The Federal Reserve Notes are getting Crushed!

Under it's Alias known as the "dollar". The term Dollar was coined after the Spanish 'Diablo';a silver coin which was the most trusted currency in the world at the formation of the American Republic. The dollar has now been unmasked, how low it will go no one knows. If you are looking for A Wheelbarrow to carry all of those soon to be useless Federal Reserve debt notes, they can be had at Amazon right now.

Sept. 22 (Bloomberg) -- Treasury Secretary Henry Paulson's plan to end the rout in U.S. financial markets may derail the dollar's three-month rally as investors weigh the costs of the rescue.

The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion, according to Barclays Capital interest-rate strategist Michael Pond in New York. While the rescue may restore investor confidence to battered financial markets, traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates.

``As we get to the other side of this, the dollar will get crushed,'' said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion.

The dollar fell against 14 of the world's most-traded currencies on Sept. 19, including the euro, as Paulson unveiled the plan, while the Standard & Poor's 500 Index rose 4 percent. The plan may end the rally that began in June and drove the U.S. currency up 10 percent versus the euro, 2 percent against the yen and almost 13 percent compared with Brazil's real, strategists said.

Paulson's plan, sent to Congress Sept. 20, would mark an unprecedented government intrusion into markets and increase the nation's debt ceiling by 6.6 percent to $11.315 trillion. Officials may also start a $400 billion Federal Deposit Insurance Corp. pool to insure investors in money-market funds.

Dollar `Downdraft'

``The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis,'' said David Woo, London-based global head of foreign-exchange strategy at Barclays, the third- biggest currency trader, according to a 2008 survey by Euromoney Institutional Investor Plc.

Paulson and Federal Reserve Chairman Ben S. Bernanke began plotting the rescue last week after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy, the government seized control of American International Group Inc. and Merrill Lynch & Co. was forced into the arms of Charlotte, North Carolina-based Bank of America Corp.

Morgan Stanley dropped as much as 44 percent Sept. 17, the biggest one-day decline in its history, and Goldman Sachs Group Inc., where Paulson was chief executive officer from 1998 to 2006, lost 26 percent. Both are based in New York.

Dollar Hegemony

The dollar fell 2.5 percent to $1.4831 per euro as of 4:05 p.m. in New York, after dropping 1.7 percent in the week to Sept. 19. It slid 2.1 percent to 105.24 yen, extending last week's 0.5 percent decline.

In the four days following Lehman's bankruptcy, the ICE future exchange's Dollar Index, which measures the currency's performance against the U.S.'s six biggest trading partners, dropped 1.2 percent. It fell 2 percent today, leaving it little changed this year.

``After years of doubting the hegemonic status of the dollar, this proves it's still there,'' said Stephen Jen, London-based head of research at Morgan Stanley. ``But of course this situation is definitely not stable. The capital leaving the emerging markets is only going into the dollar and that's a powerful force. It's a very uncomfortable balance.''

By the end of the year, the euro will weaken to $1.43 and the yen will trade at 108 to the dollar, according to analyst surveys by Bloomberg. The dollar will depreciate to 1.65 against the real, compared with 1.83 on Sept. 19.

Growth, Deficits

Although the dollar may suffer short-term, at least one analyst says the U.S. government's planned rescue will strengthen the currency before long. Paulson's proposals will return foreign-exchange markets to the trend of the past months, according to Adam Boyton, senior currency strategist at Frankfurt-based Deutsche Bank AG, the world's biggest currency- trading bank. Since the end of June, the Dollar Index has gained 5 percent.

``It's a positive plan that's ultimately good for the dollar,'' said New York-based Boyton. ``It reduces risk and volatility and gets the focus back on macroeconomic fundamentals, which suggest weakness throughout the rest of the globe next year, with returning strength in the U.S.''

The U.S. economy may expand 1.5 percent next year, according to the median estimate of 80 analysts surveyed by Bloomberg. That compares with 1.1 percent for the euro-region and 1.15 percent for Japan, the world's second-largest economy.

`Huge New Supply'

The rescue comes as the U.S. budget deficit and the current-account balance, the broadest measure of trade, grow. The Congressional Budget Office projects the spending shortfall will increase to $438 billion next year from $407 billion. The current account deficit is up from $167.24 billion in December.

``Investors may start to worry about the amount of debt the U.S. is taking on and its impact on the dollar,'' said Geoffrey Yu, a currency strategist in London at UBS AG, the second- largest foreign-exchange trader. ``The fact that they mentioned taxpayer money implies that they're going to issue debt. If there's going to be a huge new supply of Treasuries, this will be dollar negative. It's too much for the dollar to take.''

Traders are also concerned the bank bailout will spread to other U.S. industries suffering from the credit crunch that's holding back an economy growing at its slowest pace since 2001. Detroit-based General Motors Corp., the world's biggest automaker, said last week it will tap the remaining $3.5 billion of a $4.5 billion credit line to pay for restructuring costs.

`Damaged' Currencies

Lower interest rates may also weigh on the dollar. Futures on the Chicago Board of Trade show there's a 45 percent chance policy makers will lower their target rate for overnight lending between banks to at least 1.75 percent by January from 2 percent currently. A month ago, they showed a 50 percent chance of an increase to 2.25 percent.

Rates in the U.S. are already the lowest of any Group of 10 industrialized nations except Japan, where they are 0.5 percent. The European Central Bank's benchmark is 4.25 percent.

Another drawback for the dollar is that the Fed's key rate is 3.4 percentage points less than the rate of inflation, the most since 1980, so investors lose money by investing in short- term U.S. fixed-income assets. Source

Silver Shortages grow!

I would love to go into the precious metals business and start dealing in bullion. This would be an excellent business because as we enter this bull market, more and more people will want to buy metal, and business will be booming. Additionally, I sincerely believe in the moral benefit to owning gold and silver coins, so I would feel very good about getting gold into the hands of people, and out of the clutches of the evil central bankers who stole it in the first place. I believe I would be providing a genuine service to humanity by helping people protect their wealth, and I would be fighting the good fight against central banking, which is a cause of much misery in the world.

Unfortunately, I know default is coming. I know that eventually, the time would come when I would take larger and larger orders, and then, I would try to buy gold and silver in New York, and I would get nothing after having placed the order. I believe the coin dealers in this country are real heroes to continue their business in the face of such danger. Essentially, I know that the situation is like a con game. Confidence keeps the game going, and I do not have confidence in the New York price, unlike our heroic coin dealers. I've talked to coin dealers about this, and they shrug it off, saying that's just the normal risk of doing business, just as there are risks in any business. I think that's an amazingly heroic attitude to have.

On April 4, 2008, I warned against holding paper futures contracts, because you need to be able to stay fully invested and holding on to your physical metal that you might not be able to replace during a shortage, caused by 50% price dips.
I Don't Trade Futures April 4, 2008

Key Excerpt:

Silver is volatile, more than gold. In Gold's last bull market, gold dropped nearly 50% in 1975, from about $250 to $125, and didn't recover for 4 years.

What if silver did that? Or worse? Could you sustain that kind of loss in futures? Could you ride it out? Not in futures that only go out 2 years.

How can you protect yourself from such an event in silver, in this bull market? Would you have to use less leverage? Or buy longer dated options that don't exist? Should you put down 75% of the money for your silver position, but not hold the silver and still risk a delivery default?

Futures and Silver are fundamentally different things.

Futures expire. Silver does not.

--end excerpts--

I don't share this to "toot my horn", but rather, to refute those who say that nobody predicted this, and to refute those who say that I didn't predict this. I predicted this. Exacly what we see today. Anyone could have predicted this. In fact, I predicted silver shortages in my advertising for over the past year. I've predicted shortages for so long, that people began to say I was crying wolf. But the wolf is here now. The coming shortages in silver was self evident to anyone who took the time to study the fundamentals of the small size and tightness in the silver market, and who can understand relative size of markets, and who can understand the basic math that shows that paper usury systems must fail due to the inescapable conclusion that you cannot compound your way to owning every atom in the universe.

They cannot prevent $14,000 billion in the banking system from entering a $1 billion silver market, by manipulating the price of silver low, and not have shortages! It's self evident!

I thank God for what he taught me about usury, that he taught me to not take his word on the matter, but to really search it out, and meditate on it, and think deeply about the concept and its real world and theological implications. Usury leads to slavery. We are called to love our enemies, not enslave them. We are called to freedom, as where the Spirit of the Lord is, there is Liberty.

Yes, Biblically speaking, we have the liberty to lend at usury, and even enslave others! But we are called not to do those things, as I see it.

One man tells me that interest is merely a discount that the market places on future goods. Wrong. Interest is not a discount. It's an extra fee! Usury is a bribe to get you to accept future goods rather than accept payment today. The Bible also calls us to not withhold from the worker his daily wage, nor to defraud the worker by withholding wages. Social security and 401k plans that get raided as companies go bankrupt are not the Biblical way. As I see it, you have the right to not accept the bribe of usury, or interest, for delayed payment, you have the right to not lend and not borrow, and that is the better, Biblical way. So, in a sense, I'm not advocating zero usury, I'm saying I refuse to be bribed even by 100% usury!

One man tells me that clearly, he knows he would have to offer me more silver, to accept a payment of silver 100 years from now, that's self evident to him. But what is not self evident to him is that I will not choose to have my children enslave his children into payment, no matter how much more he offers me! He just doesn't understand the implications of usury.

Bottom line: I don't want futures. I want silver! And the two are not the same thing. Never were. Never will be!

So, what's next?

The shortages will lead to higher prices. Probably shockingly higher prices! The shortages will cause others to buy silver from the paper market to sell at big profits to the real market. People are considering opening up new mints to meet market demand. The market will break the back of the manipulations. The low price is temporary, and it is ending through higher prices for real silver. Eagles are selling for $4.00 to $4.50 over spot at the major wholesalers now, and up to $20-24/oz. at ebay for tubes and individual Silver Eagles!

Shockingly, some people still deny that there is a shortage. They don't see the evidence because they have not seen it on their news, because they have not been to their coin dealer, because they don't know the statistics of the silver market, and because they don't understand the economic implications.

Here, then, are reports of the worldwide shortage of silver that is here now, worse than ever.

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Before I list them, there was one report in particular that I was looking for, and I apologize that I cannot share it with you now. It talked of a coin show of 65 dealers. Before the show, they were all trying to buy silver from each other, but nobody had any. The man who attended the show left without any silver. 65 dealers! All sold out of silver! Source

Citibank Gold should be $2000 oz Now!

The Gold and especially the Silver markets are completely rigged. The spot price is only valid for paper value not the actual metal. I tried to buy some 1oz Silver coins from merchants in New York city today. They are all out, except from one guy who was selling Morgan dollars for $8 over spot.
RENO, NV -

Citigroup asserts that gold will benefit from both the "gloom & doom" and "muddle-through & monetization" scenarios, possibly regaining $1,000 per ounce at year-end and even doubling or tripling in the long term.

"Frankly, we're surprised, that gold is not already at $2,000 an ounce," declared Citigroup analysts John H. Hill and Graham Wark.

In an analysis published Wednesday, Hill and Wark suggested, "Gold appears to be entering a powerful new phrase of investment demand tied to safe-haven and monetization themes."

"We have been surprised that gold has been so heretofore quiet, and have expected a much strong and more immediate response to the government takeover of GSE [Government Sponsored Enterprises]/mortgage insurance entities, and broker-deal bankruptcies," they wrote. "It is notable that hard-core goldbugs have been proven correct in the decade-long contention that an overwhelmingly vast and complex pool of nested financial derivates would ultimately result in cascading defaults and ruin for major portions of the banking system. Frankly, we're surprised that gold is not already at $2,000 per ounce."

"Our sense is that gold has been temporarily depressed by a series of ephemeral, short-term trading dynamics that served to mask strong physical off-take in what is ultimately a tiny market," the analysts said. "We continue to regard as a barometer in the grand battle between hard assets and paper assets."

Benefiting in "Gloom & Doom" and "Muddle-through & Monetization" scenarios

Should the U.S. lapse into a deep recession that spills over to BRIC countries, Citigroup advises that "gold and precious metals would prove to be one of the few safe havens for capital preservation particularly given likely low to negative real interest rates in such a scenario. In this case we would expect gold to double or triple from more current levels."

"A more likely macro outcome involves slow-growth accompanied by the monetization and socialization of derivatives losses," the analysts said. "Actions such as the U.S. takeover of GSE/mortgage and insurance entities and lending/guarantees to derivatives-laden banks, replicated globally, are likely to act to the detriment of paper currencies relative to hard assets and gold."

Bullish on gold

"As we have maintained for months, gold seems to be badly mis-priced and uniformly dour sentiment for industrial metals and coal," Hill and Wark said. "We remain positive on gold, based on a mix of macro and supply-demand drivers."

"The forces that have propelled gold for the past five years are firmly in place, and policy prescriptions for the credit crisis seem powerfully and uniformly re-flationary. Prices are up in the Euro, Yen and Rupees, a crucial credibility test. Gold is below constant-dollar peaks of $1,800-3,000/oz, and has lagged bulk/base metals since the 2001 trough. Appreciation remains muted relative to other metals and oil. Ultimately, gold is a small market with motivated Indian/Asian and petrodollar-fuelled buyers."

The analysts forecast that the gold price will go higher through 2009-10 and maintain year-average forecasts of $950/1,000 per ounce.

"Should the macro environment deteriorate more seriously than Citi economists expect, we would not be surprised to see gold climb to multiples of these levels. In the near term, we expect gold to be highly sensitive to macro developments, given the potential for safe-haven investment demand to ride on top of seasonal strength in physical fabrication offtake."

Equities

Citigroup asserted that gold equities are mirroring investment in physical gold. However, the analysts observed that gold mining shares are down 30% in the third quarter while gold bullion has only declined 7%.

Noting that gold equities remain near levels seen when gold prices were in the low $600s, Hill and Wark said, "Lamentably, the equities have shown a strong beta to falling gold, and a weak beta to upside moves."

"Action in gold equities tends to mirror investment demand in bullion. Should retail investors return to gold, the share should participate," they predicted, adding that gold stocks have seen "near-record volatility." Source