Archive for September 2009
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:
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.
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.
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.
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.
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.