Cash Soon To Be Trash

There Is No Fever Like Gold Fever
By Antal E. Fekete
Here is an update on the backwardation in gold that started on December 2 at an annualized discount rate of 1.98% and 0.14% to spot in the December and February contracts. It continued and worsened on December 8, 9, and 10 as shown by the corresponding rates widening to 3.5% and 0.65%. It is nothing short of awesome. This is a premonition of a coming gold fever of unprecedented dimensions that will overwhelm the world as soon as its significance is fully digested by the doubting Thomases. The worsening of backwardation must be viewed in the context of the gold price bouncing back from the lows of last week. It shows that the ‘gold bashing’ on Friday was done in the December contract. It is quite revealing that the spot price bounced back more than the futures price. The bulls are on the warpath. They have unearthed the hatchet. They have stopped eating from the hands of the clearing members.

The bottom line is that there is no fever like gold fever. It is akin to St. Vitus’ dance that swept through the Christian world just before the year 1000 A.D. affecting all the people who expected the end of the world to happen at the turn of the millennium. It was far worse than the mania that swept through the world affecting all the people who expected the 2K disaster to happen a thousand years later. The coming gold fever must be distinguished from tulipomania in February 1637, when one single tulip fetched the equivalent of 20 times the annual income of a skilled worker. Gold fever is as different from a bubble as real gold is from fools’ gold. It is visceral. It has to do with one’s instinct for survival. It has no patience with logical arguments. It is highly contagious, ultimately affecting everybody. A bubble that never pops.

Our present experiment with irredeemable currency can last only as long as it is able to support futures markets in gold. The declining gold basis is the hour glass: when it runs out and the last grain of sand drops, gold fever will bleed the futures markets of cash gold, and the days of the regime of irredeemable currency are numbered.
http://news.goldseek.com/GoldSeek/1228935840.php

Backwardisation means big gold price rally coming!
‘Once entrenched, backwardation in gold means that the cancer of the dollar has reached its terminal stages. The progressively evaporating trust in the value of the irredeemable dollar can no longer be stopped.

Negative basis (backwardation) means that people controlling the supply of monetary gold cannot be persuaded to part with it, regardless of the bait. These people are no speculators. They are neither Scrooges nor Shylocks.

They are highly capable businessmen with a conservative frame of mind. They are determined to preserve their capital come hell or high water, for saner times, so they can re-deploy it under a saner government and a saner monetary system.

Their instrument is the ownership of monetary gold. They blithely ignore the siren song promising risk-free profits. Indeed, they could sell their physical gold in the spot market and buy it back at a discount in the futures market for delivery in 30 days.

In any other commodity, traders controlling supply would jump at the opportunity. The lure of risk-free profits would be irresistible. Not so in the case of gold. Owners refuse to be coaxed out of their gold holdings, however large the bait may be. Why?

Well, they don’t believe that the physical gold will be there and available for delivery in 30 days’ time. They don’t want to be stuck with paper gold, which is useless for their purposes of capital preservation.’
http://news.goldseek.com/PeterCooper/1228916567.php

Money-Market Fund Yields May Fall to Less Than Zero
Dec. 10 (Bloomberg) -- Investors in money-market mutual funds that focus on U.S. Treasuries may lose money for the first time if the Federal Reserve cuts interest rates next week and yields become too small to cover expenses.

Record-low yields on government debt have already led money-market funds to waive fees to keep returns positive. If the Federal Open Markets Committee, as expected, cuts its target rate, some Treasury funds may allow returns to turn negative, said Peter Crane, president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts.

“No one has ever paid above and beyond their interest income to be in a fund,” Crane said. “But if we see another cut, we’ll likely see negative yields.”

The U.S. Treasury sold $27 billion of three-month bills on Dec. 8 at a discount rate of 0.005 percent, the lowest since it started auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills yesterday at zero percent for the first time since it began selling that debt in 2001.

Bill Gross, manager of the world’s largest bond fund, said in a Bloomberg Television interview that the U.S. Treasury market is overvalued and has some “bubble characteristics.” Gross is co-chief investment officer at Pacific Investment Management Co., based in Newport Beach, California, and runs the $128 billion Pimco Total Return Fund.
http://www.bloomberg.com/apps/news?pid=20601087&sid=axHG.5Dvl3P4&refer=home

Dollar Devaluation To Fix The Great Recession
A quick dollar devaluation would work wonders for submerged borrowers. Don't kid yourself: It could happen.

The problem with all these [bailout] ideas is the money is only directed at those who created or benefited from the problems. Why not attack the situation in a manner that will benefit most everyone, an approach that has been successful before and, when compared to the current course, has little downside?

Here it is. Stand back. World currencies should be devalued overnight.

It can be done on a country-by-country basis, but a coordinated devaluation would work best. A devaluation of 30% would raise the dollar value of all assets by 43%. A $200,000 home with a $230,000 mortgage would become a $286,000 home with the same mortgage. Presto! The homeowner who was $30,000 upside-down now has $56,000 equity and a good reason to make his payments. Both the homeowner and the bank are immediately better-off.

It would even benefit those who purchased their homes responsibly, as the value of their homes would rise by the same 43%. The current course of throwing trillions of dollars at the culprits is without any benefit to those who acted responsibly.

Admittedly, this is not a solution without the price of inflation, but the inflation would be short-lived. The current course will ultimately cause massive inflation that cannot be accurately estimated, and it may not even solve the problem.

Currency devaluation proved effective in ending the Great Depression. In 1930, Australia was the first to leave the gold standard, immediately devaluing the aussie by more than 40%, and the economy quickly recovered. New Zealand and Japan followed suit in 1931, each with the same result. By 1933, at least nine major economies had enacted a devaluation of their currency by removing it from the gold standard, all of whom emerged from depression.

In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce. America, like the others before, had its economy bottom and recover as a result. Of the larger economies, only the French and Italians continued to adhere to the gold standard, and their economies remained depressed until finally, in 1936, they allowed their currencies to devalue, and their economies then recovered.
http://www.forbes.com/finance/investingideas/2008/12/09/dollar-devaluation-gold-pf-ii-in_fb_1209soapbox_inl.html

US jobless claims rise; trade gap widens
NEW YORK, Dec 11 (Reuters) - The number of U.S. workers
filing new claims for jobless benefits surged to a 26-year high
last week, Labor Department data showed on Thursday, as a
deepening recession forced employers to cut back on hirings.

The U.S. trade deficit widened unexpectedly in October as
imports from China rose to a new record and oil imports
rebounded as prices fell by a record amount, a Commerce
Department report showed on Thursday.
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=4910dd42-1ed5-4a18-b399-6a41728a1e3c

U.S. Budget Deficit Widens to $164.4 Billion November
Dec. 10 (Bloomberg) -- The U.S. budget deficit in November widened for a second straight month as the government used taxpayer money to shore up the financial system by purchasing stakes in banks.

The excess of spending over revenue swelled to $164.4 billion last month compared with a gap of $98.2 billion in November a year earlier, the Treasury Department reported today in Washington. Government revenue fell 4.2 percent, while spending soared 24 percent.

“It’s absolutely going to get worse before it gets better,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. “We’re looking at a $1 trillion deficit, and that’s before the next stimulus package. If Treasury spends all of TARP, it could be $1.2 trillion to $1.3 trillion.”

Today’s number brings the deficit for the fiscal year that started in October to $401.6 billion, a record for the first two months of the government’s budget.
http://www.bloomberg.com/apps/news?pid=20601087&sid=am754qoCQsAU&refer=home