Financial analysts have opined that the United States is well on the road to recovery. They cite various data points to make the case that the multi-trillion dollar bailouts and stimulus have brought us back from the brink of a collapse so serious that Congressional leaders had been told that should the bailouts fail, there was a real possibility of martial law being declared.

We’re doing so well, in fact, that just a couple of years ago President Obama assured the nation of our progress, claiming that we “reversed the recession, avoided a depression, [and] got the economy moving again.”

But were one to take a step back from the rhetoric of talking heads, political leaders and so-called Wall Street experts, a completely different picture begins to emerge.

Just this week it was announced that not only are housing starts plummeting, but permit applications reported their “largest miss in history,” an indicator that the economy is not as healthy as it has been made out to be. And, while stock markets are hitting all-time record highs, what’s curious is that some of the world’s largest companies, including Intel, IBM, Google, Ebay and FedEx, are reporting significant consumer pull back and earnings below analyst expectations.

And if that hasn’t convinced you, then here is the reality of the situation directly from Federal Reserve Chairman Ben Bernanke, the architect of the most massive economic recovery “plan” ever devised in the history of the world.

What Helicopter Ben is saying, despite his pledge to start pulling back the monthly $85 billion (Over $1 Trillion yearly) in stimulus spending by mid-2014, is that if they stop injecting financial and bond markets with capital, the whole system is going to fall apart, just like it was going to in 2008.

There is no way out for Ben Bernanke’s policies. We’re toast either way. If we keep printing, we eventually hyperinflate our currency to oblivion, leaving our entire system of commerce at a standstill. If we stop printing the system “tanks,” as noted by the Chairman.

The end result, any way you slice it, is complete and total detonation of our financial, economic and monetary systems:

Why are European Politicians Arguing over Central Bank Gold 

In recent days we have heard that several G20 leaders of the world’s major economies discuss the possibility of Eurozone countries pooling their borrowing rights at the International Monetary Fund to provide greater leverage for the EFSF. The Bundesbank holds Germany’s Special Drawing Rights, secured by its gold reserves. Apparently, the proposal had caused tension between Bundesbank President, Jens Weidmann, and Finance Minister, Schaeuble, as well as between Weidmann and the ECB.

The Economy Minister of Germany stated that “German gold reserves must remain untouchable!”. The Bundesbank and a spokesman for Chancellor Angela Merkel also ruled out the idea. This argument harks back to the time when the government and the Bundesbank argued over whether to sell some of Germany’s gold in the second Central Bank Gold Agreement. At that time Axel Weber, the then Bundesbank President stated that gold in German foreign exchange reserves acted as a “counter to the swings of the U.S. dollar”.

Prior to that, the head of the French central Bank, M. Noyer, had said that selling gold from the reserves was like “selling the family jewels”. Unfortunately, President Sarkozy was Finance Minister at the time and forced the sale of 600 tonnes of French gold, a decision, we have no doubt he regrets to this day, because of the loss made by selling gold and buying U.S. dollars at the time. Then the gold was sold to support the advent of the Euro. Now the reason for the use of gold is very different.

As we have forecast for so long, gold’s use is being advocated as collateral for Eurozone Sovereign loans.

Of course it is easy to commit someone else’s gold to your cause, but a very different matter to get them to use it as such!

Bundesbank Gold “Off Limits”

Germany’s reaction to the proposal was understandably a rejection of the proposals by France, Britain and the U.S. to have German gold reserves used as collateral for the Eurozone bailout fund. Why should they put their gold as security to the debts of Greece, Italy and anybody else for that matter? To do so would to leave the future of their gold reserves in the hands of other governments that have a record of over-borrowing. Sadly, when other people guarantee your debt, it is almost an invitation to take their money.

Governments that have sold their gold, whether to support the U.S. dollar as it embarked on a future without backing or the advent of the euro, have the bitter memories of selling it far, far below its value today. Britain under George Brown sold half its gold reserves at the horrendous price of $275. The rest of the central bank gold sales over the last decade have been made at below $1,000. Since then, the silence from the central banks and governments that supported such sales has been deafening.

With the visible sight of currencies without any backing and indeed the entire present monetary system weakening, losing confidence and now facing a future of accelerated weakening, governments are keeping a firm grip on their gold. There have been virtually no gold sales since 2009 and from then on we have seen central banks from the emerging world, on a broad front become buyers of gold, led by Russia and, we believe, China.

Isn’t This the Government’s Decision?

Thankfully, gold and foreign exchange reserves are under the care and protection of national central banks and not governments. Central Banks generally act independently of government the world over. And there is a reason for this that goes to the present Eurozone debt crisis itself.

Imagine if politicians had control of their nation’s reserves. Their inherent habit of over-borrowing would have engulfed all these reserves by now years ago. There would be none left, for sure!

Gold and foreign exchange reserves are held to ensure that even in a war situation, the country is able to pay at least their next three months of international trade bills. They are the funds available to governments when all else has been used up.

Gold and Foreign Exchange Reserves are last resort international money.

For a nation to have any credibility financially, these reserves have to be available simply to service the needs of a nation, not their obligations. In wartime, when forgery becomes a weapon of war, gold is still internationally accepted between enemies. Until then, no matter what, these reserves must remain untouched for the sake of that nation. Politicians repeatedly keep pointing at gold reserves to cover their debts and do so as a distraction from the problem. In the Eurozone crisis, we are surprised that this issue has not been raised until now. But here it is and as before, destined to go back to the dustbin.

Capital Flight

But the situation in the debt-distressed nations of the Eurozone is getting worse by the day and not being fully covered in the media. A huge flight of capital is underway draining these nations of the capital needed to continue to function as viable nations. What appalls us is the failure of the weaker nations of the Eurozone, the PIIGS nations, not imposing Exchange and Capital Controls to prevent the wholesale flight of capital from their shores even while using the euro as their currency. The Treaty governing the Eurozone allows this, for relatively short periods. Because they have failed to do this, the capital in their banks has largely left these nations and flown to Germany and the like. Effectively this is a run on their banks. This money won’t return unless there’s good reason for doing so and only if it’s safe from either bank liquidation, a return to their old currencies or free from the danger of government control then. But the horse has bolted.

In addition, the banks holding the debt of these PIIGS nations are selling it off as fast as they can ahead of any write-downs. If you know you are going to have 50% of it written off, it pays to sell it for any price higher than 50%.

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Capital Flight (cont.)

Gold’s Path Back to Center Stage in the Monetary System

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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.  Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

…….TAPERING From Interest Rates – OR – Economic Prestidigitation!

Bernanke Seeks to Divorce QE Tapering From Interest Rates – Bloomberg

Federal Reserve Chairman Ben S. Bernanke will have a chance to use testimony to Congress today to drive home his message that winding down asset purchases won’t presage an increase in the Fed’s benchmark interest rate.

Bernanke has said the Fed may start reducing $85 billion in monthly bond purchases later this year, assuming economic growth meets the Fed’s predictions. At the same time, policy makers’ forecasts have indicated the federal funds rate won’t rise until 2015, long after Bernanke’s second term ends Jan. 31.

… Treasury 10-year note yields were little changed at 2.53 percent as of 8:38 a.m. London time. They touched 2.51 percent yesterday, the lowest since July 5, in anticipation of Bernanke’s testimony, even as economic reports showed that U.S. industrial production rose by the most in four months in June and inflation picked up toward the Fed’s goal, supporting the case for a reduction in quantitative easing.

“He’ll say a slowing in the pace of asset purchases isn’t a tightening of policy, and it’s actually still an easing of policy just at a slower pace,” said Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion, and a former Fed senior economist. “It doesn’t imply that they’re going to be tightening policy any time soon. They’re not.”

Global stocks and bonds retreated after Bernanke on June 19 outlined the conditions that would prompt the Federal Open Market Committee to reduce and eventually end asset purchases. His remarks pushed the yield on the benchmark 10-year Treasury to a 22-month high and erased $3 trillion in value from global equity market value over five days.

Technically, Bernanke can say that he can taper bond purchases without raising the Fed Benchmark interest rate, for he can. He is in complete control of said rate. Reality dictates something a little different though. The Fed benchmark interest rate doesn’t equal market rates. Ask Dr. Greenspan how difficult it is to get mother market rate to bend to your will by simply manipulating the Fed benchmark rate. He lost control (as if he ever had it) of market rates during his term as he tried to play economic god. Expect the same efforts and the same results from Bernanke.

I urge readers to keep in mind what I expoused in Apple Bonds Proven To Have A Nasty Taste wherein Apple bonds lose 9% in six weeks:

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there’s no way to go but up. As excerpted from the Market Realist site:

Consumer prices picked up in June and underlying inflation pressures showed signs of stabilizing.

U.S. consumer prices rose a seasonally adjusted 0.5% in June to mark the biggest increase since February, as the cost of gasoline, housing, medical care, clothing and food all rose, the Labor Department said Tuesday. The energy price index shot up 3.4%, spurred by a 6.3% gain in gasoline. Food prices rose 0.2%. The core CPI, which excludes volatile food and energy costs, also advanced 0.2%. Economists surveyed by MarketWatch had forecast a 0.5% increase in the broad CPI and a 0.2 % gain in the core rate. Consumer prices have risen an unadjusted 1.8% over the past 12 months, up from 1.4% in May. Real or inflation-adjusted hourly wages, meanwhile, were flat in June. Real wages have risen just 0.4% over the past 12 months.

Other data yesterday showed industrial production pushed higher in June as manufacturing output found some momentum.

While both inflation measures remain below the Federal Reserve’s 2 percent target, details of the report suggested the recent disinflation trend was fading, with medical care costs rising. Prices for new motor vehicles, apparel and household furnishings also increased.

Fed Chairman Ben Bernanke, who last month said the central bank would start cutting back the US$85 billion in bonds it is purchasing each month to keep borrowing costs low, has viewed the low inflation as temporary and expects prices to push higher.

Alan Ruskin, an analyst at Deutsche Bank in New York, said the report should “counter arguments that there is a material deflation risk.”