April 19, 2010
In the professional financial world, the term “inflation” has many inferences, consequences, supposed benefits, and definitions. One Wall Street economist may have an entirely different interpretation of the word than another Wall Street economist working in the same building. This lack of a common orientation to the issue creates serious confusion for the everyday investor and the average American only looking for the fundamentals, so that they may better protect their livelihood. In fact, it is not unusual to see two financial analysts discussing inflation in the MSM, only to completely fumble over each other because they do not share a mutual idea of what it actually means.
|The last time a major western power was thrust into the nightmare of hyperinflation, we ended up with the Third Reich.|
Some consider inflation as the expansion of markets, some the expansion of profit margins, others the unbalanced increase in productivity versus demand. These are all marginal inflationary concerns compared to REAL inflation; the inflation of prices due to a devaluation of the dollar.
Since the current economic crisis officially began in 2007, we and others have been warning about the inherent danger of dollar collapse in the face of unprecedented liquidity creation by the private Federal Reserve, as well as the continued collapse of the Treasury Bond market, and the massive increase in our national debt caused by unchecked spending by the government under both Republican and Democratic administrations. While we are well aware that the mainstream media, for the most part, has shrugged off the possibility, and are currently in sing-song over our supposed “recovery”, we believe the threat has grown to substantial levels over the past three years, and that recent signals indicate that inflationary effects will soon be widely visible to the general public.
Unchecked inflation, or “hyperinflation”, is perhaps the most devastating economic circumstance in existence. Inflation not only disrupts the mechanics of a financial system, it also evaporates the buying power of currency; the very basis of trade, decimating the savings of an entire nation in one fell swoop. The United States has been on this path for quite some time. The ill-conceived (and likely engineered) journey is quickly coming to an end…
Treasury Yields Signal Approaching Dollar Plunge
By now, most Americans, even those with little interest in economic affairs, are aware of the disintegrating Treasury bond market. Foreign investment in long term U.S. debt is almost non-existent. Without a continuous flow of foreign funds to support our deficit spending free-for-all, our economy WILL collapse, along with the Dollar. It is only a matter of time. In order to delay this collapse, the Federal Reserve (in tandem with certain government officials) has been creating fiat money en masse to buy our own debt, thus monetizing it further, and setting the groundwork for a major devaluation of the Dollar. I believe that this process is nearing completion, and that treasury yields are a prominent indicator of an approaching bond bubble burst. You can track the activity in Treasury auctions here:
Treasury yields have spiked to startling levels in the past two months, flirting with 4%, for 10 year notes and poised to increase further. Some may argue that yields have been at the same level and much higher in the past. The problem is that this did not occur while interest rates were being artificially held at zero by the Federal Reserve.
Without going into a ten page synopsis on the intricacies of the Treasury price vs. yield relationship, essentially, when yields are up, it means bond prices are going down. When bond prices go down, especially when they go down dramatically, this indicates dollar devaluation and the possibility of inflation. Yields often rise when the government cannot generate enough investment in our debt, which is exactly what has happened. Responses to bond auctions over the past year have been dismal:
The MSM has skirted the issue of yields and inflation, claiming that rising yields only show that the economy is improving and that people are pulling money away from bonds and throwing it back into riskier assets such as stocks. This interpretation would make sense under normal circumstances. However, our situation is far from normal. Yields should remain relatively low while interest rates are kept close to zero, but they have not remained low, and this is cause for concern. The Federal Reserve has lowered interest rates to zero and stated clearly that they intend to keep them there for much longer than most thought they would, yet they still can’t generate enough investment in the U.S. Dollar to support our national debt, and have thus allowed yields to spike to lure in new buyers. We are practically giving away bonds, and no one wants them! This signals to me that Treasury markets could conceivably tank in the near future, and we would either be facing a sovereign debt crisis like Greece, or (more likely), the Fed will become the one and only buyer of U.S. debt with money printed out of thin air, and presto! Hyperinflation!
This article from 2007 is rather prophetic:
Interestingly, while this development will hurt almost everyone, certain people will benefit, mainly the international banks, which stand to make incredible profits because they borrow short and lend long, if they lend at all. This might explain why banks who received bailout cash have so far refused to begin pumping it back into the real economy, and why credit markets have remained chilly. It is possible they invested a large portion of this money into treasuries, tightened credit, and are now sitting back making a tidy profit on the rising treasury yields. This would keep stimulus dollars wrapped up in the banking sector and perhaps the stock market, which explains how companies like Goldman Sachs and JP Morgan Chase are currently making huge profits and the Dow Jones can produce a historical rally while the rest of the economy lays down in the gutter. Of course, this can only last while the Dollar still holds some value, which may not be for much longer.
Reading The Signs In Gold And Silver
Precious metal markets are manipulated through naked short selling, and have been for decades. Anyone who researches their operations in-depth knows this is a fact. Why would corporate and central banks keep the value of PM’s down? There are a number of reasons, the primary one being that gold and silver, if allowed to function in markets normally, would compete with the Greenback and other fiat currencies, perhaps surpassing them as the currency of choice because of the fraudulent nature of paper money. The scheme dwarfs the subprime derivatives fraud that Goldman Sachs is currently being sued for by the SEC. Exposing this reality to the general public though presents mind-boggling difficulty.
The U.S. Commodity Futures and Trading Commission (CFTC), is supposed to monitor and investigate market manipulation and monopoly, and punish those corporations that would subvert precious metals for their own gain. The CFTC has failed completely in this task, either deliberately (most likely), or through pure stupidity. I have heard it said in the past that it would take nothing short of a currency crisis to bare the fraud in metals markets. Apparently, that moment has arrived…
Investors in gold and silver have been voicing their suspicions quite loudly in the past year over banker deception in PM securities. One would expect that the inflationary program instituted by the Federal Reserve would have a greater effect on Gold’s value than it has, and silver has been struggling to break the $20 an ounce mark ever since the bailouts began, which is outlandish considering the circumstances involved. Enter Andrew Maguire, former employee of Goldman Sachs and trader in PM markets. Maguire has exposed the blatant fraud in the silver trade by using inside information on the JP Morgan signals for short sellers to predict EXACTLY how the market would move before it did so!
Maguire took his concerns and evidence to the CFTC and was ignored. In response, he approached Kingworld News and GATA, and exposed the information to the world. Below, Bill Murphy of GATA confronts the CFTC board with the Maguire situation once again (keep in mind, he is speaking quickly because his presentation is on a time limit):
It would seem that the meltdown in Treasuries is beginning to boil over, creating a domino effect that has finally brought the truth of PM’s to the light of day. This is good news and bad news. Good, because the lie of fiat currency and banker suppression of gold and silver (real money) is finally being revealed to the wider public. Bad, because it also indicates that the Dollar is on the verge of crumbling. Despite manipulation, gold in particular has held very strong around the $1100 an ounce mark. Most mainstream talking head economists were predicting its downfall months ago. Not even the temporary strength of the Dollar due to trouble in the Eurozone has phased gold. This tells me that inflation is about to commence. But where will we see it first?
Oil Highly Sensitive To Inflation
Because the Greenback is the world reserve currency (for now), and oil is traded primarily in Dollars, it is certain that oil will be the first commodity to reflect inflation when it is triggered. As I discussed in previous articles, I believe that the meteoric rise in oil to $150 a barrel in early 2008 was purposely engineered by an organized group of corporate speculators, not for the purpose of profit (as the MSM claims), but to condition Americans to accept the idea of doubling gas prices in preparation for inevitable inflation in 2010-2011.
Oil is now holding near the $85 a barrel mark, and appears poised to make another jump this summer. The media will once again blame “speculation”, but this time it will not be speculators but a dissolving Dollar that is causing the increase in gas prices. It is a clever ruse to delay the public’s realization that their currency is dying. Already, the MSM is attempting to attribute current high prices to “supply shortages”, a patently false claim considering OPEC nations have not drastically changed their output, and U.S demand has remained low:
Watch for oil prices to show steady increases this summer followed by a surprising spike sometime late fall or early winter. This time, prices will not retreat as they did in 2008. Keep in mind that this prediction does not factor in a widening conflict in the Middle East, which could activate gas spikes sooner. In truth, escalation of war in oil producing areas such as Iran could also be used as a proxy crisis designed to hide inflationary effects on gas prices, and distract from a Dollar collapse.
China Ready To Decouple From U.S.
Nearly every piece of data I have seen on China in the past six months leads me to believe that they are ready to drastically change their trade relationship with the U.S. to our detriment, or, they are ready to cut off from their interdependency with us completely, and they are ready NOW. What they are waiting for is open to debate, but I suspect they are holding back until the IMF is able to fully circulate SDR’s (Special Drawing Rights), until SDR’s are rooted enough to replace the Dollar as world reserve currency.
As we have covered in great detail in recent articles, China has frozen investment in long term U.S. Treasuries and begun dumping those they already own. Their interest in short term treasuries has been mediocre at best. That means the U.S. can no longer count on China to invest in our debt. This alone is enough to assure an eventual Dollar implosion, however, there is more…
Talk of a Yuan de-peg from the Greenback has accelerated as we predicted it would over a month ago. A lot of melodrama has been fabricated in the media over this issue, leading Americans to believe that the U.S. government and the Chinese are at odds over Yuan appreciation. It’s mostly a facade. China has been ready to de-peg for at least half a year now, and likely has been planning to all along. Why? Because they no longer need American export markets to survive.
Much has been written about China’s sudden explosion in growth since the first phase of the collapse waned. China produced its own stimulus and bailout programs, cut millions of migrant workers off payrolls without counting them on their unemployment numbers, and helped to finalize the ASEAN trading block, which is obviously the first step towards a kind of “Asian Union”. This has caused an incredible rebound in their overall exports. Western economists often attribute the rise in Chinese exports to improving conditions in the U.S. That is to say, they think we are spending again like we used to in 2007. But, if one examines the import statistics of the U.S. over the past year, they would find that imports have been rather stagnant, and that American spending has had only minor improvement:
U.S. exports and imports are down on average 20% to 25%, while Chinese exports grew by 8% in 2009 and are projected to grow another 10% this year. What this shows is that indeed, China’s exports are recovering, but not because the U.S. is buying. They have replaced U.S. markets with others, including ASEAN, and are moving to deal more in African trade as well. China no longer needs the U.S. to sustain growth, so there is no reason for them to continue pegging the Yuan to the Dollar.
Mainstream economists have argued that a rise in the Yuan will allow U.S. companies to export more to China, and in turn improve our economy. This is a naïve assumption. China has cheap labor, extensive industrial capacity, and new trading partners, which means they will have little demand for products from the U.S. The Corporate Elite here in the states have almost completely dismantled our industrial capacity and shipped it overseas, which means we do not have the ability to sustain our economy on exports and won’t for many years to come. Some argue that the U.S. is one of the largest producers of goods in the world, but this is only half true. We do utilize capital to produce many goods, but most of the factories we use to do the actual work are in China, Indonesia, and South America. The factories are not on OUR soil, which means we do not have true industrial capability in the event of a monetary breakdown.
Once the Yuan has been de-pegged from the Greenback, China will probably increase their dumping of U.S. Treasuries even more than they already have, which will devalue our currency if not destroy its reserve status entirely. One consequence of a Yuan appreciation that many people do not consider is import price increases to the U.S. Most of our goods are made in China. If the Yuan is allowed to increase, this will make it more expensive for Americans to buy Chinese made products. Now, this price boost may not be extreme, but it does offer another opportunity for our government to hide the devaluation of our currency. I guarantee, when prices start to rise exponentially, you will hear the MSM blame the Yuan de-peg, instead of the real cause, inflation and dollar collapse.
Caught In A Lie? Lie Bigger!
Americans are not happy with the current state of affairs in this country. Obama’s approval rating has plummeted to one of the lowest levels on record for any president at this point in a term. This is due in large part to his continuance and acceleration of Bush era economic policies:
The numbers are no better for Congress as a whole. Rather efficiently, the current government has sullied itself beyond repair in the minds of most citizens. If you know your history, then you know that times like this are the most culturally precarious. Our political leadership and the Globalists who shadow them have a knack for creating terrible distractions when they become the primary focus of the people’s ire. Wars, terrorist attacks, financial disasters, tend to strike in curious fashion whenever the establishment is directly under the magnifying glass. Of course, this could just be “coincidence”, but I’m not one to take that simplistic explanation too seriously.
Inflation, when it occurs, will lead directly back to the private Federal Reserve, the core source for most of the problems in this country. They will do everything in their power to hide it, divert the blame, and cause upheaval in other areas of society to draw our attentions away from it. The non-stop propaganda on our supposed “recovery” is only the beginning. My greatest concern is that they will use the advent of a new war or terrorist attack as a phantom target, a scapegoat for the hyperinflationary breakdown that was going to occur anyway. My greatest fear is that the majority of Americans will fall for the ruse.
If I am wrong, then we have nothing to worry about, the “green shoots” are in full bloom, the Dollar is still king, and China is still happily making our sneakers and paper umbrellas. Good for us. But if I am right, and you find one day soon that hyperinflation is ravaging our currency and our economy, remember well that it was not Iran, Russia, Pakistan, or China that caused our pains. It was not Al-Qaeda or those rambunctious “Homegrown Terrorists” that we keep hearing about. None of these countries or groups are the primary trigger of the Dollar failure.
The MSM will claim that we were on the verge of a financial resurgence; that things were getting back to normal. This will be a grand lie. The master lie. The meltdown was going to happen regardless of that war in Iran, or that dirty bomb attack on the East Coast, and the culpability for it will lay squarely in the hands of the Federal Reserve, and certain key players in our own government. If they institute martial law, or the dissolution of civil liberties in response to structural failure, it will be they who are responsible, not some devious outside menace.
Laughably, in the end some will eventually argue that inflation is a “good” thing, because it “forces Americans to spend their money before it is devalued”! Sound absurd? The article below makes this exact statement!
No matter what happens in the next couple of years, we cannot allow ourselves to forget who the real enemy is, and we cannot allow others to forget either. The last time a major western power was thrust into the nightmare of hyperinflation, we ended up with the Third Reich. Let us learn from history instead of repeating it. Let us not see a fourth…
This article was posted: Monday, April 19, 2010 at 6:28 am