Recall yesterday that in our charts we commented, "with prices here coming from the CRIMEX, failure is always an option". And failure is exactly what we got. How maddening this has become cannot be put into words that do not include expletives. Day after day bad news piles up in the inbox, and Precious Metals prices refuse to respect it and respond accordingly. Perhaps an exceptionally weak non-farm payrolls number this morning will break the back of the Dollar.
As it is the Dollar, or rather the perception of strength in the Dollar, that has kept the Precious Metals suppressed and in check. If you ever needed proof that the markets are controlled by little black boxes, this is it. "The Dollar goes up, then Gold must go down," says the little black box. And so it does. Never mind the fundamental reason why the Dollar is a bad bet, and Gold is the ONLY bet. It should be obvious by now that their are few, if any, humans left on Wall Street with any brains.
It's a tough nut for sure right now. Bad economic data pushes the equity markets down globally. In their infinite wisdom, traders rush to the toxic Dollar "for safety". Because of this rush to safety, bad economic data that would "normally" support and give rise to the Precious Metals acts as a road block because of the "false strength" in the Dollar. The black boxes don't discern that the strength in the Dollar is real or false. "The Dollar is going up, sell Gold."
Brilliant!
So what do we do about it? At these prices, there is really only one option. Maintain your positions if you have any, and add to them if you can with small purchases, if you can find the metal. If you are looking to establish a position, consider the funds you have available to in invest in Precious Metals, and put 1/3 to 1/2 of it to work on weakness in price. Yesterday would have been an excellent opportunity to do just that in Silver. Keep the rest of your powder dry, and add to your positions once the market begins to move higher again.
Buying into the Precious Metals sector today is much like buying into it back when Gold was in the 300's and trying to crack 400 in 2003. The opportunities that exist at these prices today are akin to having a second chance to "strike Gold". From 2003 to March 2008, Gold rose on the back of a slowly unraveling US Dollar and the "threat of rising inflation". Geopolitical uncertainty and the birth of today's financial crisis gave Gold quite a kick in the arse last Fall and Winter. With today's "sale prices" on Gold, many who failed to take advantage of the low prices in 2003 to protect their wealth, have a "second chance" to do so now. The US Dollar's days are now numbered in small numbers, take advantage of this opportunity now to accumulate. The next run in Gold may not blast off for several weeks yet, but once it gets off the ground, the run could last for months as rising prices and hyperinflation carry the Precious Metals to heights yet seen.
Dollar *danger* ahead
Well, the one thing the US government might have had going forward was the strength of the dollar, which, despite America’s economic weakness, low rates and some evidence of Japan-style quantitative easing, was still going strong in recent weeks.
But there are now signs of slackening demand for the US currency, according to Bank of America’s Robert Sinche.
Specifically, one source of the the dollar’s recent rally has been the scarcity of USDs among G7 nations and emerging market countries. That’s now easing, according to BoA, with the provision of currency swaps, such as the $30bn for South Korea, Brazil, Mexico and Singapore announced last week. Intuitively, a mass of dollars coming into the system would ease upward pressure on the USD and that easing can be seen through recent declines in the Libor-OIS spread, BoA says:
While there are many factors that influence the LIBOR-OIS spread, particularly the stability of prime money market fund balances, the spread does provide some measure of the offshore demand for USDs, as does the pricing behavior action in the NDF markets. There are signs that these pressures are beginning to moderate in recent weeks as USD funding liquidity has become available on a widespread basis, suggesting that the scarcity demand for USDs is lessening significantly.
The second factor affecting the USD in recent weeks, according to BoA, has been the repatriation by Americans of foreign assets. Data from the Treasury TIC report indicates that US residents had sold foreign equities for each of the three months ended August, with total net sales of $21.6bn. That, however, may be slowing:
It appears that repatriation accelerated in September/early October, with weekly data (from AMG) showing the sharpest redemptions in international mutual funds during the first half of October. However, those redemptions slowed sharply during 2H October, falling to only an estimated -$0.2bn (2 weeks ended October 29) from -$6.4bn in the 2 weeks ended October 15. With global equity prices stabilizing in recent days, the pace of USD-supportive redemption/repatriation is likely to slow further in the weeks ahead.
The final factor, according to BoA, has been the recent appetite for risk aversion, which drove investors to the safe-haven status of USDs, as well as the Japanese yen. Using the VIX as a measure of risk appetite, BoA thinks the VIX’s recent fall means a “significant correction” in USD gains is likely. As goes the VIX, goes the dollar.
Finally:
A strict reading of interest rate differentials would imply the potential for a further 10% fall in the USD Index during the weeks ahead, about three times the 3.5% correction in place from the October 28 recovery high. While that magnitude of correction appears unlikely in the immediate future, we do note the seasonal forces that often weaken the USD into yearend. Moreover, in a global financial system characterized by a scarcity of capital, it is rather ironic that the currency of the largest capital importer (largest current account deficit) has been so strong in recent months. In this context, the strength in the USD in recent weeks also appears unsustainable, with broad-based gains in both developed (ex-Japan) and select developing-country currencies expected during the final two months of the year.
http://ftalphaville.ft.com/blog/2008/11/05/17851/dollar-danger-ahead/
J.P. Morgan – Loving Their Handiwork
Morgan is the quintessential leviathan in the Interest Rate arena through their obscenely sized Medium-Term Interest Rate Swap book which stood at 59 Trillion at June 30, 2008.
The interest rate swap book, due to its sheer size, overwhelms the bond complex by creating artificial demand for government securities. This interest rate suppressive activity began in earnest back in the 1990’s and has kept market rates of interest at artificially low levels. The FUNDAMENTAL [and ongoing] MISPRICING of CAPITAL – for many years – has led to a myriad of economic excesses like the Dot Com boom, subsequent housing boom and the financial asset boom itself.
Morgan’s overbearing effect in the interest rate complex required the simultaneous suppression of the gold price. This was done to make falsified inflation data seem credible. It has often been said that, “if real inflation heats up – BOND VIGILANTES would raise market rates of interest reflective of real inflation”. The reality folks, the BOND VIGILANTES are extinct – they lost their jobs long ago – being swallowed by the black hole that is J.P. Morgan’s derivatives book.
Of course, the reason why J.P. Morgan’s financial adventure-ism has not yet landed them in the financial dog-house is no doubt rooted in this:
Dawn Kopecki reported [spring of 2006] in BusinessWeek Online in a piece titled, Intelligence Czar Can Waive SEC Rules,
“President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”
Folks need to realize that J.P. Morgan “IS” the Federal Reserve. They undoubtedly have a “pass”. This becomes clear when one stops and really analyzes the words of Dallas Federal Reserve President, Richard Fisher;
"The Federal Reserve will do what it takes to maintain its credibility, which is central to preserving the integrity of the US dollar," Dallas Federal Reserve Bank President Richard Fisher said on Tuesday.This report, from Reuters, continues: "We seek to get it right. And the answer to your question is we will do what gets it right," said Fisher. Answering audience questions after a speech to the Dallas Friday Group, Fisher said the US dollar is a "faith-based currency" dependent on the credibility of a central bank. "In addition to a faith-based currency, we are the currency of the world and we must maintain its integrity..."
Don’t you just love the way they maintain the faith, their credibility and keep getting it right?
This rancid injustice has already led to the situation where COMEX futures precious metal’s prices have decoupled from, and bear no resemblance to the costs of obtaining physical stocks of the same.
This appears to have also happened in the interest rate complex with Libor [London Inter
Bank Offered Rate - a futures generated price] becoming a poor proxy for where banks will actually lend money.
http://news.goldseek.com/GoldSeek/1225998899.php
Friday, November 7, 2008
Thursday, November 6, 2008
Wednesday, November 5, 2008
The Grapes Of Wrath
Change? You want change? Be careful what you wish for.
The sheep of a nation have spoken. They have chosen a leader bereft of leadership. They have chosen a manufactured "politician" as their next President because he isn't George Bush. How pathetic.
Change? Can you say "lower standard of living"? Can you say "substantially higher taxes" for EVERYONE, not just the "rich". There are no more rich. The rich are dropping like flies. The rich, the top 20% of society pay 80% of the nations taxes already. This country faces a ONE TRILLION DOLLAR deficit JUST next year. I'm sorry, I don't care how you do the math, these people can not pay for that by themselves.
A "windfall profits tax" on Oil companies? LOL, you thought the price of gasoline was expensive this summer? You ain't seen nothing yet. Tax the Oil companies and watch the supply of gasoline disappear. Has history taught these fools anything?
Higher corporate taxes? LOL. Corporate profits are falling like stones in the ocean. You think unemployment is bad now? Raising corporate taxes is NOT going to create jobs, it is going to eliminate them.
Higher energy costs will do little to increase corporate profits. Higher unemployment will only make tax revenues fall. Change? O yeah, there is gonna be change alright, but the sheep are not gonna like it. Take that to the bank. The Obama presidency is doomed from the start. America will never be the same. God bless the children, for they will bear the brunt of the fallout from the events of today.
Obama to inherit feeble economy awash in red ink
WASHINGTON (AP) -- To the victor goes the mess. Barack Obama's presidential election victory comes with an albatross of a prize -- an economy beset by a stubborn housing slump and the worst financial crisis in 70 years.
Consumers and businesses are sharply reducing their spending and the government is awash in red ink.
The current administration on Wednesday will detail its plans to borrow a record $550 billion in the final three months of the year as a down payment for the various financial rescue packages put into effect in response to the global crisis.
A Treasury Department official on Monday projected the government would need to borrow an additional $368 billion in the first quarter of 2009. Treasury is expected to bring back its three-year notes to help cover the increased borrowing needs.
http://biz.yahoo.com/ap/081105/financial_meltdown.html
Will world swallow another half-trillion in U.S. Treasuries this quarter?
WASHINGTON -- The U.S. Treasury predicted it would borrow this quarter more than three times the amount initially forecast as weaker economic growth and the costs of a new bank rescue package swell the budget deficit.
Borrowing needs will rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July, the Treasury said in a statement in Washington. That would be more than double the largest ever -- a record $244 billion in new marketable debt in the first three months of this year.
"The U.S. Treasury faces an unprecedented financing need," said Goldman Sachs analyst Ed McKelvey, echoing a similar comment last week by Anthony Ryan, the Treasury's acting undersecretary for domestic finance.
McKelvey predicts the Treasury's total 2009 borrowing needs at about $2 trillion.
The Treasury predicted three months ago it would borrow $171 billion in marketable debt in the July-to-September quarter and have a cash balance Sept. 30 of $45 billion. Today, the department said the actual amount it borrowed $530 billion in the third quarter and the cash balance at the end of the period was $372 billion, including a supplementary financing program at the Federal Reserve.
http://gata.org/node/6837
Do you really think that the world is going to continue to purchase the debt of this nation. Would you buy the debt of a bankrupt company? Of course not, you'd never get your money back. Why should the world continue to foot this country's flatulence? They shouldn't, and most likely won't. Can you say rising interest rates?
Yeah, "rising interest rates."
Rising interest rates will not help corporate profits grow. Lower corporate profits equals lower tax revenues...even if you raise their taxes. Oh, by the way, corporations can take their businesses out of the country to avoid higher taxes. Ever think of that Mr. Taxman? Government regulation, medical benefits, and taxes are what destroyed this nations manufacturing base...it wasn't George Bush. Go ahead and raise corporate taxes. Things will change in a hurry...from bad to worse.
Please don't misunderstand. A McCain victory would have been as feeble as this one. Neither one of these clowns, and their inner circle, is up to the task at hand. Neither were willing to face the truth about this country's financial debacle throughout their entire campaign. What comes out of Obama's mouth is the same drivel we have heard from Democrats for the past 25 years. None of what he says or proposes addresses this nations #1 problem. The country is BROKE! As in bankrupt. As in unable to repay it's debts. Obama isn't going to fix a damn thing with his "plans for change" because quite simply, he doesn't have the money to do any of it.
This country faces some hard choices. The choices all center around "spending". This country has got to CUT SPENDING dramatically because it has no more money to spend. You could take every single dollar from every single American today, and it would not come close to paying off this nations debt. How sad is that? Very sad. But more than sad, it's pretty damn scary. Sadly, the "Hope for Change" so many carry today, will soon turn to despair. Obama is NOT the answer. He is certainly not this nations savior. Expect more of the same from Washington for the next four years.
When the chickens come home to roost
Merrill Lynch did a study recently, showing that the 30 biggest US equity holdings amongst US hedge funds were amongst the poorest performers in the S&P500. In other words, it is likely that much of the recent sell-off in equity markets around the world can be traced back to hedge fund liquidations.
There is no question that hedge funds are downsizing at present. The problem is to obtain precise data on the phenomenon. If we estimate that the global hedge fund industry controls about $2 trillion of capital, and we assume that 15-20% is going to be pulled out between now and year-end (which is not far from the truth according to our sources), $3-400 billion must be returned to investors between now and 31st December.
Deleveraging continues
That is not the whole story though. The average hedge fund uses leverage, to the tune of about 1.4 times (see chart 2). This is down significantly from a year ago, but it still means that hedge funds need to liquidate investments of at least $500-550 billion in order to meet current redemption requests. And the real number is probably higher because some of the worst performing strategies this year are the ones using the most leverage. The real number is therefore more likely $6-800 billion, and that is a big enough sum of money to put downward pressure on the markets.
http://www.investmentpostcards.com/2008/11/04/when-the-chickens-come-home-to-roost/
More Signs Of A Silver Shortage
By: Theodore Butler and Israel Friedman
The evidence of a wholesale silver shortage continues to build. This is in addition to the current retail shortage. The continuing tightening in the price differentials between the trading months in COMEX futures has continued and become more dramatic.
One of the clearest indicators of a shortage in a physical commodity occurs when the nearby futures months trade at a premium to more deferred trading months. That means buyers are willing to pay more for a commodity because it is not immediately available. Remember, the definition of a commodity shortage revolves around delays and premiums. While the nearby months in COMEX silver futures haven’t yet grown to a premium over the more deferred months (called backwardation or an inverted market), they have moved noticeably in that direction.
A second sign was the unusual and persistent buying of the recently concluded October COMEX silver futures contract, which recorded almost 1300 contracts delivered (6.5 million ounces) for the month. The bulk of these contracts resulted in a removal of silver from COMEX silver warehouses.
Finally, the big silver ETF, SLV, reported a decline of around 4.5 million ounces over a two day period recently. It is impossible to tell whether declines in the metal holdings in the ETFs are due to investor share liquidation or if shareholders are removing metal for other purposes, such as industrial consumption. Looking at the share trading volume and price action for the period corresponding to this drop, I’m inclined to think it was due to removal, rather than liquidation. Recent reports of big inflows by air transport of silver from London to India seem to explain the declines in SLV more than investor liquidation. If I am correct, wholesale silver is a lot tighter than most assume.
http://news.silverseek.com/TedButler/1225823576.php
The sheep of a nation have spoken. They have chosen a leader bereft of leadership. They have chosen a manufactured "politician" as their next President because he isn't George Bush. How pathetic.
Change? Can you say "lower standard of living"? Can you say "substantially higher taxes" for EVERYONE, not just the "rich". There are no more rich. The rich are dropping like flies. The rich, the top 20% of society pay 80% of the nations taxes already. This country faces a ONE TRILLION DOLLAR deficit JUST next year. I'm sorry, I don't care how you do the math, these people can not pay for that by themselves.
A "windfall profits tax" on Oil companies? LOL, you thought the price of gasoline was expensive this summer? You ain't seen nothing yet. Tax the Oil companies and watch the supply of gasoline disappear. Has history taught these fools anything?
Higher corporate taxes? LOL. Corporate profits are falling like stones in the ocean. You think unemployment is bad now? Raising corporate taxes is NOT going to create jobs, it is going to eliminate them.
Higher energy costs will do little to increase corporate profits. Higher unemployment will only make tax revenues fall. Change? O yeah, there is gonna be change alright, but the sheep are not gonna like it. Take that to the bank. The Obama presidency is doomed from the start. America will never be the same. God bless the children, for they will bear the brunt of the fallout from the events of today.
Obama to inherit feeble economy awash in red ink
WASHINGTON (AP) -- To the victor goes the mess. Barack Obama's presidential election victory comes with an albatross of a prize -- an economy beset by a stubborn housing slump and the worst financial crisis in 70 years.
Consumers and businesses are sharply reducing their spending and the government is awash in red ink.
The current administration on Wednesday will detail its plans to borrow a record $550 billion in the final three months of the year as a down payment for the various financial rescue packages put into effect in response to the global crisis.
A Treasury Department official on Monday projected the government would need to borrow an additional $368 billion in the first quarter of 2009. Treasury is expected to bring back its three-year notes to help cover the increased borrowing needs.
http://biz.yahoo.com/ap/081105/financial_meltdown.html
Will world swallow another half-trillion in U.S. Treasuries this quarter?
WASHINGTON -- The U.S. Treasury predicted it would borrow this quarter more than three times the amount initially forecast as weaker economic growth and the costs of a new bank rescue package swell the budget deficit.
Borrowing needs will rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July, the Treasury said in a statement in Washington. That would be more than double the largest ever -- a record $244 billion in new marketable debt in the first three months of this year.
"The U.S. Treasury faces an unprecedented financing need," said Goldman Sachs analyst Ed McKelvey, echoing a similar comment last week by Anthony Ryan, the Treasury's acting undersecretary for domestic finance.
McKelvey predicts the Treasury's total 2009 borrowing needs at about $2 trillion.
The Treasury predicted three months ago it would borrow $171 billion in marketable debt in the July-to-September quarter and have a cash balance Sept. 30 of $45 billion. Today, the department said the actual amount it borrowed $530 billion in the third quarter and the cash balance at the end of the period was $372 billion, including a supplementary financing program at the Federal Reserve.
http://gata.org/node/6837
Do you really think that the world is going to continue to purchase the debt of this nation. Would you buy the debt of a bankrupt company? Of course not, you'd never get your money back. Why should the world continue to foot this country's flatulence? They shouldn't, and most likely won't. Can you say rising interest rates?
Yeah, "rising interest rates."
Rising interest rates will not help corporate profits grow. Lower corporate profits equals lower tax revenues...even if you raise their taxes. Oh, by the way, corporations can take their businesses out of the country to avoid higher taxes. Ever think of that Mr. Taxman? Government regulation, medical benefits, and taxes are what destroyed this nations manufacturing base...it wasn't George Bush. Go ahead and raise corporate taxes. Things will change in a hurry...from bad to worse.
Please don't misunderstand. A McCain victory would have been as feeble as this one. Neither one of these clowns, and their inner circle, is up to the task at hand. Neither were willing to face the truth about this country's financial debacle throughout their entire campaign. What comes out of Obama's mouth is the same drivel we have heard from Democrats for the past 25 years. None of what he says or proposes addresses this nations #1 problem. The country is BROKE! As in bankrupt. As in unable to repay it's debts. Obama isn't going to fix a damn thing with his "plans for change" because quite simply, he doesn't have the money to do any of it.
This country faces some hard choices. The choices all center around "spending". This country has got to CUT SPENDING dramatically because it has no more money to spend. You could take every single dollar from every single American today, and it would not come close to paying off this nations debt. How sad is that? Very sad. But more than sad, it's pretty damn scary. Sadly, the "Hope for Change" so many carry today, will soon turn to despair. Obama is NOT the answer. He is certainly not this nations savior. Expect more of the same from Washington for the next four years.
When the chickens come home to roost
Merrill Lynch did a study recently, showing that the 30 biggest US equity holdings amongst US hedge funds were amongst the poorest performers in the S&P500. In other words, it is likely that much of the recent sell-off in equity markets around the world can be traced back to hedge fund liquidations.
There is no question that hedge funds are downsizing at present. The problem is to obtain precise data on the phenomenon. If we estimate that the global hedge fund industry controls about $2 trillion of capital, and we assume that 15-20% is going to be pulled out between now and year-end (which is not far from the truth according to our sources), $3-400 billion must be returned to investors between now and 31st December.
Deleveraging continues
That is not the whole story though. The average hedge fund uses leverage, to the tune of about 1.4 times (see chart 2). This is down significantly from a year ago, but it still means that hedge funds need to liquidate investments of at least $500-550 billion in order to meet current redemption requests. And the real number is probably higher because some of the worst performing strategies this year are the ones using the most leverage. The real number is therefore more likely $6-800 billion, and that is a big enough sum of money to put downward pressure on the markets.
http://www.investmentpostcards.com/2008/11/04/when-the-chickens-come-home-to-roost/
More Signs Of A Silver Shortage
By: Theodore Butler and Israel Friedman
The evidence of a wholesale silver shortage continues to build. This is in addition to the current retail shortage. The continuing tightening in the price differentials between the trading months in COMEX futures has continued and become more dramatic.
One of the clearest indicators of a shortage in a physical commodity occurs when the nearby futures months trade at a premium to more deferred trading months. That means buyers are willing to pay more for a commodity because it is not immediately available. Remember, the definition of a commodity shortage revolves around delays and premiums. While the nearby months in COMEX silver futures haven’t yet grown to a premium over the more deferred months (called backwardation or an inverted market), they have moved noticeably in that direction.
A second sign was the unusual and persistent buying of the recently concluded October COMEX silver futures contract, which recorded almost 1300 contracts delivered (6.5 million ounces) for the month. The bulk of these contracts resulted in a removal of silver from COMEX silver warehouses.
Finally, the big silver ETF, SLV, reported a decline of around 4.5 million ounces over a two day period recently. It is impossible to tell whether declines in the metal holdings in the ETFs are due to investor share liquidation or if shareholders are removing metal for other purposes, such as industrial consumption. Looking at the share trading volume and price action for the period corresponding to this drop, I’m inclined to think it was due to removal, rather than liquidation. Recent reports of big inflows by air transport of silver from London to India seem to explain the declines in SLV more than investor liquidation. If I am correct, wholesale silver is a lot tighter than most assume.
http://news.silverseek.com/TedButler/1225823576.php
Monday, November 3, 2008
Enemy Of The State
Listening to a Jim Rodgers interview today I came away with this dose of wisdom concerning a "search for the bottom" in commodities:
When things go up on bad news, that is a classic sign a bottom is in. When things continue down on good news, the bottom is not yet in.
Two interest rate cuts last month by the Fed have failed to stifle the Dollar and lift Gold higher. Rate cuts have always been Gold positive in the past. The fact that Gold has failed to respond to this "good news" suggests the wait for a bottom in Gold may persist for a while longer. Manufacturing last month dropped to its lowest level since 1982. This "good news" should have knocked the Dollar off it's pedestal and given a boost to Gold. No, the Dollar went up again today and Gold slipped hard from it's overnight highs in Asia.
It escapes me that the "threat" of interest rate cuts by the ECB later this week can weaken the Euro, yet a full 100 point cut in the Dollar has almost no effect on the pathetic US Dollar. Even if the ECB cuts 50 points, they would still maintain a large rate differential advantage [3.25 to 1.0] over the US. I thought investors parked their cash where they could get the best return on their money? Oh, that's right, I forgot it is 1984. Down is up, and up is down. My mistake, I ask your forgiveness.
Maybe what Gold needs is some really "ugly news". Geeze, what could be uglier than President Obama? His wife? LOL! How 'bout a currency crisis in an emerging market? Now that might set a fire under Gold.
It's obvious Gold is searching for a bottom here, as is Oil, Silver, and a host of other commodities. But unless or until the Dollar gets whacked, we'll have to continue wandering around in the dark.
Gold and Economic Freedom
by Alan Greenspan[written in 1966]
This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
http://www.321gold.com/fed/greenspan/1966.html
I guess that commentary pretty much sums up Big Governments hatred of Gold. The shocking part of the whole piece is that the author is Alan Greenspan. And you wonder why Gold has become next to impossible to find and purchase in the face of this monetary crisis. The US Dollar is the pillar of the Welfare State. I doubt Mr. Obama is going to be in any rush to "change" a damn thing.
You Better Be Afraid
The credit markets are an international mess. Unless central and domestic banks begin lending in earnest, cash and credit are frozen in time and nothing moves. For now, banks receiving tons of new borrowed cash from central banks are holding it in fear and not lending. Banks do not trust each other.
American housing will continue to fall down for the next three years. We see no bottom until 2011-2012. This is a primary engine of US growth and for now its dead and getting deader.
As commercial real estate falls down the slippery-slope, pension funds and insurance companies are feeling real pain as they own this stuff for income.
The Sheeple are fooled as our wonderful U.S. Dollar had a recent rebound. Nothing has changed and it will sell much lower due to piles of bad debts, inflation, and dilution. Somewhere soon, the dollar slides under .5000 to about .4500-.4600 and then supports. Theoretically, it should go to zero but being the world’s reserve currency with mammoth inflation ahead, support is expected.
Japan, who never got out of their mess after 1989 is working hard to save it’s economy and that of the US. We give them credit for taking on the Herculean task of trying to repair the Unites States.
Corporations seeing how easy it was for bad-boy banks to extract billions from our government in a quest to subvert ‘too big to fail positions’ are jumping in line for their share, too. General Motors on the brink of bankruptcy will probably get Chrysler’s Jeep and Van operations, then flush the rest. They’ll borrow lots of new billions from Uncle Sam under the phony guise of using the cash for R&D on green vehicles. That’s a lot of crap. They are broke and need the cash to live on for a few more months. The big three auto companies wrecked their businesses and now want the taxpayer to save their butts. Further, GM wants Chrysler’s $11 billion in cash, which they would burn through in 11 months at current rates.
The government’s lending window is open to every jerkwater corporate failure from nonsensical operations to formerly blue-chip, now broke major companies.
Consumers were the former backbone of the American economy. Now they have experienced major home value losses, cannot borrow on their homes any more, and their share portfolios are decimated. Credit is gone and jobs are fleeing with lost credit. Social ills of this legendary mess will be terrible; crime, divorce, lost homes, no college, no insurance, etc, etc.
Automobile and credit card defaults are the next tragedy becoming more visible in the first and second quarter of 2009. Unemployment in Michigan is nearing +20% (official number is +8%) and nationally, the real number is above +15%. We think Michigan will hit the magic 1930’s depression 25% unemployed (for real, not newspaper numbers) in 2009. The auto industry and its highly paid jobs are toast.
http://www.kitco.com/ind/Wiegand/oct302008.html
Paulson's Swindle Revealed
The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.
These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?
http://www.thenation.com/doc/20081110/greider2
Effectiveness of AIG's $143 Billion Rescue Questioned
A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.
The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.
Echoing some other experts, Ann Rutledge, a credit derivatives expert and founding principal of R&R Consulting, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection. But she fears that the government is papering over the problem with a quick fix that was not well planned.
"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."
The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.
Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.
In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/02/AR2008110202150.html
Beware of Congress’s Threat to Tax 401Ks
With the bear market red in the claw, with an equal opportunity bear market taking out solid stocks right and left, with panicked investors feeling like every headline is an explosion, comes this impenetrable stupidity:
Some Democrats in Congress have held hearings that included discussions of new proposals to tax 401K money. Specifically, the idea would be to eliminate most of the $80 bn in annual tax breaks that 401(k) investors receive. Which means a nearly $80 bn tax hike.
House Democrats several weeks ago invited Teresa Ghilarducci, a professor at the New School of Social Research in New York City, to testify before Congress on her plan to eliminate the preferential tax treatment of 401K plans.
Specifically, Ghilarducci testified before the House Education and Labor Committee, chaired by Rep. George Miller, (D-Calif.), about her plan.
The idea is to redirect 401K tax breaks to a new government system of guaranteed retirement accounts into which all US workers would be have to contribute.
Specifically, under Ghilarducci’s plan, the tax breaks on 401K contributions and earnings would be eliminated.
Instead, all workers would get a $600 annual inflation-adjusted subsidy from the U.S. government. The sum would be inflation-indexed. Workers then would be forced to invest 5% of their pay in a guaranteed retirement account administered by the Social Security Administration.
That money in turn would then be invested in government bonds that would pay a teensy 3% a year, adjusted for inflation, less than half the inflation-adjusted 7% return the stock market has delivered.
“I want to stop the federal subsidy of 401Ks,” Ghilarducci has said, adding, “401Ks can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”
http://emac.blogs.foxbusiness.com/2008/10/31/beware-of-congresss-threat-to-tax-401ks/
A vote for "change"? Good freakin luck living with your vote...
When things go up on bad news, that is a classic sign a bottom is in. When things continue down on good news, the bottom is not yet in.
Two interest rate cuts last month by the Fed have failed to stifle the Dollar and lift Gold higher. Rate cuts have always been Gold positive in the past. The fact that Gold has failed to respond to this "good news" suggests the wait for a bottom in Gold may persist for a while longer. Manufacturing last month dropped to its lowest level since 1982. This "good news" should have knocked the Dollar off it's pedestal and given a boost to Gold. No, the Dollar went up again today and Gold slipped hard from it's overnight highs in Asia.
It escapes me that the "threat" of interest rate cuts by the ECB later this week can weaken the Euro, yet a full 100 point cut in the Dollar has almost no effect on the pathetic US Dollar. Even if the ECB cuts 50 points, they would still maintain a large rate differential advantage [3.25 to 1.0] over the US. I thought investors parked their cash where they could get the best return on their money? Oh, that's right, I forgot it is 1984. Down is up, and up is down. My mistake, I ask your forgiveness.
Maybe what Gold needs is some really "ugly news". Geeze, what could be uglier than President Obama? His wife? LOL! How 'bout a currency crisis in an emerging market? Now that might set a fire under Gold.
It's obvious Gold is searching for a bottom here, as is Oil, Silver, and a host of other commodities. But unless or until the Dollar gets whacked, we'll have to continue wandering around in the dark.
Gold and Economic Freedom
by Alan Greenspan[written in 1966]
This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
http://www.321gold.com/fed/greenspan/1966.html
I guess that commentary pretty much sums up Big Governments hatred of Gold. The shocking part of the whole piece is that the author is Alan Greenspan. And you wonder why Gold has become next to impossible to find and purchase in the face of this monetary crisis. The US Dollar is the pillar of the Welfare State. I doubt Mr. Obama is going to be in any rush to "change" a damn thing.
You Better Be Afraid
The credit markets are an international mess. Unless central and domestic banks begin lending in earnest, cash and credit are frozen in time and nothing moves. For now, banks receiving tons of new borrowed cash from central banks are holding it in fear and not lending. Banks do not trust each other.
American housing will continue to fall down for the next three years. We see no bottom until 2011-2012. This is a primary engine of US growth and for now its dead and getting deader.
As commercial real estate falls down the slippery-slope, pension funds and insurance companies are feeling real pain as they own this stuff for income.
The Sheeple are fooled as our wonderful U.S. Dollar had a recent rebound. Nothing has changed and it will sell much lower due to piles of bad debts, inflation, and dilution. Somewhere soon, the dollar slides under .5000 to about .4500-.4600 and then supports. Theoretically, it should go to zero but being the world’s reserve currency with mammoth inflation ahead, support is expected.
Japan, who never got out of their mess after 1989 is working hard to save it’s economy and that of the US. We give them credit for taking on the Herculean task of trying to repair the Unites States.
Corporations seeing how easy it was for bad-boy banks to extract billions from our government in a quest to subvert ‘too big to fail positions’ are jumping in line for their share, too. General Motors on the brink of bankruptcy will probably get Chrysler’s Jeep and Van operations, then flush the rest. They’ll borrow lots of new billions from Uncle Sam under the phony guise of using the cash for R&D on green vehicles. That’s a lot of crap. They are broke and need the cash to live on for a few more months. The big three auto companies wrecked their businesses and now want the taxpayer to save their butts. Further, GM wants Chrysler’s $11 billion in cash, which they would burn through in 11 months at current rates.
The government’s lending window is open to every jerkwater corporate failure from nonsensical operations to formerly blue-chip, now broke major companies.
Consumers were the former backbone of the American economy. Now they have experienced major home value losses, cannot borrow on their homes any more, and their share portfolios are decimated. Credit is gone and jobs are fleeing with lost credit. Social ills of this legendary mess will be terrible; crime, divorce, lost homes, no college, no insurance, etc, etc.
Automobile and credit card defaults are the next tragedy becoming more visible in the first and second quarter of 2009. Unemployment in Michigan is nearing +20% (official number is +8%) and nationally, the real number is above +15%. We think Michigan will hit the magic 1930’s depression 25% unemployed (for real, not newspaper numbers) in 2009. The auto industry and its highly paid jobs are toast.
http://www.kitco.com/ind/Wiegand/oct302008.html
Paulson's Swindle Revealed
The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.
These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?
http://www.thenation.com/doc/20081110/greider2
Effectiveness of AIG's $143 Billion Rescue Questioned
A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.
The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.
Echoing some other experts, Ann Rutledge, a credit derivatives expert and founding principal of R&R Consulting, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection. But she fears that the government is papering over the problem with a quick fix that was not well planned.
"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."
The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.
Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.
In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/02/AR2008110202150.html
Beware of Congress’s Threat to Tax 401Ks
With the bear market red in the claw, with an equal opportunity bear market taking out solid stocks right and left, with panicked investors feeling like every headline is an explosion, comes this impenetrable stupidity:
Some Democrats in Congress have held hearings that included discussions of new proposals to tax 401K money. Specifically, the idea would be to eliminate most of the $80 bn in annual tax breaks that 401(k) investors receive. Which means a nearly $80 bn tax hike.
House Democrats several weeks ago invited Teresa Ghilarducci, a professor at the New School of Social Research in New York City, to testify before Congress on her plan to eliminate the preferential tax treatment of 401K plans.
Specifically, Ghilarducci testified before the House Education and Labor Committee, chaired by Rep. George Miller, (D-Calif.), about her plan.
The idea is to redirect 401K tax breaks to a new government system of guaranteed retirement accounts into which all US workers would be have to contribute.
Specifically, under Ghilarducci’s plan, the tax breaks on 401K contributions and earnings would be eliminated.
Instead, all workers would get a $600 annual inflation-adjusted subsidy from the U.S. government. The sum would be inflation-indexed. Workers then would be forced to invest 5% of their pay in a guaranteed retirement account administered by the Social Security Administration.
That money in turn would then be invested in government bonds that would pay a teensy 3% a year, adjusted for inflation, less than half the inflation-adjusted 7% return the stock market has delivered.
“I want to stop the federal subsidy of 401Ks,” Ghilarducci has said, adding, “401Ks can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”
http://emac.blogs.foxbusiness.com/2008/10/31/beware-of-congresss-threat-to-tax-401ks/
A vote for "change"? Good freakin luck living with your vote...
Saved By Deception
LOOK! Up in the sky! It's a bird. No, it's a plane. Nooooo, it's a helicopter! We're saved!
...or so we would like to think.
World Tires of Rule by Dollar
The dollar’s rise is temporary, and its prospects are bleak. The US trade deficit will lessen due to less consumer spending during recession, but it will remain the largest in the world and one that the US cannot close by exporting more. The way the US trade deficit is financed is by foreigners acquiring more dollar assets, with which their portfolios are already heavily weighted.
The US government’s budget deficit is large and growing, adding hundreds of billions of dollars more to an already large national debt. As investors flee equities into US government bills, the market for US Treasuries will temporarily depend less on foreign governments. Nevertheless, the burden on foreigners and on world savings of having to finance American consumption, the US government’s wars and military budget, and the US financial bailout is increasingly resented.
This resentment, combined with the harm done to America’s reputation by the financial crisis, has led to numerous calls for a new financial order in which the US plays a substantially lesser role. “Overcoming the financial crisis” are code words for the rest of the world’s intent to overthrow US financial hegemony.
http://www.counterpunch.com/roberts10302008.html
Banks borrow record amount from Fed
With sources of credit still largely frozen, banks borrowed a record amount from the Federal Reserve in the past week, according to Fed data released Thursday.
The Fed reported that commercial banks borrowed a record $111.9 billion a day, on average, from the Federal Reserve's emergency lending window over the past week. That's up $6.1 billion from the $105.8 billion they borrowed in the previous week.
"Banks literally have an open checkbook to acquire cheap liquidity," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Council. "Borrowing will continue until morale improves."
"The unprecedented amount of liquidity coming from the Fed and Treasury will find a home eventually, and that will be good for the market," said McCormick. "It's taking a bit longer than the industry wants, but down the road it will make a significant impact across the board."
http://biz.yahoo.com/cnnm/081031/103008_fed_borrowing.html
Impact? That's an understatement. That "impact" has a name too. It's name is Inflation.
Gold Thoughts
In the past few weeks, the U.S. Federal Reserve has joined with the U.S. Treasury in an attempt to remedy the financial fiasco. In that effort, the Federal Reserve's balance sheet has ballooned by more than 50%. Never in peace time history has the central bank for the world's reserve currency so intentionally implemented policies that will destroy the value of that reserve currency. As a consequence of that massive monetary ease, the U.S. money supply, M-2, is now growing at a double digit rate. The deflationists can now quit worrying, the quantity of U.S. dollars is rising and the value of those dollars will therefore fall.
This most recent explosion of U.S. monetary growth is signaling that the return on Gold should begin rising dramatically. That would be as expected as the Federal Reserve is doing all possible to inflate, and reduce the value of the dollar. At the same time a massive short, real and psychological, position has been built such that a classic short squeeze in $Gold is extremely likely. Investors not mired in the thoughts of 1930 should be buying Gold at these prices, while they exist.
http://news.goldseek.com/NedSchmidt/1225695780.php
Is the silver futures market about to crack wide open?
The silver market has been looking interesting for months, despite the price collapse. Beneath the surface of the recent spot price falls the structure of the market is changing in such a way that a powerful bull market is being set up.
Metal holdings for Barclay’s iShares Silver Trust (SLV) have so overwhelmed selling pressure that the trust has added a total of 68,921,884 ounces of silver to its holdings so far this year, reported resourceinvestor.com. Yet late last week the COMEX futures market reportedly held 131,530,256 ounces of silver in its warehouses.
This so far in 2008 the leading silver exchange traded fund SLV has added the equivalent of 52.4% of all the silver metal that the COMEX futures market has in its vaults. That surely represents amazing buying pressure at a time when silver prices are in crashing. Something is not right clearly.
Resourceinvestors.com notes that over two million ounces of silver have fled the vaults of the COMEX in just the last five trading days alone. How long before that trickle becomes a flood and the futures market in silver is effectively shut down and the physical spot market takes over?
Expect to see silver prices head to the moon. In the late 1970s it was a bungled price manipulation by the Hunt Brothers that sent silver prices super high, and bust the market for the next two decades. Silver today is trading at around $10 an ounce compared with an average price of $24 an ounce in 1980. What else today costs a fraction of the price 28 years’ ago?
Now it will be a bungled price manipulation by US banks that releases the silver price from its artificially depressed state. Silver bugs have gotten silver hair waiting for this to happen, but it is finally upon us and nothing and nobody can stop it.
http://news.silverseek.com/SilverSeek/1225695000.php
The Shallowest Generation
byJames Quinn
The Baby Boom Generation will never be mistaken for the Greatest Generation that survived the Great Depression and defeated evil in a World War that killed 72 million people. I hate to tell you Boomers, but putting a yellow ribbon on the back of your $50,000 SUV is not sacrifice.
Our claim to fame is living way beyond our means for the last three decades, to the point where we have virtually bankrupted our capitalist system. Baby Boomers have been occupying the White House for the last sixteen years. The majority of Congress is Baby Boomers. The CEOs and top executives of Wall Street firms are Baby Boomers. The media is dominated by Baby Boom executives and on-air stars. We have no one to blame but ourselves for the current predicament. Blaming Franklin Roosevelt or Lyndon Johnson for our dire situation is a cop out. Baby Boomers had the time, power, and ability to change our course. We have chosen to leave the heavy lifting to future generations in order to live the good life today.
Of course, not all Baby Boomers are shallow, greedy, and corrupt. Mostly Boomers with power and wealth fall into this category. There were 76 million Baby Boomers born between 1946 and 1963. They now make up 28% of the U.S. population. Their impact on America is undeniable. The defining events of their generation have been the Kennedy assassination, Vietnam, Kent State, Woodstock, the 1st man on the moon, and now the collapse of our Ponzi scheme financial system. They rebelled against their parents, protested the Vietnam War, and settled down in 2,300 square foot cookie cutter McMansions with perfectly manicured lawns, in mall infested suburbia. They have raised overscheduled spoiled children, moved up the corporate ladder by pushing paper rather than making things, lived above their means in order to keep up with their neighbors, bought whatever they wanted using debt, and never worried about the future. Over optimism, unrealistic assumptions, selfishness and conspicuous consumption have been their defining characteristics.
We spend more eating out than we give to charity. We spend as much on big screen TVs and stereos as we do on education. This may explain why 37 million (12.5%) of all Americans live in poverty and our high school students trail the students of 25 other countries (including Latvia) in science and math knowledge. Our school system processes many more clueless morons who don’t know the candidates for President, versus intelligent, thoughtful, hard working, driven young people. The $160 billion spent on gambling is indicative of the get rich quick without hard work attitude of the Boomer generation. Even worse, households with income under $13,000 spend, on average, $645 a year on lottery tickets, about 9 percent of all their income. Our government feeds this addiction by siphoning off billions in taxes from these gambling revenues to redistribute as they see fit.
This generation lacks self control, morals, a work ethic, and savings ethic. Based on the recent actions of our government and corporate leaders, we seem to lack any ethics at all. It is immoral for the Boomer generation to run up $53 trillion in unfunded future liabilities in Social Security, Medicare and Medicaid to leave as our gift to future generations, while we live it up today. Optimists like to point out that Europe and Japan have much worse unfunded liability problems than the U.S. That is like taking pride in being the best looking horse at the glue factory. In the end, we’ll all still be glue.
The Great American Empire has begun its long slow decline. It may take a few generations to reach its nadir, but the poor decisions already made and crucial decisions postponed in the last 25 years by our Boomer dominated leadership has put our country on a path to a declining standard of living. The U.S. is like a punch drunk ex-champion boxer who still thinks he has what it takes, but is living off his old press clippings. He lived the good life, got fat and didn’t do the hard work required of a champion. A slew of young brash fighters are itching to take him down. It is just a matter of time.
In our heyday during the 1950s, manufacturing accounted for 25% of GDP. In 1980 it was still 22% of GDP. Today it is 12% of GDP. By 2010 it will be under 10% of GDP. Our Government bureaucracy, which contributes nothing to the advancement of our society, now is a larger portion of GDP than manufacturing. Services such as banking, retail sales, transportation, and health care now account for two-thirds of the value of U.S. GDP. We have become a nation of bureaucratic paper pushers. Past U.S. generations invented the airplane; invented the automobile; discovered penicillin; and built the Interstate highway system. The Baby Boom generation has invented credit default swaps; mortgage backed securities; the fast food drive thru window; discovered the cure for erectile dysfunction; and built bridges to nowhere. No wonder we’re in so much trouble.
No one in Washington has shown an ounce of leadership in decades. True leadership requires strength of character, clear vision to see the future as it is, the bravery to make unpopular decisions, and the honesty to tell the public the unvarnished truth based on the facts.
The facts are: we have a $10.5 trillion national debt; $53 trillion of unfunded liabilities; a military empire that has U.S. troops in 117 countries and has spent $700 billion on a pre-emptive war that has killed over 4,000 Americans; a $60 billion trade deficit; an annual budget deficit that will exceed $1 trillion in the next year; a crumbling infrastructure with 156,000 structurally deficient bridges; almost total dependence on foreign oil; and an educational system that is failing miserably. We can not fund guns, butter, banks and now car companies without collapsing our system.
Texas Congressman Ron Paul gives the blunt truth that a true leader is willing to give:
Our government has lived beyond its means for decades. We now face a crucial juncture, at which we determine whether to continue down the path of debt, inflation, and government intervention or choose to return to the economics of the free market, which have been ignored for almost a century. Increased debt leads to higher taxes on future generations, while increased inflation diminishes the purchasing power of American families and destroys the dollar. No society has ever been achieved prosperity through indebtedness or inflation, and the United States is no exception. We cannot afford to continue our current policies of monetary expansion and unending bailouts. Unless we return to sound monetary policy, sharply reduce government expenditures, and realize that the government cannot act as a lender of last resort, we will drive our economy to ruin.
The Baby Boom generation has one last chance to change the course of U.S. history, keep us from wrecking in a storm of debt on the approaching jagged reef and shed the title of “Shallowest Generation”.
http://seekingalpha.com/article/103202-the-shallowest-generation?source=article_sb_popular
Stocks likely to recover no matter who's president
Yes and no. Politicians do influence the economy -- and they'll play a big role in how the country emerges from this current crisis. But analysts say neither presidential candidate can be a cure for what's ailing Wall Street.
"The economy is a big, big machine, and the president is one government bureaucrat," said Ron Florance, Wells Fargo Private Bank Director of Asset Allocation.
Moreover, most analysts believe the battered stock market has nowhere to go but up next year, no matter who ends up in the White House -- and history will probably give the victor credit even if he actually had little to do with the rally.
"The timing couldn't be better," Florance said.
Still, the stock market is just one part of the economy, and under either Barack Obama or John McCain, the United States needs to recover from a downturn whose severity has not yet been determined. And either candidate will face a budget deficit of around $500 billion when he's sworn into office -- a shortfall expected to climb to $1 trillion next year.
Because of the deficit, the financial climate might end up affecting the new president's policies more than his policies will affect the financial climate.
http://biz.yahoo.com/ap/081102/election_stock_market.html
Make the time to vote tomorrow. It is your civic responsibility to vote. Vote for your candidate...and then say a prayer for him...and then say a prayer for your country. No matter which one of these knuckleheads should be unfortunate enough to win, neither of them has or offers the leadership necessary to pull America from the abyss now sucking her down. Borrowing money to pay back borrowed money is not the answer. Stimulus spending is not the answer. Printing money is not the answer. Pain is the answer. The truth hurts. All of America must STOP spending money it doesn't have, or there will be no happy ending. Good luck Mr. new President, whoever you are, you're gonna need it more than you're gonna need the cash to finance your campaign promises [lies]. The country is broke, and you're now the captain of a rudderless ship. I hope you're ready to go down with it....
...or so we would like to think.
World Tires of Rule by Dollar
The dollar’s rise is temporary, and its prospects are bleak. The US trade deficit will lessen due to less consumer spending during recession, but it will remain the largest in the world and one that the US cannot close by exporting more. The way the US trade deficit is financed is by foreigners acquiring more dollar assets, with which their portfolios are already heavily weighted.
The US government’s budget deficit is large and growing, adding hundreds of billions of dollars more to an already large national debt. As investors flee equities into US government bills, the market for US Treasuries will temporarily depend less on foreign governments. Nevertheless, the burden on foreigners and on world savings of having to finance American consumption, the US government’s wars and military budget, and the US financial bailout is increasingly resented.
This resentment, combined with the harm done to America’s reputation by the financial crisis, has led to numerous calls for a new financial order in which the US plays a substantially lesser role. “Overcoming the financial crisis” are code words for the rest of the world’s intent to overthrow US financial hegemony.
http://www.counterpunch.com/roberts10302008.html
Banks borrow record amount from Fed
With sources of credit still largely frozen, banks borrowed a record amount from the Federal Reserve in the past week, according to Fed data released Thursday.
The Fed reported that commercial banks borrowed a record $111.9 billion a day, on average, from the Federal Reserve's emergency lending window over the past week. That's up $6.1 billion from the $105.8 billion they borrowed in the previous week.
"Banks literally have an open checkbook to acquire cheap liquidity," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Council. "Borrowing will continue until morale improves."
"The unprecedented amount of liquidity coming from the Fed and Treasury will find a home eventually, and that will be good for the market," said McCormick. "It's taking a bit longer than the industry wants, but down the road it will make a significant impact across the board."
http://biz.yahoo.com/cnnm/081031/103008_fed_borrowing.html
Impact? That's an understatement. That "impact" has a name too. It's name is Inflation.
Gold Thoughts
In the past few weeks, the U.S. Federal Reserve has joined with the U.S. Treasury in an attempt to remedy the financial fiasco. In that effort, the Federal Reserve's balance sheet has ballooned by more than 50%. Never in peace time history has the central bank for the world's reserve currency so intentionally implemented policies that will destroy the value of that reserve currency. As a consequence of that massive monetary ease, the U.S. money supply, M-2, is now growing at a double digit rate. The deflationists can now quit worrying, the quantity of U.S. dollars is rising and the value of those dollars will therefore fall.
This most recent explosion of U.S. monetary growth is signaling that the return on Gold should begin rising dramatically. That would be as expected as the Federal Reserve is doing all possible to inflate, and reduce the value of the dollar. At the same time a massive short, real and psychological, position has been built such that a classic short squeeze in $Gold is extremely likely. Investors not mired in the thoughts of 1930 should be buying Gold at these prices, while they exist.
http://news.goldseek.com/NedSchmidt/1225695780.php
Is the silver futures market about to crack wide open?
The silver market has been looking interesting for months, despite the price collapse. Beneath the surface of the recent spot price falls the structure of the market is changing in such a way that a powerful bull market is being set up.
Metal holdings for Barclay’s iShares Silver Trust (SLV) have so overwhelmed selling pressure that the trust has added a total of 68,921,884 ounces of silver to its holdings so far this year, reported resourceinvestor.com. Yet late last week the COMEX futures market reportedly held 131,530,256 ounces of silver in its warehouses.
This so far in 2008 the leading silver exchange traded fund SLV has added the equivalent of 52.4% of all the silver metal that the COMEX futures market has in its vaults. That surely represents amazing buying pressure at a time when silver prices are in crashing. Something is not right clearly.
Resourceinvestors.com notes that over two million ounces of silver have fled the vaults of the COMEX in just the last five trading days alone. How long before that trickle becomes a flood and the futures market in silver is effectively shut down and the physical spot market takes over?
Expect to see silver prices head to the moon. In the late 1970s it was a bungled price manipulation by the Hunt Brothers that sent silver prices super high, and bust the market for the next two decades. Silver today is trading at around $10 an ounce compared with an average price of $24 an ounce in 1980. What else today costs a fraction of the price 28 years’ ago?
Now it will be a bungled price manipulation by US banks that releases the silver price from its artificially depressed state. Silver bugs have gotten silver hair waiting for this to happen, but it is finally upon us and nothing and nobody can stop it.
http://news.silverseek.com/SilverSeek/1225695000.php
The Shallowest Generation
byJames Quinn
The Baby Boom Generation will never be mistaken for the Greatest Generation that survived the Great Depression and defeated evil in a World War that killed 72 million people. I hate to tell you Boomers, but putting a yellow ribbon on the back of your $50,000 SUV is not sacrifice.
Our claim to fame is living way beyond our means for the last three decades, to the point where we have virtually bankrupted our capitalist system. Baby Boomers have been occupying the White House for the last sixteen years. The majority of Congress is Baby Boomers. The CEOs and top executives of Wall Street firms are Baby Boomers. The media is dominated by Baby Boom executives and on-air stars. We have no one to blame but ourselves for the current predicament. Blaming Franklin Roosevelt or Lyndon Johnson for our dire situation is a cop out. Baby Boomers had the time, power, and ability to change our course. We have chosen to leave the heavy lifting to future generations in order to live the good life today.
Of course, not all Baby Boomers are shallow, greedy, and corrupt. Mostly Boomers with power and wealth fall into this category. There were 76 million Baby Boomers born between 1946 and 1963. They now make up 28% of the U.S. population. Their impact on America is undeniable. The defining events of their generation have been the Kennedy assassination, Vietnam, Kent State, Woodstock, the 1st man on the moon, and now the collapse of our Ponzi scheme financial system. They rebelled against their parents, protested the Vietnam War, and settled down in 2,300 square foot cookie cutter McMansions with perfectly manicured lawns, in mall infested suburbia. They have raised overscheduled spoiled children, moved up the corporate ladder by pushing paper rather than making things, lived above their means in order to keep up with their neighbors, bought whatever they wanted using debt, and never worried about the future. Over optimism, unrealistic assumptions, selfishness and conspicuous consumption have been their defining characteristics.
We spend more eating out than we give to charity. We spend as much on big screen TVs and stereos as we do on education. This may explain why 37 million (12.5%) of all Americans live in poverty and our high school students trail the students of 25 other countries (including Latvia) in science and math knowledge. Our school system processes many more clueless morons who don’t know the candidates for President, versus intelligent, thoughtful, hard working, driven young people. The $160 billion spent on gambling is indicative of the get rich quick without hard work attitude of the Boomer generation. Even worse, households with income under $13,000 spend, on average, $645 a year on lottery tickets, about 9 percent of all their income. Our government feeds this addiction by siphoning off billions in taxes from these gambling revenues to redistribute as they see fit.
This generation lacks self control, morals, a work ethic, and savings ethic. Based on the recent actions of our government and corporate leaders, we seem to lack any ethics at all. It is immoral for the Boomer generation to run up $53 trillion in unfunded future liabilities in Social Security, Medicare and Medicaid to leave as our gift to future generations, while we live it up today. Optimists like to point out that Europe and Japan have much worse unfunded liability problems than the U.S. That is like taking pride in being the best looking horse at the glue factory. In the end, we’ll all still be glue.
The Great American Empire has begun its long slow decline. It may take a few generations to reach its nadir, but the poor decisions already made and crucial decisions postponed in the last 25 years by our Boomer dominated leadership has put our country on a path to a declining standard of living. The U.S. is like a punch drunk ex-champion boxer who still thinks he has what it takes, but is living off his old press clippings. He lived the good life, got fat and didn’t do the hard work required of a champion. A slew of young brash fighters are itching to take him down. It is just a matter of time.
In our heyday during the 1950s, manufacturing accounted for 25% of GDP. In 1980 it was still 22% of GDP. Today it is 12% of GDP. By 2010 it will be under 10% of GDP. Our Government bureaucracy, which contributes nothing to the advancement of our society, now is a larger portion of GDP than manufacturing. Services such as banking, retail sales, transportation, and health care now account for two-thirds of the value of U.S. GDP. We have become a nation of bureaucratic paper pushers. Past U.S. generations invented the airplane; invented the automobile; discovered penicillin; and built the Interstate highway system. The Baby Boom generation has invented credit default swaps; mortgage backed securities; the fast food drive thru window; discovered the cure for erectile dysfunction; and built bridges to nowhere. No wonder we’re in so much trouble.
No one in Washington has shown an ounce of leadership in decades. True leadership requires strength of character, clear vision to see the future as it is, the bravery to make unpopular decisions, and the honesty to tell the public the unvarnished truth based on the facts.
The facts are: we have a $10.5 trillion national debt; $53 trillion of unfunded liabilities; a military empire that has U.S. troops in 117 countries and has spent $700 billion on a pre-emptive war that has killed over 4,000 Americans; a $60 billion trade deficit; an annual budget deficit that will exceed $1 trillion in the next year; a crumbling infrastructure with 156,000 structurally deficient bridges; almost total dependence on foreign oil; and an educational system that is failing miserably. We can not fund guns, butter, banks and now car companies without collapsing our system.
Texas Congressman Ron Paul gives the blunt truth that a true leader is willing to give:
Our government has lived beyond its means for decades. We now face a crucial juncture, at which we determine whether to continue down the path of debt, inflation, and government intervention or choose to return to the economics of the free market, which have been ignored for almost a century. Increased debt leads to higher taxes on future generations, while increased inflation diminishes the purchasing power of American families and destroys the dollar. No society has ever been achieved prosperity through indebtedness or inflation, and the United States is no exception. We cannot afford to continue our current policies of monetary expansion and unending bailouts. Unless we return to sound monetary policy, sharply reduce government expenditures, and realize that the government cannot act as a lender of last resort, we will drive our economy to ruin.
The Baby Boom generation has one last chance to change the course of U.S. history, keep us from wrecking in a storm of debt on the approaching jagged reef and shed the title of “Shallowest Generation”.
http://seekingalpha.com/article/103202-the-shallowest-generation?source=article_sb_popular
Stocks likely to recover no matter who's president
Yes and no. Politicians do influence the economy -- and they'll play a big role in how the country emerges from this current crisis. But analysts say neither presidential candidate can be a cure for what's ailing Wall Street.
"The economy is a big, big machine, and the president is one government bureaucrat," said Ron Florance, Wells Fargo Private Bank Director of Asset Allocation.
Moreover, most analysts believe the battered stock market has nowhere to go but up next year, no matter who ends up in the White House -- and history will probably give the victor credit even if he actually had little to do with the rally.
"The timing couldn't be better," Florance said.
Still, the stock market is just one part of the economy, and under either Barack Obama or John McCain, the United States needs to recover from a downturn whose severity has not yet been determined. And either candidate will face a budget deficit of around $500 billion when he's sworn into office -- a shortfall expected to climb to $1 trillion next year.
Because of the deficit, the financial climate might end up affecting the new president's policies more than his policies will affect the financial climate.
http://biz.yahoo.com/ap/081102/election_stock_market.html
Make the time to vote tomorrow. It is your civic responsibility to vote. Vote for your candidate...and then say a prayer for him...and then say a prayer for your country. No matter which one of these knuckleheads should be unfortunate enough to win, neither of them has or offers the leadership necessary to pull America from the abyss now sucking her down. Borrowing money to pay back borrowed money is not the answer. Stimulus spending is not the answer. Printing money is not the answer. Pain is the answer. The truth hurts. All of America must STOP spending money it doesn't have, or there will be no happy ending. Good luck Mr. new President, whoever you are, you're gonna need it more than you're gonna need the cash to finance your campaign promises [lies]. The country is broke, and you're now the captain of a rudderless ship. I hope you're ready to go down with it....
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