Thursday, July 21, 2011

Jim Willie Discusses Deflationists and Silver

Jim Willie is back with a scathing attack on the deflationist knuckleheads (DK's), and an excellent fundamental silver analysis as well.

A powerful dynamic has been at work for a few years. A Silver deficit remains a boon to investors but a plague to central bankers. The USGovt silver stockpile was depleted in 2005. Gold will continue to fight the political battles in the open fields. But Silver will run through the broken battle lines on a white horse to take triple the price gains. The march toward $100 Silver sounded like lunatic forecasts two years ago, but are more realistic with each passing month nowadays. Silver is growing in investment demand, the object of purchase by central banks as a reserve asset in allocations. Some unique traits are known to silver, which is often mined as a byproduct. When demand for industrial usage of base metals like zinc, lead, tin, and others goes into decline, the actual mined output of silver enters a decline even though investment demand grows radically from systemic monetary risk. So as the global monetary system crumbles, and economies slow from cost shock, the silver supply struggles to keep pace at a time when investment demand skyrockets. The deficit in silver, the amount by which demand exceeds supply, has been chronic for over a decade. It is a wonder that analysts do not recognize this basic fact, but many are paid to be stupid with precious metals, in support of the Great Paper Chase directed by Wall Street conmen. The silver price is heading over the $100 level in the next couple years. The price rise will continue in a powerful way. The naysayers are ignorant shamans and charlatans beholden to their sell side syndicate masters. Thanks to the Casey gang for a great chart. The next few months will bring great entertainment on stage, as the many clowns calling an end to the Gold & Silver bull market in May will be forced to explain why the gold price is moving on the $1700 level and the silver price is moving on the $60 level. The autumn months will be the timeframe.
QE3 will be rolled out strong firm and powerful. Gold will tell you, as it calls the USFed's bluff. It knows how to properly interpret such news. Gold is smarter than the Deflationists, and contradicts them. The gold price has risen a few hundred $$$ while Deflation Knuckleheads like you continue to have your heads lodged firmly up a nether orifice. Gold expects a brisk QE3 soon to be announced that you cannot see. When Bill Gross of PIMCO says QE3 is unlikely, he is goading the USFed. He has shown tremendous disrespect for the entire USTreasury complex recently. When QE3 starts, or better described as Global QE begins, Gross will probably not join the USTBonds again, but rather the Gold train. All nations have chosen hyper-inflation, will continue to choose hyper-inflation, or else the Elite will go broke. The Q3 program will not end, only its public billboards will be taken down, since they cause bad publicity. They will inflate but much more in secrecy, and try to suppress the rising prices with controls, but they will fail badly. They will blame the speculators and try to limit their attempts to protect against the falling USDollar. They will try to control the financial markets more, but fail with that also.

The main error the DK nitwits make is to expect low demand to result in lower prices.
No way!! Low demand will accompany inability to handle higher costs and deeper insolvency. Thus the result will be systemic breakdown during the hyper-inflation price process. Prices will not come down across the board in order to enable people to afford them. Rather, the entire cost structure will rise because the USDollar is being debased badly. The DK crowd seems totally blind to the monetary effect on the rising cost structure.
Perhaps Willie's best argument is pointing out that we will continue to see decreases in prices (not deflation, which is a decrease in the money supply) from assets that are bound by debt instruments such as real estate, while necessities and commodities that are not bound by debt increase exponentially in price.
Gold is taking the head fake of no continued QE, but not coming down much at all. Geez, a real crater from 1570 to 1530, a mere pittance. Gold will rise hard and fast when QE reappears in whatever form, possibly even Global QE. Please define deflation in view of $3 trillion in USFed monetary expansion. You seem a tiresome empty gong. The part you fail to comprehend is that Gold does not move hand in hand with home prices. Assets bound by debt instruments are cratering, as in DEFLATION. Assets not encumbered by debt and counter-party risk are rising, as in INFLATION. Your clan never sees both forces, and certainly not the harmful effect on commodity prices from the weak USDollar.

Hyper monetary inflation destroys capital, but low rates encourage asset speculation that leads to asset bubbles. Their inevitable busts lead to tremendous loss of additional capital in a swirl of wreckage and ruin. Hyper monetary inflation destroys capital, and only indirectly destroys liquidity over time during the pathogenesis. It produces liquidity from printed money, to be sure. But that effect is in the financial market. The tangible economic effect is the death of capital from the rising cost structure, and businesses shut down. Plant machinery and business equipment go out of service. They are sold off or simply rot like the steel mills. Profits and discretionary spending are harshly squeezed. The USFed monetary policy is destroying capital from ruined businesses and foreclosed households. The result is lost investment capital going into a death process, otherwise known as business failures and capital liquidation. The business owners invest less in everything downstream because they struggle to survive. The same is true for households, who over time have much less in discretionary spending. Their capital is tied up in the homes, which all too often have gone into foreclosure. The bank puts them in mothballs on the balance sheet or sells in liquidation similarly. The result often is an empty home. The consumers are crippled. But the hyper monetary inflation will continue with QE, if not GLOBAL QE, because they must prevent USTreasury defaults.
Click here for more from Jim Willie: