Global Currency Crisis & Gold – What’s Really Going to Happen in 2011 – 2012

Following on from the first 2 parts in this series: Whats really going to happen in 2010 Whats going to happen in 2010/2011 – part II Another great writer and analyst makes it into our categories section, Bob Chapman of Global research with a seminal must read piece outlining the road ahead towards a new [...]

QE to Infinity Guarantees Return To Gold Standard

by admin on 25/02/2011

Jim Willie has long been one of our favourite writers, but we have refrained from re-posting most of his writings as he can be somewhat controversial, even when ultimately, and usually proven right.

So this part of his latest post quoted in part below is a must read in our opinion, you should read the whole thing on the link below because there’s lots of silver news not included here, we’re just going to stick to the “Return of the Gold standard” theme today.

QE2, The Road To A Gold Standard

THREAT OF USDOLLAR CRISIS – By Jim Willie CB

The Bernanke USFed is on the road to triggering a USDollar panic, a run on the buck. The USEconomy can become more competitive if the USDollar declines hard and worker pay scales fall hard. In the view of many, QE2 then QE3 will present two alternatives, rabid price inflation or USTreasury debt default.

A QE3 program is guaranteed by the chronic federal deficit in excess of $1.5 trillion. Even the usually compliant Wall Street Journal has been opposing USFed policy, with dire warnings of deep USDollar devaluation, debt downgrade, and hefty labor wage cuts. Higher USTreasury Bond yields are the currently ignored flashing signal, hardly what Bernanke promised over a year ago when QE1 was launched, and hardly what he promised when QE2 was launched.

But then again, he has been wrong about the housing market, the  mortgage market, the economic recovery, nascent price inflation, bank stability, a housing recovery, and just about everything. Serving as Secretary of Inflation, he manages the money creation diligently and liquidity facilities with such aplomb and dexterity.

Thus he is revered. Unlike the Great Depression, for which he is a revisionist history expert, massive price inflation has begun to accompany the hyper-inflation on the monetary side. Bernanke was selected as the dumb professor in residence, the bag holder, the obedient lackey, and idiot savant.

My forecast is for both rabid price inflation and USTreasury debt default, the former in spades at this moment and the latter in due time.

If the USDollar declines significantly more than what it did in the 2000 decade, and worker wages fall to more competitive levels, then to be sure the US labor market would find itself more in line with foreign worker wage levels. A stimulus would be felt, but at a great cost.

The price inflation effects would be powerful, while the lower income purchase power would aggravate the price effects in a profound double whammy.

US households would feel an introduction to the Third World of poverty. USTreasury Bond yields have risen markedly in the last several months since the USFed announced the reckless QE2 bond purchase program born of cancer. Focus on the opposite ends of the USTreasury yield curve. The 30-year USTBond yield has shot up noticeably, the opposite of what the oafish clownish Bernanke expected. During that time, the 2-year USTBill yield has been stuck under 0.5% for over a year. The Treasury Yield Curve has grown steeper, which normally happens at the beginning of a recovery, due to investors moving out of risk free bonds into riskier assets like stocks.

This time around, the steeper yield curve signals the advent of unwanted price inflation without any trace of recovery prospects.

In a typical credit cycle, the yield on the long-term bond would start to fall due to investor expections that the USFed intention to raise short-term rates to curb potential inflation.

The yield curve is signaling one of two things: inflation or default.

My forecast is for BOTH. In fact, NO signal can be seen of a robust recovery. Fast rising costs are spreading like a powerful virus across the USEconomy. The latest crude oil threat out of Libya highlights the viral aspect. Businesses will suffer vanishing profit margins. Household will suffer vanishing extra income, the discretionary spending source.

The USFed credibility will experience yet another huge blow when prices rise across the entire spectrum but they take no action.

I repeat, NO inflation, and definitely no tanks in the square either..

They will instead deny the price inflation and point to absurd meaningless measures, their habit. The preppy lieutenant in charge, Geithner actually claimed that the banking officials had ample experience dealing with the crude oil threat. Mularky! They are experts at producing inflation and asset bubbles, following by fraud coverups and regulatory body silence.

Even worse, US bank leaders will explain the urgent need for QE3, especially when the new USGovt fiscal budget is approved, complete with its inherent deficit estimated to be at least $1.6 trillion.

USGovt debt buying has dried up. Recall the baseless chatter two years ago about reducing the deficit from $1.3 trillion to $500 billion in two to three years. The Jackass rebuttal stated in early 2009 was to expect $1.5 trillion federal deficits for as far as the eye can see. We have exactly that! The Bernanke Fed is totally committed to keeping interest rates low for an extended period, like forever.

Chronic high deficits and a crippled housing market guarantee 0% rate policy continuation forever, or at least until a USTreasury Bond default.

Few mention even in the gold community that the high negative real rate of inflation is the most powerful elixir and fuel propellant for the Gold price rocket. [BuyGoldSilver.org did in Jan 2010 HERE ]

With the true CPI at 8% and rising (see the Shadow Govt Statistics), and near 0% official FedFunds rate, the real rate is falling more dangerously negative. Such is constant fuel for the rising Gold price. The flood of extra liquidity has lifted commodities prices in a grotesque display of unintended consequences.

A climax comes for an end of the USDollar. The extravaganza of monetary expansion ushers in the advent of hyper-inflation. The response will be an urgent global demand for monetary discipline. The Gold Standard is a device for that discipline. The demand for USDollar as well as other currencies comes from the failure of the bond world, including sovereign bonds. The supply for USDollars as well as other currencies comes largely from the Printing Pre$$, gargantuan government deficits, and coverage of black holes like the credit derivatives and Fannie Mae mortgages. Witness an historic bust of a fiat currency system resting upon numerous economies built atop bubbles. A revolution in currencies is in progress. Hyper-inflation in prices is well on its way, the aftermath from monetary hyper-inflation by reckless bankers insistent on bailing out bank failures, enabling bank frauds, and providing banker bonuses. Even Black Swan author Nassim Taleb urges avoidance of the USTreasury Bond and the USDollar.

Taleb trumpets a theme, advising every single human being to bet Treasurys will decline because of the policies of USFed Chairman Bernanke and the Obama Admin.

Taleb believes the United States is just like Greece, only without the Intl Monetary Fund to enforce discipline.

Worse, the Euro Central Bank is often a voice of restraint, whereas the USFed is the grand centrifuge of inflation and perpetrator of monetary fraud.

Bill Gross of PIMCO also believes the a bond riot would be a positive event to enforce debt discipline by the USGovt. The USTreasury Bond is the final asset bubble, but a very harmful one. Its bust will ensure an economic depression, and an explosion in the price of Gold & Silver, even crude oil. Gold is guaranteed to rise by double, and silver certainly much more. If a USTreasury Bond bust occurs, the Gold & Silver prices will rise to breathtaking levels. Those who believe Silver will be harmed by economic ruin are just plain morons. Their deflation arguments are the dumbest chapters written in our day, since they ignore the monetary inflation response and how Silver has been included as a monetary asset, even a reserve asset.

THE GOLD STANDARD, RELUCTANTLY

A powerful Reactive Law of Nature dictates that in the absence of a Gold Standard, the world will seek an alternative, a quasi-Standard, a stand-in substitute, whatever functions reasonably well or effectively. Crude oil and homes served well. Nowadays the entire commodity basket serves the purpose, except that means a destructive rising cost structure. Recall the fraudulent underpinning of the QE2 movement itself, to produce jobs and stimulate the USEconomy. One must be a total blockhead idiot to believe that further Quantitative Easing, aka monetary hyper-inflation, would stimulate any economy. Instead it will act like a huge wet blanket, one that even eliminates a return on investments in savings certificates of deposit, keeps down the earnings that fund pensions, and much more. The hidden message behind the QE2 chapter, the second of many, is that:

The USFed is planning to give every working man and woman in the US a big pay cut, so the USEconomy can more capably compete with foreign labor.

The US is heading to a dangerous place where poverty abounds, the population is rendered unable to contend with the rising costs, shortages crop up, and labor turns cheap. The many claims that the USTreasury Bonds cannot default come from simple minds and empty craniums, fed by propaganda and arrogance. They have never seen a run on the USDollar, which has begun.

China might be considering a gold-backed Yuan currency. But they must not go alone. Any launch of a currency with strong basis foundation will threaten to de-throne the USDollar.

China must NOT form the lone currency with a gold component in operation.

If China did it alone, embarked on the path without other monetary allies like Russia or Germany, then the Yuan currency would rise by 50% to 100% quickly. That would kill their export industry and turn the economy of the Middle Kingdom into a burned crisp. Such a radical move must be done in concert with most of the world monetary leaders, excluding the most egregious nations in violation. Point the finger at two nations most responsible for bond fraud, market interventions, bank insolvency, and constant monetary inflation. Read the United States and United Kingdom. Basically, those nations not participating with the Chinese lead would plunge into the Third World.

A Gold-backed Yuan could happen alongside a Gold-backed Nordic Euro, a planned coordinated direction.

Try to imagine the US & UK, along with PIGS nations, bidding up the Yuan and Nordic Euro, killing the USDollar and other native currencies. That process would force a shocking price inflation episode on American and British soil, as well as Southern Europe, that would invite a systemic failure. No global financial dominance is possible without control of global monetary system from a catbird seat, a control position. The fallen nations, if debt burdened, risk falling into the

Third World in the flip flop. The rise of China can only come if the United States falls perilously. Such is the powerful motive for world war.

Dominique Strauss-Kahn from the Intl Monetary Fund has called for a new world currency. All such attempts to replace the USDollar by a basket of paper currencies are absolutely futile. Observe desperate maneuvers to switch discredited executives on a Board of Directors with other unqualified executives.

The currency basket concept is a subtle attempt at currency exchange rate fixing, since a basket of currencies inherently would contain fixed ratios within the basket.

So if the Powerz cannot prevent a USDollar decline that releases a wave of global price inflation, they might attempt to hitch the US$ to the other damaged currencies in a clever gesture. It will not work. The Axiom of Sound Money dictates that only a hard asset currency can replace a broken fiat paper currency as global reserve for usage widely in banks and commerce. Dominique is totally clueless, preaching in front of a burning bonfire of paper currencies without recognition that the underlying problem is paper money and QE is the lighter fluid.

The world needs a reasonable US monetary policy first and foremost!!

He advocates inclusion of the Chinese Yuan from the emerging market nations to a basket of currencies that the IMF administers, a move be believes could add stability to the global system and reduce exchange rate volatility. The IMF device called Special Drawing Rights (SDR) is an official fixed basket currently composed of the USDollar, Pound Sterling, Euro, and Yen. The SDR is not a new class, but a repackaged old class. At the Paris G-20 Meeting of finance ministers, absolutely nothing was either agreed upon or solved.

The SDR basket vehicle might gain widespread acceptance in order to halt the global price inflation. But its basket will break apart since the USDollar is the generator of monetary hyper-inflation.

The fixed inherent ratios would have to change on a weekly basis, not every several years. The reduction by numerous nations in their US$-based reserves in a diversification to a different basket would result in a powerful decline in the USDollar exchange rates. The basket is not a static concept. How idiotic!

A new alternative as supposed solution to the monetary crisis is a foursome basket of global reserve currencies. The world saw a desperate gambit revealed at Davos to retain the fiat paper currencies with multiple reserve currencies. The move would be an exchange rate price fix attempt, nothing more. The concept is akin to the IMF basket, and equally unworkable in a futile attempt to avert imposition of the Gold Standard. Lack of action assures chaos, the Jackass forecast. Action is far too difficult to agree upon and implement.

A movement is afoot to create four global reserve currencies, as other major currencies would join the crippled USDollar.

The vehicle instrument would be the Special Drawing Rights (SDR) from the IMF. This is a crackpot concept born of total desperation and steadfast refusal to work toward realistic reform, simply a patchwork of the broken currency regime. Multiple reserve currencies would mean immediate diversification out of the USDollar, and thus a significant US$ devaluation within the process of its actual installation, since the US$ would go from 65% to 30% of reserves held officially.

The four-part reserve basket could work for a short time, like a month or two, provided the USDollar is devaluated by 20% suddenly within the basket inception.

How totally unworkable, as though a sudden change could avoid a transition. These bankers are idiots as much as witch doctors.

Alan Greenspan supports the Gold Standard. After almost two decades of making great contributions to destroying the global monetary system, encouraging a sequence of asset bubbles, blessing them as good, and reinforcing the calamitous bank derivative foundation, Greenspan repeated his devotion to the inert precious metal of historical importance. A Gold Standard would enforce laws against abuse, fraud, and basic counterfeit. The Gold price in the sanctified regime would require a reset to at least $6000 per ounce. One must truly wonder if Greenspan, along with countless other monetary criminals of our era, have invested personal fortunes in Gold while destroying the global monetary system in thorough fashion.

My suspicion is that for over 15 years, Greenspan, Rubin, Paulson, Dimon, Blankfein, Mack, and a dozen major Wall Street executives took the opposite long gold position in their personal accounts while their wrecked corporations took the short gold position.

Former USFed Chairman Greenspan again reiterated his support for the Gold Standard, following World Bank president Robert Zoellick, credit analyst Jim Grant, and Kansas City Fed president Thomas Hoenig. They have no political capital to lose in doing so, since none is elected. They are all elite members of different pedigree.

Greenspan stands out as the person most responsible for the American addiction to cheap toxic credit, the nearly complete destruction of the middle class, displaced industry, a ruined economy, and insolvent banking system. Greenspan said,

“We have at this particular stage a fiat money which is essentially money printed by a government. It is usually a central bank which is authorized to do so.

Some mechanism has got to be in place that restricts the amount of money which is produced, either a Gold Standard or a currency board, because unless you do that, all of history suggest that inflation will take hold with very deleterious effects on economic activity.

There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard.”

The deleterious price inflation has arrived. The USEconomic risks depression. Greenspan actually questioned openly whether the United States really needs a central bank.

Ka Boom!!

Some quick napkin calculations. According to Dylan Grice of Societe General, a great adjustment would be required if a Gold Standard is imposed. The monetary base would have to go through a re-index stage, setting the currencies to a real time equivalent price of Gold. He estimates the proper value of Gold to be $6300 per ounce. His reasoning is derived from simple arithmetic. He said,

“The US owns nearly 263 million troy ounces of gold, the world’s biggest holder. While the Fed’s monetary base is $1.7 trillion. So the price of gold at which the US dollars would be fully gold backed is currently around $6300.”

Next bring into the calculus that the USGovt has almost zero gold except admittedly in Deep Storage reserves, namely mountain ore bodies of yet unmined gold bullion final product, like deep beneath the Rocky Mountains. Primary school arithmetic teaches us that when zero enters the denominator, the resulting quotient bears an infinite result.

Hence, the gold price in USDollar terms, given the total lack of gold reserves, has an infinite potential price.

The Jackass believes that no upper barrier exists in the Gold price. The march upward in price will be halted only when a global replacement to the USDollar is launched, with great effort, courage, and gold initiative. The Gold Standard is not only the obvious solution to enforce discipline, it is a reluctant solution since the banker elite prefer their fraud.

The next QE3 initiative will be born from desperate need. Numerous causes will be put forward as beneficiary to the next Quantitative Easing chapter. It will form like a bandwagon. Its approval will invite a global shrill outcry, and demand for a Gold Standard. The USFed must overcome the price inflation (especially food) objections in order to win political approval. That would involve a vigorous debate to be sure, but one that USFed and USCongress can overtime with other false promises and twisted logic, their specialties. The QE programs will be endless until the United States is cut off globally.

Many are the causes and suppliers of bonds for entry toward USFed support in QE3, via the monetization engines.

Of course, the USTreasury Bonds will need buyers, given the chronic continuing yawning federal deficits. The Fannie Mae mortgage bonds will need buyers, given the desired movement to phase out the toxic firm (key word desire). It will never be phased out, any more than a garbage dump is removed from city outskirts. Big US Banks will stand in line looking for buyers for the flood of Mortgage Putbacks, given the court decisions that come and the MERS court dismissal of legal standing. The Municipal Bonds are overdue for needed buyers, given the plight of the states and cities, provided they all abandon their employee pension obligations. The hidden need is for the derivatives that hold together the US banking system structurally, in particular the Interest Rate Swaps, given the difficulty in keeping interest rates down. So the advent of QE3 is a lock, my forecast. The Bernanke Fed must sell QE3 from urgency and national survival!! His credibility has never been lower, still falling rapidly with each passing month and each fresh chaotic outbreak like Egypt and Libya. Each QE chapter makes the next far easier to sell, since desperation and ruin are nearer to the system and its participants. Prepare for QE to infinity!

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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by Jim Willie CB
Editor of the “HAT TRICK LETTER”
Home: Golden Jackass website
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BuyGoldSilver say:

We think that with every passing day we are closer to the global recognition that a return to the Gold standard is the only logical way forwards, and we’ll give you today’s insider tip, it’s much cheaper now than it will be once that happens.. ;)

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