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Federal Reserve policy mixed with extreme weather has put the world on a fast track to revolution and war

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by David DeGraw
of AmpedStatus
Posted August 25, 2011

THERE ARE MANY FACTORS THAT CLEARLY DEMONSTRATE WHY IT WOULD BE DISASTROUS for the Federal Reserve to repeat their vicious Quantitative Easing (QE) policy. If you want to know a significant reason why they cannot get away with another round of QE, here is an equation for you:

(Quantitative Easing + Extreme Weather = Revolution + World War III)

From the very beginning we knew that the Federal Reserve’s QE program was going to cause the cost of food to rise and the dollar to decline in value, and that these intended results would lead to an increase in poverty and civil unrest.

Are food prices approaching a violent tipping point?

A provocative new study suggests the timing of the Arab uprisings is linked to global food price spikes, and that prices will soon permanently be above the level which sparks conflicts. There is a specific food price level above which riots and unrest become far more likely. That figure is 210 on the UN FAO’s price index: the index is currently at 234, due to the most recent spike in prices which started in the middle of 2010 [coinciding with QE2].

Lastly, the researchers argue that current underlying food price trends – excluding the spikes – mean the index will be permanently over the 210 threshold within a year or two. The paper concludes: “The current [food price] problem transcends the specific national political crises to represent a global concern about vulnerable populations and social order.” Big trouble, in other words. The next part of the study identifies that the serious unrest in North Africa and the Middle East also correlates very closely with [the QE2] food price spike. Bar-Yam also notes: “Several of the initial riots in North Africa were identified in news stories as food riots.” From there, the researchers make their prediction of permanently passing the 210 threshold in 12-24 months.

In other words, if the Fed engages in another round of QE, the global unrest that they have already ignited will go hyperbolic. Before getting into the details on how the Fed deliberately made these food prices spike, let’s look at another new study, which also helps demonstrate the obvious, extreme weather is linked to war:

Climate cycles linked to civil war, analysis shows

Changes in the global climate that cut food production triggered one-fifth of civil conflicts between 1950 and 2004. Cyclical climatic changes double the risk of civil wars, with analysis showing that 50 of 250 conflicts between 1950 and 2004 were triggered by the El Niño cycle, according to scientists. El Niño brings hot and dry conditions to tropical nations and cuts food production, to outbreaks of violence in countries from southern Sudan to Indonesia and Peru.

Solomon Hsiang, who led the research at Columbia University, New York, said: “We can speculate that a long-ago Egyptian dynasty was overthrown during a drought. This study shows a systematic pattern of global climate affecting conflict right now. We are still dependent on climate to a very large extent.” Mark Cane, a member of the team, said global warming would have greater climatic impacts than El Niño, making it “hard to imagine” it would not provoke conflicts. [read full report]

Put all these factors together and you have, “The Road Through 2012: Revolution [and/or] World War III.”

In summation, Ben Bernanke and the Fed’s economic central planners were clearly aware of the hostile climate and weather patterns when they engaged in QE2. The Fed’s infamous policy, as I said before, “deliberately threw gasoline all over those brush fires. QE2 was another economic napalm bomb from the global banking cartel.” They knew that they were deliberately attacking (sacrificing) tens of millions of people, but that was secondary to keeping their global Ponzi scheme going by pumping another $2.1 trillion into their fraudulent, insolvent banking system through both QE programs. This is why Ben Bernanke is guilty of crimes against humanity. Now, let’s revisit what I’ve been reporting on for the past year:

Centrally Planned Economic Repression

The IMF has a well-worn strategy that they use to conquer national economies. As I warned four months ago, we have now progressed into Step 3.5: World Wide IMF Riots. Back in October, in a TV interview with Max Keiser, we discussed leaked World Bank documents that revealed the IMF’s strategy. I stated the following:

“They have a four-step strategy for destroying national economies. We are about to enter what they would call Step Three. Step Three is when you’ve looted the economy and now food and basic necessities all of a sudden become more expensive, harder to get to. And then, Step 3.5 is when you get the riots. We are headed to, as the IMF said, and as they plan, Step 3.5: IMF Riots. That’s what’s coming…”

Fast-forward four months to today, and now we see country after country rebelling against high food prices. Since our October interview, food prices have spiked 15%. According to new World Bank data, since June 2010, “Rising food have pushed about 44 million people into poverty in developing countries.”

As Federal Reserve Chairman Ben Bernanke announced another round of Quantitative Easing (QE2), those of us paying attention knew that the trigger had been pulled and Step Three had been executed. It was a declaration of economic war, an economic death sentence for tens of millions of people – deliberately devaluing the dollar and sparking inflation in commodities/basic necessities. It was a vicious policy that would impact people from Boston to Cairo.

When QE2 was announced, I warned: “Food and Gas Prices Will Skyrocket, The Federal Reserve Just Dropped An Economic Nuclear Bomb On Us.” I also wrote: “The Federal Reserve is deliberately devaluing the dollar to enrich a small group of a global bankers, which will cause significant harm to the people of the United States and severe ramifications throughout the world. The Federal Reserve’s actions are already causing the price of food and gas to increase and will cause hyperinflation on most basic necessities.”

To be clear, there are several significant factors contributing to rising food prices, such as extreme weather conditions, biofuel production and Wall Street speculation; but the Federal Reserve’s policies deliberately threw gasoline all over those brush fires. QE2 was another economic napalm bomb from the global banking cartel.

In a recent McClathy news article entitled, “Egypt’s unrest may have roots in food prices, US Fed policy”, Kevin Hall reports:

“‘The truth of the matter is that when the Federal Reserve moved on the quantitative easing, it did export inflation to a lot of these emerging markets. There’s no doubt that one of the side effects of the weak dollar and quantitative easing has been rising commodity prices. It helped create this bullish environment for commodities. This is a very delicate balancing act.’

It’s a view shared by Ed Yardeni, a veteran financial market analyst, who reached a similar conclusion in a research note to investors. He joked that Fed Chairman Ben Bernanke should be added to a list of revolutionaries, since his quantitative easing policy, unveiled last year in Wyoming, has provoked unrest and change in the developing world

‘Since he first indicated his support for such a revolutionary monetary change, the prices of corn, soybeans and wheat have risen 53 percent, 37 percent and 24.4 percent through Friday’s close,’ Yardeni noted. ‘The price of crude oil rose 19.8 percent over this period from $75.17 to $90.09 this (Monday) morning. Soaring food and fuel prices are compounding anger attributable to widespread unemployment in the countries currently experiencing riots.’”

The people throughout the Middle East and Northern Africa, on the fringe of the Neo-Liberal economic empire and most vulnerable to the Fed’s inflationary policies, are the first to rebel. The conclusion that we reach, the unfortunate reality of our current crisis: the Federal Reserve and global economic central planners have declared war on us. We are under attack. We must remove Ben Bernanke from power and hold him and the rest of the global banking cartel accountable. We must also break up the “too big to fail” banks. This a message I, along with many others who have analyzed our economic situation, have been repeating over and over for the past three years.

Hopefully, a critical mass of people will soon understand this reality and back it up with non-violent civil disobedience before riots and violence rip our society apart. For these reasons, let’s all go to Wall Street on September 17th and show these tyrants that we’ve had enough.

What are the social implications of economic collapse?

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by Simon Black at Sovereign Man
Originally posted June 14, 2011

IT’S IMPORTANT TO UNDERSTAND WHY THE WEST HAS TRULY PASSED the point of no return. Simply put, the United States and much of Europe are borrowing an extraordinary amount of money now just to pay interest on the money they’ve already borrowed. They cannot even self-fund their mandatory entitlement programs without going into the hole, and their options are limited:

Option 1: Continue borrowing, keep the party going.

As long as the government CAN do this, they WILL do this.  Regardless of their intentions, though, more debt only worsens the situation, creating higher borrowing costs in the long run, and even more debt. As this happens, the pool of buyers begins to dry up, especially from overseas.

Option 2: Inflation

The more buyers stop purchasing Treasury securities, the more the Federal Reserve will mop up the excess liquidity. In doing so, the Fed essentially conjures up money and loans it to the government.

No matter what the government monkey statistics say, this is inflationary, plain and simple. The more money they print, the greater the level of inflation in the long-term. Meanwhile, as foreigners simultaneously reduce their US dollar holdings, this inflation will become more acutely felt in the US.

Option 3: Austerity

There’s going to come a time when the US government is forced to face its economic reality and make some incredibly deep cuts that would be felt across society, from Wall Street and the military industrial complex to project housing on the other side of the tracks.

Option 4: Default

Eventually, the debt burden is simply going to be too much, and the most obvious solution will be to default. Politicians will make China out to be the enemy and they will probably invent a war just to have an excuse to default on Chinese owned debt. Americans will wave the flag and celebrate defaulting on their enemies.

Option 5: Economic Cannibalism

In the best traditions of Atlas Shrugged, the government will continue its persecution of the productive class– professionals, investors, entrepreneurs, and skilled workers. Existing taxes will rise, new taxes will be created, trade barriers will be enacted, and a maze of cost prohibitive regulations will be passed.

The first option (keeping the party going) is what has been happening for years. Politicians make small concessions to show they’re “serious” about fiscal discipline, cutting laughably small programs while dumping hundreds of billions of dollars into wars and entitlement programs.

The worse the debt situation becomes, though, the higher the borrowing costs become, and the worse the debt situation becomes. It’s not an enviable position. Existing lenders will continue backing away from the US Treasury market, giving option 1 a half-life measured in months at best.

In the longer term, only options 2 to 5 remain: inflation, austerity, default, and cannibalism. Each of these remaining options will shake the financial system to its core. More importantly, each of these has the power to create widespread social upheaval.

When inflation eats away at a family’s already meager standard of living, when austerity eliminates the benefits to which recipients have grown accustomed, when default vanquishes a retiree’s savings, when high taxes make workers feel like they’re just government serfs – this is when the real turmoil will begin:

  • Rising crime: devoid of a job or means to support their families, people will turn to crime out of desperation
  • Class warfare: with dividing lines drawn between have’s vs. have-not’s, it will become unpopular and even dangerous to be successful
  • Corruption: low-level public service officials will look to supplement their income through bribery and kickbacks
  • Black economy: An underground, cash-only (probably gold or foreign currency) economy will emerge with people getting paid in envelopes
  • Censorship: Of course they’ll blame it on national security, but the idea will be to prevent public disparaging of government policy
  • War: The government will need another major event to distract people from the real problems
  • Protests/Riots: This is when things turn bloody
  • Police state conditions: The government will close ranks and send the cops out to show all the little people who’s really in charge

There are a number of other manifestations, and many are already showing signs of emergence. The US and European police states are alive and well. Crime is on the rise. In Europe, cops are doing battle in the streets with their citizens. Think it can’t happen in the US? Remember tanks in the streets during the LA riots? Remember New Orleans? Remember any number of G8/G20 protests?

Here’s the bottom line: all you have to do is glance at the headlines to see what happens when you strip people of their livelihood, of their ability to put food on the table for their families. The US has been able to kick the can down the road with the most blunt social implications simply because the country benefits so much from a US-oriented financial system. This is coming to an end very, very quickly.

As a rule of thumb, the greater the economic distortion, the harder the collapse. The US economy has been in a fantasy world for so long, and when its dominant primacy is yanked away, the collapse will be at freefall speed. I’m not talking about the end of the world here, I’m talking about difficult times ahead, and the things that go beyond economics. It’s time to face facts and look at how society will change (and has already changed).

The Economic Death Spiral has been triggered

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by Gordon T. Long
Posted originally May 27, 2011 
This posting has been abbreviated slightly

For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended.  It is now in the process of reversing and becoming a vicious downward economic spiral.

One of the strategies is the Asian Mercantile Strategy.  The other is the US Dollar Reserve Currency Strategy. These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end.

One of the two global strategies enabled the Asian Tigers to emerge and grow to the extent that they are now the manufacturing and potentially future economic engine of the world. The other allowed the US to live far beyond its means with massive fiscal deficits, chronic trade imbalances and more recently, current account imbalances. The US during this period has gone from being the richest country on the face of the globe to the biggest debtor nation in the world. First we need to explore each strategy, how they worked symbiotically, what has changed and then why the virtuous cycle is now accelerating into a vicious downward spiral.

ASIAN MERCANTILE STRATEGY

The Asian Mercantile Strategy started with the emergence of Japan in the early 1980s, expanded with the Asian Tigers in the 90s and then strategically dominated with China in the first decade of this century. Initially, Japan’s products were poor quality and limited to cheap consumer products. Japan as a nation had neither the raw materials, capital markets, nor domestic consumption market to compete with the giant size of the USA. To compensate for its disadvantages, Japan strategically targeted its manufacturing resources for the US market.  By doing this, the resource poor island nation took the first step in becoming an export economy – an economy centered on growth through exports versus an economy like the US, where an excessive 70% of GDP is dependent on domestic consumption.

The strategy began to work as Japan took full advantage of its labor differential that was critical in the low end consumer product segment, which it initially targeted. Gradually, as capital availability expanded, Japan broadened its manufacturing scope, moving into higher levels of consumption products requiring higher levels of quality and achieving brand recognition. Success soon became a problem as the Yen began to strengthen. To combat this the Japanese implemented the second critical component of what became the Asian Mercantile Strategy template. It began to manipulate its currency by aggressively intervening in the forex market to keep the yen weak.

Further success forced Japan to move to a more aggressive forex strategy to maintain a currency advantage. It was strategically decided that Japan’s large and growing foreign reserves were to be re-invested back into the US. By buying US Agency and US Treasury debt instruments it kept the dollar strong relative to the Yen. The more successful Japan became, the more critical this strategy became. In the 80s Japan dominated global expansion as it brought US automotive and consumer electronics’ manufacturing to its knees.

By the early 90s the Japanese labor advantage was quickly being lost to the Asian Tigers because the Yen versus the Asian Tiger currencies was too strong. The Asian Tigers were following the Japanese model. The Asian Crisis in 1997 re-enforced to all Asian players the importance of holding large US dollar denominated reserves. This further accelerated and reinforced the strategy of purchasing US Treasury and Agency debt. With China’s acceptance into the World Trade Organization (WTO),  China emerged on the scene in full force. Armed with the lessons of the last twenty years, China took the Asian Mercantile Strategy to another level in its ongoing evolution.

The results were one of the largest and fastest transfers of industrial power ever to occur in history.  In ten years, China assumed the role of the world’s undisputed industrial powerhouse in the world.

The virtuous cycle further accelerated as Asia became more dominant because its reserves, reinvested back in the US, began to have a larger and larger impact. The more Asia bought US Treasury and Agency debt, the lower US interest rates were forced, allowing Americans to finance more and more consumption. The more Asia bought US securities, the stronger the US dollar was against Asian currencies, and therefore the cheaper Asian products were relative to US manufactured products. It was a self reinforcing Virtuous Cycle. The result was a staggering 46,000 factories transferred from the US to Asia over the same ten year period. The transfer set the stage for chronic unemployment and public funding problems, but it was temporarily hidden by equally massive increases in debt spending.

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Don Coxe on everything from the markets rolling over, persistent food Inflation, the coming US Sovereign debt crunch

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by Don Coxe
Posted Zero Hedge
on June 5, 2011

Don Coxe’s (BMO Capital Markets) observations on sovereign risk moving from east to west, state finances, the ongoing correction in financial stocks which portends nothing good for the equity investors, the ongoing violence in MENA, why this inflationary spike in food may last far longer than previous ones, and naturally, some very spot on thoughts on gold, which conclude with: “The only gold bubble likely to burst is the bubbling ridicule of gold.”

Sovereign Risk Moves West

THE EUROZONE’S PROBLEMS ARE NOT THE ONLY existential challenge to the Capital Asset Pricing Model: the bonds at the very base of the risk-free classification in the Model – Treasurys – have come under critical concern since it began to appear that the record-breaking US fiscal deficits won’t be seriously addressed as long as investors can be found somewhere in the world prepared to buy Treasurys. Lots and lots and lots and lots of Treasurys.

When Obama’s State of the Union speech included no budget proposals apart from the hoary pledge to control costs and waste, and when the Obama budget that followed included no provisions for dealing with entitlement programs—and included higher pay increases for government employees than some analysts had expected, bond managers globally began voicing concern—and selling the dollar.

Fortunately, there was a buyer of first and last resort—QE2, as traditional buyers were gagging. China reduced its Treasury purchases, Bill Gross announced he was not just out of Treasurys—he was short—and then S&P announced that, if Washington didn’t do something soon about its multi-trillion-dollar deficits, the US would lose its AAA rating.

In one sense, a downgrade from S&P should be no problem for the USA: what credibility can one assign to such ratings? S&P and other ratings agencies happily assigned Treasury-equivalent ratings to more than a trillion dollars in putrescent derivatives issues masquerading as desirable mortgages. That the raters remain in business at all is a demonstration of Mr. Bumble’s expostulation, “The law is a ass!” Friendly judges have dismissed lawsuits against the rating agencies—who were paid far more than their services were worth for saying that the mortgage products they were examining were worth far more than they were worth.

The judges accepted the ratings agencies’ arguments that penalizing them for exercising their opinions would unconstitutionally penalize their right to free speech. It turns out that free speech that doesn’t come for free, but for fat fees, is as worthy of Constitutional protection as—we were going to say quoting the Bible in public, but that might get an American into real legal trouble these days. As a colleague remarked, “If a doctor sent you for an MRI, and it revealed four tumors, and he didn’t tell you, you or your heirs could successfully sue him. What’s the difference?”

So, according to a series of court decisions, demonstrating, on majestic scale, something between outright sloppiness and outright venality—that was a major contributor to the worst fi financial crash since the Depression—is protected behavior. Those who relied on those fee-for-service appraisals and then lost hundreds of billions go uncompensated. The investment banks who peddled the putrid products with the AAA ratings haven’t been forced to recompense their clients, the Congressmen who used their full power of office to force banks to make loans to borrowers who couldn’t service the debts haven’t been voted out of offi ce, and now the rating agencies have been given a pass by the courts.

So nobody—not bankers, not politicians, not raters—is legally to blame for the disaster which has already added more than $2.5 trillion to the national debtIf no Americans are to blame for a financially-caused global recession that began in the US, why should overseas investors trust the US to remain the world’s best credit?

We believe it highly probable that the US’s fiscal problems will not be seriously addressed for at least two years, and that Obama will be resoundingly re-elected in a campaign demonizing Republican budget proposals. All polls show that most Americans believe the deficits can be eliminated without any cuts in Social Security or Medicare.

We would expect that, in a year or less, long Treasurys will trade at higher yields than many high-grade corporate credits. In other words, we believe the Capital Asset Pricing Model is being driven into a ditch by reckless governments on both sides of the Atlantic, and that means endogenous risk within pension funds could be much higher than trustees realize.

Some thoughts on Gold

There is a new torrent of warnings of a “gold bubble”. We have been hearing that story from concerned clients, partly in response to George Soros’s highly-publicized liquidation of his holdings of the gold ETF: GLD. Another factor has been the debate about Barrick’s move into copper, which is being partially financed by a large bond issue. Despite Peter Munk’s passionate and articulate defense of that strategy at Barrick’s annual meeting, many observers seem to wonder whether this is a warning sign from the long-standing pre-eminent gold miner that gold’s future is problematic.

The financial press has been including many sneering observations that gold is a useless speculation on infl ation that is unlikely to occur. Why own an inflation hedge that pays no income? We dissent from that tiresome scorn: those trained in Keynesian economics about the “barbarous relic” never bother to reflect that Keynes expressed almost childlike faith that central banks, acting pursuant to the Bretton Woods agreement of which he was a major architect, would always exercise restraint in monetary policies that would make gold passé.  The Seventies proved him horribly, hopelessly wrong. But the Eighties and Nineties made it look as if he would ultimately be proved right.

However, the history of major monetary policies since then—and particularly since 2007—makes the case for gold appears as cogent as it was in the Seventies. This time, there’s no chance the Fed will drive interest rates to double-digit levels to fi ght infl ation and protect the dollar. It may be that, after years of getting by on Financial Heroin, the economy lacks the energy and élan vital to survive even normal interest rates—let alone Volcker rates.

As for the most basic argument—that gold is not an investment, because it pays no income—that seeming tautology is, at root, inherently false. Gold has always been an alternative currency. It is resuming that role as central banks switch from the sell to the buy side. A unit of paper currency pays no income. It can be exchanged for bonds, deposits or stocks that pay income, but a holder of a million euros or dollars in a safe deposit box earns no income on the hoard—just as a holder of a million dollars’ worth of gold earns no interest.

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Failure: don’t despair, it’s the new Normal

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by Charles Hugh Smith
from Of Two Minds
Posted originally on May 4, 2011

As our institutions fail, they will take down many individuals with them. Don’t despair: the failure is systemic, not personal.

As the U.S. economy fails on a systemic level, it is pushing individuals into a deep sense of failure. Feelings that one has failed one’s family and oneself can feed a despair profound enough to trigger thoughts of suicide, and for many vulnerable people, thoughts lead to action. In a terrible irony, those who do take their own lives are often those with the highest sense of responsibility and highest personal standards; their sense of failure is crushing in ways that less responsible, more laissez-faire people cannot imagine. The systemic failure of the U.S. economy is pushing many to the brink of despair, as they interpret their own financial failures as personal rather than as the result of a system-wide decline stretching back decades. The need to explain this systemic failure is part of what drives me to write this blog day after day, month after month, year after year–to help people understand the roots of our national and global failings.

Despite these multiple systemic failures, I am an optimist, and I wrote Survival+ to not only illuminate the roots of our institutional failures but to lay out guidelines for bypassing those institutions as they devolve and collapse.

I have addressed this many times, for example:
The Next Golden Age, Part I (July 28, 2010)
The Next Golden Age, Part II (July 28, 2010)

The Central State (Federal government) and the Federal Reserve are both failing institutions. Their policies, assumptions and mindsets have only one end-state: devolution and collapse. After the old institutions have imploded, some new sustainable, honorable version may arise; this is possible but not guaranteed. Nobody knows the future, and life is contingent.

Institutions are like organisms: they have a life-cycle and exist in a wider ecology. Our current institutions are in the Failing Stage of their lifecycle, where simulacra “reforms” and facsimiles of “change” are presented in lieu of true systemic refomation.

This strategy is based in the institution’s politics of experience: real transformation would require their constituencies to lose some measure of income, power and perquisites, and since every fiefdom within the institution will deploy all its formidable resources to self-preservation, then real reform is rendered impossible.

I have addressed this numerous times over the past five years, for example:

What’s Different Now (July 12, 2007)

Complexity: Bureaucratic (Death Spiral) and Self-Organizing (Sustainable) (February 17, 2011)

The Lifecycle of Bureaucracy (December 2, 2010)

The basic mechanism of this expansion and fatal resistance to reform/change is “the ratchet effect“: expansions of staff, reach, power and revenues are frictionless and exciting–the cog wheel of bureaucracy advances easily. But when the institution expands beyond its carrying capacity, beyond the efficiencies reaped from advancing complexity and scale, i.e. to mission creep, bloat and sclerosis, then any reduction in staffing, reach, power and revenues are resisted with iron fortitude and the desperation of an organism fighting for its life.

I prepared this chart to illustrate the life-cycle of bureaucracy:

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The Dollar Crisis – What you can expect…

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from FutureMoneyTrends
Posted originally April 6, 2011

GOLD makes a new high of $1,467 per ounce.
SILVER touches $39.79 per ounce.
OIL breaks the $109 per barrel mark, with a high of $109.15
DOLLAR INDEX is currently at 75.76

AS A MAJOR CURRENCY CRISIS LOOMS IN THE WEST, there are some things that we should all expect. Lifestyle changes that we don’t have to imagine, but ones we can see happening right in front of us today. Now the catalyst for the beginning of a major currency crisis could be several things. To note just a few, QE2 ending would cause a spike in interest rates, banking crisis, and inevitably a debt crisis that would lead to a dollar crisis. Unfortunately for those living in America, the extension of more QE, a QE3 will only delay the inevitable and actually make things much worse in the end. QE3 will signal to the world that there is no hope for the U.S. to ever manage its debt crisis, an admission that our economy is propped up by fiat magic money, and global price inflation will occur as a result of an increase in the global reserve currency.

An oil spike, which could be the most likely as we write this today, could literally be the final nail in the coffin sparking massive price inflation, shortages, and a renewed debt crisis as consumers default on credit cards and mortgages in order to buy fuel and other household needs.

Why a currency crisis is inevitable? When U.S. debt growth started to outpace our economic growth, that’s when the problem crossed an invisible line into a coming crisis, however, when U.S. debt growth started to be funded by the Federal Reserve creating currency, that’s when the problem crossed the point of no return. So, now the Fed is in a situation where they are damned if they do and damned if they don’t. Private GDP hasn’t risen in 14 years, GDP has been rising because of two factors, government spending and government manipulation. Obviously, everyone sees the problem with the government spending, especially when it comes from borrowed money. Remember, when the government borrows money, that money is not going into the private sector and when government spends money, it is creating unsustainable demand.

Now when it comes to the manipulation of the numbers, it’s widespread. Hedonics, a low inflation application, and other government tricks have made our GDP number pretty much worthless. One of the big frauds was just discussed on 60 minutes last week, they discussed all of the money entering the economy from people not paying their mortgages. Billions and billions of dollars are entering the economy boosting GDP from people defaulting, yet it gets worse. The government in order to help GDP, creates a fake number to include into our GDP an application that includes imaginary income as if homeowners were paying themselves rent, so not only do these mystical rent payments enter our GDP number, but so does all this money from strategic defaults and honest defaults.

So, when the government, especially the White House which is in re-election mode, comes out to celebrate a positive GDP, it’s really a complete fraud, nothing more than window dressing. If you were to get rid of the window dressing, fraudclosures, hedonics, and an understated inflation application, you would see that our economy has been in a real downturn since the year 2000. Yes 2000, not 2007, and it continues because it never ended in 2009 as reported by the media.

You see, by having artificially low interest rates and government backed mortgage lenders, the housing bubble made it look as if we actually had a growing economy when in reality almost all economic growth was credit driven. Especially towards the end of the housing bubble, we had waitresses making $1,200 a month buying houses in California. Now this keeps  construction workers, realtors, loan officers, and all types of people working. The more money that was borrowed, the more money that entered the economy which spilled over into every industry.

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The System has failed

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by Jim Sinclair
Post Edited: April 7, 2011

Dear Comrades In Golden Arms,
The system has failed. It failed the day that Lehman Brothers was flushed. There is a financial condition of an ocean of liquidity making the broken remains of a failed financial system in the Western world opaque.

There is no future failure coming. What is coming is a mass realization that exposes the fact there is no functioning system under all this liquidity. It is a sharp contraction in confidence that lies down the road. Realize this and know that there is one more step you need to make.

Having the largest pile of gold and silver without considering one more step might make you a modern Midas.

There is more to insurance than simply financial. Shortages of goods and services will occur because of currency induced cost push inflation resulting in dislocations of the organization and compensation in the distribution functions. That means there could be ample food in the system but little available on the shelf of your local market.

Because of the ill-understood world shaping changes in the Middle East, the impact of “Peak Oil” on price has been sharply accelerated. Public utilities considered now as a human right will prove themselves to be privileges. Expectation of power on a constant basis will become a hollow expectation.

If you have not had the experience of living in India and Africa in the 80s, you will have no idea of how to live in a Western World experiencing long term currency induced cost push inflation. Self reliance will become as important as your holdings in gold. To have a huge pile of gold but remain totally dependent on the infrastructure of the Western World system is a serious mistake. You would have substantial capital but lack goods and services to buy. You will be able to afford much, but much will be either in short supply or illegal.

You know more about what is occurring than 99% of investors.

You are the 1% that knows the SYSTEM HAS FAILED.
You are the 1% that knows the system failed the minute Lehman Brothers was flushed.
You are the 1% not looking for some failure in the future but know there is no system below the flood of liquidity.
You are the 1% that has been exposed to the concept of currency induced cost push.
You are the 1% that can understand the future.

Please be that 1% that is not seduced by your profits and fails to take the last step to the best degree they can.

The picture above is another aspect of Sunnyfield’s Farm, [where I live]. It is one of two 20Kw generators powered by a marine diesel engine. There is a special fuel filter system custom designed that allows this engine to run on low grade heating oil. There is at all times 14,000 gallons of fuel buried and available. This fuel is diesel, heating oil and gasoline. This is at best a short-term answer to the predictable failure of fossil fuel electric generation. The longer term solution is wind power banking batteries and a converter.

I will walk you through everything that I have done in hopes that you might use it as a model to improve on.

Regards,
Jim

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About Jim Sinclair
Jim Sinclair is the Chairman and CEO of Tanzanian Royalty Exploration Corporation (TRE: Altanext NYSE platform, TNX: Senior Toronto Stock Exchange). He is a precious metals and commodities specialist. Some of the highlights of his nearly 50 year career include the founding of Sinclair Group of Companies (1977), which offered full brokerage services. Mr. Sinclair served as a Precious Metals Advisor to Hunt Oil and the Hunt family for the liquidation of their silver position as a prerequisite for the $1 billion loan arranged by the Chairman of the Federal Reserve, Paul Volcker. He was also a General Partner and Member of the Executive Committee of two New York Stock Exchange firms and President of Sinclair Global Clearing Corporation and Global Arbitrage . He has authored numerous magazine articles and three books dealing with a variety of investment subjects. He is a regular speaker at various commodities related events. In January 2003, Mr. Sinclair launched, “Jim Sinclairs MineSet,” which now hosts his gold commentary and is intended as a free service to the gold community.

India halts all food imports from Japan after Fukushima fish found with excess radioactivity

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by Tyler Durden
Posted Zero Hedge, April 5, 2011

After dumping thousands of tons of radioactive water in the sea, Japan appears to have been stunned to find that the radioactive content of various fish has surged and is now above just imposed radiation safety thresholds.

From Kyodo: “Japan hastily set a legal limit Tuesday for the permitted level of radioactive iodine in seafood as safety concerns spread overseas in the wake of continuing leaks contaminated water into the Pacific Ocean from the crippled Fukushima Daiichi nuclear power plant. The limit of 2,000 bequerels per kilogram set by the Ministry of Health, Labor and Welfare for radioactive iodine in marine products such as fish and shellfish is the same as that already adopted for vegetables, Chief Cabinet Secretary Yukio Edano told a press conference.

The imposition of the limit followed the detection by Japanese authorities 4,080 bequerels per kilogram of radioactive iodine in young sand lance caught Friday off Kitaibaraki in Ibaraki Prefecture, which prompted the health ministry to consider setting a limit for fish and clams.

Different young sand lance, also caught near Kitaibaraki, were found to be contaminated with 526 bequerels per kilogram of radioactive cesium, exceeding the legal limit of 500 bequerels already set by Japan.” And now that Japan has another crisis scenario fall out to deal with, other countries no longer have faith that Japan has any control over the situation and are imposing complete bans on Japanese food imports: first India, and soon everyone else. Expect sushi prices to surge momentarily.

From Kyodo:

India said Tuesday it will suspend food imports from Japan for about three months to prevent food contaminated with radioactive substances leaked from the crisis-hit Fukushima nuclear power plant from entering the country, Press Trust of India news agency reported.

Specific food items subject to the suspension were not immediately disclosed, but marine products and fresh fruits are expected to be among them. India’s health ministry said the import suspension will last until it can obtain reliable data proving that the levels of leaked radioactive substances are safe, according to PTI.

Not to be outdone, Japan once again has proven it is completely clueless, and is dealing with the catastrophe in the only way it knows – denial:

Chief Cabinet Secretary Yukio Edano dismissed the need for an immediate ban on shipments of marine products from the affected areas, but he pledged to toughen inspections to ensure that contaminated products do not reach markets.

The government will make further efforts to provide sufficient information to other countries through diplomatic channels regarding its efforts to contain the leak of radioactive substances from the plant, the top government spokesman added.

Given that radioactive substances exceeding safety limits have only been found in a small number of samples so far, Edano said, ”We want to proceed by monitoring (contamination) closely and grasping the broader situation rather than immediately regulating” shipments.

And while the diplomatic wrangling over who is right and who is wrong is about to spike in earnest, Japan can kiss its fishing industry goodbye, as well as scrap food exports for the indefinite future.

More on how inflation turns us into con artists

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by John Rubino
Posted originally March 29, 2011

John Maynard Keynes once said of inflation:

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Here’s one of the “hidden forces of economic law” to which Keynes referred, courtesy of yesterday’s New York Times:

Food Inflation Kept Hidden in Smaller Bags

Chips are disappearing from bags, candy from boxes and vegetables from cans. As an expected increase in the cost of raw materials looms for late summer, consumers are beginning to encounter shrinking food packages. With unemployment still high, companies in recent months have tried to camouflage price increases by selling their products in tiny and tinier packages. So far, the changes are most visible at the grocery store, where shoppers are paying the same amount, but getting less.

For Lisa Stauber, stretching her budget to feed her nine children in Houston often requires careful monitoring at the store. Recently, when she cooked her usual three boxes of pasta for a big family dinner, she was surprised by a smaller yield, and she began to suspect something was up.

“Whole wheat pasta had gone from 16 ounces to 13.25 ounces,” she said. “I bought three boxes and it wasn’t enough — that was a little embarrassing. I bought the same amount I always buy, I just didn’t realize it, because who reads the sizes all the time?”

Ms. Stauber, 33, said she began inspecting her other purchases, aisle by aisle. Many canned vegetables dropped to 13 or 14 ounces from 16; boxes of baby wipes went to 72 from 80; and sugar was stacked in 4-pound, not 5-pound, bags, she said.

Five or so years ago, Ms. Stauber bought 16-ounce cans of corn. Then they were 15.5 ounces, then 14.5 ounces, and the size is still dropping. “The first time I’ve ever seen an 11-ounce can of corn at the store was about three weeks ago, and I was just floored,” she said. “It’s sneaky, because they figure people won’t know.”

In every economic downturn in the last few decades, companies have reduced the size of some products, disguising price increases and avoiding comparisons on same-size packages, before and after an increase. Each time, the marketing campaigns are coy; this time, the smaller versions are “greener” (packages good for the environment) or more “portable” (little carry bags for the takeout lifestyle) or “healthier” (fewer calories).

Where companies cannot change sizes — as in clothing or appliances — they have warned that prices will be going up, as the costs of cotton, energy, grain and other raw materials are rising.

“Consumers are generally more sensitive to changes in prices than to changes in quantity,” John T. Gourville, a marketing professor at Harvard Business School, said. “And companies try to do it in such a way that you don’t notice, maybe keeping the height and width the same, but changing the depth so the silhouette of the package on the shelf looks the same. Or sometimes they add more air to the chips bag or a scoop in the bottom of the peanut butter jar so it looks the same size.”Thomas J. Alexander, a finance professor at Northwood University, said that businesses had little choice these days when faced with increases in the costs of their raw goods. “Companies only have pricing power when wages are also increasing, and we’re not seeing that right now because of the high unemployment,” he said.

Most companies reduce products quietly, hoping consumers are not reading labels too closely.

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The Middle East is lost as gold, silver, oil rocket higher

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by Roger Wiegand
Editor, Trader Tracks Newsletter
Originally posted Mar 23 2011

Since origination of our Federal Reserve in 1913, banker-controlled dollar devaluation has been ruinous.

When a long list of really bad stuff piles-up over several years the ending is beyond ugly. We suspect the crack-up-boom ending is near as this fundamental list has grown way too long and those allegedly in charge are way beyond stupid as to potential outcome. Geopolitics was so mishandled it appears deliberate.

Since the Napoleonic Wars when the Rothchild’s lent cash to both sides, crooked bankers have been busy planning the final solution for a one world government power using one currency. While this nefarious plan has worked so far, we have to wonder how it ends in America with millions of guns, super angry citizens and global banks holding treasury paper as valuable as potty tissue. How lovely that their own toxic paper takes them down.

The bond-credit-currency-confidence-games end when confidence leaves town.
We think it went away earlier this year.

Where’s the Money? Money is the real stuff made from commodities, commodities themselves, and hard asset manufactured goods. Play money is all the fiat currencies and bonds produced from and backed by nothing. Even some stock markets are play money.

As we’ve written several times lately in Trader Tracks, the list of naughty stuff is a mile long and growing. Some of the more critical problems are:

Credit:

In our view government credit for nations, states, municipalities, and that of most private, commercial, and citizens, has been severely damaged and in many cases irreparably damaged. The QE2 continuation digs the hole deeper and we think the end is in sight when former buyers of USA paper quit buying. In many cases buying has already either slowed or stopped. Bond markets are damaged and being further damaged by the printing binge of Bernanke and Geithner. We are not alone. Other nations are doing the same thing in varying amounts. Budgets are shattered and in most cases there is little hope of full repayment. No bonds; no system. As we write today, Portugal is on the brink.

Food:

There has been no major improvement in food growing, crops or farm management in the past decade. Yet, over one billion new mouths were born and must be fed. Next, Asia that formerly existed on a modest diet, is demanding up-grades in most all food groups because they can afford it. This imbalance appears to hit the world food system this year as weather is not cooperating and grain supplies are way too low. One US grain analyst said we had better have a big corn crop this year along with wheat or, we are into major problems with prospects of rationing. With USA corn reserves at a 37 year low, I suspect rationing is inevitable with higher prices; either in 2011 or 2012.

Energy:

Energy production and demand has been fractured with nuclear problems in Japan, disruptions in the Middle East and lack of a coherent energy policy in America. Crude oil is now firmly supported at $104 per barrel and our forecast for 2011 is much higher on forthcoming shortages and new inflation. USA refineries are shrinking in number as it costs $6 Billion to build a new one, and operators can’t get permits to build them, and refinery profit margins are too small to match investments. Consequently, the US is purchasing about 35% of its refined unleaded gasoline demand from imports, with fuel arriving on ships daily. In our view, big global producers prefer to buy out wildcatters and not take drilling risks. Next, they also prefer to tap foreign oil sources, first leaving domestic reserves in the ground for later production. This creates a higher risk for America, being dependent on others; particularly geopolitically unstable others.

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