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    Guest Post: The Coming Rout (In Stocks, Bonds, Commodities and Precious Metals)


    March 8th, 2011

    Comments (52)
    Read by 120 people

    The following article has been contributed by market analyst and contrarian thinker Chris Martenson.

    Editor’s Note: As stock markets, commodities, and precious metals heat up due to a variety of factors, including excessive quantitative easing and stimulus, Chris Martenson warns that prices may be set to collapse. For years we’ve maintained that the longer-term trend for essential goods like food, energy, gold and silver will be higher prices, as central banks the world over, starting with our very own Federal Reserve, continue to intervene in the free market by printing more and more money to stimulate and stabilize the economy. So too have we warned economic crisis and confusion lead to extreme global volatility, not just in financial markets, but geo-politics. As food costs go through the roof, oil approaches $150 a barrel, and gold reaches new historic highs, caution is called for.

    If there’s one thing we should have learned over the last few years, it’s that the consensus is usually well behind the curve, and when everybody believes the same thing is going to happen (in this case, continued rising prices), the exact opposite takes place. If you own a 401k or IRA with stocks, bonds and commodities, we suggest you consider Chris Martenson’s views on what we may see in financial markets in the near term.

    As we did in the summer of 2008, we may now be approaching another breaking point. And as we saw in 2008, nothing but the US dollar was spared. Does this mean you should immediately sell all of your precious metals and other safe haven assets? Chris Martenson suggests not, especially if you’ve planned to hold those asset for a long investment horizon of years as opposed to months. Nonetheless, given what has transpired so far, it is important to understand that nothing is outside the realm of possibility. We urge our readers to remain vigilant, and if Mr. Martenson is correct in his forecast, there may be yet another great opportunity for investment and preparedness, especially in precious metals, in the very near future. If the ‘S’ hits the fan within global asset prices, we shouldn’t be surprised. Rather, we should embrace the opportunity, as it may not last long, especially in investments that have historically been the assets of last resort, such as commodities and precious metals. If Mr. Martenson’s forecasted scenario were to play out, we strongly believe that governments will act immediately, in unison, and without restriction to flood the economic system with yet more monetary stimulus.


    The Coming Rout
    By Chris Martenson

    There’s a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%.  The trigger will be the cessation of QE II and a multi-month pause before QE III.

    This is a reversal in my thinking from the outright inflationary ‘buy with both hands’ bent that I have held for the past two years.  Even though it’s quite a speculative analysis at this early stage, it is a possibility that we must consider.

    Important note: This is a short-term scenario that stems from my trading days, so if you are a long-term holder of a core position in gold and silver, as am I, nothing has changed in my extended outlook for these metals.  The fiscal and monetary path we are on has a very high likelihood of failure over the coming decade, and I see nothing that shakes that view.

    But over the next 3-6 months, I have a few specific concerns.

    It’s time to build on the idea I planted in the Insider article entitled Blame the Victim (February 28, 2011) where I speculated on the idea that the Fed might be forced to end its quantitative easing programs, almost certainly because of behind-the-scenes pressure.

    Here’s what I said:

    How I read [the Fed's recent propaganda tour] is that the Fed is taking some heat for its inflationary policies, mainly behind closed doors, and it is trying to do what it can — with words — to soothe the situation. Perhaps China is making noises, or perhaps Brazil’s finance minister is making the phone lines feeding the Eccles building smoke ominously, or perhaps it is internal pressure coming from politicians with restless voters. Or all three.

    The big risk here is that the Fed will be forced by this rising pressure to discontinue the QE program in June at the normal ending of the QE II efforts. Couple that with a possible federal showdown over the debt ceiling right at the same time, and you have the makings for a massive fireworks display, possibly involving derivative mortars bursting in air.

    At the time, I speculated that all of the Fed’s pronouncements about inflation being almost nonexistent were actually signs that the Fed was taking some behind-the-scenes heat for the inflation its policies was creating.  And I worried about what would happen if the Fed were to end the QE program in June.

    Let’s just say it won’t be pretty.

    Everything would tank.  Stocks, bonds, and commodities.  All of the risk assets that have been unnaturally supported by a flood of liquidity, too-low interest rates, and thin-air base money would give up those ill-gotten gains.  Gold might behave a bit differently, because along with these market declines will come an enormous amount of uncertainty about the financial system itself, usually a condition for higher gold prices.  So I expect gold to correct somewhat, but not nearly as much as everything else, and it could even gain.

    The story is, admittedly, getting more confusing by the week, with some calling for hyperinflation and some calling for massive, outright deflation.  I am trying to surf the probabilities and stay one step ahead of whatever curve balls are coming our way.

    The basic idea is this:  The Fed has been dumping roughly $4 billion of thin-air money into the US markets each trading day since November 2010.  The markets, all of them, are higher than they would be without this money.  $4 billion per trading day is an enormous amount of money.  It’s gigantic by historical standards.  As soon as the QE program ends, the markets will have to subsist on a lot less money and liquidity, and the result is almost perfectly predictable.

    Hello, downdraft.

    The markets are quite substantially elevated due to the efforts of the Fed.  T, and then some, is quite likely to be rapidly eliminated as soon as the QE program has ended.

    It’s really that simple.

    To make the story even more difficult to follow, the Fed has been sending out teams of PR agents in an effort to guide the markets with their words.

    First, on March 2, 2011 Bernanke said this:

    Bernanke Signals No Rush to Tighten When Asset-Buying Ends

    March 2, 2011

    Federal Reserve Chairman Ben S. Bernanke signaled he’s in no rush to tighten credit after the Fed finishes an expansion of record monetary stimulus, seeing little inflation risk and still-slow job growth.

    A surge in the prices of oil and other commodities probably won’t generate a lasting rise in inflation, Bernanke told lawmakers yesterday in semiannual testimony on monetary policy. A “sustained period of stronger job creation” is needed to ensure a solid recovery, and the Fed’s benchmark rate will stay low for an “extended period,” he said.

    The “no rush to tighten credit” statement is a signal that the Fed will neither raise rates at the end of the QE program nor perform reverse POMOs where it reels cash back in and pushes MBS and/or Treasury paper back out.

    Upon the cessation of the QE efforts, and the cessation of $4 billion a day in Treasury buying pressure, it’s a safe bet that market interest rates will rise.  Bernanke is at least on record as saying that if this happens, it won’t be because the Fed has taken the lead.

    Bernanke was being a little bit sloppy in his statements, because stopping QE will serve to tighten credit simply because there will be a lot less liquidity sloshing around the system.  It’s a situation where the absence of excess is the same as the presence of tightness, if that makes any sense.

    Then on March 5th, a much stronger and clearer signal was given, confirming my worries:

    Fed Policy Makers Signal Abrupt End to Bond Purchases in June

    March 4, 2011

    Federal Reserve policy makers are signaling they favor an abrupt end to $600 billion in Treasury purchases in June, jettisoning their prior strategy of gradually pulling back on intervention in bond markets.

    “I don’t see a lot of gain to reverting to a tapering approach,” Atlanta Fed President Dennis Lockhart told reporters yesterday. “I don’t think that is necessary,” Philadelphia Fed President Charles Plosser said last month.

    Whoa.  This is important news.  Not only a cessation of QE, but the possibility of a sudden stop is being telegraphed.  This will change everything.

    The old saying ‘sell in May and go away’ might never be truer than this year, although with this sort of a warning, the cautious investor may want to get a head start on things and sell in March or April.

    For some time there have been rumors that the Fed has been splitting into factions, with some of the inner team becoming increasingly uncomfortable with the QE program and its effects.  But so far they’ve either spoken in code to reveal their displeasure or quietly resigned.  So we’re pretty sure there’s an admirable level of support within the Fed for ending QE, and it has now bubbled to the surface and reached the public arena.

    Of course, there’s some form of gobbledy-gook reasoning being floated to justify the plan for a sudden stop rather than a gentle wind-down, and it involves the distinction between ‘stocks and flows’ (from the same article as above):

    Fed staff members, such as Brian Sack, the New York Fed official in charge of carrying out the bond buying, have argued the total amount, or stock, of securities the Fed has announced it will make has more impact on longer-term interest rates than the timing of those purchases. That’s a view now held by several members on the Federal Open Market Committee, including the chairman.

    “We learned in the first quarter of last year, when we ended our previous program, that the markets had anticipated that adequately, and we didn’t see any major impact on interest rates,” Fed Chairman Ben S. Bernanke told the Senate Banking Committee during his March 1 semiannual monetary-policy testimony. “It’s really the total amount of holdings, rather than the flow of new purchases, that affects the level of interest rates.”

    Fed Vice Chairman Janet Yellen supported that perspective, saying at a monetary policy forum in New York last week that “the stock view won out over the flow view.”

    The idea that Brian Sack, a 40-year-old economist with a PhD from MIT, is winning the day in the argument of “stocks over flows” is somewhat troubling to me.  MIT is a quantitative shop, home to some very brilliant people, but how markets will actually respond is another specialty altogether, one that requires a bit of on-the-street experience.  Markets have a bad habit of not being logical, not fitting neatly into tidy formulas, and ignoring things like ‘stocks and flows.’

    I’ll go even further. I’ll take the other side of that bet and opine that the flows are much more important than the stocks, because it is the flows that support the continued budget deficits of the US government — which, it should be noted, will still be with us each and every month long after June 2011.  Those deficits are baked into the cake and will require in excess of $125 billion in new Treasury sales each and every month.

    Who will buy all the Treasury bonds after the Fed steps aside?  That is unclear.  If there are not enough buyers at these artificially inflated prices, then the price will have to fall until sufficient buyers can be found.  Falling bond prices are at the other side of the financial see-saw from rising bond yields; one goes down while the other goes up, and the Fed has been pressing firmly down on yields for a while via the QE II program.  When that’s over, pressure will be reduced and yields will rise.


    So what to do? For those concerned enough about this possible scenario to consider taking action, please see Part II of this article (free executive summary; paid enrollment required to access). In it, I predict the extent to which stocks, commodities, Treasury bonds and precious metals prices may be impacted in the near term.  I also detail the key indicators to look out for in order to determine if and when this scenario is unfolding - as well as recommended strategies to preserve capital during this corrective phase.

    Chris Martenson is the father of three young children; author; obsessive financial observer; trained as a scientist; experienced in business; has made profound changes in his lifestyle because of what he sees coming.

    As we did in the summer of 2008, we may now be approaching another breaking point.
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    52 Comments...

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    1. TnAndy says:

      I think there is definite merit to the idea this may happen.  Lot of balls being juggled right now, including the ME/NA revolutions along with the various QE’s.  Oil could continue to climb, and that tank stocks/bonds with more flight to gold, or QE could, as Dr. M points out, be halted for a while and tank things.
      I do believe gold WON’T take the hit as bad this time, and may even do better, as the dollar is getting to be a crappy place to park money.  Silver, yeah, probably a pretty good hit.  I almost hope so, because IF it does what it did on 08, I am literally going to “back a truck up” to APMEX.
      Given the current deficit acceleration, I almost don’t see how they can pause QE, even for a short period.  The FED is currently buying over 1/2 the new Treasury debt offered, out in the open ( and who knows how much behind the scene ), take away that, and interest on new issue would have to do what Greece just did….skyrocket to attract buyers.  Problem is, if the average debt gets up to 8-9%, it will take most of the tax revenue JUST to pay the interest…..we’re talking almost instant hyperinflation at that point.

    2. Anonymous says:

      How big is your truck?

    3. Siamslim says:

      This is definately going to happen, when hits bottom,…buy….buy…buy. The correction commeth…

    4. If this hasn’t been posted around these here parts yet, it should have. Great article, especially for the Silver Bugs.
      “The Best article written on Silver in Ten Years!” Jason Hommel
       
      The Silver Bullet and the Silver Shield
      http://dont-tread-on.me/the-silver-bullet-and-the-silver-shield

    5. Jonny V says:

      I got in late, when silver was still around $16/oz.  If it “corrected” and I could get that price again, I’d line up at the coin shop door like I was waiting for Beatles tickets or something!

    6. SmokinOkie says:

      TnAndy- I agree. If pm/commodities prices drop it probably will be just a short term event, and a great opportunity to load up on more silver. I just woke up to much of what’s happening in our world in the last couple of years (better late than never I guess) and I’ve been buying silver steadily in small amounts since the price was at $17 ounce. Since then I’ve been getting a little each week and I’m still buying. My routine for the last year and a half has been that each payday: 1-pay the household bills. 2-increase the food stores (most of that is stuff we already eat and that stores well) 3-increase nonfood stocks such as ammo and medical supplies and household stuff like cleaners/tp etc. 4-add to fuel storage. 5- add to PMs. All of this except the PMs is gonna be consumed sooner or later no matter what happens to the economy so it isn’t money wasted. But if the short term does see a drop in silver then I think it’s a good opportunity to load up. If prices drop it’s important to not panic or abandon the reason for holding gold/silver in the first place. To me, the whole idea of holding metals is either to ride out a shtf that may or may not affect our area and to keep as a hedge toward retirement or pass along to the kids when we die. In either case that too won’t have been a wasted expense. Plus if you are right about the possibility of inflation then they’ll at least be a good place to hold whatever wealth we have through the long haul. In the meantime I’m still trying to enjoy life every day and keep living as normally as possible.
      One more thing- I don’t think the PTB are as smart as we sometimes give them credit for. In my opinion they probably don’t have a master plan to take over everything and everybody in the world. At the same time though, who’s to say this volatility in the markets isn’t PLANNED so they can bring on some sort of crisis to their advantage?

    7. Anonymous says:

      Corrections I’m not worried about.  I have been through three back slides in gold, silver & platinum (the other white metal).  They were painful but didn’t give in.  Never did the Pd thing.  Ratio is what it is all about, not cotton or digits.  Anybody out there converting over or have a plan in the future set on ratio or price? 
      I read that article last week also EA.  Great read.  One speed bump that “I see” that others are not talking about is is Saudi Arabia.  10K troops being moved last weekend & paying off their people to keep the rage down.  This sand enchilada is much bigger than what is going on in their neighboring countries.  To talk about opening up the strategic reserves a week “before” tells me that our government is worried about the toilet backing up in the upstairs white house.  Could be just political or nobody has a plunger.
       

    8. Slim says:

      I got on the train at seven in the morning quite a few stops ago and it’s been a interesting ride.  A few friends got on a few stops later.  Always nice to have friends going the same place.  I bought a round trip so I’m not worried.  It’s to da moon Mac.

    9. SmokinOkie says:

      anonymous- you’re crackin me up with the white house toilet scenario! By the way, are you the same anonymous that keeps shooting down my comments with facts and logic and all that other crap? I wish you’d knock it off. Just leave me comfortable in my own cozy reality, ok?

    10. Anonymous says:

      If it tanks the mail man will think I building another tank or female robot.  I don’t know about the Beatles but I’d take her to see Elvis or Frank this time around.  My next truck will have a pto.

    11. Anonymous says:

      Negative crap here but when it starts backing up that high up, Houston we have a problem, Momma we want to come home, Yea were still here, call rotor rooter, it’s an alien!  Ten Killer & Grand are the best that far in on July 4th.  Shangri-La airport.

    12. clark says:

      “On Monday, Atlanta Fed boss Dennis Lockhart said that if oil prices continue to climb the Fed will make a new round of asset purchases, in other words it will kick off QE3.

      The excess paper money flows into the stock market and creates dangerous asset bubbles around the world. [Guess it's not all "locked up" in the banks as some have claimed]

      Even establishment economists like former Clintonite Robert Reich warn that the rapid in-flow of funny money will simply create another stock market bubble. It is a classic Ponzi scheme designed to reach dizzying heights and then crash.

      Some financial experts say QE2 was not designed to terminate. It was engineered to go on forever, or at least until the entire economy explodes. According to these experts, there was no QE1 and there is now no QE2 – there is simply one long “accommodation” that will eventually spell disaster.

      “The Fed never said that QE2 would end,” notes finance expert James Rickards, “that’s a popular misconception but they never said it. What they said was that they would buy $600 billion of intermediate term Treasury securities by June 2011. They never said that was all they would buy. They never said they would stop. The comments were carefully worded so that $600 billion by June was a targeted minimum but they never said anything about a maximum; technically there is no maximum. The first QE program ended in 2010 and the economy immediately began to fall into a double dip.”…”

      http://www.infowars.com/oil-shock-banksters-ready-qe3-asset-bubble/

    13. Anonymous says:

      I know that the #1 head with blue juice on AF1 is all the way up fwd on the starboard for a reason.

    14. A possibility is that while stocks and bonds tank, people are indeed learning that gold and silver are REAL money and hold real wealth.  The scenario you outline could in fact cause gold and silver to go through the roof as people dump stocks and bonds like hot potatoes.  Where else could they put their money where they are guaranteed at least some value?  Precious metals, of course.

    15. Tom says:

      Even the state of Utah has it figured out.  If the prices tank over here it would be a buying opportunity for the rest of the world.  I don’t buy the story.  Buy the metal now and cost average as it keeps going up.  The common educated bank worker still doesn’t understand and is in the dark less than the moron in the street.  I expect the taxi cap hack to figure it out before the college business teacher gets it together about the next bubble.

    16. Durango Kidd says:

      I think the one most confused is Chris. I don’t know whether he is trying to talk himself into something or out of it. The market goes up, the market goes down. No profit in collapse because there is no new bailout, just jail, at best, for failure.

      Ride the bollinger bands.

    17. Maybe someone could again help this new dumbie out here?
      Isn’t this article a bunch of BS?
      1. Gold might behave a bit differently, because along with these market declines will come an enormous amount of uncertainty about the financial system itself, usually a condition for higher gold prices.  So I expect gold to correct somewhat, but not nearly as much as everything else, and it could even gain.
      This kind of shit (pardon my french but confusing crap like this always makes my blood boil) is forked tongue double speak…it sounds like he doesn’t have a freakin clue and wants to cover all the bases so no matter what he will turn out right.
       
      2. This article (sorry Mac, first and only one read here so far that I think is BS to the point of being very frustrated) reads like one of those BS ads on the Alex Jones shows, where you go to listen to it and it is a 30 minute long diatribe building up and up and keeping you on the edge  of your seat waiting for that one big piece of utmost important information and you get the feeling you’re being suckered by a salesman but curiosity wins out………23 minutes later you find out your gut was right and the scumbag then tells you that that one big real important piece of information is right on the other side of a bill. He doesn’t tell you until the end that if you want to know the only important info at the end of the day you have to pay me some money….I never trust those dirt bags!!
      All I hear everywhere is buy silver, buy silver, buy bars, rounds, pre 1965 coins, now all the sudden someone comes out and goes against the stream and says sell sell sell, everything is going to tank?? WTF??
      I sure hope my mother hasn’t been listening to me and buying silver like I have been begging her to do. She will be pretty pissed at me if the price goes down and she could of saved a bunch of money and bought then rather than now.
      The guy talks about making money when this happens, how the hell you supposed to do that when everything is going down and your losing money??
      Some in here act like Rambo on steroids with a PHD (piled higher and deeper) masters doctorate in BS (bull shit) and critical thinking. Can y’all just slow down, cut the damn code talk out, come back down to earth and talk normal and explain a thing or two?
       
      Sorry for the rant, I am majorly frustrated, stressed and bummed. Maybe I shouldn’t be here trying to understand the super smart people stuff

    18. GIRL says:

      @BJ- It is a confusing article.  I’m a bit confused also.
       
      The question I have, is where is the international role in all of this.  If the logic is that because QE will stop, thus commodities will crash, the scenario that is not mentioned is the potentiality of China and India stepping in to buy as much as possible (especially gold and silver).  If commodities such as food crash, many developing nations with large populations will come in to buy quickly and furiously.  While the US buyers may cease momentarily, there is a whole world of market which must be accounted for.  Not only that, but there is still tremendous liquidity which has not hit the market yet from QE2.
       
      Additionally, the likelihood is that QE2 will seamlessly meld into QE3- if the Fed does not continue to prop up the market then Wall St will go down too.  If they discontinue purchasing Treasuries, then everything will crash, the dollar will devalue, and thus commodities will either retain value or increase in value, while Wall st and the dollar crashes.  Then we would be looking at a complete revaluation of the US Fed Reserve note.
       
      Is my logic incorrect? If anyone can explain to me why the scenario detailed above is not correct I’d appreciate the help.

    19. Rick moss says:

      You can’t handle the Truth…
       
      http://www.DeathByTechnology.us
       

    20. Anonymous says:

      BJ & GIRL, your asking the right questions but answer them yourself.  Feel the force! 

    21. SSPXER says:

      Comments…..

         There will be no major hit in silver.

         You are unlikely to see it below $20 again in your lifetimes.

         The difference between 2008 and 2011?

         Answer: There was no difficulty in taking physical delivery in 2008; the difficulties in Sprott’s ability to take physical delivery to kick off his physical-backed ETF a short time ago is well publicized. 

         Result: Physical shortage is no longer conspiratorialist theory.  It ios clear and objectively proven.

         This means a reaction in silver “paper” will yield very few sellers of physical silver. 

         Which in turn means that demand for physical will not die off while “paper” holders are converting to other investments.

         Gold on the other hand….

    22. AZ Ready says:

      Opinions are like assholes, everybody has one!

      The fact of the matter is we DON’T know what is going to happen, period. That is why we prep and hope our prepping covers all scenerios. Chill out and enjoy life because when it happens we are thousands of steps ahead of the idiots that haven’t listened.

    23. Century International is raising the cost of WASR-10′s. Buy now before the bump. LOL  true by the way.

    24. I don’t see any scenario in which stocks, bonds, and PMs fall in unison.

      There always seems to be a flow of funds from one sector into another.

      When investors make a mass exodus out of the market again that capital is either going into bonds or PMs. 

      I would not be surprised if treasuries have another rally in them but they are running out of lives.

      At some point in the near future investors will realize treasuries are the new toxic asset and PMs are the new safe haven during a time of crisis.

    25. Dylan says:

      “The super simple case for $175 ounce silver”
      If you’re looking for a new source of information for silver investing check out SGTbull067 on youtube. I urge you to check it out
      http://www.youtube.com/user/SGTbull07#p/u/0/klswVIp078M

    26. Bill J says:

      I think there’s a big event that’s coming our way soon. If you look at what happened to the monetary base( currency and deposits at the Fed by memeber banks) after TARP, it exploded. Yet just about all of this increase was dumped into the Fed as reserve accounts for memeber banks most likely because the Fed started paying interest on reserve accounts at the time TARP was initiated. Historically, there’s an increase (about 10 fold) in total money supply followed by an increase in inflation when the monetary base is increased. But the increase in monetary base here was unprecidented (  not of course if you’re talking Germany)- it more than doubled in 2 years, when it took about 20 years to double before. We aren’t seeing the shtf effects of this YET for a couple reasons. First, most if this money is still in the FED reserve accounts. Secound, the increase in money supply and inflation always lag. If you look at a chart of the monetary base, you’ll see it’s recently decreasing – I haven’t heard of the treasury pulling currency out of circulation, so it’s more than likely happening because member banks are pulling thier reserves out of the FED and putting into the system. Couple this with the fact that the FED is buying most of the gov deficits (use to be 10%, now i believe saw that it’s about 70%) and that the gov shows no signs of taking massive deficits seriously, we are about to hit massive inflation, if not hyperinflation soon. I wouldn’t bet on PM’s crashing, but I am betting 50# bags of rice will soon become priceless.
      To BJ, don’t stress about the possibility of a short correction in PMs. If it does happen, it’ll be very short lived. There is absolutely no way the massive increases in the monetary base by TARP, the massive increase in the money supply by QE, or the massive increases in the money supply by the FED being the major buyer of gov debt can do anything but destroy our currency. PMs will be around a lot longer than the dollar will.

    27. GIRL says:

      Thanks for that post Bill.  Your logic makes perfect sense, especially the part about reserves being pulled from the Fed.  The liquidity typically hits markets in 3-10 months, so I’ve read, so it makes intuitive sense what you are saying is correct.  There is really nowhere else left to store ones’ assets except in precious metals, if even treasuries and bonds are no longer safe.

    28. clark says:

      Fact?:

      “…producers are claiming marginal prices of around $5/oz. At today’s spot prices, that’s probably a $20-$25/oz spread. I can’t see that lasting as even the most marginal producer can probably turn a profit on those spreads…”

      http://www.economicpolicyjournal.com/2011/03/charlie-sheens-plan-to-squeeze-silver.html#comments

    29. Bill J says:

      GIRL:
      Actually, there are other places to store it. Before I’d even worry about PMs, I’d make sure food, supplies and protection (guns, mace,baseball bats or what ever floats your boat) would be anyone’s top priorities right now. I was reading an article a while backthat really got into the details of what happened in Germany leading up to , during and after the collapse of the Weimar Republic. The similarities to what the U.S. is going thru now are startling. It took well over a year for the shtf to take effect in Germany. The first results of boosting their money supply was increased employment, a booming stock market and the sense that everything was getting better. Look up ‘Dying of Money: Lessons of the Great German and American Inflations’ on the web. There’s a website that has the book in full text for free viewing. There’s info about what type of wealth was able to survive the German collapse and would probably hold true with what we are most likely to experience. It’s a pretty good read.

    30. Durango Kidd says:

      GIRL: The increase in reserves was unprecedented (Bill J) because the potential losses from additional forclosures and derivatives is unprecented. As the banksters work out the mortgage forclosures, the reserve requirements (liquidity and potential insolvency) are impacted.

      Most of the money being created is to provide for the orderly resolution of mortgage losses; with potentially ten million more to come. The FED’s target goal is 3-5% inflation to increase the underlying value of the FRS balance sheets of the member banks.

      As long as the economy is artificial, QE 2 will continue to QE 3. If the economy actually ignites later this year, QE 3 won’t be necessary. QE 2 and 3 are not designed to be a stimulus to the economy. Any benefit to the economy is purely co-incidental.

      QE 2 is a BAILOUT on a monthly basis and will probably continue as long as the banks continue to hemorrage mortgage losses.

    31. Bill J says:

      Durango: The problem I see is look at whats happened to the money supply during all this. It’s grown steadily, with just a very small spike up after TARP. The amount the banks put in the FED reserve where much higher than the 10% required for fractional reserves. They were almost tripple of what they were before, yet you don’t see a corresponding drop in the money supply to match this 1 trillion shifting of reserves. Of course, don’t forget that as part of TARP, the FED began paying interest on the reserve accounts – the FED’s attempt to keep the banks from dumping the trillion directly into the economy. On a side note, funny how the public was sold TARP partly as necessary to keep us out of a credit crunch – to get money into the economy, yet having the FED start paying interest on reserve accounts was intended to keep that money out of the economy, which it precisely did.
      Also take into acocunt that Fanny and Freddie are backing over 90% of mortgages out there – and that means backed by the gov with the banks getting out for pennies on the dollar. What we were told TARP was for and what it was really for are proving to be two different things.
      The FED can only keep paying interest on those reserve accounts for so long. Besides, you think the banks are really more concerened with keeping the cash out of the system for the good of the citizens when there’s more quick money to be made out there? It appears that it’s starting to seep out now.
      I do agree that the QEs will keep on rolling out. We’re beyond the point of no return. I’ve been looking at the auction reports for the treasury buy backs by the FED, plenty of customers out there dying to dump their treasuries, way more than the FED can keep up with.

    32. Anonymous says:

      You are correct Howard.  I haven’t lost one ounce yet.  What do you think about your last post Clark?

    33. PO'd patriot says:

      Comments….. Hold that silver in one hand and our fiat money in the other. Even if silver and gold do take a hit, in what hand do you place the most confidence in?

    34. GA Mom says:

      The difference between 2008 and 2011?  In 2008 we still had an America-loving President – not 100% competent but he did love this country. 

      In 2011 we have a President who wants to “fundamentally transform the United States of America”.  Even his wife said she has never been proud of America until he was elected. 

      The fascist in the White House wants to change our lives forever – and not for the best either.  We will be assimilated into the collective, no longer free individuals. 

      Watch your back.  The plan is almost complete.

    35. clark says:

      Anonymous at 3:33 am, I think there are eight reasons to own silver and that’s not one of them.
      How it plays out over the short term is uncertain but it does seem to help support the claim of a coming rout.

      “I am not selling my silver or dollars, says Jim Rogers:

      …Rogers said: “I still own my silver. I am not sure if I would buy it today as it has gone up so much so fast, but I am not selling it and if it goes down, I will buy more silver”…

      “…As a class between agriculture, energy and metals, I would rather own agriculture and in precious metals, I would rather own silver than gold,” he added.”

      http://www.bi-me.com/main.php?id=50266&t=1&c=36&cg=4&mset=1041

    36. I don’t know all the economic and financial market differences between 2008 & 2011……but I do know the political differences. The political differences are in window dressing and appearance…ONLY. The majority of the American population unfortunately just hasn’t figured that out yet.

    37. yourdaddy says:

      GAMom-

      Gotta respectfully disagree with you on your “Bush vs Obama” premise.  While I align myself much closer to what Bush presented as his core values, to believe that he was a patriot indicates you might be a “dyed in the wool Republican.” 

      His family’s roots go back to “Skulls & Bones” at Yale.  His father (while President) called for a “New World Order” in both a 9-11-90 speech to Congress, and again on 9-21-92 to the United Nations. 

      They are both members of the Bilderberg group and Bohemian Grove.
      And make no mistake about it are on the SAME team with the Clintons, Obamas, Rothchilds, Kissengers and a long host of others that have been implementing what you referred to as, “their plan that is almost complete.” 

      On that point, you are deadly accurate. 

      You are free to hold to your political ideals and promote those who lead (have lead) that party, but doing so in this forum only undermines your credibility as the Bush family is knee deep in this with as much blood on their hands as the Obamas could ever hope to obtain.
      -Dad

    38. GA Mom says:

      Dad

      You are of course entitled to your opinion too.  I beleive he was patriot and is worlds away from what we have in the white house right now.

      As I said, Bush was not perfect but obama clearly despises every single thing about America.  He is the worst possible guy for the job that we could have ever put in place. 

      Better get used to obammy.  When 2012 rolls around, he’ll be the first dictator of whatever we are called then.  Communist States of America? 

      I vote libertarian when one is on the ballot.  Which is rarely.  And I waste my vote too. 

    39. Bill J says:

      Correction to my post about Fannie and Freddie backing 90% of mortgages. Together, they’re actually backing about 70%. Just read an article that it’s actually a combination of Fannie, Freddie, and Ginnie Mae that’s backing and/or an under writer of an estimated 97% of mortgages still outstanding. And of course, guess who’s ultimately responsible for cleaning up after the Mae’s orgy fest?

    40. Brett says:

      I hear a lot of bravado about buying PMs after QE ends during the (what everybody claims will be brief) deflation to follow.
      And what if there is no QE3?  What if the the Feds realize QE is threatening the Oil supply and can’t be continued?
      If there’s a severe sell off and implementation of austerity, how many of you are going to STILL be so bold to lay out your remaining cash for PMs if they are going down, when your job maybe in doubt of being cut in the austerity?
      It’s going to take real nerve to buy into falling prices and a quickly worsening situation.
      Everyone says QE is wrong yet claims we can’t stop. Everyone says money printing will be the end of us yet the cessation of it has them claiming that’s impossible.   If tightening ones belt is the ‘cure’ then are you prepared to survive the ‘cure’.
      Perhaps the blogs name should be changed to SHTCure_plan

    41. clark says:

      Bill J asked, “…guess who’s ultimately responsible for cleaning up after the Mae’s orgy fest?”

      The Chinese People who invested their retirement savings into it?

    42. Durango Kidd says:

      Bill J: I agree Bill, but I don’t think the banks do anything for the good of the citizens. I believe they do what is good for the banks. Any benefit to the economy is strictly co-incidental. So any “excess reserves” that they keep on hand is intended to be absorbed by the anticipated losses. And the interest that they are paid is designed to enhance their profits so they can provide $135 billion in bonus’to top management without the American taxpayer taking up arms.

      If TARP was intended for a stimulus we would already be zipping along and QE2 and 3 would not be necessary. Tarp was intended to make the PTB whole.

      All that money in the system and some of it it is just starting to “creep out”? No, consensus probably reached that it is time to induce inflation to raise asset prices and protect the balance sheets of the member banks.

      Additionally inflation is intended to reduce the value of the dollar by as much as 50% over the next three to five years if the SdHTF and the creek don’t rise. No collapse and no hyper-inflation but double digit inflation. DD inflation is not hyper-inflation, folks, although it might feel like it.

      This financial environment is good for commodities but not pocketbooks. And I can’t see it helping real estate all that much as the demographics for RE are over. Maybe enough to keep those mortgages underwater now, to get their heads above the water line to induce those homeowners to keep paying the banks.

      Inflation by a thousand cuts.

    43. Durango Kidd says:

      GA Mom: Yourdaddy is absolutely correct. The last four presidents have been traitors to this country and have conspired to dissolve the US Constitution and replace it with NAFTA, NAU, and the NWO.

      The US Constitution is the only thing that stands between freedom loving people everywhere in the world and One World Government: which is why the Globalists (read: Gangster Banksters) have been working working and lobbying  so hard against it.

      Read: SHTF America    “Illegal Immigration” or “America In Crisis”

    44. You can’t eat gold and you can’t eat silver.  Failing to plan ahead in a rational manner is what doomed every major civilization in history.  Buy silver at the bottom?  Great.  You still can’t eat it.  Your silver and gold are worth FACE VALUE and not a cent more. ~IF~ anyone will even trade for it.

    45. @DK,
      IMO it would be many more presidents than the last 4. Good ole boy Reagan the Republicans want to prop in in worship is responsible for REX 84 and really ran with FEMA powers…whether your intentions were good or not…ignorance is no excuse. I don’t think we have had an admirable and constitutional minded president in generationS…..JMO

    46. I hate not having an edit button………that was supposed to read “prop up in idol worship”
       
       
       
      Mac…..any idea on when the email notification thingy is coming back?

    47. Last time…I hope….LoL
      “Whether HIS intentions were good or not”
       
      Sorry DK, I read that again and realized how it came across

    48. Anonymous says:

      Dr Tom, you are funny.

    49. Chris C. says:

      I agree with most of the comments here. I believe we will have 1-2 years of increasing inflation before the final blow arriving in the form of hyperinflation, which is a currency event, not a financial one. Completely different animal from inflation.
       
      I agree that Tarp was really designed to plug the bank’s balance sheet holes as they continued to absorb mortgage losses, all the while being sold to the public as a panacea to the credit crisis. What’s unclear to me is how much, if any, of those “excess” reserves are leaking out into the economy, but as one reader wrote the Fed cannot pay interest forever, and then the banks will have a decision to make. However, as the mortgage crisis continues (and gets worse), how does the Fed sell any of its mortgage related securities to begin to dry up some of this extra liquidity in the form of reserves? It can’t, for fear of exposing the true depths of the housing market.
       
      All the Fed can do is continue to buy through QE(?). I think it is baked in the cake, until eventually everyone in the world can see how mathematically impossible it is to roll-over existing debt, let alone pay off any of it.
       
      This is a crisis of confidence.

    50. James Woroble Jr says:

      Protecting from a COMMODITY AND STOCKS DOWNWAVE…
      originally published March 10th, 2011
       
      The so called economic recovery since the 2008 financial crisis is not genuine – it is a veneer created by manufactured money. It is analogous to an individual who is already deeply in debt being suddenly granted a massive increase in his line of credit and going on to live the high life until he arrives at his new debt ceiling. The chief planks of this policy of precrastination are massive increases in the money supply coupled with rock bottom interest rates to mitigate the impact of ballooning debt. There are only two ways that this can end. One is that time is called on the debters by choking off the monetary spigot, the other is that the money supply is ramped exponentially to keep the party going and put off the day of reckoning as long as possible. The former will lead to an economic implosion, while the latter will lead to hyperinflation. Given the instinct of politicians for survival it is reasonable to conclude that they will choose the latter course.
       
      [CONTINUED]
      http://www.clivemaund.com/article.php?art_id=2463
       

    51. GrayFoxGreen says:

      Great Article!
      I noticed that this week we had one day where BOTH the metals and the stock market AND oil dropped quite a fair bit.I suspect that ALL these are being manipulated by those in whom we used to place our  trust.I’m beginning to wonder if there’s actually any Gold left in Ft. Knox?One of Britain’s prime ministers sold almost all their gold at nearly rock-bottom prices not all that long ago(one of the reason’s that they are in such big trouble as the U.S..I heard from my sources that Mr. O is “fast tracking” the process to allow MORE rigs in the gulf with little oversight on their safety mechanisms being installed(more we trust you to do the right thing,Mr. corporate oilman).Guess one massive oil leak wasn’t enough of a killer,we need more!And by the way anyone visited the Gulf as of late?Just a last thought,My favorite new theory comes straight from Bill Mahr’s show on HBO.Last week Gloria Steinem(sorry if I mis-spelled her name)said it’s all a plot to get total control of our little people lives,money and how much we’re allowed to have,buy and family life.Looking at what’s happening,it seems to make some sense and explain things like TSA just to name one(like the TSA doing “road checks” in Texas for example).We’ll soon find out,I’m thinkin’.
      Best to all
      GFG

    52. Chris C. says:

      GrayFoxGreen,
       
      Is there any gold left in Fort Knox? Good question. No independent audit since the 1950s – you be the judge.
       
      Be weary of Bill Maher. I say this only because he buys the “official” account of 9/11, which is the main reason why I started tuning him out. Just a bit of advice. Take it or leave it.

     
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