Gold Forecaster
- Global Watch
Is the Fed really in control
as the $ plummets and gold vaults?
Julian D.W.
Phillips
Gold Forecaster snippet
Mar 25, 2008
Since last August we have watched
as the sub-prime crisis turned into a credit crunch and from
there into a liquidity crisis. Like a cancer spreading through
the financial system it suddenly struck a vital organ, taking
the seemingly controllable cancer into one the doctors are fighting
to save lives. Not only has the sight of banks refusing to lend
to banks moved to a new level, major banking institutions are
tumbling in the face of its onslaught. With the weekend's, Federal
Reserve rate cut on direct loans to commercial banks, by a quarter-point
saying it will allow primary dealers to borrow at the rate in
exchange for a broad range of investment-grade collateral the
drama has had a gear shift change. The Fed also extended the
maximum term of discount-window loans to 90 days from 30 days,
but still has not accepted ownership of the assets against payment,
so leaving the debt crisis intact. In the same weekend as it
saw Bear Sterns collapse, it gave its hurried blessing to the
deal of J. P. Morgan Chase & Co. wherein J.P. Morgan Chase
& Co agreed to buy Bear Stearns for $2 a share after the
shares had been trading at $30 less than a month ago. It seems
the vultures are having a feast [even though they are now offering
10 a share]
Last week we were all aware
of the threats to the money system, but now the Tsunami is hitting.
Is the rescue a sign that the crisis has been conquered? Not
at all! Most now doubt that it has even been contained with some
thinking it has been engineered by the Fed to worsen. The cancer
that started last August has now spread to the consumer from
the blue collar worker through to executive level as they are
changing from their "live now, pay later" culture to
one of "pay now and live as best you can". The checks
eagerly awaited from the stimulus package from President Bush
in May are now more likely to fight the debt fires than to go
to more "living today". As inflation begins to point
to a higher cost of living, as the oil price now points to a
further doubling to $200 and gold has vaulted the $1,000 level
[although it then was dumped all the way back to just above $900],
an awareness is dawning on all from the financial towers down
to ground level that the empire of debt on which the last decade
of boom has grown is shrinking far faster than thought possible.
Since last August dubious mortgage debt to asset backed commercial
paper [made up of mortgages, credit card debt, car loans and
business loans] are finding it harder to stand as collateral
for finance. To counter this shrinking credit, the Fed alongside
European central banks, have pumped in billions of dollars worth
of Treasury Securities, in the hope of stopping the atrophy.
Interest rates were rapidly lowered and continue to be so with
last week's 0.75% drop, in the hope of easing credit and giving
dubious debt more substance. Meanwhile the disease spread from
"collateralized debt obligations" to "structured
investment vehicles," a more senior form of debt. But then,
after a lull in which it was hoped the crisis had been contained,
in December it reappeared when it began to be seen just how far
the cancer had spread, as major world-class banks [from Europe
as well as the States] reported the billions lost in write-downs
of asset values on which their survival depends.
The next step has been to move
further to make these debt instruments more palatable through
acceptance of them by the Fed, the lender of last resort [through
the "Term Auction Facility]. Mr. Bernanke climbed aboard
his helicopter expanding this program to $100 billion a month
in March, plus infusing another $100 billion into the financial
system through its open market operations and created another
$200 billion lending program to the big investment banks with
mortgage backed securities as collateral.
Certainly unconvinced, the
financial world still does not accept that these instruments
have been 'saved' by the Fed as they remain only collateral for
debt, not acceptable assets, yet. This remains a foundation of
the financial world and the banks, on which the U.S.$' global
empire stands. Once these assets are accepted as assets in payment
of debt, power will seep from the global banking empire. Meanwhile
the U.S. $'s value is descending at an accelerating pace raising
prices in the U.S. on everything. The oil price is holding high
at never-before-seen-levels, not because of a shortage, but because
U.S. and foreign nationals and institutions are fleeing from
$ instruments into assets such as oil in the sure knowledge that
their value will rise as those stemming from the $ will fall.
Does the Fed have to competence to stop this collapse? Was the
0.75% drop in interest rates and Fannie Mae having another $200
billion to help in the mortgage industry sufficient to turn the
U.S. housing crisis around? No! It will take a concerted action
by all of the financial institutions, including the Bush Administration
and the change of several of their principles, before an effective
rescue can be mounted. And they are nowhere near there yet. Indeed
they are still reacting to events of around a month ago.
And now Bear Sterns, one of
the largest and most aggressive financiers of subprime mortgages
has, in effect, collapsed. The task in front of the monetary
system, not just the Fed is to prevent a vital organ of the monetary
system from collapsing. The $30 billion credit line to facilitate
the takeover of Bear Sterns still does not change the debt into
a viable asset. To make the rate for borrowing from its discount
window cheaper at 3.25% still won't cut it. All this has done
is to add an air of desperation to the picture. With the Fed's
taking over the portfolio of Bear Sterns and controlling all
major decisions is getting close to turning debt into viable
assets, but not obviously so. The Fed is now teetering on the
bring of credibility as a "Lender" in a process very
close to a nationalization of an institutions, such as the British
Government's nationalization of Northern Rock, the British bank.
The final move to date is the
most worrying. It is that it will make available unlimited
amounts of money to the 20 large primary dealing investment
banks in Treasuries that deal directly with the Fed. The credibility
of the system itself is now on the line with the value of the
$ now promised an unlimited level of devaluation. Such is a catastrophic
issuance of money. Meanwhile the attractiveness of Treasuries
is waning, as the term of such loans, preferred in the market
place, is shortening dramatically, a sure sign that a dangerous
crisis is unfolding. When debt becomes attractive only when it
is so short-term that it is deemed as almost cash, then the bank
runs really begin. This has been seen in other parts of the world
when disaster has struck.
The crisis is as global
as the $ is. The run
to gold is a sprint, despite the 10% pullback last week [in a
strange, straight-line fall?]. Across the world people are realizing
that a tsunami of capital is on the move, either disappearing
or about to move into new lands wreaking havoc in selected markets
as we are seeing today with most global equity market down 3%
with much more to come as the word 'depression' is now replacing
'recession' in some quarters. The words "Exchange Controls"
and "Protectionism" will be the new dramas to be visited
on a hapless world any time now. Under such controls gold in
Switzerland remains safe [Bullion Vault], but will we be protected
against the long reach of the Authorities... through you to Switzerland?
It is better to be absolutely sure that you will be safe against
this reach. After all the first time you will know what the new
controls on capital will be they will have been imposed. We believe
they are not far off now [Subscribers, please contact us for
how to get this protection].
Meanwhile the U.S. monetary
system is still short of capital and is under pressure to contract!
Who's next ? Has the $ stopped falling and gold rising?
Please visit www.GoldForecaster.com
for the entire report.
Mar 21, 2008
Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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