SP 500 September Futures Daily Chart

Strong technical bounce off the bottom of the downtrend channel.

Rumours abound that BP is close to plugging the Gulf oil leak, with the word quietly out so that the same insiders who sold shares, and even went short the sector and region ahead of the public disclosure of the problem and its severity, can cover up and go long.

But that's a rumour, so let's see if they really do finally solve the problem, and if stocks can break up threw that resistance where they stopped near the close, and take on the next level of resistance a little higher up.

Currency Wars: Selling The Rope

"The Capitalists will sell us the rope with which we will hang them." Vladimir Ilyich Lenin

There were a number of Wall Street scions who most infamously associated themselves with Hitler's financiers, and were more than willing to ride the National Socialist tide in Europe for their own benefit come what may, to the extent that they did not stop their activities in supporting the Reich until called out by the government through the Trading with the Enemy Act in 1944.

Why bring that up now? Because that same sort of short term, greedy, amoral thinking is taking the US down a similar path with nations who, while the comparison with Hitler is inappropriate, are certainly no kindred spirits or friends of liberty.

When the truth comes out, the perpetrators will claim ignorance, or victimization, when in fact they have been roundly selling out their country through the blind pursuit of crony capitalism, to the detriment of the people and their country.

The real enemy is not Russia or China, although they are certainly inimical to freedom. The foulest enemy is a domestic predator class, famous for a character that 'would sell their mother for an eighth,' more than willing to sell the future of your grandchildren. They abuse the law, the media, and the integrity of justice to obtain their ends. They are without oath or honor.

And when the time comes, they will prescribe draconian measures and proto-fascism, in an attempt to further consolidate their own personal power, and the benefits provided to themselves and their wealthy friends, under the excuse of the approach of danger from abroad.

"The IRA: This is the idiocy of the U.S. position. We have set ourselves up as an easy target for our enemies. It is astounding that the Chinese have not been more aggressive in selling dollars. Maybe they are going to manage our downfall gently.

Rickards: I think the Chinese probably are doing it gently. The Japanese and Chinese are both influenced by Zen which, in Western jargon, is really about optionality. The whole idea of Zen is to avoid black and white decisions and instead create a range of options and possible outcomes. Instead of committing yourself to a binary decision, you create a fan of probabilities and look for your openings. So in that sense, if you think of it in options space, the Chinese are probably content to play the American paper game with the dollar, but all the while preparing for the day when the dollar collapses completely.

The IRA: Americans are convinced that it cannot happen here, the greatest nation on earth. Reminds us of France after WWI. Same degree of self-delusion. And no reaction by U.S. officials to the Chinese and Russia gold purchases?

Rickards: The Russians do not hide their purchases of gold. The incremental growth of Russian gold reserves is visible in their monthly statistics. The Chinese have been more surreptitious in their purchases but even they have announced the reserves doubled in recent years. The way that both of these nations add to gold without impacting the global price is that they are buying from internal, captive producers. And they pay below market prices because even paying $800 per ounce still gives their miners a tremendous profit. Between 2004 and 2008, China almost doubled the gold stocks of Peoples Bank of China, but they bought it through other state agencies to keep it off their books. (There were some analyst reports out this morning that the Chinese will not buy more gold for their reserves. This is the typical 'opinion' that is used to support bear raids by the banks and hedge funds, nothing more. It was utter nonsense. These fellows 'talk their book' with the same concern that you have to change your underwear. In other words, painting a story that is false but sells their product is a basic tool in their repetoire. - Jesse)

The IRA: So there is the pretense of coordination among the G-20, but meanwhile China is preparing to operate in a hard currency world. Is this a good way to describe your view?

Rickards: We have been operating in a dollar world for decades. Notwithstanding the demise of Bretton Woods in 1971, it's still a dollar system. All of the world's expectations, all of its productive capacity, all of its allocations of capital are built around that system. When the caretakers of that system allow weeds in the garden and for the system to disintegrate and fall apart, which is what I see happening in the U.S., the immediate reaction is first confusion, then panic and then self help. This gets to the heart of the national security implications of the financial crisis. Initially other nations were content to wait for the U.S. response, but now I see nations like China, Russia and Germany increasingly willing to act on their own...

The IRA: So here is the question: if the U.S. has its head buried in the sand, who is the leader of the global currency system going forward?

Rickards: Well, the leader of the process is not clear. This gets back to a whole series of very revealing interviews given by Treasury Secretary Timothy Geithner in the late 1990s that we have to dig out. He embraces something that he calls "convening power," I call it "a bunch of guys." Geithner's world view essentially consists of getting the finance ministers or heads of state in a room, developing an agenda, and then pursuing that process wherever it takes you. I think the US has embraced multilateralism within the G-20 as an alternative to U.S. leadership. I think we look at the G-20 differently than does China, Russia, Brazil and some others. The U.S. looks at the G-20 as a kind of benign, kumbaya, kind of global board of directors that working with the IMF can bring the world in for a soft landing. I don't think the Chinese or the Russians see it that way. They see the G-20 as an interesting tool but from a state-centric view.

The IRA: Geithner's strategy, if you can call it that, reminds us of the shallow management pretense visible in many Wall Street firms. The Chinese and Russians see themselves in the ascendancy and, unlike the U.S., these nations have a vision of where they want to be a century from now. Americans just want to borrow more money."

Chris Whalen, The Institutional Risk Analyst, July 7, 2010

The macro trend is a change in the post Bretton Woods international currency system that is reaching a point of instability, and the decline and fall of the dollar from its postwar imperium. The US and UK will promote the adoption of the SDR, because they exercise a measure of control over the IMF. The BRIC's will accept this because they have little practical alternatives. Therefore the real battle will be the negotiation of the content of the SDR when they rebalance it this year. The Anglo-Americans want no change, but might accept the inclusion of the yuan at a higher exchange rate. The BRIC's want gold and perhaps silver to be included, and a broader basket of currencies from the rising economic powers. It will be quite the geo-political dance.

What is disconcerting to me, and you can see it to some extent in Rickards own work, is that the Wall Street financiers clearly have their eyes on the Pentagon budget: opaque, patriotically defensible, and huge. A currency war, with the Wall Street crowd providing tactics and weaponry and mercenaries to both the US and to its adversaries, might make the bonuses taken from the mortgage bubble look like pocket change by comparison. Its an old idea really, the basis of some legendary fortunes, adapted to the modern world. It produces nothing but misery, while transferring wealth from the many to the few.

“Earth provides enough to satisfy every man's need, but not every man's greed." Mohandas K. Ghandi

Charts: Gold, SP 500, Silver, HUI, Gold/Euro

Gold Daily Chart



Gold Weekly Chart



SP 500 September Futures Daily Chart



Silver Weekly Chart



Miner's Index (HUI)



Gold / Euro Correlation

BIS In 380 Tonnes of Gold Swaps; Organized Looting of Sovereign Wealth; No Confidence

"Manipulation can only go so far…..especially when gold is reverting to its primary function which is as a currency in its own right or as means to substantiate existing currencies." Richard Henley Davis

These swaps have significance because of the speculation that the public sale of gold by the IMF, which was secretive and selective, was not a legitimate sale to raise funds, but a means of bailing out the bullion banks who had taken gold previously on lease and sold it into the public markets, but were unble to return it because of the tightness of supply in the physical bullion market, increasingly disconnected from the NY based paper market.

Several private bullion buyers, including Eric Sprott, are reported to have made firm and well priced offers to buy large tranches of gold from the IMF, only to be curtly turned away as 'ineligible.' The IMF is selling at the prices they determine ex-market to the people to whom they wish to sell. It appears that they, and certain European central banks, may be managing this through BIS.

Just as Gordon Brown sold England's gold at artificially low prices to bail out the bullion banks in NY and the City, so the IMF and its constituent members are selling the public stores of gold, largely from a few developed western nations, to support what essentially appears to be a crony capitalist banking fraud involving the secretive sale of public assets at artificial prices with the gains pocketed by a few state-sponsored banks.

"Gold swaps are usually undertaken between monetary authorities. The gold is exchanged for foreign exchange deposits (or other reserve assets) with an agreement that the transaction be unwound at an agreed future date, at an agreed price. The monetary authority acquiring the foreign exchange will pay interest on the foreign exchange received. Gold swaps are typically undertaken when the cash-taking monetary authority has need of foreign exchange but does not wish to sell outright its gold holdings (at least not on their own books - Jesse). In that manner, gold is a leveraging device. Gold swaps sometimes involve transactions where one of the parties is not a monetary authority (usually it is another depository corporation). Gold swaps between monetary authorities do not usually involve the payment of margin."

Repurchase Agreements, Securities Lending, Gold Swaps and Gold Loans, An Update - IMF

Some parties have mistakenly asserted that since a swap is not a lease for accounting purposes, which is quite correct, then the gold could not have been sold. That is just a simplistic misconception. A swap transfers the benefits of the assets from one party to another for a period of time in exchange for interest paid, generally on forex received. Its does not sell the property but it transfers the mineral rights for a time, if you will.

The party that then holds that gold asset can just hold it, or they can utilize it in some way, such as leasing it out for a period of time to another party, like a bullion bank, who can subsequently sell it. These types of 'three way deals' were very commonly seen when Lehman and Bear Stearns started to unravel and they needed ot be unwound, and were a key component of the whole issue of hidden counter party risks. Remember that?

So on the books of the first party there are in fact no leases or sales shown, just swaps of varying duration and terms. But the swap has delivered an asset, in this case gold, into the hands of a party who may have no qualms about leasing that asset out to a third party to obtain funds, and that third party is likely to sell it. I would of course agree that this does not PROVE anything. How can it when the books of some of the parties are still opaque, and audits rarely conducted to verify ownership. But after what we have just seen over the last three years in these games of asset merry-go-round, how can anyone just blatantly dismiss that can and likely is happening, where there is an easy profit to be made. Especially considering the past history of transactions between the bullion banks and the central banks.

Personally I would view this report as bullish for the price of gold, since it is past history, and almost certainly an indication of concerns about Comex offtake. In other words, shortages are appearing, and fresh sources of bullion are becoming increasingly difficult to find.

John Brimelow reports that:

"The news of the day, of course, was the discovery by the Virtual Metals analyst (Matthew Turner) that the BIS engaged in what appears to have been the biggest gold swap in history prior to the end of their FY end on March 31st.

Thebulliondesk.com (first of the wire services to report) says:

“In its 2010 annual report, the BIS said that "gold, which the bank held in connection with gold swap operations, under which the bank exchanges currencies for physical gold," stands at 8,160.1 million in special drawing rights, equivalent to 346 tonnes this year, up from nil in 2009.

While the data is relevant to the end of BIS’ 2010 financial year in March, data posted to the International Monetary Fund and carried by Bloomberg show the swap still growing in April, analyst Andy Smith of Bache Commodities noted.

To now, this implies a swap of about 380 tonnes from the end of 2009, he said in a report.”

The new Washington Agreement, which started at the end of last September, allowed signatories to engage in gold derivative transactions for the first time in a decade. Very convenient.

Although none of the major bullion banks (actual or potential CB counterparties) will want to discuss this, the high probability is that much of this gold was actually sold into the market. Very likely this accounts for the contra-seasonal slump of gold in December, which it will be recalled was neither preceded by the usual loss of physical premiums nor accompanied by the usual open interest action.

This in effect means the end of the Washington Agreement restraint on CB gold selling, at a time when several signatories are in bad shape. Most likely this is what caused the selling pressure in gold today, especially after the NY open."

As we have most recently seen with the bloated CDS and CDO credit markets, long standing control frauds can cause quite a splash when they inevitably collapse. We need to bear this in mind when the governments start making their excuses, once again, for taking the 'necessary actions' to support the banks for the good of the people, from whom they have once again stolen billions to provide a fat living for their friends and themselves.

I have been wondering, as I am sure that you have as well, Why Now? Why did the IMF and BIS 'throw the kitchen sink' at the gold bullion market at this particular time?

I think the answer can be found in the setup of the market. Gold was knocking on the door of resistance at $1260, a key point that could have triggered a break away rally. At the same time, according to figures provided in his daily Comex commentary, there were an extraordinary number of contracts standing for delivery in silver and especially gold. Indeed, if the numbers are correct, a breakaway rally would have encouraged almost 2 million ounces of gold to be demanded of the Comex, a call on their 2.64 million ounces of dealer supply that could have literally 'broken the bank.'

As Volcker and Greenspan have both said, the central banks must stand ready to sell gold into the market to prevent its price from rising and displacing the confidence of the markets in the power of the central banks to manage their currency markets.

Economists are debating the reason why individuals and businesses are saving, and not spending money as a response to the Federal Reserve programs.

Here is a comment I wrote in response to an essay by Brad DeLong in the recent issue of The Economist, Why Are Firms Saving So much? I am not editing it here, and since it was done as an only draft, please bear with its somewhat raw form.

"Private firms and individuals are saving too much. DeLong seems to think they are being irrational, because they are doing so out of fear of a commercial credit crunch.

I think this is partly true. But some of the savings activity by companies (and individuals) is obviously because they are not seeing the turnaround in the economy that would give them the confidence to build up their capacity and inventories. They clearly fear another downturn based on what they are seeing.

Now, Mr. DeLong dismisses this, presumably because there is a central bank called the Fed, and it owns a printing press, and stands ready as a lender of last resort.

I think businesses know this, and the attitude and condescension is wholly unnecessary and distracting from the real issue.

Businesses, and individuals, simply do not believe that the Fed is interested in them, as opposed to let's say, the too big to fail banks. For whatever reason, Bernanke has blown his credibility, and done so most likely by talking a better game than he has played as the lender of last resort to the general economy, and not to a select circle of cronies, among which are not the local and regional banks, and certainly not commercial business.

The other fact, although I confess that I cannot prove it with data, is that the banks have troubles of their own, and prefer to use a portion of their funds for speculation, especially those TBTF fellows who are sitting on a lot of dodgy paper.

And finally, what has really changed in an economy that was almost wholly dependent on stock bubbles and mortgage fraud, and a consumer saturated with debt?

So, history stories notwithstanding, the solution to this might be a little closer to home than one might imagine otherwise from reading Mr. DeLong.

The efforts of the Fed and Treasury have NOT been focused on the locus of commercial transactions between private companies and individuals. Rather they have been preoccupied with the speculation in financial derivatives and paper assets that have little or no real connection anymore to the economy. So how can one even wonder that the people have lost faith in this effort?

Only if one assumes that they are irrational fools, incapable of understanding economics because they, after all, lack the necessary credentials and PhD's, as the Federal Reserve fellow so recently observed."

Despite all their dissembling and market antics, I think the Fed's worst fears are coming true. The people of the US are losing confidence in the Federal Reserve and its economic policies, and those of the Treasury which has badly mishandled the banking crisis. The problem is that Washington is talking to New York, and assuming the rest of the country will accept whatever it is they choose to do.

Crunch time is coming, and it will not be pretty. A loss of confidence and a hoarding of funds in savings is a prelude to Gresham's Law, and the first whiff of what I would have never expected could occur: hyper-inflation, preceded by a terrific market crash in late September. That is just how bad that the policy errors of Summers and Bernanke have been, and how badly the Congressional plutocrats have misunderstood the will of the people and failed to enact reforms.

It is going to be a long, hot summer.

Net Asset Value of Certain Precious Metal Trusts and Funds: Market Goon Sightings in the SP Futures

The premium on The Central Gold Trust, as compared to its historical mean, and the Sprott Physical Gold Trust, is quite interesting.

The Central Gold Trust's premium dropped to historic lows and has stayed down in the last underwriting, the sale from its shelf offering of additional units. Since those units were all committed to gold, after the offering is completed, the premium would be expected to return to the mean. Unless the gold cannot be delivered, or the banks led by the Canadian Imperial Bank of Canada are somehow unhappy with the Spicer family who manages it.

So, is the Gold Trust now being 'punished' by the banks, most likely by being part of a paired trade wherein the shares are being shorted for non-fundamental reasons, and most likely including naked shorts? I have seen no news, no serious reason, why such an anomaly should exist, except that in the the last major offering the Gold Trust did not pay what could be viewed as a 'subsidy' to their underwriters led by Canadian Imperial Bank of Canada. I would like to find a simpler explanation, but given the opaque nature of the markets that is hard to do.

In his most recent metals commentary, the usually soft-spoken and careful Ted Butler says that the Comex, the CME, and JP Morgan are running 'a criminal enterprise.'



Some bloggers have recently been highlighting the blatant manipulation in the futures markets in US equities. This is good work, and I thank them for it. This sort of thing has been going on for quite some time, and was in full flower in the rally of 2003-2006. The Visible Hand of Uncle Sam. But it is certainly becoming more blatant again lately.

It is the cooperative effort between the government and a few big Wall Street banks to manipulate markets as an instrument of foreign and domestic policy. It has been going on since at least the mid 1990's under what I call the Rubin / Summers Doctrine. This is why Obama would not dismantle the Too Big To Fail Banks as part of his financial reform bill. They are his army in the Currency Wars. And if they engage in a little recreational looting at home, well, that is the price one pays.

This week Paul Farrell calls the lack of effective reform the Failure of Obama's Presidency, or The Conspiracy of Weasels.

In this latest instance of 'crisis management,' saving the free markets by destroying them, the obvious manipulation showed up early in other markets like the precious metals, and is so obvious now that it almost boggles the mind. The metals get hit by concentrated selling out of New York after the London PM fix almost every day. Some of these same bloggers and their followers who now see the stock market manipulation have willfully ignored this, and hard to believe, even spoke disparagingly of those who pointed out these obvious market manipulation as the 'tinfoil hat' crowd.



GATA and Deep Capture have done great work in attempting to expose these problems, having rolled up their sleeves, and actually DONE something, and taken wagonloads of shit and derision for it, at times from some of the same crowd who are now waking up and seeing the market goons knocking on their own doors.

Compared to gold and silver, the SP futures are relatively easy to manipulate. You just don't lead them as much. Right Timmy? (Get some!)

Ain't kharma a bitch...

The Trashing of Iceland By Private Banks, and Its Efforts at an Economic Renaissance

Iceland represents an interesting situation. Most people are not very familiar with it. With only 300,000 inhabitants, Iceland certainly fits the description of a 'microcosm.' The story of the privatization of the Icelandic banks, and the ensuing orgy of credit expansion and fraud, is well worth some attention.

Banks that are private sometimes should be allowed to fail. One might consider saving the depositors, especially if it is a fraud, and certainly if the accounts are explicitly insured, but the creditors and investors should be wiped out, utterly and completely. This is the only way to wring moral hazard out of the system. This of course should be accompanied by vigorous and aggressive investigations for fraud, and prosecutions if the evidence indicates for indictment. I would follow those perpetrators to the ends of the earth, seeking their extradition, to insure that justice was done. These people are little better than traitors to their country and their people.

We tend to treat these sorts of banking frauds far too lightly. They are like poison to the system, because they not only involve the theft of funds, but the destruction of the confidence and integrity which permits the social system to function.

Their reform movement and new approaches to banking in Iceland are hopeful signs. They should not even think about joining the EU, or taking any loans for their banks.

They might also consider relieving the Social Democrats of power, because it sounds as if they are not interested in serving the people. The only question I would have is, "Why are they still in office, and not out on the street looking for employment?"



Iceland Jails Bankers and Sues Accounting Firms - AFP

The IceSave Dispute - Wikipedia

UK Slowly Strangled Iceland Says Ex-Central Banker - Bloomberg

h/t to Anonymous

While not mentioned in the video, the implications of the recent Icelandic Supreme Court's decision on the illegality of loans indexed to foreign currency baskets may be significant.

Under the provisions of the IMF Articles of Agreement, courts of other member states, including the US, UK and the Netherlands, are presumably/arguably barred from reaching a different conclusion. See, Article VIII, Section 2(b):

(b) Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member. In addition, members may, by mutual accord, cooperate in measures for the purpose of making the exchange control regulations of either member more effective, provided that such measures and regulations are consistent with this Agreement.

This issue is dealt with at length in Joseph Gold’s excellent series, The Fund Agreement and the Courts, available from IMF Staff Papers. The Articles may be found here. The Icelandic court decision is discussed here. It is still a bit early to know how any of this will work out, but it could get more interesting.

Where We Are Today: Interest Rates 'Too High,' Double Dip on Deck, the Failure of Economics

David Rosenberg of Gluskin Sheff is a daily read of mine. His most recent breakfast message does a remarkably concise job of summarizing the US financial markets.

The reason for the gold market rally is obvious; declining production in the face of record monetization and increasing demand. The same financial engineers in the central banks that ruined the economy had been suppressing the price of gold through managed sales for almost thirty years in a desperate reaction to the Nixon assault on Bretton Woods in 1971. And now we see the fruits of their long contrivance, and its inevitable failure. The world will have to develop a replacement to this incredible farce we call globalization and world trade based on arbitrary and easily manipulated values.

At the same time, Dave points out that according to the Taylor Rule the Fed is overly tight, even with ZIRP! We have spoken about this in the past, in making a distinction between quantitative and qualitative easing. This also speaks to the massive deformity which the US economy had become under first Greenspan and then Bernanke, and a financial sector turned outsized predator, with little connection to real market discipline of supply and demand thanks in large part to the proliferation of derivatives.

Ben could mitigate this with the interest payments on reserves which the Fed is now allowing. I suspect at some point he will, even taking them negative if necessary. But the Fed's first priority is the insolvent Wall Street firms, and the continued charade that allows them to still pay outrageous bonuses while the nations suffers between the hammer of unemployment and the anvil of a toxic disaster in the Gulf and the collapse of its local economies. The first policy failure was in not nationalizing the insolvent US banks like Goldman and liquidating them. The second policy error is the failure to engage in serious financial reform, severely curtailing the derivatives market to something more resembling a well regulated insurance industry, and separating it completely from the commercial banking system.

It takes a certain kind of mindset and attitude to understand this dynamic, and few economists have yet taken up that challenge; economic contraction in the face of very low interest rates, with gold soaring in a bull market while long term inflation vectors are near record lows. It should be acknowledged that the Fed is active in the markets, 'tinkering' with the longer end of the yield curve among other things. And of course, derivatives, easily printed and without position limits, are pressed on various targets in the real economy almost at will by the banks and hedge funds, distorting prices and markets, destroying real wealth.

And yet this is what we have, facts in collision with theories. The austerity reaction in Europe is the resurrection of Hoover, of the liquidationism which drove the US into the agony of the trough of the Great Depression of 1933. This was of course the moment of failure for the Austrian School. It is one thing to be able to spot a problem and to stop it ahead of time, which their theories do well. But the Austrians seemed unable then, and now, to recommend practical and implementable programs to remedy the current situation in which the US now finds itself.

This is not to say the theory has failed, but rather that it has intellectual arteriosclerosis and atrophy. It is one thing to read and write about riding a bicycle or having sex; it is another thing to get out of your rooms and do it, and actually learn something. To their credit they were certainly not fooled by the neo-liberals. But their response is little better than the neo-Keynesians, which is to reflexively stimulate or liquidate without practical reforms and actually fixing the distortions which policy errors over a long period of time have caused.

I have to admit that I like to tweak the nose of 'the Austrian school' now and then. But since I tend to hit the neo-liberals with brass knuckles, and the neo-Keynesians with the kind of premeditated distance one gives to a crotchety old maiden aunt dwindling into senility, I would hope they understand that it is not personal; all of the modern schools of economic thought have failed. All of them, for varying reasons. That is all well and good and human, but it is the lack of recognition of that failure, and the resolution to adapt and do better, and to roll up one's sleeves and actually shame the politicians into doing better for the people, that is so cloying.

The failure of economists in general to speak out, except in the usual sniping reminiscent of departmental politics, is leaving the field open to quackery, and the draconian measures of oligarchy. Just as their failure to speak out permitted China to distort the world economy, and Greenspan to destroy the economic infrastructure of the US.

The current economic landscape seems littered with self serving cronyism, broken theories disconnected from reality, quackery, and obtuse boasting from dismal failures. Economics seems more like astrology, or Elliot Wave theory, or the writings of Nostradamus, with so little rigor that it can be used to 'prove' or justify just about any outcome, after it has happened. In short, economics seems these days to be little more than propaganda, social commentary rather than harder science or something as simply practical as mechanical engineering.

What I am saying is that all the economic schools of thought have come up short, failing badly, the free market neo-liberals most spectacularly of all. Their failure is not in having got it wrong, but in continuing to beat the dead horses of their theories until the stench is unbearable.

The lack of significant financial reform, and restraint of unbridled speculation through the use of derivatives, is going to strangle the western world until they can bring themselves to restrain their banking system gone mad.

The U.S. turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.

No wonder gold is in a full fledged bull market. The annual output of gold has declined 12% in the past decade while the marginal cost has more than doubled, to $500, according to David Hale. Moreover, David points out in his recent report that since 1900, more than 80% of the world’s proven reserves have ready been mined.

The marginal cost of pressing on Dr. Bernanke’s printing machine is basically zero, and, the prospects of a re-expansion of QE by the Fed as double-dip risks rise with each and every passing data-point are rather high.

Gold has corrected to the 50-day moving average in recent weeks, which in the past has been a terrific entry point — for the past six months, each low has been higher and each high has been higher too. Nice upward channel that is to be respected and to be bought.

As for double dip risks, the ECRI leading index is predicting over 50-50 odds of such, and is exactly where it was in December 2007 when unbeknownst to the vast majority at the time that the downturn was just getting started.

As an aside, even after cutting his growth forecast on Friday, Bank of America’s chief economist went on CNBC after the market closed and declared that the economy would manage to “muddle through” — this has now become the widespread consensus that all this is nothing more than a temporary soft patch. [akin to quicksand, an economic netherworld such as that which the kereitsu inflicted on the people of Japan - Jesse]

Jeffrey Frankel, a member of the NBER’s business cycle committee, had this to say over the weekend:

“You cannot rule out a double dip, in light of Europe’s problems … I think the next couple of months of indicators will be more telling than the last couple of months.”

Economists have spent so much time trying to assess when the last recession ended that they have taken the eye off the ball as to when the next one would begin. Yet this is what the NBER is grappling with — maybe the same day the NBER announces that the last recession ended in June 2009, they will tell us that another one began in June 2010.

Can a sub 3% yield on the 10-year note and the “flattest” Treasury curve (still near 230bps, mind you, for the 2s/10s spread) in nine months really be sending out the wrong message of heightened hard-landing risks? Or, for that matter, the lowest close in the S&P 500 since September 4th of last year. Did anyone back then think we would go from Labour Day to Independence Day with nothing to show for it?"

...What does not get enough play is that Fed policy is tighter than it should be right now, based on the Taylor Rule, believe it or not — zero policy rate and the size of the Fed’s balance sheet is equivalent to a -2% rate, when at this stage the two tools should be equivalent to a -5% rate. [We might have an effective negative rate if the government had not fouled the measures of inflation - Jesse] And, fiscal policy is actually far less stimulative than meets the eye when the impact of State/local government restraint is factored into the equation. In the past two months, whether one looks at the Kansas City or St. Louis Fed’s stress indices, there have been 60 basis points of tightening in overall financial conditions, just as the economy is hitting a possible inflection point.

David Rosenberg, Gluskin Sheff, Breakfast with Dave

A double dip recession will be a strong indication, if not a proof, of policy error, both on the part of the Federal Reserve and of the Obama Economic Team. When the recession can no longer be hidden from the public the reaction could be swift. The oligarchs are acting pre-emptively to cushion the blow on their ill gotten gains by preaching austerity measures, at a time when the lower and middle classes are taking it on the chin. Empathy and common sense have little place with obsessive sociopaths

Part of the problem is the China peg to the US dollar. This obviously thwarts the international market's system of checks and balances, its ability to adjust naturally to changes in economic fortunes. That peg and devaluation ought never have been allowed.

But this is merely one instance in a series of economic manipulations and sometimes aggressive deceptions by the world powers that have been occurring since 1971, when Nixon unilaterally broke the Bretton Woods regime and took down the international gold standard, and not incidentally brought Greenspan into the service of the federal government.

Reform is the only solution that is sustainable. Austerity or stimulus without reform are worse than useless. One does not fix a car with a blown engine by flooding it with gasoline, since it did not run out of gas, but in fact blew up from prolonged abuses and disrepair. And on the other hand, one cannot restart the economy by watching it burn, waiting for the flames to extinguish themselves, hoping for a chance to start over anew and do it 'the right way' according to theory. By the time you would wish to get started, there will have been a revolution conducted by the impatient and long suffering people. So what does one do?

You fix it. You restore it to a state when it was last actually working, and resist the temptation to 'optimize' and redesign it on the fly, cramming in pet projects that surpass performance tweaks. That can come later, after the system is running again in some reasonable way. You take the harder hits when they can be absorbed with toppling the recovery.

That is how it is. Everything else is noise, excuses, partisanship, and waffling.

Gold Charts; Currency Wars; Subornation of Perjury, and Financial Coup d'état

If there is a stock crash, all asset classes will suffer liquidation for a period of time, except perhaps for treasuries, and chart formations will get tossed out the window. But at some time after the primary crash, the currency is devalued, and bonds are taken out and beaten.

Crashes are low probability events, but need to be accounted for in your planning. I do that by hedging my positions with some shorts, and relying more on bullion than stocks during riskier periods.

On every pullback, the permabears come out of their caves and do their dance. That is just how it goes in a bull market.



If there is a crash, gold would find significant support around the 1000 mark, as buyers who missed the last leg up will rush in at this chance to buy. However, most of the permabears will NOT buy, since they are now stuck in a cycle of always waiting for THE bottom and bragging rights to a low. If they did not buy in the last plunge, they will never buy.

Things are changing. The world has lost confidence in the dollar reserve currency regime thanks to the serial abuses of Greenspan and Bernanke, and the abusive use of power by the current and previous Administrations. Things that have been in place on a global scale for fifty years change slowly. But that change is happening, and that is what you are seeing in the chart below.

As I noted last year, the SDR recalibration would be a focal point for the BRIC's to attempt to dislodge the dollar hegemony. The US and UK are fighting it with their bag of financial tricks. This is why Obama refused to touch the gangs of NY in his so called reforms. The big banks and hedge funds are as much an instrument of US foreign policy as is its military. Europe is learning this lesson, and it is taking measures to protect itself. This is part of the long range forecast, and is known as the 'currency wars.'



Currency Wars and Coups d'Etat

I will not be surprised at all if in the next ten years certain US and UK officials, and those who claim that they were only acting on their government's behalf, merely following orders, become fugitives from justice. But there may be some 'suicides' and tragic airplane accidents among the weaker links first if things get dodgy. And of course the usual scapegoats, fall guys and patsies.

This is not something involving the United States alone. Iceland is a microcosm of what happened as the systems were overtaken by corruption and greed, and is running ahead of the larger countries because of its smaller scale. The German banks are deep into it. The UK is more likely to follow Iceland's path before the US, and may serve as a bellwether. The neo-con David Cameron is certainly no man of the people, and is likely to make the working classes in Britain howl before he is done with them. England, what were you thinking?

The financial crisis is being used to cover a subversion of justice, what history may some day regard as essentially a financial coup d'etat, wherein a small group of men, many of whom have their roots and connections with a handful of universities, institutions, and investment banks, essentially seized control of the banking system, and by extension the economy, co-opting the media and the political process, and have been bending it increasingly to their will ever since.

What will most likely trip them up is not so much the acts of fraud and insider dealing themselves, but the overreaching, the cover ups, the subornation of perjury to the Congress, and as always, obstruction of justice. But before we reach that point, I would not discount a more overt attempt to seize or direct the power of government through some staged event, some false flag.. But first and foremost they will use the softer means of deception, persuasion, intimidation, and of course the ridicule of anyone who questions their actions by their well paid demi-monde of analysts and commentators.

The oligarchs have almost ruined the US and the UK. They will now seek to subtly starve the middle and lower classes to pay for their piles of wealth which are largely pieces of paper, useless wagers, and will resist every effort to repeal the absolutely irresponsible tax cuts enacted during the administration of their chosen candidate G. W. Bush, and the setup to divert reform through their stalking horse, Barrack Obama.

They will speak out of both sides of their mouths. Unemployment insurance, Social Security benefits, healthcare, relief for the poor, and pensions are bad, and their unfortunate recipients lazy, stupid and an expendable drag on society. But the maintaining of ill gotten gains of the oligarchs, the enormous fortunes obtained through financial fraud, and paying little or no effective taxes on them through various loopholes, is a somehow a sacred requirement for economic recovery. And so we see how reform is floundering, and the smirks of the congressional chimps and pigmen are maintained even as the nations suffer the worst unemployment since the Great Depression.

There will be many 'useful idiots,' well outside the real circle of power but who consider themselves the well-to-do, that will agree with this injustice, and vehemently attack the unfortunate in society because of a combination of character flaws, usually selfishness, emotional immaturity, and just plain meanness. It is how it always is. Most Gestapo informants were actually neighbors, co-workers, bearing petty grudges and spites, not realizing the damage they were doing to real people. The coldness of the unenlightened human heart and the obtuse vanity of people in wishing suffering on others, with a kind of perverse self-righteousness, is sometimes a wonder to be hold.

As for the politicians and financiers, the oligarchs and those that surround them, I have tried to figure them out for a long time, often first hand. Some are just sociopaths, obsessively driven, as lacking in human feeling as the fellow who would shoot you in the face for your wallet. These white collar jokers have merely had better educational opportunities.

But as for the others, the many, I think that are just ordinary hard working people that over become so intellectually inbred that their viewpoint becomes like a clique, or a cult. They tend to be in positions where they can make or enforce the rules to suit themselves, and spend most of their time talking with others like them, with similar attitudes and feelings towards the world extensively influenced by their profession. They develop a feeling of isolation from the great bulk of humanity.

Principles such as morality, right and wrong, cease to be relevant, without the common cultural context, for them. They become so preoccupied in the particularities of their own piece of game. They lose sight of the big picture. And sometimes this can lead to terrible abuses and excesses.

As an aside, I thought the recent essay from the fellow at the Fed who did not believe that anyone who does not have a PhD were imbeciles incapable of discussing or understanding economics was a good example. Did he understand how silly he sounded, writing from the very heart of a disgraced profession, and from an organization that under Greenspan and then Bernanke look like incompetent clowns lacking even common sense? I was actually embarrassed for him. Coming from the world of technology and big corporations I know the type.

A corporate culture can degenerate into a dangerously compelling institutional blindness, especially in organizations that like to bring their people in young and 'mold them.' Whenever I see clusters of resumes with the words 'Goldman' and 'Yale' or 'Harvard' in them cringe. The CIA used to favor Yale for recruiting, since it seemed to impart an outlook in its students that was amenable to spycraft. I do not know if that is still the case, whether universities tend to develop outlooks by their choice and development of students, but major corporations certainly do.

The US cannot obtain a sustained recovery without serious and significant financial reform and restructuring of its economy, and the legal repatriation of the wealth stolen by the financiers through fraud. What complicates this is that the politicians have allowed themselves to be tainted by the same brush of corruption, so in the short term everything is illusion, deception, and cover up. Slowly but surely, the truth will out. But the delay causes damage.

The bad debts will be liquidated. They cannot be repaid. Starving the common people alone will not work, and selling the sovereign assets will not be enough. Taxes would have to be raised to post WW II levels, along the lines of 70+% for the wealthy. How likely is this? The wealthy elite will promote the confiscation of pensions and Social Security first. These will be dangerous times, full of deception. Greed and fear will reach high emotional states.

Therefore default, albeit selective, is the rationale alternative, excepting the contrivance of yet another war to stimulate demand and encourage compliant behaviour. And that default will be accomplished through devaluation of the currency, the basis of all the debt, which is the Fed's note of zero duration. It will spread the pain throughout all holders of US debt, including those that do not vote. Bernanke and his economists know this.

They will not admit it, because they are playing a confidence endgame with the people and with the holders of US sovereign debt, many of whom are foreign. The last thing they wish to cause is a panic. But at some point, there will be one, and it will not be pretty. The Democrats will attempt to kick that can down the road, delivering it to the successor to Obama, who is like to be a one term wonder 'unless something happens.'

"At what point shall we expect the approach of danger? By what means shall we fortify against it?-- Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow? Never!--All the armies of Europe, Asia and Africa combined, with all the treasure of the earth (our own excepted) in their military chest; with a Buonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years.

At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide...

I do not mean to say, that the scenes of the [American] revolution are now or ever will be entirely forgotten; but that like every thing else, they must fade upon the memory of the world, and grow more and more dim by the lapse of time. In history, we hope, they will be read of, and recounted, so long as the bible shall be read;-- but even granting that they will, their influence cannot be what it heretofore has been. Even then, they cannot be so universally known, nor so vividly felt, as they were by the generation just gone to rest.

At the close of that struggle, nearly every adult male had been a participator in some of its scenes. The consequence was, that of those scenes, in the form of a husband, a father, a son or brother, a living history was to be found in every family-- a history bearing the indubitable testimonies of its own authenticity, in the limbs mangled, in the scars of wounds received, in the midst of the very scenes related--a history, too, that could be read and understood alike by all, the wise and the ignorant, the learned and the unlearned.--

But those histories are gone. They can be read no more forever. They were a fortress of strength; but, what invading foeman could never do, the silent artillery of time has done; the leveling of its walls. They are gone.--They were a forest of giant oaks; but the all-resistless hurricane has swept over them, and left only, here and there, a lonely trunk, despoiled of its verdure, shorn of its foliage; unshading and unshaded, to murmur in a few gentle breezes, and to combat with its mutilated limbs, a few more ruder storms, then to sink, and be no more.

They were the pillars of the temple of liberty; and now, that they have crumbled away, that temple must fall, unless we, their descendants, supply their places with other pillars, hewn from the solid quarry of sober reason. Passion has helped us; but can do so no more. It will in future be our enemy. Reason, cold, calculating, unimpassioned reason, must furnish all the materials for our future support and defence.

Let those materials be moulded into general intelligence, sound morality, and in particular, a reverence for the constitution and laws: and, that we improved to the last; that we remained free to the last; that we revered his name [George Washington] to the last; that, during his long sleep, we permitted no hostile foot to pass over or desecrate his resting place; shall be that which to learn the last trumpet shall awaken our Washington.

Upon these let the proud fabric of freedom rest, as the rock of its basis; and as truly as has been said of the only greater institution, the gates of hell shall not prevail against it."

Abraham Lincoln, Lyceum Address, 27 January 1838

What a difference there was in attitude, in the American of Lincoln's day, to the memory of the great patriots and Founding Fathers, which still was so fresh in their minds. Yes, there are always outliers and lawbreakers. But then there was a sense of outrage and disgrace at the exceptions, not a cynical acceptance of dishonor and deception as a rule.

But above all, their humility and devotion under God, to the oaths which they had solemnly taken, to preserve, defend, and to uphold the Constitution, trampled on almost daily now, from outrage to outrage, by a corrupt and greedy Congress and Executive and Judges, cynical politicians and their whoremasters the bankers, who consider themselves as gods, and the Constitution as 'just a goddamn piece of paper.'

As Andrew Jackson said of the Federal Reserve Bank of his day:

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out."

Jackson had government officials secretly investigating the bankers, to obtain the evidence of their schemes and frauds. But the cowardly President, and craven and corrupt Congress, do not appear to even have the courage and the will to audit it, to force it to answer questions truthfully and with the appropriate oversight, and make itself accountable, even in the face of conflicts of interest and the appropriation of billions in funds under false pretenses, which they gave to their cronies on Wall Street. Such are the times.

Knowledge grows by sharing. When you find it, repost and and forward it wherever you can. Little by little, the truth will find a way, but it takes our efforts to set it free. I think that I am running about 12 to 24 months ahead of the curve, so the ideas expressed here will not obtain much credit now. But watch as things unfold. There is more to tell, but revelations have to be made in their due course.

And if by chance, for whatever reason, this blog should ever go dark before happier times can come, then remember me in your thoughts and prayers, as I will remember you.

SP 500 September Futures Daily Chart

Rough week for bully.

Stocks need to find a footing right here, or continue heading lower, conceivably much lower, next week.

Note to Mish: The BLS Added About 145,897 Imaginary Jobs to the Non-Farm Payrolls Headline Number

I like Mish Shedlock. He has intellectual integrity, and even when we occasionally disagree, as I recall over the inevitability of deflation and some of its particular consequences and manifestations, I listen to his arguments carefully. He draws conclusions that are difficult to fault. Most of the time we seem to be in agreement.

In his most recent blog, he indirectly poses an interesting question.

"Hidden beneath the surface the BLS Black Box - Birth Death Model added 145,000 jobs. However, as I have pointed out many times before, the Birth/Death numbers cannot be subtracted straight up to get a raw number. It contributed to this month's employment total for sure, but the BLS will not disclose by how much."

Mish Shedlock, Jobs Decrease by 125,000

Here are the Imaginary Jobs added to the Non Farm Payrolls from the Birth Death Model of the BLS. As Mish reminds us, (thank you Mish. I have been nagging bloggers about this for years), the Imaginary Jobs are added to the unadjusted payroll numbers, which are dramatically impacted by the seasonal adjustments, which are sometimes quite significant.



I include this second chart show the Birth - Death numbers over time to show the historical trend. It is remarkable how 'regular' this number has been over the past six years despite an epic recession that devastated small businesses, which is purportedly what this model tracks.



Here is a visual depiction of the Seasonally Adjusted and the Unadjusted Non-Farm Payroll Numbers. As you can see, the adjustment is sometimes very significant. Remember, the Birth Death imaginary jobs are added to the unadjusted number, which is indicated in maroon on this chart.



So obviously one can calculate the 'seasonality factor' using a simple formula

Seasonality Factor (SF) = Seasonally Adjusted Number (SA) / Non-Seasonally Adjusted Number (NSA)

I do this each month in the Payrolls Spreadsheet that I maintain. I like to see if the BLS changes its calculations and assumptions over time, especially when they do major revisions.

And although I have never shown it in this blog before, it is relatively easy to add a few lines to account for the net impact of the Imaginary numbers on the Headline Number.

And so here it is:



It seems counterintuitive that the adjustment is so slight, given the big difference between the net SA and NSA headline numbers as shown in Figure 3. But this is how it is. The reason for this is that the gross input numbers are very large, and so even small deviations from month to month can appear quite large on the net of it. But since the Seasonality Factor is a ratio, it does not have to fluctuate much to have a large impact on the nominal net changes.

The spreadsheet also contains a calculation showing what the numbers would be without the Imaginary Jobs numbers added at all. This month it would have been a loss of 270,897.



One *might* conclude that without the temporary Census jobs and the Imaginary Jobs from non-existent small businesses consisting largely of unemployed people turned consultant, there has been no recovery in net job creation.

This is most likely because of the Fed's and Treasury's policy errors in flooding the banks with largesse to cover their fraudulent insolvency, while neglecting, if not screwing, the public and consumers with one faulty economic prescription after another.

Benny is no Keynesian. If John Maynard. could come back and see what they are doing in his name, I don't think he would be able to stop throwing up. Ohh, bad visual.

A faithful servant of the big banks and corporations, the American version of the kereitsu crony capitalism, I think he's turning Japanese. Timmy, Larry, Volcker and Obama are the Night Pandas, amusing the world with their economic antics while Asia eats their lunch. Disclosure: Timmy is Wee Man, Summers is Preston Lacy, Volcker is Steve-0 when he can stay awake, and of course Obama is Johnny Knoxville.

(All together now.) The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.