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A Case Of Global "Debt Poisoning"
The G-7 meeting has come and gone. The chorus grows amongst world leaders for a "new" Bretton Woods. President Bush has come on board and will now host a G-20 Heads of State summit in Washington (planned to be the first of several) on November 15. This weekend, the Heads of State of 43 European and Asian nations are meeting in Beijing. There is a Presidential election campaign entering its final weeks in the US and almost nobody is paying any attention to it. The US Congress is thrashing around looking for a scapegoat, this week it was ex Fed Chairman Alan Greenspan's turn. Nations are raising and lowering their official interest rates on an almost daily basis. But the market juggernaut keeps rolling along, impervious to all efforts to head it off or even slow it down.
What is happening is something never before seen in anything like as virulent a tidal wave as the one rolling across the markets at present. What we are seeing is a tidal wave of "deleveraging" - a phenomenon which we analyse in detail in the Late October Issue (Number 615) of The Privateer - published on October 26.
The situation is ironic in the extreme. The US Dollar is soaring because the deleveraging is creating a huge demand for them because most of the debts being paid down are denominated in US Dollars. The other contributor to this US Dollar rise is the breakneck windup of the global carry trade.
That one is also pushing up the Japanese Yen while in the process laying waste to the Japanese stock market, now more than 80 percent below the highs it set nearly 19 years ago at the end of the 1980s. On October 24, the Nikkei lost another 9.6 percent to take its losses for the year to date above the 50 percent level.
Everything that can be sold in the paper assets markets is being sold to feed this deleveraging. That includes Gold. As recently as October 8, just over two weeks ago, spot future Gold on the Comex closed at $US 906.00. On October 23, spot future Gold dipped below the $US 700 level in intraday trading before closing down just over $US 20 on the day at $US 714.70. NOTHING is immune from a credit money DEFLATION of the magnitude we are now witnessing.
At its close of $US 730.30 on October 24, the spot future Comex Gold price has fallen $US 176 or 19.4 percent since October 8. Over the year to date, the spot future Gold price is down 12.9 percent. The trade-weighted US Dollar Index (USDX) is up a bit more than that. At its close of 86.95 on October 24, it is up 13.4 percent on the year to date. Gold has fallen less - far less - than almost anything else so far in this financial meltdown.
Most other commodities (including silver) have lost more than 50 percent from the highs they set earlier this year. Stock markets have lost between one-third and two-thirds of their value since the start of the year, and more than that since their highs.
At $US 730.30, the spot future Comex Gold closing price is down 27.3 percent from its high of $US 1004.30 set on March 18 this year. Most of that loss has come in the past two weeks as the global deleveraging has inundated the world.
Ironic too is the huge "shear" between the price of "paper Gold" on the futures markets and the almost total unavailability of physical Gold in the REAL markets. Gold of any nature, whether bar or bullion or numismatic coin, is all but unavailable at ANY price and has been so for nearly three months now. And when it is available, the prices being asked by the sellers bear no resemblance to the prices being quoted in the futures markets. A cursory glance at the US site for eBay will show this clearly. Right now, Krugerrands (one troy ounce Gold bullion coin) are up at "buy it now" prices anywhere between $US 875 and $US 1200. There is a one ounce coin with 23 bids on it presently at $US 853 and another with 13 bids on it at $US 860. Both prices are well over $US 100 above present spot future Comex prices.
One is reminded about the old depression era joke about the two butchers. Mrs Jones stands aghast at the counter of the first butcher store where pork chops are going for two Dollars a pound. "Did you know", says she, "that the butcher down the road is selling pork chops for a Dollar fifty?"
"Well", says the butcher, "why didn't you buy some from him?". "I couldn't", says the lady, "he hasn't got any". "Oh", says the butcher, "when I don't have any pork chops, the price is a Buck."
We are, of course, witnessing the unravelling of the entire post-1973 fiat credit money structure. Governments and central banks are pushing on a string with unimaginable vehemence, as witness the literally $US TRILLIONS they have force-fed into the system and markets. But not only is this not doing any good, it is working entirely contrary to their intended purpose. The money is being used to retire debt. And, since the entire system is "underpinned" by debt, the entire system is having its foundations pulled out from under it much faster than the "authorities" can pump it up.
What we are waiting for now is very simple. At some point, the present upside rampage of the US Dollar will come to an end as the demand for it to go on deleveraging dwindles and then dies. At that point, the present hugely artificial demand for US Dollars will literally vanish into thin air, leaving the Dollar suspended in mid air without a parachute. As "Bugs Bunny" once said, after landing like a snowflake after plummeting from miles high without a parachute - "you can do anything in a cartoon!"
So you can, but this is real life.
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