Baltic Dry Index. 1254
LIR Gold Target by 2019: $30,000. Revised due to QE.
"There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."
Ludwig von Mises
Five trillion and counting, that’s how much funny money the G-7’s top 4 central banks have pumped into the system to keep the illusion of recovery going in our fiat money follies, following the insolvency of the banking system in 2007-2008. And this is before Japan starts printing more for reconstruction following the March earthquake and tsunami. If the G-20 were counted, the figure is probably half as much again. In a global GDP world of 55 trillion or so, nothing good comes from all this new fiat money created out of nothing.
Below, The Telegraph covers the story. With the Lords of the Universe meeting in Washington today and tomorrow to set US policy as the Fed ends QE2, the story is timely to say the least.
A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.
Walter Bagehot. Lombard Street. 1873.
Central banks pump $5 trillion into world economy
The world's central banks have pumped £3 trillion into the global financial system since the crisis, the equivalent of 8pc of the world economy, according to new analysis by Fathom Consulting.
By Emma Rowley 6:00AM BST 26 Apr 2011
The figures will intensify fears that the extraordinary injection of liquidity is responsible for rising stock markets, rather than any underlying pick-up in corporate health or investor confidence.
Erik Britton, a director at Fathom, compared the development to throwing lighter fuel on a barbecue. The question is, he said, "whether the coals are lit".
The warning is the result of the extraordinary measures to prop up the financial system, which have seen central banks resort to strategies such as buying up bonds to keep the flow of money circulating.
Fathom's economists are worried that last year may have marked the high point of the global recovery. "It remains unclear how much of the equity market rally has been 'genuine', rather than simply a 'mopping up' of that extraordinary injection of liquidity," they warned. "As that stimulus is gradually withdrawn, further gains in equity markets will be harder to achieve."
To reach the £3 trillion figure, presented in its calculations as $5 trillion, Fathom measured the liquidity injections made by the world's four major central banks, by tracking how their balance sheets changed in the wake of the crisis.
The analysis of data for the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England shows their assets were relatively stable through 2006 up to mid-2007. They then started to climb rapidly as the global financial system began to unravel.
The central banks' assets swelled from around $4 trillion at the start of 2006 to just short of $9 trillion by the end of February this year. "The increase in the size of G4 central bank balance sheets since mid-07 has been around $5 trillion to end Feb-11, or 8pc of global GDP," reported Fathom.
The Bank of England was the smallest contributor to the headline figure. So far, it has pumped £200bn into the system through quantitative easing (QE), its programme of buying government bonds to keep the money flowing. The European Central Bank (ECB), which sets monetary policy across the eurozone, emerged as the biggest contributor to the headline figure.
Once on QE programs, I believe it’s impossible to end them, without setting off the depression they were started to prevent. But “QE forever” isn’t viable either, it reduces the fiat currency to Zimbabwe dollar status. Stay long gold and silver. The PC view right now is to be long the dollar and short gold and silver. The logic is that the FED will end QE programs and the dollar will rally and over extended gold and silver will get hit with profit taking. Perhaps, but I think the Fed will continue QE via the back door for a few months, while later in the year being forced back into QE3. Any sell-off in precious metals, merely allows an opportunity for those who’ve missed out on their re-monetization, to get in without chasing the market.
Below, yet another reason to hold gold and silver. The IMF thinks the “Age of America” ends mid decade. With irresponsible gridlock in Washington, and profligate trillion and a half dollar deficits forever, our dollar centric fiat currency world is heading over a cliff.
The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.
Walter Bagehot.
April 25, 2011, 7:20 p.m. EDT
IMF bombshell: Age of America nears end
Commentary: China’s economy will surpass the U.S. in 2016
BOSTON (MarketWatch) — The International Monetary Fund has just dropped a bombshell, and nobody noticed.
For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.
And it’s a lot closer than you may think.
According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.
-----It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.
----According to the IMF forecast, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.
Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.
----In addition to comparing the two countries based on exchange rates, the IMF analysis also looked to the true, real-terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies.
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.
Just 10 years ago, the U.S. economy was three times the size of China’s.
In other news yesterday, S&P lowered its outlook on Japanese auto companies.
April 25, 2011, 7:37 a.m. EDT
S&P cuts Japanese auto outlook to negative
Standard & Poor's Ratings Services cut its outlooks on six Japanese auto companies, including Toyota Motor Corp. (7203.TO, TM) and Honda Motor Co. (HMC, 7267.TO), to negative due to production cuts following the March earthquake and tsunami.
The move indicates the increased likelihood of a downgrade for the automakers and suppliers, who have struggled with parts shortages since last month's disaster. A host of companies in the electronics, industrial and other sectors have face supply-chain problems in the wake of the catastrophe.
Standard & Poor's said Monday it expects the production cuts to hurt the auto companies' operating and financial performance in the current fiscal year and erode their market shares and competitive positions over the long term.
Most Japanese auto companies are producing about half what they had initially planned, the rating agency said. S&P sees them returning to full production by around October.
----S&P has an investment-grade rating for each of the companies except Mitsubishi Motors, which it rates B+, four steps into junk territory.
http://www.marketwatch.com/story/sp-cuts-japanese-auto-outlook-to-negative-2011-04-25
At the Comex silver depositories Monday, final figures were: Registered 35.72 Moz, Eligible 66.04 Moz, Total 101.04 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
No crooks today, just the ignored wisdom of another age. I wonder of anyone at the Fed has ever read Bagehot? Clearly President Nixon hadn’t when he recklessly took the world off gold and on to the folly of the fiat dollar reserve standard. Today a military superpower straddles the world, engaging in never ending discretionary wars, drowning in unrepayable debt saddled onto the backs of retirees and future generations, its economy hollowed out and largely exported to China, importing back goods that were once made in the USA and lead the world. Today, the business of America is “God’s work”, the “too big to fail” financialised derivatives gambling, where the profits made, if any, leave the system via outrageous bonuses to the elite at the top, unrepayble losses are transferred to the state taxpayers helpless to prevent the modern day reverse Robin Hood theft. The American public, it seems, have never been informed about Iceland.
Again, it may be said that we need not be alarmed at the magnitude of our credit system or at its refinement, for that we have learned by experience the way of controlling it, and always manage it with discretion. But we do not always manage it with discretion. There is the astounding instance of Overend, Gurney, and Co. to the contrary. Ten years ago that house stood next to the Bank of England in the City of London; it was better known abroad than any similar firm known, perhaps, better than any purely English firm. The partners had great estates, which had mostly been made in the business. They still derived an immense income from it. Yet in six years they lost all their own wealth, sold the business to the company, and then lost a large part of the company`s capital. And these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better. After this example, we must not confide too surely in long-established credit, or in firmly-rooted traditions of business. We must examine the system on which these great masses of money are manipulated, and assure ourselves that it is safe and right.
Walter Bagehot. 1873.
The monthly Coppock Indicators finished March:
DJIA: +160 UP 06. NASDAQ: +216 Down 01. SP500: +163 UP 6.
The Dow and SP 500 have reversed albeit by tiny margins, while the NASDAQ barely moved down. The Fed’s rigging of the indicators seems to have worked. Note: like all indicators, they were devised for normal markets not markets where the central bank is flooding the economy with new cash. In current conditions where risk is suspended by too big to fail, I doubt any indicators are showing more that where the Fed’s new cash is flowing in our world of casino capitalism.
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