China Overtakes Japan in 2Q as No. 2 Economy
TOKYO -- Japan lost its place as the world's No. 2 economy to China in the second quarter as receding global growth sapped momentum and stunted a shaky recovery.
Gross domestic product grew at an annualized rate of just 0.4 percent, the government said Monday, far below the annualized 4.4 percent expansion in the first quarter and adding to evidence the global recovery is facing strong headwinds.
The figures underscore China's emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its global influence is expanding.
China has been a major force behind the world's emergence from deep recession, delivering much-needed juice to the U.S., Japan and Europe. Tokyo's latest numbers, however, suggest that Chinese demand alone may not be enough for Japan or other economic giants.
"Japan is the canary in the goldmine because it depends very much on demand in Asia and China, and this demand is cooling quite a bit," said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. "This is a warning sign for all major economies that just focusing on overseas demand won't be sufficient."
http://www.foxnews.com/world/2010/08/16/china-overtakes-japan-q-economy/
`Mr. Yen' Says Japan Can't Stem Currency's Rise as U.S. Economy Falters
The Japanese yen, the best performer among major currencies this year with a 7.9 percent gain against the dollar, may surge further as concern grows that U.S. efforts to boost economic growth will fail.
“What we are seeing is not appreciation of the yen but weakness of the dollar, reflecting concerns that the U.S. economy may falter,” Eisuke Sakakibara, formerly Japan’s top currency official, said yesterday on the Fuji television network. “There is a chance the yen will reach an all-time high and stay at that level for the time being.”
http://www.bloomberg.com/news/2010-08-15/-mr-yen-says-japan-can-t-stem-currency-s-rise-as-u-s-economy-falters.html
Dear Friend of GATA and Gold:
Demand for gold has been building markedly for five years, causing the rise of gold's price chart to steepen as the markets restore gold to its traditional role as money, Granville Cooper gold fund manager Henry Smyth writes in a report published last week. Gold buying pressure, Smyth remarks, "is global and now includes every investment player, from central banks to individuals. This buying pressure spans the paper gold markets as well as the physical markets, from the forward, futures, and derivatives markets in New York and London to the gold loops, chains, and bars sold in the bazaars of Dubai, Mumbai and Shanghai."
Smyth concludes: "Some have called for an official revaluation of gold by central banks to alleviate the strain in the global credit markets. I say gold's revaluation has been under way for 10 years through the collective decisions of millions of individuals across every time zone. This will produce profound changes in the geofinancial landscape in ways very few can imagine.
"Smyth's report has a couple of interesting charts, is headlined "The Recent History of the Future of Gold," and can be found at the Granville Cooper Internet site here: http://www.granvillecooper.com/manrep_history.htm
Smyth was interviewed about his report last week by TheStreet.com's Alix Steel for Kitco News and you can watch it at the Granville Cooper Internet site here: http://www.granvillecooper.com/press.htm
CHRIS POWELL, Secretary/TreasurerGold Anti-Trust Action Committee Inc
U.S. Is Bankrupt and We Don't Even Know It
By Laurence Kotlikoff
Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.
What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.
Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”
But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”
The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.
http://www.bloomberg.com/news/2010-08-11/u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html
Gold and U.S. Treasury and Mortgage Bonds Naked Shorts As Liquidity Machine[MUST READ]
By: Jim_Willie_CB
NAKED SHORTING WITH FAILURE TO DELIVER
In the Smoking Gun article, the main accusation was cited as widespread counterfeit and hiding vast funds. The sale of USTreasury Bonds in the last two years has exceeded the USGovt debt issuance by $1.5 trillion. It was asked "Where did the money go?" But the more important questions are:
What telltale evidence exists to shed light on the counterfeit? (Failures to Deliver)
Where else is excessive sale of USGovt sponsored securities? (USAgency Bonds)
The answers are easy. The implications are great. The impunity is disturbing. The signs of systemic breakdown are diverse. The road to perdition is clear. The path to a USTreasury default is far more obvious with each passing month. The denial is thick. The mortgage bond fraud, whose climax failure in 2008 was quite visible, went unprosecuted. So Wall Street and the Big US Banks are dead. The kings are dead, but the theft has not ended. A new blatant form of fraud has entered the room. Silence is deafening from the entire cast of enforcers, who have one element in common, a Goldman Sachs pedigree. The impish clowns sitting on the helm at the USFed oversee the fraud. They have often stated their primary objective to aid in the promotion of liquidity to the big banks. Naked short sales of USTreasurys and USAgency Mortgage Bonds accomplishes the mission. Yet another Mission Accomplished on a sordid trail in recent US financial snakepit and cesspool run by a den of thieves.
Failures to Deliver on both types of USGovt-backed bonds are staggering. When a trade takes place, usually two to three days are permitted before the stock or bond must be delivered, so as to complete the trade, and to settle the funds transfer among parties. A year ago, vast sums of USTreasury Bonds were the subject of debate and dispute as the volume of Failures to Deliver was staggering in the months following the autumn 2008. Blame was given to the disorder that ensued from the Lehman Brothers failure, the AIG breakdown, and the Fannie Mae nationalization. No such convenient event can be blamed on the present-day Failures to Deliver. They continue for USTreasurys, and explain well the superfluous $1.5 trillion. They precede the return launch of the QE2, the Quantitative Easing. Suddenly, delivery of bonds might be made easier as the USGovt floods the bond market with new issuance covered in cost by the Printing Pre$$, which USFed Chairman Bernanke claims can be operated at zero cost. The actual cost is the ruin of the USDollar image and the ruin of the USTreasury prestige.
What would be the motive for naked short selling of USTreasurys in such volume? Sure, simple greed is always in the mix. Worse, Wall Street lacks legitimate business volume from which to earn profits. So Wall Street and the Big US Banks are dead. Imagine a dark storefront that used to have a bustle of business and constant flow of customers. Not Wall Street, no more. The dark storefront conceals a vast counterfeit operation inside. They sell debt securities under the cover of darkness, out the back door, and rake in great sums of money. When demanded to produce the USTreasurys, they refuse, they delay, or they defy, since they cannot deliver. Thus, the Failures to Deliver. This explains the ready cash flow of liquidity to the Wall Street banks without much investment banking business. This explains the 90 consecutive days without trading loss for the lead dogs in the corrupt sled. This explains how dead zombie banks continue to operate. So Wall Street and the Big US Banks are dead.
http://www.marketoracle.co.uk/Article21816.html
The Obsolescence of Barack Obama[Exquisite Editorial]
By FOUAD AJAMI
Not long ago Barack Obama, for those who were spellbound by him, had the stylishness of JFK and the historic mission of FDR riding to the nation's rescue. Now it is to Lyndon B. Johnson's unhappy presidency that Democratic strategist Robert Shrum compares the stewardship of Mr. Obama. Johnson, wrote Mr. Shrum in the Week magazine last month, never "sustained an emotional link with the American people" and chose to escalate a war that "forced his abdication as president."
A broken link with the public, and a war in Afghanistan he neither embraces and sells to his party nor abandons—this is a time of puzzlement for President Obama. His fall from political grace has been as swift as his rise a handful of years ago. He had been hot political property in 2006 and, of course, in 2008. But now he will campaign for his party's 2010 candidates from afar, holding fund raisers but not hitting the campaign trail in most of the contested races. Those mass rallies of Obama frenzy are surely of the past.
The vaunted Obama economic stimulus, at $862 billion, has failed. The "progressives" want to double down, and were they to have their way, would have pushed for a bigger stimulus still. But the American people are in open rebellion against an economic strategy of public debt, higher taxes and unending deficits. We're not all Keynesians, it turns out. The panic that propelled Mr. Obama to the presidency has waned. There is deep concern, to be sure. But the Obama strategy has lost the consent of the governed.
http://online.wsj.com/article/SB10001424052748704164904575421363005578460.html
Monday, August 16, 2010
Thursday, August 12, 2010
The Waning Safety Of The US Dollar And US Treasuries
When all else fails, run to the "safety" of the US Dollar and US Treasuries. How you can find safety buying the currency and debt of the WORLD'S LARGEST DEBTOR NATION completely escapes me, but once again we have witnessed the ridiculous as world markets sold off on the Fed's limp policy actions with regards to the ever weakening US Economy on Tuesday.
Consider though, the possibility that Dollar weakness to be caused by the Fed's "renewed" quantitative easing [QE] policy was already priced into the Dollar Index. The Fed comes forward with an absolutely tepid, limp at best, tiny easing plan to use the principal payments on the toxic assets they have sequestered on their balance sheet to purchase two to ten year dated US Treasuries. How is this supposed to fuel growth in our floundering economy? Exactly. And after considering it, global investors didn't buy it either, and instead focused on the Fed's "observation" that "the pace of economic recovery is likely to be more modest in the near term than had been anticipated." The 10-member FOMC committee used very bleak language to describe the US economy, calling investment in commercial property "weak" and noting employers "remain reluctant to add to payrolls".
US Federal Reserve starts 'QE-lite' to placate markets
By James Quinn, US Business Editor
The US Federal Reserve, confirming a marked slowdown in the world's largest economy in recent months, said it plans to buy long-dated US Treasuries in an attempt to keep alive growth and maintain the vast amounts of money it pumped into the US economy during the financial crisis.
But rather than allocating new funds to the effort, the central bank said it will use the proceeds from its first $1.7 trillion (£1.1 trillion) quantitative easing (QE) cycle to buy the government bonds "in order to help support the economic recovery in a context of price stability". The proceeds are estimated to be $200bn to $300bn over the next 12 months, allowing it to keep its balance sheet at close to its present $2.06 trillion.
Paul Ashworth, of Capital Economics, called the decision a "symbolic gesture" designed to allow the Fed to measure the exact extent of the country's economic woes while reassurring investors.
http://www.telegraph.co.uk/finance/economics/7937724/US-Federal-Reserve-starts-QE-lite-to-placate-markets.html
Expecting a more aggressive QE response, currency traders had hammered the Dollar for the last six weeks, likely accumulating a very large short position in the process, hoping to cash in on a Fed announcement that would ring Hyperinflation alarms around the globe. Instead, the Fed's QE firecracker turns out to be a real dud. Talk about a wet fuse....and currency traders scramble to cover their short positions despite all the negative fundamental reasons to remain short the Dollar. Including more Dollar negative news released yesterday.
Trade gap likely points to slower economic growth
By MARTIN CRUTSINGER (AP)
WASHINGTON — A decline in exports and a sharp rise in imports pushed the U.S. trade deficit in June to its widest point since October 2008, raising new concerns about the weakening economic recovery.
The $49.9 billion gap is worrying economists, who fear it means the U.S. economy grew at half the rate in the April-to-June quarter than what was first estimated by the government last month.
The trade deficit jumped 18.8 percent in June compared to May, the Commerce Department reported Wednesday.
While the rise in imports suggests the U.S. economy is growing, the drop in exports is a troubling sign for U.S. manufacturers who rely on overseas markets.
Nigel Gault, an economist at IHS Global Insight, said the June deficit figure means that the government will trim its estimate of overall economic growth from an already sub-par 2.4 percent to 1.2 percent when it releases a revised estimate on Aug. 27.
He said that placed the economy "on even shakier ground" and underscored why the Federal Reserve announced on Tuesday that it would supply additional support for economic growth.
"The slowing in exports will only fan fears of a faltering U.S. recovery," said Sal Guatieri, an economist at BMO Capital Markets.
http://www.google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9HHD0PO0
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...
Deficit in July Totals $165.04 Billion
By JEFF BATER And DARRELL A. HUGHES
The U.S. government spent itself deeper into the red last month, paying nearly $20 billion in interest on debt and an additional $9.8 billion to help unemployed Americans.
Federal spending eclipsed revenue for the 22nd straight time, the Treasury Department said Wednesday. The $165.04 billion deficit, while a bit smaller than the $169.5 billion shortfall expected by economists polled by Dow Jones Newswires, was the second highest for the month on record. The highest was $180.68 billion in July 2009.
The government usually runs a deficit during July, which is the 10th month of the fiscal year. So far in fiscal 2010, the government spent $1.169 trillion more than it made. That figure is about $98 billion lower than during the comparable period a year earlier.
For all of fiscal 2009, the U.S. ran a record $1.42 trillion deficit. Fiscal 2010 might run a little higher—the Obama administration sees $1.47 trillion.
Wednesday's monthly Treasury statement said U.S. government revenues in July totaled $155.55 billion, compared with $151.48 billion in July 2009.
Spending was higher, totaling $320.59 billion. July 2009 spending amounted to $332.16 billion.
Year-to-date revenues were $1.75 trillion, compared with $1.74 trillion in the first 10 months of fiscal 2009. Spending so far in this fiscal year is $2.92 trillion, versus $3.01 trillion in the prior period.
Spending for benefits for the unemployed year to date totaled $121.4 billion; for July, the tab was $9.8 billion, the Treasury statement said.
Years of deficit spending by Washington have led to a mounting national debt. Interest payments so far in fiscal 2010 amount to $185.25 billion; by contrast, corporate taxes collected by the government during the same 10 months were $139.71 billion. Interest payments in July alone were $19.9 billion.
http://online.wsj.com/article/SB10001424052748704901104575423601722830706.html
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...
Dollar hits 15-year low against yen
NEW YORK (CNNMoney.com) -- The dollar fell to a 15-year low against the Japanese yen Wednesday, as investors flocked to safe-haven trades after weak economic data was released by
China and the Federal Reserve posted a bearish outlook.
What prices are doing: The greenback fell as much as 0.83% against the Japanese yen to ¥84.73 on Wednesday, before paring back some of those losses to trade around ¥85.37.
It was the dollar's lowest level against the yen since 1995, when it traded around ¥84.81.
http://money.cnn.com/2010/08/11/markets/dollar_yen/
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...not to mention the skew in the US Dollar Index created because 56% of it is weighted towards the Euro. How safe is the US Dollar if currency traders view the Yen as "safer" than the US Dollar? Japan currently runs a current account "surplus" versus the MASSIVE US current account deficit, and thus the Yen is considered by many as "safer" than the US Dollar.
In essence, yesterdays "rally" in the Dollar was more about short covering in the currency markets, than it was about the "safety" of the US Dollar. Notably, every asset class fell yesterday, including the Precious Metals, EXCEPT US Treasuries...the one asset the Fed offered implied support for with their announcement to buy Treasuries. "Hey, if the Fed's buying, so should I!" Ah...the blind leading the blind down the road to ruin.
Could Fed's Move Against Deflation End Up Backfiring?
Few economists see actual deflation in the wings. But given the the economy's slow growth, marked by weak demand, and a spate of recent reports showing falling prices for goods and services, they say deflationary expectations are real and growing.
Economists admit that though the price of many durable goods has been falling, if you take food, housing and oil out of the consumer price index, prices are decidedly higher. What's more, wages-a key ingredient in the deflationary equation-are not falling.
"It isn't deflation per se that bothers the Fed, it's deflationary expectations," explains Schilling.
Economists say Fed boss Ben Bernanke and the FOMC memmbers may have wanted to seem assertive and reassuring in its policy initiative, but at this point the move appears to have backfired.
"It's almost as if their statement now is contributing to deflationary expectations," says Chris Rupkey, chief economist at Bank of Tokyo-Mitsubishi, who otherwise does not subscribe to the deflation argument.
Economists and money managers say the Fed clearly intends to push intermediate and long term rates lower, much as it has with short term rates, to encourage demand and risk, whether it's lending and borrowing or production and consumption, all of which supports price appreciation, not depreciation.
"They're hoping it creates a positive economic impact to avoid that [deflation]," says Jim Awad, managing director at Zephyr Management.
Much like with the recent rally in Treasurys, analysts and investors are rightly asking just how low the Fed can go.
http://finance.yahoo.com/news/Could-Feds-Move-Against-cnbc-1695418183.html;_ylt=AhbqcuKx9hTu4re4zAYw0l.7YWsA;_ylu=X3oDMTE1NjNmNm9iBHBvcwM1BHNlYwN0b3BTdG9yaWVzBHNsawNjb3VsZGZlZHNtb3Y-?x=0&sec=topStories&pos=3&asset=&ccode=
How low can the Fed go? How about below zero, or rather, further below zero. Real interest rates that are negative, where the Fed is literally giving money away. If there is a negative real interest rate, it means that the inflation rate is greater than the interest rate.
Ignoring the US Governments CPI data, and using more "accurate inflation date" from a source such as John Williams at shadowstats.com. If interest rates are at zero, and inflation is at 8.4% [shadowstas.com, July 16, 2010] the real interest rate would be at -8.4%. In other words in you put $10k in the bank, a year from now you would only have $9160 in purchasing power remaining as the "value of your money would have diminished by 8.4% over the preceding year. The Fed's actions Tuesday show a determination by Bumbling Ben and friends to drive interest rates LOWER on US Government debt, than it is currently. Who is going to buy this debt, if the value of their purchase is guaranteed to drop going forward in time?
Why Not Negative Interest Rates?
The classic argument is that the possibility of simply switching to paper currency, which by definition circulates at par (a zero interest rate), is what makes a generalized negative interest rate on deposits or securities impossible. As Buiter says about creating negative interest rates, “Currency is the only problem.” We will return to the problem of currency in a moment.
But let’s begin with Treasury bills. Imagine a financial panic, when everybody wants to own Treasury bills, no matter what the yield. Now along comes the Fed, with its infinitely expandable balance sheet, and bids for 90-day bills until their price reaches 100.5, for example, or 101. Their interest rate is now about negative 2 percent or 4 percent.
How would banks respond? There would be no point in buying Treasury bills if they could simply hold excess reserves at the Fed instead. This is the banking equivalent of putting banknotes in the mattress: “Many banks prefer to hoard cash,” is a recent analyst’s comment. Indeed, one of the most notable features of the present crisis has been the explosion of banks simply keeping their money on deposit at the Fed. During 2008, these deposits increased by a factor of more than 40: from $21 billion to $860 billion.
A negative interest rate on excess reserves would result in a disincentive to hold Fed deposits, which would increase the banks’ incentive for the funds to be put out in the interbank market or the commercial paper market or in loans instead.
But it would be straightforward for the Fed to put a negative interest rate on these excess reserves, just as the Swiss did on foreign deposits. The resulting disincentive to hold Fed deposits would increase the banks’ incentive for the funds to be put out in the interbank market or the commercial paper market or in loans instead—yes, that’s the idea.
Could the banks in turn put negative interest rates on customers’ deposits with them? They might not have to if they were doing something with the money besides holding risk-free assets, but in principle they could. Something similar is done by charging fees on demand deposits.
http://www.american.com/archive/2009/may-2009/why-not-negative-interest-rates
This will most likely be the Fed's next move, cutting the interest rate paid on banks excess reserves held at the Fed to force the money into the "system". The Fed is going to be very cagey about blatantly adopting a policy of Quantitative Easing as this sets off far too many Hyperinflation bells. Stealthy moves like Tuesday's, and a possible cut in excess reserve interest rates will be used first, before going down the road to ruin head on.
What Can the Fed Do?
By BRUCE BARTLETT, The Fiscal Times
Presently, the Fed can’t reduce nominal interest rates enough to encourage lending, which would get money circulating throughout the economy, stem the deflation and raise growth.
...banks have more than $1 trillion of excess reserves — money that the Fed has created that banks could lend immediately but are just sitting on. It’s the economic equivalent of stuffing cash under one’s mattress.
Economists are divided on why banks are not lending, but increasingly are focusing on a Fed policy of paying interest on reserves — a policy that began, interestingly enough, on October 9, 2008, at almost exactly the moment when the financial crisis became acute.
The Fed has long required banks to hold a percentage of their deposits in reserve at the Fed itself — in effect, the Fed is the bank for banks. This serves two purposes. It protects depositors from a bank run and it helps the Fed control the money supply. Raising reserve requirements will reduce the funds that banks have available to lend; reducing reserve requirements will make more money available.
Historically, the Fed paid banks nothing on required reserves. This was like a tax equivalent to the interest rate banks could have earned if they had been allowed to lend such funds. But in 2006, the Fed requested permission to pay interest on reserves because it believes that it would help control the money supply should inflation reappear.
It’s not clear whether the Fed contemplated the impact of paying interest on reserves in a deflationary situation such as we have now. Although the interest rate that is paid is very modest presently — one quarter of a percentage point — it is a risk free rate and has the deflation rate added to it. As noted above, during deflation cash in effect earns a rate of return even when interest rates are near zero.
Thus many economists believe that the Fed has unwittingly encouraged banks to sit on their cash and not lend it by paying interest on reserves. Eliminating interest on reserves would therefore encourage lending.
http://www.thefiscaltimes.com/Issues/The-Economy/2010/07/23/What-Can-the-Fed-Still-Do.aspx
Gold To be Supported by Negative Real Interest Rates
By: GoldCore
With the European Central Bank and the Bank of England leaving interest rates unchanged at historic low levels, at 1 percent and 0.5 percent respectively, the opportunity cost of holding gold remains negligible. Especially as inflation has picked up in both the EU and especially in the UK where it remains stubbornly above the BoE's 3% target rate (see News below). Negative real interest rates remain positive for gold and until savers and bondholders are compensated for considerable risk with higher yields, gold is likely to remain in a secular bull market.
The dollar has fallen recently against most currencies and has reached 1.2650 against the euro. With no fundamental change in the outlook for the European economies, the bounce in the euro seems more a function of US dollar weakness rather than euro strength. Markets may be starting to examine the fiscal challenges facing many US states (some of which are akin to those faced in European economies) and the massive unfunded liabilities of the US.
http://www.marketoracle.co.uk/Article20932.html
The Real Reason It Is Still Too Early to Bet Against Gold
By Andrew Mickey, Q1 Publishing
The main driver for gold prices is real interest rates.
Real interest rates are calculated by taking the nominal rate of interest (what is actually paid) and subtracting inflation.
Right now real interest rates are negative. They’re below zero. And the impact of negative real interest rates is always the same, asset bubble.
You see, when real interest rates are below zero, cash and short-term investments lose money.
In this environment it’s nearly impossible to find decent yields. That’s why savings accounts, CDs, and bonds are paying next to nothing. As a result, savers and investors are forced to turn to other assets which offer return above inflation.
Historically, when real interest rates are negative, they turn to gold.
http://www.q1publishing.com/blog/viewblog/contentId/672
Deflation remains a myth. A myth the Fed must perpetuate for as long as they can before they can "reluctantly" unleash over $1 TRILLION of excess bank reserves into the system. They have faced mounting criticism of their ballooned balance sheet, and are reluctant to add to it "publicly". Tuesdays policy announcement to buy two to ten year treasuries with the principal payments on their toxic assets was merely a ruse, ...a shot across the bow of the deflationists. They had hoped this warning shot would silence the deflationists cries, and encourage more spending by consumers.
What the Fed fails to accept, is that consumers are in no mood to spend. You can't spend if you don't have a job, and you spend even less if you don't have any money to spend. DEBT continues to be the NUMBER ONE problem facing Americans. Spending continues to be the NUMBER ONE problem facing America's government. The Fed's central planning of the economy is proving to be ever more a failure. Eliminate the Fed, eliminate the financial crisis.
Report: Overall consumer spending tepid in July
NEW YORK (AP) -- American shoppers dug in their heels in July, bad news for the stalling economy and worse for struggling retailers.
Excluding gasoline and autos, U.S. retail sales rose a meager 0.1 percent last month from June, according to figures released Thursday by MasterCard Advisors' SpendingPulse, which estimates spending in all forms including cash. Excluding autos, sales fell -- by 0.9 percent.
http://finance.yahoo.com/news/Report-Overall-consumer-apf-299795433.html?x=0&sec=topStories&pos=6&asset=&ccode=
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...
Consider though, the possibility that Dollar weakness to be caused by the Fed's "renewed" quantitative easing [QE] policy was already priced into the Dollar Index. The Fed comes forward with an absolutely tepid, limp at best, tiny easing plan to use the principal payments on the toxic assets they have sequestered on their balance sheet to purchase two to ten year dated US Treasuries. How is this supposed to fuel growth in our floundering economy? Exactly. And after considering it, global investors didn't buy it either, and instead focused on the Fed's "observation" that "the pace of economic recovery is likely to be more modest in the near term than had been anticipated." The 10-member FOMC committee used very bleak language to describe the US economy, calling investment in commercial property "weak" and noting employers "remain reluctant to add to payrolls".
US Federal Reserve starts 'QE-lite' to placate markets
By James Quinn, US Business Editor
The US Federal Reserve, confirming a marked slowdown in the world's largest economy in recent months, said it plans to buy long-dated US Treasuries in an attempt to keep alive growth and maintain the vast amounts of money it pumped into the US economy during the financial crisis.
But rather than allocating new funds to the effort, the central bank said it will use the proceeds from its first $1.7 trillion (£1.1 trillion) quantitative easing (QE) cycle to buy the government bonds "in order to help support the economic recovery in a context of price stability". The proceeds are estimated to be $200bn to $300bn over the next 12 months, allowing it to keep its balance sheet at close to its present $2.06 trillion.
Paul Ashworth, of Capital Economics, called the decision a "symbolic gesture" designed to allow the Fed to measure the exact extent of the country's economic woes while reassurring investors.
http://www.telegraph.co.uk/finance/economics/7937724/US-Federal-Reserve-starts-QE-lite-to-placate-markets.html
Expecting a more aggressive QE response, currency traders had hammered the Dollar for the last six weeks, likely accumulating a very large short position in the process, hoping to cash in on a Fed announcement that would ring Hyperinflation alarms around the globe. Instead, the Fed's QE firecracker turns out to be a real dud. Talk about a wet fuse....and currency traders scramble to cover their short positions despite all the negative fundamental reasons to remain short the Dollar. Including more Dollar negative news released yesterday.
Trade gap likely points to slower economic growth
By MARTIN CRUTSINGER (AP)
WASHINGTON — A decline in exports and a sharp rise in imports pushed the U.S. trade deficit in June to its widest point since October 2008, raising new concerns about the weakening economic recovery.
The $49.9 billion gap is worrying economists, who fear it means the U.S. economy grew at half the rate in the April-to-June quarter than what was first estimated by the government last month.
The trade deficit jumped 18.8 percent in June compared to May, the Commerce Department reported Wednesday.
While the rise in imports suggests the U.S. economy is growing, the drop in exports is a troubling sign for U.S. manufacturers who rely on overseas markets.
Nigel Gault, an economist at IHS Global Insight, said the June deficit figure means that the government will trim its estimate of overall economic growth from an already sub-par 2.4 percent to 1.2 percent when it releases a revised estimate on Aug. 27.
He said that placed the economy "on even shakier ground" and underscored why the Federal Reserve announced on Tuesday that it would supply additional support for economic growth.
"The slowing in exports will only fan fears of a faltering U.S. recovery," said Sal Guatieri, an economist at BMO Capital Markets.
http://www.google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9HHD0PO0
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...
Deficit in July Totals $165.04 Billion
By JEFF BATER And DARRELL A. HUGHES
The U.S. government spent itself deeper into the red last month, paying nearly $20 billion in interest on debt and an additional $9.8 billion to help unemployed Americans.
Federal spending eclipsed revenue for the 22nd straight time, the Treasury Department said Wednesday. The $165.04 billion deficit, while a bit smaller than the $169.5 billion shortfall expected by economists polled by Dow Jones Newswires, was the second highest for the month on record. The highest was $180.68 billion in July 2009.
The government usually runs a deficit during July, which is the 10th month of the fiscal year. So far in fiscal 2010, the government spent $1.169 trillion more than it made. That figure is about $98 billion lower than during the comparable period a year earlier.
For all of fiscal 2009, the U.S. ran a record $1.42 trillion deficit. Fiscal 2010 might run a little higher—the Obama administration sees $1.47 trillion.
Wednesday's monthly Treasury statement said U.S. government revenues in July totaled $155.55 billion, compared with $151.48 billion in July 2009.
Spending was higher, totaling $320.59 billion. July 2009 spending amounted to $332.16 billion.
Year-to-date revenues were $1.75 trillion, compared with $1.74 trillion in the first 10 months of fiscal 2009. Spending so far in this fiscal year is $2.92 trillion, versus $3.01 trillion in the prior period.
Spending for benefits for the unemployed year to date totaled $121.4 billion; for July, the tab was $9.8 billion, the Treasury statement said.
Years of deficit spending by Washington have led to a mounting national debt. Interest payments so far in fiscal 2010 amount to $185.25 billion; by contrast, corporate taxes collected by the government during the same 10 months were $139.71 billion. Interest payments in July alone were $19.9 billion.
http://online.wsj.com/article/SB10001424052748704901104575423601722830706.html
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...
Dollar hits 15-year low against yen
NEW YORK (CNNMoney.com) -- The dollar fell to a 15-year low against the Japanese yen Wednesday, as investors flocked to safe-haven trades after weak economic data was released by
China and the Federal Reserve posted a bearish outlook.
What prices are doing: The greenback fell as much as 0.83% against the Japanese yen to ¥84.73 on Wednesday, before paring back some of those losses to trade around ¥85.37.
It was the dollar's lowest level against the yen since 1995, when it traded around ¥84.81.
http://money.cnn.com/2010/08/11/markets/dollar_yen/
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...not to mention the skew in the US Dollar Index created because 56% of it is weighted towards the Euro. How safe is the US Dollar if currency traders view the Yen as "safer" than the US Dollar? Japan currently runs a current account "surplus" versus the MASSIVE US current account deficit, and thus the Yen is considered by many as "safer" than the US Dollar.
In essence, yesterdays "rally" in the Dollar was more about short covering in the currency markets, than it was about the "safety" of the US Dollar. Notably, every asset class fell yesterday, including the Precious Metals, EXCEPT US Treasuries...the one asset the Fed offered implied support for with their announcement to buy Treasuries. "Hey, if the Fed's buying, so should I!" Ah...the blind leading the blind down the road to ruin.
Could Fed's Move Against Deflation End Up Backfiring?
Few economists see actual deflation in the wings. But given the the economy's slow growth, marked by weak demand, and a spate of recent reports showing falling prices for goods and services, they say deflationary expectations are real and growing.
Economists admit that though the price of many durable goods has been falling, if you take food, housing and oil out of the consumer price index, prices are decidedly higher. What's more, wages-a key ingredient in the deflationary equation-are not falling.
"It isn't deflation per se that bothers the Fed, it's deflationary expectations," explains Schilling.
Economists say Fed boss Ben Bernanke and the FOMC memmbers may have wanted to seem assertive and reassuring in its policy initiative, but at this point the move appears to have backfired.
"It's almost as if their statement now is contributing to deflationary expectations," says Chris Rupkey, chief economist at Bank of Tokyo-Mitsubishi, who otherwise does not subscribe to the deflation argument.
Economists and money managers say the Fed clearly intends to push intermediate and long term rates lower, much as it has with short term rates, to encourage demand and risk, whether it's lending and borrowing or production and consumption, all of which supports price appreciation, not depreciation.
"They're hoping it creates a positive economic impact to avoid that [deflation]," says Jim Awad, managing director at Zephyr Management.
Much like with the recent rally in Treasurys, analysts and investors are rightly asking just how low the Fed can go.
http://finance.yahoo.com/news/Could-Feds-Move-Against-cnbc-1695418183.html;_ylt=AhbqcuKx9hTu4re4zAYw0l.7YWsA;_ylu=X3oDMTE1NjNmNm9iBHBvcwM1BHNlYwN0b3BTdG9yaWVzBHNsawNjb3VsZGZlZHNtb3Y-?x=0&sec=topStories&pos=3&asset=&ccode=
How low can the Fed go? How about below zero, or rather, further below zero. Real interest rates that are negative, where the Fed is literally giving money away. If there is a negative real interest rate, it means that the inflation rate is greater than the interest rate.
Ignoring the US Governments CPI data, and using more "accurate inflation date" from a source such as John Williams at shadowstats.com. If interest rates are at zero, and inflation is at 8.4% [shadowstas.com, July 16, 2010] the real interest rate would be at -8.4%. In other words in you put $10k in the bank, a year from now you would only have $9160 in purchasing power remaining as the "value of your money would have diminished by 8.4% over the preceding year. The Fed's actions Tuesday show a determination by Bumbling Ben and friends to drive interest rates LOWER on US Government debt, than it is currently. Who is going to buy this debt, if the value of their purchase is guaranteed to drop going forward in time?
Why Not Negative Interest Rates?
The classic argument is that the possibility of simply switching to paper currency, which by definition circulates at par (a zero interest rate), is what makes a generalized negative interest rate on deposits or securities impossible. As Buiter says about creating negative interest rates, “Currency is the only problem.” We will return to the problem of currency in a moment.
But let’s begin with Treasury bills. Imagine a financial panic, when everybody wants to own Treasury bills, no matter what the yield. Now along comes the Fed, with its infinitely expandable balance sheet, and bids for 90-day bills until their price reaches 100.5, for example, or 101. Their interest rate is now about negative 2 percent or 4 percent.
How would banks respond? There would be no point in buying Treasury bills if they could simply hold excess reserves at the Fed instead. This is the banking equivalent of putting banknotes in the mattress: “Many banks prefer to hoard cash,” is a recent analyst’s comment. Indeed, one of the most notable features of the present crisis has been the explosion of banks simply keeping their money on deposit at the Fed. During 2008, these deposits increased by a factor of more than 40: from $21 billion to $860 billion.
A negative interest rate on excess reserves would result in a disincentive to hold Fed deposits, which would increase the banks’ incentive for the funds to be put out in the interbank market or the commercial paper market or in loans instead.
But it would be straightforward for the Fed to put a negative interest rate on these excess reserves, just as the Swiss did on foreign deposits. The resulting disincentive to hold Fed deposits would increase the banks’ incentive for the funds to be put out in the interbank market or the commercial paper market or in loans instead—yes, that’s the idea.
Could the banks in turn put negative interest rates on customers’ deposits with them? They might not have to if they were doing something with the money besides holding risk-free assets, but in principle they could. Something similar is done by charging fees on demand deposits.
http://www.american.com/archive/2009/may-2009/why-not-negative-interest-rates
This will most likely be the Fed's next move, cutting the interest rate paid on banks excess reserves held at the Fed to force the money into the "system". The Fed is going to be very cagey about blatantly adopting a policy of Quantitative Easing as this sets off far too many Hyperinflation bells. Stealthy moves like Tuesday's, and a possible cut in excess reserve interest rates will be used first, before going down the road to ruin head on.
What Can the Fed Do?
By BRUCE BARTLETT, The Fiscal Times
Presently, the Fed can’t reduce nominal interest rates enough to encourage lending, which would get money circulating throughout the economy, stem the deflation and raise growth.
...banks have more than $1 trillion of excess reserves — money that the Fed has created that banks could lend immediately but are just sitting on. It’s the economic equivalent of stuffing cash under one’s mattress.
Economists are divided on why banks are not lending, but increasingly are focusing on a Fed policy of paying interest on reserves — a policy that began, interestingly enough, on October 9, 2008, at almost exactly the moment when the financial crisis became acute.
The Fed has long required banks to hold a percentage of their deposits in reserve at the Fed itself — in effect, the Fed is the bank for banks. This serves two purposes. It protects depositors from a bank run and it helps the Fed control the money supply. Raising reserve requirements will reduce the funds that banks have available to lend; reducing reserve requirements will make more money available.
Historically, the Fed paid banks nothing on required reserves. This was like a tax equivalent to the interest rate banks could have earned if they had been allowed to lend such funds. But in 2006, the Fed requested permission to pay interest on reserves because it believes that it would help control the money supply should inflation reappear.
It’s not clear whether the Fed contemplated the impact of paying interest on reserves in a deflationary situation such as we have now. Although the interest rate that is paid is very modest presently — one quarter of a percentage point — it is a risk free rate and has the deflation rate added to it. As noted above, during deflation cash in effect earns a rate of return even when interest rates are near zero.
Thus many economists believe that the Fed has unwittingly encouraged banks to sit on their cash and not lend it by paying interest on reserves. Eliminating interest on reserves would therefore encourage lending.
http://www.thefiscaltimes.com/Issues/The-Economy/2010/07/23/What-Can-the-Fed-Still-Do.aspx
Gold To be Supported by Negative Real Interest Rates
By: GoldCore
With the European Central Bank and the Bank of England leaving interest rates unchanged at historic low levels, at 1 percent and 0.5 percent respectively, the opportunity cost of holding gold remains negligible. Especially as inflation has picked up in both the EU and especially in the UK where it remains stubbornly above the BoE's 3% target rate (see News below). Negative real interest rates remain positive for gold and until savers and bondholders are compensated for considerable risk with higher yields, gold is likely to remain in a secular bull market.
The dollar has fallen recently against most currencies and has reached 1.2650 against the euro. With no fundamental change in the outlook for the European economies, the bounce in the euro seems more a function of US dollar weakness rather than euro strength. Markets may be starting to examine the fiscal challenges facing many US states (some of which are akin to those faced in European economies) and the massive unfunded liabilities of the US.
http://www.marketoracle.co.uk/Article20932.html
The Real Reason It Is Still Too Early to Bet Against Gold
By Andrew Mickey, Q1 Publishing
The main driver for gold prices is real interest rates.
Real interest rates are calculated by taking the nominal rate of interest (what is actually paid) and subtracting inflation.
Right now real interest rates are negative. They’re below zero. And the impact of negative real interest rates is always the same, asset bubble.
You see, when real interest rates are below zero, cash and short-term investments lose money.
In this environment it’s nearly impossible to find decent yields. That’s why savings accounts, CDs, and bonds are paying next to nothing. As a result, savers and investors are forced to turn to other assets which offer return above inflation.
Historically, when real interest rates are negative, they turn to gold.
http://www.q1publishing.com/blog/viewblog/contentId/672
Deflation remains a myth. A myth the Fed must perpetuate for as long as they can before they can "reluctantly" unleash over $1 TRILLION of excess bank reserves into the system. They have faced mounting criticism of their ballooned balance sheet, and are reluctant to add to it "publicly". Tuesdays policy announcement to buy two to ten year treasuries with the principal payments on their toxic assets was merely a ruse, ...a shot across the bow of the deflationists. They had hoped this warning shot would silence the deflationists cries, and encourage more spending by consumers.
What the Fed fails to accept, is that consumers are in no mood to spend. You can't spend if you don't have a job, and you spend even less if you don't have any money to spend. DEBT continues to be the NUMBER ONE problem facing Americans. Spending continues to be the NUMBER ONE problem facing America's government. The Fed's central planning of the economy is proving to be ever more a failure. Eliminate the Fed, eliminate the financial crisis.
Report: Overall consumer spending tepid in July
NEW YORK (AP) -- American shoppers dug in their heels in July, bad news for the stalling economy and worse for struggling retailers.
Excluding gasoline and autos, U.S. retail sales rose a meager 0.1 percent last month from June, according to figures released Thursday by MasterCard Advisors' SpendingPulse, which estimates spending in all forms including cash. Excluding autos, sales fell -- by 0.9 percent.
http://finance.yahoo.com/news/Report-Overall-consumer-apf-299795433.html?x=0&sec=topStories&pos=6&asset=&ccode=
But of course, the US Dollar and US Treasuries are your port of safety in this financial storm...
Tuesday, August 10, 2010
Hyperinflation Is At The Door
The Federal Reserve today moved the country one step closer to Hyperinflation in their desperate effort to stay ahead of the perceived threat of a deflationary death spiral for the economy.
The Fed today kept interest rates in their record low range of 0.00% to 0.25% and said they would keep them there for an extended period as they have been for months now. Analyst opinions were mixed as to whether or not the Fed would announce new asset purchases or other supposedly stimulative measures ahead of the Fed announcement this afternoon, so it was a surprise to some at when the Fed announced that they will keep holdings of their securities at the current level (maintain its balance sheet) and reinvest mortgage bond proceeds into government bonds rather than more mortgage debt.
In effect the Fed will be using funds to purchase long dated Treasuries that have seen a dearth of buyers. This in an effort to maintain "demand" for Treasury Debt, and hopefully keep borrowing costs low. This could be summed up as a stealthy move towards "recognized" quantitative easing. It is no secret that the Fed has been buying US Treasury Debt "undercover" for months now and attributing it to purchases by the UK and astonishingly, American "households". Jim Willie lays bare this little game in a recent Internet expose.
U.S. Treasury Bond Fraud and Debt Monetization
By: Jim_Willie_CB
USTREASURY ISSUANCE EXCEEDS USGOVT DEFICITS
This story is a gem. USTreasury bond issuance exceeds even the gargantuan USGovt deficits. The gap is $1.5 trillion over four years. One could guess that Wall Street is selling bonds and squirreling the money in foreign banks, a basic counterfeit in a syndicate operation. The operation might bring new meaning to monetization. At least a parallel exists. The majority of home mortgages have their income stream used in more than one mortgage bond. That is the real reason why home loan modification is a thin farce. The MERS database conceals the game, but the public has the satisfaction of knowing that MERS has no legal standing. The state courts are declaring no legal standing, and foreclosure procedures are blocked as a result. People cannot be removed from their homes when the database is used in handoffs of notes and titles.
Under Goldman Sachs rule, the USDept Treasury is running some bold kind of racket game, whose purpose is unclear, except clearly that it aint honest. The USGovt borrowing through debt issuance was $142 billion more than the June USGovt federal deficit, which means they are doing more than financing the deficit. They are funding a syndicate. In chronic fashion, excess issuance has been the pattern, as the USGovt has issued $1.5 trillion more in debt securities than its budget deficit in the past four years. During the past 45 months, the USGovt has accumulated an incremental $4.7 trillion in new debt, but the federal budget deficit has grown by $3.2 trillion, much less but still a mammoth amount. Nobody asked why so, and nobody asks where the bond proceeds go. One is left to speculate that a vast bold new syndicate technique is simply selling bonds beyond newly formed debt, stealing the funds as proceeds, and tucking the bonds in foreign locations for syndicate usage on rainy days or retirement days. The June USGovt official budget deficit was logged at $68.4 billion. During the same month, the USGovt borrowed a staggering total of $210.9 billion. These are not refinances of USTreasury debt in rollover. On a consistent basis, the USGovt has borrowed much more in each deficit month than was required to close the deficit and finance the debt accrued. The differential of excess debt issuance for the first six months of 2010 comes to a hefty $290 billion, a pattern in continuance.
Perhaps the US syndicate maestros figure that with large numbers, nobody will notice, or given the hidden monetization, they might as well put the bond presses in hyper-drive. The cumulative data, as well as the mindboggling differential (dotted line) between the two series is shown on the attached chart. Perhaps it is for war funding far in excess of the stated costs, to save embarrassment and questions. Perhaps it is for enormous vertically integrated business investment in Afghanistan for industrial processing of poppy into heroin. Perhaps it is for the heavily rumored underground cities under construction for elite resident purposes. Perhaps it is extra costs for additional new military bases scattered across the globe. Perhaps the answer is simpler, in that it is just being counterfeited and stolen by the financial syndicate led by Goldman Sachs that controls the USGovt financial ministries, and operates criminally with full impunity (except for meager fines). My sincere belief is that all the above are part of the destinations for the money. This is a smoking gun.
http://www.marketoracle.co.uk/Article21285.html
So the Fed today admits to a little quantitative easing, but gets away with a whole lot more, but not for long. The cat is out of the bag, and it's tail is on fire. The US Dollar's dead cat bounce reached it's apogee upon the Fed's announcement this afternoon, expect another test of support at 80 on the USDX quickly. Gold and Silver rose furiously on the Fed's announcement before the usual suspects at the bullion banks stepped up to halt the Precious Metals advance. For how much longer can these busted banks prevent the inevitable run on Gold AND Silver?
LONDON METALS EXCHANGE STRAIN
By: Jim_Willie_CB
Significant numbers of gold futures contracts have settled in cash in London since December. Often the event occurs with a 25% cash bonus incentive. Stories are widespread of gold bullion being borrowed by London from the SPDR exchange traded fund vaults, known by symbol GLD. Also, London short gold futures contracts have routinely been satisfied by GLD shares, a double-sided dirty debauchery of the fund itself. But then again, that is how it was designed. Some recent stories of thefts at the LBMA inventory warehouses have sprung up. The public is being set up in my opinion for a cover story of huge proportions, a false story. They must shield the truth of absent gold & silver supply in inventory. Any story that brings attention to absent inventory supply will aid the gold & silver prices, whether true or not. Whether from theft or huge delivery demand, no matter. Either way, the delivery of gold & silver from the LBMA and COMEX has never been greater, demanded by contract holders. Even the Bank For Intl Settlements has entered the picture, with a mammoth Gold Swap of highly suspicious origin and unstated motive. The gold shortage at bullion banks and the metals exchanges is acute. The dry London gold inventory and extreme pressure to drain the London metals exchange were not a factor one year ago, but now the gold price is pressured upward from pure shortage standpoint. Demand for gold will continue in direct response to the monetary presses that keep running full tilt during monetization (QE2), which will force the gold price to $2000, all in time.
http://www.marketoracle.co.uk/Article21643.html
Jim Willie has been interviewed by Max Keiser. I think you will find this interview both informative and entertaining. The interview is in two parts and I strongly suggest you take the time to watch it.
Part 1 http://www.youtube.com/watch?v=RA7q_bDr9eU
Part 2 http://www.youtube.com/watch?v=6k_TPWdM0gI
I have been beating the Deflation myth to death of late, and for good reason. The Deflation myth is a complete load of crap that has reached a crescendo because of a piece in the New York Times last month by the always backwards looking Robert Prechter. He of the backward looking Elliot Wave Theory. If there is going to be a period of Deflation in the US Economy, we have already seen it, and we are now on the cusp of a Hyperinflationary event imho.
Chuck Cohen's recent commentary for Le MetropoleCafe members summed the cry of Deflation up perfectly:
"When the New York Times published its apocalyptic interview with Bob Prechter a month ago, it is as though an invisible switch was flipped on. The mainstream media summarily jumped on the deflationary bandwagon and "deflation," once just a word used only in Scrabble, has now become a core part of everyone's vocabulary. I heard that the on the new immigration tests you must spell and define "deflation" in order to get your citizenship. If you think I am exaggerating, "google" deflation over the past month and check out the results. There might be more references to it than to President Obama, or even Lady Gaga."
Consider food prices. Do these headlines portend Deflation ahead?
Russian export ban tied to drought could boost price of grain this ... - 11 hours ago
The price of America's daily bread and meat could soar this fall as surging wheat prices in anticipation of a Russian ban on exports stoked fears about ...
Canada Wheat Output to Fall 17% After Excessive Rain -BusinessWeek
July 30 (Bloomberg) -- Canada, the world's second-largest wheat exporter, will harvest 17 percent less than a year earlier after unusually wet weather ...
China's Worst Floods Since 1998 to Cut Farm Output, Lift PricesBloomberg - 6 days ago
Chinese Premier Wen Jiabao called on local authorities to strengthen rescue ... Rice production may drop by about 10 percent this year because of floods, ...
Decision Time Looms for Wheat Farmers -Wall Street Journal
On Monday, an Australian commission warned that a hatching of a huge locust plague with the potential to devastate winter crops, including wheat, ...
Of course to hear the US Government tell it, none of us eats, and food prices are irrelevant to consumer prices. Oh, the geniuses that we chose to lead us...over the cliff.
While Gold and Silver Languish, US Dollar Plummets and Other Commodity Prices Soar
By Patrick A. Heller
In the five weeks from June 28 through August 3, the US Dollar Index fell 5.9%!
This Index reports the relative value of the dollar against a basket of other major currencies. Over that time, the dollar has fallen 7.2% against the Euro, 5.3% versus the British pound, 4.4% to the Swiss franc, 4.4% compared to the Australian dollar, 4% versus the Japanese yen, 3.9% against the South Africa rand, and 3.8% to the Chile peso.
The best result for the US dollar when compared to the 22 currencies I regularly track was no change to the India rupee. The dollar declined against the other 21, including 0.3% to the Chinese yuan, 1.1% to the Canadian dollar, and even 1.0% against the Mexican Peso.
In normal markets, when the value of the US dollar plummets so quickly, gold and silver prices take off.
Not this time.
In the same time period, the price of gold was down a significant 4.3% and silver fell 1.4%! This does not make sense. After all, other commodity wholesale prices have soared in US dollar prices during these five weeks:
http://news.coinupdate.com/gold-and-silver-us-dollar-plummets-commodity-prices-soar-0395/
Mr. Obvious has concluded the the recent suppression in the prices of Gold and Silver are for the express purpose of lending support to those running through the streets crying "Deflation is coming!" Deflation has already paid it's visit, Hyperinflation is standing at the door now. And like the Big Bad Wolf, he's here to huff and puff and blow your financial house down. Protect yourself with Gold and Silver NOW!
Ready, Set, Gold: The Best Months Are Just Ahead
By Frank Holmes
Looking at more than four decades of seasonality, September has been the best month of the year for gold and gold stocks.
The clear trend can be seen on the seasonality chart for spot gold. In a typical year, the September price rises 2.5 percent above the August price. And to make the case even more compelling, the gold price has risen in 17 of the 21 Septembers since 1989, by far the best success ratio of any month of the year.
In September 2009, the gold price jumped nearly 6 percent, well above the long-term average.
September is historically an even better month for gold stocks as measured by the NYSE Arca Gold Miners Index.
After the typically weak months of June and July, the gold miners start moving up in August and make an 8.3% leap in September. In September 2009, the jump was 14.5%. Since 1993, the GDM has been up 12 times in September and down just five times.
The gold price has climbed an average of 12.4% during the 2001-09 seasonal rallies even as the price steadily moved into four digits. As good as that result was, the impact on gold stocks was even stronger – their annual jump averaged more than 26%.
In 2010 the trend could be shaping up right on schedule. From a recent bottom of $1,157 per ounce in late July, spot gold had risen more than 4% through mid-afternoon on August 6 and the TSX/S&P Global Gold Index had gained more than 6%.
Bank of America-Merrill Lynch recently called for $1,300 gold by October-November 2010 as a result of the seasonal demand, and the gold watchers at CIBC World Markets in Toronto see $1,400 gold next year due to strong investment demand and inadequate supply response.
Given the current economic weakness, CIBC pointed out that during the Great Recession, “gold was one of the only investment classes that provided positive returns. This fact will not be forgotten if the next recession materializes."
Its analysts also say that gold equities look relatively cheap compared to bullion, adding that, for the first time ever, some of the big producers are trading at price-earnings ratios below the S&P 500 Index average.
Going back to 1971, when President Nixon ended dollar convertibility into gold and deregulated the price of gold, gold stocks have tended to outperform the S&P 500 when the federal government runs budget deficits. Through 2019, the annual federal deficit is projected to average around $1 trillion, creating the potential for gold stocks to remain an attractive investment relative to the broader market for years to come.
Based on the long-term record, this may be a good time for investors to consider establishing or adding to a gold or gold-stock position in advance of seasonal demand growth. Historical patterns may be a useful guide and improve the chances for investment success, but of course, there are no guarantees that the fall of 2010 will follow the well-established trend.
http://seekingalpha.com/article/219614-ready-set-gold-the-best-months-are-just-ahead?source=email
Inventory Fraud Increases in Silver Market[MUST READ]
By Jeff Nielson
Generally, the supply/demand equation for a commodity is very simple: “supply” is the total amount produced, while “demand” represents consumption. When supply exceeds demand, the remainder is added to inventories, while when demand exceeds supply, the deficit must be taken from inventories.
Reporting of supply and demand for the silver market is totally different. While I originally deferred to such reporting as reflecting the different nature of the silver market, it has now become obvious that the convoluted manner in which supply and demand is reported is simply another deliberate attempt at deceit in this market. In fact, when we look at the numbers closely we see a clumsy sham which should not be able to fool a reasonably perceptive 12-year-old.
Regular readers are already familiar with one facet of this fraud, since I have mentioned it frequently in previous commentaries. All of the “silver” (supposedly) held by bullion-ETFs has been added to silver inventories – the major ruse used to hide the fact that silver inventories are over 90% lower than they were 20 years ago. Since I still get questions and remarks from readers who express doubt about my characterization of this as “fraud”, let me explain this scenario slightly differently.
http://seekingalpha.com/article/219667-inventory-fraud-increases-in-silver-market?source=email
The Fed today kept interest rates in their record low range of 0.00% to 0.25% and said they would keep them there for an extended period as they have been for months now. Analyst opinions were mixed as to whether or not the Fed would announce new asset purchases or other supposedly stimulative measures ahead of the Fed announcement this afternoon, so it was a surprise to some at when the Fed announced that they will keep holdings of their securities at the current level (maintain its balance sheet) and reinvest mortgage bond proceeds into government bonds rather than more mortgage debt.
In effect the Fed will be using funds to purchase long dated Treasuries that have seen a dearth of buyers. This in an effort to maintain "demand" for Treasury Debt, and hopefully keep borrowing costs low. This could be summed up as a stealthy move towards "recognized" quantitative easing. It is no secret that the Fed has been buying US Treasury Debt "undercover" for months now and attributing it to purchases by the UK and astonishingly, American "households". Jim Willie lays bare this little game in a recent Internet expose.
U.S. Treasury Bond Fraud and Debt Monetization
By: Jim_Willie_CB
USTREASURY ISSUANCE EXCEEDS USGOVT DEFICITS
This story is a gem. USTreasury bond issuance exceeds even the gargantuan USGovt deficits. The gap is $1.5 trillion over four years. One could guess that Wall Street is selling bonds and squirreling the money in foreign banks, a basic counterfeit in a syndicate operation. The operation might bring new meaning to monetization. At least a parallel exists. The majority of home mortgages have their income stream used in more than one mortgage bond. That is the real reason why home loan modification is a thin farce. The MERS database conceals the game, but the public has the satisfaction of knowing that MERS has no legal standing. The state courts are declaring no legal standing, and foreclosure procedures are blocked as a result. People cannot be removed from their homes when the database is used in handoffs of notes and titles.
Under Goldman Sachs rule, the USDept Treasury is running some bold kind of racket game, whose purpose is unclear, except clearly that it aint honest. The USGovt borrowing through debt issuance was $142 billion more than the June USGovt federal deficit, which means they are doing more than financing the deficit. They are funding a syndicate. In chronic fashion, excess issuance has been the pattern, as the USGovt has issued $1.5 trillion more in debt securities than its budget deficit in the past four years. During the past 45 months, the USGovt has accumulated an incremental $4.7 trillion in new debt, but the federal budget deficit has grown by $3.2 trillion, much less but still a mammoth amount. Nobody asked why so, and nobody asks where the bond proceeds go. One is left to speculate that a vast bold new syndicate technique is simply selling bonds beyond newly formed debt, stealing the funds as proceeds, and tucking the bonds in foreign locations for syndicate usage on rainy days or retirement days. The June USGovt official budget deficit was logged at $68.4 billion. During the same month, the USGovt borrowed a staggering total of $210.9 billion. These are not refinances of USTreasury debt in rollover. On a consistent basis, the USGovt has borrowed much more in each deficit month than was required to close the deficit and finance the debt accrued. The differential of excess debt issuance for the first six months of 2010 comes to a hefty $290 billion, a pattern in continuance.
Perhaps the US syndicate maestros figure that with large numbers, nobody will notice, or given the hidden monetization, they might as well put the bond presses in hyper-drive. The cumulative data, as well as the mindboggling differential (dotted line) between the two series is shown on the attached chart. Perhaps it is for war funding far in excess of the stated costs, to save embarrassment and questions. Perhaps it is for enormous vertically integrated business investment in Afghanistan for industrial processing of poppy into heroin. Perhaps it is for the heavily rumored underground cities under construction for elite resident purposes. Perhaps it is extra costs for additional new military bases scattered across the globe. Perhaps the answer is simpler, in that it is just being counterfeited and stolen by the financial syndicate led by Goldman Sachs that controls the USGovt financial ministries, and operates criminally with full impunity (except for meager fines). My sincere belief is that all the above are part of the destinations for the money. This is a smoking gun.
http://www.marketoracle.co.uk/Article21285.html
So the Fed today admits to a little quantitative easing, but gets away with a whole lot more, but not for long. The cat is out of the bag, and it's tail is on fire. The US Dollar's dead cat bounce reached it's apogee upon the Fed's announcement this afternoon, expect another test of support at 80 on the USDX quickly. Gold and Silver rose furiously on the Fed's announcement before the usual suspects at the bullion banks stepped up to halt the Precious Metals advance. For how much longer can these busted banks prevent the inevitable run on Gold AND Silver?
LONDON METALS EXCHANGE STRAIN
By: Jim_Willie_CB
Significant numbers of gold futures contracts have settled in cash in London since December. Often the event occurs with a 25% cash bonus incentive. Stories are widespread of gold bullion being borrowed by London from the SPDR exchange traded fund vaults, known by symbol GLD. Also, London short gold futures contracts have routinely been satisfied by GLD shares, a double-sided dirty debauchery of the fund itself. But then again, that is how it was designed. Some recent stories of thefts at the LBMA inventory warehouses have sprung up. The public is being set up in my opinion for a cover story of huge proportions, a false story. They must shield the truth of absent gold & silver supply in inventory. Any story that brings attention to absent inventory supply will aid the gold & silver prices, whether true or not. Whether from theft or huge delivery demand, no matter. Either way, the delivery of gold & silver from the LBMA and COMEX has never been greater, demanded by contract holders. Even the Bank For Intl Settlements has entered the picture, with a mammoth Gold Swap of highly suspicious origin and unstated motive. The gold shortage at bullion banks and the metals exchanges is acute. The dry London gold inventory and extreme pressure to drain the London metals exchange were not a factor one year ago, but now the gold price is pressured upward from pure shortage standpoint. Demand for gold will continue in direct response to the monetary presses that keep running full tilt during monetization (QE2), which will force the gold price to $2000, all in time.
http://www.marketoracle.co.uk/Article21643.html
Jim Willie has been interviewed by Max Keiser. I think you will find this interview both informative and entertaining. The interview is in two parts and I strongly suggest you take the time to watch it.
Part 1 http://www.youtube.com/watch?v=RA7q_bDr9eU
Part 2 http://www.youtube.com/watch?v=6k_TPWdM0gI
I have been beating the Deflation myth to death of late, and for good reason. The Deflation myth is a complete load of crap that has reached a crescendo because of a piece in the New York Times last month by the always backwards looking Robert Prechter. He of the backward looking Elliot Wave Theory. If there is going to be a period of Deflation in the US Economy, we have already seen it, and we are now on the cusp of a Hyperinflationary event imho.
Chuck Cohen's recent commentary for Le MetropoleCafe members summed the cry of Deflation up perfectly:
"When the New York Times published its apocalyptic interview with Bob Prechter a month ago, it is as though an invisible switch was flipped on. The mainstream media summarily jumped on the deflationary bandwagon and "deflation," once just a word used only in Scrabble, has now become a core part of everyone's vocabulary. I heard that the on the new immigration tests you must spell and define "deflation" in order to get your citizenship. If you think I am exaggerating, "google" deflation over the past month and check out the results. There might be more references to it than to President Obama, or even Lady Gaga."
Consider food prices. Do these headlines portend Deflation ahead?
Russian export ban tied to drought could boost price of grain this ... - 11 hours ago
The price of America's daily bread and meat could soar this fall as surging wheat prices in anticipation of a Russian ban on exports stoked fears about ...
Canada Wheat Output to Fall 17% After Excessive Rain -BusinessWeek
July 30 (Bloomberg) -- Canada, the world's second-largest wheat exporter, will harvest 17 percent less than a year earlier after unusually wet weather ...
China's Worst Floods Since 1998 to Cut Farm Output, Lift PricesBloomberg - 6 days ago
Chinese Premier Wen Jiabao called on local authorities to strengthen rescue ... Rice production may drop by about 10 percent this year because of floods, ...
Decision Time Looms for Wheat Farmers -Wall Street Journal
On Monday, an Australian commission warned that a hatching of a huge locust plague with the potential to devastate winter crops, including wheat, ...
Of course to hear the US Government tell it, none of us eats, and food prices are irrelevant to consumer prices. Oh, the geniuses that we chose to lead us...over the cliff.
While Gold and Silver Languish, US Dollar Plummets and Other Commodity Prices Soar
By Patrick A. Heller
In the five weeks from June 28 through August 3, the US Dollar Index fell 5.9%!
This Index reports the relative value of the dollar against a basket of other major currencies. Over that time, the dollar has fallen 7.2% against the Euro, 5.3% versus the British pound, 4.4% to the Swiss franc, 4.4% compared to the Australian dollar, 4% versus the Japanese yen, 3.9% against the South Africa rand, and 3.8% to the Chile peso.
The best result for the US dollar when compared to the 22 currencies I regularly track was no change to the India rupee. The dollar declined against the other 21, including 0.3% to the Chinese yuan, 1.1% to the Canadian dollar, and even 1.0% against the Mexican Peso.
In normal markets, when the value of the US dollar plummets so quickly, gold and silver prices take off.
Not this time.
In the same time period, the price of gold was down a significant 4.3% and silver fell 1.4%! This does not make sense. After all, other commodity wholesale prices have soared in US dollar prices during these five weeks:
http://news.coinupdate.com/gold-and-silver-us-dollar-plummets-commodity-prices-soar-0395/
Mr. Obvious has concluded the the recent suppression in the prices of Gold and Silver are for the express purpose of lending support to those running through the streets crying "Deflation is coming!" Deflation has already paid it's visit, Hyperinflation is standing at the door now. And like the Big Bad Wolf, he's here to huff and puff and blow your financial house down. Protect yourself with Gold and Silver NOW!
Ready, Set, Gold: The Best Months Are Just Ahead
By Frank Holmes
Looking at more than four decades of seasonality, September has been the best month of the year for gold and gold stocks.
The clear trend can be seen on the seasonality chart for spot gold. In a typical year, the September price rises 2.5 percent above the August price. And to make the case even more compelling, the gold price has risen in 17 of the 21 Septembers since 1989, by far the best success ratio of any month of the year.
In September 2009, the gold price jumped nearly 6 percent, well above the long-term average.
September is historically an even better month for gold stocks as measured by the NYSE Arca Gold Miners Index.
After the typically weak months of June and July, the gold miners start moving up in August and make an 8.3% leap in September. In September 2009, the jump was 14.5%. Since 1993, the GDM has been up 12 times in September and down just five times.
The gold price has climbed an average of 12.4% during the 2001-09 seasonal rallies even as the price steadily moved into four digits. As good as that result was, the impact on gold stocks was even stronger – their annual jump averaged more than 26%.
In 2010 the trend could be shaping up right on schedule. From a recent bottom of $1,157 per ounce in late July, spot gold had risen more than 4% through mid-afternoon on August 6 and the TSX/S&P Global Gold Index had gained more than 6%.
Bank of America-Merrill Lynch recently called for $1,300 gold by October-November 2010 as a result of the seasonal demand, and the gold watchers at CIBC World Markets in Toronto see $1,400 gold next year due to strong investment demand and inadequate supply response.
Given the current economic weakness, CIBC pointed out that during the Great Recession, “gold was one of the only investment classes that provided positive returns. This fact will not be forgotten if the next recession materializes."
Its analysts also say that gold equities look relatively cheap compared to bullion, adding that, for the first time ever, some of the big producers are trading at price-earnings ratios below the S&P 500 Index average.
Going back to 1971, when President Nixon ended dollar convertibility into gold and deregulated the price of gold, gold stocks have tended to outperform the S&P 500 when the federal government runs budget deficits. Through 2019, the annual federal deficit is projected to average around $1 trillion, creating the potential for gold stocks to remain an attractive investment relative to the broader market for years to come.
Based on the long-term record, this may be a good time for investors to consider establishing or adding to a gold or gold-stock position in advance of seasonal demand growth. Historical patterns may be a useful guide and improve the chances for investment success, but of course, there are no guarantees that the fall of 2010 will follow the well-established trend.
http://seekingalpha.com/article/219614-ready-set-gold-the-best-months-are-just-ahead?source=email
Inventory Fraud Increases in Silver Market[MUST READ]
By Jeff Nielson
Generally, the supply/demand equation for a commodity is very simple: “supply” is the total amount produced, while “demand” represents consumption. When supply exceeds demand, the remainder is added to inventories, while when demand exceeds supply, the deficit must be taken from inventories.
Reporting of supply and demand for the silver market is totally different. While I originally deferred to such reporting as reflecting the different nature of the silver market, it has now become obvious that the convoluted manner in which supply and demand is reported is simply another deliberate attempt at deceit in this market. In fact, when we look at the numbers closely we see a clumsy sham which should not be able to fool a reasonably perceptive 12-year-old.
Regular readers are already familiar with one facet of this fraud, since I have mentioned it frequently in previous commentaries. All of the “silver” (supposedly) held by bullion-ETFs has been added to silver inventories – the major ruse used to hide the fact that silver inventories are over 90% lower than they were 20 years ago. Since I still get questions and remarks from readers who express doubt about my characterization of this as “fraud”, let me explain this scenario slightly differently.
http://seekingalpha.com/article/219667-inventory-fraud-increases-in-silver-market?source=email
Monday, August 9, 2010
The Deflation Myth Is An Excuse To Hyperinflate
I must apologize for being derelict in my posts of late. I have been on a whirlwind the past two weeks, and unable to focus on the precious Metals markets in the way that I like to. Though in touch with them, it has been refreshing to get away from them at the same time.
I haven't missed much. Gold remains capped at 1200 and Silver at 18.50. My hunch is that this is being done in anticipation of the Feds QEII announcements soon, in an effort to put to rest the Nation's and the World's Fear Of Deflation. Gold and Silver should soar once this action becomes official, so retarding the rise in the Precious Metals during this "speculative phase" prior to a new round of quantitative easing only makes sense, in an Orwellian kinda way.
I remained awed by the fact that Silver is 70% below it's 1980 high of $50 an ounce. This remains the single best asset value on the planet today. The pending run-up in the price of Silver is going to be beyond breath taking. Sit tight on this rocket ship. Gold is building for an explosive move towards 1400-1500 this Fall. If you doubt this, why are you reading my drivel?
Today, once again we see Gold halted at it's 50 day moving average, and being pushed back under 1200 by the nefarious not for profit sellers at the bullion banks. This criminal activity, sanctioned by the ever inept and complicit CFTC, is fruitless, and will only add fuel to the engines once this rocket roars to life. Too think that a lower Gold price is going to stifle demand in this financial environment is ludicrous.
I would not be surprised to see Gold pushed down to the vicinity of it's rising 100 day moving average near 1190 before liftoff. The Fed meets to decide on the fate of the US Dollar via new quantitative easing programs tomorrow. Gold will certainly be held in check until that meeting has ended.
Mid-August is usually when Gold turns higher into the Fall. This year should be no different, and most likely more prolific.
Be right, and sit tight people...our patience with the Precious Metals is about to be rewarded, and all will be encouraged to gloat as the US Dollar sinks into the abyss.
Now that nearly everything is not getting worse fast, the Obamagasm's team of Orwellian nincompoops have been running around the country the past three months telling anybody that will listen that "the economic recovery has begun", and the anointed one's $900 BILLION stimulus package has been a resounding success. NOTHING could be further from the truth.
Do these clowns, with zero practical business experience, really believe that if they simply run around the country telling people the economy is recovering, that it actually will? It's not, and it won't soon be either.
Welcome to the Recovery
By TIMOTHY F. GEITHNER
THE devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes. The scars of the crisis are fresh, and every new economic report brings another wave of anxiety. That uncertainty is understandable, but a review of recent data on the American economy shows that we are on a path back to growth.
The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.
From the start, President Obama made clear that recovery from a crisis of this magnitude would not come quickly and that the recovery would not follow a straight line. We saw that this past spring, when the European fiscal crisis posed a serious challenge to the markets and to business confidence, dampening investment and the rate of growth here.
While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent.
Together, private consumption and fixed investment contributed about 3.25 percent to growth. Even the surge in imports, which lowered the rate of increase of G.D.P., actually reflects healthy and growing American demand.
Read the entire op-ed here: http://www.nytimes.com/2010/08/03/opinion/03geithner.html?_r=1
What a load of rubbish from our Treasury Secretary and admitted Tax Cheat. This individual should be flogged and left in stocks on the Washington Monument lawn to be ridiculed for his blatant lies and disservice to our country.
The biggest truth about our economy is that it is a lie. Growth in this country is measured in Dollars spent, not in volume of goods sold. If prices of goods continually rise, then Dollars spent to buy the same goods must rise also. More Dollars spent gives the "illusion" of growth.
For example: Car Company A sold one million cars last year at $10,000 per car for $10 BILLION. This year they sold one million cars at $10,500 for $10.5 BILLION. Car Company A had a 5% "growth in sales" in Dollars, but did not sell one single car more this year than last. Car Company A's "sales growth" was therefore purely the result of a "rise in the cost" of a car, and not a rise in the number of cars sold.
This is a crudely simple example of the fallacy of growth we have come to take for granted in our economy. The only thing really growing in our economy is the money supply...and the largest percentage of that is related to a growth in debt, as all money is technically debt.
This is why "the fear of deflation" has begun to dominate the financial headlines the past several weeks. This is why the fear of deflation supposedly threatens our [nonexistent] recovery. How can economic growth that is the result of rising prices continue to grow if prices are falling? Exactly! And that is the truth about our economy...IT IS A LIE!
We don't have an economy. What we consider our economy is really a central bank increasing the money supply regularly to force prices higher and give the ILLUSION of growth. Our economy is in fact the greatest robbery in the history of mankind. For proof of that look no further than the rise in consumer prices versus that of consumer wages. For a real eye opener, consider that housing prices between 2001 and 2007 rose 100% but real wages ONLY rose 2%. And people wonder what has caused our financial crisis?
On what is this "fear of deflation" based? The CPI has fallen for three straight months, April - June. OH, HEAVENS! The government rigged CPI, that excludes the costs of food and energy that none of ever uses, has fallen for three straight months! Is the sky going to fall next? Has it gotten cheaper for you to live each month dear reader? I know my wallet has not gotten any fatter the last three months. Seriously, think about this. The ONLY thing that has fallen in price, or is falling in price is real estate...both residential AND commercial.
As Consumer Price Index falls for third month, deflation risk emerges
Deflation remains a threat for the struggling US economy, despite massive efforts by the Federal Reserve over the past two years to mitigate that risk.
That's the message coming from the Consumer Price Index (CPI), which posted a decline in June for the third straight month, according to a Labor Department report released Friday.
The price index declined 0.1 percent last month, following a 0.2 percent fall in May and a 0.1 percent drop in April.
The index, designed as an overall gauge of price pressures from the grocery store to college tuition, is still higher than it was a year ago. But the recent trend suggests that the Fed hasn't completely removed deflation risks.
The news comes as other indicators also point to weakness in the economy's nascent recovery. An index of consumer sentiment, released by Reuters and the University of Michigan Friday, took a 9.5-point dive in a preliminary July reading to 66.5, the lowest reading for that index in nearly a year.
Although consumers don't generally complain if prices at the supermarket or gas pump go down, deflation can be a serious problem if it the pattern becomes persistent. In that case, it's just about the worst enemy of economic recovery. It can mean that consumers and businesses delay key purchases (expecting prices to fall further), wages face downward pressure, and debts become harder to repay.
"Once again the rate of inflation is getting too close to deflationary territory, something the Federal Reserve is not thrilled about after doing so much to prevent deflation," economists Eugenio Alemán and Sam Bullard of Wells Fargo Securities wrote in an analysis of the new numbers.
http://www.csmonitor.com/Money/2010/0716/As-Consumer-Price-Index-falls-for-third-month-deflation-risk-emerges
Others in the deflation camp will point towards "debt destruction" as a sign of deflation. HUH?! Sure there has been some debt destruction in the financial sector, but that debt has simply been transferred from the private sector to the public sector. US Government debt should hit $14 TRILLION by the November election...it was just $12 TRILLION at the start of 2010. The value of real estate has dropped in excess of $7 Trillion, but the amount still owed on that real estate has dropped by less than $30 BILLION. I would hardly consider that debt destruction. Debt is growing, not falling. If all money is debt, and debt is growing, so too must be the money supply. Deflation? Hardly. This smells like obfuscation of the truth to me. And that truth is hyperinflation, not deflation as we are being lead to believe in the most Orwellian way.
Consumer Credit in U.S. Fell $1.3 Billion in June
Consumer credit in the U.S. declined in June for a fifth straight month, a sign an uneven labor market is discouraging borrowing.
The $1.3 billion decrease in credit followed a revised $5.3 billion drop in May, the Federal Reserve said today in Washington. Economists projected a $5.3 billion decline in the measure of credit-card debt and non-revolving loans for June, according to the median forecast in a Bloomberg News survey.
Credit-card debt that dropped in June to the lowest level since October 2005 indicates consumer purchases, which account for about 70 percent of the economy, will be restrained as Americans rebuild savings. An increase in confidence to borrow and spend more depends on job gains after companies added fewer workers than forecast in July.
“The consumer has some tough sledding ahead,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “Without any job growth, it’s going to be difficult to generate the kind of income growth we need to generate consumer spending growth.”
http://www.bloomberg.com/news/2010-08-06/consumer-credit-in-u-s-fell-by-1-3-billion-in-june-less-than-forecast.html
US Federal Reserve Chairman Bumblin' Ben Bernanke of the Banana Republic formerly known as the USA, and his cronies at the Fed, are determined to prevent deflation...this is Ben's life calling. No one has forgotten Ben's helicopter speech in 2002 prior to his assumption of the Fed's chairmanship:
James Bullard and the Fed's incredible threat
By Bill Bonner
Last week, Mr. James Bullard was being both cagey and clairvoyant. The president of the St. Louis Federal Reserve Bank noticed what everyone else has seen for months; the US economic recovery is a flop.
GDP growth was last measured pottering along at a 2.4% rate in the second quarter, less than half the speed of the last quarter of ’09. At this stage in the typical post-war recovery, GDP growth should be over 5% with strong employment. Instead, the “Help Wanted” pages are largely empty. Homeowners are still underwater. And shoppers are still largely missing from the malls that once knew them.
Whatever is going on, it is not the “V” shaped recovery that economists had expected. Many now worry that the recovery might have a “W” shape – a “double dip recession” form, with GDP growth dropping down below zero in this quarter or the next.
Mr. Bullard told a telephone press conference he worries that the US economy may become “enmeshed in a Japanese-style deflationary outcome within the next several years.” That is exactly what is likely to happen.
But it is a little early for the Fed economists to throw in the towel. They still have some fight left in them. If they were really on the ropes, for example, they could throw their “widow maker” punch – dropping dollar bills from helicopters. This would make sure that the money supply increases, even if the normal distribution channel – bank lending – is broken.
In a celebrated speech on Nov. 21, 202, Mr. Ben Bernanke, then a recent addition to the Federal Reserve Bank’s board of governors, explained why deflation was not a problem:
Like gold, US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost.
It was that technology to which Mr. Bullard referred when he ceased being prescient and began being cagey. He was not advocating dropping money from helicopters, not just yet. He was hoping he wouldn’t have to. Instead, he was raising the menace of inflation, in the hopes that that would be enough.
“By increasing the number of US dollars in circulation, or even by credibly threatening to do so,” Mr. Bernanke had continued, “the US government can also reduce the value of a US dollar in terms of goods and services, which is equivalent to raising prices in dollars of those goods and services… We conclude that under a paper money system, a determined government can always generate higher spending and hence positive inflation.”
There’s the problem right there. The threat must be credible. Ben Bernanke’s speech title left no doubt about his intentions: “Deflation: Making sure it doesn’t happen here.” Back then, the reported consumer price measure stood at 1.7% – slightly below the 2% target. Perhaps it was that 0.3% undershoot that set Ben Bernanke to thinking about it. If so, we wonder what he must think now. Today, the Fed is off-target by 75%, which is to say, the measured inflation rate is just 0.5%. It is beginning to look as though Ben Bernanke’s reputation as a deflation fighter is more boast than reality.
The Fed’s Open Market Committee meets on August 10th. On the agenda will be more direct purchases of US Treasury debt – bought with money that didn’t exist previously. This is what economists call “quantitative easing.” It is a way of increasing the money supply. But quantitative easing is not the same as dropping money from helicopters.
If you drop money from helicopters there is no room for ambiguity, and no doubt about what happens next. In a matter of seconds, your currency will be sold off, your loans called, and your credibility ruined for at least a generation. Quantitative easing, on the other hand, is a much more subtle proposition. It allows the central banker to maintain his credibility, at least for a while, because it doesn’t necessarily or immediately work.
When the private sector is hunkering down, the money doesn’t go far. Prices don’t rise.
Japan has done plenty of quantitative easing, with no loss to the value of the yen or to the credibility of its central bank. Europe has done it too. And so has America. The US Fed bought $1.25 trillion worth of Wall Street’s castaway credits in the ’08-’09 rescue effort. But instead of losing faith in America’s central bank, investors bend their knees and bow their heads. Incredibly, the US now announces the heaviest borrowing in history while it enjoys some of the lowest interest rates in 55years.
A threat to undermine the currency, we conclude, is only credible when it is made by someone who has already lost his credibility. That is, someone with nothing more to lose. Bernanke, Bullard, et al, are not there yet.
http://www.csmonitor.com/Money/The-Daily-Reckoning/2010/0808/James-Bullard-and-the-Fed-s-incredible-threat
And you thought our economy grew all on it's own. The illusion of growth we have taken for granted since the Federal Reserve came into existence nearly 100 years ago is all about inflation, that is, a growth in the money supply. Our economy is essentially stagnant without a growth in debt, as the money supply grows in direct relation to the growth in debt. As the money supply grows, prices rise. As prices rise, more money is spent. More money spent is magically reported as economic growth. Therefore, our "economy" is a lie, perpetuated by an ever growing mountain of debt.
No jobs, no credit. No credit, no debt. No debt, no money. No money, no spending. No spending, no growth. No growth, no economy. ...or so we are lead to believe. And this is why the "fear" of Deflation is being endlessly flogged by the financial news media the past several weeks. This "fear" of Deflation is a cover for the Hyperinflation that is about to be unleashed upon an unsuspecting public. This "fear" of Deflation is one day going to be looked at as an excuse for the mess that Hyperinflation is going to cause to our economy in the not too distant future. I can hear the Fed now as the 2012 Presidential Election nears,
"We had to hyperinflate to save the country from a Deflationary Death Spiral. Today the economy is growing by leaps and bounds because we took the necessary actions to prevent a Deflationary Depression from taking hold. We averted financial disaster again."
If there is one thing you can count on the Fed for, it's the fluid movement from one financial disaster to another...all the while telling you they did the right thing, and saved the day.
May they all burn in Hell one day...
Here's Why Everyone's So Freaked Out About Deflation
In a recent blog post, economist Paul Krugman explained the theory of why deflation is bad:
• When people expect prices to drop tomorrow, they stop spending today (to wait for tomorrow). This isn't always true, of course--people still buy plenty of flat-screen TVs, even when prices drop every week, but economy-wide deflation would encourage savings at the expense of spending. (Many folks, of course, could do well to save more, but, again, this is not good for the short-term growth of the economy as a whole).
• Deflation makes the real burden of debt grow rather than shrink. If you owe $100 today, you'll have to work harder to pay it back with dollars you earn tomorrow (because you'll get fewer of them for the same amount of work).
• Wages adjust more slowly than prices, which puts pressure on company profit margins. In other words, it's harder for companies to pay employees less than to charge less for their products. Again, that's not a bad thing for the employees, but it hurts profitability--and, therefore, the stock market.
The bottom line is that deflation is good for people with high savings and low debts...and bad for people with low savings and high debts. And the US as a whole is in the latter category right now (very low savings and sky-high debts). That's why economists and investors are so terrified by the prospect of deflation.
http://finance.yahoo.com/tech-ticker/heres-why-everyones-so-freaked-out-about-deflation-yftt_535294.html
Deflation isn't the problem, low savings and high debt are. It continues to escape me, and it should you dear reader as well, how does increasing the debt load solve a problem caused by excessive debt?
I haven't missed much. Gold remains capped at 1200 and Silver at 18.50. My hunch is that this is being done in anticipation of the Feds QEII announcements soon, in an effort to put to rest the Nation's and the World's Fear Of Deflation. Gold and Silver should soar once this action becomes official, so retarding the rise in the Precious Metals during this "speculative phase" prior to a new round of quantitative easing only makes sense, in an Orwellian kinda way.
I remained awed by the fact that Silver is 70% below it's 1980 high of $50 an ounce. This remains the single best asset value on the planet today. The pending run-up in the price of Silver is going to be beyond breath taking. Sit tight on this rocket ship. Gold is building for an explosive move towards 1400-1500 this Fall. If you doubt this, why are you reading my drivel?
Today, once again we see Gold halted at it's 50 day moving average, and being pushed back under 1200 by the nefarious not for profit sellers at the bullion banks. This criminal activity, sanctioned by the ever inept and complicit CFTC, is fruitless, and will only add fuel to the engines once this rocket roars to life. Too think that a lower Gold price is going to stifle demand in this financial environment is ludicrous.
I would not be surprised to see Gold pushed down to the vicinity of it's rising 100 day moving average near 1190 before liftoff. The Fed meets to decide on the fate of the US Dollar via new quantitative easing programs tomorrow. Gold will certainly be held in check until that meeting has ended.
Mid-August is usually when Gold turns higher into the Fall. This year should be no different, and most likely more prolific.
Be right, and sit tight people...our patience with the Precious Metals is about to be rewarded, and all will be encouraged to gloat as the US Dollar sinks into the abyss.
Now that nearly everything is not getting worse fast, the Obamagasm's team of Orwellian nincompoops have been running around the country the past three months telling anybody that will listen that "the economic recovery has begun", and the anointed one's $900 BILLION stimulus package has been a resounding success. NOTHING could be further from the truth.
Do these clowns, with zero practical business experience, really believe that if they simply run around the country telling people the economy is recovering, that it actually will? It's not, and it won't soon be either.
Welcome to the Recovery
By TIMOTHY F. GEITHNER
THE devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes. The scars of the crisis are fresh, and every new economic report brings another wave of anxiety. That uncertainty is understandable, but a review of recent data on the American economy shows that we are on a path back to growth.
The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.
From the start, President Obama made clear that recovery from a crisis of this magnitude would not come quickly and that the recovery would not follow a straight line. We saw that this past spring, when the European fiscal crisis posed a serious challenge to the markets and to business confidence, dampening investment and the rate of growth here.
While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent.
Together, private consumption and fixed investment contributed about 3.25 percent to growth. Even the surge in imports, which lowered the rate of increase of G.D.P., actually reflects healthy and growing American demand.
Read the entire op-ed here: http://www.nytimes.com/2010/08/03/opinion/03geithner.html?_r=1
What a load of rubbish from our Treasury Secretary and admitted Tax Cheat. This individual should be flogged and left in stocks on the Washington Monument lawn to be ridiculed for his blatant lies and disservice to our country.
The biggest truth about our economy is that it is a lie. Growth in this country is measured in Dollars spent, not in volume of goods sold. If prices of goods continually rise, then Dollars spent to buy the same goods must rise also. More Dollars spent gives the "illusion" of growth.
For example: Car Company A sold one million cars last year at $10,000 per car for $10 BILLION. This year they sold one million cars at $10,500 for $10.5 BILLION. Car Company A had a 5% "growth in sales" in Dollars, but did not sell one single car more this year than last. Car Company A's "sales growth" was therefore purely the result of a "rise in the cost" of a car, and not a rise in the number of cars sold.
This is a crudely simple example of the fallacy of growth we have come to take for granted in our economy. The only thing really growing in our economy is the money supply...and the largest percentage of that is related to a growth in debt, as all money is technically debt.
This is why "the fear of deflation" has begun to dominate the financial headlines the past several weeks. This is why the fear of deflation supposedly threatens our [nonexistent] recovery. How can economic growth that is the result of rising prices continue to grow if prices are falling? Exactly! And that is the truth about our economy...IT IS A LIE!
We don't have an economy. What we consider our economy is really a central bank increasing the money supply regularly to force prices higher and give the ILLUSION of growth. Our economy is in fact the greatest robbery in the history of mankind. For proof of that look no further than the rise in consumer prices versus that of consumer wages. For a real eye opener, consider that housing prices between 2001 and 2007 rose 100% but real wages ONLY rose 2%. And people wonder what has caused our financial crisis?
On what is this "fear of deflation" based? The CPI has fallen for three straight months, April - June. OH, HEAVENS! The government rigged CPI, that excludes the costs of food and energy that none of ever uses, has fallen for three straight months! Is the sky going to fall next? Has it gotten cheaper for you to live each month dear reader? I know my wallet has not gotten any fatter the last three months. Seriously, think about this. The ONLY thing that has fallen in price, or is falling in price is real estate...both residential AND commercial.
As Consumer Price Index falls for third month, deflation risk emerges
Deflation remains a threat for the struggling US economy, despite massive efforts by the Federal Reserve over the past two years to mitigate that risk.
That's the message coming from the Consumer Price Index (CPI), which posted a decline in June for the third straight month, according to a Labor Department report released Friday.
The price index declined 0.1 percent last month, following a 0.2 percent fall in May and a 0.1 percent drop in April.
The index, designed as an overall gauge of price pressures from the grocery store to college tuition, is still higher than it was a year ago. But the recent trend suggests that the Fed hasn't completely removed deflation risks.
The news comes as other indicators also point to weakness in the economy's nascent recovery. An index of consumer sentiment, released by Reuters and the University of Michigan Friday, took a 9.5-point dive in a preliminary July reading to 66.5, the lowest reading for that index in nearly a year.
Although consumers don't generally complain if prices at the supermarket or gas pump go down, deflation can be a serious problem if it the pattern becomes persistent. In that case, it's just about the worst enemy of economic recovery. It can mean that consumers and businesses delay key purchases (expecting prices to fall further), wages face downward pressure, and debts become harder to repay.
"Once again the rate of inflation is getting too close to deflationary territory, something the Federal Reserve is not thrilled about after doing so much to prevent deflation," economists Eugenio Alemán and Sam Bullard of Wells Fargo Securities wrote in an analysis of the new numbers.
http://www.csmonitor.com/Money/2010/0716/As-Consumer-Price-Index-falls-for-third-month-deflation-risk-emerges
Others in the deflation camp will point towards "debt destruction" as a sign of deflation. HUH?! Sure there has been some debt destruction in the financial sector, but that debt has simply been transferred from the private sector to the public sector. US Government debt should hit $14 TRILLION by the November election...it was just $12 TRILLION at the start of 2010. The value of real estate has dropped in excess of $7 Trillion, but the amount still owed on that real estate has dropped by less than $30 BILLION. I would hardly consider that debt destruction. Debt is growing, not falling. If all money is debt, and debt is growing, so too must be the money supply. Deflation? Hardly. This smells like obfuscation of the truth to me. And that truth is hyperinflation, not deflation as we are being lead to believe in the most Orwellian way.
Consumer Credit in U.S. Fell $1.3 Billion in June
Consumer credit in the U.S. declined in June for a fifth straight month, a sign an uneven labor market is discouraging borrowing.
The $1.3 billion decrease in credit followed a revised $5.3 billion drop in May, the Federal Reserve said today in Washington. Economists projected a $5.3 billion decline in the measure of credit-card debt and non-revolving loans for June, according to the median forecast in a Bloomberg News survey.
Credit-card debt that dropped in June to the lowest level since October 2005 indicates consumer purchases, which account for about 70 percent of the economy, will be restrained as Americans rebuild savings. An increase in confidence to borrow and spend more depends on job gains after companies added fewer workers than forecast in July.
“The consumer has some tough sledding ahead,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “Without any job growth, it’s going to be difficult to generate the kind of income growth we need to generate consumer spending growth.”
http://www.bloomberg.com/news/2010-08-06/consumer-credit-in-u-s-fell-by-1-3-billion-in-june-less-than-forecast.html
US Federal Reserve Chairman Bumblin' Ben Bernanke of the Banana Republic formerly known as the USA, and his cronies at the Fed, are determined to prevent deflation...this is Ben's life calling. No one has forgotten Ben's helicopter speech in 2002 prior to his assumption of the Fed's chairmanship:
James Bullard and the Fed's incredible threat
By Bill Bonner
Last week, Mr. James Bullard was being both cagey and clairvoyant. The president of the St. Louis Federal Reserve Bank noticed what everyone else has seen for months; the US economic recovery is a flop.
GDP growth was last measured pottering along at a 2.4% rate in the second quarter, less than half the speed of the last quarter of ’09. At this stage in the typical post-war recovery, GDP growth should be over 5% with strong employment. Instead, the “Help Wanted” pages are largely empty. Homeowners are still underwater. And shoppers are still largely missing from the malls that once knew them.
Whatever is going on, it is not the “V” shaped recovery that economists had expected. Many now worry that the recovery might have a “W” shape – a “double dip recession” form, with GDP growth dropping down below zero in this quarter or the next.
Mr. Bullard told a telephone press conference he worries that the US economy may become “enmeshed in a Japanese-style deflationary outcome within the next several years.” That is exactly what is likely to happen.
But it is a little early for the Fed economists to throw in the towel. They still have some fight left in them. If they were really on the ropes, for example, they could throw their “widow maker” punch – dropping dollar bills from helicopters. This would make sure that the money supply increases, even if the normal distribution channel – bank lending – is broken.
In a celebrated speech on Nov. 21, 202, Mr. Ben Bernanke, then a recent addition to the Federal Reserve Bank’s board of governors, explained why deflation was not a problem:
Like gold, US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost.
It was that technology to which Mr. Bullard referred when he ceased being prescient and began being cagey. He was not advocating dropping money from helicopters, not just yet. He was hoping he wouldn’t have to. Instead, he was raising the menace of inflation, in the hopes that that would be enough.
“By increasing the number of US dollars in circulation, or even by credibly threatening to do so,” Mr. Bernanke had continued, “the US government can also reduce the value of a US dollar in terms of goods and services, which is equivalent to raising prices in dollars of those goods and services… We conclude that under a paper money system, a determined government can always generate higher spending and hence positive inflation.”
There’s the problem right there. The threat must be credible. Ben Bernanke’s speech title left no doubt about his intentions: “Deflation: Making sure it doesn’t happen here.” Back then, the reported consumer price measure stood at 1.7% – slightly below the 2% target. Perhaps it was that 0.3% undershoot that set Ben Bernanke to thinking about it. If so, we wonder what he must think now. Today, the Fed is off-target by 75%, which is to say, the measured inflation rate is just 0.5%. It is beginning to look as though Ben Bernanke’s reputation as a deflation fighter is more boast than reality.
The Fed’s Open Market Committee meets on August 10th. On the agenda will be more direct purchases of US Treasury debt – bought with money that didn’t exist previously. This is what economists call “quantitative easing.” It is a way of increasing the money supply. But quantitative easing is not the same as dropping money from helicopters.
If you drop money from helicopters there is no room for ambiguity, and no doubt about what happens next. In a matter of seconds, your currency will be sold off, your loans called, and your credibility ruined for at least a generation. Quantitative easing, on the other hand, is a much more subtle proposition. It allows the central banker to maintain his credibility, at least for a while, because it doesn’t necessarily or immediately work.
When the private sector is hunkering down, the money doesn’t go far. Prices don’t rise.
Japan has done plenty of quantitative easing, with no loss to the value of the yen or to the credibility of its central bank. Europe has done it too. And so has America. The US Fed bought $1.25 trillion worth of Wall Street’s castaway credits in the ’08-’09 rescue effort. But instead of losing faith in America’s central bank, investors bend their knees and bow their heads. Incredibly, the US now announces the heaviest borrowing in history while it enjoys some of the lowest interest rates in 55years.
A threat to undermine the currency, we conclude, is only credible when it is made by someone who has already lost his credibility. That is, someone with nothing more to lose. Bernanke, Bullard, et al, are not there yet.
http://www.csmonitor.com/Money/The-Daily-Reckoning/2010/0808/James-Bullard-and-the-Fed-s-incredible-threat
And you thought our economy grew all on it's own. The illusion of growth we have taken for granted since the Federal Reserve came into existence nearly 100 years ago is all about inflation, that is, a growth in the money supply. Our economy is essentially stagnant without a growth in debt, as the money supply grows in direct relation to the growth in debt. As the money supply grows, prices rise. As prices rise, more money is spent. More money spent is magically reported as economic growth. Therefore, our "economy" is a lie, perpetuated by an ever growing mountain of debt.
No jobs, no credit. No credit, no debt. No debt, no money. No money, no spending. No spending, no growth. No growth, no economy. ...or so we are lead to believe. And this is why the "fear" of Deflation is being endlessly flogged by the financial news media the past several weeks. This "fear" of Deflation is a cover for the Hyperinflation that is about to be unleashed upon an unsuspecting public. This "fear" of Deflation is one day going to be looked at as an excuse for the mess that Hyperinflation is going to cause to our economy in the not too distant future. I can hear the Fed now as the 2012 Presidential Election nears,
"We had to hyperinflate to save the country from a Deflationary Death Spiral. Today the economy is growing by leaps and bounds because we took the necessary actions to prevent a Deflationary Depression from taking hold. We averted financial disaster again."
If there is one thing you can count on the Fed for, it's the fluid movement from one financial disaster to another...all the while telling you they did the right thing, and saved the day.
May they all burn in Hell one day...
Here's Why Everyone's So Freaked Out About Deflation
In a recent blog post, economist Paul Krugman explained the theory of why deflation is bad:
• When people expect prices to drop tomorrow, they stop spending today (to wait for tomorrow). This isn't always true, of course--people still buy plenty of flat-screen TVs, even when prices drop every week, but economy-wide deflation would encourage savings at the expense of spending. (Many folks, of course, could do well to save more, but, again, this is not good for the short-term growth of the economy as a whole).
• Deflation makes the real burden of debt grow rather than shrink. If you owe $100 today, you'll have to work harder to pay it back with dollars you earn tomorrow (because you'll get fewer of them for the same amount of work).
• Wages adjust more slowly than prices, which puts pressure on company profit margins. In other words, it's harder for companies to pay employees less than to charge less for their products. Again, that's not a bad thing for the employees, but it hurts profitability--and, therefore, the stock market.
The bottom line is that deflation is good for people with high savings and low debts...and bad for people with low savings and high debts. And the US as a whole is in the latter category right now (very low savings and sky-high debts). That's why economists and investors are so terrified by the prospect of deflation.
http://finance.yahoo.com/tech-ticker/heres-why-everyones-so-freaked-out-about-deflation-yftt_535294.html
Deflation isn't the problem, low savings and high debt are. It continues to escape me, and it should you dear reader as well, how does increasing the debt load solve a problem caused by excessive debt?
Wednesday, August 4, 2010
Back In The Saddle
BIS swaps may be last gamble to suppress gold price
Dear Friend of GATA and Gold:
Economist and former banker Alasdair Macleod today published some insightful speculation about the cover story put out by the Bank for International Settlements through the Financial Times about the bank's recent surreptitious gold swaps.
Macleod figures that an honest explanation by the BIS and its accomplices at the European Central Bank might go like this:
"The committee is aware of a general increase in the bullion liabilities of banks in the Euro area and is working with the ECB and relevant European central banks to ease market shortages."
Macleod writes: "The reason we will never get the truth this plainly is that any such admission would be rocket fuel to the gold price, bring on the bankruptcy of the bullion banks and the concomitant collapse of all paper currencies."
For the European central bankers to put so much more gold into the market "when China, Russia, India, and other nations are aggressively accumulating it and the ability of the bullion banks to return swapped or leased gold to its actual owners is one hell of a gamble," Macleod concludes. "We have probably just witnessed the last throw of the dice in the European central banks' attempts to suppress the gold price."
Macleod's analysis is headlined "The Gold Market and the BIS" and you can find it at his Internet site, Finance and Economics, here:
http://www.financeandeconomics.org/Articles%20archive/2010.08.02%20GoldBIS.htm
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Gold Movements Suspect
By Patrick A. Heller
A rough rule of thumb I follow is that once is a coincidence and twice is a pattern. There has been a run on COMEX silver inventories since June 16. Now there are strange developments with COMEX gold inventories.
There were unusual movements of COMEX gold inventories on July 28 and July 30 that 1) coincidentally roughly equaled what was needed for the sellers of contracts to meet delivery requirements, and 2) may indicate that unusually large quantities of COMEX gold will be withdrawn by the end of August.
On July 28, there was a sizable withdrawal of 96,592 ounces from dealer inventories. This is relatively close to the 89,400 ounces of gold standing for delivery of maturing July contracts, which is not particularly remarkable by itself. However, on that day, there were still 112, 977 open August contracts, representing 11.3 million ounces of gold. This liability exceeds the entire COMEX registered and eligible gold inventories. What is unusual this time around is that normally contracts maturing within a month have long since been closed out or rolled over into future months. Though only a small percentage of these maturing August contracts are likely to be delivered, there is a strong likelihood that deliveries in the next month will be much higher than usual. If this is developing, the move on this day to deliver so much gold against maturing July contracts may have been a ploy to create the image that available physical gold is plentiful.
Owners of August long contracts would need to state by July 30 whether they were going to close out (by selling their contract), roll over, or stand for delivery of their contracts. If the delivery option is selected, the contract must be fully paid by that day.
On July 30, a massive 367,716 ounces of gold (3.2 percent of all COMEX registered and eligible inventories) were reclassified from customer inventory to dealer inventories. The same day, JPMorgan Chase issued delivery notices of 368,500 ounces, virtually identical to the amount that was reclassified.
Gold and silver COMEX contract prices went into backwardation on July 23. In normal commodity markets, the prices of future month contracts are higher than the current or “spot” month, typically by the amount of the interest rate and transaction costs. The standard condition is called contango. When the spot month price is higher than one or more future months, the market is said to be in backwardation. If spot month prices remain higher than the near future months for more than two or three days, that is a sign of a physical supply squeeze, which often foretells a near term rise in the price.
At the close on July 29, the COMEX July, August and September gold contracts settled at the exact same price. While not technically in backwardation, it is also not a normal contango market. The moves of COMEX gold inventories on July 28 and July 30 could be indicators of one or more of the following conditions:
• There is a supply squeeze where there just isn’t enough gold to meet delivery requirements; or,
• One or more dealers such as JPMorgan Chase may literally have no metal immediately available to meet delivery requirements; or,
• Much larger than normal amounts of gold will be withdrawn from COMEX warehouses in the next month.
These moves of COMEX gold inventories are the akin to the run on COMEX silver inventories since June 16. If both are happening at the same time, as I suspect, they will almost certainly result in much higher precious metals prices by September. Roughly two months ago, I thought there was a high probability for much higher gold and silver prices by the end of July. That did not happen. I think my conclusion as to the direction of the market is still valid, but the timing will take one to two months longer than I originally thought.
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=12482
China Officially Enters The Gold Market: Full Release Of PBoC's Plan To Expand And Develop China's Gold Infrastructure
Submitted by Tyler Durden
The moment many gold bulls have been waiting for - the Chinese Central Bank has just released a directive informing everyone it is commencing the development of a healthy gold market. In the release (below), the PBoC stressed the need to develop the market to serve the overall situation of China's gold industry, based on improving the competitiveness of China's financial markets, effectively strengthening innovation, and promoting the formation of multi-level market system. The PBoC has asked the Shanghai Gold Exchange, Shanghai Futures Exchange and commercial banks to become actively engaged in developing a national gold market. With China owning a mere 1,064 tonnes of gold (sixth in the world and well behind both France and the GLD ETF in terms of holdings), which represent just 1.6% of its reserve holdings, there is only one way to interpret this borderline revolutionary press release. China has now officially entered the gold market.
http://www.zerohedge.com/article/china-offically-enters-gold-market-full-release-pbocs-plan-expand-and-develop-chinas-gold-in
Beware the Dragon's gold teeth
By Lawrence Williams
Yesterday we learnt that China is further loosening its controls on the import and export of gold on the one hand, and on the other that it is also going to support Chinese company investment in overseas gold mining projects.
For long we have put forward the view on Mineweb that Eastern buying, and that from China in particular, will effectively put a floor under the gold price - and that floor seems to be rising continuously as seen in the gold price's stair step advances in recent months. A senior Chinese official has stated publicly that the country will buy gold on the dips so as not to disrupt the market and undermine the US dollar - and there is perhaps more than anecdotal evidence that the Chinese government is buying gold, effectively surreptitiously, for its reserves, but not disclosing this until it reckons it is opportune so to do. Last time it announced an increase in gold reserves it had in fact been accumulating the yellow metal for 6 years before it actually made the fact public.
But why should China hold back dissemination of this information? The Chinese know that an announcement that shows it has accumulated a further large gold holding will move the gold price sharply upwards. (Another reason why China has not bought any of the IMF gold.) A resultant gold price leap could well be seen globally as a devaluation of the dollar, leading to yet another nail in the greenback's coffin, and given the dollar-related element in China's huge currency reserve surplus, that could be seen as not being in China's best interest - at least for now.
There has also been considerable evidence that Chinese companies (all state-controlled) have been buying up western investments - in the resource sector in particular - at a phenomenal, and seemingly ever-growing, rate. Some would say this is an attempt to convert some of the nation's huge dollar currency surplus into hard assets, while at the same time helping secure future supply lines for the global industrial giant. Some of China's top economists have gone on record as saying that they have little confidence in the long term future of the dollar as the only real reserve currency, and replacing some of its dollar reserves in this manner is probably - certainly - government policy.
But what this does mean to the West in general, and to the U.S.A. in particular, is ‘don't screw with the Dragon'. It has golden teeth which can really cause financial damage to the status quo if it should so wish, and it is also gaining a position where it can dominate the supply of many militarily strategic metals and minerals, not just gold, should any other country try and resort to gunboat diplomacy! The time is perhaps not ripe - yet, but every move that China makes in the resource sector in general, and in gold and in some particularly strategic metals and minerals (think rare earths) could be interpreted as a long term plan to make China top dog in the global economy and, at the same time, make it secure from any nation which might want to try to prevent it reaching this position of global dominance by any means.
http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=109182&sn=Detail&pid=92730
Time to Accumulate metals and mining stocks-UBS
We believe that ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction will raise the spectre of debt monetization repeatedly over the next few years," the analysts advised. "We expect that this background will remain very supportive for gold prices over the period, and that informs our above consensus gold price outlook and our inclusion of two gold stocks in our top ten picks..."
In their analysis, the analysts said they believe gold's spotlight will return to focus on European sovereign debt burdens and beyond.
"The fear of further debasement of fiat currencies follows closely," they said. "And in turn we expect the fear trade-very apparent through heightened physical demand for small bars and coins and rising ETF creations-will escalate in H2 2010 and into 2011."
UBS also noted 2010 will be a significant year for official gold sector activity. "While this supply source sold just 41 tonnes net last year, we expect central banks will move from the supply side of the gold fundamental equation to the demand side in 2010."
"Based on current available information, the official sector is very much on track to become net consumers of gold this year," the analysts said. "But in aggregate, we do not expect official sector sales will be voluminous this year; nonetheless this factor provides a very supportive element to the market over the medium term."
In their analysis, UBS noted, "A new trend in 2010 is the movement towards fully allocated physical gold. In H2 and 2011, we expect this type of gold exposure will deepen as new and existing investors diversify a portion of their gold reserves to purely allocated form. Quite simply, such customers are limiting their weight of paper gold exposure. In essence, this is diversification within diversification."
http://www.mineweb.co.za/mineweb/view/mineweb/en/page67?oid=108588&sn=Detail&pid=102055
Deflation Threats Are Best Contrarian Indicator
The amount of deflation rhetoric in the mainstream media has been continuing to surge this week. Yesterday there was an article in the Wall Street Journal entitled, "Defending Yourself Against Deflation" and on Monday Paul Krugman wrote an editorial in the New York Times entitled, "Why Is Deflation Bad?". We decided to do a simple Google News archive search to see when previous spikes in media chatter about the topic of deflation have taken place.
The largest spike this decade in articles about deflation came in May of 2003. At that time, the Dow Jones was 8,500, the price of gold was $350 per ounce, and the price of oil was $30 per barrel. The Dow Jones went on to rise for four years straight reaching a high in 2007 of 14,198 up 67%. Gold went on to rise for seven years straight reaching a high this year of $1,248 per ounce up 257%. Oil went on to rise for five years straight reaching a high in 2008 of $147 per barrel up 390%.
The second largest spike this decade in articles about deflation came in November of 2008. At that time, the Dow Jones was 8,000, the price of gold was $725 per ounce, and the price of oil was $50 per barrel. Since then, the Dow Jones has risen as high as 11,257 up 41%, gold has risen as high as $1,248 per ounce up 72%, and oil has risen as high as $88 per barrel up 76%.
NIA has come to the conclusion that the mainstream media talking about deflation is the most accurate contrarian indicator out there. The false threat of deflation in 2003 came at the beginning of the biggest rise in asset prices in U.S. history. The false threat of deflation in 2008 came almost exactly when stocks, precious metals, and commodities had reached their bottom. NIA believes that the threat of deflation today could mean that the biggest move to the upside for gold and silver in history is right around the corner.
http://inflation.us/deflationcontrarian.html
Consumer Confidence: Into the Death Zone
Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high.
The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls, set in December 2008 and January 2009.
Underscoring its current deep weakness, the CCI has been -50 or lower just 27 times in 1,284 weekly polls – all but one of them since August 2008. (The other, February 1992.) It's in effect the death zone for consumer sentiment.
The CCI has been this low twice previously this year, in February and April, then advanced through late June before turning back down. Compare -50 to its 24-year average, -13.
The index's recent trend anticipated the latest data from the U.S. Department of Commerce, which today reported that personal expenditures and personal incomes alike were flat in June, the first time personal incomes hadn’t risen month-to-month in nearly a year. Like the CCI, these data signal the economy’s continued struggles and, with 9.5 percent unemployment, the pernicious effect of a jobs market that’s been so weak for so long.
http://blogs.abcnews.com/consumer_confidence/2010/08/consumer-confidence-into-the-death-zone.html
US Treasury yields fall to record low on Fed's 'QE lite' plan
By Ambrose Evans-Pritchard
Yields on short-term US Treasury debt have fallen to the lowest in history on mounting expectations of extra stimulus from the Federal Reserve.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7925216/US-Treasury-yields-fall-to-record-low-on-Feds-QE-lite-plan.html
Dear Friend of GATA and Gold:
Economist and former banker Alasdair Macleod today published some insightful speculation about the cover story put out by the Bank for International Settlements through the Financial Times about the bank's recent surreptitious gold swaps.
Macleod figures that an honest explanation by the BIS and its accomplices at the European Central Bank might go like this:
"The committee is aware of a general increase in the bullion liabilities of banks in the Euro area and is working with the ECB and relevant European central banks to ease market shortages."
Macleod writes: "The reason we will never get the truth this plainly is that any such admission would be rocket fuel to the gold price, bring on the bankruptcy of the bullion banks and the concomitant collapse of all paper currencies."
For the European central bankers to put so much more gold into the market "when China, Russia, India, and other nations are aggressively accumulating it and the ability of the bullion banks to return swapped or leased gold to its actual owners is one hell of a gamble," Macleod concludes. "We have probably just witnessed the last throw of the dice in the European central banks' attempts to suppress the gold price."
Macleod's analysis is headlined "The Gold Market and the BIS" and you can find it at his Internet site, Finance and Economics, here:
http://www.financeandeconomics.org/Articles%20archive/2010.08.02%20GoldBIS.htm
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Gold Movements Suspect
By Patrick A. Heller
A rough rule of thumb I follow is that once is a coincidence and twice is a pattern. There has been a run on COMEX silver inventories since June 16. Now there are strange developments with COMEX gold inventories.
There were unusual movements of COMEX gold inventories on July 28 and July 30 that 1) coincidentally roughly equaled what was needed for the sellers of contracts to meet delivery requirements, and 2) may indicate that unusually large quantities of COMEX gold will be withdrawn by the end of August.
On July 28, there was a sizable withdrawal of 96,592 ounces from dealer inventories. This is relatively close to the 89,400 ounces of gold standing for delivery of maturing July contracts, which is not particularly remarkable by itself. However, on that day, there were still 112, 977 open August contracts, representing 11.3 million ounces of gold. This liability exceeds the entire COMEX registered and eligible gold inventories. What is unusual this time around is that normally contracts maturing within a month have long since been closed out or rolled over into future months. Though only a small percentage of these maturing August contracts are likely to be delivered, there is a strong likelihood that deliveries in the next month will be much higher than usual. If this is developing, the move on this day to deliver so much gold against maturing July contracts may have been a ploy to create the image that available physical gold is plentiful.
Owners of August long contracts would need to state by July 30 whether they were going to close out (by selling their contract), roll over, or stand for delivery of their contracts. If the delivery option is selected, the contract must be fully paid by that day.
On July 30, a massive 367,716 ounces of gold (3.2 percent of all COMEX registered and eligible inventories) were reclassified from customer inventory to dealer inventories. The same day, JPMorgan Chase issued delivery notices of 368,500 ounces, virtually identical to the amount that was reclassified.
Gold and silver COMEX contract prices went into backwardation on July 23. In normal commodity markets, the prices of future month contracts are higher than the current or “spot” month, typically by the amount of the interest rate and transaction costs. The standard condition is called contango. When the spot month price is higher than one or more future months, the market is said to be in backwardation. If spot month prices remain higher than the near future months for more than two or three days, that is a sign of a physical supply squeeze, which often foretells a near term rise in the price.
At the close on July 29, the COMEX July, August and September gold contracts settled at the exact same price. While not technically in backwardation, it is also not a normal contango market. The moves of COMEX gold inventories on July 28 and July 30 could be indicators of one or more of the following conditions:
• There is a supply squeeze where there just isn’t enough gold to meet delivery requirements; or,
• One or more dealers such as JPMorgan Chase may literally have no metal immediately available to meet delivery requirements; or,
• Much larger than normal amounts of gold will be withdrawn from COMEX warehouses in the next month.
These moves of COMEX gold inventories are the akin to the run on COMEX silver inventories since June 16. If both are happening at the same time, as I suspect, they will almost certainly result in much higher precious metals prices by September. Roughly two months ago, I thought there was a high probability for much higher gold and silver prices by the end of July. That did not happen. I think my conclusion as to the direction of the market is still valid, but the timing will take one to two months longer than I originally thought.
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=12482
China Officially Enters The Gold Market: Full Release Of PBoC's Plan To Expand And Develop China's Gold Infrastructure
Submitted by Tyler Durden
The moment many gold bulls have been waiting for - the Chinese Central Bank has just released a directive informing everyone it is commencing the development of a healthy gold market. In the release (below), the PBoC stressed the need to develop the market to serve the overall situation of China's gold industry, based on improving the competitiveness of China's financial markets, effectively strengthening innovation, and promoting the formation of multi-level market system. The PBoC has asked the Shanghai Gold Exchange, Shanghai Futures Exchange and commercial banks to become actively engaged in developing a national gold market. With China owning a mere 1,064 tonnes of gold (sixth in the world and well behind both France and the GLD ETF in terms of holdings), which represent just 1.6% of its reserve holdings, there is only one way to interpret this borderline revolutionary press release. China has now officially entered the gold market.
http://www.zerohedge.com/article/china-offically-enters-gold-market-full-release-pbocs-plan-expand-and-develop-chinas-gold-in
Beware the Dragon's gold teeth
By Lawrence Williams
Yesterday we learnt that China is further loosening its controls on the import and export of gold on the one hand, and on the other that it is also going to support Chinese company investment in overseas gold mining projects.
For long we have put forward the view on Mineweb that Eastern buying, and that from China in particular, will effectively put a floor under the gold price - and that floor seems to be rising continuously as seen in the gold price's stair step advances in recent months. A senior Chinese official has stated publicly that the country will buy gold on the dips so as not to disrupt the market and undermine the US dollar - and there is perhaps more than anecdotal evidence that the Chinese government is buying gold, effectively surreptitiously, for its reserves, but not disclosing this until it reckons it is opportune so to do. Last time it announced an increase in gold reserves it had in fact been accumulating the yellow metal for 6 years before it actually made the fact public.
But why should China hold back dissemination of this information? The Chinese know that an announcement that shows it has accumulated a further large gold holding will move the gold price sharply upwards. (Another reason why China has not bought any of the IMF gold.) A resultant gold price leap could well be seen globally as a devaluation of the dollar, leading to yet another nail in the greenback's coffin, and given the dollar-related element in China's huge currency reserve surplus, that could be seen as not being in China's best interest - at least for now.
There has also been considerable evidence that Chinese companies (all state-controlled) have been buying up western investments - in the resource sector in particular - at a phenomenal, and seemingly ever-growing, rate. Some would say this is an attempt to convert some of the nation's huge dollar currency surplus into hard assets, while at the same time helping secure future supply lines for the global industrial giant. Some of China's top economists have gone on record as saying that they have little confidence in the long term future of the dollar as the only real reserve currency, and replacing some of its dollar reserves in this manner is probably - certainly - government policy.
But what this does mean to the West in general, and to the U.S.A. in particular, is ‘don't screw with the Dragon'. It has golden teeth which can really cause financial damage to the status quo if it should so wish, and it is also gaining a position where it can dominate the supply of many militarily strategic metals and minerals, not just gold, should any other country try and resort to gunboat diplomacy! The time is perhaps not ripe - yet, but every move that China makes in the resource sector in general, and in gold and in some particularly strategic metals and minerals (think rare earths) could be interpreted as a long term plan to make China top dog in the global economy and, at the same time, make it secure from any nation which might want to try to prevent it reaching this position of global dominance by any means.
http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=109182&sn=Detail&pid=92730
Time to Accumulate metals and mining stocks-UBS
We believe that ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction will raise the spectre of debt monetization repeatedly over the next few years," the analysts advised. "We expect that this background will remain very supportive for gold prices over the period, and that informs our above consensus gold price outlook and our inclusion of two gold stocks in our top ten picks..."
In their analysis, the analysts said they believe gold's spotlight will return to focus on European sovereign debt burdens and beyond.
"The fear of further debasement of fiat currencies follows closely," they said. "And in turn we expect the fear trade-very apparent through heightened physical demand for small bars and coins and rising ETF creations-will escalate in H2 2010 and into 2011."
UBS also noted 2010 will be a significant year for official gold sector activity. "While this supply source sold just 41 tonnes net last year, we expect central banks will move from the supply side of the gold fundamental equation to the demand side in 2010."
"Based on current available information, the official sector is very much on track to become net consumers of gold this year," the analysts said. "But in aggregate, we do not expect official sector sales will be voluminous this year; nonetheless this factor provides a very supportive element to the market over the medium term."
In their analysis, UBS noted, "A new trend in 2010 is the movement towards fully allocated physical gold. In H2 and 2011, we expect this type of gold exposure will deepen as new and existing investors diversify a portion of their gold reserves to purely allocated form. Quite simply, such customers are limiting their weight of paper gold exposure. In essence, this is diversification within diversification."
http://www.mineweb.co.za/mineweb/view/mineweb/en/page67?oid=108588&sn=Detail&pid=102055
Deflation Threats Are Best Contrarian Indicator
The amount of deflation rhetoric in the mainstream media has been continuing to surge this week. Yesterday there was an article in the Wall Street Journal entitled, "Defending Yourself Against Deflation" and on Monday Paul Krugman wrote an editorial in the New York Times entitled, "Why Is Deflation Bad?". We decided to do a simple Google News archive search to see when previous spikes in media chatter about the topic of deflation have taken place.
The largest spike this decade in articles about deflation came in May of 2003. At that time, the Dow Jones was 8,500, the price of gold was $350 per ounce, and the price of oil was $30 per barrel. The Dow Jones went on to rise for four years straight reaching a high in 2007 of 14,198 up 67%. Gold went on to rise for seven years straight reaching a high this year of $1,248 per ounce up 257%. Oil went on to rise for five years straight reaching a high in 2008 of $147 per barrel up 390%.
The second largest spike this decade in articles about deflation came in November of 2008. At that time, the Dow Jones was 8,000, the price of gold was $725 per ounce, and the price of oil was $50 per barrel. Since then, the Dow Jones has risen as high as 11,257 up 41%, gold has risen as high as $1,248 per ounce up 72%, and oil has risen as high as $88 per barrel up 76%.
NIA has come to the conclusion that the mainstream media talking about deflation is the most accurate contrarian indicator out there. The false threat of deflation in 2003 came at the beginning of the biggest rise in asset prices in U.S. history. The false threat of deflation in 2008 came almost exactly when stocks, precious metals, and commodities had reached their bottom. NIA believes that the threat of deflation today could mean that the biggest move to the upside for gold and silver in history is right around the corner.
http://inflation.us/deflationcontrarian.html
Consumer Confidence: Into the Death Zone
Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high.
The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls, set in December 2008 and January 2009.
Underscoring its current deep weakness, the CCI has been -50 or lower just 27 times in 1,284 weekly polls – all but one of them since August 2008. (The other, February 1992.) It's in effect the death zone for consumer sentiment.
The CCI has been this low twice previously this year, in February and April, then advanced through late June before turning back down. Compare -50 to its 24-year average, -13.
The index's recent trend anticipated the latest data from the U.S. Department of Commerce, which today reported that personal expenditures and personal incomes alike were flat in June, the first time personal incomes hadn’t risen month-to-month in nearly a year. Like the CCI, these data signal the economy’s continued struggles and, with 9.5 percent unemployment, the pernicious effect of a jobs market that’s been so weak for so long.
http://blogs.abcnews.com/consumer_confidence/2010/08/consumer-confidence-into-the-death-zone.html
US Treasury yields fall to record low on Fed's 'QE lite' plan
By Ambrose Evans-Pritchard
Yields on short-term US Treasury debt have fallen to the lowest in history on mounting expectations of extra stimulus from the Federal Reserve.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7925216/US-Treasury-yields-fall-to-record-low-on-Feds-QE-lite-plan.html
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