Fed Plans Dollar Devaluation, New Evidence; Why Now?

By Dominique de Kevelioc de Bailleul

Zerohedge.com once in a while posts a bombshell.  The latest, This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied – The Sequel, proves once again that Trends Journal Founder Gerald Celente should top investors’ Google News alerts for his latest outlook and commentary.

“You don’t own your money unless you have it in your possession.
—Gerald Celente Nov. 2011 (following MF Global’s sudden bankruptcy, Oct. 31)

And to put some official sanction to an already corrupt banking system, the safest of safe assets, cash, will shockingly turn out to be not safe after all when the big reset nears.  In fact, cash, too, will be confiscated through, maybe, another Obama Executive Order, more un-prosecuted fraud and consolidation to benefit JP Morgan, or just an old-fashion overnight currency devaluation, which is usual and customary—and is, presently, the odds on favorite after all attempts by the Fed to jury-rig the banking system fails.

As the following excerpts of the NY Fed proposal to Bernanke and Co. reveals, plans for coping with a banking crisis in the U.S. via some form of dollar devaluation are underway, including capital controls to stem a bank run—of course.  Therefore, it’s necessary to make changes to Money Market Rule 2a-7.

Title: The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds

 . . . This paper proposes another approach to mitigating the vulnerability of MMFs to runs by introducing a “minimum balance at risk” (MBR) that could provide a disincentive to run from a troubled money fund. The MBR would be a small fraction (for example, 5 percent) of each shareholder’s recent balances that could be redeemed only with a delay. The delay would ensure that redeeming investors remain partially invested in the fund long enough (we suggest 30 days) to share in any imminent portfolio losses or costs of their redemptions. However, as long as an investor’s balance exceeds her MBR, the rule would have no effect on her transactions, and no portion of any redemption would be delayed if her remaining shares exceed her minimum balance. [her?  Politically-correct thieves.]

The motivation for an MBR is to diminish the benefits of redeeming MMF shares quickly when a fund is in trouble and to reduce the potential costs that others’ redemptions impose on non-redeeming shareholders. Thus, the MBR would be an effective deterrent to runs because, in the event that an MMF breaks the buck (and only in such an event), the MBR would ensure a fairer allocation of losses among investors.

Importantly, an MBR rule also could be structured to create a disincentive for shareholders to redeem shares in a troubled MMF, and we show that such a disincentive is necessary for an MBR rule to be effective in slowing or stopping runs. In particular, we suggest a rule that would subordinate a portion of a redeeming shareholders’ MBR, so that the redeemer’s MBR absorbs losses before those of non-redeemers. Because the risk of losses in an MMF is usually remote, such a mechanism would have very little impact on redemption incentives in normal circumstances. However, if losses became more likely, the expected cost of redemptions would increase.  Investors would still have the option to redeem, but they would face a choice between redeeming to preserve liquidity and staying in the fund to protect principal. Creating a disincentive for redemptions when a fund is under strain is critical in protecting MMFs from runs, since shareholders otherwise face powerful incentives to redeem in order to simultaneously preserve liquidity and avoid losses. . .

Importantly, an MBR rule also could be structured to create a disincentive for shareholders to redeem shares in a troubled MMF, and we show that such a disincentive is necessary for an MBR rule to be effective in slowing or stopping runs. . .

. . . if losses became more likely, the expected cost of redemptions would increase.

[emphasis added to the above text]

And that bank run is sure to come, according to John Williams of ShadowStats, among other ‘unencumbered’ analysts, and will most likely involve all the “if necessary” clauses to kick in, such as “suspending redemptions” of money market funds altogether.

As the moment of another Lehman-like collapse (on steroids) nears, more and more bold calls for soaring gold prices by regulars of King World News (KWN) streamed in, all within a week.

With Spanish 10-year notes reaching 7.47 percent, Tuesday, closing above 7 percent for the past two trading days, and the IMF preparing to cut Greece off, the air is rife with an imminent emergency QE from the Fed, a global QE announcement of some kind, or at the outside chance, a complete financial panic brought on by a systemic European bank run.

However, Bernanke and his colleagues won’t allow a collapse as long as investors believe they’re still relevant.  More QE most likely is at hand to keep Spanish yields from, then, pushing up Italian yields above 7 percent, creating three fires in the eurozone instead of the only one fire still raging in Greece.

“It [global QE] is coming a lot faster than the gold bears think. It can be any weekend now. It could be this weekend,” Jim Sinclair of JSMineset stated on his blog this weekend.

“The longer the central banks wait, the more nuclear and longer the QE blast will have to be maintained,” he added.  “The price of gold is going to $3,500 and higher.”

And Eric Sprott of Sprott Asset Management brought up ‘black swans’ in his lengthy interview with KWN late last week.

“My biggest ‘black swan’, Eric, is that I think I’ll be right one day,” said Sprott.  “My worry is that one day they just shut everything down.  They say, ‘You know what, we just can’t keep this up anymore, the whole Ponzi (scheme), we just can’t do it and we shut it down.’

“All of the markets freeze, and the stocks that you are short are never allowed to go where they were.

“They might cease gold trading, in the normal sense, or maybe they will even outlaw gold trading.”

Jim Rickards, another regular on KWN was quoted by Austria-base FORMAT, Tuesday, “I expect a gold price of $7,000 by the next several years.”  Rickards, too, expects the U.S. to either outlaw gold possession or tax it into the underground economy.

Egon von Greyerz Matterhorn Asset Management told KWN, “ . . . my target on gold of $3,500 to $5,000 over the next 12 to 18 months, and then over $10,000 in 3 years.”  von Greyerz is convinced the monetary ‘authorities’ will have to incorporate gold back into global settlements.

Gerald Celente said on Max Keiser’s program, On The Edge, a false-flag attack could be in the offing before a QE announcement, presumably to distract the world from the Fed’s upcoming ridiculous and reckless policy move.

And, the interview to rival the Sinclair announcement comes from the Anonymous London Trader (ALT), who told KWN’s Eric King that something big will be coming out of official channels soon.  There’s too much discussion and scuttlebutt surrounding the unmentionable topic among polite company, which is, allocated gold accounts, or better, yet, the lack of allocation, thereof.

“It is now beginning to be discussed, openly, that the unallocated gold is not at the banks,” said ALT.  “This is definitely the case with many of the allocated accounts as well.  The reason I’m pointing this out is you have a more ‘open’ disclosure that’s taking place with regards to this.

“This tells me there is something major that is happening behind the scenes.  It tells me that the LBMA’s price fixing scheme is coming to an end.  You have these naked short positions, that are incomprehensible to most people, in both gold and silver….”  [emphasis added]

With GATA’s Bill Murphy’s testimony of his ‘connected’ source suggesting August will be the month of fireworks in the gold market, Nouriel Roubini making the rounds telling the world that the U.S. economy is tanking—again—and reports from Germany-based Der Spiegel that the International Monetary Fund will stop funding Greece as soon as the EMS becomes operative in September (which is still not funded), the world is on the precipice—for the umpteenth time—of financial Armageddon, unless something drastic comes out of the world’s central banks, soon.

All of that comes back to the NY Fed’s latest proposal to the FOMC.  If adopted, the NY Fed proposal to institute capital controls on money market funds may come sooner than investors now believe.  But you can count on central bankers to deploy Jim Sinclair’s mantra “QE to infinity” in the meantime.  In the eyes of neo-Keyensians, they have no better choice but to devalue the U.S. dollar more rapidly.  Gold (and silver) will be the last refuge.

Surprise Second-Half Gold Rally, Says Guru Economist

The man whose passion for urging investors to load up on gold bullion since the Fed tipped its monetary policy hand following the collapse of Lehman Brothers in 2008, has jumped a notch in intensity in his latest update for gold investors.

Stephen Leeb, economist and best-selling author, told King World News Washington lawmakers and Federal Reserve Board of Governors have been so reckless with their handling of U.S. budget deficits and monetary policy in response to the collapse of the global credit Ponzi scheme that he wants to move to Canada before the crisis in Europe blows up—because, after all, a repeat of the past will most likely strike again.  Sign-up for my 100% FREE Alerts

It was Europe that triggered the greatest economic depression in U.S. history—the Global Depression of 1873-96.  Then it was the U.S.’s turn to return the favor during the decade of the 1930s following the 1929 U.S. stock market crash which quickly spread to London, Paris and across the rest of continental Europe.

According to Leeb, the relatively sanguine Leading Economic Indicators (LEI) data streaming in of late is now topping.  The second half of the year will reveal what the Fed most likely already knows is coming, a catastrophe—the beginning of the next leg down in the global economy that will turn the most defiant of the reality confronting the U.S. into true believers.

Jim Rogers of Rogers Holdings and economist John Williams of shadowStats.com, too, expect the worst of the trouble to gather steam after the election.  The Fed is expected to preempt the downturn in the LEI with more QE.

“QE3 to me seems to be a 80-20 probability right now, within the next 3-4 months, or maybe even 90-10 given that there’s an election out there,” said Leeb. “I don’t see any reason not to be in gold at this point, even from a relatively short-term basis.”

“Long term, the case is so powerful it’s . . you know . . it’s crazy,” Leeb added. “Gold, gold junior miners, you know, you’re not going to believe what it gets to in five years.  I mean this is a gift—all these prices at this point, all of them.”

Leeb goes on to say the eurozone is seriously flawed, as the Maastricht Treaty of 1992 didn’t account for the problems that may arise considering the disparate economic models between member nations.  As an example, Germany’s culture of production and stable fiscal and monetary policy starkly contrasts with Spain’s culture of collectivism leanings and zestful social lifestyle.

“The euro is not going to last . . . Spain right now has about 25 percent unemployment, Leeb explained.  “They’re being forced to be austere to satisfy the needs of the euro, and that’s just not going to fly.  It’s no going to fly.”

Unlike some economies, such as the United States of post WWII, massive debt and deficits incurred by Spain cannot be grown into, according to Leeb.  U.S. production capacity and global position relative to its competitors after the devastation of Europe during WWII allowed U.S. deficits approaching 30 percent of GDP to quickly shrink to a surplus within several short years.  In contrast to the example of Spain, its model and position on the world stage cannot achieve anywhere near similar results.  Ditto for Greece, Portugal and other European nations.

“What does Spain produce?  I’m not even sure what Spain produces . . . They’re not a country that can really grow their way out of the kind of mess that they’re in right now.  And if that’s the case, soon or later something is going to break.

“And curiously enough, Eric, that is what’s holding gold; that’s the difference between gold being $1,600 today and gold being at maybe $2,500.”

Leeb continued by telling investors that the price of gold today already reflects the expectation of another plunge in the gold price in sympathy with a collapse in the euro, similar to the drop in gold following the surprise collapse of Lehman Brothers and the immediate liquidity a sold gold position provided the global financial system during that crisis in 2008.

Is FX Concept’s John Taylor wrong about gold’s probable fall to the $1,000-$1,200 level before retracing to new highs?  And for the time frame of his prediction, Taylor said in a Bloomberg interview in the summer of 2011 that sometime in April or May (of 2012) gold would become a super bargain.

Leeb says, probably not so.

“ . . . in Europe, it’s the same kind of calculus [a Lehman-like event].  People feel that there will be a major event.  When, is the only question,” Leeb said.  “And they’re a little bit scared to get into gold with both feet until that event is out of the way.  So my advice to people is, not buy that conventional wisdom because, it doesn’t usually play out the way people think [it will play out].

“But if it does, have a little money in reserve because, any drop you see in gold based on some catastrophe in Europe is probably going to be the greatest buying opportunity of your life.  And I’m not really kidding about that.”

Leeb is so convinced of gold’s meteoric rise following a potential sharp drop in its price that he even suggested buying the precious metal using margin.  Sign-up for my 100% FREE Alerts

Source: KWN

Tim Geithner Spills the Beans, U.S. Debt Crisis Looms

As the European sovereign debt crisis quickly spreads to Spain (again), with the Spanish 10-year bond yield once again soaring past 6 percent (on its way to the magic red-alert yield of 7.5 percent), the half-life between sovereign debt bailouts appears to be diminishing.  Predictions of a four-year time window to prepare for the mother of all currency crises could turn out to be overly optimistic, with the latest rumblings that suggest the math won’t work a lot sooner than originally estimated by some economist and analysts focused on the problem.

So says U.S. Treasury Secretary Timothy Geithner, if lightening has indeed struck again.  Sign-up for my 100% FREE Alerts

From the weekend program, Meet the Press:

DAVID GREGORY: If we don’t deal with these debt problems we are going to be Greece in two years”

GEITHNER: “No risk of that.”

A year earlier, when Geithner was asked about scuttlebutt brewing of an impending downgrade of U.S. debt, he assured the world that there is “no risk of that” either.  Weeks later, rating agency Standard & Poor’s rocked the financial markets with an announcement of a debt downgrade of the world’s remaining superpower.

Geithner, once afforded the traditional benefit of a reasonable measure of public trust, lost all credibility on the day of the S&P announcement, as a case made that the highest-ranking Treasury ‘official’ wasn’t privy to an impending historic milestone of such gravity was never attempted by anyone in the Obama administration.

Could Geithner have slipped up again?  Does he know the dollar’s days number less than two years’ worth?

Though a stretch, as it may appear, Geithner’s otherwise carefully measured responses during his tenure as Treasury Secretary have at times been marked by fits of overplayed knee-jerk protests—’me thinks’.  As in the case of S&P, it’s become clear that Geithner may exhibit a ‘tell’ under certain moments of duress.

If U.S. debt and current account deficits weren’t so bizarrely high, coupled with a likelihood of GDP contraction in the U.S. next year coming more into focus; and a growing repulsion by overseas creditors to accumulate more debt, investors could reasonably accept Geithner’s word on the subject of solvency.

But one economist, in particular, is quite sure that 2014 will be the end of the line of 40-years-plus of deficit spending without tears.

“We’re at a scary point in time” in U.S. fiscal history, economist John Williams of ShadowStats.com told Financial Sense Newshour in March.  “Our [U.S.] circumstances are a lot worse than the European situation, in aggregate.  The European situation will work its way out one way or another, and the markets will focus back on the U.S.  I cannot see anyone wanting to buy U.S. Treasuries.”

Williams went on to say that as soon as there is any relief in the crisis in Europe, the bond vigilantes will begin to take notice of the overwhelming fiscal problems confronting the U.S. and its Greece-like characteristics.  For now, he said, the dollar is less ugly than the euro, but that won’t last very much longer.

“The U.S. is the elephant in the bathtub here . . . the European crisis is more like the little yellow rubber duck floating in the tub,” Williams added.  “There will come a time when the markets will begin focusing back on the dollar.”

And that time could be a lot sooner than many in Washington care to admit, according to Williams.  “I expect it to all come to a head in 2014.”  There will be hyperinflation, he said.  It’s only a matter of time and not much can be done about it other than drastic cuts to entitlements and accept a deflationary collapse.  And Williams isn’t giving that scenario much chance.  Sign-up for my 100% FREE Alerts

Silver traders: Stop Cryin’ and Start Buyin’!

As another financial crisis comes to a head, another silver crash ensues.  Oh, the tears of sorrow!

Background:

Though there still exists economists, portfolio strategists and corporate CEOs who still don’t see or admit to seeing a double-dip coming to America [did you watch CNBC yesterday?], everyone’s favorite sleaze, George Soros, on September 21, told—that very same 24-hour propaganda doubly-sleaze outfit—CNBC, that the U.S. is in “a double dip already.”

Sometimes, Soros, too, tells the truth, as long as it aligns well with his fascist global-community agenda.

But if you’ve been listening to John Williams of shadowstats.com, you’d already know the fake recovery was just that, fake, and that the worse days for the U.S. are yet to come.

“As activity begins to turn down again, you are going to see things get even worse, and the continued economic trouble is going to be very long and very deep,” Williams told KWN on July 11.  “That puts the Fed in a circumstance where you virtually are assured of a quantitative easing three. That in turn will weaken the U.S. dollar further.”

But as we all know, Bernanke, instead of giving the market what it perceived it needed on Wednesday, crushed the dollar slide, instead.  No QE3!  Not today, anyway.  But Williams will most assuredly be proved correct after the fight from Republicans on Capitol Hill turns Captain Queeg ‘yellow stain’ as it did during Speaker Newt Gingrich’s 1995 noble fight to turn the money spigots off by shutting down the Treasury-Fed cabal.

At some point, the mob will beg for QE3!  Ask Gingrich, who went from Time’s Man of the Year to the bum who authored the ‘Contract ON America” —which leads us to today’s Fed puzzle.

“The markets apparently were hoping for a large, magic pill for an anemic economy that feels like it’s catching the flu,” Barton Biggs told Bloomberg News.  He’s now been quoted by the Washington Post as saying we may be “on the eve” of a financial crisis.

And Dr. Feelgood at the Fed can’t wait for his patient to beg for that shot, thereby garnering support in Washington and within his own ranks to play catch up in the race to minimize the impact of a crushing debt load plaguing the U.S. economy.

John Williams (as well as BU’s Laurence Kotlikoff) has worked the numbers and concludes that the federal budget is “beyond containment.”  The U.S., too, is standing inline for a Greek moment—a Minsky Moment—but that moment is temporarily frozen in time.

What Bernanke showed us Wednesday is that he is indeed very concerned about commodities prices forking the wrong way during that critical phase of a debt-based monetary system gone hopelessly broken, a phase that von Mises referred to as the ‘Crack-up Boom.’

Bernanke doesn’t want hyperinflation; he’s not stupid.  But he does want some inflation in the money supply (however it’s defined)!  “The Bernanke” just doesn’t want his helicopter money printing of U.S. dollars to become expected by market participants.  Admittedly, in hindsight, he had no choice but to punish the markets for even suggesting, at this time, for that whopper monetary shot.  Bernanke wants everyone on the same page begging for QE3.

The Bernank refers to inflation expectation incessantly in his testimonies, speeches and writings.  Believe it or not, The Bernank (and Greenspan, and every Fed chairman since Marriner Eccles (from whom we get the name of the politburo headquarters in Washington) has heard of von Mises and has read his brilliant works.

Austrian economics professor Ludwig von Mises (September 29, 1881 – October 10, 1973) stated that the Crack-up Boom we’re immersed in today can lead to two outcomes: deflation or hyperinflation.  Von Mises wrote:

“If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse).”

Money supply dropped post 1929 crash, and the student of the Great Depression vowed to Milton Friedman that it won’t happen again.  Take Bernanke at his word.  That’s why he was chosen to head the Fed.

But there’s a catch to the money pumping, many, in fact, but most notably the expectations for the direction of consumer prices.  Are inflation expectations “firmly anchored”? as Bernanke likes to state.

And the best way to crush exceptions is to coordinate an attack, initially, on the Swiss franc and commodities complex, then the precious metals, then, everything connected to the inflation trade.  Bravo.  Well done.

Bless CNBC’s Bob Pisani, too, for his repetitive comments regarding traders “gaming the Fed” the week prior to the FOMC meeting.  He was right!  And Bernanke certainly was on board with that observation along with every hedge fund manager from Tokyo to Greenwich, Connecticut.  Even Greenwich’s has-been Barton Biggs ended up looking like a chump for making a call for a market bottom in August.

Well, it’s Revenge of the Nerds.  Isn’t it?  Cool hedge fund managers getting clocked by a bearded policy wonk.

So what is a fiat-money slave to do?: 

Well, has anything materially changed in the outlook for currencies debasement in the coming zillion years?  Read a little from BU’s Laurence Kotlikoff or subscribe to John Williams Shadowstats.com for an instant primer on the disaster that has been covered up by everyone who’s been benefiting from the cover up.

So, stop cryin’ and start loading up the basket of silver goodies left behind by those unfortunate, scared, stupid, impetuous, lazy, distracted or drugged out to know the tsunami will eventually move from the entire world back to U.S. shores.

And, by the way, if you happen to live in Brazil and were clever enough to hold gold (silver prices will be a commin’, too), gold hit a record high in Reals yesterday.  What?  No coverage on CNBC?  So, the inflation generated by, and led by, the gang of four at the Fed, ECB, BOE and BOJ has reached the ‘invincible’ Brazil.  A crushing 22% collapse in the Real since July 26 spells potential civil unrest from those lagging behind its approximate $10,000 PPP national average.

Watch for a potential Brazilian Real-like crash in the Malaysian Ringgit, Thai Baht, Philippines Peso, Indonesian Rupiah and other currency escape routes out of the U.S. Dollar.  The tide has gone out fully now, and the Bernanke knows it will eventually come back to the shores of the U.S.

MP Nigel Farage said it well; he told King World New’s Eric King, yesterday, “Yeah, we’ve had a setback, a little bit of a settling of the gold price after what was a meteoric rise.  I think the worst in the financial system is yet to come, a possible cataclysm and if that happens the gold price could go (higher) to a number that we simply cannot, at this moment, even imagine.  Gold is in an uptrend and professional traders should be buying the dips.”

Naturally, it’s dittos for buying silver.