Monday, 8 November 2010

The Great Gold U-Turn.

Baltic Dry Index. 2495 -15
LIR Gold Target by 2019: $30,000. Revised.

"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."

Murray N. Rothbard

Later this week, on November 11 -12, the world’s greatest and goodest, assemble in Seoul South Korea, to all intents and purposes, to give President Obama and his Chief Devaluation Officer, Dr. Bernoccio, a “shellacking”. But first this bombshell news from the World Bank. Stay long precious metals and say goodbye the silver shorts. While the gold shorts might have a case for a bailout if they were secretly doing the central banksters bidding, there is no such case for the silver shorts. Having abandoned a bi-metalic standard more than 100 years ago, no central bank had a legitimate interest in manipulating the price of silver lower. This truly represents a seismic shift. The World Bank is now speaking the unthinkable. The next Lehman, or the next currency crisis brings back the official remonetisation of gold. The world's publc has already unofficially remonetised it.

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."

Jerome F. Smith

Nov. 7, 2010, 11:19 p.m. EST

World Bank chief calls for new gold standard

HONG KONG (MarketWatch) –- The president of the World Bank said in a newspaper editorial Monday that the Group of 20 leading economies should consider adopting a global reserve currency based on gold as part of structural reforms to the world’s foreign-exchange regime.

World Bank chief Robert Zoellick said in an article the Financial Times that leading economies should consider “employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

Zoellick made the proposal as part of reforms to be considered at this week’s G-20 meeting in Seoul.

“Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today,” said Zoellick.

He said such a reform would reflect economic realities and should be considered as a successor to the existing global currency paradigm known as “Bretton Woods II.”

----Zoellick said a return to some sort of currency link to gold would be “practical and feasible, not radical.”

“This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalization and then an open capital account,” he said

Now back to the coming Sumo tag team match in Seoul. The G-1 has infuriated the other G-18, by setting out on a currency war with all the others. Great Britain, G-6 or G-7 in the pecking order of America, the EU, China, Japan, Germany et al, fully supports the G-1 since it’s following the same QE policy, but the British Prime Minister, leader of a weak coalition government likely heading to oblivion if their compromise austerity program doesn’t deliver as promised, will likely try just to keep out of the way. Away in a corner ignored and pitied by all, will be the US Treasury Secretary rambling away about his “strong dollar” policy, and how America will never use the fiat reserve dollar standard for its own advantage. Below, Reuters covers the upcoming meeting, and luckily for Prime Minister Cameron, hasn’t noticed that H.M.’s G. was the first of the big nations to adopt devaluation via QE to seek competitive advantage.

"The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."

Henry Hazlitt

G20 finds common ground opposing U.S

Sun Nov 7, 2010 3:02pm EST

WASHINGTON (Reuters) - The Group of 20 is beginning to look more like the G19 plus 1 as emerging and rich countries alike accuse the United States of breaking a vow of unity.

This week's G20 summit will require every bit of President Barack Obama's diplomacy skills after the Federal Reserve embarked on a new $600 billion bond-buying spree, sparking criticism from four continents that the U.S. central bank was ignoring the global repercussions.

Officials from Germany, Brazil, China and South Africa were among those expressing concern that the Fed's money printing could weaken the dollar, drive up commodity prices and send uncontrollable waves of investor cash into emerging markets.

If the G20 fails to defuse these global tensions, it may heighten investor concerns that policymakers are drifting further apart, leaving the world economy vulnerable to another bout of upheaval.

Domestic politics and policies make Obama's job tougher.

He arrives in Seoul for the November 11-12 summit weakened by a crushing congressional election defeat for his Democratic Party. His primary task will be to convince his peers the Fed's actions do not run counter to a U.S.-led push for global cooperation to even out economic imbalances

South African Finance Minister Pravin Gordhan said the Fed's move "undermines the spirit of multilateral cooperation that G20 leaders have fought so hard to maintain during the current crisis."

German Finance Minister Wolfgang Schaeuble was less diplomatic. He called U.S. policy "clueless."

---- G20 countries submitted their medium-term economic plans for International Monetary Fund review last month. Leaders may agree to keep this process going beyond Seoul, keeping the IMF as arbiter.

The Fund told the G20 nations in June that if they adopt mutually supportive policies, they could raise global output by $4 trillion and create 52 million jobs in the medium term.

Unless leaders can put on a convincing show of cooperation in Seoul this week, those loftier economic goals may remain well out of reach.

It’s hard to see anything meaningful coming out of this G-20 meeting, since the Fed can hardly reverse a policy that they only announced last week. Worse, the G-1 following last week’s elections, has gone from the Goldilocks economy of 2005 to the Gridlocked economy of 2011, with 3 hard liners joining the Fed in January, very likely taking away Dr Bernoccio’s ability to bring in QE3. At least, for a year or so anyway. With the political side of US government gridlocked, the Fed’s arriving 3 musketeers, threaten to gridlock the last remaining fully functioning part of the US government. If that happens, it’s all down to the Fed’s NY trading desk of serial interventionists. Great vampire squids and pigs in heaven come to mind, as the great commodity super cycle embarks on the next leg up.

Below, the NY Times covers the new age of austerity coming to America no matter what happens in Washington. While austerity is good once it ends and the populace reaches the promised land, going through the process leads to a lot of discontent and unexpected outcomes. Below, the Republican Moses line up to lead America’s masses towards the promised land of fiscal milk and honey. I suspect that 2011-2012 will bring it’s Aaron golden calf moment, before the land of milk and honey is reached.

Now in Power, G.O.P. Vows Cuts in State Budgets

By MONICA DAVEY and MICHAEL LUO Published: November 7, 2010

Republicans who have taken over state capitols across the country are promising to respond to crippling budget deficits with an array of cuts, among them proposals to reduce public workers’ benefits in Wisconsin, scale back social services in Maine and sell off state liquor stores in Pennsylvania, endangering the jobs of thousands of state workers.

States face huge deficits, even after several grueling years of them, and just as billions of dollars in stimulus money from Washington is drying up.

With some of these new Republican state leaders having taken the possibility of tax increases off the table in their campaigns, deep cuts in state spending will be needed. These leaders, committed to smaller government, say that is the idea.

“We’re going to do what families and businesses all over this country have already had to do, and that is live within their means,” said Brian Bosma, a Republican who will soon become the speaker of the Indiana House, alongside a Republican governor, Mitch Daniels, and a supermajority of Republicans in the State Senate.

Mr. Bosma said state revenues next year are expected to reach only the levels of about five years ago, creating an enormous strain. “We’re going to do what is right, and we’ll let the politics land where they may,” he said.

All sorts of candidates make all sorts of promises along campaign trails, but there is a difference after last week’s election: in many states, Republicans have gained such control that when they take office in the coming months they will have a much easier time carrying out whatever agenda they choose.

Republicans gained more than 690 seats in state legislatures (leaving them with numbers last seen more than 80 years ago), at least five more governor seats, and, perhaps most significant, across-the-board power in the legislatures and governor’s offices of at least 20 states — more than twice as many as before the election. Included in that group were Maine and Wisconsin, which the day before the election had been entirely in Democratic hands.

“It’s kind of put up or shut up time,“ said Scott Walker, the governor-elect of Wisconsin, which experienced the largest flip in power in memory. Mr. Walker, a Republican, said he intended to navigate a projected $3 billion budget gap with no tax increases. He also said he planned to remove all “litigation, regulation, excessive cost“ barriers to businesses (declaring Wisconsin, on election night, “open for business!”), and to put an end to a plan for a federally financed rail project between Milwaukee and Madison that he says would cost too much for the state to operate once it is built.

In European news, the Greek crisis is over according to the Journal. The work and tax shy Greeks voted like turkey’s voting for Thanksgiving and voted to support the government’s harsh austerity plans, in local elections that had morphed into referendum on the government’s austerity program. At least, that’s the way the Greek government and EU spin meisters are spinning it. But was the vote really that simple? On to next Sunday for the definitive round two.

NOVEMBER 8, 2010

Greek Socialists Narrowly Win Local Vote

ATHENS—Greece's ruling Socialists survived a key test of their popularity on Sunday, winning a narrow victory in local elections that were widely seen as a referendum on the government's harsh, three-year austerity program.

With Socialist candidates winning in a majority of Greece's 13 electoral regions and in three of the country's five biggest cities, the government is now less likely to proceed with snap national elections, a threat it had dangled before voters but one that had unsettled the country's financial markets and drawn veiled criticism from Greece's international lenders.

In nationally televised remarks, Prime Minister George Papandreou said voters had backed the government's program and gave no hint that he planned to call early elections after just 13 months in office.

"We know that change is not an easy process," Mr. Papandreou said. "But the Greek people brought us to power one year ago to effect that change. And today they confirmed that they still want that change."

In May, Greece narrowly avoided default with the help of a €110 billion ($154 billion) bailout from the International Monetary Fund and European Union in exchange for a three-year austerity and reform program.

That program has led to steep cuts in pensions and public-sector salaries, as well as a raft of new taxes on a range of items from cigarettes to basic foodstuffs.

The spending cuts and new taxes have also weighed on the economy, which is expected to shrink 4% this year, while unemployment has rocketed to 12% in July from 9.6% a year earlier and business bankruptcies have soared.

But the polls also come amid widespread voter discontent with as many as four in 10 Greek voters staying home. In national elections last October, more than 70% of the electorate voted.

"I didn't go to vote because I didn't want to waste my time with this decayed political system," said Kostantina Antonopoulou, a 34-year-old engineer. "I am sick of the incompetence and the corruption, and I can't see anything changing no matter who wins."

What is more, in all but two of the key races, no candidate from either the Socialists, or the opposition New Democracy party secured more than the minimum 50% of the vote required, which means they face run-off elections next Sunday.

And according to projections by two private Greek television stations, the Socialists now command only a two- to three-percentage-point edge over New Democracy, sharply down from their winning 10-percentage-point margin in national polls last October.

Opposition leader Antonis Samaras said the message of the local elections would be determined in next Sunday's run-off, adding that the government had failed to get "the blank check" it wanted from the voters.

This big story this week plays out in Seoul, this Thursday and Friday. Ironically starting on the 92nd anniversary of the end of the disaster of World War One. Then 3 great empires fell, another went bankrupt but couldn’t bring itself to admit it, and the French Republic and Belgian Empire went into terminal decline. An unready America gave away its winning leadership role and went off into isolation and prohibition. After World War Two, America willingly took on its global leadership role, as a wrecked Europe feared it was about to get swallowed by Stalin’s evil Empire. All too soon, China was swallowed by 25 years of murderous communism. We can only hope that at this coming meeting, someone has a sense of history. Setting off a trade war to match the continuing currency war, risks setting off a return to something closer to the 1930s.

"If ever there was an area in which to do the exact opposite of that which government and the media urge you to do, that area is the purchasing of gold."

Robert Ringer

At the Comex silver depositories Friday, final figures were: Registered 51.30 Moz, Eligible 58.88 Moz, Total 110.18 Moz.


Crooks and Scoundrels Corner.

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

No crooks today, the U-turn by the World Bank is too significant.

"All of the government's monetary, economic and political power, as well as its extensive propaganda machinery, will be enlisted in a constant battle to drive down the price of gold - but in the absence of any fundamental change in the nation's monetary, fiscal, and economic direction, simply regard any major retreat in the price of gold as an unexpected buying opportunity."

Irwin A. Schiff

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.

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