Smack Down

Older readers will recall that Paul Volcker was the Chairman of the US Federal Reserve from August 1979 to August 1987.

He is widely credited with ending the high levels of inflation seen in North America in the 1970s and early 1980s.

Most recently he was Chairman of the Presiden Barack Obama's Economic Advisory Board from February 2009 until January 2011.

In 2004 he did an interview with the 'Nikkei Weekly' newspaper.  They were talking about when the US dollar was devalued against the yen in January of 1973.

What stands out in the interview was a comment Volcker made about central bank intervention to control the price of Gold:

• "That day the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."

We bring this up because tomorrow in the start of the extra-ordinary 2 day US Federal Reserve Federal Open Market Committee Meeting (FOMC).

The meeting is extra-ordinary because it is rare that the Committee Meeting is ever longer than a day.  But last month current Fed Chairman Bernanke announced that it would be expanded to two days and it is widely expected that the Committee will use this meeting to facilitate in depth discussions of non-traditional Fed market activities.

In other words, Quantitative Easing 3.

The banking cabel loves to smack down gold and silver prior to a market operation. That way, if the metals rally, they have less opportunity to break out and run even higher.

Former Fed Chairman Alan Greenspan made a famous comment in 1998 which reinforced this practice.  He said,

• "Central banks stand ready to lease gold in increasing quantities should the price rise."

Today we saw a massive raid on both Gold and Silver in keeping with this philosophy as Gold dropped by $35.70 to $1776.40  and Silver fell by $1.67 to $39.11.

 

But while the manipulated 'spot price' of Gold/Silver fell today, we were presented with further evidence that things in Europe are getting worse.

 

In a shocking move demonstrating just how bad things are in Europe, the Financial Times is reporting the major European industrial company Siemens has pulled €500 million form a large French bank and deposited the money straight to the Eurpean Central Bank.

 

The implications of this are stunning.

 

It means that even European companies now refuse to work directly with their own banks, and somehow the ECB has become a direct lender/cash holder of only resort to private non-financial institutions.

The Financial Times quoted a person with direct knowledge of the matter as saying that the group had withdrawn the money partly because of concerns about the future financial health of the bank and partly to benefit from the higher interest rates paid by the ECB.

Consider the dynamics going on right now with Gold and Silver.

You just had the European Central Bank, the Swiss National Bank, the Bank of England and the US Federal Reserve act in concert to try and suppress the price of Gold/Silver while the SNB devalued the Swiss franc.

Then the group of central banks collectively put together a bailout liquidity facility in place to keep the Europen Union banking system from collapsing and also moved to try and supress Silver and Gold.

And now you have the big smack down in advance of the FOMC meeting.

At some point Silver and Gold are going to have a "snap-back" reaction in its price that could be quite breathtaking.

 

The massive emergency funding programs being put in place will eventually have to be monetized by central banking printing presses and transferring liabilities from the banks to the Taxpayers - just like in 2008.

 

It's going to get really interesting over the next 3 months.

==================

Email: village_whisperer@live.ca
Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

The 2011 Great Global Bailout

The big news today is a massive bailout of the banks of Europe by the US Federal Reserve and the world's reserve currency.

Faithful readers know that we are fond of saying the financial debt crisis of 2008 is very much alive and it is clear for everyone to see that it had only been treated with a paper band-aid known as Quantitative Easing 1 and QE2.

Those economic green shoots touted in 2009? Nothing more than weeds.

The breadth and depth of the financial earthquake the world suffered in 2008 was so great that the repercussion's are only just beginning to be understood.  And the recession it triggered has not ended... it has only just begun.

One of the news stories that flowed well under the mainstream media radar screen back in July was the results of an audit of the US Federal Reserve.

The first ever Government Accountability Office (GAO) audit of the US Federal Reserve Bank in the Fed's 100 year history indicate that the bank dished out $16 trillion in emergency aid to U.S. and foreign banks, corporations and governments in what the Fed calls all-inclusive loans during the financial crisis.

$16 Trillion!

In all the Fed disclosed more than 21,000 transactions which it utilized after Lehman failed to push as much liquidity into the worldwide financial system as possible to stabilize things.

Fast forward to today.

The debt escalating debt contagion stories coming out of Europe the past two weeks have been breath-taking.

It has forced the US Federal Reserve to step in again and bail out Europe's banks with unlimited access to US Dollars.

Here is the European Central Bank announcement:

• The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010.

As noted over on The Fundamental View, the global printing presses are now running full tilt in the most historic liquidity event ever.

In essence the Governing Council of the European Central Bank (ECB) has decided, in what is being deemed as a coordinated effort with the US Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to conduct three US dollar liquidity-providing operations.

Short term this saves the Euro from the collapse it was facing just last week.

But as this story on Yahoo headlines "Dollar access no long-term fix for Europe's crisis but could buy time for banks"

Officially this confirms the view that the banks around the world are pretty much insolvent given their exposure to the mounds of toxic sovereign debt.

Basically governments and banks are broke because they lent money out to other banks and governments.

The ECB said it would hold three separate operations between October and December to help see banks through the year-end period. Basically the Americans, the British and the citizens of any non-Euro nation in the West are now watching their central bank printing dollars at the expense of their children's’ future’s so that it can bail out banks from other parts of the world.

This is what we get in a world of global economic collaboration when every bank is somehow tied to each other through invisible lifelines. Point being, if one major institution goes down, others will fall like dominoes given that they have all lent money to one another via exotic instruments in order to keep the global banking ponzi scheme alive.

The bottom line is that the US Federal Reserve - as it did in 2008 with $16 Trillion, just backstopped a massive loan to European banks to keep them solvent.  

As the Fundamental View asks, "How closely tied are American financial institutions to the European banks needing the bailout for the Fed to take such measures overseas?"

The world's problems are literally being papered over. But the reality is that the situation is much graver than most people realize.

And what just occurred was a very short term, temporary solution.

The breadth and depth of the financial earthquake the world suffered in 2008 is only just beginning to be understood.

And the recession it triggered has not ended... it has only just begun.

==================

Email: village_whisperer@live.ca
Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.