- Major magazine says the dollar is more trouble than it’s worth
- “Pure machine rage”: Stockman on Friday’s crash-turned-rally
- TPP deal finalized: Now can we get to see what’s in it?
- Pot, meet kettle: Bernanke wonders where the handcuffs are
- How can the Fed fix the gold price at $5,000 if “the gold isn’t there”?
The alarm bell you’re not supposed to hear is getting louder and more insistent.
“There’s an old saying in the stock market that when prices are about to collapse, ‘nobody rings a bell,'” Jim Rickards reminded us here in The 5 nearly a year ago.
“Yet sometimes, the global power elites do ring a bell. But they ring it for the wealthiest and most powerful individuals only. Everyday investors like you are not intended to hear it.”
Jim was referring then to a passel of reports from the likes of the International Monetary Fund and the Bank for International Settlements. They’re written “in highly technical language and were read by only a relatively small number of expert analysts,” Jim said.
They come with vanilla titles like Uneven Growth: Short- and Long-Term Factors. Snooze…
“Some of these reports may have been picked up and mentioned briefly in the press, but they didn’t make the front pages. For you, such pronouncements are just more financial noise in a flood of information that washes over you every day on TV, radio, the Web, in newspapers and in other publications.
“The power elite were not signaling you — they were signaling each other.”
Over the weekend, the signals became more accessible to a wider audience.
The Economist has long served as a transmission belt of ideas as they move from global elites down to the worker bees in big finance and big government throughout the Western world. It sets the agenda for the people who carry out that agenda.
“For 70 years, the dollar has been the superpower of the financial and monetary system,” says the editorial accompanying this week’s 14-page special report. No vanilla language here: It concludes, “the costs of dollar dominance are starting to outweigh the benefits.”
“A fault line has opened between America’s economic clout and its financial muscle,” the editorial goes on. “The United States accounts for 23% of global GDP and 12% of merchandise trade. Yet about 60% of the world’s output, and a similar share of the planet’s people, lie within a de facto dollar zone, in which currencies are pegged to the dollar or move in some sympathy with it.”
We’ve seen some of the unfortunate results this past summer: “In recent months, the prospect of even a tiny rate rise in America has sucked capital from emerging markets, battering currencies and share prices. Decisions of the Federal Reserve affect offshore dollar debts and deposits worth about $9 trillion.”
If the figure $9 trillion sounds familiar, that’s the number Jim Rickards has cited time and again during his own warnings here in The 5 going back to last January.
But there’s a worse problem: “In 2008-09, the Fed reluctantly came to the rescue, acting as a lender of last resort by offering $1 trillion of dollar liquidity to foreign banks and central banks,” the editorial continues.
“The sums involved in a future crisis would be far higher. The offshore dollar world is almost twice as large as it was in 2007. By the 2020s, it could be as big as America’s banking industry.” And as Jim has pointed out recently, the Fed cannot possibly handle a bailout of those proportions… because the Fed is broke.
“And even without a crisis,” the editorial goes on, “the dollar’s dominance will present American policymakers with a dilemma. If foreigners continue to accumulate reserves, they will dominate the Treasury market by the 2030s.
“To satisfy growing foreign demand for safe dollar-denominated assets, America’s government could issue more Treasuries — adding to its debts. Or it could leave foreigners to buy up other securities — but that might lead to asset bubbles, just as in the mortgage boom of the 2000s.”
Wait a minute: That too would set off another crisis, right? So every possible route ends in a crisis that the Fed can’t handle.
Of course, the elites have a plan to head off that crisis. They hatched it recently in Washington. The plan would effectively replace the dollar. And no, they didn’t alert the media. Nor did The Economist see fit to mention it.
Jim Rickards says the key date to watch is September of next year. That gives you nearly a year to get ready for the fallout. But you don’t want to dawdle. Every day you wait will be one day less to start acting. And as Jim explains here, you’ll need every day you can get to prepare.
Wall Street is experiencing “pure machine rage,” to borrow a term David Stockman used this morning at his Contra Corner blog.
After we went to virtual press on Friday, the U.S. stock market reversed its steep losses triggered by a lousy monthly jobs report. Down 260 points at midday, the Dow industrials recovered that loss and added 200 more points. As we write this morning, it’s tacked on another 170… resting for the moment at 16,642.
What gives? “The stock market can only be described as a dangerous casino which is untethered to the real main street economy,” writes Mr. Stockman. “Friday’s report was about as clear an economic warning signal as you could want. So in effect, the casino was buying hand over fist right into the teeth of the next recession on the conviction that the ship of fools running the Fed will delay ‘liftoff’ yet again.”
Perhaps we were early declaring on Friday that bad news really is bad news again.
[Ed. note: But that’s not a condition that can go on forever. We’re about to launch a venture with Mr. Stockman allowing you to capitalize as the bubbles blown by the Fed start to pop. Stay tuned…]
The massive crony-capitalist giveaway — er, “trade agreement” — known as the Trans-Pacific Partnership is a step closer to reality.
Negotiators for the United States and 11 other Pacific Rim nations — China was pointedly excluded — came to terms this morning in Atlanta, days of protests notwithstanding.
As we’ve mentioned before, only five of the TPP’s 29 chapters cover trade. The rest cover labor, the environment, agriculture, medicine, the Internet, human rights, intellectual property rights. A butterfly can hardly flap its wings without coming under the auspices of the TPP.
At least now after six years of secret talks, we’ll get to see what’s actually in the treaty. Or as pro-TPP Rep. Paul Ryan (R-Wisconsin) said last June when he was channeling Nancy Pelosi, “It’s declassified and made public once it’s agreed to.”
How soon will we know the details? From The Washington Post: “Obama must wait 90 days after the TPP agreement is completed before he signs it and sends it to Congress for a vote, and the text of the accord must be made public for at least 60 of those days.”
Sheesh, even that’s clear as mud…
Now that the statute of limitations has run out, former Federal Reserve chief Ben Bernanke says bankers perhaps should have gone to jail for what they did before and during the Panic of ’08.
As we warned you last April, “The Bernank” is launching a book tour this week to tout his narcissistically titled The Courage to Act.
In an interview with USA Today, Bernanke muses about how the Justice Department pursued the banks, extracting cost-of-doing-business fines… but bankers themselves were untouched. “Everything that went wrong or was illegal was done by some individual, not by an abstract firm,” he said. [You’ll have to imagine him wringing his hands as he said it. He did wring his hands, right?]
Bernanke himself is fortunate he was never subjected to a perp walk. He’s known to have committed perjury at least twice…
- Bernanke told Congress the bonds the Fed inherited in 2008 from the failure of Bear Stearns were investment-grade. Bloomberg News discovered in 2010 — only after filing a lawsuit — they were, in fact, junk
- Bernanke also told Congress in February 2010, “We have no plans whatsoever to be involved in any foreign bailouts.” In reality, Deutsche Bank and Credit Suisse topped the list of banks that dumped their crappy mortgage-backed securities on the Fed between 2007-09.
The picture never gets old, but it seems especially appropriate today…
And that leaves out Bernanke’s still-murky role in Bank of America’s shotgun marriage with Merrill Lynch during the worst of the 2008 crisis. BofA CEO Ken Lewis failed to inform his shareholders at the time about Merrill’s huge losses, as the law required. In 2009, Lewis said he withheld that information on orders from Treasury Secretary Hank Paulson, who was acting “at the request” of Ben Bernanke.
We’re not holding our breath waiting for an interviewer to bring that up during the book tour…
“So $5,000 gold would press us into inflation, eh? I’m sure it would,” a reader reflects after our episode last Thursday — describing how the Fed could set a gold price by fiat and finally get the inflation it wants.
“Then again, that scenario presupposes that the U.S. actually has its reputed 8,100 metric tons of gold stashed.
“Too many reports question the reality of the U.S. gold reserve. Me too. It seems logical (to me) that if the reserve actually exists (and had not been leased out or ‘rehypothecated’ (what the hell is rehypothecation?), would it not be advantageous to have it audited by an unquestioned authority? If the reports of no audit since the Eisenhower administration are true — the fact that the Treasury/FED won’t conduct an audit now tells me a lot.
“I’m working my way through Rickards’ The Big Drop. Have learned a lot. Wish he’d written more about the alleged U.S. gold ‘reserve.’”
The 5: He will.
In the meantime, don’t forget the old Scottish aphorism about possession being 9/10ths of the law. Sure, Western central banks might lease their gold to commercial banks… and those commercial banks might sell off that metal to Asian buyers… but the physical gold underlying those transactions stays put.
“People don’t understand leasing,” Jim told me in 2013. “They somehow think that if the federal government leases gold to JPMorgan, that JPMorgan backs up a truck and drives away. That is not what happens. The gold stays where it is. The gold doesn’t go anywhere. The gold’s in Fort Knox, the gold’s at West Point, the gold’s at the Federal Reserve.
“When you look at all this, it’s very clear that the losers are not going to be the banks and the government. The losers are going to be the institutions and the individuals who think they own gold and don’t.”
That’s why the Venezuelans, and to a lesser extent the Germans, have been so keen to repatriate their gold.
Best regards,
Dave Gonigam
The 5 Min. Forecast
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