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September 4, 2011
Issue 163  -  Future Shock:  Hyperinflation?
 
 
Hyperinflation, or inflation that is out of control, is now happening right before our very eyes, in Belarus:
 

Railroaded By Hyperinflation, Belarus Is Now Running Out Of Meat

Mamta Badkar| Aug. 31, 2011,
 
Belarus' hyperinflation is out of control. The country has the world's highest lending rate and has devalued its currency. Now it is running out of meat, according to Bloomberg.

Belarus has imposed pricerestrictions on essentials like bread and dairy. And has banned individuals from taking basic consumer goods out of the country.

But it has been reported that buyers from Russia have purchased meat at reduced prices, crossed the border now that border checkpoints have been removed, and are selling the meat at higher prices, as locals struggle to purchase necessities with the weakened Belarusian ruble.

The currency crisis

Belarus which devalued its currency by 36% in May, is considering another forced devaluation of up to 15% to lower its exchange rate and stem a balance-of-payments crisis. The ruble whose official central-bank rate is 5,107 per dollar, is going as low as 9,000 on the streets, according to Bloomberg.

With gold and foreign exchange reserves falling 22% to $4.2 billion in the year to August, locals queue outside licensed exchange booths to get foreign currency.

The central bank has raised its refinancing rate to 27% which will be effective September 1. In a bid to curb inflation which soared to 36.2%, the central bank has increased rates by 1,650 basis points this year, according to Dailymarkets.

Troubles with Russia

In July Moody's downgraded Belarus'foreign and local currency government bond ratings to B3. Russia's cheap oil and gas had helped boost the nation's GDP growth, but price disputes and privatization in Belarus strained relations between the countries. With limited foreign assistance from Russia, the country couldn't rely on anyone to bridge its balance-of-payments gap. Now its devalued currency and foreign exchange shortages are hurting its banking system.

Whereis all this headed?

Belarus is in a tight spot. If it attempts to get a loan from the IMF, it is widely believed the loan will be blocked by the U.S. and EU which have sanctions on the country because of its human right violations. Royal Bank of Scotland has stopped raising capitalfor the nation on account of president Alyaksandr Lukashenko's autocratic regime.

The country is racing to deal with this currency crisis. In June, Belarusneft which has an oil monopoly said it would only let foreigners pay in U.S. dollars, euros or Russian rubles when they filled up their car. The country has looked to sell up to 140 companies but they've garnered little interest according to The Financial Times.

Meanwhile Lukashenko has said that Belarus will stop artificially holding its national currency rate from mid-September, instead allowing it to be determined by supply and demand. In May, he optimistically said Belarus would find its foreign currency troublesstabilized in a month or two. It is August, and Belarus is still waiting.

This ridiculous situation was caused by a.....are you ready.....politicians.  Big surprise, huh?  This guy came in and raised incomes by 50%!  Brilliant idea.  Never thought that those costs would have to be passed along to someone.  Now they are running out of food.  He has imposed price controls on these items and that will just lead to shortages as no one wants to sell their goods for less than it will bring tomorrow.  Government causes these issues and then makes them worse with foolish policies and decisions.  Much like the clowns in DC: (from Zerohedge)

Deja Vu All Over Again: Total US Debt Passes Debt Ceiling... In Under One Month Since Extension

Submitted by Tyler Durden on 09/02/2011 16:27 -0400

Remember when one month ago the US, to much pomp and circumstance, not to mention one downgrade,  announced a grand bargain raising the debt ceiling from $14.294 trillion to something much higher, with a stop gap intermediate ceiling of .694 trillion, or $400 billion more. Well, as of today, or less than a month since the expansion, total US debt is at $14.697 trillion. Yep - the total debt is again over the ceiling, which means the US debt increased by $400 billion in one month. Score one for fiscal prudence. And while the total debt subject to the limit is still slightly less, at $14.652, one week of Treasury auctions and will be time for Moody's to justify again why the US is a quadruple A credit.
 
 
 
Wow, that didn't take long did it?  1 freakin month!  And we're supposed to trust these "leaders?"  They're looking out for us?  I don't think so.  This is a freight train coming down the road straight for us.   There is no escape at this point and the indicators are all pointing at much higher inflation.  Including the more and more likely QE3:
 

Fed Minutes Released: "Some FOMC Members Think QE3 Would Be Appropriate"

Submitted by Tyler Durden on 07/12/2011 14:07 -0400

The only section that matters: "Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation....A few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run." Translation: QE3?

 
These are the guys making the decisions.  They are falling one by one in the direction of more liquidity.  This will translate to higher inflation in prices of the things you need.  One of the big things deflationists have been arguing is that labor costs aren't rising.  Not so fast......
 
Productivity in U.S. Falls for Second Straight Quarter as Labor Costs Rise

By Shobhana Chandra - Aug 9, 2011 4:20 PM

The productivity of U.S. workers dropped from April through June for the second consecutive quarter, leading to an increase in labor costs that may restrain gains in profits.

The measure of employee output per hour fell at a 0.3 percent annual rate in the second quarter after a revised 0.6 percent drop in the prior three months, figures from the Labor Department showed today in Washington. The median estimate of 60 economists surveyed by Bloomberg News projected a 0.9 percent decrease. Expenses per employee climbed at a 2.2 percent rate.

Falling efficiency and rising costs mean companies like AutoNation Inc. have less incentive to take on staff or increase pay, representing another obstacle to the recovery after growth almost stalled in the first half of the year. To help shore up the economy, Federal Reserve policy makers today pledged for the first time to keep their benchmark interest rate at a record low at least through mid-2013.

With higher labor costs, "profitability will come under pressure," said Eric Green, chief market economist at TD Securities Inc. in New York, who had forecast a decline in productivity. "This would create more caution in expanding payrolls, especially at a time when there is so much uncertainty."

If labor costs get any traction, we could spiral into an inflation at warp speed.  Let's look at an unbelievable chart from shadowstats:
 
 
The "real" unemployment rate is now in excess of 23%.  That is nearly one in 4 out of work.  This may help explain this: (Midas)
 
There's a statistic compiled by the IRS that shows 54% of the population is expected to pay 100% of the Federal taxes paid by individuals this year. Think about what the means for a minute. If you are one of the 46% of the U.S. population who does not pay taxes, you don't care if the Government spends money like Obama is proposing because it doesn't come out of your pocket. It's not food taken away from you or your family and given to someone else. To me that is a stunning reality about how badly the incentives are skewed in our system and it's why the Government can continuously implement spending programs that transfer wealth from the the Taxpayers to non-taxpayers and the elitists with little resistance from the masses: FORTY-SIX PERCENT of the country either benefits directly from this wealth transfer OR does not help to fund it or both. Think about that if you are one of the 54% who actually pays taxes.
No surprise here as that IS the plan.  The more people relying on the government, the easier it is to control them and more importantly, get reelected.  Zerohedge dug even deeper to explain why things have gotten so bad:
 

In the Bowels the Jobs Report: 15.4 Million Missing Jobs

Submitted by testosteronepit on 09/02/2011 12:58 -0400


The long-term problem in the jobs report issued by the Department of Labor today—a problem in every jobs report since April 2000—is the strangely inconspicuous Employment-Population Ratio.

 It measures the percentage of people age 16 and older who have jobs. It's not perfect. But it's the purest, least corruptible employment number out there: It's not seasonally adjusted, manipulated by the infamous "Birth Death Adjustment," or dinked with in any other way—unlike the headline numbers that have become a joke. And it hovers at a 30-year low.

 After World War II until 1975, it bounced up and down between 55% and 58%. As women entered the workforce in ever greater numbers, the participation rate began to edge up; and after the recession of 1983, it went on a bull run that peaked in April 2000 at 64.7%.

 Then it began to decline. Whatever the cited reasons. Outsourcing, innovation, off-shoring, tax laws, technological progress, corporate shortsightedness, cheaper labor elsewhere, whatever. When the housing bubble and related activities unfolded in 2004, it stabilized at around 62.3% and increased a notch to 63.4% in 2006. As the housing bubble deflated, it began to decline again. And then it crashed.

 The ugly trajectory of the Employment Participation rate since 2000:
 
 

Today, it came in at #0000ff;">58.2%(a rounding error up from last month's 58.1%). These are numbers we haven't seen since August 1983.

 In other words, 41.8% of the working-age people in the U.S. don't have jobs, as opposed to 35.3% in the year 2000. To convert this percentage into real people: Since the working-age population in the U.S. these days is #0000ff;">238 million people, a decline of 6.5% in participation represents 15.4 million jobs.

 There are no green shoots or improvements or recoveries in sight. It's a structural issue. Every time a U.S. company outsources production or services to entities overseas, or buys from foreign suppliers when it used to buy from domestic suppliers, it removes more jobs.

 A superb example—not only because of its majestic physical aspect but also because of its economic impact—is the new #0000ff;">San Francisco Bay Bridge, the most expensive single structure in the U.S. Incredibly, its most prominent segment was built in China.

These jobs gone offshore will continue to drag down our economy, and no amount of money-printing by the Fed and no amount of hope-mongering by the White House and no amount of deficit-spending by Congress are going to change that. Only one thing will: A collective corporate decision to reverse the trend of off-shoring production and services. Because, mathematically, you can't grow an economy by removing jobs.

 
 41.8% of working age adults don't have jobs?  Boy, do you think that has anything to do with the income tax percentage?  Nawwwww...just a coincidence I'm sure.  Meanwhile, our "stimulus" is shown more and more to have been a big pay off.  (LA Times)
 
 
Obama's tie to (bankrupt) Solyndra
 
 
You may not know about Solyndra, an industrial solar panel company based in Fremont, Calif.,  but that doesn't mean you shouldn't. It was the first company to receive federal stimulus funds, totaling $535 million. 

Yet the company just filed for bankruptcy protection. And, it should be noted, House Republicans are investigating because one of Solyndra's main investors was a bundler for President Obama's 2008 presidential campaign. Here's what it means for all of us:

Taxpayers are likely to end up on the hook for much if not all of that amount, a highly embarrassing development for President Obama because he was among the company's biggest cheerleaders. He visited its Fremont plant in May 2010 even though PricewaterhouseCoopers had weeks earlier raised doubts about its plans for an initial public offering by questioning whether it could continue as a going concern.

That's especially troubling because Solyndra is backed by one of Obama's key fundraisers,
George Kaiser of Tulsa. Congressional Republicans were raising alarms about Obama's connections to Solyndra well before Wednesday's announcement, with GOP members of the House Energy and Commerce Committee voting in July to subpoena documents from the Office of Management and Budget on the loan-guarantee decision. 

Although the editorial board generally supports alternative energy, it also offered a word of caution for the president:

But if there's evidence that political rather than business considerations played a role in funding decisions, Obama will have much to answer for.

 
So the master of "change" is nothing more than your every day garden variety politician.  As I've argued for years, there is no difference between the two main parties.  It's all a big show.  Imagine over 1/2 billion dollars funneled to a company of supporters that goes bankrupt soon thereafter.  I wonder how much money the big wigs managed to siphon off the top? 
 
Are you starting to see why I suggest gold?  It's really the only thing you can trust at this point.  This week's biggest news comes from wikileaks: (written up by GATA)
 
 

FLASH: China knows about gold price suppression, and U.S. knows China knows

Submitted by cpowell on 03:33PM ET Saturday, September 3, 2011. Section: Daily Dispatches

6:47p ET Saturday, September 3, 2011
Dear Friend of GATA and Gold:

China knows that the U.S. government and its allies in Western Europe strive to suppress the price of gold, and the U.S. government knows that China knows, according to a 2009 cable from the U.S. Embassy in Beijing to the State Department in Washington.

The cable, published in the latest batch of U.S. State Department cables obtained by Wikileaks, summarizes several commentaries in Chinese news media on April 28, 2009. One of those commentaries is attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:

"According to China's National Foreign Exchanges Administration, China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi."

It's hard to believe that, two years later, China is still leaving so much of its gold with the Federal Reserve Bank of New York and the Bank of England when even little Venezuela has publicly figured out the gold price suppression component of the Western fractional reserve banking system and is attempting to repatriate its gold from the Bank of England and various Western bullion banks:

http://www.gata.org/node/10281

http://www.gata.org/node/10286

It is already a matter of record that China dissembled about its gold reserves for the six years prior to the public recalculation of its gold reserves in April 2009 that prompted the commentary in Shijie Xinwenbao. At that time China announced that its gold reserves were not the 600 tonnes it had been reporting each year for the previous six years but rather 76 percent more, 1,054 tonnes:

http://www.gata.org/node/9545

ZeroHedge, which seems to have broken the story of the Beijing embassy cable this evening, comments:

"Wondering why gold at $1,850 is cheap, or why gold at double that price will also be cheap, or, frankly, at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best and illogical at worst. We have a suspicion that the following cable from the U.S. embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24-karat pool."

The ZeroHedge commentary can be found here:

http://www.zerohedge.com/news/wikileaks-discloses-reasons-behind-chinas-...

In addition to fund managers throughout the world, this cable may be of special interest to the gold bears CPM Group Managing Director Jeff Christian, who says he consults with most central banks and that they hardly ever think about gold, and Kitco senior analyst Jon Nadler, who insists that central banks have no interest whatsoever in manipulating the gold price.

In fact, of course, gold remains the secret knowledge of the financial universe, and its price is actually the determinant of every other price and value in the world.

 
This is the most obvious news of all time.  The Chinese aren't stupid!  They can see the dumb game we're playing by trying to keep the debt/inflation game going by suppressing the price of gold and silver.  This is what the "fringe," and I'm proudly in that group, have been arguing for years.  The jig is almost up as the price of gold is skyrocketing.  If you don't think the Chinese have the goal of taking over the planet's economic throne, why would they be doing this:
 

Renminbi may replace dollar in Sino-African trade

In a sign of China’s growing influence as Africa’s largest trading partner and investor, Standard Bank estimated that up to 40%, or $100bn, of China’s trade would be denominated in renminbi by 2015.
SURE KAMHUNGA
Published: 2011/08/30 06:40:31 AM

CHINA’s renminbi could replace the dollar as the main currency to finance trade between Chinese and African countries, research by Standard Bank shows.

In a sign of China’s growing influence as Africa’s largest trading partner and investor, Standard Bank estimated that up to 40%, or $100bn, of China’s trade would be denominated in renminbi by 2015.

This amounted to more than the total Sino-African trade last year, the bank’s Beijing-based economist Jeremy Stevens said in a research paper released yesterday .

"In addition, at least $10bn of Chinese investment in Africa will be denominated in renminbi over the same period," he said.

The Chinese currency already accounts for 13% of the South African Reserve Bank’s trade- weighted exchange rate for the rand, making it the third most important currency in the basket. Mr Stevens said China had no intention of "dumping" the dollar, but merely wanted to broaden its currency’s geographical reach and allow the renminbi to be used for investment purposes.

"The change, which will be gradual, is symptomatic of a more multi polar world," he said.

The bulk of China’s estimated $3,2-trillion in official reserves was still dollar-denominated, including $1,1-trillion in US Treasury bonds .

However, the use of the renminbi showed that many companies, including some in SA, were becoming comfortable transacting in the currency, Peter Sun, Standard Chartered Bank’s MD of transactional banking, said last week.

The dollar has traditionally been the historical benchmark currency used by African companies trading or doing business with foreign partners, including China.

The increasing use of the renminbi follows the recent, unusual public criticism by China of US economic policies after the dollar’s drop following the country’s credit rating downgrade by Standards & Poor’s.

But the growing "internationalisation" of the renminbi as a currency for payments in Africa was evident, said Mr Stevens.

Standard Chartered last year opened its first African onshore renminbi trading account for local metals trader Portland Steel, joining Standard Bank, which already offers facilities allowing clients to make or receive payments in renminbi.

"China wants to increase the pairs against which the renminbi can trade, broaden the currency’s geographical reach and allow the renminbi for investment purposes ," Mr Stevens said.

He said the use of the Chinese currency should not be confused with talk about a new global reserve currency.

The clamour has been rising steadily for a global reserve currency, which would give more weight to developing countries, reflecting their growing importance in the world economy.

"Internationalisation is first about transactions: buyers and sellers doing business in the currency. A reserve currency, on the other hand, is about the desire to hold the renminbi as a store of value," Mr Stevens said.

"Renminbi internationalisation is about transactions, intending to add efficiency and resilience to China’s trade and investment flows. China is not about to dump US treasuries in some maligned quest to trigger a financial collapse and depreciation of the dollar. China will embark on a gradual diversification of additional reserves in a manner that prevents instability."

Mr Stevens said that China would start the renminbi internationalisation programme by targeting African partners which are destinations for sizeable Chinese exports, regional heavyweights and countries which had mature financial markets — "first Nigeria and SA, then Kenya, and afterwards Angola and Ghana".

My, my, my, not trading in dollars?  The nerve of them.  I guess we can just threaten them too.  Probably won't work as they hold a ton of our debt and could send the dollar into a free fall.  I wonder if their doing anything else that might be tip off in regards to the future price of gold......well they've increased their gold reserves to 1054 tonnes.  This was last reported in 2009 and they are a large importer so I expect that number to be higher when they next report.  I've read where they want to accrue 6000 tonnes. 
 
Meanwhile, the Western world is doing everything they can to steer investors from real gold.  CNBC had a story this past week about the GLD ETF which is a supposed substitute for real gold.  He was put into a darkened limo and taken to a secret vault.  Here's one analyst's take on the GLD:
 
 
 
It's really funny because Bob Pisani actually picked up one of the gold bars and you could read the serial number.  It turns out that this number wasn't on the list of GLD gold bars.  Hmmmmmm.....seems a little strange that they would go to all the trouble of "proving" GLD holds gold and the ONE bar they show is not theirs!  Don't trust either GLD or SLV as they are probably scams.  The powers that be WANT you to throw your money into GLD and SLV as that does nothing to the price of the metals.  You want the metal.  Here's an excerpt from a NY Times piece:
 

Those would also be very aggressive acts to attack a problem that some say doesn’t even exist. This analysis could be applied to other commodities that have had huge run-ups in past years, including oil, food and other metals like silver.

In other words, not only is it hard to spot a bubble, but the measures to fight it, like restrictions on leverage and holdings, are hard and controversial to put into effect. Limiting the type of media barrages we see is also impossible in a free society.

Yet if regulators are going to stop the next bubble, they will need to act aggressively. Of course, they shouldn’t act in every circumstance, but when we see volatility and speculation as is the case of gold, acting to curb these forces through limiting leverage in cooperation with international regulators would be a prudent course. This would ensure that if a crash does come, it does not have aftereffects on banks and other institutions. Even if the Commodity Futures Trading Commission is hesitant to take such steps, it could, as an initial foray, take to the media to try to “talk down” the speculation.

Otherwise, we’re left hoping, without much basis, that people have learned that this time will not be different, something not much in evidence in the case of gold.

 
So the NY Times is arguing that the authorities should crush the gold bubble as you remember what happened last time with housing.  Comparing houses to gold is rather amazing as houses can be built without limit.  Oh, and you LIVE in your house.  If gold crashed, it wouldn't have ANY effect on the economy.  This is all a smoke screen to set up gold regulations.  We aren't in a bubble and there is no need to regulate the market.  Why are stories like this coming out?  They would love the masses to stay away from gold.  Don't oblige them. 
 
Positions
 
GORO  (closed $22.36, up $.39, average price paid $6)
 
The shorts continue taking the stock down at the end of the day on no volume.  This is frustrating but they will lose in the end if GORO fulfills their plans.  No worries here. 
 
Mexus Gold  (closed $.155, flat, average price paid, $.22) 
 
Mexus continues to pull cable and they released a new video this week:  
 
Alexco Resource Corporation -  AXU  (closed $8.31, up .56, recommended at $7.90)  
 
Stocks    (Current status, out, sold on March 18)
 
This week may bring a buying opportunity for a small portion of my tax deferred money. 
 
Physical Gold  (Closed $188329, up $54,  average price paid $395)
 
Physical Silver  (Closed $43.30,  up $1.80,  average price paid $5.31)
 
 
This week's video is an insane guy in a fly suit.  He comes REALLY close to exiting stage left.  Have a great week!