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"Our purpose is to expose the failure of America's fiat money system."
That original goal, expressed at the outset of this site 7 years ago, still holds true. But how incredibly more complex the global economic landscape has become, and how much more challenging the financial markets are as a consequence.
This site will continue to shed light on the demise of modern central banking and the tragic fiat-money fiasco that threatens our wealth and welfare and is now unfolding before our eyes.
The UnDollar Digest features articles & commentaries online and other information regarding the current market. Member Log-In or Sign Up on left.
VIEWS & COMMENTARIES....
Marc Faber: Relax, This Will Hurt A Lot
Tyler Durden, www.zerohedge.com, 07/27/2010
In a credit-addicted economy, you don’t need credit to actually fall for there to be problems. All you need is a slowdown in the growth rate, and you get big problems.
Marc Faber closed out this week’s Agora Financial Symposium with a speech that pretty much recapitulated the view that the end of the world is if not nigh, then surely tremendous dislocations to the existing socio-political and economic landscape are about to take place (with some very dire consequences for the US).
His conclusive remarks pretty much summarize his sentiment best: “We’ve had a trend for most of the past 200 years: GDP of countries like China and India went down while the West surged. That’s now changed. Emerging economies will go up, and your children in the West will have a lower standard of living than you did. Absolutely. We won’t sink to the bottom of the sea. But other countries will grow much faster than us. The world is very competitive, and the odds are stacked against us. Americans, with their inborn arrogance, will not let it go that easily, so there will be lots of tension going forward.”
The Unlimited Power of Suppressing the Interest Rate
Thorsten Polleit, www.mises.org, 07/27/2010
So if the central bank keeps (i) increasing its demand for bonds in response to investors selling their bonds, or (ii) trying to establish a minimum price for bonds that exceeds the market equilibrium price, a strong rise in the money supply — and thus high inflation, or even hyperinflation — will be the inevitable result.
…[A] policy of suppressing long-term interest rates may signal that central banks, trying to cover up the damage done to the economies by the chronic increase in fiat money through a relentless expansion of bank-circulation credit, are about to turn to a policy of very high inflation.
The Great Recession is Just the Beginning
Matt Miller, www.washingtonpost.com, 07/21/2010
As former Intel CEO Andy Grove argued in Bloomberg Business Week recently, it’s not enough to do the product innovation in the United States; we need to do the manufacturing, too. That’s the only way, Grove says, to gain the hands-on experience with products that leads to all subsequent innovations. Surrender the manufacturing and you lose this virtuous cycle…
Here’s a cheery midsummer thought. You know those 15 million unemployed, and that sluggish growth, and the debt hangover and de-leveraging, and those soaring deficits? Well, these woes aren’t our biggest economic problems.
The Dollar’s Predicament:
Doug Noland, www.prudentbear.com, 07/16/2010
Did the dollar rally – and ongoing Treasury market strength – distract the market from the crucial unfolding issue: The U.S. Structural Debt Predicament?
Our financial system has created an unimaginable amount of non-productive debt, with our nation owing much of it to foreign creditors.
According to the Fed’s Z.1 “flow of funds” data, Rest of World (ROW) holdings of U.S. financial assets ended the eighties at about $1.9 TN and closed the nineties at $5.6 TN. By the end of 2009, ROW holdings had ballooned to $15.3 TN. During the past decade, the world’s holdings of our financial assets surged to 108% of U.S. GDP from 60%.
Gigantic and unending U.S. Current Account Deficits were the major force behind the extraordinary foreign accumulation of our (largely debt) securities. This implies structural deficiencies in both the Credit system and real economy. It would also be quite unusual for such a fundamental backdrop to support a strong currency.
Frightening US Government Spending Data
Hard Knocks From Easy Money
By GEORGE MELLOAN
A Federal Reserve fully attuned to the easy money demands of the Democrats and megabanks clearly has no plan to lift interest rates from their near-zero level. The rationale is: “Why should we? The Consumer Price Index (CPI) is rising at a modest 2% annual rate. Banks are getting healthier. Why risk stalling an economic recovery and sending a nervous stock market into a spin if things are going well?”
There are several answers to this rationale. Aside from the growing doubts among serious economists that the CPI is an accurate measure of inflation, let’s examine the assumption that the Fed is financing an economic recovery. In fact, it is mostly financing a massive expansion of a federal government that’s borrowing an unprecedented $1.5 trillion annually. Easy money keeps the government’s interest cost on this pile of IOUs low. The recovery comes second, and last week’s dismal job growth indicated that it is increasingly feeble.
Super-low interest rates also ensure that the big banks, fated to be wards of the government if the new financial reform becomes law, will have generous margins between their borrowing costs and lending revenues. This will enable them to further pad their balance sheets and correct the mistakes of yesteryear.
Oh, and don’t forget Fannie Mae and Freddie Mac, those two government-sponsored mortgage giants that engineered the 2008 subprime mortgage fiasco and are now on the public dole. The Fed kept them afloat by buying over a trillion dollars of their paper. Now, part of the Treasury’s borrowing from the public covers their continuing large losses. Read more»
The threat to the US dollar is hyperinflation, not deflation
James Turk, kingworldnews.com, 0709/2010
In the early 1930’s, the US dollar money supply as measured by M3 dropped by approximately 30%. This deflation, i.e., drop in the quantity of money, was one of the steepest in history. The purchasing power of the dollar – until 1933 redeemable into gold and thereafter redeemable into silver – rose dramatically because less money was in circulation compared to the quantity of goods and services available in commerce.
Today, the Federal Reserve no longer reports M3, which is unfortunate because it eliminates the possibility of accurate historical comparisons. M3 is estimated by economists by modeling historic trends. However, these models become less reliable as we move further from February 2006, the date the Federal Reserve stopped reporting M3. Eurodollars, a major M3 component, is particularly difficult to model.
In any case, much attention is being given to these private estimates, even though the decline in M3 they are reporting stands in marked contrast to M1 and M2. The Federal Reserve reports that these two money supply measures have grown 7.1% and 1.7% respectively over the past twelve months. Thus, by these two measures, the dollar is inflating, i.e., the quantity of dollars is expanding – particularly so for M1 – relative to the available stock of goods and services being produced in today’s depressed economy.
This inflation is also apparent from market prices. For example, crude oil prices have more than doubled since their post-Lehman crash low. More broadly, the price index of 19 commodities compiled by the Commodity Research Bureau is up 46% during this same period, which makes clear there is no deflation. Read more»
Away…
Note:
Your editor will be away from the office from July 1st through July 12th. Thereafter posts for the balance of July will be more sporadic than the usual considering family and other personal commitments. All the best for a great July 4th and a summer with family and friends! God-willing we can each achieve a sense of peace amidst the gathering storm.
Secretive and Powerful BIS Report Released
Eric King, kingworldnews.com, 06/28/2010
The very fabric and the seams of the financial system are coming apart. Who knows what the timetable is for the implosion of the current monetary system? We are witnessing the greatest wealth transfer in history, and the horrors of the aftermath of this tragedy will not be forgotten for decades. Keep in mind that the stark warnings from today’s annual BIS (Bank for International Settlements) report are the very reason why it is so important for all readers globally to protect themselves and their families by owning gold.
This was from the annual report released today by the very secretive and extremely powerful BIS: “Three years after the onset of the crisis, expectations for recovery and reform are high but patience is wearing thin. Policymakers face a daunting legacy: the side effects of the ongoing financial and macroeconomic support measures, combined with the unresolved vulnerabilities of the financial sector, threaten to short-circuit the recovery; and the full suite of reforms necessary to improve the resilience of the financial system has yet to be completed.”
The BIS release continues: “When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.” Read more»
Why Friedrich Hayek Is Making a Comeback
Russ Roberts, wsj.online.com, 06/28/2010
He was born in the 19th century, wrote his most influential book more than 65 years ago, and he’s not quite as well known or beloved as the sexy Mexican actress who shares his last name. Yet somehow, Friedrich Hayek is on the rise.
When Glenn Beck recently explored Hayek’s classic, “The Road to Serfdom,” on his TV show, the book went to No. 1 on Amazon and remains in the top 10. Hayek’s persona co-starred with his old sparring partner John Maynard Keynes in a rap video “Fear the Boom and Bust” that has been viewed over 1.4 million times on YouTube and subtitled in 10 languages.
Why the sudden interest in the ideas of a Vienna-born, Nobel Prize-winning economist largely forgotten by mainstream economists?
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NEWS & ITEMS....
Doug Noland’s Credit Bubble Bulletin
www.prudentbear.com, 07/16/2010
[Weekly News Review - Selections]
Fiscal Watch:
July 14 – Associated Press (Martin Crutsinger): “The federal deficit has topped $1 trillion with three months still to go in the budget year, showing the lasting impact of the recession on the government’s finances. …through the first nine months of this budget year, the deficit totals $1 trillion. That’s down 7.6% from the $1.09 trillion deficit run up during the same period a year ago… The June deficit totaled $68.4 billion, the second highest June deficit on record… June is normally a surplus month as the government collects tax payments from corporations and individuals who make quarterly payments.” Real Estate Watch:
July 15 – Bloomberg (Dan Levy): “A record 269,962 U.S. homes were seized from delinquent owners in the second quarter as lenders set a pace to claim more than 1 million properties by the end of 2010, according to RealtyTrac Inc. Home seizures climbed 38% from a year earlier and 5% from the first quarter…”
[Money Notes]
Federal Reserve Credit increased $1.3bn last week to $2.316 TN. Fed Credit was up $96.0bn y-t-d (8.0% annualized) and $304bn, or 15.1%, from a year ago.
M2 (narrow) “money” supply sank $33.9bn to $8.589 TN (week of 7/5). Narrow “money” has increased $77bn y-t-d, or 1.7% annualized. Over the past year, M2 grew 1.9%.
Read more»
So Bad It’s Good
Statement 159 Helps Unhealthy Bank Book Healthy Earnings
Eric Fry, www.dailyreckoning.com, 07/15/2010
Straight from the “Only in America” file: Second quarter earnings were so bad…they were great!
Yes, dear readers, it’s true, many of America’s largest financial firms are producing such dismal operating results that their reported earnings might actually benefit.
Are you confused yet?
Here’s how it works: A bizarre accounting rule that came into existence three years ago allows banks to book profits when the value of their own bonds falls. The tortured logic behind this nonsensical “Statement 159″ accounting rule is that a bank could, theoretically, repurchase its bonds at a discount, thereby booking a “profit” between what it could have paid for the bonds and what the bank would have paid to retire its bonds at maturity. (An insightful story from Bloomberg News provides additional detail.)
This quirky little accounting gimmick produces something called a debt- valuation adjustment gain, or “DVA Gain.” The more distressed a bond might be, the greater its drop in value and thus, the greater its “profit.” Obviously, this logic is patently illogical. “Could have” or “would have” has nothing to do with reality. If a bank wishes to book a profit by buying back its bonds on the cheap, then the bank should actually buy back its bonds on the cheap – not receive credit for a transaction it does not conduct.
Read more»
Doug Noland’s Credit Bubble Bulletin
www.prudentbear.com, 06/25/2010
[Weekly News Review - Selections]
June 23 – Bloomberg (Shobhana Chandra and Timothy R. Homan): “Purchases of new homes in the U.S. fell in May to a record low as a tax credit expired, showing the market remains dependent on government support. Sales collapsed a record 33% to an annual pace of 300,000 last month from April… the fewest in data going back to 1963… Demand in prior months was revised down.”
June 25 – Financial Times (Edward Luce): “Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House. Mr Orszag… is seen as the guardian of fiscal conservatism within the White House. Other members of Mr Obama’s economic team, notably Lawrence Summers… have placed more emphasis on the need for continued short-term spending increases to counteract what increasingly looks like an anaemic economic recovery in the US.”
June 25 – Bloomberg (Jeff Kearns and Christopher Palmeri): “The widening gap between the cost of insuring U.S. municipal and federal debt shows investors are betting that state and local governments can’t contain their budget problems, according to Macro Risk Advisors LLC, which predicted the European crisis… ‘People are just starting to wake up to this,’ said Justin Golden, a strategist for the… firm. ‘The market is starting to assign greater levels of fear. The further you go out, things look challenging for a lot of these states.’ With state deficits estimated to total $104 billion in fiscal 2011, ‘it seems likely that the federal government will eventually be faced with the choice of allowing municipal bankruptcies or backstopping the states,’ the report said.”
States of Crisis for 46 Governments Facing Greek-Style Deficits
By Edward Robinson - Jun 25, 2010
Californians don’t see much evidence that the worst economic contraction since the Great Depression is coming to an end.
Unemployment was 12.4 percent in May, 2.7 percentage points higher than the national rate. Lawmakers gridlocked over how to close a $19 billion budget gap are weighing the termination of the main welfare program for 1.3 million poor families or borrowing more than $9 billion in the bond market. California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue. Read more»
Orszag exit reveals deficit policy split
By Edward Luce in Washington
Published: June 25 2010 19:29 | Last updated: June 25 2010 19:29
Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House.
Mr Orszag, whose publicly stated reasons for leaving were that he was exhausted after years in high pressure jobs and also that he wanted to plan for his wedding in September, is seen as the guardian of fiscal conservatism within the White House. Read more»
Gold reclaims its currency status as the global system unravels
We already know that the eurozone money markets seized up violently in early May as incipient bank runs spread from Greece to Portugal and Spain, threatening the first big sovereign default of our era.
By Ambrose Evans-Pritchard
Published: 5:43PM BST 20 Jun 2010
Jean-ClaudeTrichet, the president of the European Central Bank (EC), talked days later of “the most difficult situation since the Second World War, and perhaps the First”.
The ECB’s latest monthly bulletin gives us some startling details. It reveals that the bank’s “systemic risk indicator” surged suddenly to an all-time high on May 7 as measured by EURIBOR derivatives and stress in the EONIA swaps market, exceeding the strains at the height of the Lehman Brothers crisis in September 2008. “The probability of a simultaneous default of two or more euro-area large and complex banking groups rose sharply,” it said. Read more»
ECB must buy ‘hundred of billions’ of bonds to tame Europe’s debt crisis
By Ambrose Evans-Pritchard
Published: 8:19PM BST 17 Jun 2010
Brian Coulton, the agency’s head of sovereign ratings, said German members of the ECB appeared to be blocking the sort of muscular intervention in southern European bond markets needed to restore the shattered confidence of investors.
The ECB agreed to start buying Greek, Portuguese, and Irish bonds in April to help buttress the EU’s `shock and awe’ package, known as the European Financial Stability Facility. Total purchases so far have been €47bn (£39bn).
It has focused its firepower on Greece, mopping up some €25bn of government bonds. This has prevented a collapse of the Greek debt market but at the high political price of letting banks and funds dump their holdings onto the EU taxpayer. Read more»
Doug Noland’s Credit Bubble Bulletin
www.prudentbear.com, 60/18/2010
[Weekly News Review - Selections]
June 15 – Bloomberg (Brian Faler): “Voters are forcing Democrats into an election-year equation they may be unable to solve: How to spend more money to create jobs and at the same time reduce the deficit. Democrats have abandoned billions of dollars in proposed jobs initiatives to avoid adding to the deficit, risking that a pending bill may now seem ineffective to the 15 million unemployed. To further cut costs, they added more than $50 billion in taxes on buyout managers, oil companies and other businesses, seized upon by Republicans as job killers. Yet there are few signs Democrats’ contortions to avoid adding to the deficit are winning over voters, especially when the savings are compared with this year’s $1.5 trillion shortfall. ‘We’re in a vise,’ said Representative Gerald Connolly… ‘It’s a real dilemma.’”
June 16 – Bloomberg (Katrina Nicholas): “A wave of maturing debt may ‘wash away’ some speculative-grade U.S. companies as Europe’s sovereign crisis pushes up borrowing costs and credit markets freeze, according to Standard & Poor’s. Junk-rated borrowers led by ‘consumer-dependent companies’ will struggle to ‘refinance at the rates they’ll need for long-term survival, if they can find financing at all,’ S&P said… U.S. non-financial corporate borrowers have more than $1.7 trillion of bonds and loans due from 2011 through 2014, and those rated BB+ or below may ‘encounter serious hurdles to their refinancing needs,’ S&P managing director John Bilardello said…”
June 18 – Bloomberg (Pham-Duy Nguyen): “Gold futures rose to a record $1,263.70 an ounce in New York as Europe’s fiscal woes and dimming prospects for the U.S. economy prompted investors to step up purchases of bullion as an alternative asset… ‘The problems over in Europe are just as pernicious over here in the U.S.,’ said Michael Pento, the chief economist at Delta Global Advisors Inc. ‘You can’t trust sovereign debt and sovereign currency. Gold is the only real honest money that we have.’”
Doug Noland’s Credit Bubble Bulletin
www.prudentbear.com, 06/11/2010
[Weekly News Review - Selections]
Fiscal Watch:
June 9 – Bloomberg (Rodney Jefferson): “Edinburgh’s two biggest fund companies have a warning to investors: don’t overlook the U.S. when scouring the world for nations with too much debt. Standard Life Investments is questioning when… Obama’s administration can reduce borrowings, said Andrew Milligan, the company’s head of global strategy. Scottish Widows Investment Partnership sold U.S. stocks in March on concern an eventual reduction in spending would weigh on economic growth. The amount of total marketable U.S. debt outstanding has risen to $7.96 trillion from $4.4 trillion in mid-2007. ‘I don’t know how long the U.S. can afford not to focus on the issue and take action,’ Ken Adams, the top strategist at Scottish Widows, said… ‘It’s like Greece. It’s very hard to pick the point at which confidence suddenly goes.’”
June 8 – Reuters: “The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report… The report that was sent to lawmakers Friday night with no fanfare said the ratio of debt to the gross domestic product would rise to 102% by 2015 from 93% this year.”
June 9 – New York Times (David E. Sanger and Sewell Chan): “At a moment when many economists warn that the American economic recovery is likely to be imperiled by prolonged high unemployment and slow growth, President Obama is discovering that the tools available to him last year — a big economic stimulus and action by the Federal Reserve — are both now politically untenable. The mood in both parties of Congress has turned decidedly anti-deficit, meaning that the job-creation programs once favored by the White House and Democratic leaders in Congress have been cut back, then cut again.” Read more»
U.S. Facing Debt ‘Super Cycle’
Barack Obama’s record spending has prompted warnings of a debt super cycle
Mail Foreign Service, www.dailymail.co.uk, 06/07/2010
America’s $13trillion debt is set to overtake the country’s GDP within the next two years as economists warn of a ‘debt super cycle.’
Forecasters predict the U.S. debt will grow to surpass gross domestic product in 2012, based on data from the International Monetary Fund.
According to Bloomberg, the world’s largest economy will expand at a slower pace than the 3.2 per cent average of the past five decades.
It comes as Barack Obama borrows record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s. Read more»