Darius Guppy: our world balances on a sea of debt

"...Money breeds more money and develops a quality akin to matter – the larger the agglomerations, the greater their gravitational pull or, as the Bible puts it: “unto he that hath shall be rendered and from he that hath not shall be taken away, even that which he hath.”

Indeed, contrary to what they may tell you, the banks never really want their loans to be repaid at all. Just so long as the interest is funded it is in fact to their benefit for the capital to remain outstanding on their books as ‘assets’ and for the debts to be rolled over. Every time the IMF or World Bank extends a line of credit to some impoverished nation, are they being ‘charitable’ therefore or are they simply perpetuating the enslavement?

Second, such a system relies entirely, as do all Ponzi schemes, on the assumption of continued growth, hence its inherent instability. Once that growth is threatened the edifice collapses. Householders in Britain today will appreciate such a phenomenon – the result of ‘leverage’ - only too well: put up 10 per cent for a property and borrow the rest from the bank. That property’s value need rise by only 10 per cent and you have doubled your equity. But on the flip side that value need fall by only 10 percent and you are wiped out.

Which in turn explains precisely why a contraction of a mere 2 or 3 percent in the global economy leads not to a correspondingly minute fall on international stock markets, but to financial Armageddon.

Likewise with the banks – lend ten times more money than you possess and when the economy grows – or at least pretends to grow – Porsches galore, but when the lack of growth is exposed it requires only 11% of the loans on your books (in value terms) to be bad and you are bust. The truth is not that these institutions have suddenly become insolvent therefore, but that they were never really solvent in the first place since the assumptions on which they were founded could not apply in the real world. Simple false-accounting has meant that by rolling over their debts they have been able to keep them on their books as ‘assets’ rather than losses and forestall the evil hour.

There is an overarching name for the process I have outlined – ‘usury’ - and our predecessors from the Ancient and Medieval worlds appear to have appreciated much better than us its ultimate destination: ruin..."

Please click HERE to read the rest of this brilliant article.

Sprott Asset Management warns: Beware counterfeiters

Kevin Bambrough and David Franklin of Sprott Asset Management in Toronto argue in an essay just published that central banks no longer have any interest in maintaining the value of their currencies and that, as a result, gold is the only currency that can safeguard wealth. 

Their essay is headlined "Beware Counterfeiters" and you can find it at the Sprott Internet site HERE

GATA: Central banks are NOT ordinary gold investors

Financial market letter writer Adam Hamilton's latest essay, "Central Bank Gold Agreement," which can be found at Gold-Eagle here --

http://www.gold-eagle.com/gold_digest_08/hamilton081409.html

-- and at GoldSeek here --

http://news.goldseek.com/Zealllc/1250269200.php

-- is a fairy tale.

Hamilton writes that central banks are just investors in gold like everyone else.

What Hamilton and most people overlook in analyzing central bank gold sales is that they are a farce that beats the best Monty Python sketches. The central banks have printing presses and now computers that can generate loads of fiat money. It is beyond side-splittingly funny that we should take central banks seriously that they need to sell gold in exchange for the stuff they manufacture for free.

Can you imagine the Saudis selling oil in exchange for sand, or Eskimos selling fish in exchange for ice, or Paul McCartney selling an apartment in London in exchange for a Beatles poster autographed by himself? Yes, you think those examples are funny, don't you? So why not have a big fat laugh at a central bank selling its gold for the funny paper it produces in infinite quantities?

Central banks run the world's biggest Ponzi scheme, issuing bits of paper that people will accept in return for real goods and services. If you enjoyed this privilege to the tune of a few trillion dollars that finance an empire, expending a few tonnes of gold to keep it going would be a no-brainer.

Central banks do not sell gold to get a few billion of their own fiat money in return, money they probably would throw on top of the stack of half a trillion freshly printed notes that rolled off their presses just that morning. No, central banks sell gold to make it appear that the paper stuff is more desirable than its true supply and demand fundamentals would allow. And when the game looks like it's coming to an end, the central banks can always buy back the gold.

It is not a problem to buy back the gold at even $50,000 per ounce when any amount of paper currency can be printed.

What is a big problem is if the currency loses its value so fast that no one will sell the central banks any gold for any amount of paper. (Try buying gold with Zimbabwean dollars.)

If that happens, the central banks lose and the people win, because when the music stops the people have the gold and the central banks are stuck with the depreciating paper.

Central banks have to use their gold to support their Ponzi paper creation, but they have to control the destruction of their currency's purchasing power so they can still buy their gold back with their own paper before the game ends and they have to start a new one.

When the paper currency has little purchasing power left but the central banks have bought back their gold, they can introduce a new currency and start the cycle all over again.

In this way they leverage their gold instead of having something honest like one-for-one backing in a classical gold standard. They have even found ways of having more leverage by selling paper promises for gold to make it look as if they have 10 or 20 times as much gold as they really have.

There is another problem. What if someone else with a large amount of worthless paper currency gets the idea to buy back your gold before you do?

Do you ever wonder why China kept so quiet about the 450-tonne increase in its gold reserve over the last five years? Clearly China would not want to tip off the Western central banks that it was going to beat them at their own game. If China has admitted to acquiring 450 tonnes of gold, it probably has a lot more than that.

This is all about world dominance. Whoever has the most gold is king.

Is it any surprise that GATA has been denied its Freedom of Information Act requests to the Federal Reserve and Treasury Department about the U.S. gold reserve? We asked to see how the magician does his tricks. We have been told that this is a "trade secret." You betcha it's a "trade secret"!

U.S. key economic charts

The following charts are provided by the St. Louis Federal Reserve Bank and are automatically updated as the Federal Reserve and the federal government make various statistics public.

They provide an opportunity to regularly monitor important statistical developments. As they are chosen from an immense supply of economic data, they isolate areas of particular interest to the gold owner, i.e. the national debt, money supply, inflation and unemployment numbers, securities held outright by the Federal Reserve, foreign-held debt, adjusted monetary base, etc.

A quick review of the charts as they stand at the moment reveals a brave new world of government finance and central banking. An array of disturbing trends which buttress the principle argument for gold ownership, as a means to insuring one's assets.

Bookmark this post and come back often to monitor the state of the US economy.

Bank of England: oiling the printing presses...

Reform Plan Raises Fears of Bank secrecy

By Edmund Conway
The Telegraph, London
Saturday, January 10, 2009

The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

The Government is set to throw out the 165-year-old law that obliges the Bank to publish a weekly account of its balance sheet -- a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 that originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.

However, some have warned that it means "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses."

It comes after the Bank's Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank's foundation in 1694.

With the Bank rate now at 1.5 percent, most economists suspect that the Government and Bank will soon be forced to start quantitative easing -- directly increasing the quantity of money in the economy -- in a drastic attempt to prevent a recession of unprecedented depth.

Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks' printing presses ultimately caused hyperinflation.

The Bank said it will still publish details of its balance sheet, but, significantly, the data -- the main indicator of the extent of quantitative easing -- will not be presented until more than a month has elapsed. For instance, under the new terms of the law, if the Bank were to have embarked on a policy of quantitative easing last month, the figures on this would not be published until the end of this month.

The reforms, which are likely to be implemented later this year, will make the Bank of England by far the most secretive major central in the world, experts said.

In the US, where the Federal Reserve has already cut rates to close to zero and started quantitative easing, the main way to track its purchases of securities and the expansion of its balance sheet is through precisely these same weekly accounts.

"Quite why the Bank has to keep its operations so shrouded in secrecy is a mystery to me," said Simon Ward, economist at New Star. "This will make it much more difficult to track what the Bank is doing."

Among the details which will no longer be published are those revealing the extent to which London's banks are using the Bank's deposit facilities -- a yardstick of pressure in the financial system.

Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: "Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.

"If we went down that path we would be following a road which starts in Weimar, goes on through Harare, and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about -- but the Bill abolishes it."

* * *

The FED's shredded dollar...

As a tourist site, Federal Reserve is worth its weight in gold

Amid these troubled economic times, a trip to the central bank is an eye-opening glimpse into the world of currency. Plus, don't you want to see the big vault?

By John Horn
Los Angeles Times
December 24, 2008

The stock market was in the middle of another spectacular gyration -- up more than 500 points one day after dropping more than 400 -- and President Bush had come to try to calm Wall Street, urging world leaders not to over-regulate free markets. The economic crisis was palpable throughout Manhattan's downtown financial district, yet the atmosphere inside the Federal Reserve Bank of New York was eerily serene, almost like a church.

It was fitting, for money is worshiped at the Fed, as the central bank is known, and an outing to the nation's central bank feels like a trip to capitalism's cathedral. Where the bodies of saints would otherwise lie, the bank's catacombs are stuffed with about $180 billion in gold bars -- more yellow metal than is stowed in Ft. Knox, and almost a quarter of the world's supply.

As New York tourist destinations go, the Liberty Street historic landmark attracts a fraction of the visitors to the city's more famous spots. But the bank plays a much more vital part in our daily lives: The Fed implements monetary policy and, in the New York building's open market trading floor, handles billions of U.S. government debt. It's all a part of how the government is trying to rescue the economy, primarily by dropping interest rates.

The bank's free, 30-minute tour won't leave you fully grasping the nuances of reserve requirements and the difference between real and nominal gross domestic product. Yet you will leave knowing a lot more about money than when you walked in, and some of it will be more enjoyable than your college economics class.

The first thing you come across while waiting for the guided tour is what looks like an unguarded gold bar, slowly spinning with the invitation, "Help yourself!"

But the bar turns out to be a hologram, your hand passing through it like fog. Though the guided tour is largely humorless and strict (you're instructed not to take pictures or notes during the visit to the massive subterranean gold vault), the displays in the lobby -- a stunning foyer adorned with some of designer Samuel Yellin's 200 tons of ornate wrought ironwork -- are surprisingly fun, even as they're informative.

Used bank notes are no longer burned (it's not green to send up green in smoke) but shredded, and there's $48 million in minced $100 bills in one display, part of the $105 million in paper currency cut up daily.

Not far away, an exhibit about counterfeiting presents some really good fakes; only with an oversized magnifying glass that slides over both the real and the ersatz bills (along with some what-to-look-for pointers in the exhibit) can you spot the impostor $5, $10 and $20 bills.

The American Numismatic Society has lent the bank hundreds of rare coins and currency to illustrate the history of money, grouped by era and region. The highlights include a shekel from 109 BC, similar to the 30 pieces of silver paid to Judas for Jesus' arrest, and the most valuable coin ever sold, a 1933 Double Eagle that fetched nearly $8 million in a recent auction.

New York's Fed is one of a dozen Reserve Banks that make up the country's central bank, and the rest of the lobby tour outlines their history and role. Once a clearinghouse for checks and a walk-up sales location for Treasury bills, the Reserve Banks, among other current responsibilities, supervise and regulate state-chartered banks and foreign bank branches.

The bank's top historical exhibits are interactive. The best is called "Match Wits With Ben" (as in Franklin), a computer game in which your knowledge of monetary policy is measured against a clock. There are only seven questions, but you will likely miss about half of them unless you dream of stock tables in your sleep. Sample: What organization did the United States create in 1865 to suppress counterfeiters? Answer: the Secret Service.

After the Sept. 11 terrorist attacks (the World Trade Center site is just a few blocks to the west), the Fed tour eliminated a stop in the bank's trading floors, making the trip down to the gold vault the centerpiece of its guided visit.

Two-dozen MBA students were in my group traveling five stories below street level to see the vault, and they nearly swooned when they saw all the gold bars (each worth about $320,000) neatly stacked to the ceiling.

Ninety percent of the gold belongs to foreign countries, stored in the Fed's little cells for safekeeping. The bricks are so heavy (about 28 pounds each) that vault workers wear $500 magnesium boots to avoid smashed metatarsals, and the concrete floor is dented from bars that once toppled over.

As soon as the tour is over, guests are given a free little bag of shredded bills. It's a funny souvenir of one of the bank's functions, but a more sobering -- though unintentional -- reminder of the status of the economy.

Wanted: Investors for film on gold's role as money

By James West
www.MidasLetter.com
Monday, October 27, 2008

The campaign of disinformation and perception management continuously undermining gold's natural role in the financial universe inflicts damage on the economy, the scope of which we are now finally understanding.

If gold had not been so thoroughly abused over the last two decades, and were it in fact able to exert its normal moderating influence on monetary policy, the disaster we're in would have been much diminished, if it would have happened at all.

It is incumbent upon those visionaries who perceive clearly the truth of this situation to exert as much influence as possible to counteract the effects of market manipulation and disinformation, as it is only through these efforts that there can be any hope of returning to (or establishing) a transparent and equitable monetary system.

To that end, MidasLetter.com is hereby initiating production of a feature length documentary film intended for theatrical release initially, and then distribution by DVD, broadcast, and ultimately YouTube. The intent is for this film's success to facilitate the establishment of a follow-on television series that continuously scrutinizes fiscal and political policy as they evolve in the light of the theories of classical economists.

It is our objective to establish an opposing voice to the mainstream media's continuous delivery of information that is biased and/or just simply wrong, and syndicate this information in video format for broadcast throughout the world.

We are seeking expressions of interest from interested parties who are accredited or professional investors only. Contact me by telephone toll-free at 1-888-485-8029 or by e-mail at JWest@MidasLetter.com for a copy of the Film Production Plan and Script Synopsis.

* * *

Why the fall in the gold price when physical gold remains in huge demand?

Heavy secret gold leasing may explain disparity in gold prices

MineWeb's Lawrence Williams interviews Jeff Nichols of American Precious Metals advisers about gold's decline on the commodities exchanges even as demand for the metal explodes, and they come up with a likely explanation -- heavy surreptitious gold leasing by central banks.

Williams writes: "Nichols reckons it has been central bank gold loans -- even more so than official gold sales -- that have really pulled the rug out from under gold. Gold loans by central banks are an alternative -- and invisible -- means of injecting liquidity into the banking system. These gold loans to banks and bullion dealers by the leading central banks are probably a significant multiple of outright official sales.

"In simple terms, a central bank may lend or deposit gold with a banker or bullion dealer who simultaneously sells forward. Even with the recent substantial increase in gold-lending rates, at the end of the day the dealer receives cash in the transaction at a cost that may be advantageous to short-term money-market borrowing costs. Central banks have great freedom to lend gold outside their government-mandated rescue programs and these lending activities are typically hidden by their accounting practices."

That is, more market manipulation by central banks, kept secret from the public and most investors, concealed on the central banks' own books, but executed through a few favored financial houses that can trade on their knowledge of the secret government policy and make huge profits for providing the central banks with cover.

Williams' interview with Nichols is headlined "Why the Fall in the Gold Price When Physical Gold Remains in Huge Demand?" and you can find it at MineWeb HERE

Quote of the Week...

'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.' Thomas Jefferson, 1802

...how familiar does this sound to you?

Steve Hickel: The golden bailout plan

Steve Hickel writes in his essay posted tonight at Gold-Eagle, "The Golden Bailout Plan", that central banks should stop fighting gold and let it rise far enough that they can eliminate their otherwise unpayable debts by selling half their remaining gold reserves. This is a bit similar to the suggestion made in 2006 by the Scottish economist Peter Millar, who wrote in a scholarly paper that central banks would need to let gold rise into the thousands of dollars per ounce in order to avert a catastrophic debt deflation (http://www.gata.org/node/4843).

Who knows? In a year or two or three you might be able to liquidate your home mortgage just by pawning your watch or wedding ring.

You can find Hickel's essay at Gold-Eagle HERE

Mises Institute: Is Gold Money?

From today's Daily Article posted by Robert Blumen at Mises Institute web site:

"... What qualities have made gold (and silver) the winners of the monetary competition in centuries past? The qualities most often cited by monetary historians are durability, divisibility, recognizability, portability, scarcity (the difficulty of producing more of it), and a value-to-weight ratio that is neither too high nor too low. Too low a ratio would make it hard to carry enough for spending, while too high a ratio would make small transactions difficult and prevent the commodity from being sufficiently widely owned in the prior barter economy. Gold still has these qualities today. While fiat money has some of them, it fails the scarcity test: it is too easy to create more of it.

The result of market competition is not necessarily permanent. Market competition is an ongoing process. Even when one commodity emerged as money, there continued to be competition from other nonmonetary commodities. Once the world's money, even gold could have lost its place had a superior alternative emerged. But that is not the reason we no longer use it. Political money did not prove its superiority through a market process. What happened instead was a politically imposed change from a better system to a worse system.

Although the central bankers have used political means to replace gold with paper, they do not have the power to end the competition between their money and commodity money. The "demonetization" of gold by central banks has rigged the competition — but not ended it.

Gold as money may not be over for all time. As the monetary system melts down, gold functions as "shadow money," an alternative that competes with the political money. It remains a store of value because of its potential to become money again. There is continuing demand for gold as a hedge against the breakdown of the fiat system.

Governments cannot force people to use their money beyond a point. The market will only continue to accept fiat money as long as it works well enough (or even, not too badly). If governments debase its currency beyond a point where it maintains some value over time, people will stop using government currency and switch to something else."

Please click HERE for this fascinating article.

Rob Kirby: Only a central bank could be shorting gold that much

Rob Kirby of Kirby Analytics in Toronto, a GATA consultant, tonight posted at Jim Puplava's Financial Sense Internet site an examination of the latest commitment of traders reports from the New York Commodities Exchange. Kirby's conclusion matches what silver market analyst Ted Butler reported last week in silver: an eleven-fold increase in the concentrated short position in gold, the short position held by three or fewer banks.

Such a short position, Kirby notes, can be only the work of a central bank, "because no public entity -- bank or otherwise -- has the balance sheet maneuverability in an impaired credit environment to conduct such business."

Yes, even coin and bullion dealer Kitco, employer of the gold market analyst who most steadfastly refuses to acknowledge the likelihood of gold market manipulation, isn't short that much gold.

You can find Kirby's commentary, headlined "Wake-up Call," at Financial Sense HERE

James Turk: A fabrication bottleneck or something more?

GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, comments on the retail market's shortage of gold and silver in his new essay, "A Fabrication Bottleneck or Something More?" Turk writes that GoldMoney had a record week for purchases last week but has not yet seen a shortage of the large LBMA-standard bars in which it typically does business.
But Turk speculates that central bank gold vaults could be cleaned out if gold does not return to $900 soon. You can find Turk's essay in the "Founder's Commentary" section of the GoldMoney home page HERE

GATA: Gold near a bottom? Ask the Western central banks

Dear Friend of GATA and Gold:

Your secretary/treasurer remarked last year at a meeting of the Committee for Monetary Research and Education that if a worldwide nuclear war broke out and only one financial market in the world was still functioning in a city that had escaped destruction, what remained of the U.S. Federal Reserve and Treasury Department would find that market and sell promises of gold, and gold would go down, at least for the day, lest any financial market people who had survived the war think that anything was wrong:

http://www.gata.org/node/5057

The war between Russia and Georgia isn't nuclear but it's a pretty good one with disturbing implications, including implications for the world's energy supply -- so of course today oil joined gold in declining.

Who is selling all that gold, or promises of gold? Apparently it's not the gold mining companies. Quoting Gold Fields Mineral Service, Mining Weekly reports that gold hedging by mining companies is at its lowest level in 20 years:

http://www.miningweekly.com/article.php?a_id=140413

The carnage in the gold market has drawn Resource Investor's Gene Arensberg away from vacation to produce a special edition of his Got Gold Report, which examines the panic and is headlined "Gold Near a Bottom?" If the question is more than rhetorical, it might best be put to a few Western central bankers, whose crucial meetings and records, unfortunately, are seldom public. In any case you can find Arensberg's report here:

http://www.resourceinvestor.com/pebble.asp?relid=45229

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Huffington Post: Seven Predictions for US economy

1) The price of gold and the Dow Jones will reach parity between 4,000 and 5,000 (i.e., gold will trade between $4 - 5,000 as does the Dow Jones Industrial Average).

2) America's sovereignty, as defined as percentage ownership of American financial assets, principally U.S. government bonds (soon to no longer be rated AAA), will be mostly in the hands of foreigners.

3) China will buy Fannie Mae and Freddie Mac and in so doing become America's biggest land lord.

4) Very few of the current Bush administration, family, and close associates will be living inside U.S. borders within 6 months after leaving office.

5) The Presidential election in November will be delayed due to a global financial crisis.

6) The U.S. military in Iraq and Afghanistan will start to run out of money and be left to get out on their own resulting in American mercenaries hiring groups like the Taliban to escort them out of the region, with Bin Laden getting a commission on each deal.

7) Russia will emerge as the new power broker in a post-America world restoring financial order between America, the largest debtor in the world and China, the largest creditor in the world.

...to read the entire mind-boggling, must read article titled "The Black-Scholes Atomic Debt Bomb & 7 Predictions" please click HERE

Gold price manipulation is spelled out to CFTC

A financial planner from Chicago, Marcus C. Rodriguez, has written a wonderful letter to the U.S. Commodity Futures Trading Commission documenting the manipulation of the price of gold on U.S. commodities exchanges and urging that the commission compare that manipulation with the huge gold derivative positions held by JPMorganChase, Bank of America, and Citibank.
It could only help if other Americans wrote to the CFTC in support of an investigation of the issue Rodriguez has raised.
You can find Rodriguez's letter to the CFTC HERE

GATA: Fed may not want its cash loans back any more than governments want their gold loans back

Dear Friend of GATA and Gold:

The Federal Reserve's ever-increasing "short-term" lending to major commercial and investment banks, described in the news report appended here, is starting to recall the boast of Barrick Gold a few years ago that its huge gold loans were "evergreen," written for 15-year terms but always allowed to be extended for another year every year.

Barrick's suggestion was that its gold loans never had to be repaid -- that they were gold loans from central banks and that the central banks did not want their gold back, that the central banks wanted instead for the gold price to be suppressed. By contrast, demanding repayment of the gold loans would cause a short squeeze in the gold market and send the price soaring. That's what central bank gold sales seem to be: not delivery of new gold into the market but cash settlement of old gold loans that can't be repaid without causing that short squeeze.

For who else would want to "lend" gold on the virtually indefinite terms available to Barrick? Who else would even be able to lend gold this way? Who else would want to do so? And what purpose could such loans have other than to suppress the price?

Does the Fed want its burgeoning loans to the commercial and investment banks repaid? Probably not any time soon, for all these "short-term" billions can be deployed to rig a lot of markets -- not just the mortgage derivatives markets that are the center of attention but very possibly the commodities markets as well. Thus these loans would become just like the funds in the Fed's pool of repurchase agreements with the Fed's primary dealers in New York, a pool of funds that now stands near $300 billion. These funds too are nominally "temporary" loans, but the pool never goes back to zero or even close. To the contrary, it is usually growing and has nearly doubled over the last six months -- and its only purpose is market rigging.

News organizations and Congress have not yet realized the purposes to which infinite money may be put and so haven't begun questioning all the money being flung around. But it's not about free-market capitalism; it's what's called lemon socialism, wherein private interests take any profits and the public assumes any losses.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Fed Offers $100 Billion More to Banks

By Martin Crutsinger
Associated Press
via Yahoo News
Friday, March 28, 2008

http://news.yahoo.com/s/ap/20080328/ap_on_bi_ge/fed_credit_crisis_39

WASHINGTON -- The Federal Reserve announced Friday it will auction an additional $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.

The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.

All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns Cos., the nation's fifth largest investment bank.

The Fed has been holding auctions every two weeks since December to provide short-term loans to commercial banks. It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe.

In announcing the move to $50 billion last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.

The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis. The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed. Previously, only commercial banks, which face tighter regulations, had that privilege.

The Fed also said it would make available $30 billion in financing to support the sale of troubled Bear Stearns to JP Morgan Chase & Co., hoping to prevent a bankruptcy that could have rocked Wall Street.

Private economists said the auctions were having a positive impact but that troubles still exist in many sectors of the credit markets because of multibillion-dollar losses many financial institutions have suffered as the result of soaring defaults on mortgage loans.

"The Fed has worked some positive magic," said Mark Zandi, chief economist at Moody's Economy.com. "At least the panic has subsided as the risk of another major failure has receded given that financial institutions now have access to a lot of cash through the various lending facilities the Fed has established."

The Fed's auctions have drawn criticism from some that the central bank, and ultimately U.S. taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices.

Fed Chairman Ben Bernanke will face questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee.

* * *

James Turk: Print, Print, Print

GoldMoney founder, Freemarket Gold & Money Report editor, and GATA consultant James Turk remarks in his latest essay that the European Central Bank's conjuring of the equivalent of a half trillion dollars overnight is a flashing neon sign on the road back to Weimarism.

Print, Print, Print

In case you missed this news, the European Central Bank yesterday created 348 billion euros. That's equal to about one-half trillion dollars. Presto! Like magic, one-half trillion dollars of so-called "liquidity" appeared out of thin air.

It really isn't liquidity though. Let's call it what it really is. It's just newly 'printed' currency, created not with a printing press, but rather, with a simple book entry on the ECB's balance sheet.

Let's flash back to Weimar Germany in 1923. As that country's monetary problems worsened, the central bank, the Reichsbank, in the misguided thinking of that day printed one-half trillion of Reichsmarks. It also had the aim to provide liquidity.

Is there anything essentially different between what the Reichsbank did and what the ECB just did? Absolutely not.

Last week I wrote the following for one of my regular commentaries on the Kitco website, responding to the $40 billion of new currency that had just been 'printed' in an instant by the Federal Reserve: "Creating money this way is a barbaric process because it further debases the dollar, but is hailed by the banking insiders and their apologists as a brilliant maneuver to fight the worsening liquidity crunch. Of course it is a view of those with vested interests, and bluntly, is just their selling pitch to the masses."

We are in a monetary crisis, not unlike the one that plagued Weimar Germany. It is a crisis of fiat currency, where 'money' can be created out of thin air in an instant and in any quantity, which are actions that cause people to distrust the money. This lowers the demand for the debased money, and eventually leads to a flight from it. The demand for the Reichsmark was declining for years before its collapse, just like the demand for the dollar, euro and other fiat currencies is now declining as people seek safe alternatives.

Over the past few weeks John Rubino and I have been updating our book, The Coming Collapse of the Dollar, for a new paperback version that Doubleday plans to release in January. Not only has the content been updated, but Doubleday wants to update the title too. The proposed new title is: "The Collapse of the Dollar", to reflect the downward path of the dollar since writing our book back in 2004. The following is from the introduction to this new version:

"The stage is set, in short, for not just a further decline in the value of the dollar, but a collapse. Which means the turmoil-and profit opportunities-of the past few years were just a taste of what's coming. But note that despite the title of this book, it's not only the dollar that's headed for the trash heap of history. The real problem isn't U.S. economic mismanagement, but the whole concept of fiat currencies. Put simply, when politicians have the ability to buy votes by printing money, they do so. This lack of monetary discipline leads to an oversupply of currency which causes its value to decline until most citizens give up on it altogether. In the past this has happened to one country at a time, but today it's happening everywhere, with the world's dominant currency, the dollar, leading the way. The inevitable result will be a tumultuous few years in which the world discovers that fiat currencies -i.e., government-created-and-controlled currencies with no externally-imposed discipline on the printing press-are inherently flawed, and abandons them en mass."

As 2007 comes to an end, it is time to think about what lays ahead in the New Year. My conclusion is that the present crisis is going to get much worse and then end badly. How badly?

Well, no one of course can predict the future, but when you are on a road, you can obviously see where you are going. The dollar, euro and the other national currencies are on a road that is well traveled. We know where it is going. It's the same road the Reichsmark was traveling.
It's the road to the fiat currency graveyard.

John Embry: Gold gleams as central bank influence wanes

In a new essay in Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, notes the growing recognition of central bank manipulation of the gold market and argues that gold production can't be sustained without a higher price. Embry's essay is titled "Gold Gleams as Influence of Central Banks Wanes" and you can find it at the Sprott Internet site HERE

ECB rate cut pleas grow as Euribor goes mad

By Ambrose Evans-Pritchard
The Telegraph, London
Friday, November 30, 2007

A clutch of Europe's top economists have called on the European Central Bank to cut interest rates at its policy meeting next week, warning of severe downturn unless confidence is restored quickly to the banking system.

The concerns came as one-month Euribor spiked violently by 60 basis points to 4.87 percent today, the sharpest move ever recorded. Italy's financial daily Il Sole splashed on its website that the Euribor had "gone mad."

The three-month Euribor rate used to price floating-rate mortgages in the Spain, Italy, Ireland, and other parts of the euro-zone rose to 4.77 percent, near its August high and far above the ECB's 4 percent lending rate.

Thomas Mayer, Europe economist for Deutsche Bank, said the authorities should take pre-emptive action to unfreeze the debt markets and reduce the danger that events could spiral out of control.

"If they don't do anything, this could go beyond just a normal recession. With this credit crisis it could turn into a very uncomfortable situation, with a real economy-wide crunch that we cannot stop," he said.

"We're still seeing considerable stress in the European banking system, especially for smaller banks that can't get credit. I am afraid we could have another Northern Rock case," he said.

It emerged today that Germany's IKB bank had racked up losses of E6.15 billion on subprime ventures, although it has been rescued by a pool of German banks.

Mr Meyer is one of six members of ECB's Shadow Council to vote for a rate cut at a gathering in London today.

The group of bank economists and leading academics -- organized by Germany's Handelsblatt newspaper -- meets before each ECB vote. It serves as barometer for eurozone opinion.

Veronique Riches-Flores, Europe economist at SociΓ©tΓ© GΓ©nΓ©rale, said investors were deluding themselves if they believed that Europe and the rest of the world could carry on growing briskly as the housing slump engulfed America.

"The idea people have in mind that emerging markets can decouple is completely wrong. Emerging markets are only OK as long as the US consumer is OK," she said.

She warned that the surging euro had become a bigger long-term threat to the region than people realized.

"The problem of the exchange rate is urgent. The euro has appreciated 50 percent against the Asian currencies this decade and that really worries me."

It is unclear whether the grim mood at the shadow council foreshadows a policy shift at the real ECB. A German-led bloc of monetary hawks in Frankfurt has been on the war path in recent weeks, fearing that inflation could soon become lodged in the system and set off a 1970s-style wage-price spiral. The ECB's dovish faction tends to keep silent but may have more votes.

German CPI inflation reached 3.3 percent in November, the highest since the launch of the euro. It is approaching levels that could start to erode popular support for the single currency in Germany.

Austria's ECB governor, Klaus Liebscher, said this week that inflation had become "alarming," citing a jump in oil, commodity, and food costs, as well as capacity contraints in industry, and a spate of fat wage rises. "There's a good number of reasons why we can't be complacent," he said.

Joachim Fels, head of economic research at Morgan Stanley, said it was an error to dwell on inflation at time when the economy is tipping over, dismissing the latest spike as a hangover effect that would subside next year. The greater risk is monetary overkill. The surge in Euribor spreads amounts to three rate rises, he said.

While 13 of the shadow board voted to keep rates unchanged (none voted for a rise), most agreed that the world is facing an ugly cocktail of buckling demand combined with an oil shock, a stagflation mix that is extremely hard for central banks to combat.

Jacques Cailloux, Europe economist for RBS, said there already clear signs that the US slowdown is spilling over into Europe and the rest of the world, although the markets had yet to wake up to the full implications.

"We're seeing a contraction in German exports to Asia. I don't see any evidence that decoupling is happening. The biggest five European banks have $2 trillion of claims on the US economy," he said.

Jean-Michel Six, Europe economist for S&P, said the great unknown was whether deflating house prices in the Club Med region and Ireland would trigger a serious downturn, and whether banks still had enough oxygen as the credit crunch ground on and on.

"What will be the effect if they have to repatriate mortgage securities onto their books on a massive scale? It could be a major constraint on their ability to lend. This is the first test since the Basel II rules came into force, so we'll see what happens," he said.

There is a fear the restrictive Basel II code could force banks to tighten further to meet reserve asset requirements, compounding the credit crunch.

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