FOMC: This Is The Beginning Of "The Big Print" - Unlimited QE

The fact that enough people still listen to Cramer is the perfect indicator of just how stupid part of our population is and it explains how we - the people - let our country lapse into systemic collapse.  At it's base level, Government intervention in our lives prevents the Darwinian mechanism of natural selection from doing what it's supposed to do.  That Cramer still sells his crap and that CNBC is still on the air is a perfect testament to that...Dave in Denver

For the first time since QE first started, today's FOMC announcement stunned me.  Not because I was expecting something other than what was announced, but because of what was actually announced and the timing of the announcement.  I have been expecting eventual global QE to infinity since like 2003.  Seriously.  I didn't think we would get the first indication that it's coming today, two and a half months ahead of a Presidential election, and I didn't think it would come first in the form of a direct attempt to reflate the housing market with subprime mortgage paper.

Let me explain.  Here's the only important part of today's announcement (the low-rate extension to mid-2015 was highly telegraphed and is about as useless as the new iPhone 5 on Mars):

The New York Fed said it will start buying agency mortgage-backed securities on Friday, at a rate that is expected to total $23 billion over the remainder of September. It will then purchase securities at a clip of $40 billion each month. The New York Fed said it will concentrate its purchases in newly-issued agency MBS in the to-be-announced market, although it may purchase other agency MBS if market conditions warrant (LINK)

Furthermore, the Fed said it will add to its purchases if the labor market doesn't improve, it will keep its policy stimulative for a "considerable time,"  and it left the duration of the mortgage purchase program open-ended.  De facto QE to infinity.

The question is why?  The Fed is specifically targeting the monetization of new mortgage issuance by the GSE's.  But we've been told up and down Wall Street and from the industry promoters - Nat'l Association of Realtors and Nat'l Association of Home Builders - that the housing market is bottomed and moving higher. I have heard countless TV economists get on CNBC/Bloomberg/Fox Biz and tell us that now is a great time to buy a home (see the cover of last Friday's "Barron's").

So why target housing specifically?  We lose manufacturing jobs in this country every single month.  Why not target that?  The two biggest problems with housing are 1) the massive shadow inventory, as detailed on this blog; and 2) the rapid decline in the average weekly income of the middle class, which means there are less people who can afford to buy a home or stay in the one they own.   A mortgage purchase program will not address either issue. 

What makes this specific QE program frightening is that to the extent that there is growth in housing mortgage finance, it's coming from the FHA.  The FHA, as I've detailed on this blog recently, is a  subprime lender disguised as a GSE.  It requires only 3.5% down to purchase and someone who refinances can take down a mortgage that exceeds the value of their home and receives mortgage payment insurance at a rate that is heavily subsidized by the Taxpayer.

What the FOMC policy decision, and the timing of the decision, tells me is that the overall economy is in big trouble and the Fed is going to try and stimulate economic growth by reflating the housing bubble using sub-prime paper.  That fact that the program is entirely open-ended, with no defined goals or parameters, tells me that we are on the insidious path to complete fiat currency devaluation via unlimited QE, because if this policy does not do anything, which it won't (other than generate bigger commission checks for a few mortgage brokers) - the Fed will be forced to implement even more drastic policy measures.

And this is why gold and silver have reacted so sharply today.  The low on silver ahead of the policy announcement was $32.72 and $1720 on gold.  As I write, silver is at $34.72 and gold is at $1769.  This is an incredible reversal.  It also tells you the degree to which the market agrees with my assessment.  I want to conclude with a great quote from Austrian-School Economist, Murray Rothbard, which I hypothecated from my friend and colleague Jesse of Jesse's Cafe Americain: 

Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium...I see a great future for gold and silver coins as the currency people may increasingly turn to when paper currencies begin to disintegrate.

MF Global On Steroids

There is no way over, under, around or through the fact that no progress will be made as long as the world is divided up between the rulers and the ruled and the ruled accept their lot...There has never been any shortage of those who want to rule. The problem has always been with the vast majority who are content to be ruled. Today’s global outcry for the manufacturing of more and more “money” out of thin air is an eloquent testimony. It shows that most people have no understanding of freedom, markets or money. Lacking such understanding - and having no desire to gain it - most people have accepted government as their masters.  - Bill Buckler, The Privateer

Before I get to the subject of the title, I wanted to just say that it's spiritually rewarding for me to make an assertion about something and then to be rewarded by being right once all the facts come out.  Last week Henry Blodget, unconvicted violator of securities laws, tried to pump up Facebook stock by saying that the Company's decision to buyout and retire employee stock at $19/share that was held back from the IPO was a stock buyback and signaled to the market that the stock was cheap.  I immediately called b.s. on that and suggested that it was nothing more than a disguised form of required W2 compensation tax-withholding: LINK

Turns out I was right and Blodget once again revealed his true nature as corrupt pump-n-dump stock analyst.  You can read about the details here:  LINK  In brief, FB's little manipulative maneuver there represents a required 45% State and Federal tax withholding on employee compensation that took the form of restricted stock units rather than a standard paycheck.  Henry, veritas liberabit vos, the truth will set you free...

With regard to my title, Bloomberg published an article Sunday night which described the new Wall Street gimmick called "collateral transformation:"  LINK  A big problem in the financial markets in Europe and in the U.S. is the scarcity of high quality "collateral" that can be used as margin "equity" against derivatives positions.  For the average retail brokerage customer, collateral is in the form of cash or a percentage of the value of stocks held in an account.  There are very strict regulations in place and actually enforced with retail broker accounts.

It's a whole different ballgame when it comes to multi-billion dollar bank repo transactions and multi, multi-billion dollar OTC derivatives transactions.  With repos, which give large banks short term liquidity funding, banks originally had to post Treasuries as collateral. Same with OTC derivatives. Over time, because of the growing demand and scarcity of Treasuries and Euro-sovereign bonds due to the growth in OTC derivatives and expansion of repo programs,  the Fed and ECB began to allow "lower quality" forms of collateral like mortgage-backed securities.  In fact, the ECB now allows an even wider basket of collateral.  And of course, now the Central Banks and clearing houses allow the use of gold as collateral.

But the market continues to be hampered by a lack of collateral.  And if banks and big investors can't post collateral for margin calls, the whole global Ponzi house of cards will collapse.  In order to address this, Wall Street had to figure out a way to repackage crap assets so they could be utilized as collateral that could be posted against extremely risky OTC derivatives positions. Ergo, "collateral transformation."  Just let that term roll around your tongue and the right side of your brain for a few moments.  It's such a grandiose and exalting term.  Like, the geniuses on Wall Street are going to metamorphize good collateral out of bad.

The way it works is that "collateral transformation" desks at the big bank will take crappy assets from big investors who are required to post more collateral against losing derivatives positions and exchange them for Treasuries.  The crap assets will be assessed some kind of discounted value, so if you need $100 million in Treasuries to post as collateral, you might have to come up with $120 million of "assessed" value in the crap assets.  Does this sound at all familiar?  Hint: AIG, Bear Stearns, Lehman, etc.   

In reality, "collateral transformation" is just fancy name for hypothecation.  In other words the big Wall Street banks will find Treasury bonds that can be posted as collateral and charge the counterparty a nice fee for this.  Theoretically the Treasuries can't come from customer accounts, but we saw with MF Global just how rigid this law turned out to be.  This is adding another layer of hypothecation in the financial market Ponzi scheme, only the collateral being posted to "back" the hypothecated Treasuries will crater in value in a bad market and there will be massive losses.  The fact is, Wall Street has taken the MF Global/JP Morgan model for collateral posting and injected it with steroids.  You can thank the Obama Government for enabling and allowing this.

One last point, if you read through the Bloomberg report, you'll note that Calpers (the California public pension management firm) has $224 billion under management, of which $30 billion is in the form of OTC derivatives.  I'm not really sure why Calpers has OTC derivatives in its pension portfolios, but OTC derivatives are completely inappropriate and unsuitable for pension funds.  I would be terrified if I were a Calpers pension fund stakeholder.  That aside, Calpers proudly announced that it will side-step the costs of "collateral transformation" by using Treasuries from its own in-house portfolios.  Again, this is a horrifying idea.   To play this out:  let's say you have your money in a Calpers Treasury fund;  Calpers needs to post more collateral against a losing OTC derivatives position in one of its super-duper high risk/high return funds;  Calpers will take Treasuries from your fund (hypothecate them) and use them as collateral for the other fund;  if the OTC derivative blow up, the counter-party to the trade keeps the Treasuries and your Treasury fund loses the Treasuries.

Now, this is an example in isolation, and ultimately if it were only on instance, the super-duper fund would have to compensate the Treasury fund for the loss.  But OTC derivatives blow-ups don't happen in isolation.  There is a very high degree of systemic correlation and the blow up in the Calpers trade will likely be accompanied by a daisy-chain of similar trades blowing up system-wide.  And then we have what happened in 2008 x 10...

Collateral transformation....remember portfolio insurance in the mid 1980's?  Remember the "flawless" derivatives hedging utilized by Long Term Capital in 1998?   The housing bubble/OTC derivatives bust in 2008?  These financial market disasters continue unabated and get worse successively.  "Collateral transformation" - I wonder when the "I can turn lead into gold" myth will be revived....

Public Employees: They Are Different From You and Me...

(Note: for those unaware, my title is a play on F. Scott Fitzgerald's quote: "Let me tell you about the very rich. They are different from you and me.")

We live in a self-entitled society and no sector is more self-entitled than those who work for the Government, supported by taxpayers with guaranteed salaries and pensions.  Their sense of self-entitlement is worse than that of the lumbering herd of overweight middle class houseswives who drive around in their gas-guzzling, over-sized SUVs, running up credit card debt and chatting on their cellphone the second they get into their car...  - Dave in Denver, 9/10/12

Teachers in Chicago went on strike today over demands for a 19% pay raise and refusal to accept a teacher evaluation system which would hold teachers accountable for performance.  The first thing that needs to be pointed out is the obvious:  Illinois is running neck and neck with California over status as the most bankrupt State.  Illinois operates in a deficit on a daily basis and, even if teacher pay hikes were warranted, can not afford it.

But here's some numbers that will shock you:  The average teacher pay in Chicago is $71,000, not including benefits.  The average Chicagoan makes $30,203 and the city's unemployment as measured by the Government is 11%.  I don't think the teachers will get any support outside of their own kind for higher pay, especially when you factor in the fact that teacher pensions are guaranteed by the taxpayers and they are eligible for retirement benefits after 20 years of service.  And don't forget that teaching is a 10 month endeavor, at least for the ones that care about the product they produce - the rest of them coast along at the end of the summer until they have to walk into the classroom. 

In hearing from teachers I know who are hard-working and care about their classroom performance, the tenure system needs to be completely overhauled.  Teachers should be required to demonstrate competence and good performance.  I know a few teachers who rarely use up their full allotted time off during the school year and feel compelled to make up the for laziness and incompetence around them. On the other hand, I personally know a teacher who takes more than her allotted personal time and sick leave days, exploiting the willingness of the school principal to look the other way.  I know this dynamic is pretty common in the school systems in Colorado, I can only imagine how bad it is in the major cities like Chicago, L.A. and NYC.

This is the kind of crud that needs to be weeded out the teachers union and the system for hiring and retaining teachers.  The fact that teachers can feel entitled to big pay raises, while their private sector peers are struggling is beyond absurd.  Compensating teachers based on tenure is the recipe for poor results.  The education system in the United States ranks 14th, 25th and 17th globally in reading, math and science respectively, according the OECD (Organization for Economic Cooperation and Development).  Given the level of pay and benefits for teachers in this country, that fact is just appalling.

And this problem is not just with teachers, although it hits home the hardest because the teachers in our public school system spend almost as much time with our kids from age of 5-18 as do parents. But every category of Government employee demands a much higher level of pay than is given in the private sector.  How many private sector jobs have guaranteed pay and benefits? (note: I'm talking about pay for rank and file, not Wall St. or upper management, but that's another issue).  I do not know of any.  And a lot of large-company 401k plans are comprised of a high degree of corporate stock.  No guarantee there either.  Teacher pensions are essentially deferred cash payments guaranteed by the Taxpayers.

I don't know when and how Government employees in general assumed the mantel of self-entitlement, but the salary and benefit packages given to public servants is another "bubble" in our economic/political system that is contributing to the overall collapse our country.  It starts with Congress with things like Congressmen having their own healthcare plan, thereby avoiding the highly disastrous Obamacare.  And it continues with  teachers demanding more pay when States can't afford it under any circumstances and with refusal to implement pay for performance compensation plans in lieu of pay for tenure.

It makes me sad to see the Chicago teachers exhibit this high degree of self-entitlement with their contract demands.  But it speaks volumes about the degree to which our system has deteriorated and is in a state of collapse...

Friday Comedy - Obama Show

I buy every month, and I will never, ever sell it as long as people such as Mitt Romney, Paul Ryan, Obama, Biden, Bernanke, and Geithner are in government.  I will never sell it.  Never.  - Marc Faber, Swiss Investor, King World News

I couldn't let the monthly Non-Farm Payroll Report go by without shooting it down, however an easy target it may be.  It's easier than shooting fish in a barrel, really.   At first blush on the headlines, in which the supposed number of jobs gained, 96k, badly missed the consensus expectation by 29k, I was shocked that Obama would let the BLS release a number that was that bad on the heels of his big teleprompter reading last night.  But then the unemployment rate crossed that tape at 8.1% vs. 8.3% last month and 8.3% expected.  It then occurred to me that it was a perfect number for Obama.

Perfect because the supposed jobs "growth" is slow enough to justify a lot more economic stimulus - at least from a political standpoint, certainly not from a law of economics standpoint - and the supposed decline in unemployment rate is the perfect marketing device for Obama.  Now, we know there's no such thing as a free lunch, but our Ministry of Truth (Bureau of Labor Statistics) has written a free lunch script that will be heartily consumed by many.  It so closely follows the Orwellian script, laid out by George (Eric A. Blair) in the late 1940's, that it's frightening how prophetically accurate his vision was.

Let me shed some truth on the numbers, at least on the statistical vomit thrown at us by the Obama Team.  I say this because the data sampling and mathematical calculations used to produce the report are largely accepted as being wildly inaccurate by most who have studied them with an eye for truth and accuracy rather than the goal of public perception management.

The headline number was 96k jobs added in August.  Supposedly 103k private sector jobs were added vs. 142k expected.  Of that, 87k came from the nefariously fraudulent "birth/death" model.  The durable goods manufacturing sector actually lost 17k jobs.  The number of people employed in residential construction jobs is down 20k from August 2011.  Do you really believe the reports that the housing market has bottomed?  Really?

The unemployment rate supposedly dropped to 8.1% from 8.3%.  But remember, this number is calculated using the Government's very narrow definition of "those looking for a job" divided by the total workforce.  If you can make the numerator decrease relative to the size of the denominator, or vice versa, you can statistically engineer a lower unemployment rate.  Follow that?  Here's how Team Obama engineered a lower unemployment rate:   They claim that the civilian employment workforce (the denominator) declined in size by .2%;  however, they decided that the number of unemployed declined by 2%.  Voila!  A smaller numerator relative to the change in size of the denominator!

All of the hypothetical action in the employment numbers can be found here:  LINK  The saddest part of this is that the casualty in these calculations - a casualty of which zero reporting is done by the mainstream media - is the labor force participation rate, which is the number of people working or want work as a percent of the definitional workforce.  This metric declined to 63.5% - the portrait of a tragic and catastrophic decline in the number of people who actually work in this country.

Where do the rest go?  Well, in the context of all the entitlement programs run by the Government and financed by the Taxpayers, the Chinese and the Japanese, 165 million people in this country are to some degree dependent on Government handouts to make ends meet:  LINK  Last month under Obama's stewardship, food stamp usage spiked up to a new record:  LINK  Did Barack happen to mention that metric in his full-of-bullshit speech last night?  I've discussed the Social Security disability program on this blog.  The number of people, and especially younger people, claiming disability and sponging off this program has climbed significantly under Obama.  I'm dead serious about this, about all you have to do is claim chronic head-aches that prevent you from working and you can qualify.  And I know a doctor who tells me new medicaid horror stories every time I see him.  Did Obama happen to mention that?  Finally, this one really blew my mind:  the Government announced recently that it will be giving $100 million to States in order to prevent State Governments from laying off employees:  LINK   Ummm, did Obama happen to mention that? Talk about getting paid not to work...I guess these facts didn't scroll across his teleprompter.  

The reason Obama has ramped up the entitlement programs and Student Loan lending is that any new recipient of something like social security disability or a SLMA guaranteed student loan immediately gets dropped from the Labor Force metric. The amount of SLMA loans has soared to $1 trillion during the last 4 years.  This will be more defaulted debt guaranteed by the Government.  These programs enable the Government to somewhat justify showing a smaller number of unemployed and a lower unemployment rate.  The rest is statistical fairy tales told with a very Orwellian spin.  Even the Government's own U-6 report, buried in the BLS report, admits to a more realistic unemployment number of 14.7%  Newspapers and cable news shows will not report this number.  Given the bulge in the various entitlement program participation, I would bet the true unemployment number is north of 20%.   As many know, John Williams (Shadow Statistics), calculates an alternative unemployment number which is north of 20%.

The truth is that it doesn't matter whether a Republican or Democrat sits in the Oval Office. They are both the same Manchurian Candidate with a slightly different "spin" coming from the text they read off the teleprompter sitting in front of them. The only way to solve the problem is with a gold-backed currency system and a complete econmic/financial "reset." A "reset" is coming - it's just a matter of what it looks like and how violent it gets. That's the ulitmate end of this story. Until then, the only way to have a shot at seeing what the other side of this "reset" looks like with a full belly is to move as much of your paper wealth as possible into physical gold/silver (and get a gun).

Have a great weekend, it's the start of NFL football!!!!

GO BRONCOS!

The Income And Substitution Effect

The gold/silver story is starting to seep into the masses.  It will happen slowly, but if just 5% of the masses start to buy real gold and silver and eschew the fraudulent ETFs, there will be a serious price explosion.  Imagine what will happen if 15-20% of the public start buying...it will be interesting to watch the gold/silver ratio, because as both metals get more expensive, there will be a serious display of the economic law of "income and substitution effect," and we'll see the "silver is poor man's gold" axiom on display in a major way.   - Dave in Denver

Bill Murphy was the feature interview on RT's "Capital Account."  The topic was manipulation in the precious metals market and the coming silver market squeeze.  This is a must-watch interview: LINK

For all of us who have researched, studied, traded and invested in the precious metals market for the duration of the bull market, there is no question that JP Morgan has illegally manipulated the gold and silver market, likely on behalf of the Federal Reserve, in order to support the dollar.  In the process, JP Morgan has reaped billions in ill-gotten, highly illegal gains.

In another era (see Drexel Burnham Lambert circa 1980's), JP Morgan would have been shut down and the upper management prosecuted and sent to jail.  But it's the "new" America and it's okay for the insider elitists to loot and pillage the system with the full complicity of the Government.

But the market does not discriminate against income or wealth levels.  Sooner or later the natural laws of the market will substitute in for the artificial manipulation and control being implemented.  It will be ugly for those who are short gold and silver.  China and Russia are aggressively accumulating the physical gold and silver that is being dumped on the market by western hemisphere Central Banks and bullion banks.  I suggest you do the same...

Want To See $40 Billion Disappear In Less Than 4 months?

(Click on chart to enlarge)

 

It took a little less than 4 months for Wall Street and the insiders at Facebook make $40 billion disappear.  It took more than 40 years for Bernie Madoff to accomplish the same feat.  Maybe it says something about the devaluation of the U.S. dollar, since Madoff got started before the gold standard was removed.  This waste in wealth might even make the Government blush.

This whole situation is just unbelievable.  I've never seen a large-cap, high profile IPO result in this degree of failure this quickly after it was issued.  Never.  This is truly a modern day Dutch tulip bulb event seeded in what is likely a high degree of illegality on the part of Morgan Stanley to get this deal done.  Does everyone realize how many individual retail investors got plugged on this one by their broker/financial adviser?  I just can't believe that Morgan Stanley is not investigated by the SEC and the Justice Department over the distribution of the FB IPO.

I know for a fact that Morgan Stanley violated all kinds of rules and regulations put in place by the SEC Act of 1933 and subsequent Investment Advisory and retail brokerage regulations put in place.  There's no way they did not.  Let me listen to the recordings of the brokers and institutional salesmen during the IPO distribution period.  Every one of those phone lines is recorded.  I know this because because I've spent many years in the industry. And I can guarantee you that the Obama Administration is looking the other way. 

Facebook made some announcements via an SEC filing yesterday which included the provision that the Company will be withholding and "retiring" a certain percentage of shares set aside as insider compensation and will be using the "proceeds" to pay the tax bill on employee stock sales.  The interminable Wall Street apologist, Henry Blodget - who by the way settled with the SEC for several million over his role in pumping Amazon.com during the internet bubble and really should have seen jail time - called this action a "stock buyback at $19 per share."  That's laughable if it wasn't such an ignorant comment coming from someone who is supposedly educated.  It's not a stock buyback.  It's called "required tax withholding on compensation."    

Blodget believes this is a signal that management thinks the stock is cheap.  This isn't a stock "buyback."  A stock buyback occurs when a company goes into the marketplace and buys back shares, usually over time.  This is retiring shares that haven't hit the market in order to avoid a massive IRS problem.  Without spending the time to look into all the details, I highly suspect that Facebook was required to do this.  Buyback - give me a break Henry.  Facebook will retiring 101 million shares at $19 share, leaving employees with another 133 million shares that will be distributed and dumped on the market on October 26th.  If you look at the withholding ratio there, it looks suspiciously like a W2 withholding.  Fuck you Henry.  If Facebook wanted to do shareholders a favor, they would wait another 3 months and retire the shares at an even lower price level on the stock - like $10-12, where it's headed soon.  

The fraud and corruption on Wall Street - and complicity of the Government - gets worse by the day.  It will continue to get worse no matter who gets elected in November.  Romney is a total Wall Street whore.  Obama became one.  The only way to protect your wealth from this is to buy physical gold and silver, which will be going much higher over the next several months.

Why Gold Is Going Much Higher

I believe it’s going a lot higher…it’s going to have a parabolic spike, caused by some event or some loss of confidence…a US dollar crisis would be a perfect example. That will cause gold to go through the roof, and then everybody will want to own it…I don’t think we’re even close to that yet…Gold will probably have a much greater run than some of the other hard assets–because it’s also a currency  - Frank Giustra, mining industry entrepreneur (one of the "architects" of Goldcorp)

That quote is from an incredible interview with Frank Giustra.  Well worth hearing:   LINK

My business partner was having a discussion about the current fiscal/financial situation in this country with an old friend of his.  I think his friend was trying to get his thought process around the scope of the problem and how to fix it.  His friend was trying to work out the math on the Federal budget deficit - well, essentially all of the numbers as they are presented by the Government.  He is also trying to understand why gold would be a large piece of the "solution puzzle."  What I sensed in his thought process was a high degree of "hope" and a misunderstanding of the numbers as presented by the Government.

But "balancing" the Federal budget isn't a matter of just cutting back on medicare and social security.  I don't know exactly which areas of the various Government websites that my partner's friend was getting his numbers from and I don't know to what degree he understands that the numbers are highly massaged and misleading.

You could cut all entitlements to zero and the Government still doesn't have a balanced budget.  You could cut all defense spending to zero and the budget isn't balanced.  The reported budget isn't even the true budget.  The cost of the FNM/FRE bailout is not included in the reported budget.  There's a lot of defense spending that is not included.   How about the highly underfunded status of the Federal pension system?  The reason it's underfunded is that the Government plays games with the contributions in order to "shave" expenses from the budget.  If the Federal pension were properly funded each year the budget deficit would be significantly wider.  Suffice it to say that that the Government is mathematically insolvent and the solution will not be found in working within the system as it currently exists.  There needs to be a huge "reset" of everything.  The "reset" process can occur in several ways, all of which will entail a substantial decline in the standard of living for the 99.5%'ers.

With regard to gold, gold isn't an investment.  Gold is a currency.  It's only an investment to the extent that its value as a currency is cheap relative to all other currencies.  The only value behind any paper fiat currency is the "faith" that the issuing Government will maintain supply of the currency relative to the wealth and economic output of the issuing country.  We're well beyond that ability now in every currency.  Right now the only "value" of the U.S. dollar is the Government's ability to print more currency in order to avoid default on the Government debt.

At some point the gold standard will be restored to the global economic system.  I don't know which country will force the issue and I don't know when.  But in order to create the financial "reset" that will be required to restructure and discharge inter-Governmental debt obligations, the value of gold will have to be reset to a much higher level in current dollar/euro/yen/yuan terms.  Much higher.  Ron Paul wrote a brief essay addressing this issue.  The essay summarizes how the dollar engineered into a pure fiat currency and was enabled to remain the world's reserve currency:  LINK  The only idea in this essay with which I disagree is the notion that it's not too late to save the U.S. dollar's status as the world's reserve currency.  There's been too much damage and our country has crossed the Rubicon of dollar destruction.

Whether or not the public ever jumps on this bandwagon and gets it before the reset occurs is irrelevant.  The public participation in driving a bull market is only relevant to the extent that it provides the buyer of last resort for the insiders and smart money to dump (greater fool dynamic).  That will not be required in this situation because it will be the Governments which determine the reset price, not the markets.

Look at just the U.S.  The U.S. supposedly owns 8100 tonnes of gold.  However, there is a question of to what degree the U.S. gold has been encumbered by financial transactions like swaps and leases. The Fed surreptitiously admitted that it uses the Treasury gold for swaps.  It is also likely that it has been largely leased out.  We don't know for sure and the Fed won't let anyone see the real books and records on this.  GATA has been waging a legal battle to force the Fed to release all of its records related to its management of the U.S. gold reserve but so far the Fed has prevailed in curiously maintaining the secrecy regarding the truth about the American taxpayer's gold.  And it is indeed curious...

But let's assume that the U.S. gold is intact.  And let's assume that the world were to resort to the old gold standard which required the value of any country's gold to represent 40% of the country's reserves.  In order for the U.S. to "monetize" its $16 trillion of on-balance-sheet debt, the price of gold would have to be reset to $23,500/oz.  That's just the direct U.S. Treasury debt and that doesn't include all the other non-direct, non-current debt obligations. It doesn't include the $7 trillion FNM/FRE debt guarantees.  And it doesn't address the private sector debt load in this country.

Now assume the U.S. gold is partially or fully encumbered by hypothecation transactions.  You can see where this is going.  The public will never understand this and the Government is doing its best to make sure this doesn't happen.

The bottom line is that the world is going to have to engage in a global "reset" in order to restructure and solve the massive global debt problem.  This will either be done peacefully using gold as the measuring standard for wealth or it will be done through war.  If you think I'm wrong, just look at the numbers presented in this article:  LINK