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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Posts Tagged ‘sovereign debt crisis

Cronyism worth trillions

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by Blaise Ingoglia
Producer, Government Gone Wild!
Posted
 May 11, 2011

http://governmentgonewild.org/ 

MANY OF US VOTERS WHO PAY ATTENTION are used to Congress politicizing everything under the sun. Most of the time it is to benefit only themselves. This one may be one for the record books. Consider that since 2002, there have been ten increases to the debt limit. Yes, you read that correctly… 10 increases in 9 years!

Last week reports out of Washington D.C. had certain “members” of Congress (they did not say who) asking the Treasury Department what they would suggest for a debt limit increase to ensure the government could keep borrowing through the 2012 election.

The Treasury, which is under the direction of Presidential appointee Tim Geithner, told these members a $2 trillion debt limit increase would be needed to meet the government’s obligations into 2013. One has to ask… why a debt limit increase to take us past the next election? (never mind the argument of why we should even be raising the debt ceiling at all)

The answer: the wasteful spenders in Congress, along with the current administration, are trying to ensure that the subject of debt limit increases does not come up in perpetuity during this election season!

Where is the national media on this issue? There is nothing more an entrenched, incumbent career politician would want than to not be incessantly peppered with questions from the media during his/her re-election campaign because it will remind voters of their failure to lead on the issue of fiscal responsibility.

A $2 trillion increase in the debt ceiling is nothing more than political cronyism by this President, this current administration and those wasteful spenders running 2012 campaigns on both sides of the aisle. We should not stand for this and it should be an insult to every citizen who worked hard to make this nation what it is, or was. Please call and or write your elected officials in Congress and tell them that we are on to their tricks and forward this webpage to your friends and encourage them to do the same.

 

Interview: Jim Sinclair on Gold and the World Financial System

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The Hera Research Newsletter (HRN) is pleased to present an in-depth interview with Jim Sinclair, Chairman and CEO of Tanzanian Royalty Exploration and founder of Jim Sinclair’s MineSet, which hosts his gold commentary as a free service to the gold investment community. He founded the Sinclair Group of Companies in 1977, which offered full brokerage services in stocks, bonds, and other investment vehicles.  The companies, which operated branches in New York, Kansas City, Toronto, Chicago, London and Geneva, were sold in 1983. From 1981 to 1984, Mr. Sinclair served as a Precious Metals Advisor to Hunt Oil and the Hunt family for the liquidation of their silver position as a prerequisite for the $1 billion loan arranged by the Chairman of the Federal Reserve, Paul Volcker. He was also a General Partner and Member of the Executive Committee of two New York Stock Exchange firms and President of Sinclair Global Clearing Corporation (a commodity clearing firm) and Global Arbitrage (a derivative dealer in metals and currencies).

Hera Research Newsletter (HRN): Thank you for speaking with us today. You are one of very few people who have tried to warn investors about OTC derivatives.  Why are OTC derivatives a problem in your opinion?

Jim Sinclair: Over the counter (OTC) derivatives are the reason we are going through what we are going through now. An OTC derivative is a kind of wager on what something will do. Up until 2009, most of these wagers had very little, if any, money behind them and, if the direction you bet on didn’t come to fruition, the amount of leverage resulted in extraordinary losses. There was a major rollover in derivatives tied to real estate in 2008, as well as in other types, such as those tied to sub-prime auto loans.

HRN: Did OTC derivatives destabilize the financial system in 2008?

Jim Sinclair: Absolutely.

HRN: Don’t financial institutions use risk cancellation models to hedge risks using OTC derivatives?

Jim Sinclair: Before the failure of Lehman Brothers, OTC derivatives losses would have almost netted out to zero. You can consider derivatives like a string in a circle with various knots representing all the derivatives transactions. When Lehman went broke, the string broke. When Lehman couldn’t meet its obligations on derivatives, they could no longer be netted out to zero. That’s why the banks went down, and that’s why you had the government bailouts and quantitative easing (QE).

HRN: OTC derivatives are the real reason for the bank bailouts?

Jim Sinclair: That is a fact which can in no way be argued away.

HRN: Hasn’t the problem been cleaned up by the Dodd–Frank Wall Street Reform and Consumer Protection Act?

Jim Sinclair: The pile of OTC derivatives is over $1 quadrillion. After 2008, the International Monetary Fund (IMF) adopted a new method of valuing them called value to maturity. Value to maturity assumes all of them will function, which is a cartoon. The derivatives pile hasn’t contracted.  Basically, it has expanded, but value to maturity reduced the notional value from over $1 quadrillion to under $700 trillion. The amount outstanding is the same as it was in the first place.

The flavor of the present moment is credit default swaps against the solvency, or lack thereof, of sovereign nations. New derivatives have some margin behind them, but they only work if they are not called upon. If a nation’s debt was in fact to default, it would happen very quickly without a great deal of run up before.  Most people would expect a rescue to be coming. Let’s say a rescue didn’t come, those credit default swaps would simply not be able to function and down again would come the banking system.

HRN: Are you saying that the financial system is less stable today than it was in 2008?

Jim Sinclair: It appears more stable but that’s only an appearance. The entire equity rally took place almost to the day from when the Financial Accounting Standards Board (FASB) relaxed the mark to market rule. It allowed financial institutions to make up whatever value they wanted for their worthless pieces of paper. If they used the real values, the banks would have come down.

HRN: Wasn’t the FASB change a temporary measure to halt the decline in mortgage-backed securities?

Jim Sinclair: It wasn’t just mortgage-backed securities. It was all the paper on bank balance sheets. The balance sheets of banks appear to be in good shape but they’re not.  In fact, they will need a lot more funds.

HRN: Then the financial system is still vulnerable?

Jim Sinclair: They’ve kicked the can down the road.  The purpose of QE, in other words the printing of money, is to maintain some degree of integrity in the financial system.  Bear in mind that the grease for the wheels of equity markets is liquidity, meaning that if you create a lot of money, it goes into the hands of banking institutions and international investment houses.  So, the equity out of thin air market has been sustained by QE.

HRN: What can the government do to prevent another crisis?

Jim Sinclair: You can assume that what’s been done already will be done again.  There are no other tools in a practical sense.  The idea that there won’t be a continuation of QE is nonsense.

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More Nails in EU Coffin?

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from The Daily Bell
Posted Monday, April 18, 2011

Massive gains for a massive man – the nationalist True Finns’ shock election result in the 2011 Finnish general election befits the burly figure of their leader, Timo Soini. And there is much brain to go with the brawn, according to journalists who have followed his party’s advance from the margins of politics – from just 4.1% of the vote in 2007 to about 19% four years later.

Brain, wit and charisma applied to a Euro-sceptic and nationalistic agenda – a potent mix worrying EU strategists who are mindful that Finland, unlike other eurozone states, has reserved the option of vetoing financial bail-outs. – BBC

Dominant Social Theme:
The EU shall overcome. The union is not to be trifled with.

Free-Market Analysis:
There is yet a hammering sound surrounding the EU. Some say it comes from those who are busy building a box in which to contain the region’s endless sovereign debt crisis. Others might be persuaded the box is the EU’s coffin. The distinction is important not only to the EU but to the Anglo-American power elite that is running as hard as it can to refine plans for one-world government before the Internet and the rolling worldwide inflationary recession generates a critical mass of opposition to such plans.

Of course there IS no power elite with plans for a New World Order according to mainstream Western media. Never mind that in an interview with the website Infowars over the weekend one of America’s pre-eminent television broadcasters went on record as saying that indeed there was. “Lou Dobbs: Elites Are Setting up a One World Order,” read the Infowars headline. And Dobbs’ perspective is shared at least in part by other prominent US officials, including Congressman Ron Paul (R-Tex) who may once again be a leading candidate for US president in upcoming Republican primaries.

Yes it’s fairly obvious what is going on, given the massive global regulatory infrastructure that’s being put in place. The Internet by now has shredded any pretense of that such plans are not being pursued and the result has been a change in elite tactics from what we can tell. The elites have decided to strike back by substituting intimidation for secrecy.

As we report in today’s other article, such a strategy carries risk. By increasingly attempting to promote its policies through via brute political, economic and military force, the Anglo-American power elites make each individual battle into an entire war. Lose just one contest and the inevitability of global governance begins to drain away. This is why even the smallest battles such as who will be president of the Ivory Coast take on massive resonance and are reported in detail by the mainstream press for days and weeks.

It is a kind of dominant social theme itself: The new world order is a global juggernaut that will mow down all that stands before it; the instrumentalities of global government are here to stay and will only get stronger. This invests every mechanism of global power with a resonance that the elites may not have intended to project. Surely, it adds inordinate significance to each battle; yet in a most difficult financial era there are many such skirmishes going on almost every day.

There is an alternative perspective, one we have advanced many times, which is that the Anglosphere elites seek to enhance and encourage the military, economic and political chaos that has gradually been descending on the world over the past few years. Despite their protests to the contrary, this argument holds that the elites are actively working at various kinds of destabilization in the hopes of building up a single fiat-currency system that will further cement an global Order.

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“How long until Obama starts writing checks?”

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by Mike Krieger, of KAM LP
Originally posted Feb 24, 2011

SOCIETY IN EVERY STATE IS A BLESSING, but government even in its best state is but a necessary evil in its worst state an intolerable one; for when we suffer, or are exposed to the same miseries by a government, which we might expect in a country without government, our calamities are heightened by reflecting that we furnish the means by which we suffer! Government, like dress, is the badge of lost innocence; the palaces of kings are built on the ruins of the bowers of paradise. For were the impulses of conscience clear, uniform, and irresistibly obeyed, man would need no other lawgiver; but that not being the case, he finds it necessary to surrender up a part of his property to furnish means for the protection of the rest; and this he is induced to do by the same prudence which in every other case advises him out of two evils to choose the least. Wherefore, security being the true design and end of government, it unanswerably follows that whatever form thereof appears most likely to ensure it to us, with the least expense and greatest benefit, is preferable to all others.

Thomas Paine, Common Sense (1776)

Back to the future: The “Stimulus” Act of early 2008

Let’s all take a trip back to February 13th, 2008. Our war mongering 43rd President, George W. Bush, freaked out by the impact of the subprime crisis on the U.S. economy announced the now almost forgotten “Stimulus Act of 2008.” A big part of this typical Keynesian stimulus (remember Keynesianism is not a partisan thing, it is a economic religion handed down by the Fed to both the Republican and Democratic establishment) was simply writing checks to people.

At the time, I criticized it harshly and said it would lead to massive inflation. Guess what? Oil was trading at about $93/b and five months later it topped out at $147/b for a monster gain of 58%. Then all hell broke loose.

George W. Bush should actually be a hero for most of the fake liberals and fake progressives out there that just spout meaningless drivel about how things should be without ever bothering to look into and understand how the global financial system actually works. That would be too much work. It’s much easier to just be ignorant and support “your guy” as they county goes down in flames. The reason the fake liberals and progressives should love W so much is that at least he just wrote checks to average people.

Obama is the biggest puppet of the banking oligarchs in American history. I mean, this guy’s entire administration so far has revolved around printing money and handing it out, but rather than hand it out to the people, he gave it all to the banks that cratered your children’s futures in the first place. Of course, in order to give away trillions to the financial oligarchs that should be in prison as opposed to the petty dealers caught with dime bags that fill the prison, you need to give the money away in secret.

In comes the Federal Reserve. To make matters worse, after the Fed and Obama bailed out the banksters the next way to hand out money was defined in Jackson Hole Wyoming in August of last year where Banana Ben Bernanke laid out his plan for QE2. The unstated yet stated purpose of this policy was to juice the stock market. He has succeeded wildly in this manipulation until now.

Again, it isn’t the 44 million (a new record every time the data is updated) Americans on food stamps that benefit from this policy, it is the financial oligarchs that game the system and push the stock market up until the point that retail investors finally buy the stocks from them and then they are permitted to crash. Don’t play their crooked game, don’t buy stocks, buy physical gold and silver and take this nation back from the sociopathic financial control freaks running it now.

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From bad to worse: The economy today, and tomorrow

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by Giordano Bruno
Posted originally in Neithercorp Press
Dec 7, 2010

AT FIRST WE WERE TOLD THE AMERICAN ECONOMY WAS A FREIGHT TRAIN: INVINCIBLE. After the derivatives and mortgage crisis began in 2007-2008, we were told the problem was a mere blip in our financial timeline; nothing to be concerned about. In 2009, we were told that the recession was over, and that “green shoots” were on the way. Later, they said we were “turning the corner”, whatever that means.

In 2010, we were told it was time to get used to the “new normal”, which of course has yet to be clearly defined. Now, at the cusp of 2011, the year which many establishment economists originally claimed would bring a bright new era in U.S. employment and finance, it has become clear to much of the public that we are being deliberately herded with empty words and false promises towards a very dangerous and uncertain future.

We have discovered that there is no “new normal”. The word “normal” denotes a certain consistency, a set of rules to the system which are generally understood, yet we have seen nothing consistent except the continued downward freefall of our fiscal infrastructure and the end of anything remotely resembling stability.

I feel quite a bit of empathy and maybe even a little remorse for those who blindly believed the mainstream nonsense of the past few years. I can’t imagine being so lost and so utterly disappointed on such a regular basis. The only good to come out of this dashing of false hopes is that it has caused many to begin questioning what the hell is really happening. Why have things only become worse? What about all the government legislation and stimulus? When is it finally going to produce the effects that were once guaranteed? In fact, what are the benefits of ANY action the government or the private Federal Reserve has taken so far?

Let’s look at financial conditions across the globe and here at home, and perhaps we can gain a true understanding of the situation before us, and find answers for some of these questions…

Europe: American instability with an accent?

How many times over this summer did we hear about the bailout that “saved” the EU? About as much as we heard about the bailouts that supposedly saved America.

In spring, the MSM was warning of complete disintegration of the European Union. After the Greek bailout, all was suddenly well. The turnaround in rhetoric was enough to give me whiplash. I’m curious now as to where all that candy-coated bubbly adoration for European bonds and the Euro went. When I warned during the “summer of bailout love” that nothing had changed in the EU accept the media’s coverage of the problem, this is what I was talking about…

As we have been pointing out for the past two years, the debt default problems in the EU are not going away, nor are they likely to go away for quite some time. Greece, for instance, is now under review for yet another ratings downgrade by the S&P:
http://www.bloomberg.com/news/2010-12-03/greece-s-credit-rating-may-be-cut-by-s-p-as-eu-rules-threaten-bondholders.html

All the exuberance over the IMF/EU bailout of Greece this spring was for naught, as the country continues to falter with no end to their debt woes in sight. The bailout changed nothing (because bailouts never do). This lesson in Greece has apparently made no impression on mainstream media analysts and international investors, who now applaud a similar bailout of Ireland, and who will probably applaud the bailouts of Portugal, Spain, and Italy, once it finally becomes evident to the public that those countries are in equally terrible financial conditions.

Credit-default swaps for Portugal and Spain have risen to record levels as their debt exposure, which has been ignored by the MSM until this past month, is slowly revealed:
http://www.bloomberg.com/news/2010-11-29/corporate-bond-risk-falls-in-europe-credit-default-swaps-show.html

This means that the cost of insuring Portuguese or Spanish debt securities is becoming untenable. Like a couple of convicted drunk drivers, the risk of insuring them is tremendous. The likelihood of a crash is simply too high.

Italian bank refinancing costs are also exploding due to the unsustainable debt of the government, meaning an expanded credit crisis is looming for Italians (could this signal a coming bank holiday?):
http://www.bloomberg.com/news/2010-12-02/italian-banks-refinancing-costs-soar-on-contagion-concern-nation-s-debts.html

Ireland and every other EU nation’s response to this disaster will, obviously, be the implementation of austerity measures in order to pay off their IMF creditors. Ireland has already announced a possible 20% cut in overall spending and the simultaneous raising of taxes; a double whammy for Irish citizens who will now lose many government aid programs while at the same time losing valuable income out of their pocket:
http://www.bloomberg.com/news/2010-11-24/ireland-plans-to-reduce-spending-20-raise-taxes-as-rescue-talks-climax.html

Countries that find themselves this indebted to the IMF rarely if ever actually improve conditions enough to pay off their liabilities, and that is not an accident. Global bankers have no intention of ever releasing EU nations from their clutches. The debt cycle must go on forever…

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Here’s the Problem…

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by David Galland
Managing Director, Casey Research

Posted originally November 03, 2010

The problem is multifaceted, but with the same outcome.
I’ll get to that outcome momentarily, but first the facts of the problem…

The U.S. and most of the world’s major economies are flat broke. Bankrupt, actually. Forget the whole debt vs. GDP metric… focus instead on debt + obligations vs. GDP, as that’s where the scale of the problem – and the scope of the coming pain – is most apparent. We are literally tens of trillions of dollars underwater. To return to fiscal solvency is now impossible without overt default, or the covert default of a serious inflation.

• It’s too late.
The debt problems are now so extreme that the Republicans, tea partiers, and desperate Democrats now rediscovering good old fiscal sanity have no feasible way of making a dent. Even the stingiest Republicans are only talking about freezing spending at 2008 levels. For the record, that still means an annual federal budget deficit of just shy of half a trillion dollars.

Add to that approximately $150 billion in annual state budget shortfalls. And that’s before the economy is knocked sideways by the onrushing tidal wave of retiring baby boomers… or body slammed by the inevitable increase in U.S. interest rate expenses, as rates move up sharply from today’s unsustainable historic lows.

The point is that, even to get back to 2008’s budget deficits, will require cutting almost a trillion dollars in federal spending. And that’s just for starters. Talk about a pain party.

• In a democracy, there’s always another election.
Today, the “morning after”, the Republicans are feeling pretty happy, as I am sure, are the Tea Partiers. Pats on the rumps and knucks at the water cooler and all that. But in no time at all – a few weeks at most – legions of political operatives will begin focusing on winning the next election… the big one in 2012. With that in mind, let me ask you a question or two…On surveying the political landscape, do you think that Republicans, Democrats or even Tea Partiers will raise their hand in favor of slashing social security to the extent necessary to advert the coming currency crisis? How about Medicare? The military?

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Nine main reasons to push gold, and silver, higher and higher

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by Lawrence Williams
Originally posted 15 Sep 2010

Gold expert Jeff Nichols, in a speech last week in Bangkok, Thailand, put forward nine main reasons for gold to rise and continue to rise in the short, medium and long term before, eventually,  the bull market will end and the bears may have their day – but he sees this as a long way off yet.

Nichols reiterated his predictions on the gold price which, in the short term, could even be considered conservative in the light of yesterday’s breakthrough to new highs as buying pressure exceeded that of profit-takers and those whose interests may otherwise lie in keeping the gold price down. He believes, he said, that “before long, we will see gold hit $1500 an ounce  possibly even before the end of this year… or during the first half of 2011.” And followed with “Not only will prices move substantially higher in the months ahead – but the uptrend still has years to go… with gold very likely reaching $2,000 and eventually $3,000 or even $5,000 before the gold-price cycle shifts into reverse.”

The nine major points which bring Nichols to this conclusion are as follows:

· First, inflationary U.S. monetary and fiscal policies – past, present, and future  along with a recession-like economic performance – a “double dip” or worse for years to come.

· Second, Europe’s simmering sovereign debt crisis, which has not only undermined the euro’s appeal as an official reserve asset… but has also pushed the European Central Bank to pursue inflationary monetary policies… and has pushed more investors in Europe and around the world to seek the safety of gold.

· Third, continuing – if not growing – interest by the official sector. In particular, the central banks of a number of newly industrialized emerging nations are seeking to diversify official reserve assets into dollar alternatives.

· Fourth, rising long-term saving, investment, and jewelry demand for gold from China, India, and other gold-friendly nations enjoying healthy growth in business activity and household incomes – growth that is likely to continue at least several years.

· Fifth, rising private-sector investment demand in the older industrialized nations reflecting fear of inflation, currency depreciation, and a loss of confidence in governments to deal effectively with today’s economic challenges.

· Sixth, the continuing maturation of what I call the “gold-investment infrastructure” – in other words, the development of new gold-investment products and channels of distribution in many important geographic markets.

· Seventh, the relatively small size of the world gold market compared to other capital markets – such as equities or currencies – so that even small shifts in portfolio preferences away from currencies, or equities, or real estate, for example, may have little price effect on these big markets but will have a relatively large, indeed profound, effect on gold.

· Eighth, the recent onset of global food and agricultural inflation.

· Ninth, stagnant world gold-mine production for the next five years or longer.

In his speech, Nichols went on to discuss all these points in detail, to back his conclusions and all his comments are far too comprehensive to cover here, but if you’d like to read the full text it is available on www.nicholsongold.com

SILVER
As well as discussing gold, Nichols went on to talk about silver which, unlike gold, has still not managed to surpass the $21 an ounce level seen in 2008 before the huge market downturns (although its getting pretty close) – and is still hugely below its $50 all-time high of 1980 when the Hunt Brothers unsuccessfully tried to corner the silver market which makes this an anomalous situation. His main conclusion was as follows: “I suspect silver’s underperformance has now run its course – and we can expect the white metal to outperform gold over the next five to ten years. For one thing, a number of new end uses for silver are likely to boost industrial demand while investment demand for silver will continue to (increase due to) many of the same forces benefitting gold.”  again to read his full reasoning on his conclusions on silver see his website.

Overall, a pretty bullish presentation. Maybe over optimistic from the gold and silver investor point of view, but there are plenty of informed commentators out there who feel likewise – and quite a few detractors too. The economic scenario painted by Nichols, and as noted above this in itself is not a very controversial view, does suggest that precious metals could be major beneficiaries of a flight from ongoing risk, and turbulence in the currency markets which seems to be even seeing central bankers turning to gold as a reserve asset again – despite a long held feeling, perhaps stemming from Keynes’ often misquoted ‘barbarous relic’ comment – that it should have no such place in a modern economic system.  But, as witness the present situation they still find it hard to come up with a workable alternative over the long term.