Gold vs US Dollar - February 2010 to November 2010 (chart)
An image of American due diligence
Global investors will not tolerate Ben Bernanke's brazen US Federal Reserve policy of generating inflation through a second round of quantitative easing (QE2). World stockmarkets have risen in response for an unhealthy reason: equities represent a safer asset class than US bonds at the start of an inflationary credit cycle. The price of US crude oil has risen twenty per cent since global markets first concluded, in early September 2010, that QE2 was a done deal. This rise is a tax on US consumers; it transfers US income to Middle East petro-powers.
Li Deshui (China) said Asian countries share China's deep bitterness over the Fed's deliberate US dollar debasement. They are examining ways of teaming up internationally to insulate themselves from the unwelcome tsunami of US liquidity. Henrique Mereilles (Brazil) said that the US move had created excessive dollar liquidity. Toby Nangle (UK) said that QE2 is one of the greatest policy mistakes in the US Fed's history. How will a liquidity solution correct a solvency problem? Ulrich Leuchtmann (Germany) described US QE2 as a policy error, and a potentially dangerous bottomless pit.
The reluctance of global investors to leap back into the US Treasury market as they did after QE1 is revealing. International market vigilantes sniff stealth default. If long bond investors continue to throw their collective toys out of the cot, it risks upending the Fed's policy. Pimco's Bill Gross said that the great bull market in US bonds is over, and denigrated Fed policy as the greatest Ponzi scheme in history. Warren Buffett warned that anybody buying bonds at this stage is making a big mistake. The slippery slope towards monetisation of US public debt is steepening. More here (05.11.10), here (04.11.10), here (04.11.10), here (02.11.10) and here (01.11.10).
AB comment: Ben Bernanke and the Governors of the US Federal Reserve Board are in an inescapable, and self-inflicted, end-time bind. They are writhing on the barbed hook of international legal pressures connected with the disbursement of the World Global Settlement Funds. These legal pressures have not yet become fully public in the US, even though copies of the relevant papers have been in the hands of the mainstream media for several weeks.
One example of the Fed's hidden problem is described in a letter to Bernanke, dated 22nd September 2010, from Pasadena attorney, Al Clifton Hodges. The text reads:
“I represent Mr. Lindell H. Bonney, Sr. with respect to collection of certain funds currently being held by the Federal Reserve System; Mr. Bonney has both a personal ownership interest and a fiduciary interest in such funds. I also represent certain other payees of the World Global Settlement funds; each of these payees have exhausted their ability to continue waiting for distribution of the funds to which they are entitled.”
“We have been able to ascertain that these funds have been utilized, apparently with the approval and consent of the FED, for short term lending/hypothecation cycles which have allowed recovery of substantially more than 3% per day of the principal in addition to the FED transaction fee of 10%; we have now received confirmation that the FED has in fact received payment. These actions are obviously in violation of several Treaty agreements, as well as a plethora of Federal Laws and banking regulations, and expose each participant to both criminal and civil RICO actions.”
“The purpose of this correspondence is to put you and each member of the Board of Governors on notice of these illegal actions in connection with the continued refusal of the FED to disburse monies due to be paid to Mr. Bonney in his personal and fiduciary capacity. Although we have previously been advised that the funds were available for disbursement, “something” has always been amiss when the scheduled time has arrived. On each such occasion, Mr. Bonney was ultimately advised that the money had, for unexplained reasons, become unavailable.”
“Please be advised that we intend to hold you and each member of the Board of Governors jointly and severally responsible for a minimum of 10% per day recovery on the entire balance of the funds currently held for distribution to Mr. Bonney in his personal and fiduciary capacity. In the event that you and/or any of the Board of Governor members wish to discuss possible resolution of this issue please contact the undersigned directly; in the event that I fail to hear from anyone I will pursue all available remedies, including immediate disclosure of these defalcations to the media.”
Letter coordinates and co-correspondents here.
Nov. 6, 2010