Lets Take A Moment To Dissect Bernake's Latest Zero Interest Rate Policy

by: Bruce Krasting / ZeroHedge.com

I had this to say last week:

The Fed could easily attempt to buy some market peace by issuing a statement that the policy of zero interest rates would be extended for a minimum period of one year. I consider this to be a “high probability" to happen in the next 30 days.

I got it right, but I got it completely wrong. I feared that the Fed could extend the ZIRP language for as long as a year. Not in my wildest dream did I think they could take the extremely risky move of guaranteeing that interest rates will remain at zero for another 24 months.

Having been shocked, my thoughts.


*This action is indefensible on economic merits. This move is not motivated by sound monetary policy. It’s motivated by politics. This is a payback to Obama. Shame on the Fed for mixing politics with money.

*We will not go two years with this monetary policy without inflation (measured by core) exceeding the previously stated commitment by Bernanke that policy would not be allowed to rise above 2%. Bernanke and the dove members that signed onto this policy have lied to the American people. Bernanke has done it on 60 Minutes. He has done it to Congress. Shame on all of them.

*The Fed has taken away its ability to react to a situation that would require them to tighten. We are now on a one-way street. There is no way to turn around anymore. I believe the Fed has abdicated its responsibilities under the dual mandate. The have no ability to react if inflation should pop up in a year from now. Even worse, they have no policy options should there be a run on the dollar. The possibility of a run on the buck has gone up exponentially as a result. Should that happen, the Fed will have left us economically defenseless. Shame on the Fed for making us more vulnerable to a speculative attack.

*The stock market run up this afternoon is the Bernanke Put at work. Lets be clear on the consequences of Perpetual ZIRP. From this day onward every buy and hold investor who acquires Treasury debt with maturities of less than five-years is GUARANTEED TO LOSE MONEY. So if you accept that, then stocks have to look better. Shame on the Fed for debasing money and punishing savers.
*We have only one monetary policy. Juice stock multiples. This is the farthest thing from “Progressive” economics as you can get. We have a policy in place that is designed to make wealthy people wealthier. At some point there will be a social cost to this. The fires and riots in London were triggered by a shooting. Underneath is a rage between haves and have nots. Shame on the Fed for rigging the outcome for fat cats. Double shame on them for when our streets are filled with rage.

*Zero interest rates also means Zero risk. I think the change in Fed language will exacerbate recent short-term funding liquidity. I think we will see this appear (again) sooner versus later. I think Zero interest rates discourages leveraged investing. This policy will dry up liquidity in the asset backed market (Shadow banking system). I'm looking for evidence of this in the Euro Dollar funding markets. I am also looking for it to occur in the Term Commercial Paper market. Shame on the Fed for setting us up for this systemic risk.

*Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing Beggar my neighbor policies. They deserve all the global criticism they are about to get.

*Bernanke bills himself as a student of the Depression. He has said over and over that he would not make the mistakes that the Fed made in 1937 when a tightening of monetary policy triggered another wave of deflation. I think the history books will look at the Fed and August of 2011 and draw a similar conclusion. At a critical time in history the Fed has taken action. The mistake of 72 years ago DID cause a recession that lasted a few years. The mistakes of 2011 will mark a point in history where America turned a corner downward. One that will take a few decades to recover from. The history books will shame Ben.

A 634 Point Stock Market Crash And 8 More Reasons Why You Should Be Deeply Concerned That The U.S. Government Has Lost Its AAA Credit Rating

article from: theeconomiccollapseblog.com


Are you ready for part two of the global financial collapse?  Many now fear that we may be on the verge of a repeat of 2008 after the events of the last several days.  On Friday, Standard & Poor's stripped the U.S. government of its AAA credit rating for the first time in history.  World financial markets had been anticipating a potential downgrade, but that still didn't stop panic from ensuing as this week began.  On Monday, the Dow Jones Industrial Average dropped 634.76 points, which represented a 5.5 percent plunge.  It was the largest one day point decline and the largest one day percentage decline since December 1, 2008.  Overall, stocks have fallen by about 15 percent over the past two weeks.  When Standard & Poor's downgraded long-term U.S. government debt from AAA to AA+, it was just one more indication that faith in the U.S. financial system is faltering.  Previously, U.S. government debt had a AAA rating from S&P continuously since 1941, but now that streak is over.   Nobody is quite sure what comes next.  We truly are in unprecedented territory.  But one thing is for sure - there is a lot of fear in the air right now.


So exactly what caused S&P to downgrade U.S. government debt?

Well, it was the debt ceiling deal that broke the camel's back.

According to S&P, the debt ceiling deal "falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."

As I have written about previously, the debt ceiling deal was a complete and total joke, and S&P realized this.

Forget all of the huge figures that the mainstream media has been throwing at you concerning this debt ceiling deal.  The only numbers that matter are for what happens before the next election.

The only way that the current debt ceiling deal will last beyond the 2012 election is if Obama is still president, the Democrats still control the Senate and the Republicans still control the House.  If any of those things change, this deal ceiling deal is dead as soon as the election is over.

Even if all of those things remain the same, there is still a very good chance that we would see dramatic changes to the deal after the next election.

So in evaluating this "deal", the important thing is to look at what is going to happen prior to the 2012 election.

When we examine this "deal" that way, what does it look like?

Well, Barack Obama and the Democrats get the debt ceiling raised by over 2 trillion dollars and will not have to worry about it again until after the 2012 election.

The Republicans get 25 billion dollars in "savings" from spending increases that will be cancelled.

The "Super Congress" that is supposed to be coming up with the second phase of the plan may propose some additional "spending cuts" that would go into effect before the 2012 election, but that seems unlikely.

So in the final analysis, the Democrats won the debt ceiling battle by a landslide.

25 billion dollars is not even 1 percent of the federal budget.  The U.S. national debt continues to spiral wildly out of control, and our politicians could not even cut the budget by one percent.

Somehow our politicians believed that the rest of the world would be convinced that they were serious about cutting the budget, but it turns out that global financial markets are tired of getting fooled.

It has gotten to the point where now even the big credit rating agencies are being forced to do something.

Not that they really have much credibility left.  Everyone still remembers all of those AAA-rated mortgage-backed securities that imploded during the last financial crisis.  The reality is that the big credit rating agencies are a bad joke at this point.

Several smaller credit rating agencies have already significantly slashed the credit rating of the U.S. government.  But a lot of pressure had been put on the "big three" to keep them in line.

But now things have gotten so ridiculous that S&P felt forced to make a move.

Sadly, our politicians are still trying to maintain the charade that everything is okay.  Barack Obama says that financial markets "still believe our credit is AAA and the world's investors agree".

Once again, Barack Obama is dead wrong.

The truth is that the credit rating for the U.S. government should have been slashed significantly a long time ago.  This move by S&P was way, way overdue.

Moody's might be the next one to issue a downgrade.  At the moment, Moody's says that it will not be downgrading U.S. debt for now, but Moody's also says that it has serious doubts about the enforceability of the "budget cuts" in the debt ceiling deal.

This crisis is just beginning.  It is going to play out over time, and it is going to be very messy.

The following are 8 more reasons why you should be deeply concerned that the U.S. government has lost its AAA credit rating....

#1 The U.S. dollar and U.S. government debt are at the very heart of the global financial system.  This credit rating downgrade just doesn't affect the United States - it literally shakes the financial foundations of the entire world.

#2 As the stock market crashes, investors are flocking to U.S. Treasuries right now.  However, once the current panic is over the U.S. could be faced with increased borrowing costs.  The credit rating downgrade is a signal to investors that they should be receiving a higher rate of return for investing in U.S. government debt.  If interest rates on U.S. government debt do end up going up, that is going to make it more expensive for the U.S. government to borrow money.  The higher interest on the national debt goes, the more difficult it is going to become to balance the budget.

#3 We could literally see hundreds of other credit rating downgrades now that long-term U.S. government debt has been downgraded.  For example, S&P has already slashed the credit ratings of Fannie Mae and Freddie Mac from AAA to AA+.  S&P has also already begun to downgrade the credit ratings of states and municipalities.  Nobody is quite sure when we are going to see the dominoes stop falling, and this is not going to be a good thing for the U.S. economy.

#4 10-year U.S. Treasuries are the basis for a whole lot of other interest rates throughout our economy.  If we see the rate for 10-year U.S. Treasuries go up significantly, it will suddenly become a lot more expensive to get a car loan or a home loan.

#5 The current financial panic caused by this downgrade is hitting financial stocks really hard.  The big banks led the decline back in 2008, and it looks like it might be happening again.  Just check out what CNN says happened to financial stocks on Monday....

Financial stocks were among the hardest hit, with Bank of America (BAC, Fortune 500) plunging 20%, and Citigroup (C, Fortune 500) and Morgan Stanley (MS, Fortune 500) dropped roughly 15%.

#6 China is freaking out. China's official news agency says that China "has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets".  If China starts dumping U.S. government debt that would make things a lot worse.

#7 There are already calls for the Federal Reserve to step in and do something.  If the U.S. economy drops into another recession, will we see more quantitative easing?  It seems like we have reached a point where the Fed is constantly in "emergency mode".

#8 The U.S. national debt continues to get worse by the day.  Just check out what economics professor Laurence J. Kotlikoff recently told NPR....

"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap"

Dick Cheney once said that "deficits don't matter", but the truth is that all of the debt we have been piling up for decades is now catching up with us.

The United States is in such a huge amount of financial trouble that it is hard to put into words.  The days of easy borrowing for the U.S government are starting to come to an end.  We have been living in the greatest debt bubble in the history of the world, and it has fueled a tremendous amount of "prosperity", but now the party is ending.

A whole lot of financial pain is on the horizon. 

Please prepare for the hard times that are coming.

Russia Joins China In Rejecting U.S. Debt, Buys Gold Instead

China, the largest foreign holder of U.S. debt, has been concerned about the safety of its U.S. treasury debt holdings for years.

In March 2009, Chinese Premier Wen Jinbao warned Washington that "We have lent a huge amount of money to the U.S.  Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried."

Premier Jinbao's  was right to worry about the safety of China's U.S. debt holdings.   Since March 2009, the U.S. debt has increased by more than $3 trillion and Congress is now being pressured by the Federal Reserve and the Treasury to increase the national debt limit by another $2 trillion.  The parabolic increase in U.S. debt, along with recent downgrade warnings on U.S. debt from the credit rating agencies, must be keeping the Chinese up at night.

click to enlarge

On Saturday, the Wall Street Journal reported that Russia also decided that holding U.S. debt has become too risky.  In comments to Dow Jones, Arkady Dvorkovich, chief economic adviser to Russian President Medvedev, said "The share of our portfolio in U.S. instruments has gone down and probably will go down further."  According to the Wall Street Journal, Russia has already reduced its holdings of U.S. debt from $176 billion last fall to $125 billion in April of this year.

Besides diversifying into other currencies such as the Canadian and Australian dollar, Russia has also been substantially increasing its purchases of gold.  Recent reports from the World Gold Council and IMF show that Russia recently bought 50 tons of gold bringing its total gold holdings to almost 670 tons.

If Russian economic advisor Dvorkovich looks at the above chart of U.S. debt, he may well decide to run to the exits and dump all of Russia's U.S. debt holdings.

The United States has truly entered the Bizarro stage of national finance.  As the exponential increase in U.S. debt moves the Nation ever closer to a debt crisis, Fed Chairman Bernanke and Treasury Secretary Geithner are predicting dire consequences if Congress does not increase the U.S. debt limit. 

Should it really be a surprise that two of the world's biggest holders of U.S. debt are heading for the exits?

http://goldandsilverblog.com/russia-joins-china-in-rejecting-u-s-debt-buys-gold-instead-0269/

US, Pakistan Near Open War; Chinese Ultimatum Warns Washington Against Attack

Webster G. Tarpley, Ph.D.
TARPLEY.net
May 20, 2011

China has officially put the United States on notice that Washington’s planned attack on Pakistan will be interpreted as an act of aggression against Beijing. This blunt warning represents the first known strategic ultimatum received by the United States in half a century, going back to Soviet warnings during the Berlin crisis of 1958-1961, and indicates the grave danger of general war growing out of the US-Pakistan confrontation.

“Any Attack on Pakistan Would be Construed as an Attack on China”

Responding to reports that China has asked the US to respect Pakistan’s sovereignty in the aftermath of the Bin Laden operation, Chinese Foreign Ministry spokesperson Jiang Yu used a May 19 press briefing to state Beijing’s categorical demand that the “sovereignty and territorial integrity of Pakistan must be respected.” According to Pakistani diplomatic sources cited by the Times of India, China has “warned in unequivocal terms that any attack on Pakistan would be construed as an attack on China.” This ultimatum was reportedly delivered at the May 9 China-US strategic dialogue and economic talks in Washington, where the Chinese delegation was led by Vice Prime Minister Wang Qishan and State Councilor Dai Bingguo.¹ Chinese warnings are implicitly backed up by that nation’s nuclear missiles, including an estimated 66 ICBMs, some capable of striking the United States, plus 118 intermediate-range missiles, 36 submarine-launched missiles, and numerous shorter-range systems.

Support from China is seen by regional observers as critically important for Pakistan, which is otherwise caught in a pincers between the US and India: “If US and Indian pressure continues, Pakistan can say ‘China is behind us. Don’t think we are isolated, we have a potential superpower with us,’” Talat Masood, a political analyst and retired Pakistani general, told AFP.²

The Chinese ultimatum came during the visit of Pakistani Prime Minister Gilani in Beijing, during which the host government announced the transfer of 50 state-of-the-art JF-17 fighter jets to Pakistan, immediately and without cost.³ Before his departure, Gilani had stressed the importance of the Pakistan-China alliance, proclaiming: “We are proud to have China as our best and most trusted friend. And China will always find Pakistan standing beside it at all times….When we speak of this friendship as being taller than the Himalayas and deeper than the oceans it truly captures the essence of our relationship.”⁴ These remarks were greeted by whining from US spokesmen, including Idaho Republican Senator Risch.

The simmering strategic crisis between the United States and Pakistan exploded with full force on May 1, with the unilateral and unauthorized US commando raid alleged to have killed the phantomatic Osama bin Laden in a compound at Abottabad, a flagrant violation of Pakistan’s national sovereignty. The timing of this military stunt designed to inflame tensions between the two countries had nothing to do with any alleged Global War on Terror, and everything to do with the late March visit to Pakistan of Prince Bandar, the Saudi Arabian National Security Council chief. This visit had resulted in a de facto alliance between Islamabad and Riyadh, with Pakistan promising troops to put down any US-backed color revolution in the kingdom, while extending nuclear protection to the Saudis, thus making them less vulnerable to US extortion threats to abandon the oil-rich monarchy to the tender mercies of Tehran. A joint move by Pakistan and Saudi Arabia to break out of the US empire, whatever one may think of these regimes, would represent a fatal blow for the fading US empire in South Asia.

As for the US claims concerning the supposed Bin Laden raid of May 1, they are a mass of hopeless contradictions which changes from day to day. An analysis of this story is best left to literary critics and writers of theatrical reviews. The only solid and uncontestable fact which emerges is that Pakistan is the leading US target — thus intensifying the anti-Pakistan US policy which has been in place since Obama’s infamous December 2009 West Point speech.

Gilani: Full Force Retaliation to Defend Pakistan’s Strategic Assets

The Chinese warning to Washington came on the heels of Gilani’s statement to the Pakistan Parliament declaring: “Let no one draw any wrong conclusions. Any attack against Pakistan’s strategic assets, whether overt or covert, will find a matching response…. Pakistan reserves the right to retaliate with full force. No one should underestimate the resolve and capability of our nation and armed forces to defend our sacred homeland.”⁵ A warning of full force retaliation from a nuclear power such as Pakistan needs to be taken seriously, even by the hardened aggressors of the Obama regime.

The strategic assets Gilani is talking about are the Pakistani nuclear forces, the key to the country’s deterrent strategy against possible aggression by India, egged on by Washington in the framework of the US-India nuclear cooperation accord. The US forces in Afghanistan have not been able to conceal their extensive planning for attempts to seize or destroy Pakistan’s nuclear bombs and warheads. According to a 2009 Fox News report, “The United States has a detailed plan for infiltrating Pakistan and securing its mobile arsenal of nuclear warheads if it appears the country is about to fall under the control of the Taliban, Al Qaeda or other Islamic extremists.” This plan was developed by General Stanley McChrystal when he headed the US Joint Special Operations Command at Fort Bragg, North Carolina. JSOC, the force reportedly involved in the Bin Laden operation. is composed of Army Delta Force, Navy SEALs and “a high-tech special intelligence unit known as Task Force Orange.” “Small units could seize [Pakistan’s nukes], disable them, and then centralize them in a secure location,” claimed a source quoted by Fox.⁶

Obama Has Already Approved Sneak Attack on Pakistan’s Nukes

According to the London Sunday Express, Obama has already approved an aggressive move along these lines: “US troops will be deployed in Pakistan if the nation’s nuclear installations come under threat from terrorists out to avenge the killing of Osama Bin Laden… The plan, which would be activated without President Zardari’s consent, provoked an angry reaction from Pakistan officials… Barack Obama would order troops to parachute in to protect key nuclear missile sites. These include the air force’s central Sargodha HQ, home base for nuclear-capable F-16 combat aircraft and at least 80 ballistic missiles.” According to a US official, “The plan is green lit and the President has already shown he is willing to deploy troops in Pakistan if he feels it is important for national security.”⁷

Extreme tension over this issue highlights the brinksmanship and incalculable folly of Obama’s May 1 unilateral raid, which might easily have been interpreted by the Pakistanis as the long-awaited attack on their nuclear forces. According to the New York Times, Obama knew very well he was courting immediate shooting war with Pakistan, and “insisted that the assault force hunting down Osama bin Laden last week be large enough to fight its way out of Pakistan if confronted by hostile local police officers and troops.”

The Shooting Has Already Started

The shooting between US and Pakistani forces escalated on Tuesday May 17, when a US NATO helicopter violated Pakistani airspace in Waziristan. Pakistani forces showed heightened alert status, and opened fire immediately, with the US helicopter shooting back. Two soldiers at a Pakistani check post on the border in the Datta Khel area were wounded.⁸

Possible Pakistani retaliation for this border incursion came in Peshawar on Friday, May 20, when a car bomb apparently targeted a 2-car US consulate convoy, but caused no American deaths or injuries. One Pakistani bystander was killed, and several wounded. In other intelligence warfare, Ary One television reported the name of the CIA station chief in Islamabad, the second top US resident spook there to have his cover blown in six months.

US Envoy Grossman Rejects Pakistani Calls To Stop Border Violations

US Special Representative to Afghanistan and Pakistan Marc Grossman, the replacement for the late Richard Holbrooke, on May 19 arrogantly rejected Pakistani calls for guarantees that no more Abottabad-style unilateral operations would be mounted in Pakistan.⁹ In refusing to offer such assurances, Grossman claimed that Pakistani officials had never demanded respect for their border in recent years.¹⁰

In the midst of this strategic crisis, India has gone ahead with inherently provocative scheduled military maneuvers targeting Pakistan. This is the “Vijayee Bhava” (Be Victorious) drill, held in the Thar desert of north Rajastan,. This atomic-biological-chemical Blitzkrieg drill involves the Second Armored Corps, “considered to be the most crucial of the Indian Army’s three principal strike formations tasked with virtually cutting Pakistan in two during a full-fledged war.”¹¹

The Nation: A CIA-RAW-Mossad Pseudo-Taliban Countergang

One way to provide the provocation needed to justify a US-Indian attack on Pakistan would be through an increase in terrorist actions attributable to the so-called Taliban. According to the mainstream Pakistani media, the CIA, the Israeli Mossad, and the Indian RAW (Research and Analysis Wing) have created their own version of the Taliban in the form of a terrorist countergang which they control and direct. According to one account, “Central Intelligence Agency (CIA) operatives have infiltrated the Taliban and Al-Qaeda networks, and have created their own Tehrik-e-Taliban Pakistan (TTP) force in order to destabilize Pakistan.” The former Punjab Regional Commander of the Pakistani Inter-Service Intelligence (ISI), retired Brigadier General Aslam Ghuman, commented: “During my visit to the US, I learned that the Israeli spy agency Mossad, in connivance with Indian agency RAW, under the direct supervision of CIA, planned to destabilize Pakistan at any cost.”¹² Was this countergang responsible for last week’s double bombing in Waziristan, which killed 80 paramilitary police?

According to the same account, Russian intelligence “disclosed that CIA contractor Raymond Davis and his network had provided Al-Qaeda operatives with chemical, nuclear and biological weapons, so that US installations may be targeted and Pakistan be blamed….” Davis, a JSOC veteran himself, was arrested for the murder of two ISI agents, but then released by the Pakistani government after a suspicious hue and cry by the State Department.

CIA Claims The New Al Qaeda Boss Lives in Waziristan

If the US needs a further pretext for additional raids, it will also be easy to cite the alleged presence in Waziristan of Saif al-Adel, now touted by the CIA as bin Laden’s likely successor as boss of al Qaeda.¹³ It is doubtless convenient for Obama’s aggressive intentions that Saif al-Adel can be claimed to reside so close to what is now the hottest border in the world, and not in Finsbury or Flatbush.

In the wake of the unauthorized May 1 US raid, the Pakistani military chief General Kayani had issued his own warning that similar “misadventures” could not be repeated, while announcing that US personnel inside Pakistan would be sharply reduced. In the estimate of one ISI source, there are currently about 7,000 CIA operatives in country, many of them unknown to the Pakistani government. US-Pakistan intelligence sharing has reportedly been downgraded. In response to Kayani’s moves, the CIA limited hangout operation known as Wikileaks once again showed its real nature by attempting to discredit the Pakistan commander with dubious US cable reports that he had demanded more Predator drone attacks, not fewer, in recent years.

Especially since Obama’s West Point speech, the CIA has used Predator drone attacks to slaughter civilians with the goal of fomenting civil war inside Pakistan, leading to a breakup of the country along the ethnic lines of Punjab, Sind, Baluchistan, and Pushtunistan. The geopolitical goal is to destroy Pakistan’s potential to be the energy corridor between Iran and China. Selig Harrison has emerged as a top US advocate for Baluchistan succession.

Since May 1, six reported US Predator drones attacks have slain some 42 Pakistani civilians, goading public opinion into a frenzy of anti-US hatred. In response, a joint session of the Pakistani parliament voted unanimously on May 14 to demand an end to American missile strikes, calling on the government to cut NATO’s supply line to Afghanistan if the attacks should continue.¹⁴ Since the Karachi to Khyber Pass supply line carries as much as two thirds of the supplies needed by the Afghanistan invaders, such a cutoff would cause chaos among the NATO forces. All of this points to the inherent insanity of provoking war with the country your supply line runs through.

US Wants to Use Taliban Boss Mullah Omar Against Pakistan

The State Department dropped all preconditions for negotiating with the Taliban back in February, and the US is now reported by the Washington Post to be talking with envoys of Mullah Omar, the legendary one-eyed leader of the Quetta Shura or Taliban ruling council. It is apparent that the US is offering the Taliban an alliance against Pakistan. US regional envoy Grossman is hostile to the Pakistanis, but when it comes to the Taliban he has been nicknamed “Mr. Reconciliation.”¹⁵ By contrast, the US is said to be determined to assassinate the head of the Haqqani network using a Bin Laden-type raid. The Pakistanis are equally determined to keep the Haqqani as an ally.

If China stands behind Pakistan, then Russia might be said to stand behind China. Looking forward to the upcoming June 15 meeting of the Shanghai Cooperation Organization, Chinese President Hu praised Sino-Russian relations as being “at an unprecedented high point,” with an “obvious strategic ingredient.” In a press conference this week, Russian President Medvedev was obliged indirectly to acknowledge that the much-hyped Obama “reset” with Russia had amounted to very little, since the US ABM missile program in Romania and the rest of eastern Europe, so obviously directed against Russia, means that the START treaty is of dubious value, thus raising the specter of a “new Cold War.” Given the NATO assault on Libya, there would be no UN resolution against Syria, said Medvedev. Putin has been right all along, and Medvedev is trying to imitate Putin to salvage some chance of remaining in power.

Are We in July 1914?

The crisis leading to World War I began with the Sarajevo assassinations of June 28, 1914, but the first major declaration of war did not occur until August 1. In the interim month of July 1914, large parts of European public opinion retreated into a dreamlike trance, an idyllic la-la land of elegiac illusion, even as the deadly crisis gathered momentum. Something similar can be seen today. Many Americans fondly imagine that the alleged death of Bin Laden marks the end of the war on terror and the Afghan War. Instead, the Bin Laden operation has clearly ushered in a new strategic emergency. Forces which had opposed the Iraq war, from MSNBC to many left liberals of the peace movement, are variously supporting Obama’s bloody aggression in Libya, or even celebrating him as a more effective warmonger than Bush-Cheney because of his supposed success at the expense of Bin Laden. In reality, if there were ever a time to mobilize to stop a new and wider war, this is it.

---

References

¹ http://economictimes.indiatimes.com/news/politics/nation/china-asks-us-to-respect-paks-sovereignty-independence/articleshow/8454577.cms

² “China-Pakistan alliance strengthened post bin Laden,” AFP, May 15, 2011, http://www.sundaytimes.lk/index.php/analysis/7546-china-pakistan-alliance-strengthened-post-bin-laden

³ http://www.nytimes.com/2011/05/20/world/asia/20pakistan.html?_r=3

⁴ http://www.upi.com/Top_News/World-News/2011/05/08/Gilani-China-best-most-trusted-friend/UPI-96101304911435/

⁵http://www.nypost.com/p/news/international/pakistani_pm_regrets_unilateral_GAOWNTpBXGJaJtwzWaZu0K?CMP=OTC-rss&FEEDNAME=

⁶ Rowan Scarborough,”U.S. Has Plan to Secure Pakistan Nukes if Country Falls to Taliban, Fox News, May 14, 2009.

⁷ “US ‘To Protect Pakistan,” London Sunday Express, May 15, 2011, http://www.express.co.uk/posts/view/246717/US-to-protect-Pakistan-

⁸ http://www.reuters.com/article/2011/05/17/us-pakistan-nato-idUSTRE74G0PS20110517

⁹ “US refuses to assure it will not act unilaterally,” http://thenews.jang.com.pk/NewsDetail.aspx?ID=15758

¹⁰ “No US assurance on unilateral ops,” http://nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/20-May-2011/No-US-assurance-on-unilateral-ops

¹¹ “Getting leaner and meaner? Army practices blitzkrieg to strike hard at enemy,” Times of India, May 10, 2011, http://articles.timesofindia.indiatimes.com/2011-05-10/india/29527731_1_three-strike-corps-army-and-iaf-transformational

¹² “CIA has created own Taliban to wreak terror havoc on Pakistan, claims Pak paper,” ANI, May 12, http://my.news.yahoo.com/cia-created-own-taliban-wreak-terror-havoc-pakistan-091621821.html

¹³ “New al-Qaeda chief in North Waziristan,” May 19, 2011

¹⁴ http://www.msnbc.msn.com/id/43033985/ns/world_news-south_and_central_asia/

¹⁵ http://www.telegraph.co.uk/news/worldnews/asia/afghanistan/8519535/US-steps-up-face-to-face-peace-talks-with-Taliban.html

China Becomes World’s Larest Gold Buyer - Buys 93.5 Tonnes Of Gold Coins / Bars in Q1 - Gold Ownership Rising From Minuscule Levels

from Goldcore.com

Gold and silver are higher again today with the debt laden dollar, euro and yen all being sold. News that China has become the world’s largest buyer of gold bullion and has seen investment demand double continues to reverberate in the markets and may have contributed to this morning’s strength.

Both gold and silver are marginally higher for the week and after last week’s gain appear to have regained their poise and are consolidating after the recent sell off.




Gold Investment Demand in China - Courtesy of the Wall Street Journal
China becoming the world’s largest gold buying nation is very important. While informed analysts have been saying that this would inevitably happen much of the commentary and most of the public remain completely unaware of the huge implications that Chinese gold demand has for the gold market.

Indeed, there continues to be a huge level of ignorance regarding the scale and sustainability of China’s, but also India’s and other large and increasingly wealthy Asian countries, demand for gold and silver bullion.

Chinese investors bought 93.5 tonnes of gold coins and bars in the first quarter. China produced 340 metric tons of gold last year and consumption was about 700 tonnes, leaving a gap of nearly 360 tonnes.

Demand is forecast to increase due to the growing wealth of the Chinese middle class and deepening inflation in China.

What is most important and rarely covered is the fact that gold ownership by the Chinese public remains minuscule. Especially when compared to other Asian countries such as Vietnam and India.

Gold ownership is rising from a very, very low base which means that the investment demand and demand for an inflation hedge from 1.3 billion increasingly wealthy Chinese people is more than sustainable.

The not realized important fact that the people of China were banned from owning gold bullion from 1950 to 2003, means that the per capita consumption of over 1.3 billion people is rising from a tiny base.



Cross Currency Rates (Including Gold and Silver)
While the recent increase in Chinese demand has been very significant, it is likely to continue and the demand is sustainable due to Chairman’s Mao’s half-century gold ownership ban.

Should the Chinese economy crash as some predict, demand could fall. However, sharp declines in Chinese equity and property markets and a depreciation of the yuan would likely lead to significant safe haven demand for gold.

Indeed, should high inflation continue in the Chinese economy or should higher inflation or even stagflation occur than Chinese demand could even increase.

Chinese demand alone likely puts a floor under the gold market at $1,450/oz.

The inflation adjusted high of $2,400/oz remains very likely given Chinese and Asian demand alone for gold bullion.

Many market participants and non gold and silver experts tend to focus on the daily fluctuations and “noise” of the market and not see the “big picture” major change in the fundamental supply and demand situation in the gold and silver bullion markets – particularly due to investment and central bank demand from China and the rest of an increasingly powerful and wealthy Asia.

It is worth noting that the People’s Bank of China’s gold reserves are very small when compared to those of the U.S. and indebted European nations. China appears to be quietly accumulating gold bullion reserves. As was the case previously, they will not announce their gold purchases in order to ensure they accumulate sizeable reserves at more competitive prices.

SILVER
The recent bear raid on silver is being challenged by silver’s very favourable supply and demand fundamentals.

The Comex Registered Silver Bullion Inventory Data shows that silver bullion inventories are now at record lows (see chart).

Speculative paper players on the COMEX may have been successful in again manipulating prices lower but as ever the physical reality of supply and demand for the underlying commodity, asset and currency will dictate prices in the medium and long term.



Comex Silver Bullion Inventory Data/Registered
Gold
Gold is trading at $1,500.90/oz, €1,049.95/oz and £922.95oz.

Silver
Silver is trading at $35.10/oz, €24.55/oz and £21.58/oz.

Platinum Group Metals
Platinum is trading at $1,763.50oz, palladium at $728/oz and rhodium at $1875/oz.


News
(Financial Times) --Chinese set new standard in buying gold
http://www.ft.com/intl/cms/s/0/8843dbb8-824a-11e0-961e-00144feabdc0.html
(Wall Street Journal) -- China Is Now Top Gold Bug
http://online.wsj.com/article/SB10001424052748704816604576333080229436072.html
(Bloomberg) -- Gold May Gain on Europe Debt Concern, Inflation, Survey Shows
http://www.bloomberg.com/news/2011-05-19/gold-may-gain-on-europe-debt-concern-inflation-survey-shows.html
(Reuters) -- PRECIOUS-Gold regains strength on bargain hunting,silver steadies
http://www.reuters.com/article/2011/05/20/markets-precious-idUSL4E7GK0OB20110520
(Bloomberg) -- Gold Advances as Europe Financial Turmoil, Dollar Weakness Spur Purchases
http://www.bloomberg.com/news/2011-05-20/gold-advances-as-europe-financial-turmoil-dollar-weakness-spur-purchases.html
(Bloomberg) -- Gold Imports by China May Rise After Demand Gains to Record, Council Says
http://www.bloomberg.com/news/2011-05-20/gold-imports-by-china-may-rise-after-demand-gains-to-record-council-says.html

The Global Dollar Dump Is Already in Progress

The following quotes signal the beginning of the End Game for the US Dollar:

“We hope the U.S. government will take responsible policies and measures to safeguard investors’ interests,” [China’s ministry] said in a statement.

“Foreign-exchange reserves have exceeded the reasonable levels that we actually need,” [China’s central bank governor] said. “The rapid increase in reserves may have led to excessive liquidity and has exerted significant sterilization pressure. If the government doesn’t strike the right balance with its policies, the build-up could cause big risks,” he said, without elaborating.

These two statements, in plain terms, are China saying it’s sick of the US Dollar.

Remember, the US Dollar and Dollar-denominated assets (Treasuries etc) are China’s single largest holding.  So the reference to “foreign-exchange reserves,” is synonymous with “US Dollar denominated assets.”

On the surface, it will be easy to chalk all of this up to politician speak. After all, China has been issuing warnings to the US regarding the latter’s financial condition since 2009.

However, a few key developments have occurred that make it clear this latest round of statements are the real deal.

First and foremost, China and Russia agreed late last year to begin trading with one another in their own currencies, NOT the US Dollar. In that step alone, two of the largest emerging markets (and economies) in the world moved away from the US Dollar. Add to this the fact that China just agreed to expedite trade relations with Brazil and you’ve got the beginnings of a flight from the US Dollar and the end of the Dollar’s reserve currency status.

Indeed, not three months after China signed this deal with Russia, China’s president visited Washington and delivered a speech in which he stated that, “the current international currency system is the product of the past” (edits mine).

Consider the “past” comment in relation to China’s decision shutting the US Dollar out of its trade with Russia (and other items I’m about to detail). In this sense, the “past” is the US Dollar as the world’s reserve currency.

Indeed, China has been actively moving to distance its reliance on the US as a trade partner.



As you can see, in just four years, the US has gone from accounting for nearly a third of China’s exports to less than a quarter. That is a MASSIVE shift in less than a decade (at this pace the US will be down to just 15% of China’s exports by 2015).

China is literally putting its money where its mouth is. And its mouth is now openly telling the world that it’s no longer interested in US Dollars or Dollar denominated assets.

In plain terms a US Dollar collapse is on the way. What follows will be a hyperinflationary disaster that will shred savings and paper assets to nothing.

we are now seeing various other nations preparing for the end of the US Dollar as reserve currency.

Consider that Saudi Arabia becoming so fed up with the US that it is sending trade representatives to China and Russia to strengthen trade ties.

Saudi Arabia is the single largest oil producing country in the world. Saudi Arabia IS oil in some regard.

Whatever currency Saudi Arabia chooses to denominate its oil exports in will be the world’s reserve currency.

So Saudi Arabia’s decision to send trade representatives to China and Russia should be seen as Saudia Arabia seeing the writing on the wall, (death of the US Dollar) and starting the process of moving away from the greenback.

Saudi Arabia is not the only one. Singapore announced today that it will begin trading Yuan. The significance of this is enormous. Singapore is one of the four largest financial hubs in the world (the others are New York, London, and Tokyo). It’s also the second largest private banking center behind Switzerland. With its English-speaking population, first-world accounting standards, and close proximity to China, Singapore is literally a “gateway to the east” through which world capital flows into Asia.

In simple terms, the world is beginning to shift away from the US Dollar as a reserve currency. This is not idle conjecture. This is fact. The writing is clearly on the wall for those who can read between the lines of the media’s US-centric focus.

Indeed, officials from China, India, Brazil, Russia, and South Africa (the latest addition to the BRIC acronym, now to be called BRICS) recently met in southern China to discuss expanding the use of their own currencies in foreign trade (yet another move away from the US Dollar).

To recap:

• China and Russia have removed the US Dollar from their trade
• China is rushing its trade agreement with Brazil
• China, Russia, Brazil, India, and now South Africa are moving to trade more in their own currencies (not the US Dollar)
• Saudi Arabia is moving to formalize trade with China and Russia
• Singapore is moving to trade yuan

The trend here is obvious. The US Dollar’s reign as the world’s reserve currency is ending. The process will take time to unfold. But the Dollar will be finished as reserve currency within the next five years.

The process will not be linear in fashion: the Greenback will not simply collapse in one go. Moreover, it will not be obvious at first. Remember, the US Dollar is currently priced against a basket of currencies primarily comprised of garbage paper currencies backed by insolvent nations or broken unions (the Japanese Yen and the Euro).

However, ultimately the US Dollar will be losing some 50% of its value in the future. The US Dollar chart is already forecasting this.


article from: http://gainspainscapital.com/?p=327

Obama's Super-Secret Presidency

by: John Ransom

 

Nothing displayed Barack Obama’s Achilles’ heel better than the presentation of his birth certificate last week.

Geez. Was that so tough? I thought.

It’s not possible to overstate the lengths to which O’s administration and campaign apparatus go in order to keep secrets from the press and the American people and themselves.

In doing so, they have only succeeded in fooling the last on the list, at enormous cost to the rest of us.


As Henry Asquith, British prime minister, once observed of Britain’s war-time bureaucracy: "[They keep three sets of figures:] one to mislead the public, another to mislead the Cabinet, and the third to mislead itself."

After three years of demonizing, birtherizing and moralizing, Obama finally did what he ought to have done a long time ago. He replaced rhetoric with action and released a document that we all have to show at some time or another in our life to get a passport or a driver’s license or enter the military.

Being president isn’t a birthright for a favorite son; it’s a privilege.

Documentation comes with the job.

No fooling.

It doesn’t matter that others will still think the certificate is a phony. What matters is that after a delay of three years regarding an ordinary document request, Obama, just as he has on so many occasions, delayed past the point of credibility. 

But the birth certificate faux pas is not the worst of our president’s credibility problems.

Because Obama has a number of secrets that are much, much more damaging, especially so because these are secrets that he seems to be keeping from himself.   

Let’s take, for example, his secret war in Libya.

Or his secret plan to end our dependence on foreign oil.

Or his secret plan to pay down America’s national debt.

Or his secret plan to create jobs.

Putting aside the secret questions raised about his identity, his religion and his ideology, supporters would be hard pressed to explain Obama’s plans in any of the policy areas from energy to war to finance.

Those are the secrets that the American people are most interested in. They are the secrets they are most confused about too. 

In several well-publicized speeches Obama has tried to explain to the rest of us his plans in these areas of policy.

But they still remain a secret, even I suppose to him.

The readings from his teleprompter on those occasions, like the release of his birth certificate last week, have given us more questions than they have answers.

The only salient question, then, for 2012 is this:

Just who is Barack Hussein Obama?

It’s a question that should have been asked of him a long time ago.

Perhaps in 2010?

Is he the guy who slammed Hillary’s “public option” on healthcare reform when he was running for president or is he the guy who as president shoved it down our throat?

Is he the guy who opined while he was in the Senate that the experiment in state-building in Iraq wasn’t worth it? Or is he the guy who is engaged in wars in Afghanistan and Libya with the aim of building new nation-states as president?

Is he the guy who bragged he’d put the coal business out of business or is he the guy who gave billions away to research clean coal technologies?  

Is he the kid who wanted to be prime minister of Indonesia or the candidate who wanted to be president of the United States; or is he the president who told us it would be easier to be leader of the Chinese.

I doubt he even knows.

The presidency is not a place where one finds one’s self. Instead it’s a place where one find’s out what he is made of.

Obama, it seems, would rather not know.

And that’s not really secret anymore.

China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

article from ZeroHedge.com


All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?

From Xinhua:

China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

And as if the public sector making it all too clear what is about to happen was not enough, here is the private one as well:

China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.

Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.

However, these strategies can only treat the symptoms but not the root cause, he said, noting that the key is to reform the mechanism of how the reserves are generated and managed.

The last sentence says it all. While China is certainly tired of recycling US Dollars, it still has no viable alternative, especially as long as its own currency is relegated to the C-grade of not even SDR-backing currencies. But that will all change very soon. Once the push for broad Chinese currency acceptance is in play, the CNY and the USD will be unpegged, promptly followed by China dumping the bulk of its USD exposure, and also sending the world a message that US debt is no longer a viable investment opportunity. In fact, we are confident that the reval is a likely a key preceding step to any strategic decision vis-a-vis US FX exposure (read bond purchasing/selling intentions). As such, all those Americans pushing China to revalue, may want to consider that such an action could well guarantee hyperinflation, once the Fed is stuck as being the only buyer of US debt.

Faulty Trade Statistics Exaggerate And Double US Trade Deficit With China

From The Wall Street Journal article,"Tech Supply Chain Exposes Limits of Trade Metrics" by Andrew Batson:

There's a growing belief that the practice of assuming every product shipped from one country is entirely produced by that country no longer reflects the complex reality of global commerce.

"What we call 'Made in China' is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries that preceded its assembly in China in the global value chain," Pascal Lamy, director-general of the World Trade Organization, said in a speech in October. "The concept of country of origin for manufactured goods has gradually become obsolete."

Mr. Lamy said that if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half. That means, he argued, that political tensions over trade deficits are probably larger than they should be.

"The statistical bias created by attributing the full commercial value to the last country of origin can pervert the political debate on the origin of the imbalances and lead to misguided, and hence counterproductive, decisions," Mr. Lamy said in his speech to the French Senate in Paris.

Read more here.