Anyone who currently has excess savings they want to invest is in the minority of the world’s population. They are also likely “rich” and “evil” according to populist sentiment. In any case, these aren’t the best of times for advanced/Western economies.

We are currently in the midst of an unmistakable secular bear market for general equities in the United States. Such bear markets don’t end with the current obscene valuations and they don’t end because government saves the day. If it were only true, writing everyone a check for $700 billion dollars (i.e. treating everyone like a Wall Street bank) would bring endless prosperity and create an endless bull market.

The piper waits patiently, knowing that he will be paid. Currency debasement and allowing survival of the most unfit is not the way to restore a secular bull market. Ask Japan how QE1, QE2, and QE3 helped their stock market for the long haul.

Speaking of Japan, do you realize that we are on a similar course when stock markets are priced in Gold? I am not saying deflation of inflation, I am saying “priced in Gold.” Only Gold bulls are used to such pricing strategies, but it is time for reality to intrude on the paperbug world.

Whatever monetary chaos we are in store for, Gold will outperform stocks over the next several years. This is open for debate in my mind as much as the question of whether fiat money will retain its value over the next decade is open for debate. Believe what you will.

But notice the “phase shift” chart message between Japan and the USA shown below. The chart is a monthly log scale chart of the Nikkei stock index ($NIKK, the main Japanese stock index) divided by the price of Gold ($NIKK:$GOLD), shown in a black and red candlestick format, versus the Dow to Gold ratio ($INDU:$GOLD), shown in a black line format:

Same chart with a phase shift, no? The corrections in this ratio lasted longer for Japan because they entered their secular depression when everyone else’s economy was booming. We don’t have that luxury, so our corrections in the Dow to Gold ratio have been shorter. We are about to begin the biggest leg down in this ratio since the “secular bear market” in this ratio began in 1999. This is not a drill and this is not a call for the end of the world. Be careful out there if you’re not in the precious metals sector.

The entire world struggles to determine the fallout effects of the Japanese earthquake and tsunami, along with the ensuing problems. The effects are so pervasive, so profound, so critical, that it is no wonder the news networks focus on two things only. They have switched emphasis to the Libyan civil war, a pitched battle to retain a tyrant and his larcenous rule. But the news stories out of Japan focus 98% on their Fukushima nuclear complex, with hardly a peep about the long list of other economic and financial effects. This article will focus on what they leave out, dutifully reporting amidst the purposeful new vacuum in a grand distraction. The Japanese factor in early 2011 will turn out to be the most important factor to influence major global economies and the financial markets since the death of the US banking system in September 2008. Gold investors should not expect a similar commodity price meltdown like in 2008 after the Wall Street death event. Gold & Silver each sold off sharply during the ensuing months after the collapse of the US banking system, as a liquidity drain was joined by a Wall Street attack of hedge funds. This time is totally opposite. Back in 2008 no Quantitative Easing program was in place, as hyper-inflation engines had not been turned on like now. QE will be global next. The central banker pact not only endorses the monetary hyper-inflation by the USFed, it extends it globally with a loud ring. What comes next is a global inflationary recession with gusto and power. The path had already been clearly entered, but now it is fully engaged with a jet assist. Great confusion comes, equal to the harmful momentum from numerous fronts.

The impact is comprehensive and profound as several important triggers have been hit simultaneously. Economic fallout is greatest inside Japan itself. The financial impact is greatest with the United States and Japan. A point to never lose sight of in the last two weeks is that the USGovt manages a monetary nuclear reactor that is also in core meltdown, with USTreasury Bonds as the fuel rods whose radiation has a USDollar odor. The accelerating piles of debt and money have been routinely spread systematically in a grand complicated coordinated reaction, the core of which is the United States. Watch for any interruption to the massive flow of funds into the reactor, which the G-7 central bankers were keenly aware of last week, but without mention. As with all asset bubbles, the required funds grows exponentially to maintain the asset bubble, here the USTreasury Bond. The reactor cannot lose its flow, or else a meltdown occurs. An interruption had begun, was addressed, but they will not be capable of replacing it except with more toxic money, the fiat funds. The pressure on the USFed will be shared across the major central bank offices. The inflation engineers and high priests who preach on asset bubbles will face enormous challenges to avoid a nuclear financial core meltdown. They will not succeed, and Gold & Silver will be the meter for the failed efforts that lead to meltdown. Both precious metals will double in price in the next few years. Nothing is fixed and Mother Nature just kicked the elite bankers in the shins, or a point one meter higher if the truth be told.

The recession will be deeper from the supply chain disruption and higher cost structure. The monetary inflation will be more uniform and with greater volume. The major currencies within the global monetary system will suffer much more debasement, as value erodes badly. At the same time, the boogeyman image of the US Federal Reserve will be mitigated by the full chorus of central bankers eagerly coming to the Yen currency rescue. Witness Global Quantitative Easing with extreme force, the printing presses in high gear straining to produce enough funny money to build seawalls strong enough to withstand the destructive tsunami. Wreckage from previous overwhelmed platforms has begun after three decades of funny money abuse, whose waves of busted bubbles and failed assets have been doling out powerful blows for over three years. Witness the Global QE, as all major nations will help the USFed to print money, wreck currencies, destroy capital, ruin businesses, and cause an easily recognized price inflation. Of course, they will continue to aid the elite bankers who are mostly responsible for ruin. Notice how the USDollar continued to decline, going below the 76 support level for the DX index. Despite the weak futile pathetic rebound, the DX index remains the former support under 76. Three imagines come to mind on the destructive forces: a gattling gun, a daisy chain centrifuge, and overhead office building spray.

The amazing storm will contain a nasty paradox, as the Yen currency will not stop rising. Japan as a nation will lose the ability to purchase foreign assets, a means by which they could keep their currency down. A vicious cycle has begun to take shape. Inflation will originate from the four corners of the earth, come in many forms, and have staggering effect on both the global recession and global price inflation. Assets and incomes will go into worse decline, while commodities including Gold & Silver rise powerful. Actually, Gold & Silver are money, the great anti-bubble. The USTreasury Bond will be under absolute siege for months until a climax conclusion in the near future. Consider the following major effects and forces, presented in an order to reflect their importance, not their flow of domino effects in sequential destruction. For those who grow weary of Jackass comments about destruction and ruin, it is time to wake up to reality as the nightmare persists during the waking hours. Darwin is at work, removing the failures from the gene pool, including those who refuse to acknowledge the unfolding disaster and fail to take proper defensive action. Nature is very busy challenging the managers of the earth. The people must defend and salvage their life savings before it is forfeited to a unique combination of natural asset bubble wreckage forces and syndicate planned duplicity, swindles, and seizures. Beware of false messages.

YEN CARRY TRADE CLIMAX EFFECT

• The trade was to borrow near 0% Japanese Yen and fund USTBonds and US Stocks for many years. Still amazing that many elite analysts have never heard of it. The Japanese situation hastens the fast retreat. The late sellers will be ruined.
• The reversal unwind of the Yen Carry Trade appears to be entering its third and possibly final phase. The unwind has required over 12 years to complete. The YCTrade took 15 to 20 years to build into the largest, most powerful, and significant financial engine of multi-$trillion phony wealth the world has ever witnessed. Japan might next face a liquidation similar to what the United States has suffered.
• The nation of Japan will not recover from the Yen Carry Trade unwind, which will be relentless. Its creation and sustained operation kept the Japanese Industrial Miracle going for three decades. It has finished, and run its course.
• The YCTrade unwind is to be assured by the heavy Japanese selling of USTreasurys by the a wide assortment of Japanese financial entities. Call it a major unintended consequence. The unwind spells major problems for the Japanese export industries, but also for the USTreasury Bond complex.
• The entire world will continue to abandon the USTreasurys except for a few nations that wish to openly protect their export trade.

JAPAN TRIGGERS GLOBAL QE3

• Call it the EMERGENCY G-7 YEN SELLING PACT or coordinated Japanese support, no matter. It will become the biggest, most grandiose coordinated monetary initiative in modern history.
• The emergency meeting of G-7 nations was given a general purpose of dealing with Japan, but it was all about the rapid unwind of the Yen Carry Trade without a single mention of the vast perverse engine. The accord resulted in a global consensus that all nations would help to purchase USTBonds sold by Japan, from the unwind of the YCTrade.
• The G7 Yen weakening accord is a disguised USDollar rescue, since a rising Yen goes with a falling USDollar. Attempts are made to avoid the USFed being isolated as the sole buyer of USTBonds, which is inevitable. They can rescue the Yen, but not the USDollar, the new toilet paper with green embroidery.
• The USFed must monetize all the foreign central bank asset purchases of USTBonds ordered abroad, or face higher US interest rates and threatened USGovt debt default. Huge amounts of money will be handed through the New York Fed window, directly from the Printing Pre$$, a process well underway.
• A USTreasury auction was postponed so as to enable more efficient printing operations. The sales in Brussels, London, and Tokyo will be covered by the USFed. Thus foreign currency exchange rates are rising versus the USDollar still.
• The Yen Selling Pact by the G-7 emergency is better described as a Global QE3. Monetary expansion cannot be concealed, since out in the open, and blessed with global consent. The USFed is somewhat off the hook for its monetary inflation and the associated destructive effects. The major central banks have blessed the inflation as a necessity, with urgency.
• A risk of a global central bank franchise model destruction could be in intermediary stage. The monetary system is at risk of greater and sudden fractures. If sovereign bonds have been on the defensive in the last year or more, watch how central bankers will be on the defensive in upcoming months. They manage an exploit of wealth, control the power centers, oversee failure, and dole out poverty even as they corrupt markets.

EMERGENCY FUNDS FOR SUPPORT

• Tremendous emergency funds have been appropriated and set aside by the Japanese Govt for financial market rescue & support. More funds have been devoted for relief efforts, worker crews, earthquake & tsunami cleanup, body retrieval & searches, and reconstruction. The price will be even larger than reconstruction & relief efforts. A total national meltdown is being averted, or delayed.
• The initial pledge of funds was for $86 billion, to stabilize their financial market, to make regional bank liquidity available, and to fund relief efforts. They reacted to factory shutdowns, a curtailment of distribution channels, and rolling electrical blackouts. The next pledge of funds was for $183 billion, to further stabilize markets and banks. The support continued until the latest total amount is reported to be 55.6 trillion Yen, equal to almost US$700.
• No expense will be spared, as the flood of money will follow the tsunami flood waters. The price tag grows leaps and bounds on a daily basis. The deficit will be large, adding to an already enormous cumulative national debt. Japan must rebuild infrastructure as well as supply delivery systems for basics like food and factory material input.

SALE OF FOREIGN ASSETS

• Given the overloaded saturated debt situation in Japan, many assets must be sold in order to raise cash, mostly foreign. Without sales of existing actual assets, the size of the crisis and its funding aftermath would produce significant and immediate price inflation.
• Japan will sell a large hoard of USTreasury Bonds, USAgency Bonds, and possibly US Corporate Bonds. They will sell EuroBonds and UKGilts. They will sell anything that does not bear a Japan label. If they could, they would sell assets behind the Somali and Yemeni sovereign wealth funds.
• The Japanese insurance companies must also raise cash to pay for claims from the widespread damage, including to businesses. They will sell US$-based bonds and more.
• An unintended consequence is for a pinprick of the USTBond asset bubble, which has been puffed for over two years. Unlimited funds will be made available to offset the USTBond dumps in an emergency setting.

REPATRIATION EFFECT

• Compounding the current situation with flow of funds is the annual migration. The March 31st deadline approaches for the annual Japan Repatriation of cash held in foreign accounts. The requirement will add to the inflow of money into Japan from overseas.
• This annual return migration involves funds held in all foreign lands, and will force the calling home of funds from Europe, England, Asia, and the Persian Gulf.
• The effect will cause the Yen currency to strengthen relative to all fiat currencies, rendering harm to Japan’s export industries. The world annually goes through this required effect, but this year should be more pronounced. Bad timing!

COMMODITY DEMAND EFFECT

• The rush to undertake reconstruction will require a wide array of commodities at a time when the commodity market is afire in price increases. From steel to cement to lumber to fuel products, the major commodities will be in enormous demand. This demand at the margin will have an aggravated effect on price.
• The effect on commodity prices will be sizeable and noticeably attributed to Japan. It will be felt primarily after the landscape settles enough for work crews to begin the massive rebuilding efforts.
• Already, critical supply shortages have been reported. They include industries not in Japan. The demand will be across the board, including food, which has an immediate effect on survival.

FOOD PRICE EFFECT

• The shortage of foodstuffs comes from both disrupted original growing locations and disrupted supply chain in delivery systems. Again, a wide variety of foodstuffs will be in enormous demand, all on a marginal increase basis.
• The region to the north where the nuclear reactor damage occurred is the site of a concentrated food growing farms.
• The price effect on several items within the commodity array will be sizeable and noticeably attributed to Japan. Global relief efforts will only aggravate the price effects.

PRICE INFLATION EFFECT

• Japan stands at risk of a hyper-inflation episode with more punch than what has begun to unfold in the USEconomy. The emergency funding for both reconstruction and financial market support will unleash price inflation from the inevitable spillover, a financial tsunami of funds.
• Also, the rising demand and supply shortage with intensify the price inflation. The tangible response of purchase at the margin will have an intense effect. The shortages are widespread already, also to be aggravated.
• Since the Japanese Debt/GDP ratio is near 200%, they cannot hike interest rates without causing a default on their bonds. The Bank of Japan will monetize the required funds to rebuild their country and later worry about consequences of hyper-inflation. If foreign asset sales are not ordered, and fresh debt monetization occurs, the price inflation will be power packed and doubly significant. So they sell assets.
• When a nation reaches saturation on debt, the new debt is monetized and hits the main street as inflation rapidly. However, it is hard for hyper-inflation to strike a nation with a rising currency. Incredibly strange crosswinds are at work. Japan has rapidly crossed the bridge from deflation to inflation.

EXPORT TRADE EFFECT

• The redemption of US$-based bonds will be staggering and sudden, compounded by the sale of other US$ assets. The effect will be a steady relentless significant rise in the Japanese Yen, a decline in the US$/Yen exchange rate, with a powerful effect on the Japanese export industries.
• A big trade deficit is coming to Japan, a new concept. The system will work to bring the Yen currency down on the tangible side while the financial side actually pushes the Yen up. A big conflict and paradox comes. The industrial factor will be perplexing, powerful, and paradoxical. Most consensus thinking will be wrong.
• As the Japanese trade deficit worsens, and gains publicity, it will result in a Yen that rises to confuse many analysts. The Yen will rise with surprising gusto and power, invited more coordinated global actions. The central bankers will be on the defensive. Diverse Japanese entities will be in a race to sell foreign assets, as the Yen rise intensifies.
• Japan will lose the funds from trade surplus used to purchase foreign assets, useful in keeping the Yen currency down. The suppression tool will vanish!!
• The lost surplus is a direct result of the rise of Chinese industry, aided by Japanese firms in important technology transfer. The newly arriving trade deficit could easily become a permanent fixture, and its funding will render damage side by side to the high government debt burden. Japan will suffer from broad deficits. Industry damage comes.
• The collateral damage to the global economy will be vast supply chain damage, both from interrupted supply and higher cost supply. As Japan slides into an inflationary recession, as industrial suppliers are strained, some will go out of business and shut down unless they receive subsidies. Those subsidies might actually come from foreign companies, who must save their suppliers that cannot be replaced easily or at all.
• Just today a friend from an upscale condominium complex reported that a certain device to maintain water & sewer levels in his complex had broken. Its replacement must come from Japan. The vendor said it will come at an indefinite future time. Ditto for General Motors on parts and thousands of other businesses that are dependent upon the high quality and reliable supply chain from Japanese industries.

GOLD & SILVER EFFECT

• With all the newly created money from Japan in direct inflation, with all the USTBond sales to undermine the USDollar, with the coordinated central bank assistance in USDollar creation, with all the commodity demand in reconstruction, the overall effect on demand for Gold & Silver will be positive and powerful but a little delayed. A giant tsunami lift has begun in precious metals prices.
• One can smell a monster midyear rally in Gold & Silver after some time to gather facts, assess the situation, and detect the positive winds. The rally might have started this week, as the evidence is just too plain and simple to the thinking man. A price breakout is seen in both monetary metals. The distractions from Wall Street and the lapdog US press must be ignored.
• The entire Japan story is huge bullish for Gold and extremely bearish for all paper currencies certain to be debased further. The G-7 Yen Selling Pact is all about coordinated currency dilution. With Japan, the United States, and the EuroZone all printing money, global monetary hyper-inflation cannot be avoided. It will be endorsed and welcomed. Gold & Silver will react.
• Attempts to deal with the economic breakdown and industrial disruptions will contribute to global systemic price inflation, which has already been initiated. Gold & Silver will react.
• Holdouts on expecting the monetary system to recover, and fiat paper currencies to stabilize, and the banking sector to revive, and the housing market to bounce back, they will totally give up and surrender. They will enter into Gold and especially Silver. Better late than never.
• Confirmation has come that mining firms are bypassing the COMEX. They choose to sell Gold & Silver mining output to investment funds like the Sprott Fund. The COMEX will find itself in increasing isolation. Their artificially low price paid for metal has sparked a wide reaction. Unknown is the amount paid in premiums over spot prices by the funds in order to facilitate the purchases. The premium prices indicate the true price, not the nonsensical price discovery at the COMEX under suppression, cash settlement, and other crooked devices.
• A quantum jump, threshold leap, and paradigm shift has taken place. The Japan incident with its staggering financial fallout represents in my opinion the most important and influential factor in global finance since the US banking system death in September 2008, complete with distraction, possibly even cover-up.

BREAKOUT !!!

See the March Gold & Currency reports within the Hat Trick Letter after placing a subscription order. A more full analysis of the rapidly deteriorating Yen Carry Trade is provided in the proprietary Gold report. This carry trade is so critical, so devastating to currency markets, such a grand threat to the USTreasury Bond bubble, that the G-7 Finance Ministers did not address it, cite its unwind, or give it any mention. Their Yen Selling Pact was all about preventing a system blowout at the USDollar nuclear reactor. Their pact was a disguised USDollar rescue doomed to failure. They must have discussed the Yen Carry Trade unwind effect at half the meeting. The Japanese fallout could be the exogenous force that breaks the USTBond bubble. It will take time. At the least they have lit a gigantic bonfire under Gold & Silver markets, where precious little metals exists in the COMEX or LBMA. The global financial crisis is spreading in a horrible contagion. Big powerful price breakouts are to be expected for Gold & Silver in the coming weeks and months. They notice the grand debasement of money, even if for emergency purposes.

The USFed is no longer isolated in the monetary hyper-inflation. However, even as a group central banks cannot stop what comes, the ruin of fiat paper, both the currencies and the sovereign debt that supports the global monetary system. In fact, their group central bank actions intensify the ruin of money itself from prolific debasement. The meter, the measuring device on the wall, is the Gold & Silver price. Today, each metal registered new record high prices for the last couple decades. By year end, look for a Gold price around $1550 to $1600 and a Silver price at least $50. Gains in silver will triple gains in Gold. The quantum jump really means that enormous breath-taking huge upward moves can and should be expected. Do not be surprised if the Gold price rises $50 in a single day, or the Silver price to rise by $2.00 on a single day, in the near future. A systemic breakdown is occurring, in the Weimarization of the USDollar. Last Thursday, the world went Weimar. Gold noticed, and its scout Silver pulls the golden bridle bit.

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At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

By Bill Bonner

03/16/11 Baltimore, Maryland – More problems. More fixes.

The latest from AP:

NEW YORK (AP) – Stocks fell sharply Tuesday as the nuclear crisis in Japan weighed on global markets.

The stock market dropped at the start of trading on news that dangerous levels of radiation were leaking from a crippled nuclear plant. The plant was damaged in last week’s earthquake and tsunami. Japan, the world’s third-largest economy, accounts for 10 percent of US exports.

Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners, said fear had taken hold in the market.

“It’s a situation where you sell, and you ask questions later,” he said.

After falling as much as 297 points, the Dow recovered and ended the day down 137.74, or 1.1 percent, to close at 11,885.42.

Investors sought the relative safety of US Treasurys, sending prices higher and yields lower. The yield on the 10-year Treasury note dropped as low as 3.20 percent in overnight trading. That’s the lowest yield on the 10-year note this year.

Treasury prices soared as stocks plunged during the financial crisis.

What is especially interesting is that in a pinch…Treasurys went up. Gold went down; it lost more than $30, to close under $1,400.

So what gives? Revolutions and civil war in the oil-producing countries. Earthquakes, tidal waves, and nuclear blow-ups in one of the world’s leading oil importers. Problems. Problems. Problems.

The feds called out all available hands. Over in Japan, they injected another 21 trillion yen into their economy. You understand why, of course. You don’t?

Well, let us explain it. The east coast of Japan got smacked by an earthquake and tidal wave, see? And this caused 10,000 deaths…and hundreds of billions worth of property damage, see?

So, naturally, the central bank is printing up more money and distributing it through every channel available to it.

What good does more paper money do? You still don’t see the connection, do you?

Well, neither do we, really. The idea of adding paper money is to “stimulate” people to buy, invest and spend. But you’d think the Japanese would have plenty of incentive already. Their towns, roads, cars, pipes, businesses, houses and harbors were destroyed. They have to rebuild.

And they’ve been champion savers for many, many years; so they must have plenty of money saved, ready for an occasion like this. They were saving for a rainy day; they got a flood.

But what’s that you say? The money was put into Japanese government bonds.

Okay… Well, just sell some of the bonds…

No? That won’t work? You say, the money isn’t there? You say, the Japanese government spent it? And now they’ll have to borrow more in order to pay off bondholders? And so, if the Japanese sell their bonds, it’ll make the bonds go down…yields will go up…bond prices will fall…and the higher interest rates will stifle the reconstruction? And that’s why they have to put more money into the system! Once you start fixing…it’s hard to stop. You’ve got to add more fixes to keep the past fixes from coming un-fixed.

What the he…?

What good are savings if you can’t pull them out and use them when you need them?

And what good is the safety of US Treasury bonds now…if the money won’t be available when it rains?

The feds in the USA have been putting an extra $4 billion per day into the US economy since last November. Why are stocks up? Why did oil go back over $100? Why did grain prices hit record highs? Hey, the money has to go somewhere!

But the program – QE2 – is set to expire in June. Then, the economy that has gotten used to $4 billion per day will have to do without.

And it wouldn’t be too surprising – given all the excitement in the world today – if the Feds decided that they too needed to add more money, rather than take some away.

Bill Bonner
for The Daily Reckoning

Read more: Why Japan Feels the Need to Print Money http://dailyreckoning.com/why-japan-feels-the-need-to-print-money/#ixzz1GncKvT8G

The report is from Canada.com:

“In advanced economies where fiscal sustainability has not been a market concern, credible plans going well beyond 2011 need to be put in place urgently to lock in benevolent market sentiment,” the IMF said.

“Renewed market pressures in some advanced economies demand that these countries underline their commitment to their deficit targets and devise contingency plans to ensure that adjustment goals are met,” it added.

(Farther along)

While Europe was cutting its deficits, the IMF said new tax cuts in the United States and increased spending in Japan had set back progress in rich nations more generally.

As we already know, austerity and the like pose threats to what meager economic growth exists in the west. Growth is needed to reduce debt to GDP ratios.

www.GoldenJackass.com

Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Japan has proved without confusion that 0% is a permanent stuck position. The United States will repeat the path, but with a vast mudslide. Japan has had the advantage of a strong industrial base, a sizeable trade surplus, and no war budget. Thus it has been capable of funding much of its own deficits. It does possess a big debt burden. But the US has $1 of new debt for every $1 in government revenue. The US war budget is almost as large as its total revenue. The US depends upon foreign creditors, many of whom have been thoroughly alienated. The emerging economy nations have embarked on initiatives to avoid the US$ in commerce. Apart from the structural and foreign angles, the US is stuck with a 0% policy. The USFed has no Exit Strategy at their avail, precisely what the Jackass has stated for over a year. It cannot manage any change, as sharp knives, machetes, and guillotines await on the other side of the monetary doorway. The present 0% road to ruin is fixed, as the USFed cannot change course from it. This is simple to see, when eyes are open and mind functioning rationally. The gaggle of US economists is locked in the Keynesian straitjacket, complete with commitment to its aberrations, mired in debt. They believe zero cost money can lead the way out of an indebted bind. They hold out hope of recovery, more than create feasible conditions for one. Together with the bankers, they show signs recently of awakening to their helpless helm devoid of tools, perhaps even an awakening to the systemic failure.

OBSTRUCTIONS FROM THE 0% BOX

A rise in official interest rate would bring about five things, and cause total wreckage quickly. Therefore the present course will be kept, with full political support, ample justification, expressed banker urgency, reckless enthusiasm, and growing desperation. The immediate fallout from moving off the present pathway of 0% money would be a fast falling USTreasury Bond or USDollar. Immediate effects from lifting the 0% rate:

1. Pinprick the USTreasury Bond bubble, loaded with too much short-term issuance
2. Deliver a louder death sentence to the housing market, crippled and falling again
3. Kill off several major banks, all of which are deeply insolvent
4. Send the US stock market into a powerful bear market, even with a PPTeam
5. Light the fuse for a credit derivative explosion, centered upon Interest Rate Swaps.

This is not complicated. The entire concept of an Exit Strategy should invite derision even more than from Green Shoots. Nothing even remotely could happen to permit an exit, since the system would implode. The experts call it a Liquidity Trap. The better description is a Tight Box with liquidity running so hard and fast that the entire foundation structure of the castle is dissolved. The box (USEconomy) has lost so much of its capital, such as industrial base, that it operates dysfunctionally. When a nation loses the bulk of its industry, in particular its ability to manufacture its own transportation vehicles, it is doomed. Then there is the decrepit infrastructure. The march to the Third World is clear.

Tightly coupled with the constriction to maintain 0% is the requirement to maintain a semi-infinite increase to the monetary aggregate, the money supply. They have a euphemistically name for it, called Quantitative Easing. That makes it sound more erudite, more sophisticated, more acceptable, more impressive. But QE is cancer, especially when fresh money is printed to cover teetering USTreasury auctions, especially when fresh money is printed to cover interest on the USTreasury debt, especially when fresh money is printed to cover perhaps half of the entire gargantuan budget deficit. The QE is cancer since zero cost money has killed capital and eliminated the process of capital formation. US economists have a gigantic blind spot in this regard, leading to the current moribund condition. If truth be told, fresh money is financing most of the USGovt debt converted to USTreasury Bonds. If truth be told, fresh money is financing vast tranches of various types of bonds. If truth be told, fresh money is financing most of the abandoned foreign held USAgency Mortgage Bonds. They dumped $57 billion worth in a single week recently.

Next comes the long death march to the USTreasury default first forecasted in September 2008. It earned some laughter and mockery, but no more. My timetable back then was two to three years before the inevitability was clear. That is now. It is becoming clear, as the pathogenesis of debt suffocation and credit system constipation requires time to cause severe internal blockage. The slowness in admitting the QE2 initiative marked by bond monetization is testament to the growing consensus among bankers that not only will it accomplish nothing, but it risks a pinprick of the USTreasury bubble. Calls of a gold bubble are shallow vapid pontifications, since the sanctioned asset bubble is in the mammoth pile of celebrated USTreasurys. It is the last bubble before systemic failure. A few big banks will begin collapsing within a few weeks or months, from resumed property based credit portfolio losses, or basic derivative losses tied to gold & silver, even Interest Rate Swaps. It takes a lot of leverage and power to keep the required 0% rate in place. The cost of money is never zero.

Doug Noland (Prudent Bear) is an alert adept analyst, with a constant eye trained on bubbles. He perceives the presence of a USTreasury Bond bubble. He notes the symptoms, all too clear in a series of asset bubbles sponsored by the USFed. He sees the extreme danger of urgent need to finance the bubble. It must attract huge amounts of working capital and therefore starves the USEconomy. The ultra-low US interest rate climate is proof positive of a systemic failure in the making. Noland wrote, “Of course, skyrocketing bond prices have given rise to fundamental justification. Interminable deflation risk is at the top of the list of why bond returns will indefinitely outperform cash. I am reminded of how technology stocks and home prices were only to go higher. My analytical framework downplays deflation and focuses instead on a debt Bubble fueled by the Federal Reserve, the Peoples Bank of China, the EuroCB, the Bank of Japan, and the approaching $1 trillion year-to-date increase in global central bank reserves. Throw in hedge fund speculator leveraging and the billions flowing weekly (in search of any yield) into global fixed income, and one sees all the necessary financing for a historic bubble.”

An important side effect of the 0% environment is the promoted powerful predominant Gold bull market. The price inflation is not near nil, as the official doctored data promotes. The Shadow Govt Statistics folks deal in realistic statistics. The SGS true CPI is closer to the 5% to 7% range for a few years running. Only a compromised mind or motivated promoter would challenge the integrity of John Williams and the veracity of his standard statistics. The SGS jobless rate, when people without work are counted in the formula, stands at 22%. The powerful Gold bull market is fed and built since the cost of money is negative 5% to 7%, enough to fuel speculation as well as investment exodus into precious metals. The Gold bull will continue as long as the cost of money is negative. Investors flee the conventional paper vehicles like stocks, bonds, and housing since they are struggling on the other side of the busted bubble dynamics. Besides, paper money has been called into question. Denominated valuations are fast losing their meaning. The food prices are the big alarm bell in addition to the Gold price. Both are canaries in the coal mine. The canaries are dead or dying.

EXTREME SCATTERED NOTES & THOUGHTS

Permit an uncharacteristic scattered flow of notes and thoughts, considered important in the theme of monetary system. Much danger lurks. The tipping point to higher price inflation is uncertain and unclear. Without a doubt, the process can flip on a dime. A USEconomic recovery in my view, or a sincere effort to promote one, would risk pushing past the tipping point easily, and risk hyper-inflation hitting quickly. The Deflationist Knuckleheads have undergone a learning experience, finally and thankfully. All things needed will cost more, while all things desired will be valued less. The former are necessities to survive, while the latter are derived extensions from busted asset bubbles. GOLD IS NOT A COMMODITY; IT IS MONEY. Furthermore, WHEN ASSETS ARE BURNED, VALID MONEY IS PURSUED AND MADE KING. Most chaotic inroads are caused by food price explosions. The US is seeing precisely that. The killer to the USEconomy remains to be the property sector, residential housing and commercial property. They lifted the USEconomy from 2002 to 2005, with all the fanfare inherent to asset bubbles and public glee, helped along by cheerleading from the myopic Greenspan USFed. My ears still ring from his high praise to off-loaded risk in sophisticated leveraged financial instruments. These proved to be weapons of mass destruction. The greatest innovation of bankers since 1980 still is the ATM cash dispenser.

Beware of extreme events in hidden form. Like a bank failure. Like the friction between the Chinese Govt and Japanese Govt. Like the lost control of the gold & silver prices, which could reveal depleted inventory vaults at the COMEX & LBMA. Like the incorrect perception sometime by the USFed of rampant sales (a run) of USTreasurys. Incidents in a systemic failure climate can grow out of control, cause ripple events, and lead to a string of breakdowns much like the assassination of Archduke Ferdinand of the Austro-Hungarian Empire almost 100 years ago. The failure of Bank of America would qualify. Bear in mind that the short position for gold at the COMEX & LBMA is roughly equal to the entire earth potential of future gold mining. Bear in mind that the short position for silver at the COMEX & LBMA is roughly equal to twice the global annual production. A short squeeze is just around the corner for the precious metals, better described as money in metal form. It will cause fireworks and bank failures, maybe even misguided attempts to confiscate gold & silver by the USGovt.

Lost control is obvious with Bear Stearns, Lehman Brothers, AIG, Fannie Mae, and Countrywide. The nationalization of AIG covered up the credit derivative explosion certain to occur, averted by virtue of the extreme hidden monetization still underway. Hardly a virtue! The nationalization of Fannie Mae covered up the mortgage bond market explosion and colossal fraud, averted by virtue of the extreme hidden monetization still underway. Hardly a virtue! Liquidity is proving to include a high degree of acidity. Fires burn bright and hot under the USGovt wings as bond capital is quickly destroyed. Beware of beacon events on the horizon, such as the QE2 Launch into oblivion, such as the Midterm 2010 election (switch party control, keep the gridlock amidst recession), such as the escalating trade wars. The road to the Third World involves breakdown of the mental process, where instead of admitting errors, they are compounded. Stimulus, bank rescues, and bond monetization are precisely these repeated errors.

An interesting label has come from Muhammed El-Erian of PIMCO, who describes the New Normal of increased fear of deflation. Nice name, wrong concepts. To me the New Normal pertains to a broken monetary system, a Printing Pre$$ gone amok, credit engines sputtering, chronic moribund economy, depressed labor market, burdened businesses, phony cost of money, constant market interventions, heavy pork projects continuing, banker losses subsidized, hype about energy independence, Syndicate control of the USDept Treasury, and endless war, where all the broken pieces are declared normal, all the broken markets are declared normal, all the broken political parties are declared normal, all the broken checks & balances are declared normal, and all the fraud is excused as errors of judgment (see the Hank Paulson apologies).

The Keynesian approach has been equivalent to debasement of currency on a continual basis until the system approaches failure. We are witnessing exactly that, with some growing recognition. Accurate perceptions of the failure gradually are labeled as contrary to the system. See preservation of capital like using gold investments. Soon the USGovt great grab will attract by force the  private pension funds in order to feed the USTreasury bubble. Soon the USGovt great grab will attract by force the bank certificates of deposit in order to feed the USTreasury bubble. Resistance will be taxed heavily, punitively, and declared contrary to the system. The people are awakening, confused still, but growing wiser. There are new harvestings of civil liberties taking place every day, mostly in the name of national security, but also in the name of restoring order, and in the prevention of collapse. Within the confusing collage are letters that read CENTRAL BANKS FAILED. Central bankers in the Western nations are scared witless of systemic failure and monetary system collapse. Their Stress Tests, both in the United States and Europe, have been thoroughly discredited. The manage over a gradually ruined landscape. Further details on the widely occurring systemic failure are covered in the September Hat Trick Letter.

BEGGAR THY NEIGHBOR, INFLATE AT HOME

The USDollar should devalue sharply, but other major currencies are equally weakened and diluted. The date of September 21st of 2010 will be remembered as a day of infamy, just like March 15th of 2009, when the first QE Launch was announced. At the FOMC meeting on Tuesday this week, a critical juncture was passed. The USFed confirmed what it strongly hinted last month. They are officially willing to ease monetary policy further to spur growth and support prices. Later they will expand their balance sheet, like with another $2 trillion in wrecked securities. The USFed is the ultimate Bad Bank, soon to become a Worse Bank, then later possibly a Dead Bank. The statement read, “The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”That is a green light for QE2, when the need grows urgent, like the day after tomorrow. Nonsense about price inflation was stated as justification, which they strive to manage, but consistently mismanage. It cannot be managed. Background conditions of high jobless rate are painfully true, although it is more than twice the official rate.

Gold rose quickly on the news to a record high, then extended the high on Wednesday. Speculation is ripe, and very correctly on the mark, that the USFed will purchase additional USGovt securities in coming months in a bid to grease the system with a torrent of liquidity. They risk eventual hyper-inflation without the realization. They will push it until they get it. They risk global rejection of the USDollar. They risk global sales of USTreasurys that might outpace the USGovt ability to monetize and purchase what foreigners sell. They risk lost integrity of the central banks. Behold the quick response in the Gold price to the anticipated QE2 imminent launch admission, in the subsequent two hours. It is a launch into icy waters strewn with icebergs and a certain fate of systemic plunge to the depths, a potential watery grave. USFed Chairman Bernanke must be deeply disillusioned knowing that $2 to $3 trillion in zero cost money thrown at bond redemptions, banker welfare, corporate rescues, and stimulus fixed nothing. Notice the sudden afternoon jump in the gold price. The $1300 price is just around the corner.

GOLD TO THE MOON

The end of September will form a launching pad for the gold & silver prices. Several large major world banks have monstrous short positions in need of covering. A short squeeze might have begun in earnest. A big bank failure is just a matter of time. The September Hat Trick Letter identifies the primary candidates among the big banks for failure and bankruptcy dissolution. Egon Von Greyerz of Matterhorn Asset Mgmt provides solid arguments for three firm gold price targets at $6000, $7000 and $10,000. These are reasonable future targets, each justified, good rational arguments made. He cites the 24-fold rise from $35 per ounce to $850 witnessed from 1971 to 1980 in the last cycle, where it was released from a controlled setting. It could happen again, as control is lost, sending gold to $6000. He applies a correct price inflation adjustment to the past $850 peak price, using the Shadow Govt statistics, to arrive at a $7000 past peak target. He recalls an historical 25% of total market capitalization attributed to gold and mining shares. If that ratio were reached in financial assets once again, gold would need to rise to $31,000 per ounce. Factor in a powerful 65% bear market in stocks from current levels, and one would arrive at a $10,000 gold price. Thus the three historical comparisons offer potential targets for the gold price anywhere between $6000 and $10,000. Futhermore, the Von Greyerz targets assume no additional deep erosion in money standards from price inflation, or even the highly likely hyper-inflation. We will see bigtime price inflation, hence his conservative approach. See the Gold Switzerland article. If your memories of Jackie Gleason are revived, we are in synch.

As long as the current central bankers are in charge, the potential Gold price on this long-term bull market has almost no limit. The power center in charge is tied to the power center, which will not order bank asset liquidation, since a death sentence. That is the first requirement for remedy. It will never happen. The monetary system required a tangible core for stability, realism, and counter-balance. Only gold would serve the role. It will never happen. Instead of investment in a new and better global mousetrap, the broken one will receive unlimited funds for reinforcement, not new design. Thus the exercise in futility that feeds the great gold bull. The investment in failure described in a recent public article has prevailed and flourished. Thus, the upward pressure on the Gold price is unlimited. As money is wasted, the major currencies are rapidly undermined. As the government deficits continue in hemorrhage, the sovereign bonds are rapidly undermined. Gold is an investment in survival. It is a registered investment vote of no confidence. It is the ultimate safe haven in an increasingly dangerous world. The Gold price is going to the moon, at least $3000 per ounce. The silver price is going to the moon, at least $80 per ounce. Just give it time. Like a beautiful Costa Rican orchid, they just need water and sunlight. The water is the vast liquidity spread haphazardly by architects of ruin. The sunlight is the awareness of a broken system, the awareness of the legitimacy of Gold & Silver, and the awareness that they are missing in the system.

UNFORTUNATE SUNSET ON ROUBINI

New York University Professor Nouriel Roubini was once a truly fine economist and analyst. From 2003 to 2006 he was brilliant in his dire warnings of USEconomic breakdown and housing market collapse. In the last year, Roubini has really slipped in his skills or has been unduly altered by Wall Street influence. Roubini has morphed into an economist cut from substandard cloth who simply does not understand gold. Roubini expects a short-term selloff in gold. He was correct last december 2009, in his similar call. Methinks this time, he is way off the mark. He has never favored gold. He makes some curious, if not fallacious points in criticism. He wrote, “September may be a good month to take partial or full profits for an investor with a long gold position. Alternatively an interested investor could buy December put options. Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic. The recent swings in gold price, up 10% one month, down 10% the next, prove  the point that gold has little intrinsic value and that most of its price movements are based on beliefs and bubbles. As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational… Unlike other commodities, it has little intrinsic value. Much like a fiat currency, gold’s value is based largely on the irrational beliefs of investors. In a depression or near depression, one would be better off stockpiling canned food and other commodities like oil that are useful for riding out Armageddon. You cannot eat gold or burn gold.” What a mouthful of substandard analysis!!

One must wonder if Roubini has noticed that the banking system lacks capital, since the primary reserves have been bond based, as in debt. Gold serves as excellent bank ballast in stormy times. He failed to observe that if the big banks were in possession of gold in reserves, they would not have turned insolvent during the gold price advance. Gold capital gains are enormous. Bond principal losses greatly overshadow their yields. Besides, Warren Buffet proved that gold & silver offer a yield, as in writing call options. The irrational beliefs expressed by Nouriel pertain more to stock and bond prices, one might easily conclude in the current environment with the grand USTreasury Bond bubble. The European sovereign debt crisis drove that point home rather vividly and thoroughly. Surely Nouriel must have noticed how the bond confidence erosion serves as a major motive to own gold in the past several months.

Conditions are very different now versus December 2009, when Roubini was correct in his anticipation of a gold price correction. What followed was a 14% to 15% price correction, then a long consolidation. He does not detect the benefit from the consolidation phase and return to crisis, thus the fertile ground for the next major gold price advance. Roubini must not observe that nothing has been remedied, no reform enacted, no restructure accomplished, but much more money wasted. His style of rear view mirror forecasting is a shabby statistician practice, a lazy endeavor. This time around, the gold seasons work against his new wayward gold forecast. Last December, the strong season was coming to an end. This September, the strong season is beginning. The big runup in the gold price will crush the shorts and shatter the reputations of many formerly respected analysts. His negative bearish call goes against the typical strong months of September through January, when last year the gold price rose from $950 to $1225. In the autumn of 2008, the gold price rose from $720 to $1000. What a limited awareness he has of the strong gold season, even pattern recognition. He does not comprehend gold!

Enter the second errant Roubini call concerning gold. Nouriel Roubini is on record with a position that the USDollar, the Japanese Yen, and the Swiss Franc may be a better investment than gold, if the global economy suffers recession. What an incredibly block-headed analytic viewpoint. A recession comes, then all major currencies will be undermined by excessive deficits and the response in monetary stimulus. Gold will thrive versus the major currencies, suddenly in much greater supply. This is simple Supply & Demand, whose dynamic escapes many economists, like a mental stain. He said, “If there was a double dip recession, increasing risk aversion, some assets are going to be preferred, and gold will be one of them. But in that situation, things like the dollar, the yen, the Swiss franc have more upside in a situation of rising risk aversion because they are much more liquid than the gold market. I believe that gold is going to trade around current levels. There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation. The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system.”

Roubini fails to recognize that the so-called backstop is nothing but impaired bond redemption, investment in failed gigantic financial firms, and countless liquidity facilities. The backstop is fashioned from the same sovereign bonds being attacked for their integrity and lofty values. The central bankers have rendered great damage with their own swords of debt. When the backstop proves inadequate, the gold price will respond with great power, enough to capture global attention. He fails to comprehend that the device enabling the requisite monetary flow is from dubious sources, namely the Printing Pre$$. Erosion of the USDollar is in high gear, but also for other major currencies, thus the entire monetary system. Gold responds with price rises versus such debased currencies, maybe uniformly. Nouriel seems ignorant of the monetary system. Moreover, the US stock market has seen 20 consecutive weeks of profound money exit flows. Maybe Nouriel does not monitor capital flows. It is called the Competing Currency War, something Nouriel must be aware of. Gold is the main winner in such wars. Next, in response to the USFed sponsored QE2 Launch, watch for Europe to announce a similar initiative. After all, they do NOT want the rising Euro currency to torpedo the strong German export trade. Some call this retaliatory gesture beggar thy neighbor. Money is being debauched, debased, and destroyed at a pace not seen in decades, maybe half a century. And Roubini believes the major currencies will outperform Gold in the spirited climate of a monetary paper flood sequence. His forecast might qualify more as propaganda than analysis! The heavy reliance upon the monetary engines toward empty output reduce the value of money itself, thus lift the gold price.

ULTIMATE MONETARY TRUTH

The majority of economic and bank analysts, like Roubini, simply does not comprehend gold! He does not comprehend its role as a reserve asset, nor the extreme attack to the integrity of sovereign debt, which supports the major currencies. He does not notice the debasement of money from profound abuse in its incremental wasted creation. Investors are rushing in pursuit of securities considered the most secure in a slowdown, as evidence mounts that the USEconomy has run out of momentum in its contrived rebound without remedy, reform, or restructure. Roubini does not comprehend the monetary system versus an anchor, either implied or direct, as in the gold anchor.The monetary high truth demands a value of the global reserve currency versus true money, whether sanctioned and blessed by the Ideological High Priests or simply implied.Gold and crude oil, even housing, have filled the implied gap for decades. They are called inflation hedges. These priests are heretics to sound money principles, thus the great financial crisis. Roubini cites US recession statistics and concepts with the best in his class, but he fails to link the official policy actions to a detrimental effect on the monetary and currency systems. The winner from the approach pattern to systemic failure is gold & silver.

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Jim Willie CB
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Hat Trick Letter

But this is simply a statement of the trees that are in front of our eyes. A secular bear market is the forest in which the trees live. For those who say that inflation and money printing will keep stocks afloat from here on out, I would direct you to re-study your stock charts in the 1966 – 1982 period. There was plenty of currency debasement and stocks went nowhere in nominal terms for over 15 years. In real terms, buy and hold stock bulls got slaughtered as bad as those who held thru the 1929-1932 bear market!

The current long-term chart of the NASDAQ composite index looks eerily familiar. Here is a log scale weekly candlestick chart of the NASDAQ ($COMPQ) from 1995 thru today’s close:

Why does this chart look and “feel” familiar to me? Because it reminds me of the Japanese stock market chart when looking at its recovery after the 1997-1998 Asian financial crisis. Much like the U.S.-centric financial panic into early 2009 with the NASDAQ, the Asian crisis of the late 90s occurred deep into a Nikkei secular bear market. The NASDAQ bubble popped in 2000, so getting caught up in the cyclical bear market of 2007-2009 didn’t really make things any worse for the NASDAQ, it just caused the NASDAQ to revisit its previous bottom made in 2002. Japan’s stock market bubble burst in 1990 and the Asian financial crisis of 1997-1998 did the same thing to the Nikkei index.

The rebound for the Nikkei out of that 1997-1998 cyclical bear market was fast and furious and crushed the bears. Here’s a weekly log scale candlestick chart of the Nikkei stock index from 1985 thru 2000 to show the similarity to the current NASDAQ chart:

And, as one of my favorite themes, here’s what came next:

Not a prediction per se, but a warning not to lose sight of where we are and where we need to go before this secular bear market can end. There is too much debt and too much fraud that need to be cleaned up before a new secular bull market in general stocks has a snowball’s chance in hell of beginning in my opinion. Now for those who look to helicopter Ben to trash the U.S. Dollar and save the stock market, here is a lesson from history on currency debasement during a similar period in the Japanese secular bear market. The following chart covers the 1999 bull market and subsequent 2000-2003 bear market in the Nikkei stock market ($NIKK, the black linear plot in the bottom of the chart below) in order to show how the Japanese Yen index ($XJY, the main candlestick plot) fared during this time:

Now, returning my thoughts to Gold, the Gold chart priced in U.S. Dollars looks a lot like a chart of the NASDAQ ($COMPQ) as well, but during a different time frame:

I’m sure you know what came next in this case, but just so that you don’t underestimate the power remaining in this secular Gold bull market, which is far from over, here’s what came next back then in the NASDAQ:

Paperbugs will hate it, will question Gold every step of the way and will produce vehement rants against the wisdom of investing in Gold during a secular credit contraction/economic depression. People like Nouriel Roubini, who haven’t a clue as to why Gold has outperformed the U.S. Dollar since the transient deflationary collapse in late 2008, aren’t going away any time soon. Krugman and his ilk will remain the economic philosopher kings of paperland, on that you can be sure. But it is your choice as to whether or not to listen to the siren song of those who claim to be able to create prosperity for all using nothing but magical debt tickets backed by nothing.

Investing in Gold is in and of itself deflationary. If you put your fiat paper cash into real money and don’t make the bankstaz any money, you are the enemy of all that is righteous and holy on Wall Street. You also deprive businesses of capital they need to pursue expansionary-type activities. This then deprives the government of much-needed tax revenues. This is why Gold is the enemy of the state. You can get back at the “powers that be” for screwing over your and your children’s financial future and profit handsomely at the same time!

Gold is the vortex of a deflationary spiral once the point of no return has been passed. All other asset classes spin out of control around it, while Gold just sits there looking all shiny and disinterested. For those who point to the Gold price in November of 2008 when disparaging Gold, I point to the Gold price in February of 2009.

The smart thing to do is stay in physical Gold, wait for the inevitable financial asset collapse to deepen, then buy good cash-producing financial assets in the rubble for pennies on the dollar. This is the surest and safest way for an investor to grow wealth during an economic depression, if that is your goal (if not, you can always eat your Gold). The U.S. Dollar cannot be the ultimate safe haven that Prechter wants it to be, because it is a flawed irrational instrument and is no longer looked upon as trustworthy by much of the world. I am not saying that the U.S. Dollar can’t outperform the stock market or real estate market going forward – it can (no guarantees, though!). But to think the U.S. Dollar or T-Bills will outperform Gold over the next few years is laughable to the point of being absurd. We are not a creditor nation with a Gold backed currency in the midst of a global Gold standard abandonment like in the 1930s. Not even close.

Though it may seem as though paperbugs are winning again because turkeys in the general stock market are flying higher than Gold and Gold stocks, this is a short term phenomenon. Gold bulls need to remember to stay focused on the longer term. For your interest and entertainment, I am going to show you a series of powerful bull markets, one right after the other, to prove a point. I have deleted the identifying information and year that these bull markets occurred, but the following charts represent the actual price action in several historical bull markets. Please bear with me as you briefly peruse the following seven charts:

Want to know what each of these impressive bull markets have in common? Well, I can show you in just one chart:

Think you could have played these swings using technical analysis and captured a good chunk of each of these cyclical bull markets to make it a profitable secular bear market? Maybe you’re right, but maybe not. Wouldn’t it have been better to just stay in cash? In Japan we have the only example of a major economy and stock market undergoing a secular economic depression since the day when Nixon broke the final link between the international monetary system and Gold in 1971. So, has the Yen been a better bet than Gold over this time period since cash is king during deflation? ABSOLUTELY NOT! Granted, it took Gold a while to catch up to the Yen, as the global Gold market was mired in a secular bear market during the 1990s. However, here is a chart of Gold priced in Japanese Yen from 1990 thru today (chart courtesy of goldprice.org):

Now, I don’t want to get bogged down in the semantics of deflation versus inflation. I understand that Japan has been taking on more and more debt in the public sector to offset private credit contraction (sound familiar?). In other words, the Japanese government has been fighting deflation with repeated bouts of fiscal and monetary policy madness in an attempt to stoke inflation. Just as in the 1930s, it didn’t work other than to spread the collective pain over 2 decades instead of one or less. And no, Japan’s secular stock bear market is not yet over even after 20 years.

Gold has trounced the U.S. Dollar since the secular stock bear market began in 2000 as well as essentially every other investment class over the past decade and we are set for a repeat decade of Gold bull delight. The difference this decade is that the Gold secular bull is now going to enter its’ wilder, more volatile phase. As Bob Hoye has pointed out, bull markets are born stoic and die epicurean. In other words, bull markets end in a much steeper uptrend and rise far above their fundamental value before they collapse upon the weight of the herds’ optimism and greed. This remaining Gold uptrend could last 1 year or 10. When it is all said and done, an ounce or two of Gold will buy the entire Dow Jones Industrial Average.

And for those who say that Helicopter Ben and widdle Timmy Geithner are going to succeed and that we are headed into a hyperinflationary depression, my only regret in this scenario would be that I own more Gold than silver. Gold is real non-debaseable money and ignorant apparatchiks have no ability to change this fact by decree, though they may sneak in a little tungsten if you’re not paying attention. Our wily so-called financial masters of the universe also cannot change a long-term trend once it is set into motion. The secular financial pendulum continues to swing away from financial assets and towards Gold. Physical Gold will be money long after the cast of dimwits and thieves who claim to be our leaders are but dust in the wind. And shiny, real cash will continue to be king for conservative investors during this ongoing secular credit contraction. Keep your eyes on the Golden prize.

Japan has a funding problem already but due to demographics and rising interest on the debt, who is going to buy JGB’s at these bloated levels?

The country tipped into outright demographic decline in 2005. Households have already stopped adding to their stock of JGBs. As the aging crisis accelerates, the elderly are running down their assets. The savings rate will soon crash below zero.

Japan can turn to foreign investors to plug the gap, or course, but at what price? If yields reached UK or US levels of 4pc, debt costs would soak up nearly all the budget, leaving nothing for schools, roads, the police, or salaries for the Ministry of Finance. “I doubt there is any yield that international capital markets can find acceptable that will not bankrupt the Japanese state,” he said.

Note too that the Japanese will also have to run down their holdings of US Treasuries, currently $750bn or 10pc of the entire stock of US Treasury debt, as well as selling a lot of Gilts and Belgian bonds.

“This might very well precipitate other government funding crises. At the very least I’d expect it to trigger an international bond market rout scary enough to spook all other asset classes. So maybe we should all be concerned that Japan is in the hyperinflationary range. And if so, maybe we should think a little more carefully about how Western governments consider their debt burdens. Maybe Japan’s will be the crisis that wakes up the rest of the world,” he said.

Will it happen, this week, this month, this year, or will Tokyo keep the illusion of solvency going for years longer? Who knows. Japan is an endlessly mystifying society. But as Mr Grice puts it, if you are sitting on a tectonic fault line, expect an earthquake.

Remember that Japan is about 10 years ahead of the US, in terms of its economic crisis. The deflationary forces that have plagued Japan are now plaguing the US. Because of its domestic savings, Japan was able to finance its deficits internally. The US doesn’t have that luxury. This time around, the break in the Japanese bond market could be immediately followed by a break in the US Bond Market. All positive for Gold & Silver.

2010: GIANT GATHERING STORM CLOUDS

by Jim Willie CB

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Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The year 2008 bore my mark as the year the system broke. A public article addressed the issues, laid out before the breakdown occurred in September of that year. The consequences for the many failures, the desperate nationalizations, the hasty scrambles to put financial sewage under USGovt ownership, the realization of TARP as a vast slush fund for illegitimate bank rescues, the official monetization plans put forth to prevent bond implosions, and much more occurred in the year 2009 as a recognized aftermath. Here we are in 2010 and the threats must again be laid out. A prelude was offered in an mid-December article entitled “Full Circle of Govt Debt Default” (CLICK HERE) where a global sovereign debt ruin in vicious circle was displayed the sequence that started in the Untied States and will end in the Untied States. Rather than make specific forecasts of extreme events, a list is presented much like a smorgasbord. The odds are 100:1 in favor at least one extreme event occurring in this current calendar year in my view. The odds are very high in favor of several events taking place this year. The key here is that a great many extremely damaging and highly disruptive events loom like giant gathering storm clouds that meet, complete with lightning displays. More terrestrial types might consider that a great many land mine explosives lie in the wide pathways ahead. At least a few extreme craters will be formed. A few financial edifices will be toppled. Great changes come, especially to the global power structures. This time around, the stakes are bigger, and entire nations will face debt failure and national realignment. The ripple effects will reshape the global financial system.

The blind, the deficient, and the compromised fail to fully appreciate and detect the meaning of the Dubai debt default or the Iceland financial failure. They actually believe these busts have been dealt with by the very strength of the capitalist system. These default failures signify a continuation of the credit market crisis that never went away. Instead, accounting fraud was legalized. Instead, bloated bank toxic balance sheets were permitted. Instead, sovereign debt finance by monetary expansion was endorsed, i.e. monetization. Instead, stock equity sales to the nitwits incapable of reading balance sheets was widespread. Instead, broader statistical gimmickry of economic data was installed. Not a single meaningful reform has taken place on US soil, which guarantees the continuation of the credit crisis is assured. No substantial reduction of US home loan balance sheets. No return of US manufacturing. No liquidation of dead US banks. No removal of Goldman Sachs from control of the USDept Treasury. No disclosure of US Federal Reserve disbursements of over $1 trillion. No steps to restore the Glass Steagall Act to create firewalls between the financial sectors. No effort to prosecute for $trillion bond fraud. No initiative to bring to light the deep criminal lace to Fannie Mae and AIG, now protected under USGovt aegis. No attempt to rein in military spending and endless wars. No movement to create a monetary system with a currency other than the current debt denominated $20 bill coupons. Instead, with much greater force, enthusiasm, and recklessness, the financial system hurtled deeper into the Weimar chambers of commerce. Worse, most steps simply apply greater doses of precisely what caused the problems with debt overload and excessive monetary expansion. Worse doubly, most reforms grant even more power to those responsible for the breakdowns and fraud perpetration. The Untied States is being recognized internationally as a rogue nation moving headlong toward communism, run by powerful syndicates, whose most prominent foreign policy is explained by military hardware.

There is no shred of the capitalist structural makeup remotely evident outside of Asia. We see cronyism systems in the West, but worse, we see syndicate systems with alleged cords of criminality. The discredit of the central bank franchise system is barely noticed by the mainstream, which applauds the printing press monetary operators without recognition of the repeat of Weimar chapters. Just today, the New York Times formally posed the question of how the US Federal Reserve can prevent the next asset bubble when it missed the last one. It actually misses all asset bubbles, creates them all, and denies the existence of each during formation. The signature signals of a failed central bank is a lasting 0% rate and heavy monetization, called euphemistically Quantitative Easing so as to make economist failure sound like some wondrous medical prescription in high falluting nomenclature. How about the US Financial Reform being called Economicus Moribundus and the vast printing of money in monetary policy being called Whisky Delugius?

Let’s review a rather lengthy list of potential events. These are not wild raving pronouncements. Each has some critical mass of likelihood. Each event is presented like an ugly perverse budding shoot on the charred landscape, easily representing an element of the Paradigm Shift. The global shift is almost totally missed by the American leaders, the press networks, and the people. My interpretation is that they live inside the US Dome of Perception, and hardly ever pay attention to matters pertaining to the USDollar. They instead regard it as a constant factor, quite erroneously. The list to follow includes matters often considered sacred, due to the sanctity and inertness of sovereign governments and their debt. The event closest to the Untied States is the dreadful dismemberment of Mexico, which is Greece on steroids and cocaine with the temperature turned up and the violence turned up, where the law enforcement and military have both been compromised and infiltrated. It is a tight race between the US and Mexico as to which nation is more overrun by crime syndicates. The difference is the US has white collar crime, while Mexico violent crime.

The following events are presented as potential disasters looming, spanning the full spectrum, each with triggers in numerous arenas. These are potential disasters, not presented as forecasts, but rather as a list to beware for nasty highly disruptive eruptions. They are loaded with a geopolitical streak, in keeping with Paradigm Shift that signifies a powerful set of changes in altered power. The one common trait all the following potential events have is that they are systemic game change agents. The globe will be reshaped by each and every event that comes to pass. They are not listed in any order of likelihood, since they are all very much at risk of occurrence, and integrally interconnected to a frightening degree. Each would heap tremendous damage, disruption, and devastation, upon occurrence. One should note that if one or two events occur, then others might occur with domino effect from the chain reaction of chaos and opportunity. Note for instance, how the Dubai default resulted in Greek Govt debt downgrade, with no connection except possibly some ancient Greek statues in marble lined parlors in Dubai edifices. The ripple effects will be felt for a full year, just like Lehman, Fannie Mae, and AIG in the United States, just like Northern Rock, Royal Bank of Scotland, and Lloyds in England. The triggers have been ignited, and constant fallout comes. The process never stopped, only the perception that it had stopped. The process can only stop when liquidation and reform occur. Neither is remotely evident.

Use the following scale for grading risk and effect. The likelihood of the event happening will be shown as a percentage, with 0% the lowest and 100% a certainty. The impact for each and every stated event would indeed be huge, extreme, and dangerous. Many different sources have provided lists of extreme events for the new current year, a tradition. Much lies in common for those who choose to think ahead, instead of employing the common practice of putting a new less credible layer of deception on the current landscape. The best among all the sources seen in my view has been the Business Insider. Thanks to my own circle of colleagues and confidants, who provided at least a couple of events listed.
EXTREME WARNINGS FOR EXTREME TIMES

Saudi Royals fall: The Saudi Arabian royal family would lose government control to the Islamic Fundamentalists and is replaced. Scores of old royals escape loaded with hundreds of billion$ in assets, conjuring up memories of the Shah of Iran. Disruptions and instability spread across the entire Persian Gulf. A clampdown of fundamentalist groups in other Gulf nations invites backlash. Occupation forces in Iraq face renewed resistance. (chance: 20%)

China gains full naval military capability: The Chinese Military would attain aircraft carrier force with three carrier groups. In expert circles they call it blue water capability. With this potential, including long range strike potential, the balance of power in Asia is altered. Pressures are put as a result toward changed alliances in key nations considered loyal to the West. Certain strategic points gain attention, as focus is trained on the Mallacan Straits, the Panama Canal, the Suez Canal, the Bosporus Straits, the access routes to the Bering Sea, Australia, and South America. (chance: 30%)

Russian cuts off natural gas to Eastern Europe: Russia would enter a deep dispute with Eastern European nations, in particular Ukraine, and cuts off the flow of natural gas. Disputes center on return to the Russian fold from the independent factions encouraged by the Untied States motivated by the many Color Revolutions. Caught in the middle, at the end of the distribution lines, is Central Europe, whose ties forged by Germany to Russia remain healthy and strong. Russia later forges an alliance with Central Europe that results in some stability, as it becomes clear that Russia has come of age as a peacemaker with further ramifications in time. (chance: 50%)

Greece defaults on its debt: Great problems would result for the parent European Union, sure to fracture. Germany lets it go, does not cover the Greek debt, but employs plausible deniability on minimal offered assistance. A chain reaction begins, to reach the other vulnerable nations. Portugal, Italy, and Spain teeter upon the event, soon to suffer their own defaults, none aided. Even France suffers the ignominy of default, but is aided by Germany in the end, unlike the PIGS nations. The crux of the matter is refinance rollover of debt, which fails. The non-German EuroBonds then rise in yields, enough to force a split in the Euro currency to form the Nordic Core Euro. Default nations revert to their old former currencies and suffer massive devaluations. (chance: 80%)

Mexico fails as a state: The conditions in Mexico would become fully recognized and openly discussed. Two factors are front & center. The rise of the drug cartels in their control of the nation in numerous aspects is already global news. The unexpected net import of crude oil that ruins the nation’s federal finances is not yet global news. The former has been understood, but the loss of oil exports takes the region by total surprise. Hyper-inflation then hits Mexico, which prints money to alleviate the federal budget shortfall. Chaos results on numerous levels. Supply disruption hits the US southern refineries. (chance: 70%)

Credit crisis relapse hits the US banks: The Untied States would suffer a relapse into a second round of bank failures, debt defaults, institutional liquidations, corporate deaths, and market disruptions. The proximal cause is the spread and continuation of the property decline, home foreclosures, and commercial defaults. Numerous bank analysts continue to harp on commercial mortgage loss risk after a 40% price decline, so far covered up by phony accounting rules. Impaired assets sit as bank assets. A trigger is the USFed removal from mortgage bond support, coupled with a powerful second downwave in housing prices from Option ARMortgages. A solution is put forth for wide USGovt purchase of housing inventory and the official advent of Fannie Mae as landlord. The supply chain is disrupted in extreme ways, as commercial paper grinds to a halt, and a deeper recession takes root. (chance: 40%)

The US supply chain suddenly suffers disruptions: The economic supply chain would be crippled by its two primary points of vulnerability. The finance credit lines are tied to wounded commercial paper markets. The actual tangible output supply comes from industries that struggle in credit flow, unstable prices, burdensome regulations, worker shortages, and constricted metal supply. Certain trucking firms have already shut down. Gasoline refineries are below their 1990 capacity. Mexican oil supply is soon to end. The lack of trained skilled experienced workers is chronic. (chance: 40%)

Fannie Mae is revealed as a slush fund, toxic bond haven, and object of grand criminal fraud coverup: Leaks would lead to calls for further Congressional investigations of mortgage bond fraud and past presidential pilferage. At the same time, various alerts would be given that the USGovt is harboring a black hole certain to cost over $2 trillion in additional bailouts, maybe up to $4 trillion. The prospect of wide USGovt home ownership from default sparks research reports and great scrunity, even clamor by younger members of Congress. The unlimited credit line to back USAgency debt securities has opened the door to a nasty effect on perception of USTreasury debt, as global perception of the actual USGovt debt ramps up 50%. Discussion of default rises. (chance: 40%)

The real 911 story comes out: The full seamy story would be revealed with many participants named. No further comment except that nation then would become deeply divided in reaction, and international isolation would result. The beneficiaries become the object of scrunity, criticism, and investigation. Attention turns to the swine flu vaccination and global Cap & Trade green taxes, each of which faces the harsh eye of investigation in Europe. (chance: 20%)

Iran is attacked: Great controversy would result from the direct attack of its nuclear facilities and other targets. Controversy would stir from scattered unconfirmed reports of involvement by various nations. Retaliation by Russia and China, long promised, then comes in hidden ways not fully understood. In the aftermath, the banks in the Mideast region are subjected to great scrutiny by several global players, especially one US ally nation. (chance: 10%)

Japan suffers a financial & economic crisis: A recession would take grip, spreading to its financial markets. Reduced export trade eliminated the trade surplus long ago. The Japanese Govt Bond then jumps higher by 2% or 3% in bond yield. The rising Yen currency consequently runs up 20% to 30% from the reverse of the Yen Carry Trade. Their export trade grinds to a near halt, and major conglomerate banks announce insolvency. Then China steps in. (chance: 40%)

UKGovt suffers a debt downgrade: The United Kingdom would be the first major industrialized nation to lose its high credit rating. The UKGilt bond yields then rise above 6% without pause. The threat of sovereign debt default is debated. The British Pound currency falls, which perversely aids the USDollar. Shock waves extend to the Wall Street financial center. Later, scrutiny comes to the USTreasury for its own downgrade and default risk. (chance: 50%)

Talk swirls for eliminating some central banks: Debate would focus on the central bank role as cause for asset bubbles, and extensions to the faulty nature of money itself. Analysts would cite money free from anchors of asset backing. However, awareness rises of the impracticality of central bank elimination, since debt liquidation and cleared decks cannot occur without global depression. In the background is rampant discussion of syndicate involvement and the risks of retaliation by the secretive banker organizations. (chance: 10%)

China faces a degree of chaos: Falling export trade, faltering bank reserves, empty commercial buildings, rising unemployment, idle factories, stalled construction projects, and restive population would contribute to a national crisis that struggles to be told amidst press controls. Armed with a $2500 billion war chest of reserves, China begins to convert assets into tangible rescues, aid, and welfare. The Chinese crisis then ignites a global sale of USTreasurys. As an offshoot to the chaos, the colonization of America then begins, as China cashes in on its USAgency Mortgage Bonds. It exploits it cut deal of Eminent Domain conversion of bonds into property. (chance: 20%)

Food prices soar in the US: The divergence between official crop forecasts would clash with the reality of crop failures and profound shortages this summer. Being the greatest food production source, the US crisis spreads globally. The deCarbonnel threat is realized, as foreign nations sell US$-based assets in order to finance food supply purchases. China enters the fray as a buyer of distressed farm property, amidst accusations of carpetbagger. (chance: 80%)

JPMorgan is object of persistent rumors of gigantic credit derivative losses: The slowly rising USTreasury Bond long-term yield would cause deep painful losses to JPMorgan. Their abuse of Interest Rate Swap contracts becomes a topic of debate. The monetization of USTreasurys becomes a topic of debate. The ability for the USGovt to control its deficits and auxiliary (hidden) losses becomes a topic of debate. Even bond fraud within JPM hallowed halls becomes a topic of debate. To cover the losses, monetary inflation grows out of control, and a USDollar decline ensues, taking the DX dollar index below the 70 level. (chance: 40%)

London metals exchange shuts down: The venerable London Bullion Market Assn would close, unable to fulfill gold orders. The varied stories continue regarding unorthodox practices from the London metals exchange in the month of December, like redemption of gold contracts in cash, like outsized demands for gold delivery mainly by Chinese entities but increasingly by the Swiss, like satisfaction of gold contracts with Street Tracks GLD shares, and much more. Scrutiny with assays upon high volume delivery have been standard since the tungsten gold story emerged, an indirect confirmation often ignored. The supply chain with intermediaries suddenly halts, as they too have no gold bullion to supply the LBMA. Companies shut down. Lawsuits result. Prosecutions begin. Midlevel officials are arrested. Some turn state’s evidence. The gold price enters a state of extreme confusion, with vast discrepancies between paper gold price and physical gold price. (chance: 70%)

GOLD & SILVER START A NEW YEAR

Like after a stormy night, the new year has arrived much like a new market with fresh perspectives. The end of tax loss selling, accompanied by tax gain offsets, has come. The beneficial effect is equally shared between gold and silver, although the percentage gain from the recent reversals this week is larger for silver. Not shown in the two graphs is the upward jump in today’s prices. They extended gains, with gold reaching the 1135 level, and silver reaching the 18.1 level. The most important factors to keep in clear focus are why gold is rising in a powerful upward trend in the first place. They have not changed. There is no end in government spending, from the Untied States, the UK, Europe, and Japan. There is no meaningful reform of any kind, surely no remedy unless one considers padding banker balance sheets with taxpayer funds as pre-requisite for remedy. There is only a rampant rabid race to grow the money supply, to produce federal deficits, to expand the central bank balance sheets. The real adjusted cost of money is negative after price inflation. The 0% official rates have become fixtures, as central banks look increasingly incompetent in justifying their continuation.

Notice the sharp reversals since the new January month began. Long-term moving averages remain in the uptrend, despite the orchestrated December correction. Investment demand is skyrocketing, a story barely told in the Western press. The wide band for the silver price hints of a strong price rise toward the 20 level on the next upswing. It has already begun. The tumultuous 2010 year, identified by at least a few key critical events listed above, will send the gold & silver prices soaring. Those who believe the hype in the previous month by the mainstream biased press will regret not climbing aboard. This will be the year of magnificent crises that change the face of the global financial structures. Debt will be dumped like a broken Vegas gambler. Paper money will be discarded like yesterday’s newspaper. With the crude oil price at almost $83 per barrel, where are the Deflation Knuckleheads now? They led some gold investors to exit before the push from $900 to $1200. They remain legends only to the image in their own mirrors. The crude oil price might actually come down somewhat in the coming month or two, from scads of vessels loaded and sitting at sea. But gold & silver are set to continue a powerful upward thrust in price, as the perversion of money has become a desperate broad global pursuit. Most major currencies face serious debasement. This is a great opportunity to join the Precious Metals Locomotive after a pit stop. Targets are gold at $1375 and silver at $22.25 per ounce.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

It has happened in history to small countries or even large ones (Argentina). The government runs up to much of a deficit and when it loses its borrowing ability, it can’t finance it. It doesn’t matter if its monetization or default- its bad for the currency and bullish for Gold.

Financing can come from a few places 1) existing savings of the citizenry 2) foreign governments 3) Printing Press.

As this article by Porter Stansberry explains, number three is the only answer.

So… where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we’re still going to come up nearly $3 trillion short. That’s an annual funding requirement equal to roughly 40% of GDP. Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or the Russian central bank, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.

One thing they’re not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None own even 1% of their total reserves in gold.

Stansberry also points out that the market, when it senses the country can’t pay back what it owes, begins selling that country’s currency and bonds. Those damn speculators!

So it comes down to financing. If a government can’t get its citizens or foreign entities to increase their buying of US Gov bonds, it has the Federal Reserve do it. In a word, monetization. In Japan’s case in the 1990s, they had enough savings from their citizens and therefore their obligations were financed internally.

To be fair and play the other side, what would be bearish for Gold or bullish for the greenback?

Well, the Obama administration would need to significantly cut the deficit. Or, we could have even bigger monetizations going on in Japan, Europe and the UK.

Ironically, in the 2001-2007 period, the increased inflation and high commodity prices provided enough excess liquidity, globally, for our deficit to be financed. Remember how money was recycled back into US financial assets? Well now the global economy is much weaker, surpluses have vanished and yet, the US and the UK have increased their obligations. And foreign nations are putting a bit more money into Gold instead of into US financial assets. Could it be that they are increasingly worried, perhaps only a bit, about our ability to pay everything back?

Got Gold? Got Silver?