March 15 (Bloomberg) — Money market interest rates at five-month highs show the Federal Reserve is laying the groundwork to siphon a record $1 trillion in excess cash from the banking system and sending a bearish signal on Treasuries.
“Russell Comment — Uh oh, it’s starting, Ben Bernanke is beginning to get cold feet, and now he wants to begin cutting back on Fed largesse. When that happens, we’ll see how our “improving” economy fares without the stimuli and quantitative easing (money printing).”
“The 30 year T-bond shows the bond in a huge head-and-shoulders top. The long blue line identifies the support, which comes in at about 115. If the long-bond breaks below 115, the whole situation is going to change. This would mean that the US is having trouble selling its debt.”
“I’ve said this repeatedly — the central banks can continue to inflate until the bond market says they can’t. So far, the bond markets are shaky, but basically they have held together.”
“The word most often used to explain what’s happening is “deleveraging.” As this occurs, unemployment stays high, profits are squeezed, and tax receipts to cities, states and the federal government are diving. The result of the whole process boils down to one phrase — massive DEBT in the face of collapsing income and chronic unemployment.
The situation has now moved beyond people and cities. It has moved to nations such as the widely-talked about PIIGS — Portugal, Italy, Ireland, Greece and Spain. Greece has swallowed the kool aid and is now on a tough, disciplined course. This Greece has been bailed out by the now-shaky Euro Union. However, the Greek situation brought to the front the questioning of all sovereign debt. Default swaps are now available on most sovereign debt, so you can buy insurance on the safety of any sovereign debt including even the debt of the US.
The initial result of all the above should be deflation. The world is already awash with goods and merchandise, more than the world’s population can possibly consume. As buyers pull back on their consuming (particularly American buyers) prices will be forced down. This deflationary trend in prices will scare the hell out of the central banks. Their reaction will be that they will battle deflation as never before. A tidal wave of fiat money will roll out across the planet. This will have the effect of lowering the purchasing power of all fiat currency. And it will be the time for gold to shine.
Let me simplify it. The greater the debt, the more acute the deflaltionary forces. The more debt and the less consuming, the greater the bearish-power of the deficits and the more deflationary the pressures. The greater the deflation, the more fiat money will be created by the central banks. The true solution will entail sacrifices that are greater than the people are willing to accept. In the end, the politicians want to please the people, since that’s where the votes are. In the end, a new monetary system will have to be created. The dollar will lose reserve status to a basket of currencies, which will include gold.”
Gold since 1985 (posted by Money Talks – click HERE to see a larger chart)
Richard Russell has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. Amongst his achievements Richard was in cash before the 2008/2009 Crash and he has been Bullish Gold since below $300
Ed Note: Richard Russell is bullish Silver and holds one of the largest single positions he has held since the 1950’s in the precious metals.