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.

Jim Rickards: Reveals Fed Blueprint, Gold $5,000

By Dominique de Kevelioc de Bailleul

Speaking with Russia Today Wednesday, best-selling author of Currency Wars Jim Rickards said Fed Chairman Ben Bernanke is drawing up a blueprint for more ‘QE’, and he expects the gold price to jump three to five times within three to five years as a result of the currency war heating up between the U.S., Europe and China.

However, in addition to his forecast for gold, Rickards also laid out Bernanke’s plan for the timing of the next round of ‘stimulus’ and the signs to watch for—and in a desperate last-ditch effort to yank scared money out of hiding, the Fed has the legal authority to buy equities, which is all good for the gold price, according to Rickards.

“I kinda expect something [QE] in August, September.  But whether it’s then or after the election in January, you can see it coming,”  Rickards told RT’s Lauren Lyster.

Rickards continued to state that the Fed’s tacit mission—implied from the FOMC’s ‘Operation Twist II’ announcement, Wednesday—is to incentivize investor cash to leave low-yielding interest-bearing accounts and to enter the stock market in the hopes of reigniting economic activity and speculation since lost in part due to the Flash Crash of May 6, 2010.

“The Fed wants them [broker dealers] to buy stocks, wants them to buy mortgages; it’s just more market manipulation,” he explained.  “It’s forcing investors to buy other riskier assets, and that will pump up asset prices such as stocks and housing. . . It’s all about getting asset prices up.”

Rickards’ thesis for his expectation of a Fed QE announcement out of the July/August 31-1 or September 12-13 meeting is predicated on the probability of an European Central Bank policy move of lowering overnight interest rates by 25 basis points on July 5.  As Italy and Spain bond yields blow out to near-capitulation levels of six and seven percent, respectively, the ECB needs a “bazooka” to lower rates again to keep the Ponzi scheme of debt from collapsing.

“I still expect that, probably a 25-basis-point rate cut,” Rickards speculated.  “By the way, that ECB rate cut that’s coming, that I see coming, is one of the reasons the Fed could hold off. . . The Fed says, you know, we can hold off on QE3 to August, September because the ECB is going to pick up part of the slack in the meantime. . . I do expect the ECB rates to come first.”

Rickards continued by laying out the sequence of events he sees coming out of both the tag-team efforts of the Fed and ECB, reminding viewers of RT that, through the Fed’s own admission, Bernanke and ECB President Mario Draghi talk privately about coordinating monetary policy between the two premiere central bank reserve currencies.

The ECB “didn’t want to ease ahead of the Greek election, because that makes it too easy on the Greeks,” proffered Rickards.   “Keep the pressure on.  Get the Greeks to do the right thing, which they did.  Then you get your rate cuts and you get your QE3.  That’s the sequence.”

And regarding the question of a globally coordinated interest rate cutting ‘shock and awe’ move to arrest an impending collapse, Rickards dodged the question somewhat, but said it has happened before with the wildly rising Japanese yen which followed the Fukashima tragedy.   A coordinated move between the G-8 outside of targeting one currency, as in the case of the yen last year, would be unprecedented.

Despite the drama in Europe, Rickards is bullish on the euro and expects that, not only will Greece and the other beleaguered PIIGS remain in the euro, but he “expects members to be added over time” and anticipates the next move in exchange rate between the euro and the dollar will be back up to 1.35.

Rickards also said to watch for the June 28, 29 European Summit.  “That’s when we’ll see some very big announcements, and I think positive ones,” he said.

And for the gold price, “My long-run thesis on gold hasn’t changed,” Rickards said.  “I do see it in the $5,000-$7,000 range over a kinda three-to-five-year period as confidence in paper money begins to collapse.  But that’s not something that happens overnight.  The world governments and IMF will print a lot of money before that happens.”

Gold to Pop $1,000+ During Global Banking Emergency

By Dominique de Kevelioc de Bailleul

Waiting for the rally in gold to begin?  Don’t.  Global policymakers plan to institute the vital element of surprise to trap unsuspecting investors into bearing viscous currency devaluations.

As reported by King World News’ Anonymous London Trader, the 515 tons of paper gold dumped onto Chinese buyers of the ‘physical’ within an hour before, and during, Fed Chairman Ben Bernanke’s testimony to Congress illustrates the desperate nature of central banks to dupe the public into complacency and inaction to an epic global financial crisis in progress.

The thinking goes: if the gold price isn’t making a bullish pattern on the charts, then there’s no need to buy it right now.

Veteran money manager John Hathaway of Tocqueville Asset Management proffers in a letter to clients a scenario in which investors could be waiting for a scheduled bus that never will arrive—a financial mistake that could be the biggest of their lives.

Under a scenario whereby policymakers refuse to preempt a global crisis via some form of a Bretton Woods II (to include the emergence of some form of a gold standard as its pillar), “a new round of QE will most likely be triggered by emergency conditions in the financial markets and be seen as both an act of desperation and a tacit admission by policy makers that they really have no answers,” Hathaway stated in his letter.  “In such a moment, we would not be surprised by a leap in the gold price approaching several hundred and possibly thousands of dollars an ounce in too short a period for significant capital to enter.” [Emphasis added]

As the crisis takes shape, overnight fascist-like policies will become less surreptitious and more overt during the escalation of bank failures and failed sovereign debt auctions.  A tipping point will be reached when investors begin witnessing frequent and wild fluctuations in currencies, bond and equities markets.  Emergency actions will be taken akin to the Lehman meltdown but on a much larger scale.  By then, everyone will know the bus isn’t coming.  No gold will be offered.

Remarkably, institutional money manager, like Hathaway, believe politics of austerity will trump the power of central banks to deal with a crisis that has no solution other than to debase currencies further to ward off repercussions more severe than public reaction to cutbacks on government transfer payments.

And when that critical moment of awareness that the talk of austerity is just that, talk, Hathaway told KWN in a separate interview this week, investors will become alarmed “at the readiness of policy makers to resort to radical, ad hoc measures to buy time” and stated in his letter to clients a day later, “My feeling is the absence of QE is priced into gold here.”

The surreal complacency by institutional and private investors to the imminent dangers of a chaotic event, which could take gold to monstrous heights, as Hathaway suggests, is glaringly apparent when compared with a recent announcement from OANDA fxTrade that trade restrictions will be in force—an omen of things to come globally.

As reported by zerohedge.com:

Due to the extreme volatility some market analysts foresee could result in the coming days, OANDA fxTrade will not accept any trading activity from 6:00 AM EST until approximately 3:00 PM EST, on Sunday, June 17, 2012. OANDA believes the convergence of a major market event during off-market hours represents a potential trading risk and has taken this rare step to protect traders from excessive rate fluctuations.

And while some professional currency traders brace for an ‘event’, zerohedge also reports that the Fed has become blatant in its monetization of 30-year bonds.  The big reset may not wait until Jim Roger’s post-election nightmare scenario.

“The Fed has just bought $2 billion in 30 year bonds just two hours before the Treasury sells $13 billion in 30 year paper,” penned Tyler Durden, Thursday.  “The ponzi has become so glaring they don’t even care to hide it any longer.”

Few buyers in the 30-year Treasury market could turn into no buyers at any time if the contagion of Europe quickly spreads to the US during a force majeure in the gold market.

“The life expectancy of faith based currencies is, in our opinion, quite short,” stated Hathaway.  “Whatever path the loss of faith takes is impossible to know, but the result will undoubtedly, in our opinion, be the permanent re-pricing of gold in terms of defunct paper currencies.”

And the emergency and permanent backstop to a collapse of the global financial system can only come from the repricing of gold, which according to Goldmoney’s James Turk, would come in around $10,000+ per ounce at the time of a rest back to a Bretton Woods II.  That scenario, coupled with global currency controls could happen overnight through emergency measures crafted to trap as many dollar-holders as possible.  China is aware of this and has pushed its gold accumulation into overdrive as recent Hong Kong gold export statistics to China go hyperbolic.

‘Mr. Gold’ on Gold: Toughen Up! Forge Ahead!

As an apparent gesture to lend a helping hand to Sprott Asset Management John Embry’s call for seasoned gold professionals to coach rosy-cheeked newcomers through the treacheries of the gold market, as witnessed so far this month, Mr. Gold, Jim Sinclair, posted an Open Letter for the weak-of-heart among his flock to ignore mainstream media, stare down that empty-chambered pistol of the Fed, and “forge ahead.”

“Please make an effort to stay balanced. Greed is a condition of lack of balance similar to fear,” the 40-year gold market veteran Sinclair stated in his Open Letter of May 16.  “Fear is being fanned from within the gold community as much or more than from outside. When people who know gold is seriously under priced talk temporary bear, they kick good people when they are down.”

Echoing Embry’s comments in an interview with King World News (KWN) on May 15, Sinclair directed the reader’s attention to the heart of the financial crisis—the more than $1 quadrillion worth of derivatives, armed and ready to explode anywhere, and at any time.  And sure enough, the most likely culprit of reckless trading of those synthetic time bombs (by assets held), JP Morgan, last week began warning the bank’s stockholders of a $2 billion loss from its “hedging” activities for the current quarter.

And not surprisingly, this week, Bloomberg reports the loss estimate at the nation’s largest bank now stands at $3 billion—creeping higher over time—which has become a familiar pattern among the banks of, first, low-balling the initial announcements, then ratcheting up to the true losses incrementally by the time of quarterly reporting.

Bloomberg’s Dawn Kopecki said on Bloomberg Television’s ‘Inside Track‘ that JP Morgan’s initial estimate of a $2 billion loss from its European mortgage bonds trading represents only the “tip of the iceberg,” and that Jamie Dimon’s characterization of the trades as a “hedges” is a lie.  Under FASB rules, the loss is the result of a gamble, not a hedge, and Dimon knows it.  Therefore, can shareholders trust Dimon’s estimate of the total trading loss?

“The problems of OTC derivative just brought into the headlines by Morgan is alive and well, guaranteeing QE to infinity,” Sinclair continued—as he again reminds his flock of the JSMineset.com mantra: “QE to infinity.”  And as the banks trade in wild speculation in an attempt to dig themselves out of the derivatives hole, Dimon and his banking cohorts know the Fed will bail them out if they lose the bets.

And again, it appears Sinclair is correct.  The “QE to Infinity” works like a charm.

Thursday, Bloomberg reports the Fed Minutes of the April FOMC Meeting, which revealed that several Governors said further money printing will be forthcoming if the U.S. economy stalls or if “downside risks to the forecast became great enough,” signaling to traders in its typical obfuscatory language that the Fed fears an exploding derivatives market and that the European solvency crisis will take down the financial system in another Lehman-like swan dive.  It’s ready to open the money spigots.

“You must make your decision in present time, neither fearful or greed-ful of the future,” Sinclair said.  “Look at every factor of gold and list them as bullish or bearish.”

One of the many of the gold market’s bullish factors comes out of Asia, where GoldCore executive director Mark O’Byrne told Bloomberg the appetite has not waned during the entire decade-long gold bull market.

“There has been significant buying particularly out of Asia in recent days,” said O’Byrne.  “In Hong Kong and Singapore there have been reports of tightness in the marketplace and premiums have remained robust on gold buyers of those markets.

“So, this has been a pattern we’ve seen for the past 10 years—that the Asian markets seem to be a little bit more price sensitive and they tend to buy . . a little bit more savvy on their buying, and they tend to buy on the price dips as we’ve seen in the past 10 years.”

Given the 10 years of professional gold buying out of Hong Kong (China’s supplier of overseas gold) and Singapore on significant pullbacks, Sinclair told KWN on April 2 that the only remedy for the amateur jitters is to . . . well . . .  “toughen up” and trust that “everything that you are doing you are doing for good, right and logical reasons.”   That’s what Asian professional buyers are doing.

Back up the Truck on Gold and Silver, says James Turk

The slow summer months for the precious metals market will be anything but slow this year, according to precious metals expert, James Turk.

In an interview with Eric King of King World News, the founder of bullion storage firm, Goldmoney.com, said he expects gold and silver to rally strongly this summer, bucking the 30-year established seasonal trend of softness in metals prices during the summer months of July and August—the time of year when gold and silver typically put in lows for the year.

However, Turk believes the lows were already made in May during the cascading sell off in silver from its perch of nearly $50, taking the white metal to the $32 level and the yellow metal to $1,480 in a sell off—triggered by some profit taking and multiple, rapid succession, and controversial futures margin hikes instituted by the Chicago Mercantile Exchange.

“What we are seeing right now is a double-bottom in silver with gold staying strong near $1,500,” Turk said to KWN.  “With options expiration on both exchanges now behind us, we can expect a bounce from here.”

Turk cites growing tensions among populations around the world as politicians increasingly shift the burden of bad loans made by banks onto the public books.  Greece’s spectral will prove to be only the beginning of civil unrest in Europe this summer, Turk predicts.

“We’ve got civil disobedience growing in different countries,” said Turk.  “People are becoming fed up by bad decisions made by politicians that favor bankers rather than taxpayers.”

“People just have not come to grips with the fact that governments are running out of money,” Turk added, “which brings to mind my favorite Margaret Thatcher quote, ‘The problem with socialism is that eventually you run out of other people’s money.’  There is also a great deal of non-union tension as rising costs are continuing to erode people’s living standards.”

In sharp contrast to predictions made this week by Swiss money manager Marc Faber, who said on CNBC TV12 on June 29 that all asset prices will sink from a lack of Fed “stimulus” from its QE programs this summer and early Fall, Turk sees a rerun of the summer of 1982, instead.

It was then that the government of Mexico failed to make interest payments on its dollar-denominated sovereign notes during Paul Volker’s (the, then, chairman of the Federal Reserve) punishing interest rate increases of both the federal funds rate and discount rate.  Through several currency devaluations, which ensued through to the end of the year of 1982, the Mexican government  kicked off a run on the peso to the safe haven of gold.  Gold soared to more than $520 by the first quarter of 1983, from approximately $290—the low set at the start of the crisis in July of 1982.

Turk expects another run to gold, but this time the people of Europe’s peripheral PIIGS (Portugal, Ireland, Italy, Greece and Spain) will trigger another golden summer of 1982.

“In fact, with bankruptcies of governments becoming more and more likely, the reasons for owning gold and silver have become even more pronounced,” Turk continued.  “Summer has only just started, but I still see this as a summer that will be like 1982, one for the history books.”

Additionally, Turk points out that the gold/silver price ratio has widen significantly since the 31:1 print reached on April 28.  The ratio has since moved back sharply to levels not seen since the 45:1 ratio was taken out to the downside in February during the silver price breakout above the closing high of $30.84 set on Dec. 31, 2010.

“I actually like the action of the gold/silver ratio; yesterday it closed at 44.5 so it is back at support,” said Turk.  “This is a further indication to me that the correction has reached its nadir.  The interesting thing about corrections like this Eric is how rapidly bullish sentiment evaporates even while the fundamental factors driving the metals higher this past ten years remains very favorable.”