Fed to Buy Government Debt; Says the Recovery Has 'Slowed'

Main Street's Boycott Of Capital Markets Succeeding: Barclays First Casualty, To Fire Hundreds Due To Plunge In Market Activity

Two Thirds Of Wall Street Donations Now Go To Republicans As Democrats Get Least Contributions Since May 2008

Action Speak Louder Then Words...
PLEASE JOIN THOUSANDS OF PATRIOTIC CITIZENS FROM AROUND THE WORLD, IN SENDING BANKERS A CLEAR MESSAGE ON AUGUST 12th...
On August 12th 2010, citizens around the world will be withdrawing $ 500.00 each from their local ATM's...
This action will cause no problems with the financial institutions, but will send a clear message to the Banks...
PLEASE HELP, This is one simple way to have your voice heard, where it will do the most good...
***PLEASE forward this to family and friends.

http://www.wethesheeplez.blogspot.com

Having a great response and growing every hour,from the U.S. Canada, Ireland, Singapore, Denmark, Germany, Lithuania, South Africa, New Zealand, Malaysia, India, Thailand, Australia, Netherlands, France, China, Latvia, United Kingdom.

The Root Causes Of Hyperinflation

Posted: Aug 10 2010     By: Jim Sinclair      Post Edited: August 10, 2010 at 1:05 pm
Filed under: General Editorial

Dear CIGAs,
In support of the hyperinflation thesis outlined by the three teaching illustrations:
Under a situation from the European view in 1931, the only thing to survive was tangible assets. This is not merely gold, but shares in corporations with tangible assets. Velocity is always the key for as it declines due to people then hoarding money, you get deflation. When people are afraid money will become worthless (paper of debased coinage) they spend it faster before it depreciates and that creates hyperinflation. It all depends where confidence stands – with government or within the private sector. We are headed into the later.
Martin Armstrong.
“Staring into the Abyss”
July 31st 2010

Root causes of hyperinflation From http://en.wikipedia.org/wiki/Hyperinflation
The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run. Enactment of legal tender laws and price controls to prevent discounting the value of paper money relative to gold, silver, hard currency, or commodities, fails to force acceptance of a paper money which lacks intrinsic value. If the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues. Often the body responsible for printing the currency cannot physically print paper currency faster than the rate at which it is devaluing, thus neutralizing their attempts to stimulate the economy.[7][dead link]
Hyperinflation is generally associated with paper money because this can easily be used to increase the money supply: add more zeros to the plates and print, or even stamp old notes with new numbers. Historically there have been numerous episodes of hyperinflation in various countries, followed by a return to "hard money". Older economies would revert to hard currency and barter when the circulating medium became excessively devalued, generally following a "run" on the store of value.
Hyperinflation effectively wipes out the purchasing power of private and public savings, distorts the economy in favor of extreme consumption and hoarding of real assets, causes the monetary base, whether specie or hard currency, to flee the country, and makes the afflicted area anathema to investment. Hyperinflation is met with drastic remedies, such as imposing the shock therapy of slashing government expenditures or altering the currency basis. An example of the latter occurred in Bosnia-Herzegovina in 2005, when the central bank was only allowed to print as much money as it had in foreign currency reserves. Another example was the dollarization in Ecuador, initiated in September 2000 in response to a massive 75% loss of value of the Sucre currency in early January 2000. Dollarization is the use of a foreign currency (not necessarily the U.S. dollar) as a national unit of currency.
The aftermath of hyperinflation is equally complex. As hyperinflation has always been a traumatic experience for the area which suffers it, the next policy regime almost always enacts policies to prevent its recurrence. Often this means making the central bank very aggressive about maintaining price stability, as was the case with the German Bundesbank, or moving to some hard basis of currency such as a currency board. Many governments have enacted extremely stiff wage and price controls in the wake of hyperinflation, which is, in effect, a form of forced savings, but does not prevent further inflating of the money supply by its central bank, and always leads to widespread shortages of consumer goods if the controls are rigidly enforced.
A 500 billion Yugoslav dinar banknote circa 1993, the largest nominal value ever officially printed in Yugoslavia, the final result of hyperinflation. Photo courtesy of National Bank of Serbia (www.nbs.rs)
As it allows a government to devalue their spending and displace (or avoid) a tax increase, governments have sometimes resorted to excessively loose monetary policy to meet their expenses. Inflation is considered by some another tax on citizens but less overt and is therefore harder to understand by ordinary citizens. Inflation can obscure quantitative assessments of the true cost of living, as published price indices only look at data in retrospect, so may increase only months or years later. Monetary inflation can become hyperinflation if monetary authorities fail to fund increasing government expenses from taxes, government debt, cost cutting, or by other means, because:
(1) during the time between recording or levying taxable transactions and collecting the taxes due, the value of the taxes collected falls in real value to a small fraction of the original taxes receivable;
(2) government debt issues fail to find buyers except at very deep discounts
Theories of hyperinflation generally look for a relationship between seigniorage and the inflation tax. In both Cagan’s model and the neo-classical models, a crucial point is when the increase in money supply or the drop in basic money stock makes it impossible for a government to improve its financial position. Thus when fiat money is printed, government obligations that are not denominated in money increase in cost by more than the value of the money created.
From this, it might be wondered why any rational government would engage in actions that cause or continue hyperinflation. One reason for such actions is that often the alternative to hyperinflation is either depression or military defeat. The root cause is a matter of more dispute. In both classical economics and monetarism, it is always the result of the monetary authority irresponsibly borrowing money to pay all its expenses. These models focus on the unrestrained seigniorage of the monetary authority, and the gains from the inflation tax. In Neoliberalism, hyperinflation is considered to be the result of a crisis of confidence. The monetary base of the country flees, producing widespread fear that individuals will not be able to convert local currency to some more transportable form, such as gold or an internationally recognized hard currency. This is a quantity theory of hyperinflation.[citation needed]
In neo-classical economic theory, hyperinflation is rooted in a deterioration of the monetary base, that is the confidence that there is a store of value which the currency will be able to command later. In this model, the perceived risk of holding currency rises dramatically, and sellers demand increasingly high premiums to accept the currency. This in turn leads to a greater fear that the currency will collapse, causing even higher premiums. One example of this is during periods of warfare, civil war, or intense internal conflict of other kinds: governments need to do whatever is necessary to continue fighting, since the alternative is defeat. Expenses cannot be cut significantly since the main outlay is armaments. Further, a civil war may make it difficult to raise taxes or to collect existing taxes. While in peacetime the deficit is financed by selling bonds, during a war it is typically difficult and expensive to borrow, especially if the war is going poorly for the government in question. The banking authorities, whether central or not, "monetize" the deficit, printing money to pay for the government’s efforts to survive. The hyperinflation under the Chinese Nationalists from 1939-1945 is a classic example of a government printing money to pay civil war costs. By the end, currency was flown in over the Himalaya, and then old currency was flown out to be destroyed.
Hyperinflation is regarded as a complex phenomenon and one explanation may not be applicable to all cases. However, in both of these models, whether loss of confidence comes first, or central bank seigniorage, the other phase is ignited. In the case of rapid expansion of the money supply, prices rise rapidly in response to the increased supply of money relative to the supply of goods and services, and in the case of loss of confidence, the monetary authority responds to the risk premiums it has to pay by "running the printing presses."
In the United States of America, hyperinflation was seen during the Revolutionary War and during the Civil War, especially on the Confederate side. Many other cases of extreme social conflict encouraging hyperinflation can be seen, as in Germany after World War I, Hungary at the end of World War II and in Yugoslavia in the late 1980s just before break up of the country.
Less commonly, inflation may occur when there is debasement of the coinage — wherein coins are consistently shaved of some of their silver and gold, increasing the circulating medium and reducing the value of the currency. The "shaved" specie is then often restruck into coins with lower weight of gold or silver. Historical examples include Ancient Rome, China during the Song Dynasty, and the United States beginning in 1933. When "token" coins begin circulating, it is possible for the minting authority to engage in fiat creation of currency.
www.wikipedia.com



Desperate to Get US Economy Moving.

Fed to Buy Government Debt; Says the Recovery Has 'Slowed'

Do you still doubt that the Fed will fail to meet all the needs to develop as the economy rolls over to a new low? QE is to Infinity!

Jim

Acknowledging that "the pace of recovery in output and employment has slowed in recent months," the Federal Reserve on Tuesday announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.

Jim,

How many investors remember when Fed and its various mouthpieces were worried about timely withdrawal of stimulus in late 2009? Capital unlike the public never forgets.

The price of gold, which is closely watched and managed by connected interests, reflects capital’s confidence in monetary leadership. Capital does not buy into the BS. The price of gold spiked on the news.

Eric

Tobacco Smoke Enema:


Source: nytimes.com

Fighting a Double Dip: What Weapons Does the Fed Have Left?

Market Commentary From Monty Guild

Posted: Aug 10 2010     By: Monty Guild      Post Edited: August 10, 2010 at 3:14 pm
Filed under: Guild Investment

Dear CIGAs,

INDIA IS BOOMING
India’s GDP is growing rapidly and is expected to rival China’s GDP growth for the next few years.  Prime Minister Manmohan Singh’s government has done an exceptional job.   His administration has been able to gradually decrease the bureaucratic overreach into parts of the economy and he has been able to deliver economic assistance to the people in rural areas in a more efficient manner.
Historically, government spending intended for the rural areas has in large part been misappropriated by corrupt politicians and by civil servants who accept pay but do not show up for work.  In recent months technology has increased the communication between the government and villagers in the countryside.  Rural populations can now report misbehavior by government employees in their regions.  The technological developments have led to increased attendance at work by government employees including teachers, nurses, etc.  Villagers are beginning to believe that their concerns are being heard.  Handheld phones and village computer terminals have given farmers an unprecedented opportunity to sell their crops directly and avoid middlemen.
Villagers’ incomes and consumption are on the rise, and the Indian economy is expanding more rapidly due to the fact that rural as well as urban citizens are enjoying the growth.  We expect Indian GDP growth in the 8 percent-10 percent range for the next two or three years, which is well above the historical pattern; a very impressive outlook.

CHINA TO OPEN GOLD MARKET
According to an article in the August 4th Financial Times by Leslie Hook, “China moved yesterday to further liberalize its gold market, increasing the number of banks allowed to trade bullion internationally and announcing measures that will encourage development of gold linked investment products. The move by Beijing’s central bank comes as the country’s investors pour record amounts of money into gold in a trend that is becoming a significant factor in global prices…”  Click the following link to read the entire article:  http://www.ft.com/cms/s/0/49c6bbac-9f2a-11df-8732-00144feabdc0.html
We have long been of the opinion that Indian and China will be large and growing consumers of gold, and this pattern continues to establish itself.  As wealth grows rapidly and inflationary fears rise in both countries, gold is an obvious alternative that will fill a larger part of Chinese and Indian portfolios.

DERIVATIVES REPORTED BY THE 14 MAJOR DEALERS
The 14 major derivatives dealers including Goldman Sachs, Morgan Stanley, and J.P. Morgan reported $449.2 trillion dollars in derivatives as of June 30, 2010.  The data was compiled by Tri Optima, an infrastructure provider for the over the counter derivatives markets. According to Tri Optima 74 percent of these derivatives are interest rate swaps.  These swaps allow bets on the direction of interest rates, and are used for hedging risk or to increase risk and potential reward.  By any measure the amounts of outstanding over the counter derivatives continue to be stunningly large and continue to hold the possibility of another banking collapse if the various sponsors and their counterparties are not carefully managed, and the transactions made transparent.
As we have discussed many times in these pages over the last few years, derivatives led to the over-leverage and eventual downfall of the U.S. and European investment banks and threatened to collapse the developed world’s banking system.  While the U.S. and European banking systems were melting down, the more conservatively managed banking systems of many Asian nations, Australia, Canada, and others avoided the problems.
The de-leveraging of the U.S. and European banking systems continues and will be a drag on economic growth in these regions for several years into the future.
SUMMARY
The world is awash in fear; fear of war in Middle East, fear of a double dip economic recession in U.S. and Europe, fear of inflation in China and India, and many other fears. In such an environment, gold and oil appear to be two of the wisest investment areas.  Among gold alternatives, we recommend gold bullion and gold shares with leverage to higher gold prices.  Among oil investments, we favor energy producers which combine growth in energy reserves and strong dividend payouts.
We also believe strongly in the long term economic viability for continued growth in India, Singapore, Malaysia, Thailand, China, and Brazil.  Although less certain, we will probably see continued growth in Canada, Australia, Taiwan, and Korea.
Europe, Japan and the U.S. appear to be set on low growth trajectories for the next few years.  When their currencies fall in value, the U.S., Japan, and Europe will be able to boost their export growth slightly, but all three areas will be dependent upon “quantitative easing” or money printing to keep their economies growing.  Longer term, money printing will lead to currency depreciation and inflation.  While these major money printing operations are happening, we expect that the respective stock markets may rise, but we believe that they will fall again when the injection of stimulus is completed.
Thanks for listening.  We hope you are enjoying the summer season, and we encourage you to contact us with questions, suggestions and criticisms or if we may be of service.
Monty Guild and Tony Danaher
www.GuildInvestment.com

Banking was conceived in iniquity and born in sin... Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again... Take this great power away from them and all the great fortunes like mine will disappear and they ought to disappear, for then this would be a better and happier world to live in... But, if you want to continue to be a slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit.

- Sir Josiah Stamp, President of the Bank of England