DOW Down, Gold UP

Old cartoon I drew some time ago, always appropriate!
January 11, 2008

Elaine Meinel Supkis

Lower interest rate cuts don't revive the DOW anymore. Indeed, the anticipation of rate cuts causes giddy hysteria which, when the actual cuts are discussed, turns sour as investors realize that this nostrum won't nos or strum. The Bank of England is resisting rate cuts unlike the Federal Reserve. This is because England is deeper in red ink than the US and it is therefore, much more dangerous. I also speculate that the rate cuts by the Fed this last 4 months is directly feeding the gold bubble. This is very much like the economy before Volker and Carter forced interest rates up and up and up until it killed inflation and the gold bubble.

Dramatic shift in emphasis at the FedEconomic risks take center stage, pushing inflation worries to the background

But the speech on Thursday by Fed chief Ben Bernanke represents something of a sea-change at the central bank.

In unusually blunt language for a central banker, Bernanke said the Fed is ready to take "substantive additional" rate cuts to support growth and insure against the risks of a sharp downturn.

Bernanke said the FOMC must be prepared to act "in a decisive and timely manner."

More than one economic pundit has complained that talks of rate drops no longer prop up the stock markets. Let's look at how the news flew today in stocks:

Well, well, well!. I have noticed that this is increasingly like Xmas with small children. The Santa Claus figure, Bernanke, listens to the little tots asking for Masters of the Universe toys and more hot shot games and expensive Xboxes. Then Xmas arrives and they open the presents and it isn't exactly what they wanted. So they throw a snit. Anticipating more free money gets them all giddy and happy. But when the rate cuts come, they are glum. Since this cycle has been played several times so far, it should occur to everyone involved, the rate cuts aren't working due to other factors, things both Bernanke and these spoiled brats refuse to talk about.

Item #1 being, Santa---who is really daddy---his income has not increased in years and indeed, he has kept up the Xmas farce only via running up huge debts to others who want Santa in hock. Instead of running a bank that holds reserves, he actually has virtually nothing except a mountain of IOUs. When Santa goes to others to buy toys for the boys on Wall Street, he is laughed at. They all want something in return, not just paper. They want to own us. So Santa actually has been visiting a pawn shop, not a bank. The bank has been pawning off everything in the house and only now is junior beginning to notice. So far, Santa sold off all of Mrs. Santa's jewelry and fur coats as well as his own bowling ball and the sports car. But now, the flat screen TV and the Surround Sound System is missing. How is Jr. going to play his video games? How can papa watch MSNBC?

"It is a dramatic shift in tone," said Stanley. Prior to the speech by Bernanke, the Fed seemed to be following the lessons it learned from the collapse of the hedge fund Long-Term Capital Management in the summer of 1998, he said.

In that episode, the Fed quickly cut rates three times, and the economy roared back.

The Fed should be forgiven for reaching the conclusion that, as in 1998, quick action would restore confidence in the markets. Stanley said the main risk to the economy has traditionally been financial market conditions, which are notoriously volatile.

But financial markets have been practically begging the Fed to see that it should not be fighting the last war, and it seems like the central bank is ready to listen.

Comparing today to 1998 is false. Before 1998, our trade deficit was 'only' $100 billion. Today, it is way over that, approaching a trillion dollars a year, rapidly. A $600+billion increase in our trade deficit has been devastating. It is ridiculous, unsustainable and leads to bankruptcy. It is beyond bad, it is impossible to sustain or grow. The only tool for shrinking this monstrosity is for us to have a global recession so bad, it cuts down 90% of world trade with the US. Um, this is 'Great Depression' levels we are talking about.

In 1998, the budget was finally balanced. Since then, we have run in the red, more than doubling it. The $4 trillion debt has become a $9 trillion monster and it is growing and will grow even faster in a recession. The collective debts of the US has tripled. Corporate debts has quadrupled. Rising from about $1 trillion, Credit Default Swaps derivative contracts have increased to about $43 trillion except we have no idea what the actual amount really is. Japan's central bank has, via the carry trade, managed to flood the world with 'leverage' and 'liquidity' which is 100% pure red ink. The tool for this is their sub-1% interest rates.

So, since super-low rates has now put us all up to our eyeballs in red ink, how on earth can the Federal Reserve, supported by an economic system that is obviously dying, cause wealth to grow if we imitate Japan? Japan, as I keep reminding people, is destroying not only its home economy with this .5% interest rate scheme, it is literally killing off the Japanese people. I read in today's Nikkei News, one of the top LDP officials wants to retire to Spain where he can live off of his corrupt gains in peace only the weak yen is making this difficult despite him parking all his savings abroad! The rulers of many countries want to retire to a new country. This obvious treason isn't even remarked upon. Blair left England in a sea of red ink and moved to the US where he hopes to make lots of money telling people how to fleece the English sheep!

Half of my family came from England. When we came over here, we decided this country would be our new country and so we fought the British crown and created a new nation and then went on to warn anyone coming here, they better serve the US or else. They get tarred and feathered and thrown out. Well, since then, we have a world that sees not the immigration of rebels fleeing the King of England or economic refugees coming here to start over and to become good citizens, all over the world, RICH PEOPLE AND POWERFUL LEADERS are fleeing the very nations they led! Nearly instantly after leaving office. It is no longer despots and dictators leaving, it is the leaders of the top 'democracies' of the G7 nations that are footloose and carry-trade free.

Gold Futures Rise to Record $900.10 on Interest-Rate Outlook

Gold futures rose to a record $900.10 an ounce on speculation the Federal Reserve will continue to cut U.S. interest rates, weakening the dollar and boosting the investment appeal of the precious metal.

Interest-rate futures show a 100 percent chance the Fed will lower borrowing costs 0.5 percentage point to 3.75 percent by Jan. 30 after Fed Chairman Ben S. Bernanke suggested cuts may be necessary to guard against an economic slowdown. Gold rose 31 percent last year when the Fed slashed rates 1 percentage point, sending the dollar 9.5 percent lower against the euro.

Since all the G7 bankers, all the leaders who plan to pack their bags and leave their nations are cutting rates down, down, down even as the world is drenched in red ink, gold buyers should be rejoicing. Anyone saving money the traditional way should weep with rage. How the banks expect to stop the Great Western Banking Crisis while driving savers into the arms of Midas baffles me. The charts I had the other day showing a collapse in reserves held by the banks should be a clue that what is wrong isn't high interest rates but LOW rates! Damn. This is too obvious. When all the data shows that we need more savers and need to reward them VIA BANKS, dropping rates is the worst thing on earth, one can do. The fact that gold flies to the heavens while stocks fall means people are taking these cheap loans and BUYING GOLD!!! Duh!

Why on earth should the Federal Reserve hand out cheap loans to people who then turn around and buy gold with it? Eh? This is...criminal. And sad. The announcement that loans costing only 4% or even, soon enough, 2.5% a year in a hyper-inflationary environment, can be turned around by speculators, pirates and ordinary people, and turned into gold that grows by 20% a year in value...is a nifty thing. But fatal to our economy, the world's economy and future peace. A frustrated government will be very tempted to take back all this via the usual ways: confiscation and death for all gold holders who aren't part of the ruling party. Whoever that will be when things go bad.

Other Fed speakers this week made it clear that they still have a lot of concern about inflation, he noted. The high inflation rate remains "the fly in the ointment," he said, and as a result, the Fed will remain in a "reactive" mode.

What is inflation rapidly? Gold and oil! And food. What is deflating? Property values, commercial property and stocks. What is the Fed trying to save? The latter. What is is feeding? The former. The Fed recently said, they wanted to hear from outsiders. No one is more outside than I. Yet inside, at the same time. They can access the information I am publishing. But they don't want to understand all this. Keeping their eyes off of the real forces at work, they can do stupid things forever. I remember when Volker faced the same problems we see today. He raised interest rates really high, I had fun and made some real money, and gold plummeted dramatically as it was basically a 'carry trade' item in reverse: the carry was from the US low interest rates, being used to buy gold.

I must warn readers that 'obvious' market forces that 'everyone' can see are a trap! We see this very starkly this last 4 months. The machinery used by only the top elites are now exposed to view and everyone can see what they have seen in the past and everyone is playing off the same rules and systems and therefore, the reactions to any developments are instantaneous and overwhelming. This is why stocks can't rise. Everyone knows that the drops in interest rates will fail because they have failed every time for the last 6 months! So drops will make it worse and worse as the EXPECTATION of failure increases the actuality of failure. This dynamic is also in tandem with the weakening yen/rising Nikkei/stronger yen/dropping Nikkei dynamic that seems set in cement at this point. All the other schemes are now nakedly set on automatic and the only way to break this is to do what Volker and Carter did: the nasty things that hurt temporarily but in the end, start a new dynamic.

Ronnie Reagan would have been Hoover if Volker and Carter didn't do the exact opposite of what Wall Street and Main Street wanted. They wanted Santa Claus, not Uncle Scrooge. Yet Scrooge saved us from folly.

Bank of England resists calls for a rate cut

The Bank of England left its benchmark interest rate unchanged Thursday, resisting calls this week from politicians and businesses that it cut borrowing costs among fears of slowing economic growth in Britain.

The central bank left its target for the overnight borrowing rate between banks at 5.5 percent. Last month, the bank cut the rate because of signs of deterioration in economic conditions. The rate remains the highest among Group of Seven industrialized nations.

Britain is in much worse trouble than the US due to too much red ink. So far, the central bank there has resisted cutting rates along with all the other cutters who are ignoring reality. The Bank of China is in a stellar position here, they are raising rates and in turn, cutting back on the growth of the GNP, following the Volker plan rather than the Greenspan plan. Greenspan spawned not one but TWO bubbles: the Dot Com Bubble followed his rescue of hell hounds and pirates and the Housing Bubble was from the 9/11 rescue operation. Both are now grinding our economy down to nothing, in tandem. Jimmy Carter paid for Volker's wise decision which was, at that time, derided. But I know my Republican investor friends back then loved the higher rate when they bought lots and lots of bonds.

Cheaper money is bad for Britain

The Bank did the right thing yesterday by resisting calls for a reduction in interest rates. Nobody is denying that some consumers are feeling the pinch, but not all retailers suffered a poor Christmas. John Lewis, its sister company Waitrose, Morrisons, Selfridges and JD Sports performed very well.

When the going gets tough, shopkeepers have to try harder to prise out our pennies - and there will be winners and losers. DSG, formerly Dixons, has had a torrid time, as have Signet, the jewellers, and Land of Leather.

But it's not the Bank's role to shore up every high-street operator in need of a cash injection. The MPC's main remit is to keep inflation under control. On that front, there's plenty of evidence to suggest that the Government's target of two per cent would be significantly breached by a much looser monetary policy.

Kisses to Mr. Randall at the Telegraph: a man after my own heart. Cruel as it sounds, mean bankers mean safe savers, when bankers are Santa Claus, we get inflation and then crashes, both being bad but obvious side effects of easy loans. I noted that the majority of readers responding to his call for sanity by agreeing with him. Most were Tories, of course. In the US, the Tory party has been wrecked by people seeking funny money with no interest which is why the Republicans are the spend and spend party, closer to British Labour than Tory.

Japan had nearly $1 trillion in foreign currency reserves at the end of December, a record high for the sixth straight month.

The actual figure, $973.365 billion (about 110 trillion yen), represented the seventh consecutive monthly increase, the Finance Ministry said Thursday.

The figure grew by $3.18 billion from November due to an increase in returns on U.S. government bonds and a rise in appraisal value of gold bullion held by the nation.

The Japanese won't say that much of this money came from funny money they made up via their own central bank. The 'carry trade' allowed them to translate yen made out of thin air into debts configured in other currencies which they then held so it wouldn't leak back into Japan and create inflation and thus, kill their game. This dynamic is so set in cement, it is not changing even now as obvious inflation negates the excuse that Japan, singularly, does not have inflation.

David Brooks

As a result, smart Republicans are groping for a new economic model, and as they do, Republican economic policies are shifting. The entrepreneur is no longer king. The wage-earner is king. As the presidential campaign rolls into Michigan, it’s clear that Republicans are adjusting their priorities to win back the anxious middle class.

The Republicans who are reaching toward this new model still sound very different from Democrats. They never describe American workers as victims. They never describe globalization as a remorselessly punishing process. They argue that individuals can still control their own destinies, provided they work hard and get educated. They believe it would be a catastrophe if the U.S. abandoned free trade or adopted a European-style safety net and suffered European tax rates.

King Wage Earner has been decapitated. In Canada, in England and in the US, these Crown entities of the old British Empire, wages have not risen, when inflation is factored in, since, since, since...Reagan took over! The stagnating wages have been offset by much cheaper prices as everything was outsourced to Asia and third world countries like Mexico. This sad situation has been also disguised by tax cuts. The GOP has, along with the Democrats, refused to index taxes to inflation. Since income taxes were launched, more and more workers paid more and more in taxes as inflation pushed them into higher and higher brackets. To this day, income taxes are still not inflation-indexed. Too much political and economic power rides on cheating King Wage Earner who seems more the Court Fool than any king. Or maybe mad King George III. Note how the NYT right winger is a globalist. Ditto, their left wingers. No anti-globalists are allowed an inch of text space at that rag. These traitors are in hysterics over the idea that the 72% of us who are against free trade might find some leader [hi, Ron!].

U.S. November Trade Deficit Widens More Than Forecast

The gap between imports and exports grew 9.3 percent, the most in two years, to $63.1 billion from $57.8 billion in October, the Commerce Department said today in Washington. The shortfall with China shrank.

A weaker dollar and growing demand from Asia and Latin America also boosted exports to the highest ever, which may prevent U.S. factories from slumping even more. Sales overseas are one of the remaining bright spots as a worsening housing slump and growing unemployment threaten to stall economic growth.

Lower rates=higher trade deficit. If rates rose, buying of foreign goods will drop. Europe and Asia do NOT want this to happen so they applaud lowering of rates. Only this weakens the dollar so they want the dollar to be strong and rates low. This is a typical 'horns of dilemma' situation where contradictory things are desired because people want to have their cakes and eat them too. And vomit all over the table, to boot. If the US fixes its excessive import problem, the world will be furious. If we don't fix it, we go bankrupt and this will destroy world trade, just as relentlessly. Indeed, all choices for them are bad so we must ignore the desire to keep the status quo and concentrate on saving our industrial base and our economy. Higher rates coupled with tariffs and barriers will do the job. No one will like this because it ends the free lunch but the lunch is poison and it must not be eaten, in the first place.

Toyota Tundra Takes Texas, Destroys Detroit Bastion

Promoting the redesigned 2007 Tundra, Toyota forced General Motors Corp., Ford Motor Co. and Chrysler LLC to match incentive spending estimated at about $6,000 per truck. While Tundra's Texas market share soared 79 percent, competitors' shrank by 5 percent, said market-research firm R.L. Polk & Co.
*snip*
Toyota relied on incentives to spur sales, spending up to $6,400 on each Tundra, according to estimates from CNW Marketing Research Inc., which includes items such as rebates and discount financing. Bandon, Oregon-based CNW projects Ford spent $6,647 for each F-150, GM $6,019 on each Silverado and Chrysler $6,477 on each Ram.

The increased competition for buyers takes a toll on profit margins, even in Texas, some dealers say.

Toyota can offer huge rebate and still get big profits because the rebates are backed by the .5% interest Bank of Japan. This is why Japan dare not change interest rates. Toyota's market share inside and outside the US is growing rapidly due to this. And the US should penalize Japan for subsidizing Toyota sales that undercut US sales via these sorts of tricky schemes. This is why 'free trade' is bunk.

Bank of America to buy Countrywide

The acquisition will make Charlotte-based Bank of America Corp. the nation's biggest mortgage lender and loan servicer.

Bank of America said it initially plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009.

The transaction represents a 7.5 percent discount to where Countrywide shares ended Thursday after they soared on news that a rescue plan was in the works. It also effectively leaves Bank of America with a big loss on its $2 billion August investment in Countrywide Financial Corp. during the height of the summer's global credit crisis.

Note that stocks went up that week due to speculators hoping the Bank of America would buy a bankrupt lender. This was not a sign of health but rather, part of the general decline. People pile in when they know something will happen. Then it happens, and more bad news comes along and the actual value of things drop due to people going bankrupt and not paying into the system anymore. So far, virtually no corporations have gone under but they will, they always do, the second half of recessions. Bankruptcies don't herald these recessions, they are the end result. The last year of a decline features the most bankruptcies as reserves collapse and everyone finally gives up hope.

And here is the DOW when I finished this article.

Culture of Life News Main Page

Comments

[shargash]

When BoA bought a stake in Countrywide a couple months ago, I thought that was a serious dose of stupid. If they wanted to throw away a few billion, they should have thrown it my way. I would have done much better things with it.

But then they compounded their error by buying the whole company after their initial investment vaporized. What ARE they thinking? Are they hoping to disguise a huge write-off of mortgage-backed debt as "acquisition costs"? Are they just dumb as stumps? Talk about throwing good money after bad.

BoA: "We bought a lot in a subdivision in Florida, but it turned out to be swampland. So we bought the entire subdivision." Gah! If I were a BoA shareholder, I'd be getting the class action lawsuits cranked up. Moody's is talking about downgrading BoA because of it.

And Mozilo is going to walk away with $83 million. I presume that's in addition to the roughly half a billion he got cashing in his stock options before Countrywide tanked.

[GMG]

Dear Elaine,

I think I love you.

GMG

[shargash]

Oh, and the financial stocks had a mini-orgasm today because MBIA floated a billion in new debt (bonds) to shore up their balance sheet ... at 14% yield!!!

Sheesh! I wonder if they got a revolving account at BoA. They better not miss a payment or the rate goes up to 30%, LOL.

And how does taking out new debt at usurious rates shore up your balance sheet?

The real news of the day was that the price of just about anything that grows in the earth skyrocketed. This seemed to have no effect on Wall Street. But I don't think Main Street will like it. We just had a >5% increase if food commodity prices in one day. But food price increases don't count as inflation, so I guess they don't care.

[Elaine Supkis]

No commodities are counted in the inflation stats. So this is where inflation lives and grows, of course. They won't fix all this because they do NOT want to fix it. I want Volker back.

[Jim Smith]

Elaine:
Did your see David Lindorff article www.counterpunch.org on manual recount of machine ballots requested and paid for by Dennis Kucininch? The issues raised really do sound like a recount is well worthwhile. Diebold strikes again!

[Elaine Supkis]

All our elections are rigged. We need uniform standards and all hand counted votes with paper ballots like in the old days. I am, in this regard, VERY conservative.

[Dr. Evil]

Hi Elaine,

First time here. Someone posted a link to your site on Roubini's blog, thought I'd check it out. I must say, I dig your style and perspective, I'll be back often. Keep it up.

PS Awesome cartoon.

[Pluto]

Hi Guys:

You've probably seen this brief interview yesterday with Ron Paul re: gold. If not, it's an intresting twist on gold valuation:

Ron Paul Gold Interview

[Jony carter]

It is very common to have debts, the reason being immaterial. Debt management is a service which helps you to manage and clear your debts in an easier and quick way. If you are suffering from single or multiple debts and you are having less income as compared to those debts then free debt management UK service is here to help you to come out of this problem.To find bad debt management, advice debt management consolidation, debt management uk, credit card debt management visit http://www.ezdebtmanagement.co.uk

[Elaine Supkis]

Dr. Evil, I love your name. You should be the head of the Federal Reserve!