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Silver Bullion Backwardation Suggests Supply Stress

Submitted by Tyler Durden on 02/11/2011 10:41 -0500

http://www.zerohedge.com/article/silver-bullion-backwardation-suggests-supply-stress

Is Sovereign Debt Crisis Contained to Subprime?

by Peter Schiff, Euro Pacific Capital | May 7, 2010

http://www.financialsense.com/fsu/editorials/schiff/2010/0507.html

As Americans observe the chaos in Greece, most assume that the strength of our currency, the credit worthiness of our government, and the vast expanse of two oceans, will prevent a similar scene from playing out in our streets. I believe these protections to be illusory.

Once again the vast majority fails to see a crisis in the making, even as it stares at them from close range. Just as market observers in 2007 told us that the credit crisis would be confined to the subprime mortgage market, current analysts tell us that sovereign debt problems are confined to Greece, Spain, Portugal, and perhaps Italy. They were wrong then, and I believe that they're wrong now.

During the housing boom, subprime and prime borrowers made many of the same mistakes. Both groups overpaid for their homes, bought with low or no down payments, financed using ARMs instead of fixed rate mortgages, and repeatedly cashed out appreciated home equity through re-financings. The market largely overlooked the glaring similarities, and instead merely focused on FICO scores. Yes, prime borrowers had better credit, but their losses on underwater properties were no less devastating. As the magnitude of home price declines intensified, prime borrowers defaulted in levels that were almost as high as the subprime crowd.

So when mortgage backed securities started to go bad, it wasn't as if the problems emanated in subprime and subsequently "contaminated" the rest of the market. All borrowers were infected with the same disease, but the symptoms merely expressed themselves sooner in subprime. The same is true on a national level, whereby Greece plays the part of the subprime borrower. Though the U.S. is considered to be the highest order of "prime" borrower, based on historic precedent, our debt to GDP levels are at crisis levels, and are not that much lower than Portugal or Spain. When off-budget and contingency liabilities are properly accounted for, one could argue that we are already in worse financial shape than Greece.

Most importantly, like Greece (and homeowners who relied on adjustable rate mortgages), we have a high percentage of short-term debt that is vulnerable to rising rates. The one key difference is that while Greece borrows in euros, a currency it cannot print, America borrows in dollars, which we can print endlessly. In reality however, this is a distinction with very little substantive difference.

What if Greece had not been a member of the euro zone and had instead borrowed in their former currency, the drachma? First, given its past history of fiscal shortfalls, Greece would not have been able to borrow nearly as much as it had (They may well have been forced to borrow in euros anyway). Under those circumstances, creditors would have been more reluctant to lend without the possibility of a German led bailout. Had Greece never adopted the euro as its currency, but nevertheless borrowed in euros, it would now face the same difficult choices, but would not be offered the carrots or sticks provided by other euro zone nations that are worried about the integrity of their currency. The IMF would have been Greece's only possible savior.

Many of our top economists now argue that all would be well in Greece if the country was in charge of its own currency. In such a scenario, Greece would indeed have had no problems printing as many drachmas needed to pay its debts. However, would this really be a "get out of debt free" card for Greece?

The main reason the Greeks are protesting in the streets is that they do not want their benefits reduced or taxes raised to repay foreign creditors. But despite the likely domestic popularity of a drachma-printing policy, would it really get the Greeks off the hook? They would stiff their creditors by repaying them in currency of diminished value. But the same result could be achieved through an honest debt restructuring, which would involve "haircuts" for all creditors. In a restructuring, the pain falls most squarely on those who foolishly lent money to a "subprime" borrower.

But with inflation it's not just foreign creditors who would suffer. Every Greek citizen who has savings in drachma would suffer. Every Greek citizen who works for wages would suffer. Sure nominal benefits are preserved and taxes are not raised, but real purchasing power is destroyed. If the cost of living goes up, the reduction in the value of government benefits is just as real.

Of course, the negative effects on the economy of run-a-way inflation and skyrocketing interest rates are worse than what otherwise might result from an honest restructuring or even out right default. It is just amazing how few economists understand this simple fact.

Just because we can inflate does not mean we can escape the consequences of our actions. One way or another the piper must be paid. Either benefits will be cut or the real value of those benefits will be reduced. In fact, it is precisely because we can inflate our problems away that they now loom so large. With no one forcing us to make the hard choices, we constantly take the easy way out.

When creditors ultimately decide to curtail loans to America, U.S. interest rates will finally spike, and we will be confronted with even more difficult choices than those now facing Greece. Given the short maturity of our national debt, a jump in short-term rates would either result in default or massive austerity. If we choose neither, and opt to print money instead, the run-a-way inflation that will ensue will produce an even greater austerity than the one our leaders lacked the courage to impose. Those who believe rates will never rise as long as the Fed remains accommodative, or that inflation will not flare up as long as unemployment remains high, are just as foolish as those who assured us that the mortgage market was sound because national real estate prices could never fall.

Copyright © 2010 Peter Schiff
Editorial Archive

GOLD THOUGHTS

by Ned W. Schmidt, CFA, CEBS
Schmidt Management Company

April 19, 2010

http://www.financialsense.com/editorials/schmidt/2010/0419.html

Gold - The Real Shape of Chinese gold demand

Excerpts from GLOBAL WATCH

The Gold Forecaster by Julian D.W. Phillips | April 1, 2010

http://www.financialsense.com/editorials/phillips/2010/0401.html

This is a snippet from the Gold Forecaster. The newsletter that covers all pertinent factors affecting the gold price [with a 95% accuracy rate].

The respected World Gold Council has issued a report on the Chinese gold market. In it, WGC points out that, local Chinese consumers are well aware of gold's benefit as a store of value and that jewelry has always been regarded by Chinese buyers as an investment. Like Eastern demand in general, the Chinese want gold, not diluted gold, so at least 80% of total gold jewelry demand in China is accounted for by 24-carat gold.

Chinese jewelry demand has averaged 250 tonnes of gold per annum over the past ten years. Total jewelry + bar hoarding demand has averaged 3,355 tonnes over the same period, giving China an average market share of just over 7% of total. Last year, jewelry demand grew, in contrast to the rest of the world, by 6% year-on-year to reach 347 tonnes, which was equivalent to 21% of world jewelry demand.

This works out at 0.26 grams per capita, substantially lower than other areas with a similar affinity to the metal, such as the U.A.E., Saudi, India, and other parts of the East Asian continent. This is accounted for not only by the still very low level of income earned by the average Chinese citizen, but by the immature nature of the Chinese gold market.

Urban development and the rise in disposable income

The gold market has to follow wealth development, which starts in the towns and cities. While the economy is growing rapidly it is only at a ‘young’ stage, with vast increases still to come. Within 10 years we believe 2/3rd of the Chinese population will live in towns and cities leaving 1/3rd still in the countryside feeding the urban population. But of greater importance will be the speed with which disposable income will rise. China's appetite for gold will rise alongside the rise in disposable income, as will the level of gold off-take. This is augmented by the high savings ratio of the Chinese, together with a lack of alternative investment vehicles. This is an explosive formula for gold demand.

Just think of it, when a company is just below break-even point a rise in profitability through that level, to moderate profits is the most dramatic event a company can experience. Thereafter, similar rises in profitability mean a steadily lowering of percentage increases in profitability. So it is with an individual.

The first thousand dollars above one’s needs is a heady amount, the second not so dramatic. Now apply that principle to China and its 1.4 billion people. The pace of growth in the gold market is set to explode in the years to come and, with all due respect to the W.G.C., should explode far more than a doubling in 10 years. Just look at the growth of its car market. We expect the same in its gold market.

Net retail investment in gold in China in 2009 was 81 tonnes, up 22% year-on-year. China thus accounted for 43% of the world total in that category last year. Coins and bar hoarding have been growing strongly in recent years and we believe will jump almost on an exponential rate in the years to come..

Like Indian gold owners, gold represents financial security, so we agree with the WGC when they say that Chinese investors are much less likely to sell into strength than some of their counterparts elsewhere in the world.

On an institutional level gold is finding favor as well. The China Investment Corporation is moving into commodities and real estate and recent filings with the SEC show that the CIC took a 1.45 million share stake in the SPDR® Gold Shares Fund in New York (equivalent to 4.5 tonnes) in the fourth quarter of last year.

On the immediate front, a trend over the last few weeks has been that the gold price rises in Asia time and is pulled down in London and early New York time.

We expect remarkable growth in demand from China in the years to come, which by itself, will support present prices and take them far higher in times to come.

Gold at 2-week high, PGMs rally on investment flows

Humeyra Pamuk, LONDON

Thu Apr 1, 2010 6:18am EDT

http://www.reuters.com/article/idUSTRE62H1MP20100401



LONDON (Reuters) - Gold rose to a two-week high on Thursday and platinum group metals rallied to their highest in over twenty months on the back of fresh investment money poured into commodities, signaling another quarter of gains.

A shutdown this week of a smelter at the world's third biggest platinum producer Lonmin, has also buoyed platinum to its highest since August 2008 and palladium to its loftiest since March 2008.

Gold saw little support from the currency markets, where the euro was steady versus the dollar. The U.S. currency hit a three-month high against the yen while the market waited for U.S. macroeconomic data later in the day.

Spot gold rose to $1,118.75 an ounce, its highest since March 19 and was at $1,117.65 an ounce by 0901 GMT, versus $1,112.80 an ounce late in New York on Wednesday.

"Commodities as a group are extremely strong at the moment," said RBS metals analyst Stephen Briggs. "We had lots of quarter-end massaging going on and that has set us up for probably more money coming into commodities at the beginning of the second quarter," he said.

Bullion ended the first quarter more than one percent higher on buying driven by volatile currencies, firm stock markets and oil as well as euro zone debt but it has struggled to sustain gains since hitting a record above $1,200 an ounce last December.

BREAK ABOVE?

"I think gold should eventually break above $1,125 an ounce. Physical demand is still good and there's more investment money coming in," Afshin Nabavi, head of trading at MKS said.

Thai jewelers were active but physical dealers noted light selling by Indonesian consumers. India, the world's largest consumer, made some inquiries as the wedding season was about to start soon.

U.S. gold futures for June delivery gained $3.3 an ounce to $1,117.8 ounce.

Bullion markets in Singapore, Indonesia, India, Hong Kong and Australia will be closed for Good Friday but Japan is open and investors will be waiting for U.S. non-farm payrolls that could set the tone for currencies.

Analysts are expecting the government payrolls report on Friday to show the economy added 190,000 jobs in March, albeit aided by temporary government hiring for the 2010 U.S. Census.

Spot platinum traded at $1,656 an ounce versus Wednesday's $1,641.50 an ounce while palladium was at $488 an ounce versus $477.50.

Palladium and platinum ended the first quarter 17 percent and 12 percent higher respectively, surpassing the single-digit gains posted by gold and silver.

"We've been quite bullish on PGMs and we think their fundamentals look good. Obviously an accident at the Lonmin smelter helped but actually it's more of a general sense that the market likes the PGMs," Briggs said.

A recovering auto industry led by China is also another factor boosting the PGM prices. More than half of the world's output of platinum group metals is used in catalytic converters which clean exhaust fumes from vehicles.

Silver was at $17.66 an ounce, after hitting $17.70 an ounce, its highest in ten weeks and versus Wednesday's $17.46 an ounce.

(Reporting by Humeyra Pamuk, Editing by Keiron Henderson)

METALS UPDATE

02 21 10

http://www.preciousmetalstockreview.com/downloads/February%2020,%202010%200df.pdf

Peak Oil Is Real, Act Now Or Face The Consequences

By: Alex Stanczyk Saturday, February 13, 2010 12:00 PM

http://www.istockanalyst.com/article/viewarticle/articleid/386426

Whenever I think about oil, and the fact that we are likely already past peak oil production, I am reminded of what oil has done for us as human beings.

For those of you unfamiliar with the Peak Oil concept, it is not so much a belief that we are running out of oil so much as a historically proven description of the behavior of producing oil fields. For a great video primer on the subject, see Chris Martenson's fine work in Crash Course Video 17a.

Oil is, obviously, stored energy. But what I think many fail to consider, is that it is cheap energy, and it accomplishes a great deal of work that otherwise may have had to been performed by human energy.

Cheap energy has affected everything about our lives as human beings ever since the combustion engine.

I am reminded of how America went from an agricultural society with most of its citizens living and working on farms, to today the work that would take perhaps a few hundred men or more can be accomplished by two guys, and an oil powered tractor.

By ancient standards, every single person in the western world lives a lifestyle of a King. From the wide variety of foods we so conveniently have available to us in our grocery stores, to simple conveniences we have for generations taken for granted. Is this solely because humans are so much more advanced technologically, or does it perhaps have something to do with how cheap energy has been for the last 50 years?

We run lights all day and all night, each light bulb if powered by humans would require a man riding an exercise bike 24 hours a day in your basement. The food in your refrigerator for example is more energy intensive than you may realize. It has been estimated that 1 lb of beef can take up to 8 lbs of grain to produce, and each pound of grain that goes into raising that livestock again goes back to those oil powered tractors. It also took oil powered trucks to bring that beef from the farm to your grocery store shelf, and even more oil to fuel your car or truck taking it from the store to your home. Even something so simple as water takes power to bring to your faucet, and more power if its filtered first either by your favorite bottled water company, the local muni water system, or your private filtration system.

In terms of gold, it also comes back to that labor/energy component. You see, in our view, gold is simply a method of storing energy, as it has been for thousands of years.

It could be argued that this ability to store labor is a primary requirement of money.

Another way of looking at it, is that labor produces wealth, as any labor above that needed to accommodate basic needs such as a roof over our heads, food and water, basic transportation and clothing can of course be opted into savings accounts, stock markets and other paper instruments, and for some of our more astute readers, gold and silver.

Gold has performed this role of wealth/energy storage for thousands of years of human history, and indeed has been referred to as the Money of Kings.

So the question might be asked: Why then is gold so good at storing wealth?

It comes back to the labor component. In ancient times, it took the measure of a mans life to extract and refine a single ounce of gold from the earth. There was no internal combustion engine, and no oil burning trucks that could haul literally hundreds of tons of ore.

Can you imagine how many mens labor it would take to move the ore that a single truck like the one below could move?

For a good deal of history, a mans life could be purchased, for his entire life, for an ounce of gold. This of course makes mathematical sense, if it took an entire mans life labor to extract an ounce of gold, of course it would make sense that it would equal a mans lifelong labor.

All through history, right up until the last century, extracting gold from the earth was a labor intensive process. With the adoption of the use of oil powered machinery, the ability to extract huge amounts of gold from the earth became possible.

Thanks to cheap energy (that would have been mens labor), over 80% of the known above ground reserves of gold have been extracted from the earth just in the last 100 years.



So let me bring that into perspective for you across the timeline. For over 5000 years of history, gold has been very difficult to remove from the earth, yet in the last 100 years has become relatively easy in comparison.

In ancient times, one ounce of gold was valued at the the amount of productive capacity of a mans life. This changed because of the energy equation of cheap energy in the form of oil.

If the Peak Oil argument is true, and we have good reason to believe it is, then the energy equation in regards to gold extraction may be reverting back to what it was previous. Energy inputs are one of the most important costs in the production of gold. If it is clear oil production will continue to drop, while demand continues to rise, then the cost of oil must also rise, and therefore the cost of extracting gold from the earth.

How will this impact the value of an ounce of gold?

It has occurred to me that some of the greatest fortunes ever made have been at the front of trends that affect all of mankind. Clearly, energy, or rather is lower availability in the years ahead is something that will change drastically over the next 30 years. This massive shift will affect every aspect of life, just as computers have over the last 20 years.

Interestingly, gold has retained its purchasing power well over time in terms of raw materials if not in paper. I say this because if we wanted to use the mans life labor model, how much does a man in a typical western nation earn in his lifetime in dollars? Certainly far more than the the price per ounce we see reflected in the "paper gold" markets.

Yet even with the advances in how much has been mined by use of cheap energy, the ratio of gold per capita has remained fairly constant.



In terms of the price of oil in the future and the effect it will have on the price of gold, I am of the opinion that it will be somewhere between what it is now, and the amount a man is capable of earning in his lifetime. It may not go so high as that number, but it certainly has in the past, and it will certainly be higher than it is now.

The I.M.F. sold 200 tonnes to India, a new announcement due!

Excerpts from GLOBAL WATCH:

THE GOLD FORECASTER

by Julian D.W. Phillips

November 13, 2009

http://www.financialsense.com/editorials/phillips/2009/1113.html

Gold taps record as U.S. joblessness hits 10%

Bullion tops $1,100 mark for first time as easy money seems assured

Nov. 6, 2009, 2:52 p.m. EST

http://www.marketwatch.com/story//gold-reaches-new-record-above-1100-2009-11-06

Why America wants IMF gold sale proceeds

2009-09-23 21:45:00

By Jon Nadler

http://www.commodityonline.com/news/Why-America-wants-IMF-gold-sale-proceeds-21380-3-1.html

Narrow ranges defined the overnight trading hours for gold, as the metal gyrated between $1010 and $1020 per ounce, closely tracking the dollar's own close orbit around the 76.10 mark on the trade-weighted index. Nevertheless, the greenback is still at, or near a one-year low point against the euro and sentiment shows little in the way of improving as yet. Today's FOMC meeting could make a difference, but not necessarily mark a turning point. The Fed is expected to underscore the idea that the US economic recovery has indeed begun, but it is also expected to leave rates alone for the time being.

Gold started the midweek session off on a steady note very near the $1015 level, showing a $0.90 loss at the opening bell. The dollar was equally flat, showing no movement on the index and a quote of 1.479 against the euro. Oil prices moved very little as well, stalled at $71.50 per barrel. Evidently, the larger bets are waiting the Fed out for now. Silver opened with a two-penny loss at $17.10 per ounce, while platinum fell $7 to $1326 and palladium slipped by $5 to $296 per troy ounce.

Sell-off fears continue to swirl in the various gold dealing rooms we contacted during the overnight hours - they are based on the gargantuan long positions in NY, and on the uninterrupted (by any significant corrective action) manner in which prices have gotten where they now are. This, despite poor fundamentals. For example, confirmation of just how lousy the 2009 Indian gold offtake is becoming, came from Reuters late yesterday. Reporter Frank Tang interviewed local trade-watchers/dealers and summed up the developing scenario in a manner that surprised even us:

" India's gold imports in 2009 may fall to their lowest level since trade was liberalised 12 years ago as high prices have put off buyers in the world's biggest market for the metal, a top importer said on Tuesday. Total imports may fall to 500 to 550 tonnes, Shilpa Kumar, senior general manager of the global markets group at ICICI Bank, one of India's top three gold importers, told Reuters in an interview.

" We expect the year will be lower than last year as there was such a big fall in the first quarter, it can't be completely compensated in the calendar year," Kumar told Reuters. In 2008, India's imports were at 712.6 tonnes, according to World Gold Council (WGC). In the first half of the year, Indian demand was 55 percent lower than a year ago, but the gap will be narrowed to 23-30 percent for the full year as higher wages for government employees and an official scheme for rural employment has cushioned the impact of failed monsoons, she said."

The convergence of key levels (support as well as resistance) in various markets leading up to the FOMC and the G20 meetings could be interpreted as coincidence albeit many do not believe that to be the case. What will come to be regarded as a dovish or hawkish stance by the Fed, remains to be seen. As for the dollar, well, it's still an open case. We do know that the proceeds of the 403 tonne IMF gold sale will go into the US currency. But, is $13 billion enough to 'rehabilitate' the US currency at this juncture? The one certain thing is, that when US interest rates do begin their eventual upward adjustment process, even the first quarter-point tweak will move mountains in certain markets. The interest rate ice age has lasted long enough for that type of occurrence to be baked into the cake.

That same interest rate environment has given rise to the idea that perhaps the dollar is the next carry trade-funding currency, replacing the yen - a currency by which the term has largely been hitherto defined. The Japanese currency was a safe bet for speculators searching for a cheap source of funding for their ventures into various other markets. After all, given near-zero interest rates and a fast-deflating economy in Japan, how could they miss? Yet, miss they did- as in October of 1998 when a sharp downturn in the bond market made all of them run in sync. The yen rose by 18% in...four days, and by 25% in two months. Wipeout. These are the risks of the carry trade, these are the risks of one-way bets.

Despite all of this, and a record that shows speculative talk to not only be cheap, but often wrong, the talk continues. Talk of the imminent collapse of the dollar. Talk of the imminent collapse of America. Talk of a lunar launch for gold. Talk of a new world order. Talk that the world is recovering. Talk that the storm is over. Talk that inflation is coming. Talk that deflation is here. We would rather have talk without talking too much. Clear meanings in but a few simple words. Alas, it is not to be. We lack elephant talkers, these days. Marketwatch's Rex Nutting dissects the rivers of talking flooding our lives and finds that -as we have always said- at the end of the day, it is all noise in the void, devoid of action:

"The world has its share of problems right now -- global financial meltdown, global warming, global unrest -- but mostly we're talking about them more than we're actually doing things to fix them. America, the most prosperous nation and the one with the largest military, can't escape problems of its own: Unaffordable health care, economic malaise, and troublesome international allies and foes. What are we doing about them? Mostly talking.

For instance, the Federal Open Market Committee is meeting Tuesday and Wednesday to talk about fixing the financial system and the economy. The meeting will be just talk, because the Fed has already done what it's going to do. Now they are waiting, and filling in the awkward silences with reassuring talk.

Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee, announced Tuesday that his committee will wrap up the biggest-ever makeover in health-care in just a couple of days. Forget the fact that he's been talking to the members of his committee for months in a fruitless attempt to find common ground to act. Baucus is powerless to get his way, so all he can do is talk.

President Barack Obama is the biggest talker of all. He talked to the TV pundits all day Sunday, talked to David Letterman on Monday, and talked to the U.N. and the Chinese on Tuesday. On Wednesday, he'll talk to the Israelis and the Palestinians and the Japanese and the Russians. Then on Thursday and Friday, the president will travel to Pittsburgh for more talk with the Group of 20 leaders. At the end, the G20 leaders are expected to issue a statement full of lofty promises, and almost no action.

Is this the best we can do? Maybe. These issues are problems because they are beyond the ability of any one person, or committee, or nation to fix. They require coordinated action. Global climate change cannot be fixed without full cooperation of everyone. If one country goes it alone, the agreements to reduce greenhouse-gas emissions will fall apart in a race to the bottom. The global financial system cannot be restructured without the full cooperation of everyone. If one country imposes stronger requirements than the others, the bankers and shadow bankers will go elsewhere, and the whole world will be vulnerable to the next credit bubble and bust. Sometimes the talk seems cheap, because it is simply empty words. But agreement on these thorny issues can only be achieved by trusting each other to do what's best for all, even if it means each of us must sacrifice something.

Winning trust begins with talk, but can't be cemented without real action."

The FOMC attendees will be talking. Mr. Obama will be talking (some say, sternly) at the UN. The G20 will be talking this weekend. Mr. Ahmadinejad is talking friendship and peace. In the interim, the markets will also be talking, based on all that outside talk. But, for every talker, there ought to be a listener as well. In theory.

Jon Nadler is Senior Analyst, Kitco Metals Inc.

The Real Price of Gold

Sep 22nd, 2009 | By Adrian Ash

http://whiskeyandgunpowder.com/the-real-price-of-gold/

GOLD’S CURRENT price-tag of $1,000 an ounce suggests big doubts over the US Dollar, its domestic economy, and its status as the world’s No.1 reserve currency.

Or so we guess after 10 years of watching it quadruple from two-decade lows. But gold investors (old, new and everywhere) should note that this decade’s bull market in bullion is about much more than the greenback.

Here are three ways of judging what you might call the “real price of gold” instead.

#1. The Global Gold Index

Gold has risen against all world currencies since the start of 2001, very nearly tripling on average and hitting record highs against everything bar the Japanese Yen. (Tokyo gold buyers are still waiting for a near-double to the peak of Jan. 1980…)



Introduced in July 2008, Bullion Vault’s Global Gold Index is a stab at mapping this trend. It monitors “real gold” by plotting the daily price in terms of the world’s ten most important currencies, averaging their moves by size of the issuing economy.

Thus the Global Gold Index currently starts with the US Dollar gold price, and then takes in the gold price for Eurozone buyers, Japan, China, the UK, Russia, Brazil, Canada, Mexico and Australia – as per the latest World Bank and IMF data. (It’s rebased each year to accommodate changes in that league table of gross domestic product; India, the world’s hungriest physical gold market until the start of this year, flips in and out.)

Not quite the price of gold for everyone worldwide, this “real” value does at least cover 2.5 billion people who account for over two-thirds of world economic activity. It starts at 100 on New Year’s Day 2000, hitting a record peak for this decade in May 2006, and then all-time record peaks in March 2008 and then Feb. 2009.

Currently, the Global Gold Index is trading some 5% off that top, rising strongly into Sept. ‘09 so far.

#2. Gold vs. the Cost of Living

What about inflation; has the ultimate “inflation hedge” (as most commentators and analysts still mistake it) out-done the cost of living?

Given how suspect inflation data can be (wherever you live), let’s roll our third “real” gold price into this picture too, comparing gold against the cost of raw, productive materials as bought and paid for in the market-place…



This chart shows the Dollar gold-price adjusted for official inflation in US consumer prices (the gold line). Jan. 2000 marks the start of our indexation. You’re looking at gold priced in Y2K dollars, left-hand scale.

The chart also maps the “real” price of gold in terms of raw materials prices (dark red, right scale), indexing it against the CRB’s Continuous Commodity Index of the most-heavily traded 19 natural resources – crude oil, corn, soy beans and the rest. (Again, Jan. 2000 is our starting point for the maths, indexing the real price of gold in commodities at 100.)

But is gold cheap or dear right now? Three observations:

Gold built a strong base against commodities during the 1980s and ’90s, holding onto far more of its 1970s’ gains than did natural resources;

Gold has never been more expensive in terms of the raw materials it could buy than in Feb. ‘09, almost doubling in purchasing power from crude oil’s record peak of summer last year;

Real gold prices stand at only 50% of their 1980 inflation-adjusted peak, but they’ve trebled so far this decade;

Consumer-price inflation has thus been stronger since Y2K than you might guess…adding 27% to the cost of living and lopping a whole multiple off gold’s nominal gains since the start of this decade.

Still, the Noughties come fifth out of the last eleven decades both for “price stability” and “low inflation”. And gold’s performance in the face of rising consumer prices is varied to say the least…



Most significant perhaps for the fate of Dollars, gold and inflation, is the fact that real commodity prices have in fact halved over the last fifty years. Adjusted for US inflation, they were never cheaper than at the start of this decade.

The decline in real commodity prices between June 2008 and Feb. ‘09 was comparable only with their doubling in 1972-73. Dropping 40% inside eight months, real commodities fell faster than any time on the CRB’s five-decade record.

If this decade’s bull market in gold were only about inflation and commodity-price fears –whether priced in US Dollars or anything else – gold would not be trading four times higher above $1,000 today.

Regards,
Adrian Ash
BullionVault

September 22, 2009

Precious Metals Expert Says Gold Will Continue to Shine

On Monday June 29, 2009, 11:01 am EDT

http://finance.yahoo.com/news/Precious-Metals-Expert-Says-twst-149856482.html?x=0&.v=1

67 WALL STREET, New York - June 29, 2009 - The Wall Street Transcript has just published its Gold and Precious Metals Report report offering a timely review of the sector to serious investors and industry executives. This 99 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Supply and demand - Skilled labor shortages - Equipment delays - The movement of inventories - Jewlery inventories - Operating margin - Valuation - Consolidation - Silver - Gold - Investment demand

Companies include: Kinross Gold (KGC); IAMGOLD (IAG); Red Back (RBI:TSX); Centamin (CEE:TSX); Osisko Mining (OSK:TSX); Yamana Gold (AUY); Eastern Platinum (ELR:TSX); Goldcorp (GG); Silver Wheaton (SLW); NovaGold (NG); Goldcorp (GG); Royal Gold (RGLD); Franco-Nevada (FNV:TSX); Allied Nevada (ANV); Midland (MD:TSX); Virginia Mines (VGQ:TSX).

In the following brief excerpt from the 99 page report, Ken Gerbino, head of Kenneth J. Gerbino & Company, discuss the outlook for the sector and for investors.

TWST: What is the status of the precious metals market right now?

Mr. Gerbino: The status is as follows; money managers, sovereign wealth funds, and investors globally have lost some or a majority of the faith and trust that they have had in major financial institutions, politicians and governments regarding economics and the future. Therefore, gold, which has never gone bankrupt and has never defaulted and has always had a reputation as a safe monetary substitute and an inflation hedge, has now become in the forefront of everyone's minds for a portion of their wealth or investment funds. Also, I might add, gold allows investors a piece of mind from an insurance standpoint in the event their monetary and economic events get out of hand. Even though that is a low probability, one also doesn't cancel one's insurance policy if you feel having an accident while driving would be low probability. Now, when one adds in the possibility of just 4% to 5% inflation rate taking place, and extends 4% or 5% increase in the price of gold - which at these price levels is somewhere between $50 and $60 an ounce - year-after-year, mining companies benefit from this dramatically because once the capital has been expended to put a gold mine in production, the next 20 years or so is strictly extraction costs. Therefore, this major capital expense is fixed and one can benefit from the higher price of gold going forward where the margins are increasing.

TWST: Do you think the precious metals market is going to continue doing well over the next year or so?

Mr. Gerbino: I think gold will be in a trading range of somewhere between $850 and $1,250, probably for the next year or two or three. The next big move up in gold will occur because of inflation coming back from all the money that's been created to bail out the banking institutions in most countries in the world. The bottom line is more money equals higher prices. That is a trend that history attests to over thousands of years.

TWST: Are the actions of the current Administration going to keep prices of precious metals high?

Mr. Gerbino: First of all, it didn't matter who got elected. It didn't matter if he was a conservative, a liberal, a Democrat or Republican. Whoever got in that office had no choice. They were going to have to borrow and print, etc. to bail out the system. But because of that, precious metals should be in everyone's portfolio.

TWST: Is that always true that when countries start printing money, gold and precious metals become more valuable?

Mr. Gerbino: They should, but there is a lot of lead and lag times involved in this. So, I think over a longer trend, you can bet that the prices of these monetary substitutes/investment/inflation hedges, which will be gold and silver, will go up. So, I think over the next five or 10 years, you will see much higher prices of both metals. In fact, you are going to see higher prices of just about everything because not only did a motorboat show up at the island, but a flotilla arrived and they have these high-speed printing presses on this flotilla. So the islanders are in for a big surprise.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 99 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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>Thanks for the information.

I'm invested in Hawthorne Gold. See #board-10573

Hawthorn has proven management.

sumi

Peak Gold: The New Paradigm

by: Jeff Nielson May 21, 2009

http://seekingalpha.com/article/138820-peak-gold-the-new-paradigm

By now, almost everyone is familiar with the concept of “peak oil”. This notion, which has been accepted as fact by many, has two components to it.

First of all, we have new supply fundamentals which demonstrate conclusively that any increases in supply cannot be maintained due to the permanent inability of the petroleum industry to find and develop new sources for crude as fast as current reserves are depleted.

The second component of the “peak oil” model is a demand “curve” which projects large increases in demand which are totally above the upper parameters of supply. In other words, barring some currently unforeseeable miracle, we will be forced (through dramatically rising prices) to curb our demand – or else we will “fuel” (pardon the pun) even more extreme prices.

More recently, some “gold bugs” have been quietly discussing their own paradigm for the future: “peak gold”. The first component of this model already equates to the current realities of the oil market: global gold producers are unable to increase supply – despite a greater than tripling of the price of gold this decade.

The only country which has been able to substantially increase production is China. If not for dramatic increases in Chinese gold mining, global production would be inching lower despite a tripling of the price. However, as we have also recently discovered, the Chinese government has no inclination to share this increased production with the rest of the world (see “China now has 5th largest gold reserves”).

Today, thanks to the World Gold Council, we have now been provided with the second component necessary to make the case for “peak gold”: soaring demand. The WGC just reported that 1st quarter demand for gold has risen by a stunning 38%.

As I stated in a recent commentary (“Gold demand now driven by investment...PERIOD!”), this rising demand has come entirely through investment demand, and more particularly retail investment demand – which exploded upward by nearly 400% in 2008.

A further indication of this new paradigm for the global gold market is that this HUGE increase in demand came without any support from the Indian gold market, which historically had always been the largest and most important market for gold. Indian gold imports were virtually non-existent in the first quarter, thanks to large domestic supplies of “scrap”. Along with other factors, this has led me to speculate that India has ceased to be a driver of the global gold market (see “Is India now IRRELEVANT to the gold market?”).

Clearly, when the world's largest consumer can STOP buying gold, and yet demand has still skyrocketed by 38%, this alone is a powerful argument that the gold market will start behaving much more like the oil market: specifically, it will become much more susceptible to powerful “spikes” in the price any/every time some gold-bullish news reaches the markets.

This in turn, suggests yet more new trends in the gold market. Traditionally, Indian gold-buyers have been patient and savvy: able to do the majority of their buying when troughs in the price of gold occur. Suddenly, there is no guarantee there will EVER be another “trough” in the price of gold – at least nothing below the current, grossly-manipulated price. Now, with their deep cultural attachment to gold, and their own supplies depleted, they may be forced to "chase" the price of gold higher - in order to meet domestic needs.

And speaking of “manipulation" these new demand numbers also strongly suggest a new paradigm of behavior for the anti-gold cabal of bankers. Specifically, we are likely to observe genuine fear in their behavior.

If you are a player in the market, sitting with an illegal “short” position – many times larger than anything every witnessed in any other commodity market – and you now realize that the commodity you are “shorting” is prone to huge, upward gyrations in price, you must now be constantly fearful of your own annihilation.
Keep in mind that when the position of the manipulators was much stronger earlier this decade, the best they could do was to hold back the price of gold to slightly less than a quadrupling of the price. With their reserves of bullion seriously depleted, and record-demand now eating up supply sources in a ravenous manner, a logical projection of the price of gold over the next decade now obviously points to a four-digit price at or approaching $5000/oz.

If the price of gold could quadruple when the manipulators were “strong”, then a quintupling of the price – now that they are “weak” - is not unreasonable in any sense.

“Peak gold” is here. Those who have sat on the sidelines until now, paralyzed by the anti-gold propaganda of the Manipulators have one, last opportunity to purchase cheap gold: right now.

I think Frank Holmes is a shareholder, through his fund, in one of my favourite juniors-
GOE.V
They are looking at addding another property to their asset base according to management-
Not done yet however-

---
Also hold a fair amount of CMV.V-
That one is bouncung back finally-

Gold Producer Categories

By: Scott Wright, Zeal Intelligence LLC

Posted Friday, 1 May 2009 Source: GoldSeek.com

http://news.goldseek.com/Zealllc/1241194368.php

In my tenure as an analyst on the gold stock circuit, I’ve been blessed to have experienced some pretty neat things that have given me an inside look at the gold mining industry. And by far the most exciting of my adventures have been tours of actual gold mines.

I’ve descended deep into the bowels of the earth to tour a small subterranean mining operation that follows a series of rich gold-bearing veins. I’ve also had a behind-the-scenes tour of a robust open-pit surface operation. Ultimately whether big or small, after going on a mine tour you don’t have to be a gold bug to be in awe of what goes into that shiny gold necklace that Aunt Jenny is wearing.

I briefly tale my escapades not to simply reminisce, but to tie in with the topic of this essay. One common question I get from investors is, does size matter? There are so many gold stocks out there and their market caps span such a wide range, what am I getting into when I touch down on different sides of the scale?

The simple answer to this question is yes, size matters. With gold’s wild success there is a growing contingent of miners that seek to leverage its fortunes. And when picking which of these miners to invest and/or speculate in it is important to understand what you are getting into. What am I getting when I buy a small gold stock with a single small-scale underground mine? What am I getting when I buy a large gold stock that operates massive large-scale mines?

In recent months at Zeal we’ve updated our thread of research on gold producing stocks in order to feed our acclaimed reports that detail our favorites. And in the process of doing so we update our custom database that holds detailed information on this universe of stocks.

When picking our favorites we like to end up with a diversified mix of gold miners that rank from smaller high-risk/reward companies to the biggest and best in the world. And there certainly is a wide range of stocks to choose from.

One of the ways we address this question of size, and achieve our desired diversification, is to split up the stocks into 3 different peer-level categories. Senior, mid-tier, and junior producers. I consider the seniors those miners that produce greater than 1m ozs of gold per year. The mid-tiers produce between 200k to 1m ozs. And the juniors produce up to 200k ozs. This exercise gives me an excellent high-level survey of each category and ultimately helps in my selection process.

Interestingly, in terms of quantity the least of these categories is the senior producers. There are less than a dozen 1m+ oz primary gold producers in the world. And I say primary because there are large conglomerate miners that produce over 1m ozs of gold per annum, yet don’t qualify for this scrub since gold is not their primary source of revenue.

But even though their numbers are few, these seniors by far produce the largest amount of gold of the 3 categories. This elite group of gold mining behemoths combines for nearly half the global mined supply of gold. And when parsing out the various characteristics within each of these categories, stability is one of the first things I think of with the seniors.

This stability is multi-faceted as it covers such areas as portfolio, pipeline, and financial. As for portfolio most seniors have geographically diverse operations, with mines scattered all around the world. And this diversification serves as a big hedge to geopolitical risk as some of the world’s biggest and best gold deposits reside in historically unstable countries.

Now miners already do business in a hostile marketplace regardless of locale. In my conversations with mining execs I’ve been told more than once that even before they approach local and federal agencies about permitting, they are already pitted as environmental hazards in the making. It is hard enough to jump regulatory and engineering hurdles just to procure mining permits.

And then when you throw in government instability (from local to federal), ad hoc changes to laws, and economic travails, a lot can happen over the 10 to 20 years that a mine may be scheduled for operation. There are many anecdotal examples of ex-post-facto rule changes to mining code, permitting, and taxation that have devastated profitable operations.

Miners have also seen adverse affects from violent indigenous uprisings, coup d’états, and labor strikes in politically unstable countries. And some governmental changes have even led to the outright nationalization of a country’s natural resources. This is something all miners must be leery of, but the seniors usually have the flexibility to withstand a major geopolitical event at one of their mines and still survive to see the next day.

As for pipeline, gold miners are in a constant battle to renew reserves. Since gold is finite and difficult to find, as it is mined it reduces the overall mining life of a company unless those ounces going out the door are replenished. And there are only three ways for this to happen.

First is a rising gold price that can convert known resources into economical reserves. Second is via organic discovery at existing operations or grassroots exploration projects. And lastly is via mergers and acquisitions. And this last method is where pipeline and strong financials can work together.

Gold exploration is very capital-intensive. It can take tens if not hundreds of millions of dollars to discover and advance exploration and technical studies far enough to deem the mineralization in a deposit economically feasible to extract. And this is before a mine is even built. Of course a solid technical team of well-trained geologists and mine engineers helps, but money plays a big factor in this.

The seniors have the ability to pay the technical teams and fund the exploration programs that are necessary to delineate reserves. But they also have the option to buy reserves, i.e. acquire projects or companies that meet their needs.

And if the capital for acquisitions is not readily available in treasury, the seniors can usually raise it in both the debt and equity markets. Most of their balance sheets are rated high enough to where they have the ability to acquire cheap debt. And their share prices and market caps are typically high enough to attract a broader range of institutional investors. Even all-stock deals are easier to get done as there is usually plenty of share capital on the shelf.

Circling back around to stability, most seniors have the financial and operational strength to weather such harsh economic conditions as those we are seeing today. While it is true the credit and equity markets have tightened up, the seniors still have the capital flexibility to acquire assets for cheap in today’s environment.

Overall when viewed collectively, the seniors are the stalwarts of all the gold stocks. But even within this category there are those that are in better position than others. Some seniors have much stronger portfolios, pipelines, and financials than their peers. And those are the ones that are likely to perform best over the course of this gold bull.

Next are the mid-tier producers. And I consider this category the gold mining sweet spot. There are nearly twice as many mid-tier gold producers as there are seniors. But this is not nearly as many as you would think. In fact these miners only account for about 9% of gold’s global mined supply. This shows the difficulty of breaking that 200k-ozs-per-year Maginot Line in the gold mining industry.

Mid-tier producers are in that sweet spot because they are typically movers and shakers. There is a lot of M&A and mine development activity as they strive to grow production and eventually eclipse that 1m-oz volume mark.

Some mid-tiers may have just one mine in operation. And this would obviously be of the larger-scale type producing over 200k ozs of gold per annum. But most of these miners have portfolios with more than one mine in production. Whereas the average senior may have up to 10 operating mines, sometimes more, the mid-tiers typically have 2 or 3.

But with multiple mines and steady cash flows from healthy production volume the mid-tiers have much better financials than the underlings in the category below. As for financing the credit markets aren’t as readily available as they may be for the seniors, but the mid-tiers usually don’t have too much of a problem raising capital. They can usually find a way to fund the exploration budgets that are necessary to bolster their pipelines and eventually feed portfolio growth.

Many mid-tiers are also in the sweet spot due to the fact that they are prime acquisition targets. While the average market cap of the mid-tiers is about $1.5b, this number is skewed to the high side thanks to 3 or 4 market darlings that have robust pipelines. In actuality nearly three-quarters of the mid-tiers have market caps under $1b with about half numbering less than $500m.

These sub-$1b mid-tiers with established mining ops are very tempting to seniors and even fellow mid-tiers with aggressive growth plans of their own. With how difficult it is these days to find gold and build mines, quite often the easiest thing to do is just buy them. If the price is right it is a lot less risky to seek production growth via M&As.

Moving on to the junior producers, here is where you’ll find the largest population of gold stocks. In this category there are dozens of gold miners that make their small but valuable contribution to the gold trade. And like the mid-tiers and seniors, there is a wide range of activity on the junior front.

Most juniors operate just one gold mine, with only a handful producing at a rate that exceeds 100k ozs per year. With this lower production volume cash flows are obviously on the low side, which doesn’t leave much surplus capital to advance a pipeline. Even the most profitable of juniors is hardly able to make enough capital to self-fund costly generative programs.

And getting capital from an alternate source is even harder. The credit markets are virtually frozen for the juniors right now as banks reel in lending. And with share prices so low thanks to the stock panic, any equity financing of substance would be very dilutive. Not to mention finding investors to subscribe to new shares is not as easy anymore.

As for risk, investors must be much more prudent when picking stocks in this category. And the risk factor is apparent for these one-mine weak-financial stocks considering the discount they are trading at relative to the larger miners.

With the data for these stocks at my fingertips the best way for me to explain this discount is a simple calculation I was able to run. Quite often gold stock analysts measure valuation based on a market-cap-to-reserve ratio and even the inverse of reserve-to-market-cap. But I was curious as to how the markets value current production.

By dividing market cap by annual production volume you get a value in dollars of market-cap-per-ounce-produced. Both the mid-tiers and seniors have very similar values, at around $4400 of market cap for every ounce produced. But the average junior was less than half this amount, at $2100.

Now these results aren’t anything groundbreaking and should be taken with a grain of salt at the individual company level since this formula doesn’t consider reserves or pipeline strength. But taken in context it provides a sense of how the markets value these stocks. Quite logically, juniors are riskier than mid-tiers and seniors, therefore their production is not valued as high.

Also in surveying the universe of junior producers, I found that the quality of a company is only as good as the quality of its mine. Unfortunately when looking at some of these mines, quality is hardly the word that comes to mind. While it is a great accomplishment for any of these miners to have graduated into producerdom, lack of quality is why it is so difficult for most juniors to graduate to the next level.

Some of the mines we see in this category were hastily brought into production and either lack the ability to make money and/or longevity. Simply put, many mines are producing at a loss because operating costs can’t be kept under control. Lack of thoroughness and planning in preliminary geological studies and mine engineering are apparent when they can’t make a buck even at today’s higher gold prices.

And unfortunately even some of these junior producers that are running quality mines have sold their souls to the devil. Since mine construction requires much larger capex than exploration, these companies must rely on bank financing to raise sufficient-enough capital. Unfortunately since juniors don’t have much collateral they are at the mercy of whatever terms the banks deem necessary in order for them to trust the juniors with their money.

And this often translates into hedging requirements. Hedging is selling forward a portion of production and reserves at a fixed price. In essence this gives banks a payback guarantee regardless of the volatility of metals prices. But this is very dangerous and costly in a bull market, and the markets discount this when valuing a stock subject to such conditions. A much higher percentage of juniors hedge than the mid-tiers or seniors.

But alas, not all is as bad as it seems. Even within the realm of these micro-caps (average junior producer market cap is $150m) there is an elite group of junior gold producers that are well-positioned for success and should thus reward shareholders.

These elites are in fact operating long-life and low-cost mines that are unhedged. And some even have promising exploration and development projects that could someday translate into an expanded portfolio of mines. While many juniors with low-quality mines will fail, these elites are the ones that will graduate into the mid-tier category or be acquired. Both paths will reward shareholders.

Another thing I was able to look at when comparing and contrasting these different categories was their collective performance over a designated period of time. I was curious to see how investors would have fared through the recent bad and good if they were married to one specific category.

I used the HUI gold stock index as a measure for choosing my start and end dates. And of course since it was the bad that came first I used the date from the pre-panic HUI high, July 14, as the beginning. For the end date I used October 27, which was when the HUI bottomed at its dreadful 6-year low.

Well as all gold stock investors experienced, there was nearly equal carnage across all three categories. The seniors saw the least damage with an average loss of only 65%. Next were the mid-tiers at -68% followed close behind by the juniors at -69%. Not much disparity here.

But disparity does show on the upside. From the October bottom to the recent highs it was the mid-tiers that paced the gold stocks. The average mid-tier producer was up 150%, followed by the seniors at 141%, and then the juniors at 116%.

While investors were likely pleased in any category, the sweet-spot stocks had the sweetest gains and the junior riskiness was apparent with their underperformance. This categorical performance information is interesting to say the least, and it might be worthwhile to extend this study over previous uplegs and corrections to see what it reveals. But that is for another day.

As for the stocks in which to invest in each category, personal preference and overall investment strategy comes into play here. Either way there is a bit of research involved to uncover the best of the best. For beginning gold stock investors and those who aren’t interested in individual stocks, the GDX Gold Miners ETF is a good place to start.

GDX is comprised of a basket of 31 precious metals stocks, with the main focus of course on gold. Those stocks in the senior category hold the heaviest weighting at 61%. And GDX touches all the bases here, as every senior gold stock is a member of this ETF.

The mid-tier stocks also have a strong representation in GDX with a 22% weighting. The next highest weighting is a handful of silver stocks at 10%. And the remaining 7% is split between a couple of gold royalty stocks, a handful of junior gold explorers, and a couple of junior gold producer stocks.

Junior producers aren’t represented well in GDX since very few meet the minimum $100m market-cap requirement. Also GDX is solely comprised of major-exchange US-listed stocks. And many of the quality junior and even mid-tier gold stocks have primary TSX listings with only pink-sheet listings in the US.

But if individual equities are your game, there are plenty of quality gold stocks in which to invest or speculate. At Zeal we perform painstaking research on gold stocks to feed the recommendations we make to our newsletter subscribers. If you seek high-potential trade recommendations and cutting-edge analysis, subscribe to one of our newsletters today!

You can also directly tap our research and purchase supplemental reports that comprehensively profile our favorite stocks in a given sector. Our 2 most recent reports happen to focus on junior gold exploration stocks and gold producing stocks. And the producer report is comprised of a good mix of senior, mid-tier, and junior gold miners.

The bottom line is gold stocks come in all shapes and sizes. These miners range from tiny one-mine operators to massive global powerhouses. But even though the end-product is the same on opposite sides of the scale, it is not feasible to scrub a $100m stock to a $5b stock. This is why it is imperative to divide them into peer-like groups.

It is much easier to see where a gold stock stands when compared and contrasted to fellow senior, mid-tier, or junior miners. Portfolio, pipeline, and financials are radically different between these categories. But even with these differences, there are winners in each group that are likely to shine above the rest.

Scott Wright

May 1, 2009

Geithner and Summers Want More Debt Bubbles: The Result Could Be Catastrophic

By Thom Hartmann, Smirking Chimp. Posted April 16, 2009.

http://www.alternet.org/workplace/136835/geithner_and_summers_want_more_debt_bubbles:_the_result_could_be_catastrophic_/?page=entire

The Geithner/Summers plan seems to hinge on reinflating the debt bubble. The outcome will be inflation, a more serious crash, or both.

"Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs."

--Thomas Jefferson letter to Thomas Cooper, 1814.

Are we standing at the edge of a Great Inflation (like Weimar Germany), a second Republican Great Depression, or a return to the middle class prosperity of the Roosevelt/Eisenhower New Deal era? Until Americans understand the difference between "money" and "debt," odds are its going to be one of the first two, at least over the next few years.

Money

"Money" is a convenient replacement for barter in an economy. Instead of my giving you five pounds of carrots, so you wash my car, then you trade the carrots for a new shirt, and the clothing store then trades the carrots to a trucker that brings them their inventory, we all just agree to use a ten-dollar bill. Because a nation's money supply represents that nation's "wealth" -- the sum total of goods, services, and resources available in an economy/nation -- it needs to have a fixed value relative to the number/amount of goods, services, and resources within the nation.

As an economy grows -- more factories, more goods, more services -- the money supply grows so one dollar always represents the same number of carrots. (And with a fractional reserve banking system like we have, that growth is created mostly by banks lending money and creating it out of thin air in the process.)

If the money supply contracts, or grows slower than the economy, then we experience deflation -- the value of money increases, goods and services become less expensive (fewer dollars to buy the carrots), but because the value of money has increased it becomes harder to get. When this happens quickly, because of its economically destabilizing influence (businesses and people can't get current money -- cash -- or future money -- credit -- because money is more valuable), it's called a Depression.

On the other hand, if the money supply expands or grows faster than the economy, there are more dollars than there are goods and services so the number needed to buy a pound of carrots increases. This is inflation, and when it happens suddenly and on a large scale, it's called hyperinflation.

Therefore, one of the most important jobs overseen by Congress and executed by a Central Bank (or the Treasury Department if we were to go with the system envisioned by the Founders and Framers of the Constitution) is to "regulate the value" of our money (to quote Article I, Section 8.5 of our Constitution) by making sure the number of dollars in circulation always steadily tracks the size of the overall economy. If the economy grows 2%, then that year there should be 2% more dollars put into circulation. More than that will create inflation; fewer will create deflation.

Debt

"Debt" is not money. Instead, it's a charge against future money. But even though it's a charge against future money, it can still be spent as if it was today's money -- except that it must be repaid with interest. And therefore debt must have some sort of a balanced relationship to the total size of the economy -- albeit the future economy -- for it not to be destabilizing.

In other words, if over the next twenty years (the term of a typical and healthy mortgage) the economy is expected to grow by X percent or X number of dollars, then the total amount of twenty-year debts that can be issued should be limited to X. But if it's greater than X, then when the future arrives there won't be enough circulating money to repay the debt, because the economy (and the money supply) won't have grown as great as the debt repayment demand. The only two options are for debt holders to default (bankruptcies, foreclosures, etc. -- Depression), or for the government to suddenly increase the supply of money (inflation).

The same is true of one-year debt (credit cards), four -- or five-year debt (car loans, typically), and all other forms of debt. In aggregate, if the amount of debt is allowed to grow faster than the economy will grow over the term of the debt, when the debt is due there will be a problem, and if it's grown hugely, a disaster.

This is what we're experiencing right now. Over the past three decades -- largely since Reagan -- debt (both private and public/government) has expanded much more rapidly than the economy has grown. "Now" was "the future" when the debt was issued, but the economy hasn't grown to the point where there are enough dollars (in reality, enough value -- goods and services) to repay that debt. Thus we are experiencing a "wringing out" of that debt -- bankruptcies and foreclosures -- relative to the current wealth of the economy.

This is the most critical thing to see clearly -- without adhering to this simple concept, a government or central bank will always either create boom/bust cycles (depressions/recessions) or inflation. Without regulating debt, a government will be taken hostage and an economy destroyed by for-profit institutions that are able to create debt without regulation (banks).

Panics

Although Thomas Jefferson and Alexander Hamilton -- two opposite sides of the national bank debate -- both understood this simple concept, it wasn't brought into the realm of law until the mid-1930s with a series of strict regulations on the abilities of banks to create debt (loan money), and strong political limits on the ability of government to go into debt outside of wartime. That's why from the founding of this nation until 1935, we experienced a "banking panic" at least once every 10 to 15 years from 1776 until 1935.

Then Roosevelt took the banks in hand, by creating a series of regulatory agencies and empowering them with strict laws. The result was that for fifty years in the United States -- roughly 1937 to Black Monday of 1987 -- we didn't experience a single national "panic" or consequential bank failure. The stock market grew steadily (allowing for the blips surrounding WWII).

It was also hard to get a credit card (short term debt), buy a car (medium-term debt), or get a mortgage (long-term debt) without proving that you would be able to repay the amount in the future -- in other words, that there would be future expanded-economy dollars that you could lay claim to because of your particular job and skills. Credit was regulated.

Reagan changed the rules of the game, particularly when he brought in the anti-regulation Libertarian Alan Greenspan as Chairman of the Fed. He ran up a massive federal debt -- greater than that of every president from George Washington to Jimmy Carter combined -- in just eight years, and began the process of loosening the power of bank regulators.

That process was finished by a Republican Congress (particularly Phil Gramm) and President Bill Clinton (with help from Rubin and Summers) and then booted out the door by George W. Bush, who borrowed even more than Reagan. Bush even used an obscure 19th century law to fight states' attorneys general who wanted to regulate or prosecute fraud among banks and mortgage lenders in their states (see the article by Eliot Spitzer in the Washington Post just before his being outed for sleeping with a hooker).

Green Eyeshades

During the "Great Stability" -- that period from the 1935 onset of the New Deal and the beginning of its end with Reagan's massive tax cuts of 1981 and 1986, leading directly to the stock market crash of 1987 and the S&L debacle -- banking was, as Paul Krugman noted in a recent column, "boring." Credit and currency were considered part of the commons, not something off which a small elite should profit. Like the utilities in the game Monopoly, banks provided a predictable but relatively low profit. Nobody got rich, but nobody lost anything, either.

Bankers were the safe and predictable guys who wore green eyeshades at work and pocket protectors in their shirts. The nation's main products were goods and services; nobody "made money with money" in any big way.

Since the serial deregulations of the financial services sector brought on by Reagan, Bush, Clinton, and Bush, however, bankers became fabulously rich. They called themselves the "Masters of the Universe." They came to dominate contributions to politicians, and facilitated the takeover of most major US newspapers, all the while using debt as their mail tool to make money (burdening those newspapers with such debt that many are now going out of business because they can't repay it).

By 2005, fully 40 percent of all corporate profits in the US came from the financial services sector -- a group of people who didn't produce anything at all of value, nothing edible or usable, nothing that would survive into future generations. They invented fancy derivative "products" that they "sold" at high commission rates around the world so others could "make money with money." In fact, they weren't making money -- they were taking money. Behavior that would have been criminal during the Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter administrations became "normal" and was even encouraged: more than half of all the graduates from many of America's top colleges and universities went into finance so they could get in on the very lucrative scam.

They created debt. As Ellen Brown notes at www.webofdebt.com, according to the Bank of International Settlements, they created and sold at a profit over 900 trillion dollars worth of debt -- and risk-based "instruments." That's a pretty mind-boggling number when you consider that the GDP of the United States is around 14 trillion and the GDP of the entire planet is around 65 trillion.

All of these "products" were made and sold based on the assurance that when "then" became "now" the economy would have grown fast enough for there to be enough dollars to pay it back. But the reality of a debt bubble that exceeds the world's GDP many times over came crashing in on us in 2007 -- and still hasn't fully crested -- producing the "crisis" we currently face.

Are we there yet?

Are we recovering from it all now? Will things soon be back to normal?

If by "normal" we mean like life during the "Great Stability," the answer is: "Not a chance." Back then we had in place tariffs and trade policies, first initiated in 1791 by Alexander Hamilton, that protected our domestic manufacturing industries. We still made things -- in fact, the USA was the world's largest exporter of manufactured goods, and the world's largest creditor. Like today's China, for over 100 years we'd loaned other countries money so they could buy our stuff!

On the other hand, if by "normal" we mean how things were over the past 28 "Reaganomics" years -- a stagnating middle class, disintegrating manufacturing sector, and piles of money being made by bets and debts -- then maybe. After just the first decade of Reaganomics, we went from being the world's largest exporter of manufactured goods to being the world's largest importer; we went from being the world's largest creditor to being the world's largest debtor.

None of that has changed. We haven't repealed Reagan's disastrous tax cuts, which have exploded our nation's budget deficits. We haven't repudiated NAFTA and the WTO and gone back to an international trade policy that puts American interests over those of transnational corporations. We have not re-regulated the banks, and have not brought back 6000-year-old laws against usury (excessive interest rates on debt).

The bankers, in fact, are fighting it tooth and nail -- the financial services industry in whole has spent over $5 billion lobbying Congress over the past ten years -- and their acolytes like Lawrence Summers and Tim Geithner play major and consequential roles in the Obama administration.

It appears that the plan today is not to regulate the amount of debt that banks can create, but instead to both print more money and do everything possible to reinflate the debt bubble. (Lacking a return to Hamilton's national manufacturing and trade policy, as a nation we just continue to slip deeper and deeper into Third World status as an importer and debtor -- this may be our only choice if we don't wake up soon.)

If followed, the Summers/Geithner policy can have only one of two outcomes: inflation or another, more serious crash. It's possible we could have both. Apparently the bankers and Summers/Geithner's hope is that neither or both don't happen for at least three and a half years...

See more stories tagged with: bush, clinton, debt, banks, government, money, depression, reagan, great depression, crash, treasury, summers, geithner, bankers, exchange, great stability

Thom Hartmann (thom at thomhartmann.com) is a Project Censored Award-winning New York Times best-selling author, and host of a nationally syndicated daily progressive talk program The Thom Hartmann Show. www.thomhartmann.com His most recent books are "The Last Hours of Ancient Sunlight," "Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights," "We The People: A Call To Take Back America," "What Would Jefferson Do?," "Screwed: The Undeclared War Against the Middle Class and What We Can Do About It," and "Cracking The Code: The Art and Science of Political Persuasion." His newest book is Threshold: The Crisis of Western Culture.

Federal Reserve Taking the Short View

Buying up to $300 billion in long-term Treasuries and other moves should help prime the economy -- but not without risks.

By Jerome Idaszak, Associate Editor, The Kiplinger Letter

March 18, 2009

http://www.kiplinger.com/businessresource/forecast/archive/federal_reserve_taking_short_view_090318.html


The Federal Reserve is not known for aiming its policy at the short run. Its role for many decades has been to take the long view. But this recession is threatening enough to spark an abrupt reversal in the Fed’s behavior. Its latest action is directed front and center at rescuing the economy as soon as possible, even if the actions create serious long-term challenges.

On March 18, the Federal Open Market Committee, the Fed’s policymaking arm, took the extraordinary measure of approving the Fed’s purchase of up to $300 billion in long-term Treasuries over the next six months. The Fed also will pump up the housing market through purchases of up to $750 billion in mortgage backed debt from Fannie Mae and Freddie Mac.

Such rare actions are being undertaken now that the Fed's benchmark short-term interest rate is near zero and the economy is still in horrible shape. In announcing its actions after policymakers met for two days on March 17-18, the FOMC noted that "the economy continues to contract.“

Buying long-term Treasuries is a controversial step. Critics say that down the road, when the economy is growing, the Fed will be forced to unload the bonds it buys now. The Fed could confront choices that would benefit neither taxpayers nor investors when it comes to selling the bonds because it would have to sell them at much lower prices and higher yields than originally issued.

That’s called inflation, and it’s very difficult to tame. Ask any Fed chairman. Still, the move has its backers, who say that in the short run it will keep interest rates low for mortgages and investment grade corporate bonds. "The potential benefits seem to outweigh their costs," especially because "the financial system remains impaired," says Richard Berner, chief North American economist with Morgan Stanley.

Even so, Fed Chairman Ben Bernanke is walking a tightrope. He wants to keep expectations from building that the economy is headed into a deflation spiral. To do that, he has acknowledged that the Fed is printing money. But that candor risks raising expectations that the Fed will let inflation run up quickly after the recession ends, devaluing the notes and bonds held by Treasury investors.

The Fed also opened the door to expanding its previously announced program of up to $1 trillion to rekindle borrowing among small businesses as well as consumers. The Fed is considering broadening the program to include other financial assets, which is raising speculation that the central bank will take over the role of working down the toxic debt on banks’ balance sheets that Treasury has been struggling to get a handle on for several months.

For weekly updates on topics to improve your business decisionmaking, click here.

Golden Rule

by Joseph Russo, Elliott Wave Technology | February 27, 2009

http://www.financialsense.com/fsu/editorials/russo/2009/0227.html

The Five Ms for Picking Gold Stocks

By Frank Holmes

23 Feb 2009 at 10:47 AM GMT-05:00

http://www.resourceinvestor.com/pebble.asp?relid=49130

An excerpt from “The Goldwatcher: Demystifying Gold Investing,” co-authored by Frank Holmes, CEO and chief investment officer at U.S. Global Investors. The book, published by John Wiley & Sons, is available from amazon.com and in bookstores.
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Investors can improve their odds by learning how to assess the fundamentals of the gold exploration companies. A good tool for this job is what I call “The Five M’s.”

By using the Five M’s, an individual investor can build a simple but powerful model to initially sort through the many hundreds of upstart gold companies to find better opportunities.

MARKET CAP

If a junior gold company has 10 million shares outstanding at $1 per share, the company is valued at $10 million. The question any investor should ask is, “Is this company really worth $10 million?”

If the market pays $25 per ounce of gold in the ground, the company should be valued at $25 million. If the company’s market cap is only $10 million, it may look undervalued. If the company’s market cap is $50 million, it may appear to be overvalued.

For larger gold companies, an investor can measure a company’s market cap against its production level, reserve assets, geographic location and other metrics to establish relative valuation.

MANAGEMENT

Often the heads of junior companies are geologists or engineers who have no relationships in the brokerage business. This lack of relationships impedes their ability to generate market support.

Some of the most successful company builders in the gold-mining industry are what I call the “financial engineers” – people who have the relationships and understand the capital markets and who know how to hire the best geological and engineering teams. We tend to have more confidence investing in them.

MONEY

A gold exploration company has to deliver reserves per share to have a chance at another round of financing. It has to convince the capital markets that it is an attractive investment on a per-share basis.

The gold-equities market is efficient at judging reserves per share, so if the exploration company doesn’t come up with the results necessary to get an evaluation, investors quickly lose confidence.

There is an old rule when it comes to exploration companies: don’t pay more than two times cash per share if there are no proven assets in the ground.

MINERALS

Gold companies have the highest industry valuations based on price to earnings, price to cash flow, price to enterprise value and price to reserves per share.

Companies operating mines that produce gold and a significant amount of another metal (typically copper) tend to have lower valuations than pure gold companies do. But at the top of a gold price cycle, copper/gold deposits end up rising to the same multiples as pure gold companies.

So when it comes to picking stocks in anticipation of an upward price move for gold, the investor’s margin for error is reduced by selecting companies with both gold and copper production.



MINE LIFECYCLE

In the exploration and development phase, a price of a gold stock often follows a course that ends up looking like a double-humped camel (see graphic above).

First, there’s euphoria over exploration results that are better than expected. The stock price rises as investors race to buy shares. Then reality sets in – this gold discovery is still years away from being an actual producing mine. At this point, there’s a huge correction in the stock price.

Assuming the company continues down the path to development, its share price drifts sideways until around six months before the first ounce of gold is expected to be produced.

At this point, the stock begins a strong new leg up when a more sophisticated set of shareholders come into the market. Eventually the price drops off and then levels as the speculative money moves on to the next hot opportunity and the company transitions from explorer to producer.

GOLD $1000 NOW!

Capitalism Needs a Sound-Money Foundation

Let's give the Fed some competition. Abolish legal tender laws and see whose money people trust.

By JUDY SHELTON

FEBRUARY 11, 2009, 11:02 P.M. ET

The Wall Street Journal

http://online.wsj.com/article/SB123440593696275773.html

Let's go back to the gold standard.

If the very idea seems at odds with what is currently happening in our country -- with Congress preparing to pass a massive economic stimulus bill that will push the fiscal deficit to triple the size of last year's record budget gap -- it's because a gold standard stands in the way of runaway government spending.

Under a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money -- i.e., currency with no intrinsic worth that government has decreed legal tender -- loses its value when government creates more than can be absorbed by the productive real economy. Too much fiat money results in inflation -- which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.

Inflation is the enemy of capitalism, chiseling away at the foundation of free markets and the laws of supply and demand. It distorts price signals, making retailers look like profiteers and deceiving workers into thinking their wages have gone up. It pushes families into higher income tax brackets without increasing their real consumption opportunities.

In short, inflation undermines capitalism by destroying the rationale for dedicating a portion of today's earnings to savings. Accumulated savings provide the capital that finances projects that generate higher future returns; it's how an economy grows, how a society reaches higher levels of prosperity. But inflation makes suckers out of savers.

If capitalism is to be preserved, it can't be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there's no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.

So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies -- and for good reason. A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards. Analyzing data over many decades for a large sample of countries, they found that "every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard."

Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.

Legal tender laws currently favor government-issued money, putting private contracts in gold or silver at a distinct disadvantage. Contracts denominated in Federal Reserve notes are enforced by the courts, whereas contracts denominated in gold are not. Gold purchases are subject to taxes, both sales and capital gains. And while the Constitution specifies that only commodity standards are lawful -- "No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts" (Art. I, Sec. 10) -- it is fiat money that enjoys legal tender status and its protections.

Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.

Private gold currencies have served as the medium of exchange throughout history -- long before kings and governments took over the franchise. The initial justification for government involvement in money was to certify the weight and fineness of private gold coins. That rulers found it all too tempting to debase the money and defraud its users testifies more to the corruptive aspects of sovereign authority than to the viability of gold-based money.

Which is why government officials should not now have the last word in determining the monetary measure, especially when they have abused the privilege.

The same values that will help America regain its economic footing and get back on the path to productive growth -- honesty, reliability, accountability -- should be reflected in our money. Economists who promote the government-knows-best approach of Keynesian economics fail to comprehend the damaging consequences of spurring economic activity through a money illusion. Fiscal "stimulus" at the expense of monetary stability may accommodate the principles of the childless British economist who famously quipped, "In the long run, we're all dead." But it shortchanges future generations by saddling them with undeserved debt obligations.

There is also the argument that gold-linked money deprives the government of needed "flexibility" and could lead to falling prices. But contrary to fears of harmful deflation, the big problem is not that nominal prices might go down as production declines, but rather that dollar prices artificially pumped up by government deficit spending merely paper over the real economic situation. When the output of goods grows faster than the stock of money, benign deflation can occur -- it happened from 1880 to 1900 while the U.S. was on a gold standard. But the total price-level decline was 10% stretched over 20 years. Meanwhile, the gross domestic product more than doubled.

At a moment when the world is questioning the virtues of democratic capitalism, our nation should provide global leadership by focusing on the need for monetary integrity. One of the most serious threats to global economic recovery -- aside from inadequate savings -- is protectionism. An important benefit of developing a parallel currency linked to gold is that other countries could likewise permit their own citizens to utilize it. To the extent they did so, a common currency area would be created not subject to the insidious protectionism of sliding exchange rates.

The fiasco of the G-20 meeting in Washington last November -- it was supposed to usher in "the next Bretton Woods" -- suggests that any move toward a new international monetary system based on gold will more likely take place through the grass-roots efforts of Americans. It may already be happening at the state level. Last month, Indiana state Sen. Greg Walker introduced a bill -- "The Indiana Honest Money Act" -- which would, if enacted, allow citizens the option of paying in or receiving back gold, silver or the equivalent electronic receipt as an alternative to Federal Reserve notes for all transactions conducted with the state of Indiana.

It may turn out to be a bellwether. Certainly, it's a sign of a growing feeling in the heartland that we need to go back to sound money. We need money that works for the legitimate producers and consumers of the world -- the savers and borrowers, the entrepreneurs. Not money that works for the chiselers.

Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).

Santa Fe Gold Begins Mining and Stockpiling Ore at Summit Silver-Gold Mine

* Wednesday February 11, 2009, 10:36 am EST

ALBUQUERQUE, N.M.--(BUSINESS WIRE)--Santa Fe Gold Corp (OTCBB: SFEG - News), a U.S.-based mining and exploration enterprise focused on gold, silver, copper and industrial minerals, today reported that mining and stockpiling of ore had begun at its Summit mine in southwestern New Mexico. Processing of the stockpiled ore is planned to begin when construction of the Lordsburg processing facility is completed. Barring unforeseen delays, the company anticipates that the processing facility will be ready to accept ore in approximately two months. Construction of the Lordsburg facility began in the first quarter of 2008 and is proceeding within budget and according to schedule.

“Our 12’ x 12’ declined ramp has reached the ore zone as predicted, at a ramp distance of 650 feet and 420 feet below the surface. We are pleased to have achieved this important milestone,” said Dr. W. Pierce Carson, President and CEO. “Assays of the ore zone average 0.13 oz/ton gold and 10.8 oz/ton silver over a mining width of 10 feet. Individual assays of 2-foot samples range up to 0.26 oz/ton gold and 19.5 oz/ton silver. These results are consistent with the reserve grades previously calculated for the Summit deposit.

“The width and grade of the ore zone also were what we expected on the basis of two historic drill holes that intersected the ore zone approximately 80 feet to the southeast of the decline ramp intersection, one 30 feet in elevation above and the other 100 feet below the decline intersection. The two holes showed, respectively, 9.6 feet diluted mining width grading 0.09 oz/ton gold and 12.9 oz/ton silver, and 11.9 feet diluted mining width grading 0.15 oz/ton gold and 24.43 oz/ton silver.”

The company is proceeding to mine and stockpile ore employing an overhand cut and fill mining method using jumbo drills and rubber tired haulage equipment. Initially two development headings will be driven in ore in northwest and southeast directions. The mining rate is planned to build to 400 tons per day, to meet the capacity of the Lordsburg milling facility. Mining operations are being carried out on a double shift basis by the company’s own mining crews. Currently the company employs 12 people at the Summit mining operation and 16 people at the Lordsburg mill site.

Carson said, “We are excited by the progress at Summit and remain focused on achieving production in the near term. In light of worldwide economic troubles and rising gold and silver prices, we believe the company is well positioned to deliver long-term value to shareholders.”

About Santa Fe Gold Corp:

Santa Fe Gold Corp (OTCBB: SFEG - News) is a U.S.-based mining and exploration enterprise focused on acquiring and developing gold, silver, copper and industrial mineral properties. The company owns the Summit silver-gold property and a mill site and processing equipment in southwestern New Mexico; mineral lease rights to the Ortiz gold property in north-central New Mexico, believed to contain 2 million ounces of gold; the Black Canyon mica mine and processing facility near Phoenix, Arizona; and a large resource of micaceous iron oxide (MIO) in western Arizona. Santa Fe Gold intends to build a portfolio of high-quality, diversified mineral assets with an emphasis on precious metals. To learn more about the company, visit www.santafegoldcorp.com.

Forward-Looking Statements:

The information contained herein regarding risks and uncertainties, which may differ materially from those set forth in these statements, in addition to the economic, competitive, governmental, technological and other factors, constitutes a "forward-looking statement" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 and is subject to the safe harbors created thereby. While the company believes that the assumptions underlying such forward-looking information are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking information will prove to be accurate. Accordingly, there may be differences between the actual results and the predicted results, and actual results may be materially higher or lower than those indicated in the forward-looking information contained herein.

Contact:

Santa Fe Gold Corp, Albuquerque
Pierce Carson, 505-255-4852

Why 'Stimulus' Will Mean Inflation

OPINION FEBRUARY 6, 2009

Wall Street Journal

http://online.wsj.com/article/SB123388703203755361.html?mod=djempersonal

In a global downturn the Fed will have to print money to meet our obligations.

By GEORGE MELLOAN

As Congress blithely ushers its trillion dollar "stimulus" package toward law and the U.S. Treasury prepares to begin writing checks on this vast new appropriation, it might be wise to ask a simple question: Who's going to finance it?


By Chad Crowe

That might seem like a no-brainer, which perhaps explains why no one has bothered to ask. Treasury securities are selling at high prices and finding buyers even though yields are low, hovering below 3% for 10-year notes. Congress is able to assure itself that it will finance the stimulus with cheap credit. But how long will credit be cheap? Will it still be when the Treasury is scrounging around in the international credit markets six months or a year from now? That seems highly unlikely.

Let's have a look at the credit market. Treasurys have been strong because the stock market collapse and the mortgage-backed securities fiasco sent the whole world running for safety. The best looking port in the storm, as usual, was U.S. Treasury paper. That is what gave the dollar and Treasury securities the lift they now enjoy.

But that surge was a one-time event and doesn't necessarily mean that a big new batch of Treasury securities will find an equally strong market. Most likely it won't as the global economy spirals downward.

For one thing, a very important cycle has been interrupted by the crash. For years, the U.S. has run large trade deficits with China and Japan and those two countries have invested their surpluses mostly in U.S. Treasury securities. Their holdings are enormous: As of Nov. 30 last year, China held $682 billion in Treasurys, a sharp rise from $459 billion a year earlier. Japan had reduced its holdings, to $577 billion from $590 billion a year earlier, but remains a huge creditor. The two account for almost 65% of total Treasury securities held by foreign owners, 19% of the total U.S. national debt, and over 30% of Treasurys held by the public.

In the lush years of the U.S. credit boom, it was rationalized that this circular arrangement was good for all concerned. Exports fueled China's rapid economic growth and created jobs for its huge work force, American workers could raise their living standards by buying cheap Chinese goods. China's dollar surplus gave the U.S. Treasury a captive pool of investment to finance congressional deficits. It was argued, persuasively, that China and Japan had no choice but to buy U.S. bonds if they wanted to keep their exports to the U.S. flowing. They also would hurt their own interests if they tried to unload Treasurys because that would send the value of their remaining holdings down.

But what if they stopped buying bonds not out of choice but because they were out of money? The virtuous circle so much praised would be broken. Something like that seems to be happening now. As the recession deepens, U.S. consumers are spending less, even on cheap Chinese goods and certainly on Japanese cars and electronic products. Japan, already a smaller market for U.S. debt last November, is now suffering what some have described as "free fall" in industrial production. Its two champions, Toyota and Sony, are faltering badly. China's growth also is slowing, and it is plagued by rising unemployment.

American officials seem not to have noticed this abrupt and dangerous change in global patterns of trade and finance. The new Treasury secretary, Timothy Geithner, at his Senate confirmation hearing harped on that old Treasury mantra about China "manipulating" its currency to gain trade advantage. Vice President Joe Biden followed up with a further lecture to the Chinese but said the U.S. will not move "unilaterally" to keep out Chinese exports. One would hope not "unilaterally" or any other way if the U.S. hopes to keep flogging its Treasurys to the Chinese.

The Congressional Budget Office is predicting the federal deficit will reach $1.2 trillion this fiscal year. That's more than double the $455 billion deficit posted for fiscal 2008, and some private estimates put the likely outcome even higher. That will drive up interest costs in the federal budget even if Treasury yields stay low. But if a drop in world market demand for Treasurys sends borrowing costs upward, there could be a ballooning of the interest cost line in the budget that will worsen an already frightening outlook. Credit for the rest of the economy will become more dear as well, worsening the recession. Treasury's Wednesday announcement that it will sell a record $67 billion in notes and bonds next week and $493 billion in this quarter weakened Treasury prices, revealing market sensitivity to heavy financing.

So what is the outlook? The stimulus package is rolling through Congress like an express train packed with goodies, so an enormous deficit seems to be a given. Entitlements will go up instead of being brought under better control, auguring big future deficits. Where will the Treasury find all those trillions in a depressed world economy?

There is only one answer. The Obama administration and Congress will call on Ben Bernanke at the Fed to demand that he create more dollars -- lots and lots of them. The Fed already is talking of buying longer-term Treasurys to support the market, so it will be more of the same -- much more.

And what will be the result? Well, the product of this sort of thing is called inflation. The Fed's outpouring of dollar liquidity after the September crash replaced the liquidity lost by the financial sector and has so far caused no significant uptick in consumer prices. But the worry lies in what will happen next.

Even when the economy and the securities markets are sluggish, the Fed's financing of big federal deficits can be inflationary. We learned that in the late 1970s, when the Fed's deficit financing sent the CPI up to an annual rate of almost 15%. That confounded the Keynesian theorists who believed then, as now, that federal spending "stimulus" would restore economic health.

Inflation is the product of the demand for money as well as of the supply. And if the Fed finances federal deficits in a moribund economy, it can create more money than the economy can use. The result is "stagflation," a term coined to describe the 1970s experience. As the global economy slows and Congress relies more on the Fed to finance a huge deficit, there is a very real danger of a return of stagflation. I wonder why no one in Congress or the Obama administration has thought of that as a potential consequence of their stimulus package.

Mr. Melloan is a former deputy editor of the Journal's editorial page.

Fed Officials Expect Long Economic Rut

By JEANNINE AVERSA, AP

posted: 1 HOUR 28 MINUTES

http://money.aol.com/news/articles/_a/bbdp/fed-officials-expect-long-economic-rut/295829

WASHINGTON (Jan. 6) - Even as Federal Reserve officials slashed their key interest rate to a record low and pledged to use other unconventional tools to fight the worst financial crisis since the 1930s, they still feared the economy would be stuck in a painful rut for some time.

Documents released Tuesday provided insights into the Fed's historic decision to ratchet down its rate from 1 percent to near zero at its Dec. 15-16 meeting. In the first action of its kind in the Fed's 95-year history, Fed Chairman Ben Bernanke and his colleagues created a target range for its rate, putting it at zero to 0.25 percent.

Despite the aggressive action, "the economic outlook would remain weak for a time and the downside risks to economic activity would be substantial," according to the Fed document.
In fact, Fed officials expected the economy would "contract sharply" in the final three months of 2008 and in "early 2009," the document said. Some participants suggested "the distinct possibility of a prolonged contraction, although that was not judged to be the most likely outcome."

Against that backdrop, Fed officials last month signaled rates would stay at record low levels for a while in an effort to cushion the blows from a recession that started in December 2007.
Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
2009-01-06 14:09:49

Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes

By KELLY EVANS

JANUARY 6, 2009

THE WALL STREET JOURNAL

http://online.wsj.com/article/SB123120525879656021.html

BOISE, Idaho -- Rick and Noreen Capp recently reduced their credit-card debt, opened a savings account and stopped taking their two children to restaurants. Jessica and Alan Muir have started buying children's clothes at steep markdowns, splitting bulk-food purchases with other families and gathering their firewood instead of buying it for $200 a cord.

As layoffs and store closures grip Boise, these two local families hope their newfound frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end. Americans, fresh off a decadeslong buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.

Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift."

U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years.

That has resulted in a rise in the personal saving rate, which the government calculates as the difference between earnings and expenditures. In recent years, as Americans spent more than they earned, the personal saving rate dipped below zero. Economists now expect the rate to rebound to 3% to 5%, or even higher, in 2009, among the sharpest reversals since World War II. Goldman Sachs last week predicted the 2009 saving rate could be as high as 6% to 10%.

As savings increase, economists say, spending is likely to contract further. They expect gross domestic product to decline at an annualized rate of at least 5% in the fourth quarter, the biggest drop in a quarter-century.

"The idea that the American family will quickly spend us out of this recession is a fantasy. It won't happen," said Elizabeth Warren, a professor of law at Harvard University who last month was named chair of the Congressional oversight panel tasked with overseeing the distribution of the government's Troubled Asset Relief Program funds.

In Boise, families like the Capps and Muirs illustrate the paradox. This metropolitan area at the foot of the Rocky Mountains is home to a half-million people and is a base for electronics manufacturers such as computer-chip maker Micron Technology Inc. The area weathered downturns in the early 1990s and 2001, with unemployment rates remaining well below the national average. But now people here are socking away money they once would have spent, contributing in part to failing stores, shuttered restaurants and rising unemployment.


Rick Capp with daughter Ellen and son Noah at home in Meridian, Idaho. Like many in the Boise area, the Capp family trimmed spending throughout the year as the economy turned; Mr. Capp lost his job in October. Todd Meier for The Wall Street Journal


In 2003, the Capps moved to Boise from Swisswater, Pa., after Mr. Capp received an offer to work for Electroglas Inc., a company that makes equipment used in producing semiconductors. Pay for his field-service engineer job started at $65,000, and Boise's cost of living was lower than Pennsylvania's. Rick and Noreen and their two children -- Noah, now 13 years old, and Ellen, now 16 -- were excited to ski in the Rockies instead of the Poconos.

Move to Boise

The Capps sold their Pennsylvania home for $164,000 and bought a slightly larger, 2,200-square-foot home on a cul-de-sac in the Boise suburb of Meridian. They financed the $175,000 home with a 30-year mortgage, at a fixed rate of 5.8%.

Their children settled in well: Ellen sings in the school choir at Meridian High School, while Noah went to a local charter school and signed up for the chess club. In 2006, Mrs. Capp, now 45, finished her bachelor's degree in psychology from Boise State University, and began working part-time for a mental-health clinic, earning about $10,000 a year. Mr. Capp, 44, also took classes at BSU.

Four years ago, the Capps took out a $25,000 line of credit on their home and used it to buy a large sectional couch for their family room and a used Toyota 4Runner, to go along with the family's 1995 Toyota Corolla. Over the years, they also built up about $11,000 in credit-card debt and $40,000 in student loans.

But given the rising value of their home and of Mr. Capp's stock options, their debt didn't seem alarmingly high, they said. As the resale value of their home reached nearly $300,000 in 2006, the family took trips to Disneyland, paid $900 for ski passes and signed Ellen up for fiddle lessons.

That all changed quickly. The housing market in Boise started to turn downward at the end of 2006, followed by the stock market and the economy. Around the end of 2007, Mr. Capp's employer began laying off some of its field technicians as customers put off servicing their equipment. "It's just been one thing after another," says Mrs. Capp.

The Capps started cutting back. In late spring, they began to trim their spending and paid down about half of their $11,000 credit-card debt. This summer, they used more than half of their government stimulus check, about $1,000, to open a savings account with an attractive interest rate of 5%.

"We never go downtown anymore," says Mrs. Capp. "We're trying to consume less gas, less electricity, less food. It's across the board."

Even the family's cable-TV subscription didn't escape the scalpel. "It's been killing me because I don't get the Cartoon Network anymore," says Noah, a shaggy-haired teen. "I'm missing so many new shows."

Community Impact

The impact of such decisions is visible around Boise. At Home Federal Bancorp, a $725 million bank with 15 area branches, the number of new savings accounts was up by 26% in December from the previous year, said Steve Eyre, the bank's head of consumer banking. He said the bank is also seeing people save in their checking or money-market accounts. "It's pretty interesting to see those balances actually increase at a time when there's higher unemployment," he said.

Meanwhile, many downtown restaurants have closed this year, including a number of locally owned eateries. Satchell's -- a family restaurant that was the Capps' favorite -- is gone, as are Zutto Japanese Restaurant, the 8th Street Wine Company, Mortimer's Idaho Cuisine, Gino's Grill, the MilkyWay and a French place called Andrae's. Retail store closings have become so pervasive that the sign outside one surviving store, Dick's Stereo, now proclaims "WE ARE STILL HERE."

National retailers are pulling out as well. The Boise Towne Square, the region's primary shopping mall, is losing one of its anchor tenants, a Mervyn's department store. A furniture store across the street has also gone out of business. A nearby plaza has lost its two main tenants -- Linens 'n' Things and Circuit City -- as both liquidate nationwide.

Unemployment in the Boise area is still below the national average of 6.7%. But the rate has risen swiftly, to 6% in November 2008 from just 2.7% a year earlier. Unemployment is expected to climb to at least 8% by 2010, according to Moody's Economy.com, about the same rate forecast for the nation as a whole.

By October, Mr. Capp, too, was out of work. His employer, Electroglas, trimmed its North American work force of field technicians from more than a dozen when Mr. Capp started to just four after he and several colleagues lost their positions, he said. Electroglas, based in San Jose, Calif., declined to comment.

With a severance package of about $10,000, the Capps say they paid off their remaining $6,000 in credit-card debt and have been living off the dwindling remainder.

Keeping the Old Car

Frugality has become a family responsibility. Mrs. Capp, a friendly and effervescent woman, nixed replacing her Toyota Corolla, even though it has 253,000 miles on it, a cracked windshield and Hawaiian-print covers over its splitting seats. The Capps have given up on skiing this year. Disposable paper towels have been replaced by washable rags.

Ellen's college options are also limited. The family hadn't started saving for college before the downturn and can't put away enough money now. "We're really pushing her toward scholarships or anything that can help pay for it," says Mrs. Capp. They've considered having their tall, lanky daughter try modeling, but portfolio shots cost a couple hundred dollars.

Jessica Muir, too, would like to be socking money away for her children's college educations. But the 31-year-old mother of three says she also can't afford it now.

Jessica and Alan were high-school sweethearts in Caldwell, a small community near Boise. They married young. Mrs. Muir worked as a dental assistant before the couple's first child, Gavin, was born five years ago. In 2006, Mrs. Muir gave birth to twins.

The same year, they bought a modest two-story home in Nampa, part of the Boise metropolitan area, with enough room in back for a vegetable garden. Unable to afford a 20% down payment, they took out two mortgages to buy the $144,000 home. Mrs. Muir cashed in her 401(k), using the roughly $3,000 to pay for insulation and a fence. The Muirs figured they'd get their money back when they sold the house for a higher price a few years later.

IRA Hit Hard

It hasn't worked out that way, with real-estate prices falling along with the rest of their investments. Alan Muir's government job as an Agriculture Department grape researcher is more secure than most, but his combined 401(k) and individual retirement account is down by about half, to $13,000.

To pare back, Mrs. Muir started "the Moneysavers Club," an email group of about 30 people. The members alert each other about deals such as $8 winter coats at Old Navy, and they split bulk purchases of sugar and other staples. Mrs. Muir stores food in her garage, including vegetables she's grown and canned herself. When she saw a great deal on eggs recently she bought 10 dozen, which she cracked into ice-cube trays, froze and transferred to bags for cold storage. "Not many people know eggs freeze," she said.

She also sells hand-crocheted hats and scarves on Craigslist and at local bazaars, bringing in $85 on a recent weekend. Her husband, meanwhile, charges $20 an hour for guitar lessons on Wednesday nights, and takes trips into the Rockies with friends to cut firewood for the family's wood-burning stove. The couple also recently split the $600 cost of a yearling calf with Mrs. Muir's parents, who are raising it on their land in Caldwell. They plan to butcher it and eat the meat.

The cutbacks by the Muirs and others their age mark a particularly profound shift. In the American buying spree of recent years, the most profligate spenders were those under 35. As recently as 2006, for every $100 these Americans earned, they spent about $117. Those aged 35 to 55 had negative saving rates nearly as large. Only the large number of Americans 55 and older, who have always had high double-digit saving rates, kept the overall saving rate above zero, according to data from Moody's Economy.com and the Federal Reserve.

Several factors are now pushing saving rates upward, including tighter restrictions on credit and home borrowing. Growth in consumer credit slowed to 1.2% at an annual rate in the third quarter, the Fed said, far lower than the 3.9% pace in the prior quarter.

The Muirs and Capps, like many Americans, also reined in holiday spending this year. Mrs. Muir started her shopping in July to snatch up bargains.

Mr. Capp didn't want to spend any money at all on family gifts this year. His wife persuaded him that they could spare a few hundred dollars.

The Capps ended up spending about $370 in all, down from about $350 a person in previous years. Rather than spending Christmas day opening one gift an hour -- a Capp tradition -- they invited neighbors over to play the Nintendo Wii video game that was a Christmas gift for the whole family.

This year, Mrs. Capp and her husband are resolved not to touch the $2,600 they have in savings, and to augment as soon as possible. "You look around, you see the closing stores, and you know someone needs to spend," Mr. Capp said. "Just not us."

Write to Kelly Evans at kelly.evans@wsj.com

U.S. Debt Expected To Soar This Year
$2 Trillion Increase May Test Federal Ability to Borrow

By Lori Montgomery

Washington Post Staff Writer

Saturday, January 3, 2009; Page A01

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/02/AR2009010202322.html?wpisrc=newsletter

With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world's appetite for financing U.S. government spending.

For now, investors are frantically stuffing money into the relative safety of the U.S. Treasury, which has come to serve as the world's mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.

But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them, even as it launches perhaps the most aggressive expansion of U.S. debt in modern history.

With the government planning to roll over its short-term loans into more stable, long-term securities, experts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come. Some analysts also worry that foreign investors, the largest U.S. creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.

While the current market for Treasurys is booming, it's unclear whether demand for debt can be sustained, said Lou Crandall, chief economist at Wrightson ICAP, which analyzes Treasury financing trends.

"There's a time bomb in there somewhere," Crandall said, "but we don't know exactly where on the calendar it's planted."

The government's hunger for cash began growing exponentially as the nation slipped into recession in the wake of a housing foreclosure crisis a year ago. Washington has since approved $168 billion in spending to stimulate economic activity, $700 billion to prevent the collapse of the U.S. financial system, and multibillion-dollar bailouts for a variety of financial institutions, including insurance giant American International Group and mortgage financiers Fannie Mae and Freddie Mac.

Despite those actions, the economic outlook has continued to darken. Now, Obama and congressional Democrats are debating as much as $850 billion in new federal spending and tax cuts to create or preserve jobs and slow the grim, upward march of unemployment, which stood in November at 6.7 percent.

Congress is not planning to raise taxes or cut spending to cover the cost of those programs, because economists say doing so would further slow economic activity. That means the government has to borrow the money.

Some of the borrowing was done during the fiscal year that ended in September, when the Treasury added nearly $720 billion to the national debt. But the big borrowing binge will come during the current fiscal year, when the cost of the bailouts plus another stimulus package combined with slowing tax revenues will force the government to increase the debt by as much as $2 trillion to finance its obligations, according to a Treasury survey of bond dealers and other market analysts.

As of yesterday, the debt stood at nearly $10.7 trillion, of which about $4.3 trillion is owed to other government institutions, such as the Social Security trust fund. Debt held by private investors totals nearly $6.4 trillion, or a little over 40 percent of gross domestic product.

According to the most recent figures, foreign investors held about $3 trillion in U.S. debt at the end of October. China, which in October replaced Japan as the United States' largest creditor, has increased its holdings by 42 percent over the past year; Britain and the Caribbean banking countries more than doubled their holdings.

Economists from across the political spectrum have endorsed the idea of going deeper into debt to combat what many call the most dangerous economic conditions since the Great Depression. The United States is in relatively good financial shape compared with other industrial nations, such as Japan, where the public debt equaled 182 percent of GDP in 2007, or Germany, where the debt was 65 percent of GDP, according to a forthcoming report by Scott Lilly, a senior fellow at the Center for American Progress.

Even a $2 trillion increase would push the U.S. debt to about 53 percent of the overall economy, "only a few percentage points above where it was in the early 1990s," Lilly writes, noting that plummeting interest rates show that "much of the world seems not only willing but anxious to invest in U.S. Treasurys, which are seen as the safest security that an investor can own in a risky world economy."

Still, some analysts are concerned that the deepening global recession will force some of the largest U.S. creditors to divert cash to domestic needs, such as investing in their own banks and economies. Even if demand for U.S. debt keeps pace with supply, investors are likely to demand higher interest rates, these analysts said, driving up debt-service payments, which last year stood at $250 billion.

"When you accumulate this amount of debt that we're moving into, it's not a given that our foreign friends are going to continue on the path they've been on," said G. William Hoagland, a longtime Republican budget analyst who now serves as vice president for public policy at the health insurer Cigna. "There's going to come a time when we can't even pay the interest on the money we've borrowed. That's default."

Others say those fears are overblown. The market for U.S. Treasurys is by far the largest and most liquid bond market in the world, and big institutional investors have few other places to safely invest large sums of reserve cash.

Despite their growing domestic needs, "China and the oil countries are going to continue running large surpluses," said C. Fred Bergsten, director of the Peterson Institute for International Economics. "They certainly will be using money elsewhere, but I don't think that means they won't give it to us."

As for the specter of default, Steven Hess, lead U.S. analyst for Moody's Investors Service, said even a $2 trillion increase in borrowing would not greatly diminish the U.S. financial condition. "It's not alarmingly high by our AAA standards," he said. "So we don't think there's pressure on the rating yet."

But that could change, Hess said. Nearly a year ago, Moody's raised an alarm about the skyrocketing costs of Social Security and Medicare as the baby-boom generation retires, saying the resulting budget deficits could endanger the U.S. bond rating. Even as the nation sinks deeper into debt to finance its own economic recovery, several analysts said it will be critical for Obama to begin to address the looming costs of the entitlement programs and signal that he has no intention of letting the debt spiral out of control.

Failure to do so, Bergsten said, would "create dangers . . . in market psychology and continued confidence in the dollar."

Bob Moriarty, 321 Gold: Chaos on the Horizon? Invest in Real Assets

26 December 2008 @ 05:42 pm EST Print

http://www.ibtimes.com/articles/20081226/bob-moriarty-321-gold-chaos-on-the-horizon-invest-in-real-assets.htm

Buckle your seat belts. Bob Moriarty, 321gold.com founder, pulls no punches in his latest exclusive interview with The Gold Report . He sees a short-term rally in the stock market but paints a very sobering longer-term picture with "guaranteed hyperinflation." He believes precious metals and other "things" are the only safety nets.

The Gold Report: Bob, what do you think of the Feds latest movecutting to a flexible zero to a quarter rate? Where do you see us going?

Bob Moriarty: We are to the point where we are about 14 feet from going over the edge of Niagara Falls. We haven't gone over the edge yet; we haven't gone to a total collapse. We don't have riots in the streets; we don't have a revolution. That's coming; that's about two to three months off.

Here's what we've got: the Fed has committed to $8.5 trillion of taxpayers money to bail out the worst run companies and banks. It hasn't worked. Now, they're at a 0% to .25% on the Fed Funds rate for funds for banks, which means if you go down and you pay $100,000 for a T-bill for 90 days, your return is zero, which is to imply that there is zero risk to investing with the government. Anybody who actually believes that is going to be in for a real shock in the first quarter of next year.

GM has lost has lost $80 billion dollars in the last four years. They're burning through $2 billion a month when everything is going well. Their sales are down 37% in November; the mathematical probability of GM surviving is zero. But we're going to pour more taxpayer money down that hole. AIG's also turned into the proverbial black hole. I would think that at $300 billion or $400 billion or $500 billion or $600 billion, somebody's going to wake up and say, "You know, were losing a lot of money here."

TGR: It's getting to be real money at that point.

BM: What we have done is guaranteed hyperinflation in the United States. We have guaranteed the destruction of the United States. We will have riots starting in the first quarter of next year; we will default by the summer of 2009.

TGR: Default on how many of the bonds? All? Or just some?

BM: 100%. The US government is going to default. Treasuries, Fannie Mae, Freddie Mac, the whole lot. It's the end of empire. The United States government will not exist in its current form a year from now.

TGR: When you say "its current form," what form will it take?

BM: I don't know. It's a really good question. Im sure it will be a total state of chaos. I mean we've never been here. I think the analogy of the Soviet Union is probably the closest; we could break up into a series of little fiefdoms. But here's what's important to understand, the United States government has failed at every single level. It is too big; it is too unwieldy; it doesn't work.

TGR: So, what does it mean? We've got impending chaos in the United States and the financial markets will continue to go downward. Are we talking globally or U.S.?

BM: U.S. primarily, but globally because the U.S. is so important. The U.S. is the linchpin right now, but the rest of the world is going to have to learn to get by without the United States. What George Bush and Dick Cheney have done is essentially destroyed the United States; they have bankrupted the country. We are going to end up having our troops march out of Iraq to the nearest border because we can no longer afford to pay for them. We're going to go into Zimbabwe-type inflation where they're printing off $200 million dollar bills to buy a loaf of bread.

TGR: Other than moving to a nice island in the Caribbean, what does an investor or a resident of the U.S. do?

BM: You have to prepare; first of all, it's important to prepare mentally and that means doing some education. Second, you don't want to be in debt. You don't want to be buying real estate. You don't want to be taking any chances financially whatsoever. You want to be investing in real resources: good solid producing gold companies or silver companies or energy companies. You want to really hunker down.

TGR: If the financial markets continue to get clobbered, I would assume the gold equity stocks would continue to get clobbered?

BM: I don't think they will. Here's what is going to happen. There is actually a lot of money sitting on the sidelines. I've heard there's billions of dollars waiting to be invested in resource stocks. Resource stocks are selling for 5 cents or 10 cents on the dollar; that's not going to last for very long.

What I want to get across to everybody is and its very important, is that when you go through chaos, the worse it gets, the more inclined you are to solve it. There are some easy solutions to this financial situation in the United States.

First of all, we downsize; we stop spending all this money at the federal level; we stop spending money at the state level. We end up with a much smaller government that isn't trying to make every decision for every person all the time. Big government doesn't work any more. We need to change that. We need to go back to self-sufficiency; we need to go back to citizens participating in government.

We need to go back to Economics 101 where you invest to make money, save money. The gold companies that have the business model of print shares and drill, print shares and drill, those guys aren't going to succeed. But the guys who have producing assets and real stories, they're going to succeed beyond their wildest imagination.

We need to kill the Federal Reserve System and go back to honest money. Thats 90% of our problem right now. We are all playing at investing with Monopoly money backed by nothing. It's about as smart as you sitting down at a high stakes poker game, you have a wad of $20 gold pieces and everyone else is playing with their Mobil Oil credit card. Those fools will bet on anything, it's not real money.

TGR: Can they perform in a falling financial market?

BM: Of course.

TGR: Assuming gold is rising.

TGR: Do you see think a lot of these juniors have bottomed? A lot of the producers have doubled off of bottoms.

BM: Yes, they have actually, they bottomed in October. If you go back to what I was saying back then, I said we were at a bottom. They had definitely bottomed. The HUI has doubled since then and no one noticed.

The general stock market is going to be good until maybe January or February. But it's going to get far worse after that. We have some real problems that will be surfacing between now and then. But there's an enormous amount of money sitting on the sidelines waiting to go somewhere safe. When people realize that resource stocks are the only safe haven, they're going to go up more than anybody can imagine.

So, there are two things I would do with new money. First of all, gold and silver serve as an insurance policy against chaos. If you cannot put your hands on some physical gold, physical silver, it's like living without an insurance policy. When you need food, if you don't have gold or silver, you're going to be a bit shocked. Second of all as far as an investment program, beyond the insurance policy, you want to be in real assets. That's gold or silver or energy producers or near-term producers, or companies with a good business model.

TGR: Any names you could share with us?

BM: Look at the recent Haywood Securities report, "Junior Mining: Report on Cash Sustainability." Now, 96 companies currently traded at discount to their last reported net working capital. This is the greatest opportunity to invest that I have ever read or heard about; it's absolutely unimaginable. It's not going to last very much longer, but stocks could move up. The really bad gold stocks are going to move up 500%.

TGR: You mentioned that you looked at gold and silver as an insurance policy and recommend investing in real assets. Do you have a recommendation of a percentage of the portfolio that people should be holding in these? How much cash should they keep for future opportunities?

BM: Ah, very little. Cash is going to be the most dangerous thing you can invest in. Cash, T-bills, T-bonds are going away; they're going to be worth zero. You're going to walk into a bank one day and your ATM machine is not going to work, and your cash is going to be no good. I would think two to three month's living expenses, if you can do that in cash or silver, would be a very high comfort level. That percentage will change depending on what people have. Everybody, I really want to emphasize that everybody needs to have some physical gold or silver.

TGR: Bob, you don't see that were going to get this hyperinflation kicking in or it's going to be so short, it won't matter?

BM: Hyperinflation is starting to kick in now. I think you're going to see it turn shortly. The government has been flooding the system with money and in short order its going to try to find a safe haven. Here's what to look for. If you take a look at a chart right now, the 10-year, 30-year bonds have gone curve linear. They're going straight up to the moon. Any time a market does that, it's about to crash. When the bond market crashes, it's going to be 15 on the Richter scale. It's going to be enormous. It's far more dangerous than the stock market crashing. When the bond market crashes, the hyperinflation starts.

TGR: And what's your timeline on that? You were saying before, January or February?

BM: The bond market is literally going to start crashing any day now. I mean it's very, very soon. I think that the stock market is good through January or February. I think the resource market will start up in an explosive way literally in a few weeks or so. It's actually going up now. If you go back the last month or six weeks, it's gone up a lot more than anybody would believe. Everybody thinks, "Well, my gold stocks are all down, Im going to lose money hand over fist." But they're actually 50% better off now than they were in October.

TGR: Bob, earlier you mentioned investing in real assets. You said gold and silver and energy producers. That's a pretty broad-based statement; could you give us an idea of what you mean when you say energy producers?

BM: Coal producers, oil producers, natural gas producers, energy is absurdly cheap now; it was absurdly expensive at $147. You can buy energy producers really cheaply, and I have written up a number of them on 321energy.com. I like anything real, anything that's based on Economics 101. Were going to take something of value and were going to increase it's value, and were going to sell it to the public for a profit. That's just a really good business model.

Here's what I want to emphasize, and what's important to get across, I don't want to sound like I'm totally negative because Im not totally negative. The worse it gets in the United States, the more impetus there will be to say, "Hey, what caused this in the first place? And what can we do to prevent it in the future?" And the answer to that is quite simple. We got off the gold standard in 1933 and in 1971, and that let government grow totally out of control. We need to rein government in; we need to go back to government of the people, by the people, and for the people. The way to do that is to go back to a gold and silver based currency. Once we do that we can start investing with some kind of common sense.

TGR: So the good news is that through all this chaos there will be some change in the way the government operates?

BM: Government will be much smaller; I think that any rational American can look at big government and say, "Hey, wait a minute. This doesn't work." And the funny thing is it's not because I'm a liberal or I'm a conservative. I'm not sure there is any such thing as a perfect liberal or a perfect conservative, even though we act like they're two totally different things. Big government doesn't work; we need to go back to Economics 101 and only spend the money that you earn.

TGR: OK, other than getting mentally ready, getting into gold and silver and real assets, do you have any other thoughts on where to put our cash if we have any cash right now? What about other commodities, such as food commodities?

BM: Absolutely. I believe in peak oil, and peak oil is an analog of peak food. So, it requires X number of calories of energy to produce X number of calories of food, so when you run out of cheap energy, you run out of cheap food. Americans are going to be very angry. We have a very dangerous system in the United States where we essentially have a day and a half's worth of food in our food stores. It's a just in time now system. And it's very vulnerable to civil disorders.

TGR: Is there an investment play within the food component?

BM: I think anything in food. Strangely enough, what I like is fertilizers. Fertilizers are a real cheap way of betting on food. Some of the big food companies, like R Gill, are just as corrupt as everybody in Washington, everybody in Wall Street, so I can't recommend them. I don't know that big food stocks are good, but maybe equipment manufacturers would be a good bet.

TGR: Bob, do you think there's any gold in Fort Knox?

BM: That's a really good question. I hope there is. But I don't know. The really interesting thing is nobody in the government has ever even pretended that they might do something with it. If it was me, I'd go count the bars; I'd figure out who owns them and I'd come up with some kind of currency tied to gold, you know1 gram notes, and 5 gram notes and 10 gram notes. I think mathematically there probably isn't, but I don't know. Nobody knows.

TGR: And there's no accountability?

BM: Ah, are you kidding? George Bush is president of the United States.

TGR: Yes, but soon he won't be. You know, I'll write a letter to Obama and ask him. Well, Bob, as usual, it's always great to do these interviews. We appreciate it.

WHAT HAPPENED TO THE AMERICAN DREAM

by James Quinn

December 24, 2008

http://www.financialsense.com/editorials/quinn/2008/1224.html

“The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position."
Historian and writer James Truslow Adams in his 1931 book Epic of America

Mr. Adams penned these words in the midst of the Great Depression, the worst economic crisis in our history. It is timely to reflect on these words, as it appears that the American Dream is slipping further out of reach for most Americans. If the dream of a better life for our future generations is lost, it will truly mark a turning point for our great Republic. The reason the American Dream is slipping away is due to the actions of politicians running our government and bureaucrats running the Federal Reserve. Those with ability who have earned a better life through their hard work, intelligence and integrity should be attaining a higher position in the social order. Instead, our government is rewarding those Americans who have taken unwarranted risks, made brainless decisions, and willingly chose the course of excessive debt to climb the social ladder.

As the politicians scurry to “save” capitalism through the use of communist measures, more Americans are becoming disheartened. The definition of communism according to Webster’s is:

A system in which goods are owned in common and are available to all as needed.

George Bush, Henry Paulson and Ben Bernanke have decided to seize money from the vast majority of Americans who lived within their means, utilized debt sparingly, and worked hard to get ahead, and give it to the most appalling failures in our society. They have shoveled billions to banks that operated their businesses like gambling parlors. They have shoveled hundreds of millions to people who bought houses with no money down, interest only mortgages and fraudulent loan applications. They are now rewarding automakers who made the wrong vehicles, pay 30,000 workers per year to not work, and have only been able to “sell” cars by giving them away with 0% financing to any schmuck who could sign on the dotted line. These acts fit the definition of communism. We are now more communist than China.

Now, commercial developers are trying to pony up to the taxpayer trough. These egotists used immense amounts of short term debt to overpay for malls, office towers, hotels and apartment complexes. The rental income could never cover the interest expense on the debt. The only way they could possibly make money was if the next moron developer was foolish enough to overpay for the same assets. The market was flying high as the MBA geniuses on Wall Street were able to work their magic by slicing this debt into tranches, getting it rated as investment grade paper by criminally negligent Moody’s and S&P, and reselling it to gullible investors throughout the world. The gig is up. According to the Wall Street Journal, $530 billion of debt will come due in the next three years, with $160 billion due in 2009. Of course, in the America of today, your bad business decisions of yesterday that enriched executives like Steve Roth of Vornado Realty and who received accolades from the business press are cast aside. Just use the “Too Big to Fail” excuse and all is well. The American taxpayer will come to the rescue. The American taxpayer gets screwed no matter what we do. As Americans do the right thing and cut their spending, retailers, malls, and hotels will lose money and developers are already asking for a bailout. Our communist government will take the money from the innocent taxpayers and give it to the rich negligent developers. Homebuilders are lobbying for a $22,000 credit for new home purchases. It certainly makes sense to encourage new homes to be built when there are 2.5 million vacant houses and an 11 month supply of existing homes for sale. I await the future bailout demands of Rolex retailers, Porsche dealers, and caviar makers.

My parents believed that they could provide a better, richer and fuller life for their three children. They worked hard, sacrificed for their kids, deferred their gratification, saved, put us through Catholic school and put us through college. Hard working blue collar middle class parents from South Philly were able to advance their children upward in the American social structure through their determined efforts. I have serious doubts about whether my three boys will live a better life than myself. I’m sure that my grandchildren will not live a better life than myself. My parents wisely comprehended that shiny new cars and high wages were not what determined who achieved the American Dream. My Dad toiled for 42 years as a truck driver for ARCO, bought used cars his whole life, and never earned more than $32,000 in a year. My parents bought a three bedroom row home in Delaware County in 1955 and methodically paid it off over 30 years. They never borrowed against the house. We didn’t eat out three times per week. We didn’t go on exotic vacations. Two weeks at the Jersey shore was just fine. My parents had high school degrees, but were able to provide the opportunity for myself, brother and sister to get college degrees and take the next step up in the American social order.

The American Dream was not founded upon wealth and materialism. It revolves around achieving a better life based on the merits of your intelligence, hard work and contribution to the community of all Americans. There is a moral aspect to the American Dream that has been lost over time. James Truslow Adams addressed it in an essay he wrote in 1929:

"There are obviously two educations. One should teach us how to make a living and the other how to live. Surely these should never be confused in the mind of any man who has the slightest inkling of what culture is. For most of us it is essential that we should make a living...In the complications of modern life and with our increased accumulation of knowledge, it doubtless helps greatly to compress some years of experience into far fewer years by studying for a particular trace or profession in an institution; but that fact should not blind us to another—namely, that in so doing we are learning a trade or a profession, but are not getting a liberal education as human beings."

The crux of the problem is that Americans, with a strong sense of morality and caring about what is right and wrong, are no longer steering the American ship. Thomas Jefferson declared that Americans had the right to “Life, liberty and the pursuit of happiness” in the Declaration of Independence. The government’s obligation is to protect the life and liberty of its people. Representative Ron Paul bluntly speaks the truth about our government:

"The obligations of our representatives in Washington are to protect our liberty, not coddle the world, precipitating no-win wars, while bringing bankruptcy and economic turmoil to our people."

Supreme Court Associate Justice Stephen Johnson Field further clarified pursuit of happiness in an 1884 opinion:

"Among these inalienable rights, as proclaimed in that great document, is the right of men to pursue their happiness, by which is meant the right to pursue any lawful business or vocation, in any manner not inconsistent with the equal rights of others, which may increase their prosperity or develop their faculties, so as to give to them their highest enjoyment."

Our current system of incentives is inconsistent with the equal rights of others. I was taught the difference between right and wrong by my parents. The pursuit of happiness by Americans is where the American Dream has gone off the track. The pursuit of excessive wealth, power, influence, luxury automobiles, McMansions, and electronic devices has substituted for happiness in the world we live in today. Whatever means necessary to achieve this bastardized American Dream (Nightmare?) has been the mantra of the “Me Generation”. Every disgraced CEO of the last year was part of the Baby Boom generation. Parents, schools, corporations, media and government have taught Americans how to make a living, but have done a horrific job in teaching Americans how to live. The government and Federal Reserve have encouraged the warped American Dream through the use of insane tax, fiscal, and interest rate policies.

Federal Reserve Fraud

Thomas Jefferson, a wise man by most accounts, thought central banks were not a very good idea.

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.”

We did not heed Mr. Jefferson’s prudent advice. The result for the American people has been persistent inflation that has destroyed the purchasing power of the US dollar. It takes $1.00 to buy what cost 5 cents in 1914, a 95% loss of purchasing power since the creation of the Federal Reserve. Most of this loss in purchasing power has occurred since 1971. “Tricky Dick” Nixon took the country off the gold standard in 1971 and uncorked the bottle and let the inflation genie out. The unchecked issuance of debt by our government, facilitated by Federal Reserve policies since 1971, has brought our great country to the brink of financial disaster. The organization that caused the problem, did not see this crisis looming, and has utterly failed in stemming the damage, is now taking actions completely outside of its mandate, while telling the public they have the answers. They have duped the American public for 85 years through the insidious use of inflation, and now they are trying to dupe the world into keeping their Ponzi scheme going for a while longer.



The Federal Reserve was created in 1913 with the dual purpose of maximizing employment and preserving stables prices. New York Senator Elihu Root, in voting against the creation of a Federal Reserve, saw a vision of our bleak future:

"Little by little, business is enlarged with easy money. With the exhaustless reservoir of the Government of the United States furnishing easy money, the sales increase, the businesses enlarge, more new enterprises are started, the spirit of optimism pervades the community. Bankers are not free from it. They are human. The members of the Federal Reserve board will not be free of it. They are human....Everyone is making money. Everyone is growing rich. It goes up and up, the margin between costs and sales continually growing smaller as a result of the operation of inevitable laws, until finally someone whose judgment was bad, someone whose capacity for business was small, breaks; and as he falls he hits the next brick in the row, and then another, and then another, and down comes the whole structure.”

The concept of forming this central bank was to stop bank panics from happening. So far, they are 0 for 2. They were in charge in 1929 during the greatest bank panic in history. Their actions in the 1930’s exacerbated and prolonged the Depression. Alan Greenspan and the Fed are the chief cause of the current disaster. The absurdly low interest rates of the early 2000’s and the complete lack of oversight of bank lending practices caused the greatest debt bubble in history. During September and October, the country experienced an electronic bank run. Americans rightfully lost trust in all financial institutions and began withdrawing their money. The Federal Reserve has done the only thing it knows how to do. Print money. It has doubled its balance sheet to $2.3 trillion. The overly complicated chart below shows that the Federal Reserve is a privately controlled institution that is essentially under the direction of the biggest banks in the country. Whose best interests do you think it is looking out for? Zero interest rates penalize senior citizen savers in order to save reckless borrowers.



The only competent Federal Reserve Chairman in the last 40 years, Paul Volcker, had this to say about the actions of Ben Bernanke in the last year.

“The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices. What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in time of crisis: lend freely at high rates against good collateral; test it to the point of no return.”

Since these words were spoken by Mr. Volcker, the Federal Reserve has gone way beyond their lawful and implied powers. Look at its balance sheet as of last week. It has more than doubled its balance sheet in the last few months. As you can see they have been busy making loans to financial institutions throughout the world. These loans are being made with your money. The Federal Reserve is supposed to be protecting the people of the United States. Transparency is essential for financial systems and democracies to function. Instead, Ben Bernanke is withholding which banks have borrowed from the Federal Reserve and what collateral was put up for the loans. They have lent out over $2 trillion of your money with no accountability to the American taxpayer. Bloomberg News has sued the Federal Reserve to obtain this information under the Freedom of Information Act. They are covering up their actions because they know that the collateral they have accepted is worthless. These are criminal actions with the intent to deceive the American public. The government and Federal Reserve work for “We the People”, not vice versa.

Balance sheet of the Federal Reserve.
(Based on end-of-week values, in billions of dollars). Data source: Federal Reserve Release H.4.1.

              Dec 5, 2007  Dec 17, 2008

  
 Securities          779.7      493.8  
   
 Repos                46.5       80.0  
   
 Loans                 2.1     1039.9  
   
 Other                92.0      733.0  
   
 Factors supplying  
 reserve funds       920.4     2346.7  
  
   
 Currency in  
 circulation         819.3      877.7  
   
 Reverse repos        36.7       71.9  
   
 Treasury accounts     5.1      484.6  
   
 Service and  
 reserve balances     16.0      801.8  
   
 Other                43.4      110.7  
  
   
 Factors absorbing  
 reserve funds       920.4     2346.7

Off balance sheet

Securities lent  
 to dealers             4.5     186.5 

Thank You, Sir, May I Have Another?

Last week the Federal Reserve decreased its discount rate to .25%, the lowest in history. They also announced they would use any means necessary to re-inflate our bubble economy. Deflation is not a bad thing for most Americans. Cheaper gas is nice, cheaper food is nice, cheaper cars are nice, and flat screen TVs are nice. For people and countries without debt, deflation is just fine. That does not describe U.S. consumers or the U.S. government. Deflation when you are a country that has $10.6 trillion in debt will annihilate the debtor. Therefore, Mr. Bernanke has chosen to try and inflate us out of this mess. As an expert on the Great Depression, Ben believes that fiscal and monetary expansion will save the country. There is one significant difference. When the crisis hit the U.S. in1929, total U.S. debt as a percentage of GDP was about 200% and we were a net exporter nation. We enter this crisis with total U.S. debt exceeding 350% of GDP and we have a trade deficit of $700 billion.



The Federal Reserve and Obama administration are about to add trillions of debt when we already have record amounts of debt. The brilliant James Grant sums up the dilemma:

“If the Fed is going to create boatloads of depreciating, non-yielding dollar bills, who will absorb them? Who will finance the Obama administration's looming titanic fiscal deficits? Who will finance America's annual surplus of consumption over production (after 25 more or less continuous years, almost a national trait)? Inflation is a kind of governmentally sanctioned white-collar crime. Every crime needs a dupe. Now that the Fed has announced its plan to deceive, where will it find its victims? Today's policy makers allow, there are risks to "creating" a trillion or so of new currency every few months, but that is tomorrow's worry. On today's agenda is a deflationary abyss.”

Foreigners have been buyers of 70% of our newly issued debt in the last few years. Does Ben Bernanke really believe that foreigners will be willing to accept 2% interest for 10 years on bonds while we are printing trillions of new dollars? The all out assault on deflation will work. It will work so well that it will lead to a crash in the US dollar as foreigners begin to shun the debased currency. A hyperinflationary bust ala Argentina and the Weimer Republic is in our future. There is one thing for sure. Whatever happens will take the Fed by surprise. They didn’t see the credit crisis coming and will not see the inflation tsunami before it washes over us. Economist Irwin Kellner knows this will not end well. “While virtually no one is raising prices in today's depressed economy, all this liquidity will soon become an accident looking for a place to happen.”

The last 85 years of allowing our currency to be manipulated by a private bank has been a series of crisis, failure, and mismanagement. Ron Paul clearly articulates why the Federal Reserve has helped destroy the American Dream and needs to be abolished:

"Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government."

Government in Action

We’ve created a behemoth government agency called Homeland Security at a cost of $50.5 billion per year, employing 203,000 people as our response to the 9/11 tragedy. How much would it have cost to have installed a $39.99 Wal-Mart deadbolt lock on every cockpit cabin door of every plane in the world before 9/11? There are approximately 20,000 commercial airplanes in the world. The cost would have been $800,000 and 9/11 would have been averted. Based on the government’s outstanding record of fiscal management ($1,200 toilet seats), we could easily assume that it would cost $1,000 per cockpit door, rather than $39.99. In that case, the bill would have been $20 million. For a $20 million investment we would have averted 3,000 deaths at the WTC, 4,500 deaths of American soldiers, 30,000 wounded American soldiers, countless thousands of innocent Iraqi deaths, $850 billion of taxpayer funds spent on the War on Terror, and the $50 billion per year we spend on a vast government bureaucracy that is not making our lives safer or better in any way. Our government had the power, the funds, and the ability to install a simple deadbolt lock. They did not. Government fails because it is corrupt, incompetent, mismanaged, and self serving.

We are about to experience the largest government outlay in the history of our glorious Republic. President elect Obama and his team of economic masterminds are preparing to borrow and spend the country back to prosperity. Mr. Obama wants to create 3 million new jobs in 2009. Considering that there are only 1.5 million people unemployed in the construction field, it is uncertain how he will employ all of the cashiers, burger flippers, and Wall Street paper shufflers in the infrastructure build out of our country. The Obama plan to spend $1 trillion to stimulate our economy has the 17,000 lobbyists in Washington DC swarming like voracious locusts over a field of crops. It will be the biggest pig roast in the history of our country. These lobbyists will utilize the $3 billion per year they spend (bribe) to “influence” policymakers like there is no tomorrow. "The ever-increasing cost of the yet-to-be-seen stimulus is like chum in the water for lobbyists circling to snap up some taxpayer cash for their clients," said Steve Ellis of Taxpayers for Common Sense, a watchdog group.

Examples of the kind of stimulus we can look forward to according to the LA Times are as follows:

Rather than rebuilding highways, a nonprofit group called Reconnecting America wants the government to focus on a "21st century national transportation system" of mass transit and walking and bike paths.

The Air Transport Assn. is seeking $1 billion to upgrade airports and $3 billion to modernize avionics.

Magellan Midstream Partners, owner of the longest refined-oil pipeline in the nation, wants to develop the first "dedicated ethanol pipeline" from Iowa to New York City. It's seeking a loan guarantee of $3.5 billion through the Department of Energy.

The National Assn. of Railroad Passengers is pushing for $10 billion for intercity passenger rail projects.

The travel industry wants a "multimillion-dollar marketing and public outreach effort to educate visitors about changing security policies and promote the U.S. as a destination," according to the Travel Industry Assn. The group is seeking a start-up federal loan of $10 million

The business community is seeking a series of tax breaks that it says will foster growth and return money to the federal Treasury. It favors, among other things, a tax rebate to middle-class taxpayers, a sizable reduction in the corporate capital gains tax and a sharp reduction in the tax rate on earnings that firms in the United States get from foreign subsidiaries.

The housing industry wants all buyers to receive a tax credit for a home purchase and to have the government subsidize mortgage rates through a "buy-down" program lowering borrowing costs.

The National Retail Federation proposes that sales tax holidays be held during March, July and October 2009, each lasting 10 days. The cost of this program would be $20 billion.

The National Automobile Dealers Assn. is seeking a tax break encouraging more people to buy cars and a "cash for clunkers" program that helps people trade in older vehicles for new, more fuel-efficient ones.

"The catfish industry is on the verge of collapse," said Marty Fuller of the Catfish Farmers of America, citing high feed prices and an increase of imports. About 6,000 jobs are at stake, mostly in economically depressed areas in states such as Arkansas, Mississippi, Alabama and Louisiana. Officials are talking about seeking $50 million in aid as a stimulus.

Now that I know the catfish industry is safe I can sleep better at night knowing the $1 trillion won’t be wasted on anything frivolous. You can be sure that the more outrageous projects are not even being discussed openly. They will slide through on page 895 of the coming bill. Every congressman, except Ron Paul, will be bought off with goodies for their district.

Everybody Knows That the Captain Lied

Poet and singer/songwriter Leonard Cohen captures the current mood of the country in his song Everybody Knows. The financial and political game is rigged against the good guys. The poor will stay poor and the rich will get richer. The captain is your political leaders, fat cat CEOs, and investment professionals. The American ship of state is leaking.

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows

Everybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died

I’m now convinced that the only qualification to be a CEO of a U.S. company is to have balls the size of grapefruits. How else could you explain John Thain’s demand that he receive a $10 million bonus from Merrill Lynch after leading that prestigious firm to losses of $24.4 billion in the previous four quarters? Steve Roth, the CEO of Vornado Realty, raked in $71.8 million last year in compensation. His company has ridden the wave of cheap debt for the last eight years. He brilliantly doubled the debt of his company from $6.2 billion in 2005 to $12.9 billion in 2007. Their leverage ratio exploded from 54% to 68%. He did deals that didn’t make sense from a cash flow standpoint. His business plan was based on the greater fool theory. Now, he is the greater fool. His stock price has plummeted 46%. No bank is willing to lend a commercial developer a dime. The commercial development Ponzi scheme will collapse next year. But, not too worry. Steve and his fellow incompetent gamblers want the U.S. taxpayer to bail them out. In the America of today, the taxpayer will again be screwed and the rich ruling elite will retain their place in the social order. The government has chosen to make you the greater fool.

Thomas Friedman in a recent NYT article correctly assesses the corrupt financial system we are stuck with:

"I have no sympathy for Madoff. But the fact is his alleged Ponzi scheme was only slightly more outrageous than the 'legal' scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds, which Moody's or Standard & Poor's rate AAA, and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn't a pyramid scheme, what is?"

The dice are loaded and the fight is fixed. Those who played by the rules, lived within their means, went to work every day, didn’t flip condos, or use home equity to lease a Mercedes, will pay for those who lied, cheated, and cut corners. This is how the American Dream has turned into the American Nightmare.

American Dream Redux – Patriots Needed

Below is an email I received this week from a lady named Cindy regarding my last article about Bernie Madoff:

"Mr. Quinn..I just completed reading your article and could not agree with you more...Possibly a word of advice will ease my pain...I am a single mother with 3 children, 23, 19, 16....I am 52, self made, and worked my entire life to achieve a comfortable level of success for my family...For years I ran side by side accounts with Paine Webber, Merrill Lynch and Bernie Madoff. Amazingly, I met an associate of Madoff's at a Church in Fort Lauderdale and entrusted him with $10,000 16 yrs ago....Nothing posh..Simply good.....In the last 5 yrs Madoff out performed all, so naturally I moved my accounts and fed my Madoff feeder...Now, $1.7M later I am destitute...I will begin fore-closure on 3 of my investment properties and loose my primary home for I can no longer afford it....Why should a little guy like me have to suffer the consequences of an SEC over site...OHHH...I’m sorry, we will do better next time???

Why is it OK for Madoff to sit in his $10M apartment out on bail, watching TV and playing on the Internet?...Why is it OK for him to afford the most powerful former SEC attorneys now in private practice that will delay his trial for 3-5 yrs...How can our government allow this to happen...How is Ok to bail out Wall St with $700B while I stress out and cry like a baby over my loss....

How is it OK for Obama to be spending Christmas in Hawaii with is family staying at a $30M mansion, while my sickly mother flies from NC to Fort Lauderdale to hold and comfort her daughter....How is it OK that we have no Xmas tree or gifts this year?...How is it OK that my and my children's trust in mankind has been shattered...."

I suppose we will survive, but how we don’t know....

The evil perpetrated by Bernie Madoff and his kind on Wall Street have disillusioned the American public and have driven another stake into the heart of the American Dream. The greed, false promises and fraudulent schemes by investment professionals and bank CEOs has shattered the dreams of millions. The immoral vision of immense wages, tremendous power, and elite social status has driven many to cheat the innocent.

As my father crosses the threshold into the final stages of his ultimately losing ten year battle with Alzheimer’s disease, I can’t help but contrast the compassion, care, empathy and love that my Dad has experienced from nurses, doctors, aides, and ambulance drivers, with the coldness, selfishness, materialism, egotism and narcissism exhibited by Wall Street scam artists, power hungry politicians, and pompous government bureaucrats. Dedicated caring nurses are paid a few thousand dollars per year. Criminally incompetent bank CEOs are paid hundreds of millions per year. Who benefits society more? I’m convinced that the majority of Americans are decent human beings. They want a richer and fuller life, with a legitimate opportunity for advancement. The last 25 years of materialistic psychosis was a temporary deviation on the road towards the American Dream. If the authorities would let capitalism run its course and allow the painful deleveraging that is needed, we could get back on course. If it takes a depression to accomplish this required deleveraging, so be it. We’ve survived depressions before. It is time to resist the Federal Reserve criminality and government abuse of power. Ron Paul’s call for new patriots must be our rallying cry to reclaim the American Dream:

"The original American patriots were those individuals brave enough to resist with force the oppressive power of King George. I accept the definition of patriotism as that effort to resist oppressive state power. The true patriot is motivated by a sense of responsibility and out of self-interest for himself, his family, and the future of his country to resist government abuse of power. He rejects the notion that patriotism means obedience to the state."

Many people are looking for an easy answer to the tyranny that is being imposed upon us by the oligopoly of government, corporations, and media. There is no easy answer. The original patriots struggled for 14 years to free themselves from British tyranny. Failure meant the hangman’s noose. Our politicians, corporate CEOs, and media pundits will provide omforting “solutions” that have been crafted by PR maggots. Their crafted talking points are lies. They have no idea what they are doing. The only question is whether rational change will come when the existing system collapses under the weight of its lies, or we take back the country through grassroots efforts and spreading the truth through the internet.


© 2008 James Quinn


Bio: James Quinn is a senior director of strategic planning for a major university. These articles reflect the personal views of James Quinn. They do not necessarily represent the views of his employer and are not sponsored or endorsed by his employer. He can be reached at quinnadvisors@comcast.net.

FEDERAL RESERVE SETS STAGE FOR WEIMAR-STYLE HYPERINFLATION

by F. William Engdahl

December 15, 2008

http://www.financialsense.com/editorials/engdahl/2008/1215.html

The Federal Reserve has bluntly refused a request by a major US financial news service to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and to reveal the assets the central bank is accepting as collateral. Their lawyers resorted to the bizarre argument that they did so to protect ‘trade secrets.’ Is the secret that the US financial system is de facto bankrupt? The latest Fed move is further indication of the degree of panic and lack of clear strategy within the highest ranks of the US financial institutions. Unprecedented Federal Reserve expansion of the Monetary Base in recent weeks sets the stage for a future Weimar-style hyperinflation perhaps before 2010.

On November 7 Bloomberg filed suit under the US Freedom of Information Act (FOIA) requesting details about the terms of eleven new Federal Reserve lending programs created during the deepening financial crisis.

The Fed responded on December 8 claiming it’s allowed to withhold internal memos as well as information about ‘trade secrets’ and ‘commercial information.’ The central bank did confirm that a records search found 231 pages of documents pertaining to the requests.

The Bernanke Fed in recent weeks has stepped in to take a role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program (TARP). The difference between a Fed bailout of troubled financial institutions and a Treasury bailout is that central bank loans do not have the oversight safeguards that Congress imposed upon the TARP. Perhaps those are the ‘trade secrets the hapless Fed Chairman,Ben Bernanke, is so jealously guarding from the public.

Coming hyperinflation?

The total of such emergency Fed lending exceeded $2 trillion on Nov. 6. It had risen by an astonishing 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren’t rated AAA. They did so knowing that on the following day a dramatic shock to the financial system would occur because they, in concert with the Bush Administration, had decided to let it occur.

On September 15 Bernanke, New York Federal Reserve President, Tim Geithner, the new Obama Treasury Secretary-designate, along with the Bush Administration, agreed to let the fourth largest investment bank, Lehman Brothers, go bankrupt, defaulting on untold billions worth of derivatives and other obligations held by investors around the world. That event, as is now widely accepted, triggered a global systemic financial panic as it was no longer clear to anyone what standards the US Government was using to decide which institutions were ‘too big to fail’ and which not. Since then the US Treasury Secretary has reversed his policies on bank bailouts repeatedly leading many to believe Henry Paulson and the Washington Administration along with the Fed have lost control.

In response to the deepening crisis, the Bernanke Fed has decided to expand what is technically called the Monetary Base, defined as total bank reserves plus cash in circulation, the basis for potential further high-powered bank lending into the economy. Since the Lehman Bros. default, this money expansion rose dramatically by end October at a year-year rate of growth of 38%, has been without precedent in the 95 year history of the Federal Reserve since its creation in 1913. The previous high growth rate, according to US Federal Reserve data, was 28% in September 1939, as the US was building up industry for the evolving war in Europe.

By the first week of December, that expansion of the monetary base had jumped to a staggering 76% rate in just 3 months. It has gone from $836 billion in December 2007 when the crisis appeared contained, to $1,479 billion in December 2008, an explosion of 76% year-on-year. Moreover, until September 2008, the month of the Lehman Brothers collapse, the Federal Reserve had held the expansion of the Monetary Base virtually flat. The 76% expansion has almost entirely taken place within the past three months, which implies an annualized expansion rate of more than 300%.

Despite this, banks do not lend further, meaning the US economy is in a depression free-fall of a scale not seen since the 1930’s. Banks do not lend in large part because under Basle BIS lending rules, they must set aside 8% of their capital against the value of any new commercial loans. Yet the banks have no idea how much of the mortgage and other troubled securities they own are likely to default in the coming months, forcing them to raise huge new sums of capital to remain solvent. It’s far ‘safer’ as they reason to pass on their toxic waste assets to the Fed in return for earning interest on the acquired Treasury paper they now hold. Bank lending is risky in a depression.

Hence the banks exchange $2 trillion of presumed toxic waste securities consisting of Asset-Backed Securities in sub-prime mortgages, stocks and other high-risk credits in exchange for Federal Reserve cash and US Treasury bonds or other Government securities rated (still) AAA, i.e. risk-free. The result is that the Federal Reserve is holding some $2 trillion in largely junk paper from the financial system. Borrowers include Lehman Brothers, Citigroup and JPMorgan Chase, the US’s largest bank by assets. Banks oppose any release of information because that might signal ‘weakness’ and spur short-selling or a run by depositors.

Making the situation even more drastic is the banking model used first by US banks beginning in the late 1970’s for raising deposits, namely the acquiring of ‘wholesale deposits’ by borrowing from other banks on the overnight interbank market. The collapse in confidence since the Lehman Bros. default is so extreme that no bank anywhere, dares trust any other bank enough to borrow. That leaves only traditional retail deposits from private and corporate savings or checking accounts.

To replace wholesale deposits with retail deposits is a process that in the best of times will take years, not weeks. Understandably, the Federal Reserve does not want to discuss this. That is clearly also behind their blunt refusal to reveal the nature of their $2 trillion assets acquired from member banks and other financial institutions. Simply put, were the Fed to reveal to the public precisely what ‘collateral’ they held from the banks, the public would know the potential losses that the government may take.

Congress is demanding more transparency from the Federal Reserve and US Treasury on its bailout lending. On December 10 in Congressional hearings by the House Financial Services Committee, Representative David Scott, a Georgia Democrat, said Americans had ‘been bamboozled,’ slang for defrauded.

Hiccups and Hurricanes

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system. The Freedom of Information Act obliges federal agencies to make government documents available to the press and public.

In early December the Congress oversight agency, GAO, issued its first mandated review of the lending of the US Treasury’s $700 billion TARP program (Troubled Asset Relief Program). The review noted that in 30 days since the program began, Henry Paulson’s office had handed out $150 billion of taxpayer money to financial institutions with no effective accountability of how the money is being used. It seems Henry Paulson’s Treasury has indeed thrown a giant ‘tarp’ over the entire taxpayer bailout.

Further adding to the troubles in the world’s former financial Mecca, the US Congress, acting on largely ideological grounds, shocked the financial system when it refused to give even a meager $14 billion emergency loan to the Big Three automakers—General Motors, Chrysler and Ford.

While it is likely that the Treasury will extend emergency credit to the companies until January 20 or until the newly elected Congress can consider a new plan, the prospect of a chain-reaction bankruptcy collapse of the three giant companies is very near. What is being left out of the debate is that those three companies account for a combined 25% of all US corporate bonds outstanding. They are held by private pension funds, mutual funds, banks and others. If the auto parts suppliers of the Big Three are included, an estimated $1 trillion of corporate bonds are now at risk of chain-reaction default. Such a bankruptcy failure could trigger a financial catastrophe which would make what has happened since Lehman Bros. appear as a mere hiccup in a hurricane.

As well, the Federal Reserve’s panic actions since September, by their explosive expansion of the monetary base, has set the stage for a Zimbabwe-style hyperinflation. The new money is not being ‘sterilized’ by offsetting actions by the Fed, a highly unusual move indicating their desperation. Prior to September the Fed’s infusions of money were sterilized, making the potential inflation effect ‘neutral.’

Defining a Very Great Depression

That means once banks begin finally to lend again, perhaps in a year or so, that will flood the US economy with liquidity in the midst of a deflationary depression. At that point or perhaps well before, the dollar will collapse as foreign holders of US Treasury bonds and other assets run. That will not be pleasant as the result would be a sharp appreciation in the Euro and a crippling effect on exports in Germany and elsewhere should the nations of the EU and other non-dollar countries such as Russia, OPEC members and, above all, China not have arranged a new zone of stabilization apart from the dollar.

The world faces the greatest financial and economic challenges in history in coming months. The incoming Obama Administration faces a choice of literally nationalizing the credit system to insure a flow of credit to the real economy over the next 5 to 10 years, or face an economic Armageddon that will make the 1930’s appear a mild recession by comparison.

Leaving aside what appears to have been blatant political manipulation by the present US Administration of key economic data prior to the November election in a vain attempt to downplay the scale of the economic crisis in progress, the figures are unprecedented. For the week ended December 6 initial jobless claims rose to the highest level since November 1982. More than four million workers remained on unemployment, also the most since 1982 and in November US companies cut jobs at the fastest rate in 34 years. Some 1,900,000 US jobs have vanished so far in 2008.

As a matter of relevance, 1982, for those with long memories, was the depth of what was then called the Volcker Recession. Paul Volcker, a Chase Manhattan appendage of the Rockefeller family, had been brought down from New York to apply his interest rate ‘shock therapy’ to the US economy in order as he put it, ‘to squeeze inflation out of the economy.’ He squeezed far more as the economy went into severe recession, and his high interest rate policy detonated what came to be called the Third World Debt Crisis. The same Paul Volcker has just been named by Barack Obama as chairman-designate of the newly formed President’s Economic Recovery Advisory Board, hardly grounds for cheer.

The present economic collapse across the United States is driven by the collapse of the $3 trillion market for high-risk sub-prime and Alt-A home mortgages. Fed Chairman Bernanke is on record stating that the worst should be over by end of December. Nothing could be farther from the truth, as he well knows. The same Bernanke stated in October 2005 that there was ‘no housing bubble to go bust.’ So much for the predictive quality of that Princeton economist. The widely-used S&P Schiller-Case US National Home Price Index showed a 17% year-year drop in the third Quarter, trend rising. By some estimates it will take another five to seven years to see US home prices reach bottom. In 2009 as interest rate resets on some $1 trillion worth of Alt-A US home mortgages begin to kick in, the rate of home abandonments and foreclosures will explode. Little in any of the so-called mortgage amelioration programs offered to date reach the vast majority affected. That process in turn will accelerate as millions of Americans lose their jobs in the coming months.

John Williams of the widely-respected Shadow Government Statistics report, recently published a definition of Depression, a term that was deliberately dropped after World War II from the economic lexicon as an event not repeatable. Since then all downturns have been termed ‘recessions.’ Williams explained to me that some years ago he went to great lengths interviewing the respective US economic authorities at the Commerce Department’s Bureau of Economic Analysis and at the National Bureau of Economic Research (NBER), as well as numerous private sector economists, to come up with a more precise definition of ‘recession,’ ‘depression’ and ‘great depression.’ His is pretty much the only attempt to give a more precise definition to these terms.

What he came up with was first the official NBER definition of recession: Two or more consecutive quarters of contracting real GDP, or measures of payroll employment and industrial production. A depression is a recession in which the peak-to-bottom growth contraction is greater than 10% of the GDP. A Great Depression is one in which the peak-to-bottom contraction, according to Williams, exceeds 25% of GDP.

In the period from August 1929 until he left office President Herbert Hoover oversaw a 43-month long contraction of the US economy of 33%. Barack Obama looks set to break that record, to preside over what historians could likely call the Very Great Depression of 2008-2014, unless he finds a new cast of financial advisers before Inauguration Day, January 20. Required are not recycled New York Fed presidents, Paul Volckers or Larry Summers types. Needed is a radically new strategy to put virtually the entire United States economy into some form of an emergency ‘Chapter 11’ bankruptcy reorganization where banks take write-offs of up to 90% on their toxic assets, that, in order to save the real economy for the American population and the rest of the world. Paper money can be shredded easily. Not human lives. In the process it might be time for Congress to consider retaking the Federal Reserve into the Federal Government as the Constitution originally specified, and make the entire process easier for all. If this sounds extreme, perhaps revisit this article in six months again.

How a Gold Fund Has Held Up
Mr. Eveillard Bought Bullion, Stuck to Veteran Miners

DECEMBER 14, 2008, 6:29 P.M. ET

By ALLEN SYKORA

WALL STREET JOURNAL

http://online.wsj.com/article/SB122929697856605179.html

The First Eagle Gold Fund has roughly a third of its assets in gold bullion, avoided the base metals before their free fall, and tends to invest in shares of more-established producers rather than junior mining companies, said manager Jean-Marie Eveillard.

This approach enabled it to hold up better than many other gold-oriented funds during a recent downturn in share prices of mining stocks and a general weakness in commodities.


Jean-Marie Eveillard

As of Friday, the Philadelphia Gold Silver Index of mining shares was down around 40% in 2008. As a result, many precious-metals funds were down by around 50% or more.

By contrast, First Eagle Gold was down by about 25%, according to fund researcher Morningstar. Morningstar gives the New York-based fund its top five-star rating among funds specializing in precious metals.

"The fact that we were 30% to 35% in bullion helped, to the extent that bullion until a month ago acted much better than gold-mining stocks," Mr. Eveillard said.

While mining shares went into a free fall, spot gold was down by a more modest 7.4% since the end of 2007.

At the end of November, the First Eagle Gold Fund had assets of $765 million, including all share classes, Mr. Eveillard said. Since its creation in August 1993 through the end of October, the gold fund has provided a compounded annual return of 6.5%, while the Financial Times index for gold mines compounded at minus 1.5%, Mr. Eveillard said.

Mr. Eveillard has been portfolio manager for most of the fund's history, retaking the reins after a two-year retirement in the spring of 2007. The fund was established as insurance against cataclysmic events in the financial system, he said. "Gold is the only asset that is completely outside of the credit system and the only asset that has no liability," Mr. Eveillard said.

Thus, the fund didn't dabble in base metals when they ran up more sharply than gold for much of this decade. "Base metals have nothing to do with gold and nothing to do with the insurance that in my mind gold represents," he said. And base metals have fallen further than gold this year, with copper losing around 51% since the end of 2007.

"We are very reluctant to buy stocks of junior gold-mining companies that sit on a deposit that has not been turned into a mine yet," Mr. Eveillard said. "In the extreme, if a deposit cannot be turned into a mine, then the price of gold could go to $3,000 an ounce [but] the stock would be worth zero."

Meanwhile, Mr. Eveillard said, First Eagle is one of the few gold funds to hold a large percentage in bullion, not relying upon exchange-traded funds. As of this past week, 35% of the fund's holdings were in bullion. "If you look at gold as insurance, then gold bullion is preferable to gold-mining shares," he said, since it avoids the risks facing mining companies themselves.

When looking at mining stocks, First Eagle focuses on assets still underground and the cost of mining them, said Rachel Benepe, the fund's analyst.

Mr. Eveillard and Ms. Benepe said they like Royal Gold Inc., a company that relies upon royalties and thereby avoids mining costs. Stocks of royalty companies tend to be "somewhat expensive," Mr. Eveillard said, "but we're willing to live with that."

The fund holds Randgold Resources Ltd., which has mines in French-speaking central Africa. The company is knowledgeable about the region and its politics, and tends to rely upon organic expansion, or the development of mines, rather than acquisitions, Mr. Eveillard said.

Randgold is good at every stage -- from finding to building to operating mines, Ms. Benepe said. By contrast, she said, many mining companies might have only one strength.

Mr. Eveillard said he is "extremely positive" about the longer-term prospects for gold. "What passes for the monetary system world-wide is fraying at the edges," he said.

President-elect Barack Obama has signaled that his administration will use fiscal policy to stimulate the economy at the same time the Federal Reserve is doing the same with monetary policy. But ultimately, all of these plans are likely to prove to be inflationary, Mr. Eveillard said. And investors often buy gold as a hedge against inflation.

Write to Allen Sykora at allen.sykora@dowjones.com.

>

http://www.gata.org/files/JPMorganGoldReport-11-25-2008.pdf

Lies, Damned Lies, and Statistics

Unemployment Worse Than Reported

BY CHRIS PUPLAVA

http://www.financialsense.com/Market/wrapup.htm

“There are three kinds of lies: lies, damned lies, and statistics.”
- Benjamin Disraeli, later popularized by Mark Twain.

As of October, the unemployment rate has risen to 6.5%, higher than the peak in the last recession and the highest rate since 1994. While the 6.5% rate has increased markedly from its low set two years ago, given the current dynamic in the economy, that rate still doesn’t seem to pass the smell test and “feels” much higher. For more than two decades the relationship between the unemployment rate and the duration of unemployment (median weeks unemployed) showed a very close fit, with a 95% correlation. However, starting in 1994 the two series diverged with the correlation falling to 65%.

Figure 1

Source: Bureau of Labor Statistics

Figure 2

Source: Bureau of Labor Statistics

What happened was that the Bureau of Labor Statistics (BLS) in 1994 redefined how they measure unemployment, excluding discouraged workers. As a result of that and other changes, historical unemployment measure relationships began to diverge markedly. For example, the figure below shows the U3 unemployment rate (most widely used and quoted measure), the U6 unemployment rate, as well as two measures of unemployment duration. Since the early 1990s the two duration measures diverged significantly from the U3 unemployment rate and more closely tracked the broader U6 unemployment rate. The relationship between the median weeks unemployed and the U3 unemployment rate diverged significantly since 1994, and the spread between them tracks with the spread between the U6 and U3 unemployment rates as seen below.

Figure 3

Source: Bureau of Labor Statistics

Figure 4

Source: Bureau of Labor Statistics

Because the way the BLS calculates the unemployment rate has changed, the widely used U3 rate can not be used for historical comparisons. Since the median weeks of unemployment rate displayed a close relationship with the old measure of unemployment it likely represents a truer picture of the real state of unemployment than revised U3. Currently, the median weeks of unemployment is 9.4 weeks and would correlate to a 9.4% unemployment rate for the old U3 measure, which is almost 3% higher than the reported revised U3 rate and a level of unemployment not seen since the 1981 recession! While a 9.4% unemployment rate is alarming, there’s something even more disturbing, and that is the rate is likely to head much higher heading into 2009. The Conference Board’s “job’s hard to get” index provides a useful leading indicator for the unemployment rate with a one-year lead time, and it is still rising.

Figure 5

Source: BLS/The Conference Board

Not only is the unemployment rate set to rise significantly heading into next year, we are either already at or close to setting records for the number of workers working part time not by choice as employment conditions erode rapidly. Those who are working part time for economic reasons jumped to 6.70 million last month, close to the 6.86 million record in 1982. Those who are working part time due to slack business conditions reached a new record of 4.73 million. While these numbers are alarming, they are absolute numbers and don’t take into account a growing work force. Taking the absolute numbers of workers working part time as a percent of total employment shows an alarming trend, though still below record levels seen over the past half century.

Figure 6

Source: Bureau of Labor Statistics

Figure 7
[chart]www.financialsense.com/Market/cpuplava/2008/images/1126_clip_image014.jpg>
Source: Bureau of Labor Statistics

Summing up the three categories to measure the total number of part time workers shows that we are nearing the all-time high of 13.3 million people working part time because there are not full employment opportunities available. On a relative basis as a percentage of total employment, we are still significantly below the peak of 15.2% set in 1982.

Figure 8

Source: Bureau of Labor Statistics

Figure 9

Source: Bureau of Labor Statistics

Records are meant to be broken and it is likely that unemployment measures in this recession will break those of the last half century and come second only to the Great Depression. The ISM’s Purchasing Managers Index plummeted in October to 38.9, the lowest reading since the early 1981 recession, and is likely to head much lower in the months ahead based on leading economic indicators. The Economic Cycle Research Institute’s (ECRI) Weekly Leading Indicator Index (WLI) was released today and showed a -29.2% smoothed annualized growth rate, the lowest in the history of the index, even worse than the 1970s and 1980s recessions. The WLI leads the year-over-year percent change in GDP by three quarters, so we can expect significant economic weakness in 2009, and likely further deterioration in unemployment as well.

Figure 10

Source: Economic Cycle Research Institute/BEA

Market Observations

There are a few more topics I’d like to cover but to keep this WrapUp “relatively” short, I’ll simply touch on them below. First, there is a price to pay for all of the Fed’s and the Treasury’s actions, and that appears to be the insurance cost of protecting against a default on U.S. debt. The price of Euro-denominated credit default swaps (CDS) of 5-Yr UST’s continues to climb to new records, a development noted recently in Barron’s.

Uncle Sam's Credit Line Running Out? (11/11/08)
http://online.barrons.com/article/SB122633310980913759.html

Trillions are no hyperbole. The Treasury is set to borrow $550 billion in the current quarter alone and $368 billion in the first quarter of 2009. "Near-term pressures on Treasury finances are much more intense than we had thought," Goldman Sachs economists commented when the government announced its borrowing projections last week.


It may finally be catching up with Uncle Sam. That's what the yield curve may be whispering. But some economists are too deaf, or dumb, to get it.


The yield curve simply is the graph of Treasury yields of increasing maturities, starting from one-month bills to 30-year bonds. The slope of the line typically is ascending -- positive in math terms -- because investors would want more to tie up their money for longer periods, all else being equal. Which it never is.


If they expect yields to rise in the future, they'll want a bigger premium to commit to longer maturities. Otherwise, they'd rather stay short and wait for more generous yields later on. Conversely, if they think rates will fall, investors will want to lock in today's yields for a longer period.


The Treasury yield curve -- from two to 10 years, which is how the bond market tracks it -- has rarely been steeper. The spread is up to 250 basis points (2.5 percentage points, a level matched only in the past quarter century in 2002 and 1992, at the trough of economic cycles.


Based on a simplistic reading of that history and the Cliff Notes version of theory, one economist whose main area of expertise is to get quoted by reporters even less knowledgeable than he, asserts such a steep yield curve typically reflects investors' anticipation of economic recovery. Never mind that the yield curve has steepened as the economy has worsened and prospects for recovery have diminished. Like the Bourbons, the French royal family up to the Revolution, he learns nothing and forgets nothing.


As with so much other things, something else is happening this year.


The steepening of the Treasury yield curve has been accompanied by an increase in the cost of insuring against default by the U.S. Treasury. It may come as a shock, but there are credit-default swaps on the U.S. government and they have become more expensive -- in tandem with an increase in the spread between two- and 10-year notes.

Figure 11

Source: Bloomberg

Figure 12. Euro-denominated 5-Yr CDS as of 11/26/08

Source: Bloomberg

To end on a lighter, more positive note, it looks like we are going to get the long and overdue rally. The VIX index broke its 50 day moving average and it looks like we may see a short to intermediate end to the unwinding of the Yen carry trade. The Euro/Yen exchange rate has gone through a 61.8% Fibonacci retracement, a frequent stopping point for a decline. Both a decline in the VIX and further strengthening in world currencies relative to the Yen will point towards further market advances ahead. Potential targets for the S&P 500 would be the 50 day moving average (~ 970), November high’s (1007.51), or the 50% Fibonacci retracement level (1029.03) from the August highs.

Figure 13

Source: Stockcharts.com

Figure 14

Source: Stockcharts.com

Figure 15

Source: Stockcharts.com

While a rally in the markets is something to give thanks for, I still feel rallies should be used to increase defensive positioning as the credit crisis and economic outlook are still very powerful forces to be reckoned with. Last week’s WrapUp (11.19.2008) focused on the important concept of risk management and highlighted the Bloomberg Financial Conditions Index (FCI) as a barometer for risk. While a current reading of 6.74 is a welcome event from the 10 standard deviation event seen in October, the current reading is more than twice the worst level of the 2000-2002 bear market and investors should continue to remain highly defensive and give thanks for any market strength to sell into.

Figure 16

Source: Bloomberg

HAPPY THANKSGIVING!

Chris Puplava

Copyright © 2008 All rights reserved.

CONTACT INFORMATION
Christopher M. Puplava
PFS Group
PO Box 503147
San Diego, CA 92150-3147
(888) 486-3939 Toll Free
(858) 487-3939 Tel
(858) 487-3969 Fax

http://news.goldseek.com/GoldenJackass/1227683700.php

S&P 500 Crashes Through Bear Market Low! Housing Heads South!

by Mike Larson 11-21-08

http://www.moneyandmarkets.com/sp-500-crashes-through-bear-market-low-housing-heads-south-6-28195

>Very interesting and timely presentation on physical gold.

The world is going through dire times and the acuteness of problems is driving investors to seek protection in the form of physical gold.

sumi

GOLD

National television in Germany reports on the gold shortage

Saudi Arabia Spends $3.5 Billion to Buy Gold in the Past Two Weeks


Gulf News
Gold demand rises in Saudi Arabia


Riyadh: There has been an unprecedented demand for gold in the Saudi market recently, with over 13 billion Saudi riyals (equivalent to US $3,466,667,946) (Dh12.75 billion) being spent on the yellow metal during the last two weeks.

Demand is expected to rise still higher as more investors turn to gold as a safe haven in the midst of the global financial crisis, according to market sources.

Sami Al Mohna, an expert on the gold market, said the trend had resulted in a substantial rise in the gold reserves of Saudi investors....

http://jessescrossroadscafe.blogspot.com/2008/11/saudi-arabia-spends-35-billion-to-buy.html


China Expected to Shift Reserves into Commodities and Gold


"Beijing's reserves could easily go up to 3,000 to 4,000 tonnes..."

http://jessescrossroadscafe.blogspot.com/2008/11/china-to-shift-reserves-into.html

>Good post; there is a lot of truth behind his words.

sumi

From Dow Theory Letter
by Richar Russell
Thursday, November 13, 2008

I've never been a big fan of the "gold is being manipulated" thesis. However, I'm now giving the manipulation thesis second thoughts.

Most of the world's central banks are now in the process of fighting recession and deflation. This requires government spending and the production of enormous quantities of new fiat money. The last thing the central banks want is for the public to realize what they are doing.

Normally, surging gold would be the signal for the public to ask questions -- rising gold is a red flag for the fiat money creators.

It's amazing and beyond coincidence the way gold rallies and then immediately is hammered down below $740. I know that there are huge short positions in gold on the COMEX. I'm no longer a skeptic on the "gold is being manipulated" claim. Somebody is selling gold every time gold rallies toward a breakout above $870, or more properly gold at $840.

I don't think the manipulators (if there are such people) can keep it up.

http://gata.org/node/6876

Gerald Celente on gold & oil

Analysts Predict Hyper-Inflation To Push Gold To $2000, Oil to $300 Within Months

Investors warn liquidation of assets and deflation is temporary calm before the storm

http://www.infowars.net/articles/november2008/131108goldoil.htm

“Watch what they do – not what they say!” Even better idea is "Watch the charts." Everything is being sold. That's deflation. It may be temporary, but for now if it walks like a duck....

Is it Inflation - or is it Deflation?

By Peter Degraaf

Nov 3 2008 3:56PM



http://www.kitco.com/ind/degraaf/nov032008.html

Almost daily I receive E-mails from subscribers who worry about deflation. Here is my simple answer: “Watch what they do – not what they say!”



The above chart (courtesy Federal Reserve Bank of St. Louis), is up-to-date. It reflects a monetary increase of 305 billion dollars into the US money supply in the short space of under 2 months. Nothing like this has ever happened in the USA before! The little bumps on this chart between August 2007 and August 2008 include Bear-Sterns, Northern Rock, Lehman Bros, Fannie and Freddie and AIG, yet none of those monetary shocks compare to what the FED is doing now.

This is inflation with a capital ‘I’!

Quite often when the monetary authorities inflate the system, it takes a while before the newly created funds filter down, and before people catch on. Large numbers of people believe what the officials are saying (communications like: “we’re more worried about deflation than inflation”).

They want you to believe that ‘asset inflation’ (lower prices for stocks and commodities) translates into monetary deflation. The two are quite different.

The current asset deflation is caused primarily by gross mistakes made by people in the banking industry. This ‘assets deflation’ continues while monetary authorities worldwide are adding to the money supply. Meanwhile fear then sets in and the decline in asset values continues till it exhausts itself.

As soon as enough people catch on to what is happening, scarce commodities, (and the stocks involved in bringing those commodities to the marketplace), will rise and rise much higher than most people anticipate.

It behooves those of us who understand what is going on, and to position ourselves to benefit from the rise to come by investing in gold, silver, oil, natgas, copper, coal, uranium and agricultural commodities. Just about anything that the government does not have the ability to produce. (Government’s specialty is cutting down trees into thin slices, adding some ink, superimposing a picture of a former ruler and adding a number, and voila their product is ready for circulation).



Featured is the weekly gold chart, courtesy (http://www.stockcharts.com) The call-out boxes on the chart represent the ‘net short’ gold positions of the commercial traders. The report issued October 31st showed a decrease of 162,000 from the 247,000 at the top, to the current 85,000. This is where corrections end, and the next rise begins.

Price has found support just above the 200 week moving average (rising red line), and the target for this next advance in the gold price will be a challenge at the previous high of 1,030.00 attained in March 2008.

The RSI (top of chart) is turning positive, and the MACD (bottom of chart) is very much oversold at -.32 (the most oversold since the bull market began in 2001. In order to make a profit in any investment, it makes sense to ‘buy low and sell high’. The time to buy low is at the bottom of a correction. The seasonal tendency is for gold to bottom in July – August and again in November. So here we are, just in time for the annual Christmas rally. If we are not at the exact bottom, we are no doubt very close.



Featured is the LIBOR chart, courtesy (www.stockcharts.com)

The watershed drop in assets that we saw in September and October was to a large extent fueled by the rising LIBOR rate. This rate reflects the trust or lack of trust, which banks have in so far as inter-bank lending is concerned. Near 4.6% all lending ceases. The rate is slowly returning to normal, as is the Ted Spread which opened today at 2.65 after having risen to 4.34 on Oct 15th. Investors around the world were spooked by the rising LIBOR and Ted Spread rates and began to sell just about everything, including commodities. With some degree of normalcy now returning to the markets, we can expect those items that have become ‘oversold’ to begin to bounce back, and after a while the commodities that I referred to in the opening section of this article to outperform everything else.

Please remember that the ‘real rate of interest’ (T-Bills less CPI), remains very negative. As long as the rate is negative, gold can and will rise (with hiccups in between).

Happy trading!

Peter Degraaf

Dollar Tsunami: The Wave May Be about to Crest

by: Nick Gogerty November 04, 2008

Seeking Alpha

http://seekingalpha.com/article/103820-dollar-tsunami-the-wave-may-be-about-to-crest



We live in oceanic times. Headwinds have led to uncharted waters which have created economic Tsunamis and 100 year credit storms etc. Metaphor abuse runs rampant.

The Tsunami metaphor may be more apt than many give it credit for in the context of the US dollar.

A Tsunami is a collected energy shock that travels through the ocean as a small and sometimes barely visible wave. Upon reaching the shore, the wave energy is forced into a massive wall of water piling up. Before the wave hits at maximum height the water actually recedes from the shoreline before the oncoming killer waves.

The receding water lures many into venturing into the exposed beach to see what has happened (pity the investor who goes to look at the exposed shell). All to soon the full might of the Tsunami crashes upon them.

The reason I mention this is that the metaphor of the $ credit Tsunami may be a full blown allegory in which case one might suggest that the current rise in the dollar driven by a global flight to perceived quality might not be the full story.

Once the "quality" of a US economy with significant fiscal and consumer deficits is fully appreciated, we might see the fuller picture and act 2 of the Tsunami. If you thought watching oil lose 60% of its value over a few months was interesting, ponder for a moment the same potential for the dollar in the coming 6-12 months.

Consider the following:

*There are going to be many more dollars around due to current fiscal policy which is trying correctly to counteract the credit contraction.

*The faith in the $ as a reserve currency is just that, faith which is currently residing the "least worst option".

*The US economy's Main Street impact hasn't shown its teeth yet.

*Many of the recent moves to $ based assets are short term trades not investments, it doesn't matter where they jump to next, just assume they will jump.
Thoughts anyone, comments?

I am still sticking with my Norwegian Krone recommendation and I am sure the gold bugs will chime in.

You might like this board>>http://investorshub.advfn.com/boards/board.aspx?board_id=12965

The people need to throw out all incumbents. They do not represent what is best for the citizens of this country.

Abolish the Federal Reserve, http://www.restoretherepublic.com/
March to end the biggest tool the illuminati have, THE FED!

It's time for a new Bretton Woods

Bob Moriarty

Oct 20, 2008

http://www.321gold.com/editorials/moriarty/moriarty102008.html

In July of 1944 the 44 nations of the free world sat down at a hotel in Bretton Woods, New Hampshire to design a new post-war financial system. The basis of the agreement was simple. The US dollar was tied to gold at an exchange rate of $35 per ounce and all other currencies were tied to the dollar with relatively fixed rates.

The system worked until the US tried to wage an expensive war without raising taxes to pay for it. (Why does that sound familiar?) The first sign of stress was when the US dropped silver out of our coinage in 1965 and went to slugs. We fought a long and expensive war in South East Asia without raising taxes to pay for it. Holding the world's reserve currency, the US was in the enviable position of writing checks without the intent or the ability to pay for them. The chickens have come home to roost.

Bretton Woods died on August 15th of 1971 when President Nixon went on television to announce Wage and Price controls in reaction to the unthinkable and unacceptable inflation rate of about 4%. As almost an aside, Nixon mentioned that gold would no longer be convertible into US dollars by foreign central banks.

The world now faces an economic crisis larger than any in history. A basic lack of financial discipline has lead to the creation of a derivatives monster ten times the size of the world's economy. It's no less than a giant crap game with the players taking real money off the table when they win and paying in Monopoly money when they crap out.

The US government is trying to sort out the issue of how to set up a stable financial system while using Monopoly money. The simple answer is that you cannot base a stable financial system around Monopoly money.

The root of the problem; the fatal flaw in the construction of the Bretton Woods agreement, goes back to the inception of the Federal Reserve System in late 1913. Prior to the US Central Bank created by the Federal Reserve Act of 1913, essentially there was no inflation in the United States between the adoption of the Constitution in 1787 and 1913.

During times of war, in 1812-1814 and during 1861-1865, the gold standard was suspended with inflation ensuing but there was no inflation until the Federal Reserve was created. Since 1913, the dollar has lost 96% of its value. It doesn't require a brain surgeon to realize the Federal Reserve created all the inflation we now face.

Governments love inflation. It's a quick and relatively painless way of taxing the citizens without their knowledge. The citizens may feel a sense of unease but rarely do they come to the conclusion the inflation is deliberate. It is deliberate; representatives gain power by handing out largess from the treasury so it continues until the cancer kills the patient.

The cancer has killed the patient. The United States is $56 trillion dollars in debt according the former Comptroller General of the United States, David Walker. I suspect David Walker is an optimist; the number is probably higher. Wikipedia shows it as $59 trillion and the number $100 trillion has been used. In comparison Wikipedia shows the total assets of US citizens at only $62.5 trillion.

Within the next year, I expect the United States to default on government debt. The country is bankrupt today; the stated national debt increased over $1 trillion in the last year. In the last month, in response to a minor market crash the US government has poured almost $2 trillion dollars into the US financial system in addition to the nationalization of Fannie Mae, Freddie Mac and the entire banking system.

While the numbers of dollars being created out of thin air are nothing short of incredible, the problems remain unsolved. The Federal Reserve and US Treasury are in the incredible position of attempting to put out a house fire by dumping kerosene on it. When the market realizes the impact on inflation of the money supply, the demand for "things" will go through the roof.

It all goes back to a Central Bank totally out of control and a currency based on debt. While the supply of highly paid bureaucrats is nearly unlimited, citizens are being smothered by unpaid taxes that reflect a future claim on assets.

I want to make an important point I have never seen addressed. The government and media focus our attention on "taxes" as if that number has some real meaning. In the last presidential debate, Candidate McCain expressed horror at the idea that Candidate Obama would increase "taxes." McCain wants the citizens of the United States to be as free of "taxes" as possible, at a time of financial crisis. But no one would ask the most important question. Who is going to pay for the trillions of dollars being thrown at the banking system? Someone has to.

We tend to talk about "taxes" as if they are the most important part of the equation. But it's not "taxes" we should worry about, it's government spending. All government spending represents "taxes" either collected now or collected in the future. Because all government spending has to be paid somehow; it can be paid today in the form of "taxes" or by our grandchildren in the form of inflation of the currency until it has no value. All government spending gets paid for; either at once in taxes or over the long term in debauched currency.

We have reached the point of no return. A combination of globalization, greed, Central Banks, a fiat currency, 9000 hedge funds and $600 trillion worth of derivatives has brought the crisis to a boiling point. At this time, governments around the world are throwing $100 bills at the fire. It will have no effect; you cannot solve a financial problem caused by easy money by making money still easier. You can, however, create hyperinflation.

The banking system has been frozen for weeks to the point banks simply would not loan money to each other. Commerce is ceasing. Libor and the Ted Spread hit a peak a week ago. Those financial instruments measure willingness of banks to loan to one another.

It's possible that the sum of all government actions have dynamited the banks into action, which is a good thing. If we had had a banking holiday, the riots in the United States would have started about 18 hours after the first bank closed.

The crisis is not over. A careful listen to all the shrill uttering from Washington and New York City reveals an interesting fact. There isn't a single person talking about who is going to pay these trillions of dollars being created with great abandon. Where is the money going to come from?

We are going to print it.

When eventually even the densest bureaucrat realizes there aren't enough trees to make the paper required to print enough money to cover the $600 trillion dollars worth of derivatives fraud, we will be up to our ears in Zimbabwe dollars.

The world has endured hyperinflations and financial fraud throughout written history. This time it's different. This time it's going to affect every single person on earth. The world's financial system is collapsing and it will end badly.

It's time to start thinking solutions. As usual, Europe is light years ahead of the United States. Calls for a new Bretton Wood have come from sources as varied as Gordon Brown, British Prime Minister, to European Central Bank President Jean- Claude Trichet.

We need more than a Bretton Woods II. We need to fix the most basic problems never solved by Bretton Woods.

We need to go back to honest money. You cannot build an honest monetary system around money backed by nothing. Gold gives a financial system discipline and nothing else. But discipline has been missing in the United States since the inception of the Federal Reserve System.

Not a single currency in the world is based on anything but hot air. We are all going to realize that shortly as hyperinflation stalks the entire world; when businessmen cannot make rational business decisions because they don't know what the value of the currency will be tomorrow.

If a Martian landed on earth today and went to Chairman Ben Bernanke of the Federal Reserve and asked him how often the value of the US currency changes, the correct answer would be 10,000 times a day. Any sane Martian would be as astonished as I am. How can something that should be fixed change value 10,000 times a day? If a gram or a pound of measure changed 10,000 times a day, would we think that sane? I think not.

We need to eliminate all Central Banks. Central Banks simply cannot be the solution because they are the root problem. Central Banks are captive to the desire of whatever despot rules the country be it president or democracy out of control. We don't need Central Banks; the world has thrived without them and will again.

Governments should never again be in charge of money. Under a gold system any bank of a certain size should be allowed to print money backed by either silver or gold. Should that bank default when a holder of the currency wants to exchange it for specie, severe penalties must be imposed as was always done with counterfeiters. At least until governments became the biggest counterfeiters.

We don't need exchange rates between countries. Under a gold system, the currency should represent standard quantities of gold. We would need coins of copper and silver reflecting their weight in grams to be used for common commerce. There would be minor fluctuations of value between silver and gold but the market would determine what the correct relationship would be.

We should have a 3 gram copper coin that would serve as an in between coin similar to the cent and the nickel. Silver coins should be 90% silver for durability and start with a 2.5 gram silver coin similar to our dimes up until 1964, a 6.25-gram coin serving a role similar to the quarter, a 12.5-gram half-dollar size coin and a 25-gram dollar size coin.

Most gold would remain in vaults representing a reserve to back paper money. Gold bills would be in units of grams from all countries and as such would be fully convertible. Common bills would be 1/10th gram, 1/3 gram, 2/3 gram, 1 gram, 2 gram and 5 gram.

We have thousands of institutions of higher education throughout the world discussing economic issues of substance. Yet the number of people addressing the simple issue of how to have an honest financial system with honest money is tiny. It needs to be discussed and then implemented.

In the end commerce and citizens would flourish. We would have a lot less need of bureaucrats and government but maybe that would be a good thing. Under a gold standard, you cannot afford dead weight.

Bob Moriarty
President: 321gold
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Your Own Golden Parachute

by Sean Brodrick

10-01-08



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