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Monthly Archives: September 2015

The Fed Can Run, But It Can’t Hide


Heavyweight Champ Joe Louis "You Can Run, But You Can't Hide" [courtesy Google Images]

Heavyweight Champ Joe Louis
“You Can Run, But You Can’t Hide”
[courtesy Google Images]

Before declaring bankruptcy in 2008, Lehman Brothers was the fourth-largest investment bank in the US.  It’s bankruptcy nearly toppled the US and global economies and helped precipitate the “Great Recession”. 

When Lehman Brothers filed bankruptcy, its assets were only 3% greater than its liabilities.

Today, the Federal Reserve is the single largest central bank in the world.  It’s assets reportedly exceed its liabilities by only 1.3%—less than half of what Lehman Brother had when if filed for bankruptcy in A.D. 2008.  The Fed has much greater significance than Lehman Brothers and is operating with a much smaller “margin for error”. 

The Fed’s potential for causing trouble for the US and global economies is enormous.

 

SovereignMan.com recently published an article with the peculiar title of “The global financial system is now resting on a margin of 1.3%.”

The article explained that,

 

“In 2008, the Federal Reserve’s entire balance sheet was just $924 billion.  And the total of its reserves and capital amounted to $40 billion, roughly 4.3% of its total assets.  Today the Fed’s balance sheet has ballooned to $4.5 trillion, nearly 5x as large.  Yet its total capital has collapsed to just 1.3% of total assets.

“The Fed’s total capital corresponds to the Federal Reserve’s ‘net worth’.  The value of the Fed’s assets needs to exceed their liabilities.”

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Maintaining Public “Confidence”–in What?


Over-Confidence is Dumb [courtesy Google Images]

Over-Confidence is Self-Delusional
[courtesy Google Images]

“confidence: . full trust; belief in the powers, trustworthiness, or reliability of a person or thing: We have every confidence in their ability to succeed. belief in oneself and one’s powers or abilities; self-confidence; self-reliance; assurance:”

self-delusion, noun:  the action of deluding oneself; failure to recognize reality.”he retreats into a world of fantasy and self-delusion”

If you’ve followed the news about the economy for even a brief amount of time, you’ve almost certainly read article after article where someone in a position of authority talks about the need to “maintain public confidence”.

Strangely, they never seem to say exactly what that “confidence” should be in.  Is it confidence in our leaders?  Confidence in our public-school-educated children as the “future of our country”?  Confidence in what?

Nevertheless, it appears to be economic gospel that, no matter what, in order to protect the economy, we absolutely must maintain public confidence!–in . . . something . . . .

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Government’s War Against Savers


Government Squeezes the Savings--and Independence--Out of People [courtesy Google Images]

Government Squeezes the Savings–and Independence–Out of People
[courtesy Google Images]

Reuters published “India’s ‘gold monetization’ scheme could have a big impact on global demand”.  According to that article:

“Last week the Indian government approved the so-called gold-monetization scheme . . . [by] creating a system in which Indians holding private gold will be able to deposit it at banks—and then earn interest on their bullion holdings.

The government plans to then make the deposited gold available to buyers across India. The aim is to reduce gold imports from outside the country, which run at nearly 1,000 tonnes yearly.

“India’s cabinet also approved a ‘gold bond’ program in which citizens will be able to buy interest-bearing bonds backed by gold, rather than owning physical gold.

Estimates are that private citizens across India hold tens or even hundreds of millions of ounces of gold—which could become available to the banking system, if the monetization program is well received.”

 

First, a metric ton weighs 2,200 pounds.  If India imports 1,000 metric tons of gold at $1,200 per ounce, they’re importing $42 billion worth of gold each year.

India’s current GDP is about $2 trillion per year. Thus, India currently spends 2.1% of its annual GDP purchasing more gold from foreign sources. That’s 2.1% (more or less) last year; 2.1% this year; 2.1% next year.  Note that US economists hope that the US economy will grow by 3% annually.  Compare that 3% hope to India’s 2.1% annual drag on their economy due to purchasing foreign gold.  You can see that 2.1% is a significant expense for an economy the size of India’s and cause for governmental concern.

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A Hard Choice: Inflation Kills the Dollar; Deflation Kills the Government


Inflation or Deflation? [courtesy Google Images]

Inflation or Deflation?
[courtesy Google Images]

“timmy” is one of this blog’s regular readers.  He recently posted the following comment on one of my previous blog entries:

 

“I’ve been hearing about the demise of the dollar for twenty years, as it continues to hit cyclical highs, with no end in immediate sight…. long term, sure, it must die. But not in the next year or three. There is no viable alternative– yet. Is gold saying inflation, as it continues multi-year declines…?? Wake up folks.”

 

I agree that the fiat dollar and the US economy have been amazingly resilient.  They’ve both defied fundamentals and reality for at least forty years.   In the 1990s, I was convinced that the whole system would collapse before A.D. 2000.  I was wrong.  Goes to show what I know.

Today, I look at the economic and monetary systems’ resilience with a sense of awe and resignation and ask, “Who is like unto the beast?”

But, beast or no beast, I remain convinced that the dollar’s goin’ down.  My prediction’s timing may be unreliable, but my notion of fundamentals still strike me as valid

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Bill Holter Interviewed by Greg Hunter


Greg Hunter             Bill Holter

Greg Hunter . . . . . . . Bill Holter

So far as I know, Bill Holter is not a prophet.  He could be wrong. But he’s no dummy.  In the following interview, he offers fundamental facts that support the theory that the “stuff” will hit the fan before the end of October (and perhaps even before the end of September).  I agree that all of his facts are important and perhaps profound.  I think his timeline is plausible.

However, Holter implies that, once the stuff really hits the fan, the whole credit system will collapse and  cause the food distribution system (which is almost entirely based on credit) to also and utterly collapse within another 48 hours.

All of that is possible but, without any evidence to support my opinion other than a “gut” intuition, I don’t think/feel that the coming collapse will be total and cause the economy to utterly collapse within 48 hours. I’m more inclined to believe that whenever the moment of real collapse begins, the US economy will move downward as if on a kid’s slide or as downward stair-steps that require six months or more to reach the “bottom”.  I believe the collapse will be painful, but not as sudden and catastrophic as the detonation of a bomb.

Other than that, I tend to agree with all of Holter’s arguments.  I wouldn’t bet on whether the trigger moment happens before the end of October (or even before the end of September) but I agree that it could.

So, here’s Bill Holter’s interview and it’s worth your time.

video     00:29:09

 

 

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IMF Colonized Korea–Part II Evidence


South Korean Flag [courtesy Google Images]

South Korean Flag
[courtesy Google Images]

I published Part I of this article (IMF Colonized Korea—the “Agreement”) two weeks ago. 

Here’s Part II–the “Evidence” supporting my contention that the IMF colonized South Korea in A.D. 1997.  This total article is a long, hard read.  It’s not for everyone.  But if you want to catch a glimpse of how the world’s central banks and economy really work, this article is worth your time.

 

In A.D. 1997, like several of the other “Asian Tigers,” South Korea suddenly slid close to financial collapse.  To avert national bankruptcy, the IMF offered to provide South Korea with a $55 billion loan “package”—$15.5 billion from the IMF, plus another $40 billion from other creditors that was arranged by the IMF.  That loan was premised on Korea’s acceptance of various new rules and some shocking political and economic concessions.

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Radio Script 150917


Live Radio Script [courtesy Google Images]

Live Radio Script
[courtesy Google Images]

I co-host the “Financial Survival” radio show each workday from 3 to 4PM (central time).  The program deals with stock and bond markets, but primarily focuses on physical gold and physical silver markets and the economic and political events that affect precious metals.

Each day I write a “script” that consists of several articles or topics that we might talk about during the program. 

Those articles are a slapped together quickly and might be a little “rough”.  Still, I think they sometimes contain enough of an unusual insight to make them worth reading.

Here are the articles for today’s script:

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Posted by on September 17, 2015 in Economy, Federal Reserve, Interest Rates

 

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