Peter Schiff: Brace for “Abrupt” Dollar Collapse

Outpacing former U.S. Comptroller General (1998-2008), David Walker, the indefatigable Peter Schiff has markedly stepped up his appearances, interviews and overall visibility of the past year with his dire message to investors: prepare for an “abrupt” dollar collapse. Get my next ALERT 100% FREE

Though a thorn in the side of Wall Street’s behemoth banking cartel, broker-dealers and the financial media that serves them, Euro Pacific Capital’s CEO Schiff strips away the tired rhetoric, massaged sentiment building, shameless hype, obfuscation and outright rumor spreading of CNBC’s broadcast, all characteristic of an old guard desperately clinging to power though its control of a highly sophisticated media-driven propaganda campaign deployed to hide the foreshadowing symptoms of a coming economic collapse.(1)

Speaking with SeekingAlpha’s contributing writer, Garrett Baldwin, Schiff deploys his own version of the truth, which he sees as an endgame for dollar hegemony manifesting in future sharp declines in U.S. Treasuries.

“I do believe that it [the decline in U.S. Treasuries] will be very abrupt,” said Schiff. “I think when the dollar collapses, it will happen very rapidly. When the bond bubble bursts, the air is going to come gushing out. It’s not going to give a lot of people time to reverse their position.”

And like the Nasdaq and housing bubbles, both pricked into collapse, the U.S. sovereign debt bubble, too, has “a lot of pins” out there grasped by powerful  invisible hands; and “it’s [Treasury market] going to find one eventually.”

Peter, the son of famed tax protestor Irwin A. Schiff, has demonstrated that his message to investors can be trusted as pure, no less than uber-American patriot U.S. Congressman Ron Paul’s plea to revamp the global monetary system and phase out the Federal Reserve during his presidential 2012 bid.

While unabashedly speaking truth to power about the dollar’s ultimate worthlessness void of its artificial props, Schiff offers real solutions to what former U.S. Comptroller Walker has metaphorically stated is a “burning platform”—not in the sense of how best to put out the fire (though Schiff tried in his bid for U.S. Senator for his home state of Connecticut), but how investors can profit from an inevitable Roman Empire-like decline.

Schiff’s decade-long message to investors who seek protection from the coming colossal collapse, which he originally saw coming as far back as 2000, is to own gold.  His advice back then rewarded investors with a 700%+ return in nominal terms and much more in real terms when compared with the contrasted performance of more widely-held assets, such as real estate and the S&P500.  The S&P still trades below its 2000 level while home prices continue to fall.

When the subject of gold’s breathtaking drop in late 2008 and early 2009 was broached, Schiff defended his record, talking about the performance of the gold price within a larger context of the overall bull market in the metal since its $255 price tag low of 1999.

“In 2008, gold prices went down, but they’re double what they were now – then,” Schiff explained.  “So people still made money on precious metals. And of course if they bought precious metals, years earlier, had they bought them in 2002, 2003, 2004, even though 2008 was a down year – or at least the second half was. They’ve more than recouped that.”

Schiff continued, “So, people have been able to profit, certainly from the advice to get out of the dollar. The dollar is quite a bit lower than it was when I first started telling people to get rid of it based on these forecasts. Even though it’s higher than it was a month ago, it’s much lower than it was years ago. And the dollar will continue to fall.” Get my next ALERT 100% FREE

To expound on Schiff’s strategy for survival of the mother of all currency crises he sees on the horizon, investors may want to refer to the lifelong work of Princeton Economics’ founder Martin Armstrong, a man whose study of market cycles may shed more light on the coming years’ volatility in the gold market.

Though Armstrong’s personal life is controversial, his brilliant work with market cycles led him to advise the Reagan White House on how best to handle the aftermath of the 1987 stock market crash—which developed into the infamous Working Group of Financial Markets, more popularly referred to today as the PPT (Plunge Protection Team).   Twenty-three years later, the eccentric Armstrong strongly suggests that the volatility we now see in all markets across the globe will increase dramatically into the year 2016.

Speaking with King World News this past week, Armstrong said the volatility will be, frankly, frighteningly breathtaking.

“We’re going to increase volatility by 50% over the next two years, and then, going into the latter part of 2016 it will double again,” he told KWN’s Eric King. “It’s the way markets move.”

“Boil a pot of water.  When it gets to the boiling point, you’ll see all of a sudden the water juts burst into bubbles,” Armstrong explained.  “That’s the way the market is.  And that final end is when you get that doubling effect.  And when you see that, sometime it can be more than double, but when you see that, that’s the time when you are getting into the final top.  So we haven’t seen anything like that yet.”

And to hammer home the point made by Messieurs Schiff and Armstrong, gold investors must focus on the endgame and not the extreme volatility in the gold market.  To keep it simple, the old stead hand of financial markets, Dow Theory Letter’s Richard Russell, said about gold in a roundtable discussion with Financial Sense Newshour in 2003, “I think it’s a bull market [in gold]. The bull will always try to shake you out, go up with the least people as possible.”  Russell suggested  that investors should not look at the gold price anymore than they look at the market value of their houses on a day-to-day basis.  Instead, the 87-year-old veteran of the markets said,  “You buy and take a position in gold, and that’s it.”

Footnote:

(1) Today’s early-morning c update on CNBC featured a roundtable discussion session, including the establishment’s most sycophantic shill of television, Steve Liesman, a 20-year and enabling CNBC veteran Joe Kernen, another of Wall Street apologist guest, and the 34-year-old Andrew Sorkin.  As Sorkin began to hit home the salient points behind the reasons for OWS’s growing uprising—now sprouting worldwide—Liesman, abruptly stepped on Sorkin and began the 3-man gang up operation on the young Gerald Loeb Award winner.

Stagflation worse than 1970s, says Jim Rogers

Speaking from Singapore, famed commodities trader Jim Rogers of Rogers Holdings urged investors to run from bonds and avoid a serious knock to your purchasing power during, what Rogers believes will be, the upcoming mother of all post-WWII inflation. Sign-up for my 100% FREE Alerts!

For those who remember the ‘stagflation’ of the late 70s, now picture how the US would look after a double dose of the Arthur Burns/William Miller Fed policy of the 1970s hits the US economy today.  Times were very bad then for those holding paper assets.  And Rogers expects that we’ve seen nothing yet.

“As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds,” Rogers told CNBC on Friday, “Somewhere along the line we get to the point when (bond prices) go down.”

Between the years 1974 and 1980, consumer prices jump more than 8 percent on a compounded basis each year.  On average, the cost of living rose more than 50 percent during that 5-year period, while inflation-adjusted household net worth plunged more than the wealth destruction following the wake of the Great Depression.

Unemployment peaked at 9 percent (BLS U-3) in the Spring of 1975.  Loans were expensive and the roads were littered with older-model cars.  Stocks went no where and bonds tanked during the long decade of the 1970s.

Under a Rogers scenario, money-supply induced inflation, the bulk of it exported by the Fed, will return to US shores soon amidst a steepening decline in the dollar. Rogers insists US bonds are aching for a big fall when the dollar falls.

“I wouldn’t advise anybody to buy bonds, I would advise you to sell bonds,” he said. “If I were a bond portfolio manager, I would get another job.”

Rogers scoffs at the notion of the US mirroring the Japanese experience of multi-year low yields despite loose monetary policy from the BOJ.  The comparison is flawed, said Rogers.  The US dependency on foreign sovereign debt purchases is off the charts—it’s historic.  Japan funds a lot of its debt through exports and domestic debt purchases.

“A difference is when Japan did that they were the largest creditor nation in the world,” Rogers explained.  “America is the largest debtor nation – not just in the world – but in the history of the world and the U.S. dollar has been – and is the world’s reserve currency. So there are some factors that might not keep the interest rate down in the U.S.”

For the US to fund its ever-increasing deficits, foreign buyers of Treasuries must buy at ever-increasing rates, a situation that won’t square with a slowing global economy, a Europe engulfed in a protracted financial crisis, and in the midst of a budding trade war with the no. 1 buyer of US Treasuries (after the Fed), China.

According to Shadowstats.com John Williams, after backing out the heavily massaged consumer prices index (severely revised methodologies for calculating CPI, post-Reagan), CPI has already breached double digits.

“As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds – somewhere along the line we get to the point when (bond prices) go down.”

Rogers is looking into the future, of course.  But could the foreign exodus out of Treasuries be in progress?  It’s tough to say until the TIC data come in, but recent Fed statistics of the last 9 weeks regarding its custodial account suggest something is going on—right now.

Fed data series H.4.1 reveals that since the week ending Aug. 17, foreigner(s) have unloaded nearly $83 billion of US Treasuries, or nearly 2.4 percent or the total held by the Fed, within a 9-week period. That calculates to a 14.4 percent annualized simple rate of decline of the account, at a most inopportune time, as the Fed needs a dramatic increase in foreign participation to avoid monetizing even more US debt (contrary to Bernanke’s statements, the Fed is monetizing, though the technicality of waiting a few weeks after auction to buy debt from its primary dealer network, he thinks, allows him to fudge the truth).

Zerohedge states: “ . . . in the week ended October 12, a further $17.7 billion was ‘removed’ from the Fed’s custodial Treasury account, meaning that someone, somewhere is very displeased with US paper, and, far more importantly, what it represents, and wants to make their displeasure heard loud and clear.”

China, maybe?  We’ll wait for the TIC data.

In the meantime, the Bernanke Fed operates increasingly more in the  shadows to keep the US bond market alive—but when the Fed stops (if it does stop) buying the overhang of escalating additional debt, the bubble burst will be that much louder, according to Rogers.

“Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us,” Rogers said. “so they can drive interest rates down again. As I say they are making the bubble worse.”

“In the 70s you didn’t make much money in stocks, you made fortunes owning commodities,” said Rogers.

 

 

 

 

 

 

Dow Theory Letters Richard Russell: to tell you the Truth, I’m Scared

In his latest edition of the longest-running financial newsletter ever penned by a single author, that author, Richard Russell, announced to his readers what his gut tells him is around the corner as 2011 moves closer to a close.

In short, he wrote, “I’m scared.”

The 87-year-old Russell, publisher of the 53-year-old newsletter Dow Theory Letters has seen enough of the best, and certainly more than his fair share of the worst American experiences throughout his long life—all, of which, has awarded him the additional respect from his peers in the financial writing business, above and beyond his rare acumen for the markets.

Among the worst of the Russell experience, stored in, what Market Watch’s Peter Brimelow refers to as, that “brilliant” mind, most certainly would include the Great Depression, WWII, all post-WWII recessions—especially the stagflation years of the 1970s, which nestled nicely within the 1968-1982 bear market in stocks—and various currency collapses throughout the world during his unsurpassed longevity working the charts, indicators and exercising prudent judgment.

Today, Russell wrestles with his emotions during his day-to-day observations of markedly increased homelessness in his affluent town of La Jolla, Calif., with “signs of hard times” everywhere you look, he wrote, “but will it get harder?” he asked.  “It all brings back bad memories of the 1930s.  And to tell you the truth I’m scared.”

And to drive home the gravity of the seriousness of Russell’s sixth sense for trouble, especially to those still sitting on the fence wondering what to do next with their portfolios, let’s review Russell’s expectations for 2011, originally published on the Internet as early as January 10, 2011.  You may agree; his nose for future events has developed quite well throughout the decades.

“This year [2011] might even be a black swan year,” stated Russell. “Certain events are now in place, events that have never been seen before in human history … we are dealing with debts so monstrous, so huge, that most people can’t fathom them … The Muslim community is huge, and it has moved heavily into many European nations. The radical Muslims intend to express their world leadership … Dictators in North Korea and Burma and Iran and Africa are no longer safe in that they can no longer keep their populations ignorant and in slavery,” he added.

“There is a huge disparity between the wealthy and the poor. The poor greatly outnumber the wealthy. This has all the ingredients for revolutions in the age of instant and world-wide communication.”

The makings of a “black swan” event are in place for 2011, he concluded.

Russell’s intuition apparently told him that the Bernanke Fed was about to upset the applecart with his well-telegraphed plans—first, in disrupting those countries with very low global Purchasing Power Parity among its population.  Inflation raises food and energy prices, initially, destroying family budgets in poor countries such as Tunisia, Egypt, Morocco and other faraway places, where more than half of household income spent there goes to food and energy expenses.

Now it appears money printing will resume once again—and at a big clip, too.  The eurozone bailouts, the Japanese weak-currency policy, the Swiss loosely pegging the franc to the euro, China’s reinstatement of a U.S. dollar peg, the further monetary easing at the UK, and the U.S. Fed now hinting that additional easing above ‘Operation Twist’ may be necessary.  It’s not much of a stretch to wonder why Russell is scared.

“Gold — When all else is suffering from devastation, when politicians have destroyed their own sovereign money, gold will still have value, and gold will still represent buying power,” he wrote earlier this week. “I’m holding mine for the same reason that I own health insurance.”

Echoing Russell’s sentiments regarding the merits of owning gold at this time, precious metals specialists, GoldCore recently wrote in a recent gold market assessment piece on its Web site, and linked from zerohedge.com. “This demand [for gold] is due to concerns about the global economy, growing inflation risks and the real risks posed by currency debasement being seen globally.”

Adding, “Should gold go parabolic, it may be time to reduce allocations to gold – but we appear to be a long way from there yet.”

Continuing, “This is not the end game which unfortunately looks increasingly like an international monetary crisis – centered on either the U.S. dollar or the euro or both.”

“This demand is due to concerns about the global economy, growing inflation risks and the real risks posed by currency debasement being seen globally.”

Yup, scary times, indeed.

Another Marc Faber Shocker

The always-entertaining Marc Faber has done it again.  Speaking with CNBC’s Joe Kernen yesterday, the eclectic Swiss-born money manager from Chiang Mai, Thailand, blasted the American people for its whining, tantrums and bellyaching now that six decades of dollar hegemony has left a tab too enormous to pay.

The message to Americans who saw his appearance on CNBC, which, by the way, has quickly spread throughout the Web is: “Listen you lazy bugger, you need to tighten your belts, you need to save more, you need to work more for lower salaries.” A truly vintage Faber shocker.

Another guest, who was in studio, chimed in following the Faber rant, “Well, that’s essentially what David Cameron is saying in the United Kingdom and it doesn’t seem to be working too well, so far.”

“Yes, because no one wants to work in the UK,” Faber chuckled.

Looking a tad puffy in the eyes, Faber originally began the Kernen interview by noting that he had just been chatting with some “chums” with his “blonde” in Montreal, where he was telecast for the early-morning appearance at CNBC’s studio in New York.  So those familiar with Faber’s moods just knew several more quotable Faberisms were in the offing.

In between the colorful rhetoric, Faber said the present gyrations in the markets can be traced to a tightening of global liquidity brought about by European banks front-running the scheduled debt maturities time bombs in Greece and Italy (among other countries not evident on the radar due to transparency issues, bogus accounting and stress tests).  And when liquidity becomes tight, as happened in 2008, the risk-on trade comes off and the dollar trade comes back on—the knee-jerk reaction among traders that commodities guru Jim Rogers alluded to in his interview with Russia Today on Oct. 4.

“As far the dollar is concerned, the reason I’m actually quite positive is that global liquidity, despite of the fact that the ECB and the European governments will flood the market with liquidity to pay the sales out, that global liquidity is tightening,” said Faber.  “And whenever global liquidity is tightening, it’s bad for asset prices but good for the U.S. dollar as was the case in 2008.”

Faber blames policymakers and lobbyists for U.S. debt woes, suggesting to Occupy Wall Street protesters, without mentioning them by name, that attacking the free market system is misguided, but going after the architects of a failed crony capitalism system, instead, is understandable.

“As to that huge level of debts, I don’t see how the Western world, including the U.S., Japan and Western Europe can actually grow,” Faber explained.  “They’re going to stagnate. And when you have stagnation over a longer period of time, people start to ask questions and then they go after minorities. And Wall Street is a minority – they are a minority and anyone else would have done the same. They use the system. But they didn’t create the system. The system was created by the lobbyists and by Washington. So they should actually go to Washington and also occupy the Federal Reserve on the way.”

What the U.S. really lacks, according to Faber, is an iron-fisted ‘leader’ such as Singapore’s first prime minister, Lee Kwan Yew—the man who believed public caning was appropriate punishment for 40-listed criminal offenses.

“I’ll tell you what the U.S. needs,” Faber began to rant, as only he can.  “The U.S. needs a Lee Kwan Yew who stands in front of the U.S. and tells them, ‘Listen you lazy bugger, you need to tighten your belts, you need to save more, you need to work more for lower salaries’”

Peter Schiff’s Outlook for Gold & More QE

Speaking with Eric King of King World News yesterday, Euro Pacific Capital CEO Peter Schiff suggested that central bankers and policymakers remain resolute in keeping the financial system from collapsing by printing more money.  Contrary to the growing chorus of lemmings paraded on CNBC who chant the Fed is “out of bullets,” Schiff insists that the group-think conclusion drawn among analysts is utter nonsense.

“The Fed is not out of bullets in the sense that it is not out of ink, they can keep printing,” Schiff told KWN.  “They can’t lower interest rates, but they can print more money and buy more stuff.  That’s what the Fed is going to do, it’s not going to help the economy, but it’s going to help the price of gold.”

Unlike the deflationists, who claim that irrespective of monetary policy, all asset classes except best-quality sovereign debt (cash) preserve wealth during periods of debt destruction, Schiff’s street-smarts as well as his firm grasp of economic history lead him to advise his clients against holding cash. Instead, Schiff tells his clients to hold precious metals during times of debt destruction and to ignore the media-driven propaganda leveled against investing in gold and silver.

On France’s 222nd anniversary of the storming of the Bastille (La Fete Nationale), July 14, Schiff, in an essay, exposed Fed Chairman Bernanke for his incorrectly drawn conclusion (self-serving, maybe) for the reason behind the relentless highs reached in the gold price throughout the past decade.  Bernanke told Congress gold’s inexplicable rise was probably due to investors hedging “tail risks.”

“If it were true that people bought gold to protect themselves from market uncertainty, as the chairman claims, then the metal should have spiked in the midst of the ’08 credit crunch,” Schiff explained in his July 14 piece.  “Instead, it fell along with most other assets.”

And, since the 2008 crash (in all asset prices, except U.S. Treasuries) and two QEs from the Fed in response to the meltdown, spot gold nearly trebled in price to $1,930 in September of 2011 from its October-2008 crash-low of $680.

A more complete picture of the crash aftermath can be gleaned on a relative basis between hard money and paper assets.  In purchasing power of gold against the dollar (Schiff’s point all along), it took 12 ounces of gold to buy one share of the DJIA in October-2008; today, the Dow can be purchased for 6.78 ounces—a 77% increase in purchasing power in dollar terms in three years—and that purchasing power muscle includes the steep decline from the September high of $1,930 in the gold price to today’s 13.5% discounted price of $1,670.

Just as the global markets in 2008 rushed from one side of the boat to the other in another convulsing liquidity crunch, the history of knee-jerk reactions back into the dollar repeats.

Schiff stated in his July piece, “[In 2008] people instinctively fled into U.S. dollars and Treasuries because of their long record of stability. What Bernanke doesn’t understand is that his irresponsible monetary policy is undermining that faith in U.S. assets, built up over generations. That is what’s driving gold: easy money, negative interest rates, and quantitative easing.”

Schiff agrees with famed commodities investor Jim Rogers on that point.  Both agree the Fed will continue debasing the U.S. dollar (the underlying catalyst for the bull market in gold), but in the meantime liquidity concerns outweigh that strong underlying fundamental of the gold market.

Rogers said in an Oct. 4 interview with Russia Today, “The standard reaction is in times of confusion is to run to the U.S. dollar.  It’s the wrong thing to do in my view, but I know they’re all going to do it, so I’ve done it [before the run].”

So what does Schiff (and Rogers) think, today, is in store for the dollar and gold market?

“QE3 is coming, if it is not here already,” Schiff told KWN yesterday.  Rogers echoed Schiff’s observation (conclusion) in the October 4 interview with RT.

“Gold prices are going a lot higher,” Schiff said.  “There is a lot of upside left in the gold market and I think we are years and years away from making a top [as a result of QE3 and subsequent QEs].”

Schiff continued, “We’ve had a large selloff and so it would be a big move for gold to make new highs and get above $2,000 before the end of this calender year, but it’s certainly not impossible.  If it doesn’t happen in 2011, it will happen in 2012, we could end up a lot higher.”

Dexia Collapse further demonstrates Case for Gold

At this point, during the third year of the Kondratiev Winter, the politicians’ blueprint to hide another global Lehman-like collapse of the financial system should be clearly evident to anyone even remotely paying attention to the mentally-exhausting saga in Europe.

With this weekend’s collapse of the Belgium/France retail bank Dexia Group, the obfuscations, misinformation campaign and downright lies surrounding the imminent fall of this behemoth financial institution could easily serve as yet another textbook case for owning gold.

The kickoff to gold’s rise to prominence, once again, began this Sunday with the fall of Dexia and events leading up to its fall as not reported by media, a leading Wall Street institution and a credit agency.

“A severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” Treasury Secretary Tim Geithner told the U.S. Senate Banking Committee.

Taking politicians’ comments as worthless is obviously a given, but when those paid in the private sector to provide the heads up continue failing time and time again, gold shines—as it always has throughout history’s enumerable variations on the same play, but performed by different actors.

Here’s how the Dexia collapse was handled by those worthy of the big bucks:

First, the European banking system ‘stress test’ was performed to demonstrate the health (or lack thereof) of individual banks to absorb an impact of debt write-offs during the crisis.  Bogus results, either intentional, or not, were dressed up in  pomp to an ‘elite’ audience of financial shamans last week.  The irony of the conference in London wreaks of Captain Smith’s ‘unsinkable’ Titanic.

At the Bank of America Merrill Lynch Banking & Insurance CEO Conference held in London on October 6—three days before the Dexia bankruptcy announcement—America’s most destined to fail financial institution (that, for three days, shut down its Web site, presumably to prevent a run on Warren Buffett’s bank) assured the crowd of money ‘experts’ that Dexia would withstand a direct hit to an iceberg.

The now infamous ‘slide 9‘ of the presentation revealed that the champ of the rough financial seas was, indeed, Dexia Group.  The bank ranked No. 1 after the stress test.

Meanwhile, through the mainline arteries of financial information reporting, Moody’s eased itself into proving it was worthy of handicapping Dexia’s chances, decided on Oct. 3 to place Dexia on ‘review of a downgrade’ —fearing, again, it, too, would be placed on investors’ watch list for another credibility downgrade in the rating agency business.

“Moody’s Investors Service has today placed on review for downgrade the standalone bank financial strength ratings (BFSRs), the long-term deposit and senior debt ratings and the short-term ratings of Dexia Group’s three main operating entities — Dexia Bank Belgium (DBB), Dexia Credit Local (DCL) and Dexia Banque Internationale à Luxembourg (DBIL),” the credit reporting agency released in a statement.

“The review for downgrade of Dexia’s three main operating entities’ BFSRs is driven by Moody’s concerns about further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market.”

Goldman Sachs, in its mission to do “God’s work,” almost missed warning investors of its concern for the Belgian/French bank by taking a full two days after Moody’s to figure out that its Buy recommendation may appear foolish days before the collapse.

“Our thesis was that, given time, Dexia’s legacy assets should run down, its unrealized loss pull to par (independently of credit spreads), in turn boosting equity growth and reducing funding requirements,” stated Goldman in a October 5 release.”

It continued, “The opposite took place: a deepening sovereign crisis increased the riskiness of these assets, resulting in a wider AFS negative reserve and forcing higher losses on disposal as well as higher than anticipated funding requirements. The headroom to progressively delever is therefore taken away and forced immediate action, as announced by the bank on October 4.”

After careful review, Goldman reported that Dexia was a tossup—downgrading the bank form a Buy to a Neutral.  Water was coming in at the bank’s hull, but the ship was already deemed unsinkable.

On Sunday, Dexia was reported as sinking to the ocean floor.

“Gold will eventually rally exponentially and investors who don’t own the precious metal are ‘insane,’ and may be showing ‘masochistic tendencies,’ Robin Griffiths, technical strategist at Cazenove Capital, told CNBC on Jan. 11.

Who’s Cazenove Capital?  It’s been rumored for decades to be the financial institution to the British royal family.

Jim Rogers: Running to the Dollar, “It’s the Wrong Thing to Do”

Speaking with Russia Today’s Lauren Lyster, Tuesday, investor and financial author Jim Rogers of Rogers Holdings said the world is awash with “serious, serious problems facing it” and that U.S. policymakers have only exacerbated the problems of sovereign debt.

In Washington, while the 2012 election cycle begins in earnest, politicians seek to appease angry constituents by jumping on the opportunity to scapegoat China as the source of a horrendous jobs outlook in the U.S.

“We’re already in a trade war,” U.S. Senator Charles E. Schumer (D) of New York told NY Times. “We can’t afford to just do nothing. This is a message to China that the jig is finally up.”

The latest bill that’s slated to clear the Senate this week, which calls for punishing China as a currency manipulator, would be a serious matter if not taken within the context of an election year, according to Rogers.

“It’s [Senate bill] a media charade,” he said.  “. . . if you read the bill, you see that there’s an out.  They leave it up to the Department of the Treasury to determine what to do.”

But Rogers turned serious at the thought of the possibilities of election year posturing escalating to bona fide sanctions on Chinese goods to the U.S.  He said history shows that trade wars can easily lead to a slippery slope down to shooting wars.

“But Lauren,” Rogers continued “this could be terribly, terribly dangerous if we turn into a trade war.”

“If America does put on tariffs on the Chinese, the Chinese have various weapons at their disposal; they can stop buying American government bonds; they can sell American government bonds.”

“If they did that interest rates in America would go through the roof.   The value of the U.S. dollar would go down a lot, perhaps a lot, at least a little.”

A trade war is not good for the U.S. and not good for China, he said, and could back leaders on both sides into a corner if the economics in the U.S. don’t improve.

“But what happens, Laura, whenever people get slapped in the face, they always think they have to slap back,” said Rogers.

On the dollar.  “The standard reaction is in times of confusion is to run to the U.S. dollar.  It’s the wrong thing to do in my view, but I know they’re all going to do it, so I’ve done it [before the run].”

“Many people, wrongly in my view, wrongly, believe the U.S. dollar as a safe haven.  I own it.  I don’t own it as a safe haven.  I own it because I just assume everyone else is going to run there.  It could go much higher for a while.”

But in the end, Rogers sees the U.S. in worse shape than Europe’s economic problems, though right now the focus remains on Europe.

“The U.S. as a whole is the largest debtor nation in history,” he said.  “And we have a lot of independent states, Illinois, California, New York, to name a few, which are in very dire straits, like Greece, Portugal and Ireland.  So all of us in the West have serious problems.”

‘Occupy,’ Sequel to a Tunisian Street Merchant’s Plea

Occupy Wall Street hit critical mass this week, with one of the first signs of a movement going Arab emerging on Google Trends.  At 9:30 EST, the single word “Occupy” reached the 20th spot on the list of hot trends.  The movement, which began on Wall Street, is going national.

Similar gatherings are scheduled in Boston, Hartford, Savannah, Seattle, Washington D.C. and Tampa.

The social uprising that started in Tunisia following the self-immolation of a Tunisian street vendor Mohamed Bouazizi in December 2010, then spreading to  copycats in Egypt, Algeria and Morocco, kicking off the Arab Spring, has now come to America.

The Bouazizi story is a sad one.  With unemployment reaching 30% in his rural town of Sidi Bouzid, Bouazizi tried to support his mother, his sick uncle, and younger siblings by selling produce out of a wheel barrel in the town.

Family and friends reported routine harassment from the police who sought bribes in exchange for granting Bouazizi permission to sell produce in their territory.  Bouazizi, who had purchased his tiny business through a $200 loan, could not, or would not, pay the bribe.  In retaliation, the police confiscated his wares—and, according to his family, put him out of business in an undignified manner.

The next day, Bouazizi’s pleas to the governor for redress were scoffed at and ignored.

Police harassment and confiscations were the last of many others inflicted upon Bouazizi, according to his family.  After years of fighting for the right to make a living in his town, Bouazizi doused himself with gasoline and struck a match in the middle of traffic.

Witnesses to the incident reported Bouazizi’s last words were, “How do you expect me to make a living?”

After his death, Reuters quoted one of Bouazizi’s younger sisters: “What kind of repression do you imagine it takes for a young man to do this? A man who has to feed his family by buying goods on credit when they fine him … and take his goods. In Sidi Bouzid, those with no connections and no money for bribes are humiliated and insulted and not allowed to live.”

But, according to Bouazizi’s mother, it wasn’t the poverty that sent her son over the edge; it was the humiliation.

“It got to him deep inside, it hurt his pride,” she said, referring to government oppression and bullying of her son.

Fast forward to today and across the globe, Americans respond to similar indignation from government inaction against the criminals of Wall Street as well as the Wall Street police who protected them.

Banker bailouts, massive bonuses for Wall Street cronies while high unemployment among the duped go unaddressed.  After two years of worsening economic conditions and no sign of justice from government to prosecute the fraud that paved the way to a financial collapse, the humiliation has taken a toll on a people promised freedom, equality and a fare shake.  Instead, the tax payers have had their carts turned over and spat on by billionaires and by the police who protect the racket.  Not only will the culprits go free, but the people will be sought to pay for the bankruptcies through the use of force.

“These young people are speaking for the vast majority of Americans who are frustrated by the bankers and brokers who have profited on the backs of hard-working people,” said Larry Hanley, international president of the Amalgamated Transit Union. “While we battle it out day after day, month after month, the millionaires and billionaires on Wall Street sit by — untouched — and lecture us on the level of our sacrifice.”

“Their goals are our goals,” said James Gannon, Spokesman for the Transport Workers Union Local 100. “They brought a spotlight on issues that we’ve believed in for quite some time now. … Wall Street caused the implosion in the first place and is getting away scot-free while workers, transit workers, everybody, is forced to pay for their excesses.”

And, like the mayor of Sidi Bouzid’s handling of the Bouazizi affair, the mayor of NYC, Michael Bloomberg (net worth estimated at $19.5 billion), continues to fight for the status quo in his town.

“The protesters are protesting people who make $40,000 to $50,000 a year and are struggling to make ends meet. That’s the bottom line, he told socialist organization WSWS.  “Those are people that work on Wall Street or in the finance sector … We need the banks, if the banks don’t go out and make loans we will not come out of our economy problems, we will not have jobs.”

Bloomberg believes allowing the same individuals who created the crisis are the very same ones who should lead us out of one.  Lloyd Blankfein, he believes, should continue “doing God’s work.”

He added, “And so anything we can do to responsibly help the banks do that, encourage them to do that, is what we need. I think we spend too much time worrying about how we got into problems as to how we go forward.”

Peter Schiff: Brace for Impact; Buy Gold, Buy Silver

Speaking with Yahoo’s daily investing show Breakout, Peter Schiff alerted investors to the dangers he sees for the U.S. dollar are just around the corner: “We’re on a collision course for disaster . . . Get as far away as you can from U.S. currency and the U.S. economy.”

Schiff noted the debt deal reached over the weekend by U.S. lawmakers, just passed by Congress on Tuesday, has been reported by media as another near-disaster averted for the U.S. economy.  Schiff believes otherwise.

Ostensibly, now that the train wreck was narrowly sidestepped, the expectations for a big market rally on Monday, promulgated as a close call through media slant and hype, was, in fact, just a “massive victory for propaganda that would have done Goebbels proud,” Schiff said, and added, “The reckless thing to do was to raise the debt ceiling.”

According to zerohedge.com, “. . . the U.S. closed out Fiscal 2010-2011 with a $95 billion surge in debt in one day bringing the total to just under $14.8 trillion.”  And on the first day of fiscal 2011-2012, Treasury Secretary Timothy Geithner added another $47 billion to the U.S. debt total.  “In other words, in just the past two work days, America has technically settled a whopping $142 billion in debt.”

Zerohedge goes on to state that not long ago public outrage ensued at deficits of that size accumulated during the entire fiscal year.  With the total national debt now reaching $14.837 trillion, the slug fest fought between Republicans and Democrats regarding the debt ceiling is about to be fought again, as the ceiling  stands at only $400 billion from the official $15.194 trillion settled between the two parties just this past summer.  That takes the U.S. past the debt-to-GDP ratio past the psychological 100 percent threshold.

As a result, according to Schiff, attention on the U.S. due to its ‘worse than expected’ debt-to-GDP ratio and a worsening economy are a death knell for the dollar.  Government borrowing is not only crowding out the private marketplace for credit, he said, it’s raising to the cost structure of the U.S. economy.

For years, Schiff has repeatedly said, terrible employment numbers from the Labor Department will continue as long as the debt ceiling is raised, which then provides ever more fuel to precious metals prices.  Schiff anticipates the response to a deteriorating U.S. economy will come by way of the Fed in the form of additional ‘stimulus’ sometime this year.

“The reason we can’t grow the economy is because the government is in the way… There’s no jobs because there’s no recovery,” Schiff explained.

“We’re on a collision course for disaster. All we can do, all your viewers can do is brace for impact…,” Schiff concluded the interview.  “Buy gold. Buy silver… Get as far away as you can from U.S. currency and the U.S. economy.”

Marc Faber releases Gloom Boom Doom Report

Hold onto your seats, says Swiss money manager and publisher of the Gloom Boom Doom Report, Marc Faber; it’s going to be a rough ride ahead for investors.

In his latest view on the markets, the quintessential contrarian suggested in his October edition of the Gloom Boom Doom Report that the real threat to global markets is China, not the global financial crisis epicenter of Europe.

China, he stated, may be on the verge of economic collapse, stemming from the dreaded one-two punch of rapidly increased capital goods overcapacity to match significant reductions of global demand for its products.

The recent precipitous decline in the price of cooper tells Faber that China’s rapid GDP growth may have been somewhat of a mirage for a spell.  What was once thought of as a clever means for China to dump U.S. dollars in favor of ramped-up infrastructure spending in the People’s Republic, with numerous reports streaming into the West of newly-built cities erected in anticipation of millions of soon-to-come inhabitants, may, instead, result in another example of a Mao-like central planning scheme gone bust.

In 2010, at a conference in Russia, hedge fund manager Hugh Hendry of Eclectica Asset Management opined about the very same risk he had seen to the Chinese economy, quipping, at that time, “Confucius say: Though shall not invest in overcapacity.”  Hendry proceeded to warn of a surprise economic collapse in China reminiscent of Japan’s meltdown of 1989.

In recent years, massive infrastructure increased as a percent of GDP in China, while consumer spending dropped as a percent of the total output of the Chinese economy, temporarily front-loading stellar growth results that, it appears, now, are unsustainable and at risk of collapsing the Asian juggernaut.

Faber, who’s been spot on, so far, with his prediction for weaker gold prices in the short term (before a next leg up in the metal becomes a play against serial central banking mishaps), stated that this latest correction in gold may last a while longer, still—and might take the precious metal to the $1,100-$1,200 level before the bottom is reached—a la 1974-76.

“We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-1,200,” Faber told CNBC’s Steve Sedgwick on Sept. 25. It appears Faber hasn’t backed off his call of the 25th.

As a backdrop to Faber’s thinking at this time, it should be noted, too, legendary currencies strategist John Taylor of FX Concepts suggested a 50% decline from the $1,900 mark was in the cards for gold.  But, more impressively, Taylor told Bloomberg during the summer months of 2011 that gold could touch $1,000 after reaching a new high of $1,900.  Eerily, Taylor made those calls when gold traded at approximately $1,500 per ounce while the gold market was about to enter the seasonally slowest months of the calendar year of July and August.

Faber suggested in his latest report to subscribers that a drop he envisions for gold to the $1,100-1,200 range would mimic the historical performance of the gold price during the 1970s.  In 1974, gold traded as high as $200, up nearly six-fold from the official $35 peg of 1971, then sold off off to $100 by 1976.

But as history shows, the damage to the dollar had already been done following the Nixon Administration’s executive order to decoupled the dollar from its gold backing in 1971.  After the 1974-76 decline of 50% in the gold price, from the $200 high of 1974, back down to $100 in 1976, the gold price never looked back, skyrocketing to $850 per ounce by January 1980—a nearly 85% compounded return during that 42-month period.

Could Faber be right again, or has he gone too with in his prediction in the wake of ongoing fat-tail moves in emerging market currencies and European sovereign bonds?  Conventional wisdom today is Europe is going down and it’s about to get uglier than the Lehman crisis ever got.  But, unlike the Lehman event, everyone’s expecting the worse outcome in Europe this time around.  Has the gold market already priced in a catastrophe in Europe, or not?  We’ll see.