Friday, April 29, 2011
Wednesday, April 27, 2011
It is only through the dollar's reserve status the we are able to resist dramatic inflation and eventual hyper-inflation.
Because the Reserve status means we can settle our external debts in dollars. And we can print dollars to buy oil and food and other goods internationally.
Well, we're in the process of finding out. The Fed has now become the major buyer of all new US debt (70 percent last quarter.) So far, so good, everything is holding together. But as the dollar drops its Reserve Status becomes compromised as Central Banks rebalance their reserves by selling dollars for Gold. This is happening, See the World Gold Council figures for last quarter (posted below.)
When US citizens begin to behave like Central Bankers and start selling their dollars for gold -for stocks of food - and for any commodity perceived to have intrinsic value. This is the culmination of a Crisis of Confidence in the dollar. People get scared. Ordinary people don't want to hold dollars. They spend them on stuff as soon as they get them. This creates a negative loop where prices keep rising, and the dollar keeps falling.
And the only available response for the Government is to keep printing money like crazy (QE 3,4,5 etc.)
But what about the Tea Party, they won't allow that, right? The Tea Party will be leading the charge, they'll be begging the Fed to print more money when the next recession hits.
Tuesday, April 26, 2011
This is the feedback loop. It is confirmation to the gold investor that his gold is a good investment. And it also says something very distinct about the alternatives. Namely that they are failing. And with this confirmation, it is from existing gold holders that less supply comes. This is not true of any other investment class because they all have objective metrics for valuation or economically limiting forces. All except gold.
Monday, April 25, 2011
Gold is valuable in direct proportion to the instability of the sovereign currency.How stable is the dollar right now?
It depends on your perspective. If you're a bank president, or a U S Senator, or a Hollywood star, or a popular radio personality, it probably seems pretty damned stable. Or, at least, you have so many of them in your wallet it's not really an issue: this is the greatest country on God's Green Earth, we have the most innovative people and the deepest markets, and the Dollar is still King, by golly!
For everybody else, not so much. We all know about the 14 trillion dollar Government deficit, the 75 trillion in unfunded US Government liabilities, the 3 trillion in debt held by China and japan, the trillions in off-balance sheet funding for our three ongoing wars, and the fact that the Fed - which is currently insolvent by any standard used to measure a bank - is currently buying over 70 percent of all newly issued US debt.
But what about you and me? What about the average guy and gal? After all, what we spend makes up about 70 percent of US GDP.
There are now about 7.25 million less jobs in America than when the recession began back in 2007.
Only 45.4% of Americans had a job during 2010. The last time the employment level was that low was back in 1983.
Only 66.8% of American men had a job last year. That was the lowest level that has ever been recorded in all of U.S. history.
According to a new report from the AFL-CIO, the average CEO made 343 times more money than the average American did last year.
U.S. households are now receiving more income from the U.S. government than they are paying to the government in taxes.
Approximately one out of every four dollars that the U.S. government borrows goes to pay the interest on the national debt.
Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.
Total credit card debt in the United States is now more than 8 times larger than it was just 30 years ago.
Average household debt in the United States has now reached a level of 136% of average household income. In China, average household debt is only 17% of average household income.
The average American now spends approximately 23 percent of his or her income on food and gas.
If that all sounds sustainable, sell your gold and buy dollars. If not, maybe you should sell some dollars and buy gold - and slver. Even at these prices.
Sunday, April 24, 2011
It is always dangerous to compare vastly different historical eras in order to enforce some sort of socio-political point. It is currently popular to compare modern society to Rome, though the overall conceptions of Self, Society, Class, God and Will were so vastly different in classical society, all comparisons that do not take these complex differences into account are hollow.
However, it is interesting, and perhaps instructive, to look at culture during the first great modern Disposable Money scheme. This occurred in France during the reign of Louis XV, who inherited a country whose coffers had been vastly depleted of Gold by the myriad of unnecessary wars foisted upon the country by Louis XIV - not to mention the expense of the Royal lifestyle at Versailles.
The young Louis XV fell under the spell of a Scottish Banker, professional gambler (and accused murderer) named John Law who sold the naive King on the benefits of paper money that could be issued and controlled by a Central Bank. Law was set up as the chief executive of the Banque General wherein most of the capital consisted of notes backed by the French Government, making it the de facto Central Bank.
He then used the Central Bank Credit to purchase all the current Louisiana Territory concessions, roll them into one company and then issue new vast quantities of paper notes backed by shares in the Louisiana Company (which he now owned). This scheme made those closest to the Central Bank enormously (paper) wealthy. And most everybody who could afford shares sold all they had of value to get in on the instant-wealth scheme.
The entire scheme lasted only about ten years, and though it left the country completely bankrupt when it collapsed, it did manage to introduce the idea of Wealth as divorced from Labor: Wealth produced simply by controlling the issuance and flow of Paper Money.
This scheme, though discredited at the time - for a time - naturally took hold in the economic consciousness and was recreated at various times in order to prop up sagging economies - all the way to our present era - where it has become wholly accepted as a foundation for our current economy. The founding fathers were aware of it, which is why they decreed in our constiturion that only Gold and Silver could ever be used as money in the United States of America. ('Strict constructionists' where are you?)
But all this brings me back to the curious cultural phenomena associated with this easy money ideal of 18th Century France. Here, I am out of my depth, (though I studied it a bit in college) - so I present some curious developments in popular entertainment that appear for the first time, in the human repetoire and have flourished ever since.
18th Century French literature - though rife with brilliant social critiques involving social climbers and easy-wealth seeking devotees, also introduced a genre that can be best classified as Middle Class Porn, in the form of the "Erotic Novel" - such as Les Liasons Dangereuses and the incoherent sexual ramblings of the Marquis De Sade (both still popular today - unsurprisingly). During this period we also find the birth of the Romance Novel - or "Housewife Porn" which explores the Romantic yearnings of middle class heroines (like "Paul and Virginie") swept of their feet by dashing strangers - a genre which was so aptly satirized by Voltaire ("Candide") and Balzac ("Eugenie Grandet") - and is now the mainstay of popular culture in the form of novels, films and television.
In painting too, we find the introduction of Middle Class Porn in the form of "Sensuous Nudes" in "mythological settings:" Topless bathing Nymphs, Maenads, and Goddesses, many of which still adorn the walls of wistful college students. Also popular right at the height of the Mississippi Bubble were the Fetes Gallants paintings that celebrated nobles involved in feasts in sumptuous settings, rife with erotic undertones.
Now, I would never argue that it is impossible to point to certain individuals throughout history who embodied the idea of Wealth as divorced from Labor, Honor and Service. (Certain Roman Emperors, like Nero, do come to mind). However, on a vast, popular, societal level it seems that the themes of disposable culture (wealth without labor, happiness based on Romantic and Sexual gratification) are directly related to the introduction of disposable money.
Friday, April 22, 2011
Williams says gold and silver are nowhere near their former inflation adjusted highs of 1980. Back then, gold hit $850 per ounce and silver $49.45 per ounce. To truly equal that price in today’s inflated money, gold would have to be “$8,331 per troy ounce” and silver would have to be priced at “$485 per troy ounce,” according to Williams’ recent calculations.
In a related story, researchers at Bill Gross’s firm, PIMCO - the largest bond fund in the world, estimate that in the last quarter, the Fed purchased 70 percent of all new Treasury debt. This is a disaster in the making. By printing new money to buy debt, the Fed is both holding interest rates artificially low and flooding the world with dollars.
More crazy billionaires buying bullion:
Wednesday, April 20, 2011
Tuesday, April 19, 2011
Is the Fed solvent?
Read this (several times), quoted verbatim from John Mauldin:
"As a side note, it's probably worth noting that the Federal Reserve has already pushed its balance sheet to a point where it is leveraged 50-to-1 against its capital ($2.65 trillion / $52.6 billion in capital as reported the Fed's consolidated balance sheet ). This is a greater leverage ratio than Bear Stearns or Fannie Mae, with similar interest rate risk but less default risk. The Fed holds roughly $1.3 trillion in Treasury debt, $937 billion in mortgage securities by Fannie and Freddie, $132 billion of direct obligations of Fannie, Freddie and the FHLB, and nearly $80 billion in TIPS and T-bills. The maturity distribution of these assets works out to an average duration of about 6 years, which implies that the Fed would lose roughly 6% in value for every 100 basis points higher in long-term interest rates. Given that the Fed only holds 2% in capital against these assets, a 35-basis point increase in long-term yields would effectively wipe out the Fed's capital. "
How, under these circumstances, can the Fed ever tighten without massive sales of assets that would force the economy into a depression? Answer me that.
Democrats, Republicans See Clashing Views Helped by S&P Revision
Democrats said the revision issued yesterday by New York- based S&P helps make the case for a broad agreement based on the debt-cutting plan President Barack Obama outlined last week. Republicans said the ratings firm’s report reinforces their call for deeper spending cuts than the president and other Democrats have been willing to consider.
AND NOT ONE OF THESE SELF SERVING, PREENING, POSTURING MORONS HAS ANY CLUE THAT THIS DOWNGRADE SIGNALS DANGER FOR THE ENTIRE NATION, RATHER THAN AN OPPORTUNITY TO SCORE POLITICAL POINTS FOR THEIR NARROW, IDEOLOGICAL TINKERING WITH PURELY INSIGNIFICANT SLIVERS OF THE BUDGET.
Congress is facing a vote as early as next month on raising the government’s $14.29 trillion legal debt limit. The Treasury Department projects that it will hit the cap on May 16, though it could use emergency measures to avoid default until about July 8.
Obama and members of his economic team have said that failure to approve an increase could have catastrophic consequences for the U.S. economy and financial markets.
YET THE PETTY BICKERING CONTINUES:
Representative Jeb Hensarling of Texas, head of the House Republican Conference, said confidence in the U.S. economy is “sure to dwindle” when Obama “chooses to treat our national debt as campaign fodder and insists on more spending and more taxes.”
House Democratic Whip Steny Hoyer of Maryland said the S&P’s decision “shows the urgent, bipartisan action needed to put our nation on a serious path to reduce deficits.” It “demonstrates that Republicans cannot hold the debt limit hostage over partisan, divisive issues,” he said.
If you think these BOZOS are going to get together to tackle the problem, now's a good time to sell your gold. If not... well, you know what I think.
Monday, April 18, 2011
S&P cuts U.S. rating outlook to negative
Moody’s says latest budget plans a turning point
NEW YORK (MarketWatch) — Standard & Poor’s cut its ratings outlook on the U.S. to negative from stable on Monday, lighting a fire under Washington’s deficit-reduction debate and sending stock markets sharply lower.
The rating agency effectively gave Washington a two-year deadline to enact meaningful change, just days after House Budget Committee Chairman Paul Ryan and President Barack Obama each outlined their plans for slashing debt. S&P nonetheless kept its highest rating, AAA, on the U.S.
Relative to Triple-A-rated peers, the U.S. has very large budget deficits and rising government indebtedness, and the path to addressing those issues is unclear, S&P analysts said.
They noted an increasing gap between a lack of action by U.S. fiscal policy makers and steps taken by its AAA-rated peers, even after the Republicans and Obama administration released their 2012 budget proposals.
“The fiscal profile of the U.S. is increasingly diverging from that of its AAA peers,” said David Beers, an S&P analyst, on a conference call. “This was the time to update our opinion.”
Sunday, April 17, 2011
A) Will they reign in spending, pay down debt, and let assets fall to whatever low price they naturally reach?
Saturday, April 16, 2011
Wednesday, April 13, 2011
Much is made of the fabulous debt burdens of the US federal and state governments. However, the US consumer's balance sheet is equally as debt burdened.
In 1975 total household debt—including mortgages, credit cards, auto loans and bingo wagers—was about $730 billion or 45% of GDP
During the 1980’s, however, this long-standing household leverage ratio began a parabolic climb, and never looked back. By the bubble peak in Q4 2007, total household debt had reached $13.8 trillion and was 96% of GDP.
Yet after 36 months of the Great Recession wring-out, the dial has hardly moved: household debt outstanding in Q4 2010 was still $13.4 trillion, meaning that it has shrunk by the grand sum or 3% (entirely due to defaults) and still remains at 90% of GDP.
Wall Street stock pushers have noted that the ratio of debt to disposable personal income (DPI) has dropped materially, and that this proves the household sector has been healed financially and is ready to borrow again. This ratio has fallen to 116% from a peak of 130% in late 2007.
Yet, this is almost entirely due to an enormous increase in government transfer payments. Even still, the ratio is atrocious.
A better gauge, however, is Household debt to private wage and salary income which amounted to 255% of at the peak of the credit boom in late 2007, and was still 251% in Q4 2010.
Meanwhile, consumer spending as a percentage of GDP - which stayed in a range of 61% to 64% from 1960 until 1980 - has ballooned to 70% of GDP.
Charles McKay summed up this debt madness of the last 30 years in two quotes from his book Extraordinary Delusions and the Madness of Crowds, written in 1841.
“Money, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.”
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
So now, the Boomers are turning 50 years old at a rate of 10,000 per day. A staggering 38% of workers between the ages of 45-54 have less than $10,000 of retirement savings and a mind boggling 29% of workers over 55 have less than ten grand in their retirement savings.
It doesn't take a genius to imagine what will happen to real GDP over the next several years as consumer spending contracts. Anybody who can't see that this must happen is blind, hopelessly partisan, or both.
The only issue is: what will be the Government's response?
If you believe politicians in both parties will come together to selflessly work in the interest of the nation to reign in spending, cut their own salaries in half, fire all non-essential workers, close our 180 military bases around the world, end the three pointless wars, defund the insolvent portion of medicaire, raise the social security retirement age, and raise tax rates on the wealthiest one percent, while sponsoring infrastructure work programs to help the 20 percent of the population that has become structurally unemployed, and most of all: raise rates at the expense of the banking cartel to reward savers - then you should probably hoard dollars, work hard and get your own savings rate up.
If you believe the government will desperately keep printing money (which means issuing new debt) to keep the illusion of well being alive as long as humanly possible, you better buy as much gold and silver as you can afford, because it is the only thing that will keep you solvent.
Tuesday, April 12, 2011
Monday, April 11, 2011
Saturday, April 9, 2011
Thursday, April 7, 2011
Wednesday, April 6, 2011
Tuesday, April 5, 2011
Gold bubble? Consider this: the red pie is all assets of a typical pension fund. The tiny black sliver is the percentage of gold and gold stocks in that fund.
Eric Sprott recently did a fascinating presentation explaining how underowned gold is as an asset class. Sprott wrote that despite a 30 percent increase in gold holdings during 2010, gold ownership as a percentage of global financial assets has only risen to 0.7 percent. That’s a big increase from the 0.2 percent level in 2002, but Sprott points out that it’s misleading because the majority of that increase was fueled by gold appreciation, not increased level of investment.
Sprott estimates that the actual amount of new investment into gold since 2000 is about $250 billion. Compare that to the roughly $98 trillion of new capital that flowed into other financial assets over the same time period.