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Mr. Schlichter thinks that the collapse of U.S., European and Japanese currencies will be the worst in history. It will be a collapse “of epic proportions.”

Revelation 15:11-19″

And the merchants of the earth will weep and mourn over her, for no one buys their merchandise anymore:  merchandise of gold and silver, precious stones and pearls, fine linen and purple, silk and scarlet, every kind of citron wood, every kind of object of ivory, every kind of object of most precious wood, bronze, iron, and marble;  and cinnamon and incense, fragrant oil and frankincense, wine and oil, fine flour and wheat, cattle and sheep, horses and chariots, and bodies and souls of men. 

The fruit that your soul longed for has gone from you, and all the things which are rich and splendid have gone from you,and you shall find them no more at all.  The merchants of these things, who became rich by her, will stand at a distance for fear of her torment, weeping and wailing,  and saying, ‘Alas, alas, that great city that was clothed in fine linen, purple, and scarlet, and adorned with gold and precious stones and pearls!  For in one hour such great riches came to nothing.’ Every shipmaster, all who travel by ship, sailors, and as many as trade on the sea, stood at a distance  and cried out when they saw the smoke of her burning, saying, ‘What is like this great city?’    

“They threw dust on their heads and cried out, weeping and wailing, and saying, ‘Alas, alas, that great city, in which all who had ships on the sea became rich by her wealth! For in one hour she is made desolate.’ 

from the Globe and Mail:

What should U.S. Federal Reserve chairman Ben Bernanke do next? London-based economist Detlev Schlichter says, succinctly: “Abdicate.” What should U.S. President Barack Obama do next? Mr. Schlichter says, succinctly: “Abdicate.” With Mr. Schlichter, you aren’t left with much doubt about his position. He says the world’s major currencies are destined to crash. “The dollar, the euro and the yen are locked in a race to the bottom,” he writes on his website, papermoneycollapse.com. The only question is which one crashes first.

Mr. Schlichter argues that we are only part of the way through the market meltdown – and that the worst is still to come. How much worse? Considerably worse, he says, than the Great Depression.

U.S. industrial production is 12 times higher now than it was in 1929, he says; but the amount of U.S. dollars in circulation is 200 times higher.

The U.S. net debt was 150 per cent of GDP in 1973, when then-president Richard Nixon took the country off the gold standard; yet its net debt reached a record high in 2010: 370 per cent. The United States will fall further, Mr. Schlichter insists, because it has further to fall.

Mr. Schlichter is the German-born, British-based author of a provocative and disturbing new book, Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown. An investment manager with JPMorgan, Merrill Lynch and Western Asset Management for 20 years, he quit to write his stern warning of an impending dollar doom.

From his own melancholy perspective, he thinks the crisis will come a little later on – because, he says, the central banks still imagine that they can keep the printing presses running indefinitely. The longer the presses run, Mr. Schlichter says, the more calamitous the crash. And Mr. Bernanke has hardly begun.

Mr. Schlichter recalls Mr. Bernanke’s famous assertion in 2002 that, with the world’s largest printing press, the Federal Reserve can produce “as many dollars as it wishes at essentially no cost.”Mr. Schlichter says: “Within the logic of the present system, the next step [by central banks] must involve the use of the printing press to fund further state expenditures, to fund corporate spending and, ultimately, to fund consumer spending.” In other words, the central banks won’t stop printing money until they’ve quantitatively eased people’s car loans and people’s credit cards.

Mr. Schlichter’s analysis rests on an Austrian-school interpretation of things. (“There is no means of avoiding the final collapse of a boom brought about by credit expansion,” Ludwig von Mises wrote in 1949 in Human Action. “The alternative is only whether the crisis should come sooner … or later as a final and total catastrophe of the currency system involved.”) The essential premise of the Austrians is that paper dollars get depreciated, sooner or later, “to a dime a dozen.”

Paper Money Collapse traces the history of paper currencies that weren’t at least partly guaranteed by a fixed-quantity commodity (which, for all practical purposes, means silver or gold). The Chinese invented paper and ink in the year 1000, Mr. Schlichter notes – discoveries that led quickly to paper money. He tracks China’s paper money through a number of dynasties. His conclusion: All of these experiments ended with worthless currencies. The Chinese abandoned paper money in 1500 (returning to it, under Western influence, in the 1800s).

Paper currency, he says, hasn’t fared any better in the West. He defines hyperinflation as a monthly rise in consumer prices of 50 per cent or more; the 20th century, he says, witnessed 29 such hyperinflations involving “elastic money.” Mr. Schlichter thinks that the collapse of U.S., European and Japanese currencies will be the worst in history. It will be a collapse “of epic proportions.”

Mr. Schlichter does not recommend an investment strategy for “the coming monetary breakdown.” And gold, he insists, should not be regarded as an investment. Gold, rather, is simply money, a medium of exchange – and the most successful form of it in history. But the cash in your pocket doesn’t pay interest or dividends and the gold in your pocket doesn’t, either.

“A collapse of paper money will be a momentous event,” he writes. “It will produce a transfer of wealth of historic proportions.” But it does not mean the end of civilization. All wealth is not illusion. And real wealth will survive.

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from Reuters:

The Vatican called on Monday for the establishment of a “global public authority” and a “central world bank” to rule over financial institutions that have become outdated and often ineffective in dealing fairly with crises.

The document from the Vatican’s Justice and Peace department should please the “Occupy Wall Street” demonstrators and similar movements around the world who have protested against the economic downturn.

“Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority,” was at times very specific, calling, for example, for taxation measures on financial transactions.

“The economic and financial crisis which the world is going through calls everyone, individuals and peoples, to examine in depth the principles and the cultural and moral values at the basis of social coexistence,” it said.

It condemned what it called “the idolatry of the market” as well as a “neo-liberal thinking” that it said looked exclusively at technical solutions to economic problems.

“In fact, the crisis has revealed behaviours like selfishness, collective greed and hoarding of goods on a great scale,” it said, adding that world economics needed an “ethic of solidarity” among rich and poor nations.

“If no solutions are found to the various forms of injustice, the negative effects that will follow on the social, political and economic level will be destined to create a climate of growing hostility and even violence, and ultimately undermine the very foundations of democratic
institutions, even the ones considered most solid,” it said.

It called for the establishment of “a supranational authority” with worldwide scope and “universal jurisdiction” to guide economic policies and decisions. . . . . . .

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from The Daily Telegraph:

Sir Mervyn King was speaking after the decision by the Bank’s Monetary Policy   Committee to put £75billion of newly created money into the economy in a   desperate effort to stave off a new credit crisis and a UK recession.

Economists said the Bank’s decision to resume its quantitative easing [QE], or   asset purchase programme, showed it was increasingly fearful for the   economy, and predicted more such moves ahead.

Sir Mervyn said the Bank had been driven by growing signs of a global economic   disaster.

“This is the most serious financial crisis we’ve seen, at least since the   1930s, if not ever. We’re having to deal with very unusual circumstances,   but to act calmly to this and to do the right thing.”

Announcing its decision, the Bank said that the eurozone debt crisis was   creating “severe strains in bank funding markets and financial markets”.

The Monetary Policy Committee [MPC] also said that the inflation-driven   “squeeze on households’ real incomes” and the Government’s programme of   spending cuts will “continue to weigh on domestic spending” for some time to   come.

The “deterioration in the outlook” meant more QE was justified, the Bank said.

Financial experts said the committee’s actions would be a “Titanic” disaster   for pensioners, savers and workers approaching retirement. Sir Mervyn   suggested that was a price worth paying to save the economy from recession.

Under QE, the Bank electronically creates new money which it then uses to buy   assets such as government bonds, or gilts, from banks. In theory, the banks   then use the cash they gain to increase their lending to businesses and   individuals.

By increasing the demand for gilts, QE pushes down the interest rate yields   paid to holders of these and other bonds. Critics of the policy say it   pushes up inflation and drives down sterling.

The National Association of Pension Funds yesterday called for urgent talks   with ministers to address the negative impact of lower gilt yields on   pension funds. Joanne Segars, its chief executive, said QE makes it more   expensive for employers to provide pensions and will weaken the funding of   schemes as their deficits increase. “All this will put additional pressure   on employers at a time when they are facing a bleak economic situation,” she   said.

Ros Altman, of Saga, said the latest round of QE was “a Titanic disaster” that   would increase pensioner poverty. As well as fuelling inflation, she said,   falling bond yields would make annuities more expensive, “giving new   retirees much less pension income for their money and leaving them   permanently poorer in retirement”.

The MPC also voted to keep the Bank Rate at its historic low of 0.5 per cent,   another decision that hurts savers. Yesterday, protesters outside the Bank’s   headquarters smashed a giant piggy bank to symbolise the situation of   pensioners and others forced to raid savings to keep up with the rising cost   of living.

Asked about the plight of savers, Sir Mervyn said it was more important to   support the wider economy than to support them. He suggested that savers   would not be helped by deliberately pushing the British economy into   recession. Yesterday’s decision was the first move on QE since 2009, during   the global credit crisis, when the Bank injected £200 billion into the   economy.

Some analysts believe that this round of QE could be less effective than the   previous one, forcing the Bank to create even more money this time.

Michael Saunders of Citigroup, forecast that there could be as much as £225   billion more QE by next year. “I think they will do lots more QE,” he said.   “It’s both that the economy is weak but also that the MPC’s view is that QE   is not a very powerful tool, or rather it takes a large amount of QE to have   much effect on the economy.”

The Bank is supposed to keep inflation near a target of 2 per cent. Inflation   now stands at 4.5 per cent, and the Bank admitted it is likely to hit 5 per   cent as soon as this month. The Bank’s own research shows that as well as   stimulating the economy, QE pushes up prices.

Sir Mervyn insisted that yesterday’s move was still consistent with the 2 per   cent inflation target, saying that the slowing economy means inflation could   actually fall below that mark “by the end of next year or in 2013”.

The Governor insisted that the MPC’s decisions had been the correct response   to events. “The world economy has slowed, America has slowed, China has   slowed, and of course particularly the European economy has slowed,” he   said. “The world has changed and so has the right policy response.”

City traders took heart from the Bank’s move to boost growth, with the FTSE   100 rising 3.7 per cent to 5,29, its biggest two-day gain since 2008.

The Bank’s decision came after mounting political pressure from ministers   worried that Sir Mervyn was not reacting urgently enough to the darkening   global economic outlook.

George Osborne, the Chancellor, welcomed the Bank’s move, saying: “The   evidence shows that it [QE] will help keep interest rates down and boost   demand and that will be a help for British families.”

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from The Business Insider:

In an interview on the BBC (via ZeroHedge), IMF advisor Robert Shapiro said some incredibly alarmist things.

He tells broadcasters that if eurozone leaders don’t address the crisis properly we will see a meltdown as soon as later this month.

In his words:

“If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system.

We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world.

This would be a crisis that would be in my view more serious than the crisis in 2008…. What we don’t know the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems.”

And Shapiro is not just some random guy living with his girlfirend.

Aside from being an advisor to the IMF, Shapiro is the co-founder and chairman of Sonecon, LLC, and was formerly the U.S. Undersecretary of Commerce. He has a Ph.D. from Harvard, among other degrees, oversaw the Census Bureau, and has been a Fellow at Harvard, Brookings, and the National Bureau of Economic Research.

 

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This is HUGE! 

If the international Bond market stops buying U.S. government debt then the U.S. is in serious trouble! 

Even now the U.S. Federal Reserve Bank a quasi-private institution is purchasing more U.S. Debt than anyone else, even the Chinese, because there are no longer enough buyers in the international bond market. And this is because the world has decided that the U.S. is no longer a good credit risk. But the Fed can only purchase so much debt.  

What happens is this: The U.S. Treasury holds weekly and monthly bond auctions to sell U.S. Government debt to Bond funds and foreign countries in order to get more money to fund the federal budget. In the past all of the bonds that the U.S. Treasury wanted to sell were bought by the bond funds and foreign countries, meaning the auction was fully subscribed. However now that the U.S. government has decided to increase its debt so much it has had to drastically increase the value of the bond sales,  to the point that Bond funds and Foreign countries will not buy all of the bonds, meaning the auctions are undersubscribed. A VERY BAD THING! It means the International Bond market has decided the U.S. is now a bad financial risk. And if you lose the trust of the international Bond market, your country is in deep deep trouble financially. This is actually the last step before financial collapse! 

So the U.S. Treasury has turned to the U.S. Federal Reserve and made an agreement with them, The U.S. Federal Reserve will purchase all the bonds that no one else will buy. There is a huge problem with this though: In order for the Federal Reserve to buy the bonds, it has to have the money to do it. And how does it get the money? 

And this is the BIG DANGEROUS part: The U.S. Treasury issues I.O.U.’s to the Federal Reserve, and the Federal Reserve then CREATES the money with which to buy the Bonds, because the U.S. Dollar today is an I.O.U., a debt instrument obligating the government to pay the Federal Reserve a tangible asset equal to the value of the money that the Fed issues! So what you have in actual fact is for each bond the Fed buys, what is owed for the Bond automatically DOUBLES! 

So not only do you have an automatic doubling of the debt you have massive growth in the amount of U.S. dollars in circulation which depreciates the value of the dollar drastically, and if you have added to that the fact The international Bond market will not buy U.S. Debt, it then turns into a vicious free fall of the value of the U.S. Dollar and hyperinflation. And the World would immediately stop using the dollar as the international currency of exchange, which would accelerate the dollars fall! 

The immediate impact of all of this would be similar to, but much worse than what happened to the Soviet Union after Communism fell, Their economy collapsed their government could no longer afford the massive military that they had and within 10 years they had to scrap ¾ of their military. We would within a very short time fall from being the only superpower to not having any power at all on the world stage. 

If you want to get a good understanding of the International Bind market and the power it wields you need to get this book: “The Ascent of Money” by Niall Ferguson, he is a well known history professor at Harvard.

from Reuters:

The world’s largest bond fund has gone ultra bearish on the United States, dumping all of its U.S. government-related debt holdings.

The move by Bill Gross’s $236.9 billion PIMCO Total Return fund completed last month comes in the wake of a vicious Treasury market sell-off and just days after he questioned who will buy Treasuries once the Federal Reserve halts its latest round of bond purchases in June.

Gross, who also helps oversee a $1.1 trillion investment portfolio as PIMCO’s co-chief investment officer, has repeatedly warned against U.S. deficit spending and its inflationary impact, which undermine the value of government debt and push up yields as investors demand more compensation for risk.

Over the last five months, worries over the ballooning U.S. budget gap estimated at $1.645 trillion for 2011, political stalemate in Washington over how to narrow it and inflationary fears have all contributed to a steep sell-off in Treasuries. The benchmark 10-year note has seen its yield, which moves inversely to price, rise more than one percentage point since early October to 3.46 percent by Wednesday’s close.

Gross expects further carnage. Just last week, he told Reuters Insider that a 4.0 percent yield for 10-year notes is a “rational expectation” if the Fed “disappears as the buyer of last resort.”

Gross, as with many other investors, has raised red flags over demand for Treasuries when the U.S. central bank ends its controversial quantitative easing program. This week, he posed the following in his widely read monthly report: “Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.”

Already, bond prices have taken a massive beating on that possibility and as the U.S. economy recovery strengthens. The 10-year Treasury yield hit a 9-1/2 month high of 3.77 percent on February 9, rising 40 basis points in the short period from the end of January.

Gross sold all of its U.S. government-related securities, including U.S. Treasuries and agency debt, from its flagship Total Return fund, as of the end of February 28, according to the firm’s website on Wednesday.

That’s down from when the portfolio held 12 percent government-related debt at the end of January. The last time PIMCO was this negative on U.S. government-related debt was in January 2009.

A PIMCO spokesman declined to comment. . . . .

read the full article here.

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alslo see this: WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

from The Daily Telegraph:

Those exhorting OPEC to boost output should be careful what they wish for. The cartel card can be played once only, and it risks exposing the fragility of the global energy system if the Gulf powers are seen struggling to deliver.

Goldman Sachs suspects that OPEC has been pumping far above its agreed quota since November and therefore cannot easily raise output much without cutting deep into global spare capacity.

Jeff Currie, the bank’s oil guru, said Saudi output had quietly crept up by 700,000 barrels a day (bpd) even before the Libyan supply shock.

Assumptions that OPEC has added 1.9m bpd over the last two years are wishful thinking. These new fields have been “largely offset” by attrition in old fields.

“We believe that OPEC spare capacity has already dropped below 2m bpd. The question therefore arises how much spare capacity is left to absorb potential supply disruptions in other countries,” he said.

If this picture is broadly correct, spare capacity is already close to the wafer-thin levels that led to wild price moves in mid-2008.

The flow of Libyan oil has so far fallen by 1m bpd. This may not sound much against global supply of 88m, but oil prices are determined by levels of spare capacity once supply tightens.

Beyond a certain point, the price spiral can kick in with explosive force until the economic damage crushes demand.

Libya’s conflict has already cut spare capacity by a third. Hopes for a quick solution are fading as the country succumbs to civil war along ancient lines of tribal cleavage. A raft of new projects planned for the Sirte Basin by mid-decade will be mothballed.

Chris Skrebowski, editor of Petroleum Review, said the long-denied oil crunch is starting to bite. “We cling to the comfort blanket that spare capacity exists, but it is mostly fictional, or inoperable. If you take 2m bpd off the figure, the whole dynamic of global oil supply changes,” he said.

A Wikileaks cable cited a Saudi geologist claiming that the kingdom’s reserves had been overstated by 40pc. A second cable questioned whether the Saudis “any longer have the power to drive prices down for a prolonged period”.

Some investors see trouble. They are buying oil options contracts for $150 and $200 a barrel with expiry dates late this year, either as a bet or as an insurance against Mid-East mayhem. Barclays Capital said the options “call skew” is more stretched now that it was during the 2008 spike.

The implication is that markets are less sure this time that the crisis will blow over quickly, perhaps because the events the last month amount a strategic rupture.

The entire political order of the Middle East has effectively disintegrated, risking of years upheaval in a region that provides 36pc of global oil supply and holds 61pc of proven reserves.

Mass protest by Bahrain’s Shi’ite majority against the ruling Sunni dynasty has been a rude awakening for investors who thought oil wealth would shield the Gulf against turmoil.

“We in the West have been listening to the wrong people,” said Mr Skrebowski. “We have not been talking to the young: we missed what was happening underneath.”

Bahrain sits at the epicentre of the world’s energy system. It is a hop to Saudi Arabia’s Eastern Province, home to an equally aggrieved Shi’ite population and the kingdom’s giant oil fields.

Bahrain’s Al Khalifa family has sought to defuse the island’s crisis since the original crack-down, when seven people died. Yet protesters have refused to drift away, digging in at the financial hub and staging rallies outside the interior ministry. Sectarian violence between Sunni and Shia has been escalating.

What happens on the tiny island is being watched with alarm across the Gulf. The “demonstration effect” has already led to Shia protests in the Saudi oil region. Saudi police have released a Shia cleric arrested last week for demanding a constitutional monarchy.

Yet the country’s Wahabi clerics also warned against “sedition” and violations of Islamic law, while the interior ministry said all rallies were banned and warned that police would use “all measures to prevent any attempt to disrupt public order.”

The threats aim to quash a “Day or Rage” planned by cyber-protesters for Friday, allegedy swollen to 17,000. A similar event in Syria was nipped in the bud by secret police.

The world’s economic fate now hangs on the success of Wahabi repression. Any sign that the Saudis are losing their grip risks an oil shock large enough to derail the global recovery.

Nobody knows where the “inflexion point” is. Bank of America says we are already in the danger zone since energy costs as a share of global GDP have reached 8.5pc, near historic peaks.

Deutsche Bank said the outcome differs depending on whether spikes are driven by booming demand or a supply crunch. It warns that a sudden jump to $150 will abort world recovery.

Former Fed chief Alan Greenspan said economists have been “bedevilled by over the years” trying to quantity the effect of oil shocks. “We don’t know fully where all the channels are. My view is that when oil prices get up to this area and start to move up even higher, you do have to start to worry.”

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