Baltic Dry Index. 1902 -38
LIR Gold Target by 2019: $3,000.
"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 1966.
After a week where the US stock market was visited by Wall Street’s resurrection men staging a 5% rally, AP and the New York Times reported on a new development that’s likely to leave the resurrection men at the New York Fed with a large hangover. Below, the latest Chinese development that threatens to be a game changer if China really does let its new ratings agency be independent. It’s all too likely to be successful. Suddenly the Old Emperor’s new clothes are likely to be seen for what they are. If they develop a good track record for honesty and success, Wall Street’s sham rating agencies, will go the way of the horse and buggy. Nothing stands still in the competitive space of the marketplace. The death throes of the dodgy fiat dollar reserve standard aren’t pretty. The Washington and Paul Krugman response to the dead end of the Nixonian error of universal fiat money, is more of the same. Simply continue doing what got us into the financial mess in the first place. Issue more and more fiat and keep bailing out failed banksters, and sooner or later it will all somehow or other work out. Universal employment will magically reappear, interest rates will stay zero bound forever, and we will all magically repay all our debts when the tooth fairy shows up. Presumably, change we can believe in. If wishes made reality, we would all live like Kings and Presidents in palaces, with unlimited money and credit, married to a never aging rescued happy Cinderella, driving the latest Ferrari and surrounded by a fawning population of Homer Simpson’s proclaiming “good idea boss!”
Reality is that we mostly live in mortgaged over priced hovels, with Cinderella’s third ugly sister of the bad disposition, too ugly to be mentioned in the Grimm tale, money ceased to exist when she moved in and credit is limited to a slate at the Wa-Wa store, the Ferrari long ago became a rusting fiat with a built-in indisposition to start in the rain, and we’re surrounded by far from fawning central bankster criminals forever spouting “it was like that when I got here!”
Below, the Chinese realists just put some sand in Helicopter Ben’s fuel supply, Quite when it shows up in the engine no one yet knows, but the ride gets a lot more interesting for all from here.
The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand--a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.1 Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending--namely, recession, rising unemployment, and financial stress.
However, a deflationary recession may differ in one respect from "normal" recessions in which the inflation rate is at least modestly positive: Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero.2 Once the nominal interest rate is at zero, no further downward adjustment in the rate can occur, since lenders generally will not accept a negative nominal interest rate when it is possible instead to hold cash.
Dr. Ben Bernanke.
Chinese Credit Firm Says US Worse Risk Than China
By THE ASSOCIATED PRESS Published: July 11, 2010
BEIJING (AP) -- A Chinese firm that aims to compete with Western rating agencies declared Washington a worse credit risk than Beijing in its first report on government debt Sunday amid efforts by China to boost its influence in global markets.
Dagong International Credit Rating Co.'s verdict was a break with Moody's, Standard & Poors and Fitch, which say U.S. government debt is the world's safest. Dagong said it rated Washington below China and 11 other countries such as Switzerland and Australia due to high debt and slow growth. It warned the U.S. is among countries that might face rising borrowing costs and risks of default.
The report comes amid complaints by Beijing that Western rating agencies fail to give China full credit for its economic strength, boosting borrowing costs -- a criticism echoed by some foreign analysts. At June's G-20 summit in Toronto, President Hu Jintao called for the creation of a more accurate system.
Dagong, founded in 1994 to rate Chinese corporate debt, says it is privately owned and pledges to make its judgments impartially. But in a sign of official support, its announcement Sunday took place at the headquarters of the Xinhua News Agency, the ruling Communist Party's main propaganda outlet.
Dagong's chairman, Guan Jianzhong, said the current Western-led rating system is to blame for the global crisis and Europe's debt woes. He said it ''provides the wrong credit-rating information'' and fails to reflect changing conditions.
''Dagong wants to make realistic and fair ratings,'' he said.
Beijing has more than $900 billion invested in U.S. Treasury debt and has appealed to Washington to avoid hurting the value of the dollar or China's holdings as it spends heavily on its stimulus.
Dagong's report covered 50 governments and gave emerging economies such as Indonesia and Brazil better marks than those given by Western agencies, citing high growth. Along with the United States, some other developed nations such as Britain and France also received lower ratings than those of other agencies.
Dagong rated U.S. government debt AA with a negative outlook, below the firm's top AAA rating. It warned that Washington, along with Britain, France and some other countries, might have trouble raising more money if they allow fiscal risks to get out of control.
''The interest rate on debt instruments will run up rapidly and the default risk of these countries will grow even larger,'' its report said.
Dagong said it hopes to ''break the monopoly'' of Moody's Investors Service, Standard & Poors and Fitch Ratings. Their reputation suffered after they gave high ratings to mortgage-linked investments that soured when the U.S. housing market collapsed in 2007.
Manoj Kulkarni, head of credit research for SJS Markets in Hong Kong, said that despite the possibility China's government might try to influence Dagong's decisions, there is room in the market for a Chinese agency because Western firms' credibility is badly tarnished.
http://www.nytimes.com/aponline/2010/07/11/business/AP-AS-China-Debt-Ratings.html?_r=2&hp
Below, what worries the hard working Chinese, who are also trapped in a fiat currency system. America, at some point ahead is deliberately going to cheat them.
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
Dr. Ben Bernanke.
Sadly in a fiat currency system, someone is always going to get cheated. It goes without saying that the vast majority of the population will get cheated, for they have no friends near the top. Not for them the sound of the Fed’s helicopters overhead ready to whisk them off to their estates in the Hampton’s and Greenwich Connecticut. For them only the sound of downwardly mobile gurgling. Cheated too, the foreign holders of the fiat currency dollar reserve standard. Quite simply they don’t have a vote, so don’t get to play in the game of musical chairs aboard the salon of the USS Titanic. Stay long gold and silver. That it all ends badly is a given. If nothing else demographics bring the whole fraud crashing down, but avarice and greed will probably do it far faster. An interest rate jump even faster still.
Below, more news from China that’s a red rag to US politicians and contenders running for office this coming November. Though the Baltic Dry Index seems to be indicating that a fall in global trade has arrived, no one in Washington wants to say that to the voters. Protectionist anti-China tariffs are the currency of election in 2010, backed up by putting more states, corporations and people on the public dole. It doesn’t take a genius to see that at best this all goes wrong in 2011, when the ever expanding public dole abruptly stops and the banksters get it all wrong once again.
China’s Trade Surplus Widens, Adding Pressure on Yuan
July 10 (Bloomberg) -- China’s trade surplus widened to the highest this year and exports climbed more than estimated to a record in June, adding pressure on the government to let the yuan gain after the U.S. said the currency “remains undervalued.”
The gap increased 140 percent to $20.02 billion from a year earlier, the nation’s customs bureau said on its website today. That compares with the $15.6 billion median estimate of 24 economists surveyed by Bloomberg News. Exports surged 43.9 percent and import growth moderated for the third month, rising 34.1 percent.
U.S. Treasury Secretary Timothy F. Geithner said July 8 he will “closely” monitor the yuan’s appreciation after China scrapped a two-year peg to the dollar and allowed a 0.8 percent advance in the past three weeks. Policy makers in the world’s biggest exporting nation may be reluctant to step up gains as Europe’s debt woes threaten demand even as the bureau said trade has “recovered” to levels before the global financial crisis.
The surplus “points to the need for Chinese authorities to allow continued appreciation of the yuan against the U.S. dollar, given their pledge to allow market forces to determine the exchange rate,” Wang Qing, a Hong Kong-based economist at Morgan Stanley, said. He estimates the yuan will gain 4 percent by the end of this year and 6 percent next year.
-----Trade “has recovered to pre-crisis levels,” Zheng Yuesheng, head of the customs bureau’s statistics department said in an interview on state television today after the release of the data, echoing the views of some economists that the European sovereign-debt crisis has yet to impact overseas sales.
Exports to the U.S. and European Union jumped by more than 40 percent for the second month, and exports to Russia climbed 84 percent in June, according to today’s statement. Shipments to Brazil, which more than doubled in April and May, surged by 125 percent last month.
http://noir.bloomberg.com/apps/news?pid=20601087&sid=ac44vXxEWzC8&pos=1
Backing up the implied trade slowdown from the BDI, last week’s news out of Japan wasn’t good. Japan is the poster child of the never ending slump, the way the US is for the never ending war. Neither is good for the wealth and happiness of society.
Japan Machine Orders Slump Most Since 2008 as Recovery Slows
July 08, 2010, 3:08 AM EDT
July 8 (Bloomberg) -- Japanese machinery orders fell the most since August 2008, a sign that any rebound in business investment may be too weak to drive an economic recovery that is showing signs of losing momentum.
The report prompted Cabinet Office spokesman Keisuke Tsumura to say the outlook is becoming less certain, while Bank of Japan Governor Masaaki Shirakawa said the economy will keep expanding. The remarks echo a divergence between government officials and the central bank earlier this year before Shirakawa and his board expanded a credit program in March.
“Pressure on the BOJ to ease monetary policy further will continue to increase,” said Kenro Kawano, a debt strategist in Tokyo at Credit Suisse Group AG. “The central bank’s policy is heading toward an easing bias.”
Separate figures showed a cooling of exports, which have been the main driver of the nation’s rebound from its worst postwar recession. Slower growth in shipments abroad caused the current-account surplus to narrow for the first time in 10 months, falling 8.1 percent to 1.205 trillion yen ($14 billion) in May from a year earlier, the Finance Ministry said.
“The recovery’s no longer adding momentum and we’re beginning to see more downside risks,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. He said the degree of any political pressure on the BOJ depends on the direction of the economy as well as stocks and the yen.
The International Monetary Fund today cut its forecast for Japan’s 2011 economic growth to 1.8 percent from 1.6 percent.
Below, Japan’s weekend election takes the fiat Yen lower. A new round of competitive devaluation seems to be in store.
Yen Declines on Kan Election Loss; Euro Drops on Debt Concerns
July 12 (Bloomberg) -- The yen reached a two-week low against the dollar after Prime Minister Naoto Kan’s party lost control of Japan’s upper house of parliament, undermining efforts to rein in the world’s largest public debt.
The yen fell as Standard & Poor’s said Kan’s defeat is "potentially negative" for Japan’s debt rating because of legislative gridlock. The euro dropped after Der Spiegel said a German plan to allow the "orderly insolvency" of countries would force bondholders to give up part of their claims.
“If the loss rattles Japan’s political situation, foreign investors, who loathe political instability, may sell the yen,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.
http://noir.bloomberg.com/apps/news?pid=20601101&sid=aGnxHba7_oA8
Below, more on an item we touched on last week. Far from being bearish as is mildly spun in the media, I think it makes the case for gold being the ultimate reserve asset in times of financial uncertainty and financial distress. If China could swap some dodgy fiat dollars or Euros for all the BIS’s new gleaming 382 tonnes of newly pledged gold in a way that they could do it without sending the price of gold soaring, my guess is that they would do it before Helicopter Ben could say “get me Geithner!” My guess is that one way or another, willingly and planned or unwillingly and unplanned, the great Nixonian error of fiat money will come to its end, and a return to metallic monetary stability comes next.
Secret gold swap has spooked the market
It takes a lot to spook the solid old gold market. But when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion
By Garry White and Rowena Mason Published: 6:10PM BST 11 Jul 2010
The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20pc of the world's annual gold production and the possibility of a sell-off.
In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month.
----- At first it looked like the BIS was swapping gold with a troubled central bank. After all, the institution is the central bankers' bank and its purpose to conduct transactions with national monetary authorities.
Central banks in the troubled southern zone of Europe were considered the most likely perpetrators.
According to the World Gold Council, central banks in Greece, Spain and Portugal held 112.2, 281.6 and 382.5 tons of gold respectively in June – leading analysts to point fingers at Portugal, or a combination of the three.
But Edel Tully, an analyst from UBS, noted that eurozone central banks would be severely limited with what they could do with the influx of extra cash – unable to transfer it straight to governments or make use of the primary bond markets.
She then listed the only other potential monetary authorities with enough gold as the US, China, Switzerland, Japan, Russia, India and Taiwan – and the International Monetary Fund.
This led to musings that the counterparty was the IMF, making sense because the lender of last resort is historically prone to cash shortages and has been quietly selling off gold in the first half of the year.
----- However, the day after original reports about the swaps, BIS emailed a statement saying that the swaps had not been conducted with monetary authorities but purely with commercial banks.
This did nothing to quell the sense of mystery surrounding the deal or deals. It is almost inconceivable that a single commercial bank could have accumulated so much gold alone. And cynics have suggested that the whole affair still looks like a secretive European bailout that a single country wants to keep quiet.
In this case, one or more of the so-called bullion banks – which act as wholesale market-makers and include Goldman Sachs, Deutsche Bank, JP Morgan, HSBC, Barclays, UBS, Societe Generale, Mitsui and the Bank of Nova Scotia – would have agreed to act on behalf of a monetary authority.
This would add an extra layer of anonymity. "So the BIS swaps look like a tripartite transaction," writes Adrian Douglas of the Gold Anti-Trust Association. "The commercial bank or banks made a swap with a central bank or banks and then the commercial bank or banks made a swap with the BIS."
http://www.telegraph.co.uk/finance/markets/7884272/Secret-gold-swap-has-spooked-the-market.html
We end with BP news, at the weekend the NY Times thought the unthinkable. Might BP opt for bankruptcy after all? Perhaps bankruptcy is the last best way to salvage some fair value for the hapless, duped dummies, aka owners, who thought that they were investing in a well run major international, well geographically diversified oil company with a virtual license to steal. In better news, BP now says that a new cap on the leaking well will soon be functioning this week, and that the first relief well may have solved the problem by month end. Well maybe, and we all want to believe, we really do. It’s just there’s no credibility left with any of the BP players or many in the US federal government’s regulatory team. Below, the NY Times on a BP bankruptcy, part of BP’s fix may have made the consequences of the oil spill very much worse.
Weighing the Possibility of Bankruptcy for BP
By JOHN SCHWARTZ Published: July 9, 2010
With pockets as deep as BP’s — its assets are worth more than $260 billion — the possibility that it might be forced to seek bankruptcy protection because of the Gulf of Mexico oil spill is considered remote by many industry experts.
But what if the company’s plan to contain the spill in the next several days does not work, and other efforts to stop the gushing oil also fail? If that were to occur, the worst-case projections of some experts, if they came to pass, would strain the ability of any company to pay, said Robin K. Craig, associate dean for environmental programs at the Florida State University College of Law.
Professor Craig said that if the oil hit the Gulf Stream and was carried by currents to East Coast states, Cuba and other Caribbean nations, and possibly even Britain, lawsuits could quickly mount to levels even BP could not handle.
“My bet is that BP will finally go bankrupt from the tort liability and the environmental liability,” she said. “Hypothetically, a bluefin tuna farmer in the Mediterranean could end up with a claim against BP.”
Even those who find it unlikely that BP will seek bankruptcy protection believe it is likely that the company has to at least consider it as a possibility, in light of spiraling environmental costs, economic claims and the unpredictability of American juries.
“They’ve got a duty to their shareholders and others to consider every possibility,” said Samuel J. Gerdano, the executive director of the American Bankruptcy Institute. “It’s not a matter of panic, it’s not a matter of irrationality. It’s a coldhearted and clearheaded consideration of options.”
More.
http://www.nytimes.com/2010/07/10/us/10bp.html?hp
Toxicologists: Corexit “Ruptures Red Blood Cells, Causes Internal Bleeding”, "Allows Crude Oil To Penetrate “Into The Cells” and “Every Organ System"
Submitted by George Washington on 07/09/2010 18:35 -0500
As I have previously noted, Corexit is toxic, is less effective than other dispersants, and is actually worsening the damage caused by the oil spill.
Now, two toxicologists are saying that Corexit is much more harmful to human health and marine life than we've been told……
"Until government administrators can so identify the interests of government with those of the people and refrain from defrauding the masses through the device of currency depreciation for the sake of remaining in office, the wiser ones will prefer to keep as much of their wealth in the most stable and marketable forms possible - forms which only the precious metals provide."
Elgin Groseclose
At the Comex silver depositories Friday, final figures were: Registered 53.38 Moz, Eligible 60.72 Moz, Total 114.10 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today we open the week with the words of serial dissembler “Helicopter” Ben Bernanke. For most in America the helicopter never showed up, there wasn’t even the distant sound of a remote helicopter, let alone a seat on board for a rescue flight. On Wall Street the great vampire squids were practically deafened and bowled over by the sound and downwash of helicopters, just about every team of vampire squids got their very own government bailout helicopter, except of course for Bear Stearns and Lehman Bros., who were both “rescued” in very strange circumstances by being hammered and knocked down to the Fed’s favourite cronies. Little wonder that China has set up its own alternative ratings agency, and in the decades ahead will likely rely on that rather than Wall Street’s raters who never saw a CDO or CDS that they didn’t rate “triple-A.”
“As an economist and policymaker, I have plenty of experience in trying to foretell the future, because policy decisions inevitably involve projections of how alternative policy choices will influence the future course of the economy. The Federal Reserve, therefore, devotes substantial resources to economic forecasting. Likewise, individual investors and businesses have strong financial incentives to try to anticipate how the economy will evolve. With so much at stake, you will not be surprised to know that, over the years, many very smart people have applied the most sophisticated statistical and modeling tools available to try to better divine the economic future. But the results, unfortunately, have more often than not been underwhelming. Like weather forecasters, economic forecasters must deal with a system that is extraordinarily complex, that is subject to random shocks, and about which our data and understanding will always be imperfect. In some ways, predicting the economy is even more difficult than forecasting the weather, because an economy is not made up of molecules whose behavior is subject to the laws of physics, but rather of human beings who are themselves thinking about the future and whose behavior may be influenced by the forecasts that they or others make.”
Dr. Ben Bernanke. May 22, 2009.
No one, not any one, has undermined the US currency system quite like the US government and the Federal Reserve. The US government in 1913 gave the Fed power to create money out of thin air and to force the public to receive it as legal tender. The US government in 1934 called in gold coinage contrary to law, and devalued the paper dollar by 41%. In 1964 the government stopped minting silver coin and began uttering worthless cupro-nickel sandwiches. In 1968 the government defrauded silver certificate holders by reneging on its promise to redeem them for silver. Finally, in 1971 it reneged on gold convertibility even for international claimants.
http://www.321gold.com/editorials/sanders/sanders072809.html
“If measured according to the methodology used when I was Assistant Secretary of the Treasury, the unemployment rate today in the US is above 20%. Moreover, there is no obvious way of reducing it. There are no factories, with work forces temporarily laid off by high interest rates, waiting for a lower interest rate policy to call their workforces back into production. The work has been moved abroad.”
Paul Craig Roberts. “The Father of Reaganomics.”
"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
“It is legal because I wish it.”
King Louis XIV. The Sun King.
The monthly Coppock Indicators finished June:
DJIA: +269 Down. NASDAQ: +460 Down. SP500: +290 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. Given the weakening BDI, and the ECRI leading indicators signaling recession ahead, it is probably safer to assume that the great stock market bounce has ended and that we are entering a new bear market, or alternately, resuming the old one after a bear market rally.
