Gold
Rebounds, Dollar Plummets, Higher Inflation is on its Way By Bob Chapman |
Sat, 18 Sep 2010 10:50:51 CDT
Gold
has again broken out to new highs and silver is on the cusp
of doing so as well. Unfortunately more than 95% of the
pundits were not on board; they believed it was going lower.
The fight for monetary supremacy between
the dollar and gold for over the past 16 months has been
won by gold and that is why gold is moving higher and the
dollar lower. The recent intervention in the currency markets
by Japan, ostensibly to weaken the yen, assisted by the
US and foreign central banks, won’t strengthen the
dollar for any appreciable period of time. The US dollar
has broken down and there is no going back.
How can anyone want to be long the dollar
when it has lost 80% of its value in 11 years versus purchasing
power and more than 15% annually versus gold?
The current rally that has just begun will
last at least through February and perhaps through June
before there is any meaningful correction. By that time
we could be looking at $3,000. It is anyone’s guess
as to how high it is going, but one thing is for sure, it
is going higher.
We predicted these number ten years and
three months ago, but we did not envision it would take
so long. We were right, but it was a long painful process
impeded by the US government in which they won many battles,
but we are winning the war. Gold should today be selling
at more than $3,000. That will happen over the next two
years. The longer government draws out the war the higher
gold will climb. We have just entered phase 2 of 3 or 4
phases. This process could take 3 to 5 years, dependent
on what happens over that period of time. There could be
a financial, monetary and economic collapse or a major war
that could sharply alter the results and time frame. What
is important is that in owning gold and silver you will
be invested in the only assets that can protect you. There
also is an outside chance gold or silver could again become
part of a future monetary system. Do not forget gold is
not only appreciating against the dollar, but every other
currency as well.
In spite of government and central bank
intervention and manipulation and one of the largest, longest,
bull markets in history, there has been little professional
participation and in the US less than 2% investor involvement,
that in the face of a move from $252 to $1,270.00. It shows
you how effective government and major media misdirection
and propaganda have been. We have been recommending gold
and silver related assets for 10-1/2 years. We witnessed
the disgorgement of at least 2/3’s of official gold
holdings during that period either by outright sale or via
leasing, which is tantamount to sale, because the bullion
dealer who leases immediately sells the gold into the market
to suppress prices, and repays the loan in dollars. Worse
yet, the central bank that does the leasing is allowed by
the IMF to state on its balance sheet that they still own
the gold. Had it not been for central bank selling gold
would be selling much higher.
We are already in the second phase during
this administration of massive stimulus and the expansion
of money and credit, known as quantitative easing. The first
phase only caused an expansion of GDP of 5 quarters of 3-1/4%
growth. The total cost was $2.5 trillion, which was a stiff
price to pay for such limited success. Unemployment unofficially
hit 22-3/8% and is presently 21-5/8%. The budget deficit
is unconscionable, out of control and unpayable. 285,000
jobs have to be created each month for the next five years
just to stay on an even knell. In the 18 and 24 year old
group of job seekers unemployment is 52.4%. We are now entering
the second phase of the credit crisis and little has changed.
The financial corporations are still in serious trouble
and still keeping 2 sets of books with the blessing of the
EU, the US government, the BIS and the FASB, that will bring
higher inflation and perhaps hyperinflation. Nothing has
really been fixed and the Fed has cranked out of thin air
some $12.75 trillion and they won’t tell us where
it all went. It’s a secret that soon the Supreme Court
will have to rule on. The Fed refuses to tell us how much
they really have injected into the world financial system.
It is estimated that figure is $20 to $24 trillion. Then
there is zero interest rates that eventually can only go
up.
There is no doubt in our minds that gold
is headed for $7,600 as quoted by John Williams, a reflection
of real inflation since 1980 when gold reached $850.00.
If you watch CNBC or Bloomberg you are told today’s
gold and silver prices are the result of a commodity craze.
How disingenuous when most people on Wall Street know that
government and the Fed are deliberately manipulating the
stock market to keep it from collapsing. The elitists will
keep the inflationary depression alive as long as possible.
These people know that gold is your only protection against
inflation, hyperinflation and deflation.
Over the past 40 years we have seen one
monetary expansion after another, all of which have led
to bubbles in stocks, real estate and now bonds. In the
final analysis these policies will bring the destruction
of the dollar and many other currencies that have followed
the same path. All the intervention politics in the world
are not going to change the outcome. How can it when Forex
trades $4 trillion a day? These policies were implemented
for more than 20 years by Sir Alan Greenspan and now we
are about to pay the price for his complicity with world
elitists. He ushered in the dotcom collapse, which fortunately
we called the top on two weeks after it peaked and the real
estate collapse that we called the top on for June 2005.
What causes recessions and depressions is leveraged credit
used by speculators such as banks to maximize profit. During
2003 thru 2007, banks and others were leveraged from 40
to over 100 to one. Banks averaged 70 to 1 and are still
leveraged 40 to 1, when the historical norm is 9 to 1. Talk
about malfeasance and its consequences, or was it really
that. Did the banks and others, who own the Federal Reserve,
do this deliberately? We believe they did and if you look
at history, not only in this millennium, you will find a
pattern of similar supposed incompetence. The Fed caused
the “Great Depression” deliberately and they
caused our current depression as well.
This is not a game – it is deadly
war. Over the past three years, Mr. Greenspan’s successor
Mr. Bernanke, unleashed the greatest expansion of money
and credit in modern history. This wasn’t stimulus,
it was a tidal wave, designed to deny deflation the upper
had, as the value of assets collapsed. Indicators for the
economy are now negative again, so QE2 has begun. In June
lenders, who had cut back lending to small and medium sized
companies, which create 70% of new jobs, by more than 25%
over 1-1/2 years, attempted to lend to those best risks
over the past three months and found very few were interested.
That means banks will have to lend to companies with bigger
risks, in order to lend sterilized funds and to monetize
them within the economy. QE1 tells us one thing starkly
and that is QE1 didn’t work and in all likelihood
QE2 won’t either. It all goes to show most everything
we learned in college economics was wrong. Milton Friedman
was a dreamer, John Maynard Keynes set up an economic system
based on corporatist fascism, Alan Greenspan was a disgraceful
opportunist and Ben Bernanke is simply out of his element.
What goes for theory in the ivory tower does not work on
Wall Street and in the City of London.
As we wrote some 15 years ago, Wall Street
had become a casino. It no longer was just a place for raising
capital; it was a vast gambling emporium for stock touts,
investment banks, traders, arbs, insurance companies and
pension funds. This is what the world of the Federal Reserve
had become. The only concern was and is profits, not the
well being of the public.
Government claims inflation is 1.6%. We
see it at over 7%. This happens when consumables are so
in demand, due to economic growth or to credit expansion,
that they rise in price.
Hyperinflation is caused by a flight from
currency and into commodities and physical assets. The holders
want to escape the currencies by spending them as quickly
as possible. It is a loss of faith.
In February we will have been in an inflationary
depression for two years. This condition has been extended
over the past 16 months by the creation of $2.5 trillion
of money and credit and stimulus. That process is starting
over again with what is described as Quantitative Easing
2.
Presently banks have about $1.5 trillion
in cash and corporate America about $2 trillion. Excepting
major, highly rated corporations, banks haven’t been
lending much over the past 16 months. When they attempted
to lend over the past three months to better quality middle
and lower tier companies not many wanted to borrow. The
reason is that these businesses, that make up 70% of new
jobs, don’t know what to expect from government, what
taxation will be and when will employment increase. Public
attitudes concerning debt and debt liquidation, home ownership,
and spending are changing dramatically.
As a result, 25 million people are unemployed
or forced to work part-time, workers are being forced to
tap into retirement funds, cash value life insurance policies
and savings. We believe higher inflation is on the way as
money and credit are monetized and fiscal spending increases.
That could lead to hyperinflation. That then would eventually
be followed by a bursting of the bond and stock market bubbles,
a loss of control by the Fed and the Treasury and massive
deflation. In this latter scenario government stimulus would
no longer be effective. This is what happened in the late
1930s and as a result we had another war. What we are seeing
now is an exodus of investors from the stock market to bonds,
commodities and gold and silver. Both CNBC and Bloomberg
term the flight to quality to gold, silver and commodities
as a craze. We ask why isn’t a flight to bonds a craze?
This points up the duplicitous reporting and twisting in
the major media. If you want an example of the direction
we are headed, just look at Japan over the past 19 years.
They have been in a rolling depression from which they have
not been able to extricate themselves.