By Jim Willie CB, Golden Jackass

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Many observers to the wild gyrations, deep contortions, extreme measures, and other bizarre activity in the government and banking arenas are suffering from severe confusion. The public is alarmed, even frightened, by the sequence of events, without much benefit of comprehension of what is happening or which clans are in control. The degree of deception hit a peak during the TARP Fund creation and disbursement, done behind private closed doors for the replenishment of sacred preferred stock, that bridge between corporate bonds and stock equity. The deception hit a very high pitch with the financial titan failures, the entire string of them. It has never stopped since. The economic data and promising forecasts (mere marketing group propaganda) featured Green Shoots, Jobless Recovery, and the totally vacant Second Half Recovery that is useful every initial six months to sway the ignorant masses. Just what is happening is difficult to describe succinctly. But the main description reads like an obituary. The most recent and visible distortion is not of price inflation, which has zoomed at 7% annually for a couple years, but rather the Institute of Supply Mgmt. The ISM index has somehow registered a slight increase from July to August, despite almost every single regional index faltering badly. See the careening Philly Fed, from plus 5.1 to minus 7.7 in the latest month. They ignore the weak components and present a distorted aggregate, much like retail sales.

The US banking sector died in September 2008. It has not acted like a credit distribution apparatus in two years. The US Federal Reserve has served almost the complete function, filling the gap like with the decaying commercial paper market. Its several dozen liquidity facilities testify to its urgent need to act as banking system substitute, since the real portion lies in the morgue. The major 100 banks in the USare almost without exception insolvent, and thus do not lend. Sure, they boast a positive book value, but only after given permission to use phony FASB accounting rules. They can declare their assets at any value they wish. In fact, on many debt securities, they actually declare unrealized losses as gains. See the Credit Value Adjustment scheme, an utter travesty and shameful practice mocked by accounting professors. The FDIC came out this week to announce the Q2 list of problem banks went from 775 in number to 829, from Q1. Hardly evidence of a recovery. The USEconomy suffers from a credit strangulation since the banking system at the upper levels is dead, simply stated. The main thrust of the limp activity is monetary creation, banker welfare, absurd programs, and war spending. The more money the clownish hapless awkward leaders throw at the problem, the more the Gold price will rise. Each quantum policy step lifts the potential Gold price another $1000 per ounce.

This article is an attempt to briefly describe what is happening to the United States, from an aerial perspective, regarding the foremost poorly told events, better description of critical event factors, the lost generation of industry, the official investment by the USGovt in profound failure, the confusion from broadening collectivism, the absence of a solution toward restructure and remedy, and what actual solution might include. The popular debate once centered on the banks too big to permit a failure, but that debate became distracted by the flow of events. Only liquidation of the biggest banks can enable a recovery, period!! Of course, the process is complicated, especially politically. Actually, it is more than political, sincethe big banks control the USGovt. The response reaction from gold & silver will give loud messages to systemic failure, as money is wasted, invested in failure, and directed to the elite troughs. One can argue that no remedy or restructure is even attempted!!

REAL STORY BEHIND FOUR FAILURES

The Bear Stearns episode was the prelude to the failure story, the opening act, the clue for the death of the US banking sector. Its story was a mere partial truth, one that avoided all the inner circle rivalries and hate relationships. The firm did not participate in the general rescue program for LongTerm Capital Mgmt in 1998. It was singled out for execution, a kill at a later date. The Bear Stearns failure was a murder execution for its long gold position and short USDollar position, if truth be told. Wall Street never enjoys or benefits from telling the truth. Deception is its calling card. The Gold price was prevented from finding a much higher legitimate value, from continued control after Bear Stearns was removed from the clique.

The American Intl Group episode was disguised from its true nature as a Goldman Sachs bailout. In fact, the record has been somewhat clearly told that the AIG nationalization enabled GSax to be first in line for credit default contract redemptions, at full price. They saved $11 billion in the nationalization and butting in line. There are advantages to acting as the USDept Treasury administrator. Many other big banks had favorable redemptions on similar insurance contracts. The wreckage of the entire USbanking sector was thus covered up from the insurance perspective, preventing a credit derivative blowup. The Gold price did not react from a failure motive, as much as a perceived systemic risk motive. The over $100 billion in covered losses to AIG so far is just the beginning of investment in failure. The USGovt is managing the credit derivatives from under its rickety broken rotten wing. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

The Fannie Mae episode was one best described as averting either a mortgage bond default or a severe jump in mortgage rates emanating from the sewage treatment plant. In pulling off the nationalization of the wretch, the Wall Street controllers thus placated a crucial angry mortgage creditor. China had been selling all summer long in 2008 its Fannie Mae and other GSE bonds. China forced the USGovt hand as they made it explicit from nationalization. Rumors had been flying in late 2007 and early 2008 that China was accumulating USAgency Mortgage Bonds as part of some contract toward colonization. No more! The USGovt guarantee was implicit but soon made more explicit. The $170 odd billion in covered losses so far is just the beginning of investment in failure. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

Lehman Brothers was an unwilling sacrificial lamb for its prominence in the mortgage arena. They were an important player that got in the way. The Lehman killjob created a dustup distraction in which JPMorgan was funded $138 billion in a grand reload with USGovt money, to maintain its commodity stranglehold. They were running low on funds to defend the system and to keep America strong, the envy of the world, the beacon of hope. Also, Lehman owned a significant silver position that had gone out of control, in danger of being the object of a critical short covering event that would have rendered huge damage to JPMorgan. Therefore, JPMorgan took it over and assumed its responsibility. They drove the silver price down from $19 to $10 in the ensuing months, with no objection, criticism, or suspicion of impropriety from regulators, legal authorities, or anybody residing in South Manhattan. However, the Silver price returned to face the same $20 level, which it will easily overcome and penetrate in the next few months. Smart investors bought the silver offered at discounted price for several consecutive months.

INVESTMENT IN FAILURE

For vivid indications of failure, notice the slide into recession even after 20 months of near 0% official interest rate. The USFed has no more weapons except the Printing Pre$$, which it will reluctantly use, perhaps somewhat aware of the dire immediate consequences. Central bankers are soiling their skivvies, in utter fear. For vivid indications of failure, notice that the housing sector and commercial property sector do not respond to record low mortgage rates. The average 30-year mortgage rate across the land stands at 4.40%, silly low but uselessly low. Refinance is not an option, given the valuation declines in loan collateral. The ultimate problem is insolvency laced like cancer throughout the entire system, from housing, to households, to banks, to government fiscal situation, even to industry (long gone). The USFed cannot treat insolvency. Only liquidation can. The human toll has been great, from chronic joblessness, to mortgage delinquencies, to home foreclosures, to lost pensions, to vanished financial security. For vivid indications of failure, notice the 2.5% to 2.6% long bond yield in USTreasurys, the last bubble. The US bankers who have run the land for two decades have run out of asset bubbles to blow. Each growth period of 5 to 7 years has been driven by the next asset bubble in sequence, not industrial development or output. Money is being ruined at a rapid rate, and precious metals indicate the pace and severity. As the great bond bubble dissipates from whatever pinprick, the gold rally will move from quiet bullish to monster bullish, complete with a skyrocket event. In the next phase, do not be surprised to see the Gold price rise over $100 on a single day. The financial networks will be bug-eyed and speechless.

Plain language works best at this point. The USGovt, as demonstrated by its nationalizations, big bank rescues, grand aid packages (car industry), and support of extreme measures, has invested heavily in failure, fraud, and banker elite welfareotherwise called pillage. They also has invested in sacred wars at great cost. The USGovt has not invested much at all in business, jobs, family, and life. The flimsy shallow vacant home loan programs exemplify the lack of support and aid for the public. In fact, an argument can be made that the government and banking leadership (tightly twisted together) have contempt for the People. The current administration features a return of failed policy makers, as seen in Robert Rubin, the modern day Rasputin in control of puppet strings. His past failures qualified him for near total banking policy control. As a result, the public harbors growing resentment from the inequality of bailouts and benign neglect to households. The failure to individuals is stark with pink slips and job loss. As long as weekly jobless claims exceed 450 to 470 thousand, nobody will give much credence to any USGovt verbage about a recovery. Failure is in the wind.

GOLDEN RESPONSE TO FAILURE

The failure pertains to the US financial sector in its entirety, from banking system to credit market. The failure is exacerbated by wasted expenditures toward what are called rescues and stimulus, but is actually banker welfare payouts, their toxic bond redemption, and nationalization of failed entities. Worse, the key nationalized firms are laced with $trillion fraud. Fannie Mae remains the central clearing house for several $trillion fraud schemes. In the wake of failure has come round after round of badly spent funds. It is hard to call it money when it pours off the Printing Pre$$ without recourse, without disclosure, and without accountability. Naked bond shorting, failures to deliver bond sales, and extreme interest rate swap enforcement made for a witch’s brew of grand market interference, ruin, and fraud. A prevailing sentiment persists. The consensus lunatic misguided notion is that when the volume of stimulus and rescues is sufficiently higher than a certain threshold level, that recovery follows, especially after a certain period of time. Almost no thinking takes place. The leaders are simply throwing money at the problem and crisis, responding to the next critical focal points. Never has policy been so absent, misguided, and bereft of the thought process. We are witnessing a syndicate in survival mode, in a desperate quest to save the system they exploit so thoroughly.

In response, the Gold price potential rises as USGovt funds are wasted without any path to remedy or recovery. The extreme usage of the Printing Pre$$ in the next round of Quantitative Easing, dubbed QE2, will set up crippling explosions. Each round of stimulus or bank rescue or Dollar Swap Facility setup actually puts the potential Gold price another $1000 higher. The future years will see at least $3000 Gold price, all in time. The 1980 peak Gold price, adjusted by an accurate price inflation accounting, like the Shadow Govt Statistics series, is more like $7000 per ounce. My $3000 forecast figure is a conservative number. Anyone who disputes and challenges this forecast, must provide evidence that remedy, restructure, and reform are anywhere present in the current landscape. They are not. Money is being created and wasted at a colossal pace, and while it is wasted, the Gold price in increasingly debased US$ terms rises.

Favorable upcoming months for the Gold price are finally upon us, especially September. We are at its doorstep of a strong season. A major upward thrust is likely as a holiday present before January. The pattern is even stronger with silver. The month of September is especially strong, almost twice as much gusto packed into it as any other month, the next being December and January. In a five-month stretch, three of the 12 best months are lined up, directly ahead. Last year, the 2009 gold price jumped from $950 to $1200 between late August and end December. Expect something similar this year. Also, institutions like the JPMorgan monster queen might face a date with the guillotine in their silver trading desks. If the ultra-strong seasonality for silver does not catapult its price over $20 by January, it will be a big surprise.

SUPERIORITY OF GOLD AMONG COMMODITIES

Prepare for a breakout in the Gold price, fully forecasted, fully forewarned. A tremendous upleg move comes. The consolidation between the $1065 and $1250 prices has taken nine months. The range between $1175 and $1250 has been tighter in the last two months. A big move is indicated, as the seasons offer a firm wind from behind. Notice the MACD crossover, as moving averages are aligned nicely, but calmly, certainly forcefully. A global recognition of monetary system breakdown is in progress. The QE2 launch, complete with further ruinous debasement of money, is imminent. The unexpected effect that will take inept myopic central bankers off guard is the powerful rise in the Gold price. It foretells of the next powerful phase of the financial crisis that has been covered in detail in the Hat Trick Letter, gory detail. Dan Norcini, the gold, currency, and commodity analyst, put it so well. He said, “What we are witnessing is the death throes of a debt based monetary system, of which those presiding over it apparently have come to believe their own delusions. The USpublic is learning what our grandfathers learned as a result of the Great Depression. Debt is something to be avoided, not heaped up and accumulated… Yet, all of this is lost upon the monetary lords who have their noses so close to the ground sniffing out the scent that they cannot see that the path ahead leads off the edge of an abyss, from which there is no escape.”

The Gold & Silver charts are both bullish, but in different ways. Gold is lifting off a base, while silver has surged upward out of a pause pattern, as described last week. Distrust for the monetary system has gone global. Gold & Silver are accepted as reserve assets, the best safe haven not tied to counter-party debt risk. Watch the Gold/Oil Ratio, which is poised to rise noticeably. Gold is the commodity king, namely it is money. The worldwide recession will keep the crude oil price subdued until the USTreasury bubble pops. Then, at that time, several major commodity hedges will jump in price, rendering a cost shock to the USEconomy. It is broken to the core, broken at the foundation, broken from grotesque imbalances, broken from vast pervasive insolvency. An inflationary depression lies dead ahead! Notice the recognition of Gold, its distinction as the king of commodities. The usual accepted hedge against the USDollar in Wall Street and London accounts has traditionally been crude oil.

After the severe damage done to sovereign debt in Europe, a wave comes steeped in crisis. Governments erroneously believe that they can inflate their way out of the crisis that has roots firmly connected to debt inflation. This is folly, as they will learn.Notice the King Gold, which is out-performing crude oil. The Gold/Oil Ratio has turned up strongly since the spring months. Deflation Knuckleheads will find they made serious analytic errors, when they grouped King Gold with the commodities. What folly. Gold is money, and money is becoming scarce. The current monetary system is debt in denominated form. The ratio will rise toward 20:1 in the coming months. The USEconomy in struggle, clear deterioration, even possible collapse, will keep the energy prices down generally. The global monetary virus outbreak will lift the Gold price to the heavens.

FROZEN REACTION FROM POLICY

Much of the business sector is frozen. Executives and managers are frozen in inaction from inability to anticipate what comes next. The landscape of regulations and official programs is too rapid, unpredictable, and illogical. We see stupid stuff like Clunker Car Programs. We see disruptive stuff like the Health Care Program. We see unpredictable stuff like the Home Purchase Credit Program. We see uncertainty, like with the home tax credit return. The biggest obstacle to business seems to be the Health Program monstrosity. It forces higher costs upon businesses while officials claim the exact opposite. Nowhere is the confusion greater than the housing and mortgage finance markets. Investors are front running the bond trade, with anticipation of USGovt monetization of more USTreasury Bonds and more USAgency Mortgage Bonds. The prospect of QE2 has brought about a perception that lower mortgage rates could come, and continue to come. The business sector cannot readily hire in this uncertain illogical environment in flux, where leadership is constantly being questioned. The home buyer demand was drawn forward, leaving a late summer and autumn vacuum. See the 27% decline in existing July home sales. The investment community is buying the USGovt guaranteed bonds, ahead of the QE2 launch. Investment in business equipment and capital formation is nearly non-existent. The USEconomy is frozen by erratic policy. In fact, the Gross Domestic Product is negative, once 3% is subtracted from the official downward revised 1.6% growth in 2Q2010. The subtraction is required for entrance into the world of reality, where hedonic and other productivity fudges must be removed.

A GENERATION OF LOST INDUSTRY

This is not a lost decade upcoming. The United States has suffered an entire generation of lost industry from its systematic dismantling, forfeit, and abandonment. The migration of industry began with Japan and the Pacific Rim in the 1980 decade. It continued in the 1990 decade, along with the NAFTA experiment with Mexico. Those border factories were removed with the advent of China. It culminated in the 2000 decade, with the death blow from the Chinese industrial expansion, often dubbed the Low Cost Solution. The entire generation, especially since the Chinese climax, replacedUS factory income with service sector income, which included the finance sector from mortgage processing, credit derivatives, leveraged structured finance, and other financial engineering vehicles & structures. The emphasis on clean industry and sophisticated economical development was nothing more than a deceptive billboard to conceal the near total devotion to and dependence upon inflation for economic growth, which backfired and killed the system. The financial engineering offered no legitimate advancement to the society, and certainly not to the USEconomy, except the automatic teller machine, an observation made by former USFed Chairman Paul Volcker. His tenure was ended by the way, as a result of vicious rumors of a cancer debilitation, completely false stories spread by proponents of Alan Greenspan, a syndicate priest of high order. The Greenspan Era justified the virtues of risk offloaded in credit securities, hailed the sophistication of the system, and heaped praise upon each other’s priests, right before the system collapsed from a flimsy and fraudulent foundation, leveraged inflation engines, and absent industry.

THE SOLUTION IS SIMPLE

The secret to a legitimate solution is easy. The big banks must write down their credit portfolios, and accept deep losses. If that results in liquidation, so be it!! Accounting fraud is not a substitute for restructure. Nor is dispatching badly impaired assets to the USFed, whose by all accounts is a Bad Bank Repository. Debate continues on the need to create a bad bank for dead assets, when the USFed is precisely that bank. Toxic assets held by the big banks must be liquidated. The phony propped credit markets must be permitted to fail, and to find proper value via equilibrium processes. Nowhere is equilibrium sought, as everywhere it is avoided. The USGovt should exit and quit the game of stimulus, intervention, and market distortion. The USGovt is delaying the inevitable. The financial markets should seek their bottoms for clearing supply. The bank leaders must be liquidated, removed from power, and face some prosecution. The Too Big To Fail premise must be rejected. The Zombie Big Banks threaten the entire system. If truth be told, they control the leadership of the USGovt itself. Dead entities control the USGovt, lodged in a stranglehold!!

CONSTIPATION WHEN NO LIQUIDATION

This is remarkably simple economics analysis. Without substantial liquidation of the badly impaired assets held in tremendous volume within the big banks, further credit constipation will be the mainstay fixture. That asset clog includes the vast bank owned properties from home foreclosures. The REO count rises about 50 thousand homes per month, a figure roughly double from the January level. Without major liquidation initiatives, expect continued Zombie Big Banks cluttering space. Without major liquidation initiatives, expect continued demands from the Zombies for large tracts of money. Without major liquidation initiatives, expect continued $trillion fraud schemes with Fannie Mae as nexus. Without major liquidation initiatives, expect escalated growth of the USTreasury Bond bubble. In plain terms, the economic landscape and credit system cannot recover without the plowing under of the Big Banks. However, they control the USGovt, its finance ministry in the USDept Treasury, and the USDollar Printing Pre$$ itself. The big banks will NOT order their own death warrant, and face the financial gallows. To think otherwise, even for the national good, is folly. It is like asking a heavily armed bank thief in the middle of a crowded lobby, holding a few dozen hostages, to shoot himself in the head instead, for the good of the people. The credit engines of the USEconomy will not fire much at all unless the big banks are liquidated, or at least much of their balance sheets is liquidated. That would expose their deep insolvency and potentially lead to their failure. A run on those banks by depositors, and a ruinous sale of their corporate bonds by investors, would ensure the big banks death. They belong in the morgue, for the national good. Capitalism demands their plowing under to unleash hidden potential.

The ball & chain dragging down and keeping down the big banks is the housing market. The downward force of gravity is visible in the falling home prices. The deteriorating USEconomy still pulls down the monetary platform, as the credit portfolios are directly attached to the ball & chain. The USEconomy was given the appearance of growth from the housing bubble between years 2002 and 2006. Its asset bubble formed a foundation for the majority of the USEconomy, and whose accompanying mortgage finance bubble provided the liquidity to the system. In fact, the entire boom & bust served as vivid indisputable evidence that the home is not a tangible asset, but rather a financial asset, an abused asset. The mortgage foreclosure process is the final proof. The true tangible assets are crude oil and precious metals. Other commodities will be sacrificed in wholesale form in order to purchase energy and precious metals. Energy is needed for commercial survival, while gold is needed as bonafide safe haven for money.

GOVT DILEMMA

The USGovt finds itself managing a mangled menagerie of frozen fixtures, most of which are totally broken. It is the great investor in failure and fraud. Its actions cover up the fraud, from policy taken in full collusion. Should the leaders give orders that result in formal suicide ceremony of the big banks, a US version of harikari? Should the props be removed and force a USTreasury default? A default will occur anyway in my view, since it is only delayed. The USTreasury default will come as a result of trade war isolation, USDollar vicious cycles in USGovt deficit monetization, a massive sudden USDollar devaluation, or the USFed resignation from its Congressional contract amidst $1 trillion losses. Expect all the above in combination, each linked. The USFed already has compiled close to half a $1 trillion loss on its balance sheet.

A grand game of chicken by the USGovt and Wall Street control panel is taking place. All official plans are predicated upon an economic recovery in the United States. A great fan blows fake acidic money into the bankers trough, but the monetary system erodes as its pillars suffer continued gradual deep damage. The new debt, delivered as fresh paper, acts like acid on the capital base of the entire USEconomy. As described in previous articles, the United States possesses the worst economists in the world. They have no concept of capital formation, no concept of what constitutes money, no concept of legitimate income, and no willingness to liquidate the toxic assets that prevent a restructure and recovery. The big hairball in the system is the big banks. The American public cannot survive on a limited credit diet due to big bank hairballs clogging the system.

HEIGHTENED RISK OF USTREASURY BUBBLE

A growing risk is palpable of migration away from USTBonds. It could come very soon. After the housing & mortgage twin bubbles and consequent bust, the last asset bubble has a little more ways to go. The last asset bubble is the USTreasury Bond, the entire complex. In fact, the bubble extends to the Fannie Mae bonds as well, since under USGovt guarantee. Perhaps a 2.0% long bond yield will be the sentinel signal to abandon and sell, setting up a bond bust. An extreme risk is present for the next important event to frighten the horses that prop USTBonds. What will be the rattlesnake in the sand? Foreign creditor sales in volume? A ramped up trade war? Harsh criticism for improper USDollar printing in monetization schemes, finally in the open? Recognition of a $1 trillion tab in war spending? A river of hyper-inflation is lodged in the USTBond dam, whose walls are nothing more than paper reeds held together by bad verbal glue, uttered by bank leaders who increasingly lack credibility.

Witness the failed central bank franchise system, and USFed Chairman Bernanke without any tools left. Witness the systemic failure of the USEconomy (and Mexico too). All USFed recovery scenarios depend upon a USEconomic recovery, which itself is completely dependent upon a US housing market recovery and a US banking system recovery. No recovery will come, since no Big Bank liquidation will be permitted. Therefore the USFed will walk the pirate plank to a great death of insolvency and ruin, which will spawn a USTreasury default, my forecast made two years ago. It is more certain than ever before. The safe haven is gold & silver. The USTreasury Bond grand dissipation, the long bust process, will catapult the Gold price toward $3000, and suddenly. The gold community will find great amusement in watching the reaction to the naysayers and critics, except the world will change into something hardly recognizable. It will turn into an ugly version of Mad Max, the movie. Shortages and crises will abound. Chaos will reign. A form of darkness will befall the earth.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com

By The Mogambo Guru

Since I am known as something of a gold bug, a lot of people write to me about gold, but since I am a paranoid lunatic, I don’t read their letters, mostly because I now call myself Marvelous Macho Grande (MMG), figuring that an established alias could potentially come in handy when the prices of gold, silver and oil shoot higher and higher as inflation in consumer prices starts going parabolic as a result of the despicable Federal Reserve creating so, so, so much money, especially so that the despicable federal government can borrow and spend that selfsame so, so, so much money.

So, you can see how a dramatic, romantic new name like Marvelous Macho Grande (MMG) would perfectly suit a guy like me, which is a guy with a theoretical massive coming increase in wealth from investing according to The Mogambo Perfect Portfolio (TMPP), which uses the Austrian school of economics (see Mises.org) and the last few thousands of years of history as Absolutely Compelling Reasons (ACR) to invest in gold, silver and oil when the government is acting so insanely bizarre, as does ours now, blithely deficit-spending a monstrous 11% of GDP, now with a national debt nearing a heart-stopping 100% of GDP, and allowing the Federal Reserve to continue to create So Freaking Much (SFM) money that, like creating too much money always does, it creates booms and bubbles that predictably, inevitably, unstoppably, disastrously go bust, leaving you, sadly, worse off than before.

So, you can see how I am not in the mood to answer emails from people who, deep down in their hearts, are pleading, “Oh, please help me, Masterful Mogambo Guru, or Marvelous Macho Grande (MMG), or whatever in the hell your name is this week: Sadly, I have not been following your terrific advice to buy gold, silver and oil as the One True Way (OTW) to end up with a lot of money without working for it, and now I need one of your famous Secret Investment Plans (SIP) to make up for lost time, else I am reduced to being the widow of a rich Nigerian banker who needs to sneak $100 million out of Nigeria and into your country. In that case, I will give you $50 million after you give me your bank account number and $5,000 in cash to pay various fees, expenses and bribes.”

Alas, I don’t have $5,000 to invest in this terrific opportunity to make a quick $50 million, as likewise there are no Secret Investment Plans (SIP), although I have spent a lifetime looking for one.

Fortunately, constantly buying gold, silver and oil is always the smart thing to do when your stupid, desperate, half-witted, corrupt, clutching-at-straws government is acting like all the other stupid, desperate, half-witted, corrupt, clutching-at-straws governments that created too much money and destroyed themselves over the last 4,500 years.

And if you don’t believe me, then maybe you will listen to the famous Richard Russell of the Dow Theory Letters, who writes, “Investors sometimes get caught up in the day to day and week to week movements in gold and silver. Don’t waste your time or energy on that, just accumulate. Standing in front of us is the greatest transfer of wealth in history. When the dust settles, those holding the gold will make the rules.”

And “just accumulate” sounds so easy because it is so easy, which is why I say, as I always say until you are tired of hearing me say it, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

No Secret to Gold Investing. Just Accumulate. originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

By Bob Chapman, The International Forecaster

US MARKETS

Almost two years ago the US Treasury was selling large amounts of short-term Treasury bills to fund bailouts and stimulus. That caused a major increase in debt. Most of that paper was 2-year bills and it is coming due for rollover shortly. While that transpires, October will report the annual fiscal deficit of 9/30/10 of about $1.5 trillion, a figure thought impossible just 1-1/2 to 2 years ago.

This time around the Treasury will have to depend on the Fed and US banks and institutions to fund this mountain of paper. China has reduced its holdings of Treasury debt by about 6%, or by about $6 billion over ten months, or by about 10% or almost $100 billion over the past year or so. We know these figures are estimates because the Chinese government has the same trouble the US government has, it cannot discern truth from fiction.

Now that the effect of the first quantitative easing is behind us the economy is facing a hangover even with zero interest rates and a 2.42% ten-year T-note. It was just months ago that those rates were close to 4%. The sale of Treasuries for the past six months was easy with a strong US dollar caused by a manufactured crisis in Greece and in the euro. As we look back we can see almost the whole picture. We saw major NYC banks going very long the dollar and short the euro beginning in late October of last year. At the time we couldn’t figure out what they were up too, but it became apparent this past March. The contrived attack on Greece and the euro was to allow the Treasury to fund its debt and to make the banks, which own the Fed, a fortune. 100 to 1 leverage is a lock when you have inside information and are creating the crisis. Except for Greece, Euro Zone members numbers welcomed the 17% fall in the euro vs. the dollar, because their exports were cheaper and more price competitive. What is there not to like about that? As a result the bond vigilantes went into hiding, because they were afraid to go head to head with the Treasury and the Fed. This wasn’t the old days when these entities did not rig the markets. This was today, when they rig every market 24/7, under the Executive Order that created “The President’s Working Group on Financial Markets.” This is a page out of the national Socialist handbook of Germany in the 1930s. Government and markets by regulation known as corporatist fascism aided by collectivist Keynesian economics. The result has been 17 months of net financial inflows, part of which was aided by the Fed in their secret offshore operations. It is no wonder they do not want to be audited and investigated. Now we are back to square one again. We announced two months ago that QE2 was on the way, but as usual few were listening. Monetization is the name of the game.

Quantitative easing will put the American public at ease, at least temporarily. They do not realize it but the American and world economies are in a deliberate state of slow collapse. Yes, the Fed has created a terrible mess. They have been totally unprofessional and reckless. The result has been, even after five quarters, averaging 3-1/4% growth, sales of new and used homes are dismal with no hope in sight for improvement, unemployment just under its highs, record debt, slight wage increases, lost purchasing power due to inflation and few prospects for improvement. Inventory is all in place, so that can no longer be a plus.

What the Fed has been approaching since June is a “liquidity trap.” That is when loans are offered to business and they refuse to borrow. They stop using credit because they question the future of the economy, their government and the specter of new taxes in the future. Money and credit is available, but few want to assume the risks to borrow.

Between stimulus and federal government hiring there has been nothing sustainable about the economy. It’s on federal life support with assistance from the Fed.

This market is the exact opposite of the gold and silver markets, which are in an 11-year bull market. The metals separated from the dollar 15 months ago and they have already won the battle of the world’s only real currency. Gold has gained 15% a year for those last 7 years. This is a secular bull market and cannot be denied. Further, gold has appreciated annually against every currency.

One of the things we find extremely interesting is that many well-meaning, bright professionals do not really understand what this is all about. They do not know the ulterior motives of those in power behind the scenes. They do not know who really pulls the strings politically, in government, at the Fed, and even on Wall Street and in banking and insurance. They do not understand the hidden agendas of enrichment and power. They do not know the real goals of legislation for Cap & Trade and Carbon Taxes when it has been proven, without a doubt, that global warming is a fraud. If they knew of the Council on Foreign Relations, the Trilateral Commission, or the Bilderberg Group, and these men and women express their ideas and nothing more at their meetings and in their committees, but that is not the way it works. These people and groups set policy for government and the shape the future of our country and the world. We have been reading their publications for more than 50 years, so we feel qualified to express our opinion. Just look at one of their recent failures, the North American Union. This was an attempt to mergeCanada, the US and Mexico into one country. It’s a matter of record, their records, that the planning for this project began in the early 1990s in conjunction with the sister organization, the Royal Institute of London. They laid all the plans out to set up the NAU to eventually merge it into a world government. They admit this, but the brightest on Wall Street, in banking, etc., don’t get it.

They don’t understand, or want to understand the control these people have and how they shape the world’s future. What difference does it make if they really do not understand the problem. Who really pulls the strings and how the game works. Is Obama better than Bush, or Bloomberg, etc.? No, because they all take their order from different factions of the same group of people. We understand what these people are up too and that is how we are able to back into what they are trying to accomplish. That is why we are right so often. We understand who they are and what their game is. We know why intelligent people and newsletter writers are wrong so often. They do not understand who is really in charge and who pulls the strings and what their final goals are.

As an example, we witnessed an annual meeting put on by these people at Jackson Hole, Wyo. It is a showcase to present a path, which is to be followed for the next two years. They didn’t tell you that. They presented it as a showcase of ideas. The meeting was far from that. All the players had their marching orders. The results were preordained. We wrote about what would happen and why before it ever happened, just as we forecast two month ago that those behind the scenes had decided that quantitative easing was the only option they had for the future to keep the financial and economic system from collapsing even though that process is only temporary. All we can say is we will never understand how bright people miss the obvious. There is no logic here, only agenda.

The 3-card Monte game continues. The Fed desires to free up its balance sheet in order to have money and credit available; the Fed will sell mortgage backed securities they paid banks $0.70 to $0.80 on the dollar for, back to them for $0.20 on the dollar. This allows the banks to carry this paper on their good books at market value and allows the taxpayer to pay the difference, and the Fed cleans up their books. They do not have to do this, but they are going to do so. The losses will be about $1.2 trillion. That is why, among other things, the Fed does not want to be audited. That is why they paid billions to Congress to kill the legislation. That is why the incumbents have to be removed in November. Incidentally, the banks won’t mark their newly acquired paper to market. They will mark it to model, and gain even more profits, which, of course, are just an illusion. This gives the Fed a year of QE, while the sheep sleep.

The bond market is a bubble and it could last another two years or more, so do not short it. Those seeking safety and stability are being deceived by an investment that every day loses purchasing power to gold and silver. In fact, the investors are so misled that market sentiment is 73% bullish on bonds. They will fall as interest rates rise, but no one knows when. The bond market has continued to attract funds. Recently almost $8 billion flowed in one week into bonds, as equity funds lost almost $3 billion. This means the dollar carry trade will flourish and the stock market will remain under pressure. Why not, earnings will be weaker next year among the higher rated companies and even with QE, GDP growth probably will be even to 1% better. At the same time inflation will rage. The worst of all investment worlds, except for those in gold and silver related assets. Just as an example, during the period from 1929 to 1936, gold doubled and gold and silver shares rose over 500% in a deflationary period. Between 1978 and 1981, during an inflationary recession the average gold and silver share appreciated 40 times the price of gold bullion. We ask you, who would want to be in bonds while we witness the greatest gold and silver bull market in history? This certainly is a once in a lifetime opportunity that has been proven for the past 11 years.

What we are seeing in bonds we saw in late 2008, as the first QE began. Ten-year note yields fell to close to 2% and a short covering market rally began at Dow 8,500 causing massive short covering. The reality of the following time frame was that GDP only grew an average of 3 to 3-1/4%, or 1% in inventory is extracted. The result has been little sustainability. Now here comes QE2, but this time the growth will be less with inflation higher and higher gold and silver prices. The credit contraction continues, feeding deflation and a liquidity trap, which will be held at bay by a $2.5 trillion injection annually. We still presently have core inflation above 2% and real inflation over 7%. We show official inflation at 9.5%, versus 7.4% in 2008, while real unemployment is 21-1/2%. The economy cannot extricate itself from that dilemma. On top of this we’ll have a further falling dollar. All we can say is this is terrible and it is going to get worse.

As far as the Fed is concerned what does it do in a liquidity trap. That is when interest rates are very low and both people won’t buy homes for fear of lower prices and businesses won’t borrow for fear of falling growth and higher unemployment. It is simple the Fed just creates more money and credit out of thin air. But, for rising government employment and war spending the economy would be like a wet noodle.

What is equally tragic about all this is that 1/3rd of experts, economists, analysts and newsletter writers have not been correct. How do they get so incompetent?

How do lending institutions sell off a 3-1/2 year inventory of homes when four months is normal? Yes, we know official figures are far less than that, but they are usually wrong. Look at their horrible track records. The high-end market in homes is virtually non-existent. No sales for the past two months. Only 1,000 units priced over $500,000 were sold. Even in new homes 80% that were sold were priced under $300,000. If it were not for the activities of Fannie Mae, Freddie Mac, Ginnie Mae and FHA making a great many subprime loans, there would be very little buying activity at all.

There you have it, and it is quite a mess. Unfortunately it is going to get worse.

– This was a section from the most recent issue of the International Forecaster. You can read the full 33 page issue by using the information below to subscribe.

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Wednesday, September 1, 2010
0901101(1) IF

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By The Mogambo Guru

From Bloomberg.com we get the bad news that “Bank of England Governor Mervyn King said inflation is likely to exceed the UK government’s upper 3% limit in coming months as higher sales taxes drive gains in consumer prices,” which “rose 3.1% in July from a year earlier after climbing 3.2% in June.”

Apparently, he has to write a letter about it, probably something along the lines of “Dear British taxpayer, Our stupidity and incompetence have caused prices to rise more than 3% in a year, which means you are all doomed unless we government lowlife halfwits stop being incompetent, especially as regards monetary policy in general and creating far too much new money in particular, which we won’t. Terribly sorry, old chap. Respectfully yours, Mervyn.”

Of course, this cruel punishment of having to write a letter is harsher than the justice meted out in the USA, as New Jersey, and everybody connected with their pension disgrace, lied, hid relevant information and data, and is, according to the SEC, being charged with the fraud and corruptions of “withholding and misrepresenting pertinent information about its financial situation” so that municipal bond sales could continue.

Actually, in the UK, their consumer price index (CPI) rose at an annual rate of a scary 3.1% in July, which was only down from a slightly-scarier 3.2% rise in prices in June.

And inflation in something called the retail price index (RPI) came in at a terrifying 4.8% annual rate of increase! Yikes!

Here in the USA, according to The New York Post reporting a “recent JPMorgan Chase study” of prices at Wal-Mart showed that “the world’s largest retailer has raised prices by nearly 6% on average over the past six weeks,” and, “Prices on certain items increased by more than half,” which is an instant inflation rate of 50%, which all thinking people agree is a lot of inflation! Wow!

Now, if you are like me, then you are already calling for rough vigilante justice and/or some mindless, merciless mob rule, an obviously hysterical over-reaction when compared to saner heads saying to simply let the justice system take care of these government and Federal Reserve creeps, and they will all be found guilty and locked away in a dark and dank dungeon for the rest of their lives, and you can go to the prison on visiting day and laugh at them and make fun of them right to their snotty faces, and tell them how much you enjoy seeing them slowly rotting in prison as punishment for having caused so much suffering and misery with their greedy, self-serving arrogant treachery.

So, we all finally agreed that they would let me up from being pinned rudely to the ground if I agreed not to advocate open revolution, rebellion of any kind, mob rule, vigilante justice, or have anything to do with any extra-legal “rounding up” of any, or all, of these malfeasant monsters for any punishment, well-deserved or not.

They, in turn, were required to stipulate that this Whole Stinking Mess (WSM) was proof of how justified I was in having so little faith in a lying, moronic, rat’s nest of incestuous government thievery and lying.

So, what happened to these lying, thieving Jersey scumbags who ripped us off? According to Ian Mathias, in his essay “Another Warning Shot for Bond Investors” here at The Daily Reckoning, “the penalty for this outright fraud” is “Nothing.”

In fact, “The State of New Jersey will pay the SEC precisely zero dollars. Not one state employee will pay a fine either, or go to jail…not even lose his job. In fact, the State didn’t even have to admit wrongdoing. ‘New Jersey agreed to settle the case without admitting or denying the SEC’s findings,’ calmly explains the SEC press release.”

About this time my fists clenched into Mogambo Fists Of Rage And Outrage (MFORAO), and I am screaming obscenities at them, and curses upon them, and exhorting the excitable gathering crowd to do the same and then converge on Washington, DC to take over the US government in some spontaneous revolutionary rebellion, whereupon everybody agrees to place me, The Fabulous Mogambo (TFM), on the Throne Of Absolute Dictatorial Power (TOADP), and thus begin the wonderful reign of the Fabulous Emperor Mogambo (FEM)!

This is where I bring back gold and silver as the currency of the United States to fix the dollar’s value to the only tangible things that have survived 4,500 continuous years of history, explaining their required use as money as written in the Constitution of the United States, and I will be a true American hero, and everyone will love me and proudly name their children Mogambo, a proud name meaning, “The wise and handsome one, and hung like a horse” instead of meaning, you know, other stuff not as complimentary.

After doing that, I would probably have lunch, and maybe a nice nap. Then, when I got up, I would eliminate, at a stroke, all barriers to real entrepreneurial free-market capitalism that don’t address actual criminal frauds and corruptions, setting us on the road, at last, to Utopia.

The closest I can come to providing a parallel is in the movie It’s a Wonderful Life when Jimmy Stewart returns to Bedford Falls after Clarence the Angel gives him his wish to have “never been born.” Jimmy discovers that the town has turned into Pottersville, where the previously sedate downtown area is now a hoppin’ and boppin’, be-boppin’ thriving community, where one finds blaring marquees advertising “Girls Girls! Girls!”, all in a fun-loving, laughing, whirling, jazz-crazed, alcohol-fueled boomtown extravaganza of “party down, dudes and dudettes!”

I will not get into criticizing Jimmy Stewart when he finds out he is not married anymore, since he had never been born, and he gets weird about it (“Mary! Mary!”), instead of saying “Yippee!” and happily heading back to the party, hopefully to run into Violet, and I will stick, instead, strictly to economics.

From a research standpoint, I had been hoping that there was something in the official records of Pottersville that would indicate the conditions of the local economy under the wise stewardship of Mr. Potter lending money for capital equipment to satisfy real demand, instead of the previously lackluster economy of crumbling Bedford Falls, where the Savings and Loan was apparently so broke that they had all Sam’s money in Joe’s house, and Sam said to Joe, “What are you doing with my money in your house, you moron?” and Joe said, “Who you calling a moron, you ugly little snot?” and there was a big fight, all of which was later completely edited out of the movie, which explains why not many people know about this ugly part of the story.

The point is that the people affected by my wholesale slicing of the government payrolls and paring of the list of Pottersville government parasites would be employed as new-hires by new private businesses, new industries springing up as solid, demand-led growth, and hired as part of a brave new economic tomorrow of zero inflation, higher quality goods and services with lower prices, thus raising the standard of living for everyone, which is the gift of the free market. Whee!

Well, it turns out that official records of Pottersville are, mysteriously, missing, and there is constant denial at all levels of government, where most of their “official government policy” is summarized as, “It was only a movie, you nitwit! They made it all up! There is no Pottersville, and there never was! What in the hell is wrong with you that you keep calling us up and asking this stupid question all the time?”

So, it looks like the truth will never be known, so my advice is to keep buying gold, silver and oil until it all gets sorted out, one way or the other. By that I mean, of course, that one way is to end badly, and the other way is to end very badly.

Except if you are buying gold, silver and oil today, because then it will all end happily for you, and you will say to your son Mogambo Junior, “Whee! That investing stuff was easy!”

The Mogambo Guru
for The Daily Reckoning

Rounding Up the Culprits of Rising Prices originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

By The Mogambo Guru

It was an interesting psychological phenomenon when I read where Michael Kosares of USAGold.com wrote, “Private citizen, Alan Greenspan, could afford to be blunt,” but I interpreted it in my Mysterious Mogambo Mind (MMM) to mean, “Private citizen, Alan Greenspan, should be afforded a blunt instrument applied with extreme prejudice to his stupid head, over and over, as he is the moron that, as chairman of the Federal Reserve from 1987-2006, created all the money and credit to finance the now-busting booms in stocks, booms in bonds, booms in houses, booms in derivatives, and booms in the size and cost of governments, and if there is one sorry, worthless bastard who can be singled out as guilty, guilty, guilty, it is Alan Greenspan.”

Well, I am sure you can understand how I could easily make the mistake, and now we are screwed because Alan Greenspan was a lying, slimy little treacherous weasel who could not “afford to be blunt,” but who could afford to keep creating more and more money, gradually destroying the US dollar’s buying power with constant, simmering inflation in prices, so that even the lying US government is forced to admit that $1 in 1987, when Greenspan took over the Fed, had the buying power of $1.77 in 2006 when he retired, which is a compounding inflation rate of 3%! Yikes!

Long-term 3% inflation is, as you can probably tell by the expression on my face, outrageous! And it is especially outrageous because the Federal Reserve was created to prevent inflation! Their mission was to preserve the value of the dollar, and Alan Greenspan gave us a cumulative 77% inflation in the 19 years he was in office! Gaaahhh!

Well, Mr. Greenspan has apparently finally gotten some smarts from somewhere, although I don’t know where, and earlier this month he said this month “Our choices right now are not between good and better; they’re between bad and worse.”

Then, to show you that he is still a complete dolt, he said, “The problem we now face is the most extraordinary financial crisis that I have ever seen or read about,” which is so stupid that I laugh in contemptuous scorn with which to ridicule his, you know, stupidity.

The reason that I snarl in contempt is that this current recession is actually nothing –nothing! – compared to the many, many other financial crises throughout history, all of them caused when stupid bankers like him, or governments themselves, were allowed to create too much money, which distorts the whole economy and causes inflation in the cost of consumer goods, like food and energy, and nowadays those yummy little chocolate-covered donuts that we all love so much, but which cost almost 50 cents apiece now.

Apparently, there is more demand for chocolate-covered donuts than I realized, as Mr. Kosares says, “These comments echo a growing sentiment that Americans are up against something far different from the average downturn,” which is weird, because I would have thought that the rising cost of chocolate-covered donuts would not be very important compared to their other problems, such as, “according to the Pew Economic Policy Group, the financial crisis has cost the American people $3.4 trillion in lost real estate; $7.4 trillion in lost stock wealth; and 5.5 million jobs.”

Perhaps that is why the piece is titled “The Perils of Unmitigated Positive Thinking,” or perhaps it is how I think that Seneca, 2,000 years ago, anticipates Taleb’s “Black Swan” theory, when Seneca said, as Mr. Kosares quotes him, “You say: ‘I did not think it would happen.’ Do you think there is anything that will not happen, when you know that it is possible to happen, when you see that it has already happened?”

Then Mr. Kosares quotes Fed chairman, Ben Bernanke, who “made a similar point to Seneca’s in a speech before the Council on Foreign Relations in March, 2009 in the wake of Wall Street’s near collapse in late 2008.”

What Bernanke said was, “Financial crises will continue to occur, as they have around the world for literally hundreds of years,” although he should have added “that will result from the repeated stupidity of banks and countries continually increasing the money supply, which distorts the economy in weird, unpredictable booms and makes consumer prices go up, which is the Exact Wrong Thing (EWT) to do, which is a point that you would think would be crystal-clear even to a neo-Keynesian econometric halfwit like me, seeing that mere literacy is required to read the actual, written mission of the Federal Reserve, which is to maintain stable prices.

“But thanks to the incompetence of the Federal Reserve, the dollar has tragically lost almost 97% of its purchasing power since the inception of the Federal Reserve in 1913, making a complete mockery of me and the Federal Reserve, proving that I obviously have no idea what in the hell I am doing, except that I know it is wrong, but I keep doing it.”

Well, I know what he is doing, and I know what I am doing, and I am doing what needs doing because of what he is doing, and what I am doing is buying gold, silver and oil to protect myself against the laughable stupidities of the Federal Reserve continuing to create too much money, and in the process will theoretically make myself rich, rich, rich, at least in the relative sense when compared to the busted-out idiots who persisted in clinging to dollars and dollar-dependent assets.

And anyone can do what I am doing by just also buying gold, silver and oil, which makes it all so easy to do that the greedy, lazy little man inside me cries out, in heartfelt joy, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Financial Crises Linked to Central Bank Stupidity originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

By The Mogambo Guru

For some reason, everyone is taken aback because, as James Mackintosh at The Financial Times puts it, “Stanley Druckenmiller, one of the masters of the investment world, this week announced his retirement saying that he had become frustrated over the past three years with his inability to make outsized returns,” which makes me laugh my Huge Mogambo Butt (HMB) off at Mr. Druckenmiller, and laugh at hedge funds everywhere because, as Mr. Mackintosh reports, “the average macro fund had lost 1.2 per cent, after small gains last year, according to Hedge Fund Research. By contrast, global equities are down 5 per cent since January.”

Aha! The field is littered with wounded adversaries who dared tangle with me!

That is why I am happy to announce the flashy new advertising piece for my Fabulous Mogambo Investment And Love-Life Advisory Service (FMIALLAS), which is a full-color glossy brochure featuring a smiling headshot photo of me from 30 years ago when I still had my hair, my teeth, my hearing, my health, a future, and a promising career, but no kids, no wife, and no stupid boss always threatening me about my alleged “substandard performance” and “numerous unexplained absences.”

This slightly-retouched photo of my head I cleverly pasted onto the body of some muscled California beach hunk wearing a tiny leopard-print thong, to which I added a caption-balloon coming out of my mouth containing the words “The Fabulous Mogambo Investment And Love-Life Advisory Service (FMIALLAS) kicked Stanley Drukemiller’s total-return butt, and kicked the butt of the entire hedge-fund industry, for a decade by recommending just gold, silver and oil, a plan of such Sheer Mogambo Brilliance (SMB) that I completely destroyed him and them!”

The copy continues, “I did not need my awesome washboard abs, massive pecs or the big, bulging biceps, as pictured here in this completely un-retouched photo of me and my rippling muscles, to defeat my investing competition, but only the sheer investment performance horsepower of buying gold, silver and oil, especially gold, which is up 450% in the last decade, a decision made easy, as in ‘Whee! This investing stuff is easy!’ when the stupid government was unbelievably deficit-spending more than 10% of GDP and the Federal Reserve was, again unbelievably, creating all that gigantic amount of new money to finance the buying of all of that new Treasury debt, which guarantees inflation in consumer prices, and thus higher prices for gold, silver and oil!”

And speaking of inflation in consumer prices, which I consider to be the worst thing that could happen other than my wife catching me doing something that I did not want to be caught doing, ever since Milton Friedman uttered the truism that “Inflation is always and everywhere a monetary phenomenon,” I have kept a close eye on things monetary.

As a result, I have succeeded in scaring myself almost to death by merely taking notice of the sheer monetary insanity of the Federal Reserve, and thus, thanks to Milton Friedman and the Austrian school of economics, have spent the last couple of decades of my life being petrified by the sheer inflationary horror that awaits such criminally-irresponsible monetary policy.

That explains why I am cowering in the Mogambo Fortress Of Fear (MFOF), with no plans to come out, because things are getting worse, like, for one thing, Barron’s reporting that the Treasury Gross Public Debt figure is now a huge $13.353 trillion, whereas in their “year ago” report, it was $11.718 trillion, which is a huge $1.635 trillion, which is a 14% increase in Twelve Freaking Months (TFM)! Gaaahhh!

And, in case you were wondering because it is so important, this massive $1.6 trillion increase in the national debt is a whopping 11% of the $14 trillion Gross Domestic Product (GDP) of the entire United States! The government borrowed and spent 11% of everything that this country makes in an entire year of work!

Now you know why I scream, “Gaaahhh!” as a euphemism for, “We’re Freaking Doomed (WFD) because this is insaaaaAAAaaane!

Not so robust, however, is the M2 money supply, which rose a meager $8.3 billion to $8.644 trillion last week, which is a rise of a piddly one tenth of one percent, which is almost nothing in the Big Scheme Of Things (BSOT).

On the other hand, Doug Noland at PrudentBear.com has, handily for us, calculated that “over the past year, M2 grew 2.7%,” which I think is a little better, especially if you are a greedy, conceited, consumer-driven society that needs to borrow money, thus increasing the money supply, to finance constant consumption like we are.

However, watching the goings-on over at the Federal Reserve, I note with a quizzical look on my face, Total Fed Credit fell by $6.4 billion last week, which is not what you would expect from a central bank trying to ignite inflation and thus destroy the United States economy to deliver us, I assume, into the clutches of skittering, spider-like cannibalistic alien invaders from outer space, or its equivalent terrestrial horror, the socialists.

As for inflation itself, the Conference Board’s indexes of indicators came out, and the all-important Lagging Indicator, showing essentially the level of inflation and burdens, was up twice as much as the Leading Indicator, rising 0.4 to 107.9! Gaaaahhhh!

Fortunately for me, my throat is spared the violence of continual screaming when I remember that I can still buy gold, silver and oil, at bargain prices, and having thus remembered, am calmed to the point of serene happiness, as evidenced by my saying, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Monetary Madness originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

By The Mogambo Guru

I remember the good old days of the Cold War when the Russians were humorless robots who could always manage to catch James Bond, a British secret agent better known by his “License to Kill” number: 007.

But the clumsy, doltish Russians could never hold onto him, and in the process, a lot of Russian secret agents, soldiers, miscellaneous employees, assorted affiliates and innocent bystanders all died, usually in a blaze of gunfire or explosions of some kind.

As a young man, I remember it especially well because I noticed that Really Hot Babes (RHB) were always practically throwing themselves into James Bonds’ arms, talking in vague, strangely-forbidden double entendres, husky whispers promising pleasures a-plenty coming from Really Hot Babes (RHB) whose barely-parted, glistening red lips cried out to be kissed, hard, and your brawny arm roughly encircles her dainty waist, pulling her harder and harder against your manly chest as you kissed her, deeply, hungrily, dominating her with raw machismo until she is breathless with desire and crying out for more, begging, “James! Oh, James!” unlike Sandra.

You are probably wondering why I segue from James Bond, back to the evil Russians, then to Sandra, a teenage crush from years ago who, as it turns out, wanted to be kissed neither deeply nor hungrily, and who had a certain intense antipathy at being made breathless with desire, too, then to the Berlin Wall being taken down, then to the USSR collapsing under the weight of its stupidity and corruption, becoming just another of history’s failed experiments by another stupid country trying a ridiculous command-and-control economic system with a fiat currency, which always fail with the same disastrous result of ruining everyone and destroying the standard of living, rather than leaving the economy alone to experience the joys of free enterprise and capitalism with a stable currency anchored by gold, which always succeeds in providing a higher standard of living to everyone.

The reason I bring this up is that, apparently, these sneaky, vodka-swilling, Bond-fumbling, Rooskie bastards are up to something! I infer this from Ed Steer’s Gold & Silver Daily newsletter, which reports that the Russian Federation, as of July, “increased their gold holdings by a further 500,000 troy ounces, bringing their total holdings to date up to 23.3 million ounces… or 724.7 tonnes.”

In fact, he says, “So far this year they have socked away 2.8 million ounces of the stuff… over 10% of their entire holdings in just the last seven months! These guys are serious!!!”

Being a paranoid, scared, creepy little guy who is sure that We’re Freaking Doomed (WFD) by the staggering, massive creations of money by the Federal Reserve, especially so that the government can borrow the staggering, massive amounts of money to deficit-spend, increasing the national debt so that we slide inexorably into the economic black-hole of un-payable bankruptcy, receivership and ruination, I instantly recognize the wisdom of what these slippery Russians are doing, as emphasized by Mr. Steer’s clever use of three exclamation points! They’re buying gold!

And when you add up all the tons and tons of gold being bought up by banks and people and funds everywhere around the world, you can easily “connect the dots” to show that alien beings from outer space are shooting mysterious brain-control rays into our heads, aimed at us from their secret base under the north pole, which is where Santa Claus lives.

Or maybe it is Santa Claus himself shooting these strange rays at us. Or maybe it is even his mysterious wife, Mrs. Santa Claus, who strangely has no first name of her own, and for whom nothing else is known, as if she never existed until suddenly appearing as Santa’s wife. Strange, but true!

Anyway, the whole point is not that Santa Claus is a dangerous lunatic, or that Ben Bernanke of the Federal Reserve is a dangerous lunatic who actually believes his stupid neo-Keynesian econometric theories despite their utter, utter failure. I mean, look around! Does this seem to be the result of a good economic theory in the hands of competent people to you? Hahaha! Me neither!

No, the point is that these are indeed very weird times, and a lot of strange, terrifying, unbelievable, nonsensical, suicidal, desperation-fueled fiscal and monetary idiocies are going on, and new ones appear with each passing day.

I am So Freaked Out (SFO) that my tiny little brain can think of nothing better than buying gold, silver and oil, which is entirely fortunate for me and other tiny-brained guys out here who can never actually seem to grasp what is going on, much less understand it, because buying gold, silver and oil is exactly the right thing to do! Whee!

The Mogambo Guru
for The Daily Reckoning

Rush Out and Buy Some Gold! Russia is Buying Gold! originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

By The Mogambo Guru

Most of the time, I am so freaked out that I spend most of the day in the Mogambo Bunker Of Paralyzing Fear (MBOPF), scared out of my mind at catastrophic ramifications of the economic stupidities that are being foisted upon us, like, for instance, increasing taxes in a recession! Gaaahhhhhh!

And then people ask me, “Why are you screaming your head off in fear, you irritating little moron?” Naturally, I answer, with a voice tinged in scorn and loathing, “Because taxes are being raised in a recession, and so screaming in fear and outrage is the only appropriate public response, while buying gold, silver and oil is the only appropriate private response. So, ha! Who’s the moron NOW, you moron?”

Reportedly, there are 20 new taxes in the new ObamaCare sweeping takeover of the healthcare industry alone! Yikes!

At this kind of onslaught of Bad, Bad News (BBN), I instinctively seek the kind of comfort that only Mozart’s piano concertos, large-caliber weaponry, lots of gold, silver, oil stocks and yummy pizzas can provide, especially when I am faced with the twin macroeconomic disasters of huge expansions in the money supply and vast enlargements of a bankrupted, suffocating, enormous, parasitical system of incestuous governments.

In response, I am also keeping, hopefully, far away from the individual idiots running around loose in my neighborhood because I recently discovered that none of my neighbors – to this day! – are smart enough to answer a simple question, despite years – years! – of me constantly reminding them, “Hey! Moron! You had better get gold, silver and oil, because your idiot government is continually deficit-spending the excess money being created by the Federal Reserve so that inflation in consumer prices is guaranteed!”

So, the end results of all my generous labors to educate these halfwits? I recently asked them, “Have you bought any gold, silver or oil to save yourself, and make a lot of money, as the dollar continues to be destroyed? Or are you still acting like some ignorant bozo and keeping all your money in dollars and dollar-denominated assets so that you will end up broken and destroyed, your ruination causing misery and suffering for your spouse, your children and your grandchildren so that they all, periodically pausing from digging in the dirt for grubs and roots to eat, look up at you with raw contempt in their dry, sunken eyes, and ask you, ‘How come you didn’t buy gold when the government was deficit-spending so much money and the evil Federal Reserve was creating all that new money? You must be really stupid, because even The Mogambo could see it from a mile away, and he is one Really Stupid Guy (RSG)! And now he is so rich that when he saw me yesterday, he asked me if I was your kid, and I said I was, and then he laughed at me and offered me $100 if I would dance like a chicken in the middle of the street for 5 minutes so that he could make fun of the mutant offspring of a first-class idiot like you, and I willingly did it! Boo hoo hoo! I am so ashamed! We are ruined because you are so stupid, and now everyone knows that I am stupid, too! I hate you! I hate you! I hate you!’”

Well, it seemed like an easy question to me, but everybody I asked turned around, ran into their stupid house and locked the stupid door, which proves that they are idiots because most people run into their houses and lock the door when they first see me coming from a block away, long before I even get within earshot! Hahaha! Morons!

They have no idea how embarrassing it is to me, The Mogambo, to have my own neighbors be So Freaking Stupid (SFS) as to still believe that the authorities can, somehow, engineer an economic miracle to save us from too much government spending and over-regulation, too much debt, and too much creation of too much new money and credit by the loathsome Federal Reserve.

And, even more embarrassing, they think the government and the banks can perform this marvelous, magical feat with a brilliant strategy of Much, Much More (MMM) government deficit-spending and regulation, plus Much, Much More (MMM) new money created by the Federal Reserve to pay for it all!! Hahahaha!

Naturally, I sum it up as, “We’re Freaking Doomed (WFD), you morons!”

Casey’s Daily Dispatch is not so brutally honest and scathing in its condemnation of idiots, and tones down my exact same message to the less confrontational, “Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will.”

And before the consequences start biting, Casey’s Dispatch says to buy gold “If you don’t have at least 10% of your investable assets in physical gold, or at least two months of living expenses.”

On the other hand, the Magnificent Mogambo Portfolio (MMP) thinks 10% gold is too low, as it means that the other 90% of your assets not in gold will be destroyed. MMP contains 100% of its invested assets in gold, silver and oil, and suggests that all others do so, too, mostly because it means that 100% of your assets will grow, which even an idiot like me can see is better than having 10% of my assets grow!

And that is why I, a happy idiot, say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Investing in Gold: Finding Comfort in the Economic Downturn originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

By Jim Willie CB, Golden Jackass

Subscribe: Hat Trick Letter

History is being made. The American public has never been so nervous, perhaps fearful of something dreadful and imminent. The global monetary system is crumbling. The typical stimulus has failed to jumpstart the USEconomy. The 20 months of near 0% short-term official interest rate has failed to revive the moribund US housing market. The phony FASB accounting rules has failed to accomplish anything except a stay of execution for the big US banks, which do not lend much. In fact, the US banks are largely dead entities showing enough life for to receive USGovt largesse aid. Witness the failure of the USfinancial sector. Witness the climax chapter of failure for the Fascist Business Model. TheUS banker brain trust, which possesses only a modicum of economic wisdom, analytic prowess, or foresight, finds itself in a desperate corner. Their talk of an Exit Strategy in the last several months was summarily dismissed as nonsense, propaganda, and wishful thinking by the Jackass here on a consistent irrefutable basis. The US Federal Reserve is ready to embark on the second round of Quantitative Easing. The monetization of US$-based bonds of many types will be done on a second initiative, on cue. Here is the irony, the stupidity, the insanity, the recklessness, the tragedy. What failed, they will do again, maybe even bigger! At risk is global confidence and trust, hardly a zero cost item.

The urgency of the QE2 Launch will be made quite clear by the Hologram Leaders occupying positions of power, after they digest the latest housing data. The July existing housing sales fell by 27.2% in a single month. The July new home sales fell by 12.4% in concert. Few analysts operating with USGovt service badges anticipated that the empty-headed home buyer credit of $8000 would rob forward sales and leave an autumn vacuum in home demand. It did. Check out the silver price, which touched $19 today on Wednesday. And at $1240, the gold price is poised to make new highs any day. My near-term targets are $23.5 for silver and $1300 for gold. Energy prices are soft but precious metals prices are strong. Think heterogeneity!

The QE2 is pure cancer within the monetary body. Foreign creditors are walking away, making distance from the USTreasurys, and especially the USAgency Mortgage Bonds. The USFed and USDept Treasury are therefore being isolated. Their USTreasury auctions are often disguised failures, but with the benefit of a falling US stock market, the bond demand has risen. The cancer of QE2 cannot be emphasized enough. My forecast a few months ago was for NO Exit Strategy implemented. The USFed balance sheet will NOT be reduced. Interest rates will NOT be permitted higher. My forecast was for an embarrassing About-Face in policy, and a hasty desperate announcement and implementation of a powerful new round of Quantitative Easing. We are seeing it unfold, exactly as forecasted. In fact, my call is for ZIRP and QE, the cancerous twins of Zero Interest Rate Policy and its Printing Pre$$ twin, to become permanent residents of the White House and USFed, an incredible pox, blemish, and badge of shame to the nation. The twins scream rot and ruin.

These shills and carnival barker policy makers need a fresh new education. The two most important indicators in my book are continued home foreclosures and renewed rising jobless claims. The rest of the forecasting challenge is remarkably easy. The nitwit barkers prefer to focus on inflation expectorations, encouraged by the wondrous USTBond rally. What nitwits, unable to read simple signals! What charlatans, pretenders to the thrones! What heretics, ignorant of economic principles! See the August special report that criticizes, exposes, and castrates the clueless cast of American economists. The latest revelation was the $120k payment to Frederic Mishkin for writing about the“Financial Stability In Iceland” in March 2006 whose title was changed to “Financial Instability In Iceland after Iceland collapsed. Mishkin did no research, almost admitted as much in an ugly exposure to these clowns operating in economist suits. See the Zero Hedge video (CLICK HERE). My contention is that Mishkin has no economic skills, and does not understand what money is, just like many on the Federal Reserve Board, whose misguided brain stems extend to most regional governors. Mishkin appears in this instance to be a bonafide whore. One exception might be Hoenig, who has warned of the perils of new monetary expansion. He recently said, “I wish free money was really free, and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no shortcut.” Hoenig of the Kansas City Fed has emerged as an ideological rival to Bernanke. Hoenig might soon need to be ousted for lack of patriotism and obedience to the fascist throng.

Let me make a paradoxical point: THE UNITED STATES WILL BEGIN A RECOVERY WHEN THE TOO BIG TO FAIL BANKS ARE PLOWED UNDER. They are blocking remedy and restructure. They are resisting liquidation of badly impaired assets. They do not lend money, as their credit engines are broken, since they are dead entities that occupy space in the US financial sector. They cast large long shadows. Their removal from the scene of the crime would surely light a fuse of credit derivative accidents, the likes of which the world has never seen. Let’s try THAT experiment!! Why the leading economists cannot see that credit is down since the big banks are dead is beyond me. One might regard the conclusion is too ugly to contemplate. The entire US financial chapter since 1996, when Greenspan proclaimed irrational exuberance had taken hold of the land, has been ugly, perverse, and ruinous. The nation had its chance to right the US Ship of Financial State in 1987, and instead chose to produce, nurture, encourage, justify, and bless as good a sequence of asset bubbles, while the industrial base was dispatched toAsia. The USEconomy thus replaced legitimate income with grandiose debt sources, followed by national insolvency.

GOLD & SILVER DIVERGE FROM COMMODITIES

The impact from the cancer and desperation of QE2, the next undermine of the USDollar (and other major currencies), can be seen in the price of Gold. Better yet, watch the price of silver, whose price movement has actually been leading gold upward. This week, for the first time in perhaps a decade, silver defied the industrial metals and economically dependent energy sector. Silver is money. Both copper and crude oil fell in price, but silver rose strongly. By the day’s end, gold was pulled up by silver. And this happened on a week that features options expiration, which usually sees a strong naked short pounce by JPMorgan, of course to make America strong and liberty exportable. Witness the beginning of outright visible lost control by the syndicate.

Watch the Gold/Oil ratio, which is poised to rise noticeably. Gold is the commodity king, since money. The galloping recession will take down the crude oil price, as demand falls. The natural gas price fell 3% just today on Wednesday. Hedging against the USDollar risk aside, the energy prices have been weak. By contrast, the gold price has risen from direct demand in response to monetary system risk and lost confidence in that monetary system. The global revolt against the USDollar continues quietly. The government bonds are gradually being considered trash backed by yet more bad paper dispensed by government approved printing houses. My analysis has long pointed to the advantages of silver over gold. Gold fights the political wars, but silver rides in on a shiny white glowing horse to win most gains. The supply factors favor silver. The demand factors favor silver. The shortage is acute for silver.

Again, basic economic thought process not within the mental caverns of US economists. The desperate action to launch QE2 will be quite evident in the coming weeks. It will even become a national priority. The bankers and politicians will rush to destroy whatever credibility remains in the USDollar, or any fiat paper currency. The challenge to banking leaders will be to conceal their desperation and panic. They have had no options or alternatives for almost two years, now painfully evident. The impact of the launch will be extremely damaging to the prestige of the USFed in general and Chairman Bernanke in particular. He has not understood much of any events, surely has proffered a string of errant views and obtuse forecasts. Witness the discredit of the central bank franchise system. Fiat paper money is dissolving before our eyes. Notice the assaults on sovereign debt in Europe, a trend which will hit the US shores, all in time. Economists do not expect it, since the American bankers possess the Printing Pre$$. They will be blindsided by Gold, which pulls the carpet from under the US$-based foundation inside its very structure.The Gold bull market will outlast the USTreasury Bond bubble run. The key word to be heard in the next few months will be CONFIDENCE, as in the absence of it when viewing the US financial helm.

The Powerz in charge will choose inflation over any combination of reform, restructure, and replacement of the helm. A recovery could have possibly been in our grasp, maybe in the future after much pain from adjustment. Unfortunately for the bankers in unchallenged power, the respect, prestige, and faith in the US Federal Reserve will fade like a sea mist after the QE launch. Its christening will be done in deep shame with a bottle of acid. The level of respect is approaching rock bottom, the lowest in decades. Even Alan Greenspan expects slippage and sputters as the housing market resumes its powerful decline. The next recession for the USEconomy could very easily result in a USTreasury default. Scenarios for precisely such a default are mapped out in the August Hat Trick Letter.

Gold & Silver are entering the most favorable season of the year, autumn. Big gains should be expected. Signals are omnipresent for substantial price gains. Shortages exist and are profound. Demand is on the strong rise on a global basis. Lost confidence and faith in the fiat paper system is slowly vanishing. It would be nice to see the investment community add to positions and put on new positions before the breakout, not afterwards, and be more successful. The return of the USEconomic recession and the simultaneous QE2 Launch will mark a major turning point for gold & silver. Fear is on the rise. The precious metals offer an alternative to conventional nutball strategies, a successful one. Check out the track record for gold, the best asset in the 1990 decade. That fact is not mentioned or cited much by the financial press networks. Their sponsors object.

MANY SIDES OF MONETARY CANCER

Cancer is a strong word. It conjures up images of internal broken functions, nasty growths, blockage of organs, twisted lives, pain, and death. Yes, that sounds right for describing the USDollar and its flagship the USTreasury Bond, with the accompanying destroyer in Fannie Mae. The word cancer fits perfectly. It has brought a removal of US industry. It has brought a wave of bond fraud centered upon mortgages. It has brought endless war, paid by foreigners. It has brought insolvency to US households. It has brought insolvency to the US banks. It has brought a tumor of REO homes seized by foreclosures and put the US bank balance sheets. It has brought a bloated wrecked USFed balance sheet. It has brought chronic $1.5 trillion USGovt deficits. It has brought a mass of Food Stamp recipients. It has brought Wall Street control of the USGovt finance ministries. It has brought a Black of Hole of tainted money. It has brought diverse toxic bonds. It has brought blockage of any independent audit of the USFed assets or activity. Yes, that qualifies as the many sides of cancer.

Consider the next new cancerous faces of the Quantitative Easing. They new policies and features will be so ugly as to reshape the entire American landscape. They will do to the US financial and economic pastures what the Gulf of Mexico oil volcano did to the Southern Shores. These concepts are covered in the August issue of the Hat Trick Letter in greater detail. They are bizarre complicated concepts. They strike dead the heart of US capitalism, and offer a unique brand of fascism and collectivism as a result, with an overtone of desperation. They paint a path toward systemic failure. At the end of that bitter road and death march is the USTreasury Default event, forecasted by the Jackass in September 2008. It earned ridicule, but soon will earn respect, like several other important past forecasts. The path was clear almost two years ago that the US banking system died that month. The obituary cited Lehman Brothers, Fannie Mae, and American Intl Group as pall bearers. The banking system death is undeniable to the enlightened. It will soon be clear enough to the masses after the next leg down in housing.

1) Stiglitz urges another USGovt stimulus program. The last one was hollow. The next should be lackluster and meager, but maybe more on the mark. True reform and broad liquidations are pre-requisites, as they will not be done for preparing the economic topsoil. Bankers will block it. Expect USGovt “beans & rice” handouts rather than conditions for job creation. They should really try capital expenditure immediate writeoffs and job creation tax credits instead, with a slew of obtrusive federal regulations swept aside. Too much capitalist wisdom with such ideas. More ineffective wasteful federal programs and misdirected altering of parameters on the control panel will only aggravate the effect of the QE2 Launch, a typical preface.

2) Former Treasury Secy Rubin argues against a large scale stimulus plan, and instead for deficit reduction. This economic Rasputin presided over the removal, lease, and sales of the national gold treasury. He led the deregulation movement that opened the door to profound bond fraud. He sat on the Citigroup board when it expanded recklessly into many domains, resulting in the wreckage of the corporation. That qualified him to serve as mentor and chief puppeteer to Geithner and Summers, who run the USDept Treasury and White House Council of Economic Advisors. Clearly, Rubin has a different agenda. A constant state of sluggishness might work best for Rubin. He advocates deficit reduction as his main priority, and proclaims a goal of restoring confidence. The nation is way past deficit reduction concepts, but should focus rather on collapse avoidance. Confidence can be restored, and better economic performance enabled, only if the current Elite banks are plowed under, much of their impaired assets are liquidated, Goldman Sachs is removed from control of the USDollar altogether, and stern prosecution of colossal criminal bond fraud occurs. That would produce confidence.

3) QE2 will be more cancerous than QE1, as full dependence upon monetary inflation will come. The official interest rate cannot be reduced. QE2 will produce three major effects, all ruinous. All debt is subject to coverage by new money, all to be eligible. Next comes hyper-inflation, as confidence in all things paper evaporates and a great tipping point is breached. The arrival of QE2 will produce three major effects. A) The reliance upon new money growth to monetize rapidly growing debt in the US financial system will undermine all things US$-related. The continued artificial support of the USTreasury Bonds will transfer risk to the USDollar. B) Whatever respect and prestige in the USFed will vanish quickly. The bravado of helicopter drops will seen hollow, amateurish, and invite mockery in the open among respected brain trust. C) The smartest people in the room will begin to declare that the current global monetary system is irreparably broken, and that past and future response, even if amplified, will be doomed to fail. We are on the doorstep of hyper-inflation.

4) The FDIC will soon launch what could grow into a vast securitization initiative. It is better described as the QE2 from the rear guard, not well noticed. Since broke, the FDIC has resorted to selling packaged credit assets from failed banks in order to raise cash, new securities with USGovt guarantees. Apparently, viable banks are harder to find for buying much of any assets. The FDIC two years ago served as an investment banker harlot for Wall Street acquisitions. Then it became a matchmaker, finally a liquidator, now a bond issuer. All the while the Deposit Insurance Fund runs more negative each month. Be sure that the Printing Pre$$ of monetization is behind the scheme, no longer well disguised, since the FDIC is so closely aligned with the other engineers of bond management within the USGovt (see Fannie Mae). The FDIC bond securities are more monetization.

5) Mortgage relief might be the destination for the next mammoth monetary expansion. The StLouis Fed was permitted to leak the story. James Bullard of the St Louis Fed wrote a breif white paper entitled “Seven Faces of The Peril” in he urged the USFed should immediately restart the purchase of USTreasurys if the deflation scenario takes deeper root, as in QE2. He correctly concludes the high risk of a Japanese-style deflationary outcome in the United States. Next came the speculation by both Morgan Stanley and Merrill Lynch in their concurrent release of analyst reports. They surmised that Fannie Mae and the Federal Housing Admin might be preparing an imminent launch of broad sweeping initiative. The proposed plan would feature an instant automatic refinance program for troubled mortgage loans. It would take millions of borrowers to current market rates overnight. It would stop short of reducing the loan balances of under-water mortgages, those suffering negative equity. In the process, $46 billion of consumer savings per year would be created, from basic reduction of monthly payments.

6) The loan modification pathways will possibly be expanded, maybe meaningfully. Operations have expanded whereby fraudulent home loans have been warehoused in Fannie Mae, under the USGovt roof and aegis for two years. Even the bankers might give pressure to revamp home loans in a skein of modification plans, in reaction to widespread non-payment from strategic default. A major challenge must be dealt with. They must avoid the close examination of massive mortgage bond fraud for at least $2 trillion on home loans. Such scrutiny might uncover a multi-$trillion Fannie Mae clearinghouse of fraud that links several major fraud schemes. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to the failed fat duo Fannie & Freddie, pledging an unlimited credit line. The sewage treatment plant will surely devise more clever projects to handle the toxic waste, since very large liquidity plumbing is promised.

7) QE2 will feature Fannie Mae rental homes, a new vibrant toxic business. Except a major blemish will build further, as defiant non-payment of mortgages will flourish, from strategic voluntary defaults. Look for Fannie Mae to gather in hundreds of thousands, even millions of broken mortgages. They will attempt to build a business subsidiary of the most queer type. An ulterior motive is to bail out big banks but not reveal doing so. A desperation is sinking in with USGovt proposals, perhaps in direct response to open fear of civil disobedience. Consider that 250 thousand Bank of America mortgage holders are paying nothing on self-driven strike actions. My forecast made in 2004 and 2005 was for the advent of a bizarre perverse Fannie Home Rental program. Now we see people forfeit title to their homes, lose their equity, but remain in the same home as renters making small monthly payments. The housing market would prevent the dumping of properties on an already bloated housing market. The Fannie Mae investors could have earned a dividend from rent payments, except that FNM stock issues were de-listed. Homeowners are increasingly not making monthly payments, daring the bank to foreclose on the property, challenging them to produce the property title. In many cases, the banks cannot produce the title, because the MERS database is a nightmare of spun spaghetti. The courts have ruled MERS has no legal standing in any foreclosure displacement of occupants. Rumors swirl with gathering strength and persistence. The USGovt might soon take over all failing home mortgages, and have their titles signed over to the USGovt. Then people would lease the properties to the people who occupy them according to pay scales, in collectivist fashion consistent with the presidential ideology.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Jim Willie CB, editor of the “HAT TRICK LETTER”

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

By Bob Chapman, The International Forecaster

US MARKETS

Debt is everywhere and it certainly is onerous. We all have heard about the sovereign debt crisis, the debt of Greece and the debts of Ireland, Spain, Portugal and Italy. During that process the euro fell from $1.50 to $1.187; which gave euro zone exporters quite an advantage. The euro has since rebounded to a high of $1.33 and for now settled in near $1.28. Business confidence is back, but in the meantime the next course of action is to be higher taxes and austerity. Even consumers believe things are not going to improve. They all probably see the advantages of a cheaper euro. Even the CDS premiums have disappeared, which means at least for now the crisis has been arrested with a Band-Aid called loans – loans that will take these countries years to repay accompanied by years of depression. As a result, Greece is on the edge of revolt.

As a result of austerity, imposed on Greece by its Illuminist led government, unemployment has hit 70% in some places. The country’s budget deficit has been reduced by 40%, truly draconian. Spending by government has been cut 10%, which is more than double what the EU and IMF has required. Bankruptcies abound and purchasing power and consumption have plunged. Consequently GDP has fallen 1.5% in the past quarter and tax revenue has fallen off a cliff. Companies, particularly in Perama and Piraeus still are sending ships to other locations for repairs, because Greek wage costs are still too high. In this world of free trade and globalization the cheapest wage gets the business. That means Greeks are going to have to work harder if they want employment. Experts say GDP will fall 4% this year, which will be severe, with 17% of shops in Athens already filing for bankruptcy.

Instead of this madness Greece’s leadership should have cut government spending by 30%, lowered taxes, defaulted fully or partially on their debt, left the euro and returned to a lower valued drachma. Now they’ll be in depression for years paying off bankers whose loans and bond purchases were professionally ill advised and the funds were created out of thin air.

These measures have the country in depression and there is no light at the end of the tunnel, as bankers clamor for their money. The worst is yet to come as bigger layoffs begin and prices on everything skyrocket.

Greece is on the edge of revolution and well it should be. This IMF imposed tyranny should never have been imposed in the manner in which it has been, crudely.

We haven’t seen the end of the Greek and euro crisis by a long shot and there is a good chance the reaction to such problems could easily spread to Spain, Portugal, Ireland and Italy.

Several months ago in Greece’s largest newspaper, as well as on Greek radio and television, we predicted these results and what is to follow. The answer is to get rid of your false leadership that is selling you into IMF servitude that will last for decades. Like Spain was a military training ground for Germany in the 1930s in preparation for WWII, Greece is being used as a training ground for world economic and financial subjugation as planned by the forces of darkness in its quest for total world domination.

The one-world creators of the euro are aghast at the path five of the 16 members have followed and particularly Greece. As we predicted ten years ago Greece and Italy should have never been allowed into the euro zone because they had cooked their books with the assistance of Goldman Sachs and JPMorgan Chase. One interest rate can never fit all and you cannot have a monetary zone until you have a EU constitution voted for by the people.

Now Greek PM George Papandreou, Bilderberger and Illuminists, has invited Tommaso Padoa-Schioppa, one of the founding fathers of the euro to advise the country on its debt management. This certainly is by design, so that Greece will do exactly as Europe’s Illuminists want them to do, and, of course, the IMF as well. The question is how much more debt will be piled onto Greece’s shoulders to bail out European bankers? The first loan was for $141 billion and Greece’s ten-year bonds’ yields are still four times those of Germanys.

There is presently a giant sales job being used on the Greek people to accept Mr. Padoa-Schioppa as their savior. And, of course, a great deal is being made of the fact that he is saving Greece at his own expense – pro bono. We can assure your Europe’s elitists will make sure he is well compensated.

Ten-year Greek Treasury bonds yield 10.6%, whereas Germany’s ten-year bunds yield 2.27%, that is a difference of 8.33%. There is good reason for the giant gap. In fact Greece has never met Maastricht guidelines of public debt of 3% of GDP. No matter how you look at it Greece is headed for default and that was obvious from the beginning. All they are doing is piling on more debt. Default, total or partial, is the only solution. In that process the euro has to be abandoned.

There are those who believe the EU and the IMF have brought Greece time. That may be true, but the cost is depression that might last 30 years and the sale of Greek assets to pay back lenders, all of which will be sold to vulture elitists at $0.30 on the dollar. We also believe that within three years Greece’s debt will be $435 billion. How can Greece service that debt when they cannot service their present debt? That will put Greece into perpetual servitude to the bankers.

The euro and the EU have been failures in our estimation and now the Greek government calls in Mr. Padoa-Schioppa who crafted this failure.

This Padoa-Schioppa is little less than a sherpa, bureaucrat for European elitists.

What this is all about is saving Greece and the euro zone. In that process Ireland, Portugal, Spain and Italy along with Greece will be neutralized by unpayable debt. The elitists who run Europe know that such events could destroy the EU and they cannot let that happen.

As a result of Greece’s problems in the last five months to May, HSBC has lost 8% of their entire deposit base. The country is in dire financial straights, so there has been a flight of capital. As a result Greek lenders have had to borrow $123 billion in July alone. Portugal, Ireland and Spain have been big borrowers as well. In addition all these countries have falling tax revenue.

We have said from the beginning that Greece and its co-members are all in a death spiral. Austerity is not the only answer. Default is part of that equation.

Twenty countries are headed into bankruptcy and more will follow. That brings up the subject of state debt in the US. America has been in an inflationary depression for 18 months. States have been cutting back for two years, but the budget gaps are still there. The struggle continues as states continue layoffs and cuts. 2011 will be a terrible year and 80% of states expect deficits of more than $200 billion. 2012 looks even worse.

Federal aid could be close to being over, which means further cuts. This means those hit by the depression will lose vital services, and that will further negatively affect the economy. The combined deficits for this year and next could be as high as $300 billion. That means even more cuts and it also makes 2011 a more difficult year than 2010. Worse yet, there is no recovery and there never has been. That was $2.5 trillion created most of which ended up in the casino halls known as international markets. Those who expect tax revenues to rise and unemployment to fall will be very disappointed. We have to laugh at Treasury Secretary Geithner’s comments that the recovery is underway. As soon as he is done at Treasury he should apply for one of the cheerleading jobs at CNBC. Next we await his comments on the perfect head and shoulders technical formation, and breakdown, regarding the Dow and the USDX. The latter is the dollar index. That formation is the worst and denotes deep downside activity. At the moment the states are immediately in more trouble than the federal government.

There has been no relief from unemployment. The U3 may say 9-5/8%, but U6 is 16-5/8% and if you subtract the birth/death ratio, which is a fraud, you get 21-1/2%. This past week the numbers worsened. How can tax revenues rise with so many unemployed?

As unemployment worsens demand for social services, food stamps and Medicaid increases. 69-1/2% of GDP comes from consumers. How can growth occur when household wealth is diminishing? Not to speak of tax increases of 15% next year that our President and his party have promised us as wages and purchasing power fall. Then there will be an attempt to raid retirement benefits by government exchanging those benefits for government guaranteed annuities from an all but bankrupt government. Then there is the behind the scenes discussion for a national transaction tax of 1%. Does it get any worse? You wanted change, and you got it. If you do not throw all these incumbents out of office in November you are doomed. Someone has to tell us how these factors spell recovery.

34 states have announced deficits for 2011. These are doozies. They are the total shortfall as a percentage of the full year 2011 budget. Here are the worst: Nevada 54%; 41.5% from Illinois: New Jersey 38.3%; Arizona 36.6%; North Carolina 30.3%; Utah 30.2%; Connecticut 28.9%; Georgia 26.2%; Minnesota 26%; South Carolina 25.6%; Wisconsin 23.9%; California and Colorado at 21.6% and Florida at 20.2%.

For 2012 the worst are Illinois 52.3%; New York 37.3%; Nevada 36.7%; Mississippi 27.6%; California 25.7% and Minnesota 25%. How is that for incompetence? And, these numbers are going to get worse.

30 states have raised taxes, which could eventually lead to tax revolt. This leads as well to less service and less overall demand, less business and profits, which deepens the downturn. This is truly the worst of all worlds and it is nowhere near over. The federal government supplies about 40% of shortfalls, most of it for Medicaid – the rest goes into a state fund. Some of this assistance to some states ends this year and some by mid next year. Residents can then expect more service cuts and higher taxes. That will reduce GDP and cost perhaps 1 million jobs.

There you have it. This is the direction in which the states are headed. They made no preparations and are essentially buried. Next the administration intends to force pension and retirement plans to buy government securities and to fund federal work projects. This is like in Greece and in other European countries – this is the nightmare of all nightmares.

– This was a section from the most recent issue of the International Forecaster. You can read the full 33 page issue by using the information below to subscribe.

THE INTERNATIONAL FORECASTER
Wednesday, August 25, 2010
082510(7) IF

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