Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Walls to Block U.S. Deflation

Economics / Inflation Jul 01, 2009 - 12:09 PM GMT

By: Jim_Willie_CB

Economics

Diamond Rated - Best Financial Markets Analysis ArticleMany are the obstructions to the so-called (mislabeled) deflation threat within the US Economy. To begin with, falling asset prices does not constitute deflation. One of the primary objectives of the banking elite in firm control of the USGovt and US Congress is to confuse the public and investment community on the entire topic of inflation, what it is, how it is measured, and its risks. The same goes for deflation. All debate as to whether the Untied States will suffer from inflation or deflation is a horrible misdirected distraction that manifests the confusion. The US will suffer both higher monetary inflation and worse economic deterioration, not one or the other, but BOTH, and with steadily increasing intensity.


Imagine a massive tornado building force, inflicting damage, and being fed to grow even more powerful by current policy. To argue on whether the high pressure or low pressure will prevail misses the entire storm, built upon the grand and growing differential in pressure. The storm is born of opposing pressures, each growing more intense. Human response to economic distress and banking woes ensure evermore pressures to be exerted on each side. The grand growing monetary expansion continues to collide with grand worsening asset price decline, while the Deflation Knuckleheads spout more nonsense. They miss the storm itself, how it is formed, and the dual nature of its tempest.

A very important point must be made, something few if any analysts or pundits or anchors are mentioning. In fact, the staggering direction of monetary aid for rescues of dead banks, for nationalization of dead corporations, and for stimulus to an insolvent nation guarantee more damage. The huge monetary growth guarantees that the asset prices will continue to fall, and that the great tempest will grow in magnitude and danger. Why? Because bad money drives out good money, because phony money undermines legitimate assets, because easy money encourages more bubbles. It acts like a cancer, one that has essentially destroyed the fundamental foundation of the nation. This extremely important point will lead to the ultimate downfall of the Untied States, as their inflation will destroy too much capital in determined yet mindless application.

The primary question that the errant Deflationists avoid is “Why is the Crude Oil price rising?” since it highlights their erroneous position and twisted viewpoint. The strong uptrend in crude oil price stands as contradiction to their argument, but they ignore it. The hidden question that they cannot even manage to formulate is “Is the Shadow Banking System flow data included in the Money Velocity figure?” as some within their camp appear to trust US Fed data itself. The other bank system has kept the entire credit market afloat for over a decade, without benefit of statistical inclusion. Never permit a syndicate to supply critical data. To dismiss official price inflation data but trust their money velocity data is folly. In my travels, when my confrontational questions are posed, they are almost never answered. The posed questions are as little understood as the emotion is great behind their incorrect views. The Deflationists will be correct only if the Central Banks and their franchise system of destruction shut down and halt the accelerated production of phony money. Aint happenin!

What is particularly disturbing is how intelligent aware members of the gold community of sound money principles find themselves ensnared within the lexicon of the Deflationist camp. They show confusion by simply engaging in discussions, as they use the crippled terms. For instance, a bright colleague from inside the gold community recently said in an exchange “Deflation will make the inflation worse” which is nonsense on its face. He meant to say “Falling asset prices will force even more monetary inflation in response in the form of rescue or stimulus.” Another from outside the gold community said “Deflation suffered by the banks from housing will push down the gold price” which is again a comment within a pretzel. He meant to say “The housing pressure on bank balance sheets will lead to falling asset prices generally, and thus harm the gold price” which is utter nonsense. It is actually difficult to debate the topic, since most people are hampered by the faulty lexicon adopted.

To clarify most clouds of confusion, it is best to refer to ‘Falling Asset Prices’ instead of ‘Deflation’ in almost all cases. The bankers must be laughing hard in their snifter glasses at the bewilderment laced throughout the public, as 90% have no idea what inflation and deflation are, let alone where they come from, and surely not how neither could possibly prevail in today’s environment. Meanwhile, the great storm continues, with only minimal recognition, since the growing amplitude in the differential rules the day. The monetary aggregate is growing, just as the asset value destruction continues. Each has its hidden components, to further add to the confusion.

CRUDE OIL CURVE BALL

The biggest elephant in the wayward Deflationist living room is the strong crude oil price. If deflation (whatever they believe that means) is to dominate, then the crude oil price should be around the 40 level. It should be scraping the bottom. Instead, it has staged a rebound that has endured for four months. Put the copper price chart aside, and turn to crude oil, which is still heavily traded. The two principal pillars of the crude oil recovery in full view are US$ monetization by the USFed and USDept Treasury, along with the broad deployment of US$ hedges by private investment houses and sovereign wealth funds. New money and additional credit come into the system. Banks are the primary recipients of such largesse at the public expense. Some finds its way into crude oil instruments on hedge fund ledgers. Banks surely are not lending much. They are investing in the USTreasury carry trade with the trusty help of the US Federal Reserve, which actually likes the steepening yield curve (long-term rates are higher than short-term rates).

Investment banks are also quietly buying crude oil positions, since they work well to add to their crippled balance sheets. The hedge funds flock to crude oil, while the sovereign wealth funds continue not only to stockpile crude oil, but build new storage facilities. The crude oil hedge against the embattled USDollar is just as prevalent globally as the flow of new funds into the backwaters lined with oil. The hidden disguised and improper release of crude oil from the Strategic Petroleum Reserve last summer and autumn provided the perfect conditions for the launch of a powerful rebound, that now is powered by reaction to the USDollar debauchery. The SPR release took the crude oil price too low. Now the weak USDollar and revolt against it will ensure continued upward momentum.

The powerful message is that the monetary rivers and USDollar brokenness dispute the deflation claim in one of the most important asset prices in existence – crude oil. The Deflationists point to falling asset prices, but ignore the crude oil price as an exception. It is the most important economic cost for businesses and households on the tangible side, with the cost of money the most important on the financial side. Watch for a bullish technical crossover as the faster 20-week moving average challenges the 50-wk MA. The more stable longer term moving average is providing support above the 67 level.

GOLD SHOWS NO SIGNS OF SO-CALLED DEFLATION

If deflation (whatever they believe that means) is gaining an upper hand, then somebody should tell the gold price. It is oblivious to any such vapid threat. Being ultimately a monetary instrument, gold continues to build its energy field for the next rise. Notice the rising moving averages and the rising trend on the build-up toward the breakout level of 1000. To be sure, the gold market is reluctant to advance with power. It is being held back by the illicit gold futures shorting campaign that violates every regulatory statute in the book, beginning with the 90% collateral requirement. Heck, we all could bring down the price of a cup of coffee to a mere dime if we shorted the coffee contract into oblivion without benefit of supply, provided the central bankers kept huge inventories to work past the midnight hours in their nether chambers, where they devise new Politburo poppycock plans. Notice not so much the Head & Shoulders reversal pattern shown in past articles, but the upward energy embodied in the chart.

Numerous factors conspire to push the gold price above the 1000 level. Most investment camps seem to be waiting for an ‘All Clear’ sign, to lessen their perceived risk. One might have thought it would have been the mid-March monetization message by the USFed. However, a mountain of new illicit non-collateralized gold futures contract sales at the same time prevented such a power push. The vile Power Elite was prepared and responded. Many other messages are certain to fuel the ultimate power push. The foreign sovereign wealth funds are diverting some of their new trade surplus funds into gold, even announcing it. In fact, the foreign creditors have halted the great majority of USTreasury Bond purchase, even the USAgency Mortgage Bond purchase in a virtual global strike. That new development has escaped the intrepid lapdog US press. They have reported the sharp rise in ‘Indirect Bids’ for USTreasury auctions in back pages where few read.

Translation: foreign central banks are the only buyers anymore, and probably they act on behalf of the USDept Treasury. Thus, the USGovt is the primary buyer of new USGovt debt, monetization. They key point to take home and run with is that the USGovt has begun to disguise its vast monetization, so as not to annoy the already angry Chinese creditors. Maybe the USGovt can pledge a couple US cities as collateral, and toss in a couple national parks and some golf courses.

MAIN PSYCHOLOGICAL THEME

One eager opinionated acquaintance from several years ago maintains with a degree of defiant gusto that the foreigners must retreat to the USDollar for whatever reason, and their undying support will continue, perhaps even reluctantly, to the surprise of the investment community generally. They continue US$ support in his opinion because they are deeply committed to the embattled buck. They do so because their banking systems have cut a multi-decade deal with the deadly dollar devil, thus making them stuck committed. They will do so because no other legitimate alternative with sufficient structure and trading volume is available. They will do so because deep down, they still trust the longstanding security of the USDollar fortress, backed by both a military and huge economy and tradition of financial dominance. They will do so because their export businesses require a USDollar not to fall significantly, and expire on the intensive care table.

My rebuttal reflects what China clearly manifests as a strategy. The rest of the large creditor nations are certain to either follow the Chinese path or set out on a parallel course. Past work has called the Chinese initiatives the spearhead against the USDollar. They realize they must smother (but not kill) the USDollar slowly, eventually suffocating it only at a time their many initiatives are fully deployed in place, much like a neck noose built into a straightjacket.

The strategy has two important sides.

First, they are protecting their outsized core of US$-based bonds of several stripes. They choose not to embark on any aggressive strategy that would seriously undermine their core holdings in reserves. However, they are not stupid. They see the unprecedented and colossal debauchery of the USDollar via trillion$ in new debt, with seemingly little or no concern over foreign reserve holdings, demands, or priorities. The USGovt believes it can deflate its debts one more time, delivering foreigners weak coffee at the lunch counter, and get away with it. They cannot time, not this time, especially since the USEconomy is stuck in a deteriorating spiral, the US banks are insolvent (despite phony accounting), US households are insolvent, and US industry is either absent or depleted. Foreigners are far too aware of the USGovt attempts to inflate debt away, actually an impossible task as those debts multiply like bacteria, or better described as CANCER. The US leaders want to reduce both the value of the debt burden and assure that its ongoing service costs are kept low. Foreigners are in revolt, threatening to pull the plug.

So foreigners have embarked on a broad response.

Second, they are diversifying away from the US$ at the margin in bold moves. They are devoting NEW trade surplus funds to hard assets, like stockpiles, like grand production contracts, like large acquisitions and partnerships. They are regularly urging wider acceptance of the I.M.F. bonds as an alternative to storing surplus funds outside the US$ sphere. In fact, the Chinese lead the global initiative to end international contract settlement in US$ terms, after several decades. They do so with yuan currency swap facilities scattered across the globe like so many automatic teller machines. They do so with historically unprecedented bilateral barter accords, whose systems are being assembled and put into place. See Russia with China. See Russia with Germany also.

The stockpile movement is not strictly a Chinese phenomenon. The Shanghai Coop Organization (SCO) recently completed a global meeting, with several key invited guest nations like Brazil. Their unstated purpose was to make concrete steps in contract settlements for a variety of commodities (from crude oil to natural gas to industrial metals), and do so without USDollar involvement. The June SCO meeting in Yekaterinburg Russia was hardly covered by the US financial press. Where it was covered, it was downplayed. Also, despite its many problems within the European Union, like economic recession and wounded banks, foreigners are flocking to the Euro currency, now over 141 and pushing toward 142.

NO, the major theme of 2009 on the Psychology Billboard is REVOLT AGAINST THE USDOLLAR AT THE MARGIN, NOT THE CORE. The foreign creditors and suppliers to the Untied States are in a coordinated global revolt position, being fortified with each passing month. That is the major theme of 2009. Notice the shutdown in Chinese purchase of USTreasury Bonds, down to a mere trickle since October. In fact, the objective of those in revolt is to play down their revolt, to talk nice to the USGovt (which controls an aggressive military), to utter empty words about support for the USDollar, but to work behind the scenes to undermine it AT THE MARGIN. Their exercise is akin to soothing and singing to a large wounded beast, as it is being surrounded, tied up, and muzzled. Their objective includes a pace of undermine intended to be gradual.

Foreign creditors wish to use their USTBond reserves in constructive intelligent manner. The Chinese recently announced a dedication to hedge funds from their vast sovereign wealth fund holdings, a likely avenue for USTBonds used as collateral in accounts. If properly deployed, with sufficient volume, additional USGovt debt can be used to fortify the commodity prices and prevent a perverse unjustified USDollar rebound, built upon failure and liquidation. Slowly but surely, the credit supply for the USGovt and USEconomy will be reduced to the point that later, unclear how much later, it will be cut off.

FOREIGN VULNERABILITY

Reading economic reports from foreign lands serves as a distraction to this entire ill-footed deflation versus inflation debate. Some like my outspoken acquaintance believe that foreign economic distress assures continued decline in US asset prices. They miss the main point. Foreign economic distress assures less trade surplus recycle into USTreasury Bonds, and further isolates the USDept Treasury into monetizing their debt.

A DEEP ISOLATION COMES TO THE UNTIED STATES AS FOREIGN CREDITORS BOTH REFUSE TO FUND AND CANNOT FUND THE PROFOUND CRIPPLING US DEBT.

Hidden within the bowels of the funding process is the gradual destruction in the official bond primary dealers. Last week, Dresdner Kleinwort decided to exit in its role as a primary bond dealer. The US-based dealers are sitting on a mountain of inventory, acting like a huge collection of boulders on a medium sized vessel at sea. Primary dealers now have a record $368 billion in Corporate, Agency (mortgage), mainstream mortgage bonds, and USTreasury inventory. And the vast bulk of their holdings of USAgency debt has less than a 3-year maturity. Just like the private equity groups and Wall Street firms, they are heading toward a day when they choke on their own feces.

The USEconomy is most vulnerable to price inflation, due to US$ weakness and revolt globally against it, as commodity prices are inversely linked. The USEconomy is perversely the most protected from price deflation. The deflationist argument might possibly hold some water with foreign economies, as their currencies rise enough to harm export trade, as their strong currencies keep commodity costs down. The Deflationist Knuckleheads at best have it backwards, and at worst continue to be lost.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts such as the Lehman Brothers failure, numerous nationalization deals such as for Fannie Mae, grand Mortgage Rescue, and General Motors.

“I used to read your public articles, and listen to you, but never realized until I joined what extra and detailed analysis you give to subscription clients. You always seem to be far ahead of everyone else. It is useful to ‘see’ what is happening, and you do this far better than the economists! I can think of many areas in life now where the best exponent is somebody not trained academically in that area.” -    (JamesA in England)

“A few years ago, I was amazed at some of the stuff you were writing. Over time your calls have proved to be correct, on the money and frighteningly true. The information you report is provocative and prime time that we are not getting in the news. I was shocked when I read that the banks were going to fail in one of your prescient newsletters.” -    (DorisR in Pennsylvania)

“You seem to have it nailed. I used to think you were paranoid. Now I think you are psychic!” -  (ShawnU in Ontario)

“Your unmatched ability to find and unmask a string of significant nuggets, and to wrap them into a meaningful mosaic of the treachery-*****-stupidity which comprise our current financial system, make yours the most informative and valuable of investment letters. You have refined the ‘bits-and-pieces’ approach into an awesome intellectual tool.” -    (RobertN in Texas)

by Jim Willie CB
Editor of the “HAT TRICK LETTER”
Home: Golden Jackass website
Subscribe: Hat Trick Letter

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Jim Willie CB Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules