Inflation, Starvation And Gold Futures

NYT photo of millions of starving Chinese peasants begging for food in 1907

March 8, 2008

Elaine Meinel Supkis

As the price of raw materials, food, oil and gold rise relentlessly in tandem, it is time yet again to revisit the history of such events. We start, as usual, with today and move backwards in time to see how nothing happening today is new at all but actually part of a very ancient pattern going back to the beginning of civilization. Knowing this, we can look forwards. In this case, it is increasingly obvious that commodity markets will hit their peak the same hour that the rulers of the top empires cease playing with their currencies and restore currency values via either instituting the gold standard again or raising interest rates to the roof. Also, we note a common balance point here: the longer the rulers wait to raise rates or restore the gold standard, the more painful it is. If rates are dropped to 1% below the rate or commodity inflation during commodity inflationary periods, then they have to raise it an extra 3% or more above the rate to fix this. If they delay for years, doing this, it takes a greater rate hike. Up to 20% or they could even wait until the total destruction of the currency reaches infinity while rates are low like in Germany in 1924. In other words, we must look into the befuddled brains of our rulers to guess which choice they will make [in our own case in America, it will be the worst choices].

Banks face "systemic margin call," $325 billion hit: JPM

Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.

JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls this week.

"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call."

The credit crisis that began about a year ago will likely intensify after Friday's weak February U.S. employment report "that most definitely signals recession," JPMorgan said.

It is hard to digest this news. So I go peddling backwards through history. Then, as we survey this news from the mountain of the Past, we can more clearly see what is causing this and where this will all go. And the solutions are increasingly obvious. Alas.

Everyone is missing their 'margin calls.' This is high talk for 'their reserves stink so they have to put more money in their bank to cover losses.' But there is no money. Nor are banks attracting any money except from one source only: the Federal Reserve. Who is giving them another $200 billion on top of all the other $20, $30 and $50 billions being ladled out every couple of weeks! Throughout this, Bernanke and the bankers claim we have a shortage of loans and they want to drop rates to get more people to ask for loans.

But this is pure garbage. The Fed loans are cheap but loans to everyone else are increasingly expensive for obvious reasons: risk is rising! And banks are not attracting savings by constantly dropping interest rates far below the rate of inflation. Before diving into ancient news stories, first let's visit the wonderful Financial Sense University run by Dr. Fekete.

Antal E. Fekete
June, 2006

THE RISE AND FALL OF THE GOLD BASIS

Not only did man overthrow what he called “the yoke of gold”; he also sought to obliterate whatever wisdom previous generations have accumulated through painstaking research and careful experimentation with the sharp instrument of credit, the cutting edge of progress but which can also hurt its careless wielder. The monetary system of the Brave New World has feet of clay planted in a pile of rotting paper. It is animated by a false doctrine, the Quantity Theory of Money, a.k.a. monetarism, preaching that gold can safely be overthrown provided that it is substituted by a “quantity rule”. The fundamental error in this is the assumption that gold is there in the first place to limit the quantity of money. Yet the role of gold is to regulate the quantity, not so much of money, but of debt. In falsifying science man has frustrated the only hope to rectify the error. This brings to mind the old adage that “if God wanted to punish someone, He would make him mad first”

Anatal Fekete is one of the more thoughtful pro-gold standard writers on the internet these days. Recently, I had called the possible top to the gold speculative markets due to the Indians changing their consumption of gold and moving towards selling it. But then this force was undone by the simple act of Bernanke deciding he was going to drop interest rates until the lending markets that crashed in the West, restart. This Quixotic goal means he will tilt at windmills and get thrown from his horse. He actually believes that a world that is utterly satiated with debt needs one more thin mint, as the Monty Python movie, 'The Meaning of Life' put it. As I see things today, debt is still pouring out of the central banks. I heard on the radio yesterday while driving my son to the train station, the Federal Reserve is handing out super-cheap loans to the tune of $200 billion to the banks this week! Wow. This is more than the hand out the government is going to give us in May! I suspect these things are connected.

This is debt. The handouts the government is hoping we all spend is also debt. Make no mistake: this is money being loaned to us. If we don't take on more debt, the government will do this for us! Unasked. Everyone gets to take on a share of this debt unless you collect the check and then commit suicide and use it for the burial. As people celebrate this new layer of debt, the value of gold and other commodities will shoot up since anyone investing this debt will try to put it somewhere that is going up in price faster than the declining value of these new loans. Whew. Figuring all this out and then finding the right words is hard, hard work. I was outside in the pouring rain, this being the wettest early spring in 15 years, thinking about all this.

Global bad weather this year is a factor. We are in a very strong La Nina effect weather pattern. This causes huge droughts and terrible floods at the same time. In my part of the world, like China, it means terrible ice storms and frequent storms. I suspect we will see big hurricanes this year, too. Every one of the big storms this winter formed in the Gulf of Mexico and shot up north via cold fronts. This pattern, if it continues during the summer, will mean all the East Coast will be hammered by hurricanes again. This affects the value of commodities. Storms wrecking farms raises prices. Stormy summers coupled with wars and governments inflating spending via debt creation equals terrible sufferings on the part of humanity. History shows this clearly. And if government monetary policies collapse during a bad weather/war situation, we get very violent revolutions.

Feteke:

Their talisman, enabling them to perform this job successfully, is the basis. It is a seismographically most sensitive instrument to provide information in a most concentrated form. It makes for an early warning system exposing potential supply shocks threatening society. Moreover, the basis also digests information such as the producers’ estimate of what is a good price for their product, comparing it with the speculators’. The basis picks up all signals, including producers’ forward sales and speculators’ purchases of futures contracts, bringing the two into balance. The question arises how this can be accomplished. After all, the basis is the spread between the nearby (rather than distant) futures price and the cash price. The answer is: through arbitrage. Floor traders hedge their sales and purchases of distant futures as they simultaneously do the opposite transaction in nearby futures. The basis registers and harmonizes all signals coming from all markets trading that particular commodity. One cannot help but admire this fine communication system through which potential supply-shocks, ever present due to risks inherent in nature, are mitigated by the “invisible hand” as directed by the basis.

The storage of commodities is closely coupled to civilization's structures and the value of money. Money is meaningless if there is no food, the peasants are revolting and the cities are being burned by barbarians! Great leaders and strong fighters take over by using the sword and the voice to drive people into dangerous actions that takes over in the place of chaos. The battles launched by a collapse in currency vis a vis commodities can roar on for hundreds of years if the central government is totally without moral grounding. Afterwards, an empire can settle down to a thousand years or more of exhaustion. This has happened to India. To China. To Egypt. To the Roman Empire.

Fekete gives us a good explanation about basis points here. Basis points are expressed as a number which is connected, not accidentally, to the notion of interest rates. Anyone parking money in a bank is doing just what people buying futures do: he is taking a risk. The bank, to attract this and to be able to use this money, will share the risks with the person saving money. Both then lend it out at an interest rate based on the theoretical possibility of default before being repaid. If there is a default, not only the interest but even possibly, the whole amount saved can vanish. We are seeing this today across the planet as savings have been vanishing in an eye blink. This is due to the bankers lending recklessly at extremely low interest rates. The basis didn't match the hazards at all. The 'teaser' rates were actually shorting the longs here. Long rate payers were being forced to pay over three times as much as the shorts which were the Alt-A, etc. debtors.

Since none of the---and I do mean NO---Alt A debtors could pay anything near the higher rates they promised to pay in the long, this meant all the investors backing this were ruined...TOTALLY. Not just 'lost their future interest rate profits' but as in LOST EVERYTHING. Right now, the central banks and the powerful governments running this scam are trying to pretend none of them are bankrupt. But the banks are bankrupt now. The $200 billion bail out this week shows that it is no good. Any savings at all are pouring into the commodities markets.

Fekete:

In 1971 I went to Winnipeg to be witness to history. I purchased a seat on the exchange. I was interested in studying the variation of the gold basis on the floor first hand. At that time gold ownership and trading was still a crime in the United States pursuant to a Presidential Proclamation dating from 1933. F. D. Roosevelt nationalized (read: confiscated) monetary gold. In Canada gold ownership and trading has always been legal. Canada was chosen as testing grounds by the U.S. Treasury to see how the market would react, in preparation for the legalization of gold ownership in the U.S. four years later.

I value the good doctor's advice in this case because he actually does the things he talks about. Just as I did real estate much of my life, he traded in the gold markets. When Canada let the US government fool around with the Canadian gold market, the US government thought they could use gold as a counterbalance to the dollar. Instead of a direct connection to Fort Knox, it would be at one remove: as future trading based on the gold with no actual gold exchanging hands. In other words, instead of being a repository for gold, Fort Knox would be a BANK. But this was problematic. The amount of gold involved wasn't growing so the price of gold began to shoot upwards the more the government tried to increase commerce via increasing lending. The more the lending rose, the faster the value of gold went up.

I would suggest the loans were being displaced into gold. People went into hock to hold gold as they are doing today because it was rising faster than the rate of inflation. The more the Fed tried to increase lending, the worse this got. Soon, all savings as well as loans were flowing into oil and gold. They and wheat, corn and other commodities began to shoot upwards due to a shortage of all these things in relation to the amount of money being lent.

Instead of flowing into industry and real estate, money began to flow only to commodities back then just like today. The only thing that halted this was Volker finally pulling the plug on the lending business. This meand there was no more money flowing around, seeking somewhere to go and grow larger, faster. The commodity markets as well as what was left of real estate and other markets all fell. We had a mini-depression. I had cash at that time due to making the right choices. I could walk into any store and buy whatever and have the staff beg me to spend my cash. It was a good time to be flush. But not to be stuck with no way of getting a loan, of course.

Depressions are horrible in the long run. This brush with a depression was ended by Reagan's 'Morning in America' which was all about spending money. This is when our trade deficit, the dying dollar and government overspending all joined forces to become the tsunami of red ink we see today. America was still the world's #1 manufacturing and economic power back in 1982. But now we are no longer this at all. We literally hollowed out our nation in response to the Volker mini-depression. The faux-wealth of these past 25 years is obvious: most families coped with inflation and the destruction of our finances by having both parents work even when having very little children and by going very deeply into debt.

Here is an earlier article by Dr. Fekete;May 3, 2004
WHAT GOLD AND SILVER
ANALYSTS OVERLOOK

by Antal E. Fekete,

Speculation in grains is legitimate business as it addresses risks given by nature. Both the price-risk and the basis-risk are nature-given. They are influenced by the weather, the possibility of floods and other natural disasters. We have no other means to alleviate market dislocations such as shortages caused by crop failure (hurting the consumer) and price busts caused by bumper crops (hurting the producer) than organized speculation.

By contrast, organized speculation in the monetary metals is an aberration due to irredeemable currency. In fact, to call it speculation is a misnomer. Speculation in gold and silver is of the nature of gambling. The risks it addresses are not nature-given but man-made, like those addressed by foreign exchange and interest-rate speculation. We use the term “man-made” in its broadest sense, to include manipulations by the government and central bank.

Gold and oil have been rising like crazy lately. This is due to the 'rescue' operations by the central bankers and the vanishing wealth within the markets for CDOs and other instruments of debt. This is entirely created by humans making very irresponsible, political choices. The Fed pretends to be in charge of 'prices' and 'wages'. Talk about communist! HAHAHA. And the GOP loves this! Nixon, not Carter, did the wage/price controls. Carter supported Volker raising interest rates! Playing the gold markets is very dangerous because it is not a market, it is a place where people flee disasters caused by governments. And governments can torment this market by very sudden changes including CONFISCATION. Or making it impossible to hold physical gold via either breaking down the door, raiding the bank vaults or passing laws forbidding the sale of raw gold or gold coin outside of government banks that set a draconian value vis a vis the currency. This happens ALL THE TIME. Indeed, I might suggest, it is inevitable if gold markets corner all excess cash put out by the central banks trying to give out sub-inflation rate loans!

Gold bug organizations try to minimize this obvious risk. But investors must keep an eye on these risks for they are key to the basis point value of any investment. Just as the risk of future harvests get blasted by Mother Nature via floods, hail, drought and insect infestations or diseases, so it is with gold: the biggest holders of gold are still the governments of various nations...wonder how they got this way? HAHAHA. Yup. Power grows out of the barrel of the gun.

These holders can use sales of gold to make it look as if money is worth more than everyone is guessing by releasing waves of gold such was we saw last spring and will see very soon. If 300 tons of gold hits the markets, it soaks up a lot of loot. BUT NOT IF THE SAME BANKS ARE ALSO OFFERING INFINITE LOANS WELL BELOW THE RATE OF INFLATION!

This is why I suspect, even if 2,000 tons of gold hits the markets this next year, it will only cause more people to take on more loans to buy this 'cheaper' gold and within a year, the inflation of the value of gold will redouble. This is why the only cure is to restrict the flow of money. In other words, to deliberately make for a depression.

Farm Values and Farm Prices Soar

Whatever Dennis Miller decides to plant this year on his 2,760-acre farm, the world needs. Wheat prices have doubled in the last six months. Corn is on a tear. Barley, sunflower seeds, canola and soybeans are all up sharply. For once, there’s great reason to be optimistic,” Mr. Miller said.

But the prices that have renewed Mr. Miller’s faith in farming are causing pain far and wide. A tailor in Lagos, Nigeria, named Abel Ojuku said recently that he had been forced to cut back on the bread he and his family love.

Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing at about 7 percent a year, an unusually rapid rate by historical standards.

The high growth rate means hundreds of millions of people are, for the first time, getting access to the basics of life, including a better diet. That jump in demand is helping to drive up the prices of agricultural commodities.

Farmers the world over are producing flat-out. American agricultural exports are expected to increase 23 percent this year to $101 billion, a record. The world’s grain stockpiles have fallen to the lowest levels in decades.

All nations are now going to the bank to buy food and fuel. Both always go up in tandem and both go up during wars. And if we have a series of wars in the middle of where food and oil are being produced, we get inflation due to the rising risks and shortages. China's foul winter coupled with our mega-storms here means the world will probably see a food shortage. Too much rain is a bad thing for us. The US Southeast is finally getting rain but if the new rain pattern that skips the Midwest continues with the East coast flooding and the Midwest banking except for hurricanes during harvest season---people are betting on a bad year leading to higher food prices. They could be wrong. But usually, harvest failures run in tandem with economic collapses over and over again in history.

NYT:

At a moment when much of the country is contemplating recession, farmers are flourishing. The Agriculture Department forecasts that farm income this year will be 50 percent greater than the average of the last 10 years. The flood of money into American agriculture is leading to rising land values and a renewed sense of optimism in rural America.

“All of a sudden farmers are more in control, which is a weird position for them,” said Brian Sorenson of the Northern Crops Institute in Fargo, N.D. “Everyone’s knocking at their door, saying, ‘Grow this, grow that.’ ”

Six years ago, I gave a speech at a County Fair about 'Black Gold: Farmland.' I predicted that farmland would shoot up in value again despite the ravages of free trade once Asia began to buy from us. And so it is: farmland is now valuable again! From 1997-2003, my own farm prices were hammered by world trade. But now, thanks to inflation and world trade, it is going in the opposite direction. Here is a snippet of news from the last time that farmers had good times:

From the NYT, April 26, 1996:
GRAIN PRICES SOAR ON POOR WEATHER AND LOW SUPPLIES

As the nation's farmers head into their fields for spring planting, economists are paying more attention than usual to how the work is going.

Bad weather, dwindling stocks of grain and strong demand at home and abroad have sent corn and wheat to record high prices this month. And while the ultimate impact of the spike -- on consumers and the broader economy -- depends on such unknowns as the coming season's weather, the price instability has spawned anxious talk of inflation from the Farm Belt to Wall Street.

Already, many economists are saying it is likely that food inflation rates, which have hovered between 2 and 3 percent in recent years, will double by next year as the impact of today's prices filters through the food pipeline. Should that happen, the average family with children, which by Government estimates spends approximately $6,500 a year on food, could end up spending $400 more next year.

Food imports choked off that potential inflation. Also, the price of oil kept dropping thanks to Russia flooding world energy markets suddenly. So we saw virtually no food inflation. Indeed, food became ever-cheaper. The price of my sheep in 1995 was $200 a head. In 2000, it was $50 a head!

Let's go even further back in time. This happened us before! When the US dropped the gold standard entirely and made money purely fiat, farmers did really well at the beginning of that hyper-inflationary cycle! Time to revisit 1974, the year my own world fell apart when I found out I was going to have a baby and my husband found out he had cancer:

Farm Land Prices Soar; Some Up 30% in 2 Years; The Increase in 'Kansas
SETH S. KING
June 9, 1974

The price of farm land almost anywhere in the country is soaring like an overheated balloon. This week, the land and buildings on a 600-acre grain farm anywhere near this affluent town in central Iowa would cost at least $480,000.

And here is another showing how oil and food went hand in glove in the inflationary cycle:

us grain markets soar

LETHBRIDQE HERALD Wednesday, February 27, 1974 Gold prices SOAR Brokers deal Tuesday at the gold market of the Paris Stock Exchange where a kilo of gold was quoted (on the board, top line at right) at French Francs (about Gold prices clirnb to an ounce on reports that Arab oil producers are converting their dollars into the precioUS metal. Boxcar shortage curtails elevator GRAIN deliveries WINNIPEG (CP) Farmers delivering GRAIN in response to an urgent request by the Canadian Wheat Board have filled some facilities and no more can be a...

Russia needed grain badly. The US needed money. So we sold to the communists even as our propaganda was all about fighting communism. Russia used this as a golden opportunity to invade neighbors. Ending with the Afghanistan adventure that destroyed them. The Iran/Iraq war drove up the value of oil, gold and grain by 1979 to the highest rates in US history until today. Just this week, all surpassed the records set back then.

History of the Canadian Wheat Board
Dec. 6, 2006

The Canadian government created the wheat board in 1935 in response to plummeting grain prices during the Depression that threatened to destroy the industry.

The CWB followed in the footsteps of previous attempts to temporarily stabilize the grain market in Canada in times of crisis.

The Board of Grain Supervisors was appointed in 1917 to market grain during the First World War. Another board was created to deal with a post-war crash in grain prices, but the government, determined to let market forces determine the price of grain, disbanded it after a year.

In the 1920s, western farmers formed their own grain marketing co-operatives, first in Alberta and then in Manitoba and Saskatchewan.

The three wheat pools got together in 1924 and formed a central selling agency, the Canadian Co-operative Wheat Producers, but the fall in grain prices following the Depression nearly wiped out the pool system altogether.

Just as governments tried to control the ratio of gold to silver and the value of gold to paper denominations, they also tried to control the price of grains and food. These actions are done to prevent revolutions and wars. The photo at the top of this story is from the terrible famine of 1907, the year the Federal Reserve was born. Governments and the rich were very scared of revolutions and riots breaking out over food and fuel hikes. They wanted to have a 'seeable' future, not wild rises and falls in prices.

Indeed, the present system is definitely breaking down as we can see. Prices are rising and falling like waves in an ocean stirred up by a violent hurricane. STABILITY is prized by both captains of ships and rulers of nations. Designing and running a system that is gyrating wildly is insane and leads to too much public suffering. Just as the Fed shooting up rates and then suddenly dropping them like a rock is very destabilizing. Time to visit the horrors of 1907:

Incredible Scenes of Hardship === Disease Adds Its Horror to that of Hunger ===

March 3, 1907, Sunday

Many Months of Suffering and Death Ahead === America Appealed to for Aid.; RUSSIA, THE LAND OF HUNGER. Thirty Million Peasants Facing Starvation Over an Area Three-Quarters the Size of the United States -- Appeal to America by Nicolas Shishkoff, Liberal Leader -- Thatched Roofs Sacrificed to Feed Cattle and the Food of Cattle Eaten by Their Masters.

Mao was only 14 years old when this hit China. Lenin was a revolutionary already and a lawyer fighting the Czar. Ho Chi Minh was 17 years old. Sun Yat Sen was already a revolutionary in China, like Lenin. Names that ring down through the 20th Century. US farmers wanted the government to extend credit to places like Russia and China so they could sell their commodities. But the bankers wanted to protect their banking reserves so they formed the Federal Reserve and began to hand out loans while still protecting the price of gold, thus preventing inflation for a brief while.

Now back to 1848, another major revolutionary time, the period when Marx and Engels developed their philosophy and Bismark began to figure out how socialism could work with nationalism:

WHERE SHALL WE SELL OUR BREAD- STUFFS?

With starvation rampant, US farmers couldn't sell their grains easily. This was due to the depression that beset Britain and much of Europe at this time. Instead of rampant inflation raising the value of gold and commodities, trade simply stopped. Millions of Irish starved to death and the diets of most English workers languished as wages collapsed [like in Japan today, for example, or the rust belt in the US] and food became too expensive so sales collapsed along with the population base, millions dying hideous deaths. This triggered riots and revolutions which were ruthlessly crushed. The 1907 ones were crushed, too, only to blast outwards with WWI causing the collapse of more than one empire. Now, further back in time to the Great Revolutions including our own:

La Grande Peur

The "Great Fear" (French: la Grande Peur) occurred from July 20 to August 5, 1789 in France at the start of the French Revolution. Rural unrest had been present in France since the worsening grain shortage of the spring, and the grain supplies were now guarded by local militias as bands of vagrants roamed the countryside. Rumors spread among the peasantry that nobles had hired these vagrants to prey on villages and protect the new harvest from the peasants.

In response, fearful peasants armed themselves in self-defense against the imaginary marauders and attacked manor houses. Aristocratic property was ransacked, and documentation recording feudal obligations were destroyed. There were isolated incidents of violence against the aristocrats, but the peasants mostly wanted to destroy the records in which the feudal dues were recorded. Grain supplies were attacked and merchants suffered serious losses as peasants helped themselves to much needed supplies. The hysteria spread across the country but gradually burned itself out as militias imposed law and order.

The value of gold shot up, the price of food shot up and the ruling elites were beheaded. Just before this, the French aristocrats supported the US revolution in the hopes this would destroy the British Empire. But the same forces that triggered the revolution here hit France, too. In 1789, the US was struggling with tremendous inflation that led to our Constitution and the strong laws concerning inflating currency. Like the Germans who lived through the Weimar inflation, this made the US governing bodies very leery of inflation. The 1848 banking collapse due to too much land speculation and too many banks writing too many easy loans reinforced this desire to avoid inflation. Look at how little we learned since then!

This is why I can say, we either see the US government confiscate the wealth of anyone investing in things going up in value while the currency collapses...or the government will be sensible and force the Federal Reserve...after disbanding it and replacing it...with a system that has realistic inflation statistics and realistic views about lending and raises interest rates and bank ratios like they are doing in China right now.

Or we can look at the picture at the top and change the words, 'starving Chinese' to 'starving Americans.'

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Comments

[GK]

Very interesting that you mention dumping gold on the market to strength the dollar.

I have been VERY closely watching the planned IMF gold dump that happens in April 2008.

If the Fed surprises EVERYONE and raises interest rates, the USD will rise from the dead, crash gold and real estate down to historical means, and begin the healing.

I think the April gold dump with just be a small test of the currency markets' reaction to fee into econometric peasant-revolution models the NSA is working on and give the accurate and smug USD bears a little show of who is boss.

If you are right that they will await until the end of the year to unleash the cleaning depression where commodities plunge and war is required to get things going again, it will not just be a mini-depression like 1974 I believe.

Consumer debt of around $12 trillion on houses and $2.6 trillion of personal debt rounds to around $15T and if average interest payments are $1Trillion per year and interest costs triple as they would have to, that means interest payments from consumers would rise to $3 trillion surpassing every the amount of cash ($2T?) the IRS loots each year from us peasants.

That might be revolution time, but now the government has unrivaled surveillance systems for absolutely everything we touch from text messages, paper mail, cell phones, email, Facebook, MySpace, outdoor camera, 100% of internet traffic, financial transaction monitoring and military agreements with Canada to use those big guns to keep everything in order.

Hard to fire up the guillotines when the most powerful military in the world roams Main street and the offenders are flaps up on the Gulfstream V for the islands.

If you had to edit the 1907 China photo, just Photoshop some iPods into their hands as they trade them for a handful of wheat.

[OC]

GK,

I think it's too late - it's like trying to catch a falling guillotine 1 second before it cuts off the head.

The Fed and Wall Street set off the perfect storm and it is in a self sustaining loop:

Dollar-Gold: A Perfect Storm by Jim Willie CB

http://www.321gold.com/editorials/willie/willie030708.html

'HAS ANYTHING BEEN FIXED? HAVE ALL DESPERATE MEASURES BEEN INVOKED? The answer to the first question is NO WAY! and to the second question NOT EVEN CLOSE! So the declines will continue, as US economic, banking, and political leaders squirm in reaction to utter futility in their policies to date, and continued futility in their upcoming policies. Their errors are many, in prescribing solutions which are more of the same inflationary wallpaper, which demonstrate no conceivable depth of understanding for the corner they have painted the United States into. '

[Elaine Meinel Supkis]

JAPAN wants to fix the dollar upwards. Very, very badly! Ditto, China, believe it or not. Both can continue to destroy our industrial base this way!

Also the oil pumpers: strong dollars=eventual world domination for them. So these forces might force the dollar upwards if Bernanke raises rates to 5% again.

[Elaine Meinel Supkis]

My forecast: if McCain loses and Hillary loses, Bernanke will suddenly raise rates and give Obama a depression. Then the establishment guys will have another Reagan moment. See? Four years of high interest rates and hell for the workers and they will vote for more imperial insanity. This is what they are thinking in their dark souls.

[Carli]

It will take more than high interest rates to prop up the dollar, even if the Fed paid out 20% which it never will, your earn that on a 60% devalued dollar (by year end maybe 100%), where is the sense in that?

Arrest the criminals, hostage their families and send their children to fight the Iraqi insurgency until they repatriate all the stash from the pirate coves.

Since they act like pirates they should be treated as such.

[GK]

JPM: PULL IT!

When I read that JPMorgan, the heart of the beast, says that there is a $325 Billion 'margin-call for banks...

http://www.reuters.com/article/bondsNews/idUSN0832645120080308

... it reminds me of the crash of 1929 where the main goal of the Central Bank powers that be was to cripple any banks that were not part of its system.

So I read a lot about the derivatives explosion and the shadow-banking system, and maybe they just want to pull the rug out from under the whole mess, and only those that have access to its TAF honey-debt-money will survive.

DREAMS FOR THE FUTURE: HAHAHA!
It is tempting to project our dream for a desired outcome onto this simple financial scam. Jim Kunstler, bless his heart, despises the commercial salad-shooter big box world invading the countryside and rightly so, but it is so easy to dream that this tactical financial collapse will bring about strategic social change and utopia of organic gardens sprouting everywhere.

This is just a standard consolidation of power, with a new transfer of power from the US to China as JPM opens offices in China to sell their communist government debt.

DRIFTING TO THE FUTURE: HU'S YOUR DADDY
The powerful will still be powerful, the US will lose its empire like the British did, but the English and US countryside will still be there an people will still go for coffee and drive around, just a little less hope for the future, which makes for great music and art when people have more free time due to no work.

TRADE WEAPONS FOR TRADE: MONEY NOT DEATH!
Tonight at bedtime my son wanted to discuss the 10 books on military hardware he checked out of the library and I patiently answered his questions about force fields, laser beams, terminator robots, smart bombs, dumb bombs, but at the end I told him every weapon has a weakness, and the best way to keep safe is not weapons but building good things that you fairly trade with other people in other countries that build good things to trade fairly with you.

[Jim Smith]

Going forward, our outcomes appear to be one or a combination of:
l. Depression
2. Hyper-Inflation
3. Nuclear and widespread war
4. Stumbling forward with makeshift and patchwork solutions while hoping to avoid these extremes

What a time for some form of philosophy, religion, what have you that would be credible and provoke widespread optimism and spiritual uplift! Anyone?
Amidst all of the searching and speculation I can only think of my mother seventy years ago saying "thought thought he did, but he only thought he did". So seemest our leaders.

[CK]

Two books have popped up in recent days that merit attention.
1) Human Smoke: The Beginnings of World War II, The End of Civilization.
http://www.latimes.com/features/books/la-bk-kurlansky9mar09,0,6763134.story
just a bit of back story about the USA's main support for its belief in its own exceptionalism.
2) The Man who pushed America to War.
http://www.muckraked.com/wordpress/2008/03/07/turning-the-page-the-man-who-pushed-america-to-war/#more-565 A bio of Chalabi.
And an interesting sidebar blurb on Xinhua net about GHWB taking a meeting with Hu the same day Carlyle corp is faced with massive margin calls.
http://news.xinhuanet.com/english/2008-03/07/content_7740780.htm
Ostensibly to talk about the coming Olympics.

[Elaine Meinel Supkis]

Remember, Bush repeatedly insulted Hu in public. Hu is a very proud man with a mind like a trap. Unlike Putin who betrays his every emotion in his face and can be read like a book, Hu's face is as impenetrable as the Great Wall of China. I can see into his future for the simple reason, I intersected with the Chinese leadership just as they began to figure out the key to power was in capitalism and becoming the world's bankers.

There is no glorious future for the US in these plans. Our penchant for chopping nations into squabbling parts will be exercised upon us. Our justifications for destroying Yugoslavia, Korea, Vietnam, Cyprus, etc, all those divided lands is in our own future. We will do it to ourselves, you know. They will simply aid and abet us in this future project. They know we are a very divided nation.

[Blunt Force Trauma]

Oops, slight error noticed.

"The photo at the top of this story is from the terrible famine of 1907, the year the Federal Reserve was born."

The Banker's Panic (of 1907), which saw the stock market fall 50% the year before, and while the U.S. was in a recession, saw runs on banks which caused many close down. There were two stock market crashes that year as well in March and October.

In May 1908 everyone was happy again. Congress came up with the Aldrich-Vreeland Act by the end of that month. That spawned the Nat'l Monetary Commission which looked into the events of the previous year and drew up legislation to regulate the banks. This in turn had Congress dream up the Federal Reserve Act and it's 'system' by 1913. It was set off to sail on December 23rd, 1913.

'The Fed' was created due to fractional reserve lending by institutions that did not not have enough liquidity to cover their (customers) ASSets. Especially when they all came knocking for their money at the same time.

What has changed since 1907? Not much apparently. The banks are now broke (again). Especially Citi, which won't come clean about it. When and if they do, there will be runs. Massive ones.

Today there is constant need for an influx of money from varying points on the planet to fuel the banks. And from 'The Fed' itself. The Fed is doing nothing to prevent this and can't stop it now. The credit hot-potato just keeps revolving and being passed from one to another while the media keesp quiet about it so as not to excite the masses.

It's a completely failed system and doomed to crash as the credit Hindenberg will surely see itself go up in a ball of flame
with people taking to the streets in near anarchy.

It's amusing to read one of the key responsibilities of 'The Fed';

"to strike a balance between private interests of banks and the centralized responsibility of government"

The latter is simply laughable, while the former sees 'private interest' coming solely from Dubai.

Elaine, you are right that we are all in for quite a show in the coming months.

I hope the 'Decider-In-Thief' doesn't pull out the HSPD-51 card to quell all this when financial collapse and ruin happens.

Commercial and corporate credit fiasco coming soon......

[CK]

And here is a bit of the old reality based universe intruding into The American Media Fantasy Universe.
http://chinamatters.blogspot.com/2008/03/china-jumps-off-iran-sanctions-merry-go.html
Oh NOES the latest round of sanctions are SSDD. No change from what went before.
The author of chinamatters blog is pretty damn accurate so far. Called the North Korea situation, the Macau Banking fiasco, the Pakistani elections, and has been all over the China Iran relationship.
He committed the most evil of all thoughts to pixel when he pointed out that the world is moving away from a US centered view of reality. One can be a bankrupt, shit happens and bankruptcy can occur for numerous reasons, one can be a bully. The world appears to have little consideration for a nation that is simultaneously both.
I admired the honesty of the one comment:
"Looking at the four conflicts [First Gulf War, Kosovo, Afghanistan, Iraq War], the bigger the discrepancy between US and opposing forces, the easier it is to provoke an American desire to attack...Saddam Hussein voluntarily destroyed his weapons of mass destruction, thereby allowing America to attack without worry. In the opposite example, North Korea..."
How politely the Chinese can call out cowardice.

[John East]

DK, You say, "I have been VERY closely watching the planned IMF gold dump that happens in April 2008."

So have I, and I also saw this as a political move against gold rather than just a means of funding the ever growing bloated IMF bureucracy.

However, I saw an interview on Bloomberg this morning of an IMF representative (sorry, I didn't catch his name). This guy went out of his way to emphasise that the April IMF 200 tonne gold sale has still not been approved by all members, and that if approved it would not be over and above current planned central bank gold sales. I presume he was refering to the central bank's mutually agreed gold sale limit of I believe 500 tons already announced some time ago. So, according to this spokesman, if the IMF 200 tonne sale goes ahead, the central banks will only be able to sell 300 tonnes.

What's got me puzzled here is not the specific details, but the gold positive nature of this statement. It's as puzzling as Greenspan the other week urging the Middle East states to drop their dollar pegs.

The IMF supporting gold, Greenspan talking down the dollar?

What's going on?

[rockpaperscizzors]

How desperate is Citi-bank-group-cards? In December they gave me a $10.00 credit just to use my card. I refused. In January, they increased it to a $20.00 credit to use that god damn card, I should've but was to lazy to dig up wherever I buried it. They took away the credit but made it look like I had used it; funny money disappears with funny accounting. This week I rec'd a plea to pleeeeeeeease open a 'platinum' money market account and deposit $25,000.00 plus open another $1000.00 citibank account. What do I get for my generous donation into a unsecure, nonfdic account? I would receive two $400.00 roundrip tickets. I say round these pirates up back onto their rat infested, plague diseased, hole-ridden pirate ship and chart a course back to Dubai and face the music with their new Arab investors they've swindled.

[CK]

@RockPaperScissors
A very conservative move is to transfer any checking or savings or cd accounts you have at Citi to some other bank, quickly.
Then pay off all your credit card debt with citi and CLOSE the account.
Paying off the debt and leaving the account open makes Citi look stronger than it is.
Closing the account reduces Citi's strength and their financial strength.
If you close your credit card accounts over the phone you can enjoy the most outrageous and humourous begging and pleading from the account agent.
And yes I am feeling particularly good as the letters are now coming in informing us that various credit card accounts are paid off and closed. The last thing remaining is for the banks in question to send us a check for the overages we paid in the final payoffs.
Citi should be headed for the hopper of history but I fear that like Chrysler years ago, it will be deemed to big to be allowed to fail and we will "bail the bastards out" again.

[Elaine Meinel Supkis]

Correct, CK. I got rid of all my debts including on my property back when it was easier. Freedom!

The picture at the top was from a NYT article published in the spring of 1907. People were frantic, starving in nations being ripped apart by history. Both Russia and China were decimated from 1900 to 1960. Horrible.

I have had many banks send me 'free checks!' which I could 'cash now!' But they have stopped this month. Hmmmm....nothing from any credit card companies, either! Have they written me off because I haven't taken any bait in the last 10 years?

About Greenspan talking down the dollar: he is a traitor. He is also probably senile and can't cover his tracks anymore. Arrest him.

And the gold sales: HAHAHA. Wow. Gold buyers won't weep over this, it just means they can get more gold and then continue to bid it up. Like I keep saying, getting a 3% loan which is 3% below the rate of inflation and using it to buy the IMF gold and then selling the gold when it shoots up to $2,000 will be a great profit game for anyone who loves to play very risky games. But not me.

[Gary W]

Interesting comments about the Chinese. I expect them to 'win', whatever the competition, because they have a perspective of decades, if not millenia, and they seem to think of China as a unit where the whole is greater than the sum of the parts; while the (particularly Anglophone) West can't see past the next quarterly report or, at best, the next election, and even then, purely self-interest.

Kung Hee Fat Choy! (that's the only Chinese I know :-)

[OC]

Gary,

Kung Hee= Congratulations!!

Fat Choy = Your'getting rich!!

This term is usually used as greeting during the Chinese New Year and to some one who hit the lottery jackpot!!

[OC]

Gary,

I forgot to mention the phrase 'Kung Hee Fat Choy' is in Cantonese dialect (Hong Kong) and not Mandarin (Mainland China)!!

[Kah]

Take a gander over at www.whatdoesitmean.com

They say Bush went to ask China for $2 trillion to bail out the failing dollar and they said no.... and I don't blame them.

Also they talk about Canada and UK to come police us for food riots.....
actually was an interesting website.

[OC]

Bush Snr. didn't make an offer the Chinese could refuse: Taiwan and Korea and out of Japan for good.

Unfortunately, Taiwan belongs to the walking dead:

Read this article from Singapore:

http://www.todayonline.com/articles/242061.asp

Taiwan presidential rivals trade barbs in last debate

The KMT candidate, Mr. Ma is talking of Hong Kong type of arrangement with China if he win the presidential election. His party already controls the Parliament. China had already replied to his offer after his party won the Parliament election a few months ago: We'll talk AFTER you win the presidential election!!

[Elaine Meinel Supkis]

China is definitely going to do an Anschluss with Taiwan. They are waiting for the US to weaken further. If the weak dollar kills our trade deficit with Taiwan, Taiwan has to get help from someone and that someone is China.

End of story. And yes, the US is now hyper-spending at the top. And we need to get the support of other nations who have sovereign wealth to do this. And they will increasingly say 'no' unless we give concessions. We are already trying unsuccessfully to be mercenaries. Talk about ridiculous.

[GK]

It is all fun and games on the Wall Street casino until 1 billion people riot for their rice.

http://www.gulfnews.com/business/Business_Feature/10196163.html

"Vienna/Hong Kong: Rice prices have surged to a 20-year high in the latest sign of global food inflation, creating policy headaches in Asia where more than 2.5 billion people depend on cheap and abundant supplies of the grain.

Thai rice prices, a global benchmark, surged last week above the level of $500 a tonne for the first time since at least 1989, according to the UN's Food and Agriculture Organisation, prompting importing countries to seek assurances on supplies.

Robert Zeigler, Director at the International Rice Research Institute in Manila, said policymakers should be concerned. "If history is any indicator, we should be worried because rice shortages have in the past led to civil unrest," he said. "

[cash for gold]

Always remember that these gold investing secrets work for both gold stocks and general equities.