-- Posted 24 February, 2006 | |

The Wallace Street Journal

The Silver Valley Mining Journal

Wallace, Idaho, 23 February 2006 – If we can get through the end of next month without serious economic havoc (say, the whole planet blowing up, or a full-tilt outbreak of the bird flu pandemic in Arkansas) it might be safe to dig a few of those rat-holed Maple Leafs, Morgan dollars and Krugerrands out of that backyard coffee can and trade them out for Fednotes at your local pawnbroker or coin-dealer.

But in the middle of a paradigm shift, things move very rapidly, so don’t go reaching for the shovel just yet. Barely had we begun digesting this United Arab Emirates port deal and the terrible bombing of that mosque and near-certain civil war in Iraq when Capitol Hill Blue’s Doug Thompson yesterday unearthed a Secret Service account that Dick Cheney was drunk as a skunk when he shot his lawyer-buddy on that South Texas quail hunt weekend before last. Being liquored-up when you’re handling a gun is never a good idea, but when you’re hunting in that condition it’s a felony in Texas. Doug’s stories usually show up a week or two later in Time or Newsweek, officially vetted by the MSM. Our faithful correspondent Fred Reed grabbed a jug of cheap red wine (Padre Kino) and slunk off to a corner in Mexico to try to make some sense of it all. The wine didn’t help. He wonders if psilocybin might level the playing-field of White House insanity, put things in perspective.

Forget digesting or recovering from a day of cheap red; we were beginning to stagger like a first-round boxer after a right hook from Ali when word arrived from Chris Laird that the Yen-carry trade was about to unwind. Being unsophisticated silver slugs from Wallace, Idaho, we didn’t know there was such a thing as a Yen-carry trade, but it’s been working like this. The Bank of Japan has been charging zero interest on loans for the past 10 years to try to revive the economy. So guys were going to Japan, borrowing Yen for no interest, converting those Yen to dollars, and lending them to us by buying U.S. Treasury notes paying 3 percent interest, or wholesale home mortgages paying a little more. Nice mark-up, if you can get it. Except that the party is about to end, because three quarters of economic growth in Japan will cause its central bank to start raising the borrowing rate.

Writes Laird: “The BOJ literally acts like a central bank of the world through the Yen carry trade, supplying liquidity that finds its way into markets everywhere. The phenomena is a decade old now for the latest manifestation. The last time this level of penetration of the Yen carry trade was reached was just prior to the LTCM collapse. Back then, when the Yen unexpectedly strengthened 20% it caused a massive move out of Borrowed Yen on the Cheap, and caused massive market sell offs world wide, and was a direct cause of the LTCM collapse, where the US FED had to act immediately to bail out banks and illiquid brokerages and financial entities with blank checks to forestall that crisis.”

We started to run from all this chaos like Fed governors abandoning a sinking ship – the second one to do so recently, with 8 years still left in his term, Roger Ferguson, bailed this week – when Libertarian Paul Gallagher and a European think tank, LEAP E2020, simultaneously and without having chatted with each other first, warned of economic calamity within the next bloody month or two.

March, the Europeans noted, is going to be one nasty month. LEAP E2020 “now estimates to over 80 percent the probability that the week of March 20-26, 2006 will be the beginning of the most significant political crisis the world has known since the Fall of the Iron Curtain in 1989, together with an economic and financial crisis of a scope comparable with that of 1929.” Why? Because the Iran Oil Bourse will open on the 20^th, and the U.S. Fed three days later will quit reporting the M-3 figures, which most accurately reflect the actual amount of dollars floating around there at any given moment.  Toss in an “intervention” by the Bush-Blair axis or by Israelis in the Iran nuke mess and the think tank’s estimate of calamity goes to 100 percent.

Hot damn! Meantime, the dollar-denominated of that coffee can out in the back yard slides along sides, “correcting” from recent “highs.” As David Morgan noted back on 12^th December, these “highs,” in terms of 1980 Fednotes, are still half-priced. And if all the foregoing is too weird to sort out even with the help of Dago Red or psychedelic mushrooms, maybe it’s time to dig another hole, and fill up another can with metal and silver stock. There could be as little as four weeks left.