The US Federal Reserve Bails out the Stock Market- AGAIN-…..
With a 25 Basis cut in interest rates the Fed has made it clear that their priorities lie in bailing out speculators, not protecting savers.
This most recent cut is on top of the 50 basis point slash they made in September. To add insult to injury within 24 hours Fed chairman Ben Bernanke stating “the Fed believed in a tight monetary policy”, he then injected a whopping $41 Billion into the market.
Just how dumb does he think investors are?
If you believe the statistics inflation in the Euro zone is running at 2.6%. This is 30% higher than the official 2% target. In the UK the government claims inflation of 2.3% against the target of 2%.
With the meeting of the Bank of England and the European Central Bank on Thursday this week will they follow the Fed and help the speculators at the expense of savers?
Our guess is yes.
With the Euro trading at 1.45 to the US$, (within 50 basis points of the all time high of the defunct Deutsche Mark) the ECB has a choice; destroy the economy or un-leash inflation.
Whichever way they move, the taxpayer losses.
In reality, inflation is much higher than the official figure. You know it is and THEY know it is. Compare your daily expenses to the prices you paid just six months ago.
What does this mean for you?
It means the central banks are more interested in keeping the gravy train running than halting inflation.
To date the central banks have bailed out the speculators to the tune of 100’s of billions (Euro, Dollars, Pounds- you choose which because IT DOES NOT MATTER- it is just inflationary paper) than protecting their citizens- you and I- against inflation that THEY cause by printing money.
In fact, the biggest threat to our futures and our families’ futures is not a falling stock market (economy) it is rising inflation.
The current crisis is being called SUB PRIME CREDIT CRUNCH. Simply put this describes loans made by the banks to those least able to repay: Humourlessly called NINJAS, an acronym for: No Income, No Job or Assets.
What has not been widely reported is the fact that the current “Crunch” is on loans made 2-3 years ago.
These loans were made by commision only brokers at very low “teaser” rates, which generally last 1 or 2 years before being adjusted to standard interest rates.
It is when they are adjusted that the defaults begin.
As a result we can safely say that current defaults are on loans made during 2005- since then banks have continued to lend at a staggering £100 billion ($200 billion E150 Billion) per quarter!
Every quarter, through 2005, through 2006 and up to the summer of 2007. Just a little arithmetic indicates we are at the tip of the iceberg.
The economic cycle today is characterized by rising inflation unstable interest rates, high energy and commodity prices, high trade deficits and stock markets that continue to set records.
In the mid to late 70’s many of these same events occurred which lead to a flight to quality assets that hold their value, while inflation raged for almost 20 years- from the 1970’s through to the early 1990’s.
With its latest rate cut the Fed has declared its intention to support speculators and hold off a recession.
However, a typical recession only lasts about 12-18 months.
INFLATION CAN LAST DECADES.
As we REPORTED IN AUGUST the last time inflation was let loose rare coins as measured by the PCGS 3000 index soared 1000%.
The current crisis has the potential to cause far more pain than anything previously thrust upon us.
According to some estimates, AAA mortgages are trading at a 20% discount- 80 cents on the dollar.
BBB mortgages (sub prime) are selling at an 80% discount, that is to say 20 cents on the dollar, which could still be too much. With Citi Group writing down more than 10 billion we have to wonder how much of this toxic sludge the pension funds hold.
And when they do mark to market (put a price to the sludge) what will be the effect on our retirement funds?
In the seven weeks since the northern rock implosion, this bank has borrowed almost £23 billion ($46 billion) from the UK taxpayer.
Remember this tiny bank had deposits of only £24 Billion (about 10% the size of Citibank’s $700 Billion in deposits).
To date the bail out works out as £300 per man woman and child in the UK, and all to keep afloat a bank that has a market capitalization of £700 million. (give or take a few million, after all- “it is only paper”).
This means not only has the bank blown every penny of its depositors money, there is no end in sight to what the tax payer must pay and could end up costing upwards of £30 Billion pound sterling or $62 Billion dollars, or E43 Billion euros.
Who really cares?
It is just paper, as long as the printing press doesn’t run out of ink the total is unlimited.
When (not IF) this happens within the Euro zone how will citizens of the major economies feel using their taxes to bail out the spend thrifts- who have binged on credit at the expense of the frugal?
The question is do you have faith in the bankers and politicians to put your interest before their annual bonus or re-election prospects?
We think not.
It is for this reason that I would like to say how proud I am of our clients. They have shown foresight, and courage to step away from the crowd and take action. This is sadly lacking in many. Some have listened to us and have yet to take action others have been brave enough to take a step into a market they know little about.
He that last laughs last, laughs longest.
So IF YOU HAVE GOLD, SILVER AND RARE COINS have a giggle, because if you dont own them the only other option is to cry.
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