"There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." -John Adams

FED Operation twist would/could liquidate short term debt while selling long term treasuries thus buying a longer time cushion before any increase in interest rates for USA debt. It would give a jolt now of economic optimism and buy many years until any Greek type USA default. But as with any quick fixes it only pushes off the day of reckoning as the Japanese have done instead of cutting the size of government and solving the debt problem today. What QE2 did was inflated the balance sheet with liquidity to avoid another freeze up like when NYC’s debt financing market evaporated at the beginning of the crisis because banks stopped loaning money to each other.

The vast majority of investors and 99.9% of gold buyers at these extremely high gold prices do not have a clue as to how the world money supply works today. We are no longer a money supply driven world as we were in the 1700’s and 1800’s when money supply was actually the amount of money in circulation and Britain triggered a recession in the American colonies just by taxing the colonies and thus taking currency out of circulation.

"There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt."
John Adams

"[It was] the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and . . . the Revolutionary War."
- Benjamin Franklin

British taxes were the major cause of the revolution and America was forced to allow states and private banks to print their own currencies to create liquidity. The “Continental” became the American currency but after the American Revolution the term, “It isn’t worth a Continental” was a way to say something was worthless. Jefferson saw that high government spending was a path to a tyranny of a government regulatory bureaucracy.

It is hard to even imagine that at one time your local bank could print money. Jefferson saw that the private banks and corporations printing currencies was a source of power and instability and only the federal government should have that function.

"If the American people ever allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property, until their children wake up homeless on the continent their fathers conquered. The issuing power of money should be taken from banks and restored to Congress and the people to whom it belongs. I sincerely believe the banking institutions having the issuing power of money, are more dangerous to liberty than standing armies."
Thomas Jefferson

But even with the US treasury controlling the currency we could not allow government to take the easy road to perdition.

To preserve your independence, we must not let our leaders load us with perpetual debt. We must make our choice between economy and liberty... or profusion and servitude."
-- Thomas Jefferson

Today the “velocity” of money (how many times a dollar changes hands in a week) and the “multiplier” (the inverse of the reserve requirement) cause the illusion that there is a lot of paper money in circulation. That is definitely not the case. If the credit card business froze up there would be very little cash to buy groceries, essentially the small amount of cash people spend today. There would be no money to support the price of gold. We do not have wheel barrels of cash, we have very little cash so the 1920 type hyperinflation that Germany experienced could not happen. In fact another recession or even a depression is a much higher risk still than even a Jimmy Carter spike in inflation.

There will not be many real jobs created until Obama resigns or is voted out of office. If Obama cared about America he would resign. He is like a bumbling Igor specter hovering over America business. Igor for those who do not know was the menacing ignorant, spastic, and grunting assistant to Frankenstein.

Washington government bureaucrat pay, insurance and pensions are the first entitlements that need to be cut. Do it now, 25% across the board. They are the cause of our deficit and they yet do not have a clue about the pain they are causing throughout America.

Remember that we had no signs of a recession until Senator Obama became the first American ever in American history to say his opponent (President Bush) was causing an economic depression.    Intelligent responsible Americans always knew the “D” word is taboo in America because it causes fear. FDR said, “The only thing we have to fear is fear itself”. Not long after that, Senator Dodd said there was going to be a run on a California bank and his statement from the Senate Banking Committee caused the run on the bank within a few days. Gradually the Dodd-Frank liar loans destroyed the housing industry and the liar-loan derivatives caused the Lehman Brothers collapse.  

World markets
European markets were calmed last week. Without any authorization from the American Congress the US FED has begun flooding European banks with liquidity to replace the private US bank funds that we reported were being pulled out. Apparently China did not decide to help after all.

The day after Bernacke put the full faith and credit of the US taxpayer behind UBS; Switzerland’s largest bank, UBS, announced that its loss from unauthorized trading by incompetent Kweku Adoboli is now estimated at $2.3 billion, but their incompetent Chief Executive Officer Oswald Gruebel intends to on. Maybe they will promote Kweku instead. The buck now stops at the US FED now so maybe Bernacke has to resign for putting the full faith and credit of the US taxpayer behind UBS.

Greece’s ability to avoid default hangs in the balance as International monitors are about to assess whether Prime Minister George Papandreou can meet the conditions of rescue loans. European Union and International Monetary Fund inspectors will hold a teleconference this afternoon with Finance Minister Evangelos Venizelos, to judge whether the government is eligible for an aid payment due next month and on track for a second rescue package approved by EU leaders July 21.


World markets are revisiting their lows and in some cases they set double bottoms. China tests last year’s low. http://finance.yahoo.com/echarts?s=000001.SS+Interactive#chart1:symbol=000001.ss;range=5y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Has Germany bottomed yet? Choose 2 or 5 years
http://finance.yahoo.com/echarts?s=^GDAXI+Interactive#chart1:symbol=^gdaxi;range=3m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

The Swiss government and central bank has a target for the Swiss franc to halt its rise. Choose 2 or 5 years http://finance.yahoo.com/echarts?s=^SSMI+Interactive#chart2:symbol=^ssmi;range=2y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Emerging markets show some resiliency.
http://finance.yahoo.com/echarts?s=^BVSP+Interactive#chart1:symbol=^bvsp;range=2y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

American Economy-
Last week summary
MBA Mortgage listing Index 09/03 -4.9% up considerably from last month’s -9.6%. This is the first of the good news we predicted starting for housing.
MBA Mortgage Purchase Index 09/10 up +6.3% after being down -4.9% last month. Great news again for housing.
ProducerPriceIndex in Aug did not change 0.0% which is deflationary below the target of 0.2% hit last month.
Core PPI Aug was up 0.1% after being up 0.4% last month. That is very low inflation.
Initial Claims 09/10 rose to 428K from 414K slightly worse
Core CPI Aug remained constant at 0.2%… no inflation
Industrial Production Aug increased 0.2% down from 0.9% last month. A 2.4% annual rate
Philadelphia Fed Sep -17.5 a big improvement from last months -30.7
Net long-term TIC Flows Jul $9.vs $3.7B means foreign investment in the USA increased.
Sep 16 9:55 AM Mich Sentiment Sep 57.8 up from 55.7 but still very low.

This Week
Sep 19 10:00 AM NAHB Housing Market Index Sep
Sep 20 8:30 AM Housing Starts Aug
Sep 20 8:30 AM Building Permits Aug
Sep 20 2:15 PM FOMC Rate Decision Sep
Sep 21 7:00 AM MBA Mortgage Index 09/17
Sep 21 10:00 AM Existing Home Sales Aug
Sep 21 10:30 AM Crude Inventories 09/17
Sep 21 2:15 PM FOMC Rate Decision Sep
Sep 22 8:30 AM Initial Claims 09/17
Sep 22 8:30 AM Continuing Claims 09/10
Sep 22 10:00 AM FHFA Housing Price Index Jul
Sep 22 10:00 AM Leading Indicators Aug


Market Outlook September 19 2011

US stocks rose a full week as net short sellers began to slowly panic. See below that world trade may have bottomed out and real recovery may be just starting. The Greek crisis looms this week.

It is good news that foreclosures just rose 30%. The sooner mortgage defaults are cleared the sooner credit ratings will be re-established and the housing segment will recover and create many real jobs. We predicted a rise in home sales is stating and the MBA Mortgage Purchase Index rose last Wednesday by 6.3% breaking its downward trend. We predict business will now begin to use their “war chest” to buy assets that have fallen so far in value due to Obama’s seemingly unlimited ability to destroy everything he touches with Obama’s fear mongering, his contempt for the American Constitution and the American people. Americans are positively sick of Obama’s incessant apologizing to the world for American exceptionalism.

We expect the VIX to continue to decline as the panic of smaller investors subsides similar to after the flash crash of May 6, 2010
http://finance.yahoo.com/q/bc?s=^VIX&t=2y&l=on&z=m&q=l&c=

So far the trading range of equities has not even tested the resistance levels. We expect a normal advance of up to at least 50% of the total August decline. See:
http://finance.yahoo.com/q/ta?s=^NYA&t=1y&l=on&z=l&q=l&p=e50%2Ce100&a=&c=

Bulk trade seems to have bottomed and is finally improving. See 1yr chart at:
http://www.bloomberg.com/apps/quote?ticker=BDIY:IND

Stock market update:

Asian Stocks were down last night. China down -1.8%, Hong Kong down –2.8%, India 0.0%, Taiwan down –1.3%, and Japan closed.

European markets are down today in a range -0.5% to -3% half way through their day.
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American markets futures are down about –1.4% at 830AM EST.