Sunday, December 28, 2008

In Brief

Crackdown on bailed out banks
WASHINGTON - LAWMAKERS are turning up the heat on banks that have received money from the Treasury Department's $700 billion (S$1 trillion) rescue fund after the Associated Press reported that they wouldn't say how they are using the money.

Sens Dianne Feinstein and Olympia Snowe said on Tuesday that they will propose legislation next month to force companies that receive money from the fund to report how they have spent it.

The legislation would also prohibit them from spending the taxpayer dollars on lobbying or political contributions. It would also apply to some recipients of the Federal Reserve's emergency lending programs.

The legislation was introduced earlier this year, but the Senate did not take it up. The sponsors have long said they plan to pursue it when the 111th Congress convenes Jan 6.

'At present, we don't know whether these companies are using these funds to fly on private jets, attend lavish conferences or lobby Congress,' Ms Feinstein, a Democrat, said in a statement.
http://www.straitstimes.com/Breaking+News/Money/Story/STIStory_318127.html

Gold prices on revenge and retaliatory mood
MUMBAI : Revenge seems to be the key word for gold prices to rise. While India is seen taking revenge on Pakistan on its alleged role in Mumbai attacks, the Palestinians are keen on taking revenge on Israel after its attack post cease-fire in Gaza Strip.

And these political tensions may just help gold prices as investors are relying more and more on Gold and the commodity has proved to be the sole bread earner and safe investment in the year 2008. Even the ever-dependable crude could not help the investors as it is faring badly even now.

All other investment vehicles have given negative returns while gold is, in all probability, expected to reach $930 per oz by mid January 2009. In India, the political tension and an impending war situation has only made rupee weaker which will impact the gold prices in the largest gold consuming region in the world.

In addition, the bad omen for weddings will be over in less than 15 days and gold buying will begin soon not only on account of marriages but also due to festive occasions which will put the demand of gold on a high pedestal – raking up the prices.

So as the mood of retaliatory attacks and revenge scenarios emerge, the gold investors will laugh all the way to the bank – welcoming the New Year with much more cheers.

http://www.commodityonline.com/news/Gold-prices-on-revenge-and-retaliatory-mood-13682-3-1.html

Will COMEX Default on Gold and Silver?
The Commodities Futures Trading Commission is charged with the responsibility to monitor and regulate American futures markets. In spite of this, the futures markets have morphed from a legitimate place to hedge the risk of commodities, into a worldwide casino, which has a gaming commission that claims all of games of chance are really “investing”. This is nonsense. The exchanges are mostly used as gambling halls, with banks as casino operators, and speculators serving in the role of casino guests. All types of bets, from taking odds on interest rates to taking odds on the volatility of the stock markets (with no underlying security except the VIX!) are allowed, and are available to anyone who enjoys games of chance. If the CFTC ever bothered to enforce its own enabling act, and associated regulations, most of these games of chance would be quickly closed. For example, CFTC regulations require 90% of all deliverable commodity contracts (including gold and silver) to be covered by stockpiles of the real commodity, and/or real forward contracts from real producers (like miners). In practice, however, CFTC has never done a spot audit of even one vault. We really have no idea whether or not short sellers really have the gold or silver that they claim to have. We can assume that they probably don’t, given that the number of futures contracts issued has often exceeded the entire known supply of silver, for example, in the entire world.

Indeed, in spite of rampant speculation as to their identity, in truth, we don’t even know who the short sellers are. Other countries, like Japan, have full disclosure of identities and positioning, in open and transparent futures markets, but this is not true of the much larger futures markets based in America. American futures markets are mostly opaque, because the CFTC keeps the information secret. Lack of transparency always is a recipe for fraud and corruption. The likelihood of widespread violations, occurring at exchanges regulated by CFTC, is very high. Logical people, therefore, can make some reasonable assumptions. It is quite likely that the sellers on COMEX do not have 90% of their silver contracts, for example, backed by stockpiles of the metal.

Yet, adherence to Federal regulation is an implicit provision in the terms and conditions of every futures contract. If COMEX and/or NYSE-Liffe short sellers are entering into naked short contracts, they are violating market rules, falsely presenting their contracts to the public, and doing all this with a premeditated intent to defraud buyers. Knowingly making false assertions and promises is fraud in the inducement. Violation of the market rules is also “fraud upon the market”, and a federal and state felony level crime that can result in a long jail sentence. The vast majority of short positions in gold and silver appear to be held by only 2 – 3 American banks, so, it would be extraordinarily easy to pinpoint the perpetrators. Potentially, they could be prosecuted for market manipulation, common law fraud, state and federal RICO actions, as well as other counts.

In other words, a large scale default on COMEX or NYSE-Liffe would not only trigger the paying of money damages, but would also involve criminal liability. Even if a few individuals within the federal government are complicit, as has been alleged, and the U.S. Justice Department refused to prosecute, there are enough politically ambitious state prosecutors to take up the baton. Futures market short sellers would pay a heavy price if there were ever a big default. Because of this, they will spend whatever money is needed to make sure it never happens.

http://seekingalpha.com/article/111852-will-comex-default-on-gold-and-silver


US Consumption Worth More Than All the Gold in the World
Who can forget the James Bond film "Goldfinger" where the arch villain attempts to render all the gold held at Fort Know radioactive in order to make gold skyrocket in price as he has a large gold position? Great film.

I was thinking about that today as I read another "Mogambo Guru" article over at "The Daily Reckoning". While the writer Richard Daughty is always hilarious and informative, he had this little tidbit today that was pretty good:

I was slurring my words pretty badly, and I forget where I saw it because it mysteriously disappeared in a frenzy of cutting and pasting back at the office, but I'm telling the bartender that some bozo was saying that if the Treasury's gold (or the Fed's gold, depending on who you figure has it) was revalued up from its current and historical book value of $42 an ounce, then the financial picture of the United States doesn't look so bad! Hahahaha!

I can tell by the look on his face that he is not a big fan of economic humor, and must be pretty much "all business" by the way he keeps repeating, "That'll be $6.50 for the drink, pal."
Cleverly, I reply, "I don't know if you are aware of it or not, my dear fellow, but the total amount of gold held by the government/Fed is only about 261 million ounces! That's all! Less than one ounce per person in the USA!"

He looked at me again and repeated, "That'll be $6.50, pal."

Undaunted, I went on, "And at $800 an ounce, that 261 million ounces comes to a value of $209 billion! Hahaha! A lousy $209 billion! Hahahaha!"

At this, I stand up and address the other patrons of the bar, saying, "And already something like $8.5 trillion over the next years in new spending/guarantees have been proposed! Not to mention the original $700 billion in TARP scams and schemes already spent, and more hundreds of billions in bailouts of every kind every day!"

Really warming up to it, I bellow, "Hell, the projected federal budget deficit for next year alone is upwards of a trillion dollars, almost 5 times as much as the total value of all the gold we have as a nation! And this is just the budget deficit! Hahaha! We're freaking doomed!"


So all the Gold held by the US is fair valued at a whopping $209 Billion. That is not even an AIG bailout, let alone a 1 Trillion dollar stimulus plan! Figure in all the other debt the US has and you can see there is not much backing our currency.

So how does America do it? How is it that we can spend all we want, and then spend even more while we have nothing intrinsic or put back anything of value into the world? The answer is one word:

CONSUMPTION

The US has become the world's mega consumer. Japan, China, and many others rely entirely on US consumption to keep their economies going. If US consumption falls, those countries face severe issues. And thus this is how we have arrived at the obscene reality of the current day: The US spends all the money they have on consumption, then other foreign buyers buy a bunch of our debt to fuel even more consumption. The US makes out because we can do whatever we want, and the foreign countries pretend the money they lend us that we use for consumption is really flowing back into their economies. Sounds wonderful.

I have been perplexed at how long this has gone on and why it has not broken down by now. There seems to be no easy answer. I think things will carry on unless acted upon by an "outside" event. By this I mean a major world war or a conflict that is costly in terms of hard assets.

Consider that the US has no real oil reserves, no gold or silver, little gas refining ability, and no manufacturing base. If a major conflict broke out, how could the US pay if suppliers demanded hard assets? If major Asian countries were more worried about being invaded and less concerned with growing a middle class based on US consumption, might they stop playing the "cash recycle" game with the US?

The US does indeed have massive military holdings as well as nuclear materials. I guess that is something. While I cannot envision a scenario like this happening, it is an object lesson just to consider. US consumption is worth more right now than real money or gold. For as long as the semblance of the status quo can be maintained this will be enough. If things were to change, it would change overnight. Food for thought.

http://seekingalpha.com/article/112145-u-s-consumption-seems-to-be-the-greatest-currency


Bob Chapman, The International Forecaster
This continued credit injection is to insure a sufficient system. This is calculated to steady the bubble and perpetuate the massive flow of dollar finance out to the global financial system, which in the final analysis will not solve the problem. It insures permanent monetary disorder.

This is going to be very bad for the dollar in the long run. Some even think the dollar will win by default versus other currencies, but in fact they’ll all lose versus gold in varying degrees. A good point to remember is that this time the Chinese are not going to be around to bail out the $2.5 billion daily needs of the US Treasury.


All Americans are going to have to get used to a whole new way of life. They will be walking to the mall to visit the few remaining shops that are still open there. The public is completely unprepared for the difficult life they face. The brainwashed, brain-dead, propagandized in our society are going to be forced to face reality. Comfort and convenience will be a thing of the past. It will be a struggle for food and to pay the mortgage and car payments for those lucky enough to have jobs.
http://news.goldseek.com/InternationalForecaster/1230140863.php

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