Sunday, May 15, 2011

Massive Debt Means Weaker Dollar for Years to Come

International Forceaster
by Bob Chapman
May 14, 2011
http://www.theinternationalforecaster.com/

There is no question that government and Comex are in a desperate trap of their own making. Silver shorts that are participating in leasing are lending cash to physical holders. They then may take delivery, because the borrowers have no cash. Physical silver drying up could cause a real problem for the shorts, known as a short squeeze. The first four months at Comex has seen problems and in the months ahead they will become worse. That could bring Gresham's Law into play and more and more silver and gold would move out of circulation creating ever bigger shortages and higher prices in the process. The only way to stop hoarding is to allow gold and silver to rise in a free market and to stop the suppression.

Gold will continue to rise due to its status as the only real currency in the world. Then there is the added attraction of a hedge against inflation for both gold and silver.

The inflation caused by quantitative easing is not going away for three more years or more and it will spread in varying degrees worldwide. No matter the state of the euro and other major currencies the precious metals are headed higher. Do not look at the USDX. Watch the losses of all currencies versus gold. That is the true measure of what a currency is worth. Another negative unknown is will there by mandatory wage gains or price controls, neither of which will last more than 2 or 3 years, and bring disastrous catch up results.

Zero interest rates, QE1, 2, and 3 and fiscal profligacy rule the day. 70% to 85% of Treasury sales are to the Fed, which monetizes the debt sending inflation soaring. We have yet to hear of cuts in government spending. As a result the US may lose its AAA credit rating, which should have been lost long ago.

More than 40 states are near insolvency as are hundreds of municipalities. That as we predicted will become more visible in the second half of the year, along with the fate of the six-euro nations that are near insolvency as well. The creation of money and credit is integral worldwide as a method of keeping nations afloat and it cannot go on forever.

Inflation and lack of increasing wages are killing Americans every time they shop and this condition will continue for at least the next 2 to 3 years. In the process it will escalate. In that process all of business is under pressure as well and it will result in low profits and insolvencies.

Over the last year we have spent hours writing about and predicting what was going to happen in the euro zone and in the UK. Greece will probably default as we encouraged them to on Greek radio, TV and in their press. Ireland and Portugal should follow and Belgium, Spain and Italy could become victims as well. June 21st is the big day for Greece as the House votes on the issue of collateralizing Greece's debt with virtually all the assets of the Greek state. We do not believe that is going to happen and so there should be some kind of a default. If that happens Ireland and Portugal could quickly follow. Such events would change the makeup of the euro as those three countries returned to their own currencies having left banks and other sovereign nations with uncollectible debt and the distinct possibility of breaking up the euro. We do not believe the House in Portugal will approve the most resent bailout package as well, putting them in a similar position as that of Greece. If they don't default they live in poverty for the next 50 years and in the case of Greece the bankers will end up owning most of the country.

The ECB, the European Central Bank, has raised interest rates; we do not expect another rise soon. Germany is doing fine, but the rest of the EU is either hanging on or is in serious financial and economic trouble.

England is simply a basket case and it is going to get worse.

Both gold and silver are facing massively short inventories on the Comex and the LBMA in London. In gold on Comex there has been five contracts for delivery for every one available. It is estimated the JPM and HSBC are naked short 45 to 1 in silver. Bonuses of 25% to 30% are being paid for contract owners to not take delivery of contracts. There was one instance of 80% being paid to a group of professionals.

Countries such as China, India, Russia, Iran, Brazil, Argentina, Mexico and Thailand continue to acquire and stockpile both silver and gold with the aim of backing their currencies with these precious metals. Due to such prudence there are shortages of both physical gold and silver worldwide, which means no matter how much manipulation the US government uses they won't be able to control these and other commodity markets. Their scheme could very well blow up in their faces.

Silver and gold are so tight in supply that national mints are incapable of meeting demand. Delivery dates stretch out one to six months.



In legislation just proposed, and I don't know by whom, nor do I have a number yet, the Dept of Labor has proposed a re-definition of who is a fiduciary, not under the Securities laws, but under ERISA, the law that governs tax advantaged retirement accounts, such as 401K and IRAs and it probably will include all retirement assets, we don't have a definite direction yet of what they intend to do but it is my guess they want to limit those investments only to US government debt. They may include some blue chips or funds, I don't know. They may allow other high-graded fixed income products. These DOL-ERISA rules override all SEC rules. We don't know the final form of the legislation, nor do we know whether it will be passed, but my guess it will be. The government desperately needs to get those retirement funds invested in government debt. I would seriously think about terminating 401ks and IRAs by transferring the assets - without commission - into a personal account it then becomes a taxable event. I also believe there is a good chance that taxes will be higher next year. There is also an outside chance that retirement assets could be frozen - such events would be negative on the general market because government would be directing brokerage houses to sell retirement assets. This is all in the planning stage, but it is very real.

Your government attacks markets when they are most vulnerable and when it is politically expedient to do so. As we look back over 50 years we never would have believed things that go on today could ever have happened. The blatant presence of crime overwhelms you everywhere you look, particularly in the financial world. We are reminded of these conditions again as we reflect on what has happened in the commodity, gold and silver markets over the past two weeks. We saw an unprecedented five margin increases over nine days in the silver market, which took margin from $4,500 to $21,600. That in and of itself was disturbing, but what we saw from scores of commodity houses was even worse. Simultaneously many of them recommended the sale of commodities and they all raised margin limits to $40,000 to $42,000. The excuse was there was too much volatility. The same volatility had been present in commodities for months yet few increases were implement. Could there have been another reason? Could the naked short position of JPMorgan Chase and HSBC in silver have something to do with the double rise in margins? We also ask how did all the commodity brokerages suddenly decide simultaneously to double CME margin requirements effectively blowing out most commodity positions of small and medium sized investors? Did the Treasury Department or the Fed have anything to do with that? Of course they did. The naked short position of JPM and HSBC had to be protected because their loses were in the billions of dollars.

These past two weeks are a perfect example of market manipulation instituted to protect those too big to fail. These are two of the largest banks in the world and they just happen to be Fed shareholders. Morgan happens to be the Fed's largest shareholder, so what else could we expect. From our viewpoint there is nothing less than a crime syndicate connecting banking, Wall Street, the Fed and the Treasury Department and Washington. The Fed has a balance sheet of almost $3 trillion, which is used to bail out Wall Street, banking and the government.

It has been our opinion for years that a sub-rosa relationship exists between the Fed, Treasury and hedge funds. One such relationship concerns naked shorting, which is rife throughout the financial markets and the SEC refuses to do anything about it. Another is the parking of Treasuries by the Fed in tax havens, such as the Cayman Islands.

Yes a crime syndicate runs our financial system. It has been functioning for years, but today it is arrogantly in your face. When from time to time these crooks are discovered and found responsible for financial crimes none from this elitist click ever go to jail. There are the fines to be paid by the corporation, which the shareholders get to pay for. The culprits are free to do the same thing over again. The SEC is nothing more than an appendage of major Wall Street firms, and the CFTC, Commodities Futures, Trading Corporation is worse. Just look at its most recent handiwork. The CFTC knew exactly what the CME and the commodity houses were up too in their quest to save JPM and the HSBC from $80 billion in losses. Even Bart Chilton, a member of the CFTC, says the actions in regard to silver over the past two weeks should be investigated. What we saw was blatant market manipulation. We wonder who again told the CFTC and the SEC to look the other way? Who instigated the attack on silver and gold and on the shares? Is there no justice left in America? Are we to continually be robbed by these crooks without any hope of lawful recourse? It looks like that is going to be our fate. That is unless in 2 or 3 sentences you demand that every representative and senator stop this thievery. E-mail the CFTC, SEC, NYSE, ASE and Nasdaq and let them know you know what is going on and you want it stopped, now. If you are not successful you will continue to be robbed by these crooks. Even if you are unsuccessful these criminals will know you know exactly what they are doing.

As the paper markets come under massive manipulation by your government led by Obama Chief of Staff, William Daley, a former mid-west executive with JPMorgan Chase, the physical market in silver is almost non-existent, even after the fall in gold and silver prices. The industry is replete with stories of deliveries, some one to three months away. There is very little silver for sale. Thus, we have two totally distinctly different markets. The physical market is the place to be, but if you must use futures, take delivery.

In futures, options and derivatives you have seen how important the silver and gold markets are to the elitists. The recent manipulations have been done before and they'll be done again, because the leveraged speculation industry is bigger than ever and the US government leads the industry from behind the scenes via JPM, GS, Citi, Deutsch Ban and HSBC. When these manipulations are pulled off these entities' profit handsomely along with hedge funds that we believe are working in tandem with these players. What you just saw in the paper silver market probably was the biggest financial scam of all-time. Remember, hedge funds are unregulated and they can do about anything they want. They are all in line to profit and are willing participants in our governments crime syndicate. We are also seeing these hedgies and others exploit the inefficiencies of exchange traded funds. This adds massive liquidity to the ETF's, which are busy playing the same derivatives, options and futures. If you throw high frequency traders into the soup you have very explosive markets. As a result silver traded off 30% and ended last week off 27% - its biggest monthly decline in 35 years, thanks to your government. This makes it harder and harder to be an American when your own government is the enemy. If fact, all commodities were hit hard and oil was off close to 15%. Commodities overall fell 11%. That is not normal. That is the result of coordinated criminal activity. The insiders also used these negative events to rally the dollar and to keep the stock market elevated. Once the stock and bond market manipulations crack it will signal the beginning of the end of the elitist game. The Fed is almost totally controlling the bond market. The leverage being used from all quarters is enormous and you might ask what happens when de-leveraging takes place? It would be a reverse replay of 2007/08. Only this time except for the bonds and general market, positions almost all the bets are on the short side. That means short covering has to begin sooner or later and that could and probably will create a short squeeze not only in gold, silver and commodities, but also in gold and silver shares as well, where massive short and naked short positions have been accumulated. During such an episode much of the short side profits could be lost. Then there are the commodities houses, who pushed their clients out of the long side of commodities, gold and silver markets on to the short side, who have to cover and then go long again to glean those commissions. Will government be standing there telling them what to do? Perhaps, but the cover and going long again will be very hard to resist. Thus, as you can see there will be major resetting of long positions. That will be an easy sell coming off a highly profitable operation. That means if you are long you stay long. If you want to initiate new positions, or add to positions, you phase in your buying because no one ever really knows where the bottom is. Incidentally keep in mind that this time the action should be the exact opposite of 2007/08. Most all of the professionals are on the short side of a very crowed trade. This will be a liquidity crisis, but the reverse of the last one. The short side works just like the long side; both create self-reinforcing liquidity, as pros and speculators borrow more to finance their bets in what has become a grand casino. Short covering is far more difficult than normally going long, due to availability and partial de-leveraging. When everyone tries to get out the door at the same time, chaos ensues.

These past two weeks are reminiscent of 2008. The question is will the antics displayed in rigging markets, particularly in gold, silver and commodities bring about such a crisis? Will short side de-leveraging break the bubble? It is very possible that it will.

The comparisons are ominous and contagion could be the result. One thing is for sure the fundamentals for gold, silver and commodities are overwhelmingly positive. Thus, the upside potential is enormous, particularly when liquidity is fleeing other markets looking for a more profitable home.

The market has been telling us for two months that we will see a very large QE3. The phasing in, the transition, from QE2 and QE3 will be stealth and hardly noticeable. It will be happening, but it will be well hidden and probably called something else. It will have another face, but it will be the same old game, probably to the tune of $2.3 trillion, which will feed roaring inflation. We ask, under those circumstances how can commodities, gold and silver not rise in value? The transition in time will turn into a stampede in the search for wealth retaining safety and to offset the ravages of inflation. This could very well lead to a counter rally in commodities, gold and silver throughout the summer, which would be fully unexpected. Risk will be rampant, but gold, silver and commodities will have the fundamentals to support another very strong rally. Incidentally, treasury and Agency support for government will be close to $1 trillion minimum. Then there will be the matter of support for the economy. That could cost another $1 trillion or so, because we see congress not allocating any funds for stimulus. As an addendum we have recently seen the 10-year Treasury note yield fall from 3.65% to 3.15%. This is the work of the Fed and we see it as a warning that something bad lies ahead. We saw the same thing recently as the euro was manipulated from $1.25 to $1.49 in anticipation of another crisis in the euro zone and EU regarding Greece. A buffer zone was created for the euro to soften the fall in its value as Greece defaulted.

Then there is the dollar carry trade, which is the sale or shorting of low yielding dollar investments, the extent of which is unknown. This imponderable could cause dislocation, or severe problems.

Over the past month many are contemplating what effect Japan will have on the world economic and financial scene. How much inflation will they cause and export? How high will the yen go as capital is repatriated? No matter what all of these problems are it is positive for gold and silver. For this and other cited reasons the rest of the year will be wild for gold and silver. Japan is not only bullish for the precious metals, but super bullish. Japanese problems are in the process of spreading worldwide. Although we have little idea regarding their impact, any impact is bad.

The physical silver and gold markets are becoming further detached from the paper markets. Silver is hard to obtain and in many instances delivery is 2 to 3 months away. There are lines all over the world to buy silver. It could get to the point where no physical silver could be available. We wonder what the paper market would then do? Premiums are even being charged.

There are many fundamentally good reasons for higher precious metals prices. The dumping of the dollar, further warfare in Libya and the possibility that Mexico, after PRI takes the presidency next year, (they will continue to hold both Houses), may go to a silver backed peso. What a nightmare for the elitists. We predicted last May that the second half of 2011 would be volatile and in turmoil and we haven't changed our minds.

We have presented just a few of the many reason gold and silver are going higher irrespective of the criminal activity of the US government, the Fed, Wall Street and banking. Go long and stay long gold and silver, they are the only sure way to preserve your assets.

We have just had a new development that will no doubt change the way that the monopoly known as Comex operates. The Hong Kong Mercantile Exchange, on May 18, 2001, will start trading a 10 kilo (32-ounce) gold contract. That should cost the Comex more than 30% of its market and its monopoly. Comex will be hard pressed to manipulate markets like they just did raising margins five times in nine days at the behest of government and JPM and HSBC. This will also eliminate banging the close by hitting the bids, because all of the commercials (banks) are short. We are going to see a whole new market world.

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