Four times each year, we publish a hard copy quarterly. I am featuring the second issue in 2012, written by Andy Hoffman, in today's daily. Andy "rants" less in these hard copy newsletters and his information is more "timeless," and big-picture oriented. It's good stuff! Read it.
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Spring 2012 - Escalation of the Precious Metal Wars
It's late March, and I can hardly believe three months have passed since the lastMiles Franklin Report - much less the nearly five months since I came aboard as Marketing Director.
In that report, I wrote of my background in Precious Metals and financial markets, as well as some personal information to give you an idea how I got here and why I am qualified to guide you down the treacherous path of the global monetary system.
If that information wasn't enough, I publish FREE missives five days a week - called "RANTS" - about the markets and the world in general, accessible at blog.milesfranklin.com. At Miles Franklin's Blog site you can sign up to receive my daily newsletters via email, as well as the Daily Gold & Silver Summary from Miles Franklin's founder, David Schectman.
The Federal Reserve Printing Press - Weapon of Mass Financial Destruction
Much has occurred in the past three months, and none of it yields hope of a return to "prosperity." I put "prosperity" in quotes because the "Roaring 90s" was anillusion created by Alan Greenspan's belief that the PRINTING PRESS could be used to not only prevent recessions, but create everlasting expansions yielding full employment, low inflation, lollipops, and unicorns.
I'm being facetious, of course, as Sir Alan failed to realize his scheme only worked because the U.S. debt had not yet grown to unsustainable levels, eventually falling victim to the inevitable DIMINISHING RETURNS on incremental debt described in my January 20th RANT of the same name.
When Greenspan took over the Fed in 1987, U.S. debt was a manageable $2.5 trillion. Equally important, the nation still maintained the financial and industrial leadership built over two centuries of hard work. By shifting the Fed's policy from smoothing the economy's ups and downs to attempting "eternal expansion" - cozying to the political establishment in the process - he inadvertently launched the early stages of America's demise.
The primary catalyst of the U.S.'s decline from superpower status was Nixon abandoning the gold standard in 1971, but as noted above, until the U.S. debt grew unmanageable, the debilitating nature of expansionary monetary policy was masked. However, when Greenspan initiated the Fed's now permanent "quantitative easing" policy in the late 1980s - starting with its response to the 1987 stock market crash - the road to ruin was started. The U.S.'s financial position was compromised further by the emergence of China as a manufacturing powerhouse in the 1990s, as well as the obvious appearance of "peak cheap oil", a topic I know well having worked as a Wall Street energy analyst for a decade. Not "peak oil," mind you, but "peak cheap oil."
They say power corrupts, and absolute power corrupts absolutely, which couldn't be truer when discussing the role of Federal Reserve Chairman - or any Central Bank with keys to its own printing press. Alan Greenspan was a long-time disciple of Ayn Rand in the 1950s - a gold standard advocate and writer of Atlas Shrugged; a timeless classic depicting the repeating saga of mankind's addiction to paper money and welfare. Ironically, after writing a treatise in 1966 on the dangers of fiat currency- Gold and Economic Freedom - Greenspan became the most celebrated hyper-inflationist ever, just 20 years later, ignoring his own, prophetic words:
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."
The problem is by no means limited to the U.S., as the entire world has imbibed the "monetary Kool-Aid." I write often of the frailties of human nature, which sadly is prone to the seven deadly sins , particularly greed and sloth. Consequently, it repeatedly ignores its mistakes, including the immutable truth that fiat monetary systems ALWAYS fail, typically lasting no longer than 40 years before catastrophic devaluation or outright collapse.
Not coincidentally, this happens to be the exact age of the current U.S. dollar standard which has lasted longer than most because the U.S. has held the world "hostage" through the sheer size of dollar-based currency reserves and transactionvolumes, a situation being rapidly unwound as we speak. To wit, I wrote extensively of mankind's history of monetary self-destruction in my February 13thRANT, FIAT FAILURE, depicting the same systemic failure we are experiencing today in the dollar, Euro, pound, yen, and essentially every global currency.
Ominously, this is the first time ever that not a single currency is backed by gold. Thus, it shouldn't surprise anyone how rapidly the debt edifice has grown. In just two decades, nearly every nation on Earth has built an unsustainable debt burden - growing exponentially and shortly, hyperbolically - which can ONLY be repaid via MONEY PRINTING.
And I assure you it will, as demonstrated by the overt policies of ALL global Central Banks. The world's largest economy, the U.S. (though not for long) is committed to "ZIRP," or "Zero Interest Rate Policy," until "at least late 2014," while China, the world's second largest economy, is committed to pegging its currency - the Yuan, a/k/a Remnimbi - to the dollar ad infinitum. For those not versed in the nuances of monetary policy, "pegging" means the Chinese will print Yuan at the same pace as the Fed prints dollars, so as not to allow the Yuan to appreciate in value.
The worlds' third largest economy - Japan - has been amidst its own catastrophic ZIRP since 1998, and just this month announced plans to expand its MONEY PRINTING to cover ALL future treasury issuance. Japan is the poster child for monetary failure and, sadly, Ben Bernanke believes its problems were caused bynot enough money printing, which also happens to be his view of what caused the Great Depression.
By the way, the reason Japan's financial bubble collapsed exactly ten years before America's is simple: its population is ten years older. In other words, all of Japan's failures are being repeated in America, as well as Europe, China, and countless others.
Fortunately for Japan , they have a strong industrial base (though losing market share to China), as well as a population of savers prepared for the coming difficult decade. These attributes are the polar opposite of America; , an abandoned manufacturing sector, rising population (due to poorly controlled immigration), and an average net worth in the under 40 age group close to ZERO.
Following are charts depicting the aforementioned exponential growth in MONEY PRINTING , which arguably has already reached the hyperbolic stage. Mind you, such data represents only what the government overtly prints, which anecdotal data suggests vastly understates reality. I could cite reams of work proving my assertion that far more money is printed than we are told, but instead I'll simply give an example of the government spilling the beans on itself.
In the audit, it was found out that in 2009 the Fed secretly lent $16 trillion of PRINTED MONEY to myriad corporations, banks, and sovereigns in the aftermath of Global Meltdown I, with little clarity as to whether such monies have yet been repaid. Would it make you uncomfortable - or appalled - to know that while the average person experienced financial CHAOS, the Fed gave interest-free loans to some of the world's richest corporations, including Verizon, McDonald's, and Toyota?
"Global QE"
As the great NY sportscaster Warner Wolf used to say, "let's go to the videotape," starting with the U.S. adjusted monetary base, as calculated by the Federal Reserve Bank of St. Louis.
When viewing it, forget the actual numbers, as this measure dramatically understates the absolute amount of outstanding dollars. Instead, focus on its explosive growth since Global Meltdown I in late 2008, followed by a second EXPLOSION following Global Meltdown II in mid-2011, and yet another surge in recent months.
THIS meteoric growth rate,- plus increased government control over essentially ALL financial markets,- is why the Mainstream Media has been able to report relative calmin recent months, contrary to the experience of real-world economic conditions.
U.S. Adjusted Monetary Base
In Europe the situation is equally alarming, per the chart below depicting growth in the balance sheet of the ECB, or European Central Bank. The exponential trajectory is principally due to the two "LTROs," or "Long-Term Refinancing Operations" completed in the past three months; essentially, handouts of three-year loans (renewable indefinitely) at nearly 0% interest rates to any bank that requests them.
In exchange for collateral of essentially any kind - i.e. worthless securities - these banks were given $1.3 trillion of PRINTED MONEY for free, atop the countless hundreds of billions this Fall via the Federal Reserve's "swap facility."
Regarding the latter, it is operated identically to the ECB's LTRO mechanism except for one minor difference. As the Fed arbitrarily describes such transactions as "swaps" - rather than loans, as the ECB deems its LTRO handouts - it excuses itself from accounting for blatant MONEY PRINTING on its balance sheet. In other words, it created an "off balance sheet" transaction to mask its hyperinflationary policy, as described in my March 7th RANT, appropriately named "SWAP."
Size of ECB Balance Sheet (in $ billions)
Finally, the chart below depicts Chinese money supply over the past 15 years. In a nutshell, Chinese "M2" has risen by a CAGR, or Compound Annual Growth Rate, of 20% during this period, accelerating to 24% in the past two months and a record 29% in recent weeks.
Despite the purported invincibility of China's economy, it too is in many ways built on a House of Cards. True, it has a massive manufacturing base and currency reserves. However, , under the aegis of communism it has poorly allocated its capital, worsening the situation further via leverage from its equally massive MONEY PRINTING operations. China desperately needs to feed its 1.3 billion people, but unfortunately spent too much funding unnecessary construction than more practical agricultural and basic industry pursuits.
Chinese M2 Money Supply, 1997-2012
ALL the world's Central Banks are guilty of this society-killing monetary crime, but I'll simply end with three of the largest. Each pound, franc, and yen PRINTED contributes to global inflation, soon to be hyperinflation when the "elites" running the world's largest governments lose their PROPAGANDA and MARKET MANIPULATION wars.
1. Bank of England - recently announced expansion of its ongoing "QE" process
2. Swiss National Bank - reneged on centuries of fiscal conservatism by selling 60% of its gold during the 2000s and pegging itself to the foundering Euro last Fall
3. Bank of Japan - last month reached the notorious milestone of ¥ 1 QUADRILLION of debt - or roughly $13 trillion - simultaneously announcing its intention to monetize ALL future Treasury issuance.
The Precious Metal Wars
Per the title of this report, the accelerating deterioration of the global financial system has yielded a blatantly obvious "Escalation of the Precious Metal Wars." I hate to use a military metaphor, but the fact remains that "financial life or death" decisions are being made by a handful of "elite" politicians and bankers, aimed solely at maintaining their wealth and power at the expense of the world's population: the 99% powerless to oppose their decrees.
Such war is being waged on the citizens of all nations. Due to the aforementioned lack of a gold standard worldwide, ALL Central Banks are operating their printing presses at full capacity, the ultimate Ponzi Scheme as fiat monetary systems are fueled twofold, by MONEY PRINTING and CONFIDENCE. Regarding the former, the charts above clearly depict Central Banks' intentions, and as for the latter, it should be quite clear that CONFIDENCE in the financial system is deteriorating.
During the 2000s, arrogant Central Bankers capitalized on the supposed 1990s prosperity by cranking up the printing presses and overtly selling gold reserves. Moreover, admissions of covert selling are public knowledge and - inexplicably - the IMF established accounting rules permitting leased and swapped Central Bank gold to be double-counted on Treasury balance sheets, belying an underlying deficiency that will surely come to light. Just this month the German Bundesbank decided to perform a full audit of its internationally-held gold reserves, and as prices continue to rise - and currencies to weaken - you can be sure other Central Banks will follow suit.
The chart below shows the key inflection point in Central Bank gold activity - at the end of 2008, upon the commencement of Global Meltdown I. At this time, the "Greenspan Spell" wore off when bankers, politicians, and civilians started to realize fiat currency was flawed, and not to be entrusted as the sole vehicle for storing assets. Notably, part of the reason Central Bank gold purchases have declined since 2009, when several nations sold out of desperation, is that few large caches are available for sale.
The definition of money has four components, of which just two were considered until the fateful "inflection point" described above. Until then, most only considered its role as a medium exchange and fungibility - in other words, all dollars are created equal. However, the key concept of scarcity was ignored - that fiat currencies can be printed at will - and adjunctly - the most important role of all -as astorage of value.
When those "once and future truths" started to gain traction - after four decades of ignorance - the powers that be realized the next stage of the Precious Metals bull market was underway. Gold prices have since tripled, and silver quadrupled, yet universal recognition of this dangerous information has thus far been prevented by Central Bank and government efforts to obfuscate the truth via MARKET MANIPULATION -overt and covert - and PROPAGANDA campaigns.
Each day the forces of good gain traction in the war to disseminate the truth, but each day the reasons for people to fear the truth grows stronger. This is why stock market volatility has been quashed by the "President's Working Group on Financial Markets" - i.e. the PPT; Treasury bonds supported by the Fed's "QE" program; the dollar's value stabilized by the "Exchange Stabilization Fund" - or ESF;- and Precious Metals suppressed by the "Gold Cartel." Not that this hasn't been going on for the past decade, but per the title of this report: Escalation of the Precious Metals War, such activity has recently escalated.
Long-time readers are familiar with my research in the field of gold and silver suppression, which I am not bashful in proclaiming is the most comprehensive available. I write daily of the machinations in which PAPER gold and silver prices are manipulated, as well as mining shares, the Dow Jones Industrial Average, Treasury Bonds, currencies, and "strategic" commodities such as crude oil. The scope of the government's desperate grip on financial markets cannot be underestimated, and each day further evidence appears of its obvious fear that CONFIDENCE will be lost if the markets get away from them.
I could write for hours on the topic of Precious metals manipulation - and do so EACH DAY - and for those interested in learning about it, I recommend reading the five 'manipulation primers' I've penned , available in the "Newsletters" section at the top right of our website, uniquely titled "Ranting Andy Specials."
However, for purposes of this report, I am simply going to share some work I've done in gold's 200 Day Moving Average - or DMA - a measure of its average price over the past 200 trading days, or 40 weeks. The 200 DMA is an arbitrary metric, but has been used by traders for decades to measure long-term trends.
In Precious Metals, short-term technical analysis is useless due to the Cartel's incessant "tape-painting" operations - in other words, confusing investors by causing counter intuitive markets action, particularly to the downside. Conversely,long-term charts are MORE important in Precious Metals than other sectors, as constant Cartel suppression creates massive resistance levels that - when eventually breached - become equally massive support levels.
In the case of gold, the 200 DMA is sufficiently "old" enough to warrant meaningful analysis, so I monitor it very carefully. Here is some work I recently did on the topic:
Since the gold bull market commenced in 1999, gold has rarely traded below its 200 DMA. In fact, just 17% of the time in the past 12 years, or just 5% when you exclude the year 2000, when gold languished all year at its bottom between $265 and $285/ounce. Moreover, it has only traded more than 5% below its 200 DMA on TWO PERCENT OF ALL TRADING DAYS over the ENTIRE 12-year period, all at the bottom of Global Meltdown I, amidst a vicious, Cartel attack that sought to prevent gold from being viewed as the safe haven asset it has always been.
Below is a similar graph going back to 1983, thus providing historic perspective. Please note , even during the MASSIVE 20-year bear market of the 1980s and 1990s, gold still traded above its 200 DMA more than 50% of the time, and as you can see the ABSOLUTE LOW was a discount of roughly 11%, occurring in 1985, 1990 (when Miles Franklin commenced operations), and 1998.
Remember, the "Precious Metal Wars" are not about "gold" and "silver" per se, but CONFIDENCE in the global financial system. "The system" is based entirely on fiat currency, which as noted earlier, defines a Ponzi Scheme in that, in order to survive, it most exponentially grow while continuing to instill CONFIDENCE.
Precious Metals experts are aware the system is unsustainable, and increasingly the word is spreading to the world's populace. As gold and silver have outperformed ALL asset classes over the past decade, bullion sales continue to rise. Moreover - per the aforementioned chart regarding Central Banks - such purchases are spreading to larger and larger institutions.
Irrespective, gold still represents no more than 1% of the world's assets, compared to 20%-25% during the two major financial crises of the 20th Century: , in the mid-1930s and early 1980s, respectively.
The creation of trillions, soon to be quadrillions , of dollars has built a debt edifice supported by massive PAPER security markets, a recipe for financial destruction if ever one existed. Thus, my forecast that the Dow/Gold ratio will return to 1:1 is hardly far-fetched, particularly by historical standards.
To conclude, I stick by the headline of last quarter's Miles Franklin Report, that 2012 is a "Potential Inflection Point in Financial History." Only PHYSICAL gold and silver have proven to protect wealth from such dramatic changes - be theyinflationary, deflationary, or both - and given the potential for the entire global system to be permanently altered, I have no doubt Precious Metals will - as always - be the "last man standing."
Sincerely,
David Schectman
Miles Franklin
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Related:
The somewhat amusing part of this entire transaction is that the debt of Greece has been INCREASED.
The deflation delusion |
Ireland public finances projections
