Wednesday, December 29, 2010

The Lull Before The Storm: What’s Coming in 2011

Correction below, 12/30/10.
This week—what with Christmas on one end and the new year’s celebration on the other, and everthing in between covered in snow—nothing much is gonna happen: It’s a week that’s about as dead as Dillinger. So I figured I should take stock of where we are—and more importantly, where we’re going.

To me, the biggest macro-economic story of 2010 was Europe: It’s falling apart, and there doesn’t seem to be anything that’s going to stop this collapse.

The second biggest macro-economic story of the year—though not by much—was the successful monetization of 75% of the U.S. Federal government deficit by Ben Bernanke and the Federal Reserve. I use the word “successful” in a morality-free, completely pragmatic sense: Bernanke achieved monetization with minimal market disruption. In fact, a lot of people would argue that QE-lite and QE-2 were not policies of debt monetization—that is how successful Bernanke has been. (Talk about “reality distortion field”! Steve Jobs ain’t got nuthin’ on Benny!)

This “success” has allowed the U.S. Federal government to continue to avoid making necessary, critical budgetary decisions—paradoxically accelerating the U.S.’s deteriorating fiscal situation.

The third biggest macro-economic story of 2010 has been the inexorable rise in commodity prices. Everyone’s been paying attention to silver and gold, but the real story has been industrial metals—especially copper—and agricultural commodities—especially grains—especially wheat—and corn, corn, corn!

To be sure, there were other important stories in 2010—the Mortgage Mess, Wikileaks, Wayne Rooney. But these three issues—auguries of EMU collapse, successful Fed monetization, and commodity price rises—are the ones that mattered on a macro-economic level this past year.

In 2011, every other financial story will be either a cause or consequence of one of these three issues: Guaranteed.

Now then—to specifics:

Europe

Europe is in deep shit—there’s really no polite way to say it.

Back in the spring of 2010, Greece went down the tubes, as its sovereign debt collapsed in price, and its ability to borrow money from the open markets—and thereby continue to operate—for all intents and purposes ceased.

Then in November/December of 2010, the Irish sovereign debt also began to tumble, as it became increasingly clear that Ireland simply does not have the wherewithal to backstop its disproportionately large—and insolvent—banking sector. Angela Merkel’s less than clever words in an interview (to the effect that Irish debt holders might have to take a haircut) sparked a rise in Irish debt yields, squeezing Ireland’s ability to borrow fresh cash to keep its insolvent banks afloat—thereby creating the need for a rescue package from the IMF, the UK, the European Union, and the European Central Bank.

What was painfully apparent in 2010 was that the Eurozone and the European Union had no mechanism to handle a crisis in one of its member states. Nor is it moving forward to correct the single biggest weakness of the euro scheme—namely, the ability of each member state to issue its own debt.

In May of 2010—over a decade since the introduction of the euro—the EU finally came up with a mechanism to salvage the broken economy of one of its member states, the European Financial Stability Facility (EFSF). Stability Facility: Even its very name sounds cartoonish and silly—which fits with the general cartoonishness of the European crisis response, first to Greece, then to Ireland.

The concept of the EFSF—at least in theory—is for the member states to contribute to a €440 billion fund. In reality, the EFSF has no money, but rather, it will issue debt. Therefore, what’s really happened in the case of Greece and Ireland is that their bad debts were taken over by the EFSF—so in a sense, no one has been bailed out: Rather, the bad debts have been transferred to the European Monetary Union as a whole.

This is the European model of bailouts: In exchange for handing over their fiscal sovereignty and having tough austerity measures put in place—but without harming a single hair on the head of a single sovereign bond holder—Greece and Ireland had their debts taken over by the EU. In other words, collectivising the bad debts, in exchange for tighter central control from Brussels.

Which is fine—for the smaller countries with their smaller economies, and their weaker political pull.

But what about a big country? What about a country like—oh, I dunno—Spain?

☞ Possible EMU Collapse: What To Pay Attention To In 2011

After the Greek and Irish bailouts, it looks like Portugal and possibly Belgium are up next in this perverse game of musical chairs played to the tune of sovereign debt—

—but these smaller countries are dwarfed by Spain: Spain, as I argued here, is where the European game is really at.

As I pointed out, Spain is twice the size of Greece, Ireland and Portugal combined—Spain is roughly half the size of Germany—Spain has a fiscal deficit of over 11% of GDP for 2010, and a total debt of over 80% of GDP, data here (I am counting the accumulated debt of comunidades autónomas, which is so far 10.2% of GDP and steadily rising; data here)—Spain has an unemployment of over 20%—

—in short, Spain is trouble.

Not “Spain is in trouble”—that’s obvious, but that’s not my point: Spain is trouble. Trouble for the German banks that own so much of the Spanish debt. Trouble for Germany, which is propping up its insolvent banks (What, you think German politicians are any less craven than American politicians?). Spain is trouble for the European Union, for what a German banking crisis might mean for the EU as a whole and as an institution.

More than anything, Spain is trouble for the European Financial Stability Facility, because Spain is too big to be saved—and there’s really no way to finesse that hard fact.

You know what a lynchpin is? Actually, I didn’t—I had to look it up. According to the dictionary, a lynchpin is “a pin passed through the end of an axle to keep the wheel in position”. Hence the figure of speech: Without a lynchpin, the wheel comes off, and the whole vehicle crashes.

In the case of Europe, the lynchpin can come off awfully fast—think of Ireland. A few impolitic words from Angela Merkel, and suddenly the Irish bond market panics. Suddenly, Ireland is teetering on the brink of insolvency, unable to meet its funding needs. And that was Ireland—all due respect to those wonderful people, but we’re talking a GDP of a paltry $227 billion. Ben Bernanke takes a morning dump bigger than that. What’s Ireland’s $227 billion when compared to Spain’s economy of $1.5 trillion?

Spain: During 2011, Spain will be the flash-point—so you want to keep one eye on Spanish sovereign bond spreads, and one eye on Brussels:

When Spanish debt spreads over German bunds creep into the 3.5% to 4% range, you know trouble is coming. And when the Spanish spread decisively crosses 4.25% over the German 10-year, then you know trouble’s arrived—and it won’t be leaving town ‘til it’s had its chance to run riot in the streets.

How the EU and the ECB handle an eventual Spanish sovereign debt crisis will determine the very future of the European Union.

Because there will be a Spanish sovereign debt crisis—it’s inevitable. The Spanish balance sheet is not improving fast enough, even with so-called “austerity” measures, because even though the Spanish government might be cutting spending, the comunidades autónomas—roughly analogous to states or regions—are expanding their budgets in order to take up the slack, and thereby increasing the Spanish deficit. Don’t believe me? Check the figures I just cited.

So when Spain goes into crisis—which should take place no later than August 2011, and perhaps as early as this coming March—the European Union’s collective and institutional reaction to this crisis event will determine whether a smaller, healthier European Monetary Union continues to exist, or whether the whole concept of EMU is ripped to shreds by events.

If the EU and the ECB are clever, and brave, and humble in the face of failure, then they’ll expel Greece, Ireland, Portugal, Spain and Italy from the European Monetary Union. The euro will remain the currency of the stronger economies—France, Holland, Germany—while the weaker economies will go back to their original currencies, and immediately devalue so as to kickstart their economies.

If, however, the European Union and European Central Bank leadership proves to be stupid, cowardly, and arrogant—as is very likely, considering their confused, self-defeating actions and reactions to the Greek and Irish crises—then there will be some sort of European-wide convulsion, when the bond markets panic, and leave Spain locked out of any funding.

This is the key event of 2011: Whether the European Monetary Union survives. Unless Brussels gets its collective shit together and realizes it has to cut the weaker economies loose from the euro, odds are high the euro goes the way of the dodo.


The U.S. Fiscal Situation—Local, State and Federal

There is a limit to sympathy: You can feel sorry for someone—but only up to a point. Insofar as the United States’ fiscal situation is concerned, that point has been reached, at least for me: I can no longer feel sorry for the American people.

Americans want more services and entitlements, but with less taxes—and then they’re all surprised when their local, state and Federal governments cross the edge of insolvency, and into the nightmare land of feverishly staving off bankruptcy.

During 2010, the Federal government debt finally crossed the 100% of GDP mark—and continued rising non-stop. Actually, the debt’s growth accelerated. Why? Because the Bush tax cuts of 2001—implemented when there was an expectation of surplus, with clear sunset provisions, and no massive war expenditures—were extended by the mindless Republican Congress and the spineless President, Barack Obama.

So the U.S. Federal government will continue to add to the debt, at the rate of 10% per year for 2011, 2012, 2013 and 2014, according to the CBO.

Some might argue with the 2013 and 2014 extrapolations—okay, fine, I’ll concede them: But that still leaves the U.S. Federal government with a debt burden of 120% of GDP by 2012—those are Greek levels of debt. And even if by some miracle tax receipts increase after 2012, so that the deficits in 2013 and 2014 are not 10% of GDP, what will they be? 7% of GDP? Maybe even 5% of GDP? Whoop-dee-fucking-doo—so total debt by 2014 will be only 130% of GDP, instead of 140%.

And that’s not counting the State and Local governments.

In late 2010, we finally started to notice something which has been festering for years, like one of those yucky worms that winds up eating your brains and driving you mad: The financial condition of the U.S. States and municipalities—they’re bankrupt.

For fiscal year 2010, the states’ combined budget shortfall is $191 billion. Of that figure, $68 billion is offset by the Recovery Act—Obama’s stimulus. Currently, the 2011 combined deficit of the States will be in the neighborhood of $160 billion—but that doesn’t seem credible, considering the ongoing unemployment. Regardless, $59 billion of those will be offset by the Recovery Act—which still leaves at least $100 billion up in the air. (Source for figures is here.)

However you look at it, the States have a huge collective hole in their budgets. And this hole is going to get worse, before it gets any better—just like the Federal government’s massive yearly deficit.

Which brings me to Federal Reserve policy in 2010—specifically the announcement and implementation of further rounds of “Quantitative Easing”.

Call it QE, call it “liquidity injections”, call it “interest rate stabilization”, call it “Fed balance sheet expansion”, call it “monetary accomodation”—whatever clever name you give it, it’s basically money printing, plain and simple: The Federal Reserve “implements” QE by simply creating money out of thin air, then going out and buying bonds with that new money. Actually, it’s even better than printing money—no bothers with printing presses and such.

There were two rounds of QE in 2010: QE-lite in the early summer, whereby the Fed reinvested the excedent of it Mortgage Backed Security holdings into Treasury bonds, which will total between $200 and $300 billion between August 2010 and August 2011; and QE-2, whereby the Fed began purchasing Treasuries directly, in $75 billion monthly increments over the eight months between November 2010 and June 2011, Benny and the Fed reserving for themselves the right to continue—or expand—their Treasury bond purchases as the drones as the Eccles Building see fit.

Now, why did Ben Bernanke and His Federal Reserve Fools implement QE-lite and Quantitative Easing 2? The (mainstream) answer is, As a way to prop up the U.S. economy by keeping interest rates low via liquidity. The (mainstream) reasoning is, By keeping interest rates low, Benny and the Fed want to encourage borrowing, and thereby reactivate the economy. Which is fine, as analyses go.

But let’s ask a different question—an It’s a Wonderful Life counterfactual history question:

If Benny and the Fed had not been there to buy up Treasury bonds via QE-lite and QE-2, what would the U.S. Treasury Department have had to do, in order to fund the Federal government?

In other words, Would the Federal government have been able to finance itself without Federal Reserve purchases? Without QE-lite and QE-2?

It all depends on the numbers: What’s the Treasury shortfall, and what’s the size of QE-lite and QE-2.

Well—and this is just back-of-the-envelope numbers—the Federal government deficit is about $1.3 trillion. Meanwhile, between August 2010 to August 2011, QE-lite ($200 to $300 billion) and QE-2 ($800 billion) will add up to at least $1 trillion in Treasury bond purchases by the Federal Reserve.

So . . . a $1.3 trillion shortfall . . . and $1 trillion in money printing . . .

Now you get the picture—in 2010, the Federal Reserve successfully began monetizing over 75% of the U.S. Federal government’s yearly deficit.

Not only that, they did it with minimal market disruption—and in the case of the equities markets, Fed monetization actually improved those markets: Just like really expensive make-up applied to a dead guy, Bernanke’s monetization gave a false sense of corporate health and vigor to the stock market.

Bernanke’s successful monetization of the bulk of the U.S. Federal government deficit in 2010 was not a one-off: It will continue unabated for the foreseeable future—horrible public policy tends to follow Newton’s laws of motion. 

That was the story of America’s finances in 2010: The United States officially became a Banana Republic—with nukes.

☞ American Insolvency, and The Morphine of QE: What To Pay Attention To In 2011

The upshot of the Fed’s successful monetization has meant that politicians on Capitol Hill and Pennsylvania Avenue have not had to make any real budget decisions: Because of Bernanke’s “success” with deficit monetization, he has created the conditions whereby the American political leadership can irresponsibly postpone the fiscal Day of Reckoning.

This will have the pernicious effect of unleashing positively huge Federal government spending during 2011.

Look at the evidence: The budgetary questions in Washington are not either/or—they are both/and: Stimulus spending and Bush tax cut extensions and never-ending wars and health care reform and the creation of a police-state. The clowns in Washington have been able to eat their cake and have it too, with nary a thought as to cutting spending.

Ben Bernanke’s successful monetization of 75% of the new Treasury debt issuance is the direct cause of this policy mentality.

It’ll only be a matter of time before the bankrupt States take advantage of this both/and mentality—and in no time at all, the political pressure from the States to have the Federal government bail them out will become an overwhelming clamor: Especially as pensions—and therefore pensioners, who always vote—become increasingly affected.

Therefore—as a direct byproduct of Bernanke’s “successful” monetization of the U.S. Federal deficit, and the resultant lack of need on the part of the political class to make true budgetary decisions—I am confident in predicting that in 2011, there will be another round of “stimulus”.

Don’t act so surprised: The State budget bailout package will be a “little” stimulus in the $400 to $500 billion range—but it will be explained away as being both “necessary” and “targeted”, with the explicit aim of propping up the bankrupt States and municipalities. This “targetting” will make it politically popular, and therefore insure its passage.

Now, the Fed’s monetization of the deficit should have some incidence on the Treasury bond market—shouldn’t it?

Here—I confess—I’m at a bit of a loss:

On the one hand, Treasury bond yields ought to rise, as the Federal government continues to spend like there’s no tomorrow, and slowly but inexorably positions itself to take over State and municipal liabilities, especially pension liabilities (which is what’s really killing the State balance sheets).

On the other hand, since the Federal Reserve is the buyer of 75% of the debt the Treasury Department issues, the Fed ought to be able to squeeze yields whichever way it wants to—which is exactly what it seems to have done: During 2010, the 10-year Treasury bond yield fluctuated between 2.41% (in October) and 4.01% (in April); today as I write it’s at 3.50% even. (Source is here.)

This would seem to prove that the Fed has the yield curve well in hand—therefore, if this really is the case, then the Treasury bond market is useless as a sign of anything. Just like the equities market, Treasuries are a rigged game that signify nothing.

What asset class is reacting more or less rationally to what has been going on in Europe and the United States? Commodities.


Commodities

Commodities rose drastically all throughout 2010: Every single commodity class, every single one of them rising by double digit percentage points—at least.

You can talk to me about wheat rising because of wildfires in Russia, oil rising because of the BP spill in the Gulf of Mexico, copper rising because of the trapped miners in Chile, silver rising because JP Morgan tried to do like the Hunt brothers, gold rising because a lot of Chinese want gold for their teeth fillings instead of porcelain, corn rising because Martha Stewart and Nigella Lawson simultaneously declared it their favorite ingredient—

—or I could argue that commodities of all classes are rising because the markets are afraid of Treasury bond weakness and continued irresponsible monetary policy, so they’re looking for a safe haven to replace Treasuries.

Occam’s Razor teaches us to always pick the simpler explanation. Commodities of all classes have been steadily rising—is it because a whole host of various causes have led these myriad commodities all to rise?

Or is it because a single common cause is driving them all up?

Now, I think that commodities are rising because of market fear of the U.S. fiscal. I can argue that position from the commodities’ side of the equation—no sweat. But I just can’t prove my case when I cross over to the Treasuries’ side.

I can’t prove it because there has not been the movement in Treasury bonds which would signal that that is the case. I could point to Treasury yields rising 100 basis points since the October—but that’s a weak-ass evidence, even if you deign to call it “evidence”. A decisive break-out in yields above 4% on the 10-year over the next two-to-three months—that would be sort of compelling. But a drift up from 2.5% to 3.5% at the end of the year? That’s nothing.

My own thinking is, the reason there hasn’t been a drastic, unequivocal fall in Treasury bond prices is because of the aforementioned Fed grip on yields: It is neither the Fed’s intent nor in its interest to have Treasury bond yields widen. What with a 75% market position in new debt issuance, it ought to be a snap for Benny and the Fed to keep yields low.

Therefore, I think that market participants are going into commodities for safe haven, even as they are exiting Treasuries. I do not think there is a correlation between commodities’ rise and equities’ rise: I think equities are the speculative play, with the market riding the bubble Bernanke is blowing, whereas commodities are where the market is going as the safe haven play. Strange but true—all because of Bernanke’s manipulation of the Treasury yield, and cornering of the Treasury market.

I think this is happening—but I hate to rest my argument on such an inference, a teleological inference: I sound like a fucking conspiracy theory windbag—“The Fed is doing it! The Fed is manipulating T-bond prices! The Fed is behind The Conspiracy!” Fuck that bullshit—but then again, that’s what it looks like to me: The Fed manipulating the Treasury bond yields to the point where they sit on their hind legs and beg for a crunchy cookie.

Ultimately, for this discussion, it doesn’t really matter why commodities have been implacably rising over the last 12 to 18 months—the fact is, they have been rising. So let’s pay attention to that.

☞ Commodity Price Rise: What To Pay Attention To In 2011

I know I have the reputation for being the crazed hyperinflationista—but you don’t have to buy any of my dollar-hyperinflation arguments to acknowledge the fact that, a., commodity prices have experienced a sustained and enormous rise in their prices, and b., this sustained rise in the prices of commodities will inevitably hit consumers at all levels of the economy.

Therefore, I would expect food, heating oil and gas prices to rise considerably over the winter of 2011—that is, now. This will be a knee to the ‘nads of the American economy—indeed, to the world economies. 

There’s really not much more to say, about the issue: A sharp rise in consumer spending on essentials would shove the American and world economies firmly back into recession, this time potentially with negative growth. 

What happens after that? It depends on the fools at the helm of the good ship S.S. Depression II


Bottom Line in 2011

My thinking is, the EMU situation will come to a head this year, likely before the summer, and it will be because of Spain.

As to commodities, their strong, steady rise in price will reach the wider economy starting this winter, and shove it down into a recession, likely deeper than the last one. (Possibly—even likely—this slow-down will trigger the Spanish crisis.)

The wild car in this trio is Bernanke and the Fed: Extend QE-2 indefinitely, as they’ve hinted, or grow some balls and force the Congress, the White House and the political establishment to get serious and cut spending? No surprise, my money is the Eunuchs of the Eccles Building extend QE-2, and continue with their 75% monetization of new Treasury issuance.

So bottom line: It’s looking like 2011 is gonna suck. But hey! At least two of these three story-lines are gonna come to their respective climaxes this year—so 2011 might well suck, but at least it’ll be exciting!

(I take my cheer where I can find it.)

Correction, 12/30/10:
A bone-headed mistake on my part: Quantitative Easing-2 is nominally $600 billion over 8 months. I erroneously wrote $800 billion—and worse yet, I used this mistaken $800 billion figure for my back-of-the-envelope estimates.

To correct this mistake: As the FY 2011 deficit is projected to be $1.267 trillion, and the sum of QE-lite ($200 to $300 billion) and QE-2 ($600 billion) is between $800 and $900 billion, one could say that the Federal Reserve is monetizing between 63% and 71% of the Treasury’s issuance for FY 2011—not 76.9% as I wrote above.

Though a $200 billion error is nothing to sneeze at, my mistake does not substantially change my analysis. Those who disagree are free to say so in the comment section.

Sorry for my mistake!

GL


102 comments:

  1. Hi Gonzalo.. as always a terrific read. Great minds do indeed think alike.. here's my predictions, which I posted a week ago and are essentially much like yours are:

    http://themeanoldinvestor.blogspot.com/2010/12/predictions-for-2011-tap-dancing-in.html

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  2. What will fall apart first: the Eurozone or the US? I think it's the US.

    Isn't the US debt problem and currency situation insanely worse than Europe? You cite that the US at 120% is a "Greek debt level" but in reality isn't it already much worse? That's not even counting unfunded liabilities like social security, medicare, Fannie & Freddie, student loans, etc. Isn't the real US debt astronomically higher, just unacknowledged? I heard Rob Arnott in a King World News interview say it was something like 800% of GDP.

    Assuming Europe is more honest in their accounting than the US, isn't the aggregate Eurozone debt/GDP a fraction of the US debt/GDP levels? Then when you take into account that 60% of U.S. GDP is from the FIRE industry which produces nothing, that to me spells a recipe for total disaster. If Europe can hold it together longer than the US, they could come out much better, maybe even assume the role of reserve currency.

    Bernanke is just masking the debt/currency problem with QE. It has taken away from the public the main indicator of the problem by hiding the true interest rate, and thereby hiding the real risk of US treasuries. The problems in Europe are only more visible now because they have no fiscal union and don't have the power of the world's reserve currency. They just need to hold out a bit longer and wait for US to kill itself.

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  3. GL,
    Mostly on the money, except for one important point - Americans do not want more services and entitlements with less taxes. The unholy triumvirate of the political elite, the media elite, and the TBTFW (Too Big To Fuck With) banks are the ones who want what you describe.

    Americans have been screaming since 2007 to stop the growing deficits and currency debasement. This is not reported in the mainstream press. In 2009 2 million Americans converged on Capitol Hill and on the Mall in Washington in protest of what you describe. The fact that it was the largest political protest in American history was not reported in the American press. It was also not reported that beginning with this protest, the park police stopped issuing crowd size estimates. They also stopped issuing permits for any future demonstrations.

    A year ago the Fed hired a PR firm for the first time in its almost 100 year history. This month Mr. Bernanke appeared on 60 Minutes for the second time in less than 2 years in an attempt to doubletalk all of us. This is glaring proof that public opinion is heavily against what is being dished out.

    America's national political leaders have continued to turn a deaf ear to what Americans have been saying for 3 years - but at the state level, not so much. Governor Chris Christie of New Jersey is a hero in his state for reducing services, cutting expenses, and taking on the status quo. Congressman Ron Paul, known as "Dr. No" for his record of voting against the status quo, is evoking fear and trembling in the banking community with his recent appointment to the House Subcommittee on Financial Services. He has raised more money in one day that any other political candidate.

    Americans are fed up. They are tired of being nailed to the wall by the TBTFW banks while the political and media elite hand them the nails.

    KS

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  4. Central banks are becoming confident that they can print as much as they want, without consequences.

    Throughout 2010, it has been like this; so why not go on in 2011?

    Therefore, it wouldn't be surprising to see the ECB coming to Spain's rescue, with massive printing, if necessary. Why bother?

    It wouldn't be surprising, as you say, to see the Federal State coming with a "National Stimulus" to save the states and cities. The Fed would buy all the necessary paper. Why bother?

    As long as the economy, that is, us people, small and big business, and all other players involved, accept fiat currencies for the value they are told they are worth, the game can go on.

    The game will stop only when a major player, such as oil exporters for example, will say: "Enough, we don't want of your worthless paper anymore, pay us in gold!"

    Not likely to happen in 2011...

    Click on my name to visit my blog.

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  5. thanks for the digging and prognostications.

    yes commodities should increase if you are printing like no tomorrow (irrespective of what you do with the money) and yes commodities should rise in a negative real yield environment if you are attempting to protect your purchasing power.

    its no coincidence that the commodities that increased first were those that were most money like. these pose to effect to the bogus cpi measurements and indeed there is very little pass through from food inflation into core cpi. the kick in the crotch however will come from a higher oil price due to lack of short run substitution (you can switch to dog food but you still have to drive to work), an immediate discernible drop in disposable income (its an tax) and the fact that it has a high pass through and eventual impact on the core.

    ergo what is going to stop this money printing madness will be oil and in a few months time you will have increased inflation prints everywhere in the world and a slowing US consumer. does bernanke start QE3 with 1.8% core, 3.5% headline, due to oil at 125$??? no. the effect of doing so would be to drive oil to 160$ and game over and bernanke isn't going to print momey to short the oil market.

    so the fed may very well have blown up the world by trying to reflate too damn hard (BRICS inflation averaging 10% and them eventually having to slam breaks on really hard will also be benny's doing) ... and so we get stagflation in the 2nd half of 2011 with depression like unemployment going ... so much for the experiment.

    and once QE is abandoned and the FED mocked then inflation expectations will start to fall as will all commodity prices taking the stock market with it. yes yields will drop once the FED stops buying treasuries. that's the way it works with debt deflation until we get the dreaded credit migration ... prob in 2012 which will accelerate the sinking of all markets.

    as for Europe well some pretty big market concessions will be built to accommodate all that peripheral debt rollover/auctions ... but the self righteous eurocrats may try and prevent that by increasing the EFSF and directly buying the debt from spain etc ... and the EFSF issues debt to finance this so voila ... you now have the eurozone treasury equivalent ... shared losses and privatized gain.

    but don't underestimate the impact that the next Irish elections will have on derailing the whole thing. small economy but very big financial sector debt and role in european bank finance and a very angry population.

    the alternatives? well the ECB could try and print like the FED (unsterilized) and buy peripheral bonds but that goes 100% against their mandate, may very well be unconstitutional and would also have the impact of creating another commodity spike with ... oil at 160$, 4% inflation and a dying US consumer that would just be another great nail in the coffin.

    as for you solution that spain etc would be forced to leave the EURO imagine what impact that would have on a german or french banks holldings of sovereign debt- haircut and a currency loss combines would mean they would get 10 cents on the dollar ... so no way. an EM like restructuring of debt (think brady bonds) seems far more likely ... so EU banking sector still in trouble.

    one way or another, it will be a rocky ride in 2011 but one i hope the sheeple stop getting shafted and up their protests ... and that will come in Europe just as the increase in the prospects of war will come from Asia.

    rgds
    bertusmaximus

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  6. oil price is all that matters now

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  7. Great stuff man the Federal Reseerve is the biggest scam in the world. Keep up the good work Mike Dillard is the man.

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  8. Thank you for another interesting read. What you have presented is, I believe, substantially correct.

    1. John Hussman (www.hussmanfunds.com) had a great commentary earlier this year explaining that QE will, without a doubt, cause commodity prices to rise.

    2. I read that Belgium is very highly exposed to Irish debt (but I haven't confirmed this). If Ireland defaults, it will take down Belgium in a flash.

    3. A bailout for Portugal is inevitable in the next 3 months. The driving factor that triggers a bailout is the bond vigilantes shorting. [A curiosity: I read that Portugal has the highest gold reserves in Europe, relative to GDP, but I haven't confirmed this.]

    -Dave

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  9. Hey Godzalo, you are verbose yet prosaic!

    Here are my Nine 2011 Predictions in its essence:

    1. The U.S. will implement QE3/4 when the $600 billion of QE2 is not enough. QE3/4 will be in the trillions of U.S. dollars (USD) of quantitative easing.

    2. The major export nations will engage in and increase their non USD-denominated trading among themselves. This will put increasing devaluation pressures on the USD. So, look forward to the US Dollar Index to drop further from the low 80s now to the low 70s or even lower in 2011.

    3. Retail food prices in the U.S. will increase in the low to medium DOUBLE digit ranges (10% to 40%) for everything from the junk/GMO "foods" to healthy/organic foods. This will take place noticeably in the first half of 2011.

    4. The real estate market in Canada will finally begin its collapse suddenly after the new year celebrations are over.

    5. The Chinese real estate market, the last investment vehicle in China for those Chinese with money, will also begin its collapse suddenly, hitting hard cities like Shanghai, Beijing, Fuzhou, etc.

    6. Inflation will run rampant in China as it is already doing so with retail food prices.

    7. The EU will continue its financial collapse, as nations like Spain, Portugal, and Italy will join Greece and Ireland in facing the stark choice between (Option 1) bailing out THEIR banksters or (Option 2) having THEIR nation go bankrupt.

    8. Silver and gold will continue to climb in 2011. Silver will increase much more than gold in 2011. Silver will breach $50 per ounce in 2011.

    9. A major war will break out somewhere in the world in 2011 (if not in 2011 then definitely in 2012) involving the U.S. and/or one of its proxy allies.

    For the full article: http://rense.com/general92/stdr.htm

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  10. GL,

    Sooo more of the same for 2011? We'll see as I am with K Smith above wherein he cites the Tea Party movements' rallies and calls for reduced Gov't and spending.

    As for the commodity action due (atleast in some part) to Fed devaluations, I couldn't agree more and have written same for over a year now....

    http://dmarkloyd.blogspot.com/2010/10/qe2-anyone.html

    Best....

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  11. Great read as always.

    A comment about European bailouts. These will be partially financed by the IMF which, in turn is partially financed by the US. When it becomes known that US tax payers are helping to bail out Spain, public uproar will ensue.

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  12. GL
    Great recap. I was struck by this sentence:

    "Insofar as the United States’ fiscal situation is concerned, that point has been reached, at least for me: I can no longer feel sorry for the American people."

    This is an important point I think. The world has been given the US a pass for at least a decade now. We bring the rest of the world, bubbles and monetary policy that has a vision of the future that goes out only six months. We kick the can down the road at every problem we face. Now the US is adding to global food price inflation. How many will that hurt? Billions.

    GL should be fed up. What kind of example are we setting? Our policies are "beggar my neighbor".

    Why is this important? Because the likes of GL HAVE to buy our bonds. If he doesn't we are dead, dead dead. But GL is fed up and is not buying.

    If those outside our border start to think like GL and the confidence necessary to fund our massive debt come into question then we have a new ball game and a new crisis staring us in the face.

    Good luck to all in 2011.
    Bruce Krasting

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  13. Great post. I think you are right. My question is: Is there any country whose bonds are safe from inflation/currency devaluation? Is there any safe haven out there or do I have to play the precious metals and commodities like a cowboy at a saloon poker table?

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  14. Mssrs Loyd & Smith:

    The Tea Party movement is a paper tiger with no teeth, and has been co-opted by the mainstream (e.g., Dick Armey and his crew); it has become all guns, God, and gays - what are they going to give us? Sarah Palin? She's the patron saint of retards for crissakes.

    And even Ron Paul, whom I used to have some hope for, is a disappointment...he loads other bills with pork & earmarks for his district, then votes "no" against the bill when he knows it will safely pass, thereby keeping his record apparently clean.

    The American sheeple are too deluded/stupid/lazy to enact any real change, and then when you have 47% not paying any income tax and 40% on food stamps...well it's game over, because all anyone cares about is "You need the money? OK, but just don't take it from ME."

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  15. Gonzalo, great article and the majority of comments made by readers are impressive. Your audience is a cut above the typical BS one reads on Business Insider.

    A few humble observations:

    1) If Spain goes down, many of its creditors will take a major haircut. The Germans and French have had it with Wall Street. Sooner or later they are going to stand up to the current crony capitalist system based on the US$ as the world reserve currency. Once that begins to unfold it will be similar to Spain's loss of its silver and gold mines in the Americas, no more money for our war machine to support the empire.

    2) Here in NJ, our large cities like Newark, Paterson and Camden are laying off anywhere from 20% to 50% of their police force for lack of funding. Unfortunately, because of Public Union rules, it is young rookies (who have the optimism, energy and generational savvy to fight crime) that are losing their jobs. Violence is already exploding and crime is slowly spreading to the suburbs. Gov. Chris Christie has done a great job trying to get spending under control, but he is not even 1/2 of the way there. Public Unions must compromise big time (15% paycuts) or they will cease to have public support.

    3) We cannot continue to digitally print money (QE) without further destroying our children and grandchildren's future. We cannot afford to bailout the States. Unfunded State pension plans is a problem that cannot be fixed by the federal government nor by local and state taxpayers. At the end of the day, most will have to be settled for 50 cents on the dollar.

    4) Greenpan, Hank Paulsen, Rubin, Senator Gramn of TX and Summers should be tried for treason and executed by firing squad. An additional 200 Bankster should be tried for treason and sentenced to 30 years in prison.

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  16. OK, so what do we do to prepare for 2011?

    Stock up on consumer goods? Refinance the mortgage now? Buy commodities? What?

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  17. "Greenpan, Hank Paulsen, Rubin, Senator Gramn of TX and Summers should be tried for treason and executed by firing squad."

    You forgot Tiny Tim Geithner and Barney "Fannie & Freddie are sound and well capitalized" Frank.

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  18. Another great post... but what about the Chinese? Looks like they may be in a position to hose everything up.

    c deK

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  19. I believe the Fed has no choice but to print. We passed the end game in 2008. The debt burden is so large, the govt can't pay the interest and maintain essentials such as Defense, Homeland security, pork, etc... So QE until the end. We all believe that Europe and America will crash under their perspective debt burdens. Who knows when or what the trigger will look like. I'm guessing a major bank fails in...(pick a country). CDS domino effects erupt through the market starting a global panic. Whatever the trigger...what happens next? Do people still go to work? Will there be a total collapse of all fiats? World wide anarchy? What does the world look like after the black swan event? That is what needs to be discussed.

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  20. I can't help but think that the commodity bubble is going to hit the Chinese the hardest, seen both as higher prices, particularly for food, and lower demand for their products.

    What is going to happen when the Chinese are no longer able to save as much as they had in the past? Who will finance our debt?

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  21. War is inevitable.

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  22. @GL

    "Why? Because the Bush tax cuts of 2001—implemented when there was an expectation of surplus, with clear sunset provisions, and no massive war expenditures—were extended by the mindless Republican Congress and the spineless President, Barack Obama."

    I stopped to comment on this since you're dead wrong. The "mindless republican congress" isn't presently sitting and won't be until 2011. Also, the repubs only won the house, not the senate.

    You write as if a tax increase would cure what ails the U.S.. Better to focus on the real problem, GOVERNMENT SPENDING. To transfer more wealth from the private to the public sector would be analogous to throwing fuel on the fire.

    I'll say it again. You are an extremely conventional thinker. All of your drivel can be found on CNBC.

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  23. Because the Bush tax cuts of 2001—implemented when there was an expectation of surplus, with clear sunset provisions, and no massive war expenditures—were extended by the mindless Republican Congress and the spineless President, Barack Obama.

    Fact Check: Still Democratic congress until 2011, at which point it will be split Senate (D) and Congress (R).

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  24. The only thing you got wrong was the fling at the Bush tax cuts. First of all, the tax rate should BE the tax rate, until the politicos decide to raise or lower the taxes. In effect they voted for a TAX DECREASE (YAY!) along with a future tax increase (voters, please ignore . . .) Typical politico dodging of responsibility. As well said above, why further cripple the productive private economy when there is not a snowball's chance in hell that taxes will even make a dent in the ever increasing debt? And as YOU, GL, so well said, the politicos will never quit until somebody pulls the plug. So, no higher taxes. Let the dominos begin to tumble right now.

    I have thought for many years and still do that those behind the scenes who call the shots are playing for a true Global credit and monetary collapse, thus setting the stage for a Global Solution (power grab).

    Stephen Kovaka

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  25. Commodities are tangible truth in a market of intangible lies.

    There is no shame in being a member of the 'conspiracy' crowd. Birchers had/have many things right, from long ago...

    For metrics on funny numbers and cute manipulations, Rob Kirby provides excellent data and insights.

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  26. GL ... let me add a couple of things. I do agree that the EU is on very shaky ground, and that the USA is gradually heading towards a financial crisis point.

    * In 2011 we are likely to see accelerated terrorism around the world, and possibly a new war. The political conflict between Iran and Israel-USA has now heated up into a full-blown clandestine war. Therefore, at a bare minimumm, we can expect to see Iran hit back hard through its proxies, and this will cause a painful upsurge in terrorism. The possibility of actual war, either in Korea or the Middle East, has to be considered viable.

    * The rise in commodity prices will have a profound effect on third world nations, esp. those whose people are living on the ragged edge of survival. I expect to see food riots in 2011 in some countries (e.g. African nations), and the steady deterioration of some of these marginal countries into "failed states".

    * Oil prices will be volatile, but very likely will be priced significantly higher (on average) when measured in US dollars. Both monetary inflation and political instability almost guarantee this ... and we're not even figuring in the end of good cheap oil supplies (Peak Oil).

    cheers,
    PeteCA

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  27. GL said that the FED already buys 75% of Treasury issues.

    Can anyone verify that? I almost fell off my chair when I read that. If that's true, my personal estimate of the deep stuff we're in just went up by an order of magnitude.

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  28. I think notional unemployment in usa is at 24% and underemployment in some cities is 50% or higher.

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  29. When the crisis happens, what would stop the FED to walk away from all the trillion in Treasury bond that it owns? Wouldn't that give a big boost to the Treasury and lift the US dollar?

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  30. The real reason for the rise in commodity prices is speculation by the banks and financial institutions. They have emerged to be more powerful than earlier anticipated and exert greater influence on the political class and central bankers who are responsible to curb their activities. Not a single top shot banker has been charged with bringing the world financial system on the brink of collapse in 2009. They continue to enjoy record bonuses while the unemployment continues to increase and families loose their homes to foreclosure. They have successfully stalled all efforts to curb their speculative activities are now in total control of the movements in all the stock, commodities, bonds and currency markets thanks to the unlimited funds provided to them by the central bankers.

    http://www.marketoracle.co.uk/Article24581.html

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  31. Gonzalo, you nailed it again. My wife said you have the most well placed f**k's in your essays! And I told her you know how to use them. Dan McCartney

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  32. What K Smith said. We Americans are tired of the out of control Federal, State and Local spending. Voting doesn't seem to matter anymore. :-(

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  33. Great article GL.

    The real wildcard is Japan. Apparently it has been printing >40% of its government budget for years. Aging population means pension funds are net negative for first time. Domestic buyers of Japanese bonds drying up. If interest rates get to 4% they will be spending 100% of government revenue on debt interest.

    Japan is a house of cards and could be the tornado to haul down the Eurozone and US card towers.

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  34. GL,
    Great article. It's a frigen shame that the good people in the world, the hardworking honest middle class and poor citizens, are going to bear the burden for all this horseshit that has taken place. The thing that upsets me the most is that all the assholes that work for the rating agencies that dressed up these time bombs (securities) like a cheap suit, and the dirt bag ceo's from all the major banks have for some reason kept their jobs. These frigen idiots should be lined up and shot. You never hear anything in the news about this. The fact that it was swept under the rug so quickly and treated as a he said she said bullshit circus, makes this by far the greatest illusion ever performed in modern history.
    Thanks

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  35. "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs".
    Thomas Jefferson,
    3rd president of US (1743 - 1826)

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  36. There are two important events that are missing in your Europe part.

    1. The Irish parlament elections in januar could lead to a rejection of the bail out.Then the hell would break loose in the Euro zone.

    2. Professor Wilhelm Hankel and others have left a complaint against the Greek bail out, which is illegal according to EU no bail out clausul, to the german court in Karlsruhe.If the german court says that it is illegal, it would most likely immediatly be the end of the EURO.

    KH from Sweden

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  37. This economic crisis is clearly planned by the elite - deem them who you want. Change is not going to happen in DC. That's a dead avenue, they are bought and sold. It only can change at the grass root level. Only then can effective people be put into office. You can't have uninformed people voting on a false left-right paradigm.

    The best thing people can do is stock up the necessities of life. What will it take to survive - food, water, and protection. Other survival things like a short wave radio would be a good idea as well. People should actually be happy that the "hard times" have yet to come. People aren't prepared yet. And many in denial won't be.

    My personal belief in this highly complex situation is that there will be a war in the middle east probably just after the EU tanks (July). This will spawn more terrorism and Big Brother will really take off. Walmart is just the introduction (google walmart napolitano homeland security). As crime is escalating in NJ due to police layoffs, other states will follow suit.

    I have researched the Eugenics movement to know that population reduction is a goal of the elite. I believe that with higher unemployment, and the crash of the USA, people will be forced to begin "pairing up". More people will have to become dependent on each other, as well as the government. It would not surprise me if a biological agent was released (false flag terror), some sort of virus that is highly communicable and would cause massive deaths (mid to late 2012). Hope I'm wrong.

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  38. Gonzalo as the old James Bond theme from decades ago said: "Nobody does it better." I agree will all in the article except the concept that the US government is going to come with a $400-$500 billion bail out of state governments. I do not think the Republicans will go along with that. I do see the public pensions being taken over by ERISA. The highest pension any of these government employees will get will be $54,000 per year. You will see a tsunami of litigation and protests.

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  39. good article. opened up my eyes even further. well placed obscenities as well. thanks for writing this article

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  40. One of the readers commented above

    "When the crisis happens, what would stop the FED to walk away from all the trillion in Treasury bond that it owns? Wouldn't that give a big boost to the Treasury and lift the US dollar?"

    I have thought about this point in the recent past, but from slightly different angle. Specifically, what would stop the Treasury Dept. from defaulting on the bonds held by the Feds, with or without the Fed's OK?

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  41. Another set of BS predictions and economic ignorance from GL. Hey, all those of the commenters above who wrote "great post" - did you notice that the Irish passed their budget? That the Euro hasn't collapsed because of what is happening in Ireland, as Gonzalo was prophecizing?

    Gonzalo, you haven't got a clue how modern government works and what they can do. Let me come up with a few predictions on my own.

    1) Even if there is a sovereign debt crisis in Spain in 2011, it will be bailed out - just like Ireland was. The ECB will simply print the money! And since this is done electronically nowadays, they can print an infinite amount of it, if necessary, so there is no such thing as "too big to be bailed out".

    Do you really think that the USA has a monopoly on the printing press? Everybody is doing it! It's the least painful (in the short term) and the most efficient way to kick the can down the road - so that today's problems become problems for tomorrow's government.

    Sure, the Germans will grumble a bit. But they they will realize that (a) if Spain fails a lot of German banks will fail too and (b) money printing by the ECB means weaker euro, which is beneficial for Germany, it being the world's second largest exporter.

    And even if the simpletons in the streets there grumble a lot and set a few cars on fire - who cares? Who do you think put Angela Merkel in power? Hans Schmidt, who was stupid enough to vote for her? He wouldn't have, if he wasn't befuddled by the election campaign paid for the Big Money - who are her real masters, like they are the masters of the politicians everywhere in the world. So, Angela Merkel will do whatever Big Money orders her to do - which will be what is beneficial for Big Money and screw the EU, the economy and the people.

    2) Nobody will be expelled from the EU in 2011. Just the opposite - more countries might join. We need more fools to buy our useless crap.

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  42. Oh, yes, a few other points.

    1) If you truly believe that the EU is in trouble because its members can't print their own money to oblivion and that their problems will be solved by them exiting from the EU and devaluing their currencies, you're as stupid as those idiots on CNBC. The problems arise not because somebody can't print money - but because EVERYBODY does; because all the money is phony and is not backed by anything. The only way to solve this mess is to scrap the used toilet paper and start using real money. But it will be horribly painful and will be delayed for as long as possible - which is to say for a lot more than 2011.

    2) So, you believe the Fed can control the bond market? Do you have the foggiest idea how freaking large the bond market is? (In case you don't get it, that was a rhetorical question - for it is blindingly obvious that you don't have such an ideal.) Tell us, Gonzalo, if the Fed was capable of controlling the bond market - what does prevent them from controlling the (much smaller) comodities market?? Like, you know, print a trillion or two, lend it to their buddies at JP Morgan and Goldman Sachs at 0% interest under the condition that, say, 80% of it is used to short commodities futures? Do you know what this will do to the commodity prices? Or maybe tell the exchanges to hike the margin requirements by 100%?

    The truth is, commodities are raising because everybody believes that "China growth will save the world" story. Let me tell you a secret - the "China growth" story is phony. All those who believe in it have fallen victims to the propaganda campaign of the Chinese communist government. They are even better at lying and fudging statistics than the Americans are. China is full of malinvestments. China is an economic accident waiting to happen. And I won't be surprised if it does happen in 2011, as the Fed keeps devaluing the dollar and exporting US inflation to China via their yuan peg.

    Oh, and one more thing. The US economy survived $150/barrel oil. It will surivive higher commodity prices for a lot longer than you seem to think possible.

    To cut it short - there will be no collapse. Neither in the EU, nor in the USA. There will be just several years of high inflation (but no hyperinflation). Yes, the savers and the retirees will suffer the most. Who cares? Serves them well for believing the BS that their government was feeding them with.

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  43. GL, as to the comment immediately above by "Anonymous", I am reminded of an ancient Galician (Gallego) Celtic-Iberian saying "cada loco con su tema"

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  44. Hi
    it´s always a great read- but it also is a big thing to have the article printed.
    a print-button would be a great help.

    Wilu
    Germany

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  45. a death by a thousand cuts... USA dies as congress debates the limits of NFL teams in Europe.....

    may all the liars and thieves rot in hell...

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  46. Good analysis, and I agree with 98% of what you've written here. I would take you more seriously across the board though if you'd cut the swear words. Financial analysis requires intelligent wording, which you have, but less Bronx street-level banter, which you could drop. I lost respect for your analysis as I read, unfortunately, based on your word choices alone.

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  47. Hi Gonzalo,

    One of your Anonymous replies was "oil price is all that matters now" I tend to agree with that. Pay checks are not going up for those who still have a job and we saw the result of $140+ oil. The economy tanked and commodities fell hard.

    Why should this commodities run up be any different? Regardless of the money printing going on throughout the world, prices will not rise due to "Monetary Inflation" unless the money hits the general economy. I think a lot of this commodities run up is due to speculation including precious metals.

    My 2 Cents Predictions

    I think we are going to get a sharp pull back in everything while the crappy over printed dollar takes a short term moonshot. Interest rate yields will fall back a little and the whole crazy game can start over again.

    In conclusion, and parroting "Anonymous" with a slight twist. With unemployment at double the published number, and the US as the "world sell to" consumers, broke consumers now getting hammered by all items rising in price. Everything is touched by oil and that include food production.

    With pay stagnant and employment disappearing, "oil price is all that matters now."

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  48. I would like to comment on the Bush tax cuts. There seems to be a general consensus among many commentators that these cuts need to end. After all, if Americans want their cheese, they're going to have to pony up.

    The only problem with that is raising taxes in this environment would be completely counter productive. Raising taxes now would result in less revenue to the government not more.

    People will not work or run businesses to hand everything over to the government. When taxation reaches a tipping point beyond what people are willing to pay, they will change their behavior to avoid paying the tax.

    It's been suggested that the tax rates that would result in the maximum revenue to the government are much lower than the rates currently paid in the U.S. This makes complete sense. Government is completely non-productive. When fewer resources go to that which is non-productive, more is available for productive uses, which ultimately will increase the tax base.

    This leads me to ask what is the real reason for the onerous tax rates we have to pay now? It seems to be more than just revenue generation. That's a question for another day however.

    GS

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  49. Because the Bush tax cuts of 2001—implemented when there was an expectation of surplus, with clear sunset provisions, and no massive war expenditures—were extended by the mindless Republican Congress
    Not true, Democrats still in control of both houses of Congress when the Bush cuts were extended. I'm not a big fan of either party, but the Democrats just took ownership of the Bush tax cuts.

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  50. Hmm.. Quite much along my thoughts except for one thing. Don't you think the American people will realize what's happening to them and react? Don't you think the Tea Partyers and other protesters will have an impact on the current system with regards to the Fed and government spending? I mean we are already now having Ron Paul overseeing the Fed's activities.. Don't you think all that government spending will create a political backlash?

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  51. I agree with everything u said GL, USA as it stands now is fucked, and has been since a long time, and will continue to get worse, i just hope that the good ppl of the USA stand up to their gov't before it is too late, the biggest communist regime in the world is not Russia, or China, it is south of us, with phony propoganda outfits like 60min, CNBC, man it is hard to believe they actually went to college to become glorified cheerleaders, parents must be proud!!, because if not we all better get a horse and buy some seed potatoes and a few guns cause it is going to get ugly!!, and i mean everybody!!, take care and god bless!!

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  52. I think the silver market is going to default soon and when this goes sky high then a panic will ensue causing the whole deck of cards to fall down in the not too distant future.

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  53. Gonzalo,
    You are finally coming to your senses... no HYPERinflation is in store because the FED is calling the shots and manipulating the Bond market. Agree with you on a continued and sustained rise in commodity prices into next year. Still think you are full of yourself..

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  54. When you take into consideration the Permanent Open Market Operations (POMO) by the Fed, which is just another quantitative easing by another name you are well past the 75% but everyone seems to ignore those big injections. They were massive in late summer, early fall before the official qe2 started.

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  55. greg ijustwantarevelutionDecember 31, 2010 at 4:17 AM

    yes i agree, as one of ur posters said, it is quite currious that all the fiat paper is crashing at the same time. what ever fiat we r talkin about, its a fractional reserve currency system. And if i were one of the top 100 multinational corporate exec/owner i would want a global system of laws that i create that are enforced global. It would be a simpler world for me to manage and control as a corp exec/owner. The only thing i see thats getting in their way is believe it or not local cultures. Look at the germans and the spaniards in the eu. germans r telling the spaniards work harder and save more, the spaniards r saying fuck you and thx for the money but i not paying it back cuz that would cut into my siesta time.

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  56. MontyHigh said...
    Great post. I think you are right. My question is: Is there any country whose bonds are safe from inflation/currency devaluation? Is there any safe haven out there or do I have to play the precious metals and commodities like a cowboy at a saloon poker table?
    December 29, 2010 7:56 AM

    Monty,
    Diversify every way that you can (including commodities). Several countries in northern Europe are still solid - they don't use the Euro. Look for "Ring of Fire", a PIMCO commentary by Bill Gross that depicts the countries in bad shape and a few in good shape. The answer to your question is difficult to find, but there are probably other Austral/Asian countries with strong currencies and companies that will survive.

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  57. Anonymous said...
    When the crisis happens, what would stop the FED to walk away from all the trillion in Treasury bond that it owns? Wouldn't that give a big boost to the Treasury and lift the US dollar?
    December 29, 2010 9:24 PM

    My answer:

    The Fed and the dollar are synonymous. You can't walk away from yourself.

    By the time the crisis hits, it's virtually impossible for a government (or Fed) response.

    If the Treasury were to announce such a plan, it would trigger the panic in US Treasurys.

    Using QE accomplishes the same goal, but without the panic.

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  58. The amount of money in circulation has only a partial bearing on the poor prospects for the elderly. Let's say a loaf of bread costs $1, and then they quadruple the money supply, and now it costs $4 for a loaf of read. As long as there is at least some income redistribution, charitable organizations, etc. everyone will eat, in this example.

    As long as the number people working to support each retired person stays constant, and worker productivity is constant, everyone eats.

    The main problem we have is that the massive baby boomer generation is moving into retirement, so the number of workers per retired person is dropping drastically. Specific individuals might beat the odds and live well in retirement, but the boomers were destined for poverty, in retirement, once it became clear that it was a temporary (20 year) bulge in the population.

    No amount of saving by the boomers (collectively) will do any good. there aren't enough younger workers to support them.

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  59. One major error: It was NOT a Republican congress that extended the Bush tax cuts; it was Democratic congress. The Republican majority does not sit until 1/20/11.

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  60. It's this bogus war of "red and blue" states that keeps us divided and squabbling while the one party system goes about raping its electorate to their own benefit.

    Who freaking cares...the biggest difference between democrats & republicans is the spelling.

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  61. One question about the effect of Fed Treasury purchases on their yields:

    Wouldn't the more relevant total Treasury issuance (the denominator to the QE numerator) include the amount of existing debt rolled over in 2010 as well as the new debt (2010 deficit)? Don’t they need buyers for the rolled-over part of the pre-existing debt as well as for the new debt?

    I don't know how much that total would be, but I read somewhere that the average maturity of the U.S. national debt is pretty short, so it could make a big difference.

    I think there must be other explanations for low Treasury yields than just QE-lite and QE2.

    Also, this is a minor thing, but I'm not sure QE-lite really IS new QE. Until the portfolio bought using QE1 generates more money than it cost for the Fed to buy in the first place (something the bloggers I read said at the time would NEVER happen), QE-lite is just the maintenance of the effect of QE1, isn't it?

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  62. I suppose QE-lite DOES have the effect of directing the Fed's MBS income towards Treasuries, when the banks from which the Fed bought them might have done something different with it. What I don't see is how QE-lite constitutes adding more newly-created money to the system, which is the definition of QE.

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  63. You forgot to mention an escalation of the forever "war on terror".

    The so-called "Federal Reserve" is controlled by a cabal of the world's largest international banks. Through their ability to create a near infinite supply of fiat currency, they own and control the US government and its military- and are now seeking to extend that control over the rest of the world, ie. establish a "New World Order".

    As the situation approaches the tipping point, they will seek to cover their tracks with a third world war. The primary obstacle to this agenda has been the American middle class which is being systematically wiped out and locked into the steerage of the Titanic US economy.

    Incidentally, the men who control the purse strings are deeply into the occult.

    I've been converting my paper assets into precious metals since silver and gold were less than $4 and $300 an ounce respectively. How bout you?

    Waiting for you at the mountain top.

    Sincerely,
    Bible Believer

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  64. I loved your phrase "putting expensive makeup on a dead man" which sums up the macro position of the world economy in general. Barry in San Francisco

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  65. Good piece. You seemed to suggest however that extending the existing tax rates in the US for another two years will add to the US debt burden. The implication being that taxes should be hiked to bring the debt down. This recent WSJ article suggests otherwise. In any event, get and stay long natural resources and commodities! Below is part of the WSJ article I initially referred to...

    • OPINION
    • DECEMBER 29, 2010
    The Right Way to Balance the Budget
    The experience of 21 countries over 37 years yields a simple truth: Cutting spending works, and raising taxes doesn't.
    By ANDREW G. BIGGS, KEVIN HASSETT AND MATT JENSEN
    ...
    This is an important question, because failed consolidations are more the rule than the exception. To be blunt, countries in fiscal trouble generally get there by making years of concessions to their left wing, and their fiscal consolidations tend to make too many as well. As a result, successful consolidations are rare: In only around one-fifth of cases do countries reduce their debt-to-GDP ratios by the relatively modest sum of 4.5 percentage points three years following the beginning of a consolidation. Finland from 1996 to 1998 and the United Kingdom in 1997 are two examples of successful consolidations.
    The data also clearly indicate that successful attempts to balance budgets rely almost entirely on reduced government expenditures, while unsuccessful ones rely heavily on tax increases. On average, the typical unsuccessful consolidation consisted of 53% tax increases and 47% spending cuts.
    By contrast, the typical successful fiscal consolidation consisted, on average, of 85% spending cuts. While tax increases play little role in successful efforts to balance budgets, there are some cases where governments reduced spending by more than was needed to lower the budget deficit, and then went on to cut taxes. Finland's consolidation in the late 1990s consisted of 108% spending cuts, accompanied by modest tax cuts.


    Why is reducing entitlements and government pay so important? One explanation is that lower social transfers spur people to work and save. Reducing the government work force shifts resources to the more productive private sector.

    While tax hikes slow revenue growth, policies that credibly reduce government spending in the long run boost economic growth by more than their simple effects on deficits might imply. Any attempt to address the federal government's budget shortfall that relies on less than 85% spending cuts runs too large a risk of failure. The experience of so many other countries shows that it's crucial for the U.S. to get this right.
    Mr. Biggs is a resident scholar, Mr. Hassett is the director of economic policy studies, and Mr. Jensen is a research assistant at the American Enterprise Institute.

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  66. 1st Anonymous said...
    When the crisis happens, what would stop the FED to walk away from all the trillion in Treasury bond that it owns? Wouldn't that give a big boost to the Treasury and lift the US dollar?
    December 29, 2010 9:24 PM

    2nd Anonymous answer:

    The Fed and the dollar are synonymous. You can't walk away from yourself.

    By the time the crisis hits, it's virtually impossible for a government (or Fed) response.

    If the Treasury were to announce such a plan, it would trigger the panic in US Treasurys.

    Using QE accomplishes the same goal, but without the panic.

    1st Anonymous Answer:
    In my view, if Treasury walks away from its debt to Fed (as someone else also suggested), then the bond market will crash. However, the market will surge huge in the time of crisis, if the Fed forgives its US debt. Interestingly, that is when a true money printing happens. I believe GL needs to keep this scenario in mind. I've no doubt in my mind that Fed has this tool in its bag and they will use it when the bond market is about to crash.

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  67. "I've no doubt in my mind that Fed has this tool [debt forgivness] in its bag and they will use it when the bond market is about to crash."

    Doubt it. Go to stockcharts.com and pull up daily price chart of $tnx, 10-yr treasury yield. It looks like the bond market was about ready to crash on 12/15/10, but they have decided to cap 10-yr yields at 3.5%.

    Besides, the fed can't forgive treasury debt from a practical standpoint. The Fed and the US Treasury are partners in a check kiting type scheme. The US Treasury creates liabilities by issuing treasury bonds, putting dollars in the US treasury. The Fed buys them with reserve notes created out of thin air. These 'out of thin air' purchases are backed by the bonds they just purchased. Trillions created, no work ever done.

    Now you are suggesting the bonds backing all these 'out of thin air' reserve notes be forgiven? Don't stand under that falling dollar piano, lol.

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  68. The Bush tax cuts were extended by a Dumbocrat Congress. Not that the Republicans objected to the move, but the Democrats still have control of both the House and Senate, and will only lose control of the House, keping control of the Senate, when the losers of the last election get booted out and go home in January.

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  69. I don’t generally respond to Gonzalo Lira's Kindergarten Economic Analysis anymore because he doesn’t debate or really even answer comments. However, here are a few brief points to consider.

    Gonzalo predicts Spain is likely to crash, but he doesn’t analyze how that will affect the system as a whole once TBTF German Banks have to recognize these losses, and CDS betting Spain will fail start to trip. Simply cutting the PIIGS loose to return to their own currencies doesn’t revive the viability of the Euro, because its underpinning of debt will have to be written off.

    Gonzalo predicts a continued and ever upward flight to Commodities as a “safe haven” alternative to Treasuries, but he doesn’t explain how the wholesale purchasers of these commodities wil ever get paid back by end consumers who are already basicaly tapped out. Nor does he consider how China's efforts to curb inflation will disrupt the upward track of the commodities market. Read Ambrose Evans Pritchard for more on this.

    Overall, Gonzalo has a confused populist viewpoint of hyperinflation resulting from debt monetization of the Dollar, but he doesn’t provide any analysis of how the consumer could afford to pay hyperinflationary prices to support such a spiral very long. So what occurs after a few months of prices rocketing to the moon here?

    When Gonzalo will debate some of his ideas and predictions, he might be worth listening to. As it is, he just blows a lot of smoke.

    RE

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  70. I believe you are all missing an importany part of the picture. A chinese currency revaluation!!It would reduce the pain China is feeling and allow it to boost the local economy.

    Just a view from the land down under.

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  71. RE--I'll debate ya, FWIW. Your key question is "So what occurs after a few months of prices rocketing to the moon here?"

    First, here's what I think they should do. Like China, they should pass a law that says that all USA mined gold [and silver] must be sold to the govt. at spot. Remember, the dollar is gonna fail soon, so this is essentially free monetary metal for the govt. Then, fairly soon, then need to declare a bank holiday and convene a 2nd constitutional convention. All dollar debts and savings will have to be nullified, I figure, and some form of gold std. reinstituted, perhaps of the Bretton Woods type that worked o.k. from 1945 to 1971.

    Here's what I think they will actually do, since they don't seem inclined to do what I mentioned above, lol. They will accelerate QE-3,4,5,etc. until the house of cards collapses. Then, they will probably attempt to confiscate gold and silver and nationalize the USA gold miners. As I said above, they know the dollar is toast, so if they nationalize and confiscate at a fair price, unlike FDR, they might secure decent cooperation.

    So either way, I don't see an unbacked dollar surviving much longer. One year? Look at a silver daily price chart. they are out of metal to deliver, obviously, slo they don't dare take it down and force a 'fail to deliver' on themselves.

    So to answer your question, I think silver prices will force the issue before gasoline or corn prices do so.

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  72. Graham Summers: "The US economy today is not about a recession or a housing bust… it's about an Empire in DECLINE."

    "We've got all the tell-tale signs: we're engaged in endless foreign military excursions that bring nothing to the country, we're depreciating our currency at a rapid rate, we're trashing the national balance sheet and falling further and further into debt."

    Pretty well sums up the situation -- in just a few words.
    johnny

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  73. http://www.youtube.com:80/watch?v=XRmgI_WXff0

    A politician tells the truth!

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  74. Graham Summers: "The US economy today is not about a recession or a housing bust… it's about an Empire in DECLINE."

    That is really what it all comes down to - and it is a decline engineered by the globalists..."for our own good", of course. (Note: maximum sarcasm has been achieved on that last statement.)

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  75. GL,
    Thanks, Great Post.
    I would add, when one looks at the choices made in iceland (default), followed by currency collapse and economic recovery, one understands why the irish elite are afraid to do the right thing and default.

    I live in the most easterly city of north america. We have a huge irish culture here. Everyone here that I speak with who is irish born has the same sentiment-they need to default. Tough times and civil unrest are a guarantee for ireland....but I believe most irish believe they will be better off without the euro.

    So, It is iceland that is the microcosym of worldwide banking regulatory capture. The irish only have to look directly west. If the irish choose brussels as their masters, then we await the next attack by the bond vigilantes. The first sovereign EU default is the endgame for the euro.

    I suspect we might have one final run to the dollar in 2011.

    Chris

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  76. One issue, I still contend raises in taxes does not equate with raises in tax receipts. Cuts in entitlements, god what a wish, would help. But its my contention, not even your readers/posters will go for that route.

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  77. GL,
    I love you, baby, but could you please avoid the use of expletives. You sound like f**king Matt Taibbi in the f**king Rolling Stone!
    Thanks,
    SB (the opposite of BS)

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  78. As of the close on Fri 12/31 the INDU and SPX are showing confirmed long term tops while the COMPX still needs to trade up through a slightly lower high at appx 2673. The most interesting thing about human nature is how we constantly fail to learn from past mistakes and this will be the case once again with anyone who calls themself a goldbug. We all remember how the followers of Peter Schiff were totally decimated by the 2008-2009 market meltdown. Once again we see the exact same scenario. The U.S' equity markets are about to implode taking the goldbugs with them. Here's your long term (2 year target) for gold in fact >>> 450. And I base that target on the HUI/gold ratio which states that gold assets become a long term buy when this ratio trades below 30% ...as was the case in Nov 2008. My long term target for the HUI is below 150 so you do the math. Both physical gold and silver are actually showing long term confirmed tops right now so I would suggest long postions in both ZSL and DZZ. Neither have more than a few % points in downside and will easily double just in the first quarter of 2011. The U.S. dollar as measured by UUP is about to confirm its final low at 21.90. That will be your signal. ..Or, you can watch for a rapid drop in the VIX volitility index sometime this week to below 15.23. "But how can gold stumble when we know Ben Bernanke will continue to ramp the printing presses at any sign of market weakness?" the goldbugs will ask. Well, the answer is that Uncle Ben will need to keep the presses running overtime to replace the $$$ that will be lost by equity holders...including those invested in precious metal stocks. The world will also be beating a path to the dollar as the world's only safe haven. The Wall St moneyrunners couldn't have orchestrated a more perfect top where there can be no safe havens. It is really sooooo "obvious" that nobody sees it...but me of course. So please, remember this warning.

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  79. Gonzalo: As always, this is fantastic stuff. You perform a great service. Please keep it up.

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  80. @SB - bl*w me - and get over yourself - funny that you use the only lucid and honest reporting on the financial crisis by an established media outlet (even if it is RS) as a criticism of this blog...who cares if there are expletives in it. I'm sure you can get all the expletive-free lies you want from the NYT and CNBC.

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  81. Of course you are correct sir, however I feel you are overlooking the possibility of a VAT tax placed on the entire US economy which will push your scenario into the 2013 2015 area as a rough guess estimate. This extended lease on life will do nothing to solve either Spain's problem or the hyper inflation problem but will give a bit more time to the man behind the curtain.

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  82. Buy Gold and Guns to protect yourself from what might happen!!!!

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  83. While I believe in the gold & guns viewpoint, from a practical standing, if societal mayhem ensues and you have to actually use your gun (say, to protect foods stores or whatever, because those who did not prepare will view it as their "right" to help themselves to your preparedness), then you are probably within a day of dying yourself, because trust me, they will be back, and you gotta sleep sometime, or they will come en masse with their own weapons.

    Not to mention the government jack-boots will come for them...just as they did with Katrina...they can use martial law as an excuse for anything. The police and authorities aren't going to be interested in protecting you and yours, because in a crisis the governments only goal is to protect itself, and the citizenry be damned.

    Even now, anyone who thinks their government (and that is ANY government) gives a rat's @ss whether they live or die is under a severe delusion.

    "Every decent man is ashamed of the government he lives under." - H. L. Mencken

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  84. anon said-[ "But how can gold stumble when we know Ben Bernanke will continue to ramp the printing presses at any sign of market weakness?" the goldbugs will ask. Well, the answer is that Uncle Ben will need to keep the presses running overtime to replace the $$$ that will be lost by equity holders...including those invested in precious metal stocks.]

    Uh, you forgot to answer the question you posed there, big guy. Yes, we know Uncle ben will keep the presses running. You forgot to explain how that is bearish for gold.

    Remember the 'flash crash' in April 2010? DOW down 1000 points in a couiple of hours. Gold was flat that day, as I recall.

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  85. First of all I have no problem with GL's salty speech. It's become the language of common man. I don't use it but I have no problem with freedom of speech... and style. It's what GL says that matters.
    Whether you agree or not, GL's words spawn debate here in the comments section and I love reading all the comments. So let's focus on the meat of this debate and stop trying to kill the messenger be he GL or his commentators. Thanks to all of you for a spirited set of comments.
    Kat

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  86. I have some thoughts...
    If interest rates were allowed to rise I think it might be a good thing- why not? Americans would love to get a decent return from safe investments in CDs once more. (Provided we had banks we could trust). Retired folks do not like to risk money in stocks... and bonds are increasingly suspect.
    Most families are not borrowing money. They are paying down debt. Why save for a paltry return? Best pay off those higher interest credit cards. This is a no-brainer = do I invest for chump change & risk or do I get better return by eliminating high interest rate credit cards?
    Typically a homeowner would consolidate debt in a refi of mortgage BUT a lot of homes are not worth what they are mortgaged for hence the only answer is pay down the debt or default.
    Our government keeps hoping the consumer will start to spend and the engine will start running again. All they have done is flood the engine.
    FDR said it best - we need "freedom from fear" and that can only come when families have hope their children can have a brighter future. Right now many are sandwiched between aging parents and floundering children. If they still have jobs they have relatives who don't. We are stuck in the mud of incompetent government controlled by greedy powerful bankers. I can see no answers.
    Kat

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  87. I would stick with the $800B figure. They might tell you $600B but in the end the gov is basically one big lying machine......probably a "freudian" slip

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  88. I believe the Rothchilds & their banking elite are starting to to feel the heat of their own fire. The following is significant because Foundation X have NEVER LEFT THE GOLD STANDARD and need the UK stable to protect their interests.

    http://www.belfasttelegraph.co.uk/news/local-national/northern-ireland/conservative-peer-lord-james-of-blackheath-i-wrote-off-more-than-1billion-of-ira-cash-14995248.html

    Ensure you fast forward into the video clip 2 hours 27 minutes

    I would also suggest a thorough review of this site,
    http://www.bullionbullscanada.com/

    Good reading,

    GPS

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  89. Pipe, the flash crash was actually in May 2010....May 6th to be exact. I already answered the question. The Fed will be able to print copious amounts of money when the market crashes because copious amounts of money will be eliminated by falling equity prices. That was exactly what happened during the 2008 market meltdown. The hedge funds were forced to liquidate winning positions (gold and oil) in order to make up for the beating (margin calls) they were taking in everything else. The same thing will happen again IMO. The dollar rallied to the yearly high in June and has sold off since once it became obvious that Bernanke would continue to flood the markets with liquidity. It's pretty easy to ascertain that Th, May 6th was a computer generated event. Get ready for computers gone wild part 2. Coming soon, real soon. Again, the dollar will put in a new 52 week low before this happens. The VIX volitility index will trade below 15.23. Those are 2 indicators you can watch.

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  90. One more item of note concerning gold and the precious metal stocks, Pipe. When gold as measured by GLD was trading to a 52 week high in early Dec the gold stocks as measured by the HUI goldbug index was also. Many of the gold stocks have fallen 20%+ off of those highs. It is always interesting how the stock market tends to telegraph future intentions and even more interesting how the leaders of the lemmings like this fellow Gonzolo Lira ignore the warning signs. My suggestion to anyone who is long a stock like NG or ANV would be to take the opportunity you will be given to get even on your trade if you bought those highs and use it! For the record, I believe both of those plays will indeed trade though their 52 week highs before crash and burn.

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  91. Hello,

    I stumbled upon your sight off of a recommendation from another blog. Unfortunately, you are very correct. However, this is just another day in the world as nothing is really changing except the games we allow ourselves to play.

    The markets are not free markets, even though that is our perception... nor is life. We are slaves to a society that we has no benefit to the common man. Most joy we experience through objects that show the true greediness of a "rich man."

    If you look at our actions from a perspective that we are animals (classified as Human Beings) living on a rock floating around a sun in the middle of a galaxy... all of these things that we try to analyze are completely meaningless...

    Besides the point, let's party with this thought process.. Nothing to be worried about, it is only the beginning of the enlightenment of humanity. It is going to be an awfully hard fall back to reality. We as Americans are really in the clouds...

    Ron Paul Revolution, get behind it!
    -
    Visit my blog which blogs the revolution in progress and what you can do to hedge yourself against the maniacs that have destroyed the economic system.
    -
    http://thehardrigthedge.com
    --
    Scott J

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  92. if commodities are up in the roof and worldwide economy not recovering, aren't you forgetting about a majour crisis in Japan where population is aging fast and debt to GDP is reaching record levels?

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  93. anon(flash crash)-You didn't respond to my point about gold holding up during the flash crash. It nullifies your point. It is called 'delinkage'. Gold actually held up fairly well during 2008, considering. I would expect it hold up even better, now that there is a growing revulsion toward fiat currencies in general.

    And on top of that, silver is delinking from gold. I expect silver to trade at a gold:silver ratio of 15:1 before this is over. In over words, if gold doubles from here, silver goes up 6 fold. They are out of white metal to deliver. They can create blizzards of paper silver (and gold), but they are temporary, without anything physical to deliver.

    I agree with you that on a temporary basis, plunging asset values can be balanced out with 'out of thin air' printed money, but as GL points out, there is a debt level beyond which the games stop working. We are past that line in the sand, and people want real metal in their hands, not paper promises to deliver more paper in the future.-pipe

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  94. Only a matter of time before China wants to cash in on collateral. Alaska? Hawaii? Now, where do I learn Manderin?

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  95. Greetings. I forget how I got here --oh, I think it was a link from Blacklisted News. Anyway, GL's article gives a very interesting viewpoint.

    Have you seen this?

    http://www.youtube.com/neithercorp

    It's a 12-part documentary about the economic collapse of Argentina. Some parts are eerily similar to what's been happening in the United States. Seems well-made and not at all hard to view and listen to. It's in Spanish and is subtitled.

    An interesting read, also, is The Modern Survival Manual: Surviving the Economic Collapse, based on first hand experience of the 2001 economic collapse in Argentina, by Fernando "FerFAL" Aguirre. English is his second language and the book is self-published, which is why it is a bit amateurish in places --but it contains helpful information.

    In my opinion it's a good idea to convert some fiat currency to actual money, which would mean taking actual physical possession of precious metals in the form of coins. The easiest way to get into silver is to purchase pre-1964 US coins: instantly recognizable as money, 90 percent silver, and those darned little Mercury dimes are actually pretty. Having stored food is smart, too, and redundant systems, especially in the city, if you can't get out. Relationships with trusted family, friends, and neighbors in one's local community are becoming very important. We should prepare for doing business in the economy which will emerge following abandonment of the currency. There is no need to despair, but we must prepare.

    Cheers,
    Kate

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  96. Who would profit from Europe’s falling apart?

    " there doesn’t seem to be anything that’s going to stop this collapse."

    I read China is buying State´s bonds of Spain, as they did of Portugal and Greece.
    They are paying with merchandize "Made in China".
    At first it stroke me as a very "irrational" lending.
    Why should a country lend money (as they did with US) to another country in order to sell?
    Wouldn´t it be better to lend to your own people and create an internal market?
    After all China can count on a huge number of consumers (one milliard two hundred millions or so)
    But the Chinese government is NOT elected and doesn´t have to care to get votes for the next elections, so they can neglect to care for the welfare of their own people.
    In principle what matters is the number of workers.
    May be China has three goals: being able to dump the dollar, in the meantime still having a big market to export (Europe is bigger than US)and being sure that the consumers won´t buy from US even if the dollar is weak.
    Germany has no interest in dumping the south of Europe, if your consumers get poor they cannot buy from you anymore.
    The South of Europe has no interest in dumping the Euro.
    Going back to the Lira ot pesetas or dracma, would mean sure failure.
    If they cannot even pay the 1% interest, how could they afford 10 or 15%?
    Is it better to be poorer or miserable?

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  97. Pipe, again, my outlook was explained thoroughly enough for anyone who is willing to acknowledge a point of view that is contrary to what the masses are currently contemplating. I'm not even looking for agreement since it is difficult to get a crowd of lemmings to agree to anything except that what is totally wrong. I already mentioned several warning signs to look for. Today we found out just how truly hard it is to be a goldbug. Anyone who chased the rally in either physical gold OR the mining shares the past 2 days more than likely got stopped out of their trades today with sizable losses. I am only pointing out the warning signals that the market is sending. There is still time to trade gold and PM stocks for some upside gains. The problem is that most sheeple trade like complete idiots. My suggestion once again would be to simply stand aside and wait for final tops to be set and then you can buy either DZZ or ZSL...or short any of the most grossly overvalued PM stocks (my suggestion would be UXG, NG, ANV) once 52 week highs are taken out and just hold with confidence. DZZ will at least double during calendar year 2011. NG is 'eventually" a thirty cent stock. Ignore my warnings at your own risk because as I already said....the goldbugs will be even more wrong than they were in 2008. You are going to see the greatest deflationary bust the world has ever witnessed. The U.S. dollar and U.S. treasuries will soon be an investor's only friend...aside from the exchange traded ETF's that short the various market segments of course. Uncle Ben is gonna need to ramp up the printing presses into double overtime just to keep up with worldwide demand for the lowly dollar :-)

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  98. this whole central bank system is manipulated and is based on a system of false balances--a proverbial house of cards with nothing supporting it. Every year it gets worse and worse, yet the collapse does not come. Why? Because it is fully manipulated and is pretty much the only game in town and we have the world's strongest army to back the dollar up. But God will NOT be mocked with this house of lies. Larry Burkett and countless others have been saying this would come down twenty years ago. Ultimately, I believe the FED system will come crashing down when God lifts His finger and says enough already. It may happen with very little warning. I do believe that those that know Him thru Jesus and are ready and listening will know the signs before it occurs. In the meantime, buckle your seat belt and be prepared.

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  99. United Kingdom, Britain, GBP, Pound Sterling

    I have read through all the posts above and I have not seen any comments about the UK. Loads about Europe and the UK are part of Europe although not the same currency obviously, any thoughts anyone?

    Cheers, Damien

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  100. On 12/30, Anonymous GS said, " This leads me to ask what is the real reason for the onerous tax rates we have to pay now? It seems to be more than just revenue generation. That's a question for another day however."

    Well, it's another day and another year, and time for the answer:

    It's called "Income Redistribution". Tax rates are onerous for those who pay taxes because (in the US) 47% pay no income tax at all. 40% are on welfare, which (no surprise here) is paid for by....those who pay taxes.

    Please remember, now, this is "not Socialism".

    CC

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  101. I've noticed that in all the various currency collapse blogs such as this one, no one has really mentioned much of anything about real estate. Would this not be a sound investment since it is a "hard asset" (assuming it is owned free and clear), or is it simply seen as an illsuion of ownership and so not worth purchasing. After all, in the event of a social collapse, we would all need our "camps".

    Also a related question: If the currency buys less because of QE2,3, etc., would it not be a good time to start paying off mortgages and other debts? After all, you'd purchased items at a price which is now much higher.

    Thanks!

    Dan

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Whether you agree with me or not, thank you for your comment.

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If you have a question or a private comment, do feel free to e-mail me at my address expat229@gmail.com.

GL