Gold Market Reaching The Breaking Point

Back in January, I wrote about the significance of gold breaking above $1000 again.


Rising demand for physical gold is a threat to the dollar because it signals a growing loss of confidence in the paper currency. It is also key to understand that gold prices aren't rising because of the changing fundamentals of gold, but because of the changing fundamentals of the dollar. In other words, gold isn't rallying,

Gold is history's oldest and most stable currency. Its utility is simply that it is rare, and for 5,000 years people have used it to store value for the future. All the gold that has ever been produced would fit in a solid cube of about 19 meters on each side, and this cube is only expanding by about 12 centimeters a year (2%). Since the value and supply of gold itself are fairly constant over long periods of time, the main driver of gold price fluctuations is the ebb and flow of confidence in paper currencies. Rising gold prices are, therefore, a signal of a weakening currency, which is why governments hate them and try to suppress them.

Right now, there is unprecedented worldwide demand for physical precious metals. As a result of this surging demand, gold futures have experiencing backwardation, a rare market condition where gold futures trade under spot prices. It is a signal that gold prices are headed higher and that confidence in our currency is fading quickly. When gold prices break above 1,000 again, the event should be recognized for what it is:
the herald of a dollar collapse.

Gold is becoming money once again. The market for the standard gold one-ounce coin is no longer fragmented. Both the ugliest and the most beautiful gold coins are traded strictly by the quantity and quality of metal content, disregarding the outward appearance of the coin. Even Indian gold buyers, who, for years, considered buying jewellery to be the best investment option, are shifting from buying gold jewellery to gold coins.

China is increasing its gold reserves, and India has just bought 200 tons of gold from the IMF. Russia had publicly stated its intention to increase its ratio of gold reserves from 2% to 10%, and Brazil is also considering IMF purchases. Gold inflows into central bank vaults are increasing.

It has been more than 40 years since governments and individuals concerned themselves about physically holding gold, but confidence in the dollar is falling and investors are being "dragged kicking and screaming into the bullish camp" as gold continues to break to the upside.

Gold demand is exploding as Investors turn to gold

Investors around the world are investing in gold bars for their safety. Big investors like David Einhorn are also turning to gold as an attractive alternative to cash, as falling interest rates on savings reduce the opportunity cost of holding gold, a non-interest bearing asset. As Mr. Einhorn put it, "Picking these currencies is like choosing my favorite dental procedure. And I decided holding gold is better than holding cash, especially now that both offer no yield." Finally, a chaotic scramble to secure physical gold has also been unleashed by negative real interest rates (below inflation) which have upset the gold "leasing" machinery in the gold industry, creating a sustained market squeeze.

Surging demand is spurring a rush at Swiss gold refiners, who cannot work fast enough to meet demand. Mints are seeing a sharp rise in sales this year due to interest so strong that dealers are reported a shortage of products such as Krugerrands and one-ounce bullion coins. One German firm is even planning gold ATMs to meet growing demand, with 500 "Gold-to-Go" ATMs to be set up in Germany, Switzerland and Austria this year.

The rush to buy gold is also filling Swiss bank vaults. Swiss gold ETFs (ZKB Gold ETF - SWX and Julius Baer Physical Gold - SWX) are moving large quantities of gold out of London and into Zurich (70 tons as of last may), and they are running out of secure vaulting space (Why doesn't GLD ever have any storage issues? Think about it). This shortage of secure storage extends across Swiss bank system with even gold clearing providers like SIS Clear (who only deals with banking counterparties) running out of space.

China is now the driving force in gold market

China is now the fastest growing market for gold, with Beijing's gold markets reporting record sales. As the Chinese economy rebounds from the global recession this year, China is overtaking India to become the world's top gold consumer. The Chinese authorities are reinforcing this strong demand for precious metals by pushing their citizens to buy gold.

[China's] main state-owned television company is promoting gold and silver as an investment. The government is telling its people to buy gold. What's more, every bank will sell gold and silver bullion bars in four different sizes to individuals, and China's largest bank, the ICBC, is setting up a precious metals department to handle growing investor demand.
And if the Chinese authorities are pushing gold as an investment to their citizens, it obliges them to 'protect' the gold price, as Lawrence Williams of Mineweb notes. It would be tantamount to a betrayal if it fell, never mind the loss of all-important face that would result. Just as the US and the UK stepped in to bail out its banks, so China will be duty bound to prop up gold.

the surprising strength we have seen in gold over the summer — we never really got the summer low I was looking for — suggests that somebody is already 'buying the dips' anyway. Indeed, the gold price has this week repeatedly gone through $1,000 during overnight trading, only to fall back when the US markets open. That indicates that the buyers are out east somewhere. I have written about this before: Gold is shifting from West to East — along with the balance of power.

China is now the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction. So don't expect to ever see prices beneath $900 again. With growing Chinese demand, Gold is never going back down.

Looking at graphs of the price of gold, it is easy to see Chinese buying drive the market higher. For example, it was Asian buying which drove gold over $1,000 on September 8.

Scary developments in gold

What is really scary about gold breaking the $1000 barrier is that it happened in the face of a flood short selling in US futures markets. So while gold was being driven up by Hong Kong buying, it has also been getting killed by unrelenting selling during COMEX hours. As can be seen in the chart below, the quantity of COMEX gold futures contracts has begun spiraling out of control since the end of August.

Open interest in gold futures is EXPLODING, yet gold prices have broken over $1000 and are STILL going up! Demand for gold is reaching a level that cannot be stop as faith in the dollar disintegrates.

Investors emptying COMEX warehouses

In order to secure gold at the lowest possible price, US investors are turning to the complex, lengthy process of taking delivery of gold futures contracts. By buying gold contracts in deliverable months and wait for them to expire, sophisticated investors are emptying COMEX warehouses. The incredible hassle of trying to pry gold out of Comex warehouses appeals to investors because no other place in the US offers a price equal to the Comex exchange. Nothing even comes close.

Guiding investors through the delivery process are gold and silver brokers like JB Slear who specialize in helping high net worth clients take delivery of gold and silver futures contracts. These advisors are necessary because, as investors are discovering, that there is trouble at Comex warehouses:

1) Delays and complications in the delivery process have become increasingly commonplace. It is taking weeks and possibly even months, and sometimes dozen of inquiries, for investors to get the gold they already own out of the warehouse.

2) More restrictions are being applied to overseas buyers requesting delivery.

3) Some brokerages will not help with the delivery process or refuse to help even after the commissions are paid.

4) The cost in just about everything "Comex" is increasing

5) Investors withdrawing their 100oz. bars from the Comex depositories are being given bars with incorrect serial numbers or weight.

With the difficulties and irregularities in the COMEX delivery process, many, including gold brokers like JB Slear, have doubts as to whether there is gold in inventory to match existing warehouse receipts.

Like others involved in the gold market, Slear believes that there are real shortages of precious metals that have yet to be exposed. But he recognises the futures market as a last resort for people who can't buy metals at reasonable prices elsewhere: "If a buyer wants to buy a physical product and cannot find it locally, he or she can go to my firm's web address to transact that business. My business model is a last resort purchase arena for those who need to protect their personal wealth."

He says
there is anecdotal evidence that this activity is widespread enough to be affecting warehouse stocks as high net worth clients remove metal from warehouses.

But, he
[JB Slear] says that the activity has yet to show up on Comex warehouse stock data: "I find it interesting that the Comex numbers don't show any movement at all as far as deliveries are concerned. I have spoken to three of the warehouses and each facility confirms the fact that the metals are being moved out, and in size. One of my clients says that when she went to "will call" her purchase, that the "will call" staging area for deliveries was stacked high and busy. Seems curious that the warehouse numbers reported through Comex, are not showing any reductions. In the Comex defence though, I don't know how long it takes them to account for the movements. I just keep my head down a nd focus on the job allotted me. That is to get the gold into my clients' hands as fast as possible.

It is absurd that, as gold pours out of the Comex, warehouse stock data shows nothing. The chart below shows gold inventory levels at COMEX warehouse over the last year. Notice, above all, the lack of change.

Although warehouse facilities themselves confirm large gold outflows every month, the activity does not show up on COMEX warehouse stock data. Over the last year, total gold in COMEX warehouses INCREASED 10% or 24 tons (868,000 oz). See for yourself:

COMEX Gold Stocks - October 30, 2008 (total=8.56 million oz)
COMEX Gold Stocks - October 27, 2009 (total=9.43 million oz)

(excel documents downloaded from NYMEX's website)

The sad part is that, even if Comex warehouse data is to be believed, there is only 66 tons of registered gold backing 1465 tons of gold promised for future delivery. So according to official data, there only enough gold to cover 4.5% of outstanding Comex gold futures contracts.

London Vaults also being emptied

Like Comex warehouses, London gold vaults are being emptied. Hong Kong is pulling all its physical gold holdings from depositories in the UK and moving their $63 million worth of gold home to newly built vaults near the city's airport. Dubai is also planning to withdraw its gold from London. Meanwhile, private investors and Swiss ETFs continue to move gold out of London.

On top of investor demand prying gold out London and COMEX vaults, Germany and Switzerland are reportedly demanding the return of their custodial gold from the US. In the face of this onslaught of demand, the US/UK gold markets are crumbling

Widespread Abnormalities Across Gold Market

The strange activity in gold markets isn't limited to out of control open interest on gold futures or fictitious Comex warehouse data. Things are going wrong across the gold market.

1) Early this year, The NYSE-Liffe futures exchange ran out of 1 kg bars of gold. Instead of receiving 1 kg bars as per mini-gold futures contracts, clearing members are now being allowed to hand out little slips of paper, called "warehouse depository receipts" (WDR), which gives the holder 1/3rd interest in a 100 ounce bar. Customers are not being allowed to take delivery, unless they can accumulate 3 WDRs. The NYSE effectively substituted the supply of 100 ounce bars for the supply of 1kg bars, which has run out. NYSE-Liffe mini-gold (YG) contract specifications were altered some time after December 31, 2008 to hide this default.

2) On March 19, the Fed announced its plan to purchase $300 billion long-term Treasuries, $750 billion (toxic) mortgage-backed securities, and $100 billion (toxic) debt issued by Fannie and Freddie. This announcement was INCREADIBLY BEARISH for the dollar and bullish for gold. In the following two days, someone increased open interest in gold futures by shorting 34 tons (1,209,600 ounces) of gold. Who in their right mind would short gold following the fed's plan to go on a buying binge and load up its balance sheet with toxic debt?

3) Two major events happened in the gold market at the end of March this year:

A) On March 31st, Deutsche Bank delivered 850,000 ounces of gold to Comex contract holders.
B) On March 31st, ECB announced it had "sold" 35.5 tons of gold (1,141,351 ounces).

Circumstantial evidence and common sense suggest that the European Central Bank sold its gold to Deutsche Bank and saved the bank and the Comex from default.

4) In the last three weeks, significant irregularities significant irregularities have appeared in the gold bar registry of GLD, with the length of the published GLD bar list going from 1,381 pages on September 25, to 208 pages on October 2, then back to 855 pages on October 14.

5) GFMS data on the volume of gold traded on the London market (about 90% of gold traded worldwide) does not tally with the estimated amount of gold bars which conform to "London Good Delivery" standard.

6) On October 29, 2008, the TOCOM added a 'physically backed commodity ETF' as a possible physical for EFP (Exchange of Futures for Physicals) transactions at the exchange. An exchange for physicals (EFP) transaction is when a client gives an IOU for a physical commodity to a broker and that broker opens a short position on the futures exchange in that commodity. Normally, Exchange for physicals is the legitimate process used by producers to sell futures against their future production. However, if the IOU portion of the EFP is not from a commodity producer (ie: borrowed a GLD Ishares), then you have a problem.]

In summary, New York and Tokyo commodity exchanges are now permitting their gold futures contracts to be settled not in real metal but in shares of gold exchange-traded funds (ETFs). This essentially allows those short gold (and the exchanges themselves, which guarantee futures contracts) the ability to transfer their obligations to third parties (commodity ETFs) that may not have the metal they claim to have.

7) Half a ton of gold has disappeared from the Royal Canadian Mint. An independent audit released on July 3rd found no accounting, bookkeeping, or other internal errors could account for about 17,500 troy ounces of gold missing from the mints inventory. Fearing a "run" on its gold, Royal Canadian Mint is reassuring customers their deposits are fully accounted for and in secure vaults. A RCMP investigation into the $15.3 million missing gold is "ongoing." (If half a ton of gold could disappear from one of the most secure buildings in Canada, then Isn't it about time for US gold reserves to be audited?)

8) Rob Kirby is reporting some VERY SERIOUS developments in the gold market, which, although I have no way to verify them, seem creditable in light of everything else that I KNOW is going):

A) During the week of Oct. 5, some large allocated physical transactions that were settled in London under VERY strange circumstances. Banks like JPMorgan and Deutsche Bank (who sold endless amounts of gold futures at prices of 950 to 1025) and then tried to make "side deals" with the folks they sold the futures to — offering them spot + 25 % (around 1,275 per ounce) to settle in fiat — after their counter parties demanded substantial tonnage of physical gold bullion.
B) A number of large interests have demanded audits of gold stored in London.
C) In an Asian depository, they've found "Good Delivery" bricks that had been gutted and filled with tungsten.

9) US-based clearing house CME Group Inc. is allowing physical gold to be used as collateral for margin requirements on all exchange products. This new CME policy is an act of desperation. The decision to "allow physical gold to be used as collateral for margin requirements on all exchange products", against a backdrop of record prices and widespread abnormalities in gold markets, screams that something is wrong. The policy would never have been proposed unless JPMorgan really, really needed gold.

10) Statistics from United States Geological Survey show that the united states has exported 5000 metric tons of "Gold compounds" in last two years, and the US Census Bureau has assigned an astronomically high value to these exports. Until someone explains to me what these "gold compounds" are, I am going to assume that they were half the US gold reserves leaving the country.

The gold market is an accident waiting to happen

Basically, the gold market operates on a fractional reserve basis. On average there are several claims of ownership on each gold bar conforming to London Good Delivery (LGD) standard on the "pool" of gold which acts as liquidity for the massive OTC gold trade based in London. Similarly, there are several claims of ownership on the gold bars in Comex wherehouses. If a sufficient number of market participants become concerned about this (which is happening) and there is a stampede to take delivery of physical bullion, the entire gold market will come crashing down, taking most of the global financial system with it. Market failure isn't a risk, it is a certainty. The unregulated gold market is an accident waiting to happen.

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212 Responses to Gold Market Reaching The Breaking Point

  1. Anonymous says:

    Excellent research and insights, Eric.

    Looks like you people who made the nasty "cut and paste" bets need to PAY UP!

    In any case, you anons and pinions can buck against history all you want. Fiat currencies always end very badly and you who cannot accept this truth will be destroyed by it.

  2. Martijn says:

    As long as the shorters manage to stay strong the eat the little guys. The do however run the risk of total collapse.

    In order words, as long as the manage to short enough to turn the market, the take money from the longs. However, as pressure bilds, the shorts are becoming in ever more dire straits.

  3. Robert says:

    Good stuff Eric.. I'm not sure the gold market will collapse first though. I have no idea of the exact details of how this would work, but if the US treasury wants too they will always be able to buy physical gold on the black market.

    There will never be a shortage of physical gold at the right price.. it's just that the price is not the COMEX price.

    If you don't mind losing money on every trade you can buy gold on the black market at a high price and sell it through the COMEX at a low price.

    That could probably go on for quite a long time.. I mean the amount of money they'd lose through bankrolling the entire COMEX physical delivery is probably still quite small compared to the amounts of money being spent bailing out the banks.

  4. I will finish the major article tomorrow.

    On another note, nogger reports that Indian Wheat Hits Record High, Panic In Rice Market. Over the next two/three months, this panic will spread to the US.

  5. Anonymous says:

    Robert makes a good point.
    Comex are also offering the big players 25% or more above the spot price ,not to take delivery.

    So in reality we have two gold prices. One for the rich, and one for the poor.
    How will this end.?
    I would like to hear Erics veiw on this.

  6. Anonymous says:

    it is going to bust sooner or later...

    timing it is tricky, but still... that's all it's a matter of ... time

  7. Anonymous says:

    DBA made a nice run up today despite the fact that funds and other magic market makers are way short. I want to sit back and smile when ag commodities make a 20% run in a week once the harvest results are in.!!! thanks Eric for all your hard work

  8. Anonymous says:


    Thanks for compiling all these pieces of the gold puzzle and for piecing it together for us in real-time.

  9. Numonic says:

    Eric, a couple days ago, the supermarket was rationing the amount of rice you could get. It had a notice on the front door saying there was a limit on the amount of rice per customer.

    As far as prices rising, I don't see it as an effect of the collapse of the US dollar(because I believe prices would be rising allot higher and faster during the dollar collapse), rather I see prices rising because the countries that used to be the producers have increased their consumption, and despite the decreased consumption happening in places like the US, the forces of consumption from those other places around the world are greater.

    I still believe the dollar collapse is imminent though.

  10. Numonic says:

    Basically prices are rising right now based on supply and demand.

    When the dollar collapses prices will be rising because the dollar will be loosing it's seigniorage.

    The former causes a gradual rise in prices, the latter causes a rappid and enourmouse rise in prices, especially because of what the currency(dollar) is made of.

  11. Numonic says:

    I find this video kind of funny how this guy is saying all he has 10 million dollars and it's not enough.

    Oh and can you here that, "cash shortage"!

  12. You saved us lot of time with this 2009 report.
    I am recommending this article since it`s one of the best summaries available.



  13. kean says:

    Numonic and others: where do you guys live and how have you prepared for the imminent dollar collapse, with possible martial law? I'm interested in all perspectives, including Eric.

  14. Anonymous says:

    Let's not get too excited about the price of gold.

    28 years ago, on November 1, 1981, the price of the first class stamp was raised from 18 cents to 20 cents. On that very same day, one ounce of gold was selling for $430.

    Today, 28 years later, the first class stamp sells for 44 cents, while the spot price of gold is around $1040.

    So within a 10% margin of error, gold is basically tracking the price increase of the first class stamp over time. Nobody gets excited about the rising price of the first class stamp. Why should we get excited about the rising price of gold? If gold would be trading above $3,000 that would be remarkable. Gold at $1,000 is as boring as a first class stamp at 44 cents.

    Gold is basically following inflation. The remarkable thing is that the inflation rate during the past 30 years was extraordinary low, on average something like 3% per year. As long as future inflation rates do not exceed 20% per year, we should be OK. Remember, hyperinflation is defined as doubling of prices every few days, that is, an inflation rate in excess of 1000% per year.

  15. Numonic says:

    Well dave, I live in the USA. As far as preparation for dollar collapse, I've bought allot of physical silver(mainly 90% silver dimes) and 1 oz rounds.

    As far as Martial Law well I don't know what to do about that but I doubt that there would be Martial Law. It's like I was telling that other Anonymous who keeps on harping about the dollar collapse meaning World War 3, if/when the dollar collapses so will the US' military. Who will work for a govt. that can't pay them? Nobody.

  16. kean says:

    numonic: how do you think the dollar collapse is going to play out? Will the collapse be total and will they dump the dollar for the Amero and if so then what do you think will happen? I have my own ideas but I'm interested in other's opinions.

    And if the demise of the dollar is going to be the mother of all collapses, what will happen to the global markets, particularly canada and mexico.

  17. Trader says:

    I buy Ausie at 0.9266, and wiped out yesterday at 0.8950.

    But today it rise again to 0.9150.

    Short term hurricane is forex market can kill people. Even if you are right that gold will skyrocket...

    I wonder what is the surest way to make maximum profit from dollar decline..??

  18. dashxdr says:


    I think Eric's thesis (which his article "Hyperinflation will begin in China and spread to the US" or something close to that talks about) is that food shortages will force China to import more food, driving up the price. If it continues to lock its currency to the dollar, the Chinese public will revolt.

    Nothing causes revolution quicker than a starving public.

    So China will be forced to drop the dollar peg. Which means so much stuff that is made in China will skyrocket, priced in dollars. Then everyone in a mad rush to the exit gets rid of their dollars.

  19. dashxdr says:

    And speaking of Eric's article, another point in its favor is that Mish came out of the woodwork to debate Eric on the issue. I consider that a point in Eric's favor. I think Mish is a jackass.

  20. dashxdr says:

    Karl Denninger's another jackass.

    I like Max Keiser. But then on Max's video show he interviewed both Mish and Denninger on different occasions. Oh the irony. Max is a gold bug. I don't know why _he_ gives those crackpots air time.

    Trying to boost his own ratings I guess.

  21. Numonic says:

    dave, I have a little reputation of sounding crazy on here but I'm just going to come out like Fox Mulder on X-Files on this and say that I believe the base of all hyperinflations are a shortage of the hard(physical) currency.

    The fallacy going around by most is that the only way the banks can run out of physical cash is if there is a panic that causes massive amounts of people to withdraw the physical cash. Most people are unaware or don't accept the fact that even though transactions done in physical cash are only a minority of all transactions, if the number of people making transactions grow, the number of those transactions using physical cash also grows(I'm not saying by percentage compared to total transactions but in number). And the fact is the number of these minor transactions can be growing faster than the printing press can print the needed amount of physical cash to meet these minor transactions, also factoring in the transportation time and distribution of these minor transactions. One never knows what part of the country the majority of these minor transactions will take place so it is difficult to have the physical cash ready at every site in the country. I say they are minor transactions because in comparison to transactions done electronically they are minor but the amount of physical dollars demanded for these minor transactions compared to the supply of physical dollars is not minor, in fact it's major and soon it will become so major that the supply of physical dollars will not be able to keep up with demand for them and this is the point where we see true default and the end of the US dollar's seigniorage. I'll get to the US dollar's seigniorage in a minute but before that I want to point out that currently the banks are doing everything in their power to slow this demand for physical cash and they are doing it by increasing poverty. They increase poverty by restricting lending which in turn decreases wealth and is the cause for the rise in unemployment. The rise in unemployment causes people to deplete there savings accounts and leaves less people to make those minor transactions in physical cash. This action by the banks combined with the action of the Federal Reserve through the Bureau of Engraving and Printing to print more physical cash and the action of the US Govt. through the Treasury to borrow the physical cash from abroad is what is keeping enough physical cash in the US banks. But they are failing. In fact they have always been failing, as every year since the currency began, there have been measures to make the physical cash circulate more. In 1994 Deposit Reclassification removed reserve requirements from banks and allowed banks to take from what was once required reserves and use that physical cash to meet the growing demand for physical cash. Right now the Fed is giving the physical cash to the banks for free(0% Fed Funds Rate) for the first time in history. Everything that is happening is to pull in or retain physical cash in the banks.

  22. Numonic says:

    Now on to seigniorage. The seigniorage is the face value of the currency minus the intrinsic/market value of the currency(basically the minting cost). If the currency is made of gold and gold on the market is $16/oz and the currency is an ounce of gold with $20 inscribed on it, the seigniorage is $4. By the way, these were the prices when we were on the gold standard. Gold was not $20/oz, on the market gold was less than $20/oz and the govt. was making seigniorage by charging $20 for their ounce of gold. This ended when the market value of an ounce of gold rose above $20/oz and the govt. wanted to keep it's seigniorage so it started charging $35 for it's ounce of gold but the market value of gold kept rising and the govt. chose to drop the gold standard instead of to keep chasing the market. It moved to a currency using a commodity that is far more abundant(cotton-linen), thinking that they could not come across the same problem but it wasn't only the limited supply of gold that was the problem, it was the fact that they could not mint them fast enough to meet demand. So supply of the commodity could be irrelevant. If I gave you a hundred sheets of paper and asked you to make me 50 paper airplanes in 2 minutes, it doesn't matter how much paper you have, it's the fact that you can't do the job fast enough to meet demand. And that is what we are facing today. The govt. wanted a monopoly of the money supply and it got it but now it has the burden of meeting the demand of everyone with an obligated right to the physical currency. The banks continually fulfilling this obligation is the reason the US dollar retains it's seigniorage. Failing to meet this obligation will cause the dollar to loose seigniorage, as did happen in every hyperinflation in history. The seigniorage is a minting cost and the minting cost is based on the performance of the minter. If the minter can not perform his duties as promised, his products will loose value or he will go out of business. You hear all the time how the FDIC harps about never loosing a dime of the insured money, that is why the dollar retains it's seigniorage and that goes for every other currency in use today. All currencies today have an extremely high minting cost(seigniorage) as all currencies today are made of worthless material. The only reason these currencies maintain their seigniorage is because they print enough to meet demand and those that don't hyperinflate which means it looses it's seigniorage which also means it drops to it's intrinsic value and that value is the material the currency is made of.

  23. Numonic says:

    So in summary what I expect to happen when the dollar collapses is to see people having trouble getting physical cash and the effect of this is the end of seigniorage which means the currency will return to the value of it's underlying commodity. And in today's case is 1 gram of cotton-linen. And if you look on the market, 1 gram of cotton-linen is worth nothing. Now an inability to get physical cash does not mean people won't be able to use electronic money. But prices will still be rising as the electronic money is a derivative of the physical dollar, it represents it and is the same value. But the physical cash shortage will not cause the end to electronic transactions. What will cause the end to electronic transactions is the fact that the companies that operate and maintain those electronic transactions will be going broke like everyone else due to the extreme rise in prices. And it will be too costly to maintain the machines used to make these electronic transactions. And this is how the electronic transactions will end.

  24. Numonic says:

    Larger denominated bills will be created because the current denominations will become too cumbersome to carry around being that you'll probably need a million $20 bills for a loaf of bread. When prices get this high and the currency is still in small denominations, shopkeepers will choose to accept more convenient and less cumbersome forms of currency such as an ounce of gold or silver in place of all those bills. And it's not that the govt. is against the public using something else other than the physical currency to buy things, quite the contrary, they would rather the entire public forgo any transactions with physical cash but they wouldn't want the public using gold and silver simply because gold and silver is even more rare and difficult to produce and would cause the price of those commodities to rise even more against their currency if the public began to use them. They want the entire public using something that is more easier to create which is why they push the use of debit cards and electronic transactions but in every banking system there is always a minority of transactions done with the hard money. And this is the problem all banking systems come across. So the withdrawal of so many physical bills becomes cumbersome for the shopkeeper and the shopkeeper seeks more convenient currency, gold and silver. To counter this the govt. prints larger denominated bills to make it more convenient to carry around, preventing a massively larger devaluation of their currency from the public's use of the rare gold and silver even though the currency is in it's end stages. They are just trying to keep the seigniorage alive for as long as they can. But once the seigniorage has begun it's loss in value, it drops rapidly from there as the rise in price makes it more difficult to print the currency fast enough to supply depositors who use physical cash for minor transactions which are rising high enough forcing depositors to withdraw large chunks of physical cash from their deposits.You can basically do the math yourself to figure it out by taking the price of 1 gram of cotton-linen on the market and taking the price of a loaf of bread and figuring out how many grams of cotton-linen it takes to buy a loaf of bread. I did the math once and the number is staggering. And if that's the case imagine comparing how many grams of cotton-linen it takes to buy an ounce of silver or gold. And this isn't even taking in to account the increased demand and subsequent decrease in supply of gold and silver that causes the price to rise higher. I'm merely just speaking of the loss of seigniorage of the currency. Supply and demand of other commodities has little to do with it. This is why they say that it's not the price of things going up but the value of the currency going down. This is truth.

    We will move to a bartering system where the currency is based on it's intrinsic value. Lending ends, hoarding is practiced. If you want to exchange your 10 ounce silver bar for smaller denominations, you'll trade the silver bar to some one who already has the smaller denominations made(not get a paper promising the smaller denominations at a future time), more likely for a premium if there are less small denominations than large ones. Trade will increase and production will increase. The world will be better for it.

    Anyway I'm not going to predict any further than that.

  25. Numonic says:

    dashxdr what Eric considers hyperinflation, i see as only inflation. Hyperinflation is a currency event, inflation is a supply demand event which is what Eric is talking about when he says hyperinflation will begin in China.

  26. Numonic says:

    Also as far as people in China starving, that's nothing new in China. China has been suppressing it's economy from growing and starving it's people for years. As far as the domestic growth going on in China right now, I see it as China taking the opportunity while other parts of the world slow down, but China's growth is kind of growing too much, well at least too much compared to the products available for consumption. But as far as lending, banks are always in control of that. They can decrease lending if it gets too much and cause prices to fall back down. But loosing seigniorage is another issue, that's uncontrollable once it's lost. And that is hyperinflation.

  27. Despair says:

    China's growth is mostly a false growth. Lately, there has been a lot of malinvestment there. Their banks are in trouble too, they just don't know it yet: There have been a lot of bad loans made there.

    I just don't see China as the juggernaut everyone else sees. I see a half-backwards country thinking it can get rich by selling to all and buying from none (unless its natural resources like food, oil, metals, etc.) The last time they tried this, the Opium Wars broke out. China did not make out well during that.

    All I see in the future is war.

    Don't count the Anglos out yet. UK and US have ruled the world over the past 300 years, they have more experience in it. And despite the propaganda both spit out, they are both pretty ruthless. See War Nerd for details.

    Oh sure, things are going to get dicey in both of those countries soon. If you have any real wealth and live in either place; I'd recommend you high-tail it out of there fast! Confiscation of guns or gold or even food can't be ruled out. Especially if war does happen or some National Emergency is declared.

    The Great Game is still afoot.

  28. Anonymous says:

    I still think the idea of not enough cash is absurd.... sorry...

    we have plenty, i mean really plenty, of money printing machines.

  29. Anonymous says:

    "All I see in the future is war."

    Yes, the theme of the future is war...

    But you try to tell these people here that this is the case and they mock and laugh at you...

    They instead think that their actions of hording gold is going to save them...

    Such ignorance!

    Hide your head in the sand people, least you realize your demise...

    And to think you call me the coward...

    It matters not...

    Soon the truth will be reveled...

    And when that time comes none will be able to escape...

  30. Anonymous says:

    numonic is sooo wrong.
    Why would people q for hours for cash when they could go to buy food and stuff with their credit cards????????
    Plain stupid to think that.

  31. Anonymous says:

    "numonic is sooo wrong."

    It's a strange situation we have here with numonic...

    Some are willing to agree with him because he represents a line of reasoning that conforms to the gold bug ideology...

    Some agree because he disagrees with me...

    Others agree because they are ignorant...

    Then there is the very, very, small minority on here that think numonic ideas lack much basis to reality...

    Being that you fit in this small minority your statements falls on deaf ears around here...

    Have a good day...

  32. dashxdr says:

    Why do people get home owners insurance? It is not that in the event of an earthquake there is no pain. After all maybe there is a lot of damage, it will still need to be repaired, there can be a lot of inconvenience.

    No, one has insurance because by not having it, if the house is damaged, a person can be financially wiped out.

    Why does one get bandages and first aid supplies and antiseptics? Not because by having them one can then go out and safely engage in the most reckless, unsafe behaviours without fear of damage.

    No, one has these things because if an accident happens, one is a bit more prepared to stop blood flowing out and prevent infection.

    Why does one put in a supply of long shelf life staple foods? It is not because one knows one can live forever on them and they'll never run out. Rather, it is a means of buying some time. Rather than starving to death in 1 month, one knows one can last 6 months or more, in case the supermarkets run out of food.

    Why does one buy gold or other precious metals? It is not with the expectation that no matter what happens, one will pass through it all with a smile.

    No, it is because in some circumstances NOT having precious metals is equivalent to death.

    It's all a form of insurance.

    There is a certain voice that seems always to be claiming, "Hah! Don't even bother studying for the test, you'll fail it anyway!"

    That voice is an example of flawed thinking. It is from a person who sees only black and white, only extremes. It is a voice that carries no useful information whatsoever.

  33. dashxdr says:

    It is better to have a gun and not need it than need a gun and not have it.

    One could substitute a lot of things for gun. Such as silver, gold, food.

    Suppose I'm in a situation where I can't afford gold, silver, food or guns. I'm royally screwed, and I know it.

    I'd want to take a lot of people down with me too. I'd want not to go to my death alone. I'd do my best to encourage them not to take the preparations that I cannot do. I'd feel better having company in my misery.

    Or perhaps I wouldn't behave that way. Such an attitude would be a bit too immoral for me. But that's just me.

  34. fantastic work! Thank you to share your insight with us.

  35. Anonymous says:



    Calling me a psychopath wont change the fact of what will come...

    I mean you claim to be an American...

    Yet you are totally oblivious to the new marshall laws that are in effect that were supported by FEMA and Homeland Security?

    They have tested the publics response to these new by bring in the military of small towns to keep peace...

    This is just one example of how the government is changing the rules...

    So that they can harm the citizen without breaking the law...

    For a person who claims to have a lot of knowledge in life you seem rather...

    I don't know...


  36. dashxdr says:

    I think Eric's practice of announcing his big article coming soon is part of his way of motivating himself.

    I think our correct response is, "Ooh! Ooh! Eric hurry up, I want it I want it I want it!!!"

    If Eric doesn't get it done it's our fault for not pushing him enough.

    It's hard to maintain motivation. I speak from experience...

  37. Numonic says:

    Anonymous said...

    "numonic is sooo wrong.
    Why would people q for hours for cash when they could go to buy food and stuff with their credit cards????????
    Plain stupid to think that."

    People don't read, I said...

    "What will cause the end to electronic transactions is the fact that the companies that operate and maintain those electronic transactions will be going broke like everyone else due to the extreme rise in prices. And it will be too costly to maintain the machines used to make these electronic transactions. And this is how the electronic transactions will end."

    The demand for physical cash will snowball. First it will start off because of day to day transactions that causes the default and end of the seigniorage and then it will grow because of 1. the rise in prices due to the end of the seigniorage causing more physical cash to have to be withdrawn and 2. the rise in demand for physical cash due to machines not working because it becomes to costly to maintain. It will be a third world country situation. The electricity and network for the machines we take for granted will become to costly to maintain. You don't see third world countries with all these high tech gadgets. You see them with faulty generators that can only run a couple hours a day, if they're lucky.

  38. Tolling says:

    Wow!!, reading the comments of the various blogers has degenerated into a name call fiasco. What difference the cause of the collapse of the dollar and the rise in the price of gold? The fact is that the faux dollars are inflating out of existence and as always the people will return to something of real value ie gold and silver. As has happened EVERY time this has happened in past history there will be social upheaval and those that are prepared will stand a better chance of survival than those that don't! So, do you hold gold and silver or don't you?

  39. Numonic says:

    Whoa! 9 banks "failed" today! That's the most in a single day since I don't know when, probably since the S&L; Crisis. 7 failed last Friday. These bank failures are picking up.

  40. Anonymous says:

    There are 1990 pages in the health care bill with 400,000 words.
    Just go read a few pages of that.
    It will make you think...
    Check out the cap and trade bill.

  41. Anonymous says:

    I just knew this Gold conversation would lead to Obamanomics and maybe it should. I have read his administration is intentionally debasing the dollar so he can pay back the debt with cheaper dollars. Do not be fooled by this man - check the Bio's of his hand-picked 32 Czars. He is determined through his distorted political beliefs to take this great Country down.
    Make no mistake. We're now in the middle of a bloodless coup - the takeover of an entire nation by the hate-America crowd - a cold-blooded gang that despises American's prosperity, our standing in the world, our trust in God and our generosity and goodness.
    ACT NOW !

  42. Anonymous says:

    this is a nice summation of the salient issues in gold at the add to the data thunder road published an interesting article on the fractional basis of gold trading in london....not good ratios for those who think that they own gold....

    as for the 'tard who compared gold to first class postage, all serious gold analysts understand that gold prices have been severely suppressed over the past 28 years and indeed this was the point of the article...please buy a crow bar to remove your head from your rectum...

  43. c0rundumb0y says:

    Although Robert made a fair sounding point about gold being bought on the black market at a higher price to keep Comex afloat, and that it would seem this can continue indefinitely, it's not likely to persist very long in practice.

    This would effectively be permanent backwardation, and the consequence is that all offers of gold, black market or otherwise, will be withdrawn when the realization sets in that the physical gold cannot be recovered at that price, no matter what the price differential 'gain' happens to be.

    If you had a few kilos of gold, and you knew you could not obtain any more at market prices, but you also knew selling it now would give you 25% or 50% markup on the market price, would you sell now, knowing the situation isn't going to improve?

    The black market also needs to source the gold somehow and faces the same dilemma - they need to get it cheaply enough to merit the markup. Their offers will be withdrawn seeking ever higher prices, until the offers cease completely. There is no other reasonable outcome.

  44. Anonymous says:

    Sorry if this was mentioned above, I'm new to the gold market (and too lazy to read all the posts above), but a few articles say that those in the know are watching the December futures contract, why is this contract so significant? And if it is, at what date would you expect to see something significant happen? Also, can someone please tell me what the difference in the Comex stats for gold and silver in the ounces under "registered" and "eligible" categories. Is registered a better gauge of what they actually have? Thanks

  45. JimH says:

    someone posted a comment about not getting excited as gold price increase has matched the price rise of a US postage stamp first class. First, that assumes that all things are equal. The cost of a stamp is to cover the cost (not make any profit) of the operations of the US post office. I think everyone will agree that there have been very large increases in productivity in businesses due to computers and information technology as well as continued increases in fuel efficiency since they do a lot of driving etc...

    I think those items apply more to the post office than the gold price, which hasn't really seen any changes in the operation or the refining of ores in a long time. Roughly the same amount of gold is produced from the same amount of raw ore as was done in 1980. CPU's, fuel efficiency, etc... have done more to lower costs at the USPS than at gold companies. Its not an apples to apples comparison.

  46. JimH says:

    As to whether the dollar will collapse, well, it won't. No one else wants to be the reserve currency and the obligations that go along with that issue. While the dollar is going down and will continue to go down for a while, I don't think it will completely collapse and disappear. But a 15-25% per year devaluation over a decade is certainly on the table. That's an amount that allows the current unfunded liabilities of the govt to be manageable with the inflated dollar tax receipts.

  47. dashxdr says:

    As to whether the dollar will collapse, well, it won't.

    Well, I'm convinced. Your logic is irrefutable.

    Wait a minute, there was no logic, just your personal opinion.


  48. Anonymous says:

    Gold is the only real form of money and is about to prove it again. Get as much as you can find and keep it for WTSHTF. One day the dollar will once again become what it's really worth. Zero.

  49. Numonic says:

    The 9 bank failures this past Friday will cost the FDIC $2.5 billion. Last week I read the FDIC had around $7 billion. So they now have under $5 billion. At this rate the FDIC will be bankrupt before the end of the year. The dollar may not see 2010.

  50. dashxdr says:

    The dollar may not see 2010.

    Well that's a bit of a stretch, don't you think?

    FDIC'll just get bailed out also. 5 billion? Peanuts, these days.

  51. Numonic says:

    We'll see. But if it were really that easy to refill the FDICs coffers it wouldn't be running this low in the first place. But like I said, we'll see.

  52. dashxdr says:

    it wouldn't be running this low in the first place

    A bailout of FDIC is a major bad publicity event. The powers that be don't know what the public reaction would be.

    Clearly it is de-facto already bailed out, but the public can pretend that the system is still working...

    Lately I've been considering that perhaps the general public is complicit in the burial of truth. All they want is a lie that is even slightly plausable, so they can say, "Whew! Everything's ok..."

  53. Numonic says:

    dash, if it is de facto already bailed out are you saying it has already been bailed out and is about to run out of all it's bailout money?

    I'm thinking about the plan the FDIC has to shore up funds by pulling insurance fees from banks 3 years in advance and I find it funny as I imagine Sheila Bair saying to herself "you banks aren't going to need the money anyway because well before 3 years there will be no insurance." They are just stalling the inevitable.

    What makes it worse for them is that "As of June 30th FDIC insured institutions held more than $1.3 Trillion in liquid balances, or 22% more than they did a year ago. "

    Can you believe after all this recessionary pressure bank accounts are still growing?! Granted it might be because of the move out of variable assets(like stocks) to liquid steady ones(such as a savings account) but regardless of reason, there are more accounts for the FDIC to insure than there was last year.

    I'm telling you it's about to hit the fan.

  54. Numonic says:

    Okay when I made that quote about the liquid balance banks had, I got it from this video

    but now that i watch it again, the guy is talking about the base money the banks have, not the amount of insured accounts the banks have.

    But anyway even though the base money has increased, it doesn't matter much because if the base money was enough to shore up the banks, the FDICs funds would not be running low, in fact all the banks with low reserves would have to do is sell assets to other banks with more than adequate reserves instead of having the FDIC come in and facilitate that very same thing.

    I mean look at the double speak the FDIC is spewing. First it says it is having trouble finding buyers for these failed banks and now it is saying that the banks are well capitalized to pay a 3 year advance of insurance fees.

    Come on, the banks are done. It's about to hit the fan.

  55. dashxdr says:

    It's all doublespeak, delaying tactics, noise.

    Healthcare is a distraction.

    Ron Paul's Audit The Fed bill is a distraction, some false hope people are waiting for instead of taking any action.

    Ted Butler constantly complaining about how CFTC needs to control the futures markets, how Real Soon Now this new guy in charge might impose position limits. Great, Ted, if he does, it will be on the long side, not on the short side.

    The TARP funds, 800 billion -- that was just cover. OK, the Fed is going to be pouring money all over the place, we need to lull people into thinking this is condoned by congress. What a joke! The Fed has probably trillions and trillions more in play.

    Gold at fort knox? It's all gone. Sold off long ago.

    Audit the Fed? Impossible. Take inventory of US gold holdings? Impossible. Truly investigate COMEX? Impossible. Because we already know the answer.

    It's all rotten to the core. Why do we keep deluding ourselves that the system can be fixed?

    The whole existence of FDIC is just a pacifier, making people think there is a mechanism in place to prevent bank runs. To hide the real mechanism. The printing press...

  56. Tyrone says:

    Some interesting thoughts from Mauldin:

    Catching Argentinian Disease
    "Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in the sense that it cannot occur without a fundamental malfunction of a country's political economy."
    Ferguson pointed out in the quotes above that hyperinflation is always and everywhere a political decision. Governments have to choose to print money. In theory and in practice, what would happen if the Fed decided to accommodate a politicized US government that wanted to spend money on favorite projects and support groups, maybe even deserving programs like health care or defense or pensions or Social Security? Money they could not borrow?
    For the record, I do not think the US will experience hyperinflation as long as the Fed maintains its independence. Read the speeches from various Fed governors and regional presidents. These are strong personalities, and they understand that going down that path ends in massive tears. Bernanke warned just a few weeks ago that the government needs to get serious about the fiscal deficit. Watch the rhetoric from the Fed heat up after his reconfirmation and the confirmation of two new governors in the first quarter.

    The Fed has committed to buy a fixed amount of government debt in its quantitative easing program. That commitment will be finished by the end of the first quarter (if I remember correctly). Then comes the tricky part.

  57. Pohon Bodhi says:

    "hyperinflation is a political phenomenon"

    Well, this one makes sense to me.. As long as it suit the major gameplan of the elite (banksters), hyperinflation can happened anywhere.

    But before the geopolitical situation all being put in the puzzle, the dollar will still be fine. Nobody can harm it, before Big Brothers said so.

  58. john says:

    If the gold market does collapse, as Eric suggests, where will that leave all the holders of physical gold and silver, ETF's, futures, trinkets etc? Bust?

  59. Robert says:


    Although superior to fiat currencies - I'm concerned about owning physical gold - for many reasons.

    Should the dollar hyper-inflate, the US gov't will have to declare national bankruptcy - and start over with a new dollar. With the scope of Washington's responsibilities dramatically reduced (calling navy ships home to port - cutting entitlements etc) the little gold available just may serve as a valid psychological anchor for the "new dollar".

    Expect the US Gov't to understand this point and act quickly.

    This makes private ownership of physical gold once-again vulnerable to gov't confiscation laws like in 1933.

    And so it goes like this:

    1: The number of bullion agents having their own vaults is rare. Most just rent space at major banks - making gov't confiscation in times of crisis easy to do. You physical gold usually isn't in some volcano island in the Caribbean.

    2: Even in a private or overseas major bank vault - the US gov't could call the ECB during a crisis and say "If you want to see the US get back on its feet as an export market for your Mercedes & BMW's - play ball with us as we recover from our dollar fiasco - and confiscate all gold bullion accounts of US nationals held in your vaults".

    3: Even if you take personal possession of certified gold bars - once they leave the major vault system - they will require re-certification to prove they haven't been tampered with. Gov't confiscation could happen at this time too.

    4: Krugerrands are great in the sense that there is no other metal - except uranium - that weighs as much. Matched with the known dimensions of the coin's thickness & diameter - it can't be fudged.

    But major banks - the only ones likely to survive your meltdown scenario (no pun intended) do not redeem Krugerrands. So you're at the mercy of private coin dealers - or the gold souk in Dubai.

    5: Its quite unlikely that such private dealers will redeem gold coins at $ 3000 /oz or whatever it will trade during & after a crisis - since they can't be sure they'll earn back their cash later. Remember "buy low - sell high"? You'd be asking them to do the reverse.

    If you think your going to cash in your gold hoard at hyper inflated prices with a private dealer (along with the rest of the world) and buy that dream getaway home in the Bahamas - well - does life ever work out that way?

    6: My read is this - as soon as the dollar and gold bullion market collapse - the European - Mid East & Chinese economies will - the very next day - discover the need for both banking services and viable currencies.

    Their gov'ts will do what ever is required (bank & industry nationalization etc) to effect a viable currency in short order.

    Those gov'ts with physical gold in their vaults (Germany, Beijing, Abu Dhabi) will survive - and eventually emerge with the key currencies.

    But you can forget investing in Renminbi unless you live in Hong Kong and can prove residency. The only other means is via a currency broker - who'm would be first in line to go bankrupt in such a crisis.

    7: My experiences in this life have shown me that when you plan for doomsday scenarios - you can paint yourself into some pretty odd corners you never expected - should these crisis not occur - or occur in unexpected ways.

    I think we must rely on good old fashioned pragmatic human (and gov't) survival instincts that always tosses friends to the wolves to escape the pack's gnashing teeth.

    Remember "blood is thicker than water" (family trumps friends).

    8: I'm putting all my savings into cash - Euros, Gulf "energy currencies" and will just ride out the storm until those gov'ts with plenty of real gold on hand protect their currencies - and reflate their currencies values to effect commerce.


  60. Robert says:


    Just to show how perverse life can be:

    1: Imagine the simple rumor of gov't gold confiscation - causing private gold dealers to suddenly start dumping the stuff to avoid getting caught flat-footed.

    And even if they didn't - the fact is that rumors will be rife during such a crisis - and there is simply no way to predict human behavior in circumstances like this. But you CAN predict it won't be pretty.

    2: Historically - confiscation laws never resulted in actual confiscation - just the freezing of buying & selling.

    But that would be enough.

    3: Gold will play a huge role in the post cataclysm - but in a central - governmentally controlled role - that few of us will be able to cash-in on.

    4: I think we just need to let the government's basic instincts work FOR us - instead of AGAINST us.

    Let them confiscate - freeze - whatever they want to.

    Governments with gold will soon reflate their currencies - and we'll be off an running again - when the smoke clears.

    Except some of us will be riding different horses.


  61. Anonymous says:

    If there was one thing Obama said that was true about the capital markets in the United States is that they are deep...I believe that was the word that he used.

    The "demise of the dollar" is a horse and pony show as "the dollar" is a figment of our collective imaginations anyway, just like all other fiat currencies (an oxymoron at best)...lets call it a public fiat exchange system or PUFEX.
    The name of the game is power grab and the only way to do this is to outsmart your opponent. In the civilized world, we don't have wars against major nations, however, we do flex our muscles in smaller arenas and dictate to other sovereign nations whether they can have nuclear weapons under the guise of protecting Israel but really its to keep the balance of power the status quo and its actually a smart until recently the status quo was pretty good eats for the Western World. Then in steps free market China and becoming self sufficient India.
    Now we have two countries that have a population of nearly 3 billion or half the world...if all the Dollar Demise crowd realizes that over half the world's population uses a currency that is directly or indirectly / partially pegged to the US Dollar including China and SAR's Hong Kong and Macao, India, Thailand, parts of South America, the Caribbean, Middle East, etc.
    How or why is the dollar going to shrivel up and die?
    The dollar isn't dying anytime soon at least not while most of us are alive, its not even at a low compared to the pound or the euro...for years at the height of the British Empire, the Pound was $4.80 and then for decades before we went on a floating exchange rate it was $2.40 and now its $1.60...does that sound like a dead or dying dollar?
    The Australian dollar used to trade at $1.20 to $ 91c...
    In fact over history the dollar is a damn strong currency and in fact in recent times its been extremely strong (early 2000's). Right now countries are afraid to own dollars as they are losing a bit on the exchange rate...If they go up more they will need more dollars to purchase...meanwhile the US Fed is buying up our own bonds and the dollar is losing some of its value as a result. Think about this...all financially traded commodities, currencies and equities trade at generational highs and lows...the dollar is just in a bottoming cycle before it starts a multi year strong up trend...and guess what they are all panicking and selling at lows...meanwhile the US Govt is buying up lots of dollar denominated instruments.
    Personally since everyone is negative - so negative - I use this as a contrarian indicator that the United States will pull yet another rabbit out of Uncle Sam's hat and as a country and world power, we will come out of this stronger.
    Eventually, all those countries that lightened up on their dollar reserves will realize they should have been buying more at the lows - just like equity investing where the best long term investors continue purchases when the market is down or even better double up. Look at all the equities that have doubled, tripled and quadrupled + in the past several months.
    When the value scale tips in the dollars' favor at 110-120 all those countries that panicked too late and sold their dollar reserves, will be buying them back...
    Remember, all those other currencies are also PUFEX - Public Fiat Exchange.
    China is young at capitalism, so they are making a rookie mistake getting rid of dollars at the lows...
    Most of it is all just stupid propaganda to keep your eye off the hand while that hand takes the ball out of the cup that you pick...time after time.
    I always say know the details but watch the hand. You get wrapped up in the details while that hand is in your pockets.

  62. saso says:


    You wrote that you bought a lot of physical silver - mainly (90% silver dimes and 1 oz rounds.
    It says that dimes are made mainly from copper if they were minted after 1966.Why did you buy them?
    I'm new to gold and silver investing and I want to find the best way to buy it.Any suggestions are wellome.
    Thanks, regards Saso

  63. Numonic says:

    _ only get the 90% silver dimes of 1964 and older. Those dimes are 90% silver. I believe the ones after that to a certain date is 40% silver. Those are probably the ones you are talking about that are mainly copper. I don't buy those. I only buy 90% silver or more. 90% silver coins are as they are called 90% silver and 10% copper. The majority of the coin is silver. I got it because, in hyperinflation having the smallest denominations of silver is the best. At one time I was thinking of getting silver grains(as they can be even smaller weight than a 90% silver dime) but someone told me something that persuaded me not to get it. I have to re-think it though.

    The only confiscation that make sense to keep the dollar alive longer is Federal Reserve Note confiscation and it's going on right now. And will continue to grow.

  64. Numonic says:

    Well I've said what I've said. And everyone who has tried to refute my logic I have replied to with a reasonable response. If there are any other questions about how I come to the conclusion of saying the base of all hyperinflations are a shortage of hard(physical) currency then please by all means ask.

    Milton Friedman and Neil Fergusan and every economist I've come across is wrong.

    I can't believe I'm really the only one saying what I'm saying.

    I probably should take advantage of this and publicize what I'm saying so that when it happens I'll be famous.

    But then again, it's been happening in every hyperinflation and yet there's no one except for me that knows it and there is this mass false assumption that printing is what causes hyperinflation.

    I admit some of the things I've said in the past(many months ago) are wrong but my conclusion today is solid. Maybe I'm just ahead of my time. I'm the type of person that is always thinking and questioning, trying to make sense of things. It took allot of thinking, questioning and research to get to my conclusion.

    Like for instance, a simple question is, do banks need any physical cash in the bank to make loans? The answer is NO. Loans are done electronically(regardless if there are reserve requirements or not). So when people say the reason for the bailouts is to help banks make more loans, that is false.

    The end of the US dollar's seigniorage is very near.

  65. Numonic says:

    The only way the currency can loose it's seigniorage totally is by defaulting on it's obligations(which are FDIC insured savings and checking accounts.) The only way the currency can loose it's seigniorage through loans is if there were so much loaned out money chasing cotton and linen on the market that it brought the price of 1 gram of cotton and linen to $100. As easy as credit can get, i don't think they'd make so many loans that the world would run out of cotton-linen. Besides if the world were about to run out of cotton and linen it would run out of allot of other things first, being that there are allot of other things more rare than cotton and linen. Why is cotton and linen so much cheaper than other things on the market? because it's abundant. So it's practically impossible for the US dollar to loose it's seigniorage through loans. And hyperinflation is end of a currency's seigniorage. So those who tell you that hyperinflation will come through massive loans from the banks are wrong. I'm not even mentioning the fact that they want to save the currency not destroy it. And on top of that, you really think the banks can create so much wealth through loans without running in to the problem of meeting the demands of newly created depositors who wish to withdraw the physical currency from time to time like we always do? Do you consider the fact that as the banks are increasing loans, they are also increasing the number of insured bank accounts they have and also increasing the number of transactions done with physical cash(even though the percentage of those transactions are minor compared to transactions done electronically the number not the percentage grows). You really think if there was a race between people buying up all the cotton and linen in the world with the massive loans and the default on depositors who wish to withdraw cash due to the increased ratio of money spent on the minor transactions to the amount of physical cash in circulation that the buying up of all the cotton and linen in the world will come first?

  66. Numonic says:

    The irony is that anytime I bring up the banks having a shortage of physical cash, some people say, why would there be such a rush to physical cash(even though that's not what I was saying) but then those same people believe that there's going to be this huge rush to cotton and linen through the massive loans. The very same thing they falsely accuse me of, they themselves say is going to happen but only in a slightly different way. Instead of rushing the to cotton and linen with ink writing on it(The Federal Reserve Note) they believe people will rush to the cotton and linen without ink writing on it(cotton and linen on the market) which will cause the price of cotton and linen to rise sky high, high enough to bring it's value equal to it's weight in a $100 Federal Reserve Note(meaning 1 gram of cotton and linen will be $100).

    I hope you guys understand what I am saying. These guys ridicule me for saying there is going to be a shortage of Federal Reserve Notes but at the same time these people say there's going to be a shortage of cotton and linen. Now tell me, what's more rare, Federal Reserve Notes or the amount of cotton and linen in the world. Obviously it's the former. There will be a shortage of Federal Reserve Notes, well before there is a shortage of cotton and linen. So there is no way there can be a loss of seigniorage through loans/spending. Only through a failure to meet obligations. And on top of that, why would there be a rush to cotton and linen, especially enough to cause there be be a shortage? The irony. If you believe there is going to be hyperinflation through loans(hyperinflation is the loss of seigniorage) then you are saying that there is going to be a massive rush to cotton and linen on the market with the loaned out money. That's ridiculous.

    Also why do people assume that banks will loose control of the loans they make? Especially during this time where loans are so tight. The banks have control of loans. If they see loans growing too much, they'll just decrease loans like they are doing right now. On top of that it is neither in the banks, Fed nor govt.'s interest to destroy the dollar, on the contrary they are doing everything they can to save it.

    I'm telling you as soon as FDIC's funds dry up it's all over. And that will more likely happen before the end of this year.

  67. Numonic says:

    Do people understand the meaning of the word "crash"? Does a crash happen overtime or does it happen instantly. The answer is the latter. Looking at the value of the dollar today is no way to tell whether the dollar is headed to crash or not. Forget about the dollar index. It means nothing. Look at FDIC funds. It means more.

    Hyperinflation is NOT a choice. Get that crap out of your head. Hyperinflation happens because the banks can no longer meet their obligations. Hyperinflation happens because of a shortage of physical currency. Hyperinflation is the end of the currency's seigniorage.

  68. Anonymous says:


    I have to say...

    You're statements are pure gold...

    You are the only one that I seen here to truly understand not only the gravity of the situation we face when the dollar collapses...

    But also the possible consequences to be played out...

    I appreciate your voice here...

    Really I do...

  69. Chicken says:

    Neumonic - I'm confused and weary reading the long posts you write. I think you said the dollar will be in short supply.

    If so, I think not, the Chinese Yuan will be in short supply and the $USD will be in abundant supply.


  70. dashxdr says:

    Numonic said:

    Hyperinflation happens because of a shortage of physical currency

    How do you explain the wheelbarrows full of paper currencies, in these 3 instances of hyperinflation?

    1) Confederate dollar collapse
    2) Weimar German mark collapse
    3) Zimbabwe

    These are anything but shortages. Rather, there is an abundance of paper.

  71. dashxdr says:


    Interesting theory about gold.

    But I don't agree with it. I'll stick with my precious metals. You can stick with your hoard of paper.

  72. Chicken says:

    dashxdr - The problem I see with gold is if in fact Chinese are buying it now and have been, then as the Yuan appreciates, the Chinese will likely be trading out of gold and into Yuan.

    I think the Yuan will become the stronger of all currencies in terms of gain, it is the most undervalued due to the PEG.

  73. Numonic says:

    How can the Chinese Yuan be in short supply before the US dollar. Which currency has more deposit insurance obligations? The US dollar.

  74. Numonic says:

    Dash obviously you don't read all of what I write. It's understandable, my writings are quite long but I've explained what you brought up.

    To quote what i said in the "Results of Hyperinflation" blog...

    "Many people will try to refute this by pointing out the enormous amounts of printed currency during these hyperinflations but my view is that those enormous amounts of printed currency are effects of the rise in prices not causes. I've explained it before that in a banking system there will always be a small number of transactions that use physical cash, and if the prices of those small transactions are sky high, there will be people withdrawing the amount of physical cash to pay for it. Meaning if someone usually uses physical cash to buy a loaf of bread, if the price of the loaf of bread rises to a million dollars, then those people will withdraw a million dollars in physical cash to pay for that loaf of bread."

    You look at the wheelbarrows of money and assume the wheelbarrows of money came before the rise in prices and I'm telling you it's the other way round. The rise in prices came before the wheelbarrows of money. And it came because of a default on the obligations of the bank.

    Go re-read my reply in that "results of hyperinflation" blog and read the articles Eric posted, there is evidence all over those articles clearly stating that there was a shortage of the physical currency despite the massive amounts of currency that was floating around. The supply is relative to prices. Just because you see wheelbarrows of cash doesn't mean there is too much cash, you have to look at prices. Prices could be many times higher than the amount of physical cash circulating. And that is in fact what was happening. Re-read Eric's blogs about hyperinflation and you will see that prices were rising way more than the govt. was printing the money.

  75. Anonymous says:


    I think it is unfair to characterize what he is saying as you should "horde paper"...

    As a matter of fact he is stating that gold is a good thing for those governments that have it...

    However, for those that don't (likely the US is one of them) the citizens will have to pony up their gold...

    Which he believes is a good thing...

    I agree that it is a good thing...

    But people like you dashxdr wont see the need or the common good for our society in doing something like that...

  76. Anonymous says:


    When I say "he" dashxdr, I mean Robert...

  77. dashxdr says:


    Either way, I won't be holding onto dollars or other paper currency.

    I expect a grand flip where suddenly gold is money again.

    Good chance China might declare the Yuan can be exchanged for gold at a fixed rate, therefore it is now gold backed.

    All this negative misinformation about gold is informative. Sounds like PANIC at COMEX, NYMEX, etc.

  78. Numonic says:

    There is no logical reason for the govt. to confiscate gold. The currency is not made of gold, the currency is made of cotton-linen. And let me point out that when the govt. did confiscate gold in 1933, it wasn't gold that they were confiscating it was the currency. It was the Minted St gaudens coins they were confiscating, not gold itself. There was a shortage of the currency, although there was also a shortage of the metal(but not in the US). It's the same issue today except there is only a shortage of the currency not the commodity used to make the currency(cotton-linen). So if there is going to be any confiscation it will be of Federal Reserve Notes. It makes no sense to confiscate gold. If anything they'll try to flood the market with more gold to keep the price down(if they have any left).

    As far has how other currencies will do, well it seems most currencies have the same problem. Allot of them are doing Quantitative Easing, which means they too have a shortage of their physical currency. The ones that aren't doing QE like China well they have an abundance of physical currency in relation to their obligations so their currency may retain it's seigniorage. I'm still not sure how those currencies with a higher supply pf physical currency to obligations will play out when so many other currencies in the opposite position collapse. But I know that I'm in a country where the currency is about to collapse and when a curreny collapses it returns to it's intrinsic value. So I'm making a choice based on instrinsic value, especially since there are more currencies that are about to collapse than there are currencies that won't collapse. You have so few choices with currencies that may not collapse, but there are so many currencies about to collapse, meaning the majority of wealth will move to things of intrinsic value rather than things with seigniorage. So it's safer and more profitable to go with the intrinsic value than the seigniorage play.

    But even China's currency may depreciate due to the fact that there may be too much demand from China and not enough goods to meet that demand. Especially if the rest of the world isn't ready to produce for them.

    So China's currency may appreciate against a bunch of other currencies but it will also be depreciating against things. Which means it will be depreciating the slowest among the currencies. It will be the last looser which is the position the US played as the world was going off the gold standard. The US was the last looser, it held the most gold, just as China today holds the most reserves of it's currency so it will be the last looser. So silver and gold and many other things will be appreciating in value against the Chinese Yuan, although slower than they will against other currencies but nonetheless the Yuan will be depreciating, only at a slower pace. So your choices are things that will depreciate(US dollar), things that will depreciate slower than the US dollar(Yuan) and things that will appreciate(Gold silver and everything other than the currencies). I choose the things that will appreciate.

  79. Numonic says:

    dash i doubt China will back their currency with gold. After all these currencies collapse, there will be a rush to physical gold and China will not have enough gold to back it's currency with gold. So doing so would only cause them to default on their promises. It's better for them to keep the paper play, they hardly have any obligations for their currency. Backing the currency with gold would only be returning to the restrictions they've been living with for the past decades. They are going to be the ones consuming, just as the US did after we went off the gold standard. China was technically on a gold standard these past years with all it's credit restrictions and high reserve ratios. It will leave that and become the consumer and those lending restrictions and reserve rations will be removed. China is the US of 1933. It is getting off it's gold standard which is it's high reserve ratios and credit restrictions and it is about to move from major producer to major consumer. It's currency will appreciate against other currencies but it will be depreciating against things.

  80. Chicken says:

    China is in trouble, the only thing keeping their undervalued currency (~40%) from appreciating is the peg.

    Gold is money, always has been and always will be real money. But that doesn't mean it's the only form of money. One competing form of money is the Yuan, which is set to appreciate dramatically when the peg is relaxed.

    So please don't consider what I have to say, because it makes no sense, right?

  81. Numonic says:

    China's currency will appreciate against other collapsing currencies but it will depreciate against all things. So you'll see China's currency go up in value on the currency index but prices of things will be rising against China's currency. So basically China's currency will be depreciating but just slower than the other currencies are depreciating. Which is what US' currency did during the Great Depression and when we went off the gold standard. China's currency is only undervalued if you believe the other currencies will collapse. China's currency is not undervalued, it shares the same outrageously large seigniorage as every other paper currency. China's currency is still only just a piece of paper(cotton-linen) i believe. It will retain this seigniorage until it fails to meet it's bank deposit obligations. Luckily for China it's physical currency to bank obligation ratio is high so it's seigniorage has some time before it meets default. Hell China's currency may very well be the new reserve currency, but I'm not taking my chances. I know the dollar will collapse and in a collapse the currency returns to it's intrinsic value so holding the precious metals is a sure bet. If I at least protect my savings, I'll be happy, if the Yuan becomes a better investment than gold and silver, i won't be mad that i missed out, but I'm almost positive that gold and silver will be the best investments to be in when so many currencies collapse. I'm positive that gold and silver will be appreciating against even the currencies that don't collapse(i.e. Yuan). China's going to be spending, why should the Yuan appreciate against things? Who is going to be producing for China? No one. Everyone else that let there manufacturing sector collect dust over these past decades will be busy trying to produce for themselves before they can produce for others.

  82. Anonymous says:

    @dashxdr & Numonic

    I realize this these ideas are hard for you to swallow, but history shows that it happens again and again...

    Case in point:

    After the Billionaires Plundered Alabama Town, Troops Were Called in ... Illegally

    You think true freedom will come after the collapse of the dollar and are betting on amassing wealth...

    But the truth could be vastly different from your dream...

  83. Anonymous says:

    @dashxdr & Numonic

    Page one of the story is here:

    After the Billionaires Plundered Alabama Town, Troops Were Called in ... Illegally

    In the previous post the link was directed to page two...

  84. Anonymous says:

    China Prosecutes Gold Trading Frauds
    In Wall Street Journal

  85. Numonic says:

    dave, going back to your question of martial law. I would consider legal tender laws and the govt. monopoly of the monetary system a form of martial law. So we've had martial law for a long time and that martial law is about to end.

    I'm making the call, the dollar will collapse before the end of this year. As soon as FDIC funds dry up, the dollar will collapse. If I'm wrong about the timing, then whatever but I'm making the call, the dollar will not see 2010.

  86. Anonymous says:

    Wow, that is a bold statement...

  87. dashxdr says:


    China can set the exchange rate between Yuan and gold at whatever they care to defend.

    By stating that Yuan can be exchanged for gold at a fixed, constant rate, people will flock to the Yuan and away from dollars.

    The rate does not have to correspond to what Yuan:gold is today, or what Dollar:gold and Yuan:dollar are today.


    Give it a rest. We get it. Big bad boogey man government will crush us all. It's all hopeless. Blah blah blah.

    Since I can't prepare for such an eventuality, it doesn't need to enter my thinking. Just as I can't prepare for the sun going nova, I don't need to consider it in my planning.

  88. Numonic says:

    Anonymous that article about Billionaires plundering Alabama town seems like some anti-capitalist site, blaming the rich for what recession. Also if there are still billionaires, then you can't use that article as an example as I am talking about a case where the currency has collapsed. In that article they mention there was not enough money to pay for local police, when the currency collapses, there won't be enough money to pay for the army either. So the currency collapse means an end to the army.

    Granted I didn't read the entire article but I think i did a fair assessment.

  89. dashxdr says:


    I think regarding FDIC funds the running total of remaining funds is itself a fiction.

    Seems like 30+ billion has been squeezed out of that last 11 billion they had at their disposal.

    Perhaps they'll never actually hit 0 or go negative, thanks to creative reporting.

    My prediction? FDIC countdown is just another delaying tactic, just like support for Ron Paul's Audit The Fed bill. People see numbers changing and think there is progress. There is no progress. Just numbers changing.

    The purpose is to keep people thinking that at some inexorably approaching point in the future there will be substantive change. Yet strangely that point seems always to be pushed out a day for every new day that passes...

    Just bow out of the whole system. Get your silver and gold.

  90. Numonic says:

    dash my point is with the added rush to physical gold due to the collapse of many currencies, there will be less gold available in the world for China to peg it's currency to gold. I guess they could probably do 1 gram of gold for every 1,000,000 Yuan, i mean that's how much gold I expect there to be in relation to Yuan. There won't be enough gold to go back to a gold backed currency. Not even with all the monetary restrictions China has been doing over the years. China still has more monetary obligations than there is significant gold to back them. Attempting to do so will cause China to default on it's obligations. It's allot easier to meet those obligation when the currency is made of paper(cotton-linen) than it is with gold. Failing to meet the obligation destroys the currency. China would be foolish to return to a gold backed currency, anyone would. We are about to witness the end of a "backed" currency. The currency will no longer be reserved(lending will end), it will be hoarded by each individual and the martial law of legal tender laws by each nation will no longer be. Nations will have many different mints unlike the way nations work today with only one mint(central bank). There will be many different competing currencies in a single nation. Many mints will open up and those mints will produce the currency. The mint with the lowest seigniorage is the mint people will flock to(as long as they can maintain it's competitiveness). Legal tender laws force the citizens to pay extremely high seigniorage(minting costs) by eliminating competition through force.

    The problem is lending and legal tender laws, eliminating competition through force as apposed to through free market capitalism. Taking a monopoly on a currency puts more burden on those taking the monopoly to produce the currency, as before others were also producing the currency, after legal tender laws, only one mint is producing the currency for the whole nation. If it couldn't compete fairly it will definitely not be able to compete after taking such a burden but of course the only reason for legal tender laws was because the mint imposing such laws is afraid of competition and is lazy and doesn't want to have to compete for supreme seat.

  91. Numonic says:

    dashxdr said...

    "Seems like 30+ billion has been squeezed out of that last 11 billion they had at their disposal."

    Please give me info about this.

  92. Anonymous says:


    "In that article they mention there was not enough money to pay for local police, when the currency collapses, there won't be enough money to pay for the army either. So the currency collapse means an end to the army."

    I hate when people say something like this, because they miss the obvious...

    Even though they may not be able to pay in currency...

    The government sure can pay in food, clothing, shelter, weapons and give rights to the standing army to plunder the citizenry...

    Yet, somehow people remove that idea from their heads...

    I mean it's not like it never happened before in history...


  93. Anonymous says:

    If, and when, it does bust, what would happen to those of us that already have our gold. I have 300 roosters I bought with my mom's life insurance. I'm not rich, so the idea of losing that money is of great concern to me..

  94. Numonic says:

    Anonymous said...

    "Even though they may not be able to pay in currency...

    The government sure can pay in food, clothing, shelter, weapons and give rights to the standing army to plunder the citizenry..."

    When was the last time you saw a bum doing this? How can the govt. pay in food, clothing, shelter, weapons or anything if it is broke? That is the stupidest thing I've ever heard. The govt. is broke but it has everything except money. lol @ give rights to the the standing army to plunder the citizenry. I'd like to see them try to convince people to risk their lives when there is little to no assurance of gain. When people join the army today, there is assurance that they will get paid but when the currency collapses, that assurance is lost. These items you say the govt. holds to buy the army, i have no idea where you get that information from.

  95. Numonic says:

    dashxdr, i still want to know where you get those figures of FDIC squeezing $30 billion when their funds read $11 billion.

    It might be the August 14th date right? I never did know the exact figures of FDIC funds but Mike "mish" shedlock did do an article about FDIC being broke. But I don't think FDIC has spent $30 billion since June which I know is when their Fund was $10 billion. I don't think the bank failures since June have even cost up to $10 billion, i think it has been keeping track and the numbers have been correct. If you have evidence of fudged numbers or math that doesn't add up regarding FDIC funds please let me know.

  96. dashxdr says:


    Regarding the FDIC spending $30B when they only had $11B, those are made up numbers just to illustrate the point.

    It seems like banks are failing regularly, the FDIC funds are being used up, yet strangely they never run out. Down but never out. The amount they have is dwindling, yet as 1/2 is used up, the rate of its declining goes down by 1/2.

    It's just a feeling.

    All government statistics are lies, remember?

  97. Numonic says:

    Yeah but i need the numbers to believe that they are lies. You have to have some math showing that FDIC funds read some number but when adding up the numbers from the reports of how much the FDIC had to spend for the failed banks, the number added up to more than the number the FDIC said it had in funds.

    I gotta have that math in order to make the conclusion that the numbers are lies. Sure the govt. lies but I'm not going to jump to baseless conclusions that all govt. numbers are lies, especially since I think a lower than actual fund reserve number is detrimental to the FDIC. If they are lying, it would make sense for the FDIC to say they have more than they have, not less. But either way I have to see the math.

    I've been following the FDIC funds and bank failures as closely as I could lately and I don't think there is any problems with the math. Sure they haven't totally run out of funds yet but they are running out and the numbers they've spend on bank failures and their funds adds up so far from what I've seen. But I will try to find out definitely the numbers the FDIC has spent total on bank failures these past few years and try to match it up with the funds and see if they match. But I still think the numbers are correct. And I still make the call that the FDIC will be broke before the end of the year and the dollar will not see 2010.

    By the way the rate of decline isn't really going down. 9 banks failed friday(the most in one time since 1991) and 7 the Friday before that.

    I'm telling you the banks are done. The banks got through the last recession because it had reserves to take from, this time they've depleted reserves and have no reserves to take from. The printing press can not handle the job alone. It's over. The FDIC will fail.

  98. Jack W says:

    Nassim Nicholas Taleb talked about the "Black Swan" or the unexpected sudden change. Perhaps when the truth about the obummanista and his fictious birth certificate is finally determined we will see a "Black Swan" effect. If there is a judge, perhaps David O. Carter, that will abide by his oath of office to follow the US Constitution, then we will get the truth about the chief obummanista.

  99. Jack W says:

    Nassim Nicholas Taleb talked about the "Black Swan" or the unexpected sudden change. Perhaps when the truth about the obummanista and his fictious birth certificate is finally determined we will see a "Black Swan" effect. If there is a judge, perhaps David O. Carter, that will abide by his oath of office to follow the US Constitution, then we will get the truth about the chief obummanista.

  100. Numonic says:

    Maybe you're talking about the amount of money being spent on bank failures. Maybe that rate has declined. It had $10 billion in June of 2009, that's down from $45 billion earlier this year I believe, so yeah maybe they have been spending less. You are expecting that that $10 billion should have run out by now as it took a shorter time earlier this year for the FDIC to spend $10 billion.

    I don't know, I'll keep my eyes on the fund and see what happens.

    But I still think this is it, it,s about to hit the fan.

  101. dashxdr says:


    What I mean about declining rate of FDIC is not the rate of bank failures, I'm speaking of the rate of the drawdown of the FDIC pool of money.

    Some time many months ago, the FDIC had something like $50B. Then very quickly that dropped to $11B. We've been having bank failure after bank failure, but they haven't run out of cash.

    Are the banks that fail getting smaller and smaller?

  102. Numonic says:

    Yeah dash I understand what you're saying.

    I don't know, we'll see what happens. Will see how long this $5 billion the FDIC has left stretches out. I don't know though, the fund just lost $1.5 billion this past Friday. Anyway we'll see. It's true that $10 billion they've had since June has come a long way. The rate of draw down of the fund has slowed. But there might be some explanations for this. I'll try to find out.

    On a totally unrelated note I'm disappointed. I just saw a roach crawling on the food at my favorite pizzaria. Needless to say I will never be eating from there again.

  103. Numonic says:

    dash an explanation for the decreased rate in draw down of FDIC funds could be that other forms of bailouts could have increased. Because remember all the FDIC really does is find banks to buy the deficient banks assets and if the banks they find to do this can't give up the amount of physical cash needed, the FDIC fund takes care of that. We gotta consider that the govt. is still borrowing, the Fed is still buying these assets and these two actions might have increased. There was probably an increase in other forms of bailouts for the banks that let the FDIC take a breather. You also gotta consider allot of people have been getting poorer, some unemployment benefits were cut, this is less stress on the banks and FDIC funds. The draw down may be decreasing but the fact is that it is still decreasing and we'll see what happens when it gets to 0. Which I expect to be before this year ends, but we'll see.

  104. Numonic says:

    I meant to say the FDIC fund lost $2.5 billion on Friday, not $1.5 billion.

  105. Robert says:


    The only genuinely-private bullion vault I've ever found was a small outfit in the UK - and only God knows what shape it's in.

    All the others I investigated - from South Africa to Australia - were very cagey about revealing where they stored the stuff.

    Most eventually revealed veiled connections to major banks - all susceptible to gov't intervention.

    Gold is rarely stored on volcano islands in the Caribbean and certainly not by BullionBars-R-Us.Com .

    Nor am I paranoid about confiscation.

    I simply recognize that the RUMOR can shut the doors of panicky private gold dealers - with great harm done to those needing gold redemption during times of crisis.

    I also recognize that the US Treasury will always be run by a poor mix of self-serving former Goldman Sachs heads - backed by an army of uncreative civil servants.

    Remember it was Henry Paulson - then head of Goldman Sachs and future Treasury secretary - who convinced SEC's Harvey Pitt to allow banks to empty their vaults of reserve cash for bad loans - to invest in "safe" derivatives to earn more income.

    And the rest is history.

    The best we can do here is to identify the kind of world these people come from - study their behavior - and understand where their crude self-interests will drive them in times of crises.

    So we need to recognize that Gold is crucial to re-floating decimated currencies - and only governments can do that.

    Even if other - more esoteric - means might work, they won't be appreciated or exploited by the kinds of people working at today's central banks.

    You must go with unsavory crowd currently in power - and understand the kind of levers they're likely to pull.

    Printing money - then confiscating Gold.

    My advice - get out of the dollar since the US has no gold to rebuild it - and get into those currencies that do (Euro).

    Or get into currencies backed by oil in the ground (UAE Dirham / Kuwaiti Dinar).

    US citizens can open non-resident Euro and AED Dirham accounts at National Bank of Abu Dhabi (in person) with just a valid US passport.

    Its a bit of a flight - but its a great way to see this part of the world.


  106. celtic gold says:

    numonic, for christs sake ,get over your self. you would have to be the most ill informed ,egotistical ,blathering halfwit that i have ever had the misfortune to suffer hearing from ,ev er in the history of the net. My god , a while ago you were saying you were the only one who could see the light ,and you should publish and get famous,!!! Do it ,please , i can hear the laughter from here ...australia. that....and your hogwash about the price of cotton and linen because thats what the dollar notes are made of is a riot! . you would be famous alright , like Alfred E Newman is famous ha ha ha ha ha ha im guessing youve got some good crystal meth ...right or your in a nice quiet institution some where , where no body ever laughs at you or tells you to SIT DOWN AND SHUT UP

  107. Anonymous says:

    The Gov't won't have to buy gold to prop up the shorts, it will just confiscate gold, starting with ETF holdings.

    National Emergency, you know....

  108. Brian Clark says:

    The last paragraph of Eric's article contains a hidden gem... The sentence reads "Similarly, there are several claims of ownership on the gold bars in Comex wherehouses."
    That's classic!!
    "WHEREhouses" as in "Where the heck is my gold?"

  109. Numonic says:

    Great constructive criticism Steve. i like how you broke down in detail how all the stuff I've been saying is wrong. You really know how to debate the issues. Are you writing a book? You sure have allot of wisdom. You might want to save some of that wisdom for your book.

  110. Numonic says:

    Dashxdr if you still care to follow, I found a site that list all the bank failures and the damage they each did to the Deposit Insurance Fund. But in it I also found out that the FDIC has a "contingent loss reserve" which on March 31st stood at $28.5 billion.

    The information on the site reads...

    * DIF balance at 3/31 = $13.0 billion
    * Contingent Loss Reserve at 3/31= $28.5 billion (i.e. reserves set aside for current and future losses)
    * Q2 assessments = $8.9 billion ($5.6 billion one-time assessment + $3.3 billion scheduled quarterly assessment)

    That's $50.4 billion of firepower. Since March 31st, we've had new bank failures that will cost an estimated $19.2 billion

    So I did some math. The date the $19.2 billion was posted was August 21st. So on August 21st the FDIC total fund was $31.2 billion. I calculated all the damage the bank failures since then and up to the last bank failures this past Friday(October 30) has done to the DIF fund and the total came out to $7.9 billion. So the FDIC still has $23.3 billion left in it's fund.

    I also found out that from March 31st to June 26th the fund lost nearly $9 billion. So that's $9 billion in about 3 months.

    From June 26th to Aug. 21st the Fund lost $6.9 billion. That's $6.9 billion in 2 months.

    From August 21st to today(Nov. 3) the Fund has lost $7.9 billion. That's $7.9 billion in 2 months

    So the draw down of funds as you can see isn't shrinking. It's steady, actually it might be increasing.

    I'm not sure if there might have been a confusion with you sometimes reading reports including the contingent reserves and others not including it, that made you and other people like myself believe the total funds were as low as $10 billion in June. That figure is not including the contingent reserves. But then again I read that the deposit insurance fund alone was $50 billion 2 years ago. But I think a good explanation for the huge draw down of deposit insurance funds from 2006 to March 2009 is probably the big bank failures(they more than likely got some money from the FDIC, I just don't know the exact numbers yet). I'm trying to see what costs the FDIC had between 2006 and early 2009 that sent it's DIF from $50 billion in 2006 to $13 billion on March 31st 2009.

    But on one hand the FDIC has more funds than we thought but on the other hand currently(since the end of March this year) the rate of draw down hasn't really changed.

    I'll try to find out where that $37 billion in FDIC money went from 2006 to March 2009.

    In light of this new information i've received that the FDIC still has in total $23.3 billion, i recall my call that the dollar will not see 2010, unless there are some bank failure fridays that take 10 billion from the fund. Basically I'm saying the dollar will collapse with the FDIC funds run out. But at the rate the funds are being drawn down, it won't last up to mid 2010. So i can make the call for dollar collapse mid 2010 at latest.

  111. Alan2102 says:

    Why would these chicken-feed sums (23 billion, 37 billion, etc.) be the straw that breaks the dollar's back? Such sums can be drawn out of petty cash, in the world that the big boys play in ($TRILLIONS). No?

  112. Anonymous says:


    You are right...

    But don't try convincing Numo(ro)nic of that...

  113. Anonymous says:

    I have noted some folks here mentioning the possibility of gold confiscation by the US gummint.

    Like virginity, you can only have the benefit of that particular state once... and the US gummint is no longer a virgin in that area.

    Because the US gummint STOLE half the wealth of its honest citizens last time, the citizens will give the gummint the Hawiian Good Luck Symbol when "required" to turn their gold in again.

    The price of gold was $17.06 per ounce when Americans were told they could get a $20 bill for a $20 gold coin. Sounded OK, right?


    Immediately upon getting its citizens to give up their gold, the US gummint DEVALUED the dollar.

    Gold sold for $34.60 per ounce.

    So Americans got $500 in purchasing power for every $1000 in gold they gave to their gummint.

    Look at the numbers, and nod your heads like Muscovy ducks. This is history.

    It will NOT repeat. Folks won't do that again.

    When the gummint says: "Hey! You have to use the stuff we print!" folks will do what the lady in this picture is doing:

    This, again, is history.

    I gotta agree with the guy that says he sees WAR.

    It is inevitable, and it saddens me. BTDT.

  114. Numonic says:

    Actually Dash I think the entire fund including the contingent part was the $50 billion everyone is talking about. There was confusion but it's settled now. The total fund went from $50 billion in 2006 to now $23 billion. So the rate of draw down has been steady if not increasing. Mid 2010 at latest the entire fund will be empty and this is when the dollar will collapse.

  115. Numonic says:

    Alan as far as trillions in bailouts, I have to look in to detail what that really means because the monetary base says different(probably allot are done by trading liquid assets for illiquid ones, but the banks are always in control of whether an asset is liquid or not because increasing lending will increase the return on loans and give the illusion through the ponzi scheme mechanics that the asset is liquid. The banks are the ones responsible for asset prices dropping and rising unemployment because they are decreasing lending. So there is no reason to swap illiquid assets for liquid ones when the banks themselves can create liquid assets by increasing lending. The swapping of illiquid assets for liquid ones is just a cover. The real issue is the fact that the monetary base is increasing and the only reason to increase the monetary base is if the current supply of physical cash is not keeping up with demand. I'm not going to jump to some wild cliched conclusion unless i really understand it first. And one thing for sure that is simple common sense is that the only reason to increase the monetary base(print more physical currency) is because the current supply of physical currency is close to not keeping up with demand. The only reason you cook more food is because the current supply of food is close to not keeping up with demand. That is just simple common sense. On top of that I have proof of how in other hyperinflations there was a shortage of the physical currency. You can ignore that proof but it's there and you can go see it for yourself in the "results of hyperinflation" blog Eric posted. Also another point that is common sense is that the banks don't need any physical cash at all to make loans. The loans are not obligated to be done in physical cash(they can be and are most if not always done electronically) nor are the loans obligated to be made at all. This credit crunch we have right now is proof that the banks are in control of whether or not loans are made. So it is false to say that the bailouts(which are physical cash) are to get banks loaning again or that if the bank get too much physical cash they'll loose control of the loans they make and end up making too many loans. The only thing obligated to be in physical cash is deposit withdrawals at banks. The FDIC promises to get you the physical cash on demand. That is what the FDIC was made for back in 1933. In 1933 the banks didn't run out of the promises for the currency, it ran out of the physical currency itself. The physical currency being the gold coins. The promise for the physical currency being the paper dollars. Today the promise for the currency is our electronic accounts and the physical currency is the paper dollars. The FDIC promises that upon demand we will get those physical dollars. The FDIC continuing to fulfill this promise is why the Federal Reserve Note(US dollar) retains it's seigniorage. Failing to fulfill this promise will cause the FRN(US dollar) to loose it's seigniorage.

  116. Jack W says:

    A federal reserve accounting unit device or f.r.a.u.d. is what we use and mistakenly call a "dollar."

  117. Numonic says:

    FDIC lost $1.5 billion this past Friday with the 5 banks that "failed". Funds are now at $21.8 billion. From costing $9 billion in 3 months, to $7 billion in 2 months to $8 billion in 2 months and with $1.5 billion in one Friday, multiply that by 4 that's $6 billion in one month. The FDIC draw down is getting larger and larger. I know I withdrew my call that the dollar won't see 2010 but if the draw down continues to increase like this, the dollar probably won't see 2010. At a rate of $6 billion per month from now, that only leaves about 3 and a half months. And since the trend is continuously increasing the draw down of FDIC funds, i make the call for dollar collapse no later than the end of January 2010 if it even gets to 2010 at all.

    The source of this whole financial fiasco we are having is the hard currency. It has always been the source in every other financial fiasco and this time is no different.

  118. Jack W says:

    The source of the problem is dishonesty. The dishonesty is the fiat currency/credit system where the Federal Reserve Bank and US Politicians are acting in consort. The problem is not a "hard currency."

  119. saso says:

    thanks for your answer about the coins.I would appreciate if you can tell me how to buy them.
    Regards Saso

  120. Numonic says:

    saso i would suggest finding a local coin shop near you. They may sell some 90% silver coins. Considering you live in the USA. The best way is to go online first and lookup all the near by coin shops and then give them a call.

    Jack W, dishonesty may have played a role but it was only minor. Legal Tender laws played a much larger role as it was a gift and a curse to the authorities. The gift of legal tender laws is that it eliminated competition through force allowing the authorities to charge as much as they wanted for their services without risking loosing customers but the curse is that now by eliminating competition the burden of servicing everyone in the nation was put on themselves, where as had there been competition some of the burden could have been put on other mints. This burden of servicing everyone is becoming too much to bear. The physical currency is being stretched too thin because the demand for the physical currency is growing larger than there is supply to meet that demand. We are fast approaching that moment when they finally fail to meet the demand. January 2010 the Federal Reserve Note seigniorage will end.

  121. Jack W says:

    Numonic, the legal tender “laws” were dishonest. As G. Edward Griffin mentions in “The Creature from Jekyll Island, legal tender laws are necessary to force men to accept fiat currency, no law is needed to force men to accept gold or silver coins (not an exact quote but pretty close).
    The use of force is dishonest. Fiat currency is seductive for sure. I do agree that the “chickens are coming home to roost” and there are penalties for politicians who impose their unethical beliefs. Judges, too, such as David Carter, are guilty, re: the birth certificate issue. January 2010 collapse? Hum? Don’t know. My relatives are not prepared for a “Day of Reckoning.” The f.r.a.u.ds (federal reserve accounting unit devices) are just uncertain promises to “pay” and indeterminate sum at an unknown time. History of course shows fiat currencies all end poorly. The majority of people just can’t learn this simple truth.

  122. RJM11 says:

    Great comments on this site!

    Having waded through most from the last 10 days, and from a seemingly different perspective, I think everyone is saying the same thing. Consider that the varying viewpoints are at each located at a different spoke on the wheel. Each is complete and very valid for that spoke, and yet appears very differently from the spoke next door. And, each viewpoint or spoke is connected at the center or hub of their respective wheel, which is nested within larger wheels, etc.

    Currently, we are experiencing the turning of a great wheel...the wheel of power, relationship to power and the administration of power. Power has always been administrated from the center or hub outwards. It was that way when the American Constitution and electoral college was erected a few hundred years ago, that way with the advent of the wheel thousands of years ago and that way with the Sun billions of years ago. Power has always emanated from the center outward.

    The center of material power for America came from the Old World via central bank lending (French) to those brave pioneering patriots who dared take on the British Empire and world domination. It goes, and has gone since, something like this..."We think you actually have an opportunity of defeating your opponent in this newest revolution. However, if you are to stand a chance you must be well financed. We will be your lender of choice and a competitive rate if you agree to use us in your war efforts".

    Once the hook is set, the central banks then turn to the opponents of the revolution via the underground channels and float loans or financing for arms and munitions there too.

    The central banks profit from war from both sides and always have. Fear is the tool that is used to promote separation, i.e., divide and conquer.

    Fear of what we don't understand and of that and those different is at the core of our innate nature of being able to be led incessantly into war after war. Afraid enough and we project our power onto authorities to protect us or keep us safe, not knowing that our authorities are deeply connected and led, all behind the curtain, by those controlling the money flow and access to knowledge.

    This same phenomena gave rise to the great western religion(s). The promise to keep you on the side of the "Good" and away from the "Evil" if only you listen to them, believe like them, and give them a percentage of your money.

    At the center or hub of this current smaller (5,000 year) wheel, we see that the two examples above are intimately connected.

    Banking has long been associated with the Church, in fact many say banking as we know it today sprang from the "investment" that pilgrims would make in their safe passage along the primary pilgrimage routes...which were well known to thieves. This "protection money" was offered by the Knight lineage, a long-time secretive extension of the Church. The Church of course offers its own "Protection Money" through keeping the soul safe for an eternity given the right belief in continued separation and the right financial offering.

    The Knight lineage finally morphs into the western banking oligarchy "families" of protection including the Rothschild, JPMorgan, Rockefeller, etc. families.

    The promulgation of the above schematic is dependent upon fear and control of knowledge. If we are afraid enough of "Hell" or of losing our possessions or identity, etc., we will pay and keep paying because there is still plenty of "fear" to be advertised and had.

  123. RJM11 says:

    Ron (con't)

    However, the Great Wheel is turning. One one level, Kipling's "East is east and west is west and never the twain shall meet" is being proven wrong. The axis of power is shifting from one dominated in the west to one that is more equally dominated by the west and east. Western technology, genius, materialism, etc. is going eastward and taking root. Eastern spiritualism, yoga, herbalism, energetic medicine, meditative and contemplative practices are moving westward and taking root.

    These things collectively contribute to the "collapse" language that pervades this blog site. Yes, the old way is collapsing and a new way emerging.

    The connective thread of the blogs is that a massive shift of values is happening as not experienced in recent and possibly even most genetic memory. Not only from the east and west, but also from the ancient to the future, the heavens to the earth, etc. The forms dying or emerging are not nearly as important as the willingness to embrace the metamorphosis as it is occurring.

    One of the primary components enabling the few to control the many in fear and separation if the tightly held control of knowledge. As the heavens are being reunited with the earth and such technology as the internet (and 'all-in-one' phones, etc), which are amongst the few things that have transcended politics or religion in America, is serving to reconnect all of humanity; knowledge is becoming almost impossible or economically impractical to control or keep secret.

    Knowledge follows other commodities along the supply and demand curve. Very little knowledge available equates to a very high demand which equates to a very high price, often even giving one's life for it in the not-too-distant past.

    However, imagine that all the knowledge (vs experiential wisdom) that has ever been being accessible to everyone almost instantaneously? We are not there yet, but heading in that direction. Imagine then, what happens to the price of knowledge. Imagine even further the destabilizing effect of people in one generation awakening to knowledge of having been duped or controlled for eons?

    The cocoon is collapsing and the egg shell breaking that which has held our previous experience in place. What is emerging is a new and different experience. It is not to be feared. However, we are taught from the beginning to fear the different and to maintain the separation. This emergence is neither "good" nor "bad", however, we have been taught from the beginning to separate the two and cling to one while resisting the other. "If you're GOOD, you'll get something from St. Nick (the Church/banking influence at its core wounding story again), if you're BAD you won't. Every major thought system and religion in the world holds this theme at is core...that once the One is split into the two, a "season" of experience is born (through judging one from the other, creating a clinging/resistance experience cycle for the entire season or until one tires sufficiently from it to seek liberation).

    We are ending a time of massive illusion whereby the thought system of "getting something" from the outer world will somehow make us feel whole or at least feel sufficiently safe on the inner world. We are awakening from a long sleep and passing through the excruciating changes of a collective birth canal. As with the first time around, this phase is neither calm or pleasant for most. And yet, somehow, it gives birth to the wonder and mystery we behold today of both destruction and creation occurring simultaneously.

    Arguing about the forms that the collapse and birth will take is this world of form. But as the formless becomes more and more palpable, an equally entertaining listen is the CBS 60 Minutes expose that followed the tsunami in southeast Asia in late 2004 as it regards the Moken, "sea gypsie" tribe. CBS has reshown this segment about 4 times and its implications is profound for the times we are walking through.

  124. RJM11 says:

    Ron (con't)

    The Moken, whether on land our out to sea knew that the tsunami was coming because a) they are still connected to the earth and sea and can feel and hear her, and b) the "big water" is part of their pearl of great price...their sacred story that is shared orally within their tribe from generation to generation.

    Therefore they knew what was coming and what to do about it and therefore no one was hurt. It was simply no big deal to them, even though being very near the epicenter of one of the largest tsunamis in recent history that claimed nearly a quarter million lives.

    The global approaching tsunami and its signals are everywhere and are becoming palpable and are feeding the fear-frenzy as most of us have lost our connection to our Original Instructions, as the Ancient Ones term it, and therefore not only have lost track of the seasons, but also of the path home (via the rebirthing metamorphosis).

    The Moken never gathered their gold or paper currencies with them with they heard the sounds of the sea speaking. In fact, these things are meaningless to them, as spoken through an interpreter to 60 Minutes when he spoke to the Elder of the Moken..."You are fishermen just like all the fishermen in the villages around you. They were all completely destroyed, yet you and your brothers at sea are completely unharmed and very well."

    The Moken Elder determinedly replied..."We are not alike. We fish because we are part of the sea. They fish for money. They have completely lost contact with the sea and can therefore no longer hear her screaming ...".

    There is a lot of talk about the "end of time", "end of days", "end of the Kali yuga", "end of the Mayan calendar", etc. This is a time of great endings, in fact, the end of an entire way of being since we entered and became constrained by the current epic of time-induced illusion of separation. Where, then, can we get good instruction in this tremendous passage?. Why not look to those few still connected to their sacred story, still connected to the heavens, earth and sea?

    One of the final comments in the CBS interview segment with the Moken really stands out. The Moken, you see, don't even have a word in their vocabulary for "time", nor any concept of it whatsoever. They have never entered "time" and therefore the "end of time" doesn't mean anything to them. They know, as all know who are still connected to their unified field, their wholeness…that the end of time, tumultuous as it may be in its birthing pains, is Presence.

  125. Jack W says:

    RJMll, pretty good summary although as a Christian, I see a bit of a denial of God in it. To each his own, so long as he does not impose his beliefs on others.

    The difficulty for me is where there is an overwhelming support of the military when history shows that the 10's of millions slaughtered does not justify the few millions that theoretically were saved. Politicians/leaders create problems and then unashamedly propose solutions. How arrogant to send men to their deaths through contrived wars and then turn around and say how sad it is but that they have the solution. How sad for the men who were and are about to be shot to pieces and never knew or will know that they are defending evil and not protecting freedom. The "money" system is the root, albiet, the evil in men's hearts drives them to create such "tools."

  126. RJM11 says:

    To Jack W,

    No denial here, and thanks for wading through such a long post!

    Every once in while it is good to turn around...get out of the drama, or sitcom, or comedy, or sci-fi, or horror, or love story, or documentary, etc., etc. that one has paid good money to experience and go back to the back of the theater and stand up on the chairs and look into the projector house to actually see again what is producing all of these different stories, feelings, perceptions, beliefs, etc. One light, shining through the consciousness (film) onto the screen, and yet it is so easy to get swept away in the "realness" of the story. As consciousness changes, so does the experience of the movie, even if it is the same movie that has been watched over and over again (history).

    All sacred texts and indigenous stories speak of the same "season" (separation from wholeness). However, many of these same worn out paths are still preaching separation and some, ever-more fearfully and frantically. If using separation to heal separation (fear to heal fear) worked, we would not have experienced the thousands of years of war and senseless suffering that you mention.

    We live in very interesting times and the challenge is to stay fully engaged in the process without powerful attachment to either outcome or the "rightness" or "wrongness" of things. Things are as they are...until we make them different with our minds/beliefs/film.

    Staying open-hearted in the midst of such decay and radical change is a challenge, hence the Master's advice..."Physician, heal thyself".

    When I spoke of the center of material power historically deriving from the Central Bank/Church, I spoke of material power. The real center (between heaven and earth) is in the heart. Until we are healed in here, we always want things to be different out there. Hence we can never see things as they are. I believe it was Anis Nin that said..."We don't see things as they are, we see them as we are." How can it be otherwise? The one light shines through our consciousness/film and projects our version of life, which, if we hadn't noticed, is different than "their" version and the more we get entrenched, the further out on the wheel towards the rim we move and the stranger those hanging on to the next spoke appear.

    Physics 101 tells us that 'Energy is neither created nor destroyed'. Therefore maintaining the beliefs that lead to killing the bodies that seemingly emanate hatred in an attempt to eradicate hatred is and always has been futile and simply promotes more suffering. Energy can be transformed however, into either higher/faster energy or lower/slower energy. The heart is our transformer.

    If we hadn't noticed, all seeming opposites are increasing in intensity. Left vs. right, color vs white, inflation vs. deflation, expansion vs contraction, 'good' vs 'evil', east vs west, creation vs destruction, safety vs liberation, etc., etc.

    These types of increasing tensions are part of the sacred story of this season. Holding these types of increasing tensions in the body/heart long enough and the heart breaks wide open...again and again. But then, instead of the heart "attack", it becomes an open and aching heart letting go of deep grieving of things that could have been, things that should have been, things that never were, etc., etc.

    Sufficient openings of this nature and one can be in the presence of chaos without trying to make it otherwise...i.e., the calm in the storm.

    It is as if we were asked be fully engaged while hospicing an entire way of being...a very rare opportunity. As the old way is in her last throes, the gasping, wheezing, contractions and forced expansions can be heard. The old medicines (and stories), however appealing, no longer work.

    Gold historically has been the source of "value" when all else fails in the material world. What then, when gold fails?

    The unknown beckons...

  127. Jack W says:

    Hey RJM11, Your mention of the "collapse" of language caught my attention as my dad taught HS English(not that I picked up much). Recently, I reread George Orwell's essay on Politics and the English Language and while guilty of most of the transgressions he mentioned, I hear them far too often on Talk Radio or TV. A good reminder for us all to check our language skills.

    On another note, I like your phrase, "fear to heal fear" as that is spot on and our schools and media and politicians refuse to admit the fallacy of such a philosophy. Farm out, dude! Think I'll have a seagar on Friday.

  128. Jack W says:

    hey mr. pinnion, I have read the reports about the debauching of gold bars with tungsten. This illustrates why we need audits. Audits of the Federal Reserve and US Gov. vaults. We need to audit the Fed books to discover to whom financing was provided prior to US entry to WWI and WWII and for all other "wars."

  129. Numonic says:

    2 banks failed Friday costing the FDIC $959 million and bringing the FDIC fund to $20,840,000,000. I looked at the rate the draw down of FDIC funds is going and even though it is increasing in the amount of drawdown it is moving slower than I thought it was. At current rate, it looks as if the FDIC fund may end up loosing $4.9 billion this month. Averages of FDIC fund loss per month have been going like 3 billion per month, to 3.45 billion per month, to 3.95 billion per month. So the rate seems to be increasing by about half a billion dollars every month. With the rate currently at $4 billion at the end of October and $23.3 billion left in the fund at the end of October, how many more months do the funds have left?

    4.5 in November
    5 in December
    5.5 in January
    6 in February

    4.5+5+5.5+6 = 21 so I was a month off. The fund will be insolvent by the end of February, 2010 early March at the very latest. The insolvency of FDIC will mean one less place the banks can get the physical cash from and soon the only place the banks will be getting physical cash from is from the printing press and I believe that too is insufficient enough to print the needed amount. This is where the Federal Reserve Note seigniorage will end. And a currency with no seigniorage is undesirable to the govt. The govt. wants a currency that it can profit from, meaning the face value is greater than the cost to produce it. When they loose this they will destroy the value of the currency in order to implement a new currency in which it can regain seigniorage of. They are practically destroying the currency right now with their de facto protectionism that is going on with the decrease in lending. The new currency will be worth many times the old currency and only a few people will be able to afford it. Because only so few people will be able to afford it, the govt. will be able to print more than enough to meet the demand for it and because the govt. is able to print more than enough to meet the demand for it, the cost of producing it is low. And in that way the govt. regains seigniorage.

  130. stibot says:

    Nice vision Numonic, but i don't believe it is going to happen. If FDIC becomes dry on February, they simply will use another series of keystrokes to bailout FDIC.

    Running printing presses is still profitable and USSA will not devalue. Because
    - lending dollars to some 3rd countries is/was a way how to make vassals from them (debt trap) and
    - also reserve currency status will be lost.

    If dollar is devalued those debtors become free and USSA will fall from the cliff immediately because how to suck the World's wealth then?

  131. RJM11 says:

    As for the FDIC, congress already upped their credit line from $30 billion to $500 billion earlier this year. The U.S. gov't didn't shut down every time it hit a debt ceiling, it just voted to raise the ceiling. Same with the FDIC.


  132. Numonic says:

    Stibot, running the printing presses is only profitable if the cost of running the printing presses is lower than the face value of the currency being printed. Meaning if it costs less than $20 to print a $20 bill, then there is profit but when the demand for $20 bills exceeds the number of $20 bills the printing press can print, the cost of printing $20 bills increases and it could probably increase to costing more than $20 to print the needed $20 bills.

    The only reason they increase the number of debt is to make the circulation of physical cash move more. They(US) borrows the physical dollars from foreigners like China and give them a promise(Treasury Debt) to return those physical dollars. Banks expanded credit so they would have more assets to be sold/exchanged for physical cash to other banks who held physical cash or to the FED as the buyer of last resort when everywhere else was strapped for physical cash.

    The reason they created so much debt was not to suck the wealth of the world, it was to keep the physical currency circulating as fast as possible. When a bank makes a loan, it now creates an asset that can be sold to another bank or foreiner or the Federal Reserve for physical dollars. The banking system needed the physical dollars to be circulating as much as possible, the more loans you seen created, the more assets were created and that means the more they needed the physical cash to circulate so they didn't have to rely on the printing press(which is insufficient) for the physical cash. The massive creation of debt helped the dollar maintain it's seigniorage. But the physical dollar still became inevitably stretched thin and the banks are strapped for physical cash and are relying on the buyer of last resort(The Federal Reserve) to buy the assets from them so that the physical cash can circulate in the banking system. The printing press is not as sufficient as the circulation of assets in the banking system to circulate the physical dollars as much and the banks will run out of physical cash and the cost to produce the physical cash will rise and eliminate the seigniorage(which is the face value of the currency minus the cost to produce the currency). Unless the govt. increases the face value of the currency, it will not be able to afford to print the currency.

    It's not about sucking the world's wealth, yeah it's about keeping people in debt but the only reason they want to keep people in debt is so that the assets can still have value to be sold for physical cash.

  133. Numonic says:

    RJM11 the credit lines means nothing until it is in actual physical dollars that reflect in the FDIC funds, so until I see the FDIC funds increase, that credit line is just a promise that has yet to be fulfilled, if it even can be fulfilled. As if the Treasury has the cash sitting in it's vaults. The Treasury is broke and it can only get the cash by selling debt. And it doesn't look like there are that many buyers left except for the Fed and as I said before the printing press is insufficient to print the cash but we'll see what happens come February 2010. We'll see if FDIC funds will increase.

  134. stibot says:

    Numonic, they can even make a loss on running special equipment but they can still make huge profit on pressing the keyboard because of leverage.

  135. Numonic says:

    Stibot, you do realize that the govt. operating at a loss with physical cash means there is a shortage of physical cash. You are saying that the govt. is willing to do away with physical money and only use electronic money. Throughout the years there have been issues with withdrawing as much physical cash as you want from the bank, like for instance some banks have a limit on the amount of physical cash it's depositors can withdraw. Operating at a loss with physical cash means these restrictions will get stricter. They may ration the physical cash and make rules where each depositor may only be able to withdraw $100 in physical cash per week or the shortage may get bad enough that some banks may not even allow withdrawal of physical cash. The point is there will be a shortage of the physical currency. And you're saying so what if there is a shortage, we'll dump the use of physical cash and just use electronic money(credit/debit cards). You know that would mean the govt. would no longer have a monopoly on the currency because electronic money is not soley created by the govt. Any bank can create electronic money. Any bank can loan anyone any amount they want and anyone can charge anyone any amount they want. The removal of the physical currency would be the removal of the Legal Tender laws. Unless the govt. makes legal tender laws for the electronic currency. That would mean the govt. would have sole control of every electronic dollar created. Of course the same problem will occur as the govt. will not be able to manage the demand for the entire nation's electronic transfers and will result to using a derivative for electronic transfers to take the burden off of the govt. to create the electronic transfers. These derivatives will be in control of the people and we're back to the same system except the currency now is electronic while the derivative for the currency is... well something else controlled by the people.

  136. Numonic says:

    Check out this history i read from wikipedia, it is so similar to today.

    This is taken from the wikipedia page of the First Bank of the United States.

    "A paradise for speculators

    In the last decade of the eighteenth century the United States had just three banks but more than fifty different currencies in circulation: English, Spanish, French, Portuguese coinage, scrip issued by states, cities, backwood stores, and big city enterprises. The values of these currencies were wildly unstable, thereby making it a paradise for politically indifferent currency speculators thriving on uncertainty. In addition, the value and exchange rate was almost always outdated or unknown by the party agreeing to receive it, especially the farther it moved away from the coast; and because of distances, primitive roads, and absence of communications technology, values were not only unknown but unknowable as well. Speculators in the United States bought up bonds for about 15 cents and through Hamilton's plan were paid their face value of one dollar.

    Supporters of the bank argued that if the nation were to grow and to prosper, it needed a universally accepted standard coinage and this would best be provided by a United States Mint, aided and supported by a national bank and an excise tax."

    This is the same situation today. today we have many independent private banks that can freely create electronic money. And people are saying that without regulation we will have problems. The govt. is probably very well trying to move to being in total control of the creation electronic money. I disagree that a central bank/currency is better than many different competing currencies. But the point is the govt. wants to be in control of the creation of the money. The govt. is not in control of the creation of electronic money so I don't think they will give up the paper currency in which they are in control of. If we do move to a soley electronic monetary system, you can bet the govt. will try to take control of it and put legal tender laws on the creation of electronic money(which means only the govt. will have the power to create electronic money, the govt. will decide what everyone gets paid and will be the only one making loans. Some may say we are moving in to this. But I don't believe the govt. can maintain control of the monetary system. It never could. There was always a derivative besides the currency that acted as the currency to remove the burden of the govt. from managing the nation's currency. We don't have that derivative yet for implementing an electronic currency. What derivative could we use in place of electronic money that will take the burden off the govt. to issue the electronic money to the nation? I doubt that they'll just let the physical currency go. There is no derivative in place to replace the physical currency with electronic currency. And the govt. can't handle the burden of controlling the money supply by itself, controlling who gets paid what and who gets loaned what. A single entity can't handle this unless there is a derivative taking some of that burden away like electronic money does with the physical paper money it represents. It's more likely the govt. will create a new physical currency to regain seigniorage and in order to do that it will have to destroy the old one.

  137. Numonic says:

    I'm making this blog the official FDIC bankruptcy blog if Eric doesn't mind. I'll try to continue posting updates on how much the FDIC fund is loosing and how much it has left.

    I want to make a correction to the last update. The Friday before this one had 3 banks fail not 2, but that 3rd bank was a small loss: $27.4 million so the total loss of that friday was $986.4 million bringing the fund to $20,812,600,000 as of (11/13/09).

    And this past Friday(11/20/09) had only 1 bank fail and did little damage to the FDIC fund. Only costing the fund $23.6 million bringing the fund to $20,789,000,000 as of (11/20/09)

    This month had a slow draw down of funds so far(only a $2,510,000,000 loss this month so far) and there is only 1 more week left in this month. Another thing I considered was that the average losses lasted for at least 2 months so far but have been growing by half a billion avg. every month. So if this month only ends up loosing 3 billion and the average suggests that between these next two months the total loss should be 9 billion, then we may see a $6 billion FDIC loss for the month of December. Or if it breaks the average even to give each month a $4.5 billion loss then this black Friday we may see a FDIC fund loss of $2 billion. Since it is black Friday this coming Friday, I expect there to be a large size FDIC fund loss and we will probably see that $2 billion loss in the FDIC fund this coming black Friday.

    Although it is possible that the crisis could be over and the bank failures and FDIC losses are coming to an end, despite the fact that Sheila Bair says so many more banks are in still in trouble. We never really know until it happens. When I see the draw down avg. decrease then maybe I'll be able to say we may avoid the crash but as long as the draw down is increasing, I feel we are headed for a crash. We'll see how these next two months play out. The avg. for the next two months should be a $4.5 billion/month loss. If it ends up being less than that then there may be a chance we are avoiding the crash. Otherwise at the current rate the Fund can only last until the end of February/early March the latest.

  138. Numonic says:

    But the truest sign of all that the crisis is over is the Fed starting it's exit strategy. As long as the Fed is buying assets from the banks, the crisis is not yet over. You have to realize that what the Fed is doing is no different than what the FDIC is doing. The fact that FDIC funds are running out is proof that the printing press can not handle the job of recapitalizing the banks. One method of keeping banks liquid was the selling of assets amoungst banks, this failed as the banks ran out of dollars to buy the assets, the next method to keep the banks liquid is the FDIC, this is about to fail and because it is failing at the same time the Fed is doing the same thing and buying banks assets, is proof that the Fed is failing to keep the banks liquid. FDIC will go bankrupt and all that will be left will be the Fed and then you will see the effects of the Federal Reserve Note shortage.

    Just like Gerald Celente talks about in the beginning of this interview.

    His reason for the run on the banks and the gold confiscation isn't as I see it but he points out that you can't get your money out of the bank. That only means you can't get the physical cash out of the bank. And I know some people may think that if banks started doing stricter rationing of physical cash withdrawals(because they already do ration cash withdrawals) it won't matter much. Some people think that physical cash is really useless today. I disagree, I think a stricter rationing of physical cash withdrawals would cause some economic problems despite electronic money availability. Another reason why I think the availability of physical cash is still important is because the govt. and Fed and banks are and have been doing everything in their power to keep it available. There would be no reason for these bailouts and the massive increase in the monetary base if physical cash did not matter. We have yet to see people complaining about not being able to withdraw enough cash from the banks but I believe that time is coming where like in Weimar we may see bizaar events like that one guy "after repeated attempts to get the government to let him withdraw his Deutsche mark deposits as Deutsche marks announced the was going to commit suicide in front of a government building by dousing himself with gasoline and igniting it."

    Some people predict that by February 2010 the value of the dollar will be really low and this prediction could correspond with the timing of the FDIC bankruptcy which would cause such strict withdrawal limitations. With rising unemployment, rising prices and the shortage of physical cash, that whole hyperinflationary scene from Weimar is playing out. The dollar loosing allot of value would give the govt. a reason to issue a larger denominated bill, a bill only a few will be able to afford which would reduce the cost of producing it and regain seigniorage for the govt..

  139. Trader says:

    If FDIC will run out of fund by March, why don't they print it right now?

    Why wait for March?

    Why wait until run out of cash to print cash??


  140. Numonic says:

    Trader this is long but you should read it all.

    Trader, they are printing it right now. They have been printing cash, look at the monetary base and see how much it has grown. The printed cash is not going to the FDIC but to the banks which the cash ultimately goes to anyway. When the Fed buys these "toxic" assets, that's when it is printing. But despite the Fed printing and buying up these "toxic" assets to put more cash in the banks, it can't print fast enough, if it could FDIC funds wouldn't be running low. FDIC has a vault of cash. FDIC takes a failed bank and looks for another bank with cash to buy the failed banks assets so that that failed bank can have enough cash to meet deposit withdrawals. But most if not all banks are still so undercapitalized(with cash) that anytime FDIC steps in to facilitate one bank to buy a failed banks assets, FDIC has to put up allot of it's own cash(despite all the cash the Federal Reserve is pumping in to the system with it's asset buying programs). This simply means that the printing press is not as powerful as some people think it is and despite the increase we see in the monetary base, that amount is still moving close to not being enough to meet demand. If the printing press were enough to handle the banking insolvency, banks wouldn't need FDIC to even use any of it's money. FDIC is having a tough time finding banks with enough cash to buy the failed banks assets despite the increase in the monetary base. Banks are getting cash both from the printing press(through the Fed and BEP) and from the FDIC. There is a 0 Feds funds rate. That means the banks can sell their assets to the Federal Reserve in exchange for cash(Federal Reserve Notes) and they can do it for free. If this is going on and the banks still have to get the cash from else where, that means the cash is not flowing fast enough from the Federal Reserve(which is using the printing press and giving the money away as fast as possible with a 0 Feds Funds rate). The way the banking system remained liquid in times outside of recessions is by the buying and selling of assets. Banks made loans, those loans became assets and those assets moved around the system from bank to bank in exchange for physical cash each time. But when the banking crisis started(which was when the banks saw an impending situation where there would be more demand for the physical cash than the circulation of physical cash could provide), the banks stopped buying and selling assets to each other, not because they didn't want to but because they couldn't, they didn't have enough cash to. In order to get this extra needed cash, the banks went to the Federal Reserve, FDIC and Treasury. The Federal Reserve get's it's cash from the printing press through the Bureau of Engraving and Printing. The FDIC has cash saved up(which is depleting) and the Treasury gets cash from selling it's debt to China, other countries and also through the printing press from the Fed via the BEP.

  141. Numonic says:

    So they are not "waiting" until the fund runs out, they CAN'T print the needed amount. Have you ever watched what goes in to creating a Federal Reserve Note. It takes more time and work than people think it does. There are people inspecting each dollar bill to makes sure there are no errors. Also due to the fact bills circulate, bills get worn out often and need to be destroyed and exchanged for new bills. So the supply is constrained by the currency's fragile material that gets destroyed through only a small amount of circulation. So while the demand for the cash is growing the supply isn't growing as much as the money has to be destroyed and replaced. In order to balance this, the banks decrease lending causing an increase in poverty through rising unemployment and decrease in loans.

    No one is waiting for March. It's amazing how people just assume that the Federal Reserve Note can be created to any amount and any speed any one desires. If I gave you 1,000 sheets of paper and told you to make me 50 paper airplanes in 1 minute, you would have a problem doing that too. The problem is allot of people don't see that the demand for Fed notes is close to being greater than the methods of circulating the Fed Notes can provide.

    Some say the solution is to get more printing presses and hire more workers to do the work of creating more Federal Reserve Notes. But those things aren't free. More workers means the cost of producing the currency rises. And when the cost of producing the currency rises, that cuts in to the seigniorage as the seigniorage is the face value of the currency being created minus the cost to produce it. The govt. does not want to loose this seigniorage, it wants to be able to create the needed amount of currency with little to no labor to create it.

  142. Numonic says:

    The govt. also does not want riots by those people who use physical cash instead of electronic money. In the Argentina Corralito, there were riots as people who wished to withdraw cash from their deposits couldn't. But riots are unavoidable because if the currency is devalued so that a new currency can be ushered in or by nations abandoning exporting to the US(causing supply shortages), people will be rioting about the rising prices and loss of purchasing power and if people are not able to get their money, they also will be rioting. This is why the US is getting on China about manipulating it's currency. It doesn't want China to emerge(expand credit) because that is the beginning of the end for the dollar(or the beginning of the hyperinflation for the dollar). The more debt the Fed buys and Treasury creates, the more these nations like China realize that US consumerism will not come back because that debt that the Fed is taking in has to be sold short, meaning the value of the assets the Fed is taking in has to decrease allot in order for the banks to avoid insolvency when the Fed sells those assets back to the bank. The more assets the Fed holds the more prices have to go down because if the Fed has allot of assets with too high of a price, when the Fed sells those assets back to the banks, that action will suck in too much cash and the banks will be insolvent of cash and if we removed physical cash from the economy there would be allot of economic problems that would lead to allot of decreased spending. So China knows the US consumerism is gone and isn't coming back for a long long time, if ever. When the FDIC runs out of cash, there will be economic problems because banks will begin to do stricter rationing of the deposit withdrawals. These economic problems will include less spending. China needs more spending so it is stimulating it's own economy and will decrease it's connection with the US by stopping exports to US and dropping the peg and this abandonment of exports will be done by all the world to the US as the world abandons exporting to the US. This will cause prices to rise Zimbabwe style high in the US as there will be nothing to buy.

  143. Numonic says:

    The dollar will go down Zimbabwe style from the general increase in spending of other emerging market currencies which stop exporting to the US and focus more on domestic consumption which will be more than the US' ever was. Considering that when the Fed decides to sell the assets it got from the banks, the banks are obligated to buy them back, like I said before that means the banks have to be selling those assets short. Meaning the banks have to make sure the assets it gave to the Fed in exchange for cash decreases allot so that when the Fed sells it back to the banks, it doesn't undo the whole purpose of the program which was to recapitalize the banks with cash. So knowing this, that means banks are going to be decreasing lending and unemployment is going to be rising allot and these actions cause defaults on loans and less spending which drives asset prices down. Other emerging countries knowing this will see that this means the end of consumerism in the USA and that is the reason emerging countries are coming out and increasing domestic spending. Enough countries do this and shun the USA, decreasing exports to the USA and the US dollar will become worthless as there will be nothing for the US to buy with those dollars as countries stop exporting to the US. So even though there will be a decrease in spending in the US there will be a greater decrease in goods as the emerging countries will stop exporting and instead increase domestic consumption and importing. And those emerging nations are larger in population so they can consume more than the US did. So the drop in US demand with US' smaller population compared to other nations will be more than made up for by emerging nation's demand whose population is many times greater. I believe that this is what happened to Zimbabwe and other hyperinflated nations that fell in to the Quantitative Easing trap and couldn't get out, they became shunned by the world and the decrease in the demand of those failed nations were picked up by other nations, leaving nothing for the failed nation causing the nation's currency to drop massively in value. This recession/depression we are in now is the end of US consumerism. In order for the banks to avoid being drained of cash when the Fed sells back the assets, it has to make sure the value to those assets decrease significantly. If it is doing this, that means unemployment will be rising allot and lending and consumer spending will be decreasing allot. Other nations will see this and realize that the consumerism of the US will not return for a while and those nations will begin domestic consumption and importing and abandon exporting and the US will run low on products as it gets most of it's products from abroad. Prices will rise high. Electricity becomes too expensive to afford so Debit/Credit card machine systems become rare and physical cash is used more. Govt.s not wanting their nation to abandon the currency for more convenient forms of currency like an ounce of gold and silver coins which at the time have the same value as 1 million 20 dollar bills, create larger denominated bills to take the burden of carrying so many of the old worthless bills. In past recessions the country was able to do this debt monetization and get away with it because the amount of monetization needed was not great, but soon in later recessions it shows up that the needed monetization is too much and this is the point of hyperinflation.

    I understand it so clearly now.

  144. Trader says:

    All right Numonic. So the US bank has big trouble.

    But how about European banks? Don't they have similar problem? I heard their leverage is even bigger.

    How do you think the possibility of Euro currency being hyperinflate also?

  145. Jack W says:

    Hey Numonic, you mentioned "larger" bills. I've been wondering when the government will reverse its "drug" war edict of withdrawing the 500 and 1000 f.r.a.u.ds bills in attempting to prevend money laundering. As you pointed out, the criminality of their own fiat currency/credit system now comes back on them. Poetic justice.

  146. Numonic says:

    Trader any nation in the same position as the US will go through the same thing. It's not neccessarilly the leverage that is the problem, at least not directly. It's the fact that there is beginning to be more people withdrawing the physical currency than any of the currency circulation methods can deal with. If a nation is practicing Quantitative Easing, I believe it is in this position. The purpose of Quantitative Easing is to put more physical cash in to the banking system(and the reason that would be being done is because there isn't enough physical cash in the system to meet demand). So if you want to know which currencies are going the same way as the dollar, you find the currencies that are involved in Quantitative Easing. But it doesn't matter if those other currencies only experience a recession and not a currency collapse because eventually they will experience a currency collapse and what will be to blame is Legal Tender laws which give the govt. a monopoly over the currency and the side effect of that is too much burden being centralized in one place. The govt. fails to meet promises(like for instance not supplying the banks with enough physical cash for cash withdrawals) and the currency gets destroyed in how I explained above. The currency should not be centralized(there should be a free market competitive currency, many currencies in a single nation and the free market should decide which one is the best), it's too much burden for one entity and when that entity fails if effects the whole nation because the whole nation was forced to hold that one currency.

  147. Jack W says:

    Numonic how perceptive, we are all punished for the wrongdoings of others. Insurance is a good example, wherein we pool are premiums and then those who have "accidents" draw on the funds and those who don't get the warm fuzzy feeling that they have been protected. But those who reap the benefits are those who had "accidents."

  148. Numonic says:

    I'm surprised only 1 bank failed in the past 2 weeks(no bank failure this past Friday). Especially since I read a report that there were 42% more transactions done with cash than credit this Black Friday than there was last year's Black Friday. I don't know, we'll see what happens next Friday and for the month of December. If the total is less than $9 billion loss for these two months combined then that means the rate of FDIC fund draw down is decreasing, probably decreasing for the first time since the draw down began. If that happens, it could mean the crisis is going away. But we'll see what happens for December.

    I still think asset prices need to drop allot before the Fed can sell the assets it took in without bankrupting the system. So that means there will still be more tight credit, rising unemployment, decrease in house prices and less spending. And before we can say the recovery has even started, the Fed has to reverse it's programs, stop buying the assets and start selling the assets.

  149. stibot says:

    Bob Chapman pronounces there are more troubles ahead.

    "We have been told that the FDIC not only is $8.2 billion in the hole, but they have secretly borrowed an additional $80 billion from the Treasury. We have also been told that the FDIC is lying about the banks in trouble. The number in eminent danger are not 552, but a massive 2,035. The cost of bailing these banks out would be $800 billion to $1 trillion. That means 2,500 could be closed in 2010. Now get this, the FDIC is going to be collapsed before the end of 2010, which means no more deposit insurance."

    I'm in doubt about his credibility but i i'd agree gov't is hiding problems.

  150. Numonic says:

    Well if the bank failures are based on the value of the bank's assets dropping to a certain level then yes we will see more bank failures. Asset prices have to go down. The Fed has all these assets on it's balance sheet and one day it will have to get rid of those assets. In order for the Fed to get rid of those assets without sucking in all the liquidity it has put in the system(causing the banking system to be insolvent), the prices of the assets it holds has to drop massively so that if/when they do sell the assets back to the banks, it doesn't end up withdrawing all the Federal Reserve Notes it put in to the system. The banks basically sold those assets to the Fed short and the banks have control over the value of those assets by either increasing lending or decreasing lending. Increasing lending would increase employment and allow people to play the ponzi scheme of borrowing from one place to pay another and that other place's asset value would rise since the borrower is making payments on the loan. Decreasing lending would have the opposite effect, rising unemployment and no where to borrow to pay a loan borrowed from another place, and this would cause asset prices to drop. Bank's(and the Fed for that matter) don't want the banks to become insolvent so the banks are doing everything in there power to cause their asset prices to fall, meaning they are doing everything to cause people to default on loans. They are decreasing lending which cause rising unemployment, higher interest rates, defaults on loans and thus asset prices drop. Also as long as the Fed has those assets on it's balance sheet, asset prices can't be allowed to rise. Asset prices can't start rising until the Fed has finished unloading it's balance sheet. If the prices of those assets rise before then, then the Fed will bankrupt the banking system as it is unloading it's balance sheet. So you can see why the world is talking about a new reserve currency and why these nations that were once strict with lending and emerging their economy are now easing domestic credit and emerging their domestic economy. They know American consumerism is gone and will be gone for a long time, if it even ever comes back at all. These nations will abandon US, no longer export to US and the shortage of goods will cause a hyperinflation in the US. But like I said if bank failures are based on the bank's asset prices dropping to a certain level then yes we will see allot more bank failures. But the US is trying to be careful about it. But the US is between a rock and a hard place. The longer the Fed holds those assets, the more the world believes US consumerism is dead and the hard place is if asset prices drop to what they need to drop to in order for the Fed to sell those assets without withdrawing all the liquidity it put in to the system, this would be a certainty to the world that US consumerism is dead. Either way US consumerism is dead. The rest of the world is slowly waking up to that fact. Which is the way the US wants it. The US knows that eventually the world will wake up to this fact but it is doing everything to make sure that awakening is slow. Unfortunately physics will not allow that slow awakening, as the FDIC goes bankrupt, the world will get a rude awakening. I still believe FDIC will go bankrupt by the end of February 2010. It may have slowed down for November but I believe something big will happen in December. We'll see.

  151. Numonic says:

    Now there's talk of Fed's exit strategy. The Fed is talking about testing it's exit strategy.

    You know this coupled with the fact that only 1 bank failed in the last 2 weeks is kind of saying that the Fed might have gotten this crisis under control. But we'll see. I want to see the Fed sell those assets it filled up it's balance sheet with before I can be convinced the crisis is over. I mean, just because less banks are failing doesn't mean the crisis is over, that's like saying unemployment is decreasing because some people's unemployment benefits are running out. If less banks are failing while the crisis is still going on, the effects will be stricter cash withdrawal limits/rationing. If the crisis is NOT over we can expect to either see more bank failures and draw down of FDIC funds or stricter bank cash withdrawal limits. If the crisis is over we should see less bank failures, less draw down of FDIC funds, no increase in the strictness of cash withdrawal limits and the Fed should be selling the assets it bought from the banks. We'll see what happens this December. I believe though that even if the crisis is nearing it's end, the prices of the assets the Fed holds must stay as low as it is now until the Fed has sold all of those assets so to not bankrupt the banks by sucking in all the cash it put in to it. Now it's possible that asset prices may be low enough so as to not have that happen. If that is so then asset prices don't have to drop any lower. But if asset prices are still dropping and lending is still contracting then that's just telling us that the Fed and banks needs asset prices to drop lower before the Fed can start selling the assets back to the bank so as to avoid bankrupting the bank. If that is happening then that is telling us the crisis is still on. The fact of the matter is as long as those assets are on the Feds balance sheet, the world will always be in fear that one day if/when the Fed decides to sell those assets back to the banks, asset prices will be lower than it was when the Fed started buying the assets. Asset prices have to be lower than they were before the Fed started buying the assets otherwise when the Fed sells the assets, it will suck the banking system dry of cash and bankrupt the system. So if the Fed is planning to one day sell those assets, that means that one day(regardless if asset prices rise back to their highs and make new highs) asset prices will drop back to lower than it was when the Fed started buying the assets.

  152. Numonic says:

    Is it possible that the Fed can just keep those assets on it's balance sheets forever? Maybe, I don't know.

    But besides whether the banks(who have a short position on the assets it sells to the Fed) can cause the prices of those assets to drop low enough to avoid a bankruptcy if/when the Fed decides to sell the assets back to the banks, I'm more worried about if enough cash can be printed up to meet demand. The barometer of whether the amount of cash in circulation was meeting demand or not was the draw down in FDIC funds. So far in the past couple of years, it has been telling me that the amount of cash in circulation has not been meeting demand. When the draw down decreases in rate then that is when I can say the amount of cash in circulation is coming close to meeting demand. I still have the rest of this month to see if the draw down has decreased but if I were to judge only from November I would say it has decreased, but I have to take in and average in the month of December and see how much draw down the FDIC fund takes this month. If it is less than $6.5 billion for the month of December then that means the draw down has decreased. So regardless something big is happening in December: either this will be the first time the draw down has decreased since the crisis began or we will see the largest FDIC fund draw down since the crisis began. Let's see what happens.

  153. Numonic says:

    Currently the world is telling us that US consumerism is dead and that some nations that weren't consumers are now becoming consumers. And the new consumers will consume more than the old consumers did. And this is how hyperinflation will take place.

  154. Jack W says:

    Everyone needs to read, The Inflation Crisis and How to Resolve It by Henry Hazlitt. The politicians and media and a whole host of others repeatedly manifest ignorance on economics, excepting Ron Paul. Hazlitt refutes in easily understood terms the fallacies that scoundrels mouth on a daily basis. I highly recommend this book and it is a short read of 190 pages. Enjoy.

  155. Numonic says:

    Bank of America Will Repay $45 Billion to U.S. Bailout Fund

    "The lender plans to repay the Troubled Asset Relief Program using $26.2 billion of “excess liquidity” and $18.8 billion through securities sales, according to a statement today from the Charlotte, North Carolina-based company. The bank also plans to raise $4 billion through asset sales, and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees. "

    Yeah right. Who's going to buy those securities/assets? Who can? I've explained how excess reserves means nothing because it is measured as the amount of cash above reserve requirements but when there are no reserve requirements(read about deposit reclassification) then excess reserves aren't really "excess" reserves. That cash is not "excess" but is infact circulating amoungst the banks and economy. so again who is going to buy these assets B of A needs to sell to pay back the TARP funds? No one, that's who. But let me not say any more. If B of A manages to buy back the assets it sold to the Fed, I'll believe it when I see it. I don't want to see headlines saying "Bank of America Will Repay $45 Billion to U.S. Bailout Fund", I want to see "Bank of America Has Repaid $45 Billion to U.S. Bailout Fund.

    I find it funny how B of A will be able to pay back TARP funds when FDIC is having trouble finding somewhere to get cash to replenish it's depleted fund.

    But we'll see, my bet is that it is just talk.

  156. Numonic says:

    Jack W the only way the inflation crisis can be avoided is if these emerging countries(China/India etc.) refuse to emerge and decide to deflate along with the US. But currently the rise in price of gold is telling us that they are not taking that path. It would be stupid of them to take that path. Their choices are either to deflate along with the US and have massive economic problems like rising unemployment and crashing stock market and investments or to save themselves and let the US fall alone. There is no benefit in falling with the US and falling with the US does not save the US. So of course they are going to save themselves and leave the US to fall on it's own. This is Trading Places with Eddie Murphy and Dan Aykroid. We are about to watch the bum China become rich and we are about to experience what it is like to be a bum. But I'm not banking 100% on China getting rich simply because of supply/demand issues(everything Eric has been talking about with global agriculture and all). After the peg is dropped, China's currency will go up against the US dollar but against non-currencies, China's currency will be dropping. So all currencies will be dropping only some faster than others. Best bet buy gold and silver.

  157. Numonic says:

    Okay I'm baffled by this B of A news.

    "Bank of America Raises $19.3 Billion in Share Sale at $15 Each";=a6BxeAIQBh.k&pos;=1

    I don't get it. Makes no sense to me. I'm going to keep my eyes on FDIC funds and see what happens. If FDIC looses the $21 billion it has left and are still running without any word of any increase in the FDIC funds and there is no increase in the strictness of withdrawal limits or a bank holiday of some sort then I'm going to be really confused. This December we will either see the biggest draw down of FDIC funds since the crisis began($6.5 billion in one month) or we will see the first decrease in the average rate of draw down since the crisis started. The latter could mean we are recovering, the former means it's getting worse. But we will experience one or the other. Let's see what bank failure friday has instore for us tomorrow.

  158. Numonic says:

    FDIC lost $2.384 billion today bringing the fund to $18.405 billion. That's $2.384 billion in one Friday and I know I did the same thing last month when the first Friday of the month had a big draw down and the rest of the month didn't but a couple more draw downs of this magnitude will keep the average rate of draw down on track and this will in fact be the month with the largest FDIC fund draw down since the crisis began. Let's see what the next Friday's bring.

    For a second I thought the crisis was over, just for a second.

  159. stibot says:

    Numonic: "the prices of the assets the Fed holds must stay as low as it is now until the Fed has sold all of those assets so to not bankrupt the banks by sucking in all the cash it put in to it"

    This thesis above is another hard to accept. Could you read Loan Modifications: A JOKE by Karl Denninger, because that is as i see the current situation.

  160. Trader says:

    Can anybody tell me which website we can look the SCHEDULE of US treasury auction and IT'S AMOUNT?

    I figure out that everytime US sell a lot of treasury, dollar go up, stock & commodities go down.

  161. Numonic says:

    Stibot what's so hard to accept about what I said. For instance a bank has an asset that is worth $20. It sells/swaps that asset to the Federal Reserve for $20. So now the Federal Reserve has a $20 asset and the bank has a $20 Federal Reserve Note. If that asset goes over $20 at the same time the Federal Reserve sells/swaps that asset to the bank(unloads it's balance sheet), the bank will owe more than it was given from the Federal Reserve. And if the bank was already headed for insolvency problems before the Federal Reserve started buying the assets, in this situation the banks will be even more insolvent as they will have even less cash due to the rise in the price of the assets sucking the cash out of the banks when the Fed unloads it's balance sheet. It's like I said, the banks essentially have a short position on those assets it sold to the Fed. They NEED the prices of those assets to go down or they will face a short squeeze when the Fed unloads it's balance sheet. But it's no big deal for the banks since they have control of asset prices through the control of increasing lending and decreasing lending which has the effect of increasing and decreasing asset prices respectively. Plus it is also in the Fed's interest to keep the banks solvent, so the Fed will not start selling the assets until it sees that it is safe enough to do so, until they see prices of the assets are low enough so as to avoid a short squeeze on the banks when they do sell the assets.

  162. Numonic says:

    Stibot here's the deal, I understand that saying that the shortage of physical cash is a big issue to the economy sounds crazy since less than 10% of transactions are done with physical cash but I also don't buy the idea that the purpose of the bailouts are to get the banks to lend more basically because lending is done electronically so banks don't need anything from anyone to increase lending, all they have to do is punch the keys on their key boards. Basically if we consider that reserves in a bank are Federal Reserve Notes and nothing else, then we aren't even practicing Fractional Reserve Banking because when banks make loans they don't lend out the Federal Reserve Notes, the loans are done electronically. So there can't be a fraction of Federal Reserve Notes being lent out if no Federal Reserve Notes are being lent out. I can explain it further but simply banks are really practicing a Fractional Reserve Borrowing not lending type system where the banks are limited on the amount they can borrow. Every deposit in a bank is a loan to the bank. Our banking system is very complex because a bank can create an asset(loan) to itself in which it now has just created an asset(loan) and a liability(deposit).

  163. Numonic says:

    But anyway here's my point, the fact is regardless of what effects a shortage of physical cash would have on the economy, if it has any at all, physical cash can in fact be in shortage. Now I see an impending shortage of physical cash. I'm keeping track of FDIC funds. If FDIC funds runs out and no changes such as stricter cash withdrawal limits don't happen then I will come in here and say I was wrong and I don't get it. Or even if stricter withdrawal limits do take place, i'm not even sure how much that would effect the economy. I'm not claiming to have the answers, it's just that the answers that are out there don't make sense to me. What I am saying makes the most sense to me. I to don't believe that a shortage of physical cash would cause any economic problems since physical cash is only used in less than 10% of transactions. So the nation will be able to run without physical cash but I'm just really at a loss as to why so much new physical cash is being created(i.e. monetary base) other than the reason of meeting demand for that physical cash even though I am not even sure the banks have a legal obligation to honor depositors demand for cash withdrawals or if demand for physical cash requires there to be so much more physical cash in the system. I don't even know what any of the banks legal obligations are. I think FDIC legally bars the banks from refusing to credit our accounts when we make deposits or debit our accounts when we make withdrawals. But as far as obligations to deliver physical cash upon demand from the depositor, I don't know if the bank has that obligation. So truthfully i am still lost. I really don't know why they are increasing the monetary base as much as they are and none of the explanations so far make sense to me. I really don't know what's going on.

  164. stibot says:

    Well, i mean do you believe FED has bought as many mortgages and their derivatives or whatever assets from banks? I was not looking for numbers, but i'd not expect that.

    If FED is trying to keep such prices low that indeed should kill many banks, as their leverage is increasing so they are considered to be bankrupt.

    FED is injecting money aiming prices to grow. If prices are high, banks have deposits and system keeps going. But this is the opposite of what i've understand from your comment "the prices of the assets the Fed holds must stay as low as it is now until the Fed has sold all of those assets so to not bankrupt the banks by sucking in all the cash it put in to it".

  165. stibot says:

    Anyway, if FED wants to feed assets back to the banks, it can choose any price to sell at pretending it is market price, maybe because noone even knows the market price.

  166. Numonic says:

    stibot said...

    Well, i mean do you believe FED has bought as many mortgages and their derivatives or whatever assets from banks? I was not looking for numbers, but i'd not expect that.

    Not quite sure what you're asking but yes the Fed has bought allot of assets from the banks. Eric has made blogs about the Fed's balance sheet and you can find that information online fairly easily.

    Stibot said...

    If FED is trying to keep such prices low that indeed should kill many banks, as their leverage is increasing so they are considered to be bankrupt.

    This is true. Keeping the prices of the assets low is hurting the banks but it's really hurting the economy more. Asset prices falling is an effect of rising defaults. Rising defaults are an effect of decreased lending and to a smaller extent rising unemployment(there is a such thing as a jobless recovery because people don't need income to survive as long as the banks are willing to lend and that's the economy we just came out of) and rising unemployment is an effect of decreased lending. So the banks are the source of rising unemployment, rising defaults and falling asset prices because they control lending. But yes the Fed and the banks are between a rock and a hard place.

    But then again, I'm kind of going back on everything I've been saying. You know this thing is kind of confusing. I used to believe that if the Fed tried to unload it's balance sheet right now, asset prices would still be too high and end up causing a short squeeze on the banks when the Fed does it's reverse repo deal. But I don't know any more. Like I said some questions need to be answered. 1. Why are they increasing the monetary base so much? 2. Is there demand for physical cash to the tune of the amount in the monetary base? 3. Are banks obligated to honor depositor's demand for cash withdrawals? 4. Do banks still have reserve requirements? I mean these questions have to be answered. It's kind of hard to see purpose for physical cash(reserves) when you read things like Deposit Reclassification which basically says banks have no reserve requirements. So if there are no reserve requirements the only purpose physical cash can serve is for cash withdrawals. Physical cash basically has 2 purposes, one is to satisfy reserve requirements and 2 is to satisfy cash withdrawals. Now if there are no reserve requirements(which deposit reclassification is basically telling us) then the only conclusion left is that the cash is being created to satisfy depositors cash withdrawals. But why are the banks worrying about satisfying depositors cash withdrawals when physical cash is only a small fraction of what is used in transactions and is there any obligation for the banks to satisfy these demand withdrawals?

  167. Numonic says:

    stibot said...

    FED is injecting money aiming prices to grow. If prices are high, banks have deposits and system keeps going. But this is the opposite of what i've understand from your comment "the prices of the assets the Fed holds must stay as low as it is now until the Fed has sold all of those assets so to not bankrupt the banks by sucking in all the cash it put in to it".

    As far as the part I bolded, I say only if the bank failures are based on asset prices dropping to a certain level. I was debating whether a bank failed because the total value of all the assets it held dropped too low or because it needed physical cash. I lean toward the latter but maybe the banks are failing because of asset prices dropping. But it makes no sense to me because the banks are essentially killing themselves being that they are the ones in control of asset prices through lending like I explained above. So that is why it is hard for me to believe that bank failures are based on falling asset prices. Although in order to influence the public in to accepting the idea of bailouts, bank would have to be failing other wise it would be hard to sell the bailout idea to the public.

    stibot said...

    Anyway, if FED wants to feed assets back to the banks, it can choose any price to sell at pretending it is market price, maybe because noone even knows the market price.

    Hmmm. This is interesting. If the Fed can choose whatever price it wants to sell the assets back to the banks for, then maybe the Fed and banks aren't between a rock and a hard place after all. But here's the thing, does the Fed sell it back to the banks at an extremely low price so as to avoid sucking all the cash out of the banking system or does it sell it at a high price so as to keep banks out of that threshold that asset prices need to be at to be considered solvent? But prices aren't determined by just he say she say. Prices are determined by how well the asset performs. If the asset(loan) is making payments then it is performing well and the value of the asset should be rising, otherwise it should be falling. So I don't see how the Fed can have anymore control, if any at all than the banks do with controlling the value of the assets especially since the value of the assets all depends on how easy/hard lending is. So i disagree that the Fed is in control of asset prices, it is ultimately the banks that are in control of asset prices and they do so because they have control of lending.

    My questions about physical cash's role in this monetary system still need to be answered.

  168. Numonic says:

    I have answered the 4 questions I had. The first question: 1. Why are they increasing the monetary base so much? If you think about it, the only way a bank gets Federal Reserve Notes is by selling assets to anther bank for them. When we deposit money in to the bank, most of the time it is NOT in the form of Federal Reserve Notes. It's usually in the form of a check or electronically as with direct deposit and such. So if it weren't for the selling of assets banks would have run out of Federal Reserve Notes a long time ago as I'm sure a bank dispenses more Federal Reserve Notes than it takes in from it's depositors. So if a bank's only source of Federal Reserve Notes were from depositors, it would have been ran out of Federal Reserve Notes. Knowing this, we can connect the supply of assets to the demand for Federal Reserve Notes. So it's no wonder why they are increasing the monetary base so much because that method of circulating the FRNs by the buying and selling of assets has failed. That method used to help the banks have enough supply to keep up with the demand but demand has outpaced what that method could supply and now banks are reluctant to buy assets from each other because they don't have enough cash to do so. So the Federal Reserve (with it's access to the printing press) started buying the assets from the banks since the banks couldn't do it anymore. The demand for the FRNs to warrant the massive increase in the monetary base was always there, it was just hidden buy the buying and selling of assets amongst the banks. If the banks were never allowed to sell assets to each other and only to the Fed, we would have witnessed this massive increase in the monetary base a long time ago but since the banks could sell assets to each other and that was working to keep enough FRN supply in the banks at a time, there was no need to print more FRNs. Now that the selling of assets amongst the banks have failed, the Fed is left as the lender of last resort. So I guess that also answers my 2nd question: : "Is there demand for physical cash to the tune of the amount in the monetary base?" The answer is yes and that that demand has been there hidden by the buying and selling of assets amongst banks for a while.

  169. Numonic says:

    The 3rd question and probably the most important one is: "Are banks obligated to honor depositor's demand for cash withdrawals?"

    The answer is yes. Plus I read that the Fed has an obligation to buy assets from the banks. Banks have an obligation to honor depositors demand for cash withdrawals and the Fed has an obligation to buy banks assets. How exactly failing to meet these obligations leads to hyperinflation is still beyond me. I guess the alternative to selling assets to the Fed would have been to have the banks implement stricter cash withdrawal limits and if it got bad enough some banks might even stop honoring any and all cash withdrawals. Doing so would mean the banks failed to meet their obligation to the depositors and that could have some detrimental effects. The effects might be like what we experienced during the Great Depression when even though there was an abundance of bank notes there was a shortage of the coin currency(legal tender), so even though we have other forms of currency like debit and credit cards, we'll have a shortage of the legal tender(FRNs). And truthfully FDIC was made to insure that depositors can always get legal tender not just the promise for the legal tender. Even though we are no longer on the gold standard, what happened during the Great Depression was that there was a shortage of the legal tender which back then was the coins we used not the bank notes that promised us those coins. Today we face the same thing, there is an impending shortage of the legal tender(Federal Reserve Notes). Today the legal tender is the Federal Reserve Notes and the coins the US Mint makes. FDIC was created when our legal tender was made of gold and silver but today our legal tender is made of different material, does that change the rules for FDIC? I don't think so, I think FDIC was made to insure the legal tender regardless of what the legal tender was at any time. The banks are between a rock and a hard place. The bank's choices are either: fail to meet the obligations they have to depositors or try to meet those obligations but at the cost of hurting the economy to make asset prices drop massively in order to meet those obligations while unloading the Fed's balance sheet which would risk scaring away exporters who ship to us because those exporters will be unsure if we'll be able to consume like we used to and we'll have pushed them in to focusing on consumption elsewhere, like domestically in their own country. As long as those assets are on the Fed's balance sheet it is like a loaded gun pointed at anyone invested in the US because before the Fed can sell those assets back to the banks, the prices of those assets must drop low so as to not bankrupt the banks when the assets are sold back. Which is another reason the monetary base is being increased as much as it is. The Fed wants to make sure that if/when it decides to sell the assets back to the banks, it doesn't suck the banking system dry of cash. But that means either asset prices have to drop massively low or the monetary base has to massively increase. As much as they are printing, there is a limit to how much they can print as the printing press can only print so fast so they may have to go with the other solution of causing asset prices to drop massively low. Right now they are trying to do both but FDIC funds show that the printing press is failing. And if the printing press is failing that means asset prices have to drop even lower as there still isn't enough cash in the system for the Fed to start selling the assets it bought from the banks without sucking all the cash out of the banks and bankrupting the banks.

  170. Numonic says:

    Anyway point is, the cause of hyperinflation will be that in order for asset prices to go down the economy must go down and that means less consumer spending. Nations that export to us see that our consumerism is dying and decide to start their own consumerism domestically because they are unsure of how long this decrease in our consumer spending will last, if the decrease in our consumer spending ever ends at all. They stop exporting to us and instead stimulate domestic consumption. This decrease in exports to us causes a shortage of goods to us and the price of goods in our currency increase. Given how dependent we are on exports from other countries for goods, the absence of exports to us will cause a massive shortage of goods in the US. And this is how hyperinflation will happen.

  171. Numonic says:

    The fourth question: "Do banks still have reserve requirements?". If the bailouts were truly based on banks not having adequate capital to meet reserve requirements, why then is there excess reserves showing up? "In banking, excess reserves are bank reserves in excess of the reserve requirement set by a central bank ..." What the excess reserves is telling us is that the central bank set reserve requirement is not set high enough to meet the demand for depositors who wish to withdraw cash. So banks aren't failing because they are not meeting the artificial(central bank set) reserve requirements, the banks are failing because they are not meeting the free market reserve requirements(which are the amount of cash a bank needs to meet depositors demand for cash). If the govt. is telling you that banks need these bailouts while we have excess reserves showing up, that means that the central bank set reserve requirements are too low and need to be raised. So do banks still have reserve requirements? Yes they do but the free market is saying that the reserve requirement set by the central bank is too low. The reserve requirement set by the free market is not being met(FDIC funds and Quantitative Easing and the buying of bank assets by the Fed proves this) and we have no excess reserves. The artificial reserve requirement doesn't reflect that. If banks were truly in need of cash there would be no excess reserves. Now i'm not saying that the banks don't need the cash, I'm saying that the central bank set reserve requirments are too low.

  172. Numonic says:

    FDIC only lost $252.1 million this Friday(December 11, 2009) bringing the fund to $18.153 billion. So things seem to be improving. Total loss for the month of November and December so far is $5.146 billion. This may be the first month the average rate of draw down in the fund has decreased, unless these next 2 Fridays remaining in the month have a total loss of $3.854 billion(to bring the total for the 2 months to $9 billion). But I doubt that we will see losses that big for these remaining 2 Fridays of the month. If it was the holiday that caused there to be no losses on the Friday after Thanksgiving then maybe the same will happen on Christmas which is on a Friday. So that $3.854 billion draw down would probably have to happen all on this next coming Friday(12/18/09) but I doubt that it will. So I am saying here officially that things may be improving or rather getting less worse.

  173. Trader says:

    Numonic, I don't live in USA, so I don't know. But I read on other website, some people are saying that they haven't saw any money (FRN) that are printed after 2008.

    The cash circulating are all cash printed before 2008.

    If it is true, where is the so called money printed by the FED?

  174. Numonic says:

    Trader I looked that up and I went to the Bureau of Engraving and Printing website and it says that there were bills printed in the Fiscal Year of 2009. Check it out here:

    I personally haven't paid attention to the dates on the bills I have been receiving though but I will now. But the BEP says it has produced bills for 2009.

  175. Numonic says:

    Yeah Stibot, I've read about that before. Anyway right now I have to say that I believe recovery is a possibility but I'm not sure if we are headed for recovery or not. The economy is on the fence and I'm not sure which way it will fall. My barometers are the FDIC fund and it's draw down average rate per month, the Fed's balance sheet and the average amount of assets it's buying and if/when it starts to sell the assets it holds and to some degree consumer lending or lack there of. As far as FDIC fund draw down, it's showing signs of economic improvement as November and December average the first time the average draw down rate of the FDIC funds has decreased since the crisis began. That says allot. We have to see what the next Friday's bring. As far as recovery, I'm looking for the average rate of draw down to continue to decline. I'm also looking for the Fed to decrease it's balance sheet and sell the assets it has back to the banks. Now consumer lending is semi-important. There may be enough cash in the system for the Fed to sell the assets it holds back to the bank without causing a short squeeze on the banks but that may change if the value of those assets rise. It would mean allot more for the recovery if asset prices could rise even while the Fed is selling assets back to the banks. Asset prices have less to do with the supply of the assets out there and more to do with how the asset is performing, meaning are the payments being made on the asset? If yes, the value of the asset rises, if no the value of the asset declines. Whether payments on the assets are made depends on how much banks are lending, the more lending the banks are doing, the more chance the payments on the assets are being made and the less lending the banks are doing, the less chance the payments on the assets are being made. But if banks are able to increase lending while buying back assets from the Fed without causing a short squeeze on the banks then we can truly say the solvency problem the banks had is over. But even if there isn't enough cash in the system for the banks to cause the value of those assets to rise without causing a short squeeze while the Fed is unloading it's balance sheet, as long as the banks have enough cash to buy back the assets from the Fed at the assets current prices without causing a short squeeze on the banks, this is still recovery because once the Fed has totally unloaded it's balance sheet the banks no longer have to worry about moving any more cash out of the banking system and in to the Fed.

    Contrary to what some people believe, banks didn't loose control of lending with low interest rates of the Fed. The banks didn't loose control of lending. I've explained why banks create assets and it's to keep the physical cash circulating amongst the banks. The faster cash needs to be circulated, the more assets are created in the banking system.

  176. Numonic says:

    One thing I learned yesterday when I was studying about the Fed Funds Rate is that the Effective Fed Funds rate has been less than the Target Fed Funds rate. So that means banks are in fact lending to each other, in fact they are lending to each other more than ever. This makes sense if there is a shortage of cash, as banks need the cash more so the cash is moving around faster and more than it used to in order to keep banks solvent. So here we have banks lending to each other as fast as and as much as ever and yet there are still some banks in need of FDICs help to find buyers of it's assets and are also taking from FDIC funds on top of the fact the Federal Reserve is pumping cash in to the system. That really spells bank insolvency. I'm not sure if the Fed's Target Funds Rate influences the Effective Fed Funds Rate or if it's the other way around, I'm leaning at it being the latter. The Effective Fed Funds Rate is the leader and the Fed is just following it with it's Target Funds Rate. If the Fed raised rates while the banking system was not ready to, the Effective Fed Funds Rate would still remain low as it is the banks that are in control of the rate. The Target rate is just what the Fed wishes the rate was but the Fed has no control over what the rate is. And vice versa if the Fed lowered rates while the banking system was not ready to, the Effective Fed Funds Rate would not follow the Fed's Target Rate down. The banks dictate the Fed Funds Rate.

    This made me realize that the Effective Funds Rate is another factor to watch. The lower the Effective Fed Funds rate the more in trouble the banking system is in. The lower the Effective Fed Funds Rate, the more it shows how in need of cash the banks are. So if the Effective Fed Funds Rate remains low, the banks show that they are still battling insolvency.

  177. Numonic says:

    But as far as steps toward recovery, I can say a first step has been made, which is the average rate of draw down of FDIC funds has decreased for the first time since the crisis began(provided we don't see a $3.8 billion loss in FDIC funds for the remainder of December). The next steps are a continuation of this decrease in the draw down of FDIC funds, the effective funds rate increasing and the Fed unloading it's balance sheet. I'm looking for these to tell me the crisis is over, everything else is a lagging indicator.

  178. Numonic says:

    Fun Fact: Technically more banks have failed than is being said if you count branches which is what I hear how the bank failures were counted during the Great Depression and maybe even the S and L Crisis.

    Check out this few mises institute videos. I don't agree totally with what they are saying. The part where the guy says the Fed writes a check to banks to pump liquidity in to banks, I don't get that one. I understand when the Fed buys Federal Reserve Notes at production costs from the Bureau of Engraving and Printing and then taking that cash and buying assets from the banks as a method to pump cash in to the system.

    Anyway here are the video's they are worth a watch.

    Does Bernanke Have an Exit Strategy?

    Bank Failures: Then and Now;=channel

  179. Numonic says:

    FDIC lost $1.804 billion this Friday(12/18/09) bringing the fund to $16.349 billion. Total loss for the month of November and December so far is $6.950 billion. If the total loss for the two months(November and December) isn't $9 billion then the average draw down rate of the fund will have decreased as it was going up by half a billion every month(avg. 2 months for half a billion though so really a quarter billion every month). We are only $2.050 billion away from that. Also I told you December was going to be a month with a big loss. So far the fund draw down in December is $4.4 billion. I said if the draw down rate continues at the pace it's going we will see a $6.5 billion loss for the fund in the month of December. We are about $2 billion away from that. Although I don't believe Christmas will have any failures for the same reason Black Friday didn't, the holiday. But January and February's losses might make up for that $2 billion shortfall in the rate on top of keeping pace with the half billion increase in the rate, so we have to see. With today's big loss, I'm back on the fence. I don't know where the economy is headed. Last weeks small loss had me thinking that the draw down in funds and bank failures were ending. But this Friday's changed that. I'm still on the fence but lets see if Christmas has any losses and/or what the new year brings. But if it keeps increasing by half a billion for every 2 months, at $16 billion, the fund only has less than 4 months. January = $5 billion, February = $5 billion, March = $5.5 billion, April = $5.5 billion. 5+5+5.5+5.5 = 21. It changed in light of the fact that I found out it was increasing by half a billion for every 2 months NOT every month. At current rate of a quarter billion for every month the FDIC fund will be insolvent no later than Mid April, 2010. If the rate increases, it will be insolvent sooner. But nothing goes straight up, so we may see decreases in the rate from time to time, this month may be one of those times. Unfortunately the periods of decline in rate have been very few, this is the first one since the losses began I believe and I'm not even sure it will be a decline because Christmas may have a $2 billion fund loss. So the situation is bad, everything is pointing to the fact that banks are still scrambling for cash. The effective fed funds rate which is controlled by the banks not the Fed is telling us that banks are scrambling for cash. The Target Fed Funds rate which is how much the Fed is giving cash to the banks is telling us the banks are in need of cash and the fact that FDIC is still loosing cash despite the effective and target fed funds rate tells us that the banks are in dire need of cash. And that tells us that a continuing loss of funds from the FDIC is probable.

  180. Numonic says:

    Yeah Stibot, I thought they would be doing that. So I should expect extra losses to be tacked on to the average increase in losses in January 2010.

  181. Numonic says:

    But I can't help but wonder, if they are able to push losses back a week, doesn't that mean they have control over the losses. On the Thursday before July 4th which was on a Saturday, there were bank failures so they didn't always push bank failures over because of the holiday's. The fact that they are able to go a week without bank failures by choice changes the whole point of the bank failure. I don't know, we'll see what happens these next few weeks.

  182. Numonic says:

    On second thought "imminent" may not be a week in time, it's more likely imminent means at least a month or may be even a couple of months. So postponing failures for a couple of weeks might not mean things have changed, it might mean though that the bank failures that come when the bank failure fridays return will be big. So even when FDIC runs out of cash, it may be a couple of months before we see the effects being that all of this is to prevent the immenent effects of the a cash shortage. These past two fridays aren't a clear case to take because they were holiday week ends. But if the draw downs are not decreasing and the banking problem is still as bad then we should expect the $2 billion that was left off from last month's draw down to appear in addition to the compounded draw down of these coming two months(Jan and Feb). If these next two months(Jan and Feb) don't have a total loss of at least $12 billion from the FDIC fund($2 billion from what should have been in the last two months, and $10 billion total for Jan and Feb) then we can say that the banking problem isn't as bad as it was. Now there are also holidays in Jan and Feb but I don't know if failures can be pushed back any more, if they can I guess that can also be a sign that the banking problem is improving, otherwise $12 billion is the number to look for. Any less than a $12 billion loss in FDIC funds for the month of Jan and Feb means the draw down is decreasing and the banking problem isn't as bad as it was.

  183. Numonic says:

    At $12 billion for the next 2 months, that's like each Friday(8) loosing at least $1.5 billion each. And the chances of 8 Fridays in a row loosing $1.5 billion each are slim so if this crisis is not getting any better, there will be some Fridays(maybe 4 out of the 8) with more than a $1.5 billion loss. And failures have been pushed back these last couple of weeks so if this crisis is not getting better, chances are this coming Friday(1/8/10) we will see a failure of at least $1.5 billion and if we don't, that could be a sign that the problems in the banking sector are getting better. To me, if I don't see at least a $1.5 billion loss in FDIC this coming Friday, I will assume the problems in the banking sector are getting better.

  184. Numonic says:

    FDIC only lost $539.1 million this Friday with it's only one bank failure. I don't know guys, this looks like recovery to me. If it ain't recovery then we are about to see very large bank failures in the near future. But I'm not like those who continue to say that the crash is being postponed. I will recognize and acknowledge recovery when it is here and it looks like it is here.

    To me as far as recovery goes these are the indicators from leading to lagging.

    1. FDIC fund loss average draw down rate decreasing(because I recognize this crisis as a crisis of a shortage of physical cash)

    2. Increase in the FDIC fund.

    3. The decrease in the monetary base.

    4. The increase in effective funds rate.

    5. The easing of credit markets while the monetary base, deficits and Fed's balance sheet are decreasing.

    I think that's it. Unemployment is just an effect of the tight credit markets. Employment is only important in an economy that doesn't have credit and where people buy things based on their salary. I find it crazy how now that we've moved in to this era where credit is tight, you have those suggesting the solution is to have prices drop to levels that are affordable without having to use credit. These people envision a world without credit, where everything is bought based on how much you make and if you don't make enough to afford it you can't get it. That world can't exist without causing riots and civil unrest because most people can't afford a fraction of the stuff they have without credit. It's true it is a trap that they have us in. Credit caused prices to rise too high but we didn't notice ironically because we had credit. We didn't have to pay those high prices, we could borrow or pay portions of the cost over time. Allot of people having debt that stretches past their lifetime. So really they are not paying the price because they will be dead before they ever do pay it. Granted the removal of credit would make the world more productive as people would have to work and produce to get the money to buy whatever they needed/wanted but it's debatable if it's a better situation because what about those people who can't work/produce? This could be mashed up with the whole healthcare debate. I watched the Stossel show where he had the Whole Foods guy on and they were discussing healthcare. The Whole Foods CEO was right that when it is your money you are spending, you will look for the cheapest price. But in order for it to truly be "your" money you're spending you would have to had worked for that money not borrowed it and the issue then comes back to, what about those people that can't work. Some people will tell those people to look for friends and family to help or would just tell them to find a skill, even though they just said they couldn't work. Then there are also those that say don't worry you have to die anyway and if you are saved by Jesus Christ you will have a new body with no ailments. Still doesn't answer the question about the suffering life they had by not being able to get treatment for their ailments or not being able to work to get money for food, clothing and shelter. So it's a debatable issue of whether credit is a good or bad thing. I mean i guess you can make the argument that if people knew that if they are not able to work they will suffer and die that most of the world will be extra careful with their health and well being and more people will be healthy and productive. I don't know, here I go again trailing off with my replys.

    Anyway let's see what this year brings.

  185. Numonic says:

    People at least need to realize that the trend is changing. The FDIC is loosing less money. That's the first step to recovery. The next are the FDIC no longer loosing any money(meaning no more bank failures), the FDIC regaining money in it's fund, a decrease in the monetary base, an increase of the effective funds rate and an easing of credit while the monetary base, deficits and fed's balance sheet are decreasing. The ease of credit can start happening anytime after the FDIC stops loosing money and that ease of credit would be the reason unemployment stopped rising as businesses would be able to get credit and not have to fire people to meet costs. So basically a decrease in the unemployment rate and a rise in bank failures is mutually exclusive. They can not happen together. The more bank failures there are, the more unemployment will rise and vice versa. And the reason is because the cause for the decrease in unemployment is the increase in expansion of credit specifically in that nation. But if bank failures are still going on, it means cash is still needed in the system and if credit is expanding that means asset prices are rising and if asset prices are rising while the Fed is unloading it's balance sheet, those assets the Fed's selling will pull out too much cash. In fact the Fed can't start selling assets until the bank failures stop because doing so would be a contradictory action. The Fed would be pulling cash out of the system while the banks are in need of cash and are showing it by going to the FDIC for it. So you see the source of the recovery is the bank failures. When the bank failures end, that is when we know the recovery has started. And it looks like the bank failures are close to ending. The FDIC fund draw down trend has changed and the FDIC is loosing less money now than it was before.

    As far as the food crisis, as I said China is just trying to fill a void but overshooting which is natural as it can't be perfect. But as soon as there is recovery shown in the US, there will be a shift and the consumption will increase in the US and decrease in China. US prices will increase but China's prices will decrease. But this does not means what you think it means. We will be importing more, like we used to. Those imports will be cheaper than domestic. So there is no hyperinflation. Granted the move will have errors and overshooting that will have moments of high prices(which is where some lucky investors will make money) but long term things will return back to the way they were before the crisis began. US will be the consumers/importers and China will be the producers/exporters.

  186. stibot says:

    Numonic, you believe there will be no tipping point and the US debt can grow to infinite?

    Even if consumers recover, they can not pay the debt, they live on debt. You believe it is sustainable? I don't.

  187. Numonic says:

    Okay Stibot this is kinda long.

    Stibot, recovery doesn't just mean that consumers will start spending again, it means the govt. doesn't have to increase the US debt anymore and in fact can start decreasing it by buying back debt it sold to the Fed and China etc. But I don't think the US debt is a big issue. Because I see debt for it's true purpose and that's just to help move physical cash around. Banks need something to trade to other banks for physical cash because banks rarely get physical cash from depositors. So banks create assets(debt) to use to move physical cash around in the banking system. It's the same concept when the US sells debt to China. Although there is a difference between buying debt and paying down debt. Buying debt and making payments on debt are two different things. If the bank loans me money, the bank has a debt asset. If the bank sells that asset to the Fed, that's different than me paying down that debt. The Fed buying the debt does not influence the price because the debt is not a liability to the Fed, it is still a liability to me and only the payments I make on that debt influence the value of that debt. Some make the argument that if the Fed puts more physical cash(monetary base/reserves) in the system, it gives the banks more power to make loans and thus influences the chances of me being able to borrow money to make payments on that debt but I disagree that the monetary base has any barring on the amount of loans a bank can make because loans are made electronically. So I disagree that the Fed pumping in physical cash/reserves in to the banking system will ultimately cause asset prices to rise. I believe the value of US debt works the same way, buying US debt and paying US debt is different. Buying debt is for the purpose of circulating the physical cash and paying down US debt is for the purpose of keeping the debt yield low. Granted tax revenues are down and tax revenues are one pool in which the govt. gets money to pay the debt but it seems the govt. is able to continue payments on the debt because treasury yields aren't rising too high. I can attribute this to the fact that US commercial banks are lending money to the treasury, which is the equivalent of banks lending money to a man in debt. If that man in debt is able to borrow money to pay down other debt, then the value of that debt that he is paying down/his credit rating will remain strong. So it's as if throughout this crisis, the banks were tightening credit on everyone else except for the govt.(Treasury). Commercial Banks can continue to make loans to the Treasury to help them make payments on the debt, thus keeping treasury yields low. There is no limit to the amount of loans a commercial bank can make, in fact the more loans the better as the more loans it has, the more tools it has to move physical cash around. How do you think we got the over 1 quadrillion dollar debt. If/when banks return to lending this will cause employment to rise and tax revenues to rise and thus the govt. will have that pool to get money to pay the debt, thus continuing to keep yields down.

  188. Numonic says:

    As far as reducing the deficit, when the recovery comes(which means when the banks have enough physical cash) then the govt. will no longer need to create more debt to sell to the Fed for physical cash and if the recovery is strong enough the Treasury can even begin to buy back the debt it created and sold. Reducing the monetary base and the deficit. But reducing the monetary base and the deficit is only to show that the banking crisis is over and that the banks have enough physical cash. But I don't know how much either will be reduced. I used to think that the Fed had to shrink it's balance sheet or there would always be this fear by investors that at any time the Fed may decide to shrink it's balance sheet and in order to do so without pulling too much cash out of the system banks would have to cause asset prices to drop massively. But that wouldn't happen because the Fed works in favor with the banks. The Fed doesn't want the banks to have a shortage of cash otherwise all this infusion of cash would be for nothing. So if you look at it that way, the Fed may decide to keep those assets on it's balance sheet indefinitely and the monetary base may stay as high as it is indefinitely and investors have nothing to worry about because the Fed would not do something that would cause the banks to have a shortage of cash because that would be contradictory to what they have been doing. So as far as deficits coming down, it may not for a while, if ever. But why does that matter? It only matters if you believe that the monetary base ultimately controls the increase/decrease of loans and believe that the current monetary base will lead to uncontrollable hyperinflation as banks will uncontrollably be making massive amounts of loans and won't be able to stop because of the size of the monetary base. That is false. The banks have control of the loans it makes regardless of the monetary base. If today isn't proof then what is? We see the US monetary base many times higher than it was at the peak of the US lending boom and right now US banks are still very tight on credit. That is proof that the monetary base has no barring on the loans a bank makes. The other proof is that loans are done electronically not with the monetary base so banks aren't limited by the monetary base. Technically we are not practicing fractional reserve banking because we are not loaning out reserves. Loans are done electronically. I've been over this in previous replies. Everything is balanced. The effective funds rate influences the target funds rate. It's not the other way round like the Fed would like you to believe. In fact, I believe the Fed tells you that to add that to it's costs. It tells you it provides that duty of regulating the market when it is the free market doing that. Banks are going after the cash as they need it not because the Fed is pumping in the cash. If the Fed raised the target funds rate while the banking system still needed cash, the effective funds rate would not follow. The effective funds rate would remain low. The Fed doing so would make it more costly to get cash from the Fed but it wouldn't change the fact that the banks need the cash, and that need will be reflected in the effective funds rate(which is the rate banks are moving cash amongst each other). And being that the Fed is in favor of the banks, it wouldn't do that. The Fed will follow the banks and provide the banks with what it needs as it has always been doing. This is not to say the Fed can't fail at providing the banks with what it needs as there is a possibility the needs of the banks can far outweigh what the Fed can provide, which is what happened when we went off the gold standard. The banks could not get enough legal tender and so they had to change the legal tender to something that was easier and faster to create(paper).

  189. Numonic says:

    But anyway, point is I think there is nothing to worry about the deficits. it will either be paid down by commercial banks continuing to make loans to the govt. or through tax revenues when banks start lending to the public thus increasing employment. And the Fed would not sell the assets if it threatened to cause a short squeeze on the banks. And it's not contradictory to have the banks return to lending to the public causing those asset prices to rise while those assets are still on the Fed's books as it is up to the Fed on when to sell the assets. So you may ask, why then did the banks cause asset prices to drop. My answer is that, it was a propaganda ploy to get the people believing that the true cause for the bailouts was to stop asset prices from falling when in fact the true reason was to provide the banks with the needed cash as they had an impending shortage of cash. That ploy failed to convince me as I saw asset prices falling and credit tightening even as massive amounts of cash was pumped in to the system. Ironically the people that think they have the answers, mostly in the inflationist side are the ones being fooled by this ploy as they believe that the reason for the bailouts were to keep asset prices from falling. Another reason why they caused asset prices to drop so low was maybe they believed they could buy back the assets without causing a short squeeze on the banks. Hell, maybe they can. The banks may not have been just collecting enough cash to satisfy their needs, they may have been collecting enough to be able to also buy back the assets it sold without causing a short squeeze on the banks. But whether or not those assets are removed from the Fed's balance sheet doesn't matter because the Fed would not do anything that might threaten a short squeeze on the banks as that would be contrary to everything it has been doing so far.

  190. stibot says:

    "But anyway, point is I think there is nothing to worry about the deficits. it will either be paid down by commercial banks continuing to make loans to the govt. or through tax revenues when banks start lending to the public thus increasing employment."

    How nation of consumers can pay deficit? What you are suggesting I read as 'here we are all playing The Great Ponzi-Scheme Game and we will continue the Game to earn for paying our debts also'.

  191. Numonic says:

    Stibot sorry to show you how the real world works but that is true. It's all a ponzi scheme. Debts are paid with borrowed money and the pool of borrowed money can never run out because it is electronic. The only thing that can run out is the physical money and with one central entity being the sole issuer of that physical money, it's a guarantee that it will eventually run out as the reason it will run out is not because the earth doesn't have enough of the commodity used to make that physical money but that giving the power to issue the nation's currency to one single entity puts too much burden on that single entity. You know the saying: "goverment works best when govt. works least", I think that's how it goes, well that can be said for anyone. If you are a doctor you would perform better if you had one patient vs 100 patients, all things being equal. The problem is not what the currency is made of, it is the fact that there is only one issuer of the currency. That's too much of a burden on the govt. and the govt. will fail like anyone else would if they had to fulfill the needs of an entire nation. There are two issues here I'm talking about: 1. Central control and 2. credit(ponzi schemes)

    But yeah it's a ponzi scheme. How it comes to an end is still a mystery to me. I don't think it will ever come to an end. Ponzi schemes have existed forever. I haven't figured out if a world without credit(ponzi schemes) is better than a world with credit(ponzi schemes).

    There's a third issue and this issue is why currencies collapse. The issue is the world abandoning certain nations. I don't know why certain nations are abandoned by the world. Maybe too many nations are consuming to many of the earths goods and that action is a threat to all currencies so the world gets together an picks a nation to abandon to decrease consumption. Which is probably also why we have wars, to decrease the population as a growing population would be consuming too much and cause a shortage of earths goods thus threatening the the strength of currencies. But the only reason why we'd be consuming so much is because of credit. So instead of doing away with credit, these central bankers would rather try to stagnate the earth's population so that the currencies can remain strong. But I still question if getting rid of credit wouldn't have the same effect of depopulation as what would those people that can't work do for money to get food, clothing and shelter. This is an issue I have to figure out. I'd really like to know if we didn't have all this insurance and welfare and unemployment benefits and no credit, how many people on earth would survive? Would enough people be able to work for what they need? Would enough people profit enough to have enough to help those who can't help themselves. I got to figure that one out.

    But yeah it's a ponzi scheme and it's working untill the world decides to abandon your nation for whatever reason, I don't know. Could have to do with a physical currency shortage but again I have to figure it out.

  192. Numonic says:

    I'm looking at my list of indicators and I think I have to rearrange it. I think the effective funds rate has to rise before the monetary base falls because if the effective funds rate remains low, that's an indicator that the banks still need cash. They may not need the cash as bad as they did when they were getting it from the FDIC but decreasing the monetary base might be jumping the gun. The banks have to show that they need the cash less. So the monetary base can't start decreasing until the effective funds rate(which shows how much the banks need cash) rises. The effective funds rate rising should be 2nd on the list and everything else should be pushed down on the list. Actually I have to do the list over.

    And there is a difference between not buying assets and selling assets. And both will happen. The discontinuing of the asset buying by the Fed and the subsequent selling of the assets by the Fed.

    To me as far as recovery goes these are the indicators from leading to lagging.

    1. FDIC fund loss average draw down rate decreasing(because I recognize this crisis as a crisis of a shortage of physical cash) to the point FDIC totally discontinues loosing money.

    2. The Fed's asset buying decreasing(Fed buying less assets) to the point it totally discontinues any asset buying.

    3. The increase in the effective funds rate.

    4. Increase in the FDIC fund.(which means the FDIC is selling assets from banks it was unable to find buyers for back to the banks)

    5. The decrease in the monetary base.(which means The Fed is selling the assets on it's balance sheet back to the banks.)

    6. The easing of credit markets while the monetary base, deficits and Fed's balance sheet are decreasing. Effects would be an increase in employment.

    So we have a few steps to go through before we see real improvement in unemployment. Employment will be the last thing to come in the recovery.

    So if we truly are in recovery what we should see next, considering we are about to see the end of phase one(meaning no more bank failures), we should see news of the Fed decreasing and subsequently suspending it's asset buying programs. Even if banks fail this coming Friday, those bank failures have to cost at least $3 billion total to even consider that the bank failures are not near their end, simply because of the rate the fund was loosing cash prior. So if this is a recovery the next step we have to see is the Fed decreasing it's buying of assets and discontinuing it all together.

  193. Trader says:

    Numonic, I think bank losses will continue again later this year after commercial real estate loan default shows up in banking book.

    So the crisis should not be over yet.

    Things will get better perhaps after 2012.

  194. Numonic says:

    Trader, two reasons I disagree with what you just said is 1. There is still bad residential mortgage debt held by these banks so I don't see why they'd have to wait for the bad commercial mortgage debt to arrive to continue bank failures. And 2. I disagree that bank failures are due to bad debt being held by banks. Rather bank failures are to get physical cash from the FDIC or Federal Reserve because the only reason physical cash is needed is to meet the demands of depositors who wish to make cash withdrawals. And like I said, Even if banks fail this coming Friday, those bank failures have to cost at least $3 billion total to even consider that the bank failures are not near their end, simply because of the rate the fund was loosing cash prior.

  195. Numonic says:

    Another issue is, if the bank failures are over, how much time will there be between the bank failures stopping and the Fed's asset buying stopping? I figure the bank failures stopping would mean the crisis is less severe so the fed asset buying should slow down after bank failures stop but I still don't know how long after bank failures stop will the Fed's asset buying stop. And even when the Fed's asset buying stops, the Fed's asset selling has to start soon after and I'm not sure how long it will take from between the Fed's asset buying stopping to the Fed's asset selling starting. And I don't think US credit markets can start easing until the Fed's asset selling has started, otherwise the assets on the Fed's balance sheet may rise so high that during the selling it will pull out too much cash from the banks, causing the banks to be insolvent. Credit markets staying tight means unemployment remaining high. This could be a very long depression.

  196. Numonic says:

    FDIC only lost a paltry $25 million with only 2 bank failures. I mean did these banks even have to fail, $25 million, that's nothing. I'm telling you, we are approaching the end of bank failures. And if we are not, if for some reason there are larger FDIC fund draw downs later this year like trader says, I will have to rethink the whole reason for the bank failures. Trader, if what you say is true, you are going to have to show me that there is a correlation between debt defaults and bank failures. But in my opinion, the only reason for the bank failures is to get needed physical cash in to the banks that need them for depositors cash withdrawals.

    Anyway bank failures are coming to an end. Next step is the Fed ending it's asset buying programs. I have no idea how long it will take for that to end. But even when that ends we still have to wait for the Fed to sell the assets on it's balance sheet back to the banks before credit can start expanding. I think to cement the recovery, the banks will cause asset prices to drop more before buying back the assets, meaning credit will become more contracted and as a result unemployment will rise and asset prices will fall due to defaults on loans. But if the banks are confident that they have enough cash, they won't have to go through that and instead they will keep credit at the current level while buying back the assets from the Fed. The banks have gotten a little more confidence and they show it through taking less cash from the FDIC, let's see if they have enough confidence to stop taking cash from the Federal Reserve. It's possible that the banks may now have enough cash to stop taking cash from the FDIC but not enough cash to go through the other steps in recovery, which would mean the Fed has to continue buying assets and asset prices have to drop lower before the banks can buy them back. At least the banks are getting closer to getting past the first stage of recovery. It's questionable how long it will take them to get through the other stages of recovery. Even if the banks do get theough the other stages of recovery, I don't think they'll be able to decrease the monetary base much, if they expect to bring credit expansion back to what it used to be. Think about it, the effective funds rate is still very low even in this evironement where there is allot more poor people in the US, if we start to expand credit, that would only create more bank accounts. This might be the US' downfall, the fact that it CAN'T expand credit because doing so would wipe out all the measures it has been taking to keep the banks solvent. This will probably be the reason China drops the peg. The peg is beneficial to China's export market with the US, it discourages China from importing from the US and encourages US to import from China. China will have no use of that since US will be continuing to contract credit and won't be able to expand it because doing so would cause all the measures it took to keep the banks solvent to be meaningless as the low effective funds rate even with poverty in the US and the monetary base being as high as it is shows that the banks still see an impending shortage of cash.

    So it is these three combinations(1. very low effective funds rate, 2. very high monetary base and 3. higher poverty) that spell doom for the US because if there is not enough monetary base with poverty being as high as it is, there definitely won't be enough monetary base with an increase in wealth, which happens through an expansion of credit. So chances are you can kiss US credit expansion goodbye and what China is doing may be more than just making up for lost consumption, it is very likely that China is moving to be a major consumer and it will have to drop the peg to keep it's currency from hyperinflating when they make that move.

    You just witness me go from believing we were entering a recovery to believing the US is doomed.

  197. Numonic says:

    Okay next time I should wait a little because another bank was just added to the list of bank failures and this one lost $271.3 million. So I gotta be patient, they may be adding more banks throughout this week end.

    But it doesn't even matter now because the effective funds rate is the key. It being so low tells us that regardless of the great expansion in the monetary base the banks still have an impending shortage of cash. And chances are that if the effective funds rate is still this low with the monetary base as high as it is, the monetary base probably has to grow many times more than it is right now or poverty has to grow many times than it is right now before the effective funds rate to come down. I hope I am not misunderstanding the definition of the effective funds rate like I did with the definition of seigniorage earlier. Just in case I am I will review the effective funds rate more before saying another word about it.

  198. Numonic says:

    China's Economy in 2010: A Forum at the NYSE video

    It's like 4 hours long but good.

    Part 1;=channel

    Part 2;=channel

  199. Numonic says:

    Judging by the video it seems China has no plans to over consume, that is China does not plan to consume more than the consumption that was lost from the rest of the world and also does not plan to stop exporting to the US. Granted this is a forum for US-China relations, so I don't think they could have came out and said China will stop exporting to the US. So it's still up in the air what China will decide. But so far China has been continuing to meet US' demand even as that demand has been dropping. The question is how can we know if China will continue to meet the US demand or if China will one day refuse to meet US' demand? I don't know, all I know is that there is a floor on consumption, meaning consumption can only drop so far before causing riots and civil unrest due to the rise in unemployment, so the banks and govt.'s will do what they can to bring consumption back up to levels to pacify the riots and civil unrest. I believe we are currently at those prices, maybe just little bit above, so prices any lower would be caused by an increase in unemployment, credit contraction and less consumption and at levels any lower we would see those riots and civil unrest. So we are just about at the floor for commodity prices right now. So all I can say for now is, if there is a large drop in commodities, I would suggest buying some. I can't say whether to sell if the price rises high because it's still up in the air if the world will choose to stop exporting to the US. Basically keep your savings in commodities and sell only when you need or want to.

  200. Sebastian says:

    Gold was at around 1080 dollars yesterday. In March 2008 gold hit 1030 something. Why isn't gold up more since then?

  201. Numonic says:

    Because it was China's expanding consumer credit that was driving the price higher and China's current contraction in consumer credit that has recently driven the price lower. I always thought gold prices were too high. Silver prices were a bit over heated to, but i think the civil unrest floor for silver prices is around $16/oz. This doesn't mean that silver prices have to be around at least $16/oz for govt.s to avoid civil unrest, rather the civil unrest would be due to the contraction of credit and rise in unemployment and as a consequence of pacifying that civil unrest by increasing consumer credit and employment, prices of commodities also move higher.

  202. Sebastian says:

    Looks like inflation is gaining pace again and that quickly. It's way up from just a couple of months ago. That ought to be enough to make people turn to gold causing the price to rise, yet it obviously isn't.

  203. Numonic says:

    Bair says FDIC received the $45 billion from the 3 year ahead future pre paid assessment fees from the banks and says the fund is at $67 billion now.

    Here's the link to the video interview:

    That video was posted on Jan 25th.

    And on bloomberg the other day I saw a video about the Fed getting ready to discontinue it's asset buying programs.

    I'm questioning if we're recovering or if the fact that the FDIC had to do this means the recovery is not here. But if this was able to be done then it means banks had extra cash to give and that means the banks are recovering. But I'm also questioning if Sheila Bair is lying, because how in the world could the banks just cough up $45 billion like that and there still be bank failures. It doesn't make sense, that is why i am doing more research on it right now. It's crazy, I didn't think Bair would just lie like that. This is serious. Bair came out and said that the banks just gave FDIC $45 billion. How can banks be failing at a rate of only a few hundred million dollars a week if they are able to cough up $45 billion . You mean to tell me that the banks could cough up $45 billion but they could not come up with a few hundred million to save them from bank failure, which the FDIC is meant for anyway? It doesn't add up. The banks just gave away $45 billion but they are having a hard time coming up with a few hundred million every week and are failing and going to the FDIC for the much smaller amount every Friday. It makes no sense. Something stinks and I'm going to find it out. It would make more sense if the banks gave the $45 billion to the FDIC and then no more bank failures happened, it would also make sense that if they gave the $45 billion to the FDIC massive bank failures started to happen but the weirdest thing is to have only a small amount of FDIC fund losses with these recent bank failures. How can banks be able to give away $45 billion but not be able to get a few hundred million to avoid failing and taking from the FDIC fund? If anything bank failures would need to stop before banks could even come up with that $45 billion pre payment assessment fee. Bair has to be lying, how can failing banks who can't come up with a few hundred million dollars to save their butt just cough up $45 billion to the FDIC. Mind you they gave it to the FDIC, meaning they could have given it to the worst bank in the nation because that's where the money is going to anyway when that bank fails, so why would banks be failing if the banks just coughed up $45 billion to the FDIC(the equivalent to giving the money to the worst bank in the nation that is about to fail.) When FDIC looses money from it's fund, it's because it can't find another bank to cough up the money to buy the assets of the failed bank, but giving money to the FDIC is equivalent to giving money to any failed bank, so how could the banks be able to or why would the banks give the FDIC $45 billion but not give these Bank Failure Friday banks a few hundred million? The banks know the FDIC is going to give the money to the failing banks anyway so why wouldn't the banks do it themselves if they are willing to give it to the FDIC. It makes no sense. I will get behind this.

  204. Numonic says:

    On top of that she contradicts herself. In interviews, she hopes banks do prudent lending but the in other interviews she says banks need to do more lending.

  205. Numonic says:

    FDIC fund lost $2.052 billion this Friday(1/29/10) and lost a total of $3.419 billion for the month of January which had 15 bank failures. The number of bank failures aren't as important as the amount of money the bank failures are costing the FDIC fund. And with my previous calculations, the FDIC fund needed to loose a total of $12 billion for the month of January and February. So far it has only lost $3.419 billion so if we are to say that things are NOT improving the month of February will have to see bank failures costing the fund $8.582 billion. I highly doubt that we will see that, so I think it's safe to say things are improving in the banking system.

    But Bair has got to be lying about receiving the $45 billion from the banks because these banks can't find a few hundred million dollars to save themselves from failing.

    So I'm not counting that $45 billion. The FDIC fund is now at $12.930 billion. It ended December with $16.349 billion and lost 3.419 billion for the month of January.

    The fund losses are slowly ending. If Feb 2010 repeats January 2010, the total loss for the two months will be $6.838 billion when is should be $12 billion for the two months if we are not having a recovery . But we just may be having a recovery and these bank failure costs prove it, as the bank failures are costing less than they were last year. Which means banks are finding other banks to get cash from but to say that banks paid the FDIC $45 billion is ridiculous because if they did, banks shouldn't be having a problem finding a few hundred million dollars to stop them from going to the FDIC for it. That's like seeing someone begging for a few dollars for food while at the same time giving away $2,000. If they had the $2,000 to give away, they wouldn't be begging for a few dollars.

    Some people believe the bank failure costs will increase when those ALT A and Adjustable Rate Mortgages Reset, I don't know, we'll see. I don't see a correlation between asset prices and bank failures. It might be the scape goat but not the real reason. Being that banks have control over asset prices because the more mortgages that are made the more asset prices rise and the less mortgages made the more asset prices decline and banks can make an unlimited amount of mortgages. And even if it were the asset prices driving the bank failures, the only reason banks would be causing asset prices to fall would be because they needed the cash. So it all goes back to the need for cash regardless if you believe it's the asset prices driving the bank failures or not. If the banks wanted to, the banks could increase lending to allow asset prices to rise to give borrowers collateral to borrow against to get through that iceberg of mortgage resets coming up this year but they are choosing not to, which will be the reason we see allot of defaults when those mortgages reset.

  206. Numonic says:

    Bank failures are ending like I said people. Last week FDIC only lost a paltry $3 million and this week no bank failures. Next is effective funds rate rising and Fed selling the assets back to the banks and causing the monetary base to shrink. Banks might try to take a little extra precaution and tighten credit more to cause more defaults so that asset prices can drop more to make sure that when the Fed sells the assets back to the banks, the banks aren't handing the Fed too much cash. But anyway we are in the midst of the 1st stage of recovery, which is bank failures ending, how long it takes to get through the other stages is anybody's guess.

  207. Numonic says:

    With news like FDIC trying to tap pension funds to replenish their funds, it confuses me because that suggests that FDIC funds are electronic and not physical cash like I thought.

    But all this was to see the likeliness of hyperinflation/currency collapse but I haven't been looking at the real barometer to see the chance of hyperinflation/currency collapse and that is in the percentage of other currencies that have hyperinflated and the truth is that 100% of currencies have been destroyed and that makes the chance of currencies today hyperinflating very high and that's all the reason you need to hold insurance for the day your currency bites the bullet if it happens within your lifetime. You never know when it will happen so just hold the insurance(physical silver) until you die. This is not investment advice, it's survival advice.

  208. Numonic says:

    FDIC lost $7.4 billion last Friday with 7 bank failures, and 7 bank failures the week before and 8 bank failures the week before that. If I still believed in the whole FDIC issue like I did before, I would tally up how much FDIC has lost since I stopped counting which was in February and last amount was $12.93 billion and compare that to the amount FDIC has lost since then. With $7.4 billion in one Friday, that alone brings the total down to $5.53 billion and bank failures in between last fridays and Feb. must have taken a big chunk out of that $5.53 billion so funds would be gone or near gone but anyway that whole thing was confusing with the physical VS electronic money issue. So I'm not even going to bother with it.

  209. I love visiting these old posts to see if the predictions actually came true. It's been almost a year now and the rally is still going strong. Still I would never invest in paper gold. As I keep telling my wife; we can always meld our investment into a nice piece of jewelry.

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