What to expect from an all-out dollar crisis
"The ramifications will be widespread, painful, and inescapable if you're not properly diversified..." 










The U.S. "misery index" is soaring to 30-year highs
"If this is a measure of the Fed's dual mandates, it's safe to say that they are failing miserably..."

New York Fed Refuses To Disclose Data On "The Largest Theft Of Funds In National History" Which Could Be Three Times Larger Than Expected 

A week ago we reported on the case of the "The Largest Theft Of Funds In National History" or the missing $6.6 billion in Iraq war reconstruction funding, which was literally composed of "shrink-wrapped bricks of $100 bills", which was part of a $20 billion total in "Marshall Plan" investment meant to stimulate the post-war economy. When discussing this so far undisclosed cash loss, "Stuart Bowen, special inspector general for Iraq reconstruction, an office created by Congress, said the missing $6.6 billion may be "the largest theft of funds in national history." Two new developments have emerged in this fascinating story. The first, as CNBCs Eamon Javers reports is that "The New York Fed is refusing to tell investigators how many billions of dollars it shipped to Iraq during the early days of the US invasion there." Javers adds: "The Fed's lack of disclosure is making it difficult for the inspector general to follow the paper trail of billions of dollars that went missing in the chaotic rush to finance the Iraq occupation, and to determine how much of that money was stolen." Well, for what it's worth, we may have an estimate of this largest war theft ever: talking to Al Jazeera, "Osama al-Nujaifi, the Iraqi parliament speaker, has told Al Jazeera that the amount of Iraqi money unaccounted for by the US is $18.7bn - three times more than the reported $6.6bn." If indeed the total theft amounts to virtually the entire amount of reconstruction spending that could possibly explain why the Fed is so coy in discussing this issue. Alas, just like the Fed's multitrillion bailout of the financial system, it is unlikely it will be able to keep the topic from reemerging, and that very soon - al-Nujaifi adds: "There is a lot of money missing during the first American administration of Iraqi money in the first year of occupation. "Iraq's development fund has lost around $18bn of Iraqi money in these operations - their location is unknown. Also missing are the documents of expenditure. "I think it will be discussed soon. There should be an answer to where has Iraqi money gone." Who will be the next Mark Pittman to sue the New York Fed to get the required information on how much cash the FRBNY was complicit in "disappearing" - we can't wait to find out.

Greeks Turn Savings To Gold And Perth Mint Silver Coin Sales Surge To Record On Safe Haven Demand 

Submitted by Tyler Durden on 06/22/2011 07:59 -0400

Gold is again being seen in Greece as an essential store of wealth, hedge against inflation and safe haven asset. The Financial Times reports that “Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks.” Sales of gold coins have soared as savers seek a safer and fungible source of value, says the FT. “When the global financial crisis started, our sales of coins to investors overtook bullion for the first time,” said Harry Krinakis, at Sepheriades, a Greek precious metals trader. “Now the sales ratio has reached five to one.” Tomas, a computer technician, has exchanged his euro savings for gold coins: “I keep them at home just like my grandmother did in the second world war.” Greece is the canary in the coalmine and the likelihood is that what is happening in Greece today, people using their cash deposits in banks to buy gold bullion, will be seen in many other countries in the coming months. Indeed, news from the Perth Mint of record sales of silver coins is indicative that this trend has already begun. Bloomberg reports that “Silver-coin sales from Australia’s Perth Mint, which was founded in 1899 and processes all of the country’s bullion, have surged to a record as buyers seek to protect their wealth with the metal known as poor man’s gold 

 

 

 

 

Chinese Interbank Liquidity Freeze Continues For Third Day, Will Persist As Inflation Expected To Rise Over 5.5% 

Submitted by Tyler Durden on 06/22/2011 08:45 -0400

Three days ago we first reported that not all is well in the Chinese unsecured lending market as indicated by the country's interbank lending (SHIBOR) and repo rates. Subsequent to this, the PBoC attempted to restore some sense of normalcy to the market by conducting an emergency reverse repo for CNY50 billion on Monday night, which however as expected, did nothing at all. Alas, as a quick check of the most recent 1 week SHIBOR confirms, the liquidity lock up continues as the market is scrambling over the implications of what ongoing PBoC tightening implies for the market: 7 Day SHIBOR has once again risen overnight, this time by 51 bps, to a nosebleed inducing 8.83%, doubling from a week ago. This means that it costs banks nearly 10% to borrow one week cash from one another, and confirms there is absolutely no excess liquidity in the market. Looking forward, don't look for this number to go down notably any time soon: as Market News reports: "China's economic planning agency said Wednesday that efforts to control prices are having an impact, and that monetary conditions have improved, but warned that consumer inflation this month will likely exceed May's 5.5% y/y." Which means that the only recourse the PBoC will have after reporting a 5.5% CPI will be more RRR and Interest Rate hikes, which means more liquidity extraction, which means that the 1 week SHIBOR will likely pass 10% in the next few days. It is ironic that Europe's fate now rests with China whose interbank lending market is about 8 times more tight than the comparable one in Europe. Will Europe be forced to provide China with unsecured liquidity in exchange for China buying PIIGS bonds? Ah the wonders of a ponzi scheme. 

China Will Suspend Open Market Operations Tomorrow In Response To Liquidity Freeze 

Submitted by Tyler Durden on 06/22/2011 09:08 -0400

Merely minutes after reporting the third daily surge in the SHIBOR we see a Dow Jones update which confirms that this liquidity escalation is far more serious than a merely transitory jump in short-term lending rates. Per DJ: "China's central bank said Wednesday it will suspend its regular open market operation Thursday, in an apparent response to the tight liquidity conditions in the banking system." As a result of the just reported 7 Day SHIBOR hitting 8.81%, the highest since October 2007, the PBoC will not conduct regularly scheduled open market operations tomorrow when it offers three-month paper, to mop up excess liquidity in the country. "The PBOC sold CNY1 billion ($154.6 million) worth of one-year bills at 3.4019% in its operation Tuesday, after leaving the rate unchanged at 3.3058% for the past 11 weeks. On Thursday last week, the PBOC lifted the rate on its three-month bills by eight basis points to 2.9985%, the first increase on the three-month central bank bill yield since early April. "It is difficult for the central bank to find enough demand for its short-term bill offering amid the severe liquidity squeeze in the money market. If it persisted with the three-month bill offering tomorrow, the yield would jump again, adding pressure to the central bank's operating costs," said a Shanghai-based trader with a local bank."

America's Latest Proposal To Deal With Its Insolvency And Pursue Stealth Dollar Devaluation: Change The CPI 

Submitted by Tyler Durden on 06/22/2011 09:39 -0400

A few months ago we reported on Goldman's proposal to change the definition of GDP to make the US economy appear to be growing faster than it really is. So far, it has not caught on, as even the revised definition will soon confirm a contraction. But that proposal appears to have given Joe Biden some ideas, who now has taken the Fukushima approach to (sur)reality, whereby one merely changes the terms of data measurement when the data does not cooperate. Enter the revised CPI: "Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks." And because nobody has an issue with the current artificial hedonic and otherwise adjustments to the CPI which always reflect a far lower increase in prices than what is actually happening, here comes the government with another idea to make inflation appear to be rising even slower: "According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically.  Such a move is widely seen by economists as resulting in a slower rise in inflation. That would impact an array of federal programs that are linked to CPI including the Social Security program and income tax brackets set by the federal government. The proposal could lower federal spending by around $220 billion over the next decade, based on calculations by last year's White House deficit commission, which recommended the change as part of its final report." What does this mean practically? SImply said, the worst of all worlds for the US middle class: "[the proposal] would likely lead to both lower benefits paid to seniors and higher taxes paid by most people who pay federal income tax." We expect this last-ditch accounting gimmick will be implemented shortly, and the broader American population will not care one bit that it's purchasing power will see a step function drop yet again in the ongoing crusade to destroy the dollar.

Previewing Today's 12:30 EDT FOMC Decision, And The Fed's Options Should The Economy Not Rebound 

Just like yesterday's G-Pap vote of confidence was largely a snoozer and a "sell the news" type of event, so today's FOMC meeting and subsequent press conference, will likely disappoint, despite the 2 Year now trading at an Operation Twist 2 "priced in" 0.358%. It is certain that this expectations of at least some modest Fed intervention has slipped into equities. Thus, should Gross' prediction of a tentative QE3 announcement today fall through, and remember that the S&P has to be about 20% lower for the green light in our humble opinion, look for Waddell and Reed to be put under quarantine again at 12:30 when the decision is 

 

 

 

 

 

Cable Tumbles As BOE Monetary Policy Committee Raises Possibility Of QE2 

Submitted by Tyler Durden on 06/22/2011 07:12 -0400

Remember the whole UK stagflation scare, where the misery index recently hit a 20 year high, as both inflation and unemployment surged to two decade highs, keeping the GBP strong on expectations of rate hikes by the BOE? Well, the stagflation is still there, but according to just released BOE minutes, there has been a sudden 180 within the Monetary Policy Committee, which has now flipflopped, and just as we predicted, has fallen back to the traditional central bank fall back plan, namely "buy more bonds" as despite surging inflation, the country's central planners once again view deflation as a greater threat. As Bloomberg reports: "Bank of England minutes showed some policy makers see a potential need for further bond purchases as the economic recovery struggles and “downside” risks to growth and inflation mount. For the majority of the nine-member Monetary Policy Committee, “the fiscal challenges in the euro-area periphery highlighted the potential for further adverse shocks to demand,” according to minutes of the June 8-9 meeting published today in London. “For some of these members, it was possible that further asset purchases might become warranted if the downside risks to medium-term inflation materialized." So the spin now is not to worry about that surging inflation: it's "transitory"... just as the imminent UK QE2 will be: "While U.K. inflation was 4.5 percent in May, more than twice the central bank’s target, Governor Mervyn King said last week that the current price surge is temporary as he defended keeping the key rate on hold to aid the economic recovery during the government’s budget cuts. Paul Fisher said yesterday that adding to the bank’s bond program remains “very much on the table” as a policy tool." Next up: a major quantitative easing episode out of Japan as the two "peripheral" developed economies attempt to fill the void left by the Fed and fail miserably, at which point Bernanke will have no choice but to get involved as well.