Monday, 15 November 2010


Baltic Dry Index. 2313 -53
LIR Gold Target by 2019: $30,000. Revised.

"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Alan Greenspan

After a brief attempt at walking on Asia’s water in South Korea and Japan, President Obama swam back to shore and boarded Airforce One for his return to an angry America. Far from returning from Asia waving a piece of paper promising “prosperity in our time”, President Obama returns to Tea Party America with a soggy piece of paper, promising only bankruptcy in our time. As international summits go, the two Asian summits didn’t just underwhelm, they starkly illustrated just how bankrupt our current leaders and central banksters are in their effort to reduce western unemployment and to get the G-7 economy moving again. If anything, the BRIC countries look like catching the G-7 pneumonia in 2011. Stay long gold and silver. The next Lehman looks like crashing in 2011, America’s QE2 or not. Below, Bloomberg on change we can’t believe in.

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F.A. von Hayek

G-20, APEC Yield Little to Fix Imbalances, Stem Inflow Concerns

Nov. 15 (Bloomberg) -- Leaders of the world’s biggest economies ended four days of talks without taking decisive measures to address the global imbalances that have fueled asset bubbles and risk leading to a protectionist backlash.

Asia-Pacific leaders yesterday in Japan pledged to take “concrete steps” toward creating a regional free-trade agreement without setting a target for achieving that goal. Their meeting followed the Nov. 11-12 Group of 20 summit in Seoul that “opposed protectionist trade actions” while failing to agree on a remedy for trade and investment distortions.

Officials went into the G-20 vowing to reduce global trade friction by agreeing to avoid weakening their currencies to boost exports. Once there, the U.S. and China took turns blaming the other’s foreign exchange policy, with President Barack Obama calling the yuan “undervalued” and Chinese officials saying the Federal Reserve’s monetary easing was undermining the dollar.

“The problem that people really were concerned about, the effects of U.S. monetary policy in terms of capital flows, was barely addressed at all,” said Uwe Parpart, chief economist and strategist for Asia at Cantor Fitzgerald HK Capital Markets. A solution that doesn’t involve China boosting domestic demand and the U.S. increasing savings “deals with symptoms, not the real cause,” he said.

Hu indicated no change in his country’s currency policy in a Nov. 13 speech, adding that pressure for quick reforms “will do no good to international cooperation.” The same day, National Security Adviser Thomas Donilon told reporters that the U.S. wants China to let the yuan rise more before Hu visits Washington in January.

Next, wonders will never cease. Below, the NY Times dares to put the unthinkable into its pages and put a new gold standard back in mainstream media again. The Keynesian lynch mob will soon be out looking for victims. Still the genie out of the bottle, it will be harder and harder for the banksters and great vampire squids, to keep arguing for subsidies and special treatment to keep the present failing system running. Putting the world back on a gold settlement system again, is infinitely better than what exists now, where banksters take bailout money to pay themselves giant bonuses before the next Lehman hits and crashes the system for good. We welcome the NY Times breaking ranks and putting gold back into mainstream debate. Readers will remember how just over a decade ago in an act of complete insanity, Great Britain sold off half its gold reserves at a price more than 1,100 dollars an ounce below current prices. The proceeds were put into dollars and Euro.

"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."

John Exter

How to Make the Dollar Sound Again

By JAMES GRANT Published: November 13, 2010

BY disclosing a plan to conjure $600 billion to support the sagging economy, the Federal Reserve affirmed the interesting fact that dollars can be conjured. In the digital age, you don’t even need a printing press.

This was on Nov. 3. A general uproar ensued, with the dollar exchange rate weakening and the price of gold surging. And when, last Monday, the president of the World Bank suggested, almost diffidently, that there might be a place for gold in today’s international monetary arrangements, you could hear a pin drop.

Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.

It was simplicity itself. National currencies were backed by gold. If you didn’t like the currency you could exchange it for shiny coins (money was “sound” if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted.

“You can’t go back,” today’s central bankers are wont to protest, before adding, “And you shouldn’t, anyway.” They seem to forget that we are forever going back (and forth, too), because nothing about money is really new. “Quantitative easing,” a k a money-printing, is as old as the hills. Draftsmen of the United States Constitution, well recalling the overproduction of the Continental paper dollar, defined money as “coin.” “To coin money” and “regulate the value thereof” was a Congressional power they joined in the same constitutional phrase with that of fixing “the standard of weights and measures.” For most of the next 200 years, the dollar was, in fact, defined as a weight of metal. The pure paper era did not begin until 1971.

----Fast forward 65 years or so, to the late 1970s, and the Fed would have been unrecognizable to the men who voted it into existence. It was now held responsible for ensuring full employment and stable prices alike.

Today, the Fed’s hundreds of Ph.D.’s conduct research at the frontiers of economic science. “The Two-Period Rational Inattention Model: Accelerations and Analyses” is the title of one of the treatises the monetary scholars have recently produced. “Continuous Time Extraction of a Nonstationary Signal with Illustrations in Continuous Low-pass and Band-pass Filtering” is another. You can’t blame the learned authors for preferring the life they lead to the careers they would have under a true-blue gold standard. Rather than writing monographs for each other, they would be standing behind a counter exchanging paper for gold and vice versa.

If only they gave it some thought, though, the economists — nothing if not smart — would fairly jump at the chance for counter duty. For a convertible currency is a sophisticated, self-contained information system. By choosing to hold it, or instead the gold that stands behind it, the people tell the central bank if it has issued too much money or too little. It’s democracy in money, rather than mandarin rule.

Today, it’s the mandarins at the Federal Reserve who decide what interest rate to impose, and what volume of currency to conjure.

The Bank of England once had an unhappy experience with this method of operation. To fight the Napoleonic wars of the early 19th century, Britain traded in its gold pound for a scrip, and the bank had to decide unilaterally how many pounds to print. Lacking the information encased in the gold standard, it printed too many. A great inflation bubbled.

Later, a parliamentary inquest determined that no institution should again be entrusted with such powers as the suspension of gold convertibility had dumped in the lap of those bank directors. They had meant well enough, the parliamentarians concluded, but even the most minute knowledge of the British economy, “combined with the profound science in all the principles of money and circulation,” would not enable anyone to circulate the exact amount of money needed for “the wants of trade.”


In European news, Club Med, lead by honorary member Ireland, heads like lemmings for the ocean cliffs. Will rat catcher Germany drive them over? Below, Euro moneybags Germany toys like a cat with the EU’s profligate mice. Look away now if you don’t like Sam Peckinpah, Wild Bunch ending.

"No other commodity enjoys as much universal acceptability and marketability as gold."

Hans F. Sennholz

NOVEMBER 15, 2010

EU Strugglers Could Soon Reach for the Hair Shirts

Once again a German retreat caused a sigh of relief in Europe. German chancellor Angela Merkel had wearied of having her country the ultimate guarantor of the debts of the profligate periphery. So she announced that she would not get involved in permanent rescue schemes unless lenders take a haircut. She could not, she said, repeatedly ask voters to bear the costs of imprudent lending by investors "who have earned a lot of money from taking those risks." Sounds sensible to analysts who fear the moral hazard created by serial bailouts.

But sounds scary to private investors who lent to the troubled countries. They greeted the news by driving down the prices of Irish and other euro-zone bonds, and reigniting fears of sovereign defaults. So Ms. Merkel, climbed down, as her critics put it or, as she preferred, clarified her position. The hair on the heads of existing holders of euroland countries' debt would remain in place; the haircuts won't start until 2013.

Note this important message: Germany's tune is the one to which the markets dance. Yes, the European Financial Stability Facility (EFSF), a creature of euro-land governments, the European Central Bank and the International Monetary Fund, has close to €1 trillion ($1.36 trillion) potentially available to lend to strapped countries. But when it expires in 2013, Germany will dictate the replacement regimen.

Doubt that and consider this. The calming effect establishment of the EFSF had on markets melted away as quickly as had the price of periphery-country bonds when the German chancellor said that private investors would have to bear some pain before a country could call upon the EFSF. And when the German chancellor reversed course, and announced that the new tough-on-investors regimen will not come into effect until 2013, calm was restored or, more precisely, the level of panic declined.

So it's all right, then. Well, not exactly. For one thing, the problems of the periphery countries are getting worse. Eurostat, the EU's statistics gatherer, reports that growth in the 16-nation euro-zone declined in the third quarter to 0.4% from 1% in the second quarter. Germany, the EU locomotive that chalked up growth of 2.3% in the second quarter, grew only by 0.7% in the third. That general slowdown reduces markets for the products of the periphery countries, which are already in difficulty.

In the third quarter, the Greek economy actually declined by 1.1%, while Portugal's grew by 0.4%, and Spain's stalled completely. The shrinking of Greece's economy makes it likely that the inspectors now in Athens will report this week that Greece did not generate sufficient tax revenues to meet its deficit reduction targets. That will be grist for the mill of critics who are saying that the austerity program imposed on Greece by the IMF and the European Central Bank is the road to ruin, rather than to recovery.

More important is the fate of Spain. With a GDP approximately twice as large as the combined total of Greece, Portugal and Ireland, Spain matters. And the outlook is not good. The Spanish economy grew not at all in the third quarter. It's unemployment rate is now 20% and headed higher. Its banks have yet to recognize the losses incurred from property loans that have gone sour, or completed consolidation. Higher taxes and spending cuts will slow things even more next year.

NOVEMBER 15, 2010

Portugal Faces Investor Scrutiny

A Portuguese government minister openly speculated over the weekend that his country's economic frailties could lead to its expulsion from the euro zone, underscoring the growing fear in Europe that the continent's debt woes may force leaders to restructure the currency bloc.

In an interview with the Portuguese weekly Expresso published Saturday, Foreign Affairs Minister Luis Amado said Portugal faces "a scenario of exit from the euro zone" if it fails to tackle its economic challenges.

"There has to be an effort by all political groups, by the institutions, to understand the gravity of the situation we're facing," he said.

Portugal is now the front line of the sovereign-debt crisis that already has claimed Greece and threatens Ireland, economists say. If economic weakness is sufficient to push an otherwise crisis-free country to the brink of default and rescue, then larger countries, such as Spain and Italy, could be threatened, analysts say.

"Portugal is different, and if markets are going to have a real go at Portugal now, then why not Italy?" says Jonathan Loynes, economist at Capital Economics.

Like Portugal, Italy has weak underlying growth dynamics, but it also has avoided a Greek-style crisis.

On the surface, Portugal is far from a crisis. Unlike the rest of Europe's periphery, Portugal managed a modest gross-domestic-product growth rate of 1.2% last quarter, at an annualized rate, according to figures released Friday, in line with the euro-zone average. Greece shrank more than 4%, Spain posted no growth and Italy grew at a 0.7% pace.

But Portugal is finding that being best of the periphery is little comfort. Despite expanding solidly for three straight quarters, it is squarely in investors' sights as a likely candidate, just behind Ireland, to follow Greece into some sort of debt-rescue package. Its 10-year government-bond yield is around 7%, 4.5 percentage points above the euro-zone benchmark, Germany, making it even harder for Lisbon to reduce a near double-digit deficit as a share of its economy.

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."

Daniel Webster

At the Comex silver depositories Friday, final figures were: Registered 50.54 Moz, Eligible 57.25 Moz, Total 107.79 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

How bad is bad for bankrupt Ireland? Iceland bad, says the Professor of Economics at University College Dublin. Stay long precious metals. 2011 is shaping up to be an era changing year.

"Gold bears the confidence of the world's millions, who value it far above the promises of politicians, far above the unbacked paper issued by governments as money substitutes. It has been that way through all recorded history. There is no reason to believe it will lose the confidence of people in the future."

Oakley R. Bramble

If you thought the bank bailout was bad, wait until the mortgage defaults hit home

Mon, Nov 08, 2010

THE BIG PICTURE: Ireland is effectively insolvent – the next crisis will be mass home mortgage default, writes MORGAN KELLY

SAD NEWS just in from Our Lady of the Eurozone Hospital: After a sudden worsening in her condition, the Irish Patient, formerly known as the Irish Republic, has been moved into intensive care and put on artificial ventilation. While a hospital spokesman, Jean-Claude Trichet, tried to sound upbeat, there is no prospect that the Patient will recover.

It will be remembered that, after a lengthy period of poverty following her acrimonious divorce from her English partner, in the 1990s Ireland succeeded in turning her life around, educating herself, and holding down a steady job. Although her increasingly riotous lifestyle over the last decade had raised some concerns, the Irish Patient’s fate was sealed by a botched emergency intervention on September 29th, 2008 followed by repeated misdiagnoses of the ensuing complications.

With the Irish Patient now clinically dead, her grieving European relatives face the melancholy task of deciding when to remove her from life support, and how to deal with the extraordinary debts she ran up in the last months of her life . . .

---- You have read enough articles by economists by now to know that it is customary at this stage for me to propose, in 30 words or fewer, a simple policy that will solve all our problems. Unfortunately, this is where I have to hold up my hands and confess that I have no solutions, simple or otherwise.

Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.

From here on, for better or worse, we can only rely on the kindness of strangers.

Morgan Kelly is Professor of Economics at University College Dublin

"The international monetary order is more precarious by far today than it was in 1929. Then, gold was international money, incorruptible, unmanageable, and unchangeable. Today, the U.S. dollar serves as the international medium of exchange, managed by Washington politicians and Federal Reserve officials, manipulated from day to day, and serving political goals and ambitions. This difference alone sounds the alarm to all perceptive observers."

Hans F. Sennholz

The monthly Coppock Indicators finished October:

DJIA: +204 Down. NASDAQ: +289 Down. SP500: +196 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. October is the fifth down month in a row.

No comments:

Post a Comment