Monday, October 06, 2008

Keep Your Eyes on the Horizon, the Long Term: Huge Dollar Inflation that Will Cripple the Economy and Drive Silver and Gold Prices Higher

Gold Price Close Today : 862.70
Change: 33.80 or 4.1%

Silver Price Close Today : 11.230
Change: -4 cents or -0.4%

US Dollar Index Today: 81.62
Change: 1.02 or 1.3%

The Great Sweater of International Finance is coming unravelled before our eyes. Chancelloress Angela Merkel of Germany may have nailed the lid of the EU's coffin shut today by guaranteeing all the bank deposits in Germany. Danke schön, Angela! Now nobody else in the EU has a reason to hold bank deposits in any country but German (except the Irish & Danish, whose governments had already taken the same step). Did Angela turn loose a flood of bank deposits from their home countries into Germany?

In Germany the government bailed out Hypo Real Estate for $69 billion, and French bank BNP Paribas bought Belgian assets of Fortis bank while the Dutch government nationalized Fortis' operations there. German stock market fell over 7%, largest fall in history.

In the US the Dow closed below 10,000 at 9,959.48, dropping as low as 9,525.32, leaving the Nice Government Men with a lot of heavy lifting to get the Dow back up.

And speaking of the Nice Government Men, today the Fed (stands for Frantically Expanding Dollars) announced that its Term Auction Facility or TAF (stands for Totally Astronomical Folly), which buys mortgage-backed securities, would be immediately doubled to $300, and it could increase this to $900 billion by year-end (read "will" for "could").

Remember that the Nice Government Men have only two weapons to stem any financial crisis (if we ignore secretely shooting people in the back of the head), namely, blarney and inflation. A crises places before them two challenges, broken confidence and disappearing liquidity. They trot out their Talking Heads Whom The People Revere, people like Warren Buffet or Iron Paul Volcker, and of course all the apparatchiki like Paulson & Bernanke, to spread the blarney, the propaganda intended to mend the public's broken confidence. Next line of attack is to restore liquidity (cash & credit) to a system so frozen with fear that nobody will risk loaning out any money.

NGM flood the system with liquidity (cash, loans, loan guarantees, deposit guarantees) to solve that problem.

That's the whole game in a nutshell. I know, because I bothered to read the reports from the CFR's Financial Vulnerabilities Project convened in 1998 by Bill Clinton. In those proceedings the Great Ones Who Control Our Economic Fate admitted they have some sort of system-threatening crisis about every 2 years, so they undertook to investigate how best to ward off crises. They even had one session where they "gamed" a crisis with teams from (as I remember) the Fed & Treasury & SEC & FDIC in different rooms in the Harold Pratt House who had to come up with answers as they fed them problems.

That's another reason I smell a rat. The NGM, or at least the Masters who control them, already had a solution before this crisis erupted. If anybody knows, they know how fragile the fractional-reserve, debt-based financial system really is.

Under pressure of the spreading financial crisis the GOLD PRICE is rising against silver. Today the paper price Gold/Silver Ratio was over 78, while the best physical ratio was only 67.7. This will last a while, but silver holders shouldn't worry, 'twill end.

The GOLD PRICE rose $33.80 today to $862.70, the SILVER PRICE fell 4 cents. As I've said so many times before, cheapest way to manipulate the gold market is to drive silver and platinum down. Just mark that down to my suspicious nature.

Under pressure of the crisis the US DOLLAR INDEX, Dog Among Currencies, rose a full 101 basis points today. The Euro fell a bit. No doubt that reflects a flight to safety, i.e., cash. By the way, here's a little tidbit I acquired from some helpful government officials a few years ago: 75% of all US currency circulates outside the United States. So if you see that the Fed has issued $800 billion in currency (not talking credit here), that means that only $200 billion remains in the US, probably about $500 per head.

While you're sitting back enjoying the crisis, here are a few suggestions: get a month's worth of expenses in cash from your local bank. Buy some canned goods. Start planning what you're going to do when you lose your job, and meditate on moving out of the city.

Keep on buying silver and gold. Expect brutal volatility, and don't let it terrorize you. Keep your eyes on the horizon, the long term: huge dollar inflation that will cripple the economy and drive silver and gold prices higher.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger

"Buy Silver and Gold Coins at the Best Prices"

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down.