Ron Paul Is Currently Holding A Hearing On Legislation For A Full Audit Of US Gold Reserves, Aka The "Show Me The Tungsten" Bill

Those who called me a conspiracy theorist can eat their Federal Reserve Notes (i.e., dollar bills) now.

http://www.zerohedge.com/article/ron-paul-currently-holding-hearing-legislation-full-audit-us-gold-reserves-aka-show-me-tungs

For those who don't understand the tungsten reference, counterfeit "official" gold bars have been discovered by Chinese officials and German assayers.  The fake gold bars were filled with tungsten and coated with gold--undetectable without sophisticated screening equipment, since tungsten has the same density as gold.

See <here>, <here>, and <here>.  And yes, you should have been reading these blogs years ago, because you would be sitting on a healthy profit today if you had.

Auerbach Says Fed's Bernanke in `Very Bad, Deep Hole'

The Fed corrupts and lies.  Skip to the four-minute mark of this video. 

http://youtu.be/yqyR4roQWY4

Grand Unified Theory of market manipulation

http://www.precisioncapmgt.com/wp-content/uploads/PCM-A_G.U.T._of_Market_Manipulation.pdf

There is much speculation and anecdotal information regarding the rally that began March 6 2009, which have suggested the gains are the result of massive manipulation on the part of the Federal Reserve (FR) and the large institutions that dominate Treasury securities dealing, program trading and the derivatives markets. Traders have reported that traditional indicators and metrics used for market analysis stopped working for periods of time or altogether, and that correlations among markets have been erratic and quick to change. Record program trading by Goldman Sachs as reported by the NYSE, heightened focus on high frequency trading (HFT), outsized profits by the large and well-connected banks, along with unprecedented intervention by the FR in the markets only fuel the manipulation speculation.

The POMO Effect
The theory for which we have the greatest supporting evidence of manipulation surrounds the fact that the Federal Reserve Bank of New York (FRNY) began conducting permanent open market operations (POMO) on March 25, 2009 and has conducted 42 to date. Thanks to Thanassis Stathopoulos and Billy O’Nair for alerting us to the POMO Effect discovery and the development of associated trading edges. These auctions are conducted from about 10:30 am to 11:00 am on pre-announced days. In such auctions, the FRNY permanently purchases Treasury securities from selected dealers, with the total purchase amount for a day ranging from about $1.5 B to $7.5 B. These days are highly correlated with strong paint-the-tape closes, with the theory being that the large institutions that receive the capital injections are able to leverage this money by 100 to 500 times and then use it to ramp equities.

IMF expands crisis-prevention credit lines

http://www.bloomberg.com/news/2010-08-30/imf-expands-crisis-prevention-credit-lines-extends-duration-to-two-years.html

Its flexible credit line, reserved for countries that pre- qualify based on sound fundamentals, will be extended for up to two years and have no set limits.

Strauss-Kahn has sought to enhance the institution’s role as a buttress against financial crises, convincing member countries to pledge $500 billion in emergency funds in 2009. Today’s decision is part of a push before the Group of 20 summit in November to attract more countries to its contingency financing program.

Talks are ongoing with member countries to raise the IMF lending capacity to $1 trillion as part of G-20 discussions.

Guess which member country pledges the largest capital funding to the IMF? The US does, which also happens to be the most indebted country. In essence, the US taxpayer will bail out other sovereign countries at risk of default. Meanwhile, the US itself is in danger of defaulting on its own financial obligations.

The theater of the absurd has reached the hallowed halls of the IMF, the ECB, and the Fed. They are following the Zimbabwe version of Moore's Law in doubling their deficits every 18 months in lieu of increasing the number of transistors on a semiconductor chip.

Ron Paul: Depression is coming

http://www.newsmax.com/InsideCover/ron-paulobamadepression-taxes/2010/08/30/id/368750

Rep. Ron Paul, R-Texas, says depression looms for the economy and that failure to extend the Bush tax cuts for everyone would hasten the process.

“It will be devastating if the (tax) breaks aren’t renewed,” the 2008 presidential candidate told Newsmax.TV.

Even without expiration of the tax cuts, the economy is headed for depression, he predicts. “That will just make it worse much faster.”

Paul is introducing a bill next year for the nation’s gold reserves to be audited.

“It’s common sense for the country to know what it owns,” he said. The last audit was in the 1970s, and a lot of central banks have sold or loaned gold since then.

“Hopefully someday there will be a gold currency, or they will return gold to the people because it was taken from them in the 1930s at a very low rate,” Paul said.

“We should know what we own. Why should anybody oppose us counting what’s in the bank, in case we make use of it, just because too many questions are raised about what central banks have done in the last 10 to 15 years?”

And that’s the main reason the Fed successfully opposed his proposal this year for an audit of the central bank, Paul says. “They didn’t want us —as a people or Congress — to know what deals they made with other central banks.”

Transparency is the main issue for the Fed, says Paul.

Golf musings

I'm watching the PGA championships on TV right now, and a couple thoughts come to mind.

1) Tiger Woods' swing is in trouble. He's over-swinging, and dipping his head and body on the downswing, trying to add distance, which causes him to hit it fat. It's an amateur move usually caused by physical restrictions of weekend hackers with bad postures, but in Tiger's case, it's an insecurity embedded in his head. When you're not striking the ball well and with distance, the natural response is to try to swing harder. But all that causes is off-center contact, which contributes to loss of distance. And what you have then is a downhill spiral of swing mechanics, and an upward spiral of golf scores. This causes angry golf and potentially an expensive round of broken golf clubs.

That's why golf is such a brutal and unforgiving sport. Golfers in slumps receive advice from every corner, and pretty soon the swing becomes mechanical as the brain is stuffed full of bad swing thoughts. Sometimes the only way out of a slump is to push "delete" and stop thinking. A clear mind is the best antidote for a muddy swing. Don't swing harder; swing smoother.

Far be it for me to give golfing advice to the world's best ever player, but videos of his current swing expose his swing flaws.

2) As that may be, Tiger needs to go back to dating escorts and porn stars. He needs to do something, because as bad as his swing is, his putting is looking mortal. He used to be automatic up to 12 feet--he's now missing 2-footers, normally gimme's for even hackers. Obviously, he's showing his nerves and he needs to release that tension. Some people just aren't meant to be married--or monogamous. And the golf industry would do well to help him come to this realization. Because as a rehabilitating addict (notice he never mentions the phrase "sex addict"), his golf game is in the toilet.

Why should the PGA intervene? Because TV viewership is down 70% now that Tiger is no longer contending for championships. Even players normally jealous of his attention will plead with him to go back to his old ways. Because with his ascent in the golfing world and crossover appeal to the mainstream, their paychecks also got much bigger due to more generous corporate sponsorships. If his poor play keeps up, advertising rates will plummet to pre-Tiger levels, especially in light of a weakened economy.

3) Speaking of the PGA, they run commercials during TV breaks emphasizing the PGA's considerable charity work. They've tried to downplay the elitist nature of golf, choosing to focus on how it's a sport for the every day man, woman, and child. But the voice-over in one of the commercials belongs to Michael Douglas, the famous actor who is an avid golfer. Surely, he's among the elite, right? Yes and no.

Due to his reputation as a Hollywood playboy in real life and in his movie roles, Mr. Douglas was denied a country club membership in the three country clubs near his residence in Montecito, adjacent to Santa Barbara, California. He was an ultra-successful actor, wealthy, famous, with pedigree (Kirk Douglas was his father), white, and an entertainment industry icon with an international following. Yet, his reputation as a womanizer, whether feigned or real, derailed his otherwise ideal profile for these stuffy country clubs. The golfing Establishment rejected him. So what did he do? He built his own country club.

How ironic is it that he is now a spokesman for the PGA, the governing body of golf in the US, and the sport's ultimate promoter. I'm sure some old fogeys in conservative Montecito are rolling over in their golf carts.

4) Another commercial during coverage of the PGA golf tournament depicts the safety of a Mercedes-Benz vehicle. Granted, the choice of sponsor certainly fits the right demographic for a golf viewing audience. But the message was disturbing. Catering to the affluent's obsession with (perceived) dangers and safety issues, the commercial implies the luxury vehicle can help drivers veer away from imminent danger in case the driver literally falls asleep at the wheel. In fact, it goes beyond implication--it downright shows testimonials of drivers who did fall asleep but were somehow miraculously saved from death and destruction. It's a miracle, I tell you--a self-driving vehicle where the driver can fall asleep, or gab on the cell phone, whichever is more urgent at the time. Those damn distractions...

One of my idiosyncrasies is connecting seemingly irrelevant observations into a financial context. It annoys many people, unless my audience is of like-mind. So if you are not like me, stop reading now.

For the rest of you obsessed with finances and conspiracy theories, keep reading.

1) Tying this all together, in a barely coherent fashion, I've been a critic of the Fed and their Keynesian approach to managing economies. They believe they can control markets and economies by tampering with fiscal and monetary controls. They've effectively created recurring asset bubbles, unable to dampen the accompanying busts. The more they deploy credit expansion policies, the higher the debt levels, and the more destructive the deficits become to economic growth. The Fed and US Treasury push on a string, with the only beneficiaries being insolvent banks recapitalizing their balance sheet. Of course, Main Street doesn't benefit, because the aforementioned banks are hoarding their reserves, making a guaranteed return from the excess reserves, while the private citizens cannot receive loans. No credit means no capital and human investments, which means no hiring--not a quantum leap of faith.

Having said that, the only feasible path politicians have now is to continue handing out welfare to industries, home borrowers, the unemployed, bankrupt states, counties and municipalities. Never mind that the Federal government itself is insolvent. They'll just print money money and issue more debt. After all, our friendly allies in Russia, China, and the middle east oil cartel sovereigns will continue to fund our over-consumptive habits, right?

Recall my comments on the golf swing. The harder one swings, the LESS distance the ball flies. And the harder the Fed turns on the printing machine, the worse the economy becomes. Swing hard, and surely we'll all grow out of this mess. Hardly.

2) The next lesson here is know who you are, and know what you do well. If you're meant to be single, and singularly focused on playing golf, then stick with golf. Don't pretend to be someone you're not (in Tiger's case, a dedicated family man). Now that Tiger is going cold turkey on floozy gold diggers, he's finding he can't hit a golf ball straight. Tiger, do the PGA a favor, as well as your fellow golf pros. And the television networks. And the corporate sponsorships. And the whole golfing industry. They need the old Tiger back, because they are all hurting now. It's not just those at the top that are hurting. It's also the thousands of workers in the golf industry, from the local pro to the starter who makes sure you get out for a round on time. These guys are earning minimum wage--they won't be in the top tax bracket for a while. Golf doesn't have a Kobe, or LeBron, or even DWade. It only has you. And until you start pimp-busting--er, I mean pump-fisting again, they're going to miss that bonus check--the Tiger premium.

Please, for all of us weekend warriors...we need you too. Because it's hard for us to fantasize about hitting a golf ball like Duffy Waldorf.

3) The third message is be careful of social labels. Just because you are of certain skin color, pedigree, ethnic heritage, occupation, doesn't mean your social class status will be a benefit or a disadvantage in all venues. And just because the incumbent establishment has long-held traditions, doesn't make that establishment fair-minded or even right-minded. And just like Michael Douglas created his own country club, don't let others put you down. Sometimes, you can create your own reality.

4) Lastly, be careful of the creeping nanny-state mentality. The Mercedes vehicle commercial implies it is beneficial to have a car drive for you, and that you can depend on the car to prevent you from pending disaster. The reality is that while the car may have advanced safety features, it is still up to you navigate the car away from danger. You, your passengers, other drivers, pedestrians, and other people in the vicinity still require your responsible driving actions.

With respect to finances and retirement planning, do not depend on the government to take care of you. It is still your responsibility to plan your finances. Social Security, Medicare, Medicaid, other entitlement programs and pension funds are on track to insolvency, so don't believe government promises to take care of you in your golden years (the operative word being "golden"). The nanny-state may be alive and well, but don't rely on it being there when you expect it. Have a sound personal savings and investment plan in place, not just for income, but also as a hedge against inflation and a difficult investment environment.

M3

Click on chart to enlarge.

When money supply M3 (dark blue line) declines this precipitously, the chances of an economic recovery decline with it. By the way, M3 is no longer recorded as an official government statistic. Hmmm...

Almost two years of zero interest rate policies have not revived the economy or brought unemployment numbers down. 4.5% mortgage rates have not resuscitated the housing market. Fed Chairman Ben Bernanke was hinting at exiting fiscal stimulus programs a few months ago due to a "recovering economy."

I see failure. "Jobless recovery" is an oxymoron. The Fed's only hope is more monetary stimulus, more printing of USDollars, a second round of quantitative easing, debt monetization, etc., whatever opaque choice of words our government officials use. After all, they can't lower interest rates below zero.

In order to combat deflation, Bernanke's biggest fear, QE 2.0 will be implemented after the next financial crisis, to once again "save our financial system." But all it will do is stoke inflation, while debasing the Dollar, and reducing our standard of living.

Fed power increases

http://www.safehaven.com/article/17401/more-power-for-the-fed

Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight, while Congress has kept its hands off and its eyes closed. The Federal Reserve has presided over the near-complete destruction of the United States dollar. Since 1913 the dollar has lost over 95% of its purchasing power, aided and abetted by the Federal Reserve's loose monetary policy. The Federal Reserve Transparency Act would achieve much-needed transparency of the Federal Reserve System.

The real reasons are that politicians like to spend money far exceeding income and it is convenient to have an enabler of this in the Federal Reserve. The easier it is for the Fed to create money, hidden from public view and accountability, the easier it is for politicians to spend that money and make sure their friends and interests are taken care of through shady political processes.

The broader reasons for supporting this entire financial regulatory reform bill are just as sinister. This is not about cracking down on big banks as some claim. Rather, this is about not wasting a crisis. This is about using a traumatic event to increase government power and control over the economy. If it was really about addressing the causes of this recession, Fannie Mae and Freddie Mac would have been dealt with, or abolished. Failed companies would just fail, rather than being bailed out. Instead, a permanent bailout mechanism is being established. The Fed, and its ability to control interest rates and create cheap money, would be reformed or better yet, abolished. But instead its power is being increased and this Congress refuses to even fully audit it!

Naked shorting of precious metals

This is my take on how bullion banks naked short sell gold and silver bullion. First one has to understand the difference between a short sale and a naked short sale.

A short sale is perfectly legal and desirable, as every transaction has two counterparties: a buyer and a seller. Hence, short selling provides liquidity to markets. The mechanism involves a short seller borrowing the assets (e.g. shares of a company, gold bullion, bonds, etc.), selling that asset at a determined price, and hoping the value of the asset declines, so the seller can buy it back at a lower price, profiting from the difference between the higher sales price and the lower purchasing price. It's identical to a buyer who goes "long" an asset: the buyer buys an asset, hopefully at a lower price, watches the asset value increase, and sells it at a higher price, profiting from the higher sales price. A short seller executes the same buy/sell transactions--only in different time sequence. A short seller sells the borrowed asset before buying it back (covering). Another difference is that the short seller has to pay interest for the borrowed asset, until the buyer covers his short position with the purchase.

Of course, not all long and short positions are profitable. If a long buys a stock at $10/share, and ends up selling at $8, the long position has a net loss of $2/share. Likewise, if a seller shorts a stock at $10, and the price rises to $12, the loss is again $2, plus the cost of interest for the borrowed shares. A long or short position is a directional bet: a long expects the asset value to rise in price, and a short expects the value to decline in price.

Naked short selling is contentious, and illegal in most markets, on par with fraud. A naked seller never borrowed the asset, never took possession, and hence, doesn't pay interest. It's particularly onerous because the asset doesn't exist, and therefore an infinite amount can be created out of thin air. For instance, phantom shares of a company can be created--and thus shorted, driving the shares of a company down, sometimes to zero. This is exactly what happens in a bear raid when there's a concerted effort from multiple parties betting against shares of a company, debt of a sovereign country (e.g. Greece), or precious metals.

With gold and silver, a few bullion banks borrow gold from a central bank (e.g. the Federal Reserve Bank) at the gold lease rate, sells the gold for cash, and lends out the cash at a higher rate, say the LIBOR. The bullion bank pockets the difference between the higher LIBOR rate and the gold lease rate, the so-called Gold Forward Offered Rate (GOFO). And since they are short gold, they also profit when the price of gold declines. Hence, the bullion banks have another motivation to see falling prices for precious metals, as they have huge short positions in gold and silver. Also, the concentration of a few bullion banks who have large net short positions allows them to manipulate prices lower, especially when they work in concert. This is what gold bugs have been complaining to the CFTC for years, and why the Department of Justice is finally investigating these anti-competitive practices.

What this investigation should expose is that these gold leases and sales are not backed by physical inventory, and hence are "naked." This price suppression scheme is fraudulent, and it's allegedly being carried out by the Fed, US Treasury, other foreign central banks, and a group of bullion banks, most notably JPMorgan Chase. A few years ago, Morgan Stanley was ordered to pay a fine when they fraudulently charged customers custodial fees for storing gold that never existed in their vaults. Many are questioning not only the existence of gold in the vaults of bullion banks, but also the ETF's, the futures exchanges (e.g. COMEX), and central banks themselves. It could be another reason why the Fed has resisted audits, which Ron Paul has pushed for with legislation. Ft. Knox has not had an independent audit of its vaults since 1953! Who knows how much gold there is in vaults worldwide, because the authorities certainly won't allow verification.

Why is this important to anybody--other than a few gold and silver bugs? Firstly, central banks artificially suppress precious metals prices to hide their reckless printing of paper currencies. After all, politicians have to fund entitlement programs--even if a country is bankrupt. A rising gold price exposes monetary inflation, simultaneously signaling currency debasement. Monetary inflation is a hidden tax on the citizens; a slow, grinding decline in a nation's standard of living. Until it reaches hyperinflation, when a sudden currency crisis becomes obvious to all. Gold is a fear indicator, and an inverse proxy for confidence in a government's finances--and currency.

In a fiat, fractional reserve currency financial system, banks and central banks have a vested interest in maintaining confidence in the status quo. If confidence is lost in our banking system, there would be a run on every bank, as all depositors would demand their deposits immediately. Well-capitalized banks take $1 of deposit, and lend that same dollar out to 10 other borrowers. Under-capitalized banks (highly leveraged banks) may loan that same dollar out to 40 or more other borrowers. Clearly, if every depositor wanted their money bank, every bank would be declared insolvent, unable to honor the 90+% of other depositors.

With the explosion of precious metals ETF's (which trade like a stock) allegedly backed by gold or silver, paper trading in the precious metals futures exchanges, and gold swaps and leases, it is speculated that the ratio of gold paper claims vs. physical gold above ground is 100:1. In other words, 99 out of 100 parties who believe they have claim to gold bullion do not own it at all. And if there's a run on physical gold, many "owners" of gold assets will be disappointed, much like many depositors would be disappointed (or angry) if there was a run on banks.

Another reason for concern is since the prices of precious metals have been suppressed for years, mining for them has been uneconomic. Many mines have been closed as a result in order to stem losses, further compounding the physical shortage. And since silver is also an industrial metal, in addition to being an investment and used for jewelry, when the shortage occurs, the severe crunch will cause prices to soar, while shutting down manufacturing lines. This has severe economic and national security implications, since silver is used in many high-tech, biotech, cleantech, and military applications.

The short-term profits of a few banks and their central banking cohorts will ultimately doom the long-term prospects of a global economy. This is why many mainstream financial pundits are starting to sound the alarm bell on what could be the biggest financial fraud in the history or mankind: the big NAKED short of gold and silver.

See disclaimer in side bar.

Disclosure: long physical gold and silver, long precious metals mining shares.

Fed resumes currency swaps

Since the available bullets available to the Fed to further ease monetary policy, and the phrase "quantitative easing" has become anathematic to disgruntled fiscal disciplinarians, the Fed has decided to resume currency swaps to support the Euro zone. I'll keep it simple: currency swaps are just another means to print more currency. We've seen it before, and we'll see it again.

http://www.bloomberg.com/apps/news?pid=20601087&sid=adES6qP.P7AI&pos=4

Americans are landlords of Red Roof Inn

http://www.youtube.com/watch?v=pE3oiKuU8UI

According to House Representative Grayson, any financial reforms should include auditing the Fed.

1999 gold short squeeze

We looked into the abyss if the gold price rose further . A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.

- Edward A. J. George, Governor of the Bank of England and a director of the Bank of International Settlements, 1999

The price of gold was $253 at the time. It is now $1160/oz. today. Yet the strain on physical inventory is more acute than ever, as resources are depleted.

Disclosure: long physical gold and silver, and long mining shares.

Even allies are ganging up on the US

It's understandable that China has criticized US monetary policy and erected trade barriers in the form of import tariffs. Even Japan is lashing back at Washington DC for calling out Toyota executive in the brake scandal.

And now Swiss banks are declaring US government debt at high risk of default. Perhaps this is retaliation for the US attacking Swiss private banking laws.

Here's the problem I see developing: our foreign traders have historically funded our overconsumption, buying US Treasury bonds. Without their participation in future bond auctions, there will be no buyers to replace them. Other than the Fed, which means the US Treasury just has to print more money, and down the drain the dollar goes. It's already occurring, as 30-year Treasury bond yields ticked up last week. That does not bode well for an already fragile economic recovery.

And yet folks still view the USDollar and Treasury bonds as safe havens.

Notice where US sovereign debt ranks relative to the rest of the world. It may surprise you--but then again, it may not.

http://ftalphaville.ft.com/blog/2010/02/10/146606/handy-sovereign-risk-table/

COMEX and LBMA default?

Thanks to Dick for another gem.

Could a default, or "failure to deliver" in the COMEX or London Bullion Market Association be imminent? It probably has occurred already. There is a widening gap between the prices of paper gold contracts and physical gold bullion, due to price suppression schemes by the bullion banks and central bankers. Jim Willie believes the bifurcation of futures contracts and physical gold prices will occur when the physical shortage of gold is exposed.

http://www.financialsense.com/fsu/editorials/willie/2010/0203.html

The paper gold market and the physical gold bullion market have finally separated in a practical manner, meaning actual gold has almost no role anymore in London paper contract settlement. The absence of gold in London requires extraordinary tactics to settle contracts and to obtain gold bullion. Red tape procedures delay delivery for individuals, and bribes accompany gold delivery demands as standard practice. The London Bullion Market Assn has almost zero gold, its supply having been drained in high volumes since early December, a process currently in acceleration.

The public is unaware of government and central bank intervention in markets. They are also unaware of the pipeline between Wall Street and Washington, DC. The populist anger expressed by Congress and the Obama Administration is manufactured, armed with public opinion polls. You know the best way to eliminate taxpayer-funded banker bonuses? Don't bail out the banks in the first place. The media is complicit, cheerleading green shoots, while ignoring accurate data.

The financial press is critically important precisely now, for not spilling the facts on the current gold market breakdown and divergence. Much of the pressures are hidden though, since the financial press networks report only the official paper-based prices. Do not expect to read in Reuters or Bloomberg or the Associated Press or Wall Street Journal or the New York Times or Investors Business Daily or Barrons that a grotesque gold shortage exists in the London metals exchange or at the COMEX in New York and Chicago. They will not report that London is virtually drained of gold, yet still sells gold contracts. Accurate news reporting would accelerate the breakdown and remove the possibility for time extension. The press will not report that billionaires are emptying their gold bullion accounts at rapidfire pace, out of gross distrust of the bankers, since gold leasing has illegally been standard practice for many years. Imagine selling lumber contracts without wood delivered. Imagine selling mortgages without home titles delivered. Actually, Wall Street did precisely that from 2003 to 2007.

The most important financial link I've blogged

This may be a re-post, but it's the best article I've seen on central bank intervention in financial markets. It's long-ish, so skip the sublinks for now, and read the whole article first before clicking on the sublinks later to perform further research.

http://www.gata.org/node/8052

If this article doesn't jaundice you on markets and investing, you don't have a pulse.

Ron Paul on auditing the Fed

http://www.forbes.com/2010/01/07/gold-standard-fed-audit-intelligent-investing-ron-paul.html

So, we should never be afraid of competition. If gold is not good money, then nobody will deal with it. But I'm on the side of history with this one because paper money has never worked. It eventually goes to zero and people quit using it. But gold has survived for many, many centuries.

- Ron Paul, 1/8/10 Forbes interview