To all; this is an economic opinion piece from the Russian newspaper “Pravda”. It is exactly correct in my opinion regarding the credit contraction. How sad is it that in order to hear or read an “economic truth” it has to come from Russia. The only thing coming out of the US media is “the recession is over”. It is not over by a long stretch. I am not sure how they will be able to spin what happens this current year because if you thought the last 2 years were “unprecedented”, this year will blow your mind. Regards, Bill H.

More from Bill:

When is deflation inflation?

To all; hurray the recession is over! The biggest problem with this current mantra is that once investors figure out they have been had and the recession isn’t even close to being over, a panic of epic proportions will follow. THIS is the main problem with spin, spin, spin, and more spin. Sooner or later reality always kicks in and in the current economic situation it will be a kick in the teeth!

The “credit expansion” that lasted nearly 70 years has by necessity turned into a credit contraction. Individuals, corporations, states and municipalities have either cut back on the use of credit because they couldn’t afford more or the market has “rationed” them. Either way credit has, is and will contract further. The point here is that whether it be commercial credit, mortgage loans, credit cards, auto loans, corporate or municipal debt, credit availability is now less than what it was and the demand is lower. It obviously follows that “sales” whether they be retail or commercial, housing, cars, building supplies etc, will be slack. As far as states and municipalities are concerned, they will have less “demand” for everything from contracts awarded to people employed. The “great credit expansion” has stalled for more than two years and is in reverse. As “good” as things felt while the credit was being built up, they will now feel just as “painful” or worse.

But wait a minute, the Federal government has and is taking up the “slack” and not allowing credit to contract. This is true to some extent if you look at “gross” debt numbers only. The Federal government has actually stepped up and INCREASED the amount of credit outstanding but much of this borrowed money simply went to fill in the empty black holes left by past bankruptcies. The “benefit” from government borrowing and spending has only arrested the fall, it has not started a true recovery and will not because “cash” demand is just not there and demand “enabled” by credit is contracting.

My thesis is that the “reflationary trade” is OVER for now and will very soon give way to another “deflationary” downleg. Complacency in the stock market is currently higher than any time since the 1987 crash. Real estate is again ready for another leg down as another batch of rate resets hits shore and “bargain hunter” demand has been exhausted without the banks getting a chance to unload any of their foreclosed inventories. The OTC derivative fiasco has not even been addressed, the banks balance sheets are still a wreck and the earnings they have reported last year were fictitious. Now we can add into the mix states and municipalities laying off workers and tightening their belts (what a novel idea). In other words nothing has changed from the fall of 2008 except that the rate of decline has diminished. This is not the stuff recoveries and healthy economies are made of!

But haven’t I been talking hyperinflation all this time? Yes but…it’s the response of the Fed and Treasury to these “waves” of deflation that end in hyperinflation! Every “wave” of deflation has so far been met by an inflationary response and I would expect that to continue until “it can’t”. The “it can’t” moment will come I believe after this next coming wave of deflation where real estate, stocks, commodities, employment and nearly anything you can think of DEFLATES again in value. This is where the Treasury will finally hit the wall. Mother nature wants to DEFLATE assets but the Treasury is intent on not letting this happen. With a Gold backed currency Mother Nature would surely get her way but since the Dollar is fake, unbacked and hollow, Mother Nature’s wrath will be aimed at Treasury securities.

So…without being too long winded, in my opinion the coming wave of deflation will ALSO hit the Treasury market with a vengeance causing bond prices to decline and thus “ration” the “unlimited” borrowing capacity of the Treasury! From the beginning I believed we would have both inflation and deflation at the same time, I am convinced now that this will be the case! Most all assets INCLUDING Treasuries will deflate in this next wave, currencies will be printed to oblivion while “stuff” (you know the things you NEED to survive like food and energy) will then take much more currency to procure. When Treasuries succumb to Mother Nature’s deflation you can mark the exact moment when hyperinflation takes off.

Please don’t be fooled by “the recession is over”, it is not. The recession has only been playing “rope a dope” with the US Treasury so far while waiting for it to tire through overleveraging itself. The last year was nothing more than an old, tired, heavyweight fighter throwing everything he had left in desperation. Hyperinflation only comes when governments go broke! Regards, Bill H.

That is EXACTLY what The Gold Cartel (which includes the Fed and US Treasury) are petrified of and WHY gold was bombed today.

Yes, they are PETRIFIED…