November 3rd, 2009 by Egon von Greyerz, GoldSwitzerland

India, like China, understands the virtues of gold. This is why they have snapped up 200 tons of gold from the IMF at around $1,045 per ounce or $6.7 billion. The UK does not understand gold, that is why Gordon Brown sold most of the nation’s gold in 1999 at virtually the low of $250.

Instead the UK has today spent $51 billion on propping up bankrupt banks. Royal Bank of Scotland received another $41 billion today making it the costliest bailout worldwide with a total of $75 billion. Lloyds Bank received another $10 billion. The US is of course also spending printed money on rescuing bank creditors with 115 bank failures so far in 2009.

So who is likely to make the best return on their investment, India with their gold or the UK or US with their bankrupt banks. We certainly know who we will put our money on.

On 22 October we forecast in our report “Final Warning” that starting in November we are likely to see major changes in markets and in the economy. We have barely entered November and gold is already making a new all time high at $1,081. It is interesting that it is happening right after IMF has disposed of half of the planned gold sales. The same event in the 1970’s was the catalyst for the acceleration of the gold price.

But this is just the beginning as we have been discussing in our reports. We would suggest that investors don’t follow the example of the UK and US and throw good money after bad but instead do like India and protect themselves by buying gold.

3rd November

Gold Switzerland – Matterhorn Asset Management

by Bill Bonner

This week opened with the wail of fire engines. The Europeans announced a bank rescue, variously reported to cost 1.3 trillion euros (Le Monde)…1.7 trillion (Liberation) or 1.873 trillion (Financial Times). They ought to get their story straight. But who cared…investors had a bid!

As the Great Fire burned through their capital, investors bowed their heads and said their prayers: ‘Please God, spare me…and I will be happy with what I’ve got.” And lo! A host of smoke jumpers came down from the heavens. Investors turned their faces to the sky and thought they saw angels. And there was the archangels Gordon Brown and Henry Paulson leading the flock. Suddenly, the wind died down…and the fiery furnace calmed. ‘Hallelujah,’ they said…and bought some more stocks!

In the last 100 years there have only been two fires similar to that of today. The first inferno was in 1929, centered in New York. The second was in 1989, when Tokyo went up in flames. In both instances, rescuers took extraordinary measures. And in both cases, they not only failed to save the economy, they scorched it even more. Obviously, few economists share this analysis with us. The few who do are probably either insolvent or insane, or perhaps both. So, the burden of proof is on us.

We begin by calling an expert witness; Murray Rothbard, once professor at the University of Las Vegas, now among the forgotten dead. A properly-functioning economy is balanced, he explains in his classic, America’s Great Depression. One industry enjoys an expansion, another suffers a contraction. But sometimes there is a “cluster of errors” which causes a major boom. Whence cometh these errors? Who is responsible for them? Rothbard identifies the culprit: “monetary intervention in the market, specifically bank credit expansion to business.” If Rothbard were still among the quick, he’d probably be pointing his finger at Alan Greenspan – the arsonist who lowered the key U.S. lending rate to an “emergency” level of 1% and held it there long after the emergency was over. With the Fed’s false signal before them, business, investors and consumers racked up the biggest pile of tinder in history. Then, he’d probably point at Ben Bernanke, who continues to add kindling…and to Hank Paulson, who led Goldman Sachs while it created trillions of dollars worth of asset-backed explosives and sold it to financial institutions all over the world.

“The boom…is the time when errors are made…” Rothbard continues. “The ‘depression’ is actually the process by which the economy adjusts to the wastes and errors of the boom… Far from being an evil scourge, [the depression] is the necessary and beneficial return of the economy to normal… Evidently, the longer the boom goes on the more wasteful the errors committed, and the longer and more severe will be the necessary depression readjustment.”

But here come the rescuers with yet more dry wood! After stoking the flames with easy credit…they bring more. Professor Rothbard, reviewing the record of the post-’29 rescue team came to this conclusion: The authorities “met the challenge of the Great Depression by acting quickly and decisively…[using] every tool, every device of progressive and ‘enlightened’ economics, every facet of government planning to combat the depression.”

Yet, the fire didn’t go out. It intensified. An expected recovery in 1931 went up in smoke, says Rothbard, thanks to government meddling:

“The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy and placed where it properly belongs: at the doors of politicians, bureaucrats and the mass of ‘enlightened’ economists. And in any other depression, past or future, the story will be the same.”

Six decades and half a world away, the Japanese proved him right. In January, 1990, a spark touched off the Nikkei Dow. Soon, Japan’s miracle economy was in trouble. Bankruptcies rose. Profits fell. Banks teetered. But the Japanese had their economists too. And soon, they were doing what Hoover and Roosevelt had done before them. As to monetary stimulus, the Bank of Japan’s key lending rate was cut from 5% down to “effectively zero.” And there were plenty of fiscal stimuli too. Japan’s government did just what Keynes recommended – it spent money. It went on a spree of what Alan Booth calls “state sponsored vandalism” in the 1990s, taking the budget deficit to a remarkable 5% of GDP in 2002. Roads to nowhere, concrete shorelines, bridges and dams…Japan, per square mile of available territory, covered 30 times as much surface in concrete as in America. In 1996, the Shumizu Corporation even announced plans to build a hotel on the moon using specially developed techniques for making cement on the lunar surface.

Once again, these heroic efforts produced nothing more than farcical consequences. The Japanese economy is still barely on speaking terms with prosperity. And the Nikkei Dow closed at 8,276 last week… a level last seen (except briefly in 2003) a quarter of a century ago.

America’s pyromaniacs still have a ways to go. There are 150 basis points between the Fed’s current key rate and zero…and the US budget deficit is expected to quadruple – reaching $2 trillion in 2009. In the resulting roast, we predict, even the devil will sweat.

Enjoy your weekend,

Bill Bonner
The Daily Reckoning

By Mario Innecco

I remember when I lived in Brazil the local currency was like confetti and if you wanted to protect yourself against inflation and currency collapse you had to hold U.S. dollars. Holding dollars, if you could get a hold of it, was very worthwhile as every month that went by you could buy a great deal more of cruzeiros, new cruzeiros, cruzados or reais.

The other aspect of the currency market that I always found interesting was what was called the parallel or black market. In the parallel or black market one would always get a much better exchange rate for the U.S. dollar than one would get at a bank. Banks, of course, are under the control of the central bank and as a result the exchange rate was controlled or manipulated by central bank foreign exchange activity.

Travel agencies and other businesses related with foreign transactions dealt in this so called black market in dollars. In reality this was the free market in dollar for the Brazilian holder of dollars. It was called a black market as the banking establishment wanted to disparage this market and make their rapidly depreciating currency look a lot better than it actually was.

Recently in the developed or Western world we have started to see a great disconnect between the inter bank and comex price of gold and silver and the price of gold and silver coins and bars that one has to pay dealers, jewellers and ebayers. Gold sovereigns are being sold in London at anywhere from a 10% to 12% premium while I have heard that krugerrands have been bought, when you can find them, for as much as a 15% premium on the official inter bank price!

We, at forsoundmoney, believe that this disconnect between the official bank price of precious metals and the price for coins and bars or real physical gold and silver is simply a reflection of the manipulation by central banks of the inter bank and comex market. This official market is in reality a fictional paper market for the precious metals and does not reflect the free market price.

Have a look at this one troy ounce krugerrand on ebay! The bid was at £530 or $938 when I wrote this posting! That is a 12% premium over the closing bid of $834.80 on Kitco on Friday the 3rd of October, 2008.

Look at the price of this one ounce of silver bar on ebay ! At the time I wrote this article this silver bar had a bid of £10.99 or $19.45! That is a premium of 74% over the closing price quoted on Kitco for the 3rd of October, 2008!

There we have it! The Western central banks can try to embellish their currencies but the free market is not buying it!

Chuck Baldwin
American Free Press

At the time of this writing, the U.S. House and Senate are poised to pass a $700 billion bailout to Wall Street. At the behest of President George W. Bush, the U.S. taxpayers are going to be on the hook for what can only be referred to as the biggest fraud in U.S. history.

President Andrew Jackson to the international bankers: “You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”

Virtually our entire financial system is based on an illusion. We spend more than we earn, we consume more than we produce, we borrow more than we save, and we cling to the fantasy that this can go on forever. The glue that holds this crumbling scheme together is a fiat currency known as the Federal Reserve Note, which was created out of thin air by an international banking cartel called the Federal Reserve.

According to Congressman Ron Paul, in the last three years, the Federal Reserve has created over $4 trillion in new money. The result of all this “money-out-of-thin-air” fraud is never-ending inflation. And the more prices rise, the more the dollar collapses. Folks, this is not sustainable.

Already, Bear Stearns was awarded a $29 billion bailout, followed quickly by the bailout of Freddie and Fannie that will cost the taxpayers up to $200 billion. Then the Fed announced the bailout of AIG to the tune of $85 billion. Mind you, AIG is an enormous global entity with assets totaling more than $1.1 trillion. Moreover, the Feds agreed to pump $180 billion into global money markets. And the Treasury Department promised $50 billion to insure the holdings of money market mutual funds for a year. Now, taxpayers are being asked to provide $700 billion to Wall Street. (I hope readers are aware that, not only will American banks be bailed out, but foreign banks will also be bailed out. Then again, at least half of the Federal Reserve is comprised of foreign banks, anyway.) In other words, the Federal Reserve is preparing to spend upwards of $1 trillion or more. Remember again, this is fiat money, meaning it is money printed out of thin air.
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by Darryl Robert Schoon

There is nothing more dangerous than when those responsible for a nation’s troubles are believed to be its savior.

The Wall Street Journal had one fact correct regarding Wall Street’s accelerating collapse when on September 20th they wrote: When government officials surveyed the failing American financial system this week, they didn’t see only a collapsed investment bank or the surrender of a giant insurance firm. They saw the circulatory system of the U.S. economy – credit markets – starting to fail.

The Wall Street Journal was correct in that the circulatory system of the US economy was failing. Because the Wall Street Journal is the house organ of Wall Street investment banks and their co-conspirators in government, the Wall Street Journal blamed deteriorating credit markets for America’s troubles, not those responsible – to wit, Alan Greenspan, Ben Bernanke, and their cohorts at the Federal Reserve Banks.

ALAN GREENSPAN’S BASTARD SON

Ben Bernanke, Alan Greenspan’s surrogate successor at the Federal Reserve is using Greenspan’s discredited playbook to hopefully resuscitate America’s economy. But pouring more credit into America’s stalled economy will not restart the US economy anymore than pouring gasoline into a flooded engine will restart an engine.

Excessive credit caused the problem and more credit will only exacerbate it. The US central bank, the Federal Reserve, however is now backed into a corner, a corner from which there is no exit.

After credit markets contracted in August 2007, it was hoped that central bank intervention would reverse the deterioration of global markets that was then only beginning. A year ago, on October 1, 2007, I addressed that hope in my article, The Winter of Our Discontent:

As we collectively move towards the economic disaster awaiting us, the investment community is hoping the world’s central banks will be able to save them from the crisis set in motion by this summer’s [August 2007] credit collapse.

If the truth be known – and someday it will be – central banks are at the very center of today’s problems. Indeed, they caused them. Today’s disintegration of capital markets based on debt-based paper began in 1913 with the creation of the US Federal Reserve Bank, the central bank of the US.
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Why Fannie, Freddie and AIG All Had To Be Bailed Out

By Ellen Brown

“I can calculate the movement of the stars, but not the madness of men.”

– Sir Isaac Newton, after losing a fortune in the South Sea bubble

Something extraordinary is going on with these government bailouts. In March 2008, the Federal Reserve extended a $55 billion loan to JPMorgan to “rescue” investment bank Bear Stearns from bankruptcy, a highly controversial move that tested the limits of the Federal Reserve Act. On September 7, 2008, the U.S. government seized private mortgage giants Fannie Mae and Freddie Mac and imposed a conservatorship, a form of bankruptcy; but rather than let the bankruptcy court sort out the assets among the claimants, the Treasury extended an unlimited credit line to the insolvent corporations and said it would exercise its authority to buy their stock, effectively nationalizing them. Now the Federal Reserve has announced that it is giving an $85 billion loan to American International Group (AIG), the world’s largest insurance company, in exchange for a nearly 80% stake in the insurer . . . .

The Fed is buying an insurance company? Where exactly is that covered in the Federal Reserve Act? The Associated Press calls it a “government takeover,” but this is not your ordinary “nationalization” like the purchase of Fannie/Freddie stock by the U.S. Treasury. The Federal Reserve has the power to print the national money supply, but it is not actually a part of the U.S. government. It is a private banking corporation owned by a consortium of private banks. The banking industry just bought the world’s largest insurance company, and they used federal money to do it. Yahoo Finance reported on September 17:

“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”

Treasury bills are the I.O.U.s of the federal government. We the taxpayers are on the hook for the Fed’s “enhanced liquidity facilities,” meaning the loans it has been making to everyone in sight, bank or non-bank, exercising obscure provisions in the Federal Reserve Act that may or may not say they can do it. What’s going on here? Why not let the free market work? Bankruptcy courts know how to sort out assets and reorganize companies so they can operate again. Why the extraordinary measures for Fannie, Freddie and AIG?

The answer may have less to do with saving the insurance business, the housing market, or the Chinese investors clamoring for a bailout than with the greatest Ponzi scheme in history, one that is holding up the entire private global banking system. What had to be saved at all costs was not housing or the dollar but the financial derivatives industry; and the precipice from which it had to be saved was an “event of default” that could have collapsed a quadrillion dollar derivatives bubble, a collapse that could take the entire global banking system down with it.
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By Darryl Robert Schoon

Last weekend started early for Timothy Geithner, President and CEO of the New York Federal Reserve. At 6 pm, Friday, Geithner called an emergency meeting to discuss the possible collapse of Wall Street investment bank, Lehman Bros.

The troubles of Lehman Bros had worsened during the previous week and the current Fed playbook dictated a solution be found on the weekend to calm financial markets opening Monday; but, this weekend, the Fed playbook came up empty, Lehman Bros. declared bankruptcy.

It’s official. The storm is here. In How To Survive The Crisis And Prosper In The Process, I predicted a global financial crisis would happen where real estate prices would fall 40-70%, stock markets would crash and a Great Depression would result.

Eighteen months later, the median price of housing in California is down 40 %, global stock markets are in disarray and although another depression has yet to begin, this weekend’s failure of Lehman Bros combined with the pressured sale of Merrill Lynch and the prospect of an AIG collapse are clear signs that we are now that much closer to the predicted end.

This is the end of a system. It is not a cyclical correction. It is not a market pullback and it is not a repricing of risk in an otherwise resilient marketplace. We are witness to the end of an economic system based on credit-based paper money that began 300 years ago in England. All beginnings have endings—and that we didn’t expect it to end doesn’t mean that it wouldn’t.

THE BANKERS’ BEGGING BOWL

Because Lehman Bros.’ CEO Richard Fuld received a $22 million bonus for his “work” in 2007 or perhaps because Fed officials had been openly criticized at their annual Jackson Hole soirée for their continuing bailouts of US investment banks, last weekend US officials unexpectedly informed Wall Street bankers that a government bailout of Lehman Bros. was not possible.

There is no political will for a Federal bailout…

Timothy Geithner, September 12, 2008

Geithner’s statement really means that Wall Street no longer possesses the requisite political muscle to extract more US dollars from a bankrupt electorate. Last weekend, Wall Street bankers finally understood that their privileged position in the welfare line of US government largesse had come to an end. This time, the banker’s begging bowl would remain empty.

With their co-conspirators in the US government no longer able or willing to provide additional US guarantees, the position of investment banks has now become increasingly fragile; and their newly hatched liquidity plan concocted by the bankers over the weekend is another indication of just how fragile their system is.
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by Bill Holter

To all; we are now entering uncharted territory. The government seizure of FNM and FRE opens up the next and terrifying chapter of the credit crunch. As I have posited many times before, this has NOW ENDED UP IN THE LAP OF THE U.S. TREASURY! The Treasury is now the backstop to all things paper. This will be a real life “Atlas shrugged”. There are huge implications to this step. The Treasury will now have between $5-6 Trillion of mortgage loans added to its balance sheet. The Treasury is in a huge deficit already to the tune of $10 Trillion of funded liabilities and over $70 Trillion of unfunded future liabilities. It is over. The U.S. Treasury is broke. This will take the entire banking system with it. The banking system will need to writedown $36 Billion of Fannie and Freddie preferred stock that is carried as core capital. This means at a 6% reserve ratio, that another $500 Billion of credit must be withdwrawn to keep capital ratios from collapsing. The Treasury stimulus plan was $140 Billion [remember those $600 checks]. Now 3 times that amount will have to be withdrawn from the credit pool unless Treasury doesn’t magically credit these banks with $36 Billion.

There is no telling how much the carried loans are really worth in todays market as even prime loans are only fetching .80 cents on the Dollar. This will cost at least $1 Trillion at a minimum for starters. It will all be printed. The credit rating of the U.S. will be downgraded, the interest rates the Treasury will now have to pay will increase substantially. This is so Dollar negative it goes beyond words to describe it. The borrowing ability of the Treasury is now being hamstrung by the same credit crunch that we were assured last Sept. was “contained”. I’m sorry but the ruse is over. A government running a deficit can only do two things to cover the gap, borrow more or print. They can’t raise taxes because that will implode the economy even worse than it already is. They will find it more and more difficult to borrow the sums needed until the auctions begin to fail. Then the “black helicopters” will be out in full force spreading freshly printed Dollars. The dilutive effect to the Dollar will be astonishing. We are entering the Weimar Republic phase. The Treasury will be crushed under debt and the Dollar [Fed] will be crushed through overissuance of new currency used to buy the Treasury debt.
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By Jim Sinclair

Dear Friends,

Haven’t we all had enough?

Isn’t it insulting to you when major publications carry reports that Lehman nicknamed their corporate garbage can either Spinco or BadBank?

Bad banks are a product of OTC derivatives. Spin is how black is made to look like white.

Is this simply bad humor or is Lehman giving us all the middle finger salute?

So here we have a major international investment company rubbing both spin and weak banking conditions in our face as they are bailed out via the Federal Reserve Begging Bowl window.

Illegal attacks on our gold shares are costing billions of dollars in damage and there is no Begging Bowl loan window offering us or the company’s full recovery through 28 day perma-loans. In a sense the people who appear to be giving us the bird are more than likely the brokers for those that seek to injure the gold gang. Of course they think with impunity.

These power trippers seem to be intoxicated with themselves because they have recently bit the hand that feeds them. Raids of Fannie, Freddie and Bear Stearns (amongst others) is an act of turning on their benefactors. We shall see.

Let’s not forget about Mr. Gross of Pimco, who called upon the US Treasury to bail out all financial entities that made enormous profits on OTC derivatives.

They make money and the US Treasury/Fed covers the losses. They make massive money and your children and their children bail them out.

We are attacked by the financial equivalent of Highway Men and nobody gives a damn.

Haven’t we all had enough?

Another affront of one’s intelligence, and of course part of the “Hold the Hill” strategy, is the argument being broadcast by all media (and all the Hill’s friends) that spins the story that CURRENCY VALUE IS DETERMINED BY COMPETITIVE ECONOMIC ACTIVITY.

When push comes to shove, what determines a currency’s value will be the degree of financial failures and size of the financial bailouts because these events cause the volume of paper money to increase substantially.

The value of currencies, when written off by the history of this time, will not be a function of competitive levels of economic activity but rather who held the most OTC derivatives.

The USA is the eye of this hurricane of financial weapons of mass destruction already acting true to their name.