Steve Quayle News Alerts

June 13, 2003

The second pennant that the "Zero Bound" Japanese Monetary Authorities have run up their flag pole to see if anyone in the world salutes it is another humdinger. Now the Japanese central bank is considering monetizing private debt. You heard me right, private debt. Japan's Central Bank announced on June 11th that it will be buying debts owed to the commercial banks by moderate sized private sector companies. They will buy almost 9 billion US dollars worth of this type of debt consolidated into a security form. The Japanese have taken a cue from Freddie Mac in securitizing but in Japan's case what amounts to busted private debt. One wonders if they will hire the recently dethroned executive from Freddie Mac to devise a derivative package so that this securitized package of stone broke debt can show a profit regardless of any market condition as all derivatives seem to do if we are to believe their owners. Therefore we now have heard from "Zero Bound" central of two quite unique initiatives. The first is negative interest on saving and now the monetization of private debt. Monetization takes place when a central bank creates credit money (Today's "Bernanke Printing Press" gigabit money) and utilizes that newly produced electronic currency to buy, in Japan's case, 9 billion US dollars worth of what amount to economically hopeless obligations. If the obligations were functioning the banks would not sell them as they would have a better value in the normal course of business. It is therefore the monetization of private debt. Monetization of public debt is a common tool used by central banks.

Monetization of private debt is a considerable reach. The cash so produced in this unique monetization of private debt then goes into the private banking system's account at the central bank. However, what will happen is that the bank will use the majority of those funds to shore up the private bank's own financial condition and will not be likely to or might not be able to freely lend those funds as is expected by text book interpretation.

What central banks hopelessly fail to understand is the mind of the marketplace. As in the movie "Bullsworth" where the senator who is having a nervous breakdown and therefore telling the truth, demands that the conservative far right power structure people verbalized the reality that politics is all about BIG MONEY. The central bankers should just say exactly what today's need is, "we need INFLATION to survive "Zero Bound." Come on guys, it will not cause your instant demise. Don't call the absolute need for increasing prices, the need for "Stable Prices."

Regardless of the wild equity bear market rally taking place last week, business still stinks to high heaven. Those that suggest for some devious reason that the Fed knows exactly what it is doing cannot be correct. The Fed is going to sink Bush and all the rest of the US if it maintains this fear of just what is needed to give the US chance to climb out of this mess, INFLATION.

The Chinese are pushing their Money Supply up at a rate of 19%. As a result China may well be healthy economically while the US, GB, all the Euro currency countries are sinking towards the Japanese condition of "Zero Bound." The race to ZB is on and it can happen here. Don't kid yourself that the US is different from Japan. Once you cross into ZB territory the mind of the market, which no central banker has a clue to, turns depression. Then all the monetization you do of public or private debt creates nothing but STAGFLATION with no economic gain. Roosevelt's statement "That all we have to fear is fear itself," is a response to the mind of a market that has lost it confidence in the spin city spinners.

Time is running out in the Western World. The US Administration, US Central Bank and Blair's Brits have fallen hook, line and sinker for the Sino/Islamic strategy for economic world domination. The combination in the United States of dependence by the central bank on dropping interest rates to practically Zero (we are there), depreciating the US dollar (Secretary Snow's only good statement, "no nation ever prospered from devaluation" JES adds in a recessionary world environment) and spin city talking the equity markets higher is a temporary and dangerous Wall Street talking head fool's paradise. Black Friday is approaching because this strategy is juvenile in the present conditions. The Fed fears the past that can save the US now, Inflation and loves what is going to kill the US and is present now, deflation. All the gold you can obtain in this short term gold price reaction will not protect you from the results at the hands of this Fed. The Bush Administration's greatest enemy is not bin Laden or Hussein but US Federal Reserve non-expansion monetary policy. Now do you understand why for so many years the Asian/Islamic interests bought every ounce of gold hedged by the hedgers, sold by the gold cartel and wasted in disinvestment by the worn out gold public. Now you realize what the Malaysian Gold Dinar is the beginning of. Madness at high levels is driving this vehicle called the Western economy directly off a cliff. Those that gave you the Tech 2000 Bubble are now cooking up Millennium Black Friday.

Jim Sinclair

http://www.lemetropolecafe.com/