By Webster Tarpley 3-25-9 WASHINGTON, DC — On the eve of the long-awaited London conference of the G-20 nations, we are rapidly descending into the chaos of a Second World Economic Depression of catastrophic proportions. In the year since the collapse of Bear Stearns, we have moved toward the disintegration of the entire globalized world financial system, based on the residual status of the US dollar as a reserve currency, and expressed through the banking hegemony of London, New York, and the US-UK controlled international lending institutions like the International Monetary fund and the World Bank. This is a breakdown crisis of world civilization, prepared over decades by the folly of deindustrialization and the illusions of a postindustrial society, further complicated by the deregulation and privatization of the leading economies based on the Washington Consensus, itself a distillation of the economic misconceptions of the Austrian and Chicago monetarist schools. If current policies are maintained, we face the acute danger of a terminal dollar disintegration and world hyperinflation.

Dear Friends: The Federal Reserve moves to self financing by buying tons of US Treasury instruments in a clear message that: Inflation = Good Deflation = Bad Therefore: Higher price of Gold = Good Lower price of Gold = Bad Which also infers that: Higher dollar = Bad Lower dollar = Good. This simple formula seems to be too complex for the talking heads who seem to have a difficult time making simple adjustments to their broadcasts, such as no smiling when reporting the Dow is down 500 points or now looking incredulous when reporting gold isup $1. Fed quantitative easing via financing themselves put a floor under gold. When you have a floor under a market it will seek the ceiling. The first floor temporary ceiling is at $1224. After that look to $1650 followed b y Alf’s numbers. Bank crisis spawns new kind of gold rush 2009 recession and banking crisis has set off a rush to invest in gold and other precious metals at unprecedented levels DAVID PARKINSON From Friday’s Globe and Mail March 20, 2009 at 1:00 AM EDT In 1897, at the height of a major U.S. recession and banking crisis, a gold discovery on the Klondike River in Yukon Territory triggered one of the biggest gold rushes ever seen. Now, more than a century later, history is – sort of – repeating itself. No, the world’s downtrodden aren’t beating a frenzied path to a harsh, remote swath of the Canadian north this time around. But the 2009 recession and banking crisis has set off a rush to invest in gold and other precious metals at unprecedented levels – a move that has tightened the global supply/demand picture and helped push prices to record highs. And increasingly, they are opting for the tangible comfort of physical gold – actual gold bars and coins that they can cling to in troubled times. “When the banking crisis hit [last fall], we saw an avalanche of demand,” said James DiGeorgia, a Florida-based coin and precious metals dealer and editor of the Gold & Energy Advisor newsletter. “People are scared to death that all this debt [being taken on by governments] is going to debase the [U.S.] dollar and other currencies around the world.” Data from the World Gold Council show that while demand for gold for industrial, dental and jewellery purposes fell 10 per cent in 2008, net purchases of physical gold for investment purposes jumped 64 per cent to 1,091 tonnes. In the fourth quarter – as the U.S. banking crisis reached new depths – net gold investment volumes surged 182 per cent from a year earlier. As a result of the boom in investment demand, overall gold demand rose 4 per cent last year, further widening the annual supply shortfall in the gold market. “These dramatic retail investment inflows reflect the extreme uncertainty that surrounds the global economy and financial system,” the World Gold Council said. “In an environment where investors are more concerned about the loss of capital than they are about the return on capital, the absence of default risk or counterparty risk has been a key attraction for gold.” Jim Sinclair’s Commentary The felonious game is over. The handwriting is no longer on the wall, it is now in neon lights 100 feet high. The pressure against naked shorting is picking up speed. You never would have seen this in the last 8 years. Look for criminal charges of fraud soon against the practitioner. Only the most dense hedge fund manager can fail to see the jig is up on this convenient and previously profitable crime.

DOLLAR CRISIS IN THE MAKING, Part 1 Before the stampede By W Joseph Stroupe Increasingly ominous clouds are gathering in what could soon be the perfect storm against the United States dollar and against the present dollar-centric global financial order. This is not shaping up to be a storm that anyone is trying to initiate, not even those who are actively driving for a new global financial order that is no longer centered on the dollar. Instead, it will result from a correlation of forces arising out of the deepening global financial and economic crises, coupled with recurring and conspicuous miscalculation on the part of some of the world’s political, financial and economic leaders. The storm has the potential to cause upheaval on a grand scale, opening the door to swift, and largely uncontrolled, fundamental transformation. As is widely recognized, the present financial order that is inordinately reliant on the US dollar must some day give way to a new order that is more balanced, stable, resilient and reliable, one that is based on multiple currencies and that therefore won’t be plagued by the extremely dangerous structural drawback of an increasingly worrisome elemental single point of failure (the dollar). But if the current dollar-centric financial order should become more seriously shaken than it already has been, perhaps even suffering a collapse, as a casualty of the present deepening global crisis, then the transition to any new global financial order is most likely to be disorderly, disruptive and unmanageable rather than gradual and orderly. We can hope - but cannot be at all confident - that world leaders and global investors will act coherently, cohesively and intelligently enough in this crisis so as to ensure that the policies and actions being undertaken will not put at further serious risk the fundamental structure of the current dollar-centric financial order, and that they will instead be effective in bolstering deteriorating global confidence in the present order and in the safety of the dollar, at least until we get through this crisis.

BIG CHANGES AHEAD…WE SUGGEST THAT YOU CAREFULLY MONITOR THE NEWS We see many articles of significance in the world media, but we haven't the time to tell you about all of them.  So, we will periodically put a couple of key ones into emails and send them out to those who are interested.  We expect to send periodic emails with two or three articles attached to them. We will try to do our part by filtering and explaining.  However, to stay fully informed, investors will have to do some work too. PROTECTIONISM IS MAKING A COMEBACK MUCH EARLIER THAN WE HAD FEARED…IT IS GOING TO KEEP ECONOMIC GROWTH DOWN Those who argue for "buy American", "buy French", or any other country, think that they are helping their own interests.  History has shown that this lack of economic knowledge can prove to be devastating to the standard of living…for them and their fellow countrymen.  Although it seems a bit counter-intuitive, free trade actually makes the people who allow it richer.  This has been proven many times.  Those who believe that they are losing their jobs to free trade are often actually losing their jobs because the industry and company in which they work is less efficient.  Their country, industry, and company do not have a comparative advantage in that product area.  To prosper longer term, the country, industry, and company must adapt and create products and services in which they do have a comparative advantage. To accentuate the point, I want to include an article by two professors from schools that are dear to me, the University of Pennsylvania and UCLA.  In today's academic environment, it takes some courage to publish research and studies showing that government, companies, and unions have been unwise.  This kind of research is often subject to attack. FEBRUARY 2, 2009 How Government Prolonged the Depression Policies that decreased competition in product and labor markets were especially destructive.  By HAROLD L. COLE and LEE E. OHANIAN The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn. The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32. Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office. Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935. So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s. The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation's antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression. These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment. Following government approval of each industry code, industry prices and wages increased substantially, while prices and wages in sectors that weren't covered by the NIRA, such as agriculture, did not. We have calculated that manufacturing wages were as much as 25% above the level that would have prevailed without the New Deal. And while the artificially high wages created by the NIRA benefited the few that were fortunate to have a job in those industries, they significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth. These policies continued even after the NIRA was declared unconstitutional in 1935. There was no antitrust activity after the NIRA, despite overwhelming FTC evidence of price-fixing and production limits in many industries, and the National Labor Relations Act of 1935 gave unions substantial collective-bargaining power. While not permitted under federal law, the sit-down strike, in which workers were occupied factories and shut down production, was tolerated by governors in a number of states and was used with great success against major employers, including General Motors in 1937. The downturn of 1937-38 was preceded by large wage hikes that pushed wages well above their NIRA levels, following the Supreme Court's 1937 decision that upheld the constitutionality of the National Labor Relations Act. These wage hikes led to further job loss, particularly in manufacturing. The "recession in a depression" thus was not the result of a reversal of New Deal policies, as argued by some, but rather a deepening of New Deal polices that raised wages even further above their competitive levels, and which further prevented the normal forces of supply and demand from restoring full employment. Our research indicates that New Deal labor and industrial policies prolonged the Depression by seven years. By the late 1930s, New Deal policies did begin to reverse, which coincided with the beginning of the recovery. In a 1938 speech, FDR acknowledged that the American economy had become a "concealed cartel system like Europe," which led the Justice Department to reinitiate antitrust prosecution. And union bargaining power was significantly reduced, first by the Supreme Court's ruling that the sit-down strike was illegal, and further reduced during World War II by the National War Labor Board (NWLB), in which large union wage settlements were limited by the NWLB to cost-of-living increases. The wartime economic boom reflected not only the enormous resource drain of military spending, but also the erosion of New Deal labor and industrial policies. By 1947, through a combination of NWLB wage restrictions and rapid productivity growth, we have calculated that the large gap between manufacturing wages and productivity that emerged during the New Deal had nearly been eliminated. And since that time, wages have never approached the severely distorted levels that prevailed under the New Deal, nor has the country suffered from such abysmally low employment. The main lesson we have learned from the New Deal is that wholesale government intervention can — and does — deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk. President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries — including autos and steel — are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn't directly address the specific impediments that our economy faces is unlikely to achieve either the country's short-term or long-term goals. Mr. Cole is professor of economics at the University of Pennsylvania. Mr. Ohanian is professor of economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA. REMEBERING VENEZUELA…BEFORE HUGO CHAVEZ Shortly after Chavez took over in Venezuela ten years ago, we predicted that in a few years he would ruin the country.  We further predicted that he would become increasingly authoritarian.  It wasn't a hard call, because he was implementing all the old shopworn socialist programs that have failed over and over around the world.  Let us catch up with Hugo and his Bolivarian revolution today.   Hugo is presiding over an inflation rate of 31%, the highest in Latin America.  Crime has risen.  Last year, Venezuela had about 15,000 murders versus about 6,000 when he took office.  The government has not been favorable to private property, so not much building has taken place, and there is a shortage of rental housing.     The upper and middle classes have been mostly dismantled.  Many middle class technocrats have left the country after being fired by the national oil company, to make way for new employees who were more vociferous in their support for the Bolivarian revolution.  For example, Venezuelan geologists and petroleum engineers can be found working in Canada and other oil provinces around the globe. Venezuelan oil production fell substantially when Chavez actively fired most of the knowledgeable energy technocrats who ran the oil industry. In spite of this period of higher oil prices (as compared to ten years ago), the poor in Venezuela have been treading water economically.  Now that the price of oil, the main resource for the Venezuelan economy, has fallen, signs of an economic implosion are becoming more visible.  The state owned oil monopoly is months behind in payments to suppliers, and the currency has fallen in value.  Also, as expected, Hugo is becoming increasingly authoritarian. We anticipate that over the next few years the bad management, corruption, and incoherence of the Chavez administration, will lead to a severe economic crisis…even if oil prices recover.  Sadly, the poor, who Chavez purportedly set out to benefit, will be sucked into the morass with everyone else. A SUMMARY OF SOME OF OUR PAST PREDICTIONS Increased protectionism will lead to lower economic growth and higher inflation.  It will lead to a longer and stronger depression and much more suffering.  WE KNOW THAT THIS PREDICTION IS NOT POPULAR TO STATE, but it will turn out to be true. Eventually, most observers will agree that the protectionist policies that many countries are embracing will have been a major mistake.  Unfortunately, this realization will dawn after much damage has been done. Another unpopular statement that we made was that the recession began in November 2007.  At the time, a lot of criticism came our way.  However, recently, the U.S. government has admitted that it probably began in December 2007.  Equally unpopular was our statement in 2008 that the U.S. was in a depression, not a recession, and that it would likely not end in mid 2009 as many have predicted.  We do not doubt that our view will be affirmed by many others in the coming months. OUR CONTINUING VIEWS NOTHING HAS YET BEEN DONE TO DIMINISH THE ONGOING DECLINE IN HOUSING PRICES, AND THIS IS THE BIG PROBLEM FOR THE FINANCIAL SYSTEM.  THUS, GOLD WILL RISE.  THE BAILOUTS IN EUROPE AND U.S. ARE MUCH TOO LITTLE AND TOO LATE.  TRILLIONS MORE DOLLARS ARE NEEDED. 1. The U.S. is in a depression, and it will continue. 2. European and U.S. government programs thus far implemented have been too little too late, and therefore are not working.  The U.S. banking system will not recover until at least $1 trillion more is contributed to its restructuring. 3. Politicians have no idea now to solve the problem, and the appropriate solution flies in the face of their desire to give gifts to voters via pork barrel programs and handouts.  U.S. politicians are sowing the seeds of disaster for their nation.   The following article discusses the trillions already committed by the U.S.: U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs 4. Worldwide money supply growth is very rapid.  Money printing, to buy bonds, will be happening soon.  This printing of money to pay for borrowing will eventually lead to economic suffering for current and future generations.  5. Just as the Russian, British, Hungarian, Icelandic and many other currencies are in the process of collapse, the U.S. dollar will eventually collapse in value, and many loyal supporters of the U.S. status quo will be much poorer. 6. The world banking system write-offs of bad assets are far from finished, and will continue for years. WHAT ARE INVESTORS TO DO?  OUR OPINIONS ON SOME INVESTMENTS WHICH WILL PRODUCE POSITIVE RESULTS 1. Gold and gold shares. 2. Food related commodities, especially soybeans.  There are crop problems currently brewing in China and Brazil.  If a drought occurs in the next two years, food prices could explode to the upside due to very small food stock carry-forward inventories worldwide. 3. At some time in the next few months, energy prices should move upward because, although demand is falling, supply is falling fast as well.  Global oil production is falling 2-4 percent per year in our opinion. 4. Many currencies will come under pressure due to unwise government actions in Europe, and many other parts of the world.  Recently, the Russian ruble, the Hungarian forint, other eastern European currencies have joined the British pound and the Icelandic crown in the dog house.  We predict that it is a big dog house, and will eventually have many inhabitants including the U.S. dollar. 5. World stock markets will get periodic rallies of 25%, and occasional rallies of 40%, even as the long term trends in stocks continues to be down.  In other words, one must take profits periodically to survive. Thanks for listening. Monty Guild and Tony Danaher

Martin Armstrong: The Coming Great Depression   Armstrong Economics The Coming Great Depression Why Government Is Powerless It is frustrating to read so many comparisons of our current situation with 1929 while watching policy be set-in-motion to create spending on infrastructure. Everyone has their hand out looking for a bailout like a bunch of street burns pleading for money so they can get drunk or stay drunk. Almost nothing of what I have read is close to being accurate.  The scary part is depressions are inevitably caused by politicians who may be paving the road with good intentions, but are relying upon analysis so biased, we do not stand a chance.   The stock market by no means predicts the economy. A stock market crash does not cause a Depression. The Crash of 1903 was properly titled – "The Rich Man's Panic." What has always distinguished a recession from a Depression is the stock market drop may signal a recession, but the collapse in debt signals a Depression. This Depression was set in motion by (1) excessive leverage by the banks once more, but (2) the lifting of usury laws back in 1980 to fight inflation that opened the door to the highest consumer interest rates in thousands of years and shifted spending that created jobs into the banks as interest on things like credit cards.  As a percent of GDP, household debt doubled since 1980 making the banks rich and now the clear and present danger to our economic survival. A greater proportion of spending by the consumer that use to go to savings and creating jobs, goes to interest and that has undermined the ability to avoid a major economic melt-down. The crisis in banking has distinguished depression from recession. The very term "Black Friday" comes from the Panic of 1869 when the mob was dragging bankers out of their offices and hanging them in New York. They had to send in troops to stop the riot. A banking collapse destroys the capital formation of a nation and that is what creates the Depression. The stock market is not the problem despite the fact it is visible and measurable and may decline 40%, 60% or even 89% like in 1929-32. But the stock market decline is normally measured in months (30-37) whereas the economic decline is measured in years (23-26). Beware of schizophrenic analysis that is often mutually contradictory or often antagonistic in part or in quality for far too often people think they have to offer a reason for every daily movement. Our fate will not be determined by the stock market performance. Neither can we stimulate the economy by increasing spending on infrastructure any more than buying your wife a mink coat, will improve the grades of your child in school. We are facing a Depression that will last 23-26 years. The response of government is going to seal our fate because they cannot learn from the past and will make the same mistakes that every politician has made before them. Even if the Dow Industrials make new highs next week (impossible), the Depression is unstoppable with current models and tools. Stocks & Consumers vs. Investment Banks Let us set the record straight. The Stock Market is a mere reflection of the economy like looking at yourself in a mirror. It is not the economy and does not even provide a reliable forecasting tool of what is to come economically. We are headed into the debt tsunami that is of historical proportions unheard-of in history. There have been the big debt crisis incidents that have hobbled nations, toppled kings, and set in motion economic dark ages. It is so critical to understand the difference between the economy and the stock market, for unless you comprehend this basic and root distinction between the two, survival may be impossible. To the left I have provided the Economic Confidence Model for the immediate decline. You will notice I did not call this the "stock market model" nor a model for gold, oil, or commodities. I used the word "economic" with distinct and clear purpose. I have stressed it does not forecast the fate, of a particular market or even a particular economy. It is the global economic cycle some may call even a business cycle. Please note that what does line-up and peaks precisely with this model often even to the specific day that was calculated decades advance is the area of primary focus. Yet the US stock market reached a high precisely with this model and then rallied to a new high price 8.6 months later. In Japan, the NIKKEI 225 peaked precisely on February 26th, 2007. This is not a very good omen. But there was something profound that turned down with the February 27th, 2007 target - the S&P Case-Shiller index of housing prices in 20 cities. February 2007 was the peak for this cycle in the debt markets - not the US stock market.   The stock market always bottoms in advance of the economic low. In fact, we will see new highs in the now even in the middle of a Great Depression. At least the 1929 cycle was more of a bubble top in stocks than what we have in place currently in the US stock market.  We still had the bubble top in the NASDAQ back in 2000, but this illustrates the point. There was a major explosive speculative boom. The bubble burst in 2000 and there was a moderate investment recession into 2002, but there was no appreciable economic decline that was set in motion because of that crash. Currently, we have a major high in 2007, but it was not a bubble top because it was not the focus of speculation. The real concentration of capital that created the bubble top, took place in the debt markets. This is the origin of the economic depression - not stocks and not the displacement of farmers because of a 7 year drought created by the Dust Bowl that invoked the response of the Works Progress Administration (WPA) in 1935. Keep in mind the stock market bottomed in the mid summer of 1932 when unemployment was not excessive from a historical perspective.   The 25% level of unemployment came after the major 1932 stock market low that was followed by both the banking crisis after the election of FDR and before his fateful inauguration. The Banking Crisis came about because of rumors that Roosevelt was going to confiscate gold. Herbert Hoover published his memoirs showing letters written to Roosevelt pleading with him to make a statement that the rumors were false. He did not. It's the Debt Level Stupid In 1907, the excessive debt was in the stock market. Call Money Rates (the level of interest paid to support broker loans) reached 125%. Even 1929 never came close to such levels. This also illustrates that the capital markets do not have enough money to invest equally on all levels in all segments of a domestic economy or in particular nations. To create the boom-bust, it requires the concentration of capital. A bubble top is formed when the majority of those seeking to employ money to make money are focused in a particular market or even country. The 1907 Crash was a bubble top because capital invested on a highly concentrated basis in railroad stocks. The bubble top in Japan back in 1989 was caused by a concentration of both domestic and international capital that had made Japan the number one market in the World. It is this concentration of capital that creates the boom and bust cycle. If money was evenly disbursed like the socialistic & communistic philosophies argue, we would be back to the dark ages where there was no concentration of capital and no economy beyond the walls of the castle so to speak. That is why communism failed. It is the overall level of debt that has reached a bubble top in almost every possible area. For example, in 1980, household debt was about 50% of GDP. Going into the February 2007 high, it reached about 100% of GDP. We must also realize that something profound took place back in 1980. Americans would on the first blush seem to be living it up, buying everything they can on credit and have piles of tangible assets to show for it. That is like looking at the statistics for carrots and arguing that they are lethal because every person who has ever eaten a carrot is dead or in the process of a gradual slow death. This absurd example illustrates the bias that can produce the schizophrenic analysis. There were, once upon a time, usury laws that generally held any interest rate greater than 10% was illegal. The Federal Reserve under Paul Volker believed that interest rates needed to be raised to insane levels to stop the runaway inflation, which  was the first stone that hit the water sending the shock waves that we are having to pay for today. Once the usury laws were altered so the Fed could fight inflation, it set in motion the doubling of household debt, not to mention the national debt. At 8%, the principle is doubled through interest in less than 10 years. The national debt exploded from $1 to about $10 trillion in 25 years and household debt has doubled.  Some states now consider usury to be 26%.   Historically, these are the interest rates paid by the very worst of all debtors - the bankrupts. In fact, in China, the worst creditors historically paid at best 10%. What we have done is the lifting of usury to fight inflation back in 1980, has resulted in usury now being so high, a larger portion of income of the common worker is spent on interest, not buying goods & services that even create jobs. This is one primary reason why jobs have been leaving as well. The consumer needs the lowest possible price and labor wants the highest wages, and to stay competitive, producers leave taking manufacturing jobs as well as service jobs. The extraordinary rise in interest rates that are historical highs since at least pre-Roman times, could not have been possible but for the lifting of usury laws back in 1980 to fight inflation. This amounted to setting a fire to try to stop a brush fire that failed. Consumers pay the highest rates in thousands of years that feed the banks at the expense of economic growth. Even the National Debt rose from $2. 1 to $8.5 trillion between 1 986 and 2006 with $6. 1 trillion being interest. We are funding the nation on a credit card and destroying the economy simultaneously. This has been enhanced by the tremendous leverage and false position that were created in the derivative markets causing the banks to just implode.  Indeed, this is the origin of the economic Depression we are facing. The $700 billion bailout might have worked if Paulson did what he said he would - buy the debt and take it out of the banks. Had the debt been segregated into a pool and managed independently by a hedge fund manager not an investment banker, we could have mitigated the problem. But that is now too late. The credit implosion is taking place on a wholesale basis around the world. The more the economy declines in housing prices, the greater the defaults, the greater the foreclosures, and the lower the economy will move. We are now in a downward spiral that cannot be fixed by indirect schemes. As I said, you cannot get your kid's test scores up by purchasing a mink coat for your wife. Everyone will have their hand out begging for infrastructure money. But the theory of just spending money that will somehow make things better, it is like handing Mexico a trillion dollars and arguing that they will buy US goods that will somehow reverse the economy. The leveraging of debt by the Investment Banks in particular has undermined the global economy. Where household debt has doubled since 1980, the professional financial service sector has seen a rise from 21% of GDP in 1980 to 116% by February 2007. Now consider the debt that they created with the mortgages is already down by 50% and falling, the bailouts will keep coming. To help correct the problem, the commercial banks will tighten credit to make their exposure less, and in fact, their solvency ratios will require it anyway. This we can expect to see not just in business, but housing and car loans that will contract the economy as well. The Great Depression is not the perfect model for today. It was a complete capital contraction. The stock market basis the now Dow Jones Industrials fell 89% between September 3rd, 1929 and July 1932. The contraction in debt was quite massive. Then too, the leverage in banks collapsed that reduces the velocity of money and therefore the money supply. The banks were the first real widespread failures with 608 in 1930. Between February and August 1931, the commercial banks began to bleed profusely as bank deposits fell almost $3 billion or about 9% of all deposits. As 1932 began, the number of bank failures reached 1,860. The massive amount of bank failures in the thousands took place with the rumor of Roosevelt's intention to confiscate gold. Although he denied that was his policy the night of the elections, he remained silent refusing to discuss the issue until he was sworn in. on March 6, 1933 just 2 days after taking office, Roosevelt called a bank "holiday" closing the banks from which at least another 2,500 never reopened. All of these events are contrasted by the collapse in national debts in Europe. Other than Herbert Hoover's memoirs, I have yet to read any analysis of the Great Depression attribute anything internationally other than the infamous US Smoot-Hawley Act setting in motion the age of protectionism in June 1930. It was the financial war between European nations attacking each other's bond markets openly shorting them that led to all of Europe defaulting on their debt. Even Britain went into a moratorium suspending debt payments. This is what put the pressure on capital flows sending waves of capital to the United States that to sane degree was kind of like the capital flow to Japan into 1989. This put tremendous pressure upon the dollar driving it to new record highs that were misread by the politicians who did not understand capital flow. They responded with Smoot-Hawley misreading the entire set of facts. (see Greatest Bull Market In History) (Herbert Hoover's memoirs). It is true that today we have Keynesian and Monetarist theories to manage the crisis. Sad to say, neither one will now work. Bernanke has responded in force dropping the federal funds rate from 5.25% to .25%. He has also opened the Fed Window and thrown out more than $1 trillion in 13 months. However, as admirable as this may be, he has no tool that will do the job. Milton Friedman was correct! The Great Depression was not caused by the decline in the stock market. The event was set in motion by the credit and banking crisis that resulted in a one-third contraction in the money supply. Interest rates will do nothing. The flight to quality always takes place so what happens is a two-fold punch. (1) Interest rates collapse because capital seeks preservation not yield and will accept during such times virtually a zero rate of return, and (2) the flight to quality takes more available cash from the private sector because government debt truly does compete with the private sector. We are seeing this even now. Federal debt becomes the place to go so we see higher yields in both state am municipal bonds because they are not quality and could default like any bank. This contracts the money supply.  Opening the window and just throwing buckets of money into the system will never have any impact to reverse the trend. Furthermore, we are now in a Floating-Exchange Rate system that has made the global economy far more complex than it was in 1929. We all know that China is one of the biggest holders of US government debt. With the contagion spreading to Russia, South America, and China aside from Europe, we see a steeper decline in the China stock market than we do in the United States because that is where capital had concentrated domestically. If China needs money to stimulate its own economy when exports appear to be collapsing by about 50%, then we can see that the Keynesian model is worthless. If the Fed tries to pump money into the system through buying bonds from the private sector, those bonds may be held by aliens who take the money back to their own economies. The Fed cannot be sure it is even capable of stimulating the purely domestic economy. Lower interest rates to virtually zero like Japan did during the 19905, then if capital finds a better place to invest, it can leave for a higher rate of interest as capital did from Japan to the United states, which is why their domestic economy was never stimulated by the' lower interest rates. Leverage during the Great Depression was not even remotely close to what we have to face today. The credit-default swaps are alone worth about $60 trillion. This was a stupid product for it has so tangled the world there may be no way out. This product created the false illusion that you did not have to worry about the quality of the loan because it was insured. We have no way of covering this level of implosion. Add the unfunded entitlements and then the state and local debts who cannot print money to cover their shortfall s, and we are looking at a contraction of debt that is simply beyond all contemplation. So What Now? So now that we see it is not Wall Street, again, but the banks, perhaps we can separate the facts from the fantasy. We can now see that there are two separate and distinct forecasts to be made - (1) economy and (2) stock market. Economic Depressions have a duration unfortunately of generally 23 years with an outside potential of 26 years. The 1873 Panic led to a economic depression of really 23 years into 1896. There were bouts with high volatility and injection of major waves of inflation following the major silver discoveries. It was the age of the Silver Democrats who tried to create inflation by over-valuing silver relative to gold. This created a wave of European-American arbitrage where silver flowed into the US exchanging it for gold, which then flowed back to Europe. By 1896, the US Treasury was broke. The Panic of 1873 marked the collapse of J. Cook & Co, the huge investment bank that was the 19th Century version of Goldman Sachs. They went bust because of excessive leverage in railroad stocks. It matters not what the instrument may be, it is always the leverage, which set the tone for a economic depression that lasted into 1896 where JP Morgan became famous for leading a bailout of the us Treasury organizing a loan of gold bullion. The stock market rallied and made new highs with plenty of panics between 1873 and 1896. The point is, The Panic of 1893 was quite a horrible one. The point is, the stock market is not a reflection of the economy. It often trades up in anticipation of better times, and trades down on those same perceptions of bad times. In both cases, new highs or lows unfold even contrary to economic trends. We will see new highs in the now long before we see the final low in the economy. The ideal lows on a timing basis for the stock market will be as soon as April 2009 or by June of 2009. The more pronounced lows would be due on a timing basis between December 2009 and April 2010. The most extreme target would seem to be August 2010. The shorter the resolution to the stock market low, the sooner we will start to see much higher volatility. The low for the Dow would be indicated by reaching the 3,500-4,000 area. A 2008 closing below 12,000 in the cash now Jones Industrials will signal that the bear market is underway into at least 2009 if not 2010. A year-end closing for 2008 below the 9,700-9,800 level, will signal higher volatility as well. The real critical level for the closing of 2008 will be the 7,200 area generally. A year-end closing beneath this general level will signal that we could see the sharp decline to test the extremes support at 3,600-4,000 by as early as April 19th, 2009 going into May /June 2009. If we were to drop so quickly into those targets, this would be most likely the major low with a significant rally into at least April 16th, 2010. The less volatile outcome would be a prolonged decline into the December 2009 target to about April 16th, 2010. A low at that late date would tend to project out for a high as early as June 2011 or into late 2012.  Nevertheless, volatility appears to be very high. Those who were at the 1985 Economic conference in Princeton, may want to review those video tapes. The volatility we were looking at 20-30 years into the future is now. As 3 of the 5 major investment bankers failed, Merrill, Lehman and Bear, the liquidity has evaporated so the swings are going to be much more dramatic. The major support is 3,600 on the now Industrials. During '09, the support area appears to be 6,600, 5,000, and 4,000-3,600. Clearly, resistance is shaping up at 9,700-9,800. It would take a monthly close back above the 12,400 level to signal new highs are likely. If we saw a complete collapse into a low by April 2009 or June 2009 reaching the 4,000 general area, this would be the major low with most likely a hyper-inflationary spiral developing thereafter. In that case, the now Jones Industrials could be back at even new highs as early as mid 2011 or going into late 2012. Gold has decoupled from oil as it should and has been rising on an ounce-to-barrel ratio. Here, the pivot area for 2009 seems to be the $730-$760 area with the key support being still at the $525-$540 zone. The major high intraday was on March 17th, 2008. A weekly closing below $800 warns of consolidation. Only a monthly closing below the $535 area would signal a major high is in place. The more critical support appears to be at about $680 - $705. A weekly closing beneath this area will also warn of a potential consolidation. A major high is possible as early as 2010-2011 with the potential for an exponential rally into 2015 if there is any kind of a low going into 2011.45. The key to watch will be crude Oil. The collapse of Investment Banks has removed the speculation that exaggerated the trend. A year-end close below $40 for 2008 would signal a major high and serious economic decline ahead. There Are No Tools Left!  The Emperor Has No Clothes It is hard to explain to someone who believe he has power, that he really has nothing of any significance. This becomes the story of the Emperor Has No Clothes. No one will tell him, and if you do, it may be off-with-your-head. This is akin to the man behind the curtain in the Wizard of OZ trying to keep up the whole illusion. After all, why do we vote for people unless we believe that will somehow change our lives? Interest Rates When an economy is rising and the stock market is exploding, interest rates always rise because the demand for money is rising because people believe that they can make a profit. Government pretend to be raising interest rates to stop inflation, but they do not create a trend contrary to the free markets. What happened in 1980 was merely that the government over-shoots the differential between expectations and the rate of interest. If you believe the stock market will double, you will pay 20% interest. A rising interest rate does not create a bear market. Only when the rate of interest exceeds expectations of potential profit offering almost a fixed secured return, will capital leave the speculative market and run to the bond market. In a bear market, interest rates always decline because of the flight to quality. When there is a risk of a .banking crisis as well, then the flight to quality shows that capital is willing to accept virtually zero in return for the privilege to park itself is a secure manner to preserve the future. In both cases, the government may accelerate the trend, but by no means can they create the trend or alter the trend. Lowering interest rates to zero right now will not reverse the economic decline. People will look out the window and until they feel confident again, they will not come out from behind the castle walls. Japan lowered interest rates to virtually zero for nearly a decade. All it did was fuel the carry trade whereby yen was borrowed at 0.1 % and invested in dollars at 5-8%. There was little opportunity to invest domestically in Japan and the stock market languished in a broad consolidation with flurries the upside every-now-and-again. Monetary Theory The Fed has already put into the system about $1 trillion in 13 months. The real problem is they are buying back US government debt injecting cash into the system. But if those bonds are sold to the Fed by foreign holders, there can be no injection of cash into the domestic economy. This amounts to the monetization of our debt in any event. Clearly, buying bonds from the market is not a guaranteed increase in domestic money supply especially when the velocity of money is itself collapsing. Borrowing heavily all these years and depending on foreign investors to buy that debt, altered the course of economics.  Of course there has always been the foreign investor, but there has not been the floating exchange rate system. The rise and fall of the dollar itself can now either attract foreign capital with an advance or repel capital with its decline. Like we needed another new variable. Infrastructure Spending There really is nothing left in the tool bag that can help even to mitigate the coming Economic Depression. The unemployment rate at the end of 1930 was only about 8.9% - similar to the 1975 recession. Things were very slow back then. Even housing was not moving and people took whatever offers came their way. It was the Dust Bowl that began in 1934 that sent the unemployment rising after the 1932 low in the stock market. About 40% of the work force was agrarian. Hence, Congress could not pass a law to make it rain. The real devastation was that this presented a huge portion of the work force that had to be retrained into skilled labor. It was the Great Depression that finally by force of necessity, created an industrial work force that may have taken another 200 years to unfold by gradual transformation. The WPA was formed in 1935, 3 years after the low in the stock market (1932). It had a slow and marginal success. At best, if we attribute all improvement to this one program, very unlikely, unemployment was only reduced by about 20%. 1935 20.3% 1936 16.9% 1937 14.3% 1938 19.0% 1939 17.2% 1940 14.6% Even if we attribute everything to the WPA, all the way into 1940, the most the unemployment declines was by 30%. However, at the end of World War II, we see an Unemployment rate of 1.9% by 1945. Any ideas that we can spend trillions on infrastructure and make it all better, forget it. Turning to infrastructure in the middle of a debt crisis makes no sense. The idea of just spending money will somehow stimulate the economy, will not work. This is like trying to fight in the desert of Iraq using the same tactics as in Vietnam. There has to be sane connection to what we are doing. Just because FDR instituted the WPA when we had a huge displacement issue in the work force, almost 6 years after the crash began, makes no sense at all for our current problems. As I said, this is like buying your wife a mink coat to somehow influence your kid to get their grades up. The connection is tenuous at best and nonexistent in all reality. Summary Unless we attack the debt structure directly, there is no point in counting upon any government to help mitigate the problem and more-likely-than-not, our very future may be recast in so many ways, the level of frustration will rise, and that leads to war because war distracts the people from hanging their own politicians. The oldest trick in the book is to blame the guy next-door down.  Unless we are honestly prepared to truly 1) reorganize the structure of government, 2) reorganize the entire debt structure both private and public, 3) regulate leverage,  4) restore usury laws that will free up personal income, and 5) look at just eliminating the federal income tax in combination with 6) establishing a new national heathcare system that will restructure all pension plans public and private, there is not much hope for the future from government. Our definition of money (M1) does not include bonds so we can fool ourselves by issuing $10 trillion in bonds is different than printing the cash. It is still money. Taxes are needed in a gold standard where money cannot be created. Stop competing with the states, control the budget as a percent of GDP, increase the money supply to that degree, and stop the taxing when money is created by leverage and velocity anyway. This will restore jobs and inject huge confidence as in 1964 when the payroll tax was cut permanently. One-offs never work. People save the rebates for a rainy day. We need real honest reform since the states will go broke and seek handouts as well. So, it is time to get real. It is time we restructure the entire system including the banks which always cause the problem. We don't need excessive regulation of things that did not create the problem when the real culprits always escape. You may send comments directly to Martin Armstrong at ArmstrongEconomics@GMail.com.

Fiat Paper Money, The History and Evolution of Our Currency "Hyperinflation is the product of a slow, but continuous loss of a currency unit's buying power, degraded political expediency motivating economic decision making and total degradation of the business community in the condition of a locked credit base." –Jim Sinclair Ralph T. Foster says: "While currency collapse is generally sudden and dramatic, it is not the only problem that plagues the world's floating currencies. Far more insipid is a currency's gradual decline in value over time. This phenomenon has affected nearly every country on Earth; and for the first time in history, it is so commonplace as to be perceived as normal, or even expected. Physical money is no longer something to hold as a long-term security as conceived by Aristotle, but rather a day-to-day medium of exchange. Anyone saving paper currency for the future is bound to gradually lose most of its purchasing power." This book, "Fiat Paper Money, The History and Evolution of Our Currency" by Ralph T. Foster is a text that should be studied by all those that claim to be students of markets, history and currency. Mr. Foster proves historically that a currency that continually loses buying power over a contiguous period of years and enters into a period of significant economic dislocation will implode all of a sudden as in a currency event of hyper-inflation. This sounds to me like the dollar is coming up for just such an event as this entire crisis is an OTC derivative exported USA product. You might consider obtaining this fine work of Mr. Foster.

Hourly Action In Gold From Trader Dan  By: Dan Norcini      Dear CIGAs, It looks like someone forgot to tell the US equity markets that they were supposed to be "stimulated" by passage of the $825 billion and rising "stimulus" plan approved by the Dems in Congress last evening. Then again perhaps investors looked at the plan and were not "stimulated" by its details since all those digital TV's that it gives away money for are not made in the US but overseas. I did want to let the readers know that I sent in an invoice to the feds in the amount of $25,000 requesting a direct payment to me personally so that I could purchase a really nifty 4 wheeler that comes with a built in cooler for hauling cold drinks on those outings in the great outdoors. I will let you know when I get the check so that you can also apply. I am not worried about the cost because when I am gone from this planet I will be leaving it to my kids since they, along with their grandkids, will end up being the ones that are paying for this anyway. By the way, some one has calculated that the size of the package means that the feds could send every man, woman and child a check for $2,700 or $22,000 for every person living below the poverty level in the nation. No doubt that could be increased a bit if they eliminated the $50 million that the bill throws to the National Endowment of Arts and $ one billion for Amtrak, which has not shown a profit in 40 years! Even the bond market has finally figured this one out – as lousy as the economic data gets (did you see that new home sales hit a 14 year low according to today's data release) the bonds still cannot muster much of an upward move. Traders there are slowly coming to realize that bonds are not such a "safe haven" when the feds are multiplying them faster than ACORN can register non-existent or dead voters. Bond traders rightly fear a tidal wave of supply that is going to overwhelm whatever demand still exists for them. The bond chart has turned absolutely horrendous with today's sell off breaching a short term support level which had emerged near the 128 ^15 level. There looks to be nothing in the way of technical chart support until down near the 100 day moving average at 125 ^08. About the only thing that the bond bulls have going for them is the extremely oversold level but that is not a lot to hang your hat on once sentiment shifts, especially in a market that had blown up into a bubble of cosmic proportions. Tomorrow's weekly and monthly close in the bonds will be significant. All of this contributed to gold's rise from support – if bonds are no longer safe havens then where can one go with their wealth to protect it from the depredations being inflicted upon it by Central Bankers and ignorant politicians. Answer  - Gold.  Pause here as the camera pans in closer to zoom in on the bullions coins I am holding in my hand and then pans back out so that you can see the 800 telephone number to phone so that you can purchase some gold and pay for the cost of the advertisement. Seriously, sometimes I get the feeling that we sound like a TV advertisement for gold but when you look at what is transpiring in the world around us and see the folly that passes for statesmanship among our leaders, you get the idea that you are watching a train wreck in slow motion. The monetary authorities and the politicians set the stage for this mess, greed on Wall Street took over and now the monetary authorities and the politicians are somehow supposed to fix it all. It reminds me of the story of the clumsy janitor cleaning a store full of fine crystal – he knocks over some of the crystal and attempts to sweep it up but in the process the handle of his broomstick knocks more crystal off of shelves that are behind him. As he turns to deal with that mess, once again the broomstick takes down more crystal to the point where he has managed to ruin nearly everything in the entire store. It would have been better off if he had never even attempted to clean the store in the first place. Technically the price action in gold is most encouraging. After stalling out at $920 due to bullion bank price capping, gold probed lower looking for buying support and found it almost exactly on the topside of the Downsloping trendline from which it broke above last week. This is classic, and I do mean "classic", bullish price action from a technical perspective – a triangular consolidation formation in which the market is coiling tighter and tighter and then breaks out, sees a retest of the breakout point and then rebounds in the direction of the initial breakout. Tomorrow's price action becomes most important now. In a "normal" freely traded market, more often than not, the market will continue in the direction of the breakout after completing such a pattern. I have seen this pattern occur so many times in the span of my trading career that I have long ago lost count. However, we all know when it comes to gold, that this market is anything but a normal "freely traded", protestations of the willfully blind notwithstanding. That is why we need to see this thing get a strong close on Friday. If it does, it will show that the bulls have unnerved the shorts and recaptured the initiative and are in a position to try to take the bullion bank redoubt at $920. If it cannot, it will show that they have surrendered their initiative and allowed the shorts to regroup after giving them a sharp, swift blow and a good fright. The side with the greatest conviction will win. Perhaps the fickle fund managers will surprise us and show some resolve for a change instead of cutting and running. If the bulls can manage to close gold above the $900 level on the weekly charts, they will have gained the upper hand in the gold war. Don't forget that tomorrow is also the end of the month and that the close will be significant from a long term chart perspective. Gold's monthly chart remains most impressive and I will get one for you tomorrow to keep in front of your eyes everytime the deflationists and their demise of gold predictions trouble you. The HUI and the XAU picked up their divorce from the broader equity markets once again which is encouraging to see for the friends of gold as the miners need to continue their upward trek if the gold sector is going to advance as a whole. The HUI still needs a good close above the 307 level and preferably above 310 to get things moving. The XAU needs to get a close above 127 and preferably above 130 to fire that index higher. Shorts are going to try to dig in at these levels so bulls will have to prove their mettle to dislodge them from their lairs. At least in today's session, the share bears are getting gored by the bulls. The Dollar moved slightly higher today mainly on the back of weakness in the Euro. Also the commodity currencies from Australia and New Zealand were especially weak which makes gold's move higher all the more impressive as nearly every factor that in times past would  have seen strong downward pressure in gold was present today and yet for all that gold still moved higher. Couple that with weakness in the bonds and it sure looks like more and more people are viewing gold as the last safe haven around and the best place to be right now. Crude oil continues moving within its trading range as it drops lower to test the downside portion of that range. Higher crude oil prices will serve to benefit gold but are not essential to its welfare as investors are buying gold now out of currency concerns and not so much for inflationary pressures. That will come in time as this orgy of newly created money eventually begins to flow back into the commodity sector further on down the road.

Bailout Nation By Greg Hunter    While I was watching the wall to wall Inauguration coverage of Barack Obama there was a "man in the street" segment on one of the networks where people were being asked "What should the new President do about the troubled economy?" One man said "He should give money to all the homeowners who are in trouble and give some money to other homeowners too." I think the idea of bailing out anyone and everyone is now in the vernacular of American society. How do you suppose people are getting the idea that everyone should get a financial rescue? Could it be story after story in the news everyday about how Citigroup, Bank of America or a variety of other banks are getting hundreds of billions of dollars in cash and government backing to keep them afloat? Maybe it's the 200 billion given to AIG to keep it from causing systemic failure.  It just couldn't be the nearly 18 billion given to GM and Chrysler to keep them in business.  Bailout fever is spreading like kudzu.  The list of businesses and industries in need of a lifeline are like snowflakes in Colorado.  Home builders, airlines, insurance companies, money market funds, states (41 are in financial trouble) and hundreds of cities around the nation are facing big budget shortfalls.  Is that going to turn into some sort of bailout too?  I was in North Carolina two weeks ago. While watching local television I heard the new Governor, Bev Perdue, say the state was 2 billion dollars in the red and that without federal bailout money there would have to be drastic cuts to the state budget.  She was in Washington trying to get a piece of the TARP money and, why not, every other state governor is doing the exact same thing!!!   Governors from around the country are asking the Federal government for a trillion dollars so they'll not have to make some very hard choices.   With all this bailout talk, another word is starting to make it into the vernacular...Inflation!!!  Before the Geithner confirmation hearing, former Fed Chief Paul Volcker, who I like to call "the Real Maestro," gave a short testimony to vouch for tax dodging "Turbo" Tim Geithner. (He used Turbo Tax to do his returns.)   The most newsworthy thing said were the few lines Volcker slipped in about his concern about inflation because of all the bailout money being created for the banks. No news organization I know of reported that little tidbit.  Volcker's fear of inflation should have been the real headline for the hearing because "Turbo" Tim was already a lock for Treasury Secretary. Later that night on Bloomberg Television, former SEC Chairman Harvey Pitt said he saw "no way" that there is not going to be inflation given the massive amount of money that will be spent for bailouts and economic stimulus.  You won't see that sound bite anywhere in the news either.   When you talk about inflation you are really talking about consequences to monetary policy.  Inflation was so feared by the founding fathers they wrote in the constitution that money shall be of "Gold and Silver."  That meant no fiat currency for economic stimulus packages and of course bailouts.  We are a long way from the founding fathers and their kind of thinking.  Today the government can print money until it runs out of trees, but what most people do not realize is there is an after effect for that kind of financial engineering.   America has swept aside any talk of moral hazard and is embracing the toxic idea of a "bailout nation" for which the consequences risk our very survival as an independent country.

The following email asks a popular question: Hi Jim, Maybe this has been answered on your website and I either missed it or didn't understand it. What needs to change in order to drive the dollar lower? We seem to have all of the ingredients in place for a weaker dollar yet that doesn't seem to matter. When will it matter? When do the buyers of the dollar become sellers? Again thanks for all you do. By the way I am 63 and also believe in your "burnout" before "rust-out" theory. Regards, CIGA Ron Dear Ron, I had lunch this afternoon in Joberg with a group of very well known personalities in African Mining. Rob S, a member of this assemblage, told a story that I believe prophetically answers your question. The monetary parable was about a special variety of monitor lizard in Australia that lives off road kill (Hedge Funds, I imagine). The species, like the Komodo Dragon, kills by infecting its victim with a vicious saliva. Fortunately for our Australian friends this lizard becomes terrified quite easily and runs for the nearest high point, usually a bush or tree, when confronted with terror like a human being or a bad dream. The knee jerk reaction to fears of an imploding world economy, the fear that Obama produced calling for Tarp funds now indicated that crisis is here, up the tree goes the down-under lizard. The Tree is the dollar and long bonds. This awful, stinking, road kill eating, vile lizard is what is left of the hedge fund business after Madoff. Your question is when does it end. The answer is that Fiscal Stimulation will produce a degree of economic results that draws out a measure of inflation from Monetary Stimulation relative to the intensity of the new Administration's degree of concern. Acting as president and calling for legislative action NOW to release TARP funds before you are the president is a demonstration not only of concern but total panic. As inflation starts to work its way out of absolute monetary madness, .72 on the USDX comes directly into the market's cross hairs. Three back to back closes below .72 and the dollar show is over. The dollar will plummet after the realization that the Fed will never be able to issue bonds on the crap they have been stuffed with and kills the idea of the Rentendollar coming out of the Fed's inventory of SIVs backing massive future bond issues. The game is then over and the beginning of the concept of the Federal Reserve Gold Certificate Ratio, Modernized and Revitalized becomes the tool of choice starts. Gold is going to $1650 on its way to Alf's numbers. Today you have been had by paper gold ONE MORE TIME. Regards, Jim

"Nothing will unnerve the paper gold shorts more quickly and do more to undercut their confidence than to strip them of the real metal and force them to come up with more hard gold bullion to make good on deliveries. "Stand and Deliver or Go Home" should be the rallying cry of the gold longs to the paper gold shorts." --Trader Dan Norcini Dear Comrades In Golden Arms, Ok, I am not shy. Mugabe move over, here comes the US Federal Reserve. Zimbabwe will happen in the US. The dollar is going to tank like never before!!! Consequences, consequences, consequences. They are unavoidable. The US dollar is not worth a Continental. This is just how Zimbabwe today started! Fed has abandoned monetary policy, critic says Sat Jan 3, 2009 9:58pm EST SAN FRANCISCO (Reuters) - The Federal Reserve has embarked on a campaign of unsupervised industrial policy to end the country's financial crisis, a move that could undermine its independence, a former top U.S. official said on Saturday. John Taylor, who was under secretary of treasury for international affairs from 2001 to 2005, said the explosive growth of the Fed's balance sheet since September was "unbelievable." "This doesn't really seem like quantitative easing in the sense of finding a growth rate in the money supply," he told a panel discussion during the annual meeting of the American Economics Association. "What you are looking at now is really being determined by other considerations. How much should we buy of mortgage-backed securities? How much should we loan to foreign central banks? This is really more like an industrial policy," he said. The Fed's balance sheet has more than doubled in size to over $1.2 trillion in recent months as it has tried to shield the U.S. economy from the worst financial crisis since the Great Depression by supporting key credit markets. This has included direct purchases of mortgage-backed bonds by the Fed and support for top-rated non-financial borrowers in the crucial commercial paper market, as well as hundreds of billions of dollars lent to banks on the basis of collateral. "If you have a situation where the Fed is borrowing to invest in all these sectors it seems to me you have a huge governance issue...that demands a lot of thought," Taylor said. Taylor said the U.S. Congress has a legitimate right to demand a say in who the Fed lends money to. The outcome would be "radical reform" that would risk monetary policy independence, he said. This concern was echoed somewhat by the president of the St Louis Federal Reserve Bank, James Bullard, who also took part in the panel discussion. He said the close collaboration between the Fed and U.S. Treasury in fighting the crisis could have unintended consequences. "We are blurring the institutional arrangements a little," Bullard said. "I am concerned about independence. Fed independence is very important," he told reporters.

The roots of hyperinflation I have written the following because I do not think the dangers of hyperinflation and currency collapse are understood; Peter Shann The most widely accepted view is that hyperinflation and monetary collapse results from governments introducing large amounts of fiat money into the economy, Wikipedia comments; "The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run" This explanation is superficial and doesn't provide answers as to why governments would in the first instance "massively and rapidly increase the amount of money" nor why they would. feel compelled to continue with this as inflation increases by factors of thousands of percent and in some extreme instances print banknote in denominations of 100,000,000,000,000 currency units, it also fails to explain why newly issued money is not primarily invested in asset class goods or why goods that can easily be replicated, as can most essential consumables, be often subject to the greatest price inflation. A prerequisite of hyperinflation and monetary collapse is that a disruption in the availability of essential goods occurs, today this could happen as a result of past reliance on expanding credit and fiat money temporally facilitating dependency on low cost imported goods many of which now feed primary needs leading to a commensurate loss of home production capacity with an inherent delay to the medium-term should such reengagement with manufacture become necessary as it would in the event of off shore suppliers losing confidence in reciprocal worth of monetary instruments offered in exchange for goods, and or shortage of essential goods may arise as a result of natural correction occurring, by way of example from the collapse of speculation driven credit markets and or as a result of collateral damage to the production cycle caused by inappropriate governmental action in further increasing money and credit supplies in attempt to drive a spontaneously occurring and necessary correction back in the direction of instability and in so doing distorting essential work ethics and disincentivising investment in the production cycle, In my view the most probable sequence of events resulting in hyperinflation and monetary collapse is as follows: 1. A broad based shortage of goods that are thought essential develops and this is not relieved in time to satisfy demand. 2. Consumers trying to acquire essential goods that they believe are in short supply become fearful and are prepared to pay increasingly higher prices and stockpile these goods further increasing shortages and accelerating prices as a sellers market develops. 3. Prices rise for essential goods in short supply as an increasing proportion of the money supply circulates in these goods, also with increasing velocity and as most of these goods are consumables with high turnover upward re pricing quickly occurs. 4. The proportion of available money circulating in goods that are perceived as essential increases and the demand for less essential goods diminishes I.e essentials become disproportionately more expensive than the norm against non essential goods displacing money towards the goods most in demand further fuelling inflation, 5. The shortage of essential goods accelerates as manufactures increasingly focus on short term survival, longer term risk is avoided and investment in the production cycle is reduced accelerating 1. 6. The normal balance of demand for all goods increasingly prefers those goods required to satisfy primary needs and people engaged in making and supplying less immediately essential or non essential goods become unemployed who then pressures governments accelerating condition 9. 7. Eventually goods not immediately required but non the less essential are needed and rapidly increase in price as they also become in short supply. 8. Consumers with least money first find it increasingly difficult to secure essential goods, become frightened and are forced to allocate greater proportions of their money on essential goods and demand greater income, 9. The demand for money forced by need and fear becomes irresistible so governments feel insecure and provide increasing amounts of fiat new money, 10. Consumers first to spend the new money see some value but soon as this new money is distributed and its value is lost, the velocity of money also accelerates as people rapidly exchange money for goods, wealth is seen as best protected when stored as goods rather than cash further increasing price and reinforcing condition 9,

12/11/2008 Gold shot through another level of overhead resistance in convincingly fashion before it was capped near the $830 level. The selling at that level was quite incongruous with the massive upside move in the Euro and the nearly $6.00 move higher in crude oil. With the Dollar falling completely out of bed as wave after wave of speculative sell stops were touched off, it made the obvious defense of $830 in gold by the bullion banks all the more laughable. Gee fellas, nothing like being discrete is there? Then again, they do not even bother to trying covering their footprints any more. Anyone with a lick of chart reading knowledge can see their handiwork Seriously, no amount of paper gold market shenanigans by these people can change the fact that the market seems to be coming to grips with the near infinite amounts of dollars which the feds insist on throwing at any business entity that can afford to hire enough lobbyists to endlessly recite why it is too big to fail. The rush into Treasuries, creating one of the biggest bubbles I have seen in that market and probably will not see again, has dropped yields to zero and in some cases below zero. With that kind of backdrop, it makes perfect sense for investors looking for a safe haven to move into gold considering that dollars are going to be dropping out of the sky.

Dear Comrades In Golden Arms, In all probability, today's action in Gold confirms that the Fed's last real meaningful weapon to fight deflation is coming into play very soon. This effort is to disqualify gold as a currency. I question the intelligence of this from the deflationary/inflationary perspective that is so important to the Fed right now. As I have told you multiple times, there is no such thing as the Exchange Stabilization Fund in the sense of employees with real names, faces and addresses. The Exchange Stabilization Fund is nothing more than an account at a major international investment firm known well to you and represented on the floor of the COMEX by name. It is prominent in the COT figures. The Chairman of the Federal Reserve, the President of the United States or their designee, runs the Exchange Stabilization Fund. This is why the commercial dealers get the inside information on the gold price and currencies short to medium term, having eyes to see, ears to hear and a back office that must know. This is why the paper exchange can do what they have done today as long as the COMEX warehouse remains full to back them up. Today the public has the standard definition of deflation on their mind only, being taken advantage of by the Exchange Stabilization Fund to fain a story that gold is not a currency. The paper gold COMEX fellows who are the floor brokers for the Exchange Stabilization Fund and having this information are extending the drop to the best of their ability. They do trade even on the day, you know. Gold is a currency. It has been a currency since the beginning of time. It will always be a currency. The role of gold as the primary currency will be in place no matter what the efforts are made to cloud the issue. Regards, Jim

The Fed as a central bank to the world Jacqueline Thorpe, Financial Post  Published: Sunday, November 02, 2008   Getty ImagesThe U.S. dollar's status as the main currency of international and central bank business has barely been tarnished by the whole sorry credit crisis. Nicolas Sarkozy may be pushing for a new financial order but Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson have beaten him to it. While the French President dreams of global economic cooperation ahead of the G20 summit in Washington, the Fed is quietly becoming central bank to the world, backed by the full might of the U.S. Treasury and a teflon-coated greenback. Last week saw a new program added to the barrage of bailouts, backstops and stimuli announced by the United States -- US$30-billion currency swap lines for Brazil, Mexico, South Korea and Singapore. This is on top of the unlimited supply of greenbacks the United States has provided to the major economies. The United States will swap wons for greenbacks, allowing South Korean banks to fulfill local demand for U.S. dollars, which had been starved by the freeze-up in the inter-bank lending markets. Banks can then provide those greenbacks to their local customers to allow them to carry out international business. In April, South Korea will swap its wons back, for a fee of course. David Rosenberg, chief North American economist at Merrill Lynch was quick to pick up on the irony. "The U.S. was supposedly the basket case nation with the massive deficits whose currency was destined to lose its reserve status and whose credit rating was going to get cut at some point," he said in a note last week. "It is the U.S. that is being called upon to provide unlimited swap lines with Europe one day, and funding for emerging markets the next." Marc Chandler, chief foreign exchange strategist at Brown Brothers Harriman in New York said the emerging market swap lines mark a new step in the evolution of the response to the credit crisis. "It underscores the U.S. leadership role and the Fed's role as defender of the system, which is increasingly broadly conceived," Mr. Chandler said. "This is something that other central banks do not seem prepared to do. Admittedly several Asian countries are talking about pooling reserves and increasing swap lines, but the role of the U.S. and the dollar are different." The U.S. dollar's status as the main currency of international and central bank business has barely been tarnished by the whole sorry credit crisis. The flight to the perceived safety of U.S. treasuries has been unstinting. The swap lines give a small "stamp of approval" to each country of their good financial husbandry but also send a message to those left swinging in the wind, Mr. Chandler adds "Being a friend of the U.S. still matters," he said. "Venezuela, Argentina, and Russia for example, are unlikely to be thought of as likely candidates for a similar swap program with the Fed. Over time, who is regarded as a friend of the U.S. may impact valuations." From a sheer tactical perspective, Europeans have missed an opportunity to push euro a reserve currency, consumed as they are with their own problems and intent on blaming the United States for the meltdown. Of course Venezuela and Russia have the oil wealth to provide their ownbailouts and to be fair, the United States was not alone last week in swinging into action. China, Norway, South Korea, Taiwan and Japan all cut interest rates, and Japan and Germany announced plans for fiscal stimulus. The Bank of England and the European Central Bank are expected to slash interest rates next week. The actions, combined with a 50 basis point cut by the Fed, which brings the world's benchmark interest rate to 1%, appear to have finally brought some rationality markets, making one wonder what there will be left for the G20 to do at its summit. Michael Gregory, senior economist at BMO Capital Markets runs down his credit crisis checklist. Provide near limitless liquidity - check. Provide capital injections to the financial sector - check. Provide a way to get rid of soured assets and/or clarity on what they're worth - check. Give a guarantee on interbank lending - check. The focus at the summit then will undoubtedly be on regulation and how to prevent a similar crises, a prospect that amuses Carl Weinberg, chief economist at High Frequency Economics "So far we haven't had any doubles," he said. "This time it was the housing market and asset-backed securities. The last time it was equity investment in Asia, the time before that it was loans to Latin America and the time before that it was S&Ls [the U.S. savings and loan crisis]. Every crisis we've had is a different set of circumstances the only common element is people tend to get irrationally exuberant about investing in a commodity and when it goes they get nailed." Many analysts are skeptical of the notion of a global regulator while Mr. Sarkozy's idea of creating a new global financial system a la Bretton Woods II - the original had a fixed exchange rate system - seems pie-in-the-sky. "The Canadian government is not willing to cede to Washington or Basel or Bombay, the right to tell its financial institutions what to do or what it's doing is wrong," said Edwin Truman, a senior fellow at the Peterson Institute for International Economics. "That does not mean one could not have an international understanding on the best way to go about financial business, supervision and regulation. That process is already under way." The Financial Stability Forum, which brings together representatives from central banks, treasury departments and regulators around the world, was set up after the Asian crisis in 1998 to do precisely that. It has already issued some 67 recommendations on the current crisis on a host of issues from capital requirements to credit rating agencies. Europe may push for something grander but Mr. Truman is wary. "If they think they're going to use this to gang up on the United States and get the United States to issue mea culpa after mea culpa and turn the supervision of our financial system over to a college of officials from the rest of G20 for the next five years, they have another thing coming," he said. Until the greenback falters, the United States is firmly in the driver's seat.

Dear CIGAs, The following article provides what I believe is a window into what the Chinese actually think in regards to the Dollar. As was pointed out by an informed reader in an earlier post this week and as Jim has long said, the East tends to speak indirectly and drop hints about their intentions and/or wishes that must oftentimes be ferreted out by those of us in the West who do not understand this mode of "diplomacy". The bluntness of this article is all the more startling for that very reason. U.S. has plundered world wealth with dollar: China paper Fri Oct 24, 2008 6:14am EDT BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday. The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies. A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said. The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper. Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis. "The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University. More...

Author: Jim Sinclair Dear Friends, 1. As we approach elections everything possible is being done to keep equities from total implosion. 2. As we approach elections everything possible is being done to keep the hollow US dollar firm. 3. As we approach elections everything possible is being done to keep gold under control to assist in keeping the dollar firm. 4. Gold is NOT a commodity. It is a currency. 5. There is an appearance of involuntary liquidation in gold as hedge and gold funds are pressed by redemptions and needs for capital to pay off investors. 6. Gold never changes. Things change in price comparison to gold, so therefore you can jump up and down on the barometer but that will not change the circumstances it is reading. 7. The means of keeping all things in check is to demoralize those whose positions oppose the goal while showing some sunshine to those who wish to keep their positions. 8. Nobody on earth can prevent the CONSEQUENCES of Chairman Bernanke and Secretary of the Treasury Paulson's attempt to offset the unavoidable CONSEQUENCES of the same actions taken by the central bank and treasury of the 1930s. 9. The different monetary action now in the degree applied will have their own and different CONSEQUENCES in the degree of economic impact. 10. The dichotomy between the bullion supply/demand picture and the easy to manipulate paper gold market continues. Pedro says: "A "friend" of mine was in Zurich yesterday. Aside from the fact that there were no gold coins available in one of the major centers of the world gold trade, it was also noted that there are no longer any large safe deposit boxes available at Credit Suisse Banhofstrasse." 11. Here is where we are headed to some degree, regardless of the manipulation of markets to paint charts at an unprecedented level.   A Tale from Weimar Germany by Roland Watson Most readers will be familiar with the great hyperinflation of Weimar Germany. Indeed, it is often held up as the icon of what can go drastically wrong when government throws off all restraint in regards to the production of fiat money. I do not need to labour the point much as to how billions and then trillions of marks were literally not worth the paper they were printed on and how workers had to be paid by the hour lest their wages rapidly lost purchasing power in the brief time between being paid and spending that same money. As ever, gold and silver proved to be safe havens from the ravages of inflation. Indeed, anything other than the mark seemed to a good place to park one's wealth. In those days, that could be anything from bedpans to US dollars to precious metals. However, depending on one's accumulated wealth, gold and silver were amongst the top assets in terms of holding and transporting wealth. Despite this, one set of figures and one notable week in the life of Weimar Germany demonstrated that one particular form of wealth proved to be in particularly heavy demand. 12. Don't let the unprecedented bullying of all markets to meet political expediency draw your attention off the ball. There are defined CONSEQUENCES to the new approach taken by the top expert of the 1929 to 1940 depression. The error is that these actions will have CONSEQUENCES different from 1930 and they will be more devastating than one can ever imagine. Monetary inflation, "the unlimited creation of fiat money," will cause massive price inflation regards of the level of business activity.   PROTECT YOURSELF!

Dear Friends, It was more of the same type of price action that we have been seeing in gold for some time now. The market is torn between continued deleveraging from speculative players on account of redemption requests from clients moving to cash versus safe haven buying.  It has been interesting reading the comments about this market in the financial press of late. The majority of gold pundits for the most part seems to be reading the same talking points which as usual are utterly and completely wrong. To hear them say it, gold as a safe haven is finished, over, kaput, pushing up daisies, swimming with the fishes, surfing its last wave, worm food, ad infinitum, ad nauseaum. What these mindless robots seem unable to grasp is that the Comex is NOT the gold market. It is a paper market which has been the recipient of large speculative buys by commodity index funds. These funds take large positions in an entire gamut of commodities based on the weightings of those particular commodities in the various commodity indices that they use as a benchmark. It some cases it might be the Goldman Sachs commodity index. In others it is the Reuters/Jefferies CRB index; it still others it is the Dow Jones Commodity Index. That means they buy gold, silver, crude oil, corn, wheat, nat gas, sugar... etc... in the same percentage terms as they are weighted in those indices. For example, if the weighting in one of these indices for gold happens to be 5%, then for every million dollars of client money invested, they are required to buy $50,000 worth of gold futures contracts at the Comex. When these funds get redemption requests from clients, who n ow want out of the commodity sector, they are forced to sell FUTURES across the board to generate the cash needed to send back to their clients. That is why, for the most part, the entire commodity complex is sinking whether it is corn or soybeans or wheat or platinum, etc. If $20 million of cash is required to meet client redemption requests, then $20 million of commodity futures must be sold REGARDLESS OF THE FUNDAMENTALS IN THAT PARTICULAR MARKET.  In other words, it is FORCED liquidation on account of redemption requests. That has NOTHING TO DO with the real physical gold market where demand remains at unprecedented levels, levels so high that it is producing serious shortages of bullion for would-be buyers. This is what is producing the increasing dichotomy between the Comex and the real gold market. I would go as far as saying that we are for all practical purposes seeing a BLACK MARKET in gold beginning to develop. Having said all that, it should still be noted however that while every single commodity futures market is in the red today on account of this forced selling, GOLD IS STILL RELATIVELY STABLE! Hey, you dimwitted pundits who keep pooh-poohing the yellow metal�s safe haven status because it is not trading at $1000, take note. Even in spite of the forced liquidation, gold is hanging in there precisely because there are enough buyers to offset a great deal of this continued forced liquidation. And this is in the arena of the futures market.  In the real world,  gold is fetching $1000 an ounce out there in some instances. Premiums for one ounce gold bullion coins are running anywhere from $65 - $100 above the quoted spot price and certainly above the phony price quoted on the Comex. Last year at this time you could buy all the one ounce gold bullion coins you wanted for $20 - $30 over the spot price. Meanwhile back in Fairy Tale land at the Comex, open interest registered a bit of an increase in yesterday�s session moving up nearly 2,500 contracts. I suspect that come this Friday, when we review the Commitments of Traders report, we are going to see increases in the fund SHORT category with a sharp drop in the fund long category alongside of short covering by the bullion banks who have been using the forced selling to cover their shorts in order to capture their paper profits allowing them to hit the metal on the next rally and do the same thing all over again. To put things in perspective about this open interest decline � we are down to levels last seen in November 2006. Let�s state this in terms that perhaps convey what I have been trying to say for some time now. NEARLY ALL OF THE SPECULATIVE INTEREST THAT HAS BEEN DRIVING PAPER GOLD HIGHER FOR THE LAST TWO YEARS HAS NOW DISAPPEARED due to this forced liquidation. This is incredible when you think about it a bit. So much deleveraging in gold has already occurred, that nearly all the buyers from the last two years are gone from this market. And yet, in spite of this, gold is still sitting above the $800 level. Back in November 2006, front month gold closed at the price of $646.90. Today, we are nearly $200 higher than that and yet nearly all of the speculative long side interest going back to that date is gone. Someone is buying gold because they see value in it and that buying has been sufficient to hold the price relatively firm compared to nearly every oth er commodity out there. What can be said about gold cannot be said about any other single commodity out there. If you doubt this, pull up the continuous price charts of corn or soybeans or platinum or copper, etc., and just look at them. Look at the chart of crude oil. Look also at the gold/crude oil ratio which has shot up strongly in favor of gold. (By the way, this alone is the reason why many of the gold mining outfits with quality mines, good management and good balance sheets are going to show some strong profits and continue to be sold down to levels that are extremely undervalued). Gold is even outperforming even longer dated Treasuries right now. To sum up, as the equity markets fall off the cliff thumbing their noses at the monetary authorities, expect further risk aversion to occur which means further forced liquidation in commodities. Watch the Euro/Yen cross and the Yen itself to get a sense of when the bulk of this will abate. The Yen as well as the Swiss Franc are benefiting from the unwinding of carry trades and will tend to be the stronger currencies out there ( along with the US Dollar) as long as the risk aversion play is in vogue.

Keep Your Guard Up Author Jim Sinclair Dear Friends, There is no hope for the future as long as we have to listen to what we have experienced in the last two days. If the Fed pays �Hold to Maturity� prices in the bailout they are accepting onto their balance sheet all the lies that existed and still exists on and off the balance sheets of the banking and investment industry. Fabrication has taken the US financial system over the cliff. The bailout of the near and dear fabricated to a spiritual level sets in cement the generational nature of this breakdown, the coming dollar collapse, and the reign of gold. To categorize this bailout of OTC derivative manufacturers as an asset purchase is so wrong it strains the limits of criminality. DO NOT LET YOUR GUARD DOWN. THE BAILOUT ONLY BUYS YOU A LITTLE MORE TIME TO PROTECT YOURSELVES. You need to distance yourself from your financial agents by: Certificating your gold and silver shares. Opting for direct registration book entry at the transfer agent for your gold and silver shares. For your retirement plan, certificate the shares in the name of your trustee and the retirement plan. The alternative is direct registration book entry at the transfer agent in the name of the trustee and the retirement account. Be sure your account at your bank is a true custodial account which is defined as an account segregated to you, away from the assets of the bank and therefore not on the balance sheet of the financial institution. I am told where the retirement shares are concerned that Charles Schwab performs this service. Many others likely do as well. The only way to be sure you really have a true custodial account is to have your attorney review the agreement between you and the institution. I have personally used the services of Jay Marcus for this of: Marcus Law Offices 2094 185th Street Suite 15 Fairfield, Iowa 52556 641-472-5945 Gold is the ultimate answer as to what currency to own. The only way gold functions as insurance is if you hold it in your own hands. ETFs do not do it. Gold shares with the real stuff properly priced will do part, but not all of it. Gold at some coin dealers, segregated or as a certificate, does not do it. If you have gold at any coin dealer or non-government mint and you want to remain that way please request their certified balance sheet. If a guarantee by some other party is there then get a copy of that guarantee for your attorney to read. The only business, as I have told you often, you should do with any coin dealer is to buy coins. Do not use margin on anything GOLD. That totally defeats the insurance principle. Respectfully yours, Jim

Have You Protected Yourself? A Review      Author: Jim Sinclair   Dear CIGAs, Have you protected yourself? If not why not? Let us review the means and ways to achieve this. Can you afford to lose everything? A few notes: A Transfer Agent is a bookkeeper for the company. Of course they have no insurance because there is nothing to insure. Even if they are owned by a financial there simply is no money held there, nor are your certificates. All that is there is a computer with your name on it. �Direct Registration� is another term for �Book Entry.� Go back to your broker, no matter how you got there, and be sure that what I have advised you in fact has occurred. No exception at all! If you have any problems contact the company in question, going as high up the chain of command as you have to go to get attention. Contact the CEO and Chairman if required. Take no back talk from any broker. The majority of them are clueless. What you read here is FACT not up for discussion. Please review the following:   Posted On: Wednesday, July 09, 2008, 3:58:00 PM EST Becoming A Book Entry On The Books Of The Transfer Agent Author: Jim Sinclair Dear CIGAs, To start, here are several definitions you should familiarize yourself with: Transfer Agent: The record keeper employed by a public corporation to prepare and maintain records related to the accounts of their shareholders. Such information would include the name of each registered shareholder, his or her address and the number of shares owned. The agent oversees the issuance of certificates to new shareholders and the destruction of certificates that have been sold. It does not matter if a transfer agent is owned by a bank or financial entity because it is a separately incorporated non-financial entity posing no financial risk to those it accounts. Street Name: A term used for describing a stock that is held in the name of a brokerage firm, instead of the actual purchaser of the stock. When you buy a stock and let your brokerage firm hold the stock certificate on your behalf, the stock is said to be held in �street name.� Nominee name: An official of a financial institution or some other appointed agent to whom securities or other funds are transferred by agreement with the actual owner. Nominees facilitate the collection and distribution of income from securities (when such securities are held in the name of a nominee), and facilitate the sale or purchase of securities when it may be inconvenient or impractical to obtain the necessary signature of the principal in order to conduct a transaction.   For additional definitions visit:   http://www.investordictionary.com http://www.investopedia.com   There are three primary forms to represent share ownership: Ownership via your account at a broker or bank in which the broker or bank holds all the shares for all clients in that share in what is called a street name. Street names today are a nominee name such as CEDE. The broker or bank then shows your ownership of this security in your monthly statement in your cash or margin account. Your shares will remain in the nominee account under the nominee name of the bank or broker in the form of a computer entry. Ownership via paper certificate whereby an entity called a Transfer Agent has been informed by your broker of your coordinates and request for the delivery of a paper certificate. The Transfer Agent follows the instructions of your broker and sends the paper certificate with your name on it to either you directly or to your broker who most often then sends it to you. The process reduces the street name position by the amount of your position. Your ownership drops off your brokerage or bank statement.  Yes it is that easy. Ownership via the form of book entry on the books of the transfer agent: Instruct your bank or broker that you wish your shares to be in the form of a book entry at the transfer agent. Your broker then instructs the Transfer Agent of your request, giving them all your information. The transfer agent reduces the street name position by the amount of your holdings and puts your name in their books as a book entry. You now fall off the books and records of the bank or broker. If you prefer method 2 or 3, all that is required is for you to instruct your broker or bank of your wishes.   If their eyes glass over in a blank stare or they say �WHAT?� you do the following: Call the company you are a shareholder of and ask the name and coordinates of their transfer agent. If they say they have none and are totally automated you are out of luck. This is rare but growing. You call the transfer agent telling them of your broker�s rank ignorance. Ask them how to instruct the broker so that your needs are met and met promptly. Call your ignorant broker or bank back and tell them you spoke to Mr./Ms. Whomever at the transfer agent and you wish them to inform Mr./Mrs. Whomever of your wishes. Note: Retirement accounts:  There is one more alternative that may help the retirement account holder, but will certainly protect the investor who is concerned over the financial health of your financial agent holding your investments. Monty Guild wrote the following excerpt in early April of this year: "REMINDER--HAVE YOU CHECKED THE SAFETY OF YOUR CUSTODIAN?  HAVE YOU CAREFULLY READ THE LANGUAGE OF YOUR CUSTODIAN'S AGREEMENT WHICH GOVERNS THE DISPOSITION OF YOUR ASSETS IN THE CASE OF SERIOUS FINANCIAL PROBLEMS IN THE WORLD ECONOMY, OR WITH THE CUSTODIAN ITSELF?   In our opinion, all investors and all recipients of pension plans or holders of IRAs should check the financial stability of the custodians of the assets that they own.  Equally important, is the legal wording of your relationship with your custodian. Have your attorney look over the wording and make sure that the custodian is segregating your assets and will audit your assets annually to make sure that they are segregated from other clients and from the assets of the firm itself.   We have spent money on attorneys who review the legal language in our custodial agreements, as we believe that it is essential knowledge.  We are money managers, not attorneys. Please have an attorney look over the legal language of your relationship with your custodian...what you find may surprise you."     Jim Sinclair�s Commentary I have personally used: Marcus Law Offices 2094 185th Street Suite 15 Fairfield, Iowa 52556 641-472-5945 641-472-5404 fax I have no direct or indirect financial relationship with this firm or anyone associated with it in any way.   Info on getting IRA Accounts Certificated: Posted On: Monday, July 14, 2008, 9:33:00 PM EST Receiving Share Certificates For Stocks In An IRA Without Being Penalized Author: Jim Sinclair Dear Jim, The message below was posted last night on the CometGold Forum at http://www.ContraryInvestorsCafe.com. It gives instructions on how to certificate shares in an IRA account. The only kicker is that the certificates themselves must be held in the safe at your broker, but it creates true custodialship and helps fight the shorts. Best regards, CIGA Tom Here is what I have done for ABC shares I own in an IRA: I am using Charles Schwab. For all my ABC Inc. shares I requested a stock certificate in the name of Charles Schwab, for the benefit of "My Name". Then I instructed them to hold the stock certificate in safekeeping (their safe). They charge me $50/year per certificate for this service. Once CS told me it was taken care of. I called the Corporate Secretary at the company in question and she confirmed that my ABC certificate number showed up on the company records. She also confirmed the way the certificate read and the number of shares. I did not request it, but the transfer agent also sent me a notice that a certificate was issued as well. I can tell you when I made the request of CS earlier this year their first response was that they could not do this for shares in an IRA. I told them that it was in fact possible, correct and legal as advised by my counsel. It took some time but they were able to get it done.     Jim Sinclair�s Commentary Method #2 in the example given above is to request direct registration book entry naming the trust entity and the IRA account. That affords protection in a financial way, as does a two-signature checking account. It is satisfactory. As the quote above infers, forget about returns on money and focus on Getting Your Money Returned. In the final analysis GOLD is the only Honest Money and Gold is the Money of the People, certainly not dollars. Power to gold and to the people!   CIGA Green Hornet asks us all to go to this link and listen to the interview. I, as well, respectfully ask that you do. It is quite important TODAY! Click here to view the interview... http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/09/15/bcnbank115.xml

Posted On: Monday, September 15, 2008, 3:01:00 PM EST In the News Today      Author: Jim Sinclair   Dear CIGAs, This is an important piece and should be referenced to my Friday posting (scroll down to "A Key Missing Fact of the Crash of 1907") about Jesse Livermore who in this case represents the naked short seller. JP Morgan represents Paulson, Bernanke and Cox. The mechanism to break every bank and financial entity resides in OTC derivatives that are presently in place. And the means to create a run on every financial entity on the planet is naked short selling.  To quote from the Friday posting: �Short selling in 1907, although commonly done, was illegal. JP Morgan knew that unless the major short sellers could be neutralized the crash of 1907 would have broken the nation - if not the world. The key difference between the crash of 1907 and the collapse of 2007� 2011 is that for some reason the opposite has occurred. If Jesse Livermore were the top gun of all hedge fund managers on the planet today his meeting with today�s JP Morgan would give him a free pass to wreak hell and mayhem. Because the key criterion in the comparison of 1907 to 2007� 2011 has been missing, this nation if not the world haven�t a snowball�s chance in hell.� SEC Preparing Rules Against Manipulative Short Sales (Update1) By Jesse Westbrook and Edgar Ortega Sept. 15 (Bloomberg) -- The U.S. Securities and Exchange Commission will likely stiffen rules targeting manipulative short selling after a stock-market rout triggered the bankruptcy of Lehman Brothers Holdings Inc., a person familiar with the matter said. The SEC may strengthen rules this week by requiring brokers to deliver shares that have been sold short, according to the person, who declined to be identified because the plans aren't complete. The SEC also will consider it securities fraud when short sellers deceive brokers about their intention to deliver shares to buyers, the person said. The SEC doesn't plan to revive an ``emergency'' order that expired last month aimed at curtailing so-called naked short- selling in Lehman, Fannie Mae, Freddie Mac and 16 securities firms. The rule required investors betting on a decline in stock prices to arrange to borrow the shares before completing a sale. ``The emergency order was mostly a symbolic action,'' said James Angel, a finance professor at Georgetown University in Washington who studies short-selling. ``I see no evidence that there was rampant naked short-selling in those particular stocks.'' SEC spokesman John Heine declined to comment. More...   Comment HR 6690  It usurps and makes redundant the Federal Reserve, the US Treasury and the emergency edicts of the Presidency. These powers are not likely to be given up easily.  First, the repeal of the Federal Reserve Act of 1913 would be necessary.  The implied action of monetary contraction as dictated indirectly by the legislation would trigger a worldwide financial collapse of an unprecedented proportion even  when compared to the 30s. The only way gold can be stabilized is if gold is fixed at a price where the US is willing to sell all and buy all. Is gold today valued at $35? No it isn't. Valuation prices without buy all/sell all means totally nothing. With this legislation that plays to their constituencies, replacing the Federal Reserve by this legislation suggests the broad monetary base would more likely double than contract. Kitco's Mr. Nadler exhibited quite a sense of humor when he published his well intentioned but totally misleading missive on a Friday wishing you all a PLEASANT WEEKEND.   Jim Sinclair�s Commentary The dollar will trade at .62 and .52. Gold will trade at $1200 and $1650.

'The US dollar is in trouble' SMART TALK: Jim Rogers Jitendra Kumar Gupta / Mumbai September 15, 2008, 0:04 IST Legendary investor Jim Rogers is probably the last word when it comes to investments in commodities. Along with George Soros, he co-founded the Quantum Fund in 1970. The fund went on to deliver absolute returns of 4,200 per cent in the decade that followed, while the S&P 500 delivered only 50 per cent during that period. Rogers correctly predicted China's resurgence as an economic superpower way back in the 80�s and that crude oil will touch the $100 mark. His last two books, �A Bull in China: Investing Profitably in the World's Greatest Market� and �Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market� have been well received. Rogers was in Mumbai on the occasion of the launch of the Birla Sun Life Commodity Equities Fund. At the conference and in an interview with Jitendra Kumar Gupta, he shared his outlook on commodities and the world economy. Excerpts: How can one identify the start of an upward or downward cycle in any commodity? In the late nineties, when I came with the conclusion that the commodity bear market is ending, I could see that no body has build offshore drilling rigs and tugs since 1981, with drilling declining for 15-20 years. I could also see that the inventories of food, which were very high in the mid-eighties, had gone down to nothing. There was no production or capacities added for decades. I travelled around Asia, enough to know that Asia was booming, so could see that this was all coming together. And, if this is all coming to an end over the next 10-15 years, I will also be able to see the upturn in the commodity cycle. I tried and looked at the big picture for the demand and supply, and some time I get it right. It is the same for the down cycle like during 1999-2000, you could see that everybody in the world was investing in stocks. You walk down the street, the TV sets were all blaring in the bars, in the barber shops, talking about the stock markets. I went to a dentist, and the receptionist was asking me about stocks, whether she should buy Coco Cola or not. So, you recognise, the signs of top to bottom markets always look the same, everybody seems to be terribly involved. What is your view on global economy and inflation? The world economy is in recession and the inflation is going to stay here, it is going to get worse. Some countries lie about it. But, inflation in all countries is going to get worse. The next decade is going to see lot more inflation, which is not good. In this light, how can one beat inflation and generate higher inflation-adjusted returns? Commodities are the best inflation hedge, better than real estate better than anything else. Nothing can assure you better than commodities, but only if you are good at it. You have to pick the things that go up the most to make more money. Inflation does not cause prices to rise, price rise causes inflation. Frequently, since the prices of the commodities go up before the inflation numbers, one can stay ahead of inflation. But, if you get it wrong you might do worse. So, investing in those commodities, which are going to go up first or selecting the right commodities, is the key to stay ahead of the inflation and make a lot of money. What is you view on commodity prices being influenced by investor/speculative money? If you do not allow the commodity prices to go up you do not get more supplies, then the farmers are not going to produce, so how are we going to get more food. Are we ourselves going to get into the fields? So, the way is to let prices go up. Do you think Asian economies are decoupling from the rest of the world? If you deal with the largest economy you are going to get affected by what is happening in America. If you are in the other sectors in Asia, such as water treatment and agriculture you have decoupled. You do not care what is happening in America. But, if you sell to Wal-Mart, which is the largest retailer in America, you are going to suffer badly. So, some will decouple and some may not. Since India is such a closed economy, which is a negative as far as I am concerned, in this particular short term, India will suffer less probably than other countries which are more integrated with the world economy. What is your view on the dollar? Fundamentally, dollar is a terribly flawed currency. I am pessimistic about the future of the dollar; I expect it to continue to deteriorate over the next two or three decades. The dollar is rallying at the movement because there are so many pessimists including me. But, I hope to use that rally some time in next year to get better of rest of my dollars. I do not want to own any US dollar. Also, I would not urge you to buy US dollar. Dollar is going to loose its status as world reserve currency. Some of the OPEC countries have already started and no longer take dollar, like Venezuela no longer accepts dollar. Other countries, like Gulf, are already looking and may be taking a package of basket of currencies instead of dollar. I am not the only one who knows the dollar is in trouble. Anybody who watches the TV knows that the dollar is in trouble. What is you assessment of the crude oil prices in the short and longer term? I do not have idea as to where the oil prices are headed in the short to medium term. I do know over the course of the bull market, which perhaps has another 10 years to go, the crude oil price will be much higher. Your bets in the commodity space? Agriculture is one thing I will be looking for the next decade or so. Within commodities, I would not say these are the best, but may be sugar, coffee and cotton. I am also starting to look at some of the base metals they are down a lot; starting to look at some of these like silver, copper, zinc and gold. Also, if you want to invest in Asia, commodities are the best way. Because, no matter what happens, the commodities have to be better, Asia has three billion people and is now involved in the world economy. Besides, in commodities you do not have to worry about corporate governance, central banks, unions, politicians or anything. With gold prices correcting, do you still advocate buying gold? I am trying and want to buy some gold. However, whether this is the low in the gold, I have no idea, but if gold goes lower, I will add some more. Gold is something I do not plan to sell. Gold is something I will gift to my children. How will alternative fuels play? Many politicians around the world are advocating bio fuel now. It is going to happen whether it is good or bad. There is going to be much more demand for the bio fuel going forward. This is also a reason that I am optimistic about the outlook of agriculture. Your views on the water potential in Asia? India and China have huge water problems. Water could be the next big investment. And, the best way is to invest in water companies which clean it, transport or pump it. Find the water companies that solve the water problem and you could be the richest person in India.

Before getting into today�s spastic behavior of markets certain things need to be said: �The USA as the major power in OTC derivative manufacturing and distribution has the largest credit lockup problem of any economic area in the world.�    1. The USA and to a lesser degree the rest of the West�s financial system is broken like a shattered eggshell. It will be lied about, covered up, hidden after Fridays and rescued only when you are not looking. It will be labeled anything but the the bailout it is. All of that is a rehash of what got us here in the first place. It does not have even a small chance of fixing the problem for even a short period. 2. Because the financial system of the USA is broken to a much larger degree than that of any other country on the planet, the US dollar has limited ability to rally regardless of the arguments being blasted out by Financial TV and all who make their living as purveyors of paper so-called assets casting your attention to competitive levels of economic activity away from the real why of all of this. 3. Geopolitics are deteriorating with the greatest risk of all being Pakistan. That risk is reaching critical levels. The price of Crude can easily be put on a course of plus $100 from whatever level it is trading at when Pakistan blows. 4. The Fed is jawboning against inflation and practicing verbal intervention by placing an outlook for increased interest rates in the minutes of the last Fed meeting. 5. The message that would be sent by a September increase in interest rates would trigger the need for more rescues, more loans to develop electric cars and more funding for Freddie and Fanny as starters. 6. The Case Sheller approach to predict housing market and render valuation for the many forms of credit and mortgage derivatives only looks back with accuracy. Projecting forward is its major weakness. You must act to defend yourselves by reducing your exposure to financial agents, ignoring the lies and spin being thrown at you until you are covered by six feet of fabricated crap. The USA has adopted a plan of inflating monetary policy and lying in order to save USA Inc. from bankruptcy. The US dollar is the common share of the USA Inc. If you are a bull on the dollar you have bought the bull blasted at you. You can always have a bear market rally in the common share of USA Inc., but it is limited by major cash sellers and the distasteful event in government agencies. Gold will trade at $1200 and $1650. The US dollar will trade at .62 and .52 on the USDX as bull cannot change a pig's ear into a silk purse. The argument that the USA is the major of the major power militaristically is what collapses in currency are made of, not a universal acceptability as the warmongers would have you believe. That is exactly what happened when the Ruble became rubble as the USSR went broke and imploded. Maybe standing back and watching the flow is better than locking onto some isolated event that I receive so many questions on. Respectfully yours, Jim

Credit Crisis Still `Far From Over,' Merrill Says (Update2) By Jeff Kearns and Bradley Keoun Aug. 13 (Bloomberg) -- The credit crisis is ``broad, deep, and global'' and ``far from over'' for financial companies even after they reported $500 billion in writedowns and credit losses, Merrill Lynch & Co.'s chief investment strategist said. ``Investors are significantly underestimating both the scope and the extent of the credit bubble and the consequences of its subsequent deflation,'' Richard Bernstein wrote in a note to clients. ``The problems are not confined to large institutions that are overexposed to U.S. subprime loans.'' The lingering effects of the crisis mean banks and brokerages need ``massive'' consolidation because of the glut of lending capacity worldwide, Bernstein said. Profit for U.S. banks and brokerages tumbled 94 percent in the second quarter from a year earlier, according to Bloomberg data. Financial stocks in the Standard & Poor's 500 Index have tumbled 30 percent this year for the worst performance among 10 industry groups. The KBW Bank Index, a composite of 24 U.S. banking stocks, fell 4.1 percent today. Financial companies in the S&P 500 fell 3 percent for the biggest drop among 10 industry groups. Credit Crisis Still `Far From Over,' Merrill Says (Update2) The stocks aren't likely to rebound soon, Bernstein wrote. ``The problems in the financial sector appear to us to be far from over,'' he wrote. ``We are skeptical that trying to bottom-fish will prove profitable.'' `Global Phenomenon'   One of the largest banks in Asia recently posted an earnings shortfall from losses on mortgage-related collateralized debt obligations and other troubled assets, showing the crisis has spread, Bernstein wrote. The pace of initial public stock offerings in India and Singapore has dropped ``considerably,'' he wrote. ``The sector's underperformance clearly has been a global phenomenon,'' Bernstein wrote. ``History shows that the U.S. tends to lead the world into slowdowns and recessions.'' The worst might still be ahead for smaller U.S. banks, he wrote. Banks and brokerage firms worldwide have recorded more than $500 billion of securities writedowns and increased costs related to bad loans, according to Bloomberg data. To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

Credit Crisis Still `Far From Over,' Merrill Says (Update2) By Jeff Kearns and Bradley Keoun Aug. 13 (Bloomberg) -- The credit crisis is ``broad, deep, and global'' and ``far from over'' for financial companies even after they reported $500 billion in writedowns and credit losses, Merrill Lynch & Co.'s chief investment strategist said. ``Investors are significantly underestimating both the scope and the extent of the credit bubble and the consequences of its subsequent deflation,'' Richard Bernstein wrote in a note to clients. ``The problems are not confined to large institutions that are overexposed to U.S. subprime loans.'' The lingering effects of the crisis mean banks and brokerages need ``massive'' consolidation because of the glut of lending capacity worldwide, Bernstein said. Profit for U.S. banks and brokerages tumbled 94 percent in the second quarter from a year earlier, according to Bloomberg data. Financial stocks in the Standard & Poor's 500 Index have tumbled 30 percent this year for the worst performance among 10 industry groups. The KBW Bank Index, a composite of 24 U.S. banking stocks, fell 4.1 percent today. Financial companies in the S&P 500 fell 3 percent for the biggest drop among 10 industry groups. Credit Crisis Still `Far From Over,' Merrill Says (Update2) The stocks aren't likely to rebound soon, Bernstein wrote. ``The problems in the financial sector appear to us to be far from over,'' he wrote. ``We are skeptical that trying to bottom-fish will prove profitable.'' `Global Phenomenon' One of the largest banks in Asia recently posted an earnings shortfall from losses on mortgage-related collateralized debt obligations and other troubled assets, showing the crisis has spread, Bernstein wrote. The pace of initial public stock offerings in India and Singapore has dropped ``considerably,'' he wrote. ``The sector's underperformance clearly has been a global phenomenon,'' Bernstein wrote. ``History shows that the U.S. tends to lead the world into slowdowns and recessions.'' The worst might still be ahead for smaller U.S. banks, he wrote. Banks and brokerage firms worldwide have recorded more than $500 billion of securities writedowns and increased costs related to bad loans, according to Bloomberg data. To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

Jim Sinclair's Commentary: August 7, 2008 Sleep well all you dollar holders in the belief that public funds will solve everything. The next time you hear a politician use the word "billion" in a casual manner think about whether you want them spending YOUR tax money. A billion is a difficult number to comprehend but one advertising agency did a good job of putting that figure into perspective. Here it is: A. A billion seconds ago it was 1959. B. A billion minutes ago Jesus was alive. C. A billion hours ago our ancestors were living in the Stone Age. D. A billion days ago no-one walked on the earth on two feet. E. A billion dollars ago was only 8 hours and 20 minutes at the rate our government is spending it. Now think about the size of the notional value of the mountain of all derivative of which 95% are OTC Derivatives: One Quadrillion, one thousand one hundred and forty four trillion.(Source: The Bank for International settlements). Many people out there are resting assured that all financial problems have been solved by the use of public funds to sustain those that created these problems in the first place. If you can sleep soundly with such a brew boiling while believing there are no CONSEQUENCES, you are taking some heavy duty sleep medication. Public money will not solve all problems and if there isn't enough we will simply print more. That's a recipe for disaster. Despite the fact a tropical storm is bearing down on the Houston/Galveston area, Dan Norcini managed to find time to prepare these charts for our readers. David Duval Managing Editor Please click to enlarge in PDF format. Jim Sinclair's Commentary: It is not a recovery that is just around the corner! International Herald Tribune A second, far larger wave of U.S. mortgage defaults is building By Vikas Bajaj Monday, August 4, 2008 NEW YORK: The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is building with alarming speed. After two years of upward spiraling defaults, the problems with mortgages made to people with weak, or subprime, credit are showing the first, tentative signs of leveling off. But with the U.S. economy struggling, homeowners with better credit are now falling behind on their payments in growing numbers. The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A, or alt-A, mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time. While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said. Defaults are likely to accelerate because many homeowners' monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks are tightening their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are alt-A loans, many of which were made to people with good credit scores without proof of their income or assets. Much will depend on the course of the economy, particularly unemployment. A weaker job market would push more homeowners toward the financial brink. The U.S. Labor Department reported Friday that the unemployment rate climbed to a four-year high in July. Other downbeat reports last week documented another drop in home prices, slower economic growth than expected and a huge loss at General Motors.

Last Updated: 8:18am BST 28/07/2008

World markets are poised for a major relief rally today after the US Congress met in a rare weekend session to pass the most far-reaching rescue package for America's financial system since Franklin Roosevelt's New Deal.

The emergency bail-out gives the US Treasury sweeping authority to inject capital into the giant mortgage lenders Fannie Mae and Freddie Mac, which together own or guarantee half the country's $12 trillion stock of home loans.

The ceiling on the US national debt has been lifted by a further $800bn, giving the Treasury almost unlimited resources to prop up the two lenders.

In parallel, the Federal Housing Authority (FHA) is to guarantee up to $300bn of fresh mortgages for struggling homeowners trapped with soaring loan costs, often the result of "honeytrap" contracts.

The scheme aims to avoid an avalanche of fresh defaults as the housing market continues to deteriorate. Over 740,000 homes fell into foreclosure in the second quarter.

The new bill - reluctantly endorsed yesterday by the White House despite lashings of lard for Democratic special interests - should help to calm the markets after wild gyrations last week. Global bourses have suffered the worst mid-summer sell-off since the early 1930s.

The share prices of Fannie and Freddie, the world's two biggest financial institutions, have dropped by almost 85pc.

The rating agency Standard & Poor's said it may downgrade a $19bn chunk of subordinated debt issued by two agencies despite the Treasury plan, citing "heightened financial risks". This raises implicit concerns about the credit worthiness of the United States itself, though S&P denies any plan to cut the US sovereign rating at this stage.

Hank Paulson, the US treasury secretary, brushed aside complaints that the rescue package amounts to a taxpayer bail-out for shareholders, insisting that the new authority to buy stock is merely intended to reassure investors and may never be activated if all goes well. The authority expires at the end of 2009.

A vocal minority on Capitol Hill now fears that the US government is shielding Wall Street from the consequences of its own folly. The risk of default has been taken over by society as a whole, while investors alone stand to gain from any recovery.

"This bill has moral hazard written all over it: we are letting a monster loose," said Jeff Flake, a Republican Congressman.

�  Global economy at danger point

�  European recession looms

The majority of President George W Bush's own party voted against the package in the House. A new regulator will take charge of Fannie and Freddie, but this addition has the look of an afterthought.

Critics say Washington should have adopted the sterner methods of Norwegian and Swedish regulators during the Scandinavian banking crisis of the early 1990s, when shareholders received nothing after the banks were seized.

Mr Paulson is concerned that such Draconian methods could aggravate the crisis by making it harder for US banks to attract fresh capital. The financial system remains extremely fragile. The Federal Deposit Insurance Corporation (FDIC) intervened late on Friday to take over two more bankrupt lenders, First National Bank of Nevada and First Heritage Bank. It follows the seizure of California's IndyMac two weeks ago.

Christopher Dodd, chairman of the Senate banking committee, said the new package was vitally needed. "We are in the midst of the most serious economic crisis to face our nation in many years. This bill is going to make a difference almost immediately," he said.

Paul Ashworth, US strategist at Capital Economics, said US bank credit had been contracting for the last quarter. While the fiscal stimulus package helped to keep the economy afloat in the second quarter, this one-off boost is now largely exhausted.

"The economy is likely to slide into a more severe recession during the rest of the year as the credit crunch gradually begins to have a more pronounced impact on the economy," he said.

Some 400,000 homeowners are expected to benefit from the FHA's new mortgage facility, which is confined to those trying keep up with their payments. This is a small proportion of the estimated 11m American households now facing negative equity, a figure that is certain to rise much further as house prices deflate. The overhang of unsold houses on the market has reached 11.1 months supply.

BNP Paribas said the new danger is that banks in other parts of the world will soon find themselves in similar difficulties as the long-term effects of the credit crunch bite deeper.

"The epicentre of the financial market sell-off will switch from the US into Europe and Oceania. Most of Euroland has entered a recession. A synchronised global downturn is on the agenda," it said.

Jim Sinclair�s Commentary

There is no practical solution to the present credit market problems. There are only acts of desperation in reaction to each crisis further corrupting the shaking foundation of the US dollar.

This is an act of monetizing bankrupt home mortgages. Bankrupt home mortgages have more problems than just resets.

This is the application of a tool that is guaranteed to put additional pressure on the US dollar once the fooled fools wake up. This is how Weimar got into irreversible monetary problems.

This implies that I am wrong about gold only reaching $1650 and brings into play, fundamentally, the possibility of the two Angels above this level.

Have you protected yourself from what is now inevitable?

Paul told the House:

"These fast-approaching events will not go unnoticed. They will affect all of us. They will not be limited to just some areas of our country. The world economy and political system will share in the chaos about to be unleashed."

"There are reasons to believe this coming crisis is different and bigger than the world has ever experienced. Instead of using globalism in a positive fashion, it's been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers." Paul continued.

In one of Paul's most memorable speeches to date, the Congressman spoke of rampant authoritarianism having replaced the principles of liberty that the United States was founded upon and warned that current empire building financed through inflation and debt signals a most frightening period in history.

"Our arrogance and aggressiveness have been used to promote a world empire backed by the most powerful army of history. This type of globalist intervention creates problems for all citizens of the world and fails to contribute to the well-being of the world's populations. Just think how our personal liberties have been trashed here at home in the last decade." Paul urged fellow representatives.

Paul outlined the history of the current economic crisis and alluded to key events such as the inception of the Federal Reserve System, the creation of the Bretton-Woods Monetary System and the creation of a "dollar bubble".

"This bubble is different and bigger for another reason." Paul argued.

"The central banks of the world secretly collude to centrally plan the world economy. I'm convinced that agreements among central banks to �monetize� U.S. debt these past 15 years have existed, although secretly and out of the reach of any oversight of anyone--especially the U.S. Congress that doesn't care, or just flat doesn't understand."

Yesterday, the Congressman also confronted Federal Reserve Chairman Ben Bernanke over what he described as a 35 plus year dollar bubble, telling him "You are probably the biggest taxer in the country", citing the inflationary fiat money system as the most unfair and regressive form of taxation there is.

A stunned Bernanke put up little resistance and simply agreed with Paul, stating �Congressman, I couldn�t agree with you more that inflation is a tax, and that inflation is currently too high.�

Paul also pointed out that government bail out packages for lenders will inevitably lead to a further increases in the already stratospheric national debt.

Watch Ron Paul once again take Bernanke to school on the economy:

Ron Paul's entire speech before the House now follows:

Madam Speaker, I have, for the past 35 years, expressed my grave concern for the future of America . The course we have taken over the past century has threatened our liberties, security and prosperity. In spite of these long-held concerns, I have days--growing more frequent all the time--when I'm convinced the time is now upon us that some Big Events are about to occur. These fast-approaching events will not go unnoticed. They will affect all of us. They will not be limited to just some areas of our country. The world economy and political system will share in the chaos about to be unleashed.

Though the world has long suffered from the senselessness of wars that should have been avoided, my greatest fear is that the course on which we find ourselves will bring even greater conflict and economic suffering to the innocent people of the world--unless we quickly change our ways.

America , with her traditions of free markets and property rights, led the way toward great wealth and progress throughout the world as well as at home. Since we have lost our confidence in the principles of liberty, self reliance, hard work and frugality, and instead took on empire building, financed through inflation and debt, all this has changed. This is indeed frightening and an historic event.

The problem we face is not new in history. Authoritarianism has been around a long time. For centuries, inflation and debt have been used by tyrants to hold power, promote aggression, and provide �bread and circuses� for the people. The notion that a country can afford �guns and butter� with no significant penalty existed even before the 1960s when it became a popular slogan. It was then, though, we were told the Vietnam War and the massive expansion of the welfare state were not problems. The seventies proved that assumption wrong.

Today things are different from even ancient times or the 1970s. There is something to the argument that we are now a global economy. The world has more people and is more integrated due to modern technology, communications, and travel. If modern technology had been used to promote the ideas of liberty, free markets, sound money and trade, it would have ushered in a new golden age--a globalism we could accept.

Instead, the wealth and freedom we now enjoy are shrinking and rest upon a fragile philosophic infrastructure. It is not unlike the levies and bridges in our own country that our system of war and welfare has caused us to ignore.

I'm fearful that my concerns have been legitimate and may even be worse than I first thought. They are now at our doorstep. Time is short for making a course correction before this grand experiment in liberty goes into deep hibernation.

There are reasons to believe this coming crisis is different and bigger than the world has ever experienced. Instead of using globalism in a positive fashion, it's been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers.

Being an unchallenged sole superpower was never accepted by us with a sense of humility and respect. Our arrogance and aggressiveness have been used to promote a world empire backed by the most powerful army of history. This type of globalist intervention creates problems for all citizens of the world and fails to contribute to the well-being of the world's populations. Just think how our personal liberties have been trashed here at home in the last decade.

The financial crisis, still in its early stages, is apparent to everyone: gasoline prices over $4 a gallon; skyrocketing education and medical-care costs; the collapse of the housing bubble; the bursting of the NASDAQ bubble; stock markets plunging; unemployment rising; massive underemployment; excessive government debt; and unmanageable personal debt. Little doubt exists as to whether we'll get stagflation. The question that will soon be asked is: When will the stagflation become an inflationary depression?

There are various reasons that the world economy has been globalized and the problems we face are worldwide. We cannot understand what we're facing without understanding fiat money and the long-developing dollar bubble.

There were several stages. From the inception of the Federal Reserve System in 1913 to 1933, the Central Bank established itself as the official dollar manager. By 1933, Americans could no longer own gold, thus removing restraint on the Federal Reserve to inflate for war and welfare.

By 1945, further restraints were removed by creating the Bretton-Woods Monetary System making the dollar the reserve currency of the world. This system lasted up until 1971. During the period between 1945 and 1971, some restraints on the Fed remained in place. Foreigners, but not Americans, could convert dollars to gold at $35 an ounce. Due to the excessive dollars being created, that system came to an end in 1971.

It's the post Bretton-Woods system that was responsible for globalizing inflation and markets and for generating a gigantic worldwide dollar bubble. That bubble is now bursting, and we're seeing what it's like to suffer the consequences of the many previous economic errors.

Ironically in these past 35 years, we have benefited from this very flawed system. Because the world accepted dollars as if they were gold, we only had to counterfeit more dollars, spend them overseas (indirectly encouraging our jobs to go overseas as well) and enjoy unearned prosperity. Those who took our dollars and gave us goods and services were only too anxious to loan those dollars back to us. This allowed us to export our inflation and delay the consequences we now are starting to see.

But it was never destined to last, and now we have to pay the piper. Our huge foreign debt must be paid or liquidated. Our entitlements are coming due just as the world has become more reluctant to hold dollars. The consequence of that decision is price inflation in this country--and that's what we are witnessing today. Already price inflation overseas is even higher than here at home as a consequence of foreign central banks' willingness to monetize our debt.

Printing dollars over long periods of time may not immediately push prices up--yet in time it always does. Now we're seeing catch-up for past inflating of the monetary supply. As bad as it is today with $4 a gallon gasoline, this is just the beginning. It's a gross distraction to hound away at �drill, drill, drill� as a solution to the dollar crisis and high gasoline prices. Its okay to let the market increase supplies and drill, but that issue is a gross distraction from the sins of deficits and Federal Reserve monetary shenanigans.

This bubble is different and bigger for another reason. The central banks of the world secretly collude to centrally plan the world economy. I'm convinced that agreements among central banks to �monetize� U.S. debt these past 15 years have existed, although secretly and out of the reach of any oversight of anyone--especially the U.S. Congress that doesn't care, or just flat doesn't understand. As this �gift� to us comes to an end, our problems worsen. The central banks and the various governments are very powerful, but eventually the markets overwhelm when the people who get stuck holding the bag (of bad dollars) catch on and spend the dollars into the economy with emotional zeal, thus igniting inflationary fever.

This time--since there are so many dollars and so many countries involved--the Fed has been able to �paper� over every approaching crisis for the past 15 years, especially with Alan Greenspan as Chairman of the Federal Reserve Board, which has allowed the bubble to become history's greatest.

The mistakes made with excessive credit at artificially low rates are huge, and the market is demanding a correction. This involves excessive debt, misdirected investments, over-investments, and all the other problems caused by the government when spending the money they should never have had. Foreign militarism, welfare handouts and $80 trillion entitlement promises are all coming to an end. We don't have the money or the wealth-creating capacity to catch up and care for all the needs that now exist because we rejected the market economy, sound money, self reliance and the principles of liberty.

Since the correction of all this misallocation of resources is necessary and must come, one can look for some good that may come as this �Big Event� unfolds.

There are two choices that people can make. The one choice that is unavailable to us is to limp along with the status quo and prop up the system with more debt, inflation and lies. That won't happen.

One of the two choices, and the one chosen so often by government in the past is that of rejecting the principles of liberty and resorting to even bigger and more authoritarian government. Some argue that giving dictatorial powers to the President, just as we have allowed him to run the American empire, is what we should do. That's the great danger, and in this post-911 atmosphere, too many Americans are seeking safety over freedom. We have already lost too many of our personal liberties already. Real fear of economic collapse could prompt central planners to act to such a degree that the New Deal of the 30's might look like Jefferson 's Declaration of Independence.

The more the government is allowed to do in taking over and running the economy, the deeper the depression gets and the longer it lasts. That was the story of the 30s and the early 40s, and the same mistakes are likely to be made again if we do not wake up.

But the good news is that it need not be so bad if we do the right thing. I saw �Something Big� happening in the past 18 months on the campaign trail. I was encouraged that we are capable of waking up and doing the right thing. I have literally met thousands of high school and college kids who are quite willing to accept the challenge and responsibility of a free society and reject the cradle-to-grave welfare that is promised them by so many do-good politicians.

If more hear the message of liberty, more will join in this effort. The failure of our foreign policy, welfare system, and monetary policies and virtually all government solutions are so readily apparent, it doesn't take that much convincing. But the positive message of how freedom works and why it's possible is what is urgently needed.

One of the best parts of accepting self reliance in a free society is that true personal satisfaction with one's own life can be achieved. This doesn't happen when the government assumes the role of guardian, parent or provider, because it eliminates a sense of pride. But the real problem is the government can't provide the safety and economic security that it claims. The so called good that government claims it can deliver is always achieved at the expense of someone else's freedom. It's a failed system and the young people know it.

Restoring a free society doesn't eliminate the need to get our house in order and to pay for the extravagant spending. But the pain would not be long-lasting if we did the right things, and best of all the empire would have to end for financial reasons. Our wars would stop, the attack on civil liberties would cease, and prosperity would return. The choices are clear: it shouldn't be difficult, but the big event now unfolding gives us a great opportunity to reverse the tide and resume the truly great American Revolution started in 1776. Opportunity knocks in spite of the urgency and the dangers we face.

Let's make �Something Big Is Happening� be the discovery that freedom works and is popular and the big economic and political event we're witnessing is a blessing in disguise.

SOURCE: House.gov/Paul

Inflation Alert!
By Craig R. Smith, CEO Swiss America
June 30, 2008

While Congress fiddles the Dow slipped into a bear market this last week. Stock trading revealed some interesting and potentially dangerous weaknesses that must be considered by anyone with their money in dollars, equities or bonds. Warnings are widespread and shell-shocked investors need clear direction.

"Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall 'below zero'," reports London Telegraph.

Goldman Sachs downgraded two giants of American business when they added GM to their SELL list (from neutral) and Citibank to their conviction SELL list. THIS IS HUGE. Can you imagine if either of these companies announced they were in fear of going bankrupted if their business continues to deteriorate? The fallout would be devastating.

Wall Street reacted accordingly as money ran to gold and oil looking for safety first, then return. But it is important to understand why.

The Fed�s bailout of Bears Stearns in March made it clear to the market it stands ready to bailout any entity whose collapse could potentially cripple the markets. The moves made in March are unprecedented and highly questionable in my opinion as they have long-term inflationary implications, as Mark Faber sums it up nicely;

"The Federal Reserve should let the big investment banks go bust if they made unwise investment decisions while investors should take refuge into gold as the central bank has been 'misleading' the markets, Marc Faber, editor and publisher of "The Gloom, Boom & Doom Report," told CNBC�s "Worldwide Exchange."

The Fed cannot allow American icons like GM or Citibank to go broke. It will move rapidly to bail them out. This will ignite another set of unintended consequences. The Fed will have to print money to accomplish such a move, which will send inflation soaring.

Recent auction activity confirms the world's loss of appetite for U.S. dollar investments. Artificially low interest rates provide virtually zero returns (after inflation) making Treasury Bills and/or Government Bonds very unattractive.

The same scenario holds true for Citibank. After several rounds of raising capital from everywhere, including Abu Dhabi and sovereign wealth funds, Citibank continues to hemorrhage like a stuck pig. Subprime resets this year will add to the pain this once great bank will experience.

Prepare for 10-14% inflation

The handwriting is on the wall in America! Inflation is coming back. It is only a matter of to what degree. Will it run 14%-16% like it did in 1979-80, or will it be closer to the recent wholesale producer price index (PPI) numbers at just under 10%? Or will it turn into hyperinflation, as we have seen in third world countries or Weimar, Germany?

This explains why we saw gold prices soar last week as international investors moved to a defensive position to keep inflation from eating away at the dollars they cannot sell in the current market condition.

In July 2007, I warned investors that the Dow at 14,000 was not a milestone, but rather a mirage concocted of smoke and mirrors. My advice today is to be prepared for another 15% correction in stocks, taking the Dow below 10,000.

Commodity prices will continue to climb until the Fed moves to defend the dollar. Frankly I cannot see a scenario in which that will occur, especially before the next presidential election.

Today the world is holding trillions of U.S. dollars and savvy investors are choosing to defend their holdings against another round of inflation. Therefore, I think you will see all commodities continue to rise including; gold, silver, oil, cooper, wheat, corn etc.

The only answer to the current problem would be for Congress to cut back on spending and reduce deficits, which would boost the dollar. That will not happen.

If Congress really wanted to halt skyrocketing oil and gas prices they would fast track legislation to start drilling and building refineries. Sadly, I doubt this will happen either, but if it did, I believe we could see a huge reversal of the current negative trends on Wall Street.

On the web site oilsolution.org, I have advocated those very steps to address the current energy problem and to help the economy. However it appears the deadbeats in Congress would rather play politics than fix the problems we face as a nation.

This current economy could get very bad, very fast. Then it will be too late to do anything but suffer the pain that comes in a prolonged period of rising inflation. Americans will face a lower standard of living and a much pared down retirement unless they act now to cut personal spending, save money and own more tangible assets.

In my view owning gold is no longer a luxury, but rather a necessity. Investors should be more concerned about the buying power of their dollars than high returns.

U.S. banks, such as Washington Mutual and Cleveland's National City, are in full retreat following the collapse of IndyMac. Washington Mutual went down 35% and National City plunged 27%. There are sure to be many more in the near future.
Who's Next? List of Troubled Banks Worries Wall Street, DC
ABC News Has Obtained Privately-Prepared Lists of Most Troubled Banks
By BRIAN ROSS, RHONDA SCHWARTZ, and JUSTIN ROOD
July 15, 2008
Banks in Colorado, Maryland, Georgia and California top privately-prepared lists of troubled banks being circulated on Wall Street and in Washington.
Industry analysts have compiled a list of banks in danger of failing.
While the Federal Deposit Insurance Corporation (FDIC) is keeping secret its official list of 90 troubled banks, ABC News has obtained other lists prepared by several research groups and financial analysts.
The lists use versions of the so-called "Texas ratio" which compare a bank's assets and reserves to its non-performing loans, based on financial data made public by the FDIC in March.
Analysts say banks with a ratio over 100 per cent would be the most likely to fail, based on what happened to Texas savings and loans during the 1980's.
"That a fair measure," said Hal Scott, a Harvard law school professor specializing in banking law.

Freddie and Fannie bailout will lead to a Weimar Republic type inflation.
Where do you suppose the money will come from for all these bailouts?

Can you see why we are exposed to the tsunami of �monetary inflation� the likes of which have not been seen since the collapse of the Weimar Republic in the 1920�s.

All I ask is that you open your eyes and see the signs.

The water that drained out from the beaches in Indonesia was a sign of a pending destructive Tsunami.

The fall of the Dollar in the last year.
(notice the direction in the last few days!!)