?
Panic Early, Beat the Rush!

- Shane

http://www.safehaven.com/article/19239/bernanke-60-minutes-2-big-lies

Bernanke: 60 Minutes, 2 Big Lies
By: Michael Pento | Tue, Dec 7, 2010

This past Sunday on the CBS program "60 Minutes", Americans received a massive dose of mendacity from our Fed Chairman. Mr. Bernanke's shaky delivery, and even shakier logic may cause faith in America's economic leadership to evaporate faster than the value of our dollar. In particular, Bernanke delivered two massive distortions:

Lie #1 - The Fed isn't printing money. Bernanke stated: "The amount of currency in circulation is not changing...the money supply is not changing in any significant way. What we're doing is lowering interest rates by buying Treasury securities." Given that it is the Treasury Department's Bureau of Engraving and Printing, not the Fed, that actually prints paper money, his statement is technically correct while substantively false. However, Bernanke is buying bank assets with Fed credit. With such an arrangement, printing becomes unnecessary.

According to gentle Ben, credit created to buy something should not be considered money and has no affect on asset prices? But if that's true, why is he concentrating his buying in the middle of the Treasury yield curve. His stated purpose is to boost bond prices and lower yields in order to stimulate borrowing and aggregate demand. So pushing up bond prices is an act of inflation. Bernanke similarly contradicts himself by saying that he isn't creating inflation, while at the same time claiming that his easing campaign is designed to boost asset prices to combat the phantom of deflation.

And by the way, the Fed is causing money supply to increase significantly. The compounded annual growth rate of M2 is over 7% in the last quarter. Apparently in the eyes of the Chairman, a 7% annualized increase in the broad money supply isn't considered significant.

Lie #2 - Bernanke is "100 % confident" that, when necessary, the Fed can control inflation and reverse its accommodative monetary policy. He stated, "We've been very, very clear that we will not allow inflation to rise above 2 percent. We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time." He failed to mention that the Fed doesn't have the will to drain money from the system, without which all tools are useless. The Fed has consistently demonstrated its unwillingness to take the appropriate actions when necessary. In claiming he is 100% confident in his ability to control inflation, Mr. Bernanke ignores the record that during his tenure he has misdiagnosed the economy.

In June of 2006, Bernanke culminated his inflation fighting efforts by raising the Fed Funds target rate to 5.25%, after CPI inflation reached 4.2%. But that interest rate was enough to help burst the housing bubble and to spark an international credit crisis. Bernanke was completely unaware that the Fed actions had created an economy that had become completely addicted to artificially-produced low interest rates and inflation.

Shortly after the collapse of the real estate market and the ensuing truncated deflationary-depression, Bernanke took interest rates to near zero percent. But if the Fed was ever really serious about unwinding excessive leverage, the time had clearly arrived. Instead, the U.S. economy has become more addicted to free money than at any other time in our history.

Commodity prices are soaring once again and the real estate market, banking sector, and the overall economy cling precariously on the arm of government induced bailouts and low interest rates. Even worse, our government has massively increased its level of debt, which now stands at just below $14 trillion. Once the rate of inflation eclipses the Fed's 2% target rate, which appears likely, how then will the Fed raise rates to contain it? Could the economy then withstand an increase in the cost of home ownership? Most importantly, when will Mr. Bernanke find it politically tenable to dramatically increase debt service payments for the Federal government? In truth, there is never a convenient time to have a severe recession or a depression. Unfortunately, reality can be extremely inconvenient.

Bernanke was accurate in saying that the economy is not expanding at a sustainable pace. Of course, his prescription was the same as it always is; print more money in the misguided belief that inflation will lead to growth. As such, he indicated that it's possible that the Fed may actually expand bond purchases beyond the $600 billion announced last month. (Remember that the $600 billion comes after the $1.7 trillion that has already been printed, which failed to produce anything much beyond a weaker dollar). Therefore, the country can look forward to yet more inflation, continued anemic GDP growth, a poorer citizenry, and a vastly lower standard of living.

On the bright side, the next segment on 60 Minutes outlined some of the new social networking capabilities being created by Mark Zuckerberg and Facebook. In other words, although our economic misery will likely increase, it should become much easier to share the bad news with friends.

http://www.safehaven.com/article/19...class-crucifixion-ron-paul-needs-your-support

Lies, Half-Truths, and 100% Hubris on 60 Minutes; Deficit-Chicken Republicans; Middle-Class Crucifixion; Ron Paul Needs Your Support
By: Mike Shedlock | Tue, Dec 7, 2010

I am very disheartened but not at all surprised (given that I predicted it), the complete fiscal irresponsibility of the "compromise" tax proposal by president Obama that Democratic sheep will no doubt approve right along with deficit-hawk deficit-hypocrite Republicans.

Obama's proposal will cost a whopping $900 billion over two years. For details please see Cookies for Susie and Obama's "Temporary" Tax Compromise
Bernanke let us all know this was coming in Sunday's Creampuff Interview on 60 Minutes

Pelley: Do you anticipate a scenario in which you would commit to more than $600 billion?

Bernanke: Oh, it's certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks.
Pelley: Some people think the $600 billion is a terrible idea.

Bernanke: Well, this fear of inflation, I think is way overstated.

I happen to agree with Bernanke's last statement (at least on the basis of $600 billion in QE alone). However, it's important to point out that I view inflation as an expansion of credit and I do not see that $600 billion in QE will spur lending.
Nonetheless, the Fed's QE policy is very misguided because it is likely to spur continued speculation in commodities. Think of it this way: China, Japan, or US investors do not have to finance $600 billion of US deficit spending, the Treasury simply printed enough money out of thin air to cover it.
That money will find another home, but I highly doubt it is the home Bernanke wants. There is little reason for businesses to hire workers in this environments and the odds of re-blowing the housing bubble are close to zero.

There are still other problems that adversely affect those on fixed income.

This is a very dangerous game Bernanke is playing. I talked about it yesterday in Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy
Internationally, there are multiple simultaneous games of chicken.

For example, Bernanke plays chicken with China via a QE policy hoping to force China to jack up its interest rate, something China does not want to do.

Bernanke plays a second game of chicken with Congress, treading on fiscal policy while demanding Congress not comment on monetary policy.

Bernanke plays a third game of chicken attempting to spur inflation in the US while simultaneously holding down long-term interest rates. Can that possibly work? For how long? At what cost?

Bernanke Plays Chicken with the Bond Market



Outright Lies
Bernanke continued with statements best described a bald-faced lies.

"One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that's what we're gonna do."

Bernanke is printing money. He is monetizing the national debt. He tried to hide it by saying "currency in circulation is not changing". That is not the definition of money the Fed uses at all. The Fed typically uses M2.

M2 1980-Present



It appears to me that money is changing in a significant way. Bear in mind there are better representations of money than M2, at least I think so, but M2 is what the Fed watches.

Bernanke stated he is lowering interest rates. What he should have said is that he hopes QE will lower rates. The irony in this is he wants inflation to rise.

First in Flight



The above courtesy of Scott Simonton at BlackHawk Capital Management.
Bernanke wants it both ways: higher inflation and lower treasury yields. Meanwhile his goal is to get China to hike interest rates hoping to get the dollar to drop. China is resisting and the global pressures build.

This is the market's response tonight in metals and in treasuries.

Metals



Treasuries



Yield Curve courtesy of Bloomberg.

Bear in mind one day does not a trend make.

However, the trend towards higher yields started the day after the election when QE formally went into effect. The yield on 5-year treasuries is up over 55 basis points (1/2%) since then. Gold had been rising long before that.

Expect More QE
To keep treasury yields low in the face of the $900 billion deficit-chicken "compromise" of Obama, Bernanke will need to monetize another $37.5 billion in treasuries a month, hoping this spurs inflation, spending, and hiring.

100 Percent Hubris
What if this does not spur hiring but instead spurs gasoline prices and food prices? Oh not to worry ....

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

Bernanke is a man with 100% confidence who did not see the housing bubble, who did not see a recession, whose worst case scenario for unemployment was 8.5% when it was already over 8%. Bernanke cannot find his ass with both hands and a roadmap, yet he is one hundred percent certain about his ability to control things.

After everything blows sky high we just may hear a statement like this.



Creampuff Non-Questions
That was not really an "interview" on 60 minutes, it was an infomercial for Bernanke. Many Fed governors disagree with Bernanke. Where was the other side of the story?

The most disgusting part for me was pathetic exchange.

Pelley: Falling prices lead to falling wages. It lets the steam out of the economy. And you start spiraling downward.

Bernanke: Exactly. Exactly. That's deflation and that's what happened in the Great Depression.

Spare me the sap. What caused the great depression was the runup in credit that preceded it. The idea that you can throw the biggest party the world has ever seen and not pay a price for it is preposterous.

Fixed Income and Middle-Class Crucifixion
The idea that rising prices is a good thing when there are 15 million unemployed is moronic.

Moreover, if Bernanke does manage to hold down interest rates while getting his wish for higher prices, those on fixed incomes will be crucified.

Inflation is a tax on the poor and middle class, benefiting those with first access to money: banks and the wealthy.

Ron Paul Under Attack
Ron Paul is under attack as discussed in Monetary Policy: Fed Critic Ron Paul's Power Play

Retiring New Hampshire Senator Judd Gregg, one of the Federal Reserve's most stalwart Republican supporters, showed up for a meeting at the central bank in November bearing a surprising gift: a box of End the Fed books. As he handed out the 2009 best seller by Representative Ron Paul, a longtime Fed critic, Gregg told the gathering it would be worth reading to see what the other side is plotting.

Although his book ploy was couched in humor, Gregg laid plain a new Washington reality: Moderate, probusiness lawmakers like him, who consistently protected the central bank's independence and ability to set monetary policy, are mostly gone. In their place are politicians who view the Fed with suspicion, or worse. Their unofficial leader is Paul, the 75-year-old Texan whose quixotic 2008 Presidential run on the twin themes of ending the federal income tax and abolishing the Fed vaulted him to prominence with the nascent Tea Party. Some of those admirers are among the 75-plus new Republicans about to join Congress. For the first time since he was elected to the House in 1976, Paul's followers are formidable.

If he gets the subcommittee gavel, Paul says he plans a thorough review of Fed policy. Fear of inflation is what motivates him the most. Paul is a devotee of the Austrian School, which teaches that manipulating money supply and interest rates are responsible for history's boom-and-bust cycles. "The Fed creates all of the bubbles and they create the inevitable bursting of all of the bubbles," says Paul.
He believes his oversight role is long overdue. "There has been a politically cozy relationship between Congress and the Federal Reserve," he says. That includes past efforts to keep him from heading the subcommittee. "Republican leadership, with the Fed's influence, has been working to keep me away from this for a long time. That's not going to happen this time."
His prediction may be premature. Five GOP leadership aides, speaking anonymously because a decision isn't final, say incoming House Speaker John Boehner has discussed ways to prevent Paul from becoming chairman or to keep him on a tight leash if he does.

Time's a Wastin'
Boehner will decide some of those chair subcommittees as early as Dec. 8. There is no time to waste. Please phone, Fax, AND email Boehner today. Demand Ron Paul be given chairmanship of the monetary policy subcommittee.

Please email House Speaker Boehner to let him know how you feel.

Just click on the link. If your browser does not interface with email, then email Boehner at AsktheLeader@mail.house.gov

Send an Email a day until the chairmanship is decided.
Phone: (202) 225-4000
Fax: (202) 225-5117
Please phone, Fax, and email today. Please forward to anyone willing to email Boehner.

More fun with The Ben Bernank...

dd
==========================

http://www.theburningplatform.com/?p=8112

BERNANKE IS 100% SURE
Posted on 6th December 2010

I don’t know about you, but I’m not 100% sure about anything. The older I get, the less sure I am about everything. I question things that I was sure were true when I was 25 years old. I’m not sure I’ll wake up in the morning. I’m not sure I’ll survive my commute to work. That is why I was flabbergasted last night as I watched Scott Pelley interview Ben Bernanke on 60 Minutes. As a side note, boy this show has gone downhill. In the old days of real journalism, Mike Wallace would have scorched Ben Bernanke, pointing out his phenomenal ability to be wrong or clueless on every financial issue the country has faced in the last 10 years. Today, Pelley underhands softball questions to Bernanke and never challenges him. It was a pathetic display of journalism.

Below is the dialogue that made me almost fall off my chair:

Pelley: Is keeping inflation in check less of a priority for the Federal Reserve now?

Bernanke: No, absolutely not. What we’re trying to do is achieve a balance. We’ve been very, very clear that we will not allow inflation to rise above two percent or less.

Pelley: Can you act quickly enough to prevent inflation from getting out of control?

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

The hubris in this statement is breathtaking. The U.S. economy is a complex interaction of thousands of variables and is intertwined with the policies and actions of hundreds of other countries throughout the world. No one has a handle on the worldwide economy and no model can predict anything with any amount of accuracy. And still, this pompous professor from Princeton who has never worked a day in his life in the real world is 100% SURE that HE knows what will happen and when it will happen. I’m sure his track record of predictions and analysis will give you comfort in this statement:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – 7/1/2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – 2/15/2006

March 28th, 2007 – Ben Bernanke: “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,”

May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”

June 20th, 2007 – Bernanke: (the subprime fallout) “will not affect the economy overall.”

October 15th, 2007 – Bernanke: “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

February 29th, 2008 – Bernanke: “I expect there will be some failures. I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”

June 9th, 2008 – Bernanke: Despite a recent spike in the nation’s unemployment rate, the danger that the economy has fallen into a “substantial downturn” appears to have waned,

July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm”, “… in no danger of failing.”,”…adequately capitalized”

September 19th, 2008 – Bernanke: “most severe financial crisis” in the post-World War II era. Investment banks are seeing “tremendous runs on their cash,” Bernanke said. “Without action, they will fail soon.”

As you can see, he has been a regular Nostradamus with his predictions.

Whenever I see Bernanke or Obama seek to go on 60 Minutes I get the impression they are getting desperate. Last night was nothing but a PR effort by Bernanke because he is losing control of the situation. Our entire financial system is nothing but a confidence game. During the interview, Bernanke made two BIG LIES. He said that buying $600 billion of US Treasuries would reduce long term interest rates.



When Bernanke made it clear he would institute QE2 in early October the 10 Year Treasury was at 2.4%. Today, it is 3.0%. Mortgage rates are tied to the 10 year Treasury. They are rising, not falling. Bernanke is lying. His sole purpose for QE2 is to make the stock market go higher, enriching his Wall Street masters.

His 2nd BIG LIE is that there is no inflation. In his little world of models there is no inflation. In the real world, where we live there is plenty of inflation. I guess his limo driver doesn’t tell him that gas now costs $3.25 a gallon. Let’s assess his no inflation lie:

Oil is at $89 a barrel, up 21% in the last year.
Gold is trading at $1,413, up 23% in the last year.
Silver is trading at $30, up 66% in the last year.
Copper is trading at 4 per pound, up 26% in the last year.
Corn is trading at 573 a bushel, up 49% in the last year.
Soybeans are trading at 1,300 a bushel, up 23% in the last year.
Wheat is trading at 779 a bushel, up 41% in the last year.
Pork is trading at 104 a pound, up 23% in the last year.
Beef is trading at 106 a pound, up 28% in the last year.
Cotton is trading at 130 per pound, up 78% in the last year.
Sugar is trading at 29 per pound, up 32% in the last year.
Coffee is trading at 205 per pound, up 40% in the last year.
If you think these figures couldn’t possibly be correct, go to this link and verify for yourself.

http://money.cnn.com/data/commodities/

Evidently, Mr. Bernanke thinks that the sheeple will just believe him because he is the Federal Reserve Chairman. The truth is that only two things are deflating: middle class wages and home prices. Bernanke certainly has chutzpah when blatantly lying to the American public about inflation. I’m sure none of you drive cars, heat your homes, eat food, or wear clothes.

I’m 100% sure that Ben Bernanke will be wrong again. He will ultimately be known as the professor that never saw the collapse of the USD coming.

MOGAMBO!

http://www.safehaven.com/article/19250/what-happens-when-currencies-go-bust

What Happens When Currencies Go Bust?
By: The Mogambo Guru | Tue, Dec 7, 2010

I was telling the doctor that I distinctly heard a popping sound inside my head when I saw that the foul Federal Reserve had created, last week alone, another $24.2 billion in Fed Credit, which was instantly turned into money when the Fed bought $24.2 billion of US government securities, and all in One Freaking Week (OFW)! It made a kind of "sizzling" sound.

Furthermore, a tortured howl of outrage boils up inside me (which tastes surprisingly like stale beer and pepperoni pizza) at the Sheer Inflationary Horror (SIH) of this creation of $24.2 billion in new money in One Freaking Week (OFW)!!

The doctor dismissed my complaint, but billed me anyway, although you can obviously see the seriousness of it by the use of two exclamation points, and by the use of another one at the end of this sentence used to explain the significance of the prior exclamation points! It's self-
proving! Proving!

Perhaps you are saying to yourself, "This seems to be important, as indicated by the sudden plethora of exclamation points, but for reasons which are not clear. Why am I wasting my time with this Stupid Mogambo Crap (SMC) anyway?"

If you are, indeed, asking yourself such a question, then lean forward and look deep, deep, deep into my bloodshot-yet-limpid blue eyes to see my Utter, Utter, Utter Sincerity (UUUS) when I tell you that "When the supply of money goes up, prices soon go up."

And since prices going up is just another way of saying that a currency is doomed, a reader, Chet, wrote to Casey Research and said, "I fear that the dollar is doomed as are other fiat currencies, and time is getting short. So the question that came to mind is, what happens if one is invested in metal stocks or any vehicle that is denominated in a fiat currency, and that currency goes bust, blotto?"

As a guy who has been both bust and blotto many, many times, often at the same time, I deem myself somewhat of an expert on the topics, and so, without waiting for either David or Terry to give their response, I jumped up and replied, "What happens is that the price of everything adjusts according to supply and demand, just like everything else in the whole freaking world always does all the time, you moron!"

Chet apparently did not like my unsolicited response, and continued as if I had not just explained it, "What value does that investment retain? Does it become a total loss? Redefined into the currency of the locality that operations are in? Converted into some other New World Order monetary unit, SDR's or nationalization of any regional assets by the locals? Is this impossible to plan for?"

Growing more frustrated by the minute, again I interrupt and politely say, "What in the hell is wrong with you, ya dimwit? The price, in the local currency, of everything will adjust. If bread is $2 a loaf, gasoline is $3 a gallon and gold is at $1,400 an ounce, will you better off if bread is $40 a loaf, gasoline is $60 a gallon and your gold is selling at $28,000 an ounce, assuming that prices adjust perfectly in proportion to the loss of buying power of the dollar due to over-issuance?"

Suddenly, I realized that the reason that Chet was ignoring me was that I was reading it on the computer, and people are looking at me while I am yelling at my computer screen, "Chet, you're an idiot! The answer is no; thanks to gold, your financial situation will be exactly the same in terms of loaves of bread and gallons of gasoline!"
Embarrassed, I sat back down and pretended nothing happened, so that after a few minutes, everyone went back to work. I pretended to go back to work, too, but secretly I was thinking to myself, "While he will be unchanged, those who do not own gold, silver and oil will be worse off, even if temporarily offset by still having $1,400 in cash instead of an ounce of gold, and who will, in turn, be better off than the vast, overwhelming majority of the population who will be the worst off, as they do not have gold, nor silver, nor oil, and this is to say nothing of them not having $1,400 in cash!"

Unfortunately, these poor people still have to somehow pay $40 for a loaf of bread and $60 for a gallon of gasoline. Welcome to the wonderful world of inflation! Hahaha!
And the reason that you should be buying gold, silver and oil against the onslaught of the Federal Reserve and the federal government against the value of the dollar will become very clear, very soon.

In the meantime, rest your pretty head, my darling Junior Mogambo Ranger (JMR), as all you need to do is buy gold, silver and oil at your leisure, which is so easy that you, too, will happily exclaim, "Whee! This investing stuff is easy!"

http://www.financialsense.com/contributors/john-browne/two-flawed-currencies

TWO FLAWED CURRENCIES
Submitted by John Browne on Tue, 7 Dec 2010

Despite America's economic problems, the US dollar has maintained its respected status the world over - and has even managed to maintain value in comparison to other currencies. It appears that the dollar will likely finish 2010 at the same levels that it started. Even today's announcement of more tax cuts and stimulus, which will guarantee widening federal deficits for years to come, could not put a dent in the dollar. The dollar's charmed life stands in strong contrast to the euro, which is currently suffering from its internal flaws and the Europeans' unfortunate recognition of reality.

Given Washington's monetary irresponsibility over the past decade and a half, many market observers have wondered if the euro could one day become the world's top currency. In the early to mid-2000s, when the euro surged more than 60% against the dollar, this was in fact a popular view. But unlike all other currencies on the planet, the euro is not a sovereign currency managed by a single country. It is dependent on the collective political will of the leaders of the European Union (EU).

In the bust that followed the Greenspan/Bernanke dollar-based boom, the US economy started to deleverage significantly. Unwilling to accept the political cost of a possible failure of its banking system, the Federal Reserve decided to re-inflate out of deflation and devalue the US dollar. Meanwhile, the European Central Bank (ECB), heavily influenced by Germany, decided that deflation was necessary and inevitable. As painful as it was likely to prove, the Europeans had appeared until recently ready to face the music and delever their economies.

Unfortunately, Europe's banks had, for years, invested enthusiastically in the debt of their member sovereign states. In addition, they had greedily invested in the debt securities of US and domestic real estate. The collapse of real estate prices on both continents exposed these massive risks and revealed the high degree of interconnection between the world's major banks.

As the EU is not yet a super state with a single government, the response to austerity is far from even. For instance, German voters are extremely angry at bailing out what they see as nations with profligate governments - the likes of Greece, Portugal, Italy, et al. They feel that those who invested or, as the Germans see it, speculated in European sovereign state bonds should suffer at least some of the downside. The problem is that the speculators were largely European banks. Acceptance of the real losses would bankrupt major banks, likely creating a chain reaction across the European and even US banking sectors. European politicians are now showing less inclination to tolerate such an outcome.

But European citizens are growing restless. They are vehemently opposed to the idea that their governments should incur massive debts to rescue what they term 'banksters.' European politicians are becoming panicked, not knowing where to turn. Some urge quantitative easing (like the Americans!). Others maintain that this will only magnify the problem and that austerity must be continued. Varied and often-conflicting public statements by government officials are creating an air of political and monetary uncertainty for the euro.

The situation within the EU has become so serious that the future of the world's second major reserve currency is now in question.

Meanwhile, sentiments expressed by the American Tea Party movement have gained considerable weight. Americans have received the Fed's second wave of quantitative easing with far less enthusiasm than the first. Increasingly uncertain statements now emanate from Washington. Furthermore, the US government has still to face the problem of default threatened by many politically important states, such as New York, New Jersey, and California. This political uncertainty has spread to the dollar.

In response, some major nations, led by China and including Russia, are soliciting political support for the removal of the US dollar's privileged status as reserve currency. Together, the US dollar and the euro account for some 70 percent of world central bank reserves. But both currencies face great internal political uncertainty and high relative volatility. As a result, global investors are looking for alternatives.

In these uncertain circumstances, precious metals continue to establish new nominal price records. Unless there is a miraculous internationalization of the yuan, I think precious metals have a rare opportunity to regain their historic status as the global reserve, a status subverted by the dollar only in the past century.

And one more poke at The Ben Bernank...

dd
==========================

http://www.financeandeconomics.org/Articles archive/2010.12.08 Bernanke.htm

Bernanke’s problem

Ben Bernanke in a recent interview on CBS said the following:

“Well, this fear of inflation, I think is way overstated. We’ve looked at it very, very carefully. We’ve analyzed it every which way. One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re going to do.”

This statement will probably go down in history as a greater folly than Gordon Brown’s justification for the disposal of half of Britain’s gold reserves right at the bottom of the market. Bernanke is printing massive quantities of money, which he here denies, and expects us to believe that the inflationary consequences are “way overstated”. If this is true, why ever bother to unwind the policy?

I cannot find one statement, even one phrase in Bernanke’s quote above which is true or likely to be justified even with the benefit of hindsight. It is pure delusion, but Bernanke is no fool, he must realise there are inflation risks so there have to be greater priorities, or undeclared reasons for printing money in such unprecedented quantities.

The two that spring to mind are the parlous state of government finances and the potential for a second banking crisis. These problems are on a collision course, with the US economy and its tax base stalling on the edge of an economic abyss, and the banks trapped between rising domestic insolvencies and the consequences of the approaching Euroland banking implosion. The Fed is nervously watching broad money, which has been contracting for about two years in spite of zero interest rates. Bernanke confuses money with credit: he is expanding money supply to counteract the contraction of credit and hopes we will not understand the difference. So we can conclude that Bernanke is more frightened by systemic problems today than by inflation tomorrow.

If so, he has a point. The American public is in no mood to support a second rescue of the banks, so such a failure cannot be allowed to happen. So to do its job The Fed needs for itself and the financial system to have as low a public profile as possible: like a swan, serene on the surface while paddling furiously below. However, the Fed has come under public scrutiny, having been recently forced to disclose to whom it leant money to resolve the first banking crisis. The yet-to-be-confirmed appointment of Ron Paul to the chairmanship of the Financial Services Sub-committee, which oversees the Fed, can be expected to force more disclosures and make Bernanke’s life more difficult, more high-profile.

Cynics might observe that Ron Paul will be brought to heel, because with the financial system on the verge of collapse he will not want to be associated with bringing it down. There is nothing like giving a critic responsibility to shut him up. But whatever policy position Ron Paul takes as chairman of the Financial Services Sub-committee, we are faced with a money-printing Fed that has inflation low in its priorities.

Inflation is already picking up rapidly, with energy and agricultural commodities rocketing in value. Food manufacturers in particular will have bought their raw materials by forward contracts to match production schedules, but these transactions are rarely more than six months forward, perhaps ensuring supplies to next spring at the latest. Given the scale of these wholesale price rises there are significant retail price rises in the pipeline for next year. Increasing food and energy prices will be wrongly dismissed by the Fed, since they are not regarded as core components of the CPI figures, due to their volatility.

Anything more core to human existence than food and energy it is hard to imagine, but central bankers and politicians spin non-facts into facts with surprising felicity, so much so that they themselves become muddled between reality and fantasy. Ergo, “trust me, there are more important things to worry about than inflation but I shall not tell you what they are”. It is this approach to the job that will ensure that Bernanke will preside over accelerating inflation, obtaining a Brownite reputation in the process. It is the nature of inflation that the more it progresses the harder it is to bring to an end. If it was too hard to raise interest rates on the last credit cycle when there was less debt around, it is virtually impossible today. Forget Bernanke’s threat to “unwind the policy” at the appropriate moment: it will never happen.

The truth is that inflation is already out of control, and the Fed is on the run. It cannot stop the US economy from sliding into the second dip, because zero interest rates do not generate the real savings required for economic regeneration. The Fed cannot stop the banks going bust, because enough of them are bust already to bring down the others; but it can delay recognition of the fact by pressing the button marked “Print”, and keeping it pressed for as long as it takes. And that is what will surely happen.

8 December 2010

Ron Paul is a Republican Congressman who promotes sound money policies.

Thanks dd and friends!