Friday, December 30, 2011


The WH is delaying the debt increase until Congress comes back from their recess.  So, based on what happened last time, we should see the Treasurie come in and use the SSTF and public pensions as collateral to buy the debt.  This would mean liabilities will leverage up, and since they have used as an asset to loan, they will need a reserve to replace it.  That reserve is gold.

Look for gold to move back above its 200 MDA in January while the politicians fiddle about.
While I am at it, let's discuss the Fed swap.  These swaps don't last long, so the Fed is hoping that the collateral for the dollar (yen/euros) rises in the next two weeks.  This will put a floor under equity while the politicians fiddle.

After that, the world is awash in fiat.  And most likely the Fed will use the collateral (which will be paid back in dollars) to monetize more debt as Operation Twist and POMO continues.  This will continue to decrease the DXY.

All the while Europe implodes, the US banking system gets propped up by the incestuous nature that are Treasurie auctions (Treasurie auctions to PDs, PDs flip the bonds to the Fed the next day, the Fed sits on the bonds and sells the bills).  While the housing market continues its epic collapse, no one is kicked out of their homes, meaning the average bankrupt family spends their mortgage on ipads and popcorn.  Thus the news is that the economy is the same as it ever was, even though the aggregate M2 is spun by the massive velocity of lending by the CBs.

The EU will lead the way as the FX swap from the Fed has already been loaned to PDs to buy the rolling debt from the CBs.  This means that that system will be leveraged up on top of itself.  Right now it is at 40 to 1, I won't pretend to know the next leveraged increase, but it could be as high as 400 to 1.  You read that right.

Most likely, there will be more intervention by the Fed though, and the Fed will continue to monetize.  This will marginalize the leverage, so instead of using the max 10 to 1 of fractional reserve lending it will likely end at 2 to 1, but because of the number of loans it will take to fund the debt there will be an increase in the velocity of the money supply.  The kicker is when the system needs to releverage after all of the above.  I am not sure they can do it.

This phase that I have put above will take a few months to wrap up.  Let's say this all happens by the Spring equinox.  After that it happens again.  I'll tell you what the policy makers are hoping:  this first phase has a massive amount of debt issuance.  Q1 is about twice the size of Q2.  They are thinking if they can get past Q1 they can make it to the end of the year.

They are facing higher prices and thus political blowback.  They are facing the end of the Fiat Ponzi.  Yet they have no other option.  The rub lies in the little things.  Will a spike in oil crush GDP (it will if it rises above $192).  Will the occupy movement gain traction in movements that actually do something (shutting down ports, etc) instead of building community (which is not a bad thing, but it isn't furthering a movement that can take freedom back now).  Will there be bank runs as the whiff of inflation grows into a nauseating smell?  Finally, and this isn't small, but it has started that way (with rumors), will there be a war with Iran?

There are other little things that will show up along the way.  It will be the little things that break the camels back.  One of those things might very well be taking physical silver off the market.  The BUY SILVER movement feels like a pipedream to me now; not because I don't think it is wise to own physical (which is the reason why I started it) but because I just don't know if taking it off the market will stop JPM et al from naked shorting.  I have no faith in the system, so I don't know how to stop it.  I do know that silver is monie, and the best way to protect your wealth is with real monie.  This is why owning physical PM is the best option for maintaining your freedom, no matter if the system implodes this March, Dec 21, or in 2015.  This Fiat Ponzi makes me sick, and I want it to end, yet I know alone I don't do anything.  My vote doesn''t matter.  My stacks of silver don't matter, but together we can do it, we can change things.  If we all continue to make our moves, we can take our freedom back.  This is why we must continue to fight the good fight.  This is why we must continue to buy silver.

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