Quantum Pranx

ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Archive for September 2009

The Price of Gold: the Paradox is Revealed

leave a comment »

Price of gold: the paradox is revealed
– Excerpt GEAB N°34 (April 16, 2009) –
For months we have witnessing a worldwide paradoxical phenomenon which the press has widely reported. Because of the crisis investors fled most categories of assets (real estate, stock market, currencies, comodities) and many of them have invested a portion of their portfolios in gold, even causing shortages of coins or bars in many markets. Yet, and this is the paradox, the price of gold is not taking off its average price of 900 USD / ounce.
As a first step, in the second half of 2008, the commonly accepted explanation was that margin calls due to massive losses in other asset classes had required significant sales of gold by their holders, offsetting growing demand and this was probably the case. But since early 2009, the paradox remains and this explanation is no longer be sufficient to explain the status of the price of the yellow metal.
LEAP/E2020, therefore, tried to understand the “why” of this paradox and draw conclusions for GEAB subscribers. Let’s keep in mind that the analysis of gold market is particularly complex because it blends several phenomena that obfuscate its actual operation:
1. It is simultaneously a highly speculative market where information of all sorts is circulated to serve any particular market trend and a market for an industrial raw material (namely the jewellery trade)
2. It is a market driven by investors particularly convinced, sometimes ideologically, of the ‘uniqueness’ of gold as the only legitimate basis of an economy and a healthy currency
3. It is a market under the close supervision of central banks and states which, in times of crisis, regard it, on the one hand, as a potential danger to fiat money and, on the other hand, as an asset of « last resort » which can be subject to seizure when the crisis becomes uncontrollable (1)
4. Finally, it is a market that deals with a metal identified as wealth for at least five millennia, known to make people go crazy!
So, to try to understand what is happening currently in this market, caution is required. However, in the many shadowy areas of the international gold market, a darker area than others seems to provide an explanation of the current gold price and from which at the same time, useful recommendations can be drawn for GEAB subscribers. It is the difference between the two types of market for the yellow metal:
1. The physical market, which requires real transactions of yellow metal. It sells and buys real coins and bars that one must then stored oneself (in a bank safe, in one’s garden or under one’s mattress (2))
2. The paper-gold market. It buys and sells certificates that guarantee the possession of a quantity of gold (coins or bullion), which the seller agrees to provide the buyer physically if required.
The practical aspect of the paper gold market is obvious. It avoids the complex problems of transport and storage for buyers of large quantities of gold and facilitates all transactions, increasing liquidity in the gold world market. However, it requires absolute trust in two types of operators in the heart of this market:
. Sellers
. Regulators
The first have to be above any suspicion and respect the rules that require them, in general, to possess physical gold equivalent to 90% of the certificates that they negotiate. The latter must be even more legitimate because they must ensure that all sellers of paper gold comply with the regulations.
However, the performance of global financial institutions and regulators of the major international financial centers over the past two years does not inspire great optimism. The first acted (and still act) as top-level crooks and the latter as the accomplices of the former, especially on Wall Street and the City … which, coincidentally, are the international centers of the gold market (3).
LEAP/E2020 believes that because of the current struggle for survival of major financial institutions and of the crisis in the international monetary system, it would be very naive to assume that the regulators of the gold market play fair, in so far as this would be, first, to the detriment of the Dollar, the British Pound and most fiat money and, second, to the detriment of the balance sheets of major financial institutions, already seriously weakened. We therefore believe that the paper gold market no longer operates by the regulations and that many operators in this market do not respect the requirement to hold 90% physical gold as collateral. It is impossible to know precisely at what collateral they hold but it is likely to be very low, at least at a level that would pose a serious problem if tomorrow more than half the buyers demanded conversion of their certificates into physical gold (4).
For the record, the United States acted, to all intents and purposes in the same manner when a manipulation when, in 1971, President Nixon suddenly announced that the dollar was no longer convertible into gold. Before 1971 the Dollar was equivalent to a certificate on gold and the United States a seller of paper gold which forgot to comlply the constraints of coverage of its certificates, and eventually had to acknowledge that it could no longer honor its contracts (5).
Evolution 2004-2009 of gold sales by the central banks of France (red), Switzerland (blue), The Netherlands (green) and the rest of the world (orange) – Source : World Gold Council / VM Group, 02/2009
Of course, the gold market is also affected by the supply of precious metal. These sources are mainly mining (which is basically stable), central banks’ sales or sales by international institutions like the IMF (6). By massive sales (public or discrete) states can easily alter the gold price (7). Currently, the level of central banks’ gold sales has hardly changed. For many European states, which, because of the Euro, can no longer rely on the direct income of gold sales because they only receive the interest (the capital is in the hands of central banks), the relevance of sales is now marginal. The monetary storm coming by the end of summer 2009 may encourage governments to exchange their foreign currency reserves, particularly U.S. dollars, for gold. As far as the United States is concerned, its gold reserves, even valued at the current market price (about 300 billion USD (8)), represent only a small fraction of the exorbitant amount committed by the US under the current crisis (and there is great uncertainty about the exact amount of current U.S. gold reserves (9)). However this LEAP/E2020 analysis and recommendations does not pass judgment on an evolution of gold price, but on the safety of the investment. That in the end the buyer of gold has physical gold in the hand instead of a piece of worthless paper.
In conclusion, our team recommends that its subscribers who do not want to speculate (and therefore face the risk of losing their entire investment (10)) must stop investing in paper gold and should limit themselves to physical transactions (11). It This may be difficult in some cases, but as we get closer to the breakdown of the international monetary system in the summer of 2009, we believe that there is now a major risk that owners of paper gold will end up losing all their investment when sellers recognize that they cannot honour their contracts because they are unable to supply the physical gold they contracted to.
———
Notes:
(1) Many countries had policies prohibiting private possession of gold and / or setting up forced sales to the State at ridiculous prices. The United States and Germany have experienced such situations in the twentieth century. The United States also maintained a ban on private possession of gold from 1934 to 1974. That is why, for the last two years LEAP/E2020, has regularly reminded its subscribers that one must be wary of the gold market and closely monitor the attitude of public authorities in this area. Although currently it is useful to diversify up to 30% of one’s assets into precious metals (gold, silver, platinum).
(2) The last option is safer but more uncomfortable.
(3) Sources: TraderTech; Quid
(4) Avery Goodman has published two interesting articles on the subject referring to two cases invoking the possibility that the New York Stock COMEX is already out of stocks of gold for certain product categories and that the European Central Bank has intervened discreetly to avoid a problem of coverage in the same market. Sources : SeekingAlpha, 03/27/2009 ; SeekingAlpha, 04/02/2009
(5) The United Kingdom did the same in 1931 because of the economic crisis.
(6) The latter announced a sale of 400 tons of gold last year as part of its reorganization. The recent statements of the G20 summit in London on IMF gold sales are not clear at all. Are they the planned 400 tons or additional quantities? A mystery, and, anyway, it is the general assembly of the IMF which will decide. Source : Reuters, 04/02/2009
(7) For an inventory of world gold reserves: Wikipedia.
(8) Source: Watoday, 03/09/2009
(9) In recent years, frequent changes of the wording in the classification of the various components of the gold reserves of the United States have generated a series of questions about the exact quantity of the country’s gold reserves. Their use by the ESF (Exchange Stabilization Fund, whose interventions on the foreign exchange market in the summer of 2008, which LEAP/E2020 has already described, is suspected to have greatly reduced the country’s gold reserves contrary to official statistics. Source: MarketOracle, 01/31/2007
(10) We take this opportunity to remind subscribers that our analysis and recommendations are never intended for speculation purposes. Anyone who uses them for such purposes takes the risk any speculator should assume: losing his entire bet.
(11) And convert their current certificates, if any, into physical gold immediately.
Lundi 31 Août 2009
In the same category:
Traffic-Info LEAP/E2020 – Over one million single visitors in 6 months on leap2020.eu – 20/07/2009
GEAB N° 36 is available! Global systemic crisis in summer 2009: The cumulative impact of three « rogue waves » – 17/06/2009
LEAP/E2020 and Paris-Sorbonne university announce world premiere in the field of education in political anticipation and strategy – 09/06/2009
Open letter / London G20 Summit: Last chance before global geopolitical dislocation – 24/03/2009
GEAB Archives Offer (1) – Six archive issues of your choice for 50 euros – 22/01/2007
GEAB N°36 (Summer 2009 special edition) – Contents
– Published June 17, 2009 –
Global systemic crisis in summer 2009: The cumulative impact of three « rogue waves »
Because the origins of the crisis remain unaddressed, LEAP/E2020 estimates that the summer 2009 will be marked by the converging of three very destructive « rogue waves », illustrating the aggravation of the crisis and entailing major upheaval by September/October 2009… (page 2)
Read public announcement
The three « rogue waves » of summer 2009
The wave of massive unemployment: Three different dates of impact depending on the country: in America, Europe, Asia, the Middle East and Africa
Summer 2009 will be remembered as a tipping point as regards the impact of unemployment on the course of events of the global systemic crisis. Indeed, it will be the time when, instead of a consequence of the crisis, unemployment worldwide will turn into a factor aggravating it. Of course, this process will unwind neither at the same pace everywhere, nor with similar consequences… (page 7)
Subscribe
The breaking wave of serial failures: companies, banks, housing, states, counties, towns
Apart from these very high profile events, the number of failures of large, medium and small companies and financial institutions is rapidly and steadily growing. The speed should increase even more after summer 2009. Meanwhile, in the United States, United Kingdom and Spain in particular, a second wave of real estate foreclosures is gestating as well as a wave of state, county and town debt defaults during summer 2009. Financial media’s “green shoots” are only hiding the “dead leaves” of the real economy… (page 15)
Subscribe
The wave of the terminal crisis of US Treasuries, Dollars and Pounds, and the return of inflation
This first BRIC Summit (which it is not difficult to imagine how difficult it was to organize), is the first sign of dislocation of the current international system. The US probably did everything it could to prevent it from taking place; moreover they were refused the status of observers inside it, indicating clearly that what was to be discussed had nothing to do with diplomacy. The main topic was not a military and strategic issue, but a monetary and financial one: what to do with the hundreds of billions of US dollars (in the form of US Treasuries in particular) accumulated by these four countries in the past few years?… (page 22)
Subscribe
Strategic recommendations to successfully navigate one deadly summer 2009
. Currencies / Gold
. Real estate
. Corporate shares / bonds
. Treasuries (page 27)
Subscribe
The GlobalEurometre – Results & Analyses
The Europeans are still very pessimistic about US outlook; a large majority (81 percent) estimate that the United States will not be able to borrow the amounts of money needed to finance its deficits in 2009… (page 29)
Subscribe
Full page

Excerpt from LEAP/E2020 GEAB N°34 – April 16, 2009

[Even though this article was first posted more than 5 months ago, its general thrust still holds true, even taking into account the recent move of gold past the $1,000 barrier.]

FOR MONTHS WE HAVE BEEN WITNESSING a worldwide paradoxical phenomenon which the press has widely reported. Because of the crisis investors fled most categories of assets (real estate, stock market, currencies, comodities) and many of them have invested a portion of their portfolios in gold, even causing shortages of coins or bars in many markets. Yet, and this is the paradox, the price of gold is not taking off from its average price of $900 per ounce.

As a first step, in the second half of 2008, the commonly accepted explanation was that margin calls due to massive losses in other asset classes had required significant sales of gold by their holders, offsetting growing demand and this was probably the case. But since early 2009, the paradox remains and this explanation is no longer be sufficient to explain the status of the price of the yellow metal.

LEAP/E2020, therefore, tried to understand the “why” of this paradox and draw conclusions for GEAB subscribers. Let’s keep in mind that the analysis of gold market is particularly complex because it blends several phenomena that obfuscate its actual operation:

Read the rest of this entry »

Written by aurick

24/09/2009 at 11:49 am

Trade Wars and Protectionism are not Free Trade

leave a comment »

Trade Wars and Protectionism are not Free Trade
Posted by Ron Paul (09-21-2009, 02:21 PM) filed under Foreign Policy
Two weeks ago, both the administration and the Fed announced with straight faces that the recession was over and the signs of economic recovery were clear.  Then last week, the president made a stunning decision that signals the administration’s determination to repeat the mistakes of the Great Depression.  Much like the Smoot-Hawley Tariffs that set off a global trade war and effectively doomed us to ten more years of economic misery, Obama’s decision to enact steep tariffs on Chinese imported tires could spark a trade war with the single most important trading partner we have.  Not only does China manufacture a whole host of products that end up on American store shelves, they are also still buying our Treasury debt.
One has to wonder why this course of action is being undertaken if the administration really believes its own statements about economic recovery.  Why are they still trying to fix something they have supposedly already fixed?  The most troubling thing is the rhetoric about free trade given to justify this.  The administration claims it is merely enforcing trade policies and that this is necessary for free trade.  This sort of double speak demonstrates a gross misunderstanding of free trade, economics and world history.  Yet these are the same people the country trusts to solve our problems.  This sort of thing should remove all doubt about the credibility of the decision makers in Washington.
The truth is this will hurt American consumers by driving up prices of tires and cars.  This will also complicate matters for our already crippled manufacturing and agricultural industries, if and when China retaliates against US made products.  Whatever jobs might be saved in the tire and steel industries here as a result of this protectionist measure will likely be lost in other American industries.  It is even doubtful that those jobs will be saved, as cheap tires can be obtained from other places like Mexico instead.  It is difficult to see any real winners among all the losers where trade wars are concerned.  If Unions think this is beneficial to them, they are being penny-wise and pound foolish.
Free trade with all and entangling alliances with none has always been the best policy in dealing with other countries on the world stage.  This is the policy of friendship, freedom and non-interventionism and yet people wrongly attack this philosophy as isolationist.  Nothing could be further from the truth.  Isolationism is putting up protectionist trade barriers, starting trade wars imposing provocative sanctions and one day finding out we have no one left to buy our products.  Isolationism is arming both sides of a conflict, only to discover that you’ve made two enemies instead of keeping two friends.  Isolationism is trying to police the world but creating more resentment than gratitude.   Isolationism is not understanding economics, or other cultures, but clumsily intervening anyway and creating major disasters out of minor problems.
The government should not be in the business of giving out favors to special interests or picking winners and losers in the market, yet this has been most of what has consumed politicians’ attention in Washington.  It has reached a fevered pitch lately and it needs to end if we are ever to regain a functional and prosperous economy.

by Ron Paul
Originally posted on Sept 21, 2009

TWO WEEKS AGO, BOTH THE ADMINISTRATION and the Fed announced with straight faces that the recession was over and the signs of economic recovery were clear. Then last week, the president made a stunning decision that signals the administration’s determination to repeat the mistakes of the Great Depression.

Much like the Smoot-Hawley Tariffs that set off a global trade war and effectively doomed us to ten more years of economic misery, Obama’s decision to enact steep tariffs on Chinese imported tires could spark a trade war with the single most important trading partner we have. Not only does China manufacture a whole host of products that end up on American store shelves, they are also still buying our Treasury debt.

One has to wonder why this course of action is being undertaken if the administration really believes its own statements about economic recovery. Why are they still trying to fix something they have supposedly already fixed? The most troubling thing is the rhetoric about free trade given to justify this. The administration claims it is merely enforcing trade policies and that this is necessary for free trade. This sort of double speak demonstrates a gross misunderstanding of free trade, economics and world history. Yet these are the same people the country trusts to solve our problems. This sort of thing should remove all doubt about the credibility of the decision makers in Washington.

Read the rest of this entry »

Written by aurick

22/09/2009 at 9:38 am

Gold is now underwritten by China

leave a comment »

GOLD IS NOW UNDERWRITTEN BY CHINA
There is really only one government in the world that understands the virtues of gold – China. Not only is the country buying all the gold that they can without pushing the price up but they are also encouraging the Chinese people via the media to buy gold and silver.
Power corrupts
Let us first look at the US and ex Fed Chairman Greenspan to demonstrate how sound individuals become totally corrupt and dishonest once they become politicians. (Yes, the chairman of the Fed is political position which permits no integrity).
In 1966 Greenspan wrote an essay – “Gold and Economic Freedom”- in which he spells out the importance of gold.   Here is a quote from the essay:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”
Then 21 years later Greenspan started his 19 year reign as chairman of the Fed. During that period he was instrumental in creating or exacerbating one financial crisis after the other. First the stockmarket and Nasdaq bubble, then the housing bubble, the credit bubble, the derivatives bubble and finally the banking and financial system bubble. Greenspan fuelled one bubble after the next by printing more money and lowering interest rates each time there was pressure in the economy.
Every time there was a hearing in front of congressmen or senators Greenspan spoke his gobbledygook that no one understood. But they all  (except for Ron Paul) licked his boots and loved him since his money printing and unsound monetary policies created a false prosperity which all their voters believed was real.
Now, 43 years after his essay praising the virtues of gold, Greenspan just said in a speech that “Gold is the ultimate currency”. But during his 19 years as chairman of the Fed he acted like printed paper was the ultimate currency. This is why you can never, ever trust a politician. Political power totally corrupts human beings and whatever integrity, honesty or soundness they had before totally disappears as soon as they take on the political mantle. Bernanke who was once an honest academic is continuing in exactly the same tracks and is doing all he can to make the financial crisis bigger by printing trillions of dollars.
China understands gold
China has recently announced that they have increased their gold reserves by 76% to 1054 tons. But that is just the beginning. China is likely to be a major buyer of gold for the foreseeable future. Chinese government officials who normally keep a low profile have recently become more vociferous about the total mismanagement of the US economy and the US dollar. China is now openly criticising US monetary policy. The former vice-chairman of the Standing Committee, Mr Cheng Siwei, that China is dismayed by the Fed’s credit easing (as reported by Ambrose Evans-Pritchard in the Telegraph). Mr Cheng said: “If they keep printing money to buy bonds it will lead to inflation and after a year or two the dollar will fall hard”. He went on to say: ” We will diversify incremental reserves into Euros, Yen and other currencies. Gold is definitively an alternative but when we buy the price goes up. We have to do it carefully so as not to stimulate markets”.
So China buys other currencies, they use their reserves to buy real assets, especially in the ground, in Africa, South America and other continents and they buy gold. The Chinese government understands what is happening in the world and they have a long term plan to apply their reserves to areas which have real value and which will benefit their economy for years to come. Of course, they have the advantage of not having to worry about short term pressures such as being re-elected.
China is promoting gold and silver on state television. They are urging their people to buy gold and especially silver which they consider very cheap currently (we agree). They are also buying gold with their reserves and they are getting out of the dollar as quickly as they can.
The message can’t be more clear. China with its $2 trillion of reserves and with a population of 1.3 billion are major buyers of gold and silver. The effect of this is that the gold price is underwritten for some time to come.
Stockmarket in real money
Most world stockmarkets have been on a slippery slope against real money for the last 10 years. The chart below shows the Dow Jones against gold since the peak of this ratio in 1999. Since then the Dow has lost almost 80% against gold. Other world markets have had similar percentage falls against  gold. We project that the Dow/Gold ratio will fall to 0.5 – 1 which entails another 90 – 95% fall of the Dow against gold.
Asia versus the USA
China is a major buyer of gold as we have just outlined. So is India where the tradition to buy gold makes the country the biggest jewellery buyer in the world by a big margin. In 2008 India bought circa 700 tons of gold or 25% of total supplies.
China and India together have a population of almost 2.5 billion people who buy gold and put their savings in gold and jewellery. In addition the Chinese government is a major buyer of gold. Against that, there are 300 million Americans and most of them don’t understand gold or the value of it.  Add to that the US government which hasn’t got a clue about real money. Instead they believe that all their financial problems, all their deficits and all their bubbles can be solved by pressing a button and creating a few more $ trillions of paper that they call money.
So who should we back, the 2.5 billion responsible and thrifty Chinese and Indians or the irresponsible US government? Not a very difficult choice!
“Paper money eventually returns to its intrinsic value – ZERO”
Voltaire 1729
Egon von Greyerz

by Egon von Greyerz
Originally posted 16 September 2009

THERE IS REALLY ONLY ONE government in the world that understands the virtues of gold – China. Not only is the country buying all the gold that they can without pushing the price up but they are also encouraging the Chinese people via the media to buy gold and silver.

Let us first look at the US and ex Fed Chairman Greenspan to demonstrate how sound individuals become totally corrupt and dishonest once they become politicians. (Yes, the chairman of the Fed is a political position which permits no integrity).

In 1966 Greenspan wrote an essay – “Gold and Economic Freedom”- in which he spells out the importance of gold.   Here is a quote from the essay:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”

Then 21 years later Greenspan started his 19 year reign as chairman of the Fed. During that period he was instrumental in creating or exacerbating one financial crisis after the other. First the stockmarket and Nasdaq bubble, then the housing bubble, the credit bubble, the derivatives bubble and finally the banking and financial system bubble. Greenspan fuelled one bubble after the next by printing more money and lowering interest rates each time there was pressure in the economy.

Read the rest of this entry »

Two possibilities Bulls have yet to discount

leave a comment »

Two Possibilities Bulls Have Yet to Discount
BY RICK ACKERMAN ON SEPTEMBER 14, 2009 3:35 AM GMT · 0 COMMENTS
We’ve always believed that the stock market’s ups and downs are driven not by anything so mundane as news events or the economy, but by the same mysterious cyclical forces that govern the physical universe. Nevertheless, two rapidly evolving news stories threaten to abruptly reverse Wall Street’s heedless bear rally, which recently entered its seventh month.
The first story concerns the impending collapse of the Obama presidency. Although he ran a very impressive campaign, Mr. Obama appears hell-bent on committing political suicide.  The President is clearly obsessed with radically revamping the country’s health care system. But his relentless efforts to do so have turned many voters against him,
including some who supported his election bid. Most recently, a Republican congressman drew heat by calling Mr. Obama a liar during a health care address to the nation. However, it bears mentioning that there are some in his own party, most notably U.S. Sen. Dianne Feinstein, who have said the same thing, more or less, but more tactfully – i.e., that Mr. Obama’s numbers are not to be believed or trusted.
Russia No Ally
The other developing story is the looming showdown with Iran, which last week said it will not be persuaded to give up a uranium enrichment program that’s making the rest of the world extremely nervous.  Mr. Obama had stated during the campaign that the U.S. and its allies would not stand by idly as Iran developed nuclear weapons. However, it is now clear that Russia, an absolutely crucial ally in any sanctions that might have been used against Iran, will not lift a finger if the mullahs continue to churn out weapons-grade uranium. Last week, Russia’s foreign minister asserted that Iran’s nuclear program posed no threat to the rest of the world, echoing thoughts believed only by America’s enemies or those so completely blinded by their hatred of Israel that they perceive Ahmadinejad and the mullahs as the good guys.
Concerning Mr. Obama political future, if failure seemed merely imaginable a few months ago, it looks likely now.  He has staked his political credibility on a health care plan that looks nearly certain to go down in flames. Even worse, he keeps trying to ram this legislative sausage down the throats of tens of millions of Americans who have grown increasingly skeptical with each new public relations push. If successful politics means knowing when to hold ‘em and when to fold ‘em, Mr. Obama has pushed all his chips into the pot with nothing but a low pair. When his health care sausage turns putrid, he’ll have no political capital left to push through the most ambitious and costly political agenda in the nation’s history.
A Rudderless U.S.
At best, the U.S. would then be without a rudder; at worst, in a rapidly deteriorating economy, there could be political and social chaos. Even then we could probably find a way to limp to the next election. But the situation involving Iran will not long abide Mr. Obama’s stall tactics.  The only credible threat the President can use against Iran in the meantime is the assumed willingness of Israel to launch a pre-emptive strike. There was a time not long ago when no one would have thought Israel capable of attacking Iran without direct help from the U.S.  Now the U.S. is saying it may not be able to hold Israel back.
This seems like more than a mere shift in rhetoric. In any event, if there is a blow-up with Iran, or if Obama is about to become a lame-duck president in the midst of severe economic decline, it bodes ill for Wall Street. We doubt that many investors are ready for the change, which could come without warning.

by Rick Ackerman
Posted originally Sept 14, 2009

WE’VE ALWAYS BELIEVED THAT THE stock market’s ups and downs are driven not by anything so mundane as news events or the economy, but by the same mysterious cyclical forces that govern the physical universe. Nevertheless, two rapidly evolving news stories threaten to abruptly reverse Wall Street’s heedless bear rally, which recently entered its seventh month.

The first story concerns the impending collapse of the Obama presidency. Although he ran a very impressive campaign, Mr. Obama appears hell-bent on committing political suicide. The President is clearly obsessed with radically revamping the country’s health care system. But his relentless efforts to do so have turned many voters against him, including some who supported his election bid.

Most recently, a Republican congressman drew heat by calling Mr. Obama a liar during a health care address to the nation. However, it bears mentioning that there are some in his own party, most notably U.S. Sen. Dianne Feinstein, who have said the same thing, more or less, but more tactfully – i.e., that Mr. Obama’s numbers are not to be believed or trusted.

Russia No Ally
The other developing story is the looming showdown with Iran, which last week said it will not be persuaded to give up a uranium enrichment program that’s making the rest of the world extremely nervous.

Read the rest of this entry »

Written by aurick

18/09/2009 at 2:00 pm

Greenback Gases, Gold and the Coming Shift

with one comment

Greenback Gases, Gold and the Coming Shift
Bankers in charge of our economies makes as much sense as candy makers being in charge of our diets
At the end of a good movie, oftentimes apparently unrelated events are woven together and it becomes clear how and why things happened. If, today, it feels as if we are at the end of an era, it is because we are; and, just like the movies, only at the end do certain events and the reasons for them become clear.
The removal of gold from the global monetary system was not by accident. It allowed governments to do what they could not otherwise do. Gold cannot be printed. Paper money can. Therein lays the cause and consequence of what is happening today.
BEFORE THE WELFARE STATE WAS THE WARFARE STATE
The introduction of paper money allowed war to be conducted on credit with credit-based paper money. In return for allowing bankers to issue England’s money in the form of paper script, bankers allowed King William, England’s king, to wage war on credit, giving England an advantage over other nations which England parlayed into world dominion.
Good ideas spread and the idea of waging war on credit also spread. Prior to World War I, both France and Germany went off the gold standard in order to go to war backed by limitless amounts of paper money, instead of being constrained by limited amounts of gold.
The resultant carnage would not have been as extreme had France and Germany been forced to pay good money, instead of bad, for their arms. But even after WWI and WWII, in the wake of the greatest suffering humanity ever endured, the desire to wage war on credit continued.
When WWII ended, the US emerged as a world power. Unlike Europe and Asia on whose continents the conflict was waged, the US emerged relatively unscathed and realizing it was now the world’s only superpower, the US decided to insure its new found status by maintaining and enlarging its already formidable military machine.
It did so by spending all the gold it had accumulated; up to that time, the largest amount of gold ever owned by any nation in history. In 25 years, from 1946 to 1971, the US overspent its entire gold reserves of 21,775 tons in the pursuit of world dominion.
During those 25 years, the US had a positive balance of trade with the rest of the world so its gold reserves should have substantially increased, not disappeared. Prior to 1971, gold was used by nations to settle trade imbalances but the US imbalance was not caused by trade, it was caused by the costs of maintaining a worldwide military presence and the overseas expansion of US corporations.
GOLD—THE LAST STRAW
The complete removal of gold from the world monetary system finally occurred in 1971 when the US refused to pay other nations in gold what it then owed. The US refused to do so because the US no longer had enough gold to redeem the vast amount of US dollars it had printed and spent (the US did keep what gold it had).
To this day, what was set in motion in 1971 has yet to be fully grasped and understood. Lack of understanding, however, will not prevent its consequences and the US and, indeed, the world, are now about to experience what was then set in motion, an economic meltdown of epic proportions.
When the US removed gold from the world’s monetary system, it removed the one critical element upon which the entire world economy was based. Because the removal had been gradual, the essential role gold performed had been forgotten—but forgetting gold’s role did not mean it had none as many believed, e.g. Keynes, Friedman, Krugman, Volcker, Bernanke, etc.
A description of the critical role of gold and the gold standard was written by Professor Antal Fekete in his essay The Gold Standard Strikes Back……With A 36-Year Lag
…Gold has the same role to play in the monetary system as the fly-wheel regulator does in an engine, the brake does in a train, and circuit-breakers do in an electrical network. Gold is the regulator of the quantity of debt in the economy that can be safely created and carried. It is also safeguarding quality by rejecting toxic debt before it can start metastasis. Debt-based currency utterly lacks safeguards limiting quantity and vouching for quality of debt. Debt-based currency is an invitation to disaster, that of the toppling of the Tower of Babel. Its effects are far from being instantaneous. There is a threshold and there is a critical mass involved. We have long since crossed that threshold and passed that critical mass. By no rational calculus can the outstanding debt be expected to be repaid without inflationary or deflationary adventures, even if further increase were stopped dead in its track. The discussion of the present financial crisis by academia and media avoids all reference to this fact. Under the gold standard a fast-breeder of debt was unthinkable, and debt was retired in an orderly manner.
Using Professor Fekete’s metaphors, with the regulator of debt now disabled, the brakes discarded, and the circuit breakers removed, it is now understandable, as the last and final act of our financial drama plays out, why we now find ourselves buried beneath unbearable and unpayable quantities of toxic debt.
Removing gold from the international monetary system in 1971 allowed the US to then begin issuing US dollars in increasingly excessive amounts as the US was no longer constrained by gold to maintain any semblance of fiscal restraint.
While consequences may be delayed they cannot be avoided. It’s been 38 years since the US removed gold from the international monetary system. As a consequence, the system is now beginning to collapse. Someday, it will collapse completely.
FEAR-BASED OPTIMISM
Increasingly, the sound-bites of politicians, economists and the media are becoming more positive, indicating that an economic recovery is underway.  It is not. If it were, governments would be able to slow or stop the spending they are desperately hoping will rescue their respective economies. None are so doing.
But despite trillions of dollars, the global economy is still contracting. Signs of improvement are due only to the massive amounts of government aid being spent in the hopes of reviving private demand, demand irrevocably crippled by now unpayable levels of debt.
GREENBACK GASES AND THE MELTDOWN
OF THE WORLD FINANCIAL SYSTEM
As China in particular has now observed, the US is increasingly exhibiting signs of monetary incontinence. The US has been unable to control its spending for decades, it is clearly incapable of balancing its budget, and fiscal restraint in the US has gone the way of the Constitution and the Geneva Accords.
China is especially distressed at the apparent inability of the US to control itself. China is holding the vast majority of US debt and, as a self-declared socialist state, finds itself in the incongruous position of having underwritten US wars in Iraq and in Afghanistan along with tax cuts George Bush dispensed to the wealthy.
China and the world has, in effect, been held hostage by the US as a result of the US dollar still being the world reserve currency even after the US defaulted on its gold obligations in 1971.
The world’s acceptance of a fiat currency as a world reserve currency has now destabilized the global economy beyond its ability to recover. For decades, the US has been able to buy goods and services and to repay its extensive borrowings with increasingly worthless paper script. Those days are numbered.
The increasingly fragile house of cards constructed of credit and paper money is now in its final stages of collapse. The global economy is lurching from one bubble to another and we are approaching the end of bankers’ and governments’ ability to pass off their paper money as a store of value. Gold is a store of value. Paper money is not.
GOLD’S ASCENT
In the last two weeks, gold moved strongly upwards. It did so as the US dollar fell. Perhaps the two events are linked, perhaps not. But over the last decade, the price of gold has quadrupled in terms of US dollars, rising as the US dollar has fallen.
No longer having to play the part of the monkey dancing to the tune of government organ grinders, Alan Greenspan recently remarked on gold’s sudden ascent:
Sept. 9 (Bloomberg) — Gold prices that jumped above $1,000 an ounce this week are signaling that investors are buying metals to hedge against declines in currencies, former Federal Reserve Chairman Alan Greenspan said.
The gains are “strictly a monetary phenomenon,” Greenspan said today at an investment conference in New York. Rising prices of precious metals and other commodities are “an indication of a very early stage of an endeavor to move away from paper currencies,” he said.
A recent study showed why Greenspan and other economists did not predict the greatest economic collapse in recent history. As befits the profession, the reason for economists’ poor judgment was money.
To succeed in the field of economics, it is virtually necessary that economists support the policies of the Fed. The following is from “How The Federal Reserve Bought The Economics Profession”, http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html :
One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.
The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after “flipping” had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that “a national severe price distortion [is] most unlikely.” A year later, current Chairman Ben Bernanke said that the boom “largely reflect strong economic fundamentals.”
The Fed also failed to sufficiently regulate major financial institutions, with Greenspan — and the dominant economists — believing that the banks would regulate themselves in their own self-interest.
It is clear the lure of money is as seductive to economists as it is to those they study. Money, while a very powerful incentive, rarely improves the quality of truth. It is erroneous to believe, however, that all economists who agree with the Fed’s role and mission have been bought. Others may be sincerely mistaken in their beliefs.
One of the primary reasons I attend Professor Fekete’s seminars is the opportunity to hear academically rigorous discourse untainted by the all-too-common orthodoxy that passes today for economics. As I have previously written, the study of modern economics is like the study of religion in a time of idolatry.
It is the Fed and its stranglehold on economic debate that has confined discussion within the bounds that do not threaten the Fed or its interests. This is tantamount to discussing religion during the Middle Ages without discussing the power and ambition of the Church. Such discussions leave much to be desired.
November 2-5, Professor Fekete will be speaking in Australia on “The World Financial Crisis and the Vanishing Gold Basis”. For those wishing to know more about the professor, the wikipedia reference, http://en.wikipedia.org/wiki/Antal_E._Fekete, is invaluable. I also discuss Professor Fekete on my YouTube channel, http://www.youtube.com/user/SchoonWorks. For information about the up-coming event in Australia, see http://www.professorfekete.com/gsul.asp . I, and others, will be speaking as well.
THE LAST WALTZ
The current economic crisis is now moving quickly towards resolution. How and when it will end is as uncertain as that it will. Systemic death is never easy and the banker’s paper money, like the fatal virus it is, is now everywhere. Its end will not be easy.
Severe climate change, food shortages, and the possibility of a pandemic are taking their place beside the ever-present possibility of military conflict. The collapse of the financial system will not be the only crisis that confronts humanity in the near future.
We are moving from one era into the next. Change is never easy and significant change is significantly more difficult. The bankers’ credit was responsible for much of what happened in the last three hundred years. It is impossible to imagine what life will be like in its absence.
Only one thing is certain—it will be better.
Buy gold, buy silver, have faith.

by Darryl Robert Schoon
Posted originally 14 September 2009

BANKERS IN CHARGE OF OUR ECONOMIES makes as much sense as candy makers being in charge of our diets. At the end of a good movie, oftentimes apparently unrelated events are woven together and it becomes clear how and why things happened. If, today, it feels as if we are at the end of an era, it is because we are; and, just like the movies, only at the end do certain events and the reasons for them become clear.

The removal of gold from the global monetary system was not by accident. It allowed governments to do what they could not otherwise do. Gold cannot be printed. Paper money can. Therein lays the cause and consequence of what is happening today.

Before the welfare state was the warfare state
The introduction of paper money allowed war to be conducted on credit with credit-based paper money. In return for allowing bankers to issue England’s money in the form of paper script, bankers allowed King William, England’s king, to wage war on credit, giving England an advantage over other nations which England parlayed into world dominion.

Good ideas spread and the idea of waging war on credit also spread. Prior to World War I, both France and Germany went off the gold standard in order to go to war backed by limitless amounts of paper money, instead of being constrained by limited amounts of gold.

Read the rest of this entry »

Healthcare Reform is More Corporate Welfare

leave a comment »

Healthcare Reform is More Corporate Welfare
Last Wednesday the nation was riveted to the President’s speech on healthcare reform before Congress. While the President’s concern for the uninsured is no doubt sincere, his plan amounts to a magnanimous gift to the health insurance industry, despite any implications to the contrary.
For decades the insurance industry has been lobbying for mandated coverage for everyone. Imagine if the cell phone industry or the cable TV industry received such a gift from government? If government were to fine individuals simply for not buying a corporation’s product, it would be an incredible and completely unfair boon to that industry, at the expense of freedom and the free market. Yet this is what the current healthcare reform plans intend to do for the very powerful health insurance industry.
The stipulation that pre-existing conditions would have to be covered seems a small price to pay for increasing their client pool to 100% of the American people. A big red flag, however, is that they would also have immunity from lawsuits, should they fail to actually cover what they are supposedly required to cover, so these requirements on them are probably meaningless. Mandates on all citizens to be customers of theirs, however, are enforceable with fines and taxes.
Insurance providers seem to have successfully equated health insurance with health care but this is a relatively new concept. There were doctors and medicine long before there was health insurance. Health insurance is not a bad thing, but it is not the only conceivable way to get health care. Instead, we seem to still rely on the creativity and competence of politicians to solve problems, which always somehow seem to be tied in with which lobby is the strongest in Washington.
It is sad to think of the many creative, free market solutions that government prohibits with all its interference. What if instead of joining a health insurance plan, you could buy a membership directly from a hospital or doctor? What if a doctor wanted to have a cash-only practice, or make house calls, or determine his or her own patient load, or otherwise practice medicine outside the constraints of the current bureaucratic system? Alternative healthcare delivery models will be at an even stronger competitive disadvantage if families are forced to buy into the insurance model. And yet, the reforms are sold to us as increasing competition.
What if just once Washington got out of the way and allowed the ingenuity of the American people to come up with a whole spectrum of alternatives to our broken system? Then the free market, not lobbyists and politicians, would decide which models work and which did not.
Unfortunately, the most broken aspect of our system is that Washington sees the need to act on every problem in society, rather than staying out of the way, or getting out of the way. The only tools the government has are force and favors. These are tools that many unscrupulous and lazy corporations would like to wield to their own advantage, rather than simply providing a better product that people will willingly buy. It seems the health insurance industry will get more of those advantages very soon.
Ron Paul

by Ron Paul
Originally posted Sept 15, 2009
http://www.house.gov/paul

LAST WEDNESDAY THE NATION WAS RIVETED to the President’s speech on healthcare reform before Congress. While the President’s concern for the uninsured is no doubt sincere, his plan amounts to a magnanimous gift to the health insurance industry, despite any implications to the contrary.

For decades the insurance industry has been lobbying for mandated coverage for everyone. Imagine if the cell phone industry or the cable TV industry received such a gift from government? If government were to fine individuals simply for not buying a corporation’s product, it would be an incredible and completely unfair boon to that industry, at the expense of freedom and the free market. Yet this is what the current healthcare reform plans intend to do for the very powerful health insurance industry.

The stipulation that pre-existing conditions would have to be covered seems a small price to pay for increasing their client pool to 100% of the American people. A big red flag, however, is that they would also have immunity from lawsuits, should they fail to actually cover what they are supposedly required to cover, so these requirements on them are probably meaningless. Mandates on all citizens to be customers of theirs, however, are enforceable with fines and taxes.

Read the rest of this entry »

Written by aurick

16/09/2009 at 8:35 am

Gold Bug’s Dream?

leave a comment »

GOLD BUG’S DREAM?
China’s immense, and growing, impact on the global gold market
There seems little doubt that China’s economic strength can lead to it dominating gold price movement for the foreseeable future.
Author: Lawrence Williams
Posted:  Friday , 11 Sep 2009
LONDON –
There is little doubt that China nowadays has the financial muscle to effectively control the global gold price.  The mere sniff of a report that it is taking gold into its official reserves to counteract dollar decline is sufficient to, at the least, stabilise the gold price – and there seems to be little doubt that it is so doing, but at the moment in a manner that is not designed to de-stabilise the dollar or, on the other hand, not to contribute to a quantum leap in the yellow metal’s valuation – yet.
But – should China wish to de-stabilise the dollar by announcing big gold purchases into its reserves to replace a good proportion of its trillions of dollars, there is also little doubt that it could do so.  It is an economic weapon which perhaps has more power than a nuclear one if it wished to bring America, and the West, to its collective economic knees through currency war.  But again that is not seen as an option – or at least not until the country’s domestic market is big enough to soak up all the manufactured goods China can still sell to the West.
Thus China is still very dependent on export markets, so revaluation of the renminbi is not seen as helpful and dollar decline has to be worrying.  So the country has to move cautiously to retain some kind of global economic equilibrium.
But noticeably, China is already exerting its financial dominance.  It has said its mostly state-owned financial organisations will have the right to default on some of the more dubious commodity and financial related derivative trades that they may have entered into.  This has only raised a muted response from those financial institutions which could be affected because it is China’s financial muscle which is beginning to call the tune in world financial circles – not the mighty U.S.A. any longer.  But it could lead to more grief in western financial circles and the already stressed banking system.
Its state-owned enterprises are on a massive buying spree of western assets, both as an investment and, in the case of the mining sector, to tie down future strategic resource supplies.  In perhaps a conscious effort to allay suspicions of Chinese motives in many countries, much of this is via significant minority stakes in western companies tied to long term supply deals.
But back to gold.  We reported here that a top Chinese official virtually admitted China was buying gold, but in a way which was designed to maintain at least a reasonable degree of stability in the markets and not rock the gold boat.  If this is true, and there is little reason why it should not be so then this will effectively mean there is little or no serious downside risk in buying gold.  But China can also control the upside, as it may not wish to precipitate a big dollar collapse which would be the likely outcome of a big gold price rise.
We reported also, in an article which virtually went viral on the internet and has been picked up by many other commentators (China pushes silver and gold investment to the masses), that Chinese state organisations are selling, like soap powder, the advice to buy gold and silver to the general populace – which already has a gold purchasing psyche.  As a result China is likely to surpass India as the world’s biggest precious metals purchaser this year or next.  It also lends support to the country’s domestic gold mining industry – China is currently the world’s largest gold producer and is a country where output is continuing to rise.  Chinese domestic gold purchases rose 14% year on year in the first half of the year to 446.6 tonnes and industry analysts expect double digit growth to continue in the curent half year, even with gold at over $1,000.
This too provides a massive underpinning of the gold price at, at least, around current levels.  It is apparent that buying has been coming in every time gold dips and the suspicion is that this is by the Chinese, but it is well enough hidden that it is difficult, if not impossible, to clearly define the source.
At the moment gold seems to be holding up well close to the $1,000 level despite the huge degree of profit taking which comes in at psychological levels like this.  The suspicion is that China may wish to see $1,000 gold, or thereabouts, as a new floor, but there is unlikely to be any official recognition of this and we will have to wait and see whether the supposed Chinese underpinning of the market is reality – or yet another gold bug’s dream.

China’s immense, and growing, impact on the global gold market
by Lawrence Williams
Originally posted Friday 11 Sep 2009

THERE IS LITTLE DOUBT THAT CHINA nowadays has the financial muscle to effectively control the global gold price.  The mere sniff of a report that it is taking gold into its official reserves to counteract dollar decline is sufficient to, at the least, stabilise the gold price – and there seems to be little doubt that it is so doing, but at the moment in a manner that is not designed to de-stabilise the dollar or, on the other hand, not to contribute to a quantum leap in the yellow metal’s valuation – yet.

Should China wish to de-stabilise the dollar by announcing big gold purchases into its reserves to replace a good proportion of its trillions of dollars, there is also little doubt that it could do so. It is an economic weapon which perhaps has more power than a nuclear one if it wished to bring America, and the West, to its collective economic knees through currency war. But again that is not seen as an option – or at least not until the country’s domestic market is big enough to soak up all the manufactured goods China can still sell to the West.

Thus China is still very dependent on export markets, so revaluation of the renminbi is not seen as helpful and dollar decline has to be worrying. So the country has to move cautiously to retain some kind of global economic equilibrium.

Read the rest of this entry »

Written by aurick

14/09/2009 at 10:26 pm

Posted in Financial, Geopolitics, Gold

Tagged with ,