The Godzilla Dollar...Deflation is here?

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Most recent update 10/27/2008. Scroll down for older updates.

UPDATE 10/27/2008: COMEX defaults coming? Precious metal futures/options disparity with physical market

Speculative rumors have surfaced suggesting possible COMEX defaults on "paper" futures for gold and silver. COMEX, or Commodity Exchange Incorporated, is based in New York, where members trade futures and options in aluminum, copper, silver, and gold. Apparently, precious metals spot prices are deeply rooted in Wall Street's creative investment derivatives. The transparent price corruption may help in finally collapsing the crooked options and futures markets.

Currently, the COMEX 'paper-asset based' spot prices for gold and silver have become completely disassociated with the real physical metals market. Many are wondering why this is happening, and the reason is contrarian: There's more demand for precious metals! How can more demand drop prices? If investors with claims on future gold want actual physical delivery - and not the paper equivalent, it could create defaults as physical metals become unavailable. The result is less buying of paper claims on gold and silver as demand for physical metals increases; and more selling in the paper futures market. Less buyers and more sellers means the prices drop... yet this is only as a result of an increase in demand for physical delivery of precious metals. Consequently, the paper dictated price of gold and silver will trend downward, but physical metals demand (real demand) will skyrocket.

As they cannot meet the physical metals demand, they will be forced to default and payout cash, based on the lower paper spot prices. In short, you wont want to be caught with paper claims on precious metals, as you will be contracted at the lowered, paper spot price - when true physical metals are unavailable. True market prices on physical precious metals will be much, much higher as supply deteriorates with the dropping prices.

Clearly, we are in something of a 'perfect storm' for a major gold/silver rally, once this cycle corrects and the true prices are reflected in the markets. The combination of expected hyperinflation, reduced supply via price drops, and the run for true assets out of paper will fuel the rally. As all these precious metals derivatives are unwound, you will want to be in actual, physical metals. When all is said and done, COMEX will probably cease to be any type of authority on precious metals prices, and we will see huge premiums on these metals, much as we're seeing now.

The collapse of the Anglo Saxon dominated financial system?

10/23/2008: As usual, the markets are behaving ultra contrarian. The Fed is hyper inflating, yet we're seeing dollar strength. All asset classes are deflating, when many intelligent economists have called for a dollar collapse. It now appears the US Dollar vs the Japanese yen will hit a major recent low: below 97. Yet the dollar against the Euro is getting stronger still: .78+. This could be a symptom of internal currency manipulation between Europe, Great Britain, and the USA; and Asia is not playing along. Could Asia be preparing to take over the world financial system, and replace the US - Great Britain conglomerate that has dominated for many centuries?

It could also simply be that Asian currencies are a major trading stronghold, or export weakness being expressed as currency strength. But it's times like these when major changes occur, and it's clear that our Anglo Saxon financial system has spread itself too thin; through individual and corporate greed and mismanagement.

If this system fails, it will by its own hand. Much as any species that has been dominant for too long, weaknesses become exploited and bring its own demise. Only the strong survive, and unlike the "Greed is good" Wall Street mantra for the last 20 years, greed is in fact not good... It is maladaptive. Wall street greed has successfully brought the system to the brink through its own arrogance. Good riddance. Most people who have suffered to this system will at least get some satisfaction in its breakdown.

Don't be surprised if the financial elitist dictatorship chooses to collapse the Euro. The Euro may need to be the fall guy, as the financial crisis becomes a fight for survival. It's important to understand that the current financial system always needs some entity or person to take the fall. Whether its Joe Six-pack, who can't make the payments on his house, or a Bear Stearns or Merrill Lynch that has to be methodologically bankrupted by the corrupted financial institutions... a lamb has to be slaughtered. This is true because all dollars in circulation represent some debt; and there is always an interest charge attached to the debt. But where does the interest come from? It doesn't exist in the dollar circulation! As a result, there always has to be someone that goes into foreclosure, because the interest charged is not in the system, only the original dollar amount loaned. For a better understanding of this, check out these offsite videos: Zeitgeist - Federal Reserve and Money as Debt. Be sure and watch all 5 parts of each series.

After watching the videos, ponder this: How come I've never heard of this? How come the realities of the financial system aren't taught in public schools?

If you notice the many quotes given in the videos, there has been an ongoing awareness of this crooked banking and financial system for many centuries. It doesn't take a genius to figure out that the financial elites don't want you to know what they're up too! Their substantial influence has clouded the truth from the population, influenced the institutions of education, and reduced the truth to but a whisper. At least 3 generations of Americans have been flocked away from knowledge of the money manipulations of the financial elites. It's only because of the internet, and the free flow of information, that the truth has now been realized once again.

It's enough to make you wonder what the real reason was for Jesus Christ's crucifixion:

"And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves, And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves."
Matthew Chapter 21, v 12, 13.

He opposed the money manipulators. All of history has been based around the control of monetary policy, even since biblical times. Other ideological explanations are put in place to draw attention from the truth: It's all about the money. Always has been, always will be.

10/15/2008 UPDATE: Phantom assets, Government sanctioned, 'price control' derivatives, and the great inflation cover-up. An Economic Theory...

It is entirely possible that what we're seeing on wall street is a grand liquidation of assets that don't really exist. The entire economy created on wall street for the past 5-10 years has been an illusion of value...sold to the public in the form of liquid paper assets. This system is now collapsing, and bringing the illusion of asset deflation, when it may not be real deflation. After all, this may be just another banker-politician "scam" to rob assets from the population...whatever you do, don't sell your real estate or precious metals!

The current market deflation could be explained by the internal tangent's within the modern economic pentacle: 1. hard, real assets; 2. fiat currency; 3. digital currency; 4. credit-debt money; and 5. Created investments that branch from real assets, such as derivatives. Numbers 2 through 4 are currencies, which are created by "fiat", or decree. Derivatives are a quasi currency, as they are created by fiat as well... in that they're not a real asset, but a figment of one. Real assets are the foundation of measure for all forms of fiat money we exchange within the system. Interestingly, the pentacle is loosely associated with coinage or worldly wealth in some pagan beliefs.

We are now seeing devaluations in all paper manipulated assets; such as basic commodities, housing, precious metals, oil, and stocks. Fact is, the price depression in metal and oil prices is due to derivative liquidation, not actual market forces. For example, physical silver and platinum are performing opposite to what these markets should be doing. There is tremendous buying pressure, and there's no supply - because no one is selling at these prices. Yet we are seeing significant daily price drops in these metals, often 5% or more.

What we really have is a perfect storm for a major precious metals rally; one that could see $50 silver or $3,000 platinum. Paper claims on metals are being sold off, without any actual physical metals backing the sales. The market spot price is totally discombobulated from reality. Derivative wall street inventions created precious metals, and trade them. But when the music stops, someone will get burned... and it wont be the ones holding physical metals, but those holding paper claims on them. It is amazing how they are still able to get away with this, even now when the derivative tactic of asset creation has been exposed. Who is buying them? Possibly other banks internetworked to keep the scam going. Once the actual paper claims become real claims for metals, we will see the prices skyrocket. The physical supply has been depleted by investors at these low prices.

Odds are, wall street know this, and are just trying to buy time. Could this be what we are bailing out? Taxpayer subsidization of Corporate wall street greed? Time to get angry again... and to target those politicians that supported the bailout.

Could Wall Street have "created" phantom digital hard assets? Did they "create" oil out of thin air? Mortgage investments? Why not... Here is proof they have actually created mortgage money out of thin air for many years, whenever you refinance or purchase a home (View 5 part series, Money as Debt, offsite). Why not learn from their banker buddies and mimic this "scam" on wall street?

The real disastrous realization is that the government is responding to the deterioration of credit-debt money with actual fiat currency monetary inflation. These trillion dollar global bailouts are probably the only way they know how to deal with this problem. The government is generalizing that credit debt money, digital money, and fiat currency are all the same thing... when they are not. These are separate fiat currencies that will probably have different reactions to the government bailout actions. In fact, no one can really know WHAT will happen, because we are in uncharted waters.

Credit deterioration does not equal dollar departure from the monetary realm. Yet, they see fit to pump more dollars into the financial system to address the erosion of credit. The result? It may at some point appear to be a recovery...but it will eventually result in a tidal wave of hyperinflation, and prices will rapidly escalate. The final result will be the collapse of the dollar, even as it seems the economy is recovering. If one subscribe to the Chris Martenson theory of the Exponential Function, then this dollar collapse will be quite sudden, and in the midst of what may appear to be a moderately inflating economy.

The derivatives tied to real assets will need to be liquidated, until the markets are completely expunged of them. Where will this leave commodities prices? Probably on the road to sudden real 'year over year cumulative' dollar inflation; which will bring consumer shock as oil shoots to $200 and gold hits $2,500/oz. Could derivatives have been sanctioned by the government to conceal the real inflation in the dollar over the years? It seems like this entire government bailout is tied to these potentially government created price control derivatives... which are now imploding. This explains the consensus in Washington to fast track the bailout... because the government needs to fix the derivatives mess that it sanctioned through wall street! Sound familiar? Like Afghanistan, Iraq, Iran, even Al Qaeda... All entities supported by our government at one time, then years later becoming our enemies...It's almost like the Government did these things purposefully; to crash the economy, or to maintain a viable war pipeline. (See Article: The Puppet Nation)

The deflation effect from the 'credit-debt money' erosion creates a short term zombie American currency, and a Godzilla Dollar. It is a "zombie" currency because the fundamentals supporting it are debt; and the fact that there is nothing tangible backing the U.S. dollar, it's worthless paper. However, it is a Godzilla dollar because it will become super strong, as the credit card system is gradually dismantled from our economy. The banks will simply refuse to carry the everyday expenses of Americans on credit, because these banks are now losing record amounts of money. With the consumer credit erosion, the American people will still need Federal Reserve Notes (physical dollars) to trade for needed goods... and these dollars will be stronger because they will be hoarded and removed from the banking system, which further exacerbates monetary deflation.

We will inevitably return to inflationary pressures, because this is what the world governments are pushing for. But the final consequence will be hyperinflation, as the government bailouts and liquidity actions today weigh down the future dollar, to its collapse. As stated before, we can expect this to happen suddenly and unexpectedly... and probably just as the government, FAUX News, CNBC, MSNBC, CNN, etc., are telling us that "Everything is fine! things are improving!".

Some might argue that the grim scenario of a dollar hyperinflationary crash wont happen. They may state that the disintegration of the digital credit-debt money system will insure the dollars survival! But the real problem is simply that people are losing trust in the digital money system. They are pulling their money out of banks, and cashing out their 401k's. They are exiting the system in droves. All forms of non asset backed currencies basically rely on the faith and trust of the people using them. Once this faith is gone, the system fails. All that will be left are worthless, inflated paper dollars...and panic.

Phantom Deflation, & Fed sanctioned 'price control' derivatives to conceal true dollar inflation

10/19/2008: The Fed is reacting to phantom deflation, as credit erodes and dollars are hoarded. But credit is not money, and the original dollars still exist in the system! The difference between fiat currency values and true commodity values are supply fundamentals: commodities cannot simply be "created"; fiat currency can be. Therefore, the principles behind commodity market valuations cannot be applied to fiat dollar valuations, as the Fed has done. Put simply, they're cheating the American people.

The inflation cover-up started in 2006 when the FED stopped reporting M3 data, which is a measure of how much fiat currency is in the system. I assume today it resembles an exponential function graph. It is probably so ridiculously similar to a hockey stick, the Fed may be too embarrassed to show these numbers... especially after all the bailouts and government "measures" of 2008:

The violently upturning graph reflects a ruinous amount of dollars entering the system, or monetary hyperinflation. The result will be a cheapening of all dollars that currently exist within the system. Money is never destroyed, just transferred from one perspective to another. It doesn't disappear from existence when lost. This means the Fed actions of pumping money into the system are creating massive inflation that we haven't seen expressed yet, because dollars are also being hoarded out of the system, yet they still exist. It also means Wall Street is lying to us too, by their representation that stock market wealth has deteriorated. It has not deteriorated, it has been transferred; probably to the financial elitist dictatorship.

All these Fed actions only really benefit those organizations that get the new dollars first; because they can spend them before the markets reflect the inflation of new money and currency devaluation. You can wager that these 'fresh faced' dollars will go for hard assets; like real estate, precious metals, and oil. We can expect rapid price increases for all commodities once the inflation starts being reflected in the system. The deflation we're seeing now is simply a result of price manipulation and hoarding.

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ORIGINAL ARTICLE

9/27/2008: We've seen the trend over the past couple months of rampant dollar strength, starting just before the Chinese Olympic opening ceremonies (08/08/2008). We've seen the dollar rise daily as metals and other commodities have tanked, hard. Silver reached an unfathomable mid 10's per ounce; platinum around 1,100 and palladium the low 200's. Gold hit the lower mid 700's.

Many theories emerged on why this was happening in what seemed to be an inflationary scenario. Some thought it was Chinese manipulation, timed with the Olympics; or to keep the yuan weak. Others believed it was short covering from the long commodities-short dollar trade. Still others attributed it to the erosion of credit in the markets; where modern "money" is defined as credit and debt...not gold or even dollars. Whatever it was, traders flocked to the dollar and it has enjoyed a rather nice recovery...

Now, its 9/27/2008 and we have seen the dollar pull back a bit. All these astronomical bailouts are starting to rattle the American confidence in the fundamentals behind the dollar. We've seen a small flocking from the dollar into select stocks, gold, silver, and oil. Gold and silver have since recovered, with gold pushing 900 again and silver just under 14. Platinum and palladium have not recovered; perhaps because these metals are not readily associated with currency concerns. This fact, among other trends, leads me to suspect the growing sentiment behind hyperinflation and dollar weakness. Yes, the fundamentals of the dollar are weaker than ever...But we've seen how motivations to keep the dollar strong have kept it there, through manipulation or other means. Fact is there may be no stopping the prices of oil, gold and silver from appreciating...but all other assets and commodities may be subject to deflationary pressures.

The core of the contrarian argument is; "Always consider what is the most likely outcome to be the least likely outcome; and what is seemingly nonsensical the most likely outcome." We've seen this happen, time and time again. Why think things will be different now? I wouldn't be surprised if we see a Godzilla Dollar emerge from all this as banks go under. Banking supplied consumer credit goes away when banks do...I'm not sure if the public realizes this. Fact is, the credit card is going the way of the dinosaur. There may be a time in the future where actual, physical greenbacks are the strongest thing you can have!

As credit erodes, vendors and merchants will stop accepting credit cards, and require cash. Without the guaranteed backing of the banks behind the charge, cards will become useless. We are already seeing a retraction in available credit for many consumers. This may in fact have the opposite effect than what is desired; people may de-prioritize paying on credit cards, when they have less available credit for emergencies.

That being said, this provides a very promising future for pre paid credit cards. In fact, pre paid cards may become the norm so people can do business transactions easier, not have to deal with cash, and do online transactions. The credit is backed by hard currency, like a debit card. As more banks go under, hard currency will be necessary for transactions, and credit is filtered out of the system. This will be extremely hard on the day to day consumer...they are used to easy transactions on the banks. Once consumer credit retracts violently, this should lead to much less money in the system (where money is defined through the credit-debt system banks have created). The result? Deflation, and dollar strength. However, the lingering doubts about the currency will surely remain, thereby stabilizing gold, silver, and possibly oil prices only. Everything else, look out below...

Speaking of online, this whole scenario bodes horribly for the online retailers: if people don't have credit, It could systematically ruin some online businesses.

Conclusion? we may need continued bailouts to get hyperinflation. This is clearly what the fed is trying to achieve, and they are taking a top-down approach. I would suggest starting with the people: lets remove payroll taxes on those earning less than $100,000 per year; So a 15 buck an hour job actually earns 15 bucks. This stimulates the economy, gets people spending, and gets money to the banks via the consumer. There are psychological benefits to this as well; there won't be the perception tax payer money only goes to the rich fat cats on wall street. If the bailouts stop, as the American people want, then IMHO we will see dollar strength and across the board deflation.

Difficult to say which is better or worse for the country. Frankly, both hyperinflation and deflation are bad outcomes for the economy, although one progresses the inevitable a bit faster (deflation to depression). We shall see.

9/07/2008 "Deflation is Here...": I've been half heartedly preaching deflation for the past 7 months, and now here we are. Let me make it clear I am not bullish on stocks or any assets now; old articles kept for the record. There is now uncertainty in the markets, yet the overall belief that inflation is inevitable. The government itself needs inflation. However, this sure seems like a bottomless pit for the financials sector, which is now joined at the hip with our government. Deflation may become ruinous, and god forbid become a trade manipulation or leveraging tool for the Fed and their banking associates to use on our government. Same principles as the Great Depression. Remember, the fed has something of an "adversarial" (for lack of better term) relationship to our government; a lender/borrower relationship, which is not exactly a love nest. The Fed is a private organization and is not a US government entity. If they suspect a US government default: what lengths will they go to? Equate it to the relationship between the US and Israel; both have common interests; but Israel is a different country with different priorities than the US; namely their own.

The financials are in trouble, big time. In the haste to survive, corruption is rampant. With the Fanny Freddy fix, the government is going to have to buy ALL this crap now, because the American consumer will not because it wont make economic sense; where the government doesn't have that luxury (y'know; of being a rational investor). Liquidity is leaving the markets. All assets have bled over the past few weeks, where fundamentally one would expect some of them to run inverse to each other: Like stocks to gold/oil for example. The deflation lately seems broad and effecting every asset class.

They all cry "we need housing to recover, then everything will be OK"... However, there are implied assumptions with the statement, "bottom in housing". The term was invented on wall street, as a correlation to stocks hitting bottom. One faulty assumption is that hitting a bottom means it will go up. I think with regards to housing; there may be a bottom but then followed by a multi year dirge of price stabilization; doesn't mean housing is a buy when it hits bottom, and will surely be a non liquid, non flexible investment. With unemployment ticking up, who can have much confidence in where they are and what they're doing? All the overbuilt suburbs and cheap rents, less qualified buyers, tighter lending (especially now after fannie freddy fix, if anything it HURTS a housing recovery!), more dinged credit reports, more inventory, prime loan defaults, etc..Not to mention all the added fees the banks have to pay when people dump their loser mortgages; property taxes, insurance, HOA's, etc..

In fact, owning is just a milder form of renting from the network of leeches (insurance, gov't taxes, agent fees) that survive on immovable assets. We are still in a negative equity expectation in housing, no reason to think it will recover or even bottom. The premium for owning is roughly 60% higher than renting. after this fanny freddy fix, consumer rates are going UP but fed rates going down. Spread will be severe. More non productive debt that will just plug holes and not benefit anyone but the banks, who will continue to bleed our governments resources (as enforced by our federal reserve masters). We are digging a hole that we may not get out of..counter intuitively dollar strength may in fact bring the dollar collapse we've all expected. We still have to think all currencies will crash along with the dollar at some point; yet civilization will continue because of government military strength.

The great bottomless pit of printed money that erodes as its created. Can the banks stay afloat until the bleeding stops? Even if they do survive, the future for banks and investment houses looks bleak. Far lower lending and sales volumes in housing, and 'dead in the water' housing prices clearly points to a prolonged, multi year housing slump. A mere run on the banks by x% of the baby boomers collapses them all. Seems like a rat race that the tax payers will get to pay for: with no overall benefit or productivity to the economy.

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