I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.- Thomas Jefferson.

debt clock

Tuesday, November 23, 2010

Top banks face $100 billion Basel shortfall:

 REUTERS/Shannon Stapleton

LONDON (Reuters) - The new Basel III banking rules will leave the biggest U.S. banks short of between $100 billion and $150 billion in equity capital, with 90 per cent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital.

The newspaper said the study by the investment banking arm of Barclays Plc (LSE:BARC.L - News) assumes the banks will need to hold top quality capital equal to 8 percent of their total assets -- a one point cushion against falling below the effective global minimum of 7 percent set in September by the Basel Committee on Banking Supervision.

The regulations mean banks may need to increase their capital through retained earnings or issuing equity or they can cut their risk-weighted assets by selling off assets and cutting back riskier business.

"These shortfalls are entirely manageable ... The more difficult question is what affect the new rules will have on the cost and availability of credit and bank profitability," the FT quoted Tom McGuire, head of the Capital Advisory Group at BarCap, as saying.

McGuire estimates that U.S. banks can cut their equity needs by $10 billion with each $125 billion reduction in risk-weighted assets, the FT said.

Debt Delenda Est by Bill Bonner

An excerpt-

“With all due respect, US policy is clueless,” said German Finance Minister Wolfgang Schauble. “It’s not that the Americans haven’t pumped enough liquidity into the market. Now to say let’s pump more into the market is not going to solve their problem.”

The English speakers conveniently misunderstand the debt problem. The authorities worked hard not to see the debt crisis coming. They made their careers and reputations by not understanding it. Thousands of them work for governments and central banks…if they caught on to the problem now, they’d probably have to resign.

To read the rest-

Friday, November 19, 2010

Pretty Good for Government Work ???

For those of you who read Warren Buffett's vomit inducing op-ep in the NYT yesterday, http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=2&emc=eta1, I found the following spoof on what he should have said amusing.

"I would be remiss if I failed to mention my personal positions in this: I made a killing in Goldman Sachs and GE. My investments in Wells Fargo would have been a disaster if not for you. Don’t even get me started with me being the largest shareholder in Moody’s – that was some clusterf#@k. And considering all of the counter-parties that Berkshire Hathaway has, we risked being just another insolvent investment firm along with everyone else had nothing been done.So I must say thanks to you, Uncle Sam, and your aides. In this extraordinary emergency, you came through for me — and my world looks far different than if you had not.

Your grateful but wide-eyed nephew,


To read the whole piece-http://www.ritholtz.com/blog/2010/11/dear-uncle-sucker/

Morality, Democracy and the Voting Process, by Robert A. Meyer

Today I noticed a billboard that had the following: “Does your vote reflect your morals?” At first glance it might seem reasonable that an individual should vote according to their moral principles. At second glance you might think—that could be dangerous to the liberty and freedom of someone who lives by a different moral code.

How do we determine if a system of morality is conducive to the needs of a rational individual—or if it is based on myths, illusions and faulty principles?

There is only one way to determine if a moral principle is correct or incorrect. It must correspond to the following:

a. Natural Law

b. Economic Law

If a moral belief violates either one of these laws—it is invalid.

We can make a case that Economic Law is derived from Natural Law. Natural Law starts its reasoning from axiomatic concepts such as identity, consciousness and existence. Economic Law’s starting point in a chain of reasoning is—a priori categories such as time, change and causality. Both use deductive reasoning.

The Problem

Unfortunately we live in a society that is called a “democracy.” The voting process has turned into a predatory means of extracting wealth from one group and giving it to another—and (or) forcing the moral beliefs of a majority on the rest of the populace. Of course, the smallest minority of all—the individual—has his life, liberty and freedom sold out wholesale. Government consistently violates his property through taxes, inflation, prohibitions and regulations. This apparatus of violent compulsion and coercion even tells him what he can or cannot consume.

Unknown to most is the fact that our founding fathers considered the United States of America a Republic. They believed they had created a Republic. They understood democracy was doomed to failure because it always resulted in mob rule—the tyranny of the majority.

If they could hear the promises of the candidates for office in modern times—they would be appalled. Politicians make big spending promises they can only keep—by stealing from others through taxes and inflation. In many cases they end up pilfering the money from the very same voters that supported them. H.L. Mencken’s description of an election is “an advanced auction of stolen goods.”

Natural Law

An individual has a right to his life, liberty and freedom. He also has the right to own property without anyone infringing on it—and that includes government infringement. Since all individuals own their bodies— they can consume anything they desire.

All moral pronunciations about the so-called evils of drugs, alcohol, cigarettes, gambling, and prostitution are irrelevant and downright dangerous. It may true that a rational individual could decide to avoid these “vices”. However since an individual owns his life, which includes his body, mind and soul, he has every right to indulge in these activities without the interference of absolute moralists and governments. And the voters have no right to deprive him of these through the voting process.

Economic Law

Many people support a system of morality that completely violates the laws of economics. Once these faulty moral systems become law—and governments start enforcing them—nobody’s life, liberty and property are safe. Wars, atrocities, economic crisis, mass liberty violations etc. permeate world affairs. The lone individual is crucified on a cross of myth and drowned in a sea of illusion.

The war on drugs has been taking place for decades. Over half of million Americans have been incarcerated in a “place of rehabilitation” called prison for drug offenses. Let’s decide if drug use is moral or immoral—and whether it should be legal or illegal.

Voluntary and Involuntary Exchange

First you have to distinguish the difference between voluntary and involuntary exchange. You must realize it is individuals who are involved in exchanges. In any two person exchange, one sells (gives) and the other buys (receives). "Society can not take part in an exchange—only individuals can."

A voluntary exchange takes place when two or more individuals agree to become involved with one another. Each participates of his own free will. The exchange could involve anything from giving and receiving love to buying and selling commodities. All believe they will benefit.

An involuntary exchange takes place when at least one party to the transaction is in it against his (her) will. Examples of this type of exchange are robbery, rape, assault and murder. Only this type of exchange can be defined as criminal. All voluntary exchanges are legitimate and non- criminal—no matter what the Absolute Moralist and governments declare.

Since drug exchanges are voluntary they should be legal—which means that all drug use is perfectly moral behavior and of course, should be legal


As you can see—a morality that is in violation of Natural and Economic Law is faulty and destructive. Just because someone feels something is immoral or bad doesn’t give him (her) the right to force their subjectivity on others. And voting on this belief is immoral—which demonstrates this individual is descending to the gutters of hypocrisy. A person must first subject their belief(s) to Natural and Economic Law.

The Libertarian Way is a system of morality that corresponds to these laws. And what makes this so delightful is that all the Libertarian Pleasures correspond to Natural and Economic law.

About the Author

Robert A. Meyer has been investigating and studying economics, philosophy, psychology and metaphysics for 30 years. He realizes there are basic principles of Human Action that will help you become successful. His knowledge that life is to be lived on a physical, emotional, mental and spiritual level allowed him to discover "The Libertarian Way." He experiences its many pleasures and ecstasies on a daily basis. http://libertarianway.com/

Going Back to a Gold Standard?

Here's a slightly different take on the use of gold by govts as a monetary standard.  I'm still bullish.

Adrian Ash

Published 11/11/2010

So did gold's first foray over $1,400 mean we're going back to a gold standard?

Nope. Not in the West, nor anytime soon anywhere, and for three simple reasons.

First, gold prices aren't high enough. Second, modern governments don't hold enough of the stuff – not for their tastes, at least. And third, the pace of physical monetization, out of jewelry and mined ore into coin and large-bar form, just isn't great enough. Yet.

Gold Pricing & Value

Backing the world's broad-money supply with gold – even at the 40% cover-ratio set by the United States in the interwar years – would require a price nearer to $4,000 per ounce than $1,400. That's with all the gold ever mined in history locked inside central-bank vaults, by the way. Full cover for a reserves-backed "bullion standard" would need prices above $10,000 per ounce.

read more

Thursday, November 18, 2010

Jesús Huerta de Soto: Socialism, Economic Calculation and Entrepreneurship

By Andy Duncan, on 14 November 10
There are three books that take pride of place in my Austrian bookcase. These are Socialism, by Ludwig von Mises; The History of Intellectual Thought, by Murray N. Rothbard; and Democracy the God that Failed, by Hans-Hermann Hoppe. In my own mind these books glow when I look at them, up there on the shelf, and I even have one of them signed by one of the authors, while he was ensconced within the cloisters of Oxford University.

You might be asking where is Human Action? Where is Man, Economy, and State? And where is Money, Bank Credit, and Economic Cycles? Well, these books are there too, further along the shelf. But the Big Three bob in an exalted gravitational bubble of their own, because they form the solar core of my own personal life-long cure from socialism, along with various lesser satellites which rotate around them, including Nineteen Eighty-Four, Atlas Shrugged, and An American in the Gulag.

As a hard-core Stalinist by the age of nine, after having read Das Kapital in my local state library, by the time I had reached thirty I had mellowed slightly into a hard-core Marxist and a willing clandestine ex-Militant Tendency foot-soldier in the Machiavellian rise of the New Labour army in Britain, most of us following the camp magazine, Marxism Today, edited by Martin Jacques, the man who invented the term “Thatcherism”. I was so far entombed within this appalling Death-Eating dark side, that I’m convinced, looking back, I must have had snake’s eyes, a forked tail, and diabolical horns.

Fortunately, I managed to cure myself from this orcish horror, mainly due to the fact, of course, that socialism is utter self-serving elite-generated nonsense and the most evil destructive bone-headed religion that mankind has ever invented. Amongst many other disastrous human-hating onslaughts it has engaged in, in its bid to keep people stupid, sick, and poor — and thus easier to rule over and exploit as tax cattle — socialism has slaughtered tens of millions of people, particularly in the twentieth century, which must truly be its envious bloody golden age. Alas, it took many years to cure myself from this virulent mental infection, involving a decade of self-realisation, self-study, and many tough self-directed questions, as well as several broken relationships, memorable bitter accusations of treachery, and the painful sloughing of mental habits burned into my mind through years of angry hatred and vicious envy.

The three books which finally wiped the usually-immune virus of socialism clean from my mind were the exalted Big Three above, especially Socialism, by Ludwig von Mises, a book which always remains fresh and inspirational on every re-read, a sort of non-fictional equivalent of Lord of the Rings.

But did room exist for a fourth book within my hallowed core? Was I genuinely fully cured or was there the remotest chance I could slip back into the skeletal clutches of Voldemort’s sauronesque worshippers, the fatally conceited socialist Death Eaters?

Fortunately, I think I am now fairly resistant to the drenching poison of Marxism, and all of its goblinesque derivatives such as environmentalism. However, as the fabulous George Carlin pointed out in one of his amazing HBO specials, you always need to keep your immune system in tip-top fighting order to kill off the re-entry of old familiar viruses. Perhaps I needed a fourth book to provide this required re-innoculation of my fighting spirit against the seemingly endless mindless legions of the state-indoctrinated cannon fodder of socialism?

I think I have now stumbled upon this fourth book.

Although my self-education had kicked socialism back into the envious schoolyard nursery where it belongs, all the books I had read had never clarified one last question, which had nagged at me for years. Why does socialism keep taking so long to fail, with the Soviet Union surviving for 70 years and the fiat currency union of the west surviving for 40 years, since 1971? Yes, there is economic calculation, the short-sightedness of fools, and the system of organised criminal lies which we name government, but what is the essential mechanism that separates the free market from the jackboot of socialism and how does a typical rancid and rotten bloom of socialism survive for decades, when from my previous readings such a malodourous bloom ought to fail within years or even months, once the hideous mask of its hateful spiteful envy is revealed?

Even the most virulent and aggressive form of the creed — the National Socialist German Workers’ Party — managed to survive for a dozen years, from 1933 to 1945, before this particularly cancerous party of socialism imploded, with milder forms of the disease, such as our own British Labour Party, managing to survive for a hundred years before collapsing in 1979, only to re-appear in a more camouflaged form as the more fascist variant of New Labour, which predictably blew itself out after thirteen unlucky years of boom and bust, hopefully to now die under the feeble and pathetic leadership of the spectacularly inglorious Ed Miliband, son of the influential Marxist intellectual, Ralph Miliband.

Yes, we can talk about western subsidies to the Soviets and the misplaced faith of people in central banks to refrain from inflating, but this is skirting the central issue; why does socialism survive for decades, no matter how appalling its variant form? If we are to believe that socialism is stupid and self-destructive, why has it taken such a hold of humanity and why does it keep surviving and prospering for so long in its various incarnations? If the flowering Hayekian market of ideas and the evolving Schumpeterian market of freely creative destructionism really do work in partnership to drive out failed innovations and to promote successful inspirations, why are there so many Keynesians and so few Austrians? Why is there so much government and why is there so little freedom?

Jesús Huerta de Soto uncovers and reveals the mysterious ghost-in-the-machine hiding behind these questions in a beautifully simple connective way, in Socialism, Economic Calculation, and Entrepreneurship. He distils the rough juniper berries of human action into the Bombay Sapphire gin of entrepreneurship and elegantly blends this with the chilled quinine tonic of economic calculation. Delicately mixing this with the limes of Salamancan history and the Andalusian bitterness of political analysis, the resulting 300-page book is one of the finest Austrian monographs I have ever had the privilege of reading and easily breaks into my triumvirate of heroic works, to help form a new quadrumvirate.

Yes, the top-ranking book is still Socialism, as Gandalf the White, with the other three jostling alongside as Aragorn, Gimli, and Legolas; Socialism, Economic Calculation, and Entrepreneurship now plays the role of the far-seeing prince of the Mirkwood elves.

So how does Legolas achieve this far-sightedness, where Gandalf, Aragorn, and Gimli fall short? Because Huerta de Soto uses both sides of the mind in equal measure, including the parallel-processing right-mind, whereas most writers typically concentrate on the serial-processing left-mind. Drawing parallel-processed pictures with his words to complement a serial-processed stream of ideas, Huerta de Soto achieves a delicately balanced act between the right and the left conscious minds, enabling them to work together to see through to the root causes of the failure of socialism and the triumph of the free market. As I sat reading his book, I could see a sparkling and ever-changing set of shimmering human connections constantly changing and shifting, with the lights of new ideas twinkling in a flexible Hayekian blend of free human thoughts and actions, always evolving towards — though never achieving — a final perfect form where humanity is best served by this diaphanous liquid molecular structure.

I could also see the destructive boot and the mindless compartmentalising scalpels of the blind self-serving socialist elite, constantly trying to wreck this evolving form and to cut its connections to make this glittering form do what they wanted and to do what served their personal immoral interests, against the independent temporal wishes of the rest of the nodal system. However, despite this constant unwelcome interference, no matter where the socialist boot falls and no matter where its regulatory controls cut the informational connections, the entity always tries to survive, like an ants’ nest disturbed by a spade in your back garden.

Socialism thus survives because of the free market, which constantly tries to repair the damage socialism causes through its taxations, regulations, and debt-fed inflations. The free market self-repairs, re-connects, and re-organises itself — spontaneously — like a river in flow coping with the damming of malcontented beavers. The final triumph of socialism can thus be seen as the complete damming of the river and the obliteration of humanity, and the final triumph of the free market will be when this evil dam is finally dissolved, destroyed, and eradicated, and the river can flow freely again without obstruction.

Thus, the more socialism we have, the quicker it kills itself, destroying that which it parasitises, as with full-blooded national socialism and soviet communism; the more anaemic versions of socialism allow a more bloodless monster to survive longer, as with social democracy in the western world.

However, socialism is an always-expansive beast, feeding upon the seven deadly sins of wrath, greed, sloth, pride, lust, envy, and gluttony, via the mechanisms of warfare and welfare. Although the ongoing fight between socialism and the free market may sometimes be balanced for long periods, as in a fiercely contested but static Sumo wrestling contest or a brutal but static rugby scrum, socialism is thus constantly trying to break out and to crush the free market, therefore we need to obliterate this green-eyed aberration completely, if we are to achieve a safe, free, and prosperous world.

All this, and much more, becomes clear when you read Professor Huerta de Soto’s book and this short review does it little justice; you must read the book yourself to form your own conclusions. I can only say, however, that I thoroughly recommend that you do, especially all those people who wish to understand the insidious and self-righteous evil of socialism and therefore how to remove its suicidal and destructive human-hating impulses from the face of the Earth, before these self-immolating impulses destroy us in their turn.

Andy Duncan works as an independent educational and professional practice consultant within the quantitative finance industry.

Wednesday, November 17, 2010

The horrible truth starts to dawn on Europe's leaders

The entire European Project is now at risk of disintegration, with strategic and economic consequences that are very hard to predict.

In a speech this morning, EU President Herman Van Rompuy (poet, and writer of Japanese and Latin verse) warned that if Europe’s leaders mishandle the current crisis and allow the eurozone to break up, they will destroy the European Union itself.

“We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union,” he said.

Well, well. This theme is all too familiar to readers of The Daily Telegraph, but it comes as something of a shock to hear such a confession after all these years from Europe’s president.

read more

Senate Republicans Adopt BBA Common Sense Balanced Budget Amendment


November 17, 2010
Contact: Rick Tyler

Washington, D.C. – On Tuesday, the U.S. Senate Republican Conference took a dramatic step toward fiscal sanity by adopting a Balanced Budget Amendment to the United States Constitution that mirrors the Common Sense Balanced Budget Amendment (BBA) proposed and promoted by the BBA Now Coalition, which includes over 90 national and local conservative policy and grassroots groups representing millions of Americans.

Like the Common Sense BBA, the Senate Republican resolution requires the president to submit a balanced budget to Congress prior to each fiscal year with a new rule requiring two-thirds of each chamber to approve any tax increase.

Texas Senator John Cornyn, one of the authors of the resolution, called the action a "necessary” step “to restore fiscal discipline.”

The BBA Now Coalition commends the Senate Republicans for listening to the American people and joining the national movement for the Common Sense Balanced Budget Amendment.

“The GOP Senators are showing the country that the people still have the final say. This is a positive solution for ending the out-of-control spending and debt that is putting America’s fiscal solvency and national security at risk,” said Rick Tyler, Chairman of the BBA Now Coalition and the ReAL Action Network. “There is little doubt that the 2010 Congressional elections were a referendum on massive government spending. We are encouraged to see that the Senate Republicans have heard the American people and are taking actions that are long overdue.”

The Common Sense Coalition is now calling on the rest of the U.S. Senate and the House to move forward and pass the same Balanced Budget Amendment to begin the ratification process in the states.

BBA Now is a coalition of more than 90 policy and grassroots groups working for a Balanced Budget Amendment to the U. S. Constitution. National members include Americans for Tax Reform, American Solutions, Contract From America, Institute for Liberty, Let Freedom Ring, National Taxpayers Union, ReAL Action and 60 Plus Association. Learn more at www.bbanow.org.

We hope you are encouraged by this terrific news and together we will keep moving forward to help save our great nation!

In Liberty,

The BBA Now Team

BBA Now - A Coalition Project of ReAL Action

Monday, November 15, 2010

What the Rioting French Mean for Your Wealth

Gary’s Note: Nations can’t afford to pay people to do nothing for half their adult lives anymore. Learn what China had to do with the riots in France…and how to protect and grow your wealth as the Western world spirals into poverty. Just read on below…

from Whiskey & Gunpowder

By Byron King

November 15, 2010

Pittsburgh, Pennsylvania, U.S.A.

The French nation was hobbled by strikes, rolling strikes, street violence and other protests. It sprung from the proposal of French Pres. Sarkozy to raise the minimum retirement age to 62, by 2018 — or so the newspapers tell us. Let’s think about it, though.

As a long-time follower of the world oil industry, I was immediately struck by how one key target of the rioters and protesters was France’s petroleum distribution system. Clearly, the protesters understand the ideas of the 19th Century military theorist Karl von Clausewitz, who advanced the concept of finding the opponent’s “center of gravity,” and then bringing force to bear on that point.

The protesters were going for the jugular of modern societies, which is the energy supply. In France this week, over 3,000 — out of 13,000 — gas stations ran out of fuel after panic-buying by motorists. Also, eleven out of France’s 12 oil refineries remain on strike. Add to this that “flying pickets” are moving around, blocking fuel distribution depots. Thus has lack of fuel shut down major sectors of the French economy.

Indeed, the Charles de Gaulle Airport in Paris — a key transportation hub for the world, and not just France — suffered from a severe shortage of fuel for arriving aircraft. French authorities advised air carriers to land with enough fuel to take off, and fly somewhere else to gas up.

Pres. Sarkozy sent riot police to confront the blockades of refineries and fuel terminals. He knows that his response to the energy-based tactics of the opposition will make or break his political power. The jury is still out, but my hunch is not to bet against the power of the French state on this one.

What’s the Real Issue?

On the surface, the French rioting seemed like a political squabble over a high-visibility social entitlement. Considering the passion of the protesters, it’s like the current retirement age in France — 60 years — is some sort of sacred number. The protesters make it sound like Pres. Sarkozy wants to destroy a deep-rooted individual right that dates back to time immemorial of which, to use an old phrase, “the memory of man runneth not to the contrary.”

But the age-60 retirement number is not exactly some icon of bloody struggle, hewn out of the rock of revolution and war. No, the age-60 retirement eligibility dates only back to 1983 when the Socialist Party, under then-president François Mitterrand, reduced the former age of retirement from 65.

That is, the age-reduction for retirement was just a vote-buying political move during a time of relative peace and prosperity in France. Which gets us closer to identifying the real core issue behind the social unrest in France. It’s a lesson for all of us, in fact.

Times Have Changed — An Earthquake Across History

Neither France, nor the Western world generally, is living in a time of relative prosperity. Not anymore. Maybe not ever again.

Things have changed in this world, probably forever. The economic rise of China has caused an earthquake across history. That, coupled with the self-inflicted collapse of much of the Western way of running capital markets and managing economic growth over the long haul.

In just the past 15 years or so, China has evolved into a nation of immense demand. China has become the key player in a world of fierce resource competition. Look around. Things like energy, minerals, water and food are scarce, and getting scarcer. China is driving a long-term bull market in resources of every sort, from oil to iron, copper to cotton, cement to soybeans.

No “Value” in Value-Creation

On the other side of the coin, China is a land of mind-boggling, low-cost productivity. In almost every industrial arena and sector, the overall competition from Chinese firms has driven costs for many things. How low? Well, often down to right around the intrinsic value of the inputs — the plastic, the copper, the steel. As for the labor input? It’s not too much to say that Chinese competition has removed much of the “value” from value-creation.

Indeed, one of the major global economic issues today is that when Western businesses go head-to-head against Chinese competition, in almost any industry, nobody makes much money anymore.

So if this is the world in which we live, how can France remain a wealthy country? How can the West retain its status and historical standards of living? Tough questions, eh? But well worth asking.

What Can Nations Afford?

It takes us back to those French retirement riots. In France — and in the U.S. as well — government has promised far more than it’ll ever be able to deliver.

Retire at age 60? Who can afford that? Who’ll pick up that bill? Where’s the money? The government will collect taxes from who, exactly?

Really, when it comes to the French riots, it’s NOT just that the age-60 retirement idea lacks any sort of serious historical pedigree. Not at all. The problem is that the days of an entire nation retiring early are over.

Age-60 retirement is an idea that’s ridiculous and unsustainable in a world of Peak Oil — and Peak “Everything Else,” for that matter. We in the U.S. — and Canada, U.K, Australia, and so many other places across the world — need to take heed.

U.S. of "Irony and Hypocrisy": We're No. 1 ... At Currency Manipulation, Pento Says

Posted Nov 12, 2010 09:48am EST by Aaron Task in Investing, Politics

After the G20 failed to reach any consensus on currency issues and trade imbalances, President Obama took a direct shot at China Friday, saying the renminbi "is undervalued...and China spends enormous amounts of money intervening in the market to keep it undervalued."

The President's comments cap (at least for now) a period of extraordinary public debate among politicians and policymakers -- past and present -- over currencies and the Fed's QE2 program.

Ahead of the G20 confab, Germany's finance minister, Wolfgang Schauble called U.S. policy "clueless," while foreign ministers from China, South Africa and France (among others) questioned the wisdom of QE2.

Adding insult to irony, former Fed Chairman Alan Greenspan piled on in The FT, where he warned the U.S. is "pursuing a policy of currency weakening." That in turn, prompted a sharp rebuke from Treasury Secretary Tim Geithner, who told CNBC: "We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy."

Michael Pento, senior economist at Euro Pacific Capital, says the U.S. doesn't have a leg to stand on when it comes to discussions about currencies, calling Alan Greenspan's comments the "height of irony and hypocrisy," given his easy money policies at the Fed.

"The U.S. is the number one currency manipulator on the planet," he says. "We print up a lot of dollars [and] we can consume more than we produce because of that."

But that policy makes for a "chronically weak" dollar and puts America at the mercy of its foreign creditors, Pento says, restating a warning about the risks of a true dollar crash and sky-rocketing interest rates if we don't change course, soon.

It won't happen overnight, but China is plotting its own exit strategy by slowing rolling its Treasury holdings into the short end of the curve, he says, suggesting other foreign investors will follow suit.

"The credibility of this country is falling faster than the dollar," Pento says. "One day you'll have a Treasury auction without indirect bidders and only Ben Bernanke" will want to buy U.S. debt, he says.

To avoid such a "watershed event," Pento recommends we adopt the bulk of the Deficit Commission Panel's recommendations, as detailed here. He also wants a return to the gold standard, a controversial idea World Bank President Robert Zoellick broached this week.

Going back to the gold standard "would be painful" and even lead to a depression in the near term, Pento concedes. But "all the imbalances would be reconciled and we can start over again with a real economy."

Aaron Task is the host of Tech Ticker. You can follow him on Twitter at @atask or email him at mailto:altask@yahoo.com

Stupidest Lawsuit Ever Has Us Suing Ourselves: Jonathan Weil

By Jonathan Weil - Nov 10, 2010 8:00 PM CT Bloomberg Opinion
Of all the absurdities to emerge from the government’s never-ending bailout of the U.S. financial system, here’s a new one that’s hard to top: The government, through Freddie Mac, in effect is now suing itself.

Never let it be said that Bailout Nation doesn’t have a sense of humor. It would be only a slight hyperbole to say this may be the stupidest lawsuit ever.

Here’s what happened. In July the Internal Revenue Service told Freddie Mac, the congressionally chartered housing financier, that it owed $3 billion of back taxes and penalties for the years 1998 through 2005. Rather than pay up, the McLean, Virginia-based company sued the IRS on Oct. 22 in U.S. Tax Court to contest its claims.

Before Freddie Mac could do that, it had to seek written permission from its conservator, the Federal Housing Finance Agency. FHFA, whose mandate is supposed to include looking out for taxpayers, consented. Freddie Mac disclosed the suit last week in a footnote to its third-quarter financial report.

Talk about biting the hand that feeds you. Here we have a government-sponsored enterprise -- which depends on Treasury’s financial support to remain solvent -- suing an arm of the Treasury Department. Some thanks this is. To date, Treasury has injected about $64 billion into Freddie Mac and collected $8.4 billion of cash dividends on its senior preferred stock in the company.

The Treasury Department also holds a warrant to buy 79.9 percent of the company’s common stock for a nominal price. So Freddie Mac can’t claim it’s simply protecting shareholders by taking on the IRS. Under its conservatorship, the company’s board answers only to the FHFA, which has complete authority over Freddie Mac’s affairs.

Lawyers Win

The details of the tax dispute are beside the point. No matter how the case turns out, the result more or less should wind up being a wash for taxpayers. The only people who stand to make money from the litigation are Freddie Mac’s outside attorneys at Shearman & Sterling.

Consider some possible scenarios. If the IRS loses, that would be a win for taxpayers in the sense that Treasury won’t need to send as much bailout money to Freddie Mac in the future. Yet the public also would lose because the government wouldn’t get its $3 billion of revenue.

Alternatively, if the IRS wins, it would be a victory for taxpayers, too. Of course, they would still lose because Freddie Mac would have an even bigger capital hole after paying the $3 billion. The Treasury then would have to inject more money into the company to keep it from becoming insolvent and falling into mandatory receivership.

Matter of Principle

An IRS spokesman, Eric Smith, declined to comment. So did Robert Rudnick, a partner at Shearman & Sterling in Washington. Corinne Russell, an FHFA spokeswoman, declined to comment when I asked why the agency gave Freddie Mac permission to sue the IRS. FHFA’s acting director, Edward DeMarco, didn’t return phone calls.

A Freddie Mac spokeswoman, Sharon McHale, cast the company’s decision to sue the IRS in terms of principle.

“We believe that we did not in prior years have federal tax deficiencies and that we are not liable for any penalties,” she said. Freddie Mac, she added, “has an obligation to run the company according to the laws of the land. And in an instance where we believe we’re in the right, we believe we have an obligation to assert that.”

No Call

OK, fine. But shouldn’t it also have been the job of someone in the government to exercise some common sense here? Surely the head of FHFA could have picked up the phone and called someone at Treasury to work out a truce. Or, if that wasn’t possible, FHFA could have told Freddie Mac to pay its IRS bill, tap Treasury for more bailout money, and stop ringing up legal fees.

For what it’s worth, I checked the disclosures at Freddie Mac’s cousin, Fannie Mae, which also was seized by the government in 2008. Fannie Mae reached a settlement with the IRS over its tax returns for 1999 through 2004. Score one for cooler heads.

Freddie Mac said in its latest quarterly report that “it is reasonably possible” the company will reach a settlement with the IRS within the next 12 months. We can only hope.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net

How gold and silver compare as investments

An argument for holding both gold and silver including 22 things to ponder in comparing and contrasting the two precious metals.

Author: Jerry Western

Posted: Monday , 15 Nov 2010

TORONTO (FinancialArticleSummariesToday) -

Silver has had quite a run the last couple months so it's no surprise that it has gained much attention and interest from investors - even more so than gold. It is extremely volatile, however, and tends to rise or fall in spurts so I'd like to focus on its attributes as compared to gold, make a case for holding some, and discuss some ultimate price possibilities.

Gold is known as the ultimate form of money; the king of money. Silver is generally thought of as gold's little brother or ‘Poor Man's Gold'. It is said that:

Gold is the money of Monarchs,

Silver is the money of Gentlemen,

Barter is the money of Peasants, and

Debt is the money of Slaves.

Both gold and silver have been used as money forever. Historically, the price of gold has almost always been greater than that of silver. This is because silver is ten to twenty times more plentiful in nature.


I say no for the following reasons:

1. You get more (metal) for your money holding silver.

2. The price of silver has more room to appreciate, both because of its relative low price and because of the current relatively high gold:silver price ratio.


I say no again - for the following reasons:

1. Gold is highly recognizable and highly coveted in all societies. Most world governments and central banks hold gold but virtually no silver, save a few notable exceptions (Russia, China, and India). They know that gold is the ultimate money.

2. Just as you would diversify your portfolio among asset classes and large/small cap stocks, etc., so too should you diversity between gold and silver. No one knows which will appreciate faster or further and be the superior investment going forward. Therefore, I hold both.


Silver has three huge attributes that make it special, valuable, and unique:

1. Versatility: silver has many and varied important uses where it is the best solution. It is either the best material to use for a given application or it is the least expensive of all the alternatives.

2. Inelasticity: more silver is not produced as price increases because most silver comes from other-than-silver mines, and less is not consumed as the price increases because there are no less-expensive alternatives.

3. Duality: silver has the potential to do well price-wise in both an up and a down economy. Being both an industrial metal as well as money in and of itself, silver tends to have a market no matter the condition of the economy.


Below are 22 things to ponder when comparing and contrasting gold and silver, in no particular order:

1. Gold is hoarded and the above-ground stockpile is continuously expanding. Silver is consumed and is uneconomical to recycle in most uses.

2. There is greater than 300 times the dollar value of gold in above ground form as there is silver. Silver is the smaller market by far.

3. According to the U.S. Geological Survey, there are fewer years of production of silver left in the ground than any other metal or mineral, including gold.

4. Silver is used in more applications than any other commodity (aside from petroleum).

5. About 30% of silver comes from primary silver mines. Approximately 70% is byproduct of other primary metal mines. Most gold is produced from primary gold mines.

6. There is less gold mined than silver, but there is more gold than silver bullion in existence.

7. Both gold and silver have been selling near or even below the cost of production for the last 15 years.

8. Both gold and silver are up over five fold since the beginning of this current bull market.

9. Silver is used in industry and for investment. Gold is used almost entirely for investment.

10 Silver is more expensive or difficult to store (or hide) than gold because you get more for your money.

11. It would be easier for silver to rise higher on a percentage basis than gold due to the ‘law of large numbers'.

12. Only about 2% of the 160,000 tonnes of gold unearthed over the last 5,000 years has been lost and is unrecoverable according to Goldfields Mineral Service (GFMS) and the World Gold Council (WGC) while most of the silver ever mined is unrecoverable and gone for good.

13. Silver supply and demand are both ‘inelastic'. This means that supply cannot be ramped up quickly when its price rises.

14. The National Inflation Association (NIA) picked silver as its investment of the decade in December 2009 .

15. The Silver:Gold Price Ratio favors silver appreciation to return to historic norms.

16. Both gold and silver tend to rise and fall in price together but not necessarily in percentage terms. Their price movements are still highly correlated though.

17. In precious metal bull markets, silver always outperforms gold before it is over. Silver has a tendency to underperform gold as a rally in the metals gets going, however, it tends to greatly outperform gold near the market tops. At its peak, for example, gold was up nearly 250% in early 2008 but silver was up well over 300% at the same time from the beginning of 2002. As the metals both declined throughout the remainder of 2008, silver fell farther than gold from peak to trough. Silver fell nearly 60% while gold fell about half as much or 30%. Now on the way back up silver is again leading.

18. Gold and silver related stocks tend to greatly outperform on the way up but terribly underperform on the way down. On the way up, many stocks leveraged the metals 3, or 4, or 5:1 but on the way down some gold and silver stocks lost 90% or more of their pre-crash market value.

19. When the economy is good, silver will tend to outperform and when the economy is bad, gold will tend to outperform. This occurs because silver is also an industrial metal besides being a monetary metal and, [as such,] is in great demand when the economy is rolling along but less in demand when the economy is in recession. Conversely, gold tends to be forgotten when times are good and remembered when times are bad. Even though gold fell substantially during the financial meltdown of 2008, it fell less than did the stock indexes, silver, or oil.

20. I believe silver may outperform gold dramatically before the bull has run its course. Silver rose more than 38 fold in the 70's bull market; from a fixed price of $1.29 to $50 ($52.50 CBOT). Silver bottomed just above $4 in 2001. 38 x 4 = $152. Not a bad initial target.

21. Interestingly, the Silver/Gold ratio bottomed at ~ 16:1 in 1980. In other words, you could exchange one ounce of gold for 16 ounces of silver near the end of that bull market. Today, the ratio is about three and a half times higher (~56:1). Should gold get to $6375 and the ratio return to 16:1 at the top, silver will reach almost $400 an ounce. That's a 100 fold increase from its pre-bull low. Remember, we're only playing with numbers here, the markets will surprise and do their own thing in due course.

22. The following two extremely important and potentially explosive events for silver have happened just recently:

a) CFTC commissioner Bart Chilton, in regards to the trading of silver on the Commodities Exchanges, said; "There have been fraudulent efforts to persuade and deviously control that price", and "I believe there have been repeated attempts to influence prices in the silver markets", and "the public deserves some answers to their concerns that silver markets are being, and have been, manipulated."

b) Two separate lawsuits against JPMorganChase and HSBC for manipulating and suppressing the price of silver futures on the Comex in violation of the Commodity Exchange Act and the Sherman Anti-Trust were filed as class action suits. Any hint that these suits have merit and may be settled in favor of the complainants or a finding of price suppression by the CFTC in its current silver market investigation, could send the silver price sharply higher.


I own some of both but I believe that silver will outperform gold in the end.

Jerry Western is the author of the newly published "Got Gold? Get Gold!: The Everything Gold Book" on how to protect one's wealth in the 21st century gold rush. He is a guest contributor to www.FinancialArticleSummariesToday, Jerry can be contacted at westernoutlook@yahoo.com.

Friday, November 12, 2010

The New York Times /Texas Tribune (11/6, Ramshaw) reported, "Some Republican lawmakers -- still reveling in Tuesday's statewide election sweep -- are proposing an unprecedented solution to the state's estimated $25 billion budget shortfall: dropping out of the federal Medicaid program." According to the Heritage Foundation, a conservative research organization, "Texas could save $60 billion from 2013 to 2019 by opting out of Medicaid and the Children's Health Insurance Program, dropping coverage for acute care but continuing to finance long-term care services." The Texas Health and Human Services Commission, "which has 3.6 million children, people with disabilities and impoverished Texans enrolled in Medicaid and CHIP, will release its own study on the effect of ending the state's participation in the federal match program at some point between now and January."

Thursday, November 11, 2010

Texas A&M Professor Misrepresents U.S. Emissions During Global Warming Debate

Global warming alarmist Andy Dessler, a professor at Texas A&M University, was caught misrepresenting U.S. carbon dioxide data during a November 9 Public Radio International debate with Heartland Institute Senior Fellow James M. Taylor.

After Taylor stated that U.S. carbon dioxide emissions have declined since the year 2000, Dessler aggressively criticized Taylor, asserting that Taylor was either deliberately spreading misinformation or had absolutely no knowledge of the facts. Dessler claimed, instead, that U.S. carbon dioxide emissions have been skyrocketing in recent years.

Given a chance to respond, Taylor pointed to EPA data showing a decline in U.S. carbon dioxide emissions since the year 2000, and invited listeners to look up the data for themselves. Dessler again aggressively criticized Taylor, saying U.S. carbon dioxide emissions are rising dramatically.

According to EPA data, U.S. carbon dioxide emissions totaled 5,977 teragrams in 2000. As of 2008, emissions had fallen to 5,921 teragrams, according to EPA figures. Emissions fell by another 7 percent in 2009, according to the U.S. Energy Information Administration (official EPA data for the year 2009 have yet to be released). According to EIA, U.S. carbon dioxide emissions have fallen an average of roughly 1 percent per year since the year 2000.

“It was not surprising, given his prior misrepresentations about global warming, that Andy Dessler would cavalierly assert that U.S. carbon dioxide emissions are skyrocketing when in fact they are declining. Activists such as Dessler frequently lie about the facts when they think nobody will call them on it. What was surprising was that Dessler would publicly and aggressively accuse me of lying about the data when he either knew that I was right or was himself ignorant of these critically important facts,” Taylor explained.

“When I said U.S. carbon dioxide emissions have declined since the year 2000, I spoke the truth, whether Dessler liked the truth or not,” said Taylor. “Dessler owes me an apology after falsely and repeatedly accusing me, in front of a national audience, of lying about the data.”

“Dessler had already lost all credibility among knowledgeable listeners when he asserted that only about 10 climate scientists in the world disagreed with his alarmist global warming assertions. On that count, however, we can give him the benefit of the doubt and assume he simply lacks the diligence to read the scientific literature,” said Taylor.

Wednesday, November 10, 2010

Three’s Company

By James G. Rickards
November 9 (King World News) There's been a lot of buzz about today's price action in gold and silver. Beginning with the Monday push upwards based on the Zoellick op-ed in the Financial Times, the market surged upward through most of the day today and then hit a serious air pocket with gold falling 2% and silver falling almost 5% in a short period of time late in the trading day.
On a technical basis, there's nothing surprising about that; we've seen similar moves before and I expect to see them again. The overall trend has been upward with higher highs and higher lows. The market seems to find a strong bid at progressively higher levels even after sharp corrections. Nothing too disturbing there and nothing to indicate that primary trends are not still intact.

What was noteworthy was the catalyst for the pullback, specifically an increase in margin requirements for silver futures contracts. There was no comparable change in gold futures margin but as often happens in markets there was instantaneous contagion from silver to gold notwithstanding the different circumstances. Again, no surprise that the markets correlate to a great extent even when the news only affects one market or the other
This is a pointed reminder to the readers and listeners of King World News and something we have discussed before. Most markets consist of two parties, the buyer and the seller. But in futures markets there's a third party in every trade which is the exchange and more specifically the rule making bodies and margin setting panels on each exchange. They act not in the best interests of buyers or sellers but in the best interests of the exchange itself and its statutory duty to maintain orderly markets. Of course, the word "orderly" can be in the eye of the beholder. What may be an "orderly" price spike to a long may be a "disorderly" rout to a short. Either way, the exchange has the last word. They have many tools at their disposal. They can increase initial margin (what you put up when you open a contract) increase the frequency of variation margin (make you post intra-day instead of end of day) and require "trading for liquidation only" which means longs can go short and shorts can go long but no one can expand a position or increase the open interest. Finally, an exchange can suspend physical delivery and allow offsets and rolls only. All of these rules have been invoked many times and will be again.
Invariably the parties disadvantaged by these moves complain that the exchange is "changing the rules in the middle of the game". That's a naive and pointless perspective. The fact is that the ability to change the rule is itself a rule. The exchange is not changing the rules, they are just utilizing an alternate set of rules that are already in place. Traders should stop complaining and read the rule book. It's all there.

What is more intriguing is what motivates the exchange officials to use these rules? Is it truly a disorderly market (the usual reason) or is it part of a larger coordinated effort involving Federal regulators and policymakers to do whatever it takes to push up prices of risky assets such as housing, stocks and junk bonds and push down prices of safe-harbor assets such as gold and silver?
The point is, when buyers and sellers transact in futures markets, they're never alone. Exchange monitors are always looking over your shoulder. Never ignore the power of the exchanges and regulators and always remember they will use this power when it suits them, not you.

Follow Jim Rickards on Twitter at twitter.com/JamesGRickards

Thanks for the Silver: An Open Letter to JPMorgan and HSBC

By: Richard Daughty, The Mogambo Guru
-- Posted 9 November, 2010
Ted Butler, famous silver analyst and the guy who kept up the pressure about the corruption in the silver futures market for the last 15 years, is in the InvestmentRarities.com newsletter recently talking about silver, and notes dryly that “world silver inventories are at their lowest point in 200 years.”

Well, this kind of news is for silver very important, but for me it is overshadowed by the new report of the company’s new Employee Satisfaction Survey, a stack of lies put out by the lying morons in the Human Resources Department, reportedly showing that my popularity is at its lowest point in my career, including that time when the Accounting Department burned me in effigy.

The report now includes an anecdote that 2 mysteriously unnamed employees now have comedic license plates on their cars emblazoned with the phrase “Go To Hell Mogambo (GTHM).”

Naturally, these two “unnamed employees” have to be Carl and Porky, two of the biggest nitwits in the whole company whom I have every day – every day! – told to buy silver because neo-Keynesian econometric madmen have seized control of the Federal Reserve and are creating so much money, so unbelievably much money, so impossibly much money that guaranteed inflation in prices will destroy us.
They never do.
And worse, nowadays they try to actually hide when they see me coming, making it difficult to advise them to, you know, immediately buy silver, which I am sure will prove to be the Biggest Freaking Bargain (BFB) of the next fifty years, if not more. More!

They are, like I said, nitwits, but they can run like deer.

And it is too bad, too, because they don’t get to learn that Mr. Butler says, concerning silver, “Here we have a vital material, known to all men for all time, literally disappearing before our eyes, both above and below ground. It is a material upon which modern life and rising standard of living are dependent. It is beyond indispensable, it is a miracle metal.”
Indeed, he adds that silver is used in so many industrial applications that “aside from petroleum, silver is used in more applications than any other commodity.”

Well, it turns out that silver is, as predicted, rising, but it may not be just because people are slapping themselves on the forehead and saying, “What was I thinking? I hate to say it, but that Loud Moron Mogambo (LMM) is right: We gotta get silver, fast, and in bulk!”

Or it may be because the corruption in the silver futures market, that Mr. Butler has long exposed, is coming to a head, as Ed Steer of Ed Steer’s Gold & Silver Daily reports that “of course” the big story of late is “news of the lawsuits filed against both JPMorgan and HSBC USA for conspiring to drive down silver prices and reaping hundreds of millions of dollars of illegal profits.”
Incensed, I immediately want to sue somebody, too! Those bastards! Those lying, cheating bastards!
Then I remember that I was able to buy silver all along because these scumbags kept the price of silver low with their manipulations! With a sudden start, I realize I owe them a note of thanks!

Stunned by the revelation, I sit down to compose my thank-you note. I write:

Dear JP Morgan and HSBC scumbags,

Thank you for manipulating the price of silver so unbelievably low by your corrupt naked-shorting So Freaking Much (SFM) “paper silver,” which allowed me and so many others to buy silver at low, low, bargain prices for all these years, which we did because we understand Austrian business-cycle theory and thus know that the treacherous Federal Reserve creating so much money will lead to terrifying inflation in prices, and we know that gold and silver will rise as the buying power of the dollar falls.

And especially silver, which is the subject of this note, and which should be selling at $90 Right Freaking Now (RFN) to maintain its historical 15:1 ratio to the price of $1,350 price of gold, which, too, is manipulated and thus destined for higher prices, dragging silver along with it.

And now both of these precious metals will go much, much higher from here because the treacherous Federal Reserve is literally asking banks and Treasury-debt dealers how many trillions of dollars of new money the Fed should create! Inflation will soar!

So, thanks again, scumbags!

Respectfully yours,

Mixed Feelings in Florida.

As for buying gold, silver and oil when the Federal Reserve is creating so unbelievably much new money so that the horrid Obama administration can deficit-spend it, my feelings are not mixed. They are gleeful, as in, “Whee! This investing stuff is easy!”

Tuesday, November 9, 2010

Charitable Giving

Keep these facts in mind when "donating".

As you open your pockets for yet another natural disaster, keep the following facts in mind; we have listed them from the highest (worse paid offender) to the lowest (least paid offender).

The worst offender was yet again for the 11th year in a row is, UNICEF - CEO, receives $1,200,000 per year, (plus use of a Rolls Royce for his exclusive use where ever he goes, and an expense account that is rumoured to be well over $150,000.) Only pennies from the actual donations goes to the UNICEF cause (less than $0.14 per dollar of income).

The second worst offender this year is Marsha J. Evans, President and CEO of the American Red Cross... for her salary for the year ending in 2009 was $651,957 plus expenses. Enjoys 6 weeks - fully paid holidays including all related expenses during the holiday trip for her and her husband and kids, including 100% fully paid health & dental plan for her and her family, for life. This means out of every dollar they bring in, about $0.39 goes to related charity causes.

The third worst offender was again for the 7th time was, Brian Gallagher, President of the United Way receives a $375,000 base salary (U.S. funds), plus so many numerous expense benefits it's hard to keep track as to what it is all worth, including a fully paid lifetime membership for 2 golf courses (1 in Canada, and 1 in the U.S.A.), 2 luxury vehicles, a yacht club membership, 3 major company gold credit cards for his personal expenses... and so on. This equates to about $0.51 per dollar of income goes to charity causes.

Fourth worst offender who was also again in the fourth spot, for every year since this information has been made available from the start 1998 is amazingly yet again, World Vision President (Canada) receives $300,000 base salary, (plus supplied - a home valued in the $700,000 - $800,000 dollar value range, completely furnished, completely paid all housing expenses, including taxes, water/sewer, telephone/fax, HD/high speed cable, weekly maid service and pool/yard maintenance, fully paid private schooling for his children, upscale automobile and an $55,000 personal expense account for clothing/food, with a $125,000 business expense account).

Get this, because it is a "religious based" charity, it pays, little to no taxes, can receive government assistance and does not have to declare were the money goes.

Only about $0.52 of earned income per dollar is available for charity causes.

Of the sixty some odd "charities" we looked at, the lowest paid (President/ C.E.O/Commissioner) was heading up a charity group in Canada. We found, believe it or not, it was...

Ready for this...

I think you might be surprised...

It is, none other than...

The Salvation Army's Commissioner Todd Bassett receives a salary of only $13,000 per year (plus housing) for managing this $2 Billion dollar organization. Which means about $0.93 per dollar earned, is readily available and goes back out to local charity causes...truly amazing...and well done "Sally Anne."

No further comment is necessary..."Think Twice" before you give to your Charity of choice as to which one really does the best for the most - or the least for the most, for that matter.

Gold Bullion For Only 4.75% Over Spot…

from Ed Steer- not a personal reco from me, other than the fact that everyone should have gold and silver in their possession

While I'm on the subject of gold and silver bullion, here's a special offer I just found out about that really made me stand up and take notice. Andy Schectman, a bullion dealer at Miles Franklin, has acquired a limited lot of one-ounce gold bullion coins at below-market cost, and is able to pass on the savings to us. He has brand new 2011 Canadian Maple Leafs, along with 2010 Australian Kangaroos, and can offer them to us for only 4.75% above spot. He also has 2011 Silver Maple Leafs for only $2.35 over spot for any quantity. I've searched the web and can tell you this is one of the lowest premiums in the industry. My coin guy here in Edmonton can't even buy the gold coins wholesale at this price!

You know how I feel about owning physical bullion – it's a must, given the precarious nature of all currencies... and that we're nowhere near out of the woods of this crisis. This is a great way to add to your holdings at a below-market price. If you're interested in buying a Maple Leaf or Kangaroo for a 4.75% premium... or a silver Maple Leaf for $2.35 over spot, call Miles Franklin at 1-800-822-8080. Mention you're calling from my letter, Ed Steer's Gold & Silver Daily, to get the discount. [Note: Miles Franklin is open from 8am to 5pm, Central time.]

Monday, November 8, 2010

e-mail from Bix Weir

I'll never forget back in July 2008 when I first came to the conclusion that Alan Greenspan was secretly on the side of the Good Guys working to take down the banking cabal that had stolen our monetary system. For months I had pestered Bill Murphy of GATA to publish a paper I had written called "Greenspan's Magnum Opus!" but he would have no part of it. To a Gold Bug, Greenspan was arch enemy #1 and even the suggestion of him working as a sort of double agent against the Banking Cabal was considered heresy!

Murphy, to his credit, finally broke down in late 2008 and published my article which eventually came to be known as Greenspan's Golden Secret!


It took at least another year for the cries of "Bix Weir you TRAITOR!" from my fellow GATA Warriors to die down to where we sit today. Those who have thoroughly read and studied the Road to Roota Archives and listen to what the Maestro is saying today have accepted the once unthinkable...THAT ALAN GREENSPAN IN FACT IS TRYING TO RETURN US TO A GOLD STANDARD!

So I ready for the FERVENT subscriber response I got when I recently suggested the possibility of another very controversial figure, Sarah Palin, being slated by the Good Guys to take the position of Vice President if Ron Paul replaces Barrack Obama. Let me tell you the CALLS OF MY INSANITY were loud and strong again!

Of course, that did not dissuade me off my line of thinking and a speech by Sarah Palin today actually reinforces my original theory.

I invite you to read the words of this speech she delivered today and argue to me again that there is no way that she is being set up to run with Ron Paul...

Sarah Palin to Bernanke: "Cease and Desist"

I'm deeply concerned about the Federal Reserve's plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is "quantitative easing." It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We're printing it out of thin air.

The Fed hopes doing this may buy us a little temporary economic growth by supplying banks with extra cash which they could then lend out to businesses. But it's far from certain this will even work. After all, the problem isn't that banks don't have enough cash on hand - it's that they don't want to lend it out, because they don't trust the current economic climate.

And if it doesn't work, what do we do then? Print even more money? What's the end game here? Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE2 won't be followed by QE3, 4, and 5, until eventually - inevitably - no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?

All this pump priming will come at a serious price. And I mean that literally: everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher. And it's not just groceries. Oil recently hit a six month high, at more than $87 a barrel. The weak dollar - a direct result of the Fed's decision to dump more dollars onto the market - is pushing oil prices upwards. That's like an extra tax on earnings. And the worst part of it: because the Obama White House refuses to open up our offshore and onshore oil reserves for exploration, most of that money will go directly to foreign regimes who don't have America's best interests at heart.

We shouldn't be playing around with inflation. It's not for nothing Reagan called it "as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man." The Fed's pump priming addiction has got our small businesses running scared, and our allies worried. The German finance minister called the Fed's proposals "clueless." When Germany, a country that knows a thing or two about the dangers of inflation, warns us to think again, maybe it's time for Chairman Bernanke to cease and desist. We don't want temporary, artificial economic growth bought at the expense of permanently higher inflation which will erode the value of our incomes and our savings. We want a stable dollar combined with real economic reform. It's the only way we can get our economy back on the right track.

Maybe she can't tell you what newspapers she reads in the morning or where Russia is relative to her backyard but it sure sounds like someone very much "in the know" is writing her speeches on Monetary Policy!

The jury is still out on this "off-the-wall" road to Roota prediction!

Are we having fun yet?


Thursday, November 4, 2010

Will Bailing Out the States Tank the Dollar?

by John Rubino on November 3, 2010

Back in 2006 Meredith Whitney was an obscure Wall Street analyst who bit the hand that fed her by declaring housing a bubble and the big banks a disaster. This took guts, both because analysts who dis their research universe tend to lose access and/or their job, and because the overwhelming consensus, from Alan Greenspan on down, held that things were fine, home ownership was good, and big banks were rock-solid.

Whitney was right, they were wrong, and since then she’s used her considerable cred to keep hammering away at the illusion of a recovering US financial system. Her current target is state and local finances, which, she says, are far worse than the mainstream realizes. In today’s Wall Street Journal she lays out this thesis and asserts that a federal bailout isn’t coming — it’s already here.

I intended to post a few excerpts, but couldn’t find a single paragraph that didn’t contain something useful. So here’s the whole thing:

State Bailouts? They’ve Already Begun

Bond subsidies and transfers have allowed states to avoid making tough decisions. It won’t last.

The threat posed by the state fiscal crisis in the U.S. is vastly underestimated and under-appreciated—because even today too few people understand how states have been managing their finances.

A clear example of this took place in Manhattan last week at the Economist magazine’s Buttonwood Conference, where a panel role-played the federal government’s response to a near default of the hypothetical state of New Jefferson. After various deliberations and simulated threats from the Chinese government, the panel reluctantly voted to grant New Jefferson an emergency bailout of $1.5 billion to cover the state’s debt payment.

What this panel and so many other investors fail to appreciate is that state bailouts have already begun. Over 20% of California’s debt issuance during 2009 and over 30% of its debt issuance in 2010 to date has been subsidized by the federal government in a program known as Build America Bonds. Under the program, the U.S. Treasury covers 35% of the interest paid by the bonds. Arguably, without this program the interest cost of bonds for some states would have reached prohibitive levels.

California is not alone: Over 30% of Illinois’s debt and over 40% of Nevada’s debt issued since 2009 has also been subsidized with these bonds. These states might have already reached some type of tipping point had the federal program not been in place.

Beyond debt subsidies, general federal government transfers to states now stand at the highest levels on record. Traditionally, state revenues were primarily comprised of sales, personal and corporate income taxes. Over the years, however, federal government transfers have subsidized business-as-usual state spending not covered by state tax collections. Today, more than 28% of state funding comes from federal government transfers, the highest contribution on record.

These transfers have made states dependent on federal assistance. New York, for example, spent in excess of 250% of its tax receipts over the last decade. The largest 15 states by GDP spent on average over 220% of their tax receipts. Clearly, states have been spending at unsustainable levels without facing immediate consequences due to federal transfer payments and other temporary factors.

At the same time, local governments now rely on state government transfers for 33% of their funding. Thus, when a state finds itself in a financial bind, it has the option of saving itself before saving one of its local municipalities. Pennsylvania recently assisted the state capital, Harrisburg, in the form of a one-time “advance” payment—but there are hundreds of towns like Harrisburg that will also need assistance. These one-time fixes fail to address the real structural problems facing so many states and municipalities.

State budgets are likely to experience their second consecutive year with deficits of close to $200 billion. The root of the problem is simple: State governments have spent recklessly and unsustainably. Rainy-day funds are depleted, pension-fund contributions are already at record lows, and almost all of the major federal government subsidy programs will run out in June 2011.

Until now, the states have been able to evade the need to rein in spending largely because the federal government enabled them to do so through record high federal allocations, and by creative accounting that put off funding well over a trillion dollars of state-employee pension and other retirement obligations.

The level of complacency around this issue is alarming. Most assume, as last week’s Buttonwood panel did, that the federal government will simply come to the rescue of the states without appreciating the immensity of the cumulative state-budget gaps. I expect multiple municipal defaults to trigger indiscriminate selling, which will prompt a federal response. Solutions attempted in piecemeal fashion, as we’ve seen thus far, would amount to constantly putting out recurring fires.

Rather than waiting for more federal intervention, states need to make their own hard decisions and not kick the can down the road. How will taxpayers from fiscally conservative states like Texas or Nebraska feel about bailing out threadbare Illinois or California? Let’s hope we never have to find out.

Some thoughts:

When you add up state and local pension liabilities, operating fund deficits and outstanding muni bonds, the bailout numbers become Fannie/Freddiesque. We’re talking several trillion dollars up front, with no end in sight because states will use federal money to avoid the kinds of changes that would bring them back into a semblance of balance.

The size of this ongoing federal commitment will be obscured in the official announcements — as it is now — but analysts like Whitney will see through the lies and publish real numbers. So eventually the markets will understand that Washington, just a few years after nationalizing the mortgage market, has taken on another several trillion dollars of junk paper from the states.

The global markets, already worried about the viability of the dollar as a reserve asset, will really start to sweat. The question is how they’ll react to this latest assault on their collective balance sheet. Foreign central banks and risk-averse investors are starting to resemble battered spouses, putting up with pretty much anything from the US because they have nowhere else to go. But even this kind of pathological patience has to have a limit, and if a bailout of California and Illinois is the final straw, then the game changes from fiscal crisis to currency crisis.

Electric Cars Threaten Energy Independence

Environment & Climate News > November 2010
Written By: Maureen Martin

Publisher: The Heartland Institute


We’ve all heard the mantra: we must wean ourselves from foreign oil to save the nation not only from global warming but also from oil-revenue-fueled terrorism. This situation, the mantra goes, warrants spending billions in federal funds for subsidies and tax credits to foster a market for electric cars. But the proposed cure may be worse than the asserted problem.

Hostile Lithium Providers

The top two suppliers of foreign oil to the United States are Canada and Mexico. But electric cars need batteries, and these batteries need lithium. “All these vehicles use lithium,” a Ford spokesman told the New Yorker. “We don’t think about electric vehicles using anything else.”

That’s because lithium is lighter than the nickel now used in batteries. It also holds a larger charge for a longer period of time.

“[W]ith the emergence of electric cars, lithium could challenge petroleum as the dominant fuel of the future,” the New Yorker article noted. “And nearly half the world’s known resources are buried beneath vast salt flats in southwestern Bolivia, the largest of which is called the Salar de Uyuni. Bolivians have begun to speak of their country becoming ‘the Saudi Arabia of lithium.’”

There’s one important problem with tapping into lithium from Bolivia, though. The BFFs of Bolivia’s president Evo Morales are Hugo Chavez of Venezuala, Fidel Castro of Cuba, and Iranian President Mahmoud Ahmadinejad. In fact, Iran and Bolivia recently announced a collaborative project on lithium technology.

Bolivia’s Domestic Roadblocks

Bolivia’s government hopes to make a financial killing on lithium by nationalizing it, as it did with the country’s hydrocarbon reserves.

“Either capitalism dies, or else Planet Earth dies,” Morales has proclaimed, the New Yorker reports. “Such rhetoric tends to scare away the kind of foreign investment that would facilitate the development of” lithium recovery, the magazine notes.

Another barrier to Bolivia becoming the “Saudi Arabia of lithium” is the lack of infrastructure in the desert regions where lithium is plentiful. Landlocked, Bolivia needs an airport large enough to transport lithium to users abroad. The same problem exists in remote regions of China, another area where lithium resources are abundant and infrastructure scant.

Global Uncertainties

What remains unclear is how much lithium there actually is in the world, where it is, how readily it can be recovered and made available, and whether the supply is sufficient for an expanded market in electric cars.

If the market for electric cars expands rapidly, some analysts predict lithium shortages in ten years. Capitalists such as Warren Buffet and many other private sources of capital are investing in exploration and development of technology to bolster the supply.

These questions prompt one certain conclusion, however. Given the uncertainties of the supplies of lithium and potential hostility of some of its suppliers, the Obama administration should stop putting its lead foot on the accelerator of this industry by forcing taxpayers to invest billions of dollars in it.

Maureen Martin (mmartin@heartland.org) is an attorney and senior fellow for legal affairs at The Heartland Institute

Effects of climate-driven primary production change on marine food webs: implications for fisheries and conservation. Global Change Biology 16: 1194-1212.

review from the NIPCC

References:  Brown, C.J., Fulton, E.A., Hobday, A.J., Matear, R.J., Possingham, H.P., Bulman, C., Christensen, V., Forrest, R.E., Gehrke, P.C., Gribble, N.A., Griffiths, S.P., Lozano-Montes, H., Martin, J.M., Metcalf, S., Okey, T.A., Watson, R. and Richardson, A.J. 2010.

 According to Brown et al. (2010), "climate change is altering the rate and distribution of primary production in the world's oceans," which in turn "plays a fundamental role in structuring marine food webs (Hunt and McKinnell, 2006; Shurin et al., 2006)," which are "critical to maintaining biodiversity and supporting fishery catches." Hence, they are keen to examine what the future might hold in this regard, noting that "effects of climate-driven production change on marine ecosystems and fisheries can be explored using food web models that incorporate ecological interactions such as predation and competition," citing the work of Cury et al. (2008), which is what they thus set out to do.

Brown et al. first used the output of an ocean general circulation model driven by a "plausible" greenhouse gas emissions scenario (IPCC 2007 scenario A2) to calculate changes in climate over a 50-year time horizon, the results of which were then fed into a suite of models for calculating primary production of lower trophic levels (phytoplankton, macroalgae, seagrass and benthic microalgae), after which the results of the latter set of calculations were used as input to "twelve existing Ecopath with Ecosim (EwE) dynamic marine food web models to describe different Australian marine ecosystems," which protocol ultimately predicted "changes in fishery catch, fishery value, biomass of animals of conservation interest, and indicators of community composition." And what did the models show?

The seventeen scientists state that under the IPCC's "plausible climate change scenario, primary production will increase around Australia" with "overall positive linear responses of functional groups to primary production change," and that "generally this benefits fisheries catch and value and leads to increased biomass of threatened marine animals such as turtles and sharks," adding that the calculated responses "are robust to the ecosystem type and the complexity of the model used."

Given these findings, in the concluding sentence of their paper, Brown et al. state that the primary production increases suggested by their work to result from future IPCC-envisioned greenhouse gas emissions and their calculated impacts on climate "will provide opportunities to recover overfished fisheries, increase profitability of fisheries and conserve threatened biodiversity," which is an incredibly nice set of consequences to result from something the world's climate alarmists claim to be an unmitigated climate catastrophe.

Additional References

Cury, P.M., Shin, Y.J., Planque, B., Durant, J.M., Fromentin, J.-M., Kramer-Schadt, S., Stenseth, N.C., Travers, M. and Grimm, V. 2008. Ecosystem oceanography for global change in fisheries. Trends in Ecology and Evolution 23: 338-346.

Hunt, G.L. and McKinnell, S. 2006. Interplay between top-down, bottom-up, and wasp-waist control in marine ecosystems. Progress in Oceanography 68: 115-124.

Shurin, J.B., Gruner, D.S. and Hillebrand, H. 2006. All wet or dried up? Real differences between aquatic and terrestrial food webs. Proceedings of the Royal Society B -- Biological Sciences 273: 1-9.

Tuesday, November 2, 2010

That cracking sound was the BACKBONE of the worlds financial system.

By Bix Weir

That cracking sound was the BACKBONE of the worlds financial system.

A few years back I was jumping up and down about Ambac and MBIA (monoline insurance cos.) who basically insure much of the municipal bond market. Back in the Go-Go days of "Structured Finance" a B rated city or state entity could borrow at a cheaper rate by buying AAA insurance from one of these monoline insurance companies who would back the payments with their own credit rating. This way big investment funds can buy muni paper for their portfolios due to the better rating. The problem comes once Ambac or MBIA lose their AAA rating ALL OF THE BONDS THEY INSURED LOSE THEIR AAA RATING!

Ambec Says May Go Bankrupt This Year


Once the muni bonds lose their higher rating many of the funds CAN'T hold the lower rated paper. And you have a mad rush to dump muni bonds.


It's just about to get VERY, VERY UGLY out there!