Friday, December 17, 2010

The Reality Is...

Upon looking at California’s books, newly elected Governor Jerry Brown said, “We've been living in fantasy land. It is much worse than I thought. I'm shocked.”

U.S. House Passes Tax-Cut Extension, Sends to Obama
Ryan J. Donmoyer and Peter Cohn
The U.S. Congress passed an $858 billion bill extending for two years all Bush-era tax cuts, sending the measure to President Barack Obama for his signature.

The vote concluded a debate over the expiring tax cuts that dominated the 2008 and 2010 U.S. election campaigns. As the renewed tax cuts will expire at the end of 2012 they are certain to be a focus of the next presidential campaign.

Majorities of both parties supported the bill. Voting in favor were 139 Democrats and 138 Republicans, while 112 Democrats and 36 Republicans voted against it. Eight lawmakers didn’t vote.

And there you have it, a Congressional sponsored increase in the ballooning debt of a fiscally inept nation. The US Congress has knowingly passed into law a tax package that guarantees a further increase in the Federal deficit at at time when nations around the world are being forced to increase taxes and slash spending in an effort to prevent sovereign debt default. How can the US Government get away with this? By with their printing presses, of course.

Does the US Government really believe they can avoid sovereign debt default themselves by simply printing money and borrowing to buy their own debt?

Stop and think how completely moronic the US government really is. Not only do they print money like it is going out of style, but they pay interest on it to borrow it? How freaking stoopid is this arrangement? Seriously? The Fed prints money to buy debt from the Treasury, and the Treasury pays the Fed interest on the money they print? Why doesn't the Treasury just print the money themselves and cut out the middleman, the Fed?

But that is another can of worms altogether. The fact is, this "tax package" [ IT IS NOT A TAX CUT] is about as Gold and Silver positive as any government legislation could ever unwittingly be.

Unfortunately there is a delusion in the bond markets right now that proving to be "temporarily" a negative for Gold and Silver. Interest rates have been rising. The reason they have been rising has been open to much debate.

The financial media talking heads proclaim rising interest rates as a "sign of growth" for the economy moving forward because of all the "jobs that will be created" because this tax package was passed. And of course, let us not forget the "improved signs of growth" going forward because this "tax package" was passed. Both jobs growth and economic growth are based on wishful thinking. Where is all the jobs growth and economic growth that was promised when the Bush tax Cuts were first enacted? If these Bush tax Cuts have been so helpful, why must they be extended?

The answer to that question is simple. If the Bush tax Cuts were allowed to expire, the result would have been a tax INCREASE. And a tax increase in a failing economy would only crush what little "government spending induced" economy we have presently. The passage of this "tax package" will not improve a damn thing in jobs growth or economic growth. With luck it will help maintain the illusion of an economic recovery, which itself will be difficult, as there really isn't one.

This new "tax package" could not be more US Dollar negative. Interest rates are not rising because of "signs of growth" going forward. Interest rates are rising because the US Governments ability to repay it's debt is now being called into question from EVERY corner of the world. Interest rates are rising in the US for exactly the same reasons interest rates rose in Greece, and precipitated a debt crisis for the Greek government and it's sister Euro nations last Fall. Interest rates are rising on US Government debt for exactly the same reasons interest rates rose in Ireland, and precipitated a debt crisis for the Irish government and it's sister Euro nations this Fall.

Interest rates rise for heavily indebted nations when their ability to pay back their present debts come into question as their need for more and future debt is revealed. The US is the WORLD"S most indebted nation, and is seen adding to it's debt load by the BILLIONS every week of every month for as far into the future as anyone dares to look.

Interest rates are not rising in the US because of a rosy economic growth picture, the US economy is stagnant at best. Interest rates on US Government debt are rising because the US debt burden is colossal, and rising, ...with no honest effort to contain it. US Interest rates on government debt are rising because financial Armageddon is staring the US government in the face, and the only bullets she has left in her defense are more debt.

The Fat Lady Of Debt is about to sing people. And with Gold and Silver as the harbinger of that TRUTH, all efforts by the financial media are to obfuscate that TRUTH, and foster an environment for the continuation of the CRIMEX Precious Metals Fraud.

Be right, and sit tight. The TRUTH is on your side.

I've screamed at my quote screen enough this week. I think I'll add some Palladium to my portfolio this morning...and maybe a few more shares of my favorite junior mining stocks. Join me.

U.S. Tax Policy Will Push Gold and Silver Much Higher
by James West
The Obama administration’s inability to obtain an improved tax revenue for federal coffers is the latest farce in the comic American tragedy unfolding before our very eyes. This government appears incapable of understanding that printing increasing amounts of currency while realizing deteriorating tax revenues and generally lethargic economic conditions is the direct path toward default.

It would be excellent entertainment for the rest of us were it not for the fact that this bumbling government is likely to precipitate an even broader economic meltdown than that of 2008 with its arrogant insistence on unilateral financial dis-incentives. Future generations are now further encumbered by a debt and deficit load that is growing exponentially.

Forget the feel-good reports coming out the main stream media. They are nothing more than post-meal flatulence from a body fed on the gassy and rosy statistics generated by payroll economists. Ridiculous new configurations in the English language are evidence of the totality with which financial journalism has been compromised. Who ever heard of something so utterly vapid and oxymoronic as a “jobless recovery”?

Bankruptcies loom at the state, county and municipal level throughout the U.S. Even wealthy jurisdictions, like New York’s Nassau County, home to some of the most expensive schools in the United States, faces a fiscal crisis.

California is battling insolvency on an almost daily basis, and the U.S. Federal Reserve is forced to buy T-bills from the Treasury department just so the government can continue kiting checks to itself to stay operational.

While America heads blindly towards third world status, there is immense opportunity for investors in gold and silver in such pig-headed policy. For the more money the government prints, the more the jobs market limps, the more homes half-built linger on disinterested markets, the more gold and silver will rise in price relative the U.S. dollar, which is increasingly representative of nothing, and now, less than nothing.

Market alarm as US fails to control biggest debt in history
By Liam Halligan
Some say that growing signs of a US economic recovery are positive for stocks, which means money is being diverted out of Treasuries, so lowering their price, which pushes up yields. That’s wishful thinking. Sovereign borrowing costs have just surged in the US – and therefore elsewhere – because a politically-wounded President Obama caved-in and extended the Bush-era tax cuts, combining them with a $120bn payroll tax holiday.

Lower taxes, and the certainty of lower taxes, may bolster business investment and growth. That’s the logic employed by those painting last week’s global yield spike in a positive light. Government borrowing costs rose in America and elsewhere, they say, as a re-bounding US economy is now drawing investors’ cash away from sovereign bonds and towards more productive uses.

The reality is, though, that the market is increasingly alarmed at the rate of increase of the US government’s already massive liabilities. America’s government debt is set to expand by a jaw-dropping 42pc over the next few years, reaching $19.6 trillion by 2015 according to Treasury Department estimates presented (amid very little fanfare) to Congress back in June. Since then, government spending has risen even more. So US debt service costs, like those of many other Western nations, are expanding rapidly in terms of both the volumes of sovereign instruments outstanding, and the yields on each bond.

The new worry in the market is that this latest round of tax cuts could add another $1 trillion to the US deficit, on top of the already horrendous numbers produced in June. With opinion now deeply split about the wisdom of yet another round of QE, bond investors are getting increasingly worried that the Fed will turn off the funny-money and the sugar-rush will fade. Meanwhile, the US has very few plans – and none of them remotely credible – to get to grips with the biggest debt in history.

America has lately been very happy for small eurozone members to endure most of the adverse publicity related to the sovereign bond crisis. But, as of last week, the Western government debt debacle has entered the big league. We’re going to hear a lot more about the US government’s borrowing costs over the coming months – and the related “contagion” of other countries’ treasury bills, as America’s funding issues focus attention on the scale and ratcheting interest costs of sovereign debts in other large economies too.

Until now, market attention has oscillated between the eurozone and the States, with one region’s debt instruments benefiting from the woes of the other. Last week marked a turning point. Western sovereign instruments were hammered across the board – with traders making little distinction between the debts of Germany or Japan. There’s a lot more of this to come.

Easter Egg Out Of The BIS: US Banks Are On The Hook To The PIIGS By Over $350 Billion
by Tyler Durden
Last night, the BIS released its latest quarterly review, as always chock full of useful information. The one major item that caught our eye was the updated exposure toward the PIIGS countries by various foreign banks. And specifically the brand new category that had never been disclosed before by the BIS, namely the "other exposures" category, which per a rather closeted footnote is defined as: "other exposures consist of the positive market value of derivative contracts, guarantees extended and credit commitments." This is exposure that appears for the first time in an official BIS document. And it is sizable: while total foreign claims stood at $2,281 billion, the newly disclosed category accounts for a whopping two thirds of a trillion: $668 billion. How generous of the BIS to share this data which as recently as 2 years ago may have been considered as material, and these days is merely dismissed with a laugh. After all who cares unless the potential loss has at least 12 zeroes in it. Yet what is most significant for the US taxpayer, who is now dead set on proving that St Sebastian was an amateur when it comes to (in)voluntary martyrdom, is that US exposure to the P(I)IGS (Italy excluded, for the time being - give it a few months), has just tripled as a result of this revelation. While before it was "common knowledge" that US banks have nothing to lose should Europe go down the drain, it has now been revealed that US banks actually have $353 billion in exposure, of which $233 billion is of this newly revealed "other category."

And now that it is pro forma common knowledge that should the PIGS fails, that at least a few domestic banks would be wiped out, it also should be appreciated why the ECB will do everything to prevent an impairment to bondholders: with just under $2.3 trillion in potential partial or full losses on total exposure, the domino effect would blow up Europe overnight, then promptly wipe out the US and the rest of the world with it.

Everything is Under Control?
By Greg Hunter’s
There are some big messages being put out by the government that appear to be for the sole purpose of reassuring the public that everything is under control. Bernanke appeared on “60 Minutes” 10 days ago to tell the public that he is “100 percent” sure inflation is not going to be an issue, and that it’s a “myth” the Fed is “printing money.” I am not going to touch on the veracity of his statements. I did that in a recent post called “CBS Allows Fed to Spread Disinformation Unchallenged.” I want to explore why the Fed Chief felt it necessary to go on nationwide television to, basically, tell America and the world that he’s on top of the economy? He could have gone on Bloomberg, CNBC or held a press conference at the Fed and got coverage for his message. Why didn’t Mr. Bernanke ask to be on “60 Minutes” when he announced an unprecedented second round of more than $600 billion of Quantitative Easing in early November? That was a big announcement–what he did 10 days ago was not.

Economist John Williams of has been tracking plunging tax receipts and soaring Federal deficits. He has been predicting that chances are increasing the U.S. could experience a sudden and severe dollar sell-off. This, in turn, could lead to hyperinflation. In his latest report, Williams says this about extending the Bush tax cuts, “The proposed package would not trigger a recovery, and it would not forestall the intensification of the double-dip recession.”

The more government spin doctors give the public reassuring words and contrived images that project an air of serenity and confidence, the less I feel “everything is under control.” I get the feeling that something bad is coming–and soon. I hope I am just being too pessimistic.

The Most Important Commentary You Will Read All Year
By Dave Kranzler, The Golden Truth
Now that the Asians have begun to convert their dollar-based reserves and assets into physical gold and silver, the world will soon understand the degree to which U.S. and European banking systems have issued to investors an absurd amount of paper claims on gold/silver which does not exist to be delivered. This imbalance - of which the paper amount outstanding is several 100 multiples (including OTC derivatives per the BIS quarterly bank reports) the amount of actual supply of gold/silver - will be resolved such that price of gold/silver in all currencies will soar to levels that take even the most ardent goldbugs by surprise..."

[T]he basic problem is that government and banking debt around the world are both rapidly moving towards default, and since governments are guaranteeing the lot, the pace of monetary creation is accelerating. The consequence is that the gold suppression schemes, which have existed for the last one hundred years in one form or another, are finally coming to an end. We are trying to guess how dramatic that end will be. It will be difficult enough to stop a run by unallocated account holders on the bullion banks, without forcing a cash-payout amnesty. But if the central banks themselves cannot supply the necessary bullion to prevent this, the prospect of a total collapse of paper money will be staring us all in the face."

Here's the link: MUST READ MATERIAL

That essay should be read in conjunction with this:

It’s [meaning the paper manipulation vs. physical bullion supply] eventually going to blow because at some point these buyers will say, ‘I’m indexed, but I actually want to get all of this physical gold and silver now.’ When that happens, the game is over.

Here's the LINK

...for anyone long gold and silver that is actually in their possession - or appropriately safekept at a safe distance from all Governments - the shock and awe of the upward price revaluation will be breathtaking.

Ron Paul Appears Poised to Irk the Fed Chief
By FLOYD NORRIS, The New York Times
A congressman from Texas, long a dissident critic of the Federal Reserve, is scheduled to become the chairman of a House panel with jurisdiction over the central bank. It promises to be a miserable time for the Fed chairman as he is peppered with hostile questions at oversight hearings and with legislation to force complete audits of Fed operations.

So it is now, with Representative Ron Paul about to take over as chairman of the Domestic Monetary Policy Subcommittee of the House Financial Services Committee. Mr. Paul campaigned against big banks, arguing that concentrated financial power goes hand in hand with concentrated political power.

If the Fed were abolished, he wrote last year, “the national wealth would no longer be hostage to the whims of a handful of appointed bureaucrats whose interests are equally divided between serving the banking cartel and serving the most powerful politicians in Washington.”

It is not hard to imagine Mr. Paul lecturing the president of the Federal Reserve Bank of New York in a committee room: “You can absolutely veto everything the president does. You have the power to veto what the Congress does, and the fact is that you have done it. You are going too far.”

And so it was back in 1964, when that lecture was actually given by the then-new chairman of the House Banking Committee, a Texas congressman named Wright Patman. As Time magazine then wrote: “For three decades, Wright Patman has fumed and fussed that the Federal Reserve system is too secretive, too independent, too insensitive to the hopes of small borrowers. A sharecropper’s son, he often charges that it is a tool of Wall Street bankers.”

A joke during Mr. Patman’s tenure was that the reason he chose a bright red carpet for his office was to hide the blood stains after William McChesney Martin Jr., then the Fed chairman, emerged from private meetings.

Mr. Paul is well aware of the precedent. His 2009 best-selling book, “End the Fed,” quotes Patman’s lecture and then adds, “I actually consider this an understatement, because in the past year or so during this bailout process, the Federal Reserve has garnered an unbelievable amount of power, making it much more influential around the world than the Congress or the president has ever been.”

The Feds Final Days
By Darryl Robert Schoon

In 2008, America suffered a massive economic heart attack. Its doctors, thought to be the world’s best, believed the US to be in good health, having recovered from a similar though smaller crisis in 2000.

But America hadn’t recovered. In fact, the Fed’s palliative for the 2000 crisis, i.e. lower interest rates, soon created an even larger crisis, i.e. the 2002-2006 US housing bubble whose collapse caused global credit markets to contract and investment banks to fall, necessitating government intervention on such a massive scale it led to today’s sovereign debt crisis as private losses were absorbed onto public balance sheets; and, now, in 2010, the crisis continues to fester and spread.

Fed Chairman Ben Bernanke’s solution for our current problems is but a more extreme version of the Fed’s near fatal prescription in 2001, i.e. lower interest rates, but this time combined with a new iteration of voodoo economics, a witch’s brew called QE II, a monetary gesture as futile and impotent as a Hail Mary pass thrown by an atheist as time runs out.

The end of central banking in the US will come in one of two ways: (1) Through a constitutional amendment that bypasses the US Congress, or (2) through the complete collapse of the monetary system that leaves the Federal Reserve and all central banks bankrupt.

The latter is perhaps the most probable as fiat money systems have an average lifespan of 40 years. It was in 1971 that President Nixon removed the gold backing from the US dollar and all currencies became fiat. Do the math: 1971 + 40 = 2011.

If the historical mean is any reassurance, the collapse of paper money and central banking is imminent.

The Federal Reserve is now the largest holder of US debt. Not only are China and Japan vulnerable to a US default, so, too, is the Federal Reserve. It would indeed be justice if the Federal Reserve collapsed because those they indebted were unable to pay them back.

A less drastic alternative, however, is a constitutional amendment that bypasses the US Congress. This is necessary because powerful interests would prevent the US House or Senate from ever repealing the Federal Reserve Act.

Only by using state legislatures could the US Congress and powerful banking interests be circumvented: …The second method prescribed is for a Constitutional Convention to be called by two-thirds of the legislatures of the States, and for that Convention to propose one or more amendments. These amendments are then sent to the states to be approved by three-fourths of the legislatures or conventions. This route has never been taken, and there is discussion in political science circles about just how such a convention would be convened, and what kind of changes it would bring about.

But for this to happen, conservatives and liberals would first have to join forces in order to overcome the powerful elites that will seek to maintain the status quo. Special interests in both parties have a vested interest in the present monetary system and will do everything possible to save the Federal Reserve, no matter how destructive it is to America.

If Americans want to end the Fed, they will either have to cooperate in what would be the greatest political undertaking since the American Revolution—or wait for a cataclysmic economic collapse to make that choice for them.

Chinese Take-Out (of USEconomy)
By: Jim Willie CB,
The Chinese really must think the American strategy and behavior to be braindead and self-destructive. The US helped them assemble a manufacturing industry, replaced US income with debt, and finally faces the Grim Reaper in a national episode of systemic failure. The US leadership is as stupid and mindless as the population is driven by compulsive consumption over the cliff, as the nation faces ruin.

U.S. Commodity Regulator Delays Speculation Caps Plan
Ed Steer, Gold & Silver Daily
Well, the CFTC's meeting on Thursday ended suddenly with the main issues not really resolved. I listened to a Bloomberg interview with CFTC Chairman Gary Gensler... and I got the distinct impression that the meeting was ended because the silver position limit issue had reached an impasse. A rock had come up against a very hard place... and no one was blinking. So Gensler ended the meeting rather than put it to a vote. He was careful to point out on a couple of occasions during the press scrum that followed, that although the meeting was over... this issue was still very much on the table.

Ted Butler made it absolutely clear to me yesterday that the bone of contention was 100% the silver position limits issue... and I agree totally. He also said that whatever stories that showed up in the main-stream media on this issue, would not reflect the titanic forces that ran head-on into each other at this historic meeting yesterday. But, as Ted said, they now both know exactly where each other stands.

Gensler, who is nobody's fool, tried to do all of this above board and attempt to reach a consensus... but, when push became shove, the 'fine folks' at the CME and JPMorgan/HSBC circled the wagons. Both Gensler and CFTC Commissioner Bart Chilton tried to put as positive a spin on it as they could... but the fight is now on.

The linked Bloomberg story is headlined "U.S. Commodity Regulator Delays Speculation Caps Plan". After you've read the story, you can click on the video tab and listen to what both CFTC Chairman Gary Gensler and Commissioner Bart Chilton had to say. This story is worth spending some time on... and the link is here.

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