The Crack Up Boom, Part IV

Tag : melting metals


-- Posted Thursday, 10 July 2008 | Digg This Article | Source: GoldSeek.com




Introduction

As the next chapter in the unfolding insolvency of the G7 financialand banking system progresses, the next round of balance sheetdestruction is at hand. Look no further than gold and silver, which it appears is about toembark on their next leg higher in confirmation of the next roundof monetary debasement that looms directly ahead. Volatility is Opportunity  for the prepared investor and it has created opportunities GALOREin all markets: stocks, interest rates, metals, currencies, raw materials, grains,commodity and energy markets. Which side of these opportunities are you on? The positive or the negative? If its the latter you have homework to do&

Income is collapsing on all levels of the developed G7 economies(public and private) as predicted by the 2008 pattern of the year: WOLF WAVE (See the 2008 Outlook in the Ted bits archives at www.TraderView.com ) . This weeks ISM manufacturers survey barely made it over the boomand bust level of 50, but the prices paid part of the indexapproached multi-decade highs near 90. This illustrates the profit squeeze being encountered by Americanmanufacturers as costs rockets higher and revenues FLATLINE.

Lets take a look at Ludvig von Mises description of the "Crack-upBoom" that marks the denouement of all great monetary inflations:

This first stage of the inflationary process may last for manyyears. While it lasts, the prices of many goods and services arenot yet adjusted to the altered money relation. There are stillpeople in the country who have not yet become aware of the factthat they are confronted with a price revolution which will finallyresult in a considerable rise of all prices, although the extent ofthis rise will not be the same in the various commodities andservices.

These people still believe that prices one day will drop. Waitingfor this day, they restrict their purchases and concomitantlyincrease their cash holdings. As long as such ideas are still heldby public opinion, it is not yet too late for the government toabandon its inflationary policy.

Ludvig von Mises description continues&

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is adeliberate policy and will go on endlessly. A breakdown occurs. TheCrack Up Boom appears. Everybody is anxious to swap their moneyagainst "real" goods, whether he needs them or not, no matter howmuch money he has to pay for them. Within a very short time. Within a few weeks or even days, the things which were used asmoney are no longer used as media of exchange. They become scrappaper. Nobody wants to give away anything against them.

This is what happened with the Continental Currencies in America in 1781, with the French Mandats Territoriaux in 1796 and with the German Mark in 1923. It will happen again whenever the same conditions appear.

If a thing has to be used as a medium of exchange, public opinionmust not believe that the quantity of this thing will increasebeyond all bounds. Inflation is a policy that cannot last.

Consumers are squeezed by inflation which the Gang of 535 (AKACongress) and the Federal Reserve says is contained and yourpocketbook is being strained. Take a look at these inflation rates on common items from a recentedition of Richard Russells ( www.dowtheoryletters.com ) excellent commentary:

Scoreboard so far in 2008 for commodities&
(all items below are plus except for pork bellies and wheat)

Aluminum (lb.) 36.7% Lumber (1,000 bd. ft.) 3.1%
Cattle (lb.) 8.12% Natural gas (Btu) 78.9%
Coffee (lb.) 12.7% Oil, heating (gal.) 4.0%
Copper (lb.) 34.5% Oil, lt. sweet crude (barrel) 49.6%
Corn (bushel) 64.4% Platinum (troy oz.) 35.7%
CRB index 32.0% Pork bellies (lb.) -19.7%
Ethanol (gal.) 20.8% Silver (troy oz.) 23.9%
Gasoline, unleaded (gal.) 43.4% Soybeans (bushel) 37.3%
Gold (troy oz.) 13.2% Wheat (bushel) -2.2%

Do you think this is a picture of altered price relationships? This is the definition of collapsing income as your dollars, Eurosand Pounds buy less. Purchasing power is evaporating, fast& Of course its nice to knowthe CPI (consumer price index) year over year is 4% and core is alittle under 3%. Somehow these cost increases are not reaching you, thank God. Keeps you warm at night, doesnt it? PUBLIC servant and mainstream media headline illusions to keepdumbed down constituents docile and improperly focused on theSCAPEGOATS of their politically correct (politically correctmeans practically incorrect) policy errors, gross mismanagement andmalfeasance -- by whom else? Your elected representatives and public servants.

This weeks missive will be short as I am preparing to go toFreedom Fest and have been writing a lot on my and Clyde Harrisonsupcoming book Myths, Madness and Markets , which you will love. It is an exhaustive look at the unfolding evolution of the globeknown as GLOBALIZATION and what you need to do to avoid being avictim of it.

This weeks essay is on the POLICIES of INSOLVENCY, which are nowthe deadweights around our necks, and they are everywhere. What are they? They are the policies of consuming more than you produce, to whichthe something for nothing G7 citizens and their Public servantsbelieve they are ENTITLED. They are the definition of moral and fiscal BANKRUPTCY.

The Policies of Insolvency
Raising the loan limits for Fannie Mae, Freddie Mac and the federalhousing administration to $600,000 dollars and reducing the amountof deposit required to 3 to 5% of the value of the loan when homeprices are plummeting (approximately 14% year over year,Case-Shiller) thus guaranteeing negative equity for purchases of anew home within weeks, if not months. There are about 12 million homes worth less than their mortgages,many insured by the same agencies that are operating at almost 50to 1 leverage if their balance sheets are properly evaluated. A $300 billion dollar bailout of reckless lenders and borrowers isset to: abrogate contracts and disrupt the mortgage markets evenfurther and transfer the cost to YOU! A trillion dollar rescue of the GSOs (government sponsoredenterprises) looms before this is resolved.
Biofuels -- corn based ethanol, which takes a dollar and turns itinto 70 cents worth of energy, and then subsidizes its use by adollar a gallon. This drives prices higher as we put these food crops in our carsrather than onto starving peoples plates around the world. Then we prohibit inexpensive sugar-based ethanol from Brazil from being imported. When the Democrats took Congress in 2006 PROMISING lower oil andgas prices corn was $2.00 dollars a bushel. Now its $8.00. Billions and billions of dollars of destruction of capital.
The farm bill, estimated to cost over 289 billion dollars over 5years. Subsidies for farmers whose crops have doubled and tripled inprice. Acreage set-aside programs that prohibit the growing of food onthem. Payments made to farmers who are making over $200,000 a year up to1.5 million dollars a year.
Exporting OVER 800 billion dollars a year for energy supplies whenthey are plentiful in the United States but energy companies areprohibited from exploring for and producing them. Oil shale (reserves as big as Saudi Arabia ), clean coal electricity generation (300 years of power at currentconsumption rates), billions of barrels of oil and trillions offeet of natural gas in Alaska and on the continental shelf off the coasts. Regulatory prohibitions on refineries, coal and nuclear power. A prominent senator said, Given our current level of oil consumption, it is clear thatmodest increases in domestic consumption through off-shore drillingwill not solve our energy needs. We cannot drill our way out of this problem. Reducing energy consumption is the key to increasing America s energy security&drilling is not the answer. Wow. As Bill King says, thats like telling people who are starvingfrom famine that planting more grain is not the solution, and thatthey should just eat less. Can you say IMMORAL? I personally believe we would be FAR more secure if that 800billion dollars we export for energy was staying in the UnitedStates going to domestic energy suppliers and REMAINING in the USto drive job growth and industry. Can you imagine another 800 billion dollars sloshing around in the US economy? It would be quite a boost. Cant these people understand  humans are a part of nature, not avirus to it! These senators are saying the public energy needs are a PROBLEMand that we should substitute WINDMILLS for nuclear and CLEAN coalpower plants. Can you say back to the Stone Age? Public servants say it will be four to eight years before we getthe supplies if we develop our energy resources, and they said thatin 1992, 1996, 2000, 2004 and today.

We ALL know we need more energy production, but public servantshave voted three times in the last six weeks against allowingdrilling in Anwar and Alaska, oil shale exploration anddevelopment, and drilling 50 to 200 miles offshore. Take a look at this chart from the International Energy Agencyoutlining demand and supply fundamentals.

Of course it is; these idiots REALIZE their own votes areGUARANTEEING the unfolding shortages. These votes have gone completely UNREPORTED in the mainstreammedia and financial press. People would be furious if this information was reported, so itsNOT. Obviously because the mainstream media work for the publicservants, collectivists and environmental extremists in Washingtonwho wish to FLEECE you. And public servants PRETEND they cant understand why crudeROCKETS higher after these votes. Instead they contend it is SPECULATORS and, of course, this isreported by the mainstream press. This is an INTENTIONAL energy shortage courtesy of your electedREPRESENTATIVES, AKA Congress.

Anybody that utters these words should be instantly RECALLED. Do not vote for these public servants who say these things andmislead you PURPOSELY. My book writing partner Clyde says energy policy in the United States and G7 appears to have been devised by Osama Bin Laden. He is incorrect; it is the G7 public servants who are purposelyterrorizing their constituents. They are making fools of you. Their fools&
Deficit spending for CONSUMPTION and general expenses rather theinvestment in infrastructure which pays for itself. All levels of government borrow money not to pay forinfrastructure which pays for itself, instead the money is SPENT ongeneral expenses which do not pay off the borrowing. This should be prohibited by law as this is spending now with yourchildren paying for it with their future income.
Private sector policy of insolvency: look no further than GM(General motors) for years now they have made cars and LOST anaverage of 2000 dollars upon them, and actually they only mademoney on the financing of them. They maintain jobs banks where employees are given FULL pay tostay home and not work. GM in one form or another has 390 BILLION dollars of bondsoutstanding. THEY ARE TECHNICALLY INSOLVENT. They will not be allowed to fail as the credit default swaps onthese bonds are far in EXCESS of the value of the actualobligations and may have the potential to BLOW UP as the ability ofthe counterparties to these toxic derivatives to perform isUNKNOWN&

I could write about 500 or more of these, insanity at the highestleadership levels throughout the G7. In the G7 consuming more than you produce is inculcated in alllevels of society: Public and private. It is the recipe for bankruptcy, which the Crack up Boom is. It is the bankruptcy moral and fiscal of governments, the Centralbanks and banking systems which they control. Obligations are far more than the ability to repay, so like allevolving banana republics: They will print the money&

In conclusion: Economists say these problems are caused by a WEAK dollar. I say POPPYCOCK. It is because the parasitic governments of the G7 have outgrownthe hosts in the private sector and have substituted deficitspending, FIAT currency and credit creation for the policies ofwealth creation and growing economies.

The next wave of balance sheet bombshells are hitting the financialand banking sectors. Interest rates are NEGATIVE worldwide and stimulus is rampant. No central bank will step up to the plate and do the right thing. They are waiting for the Federal Reserve to do so BEFORE theywill. So it wont happen as the bombs known as Level 2 and 3 assetsswell and stock prices plummet. Thus they cant de-leverage -- the stock market just undoes it inshort manner. So they will have to PRINT THE MONEY to fix them and before thatis over it will be well over a trillion dollars, Euros, Pounds,etc.

Legislators in the G7 have now written so many BLANK checks andfuture OBLIGATIONS that the Crack up Boom is only a matter oftime. You need to learn about the indirect exchange for your paperdollars, Pounds and Euros, and all fiat currencies for that matter. You must learn to short circuit the printing press. It is reallyrather easy if you know how to do it. Inflation is a policy of government and will remain so.

There are NO shortages of paper currencies in the world. There aretrillions and trillions of them sitting in bank accounts meltingaway from debasement by central banks. And there are trillions more of them slated to roll off thepresses from a central bank near you. The Federal Reserve, EuropeanCentral Bank and the Bank of England have lots of HEAVY printing infront of them to SAVE the money center and investment banks intheir countries of responsibility. Many smaller banks are slated for their demise as reckless lendingat the top of the credit and property bubble has destroyed anyequity that was present when they were financed as asset prices aredeclining due to the credit crunch. This is also known as LACK ofbidders.

These are trillions of opportunities if you prepare yourselfproperly. These realities MUST be PRICED into markets and that will sendthem all over the place creating lots of VOLATILITY for you toinvest in. VOLATILITY IS OPPORTUNITY for you.

Dont miss the next edition of Ted bits and the Crack up Boom series.


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