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

Monday, January 31, 2011

Davos diss: JP Morgan head Jamie Dimon gets public smackdown from French President Nicolas Sarkozy

JP Morgan boss Jamie Dimon got a humiliating public slap down from the French president Thursday after he whined that bankers were bashed unfairly for the Great Recession.


author unknown

Obama’s State of the Union:

“Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again.”

Herbert Hoover, May 1st 1930, US Chamber of Commerce Meeting:

“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover.”

Obama’s State of the Union:

“Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last


Herbert Hoover, October 22, 1932, campaign speech in Detroit:

“It can be demonstrated that the tide has turned and that the gigantic forces of depression are today in retreat. Our measures and policies have demonstrated their effectiveness. They have preserved the American people from certain chaos. They have preserved a final fortress of stability in the world.”

Obama’s State of the Union:

“But now that the worst of the recession is over...”

Herbert Hoover, June 1930, to a delegation requesting a public works project:

“Gentlemen, you have come sixty days too late. The depression is over.”

Obama’s State of the Union:

“The steps we’ve taken over the last two years may have broken the back of this recession…”

Herbert Hoover, State of the Union, December 6, 1932:

“The unprecedented emergency measures enacted and policies adopted undoubtedly saved the country from economic disaster…”

As I mentioned the other day, the only difference I can find between Hoover and Obama is that Herbert Hoover, the Great Engineer, had many impressive accomplishments in the private sector before becoming President. And he still screwed it up. lol. Even Sir Isaac Newton, who could develop a calculus to take the measure of the universe and plot the orbits of the planets, could not plumb the depths and mysteries of a massive financial fraud. I think the strength of such frauds is their incredible size supported only by deceptive simplicity. The scientific mind boggles at such brazen rapacity.

Thursday, January 27, 2011

If you want to remain slaves of the bankers and pay for the costs of your own slavery, let them continue to create money and control the nation’s credit. - Sir Josiah Stamp [1880-1941]

How Not to Stop a Terrorist

Jan 26th, 2011 By Gary Gibson
Category: International, Politics

As Glenn Greenwald predicted, terrorists have attacked the next most logical target.

A suicide bomber has caused the death of nearly three dozen people in Moscow’s Domodedovo Airport by attacking a crowded area not subject to rigorous security measures.

Mr. Greenwald expected the next terrorist bombing to take place in the crowded lines just before the security checkpoint. Instead, they went for a soft target just outside of the hard target, but it wasn’t quite the soft target Mr. Greenwald expected…

The suicide bomber went to the back door instead of the front. The other unguarded end of the airport was attacked: the part just beyond the security line where passengers crowd together to pick up their bags and find ground transportation or meet relatives and friends.

“Medvedev Orders Bomb Probe, Threatens Sackings,” reads an Associated Press headline this morning. The article continues…

“Medvedev lashed out at law enforcement and airport authorities over the attack at Domodedovo, an international hub and major gateway to Russia, which killed at least eight foreigners…

“‘It is clear that there is a systemic failure to provide security for people’ at Domodedovo, said Medvedev.

“He ordered the Interior Ministry to recommend transport security officials for dismissal and said authorities found culpable would be held responsible, suggesting they could face prosecution.”

Exactly what were security officials supposed to do?:

“Domodedovo Airport said it was not responsible for the blast. ‘We fully met all the requirements in the sphere of air transport security for which we are responsible,’ spokeswoman Yelena Galanova said in televised comments.”

Domodedovo Airport is like just about every other airport in the world. That is to say, there is no protocol to stop random people from wandering into the baggage claim area. Now I suppose there may be. But I’m not sure it will help.

You can “harden” one target all you want; there will still be an unprotect zone just beyond your securest point. Medvedev doesn’t want to accept that…

“He urged officials to develop a system that would provide for ‘total checks’ on people and bags at airports.”

I’m not sure what this is supposed to mean. Wherever these “total checks” start, there will be people congregating somewhere prior to being totally checked. These people will be vulnerable to terrorist bombings. We will be back to square one.

From a follow-up article from AP…

“Most airports in the West don’t restrict access to the terminals, which are considered public areas. Security screening only takes place once the passengers enter the departure areas.

“But in some countries, like Israel, Jordan, or Pakistan, police roadblocks situated several kilometers from the airport parking lots prescreen arriving passengers and others, before allowing them to proceed.

“Analysts said the Domodedovo attack appeared to be the first time terrorists have tried to exploit unrestricted public access to the terminals since the failed bombing of the airport in Glasgow, Scotland, in 2007. Attackers there tried to crash a Jeep loaded with explosives through the entrance doors, but the bomb did not go off.

“Philip Baum, editor of Aviation Security International, a London-based publication dedicated to security issues, said expanding the airport’s security perimeter as in Tel Aviv was desirable but would be difficult to replicate in Europe or America.”

The West would have a hard time adopting those kind of extreme security measures. Airports are commercial centers, open to the public and concerned with maximizing profits.

But even if we turned our airports into terrorist-proof lockdown zones a la Israel, that leaves several million more acres of crowded commercial areas that will ever be easy pickings for suicide bombers.

You don’t really stop terrorists by screening or with security. You just displace them. They just find something else to attack where security isn’t as big a problem.

You can’t secure everywhere, only a few concentrated spots — like airports or special buildings. That leaves everything in between wide open. And there is a lot of in between.

A terrorist doesn’t have to actually enter an airport or a building to do harm. Anywhere on the street in a crowd will do.

In fact, suicide bombers in Israel have indeed blown themselves up just outside of mall entrances where security might have proven too troublesome. They wind up killing at least as many innocents in the street as they would have inside the mall, often more.

We can’t stop terrorists. But could we stop terrorism?

How you answer that will depend on where you think terrorism comes from. After all, you treat a disease differently depending on whether you think it comes from microbes or from a witch’s curse.

Senior fellow at the Cato Institute Doug Bandow reminds us…

“Terrorism is not new. It was used against Russian tsars, the Austro-Hungarian monarchy, and British colonial officials. Algerians employed terrorism against the French and later Algerian governments. Basque and Irish separatists freely relied on terrorism. Until Iraq, the most promiscuous suicide bombers were Tamils in Sri Lanka. In none of these cases did the killing occur in response to freedom, whether in America or elsewhere.

In an interview with The American Conservative, Robert Pape, a University of Chicago political science professor of terrorism says:

“Islamic fundamentalism is not as closely associated with suicide terrorism as many people think. The world leader in suicide terrorism is a group that you may not be familiar with: the Tamil Tigers in Sri Lanka.

“This is a Marxist group, a completely secular group that draws from the Hindu families of the Tamil regions of the country. They invented the famous suicide vest for their suicide assassination of Rajiv Ghandi in May 1991. The Palestinians got the idea of the suicide vest from the Tamil Tigers.”

But it’s the Muslims who are monopolizing the terrorist biz these days. It’s awfully conspicuous. The U.S. is used to hearing about how brown Islamists in the Middle East regularly blow people up. But it’s happening with yellowish people in the Philippines with Muslim terrorists too. In Russia, it’s white Muslim separatists from the Northern Caucasus. All over the world, Muslims are blowing themselves up in order to blow up as many non-Muslims as possible.

There are those who like to ignore history while believing fervently what their politicians tell them. I often get emails from these people whenever the subject of terrorism comes up.

“It’s Islam itself,” they helpfully inform me. “The very religion is one of subjugation and eradication. They want to destroy all those who won’t subject themselves to the rule of Islam. In fact, Islam is a political ideology, not a religion in any true sense.”

Funny. Indigenous pundits from all over the Americas might have written the same thing of Christians from the late 15th century on.

“But look at the Quran…it’s full of exhortations to do awful things to nonbelievers.”

But so is the Old Testament. God’s Chosen People subjected any number of non-Hebrew cities to horrible violence at God’s command. No one calls Judaism or Christianity out on that.

And well they shouldn’t. (Granted Christianity has a hall pass in the form of the New Testament.) In less-troubled times, we tend not to hold people to the fire about the glorification of religious violence and ethnic cleansing that forms a good chunk of their holy books.

But after Chinese troops start putting boots on U.S. soil, some radicalized Christian movement may start taking that “eye for an eye” stuff very seriously again when it comes to repelling the Huns. And become martyred heroes in the process.

Then the Chinese civilian population would likely be aghast to hear about the gweilo suicide bombings that kill Chinese national settlers in the Far Western Colonial Province (formerly the United States).

Violently themed fundamentalism may serve as the tie that binds when it comes time to expel invaders from the homeland, but it’s not really about religion then, is it?

But maybe you’re still convinced it is…

Either you honestly believe that Muslims want all infidels dead, that they hate us for being free Christians, Jews, and other assorted non-Muslim types…that that is the simple reason behind all the bombs…

Or you believe that Islamists are merely reacting to the bombs the U.S. has dropped, to the children who have died because of U.S. sanctions, and especially to the big ones: U.S. occupation of Iraq and Afghanistan along with Israel’s occupation of Palestine.

Terrorism is either the means to expand a maniacal empire…or it’s the reaction to imperial expansion. Take your pick.

Again, Robert Pape:

“The central fact is that overwhelmingly, suicide-terrorist attacks are not driven by religion as much as they are by a clear strategic objective: to compel modern democracies to withdraw military forces from the territory that the terrorists view as their homeland. From Lebanon to Sri Lanka to Chechnya to Kashmir to the West Bank, every major suicide-terrorist campaign — over 95% of all the incidents — has had as its central objective to compel a democratic state to withdraw.”

No matter how much data support that view, and no matter how often the painfully obvious point is made, much of the popular imagination still clings to the notion that “they hate us because of who we are,” and not because of what “we” (our government) is doing in our name.

Our government gives comfort to Islam’s enemies…starves their children and occasionally blows those children up by accident…pregnant women, wives, daughters, sons, etc., are all collaterally damaged regularly too.

And then there’s the very presence of foreign troops on their soil. How would you react to that situation? What might you do?

But it’s not you or anyone you know. It’s the foreign enemy, and your trusty political leaders tell you that this enemy is shooting first.

Except the evidence strongly suggests that they’re not shooting first, just shooting back. History also tells us that the violence won’t stop till the interloper packs up and goes home.


Gary Gibson

Managing Editor, Whiskey & Gunpowder and Laissez Faire Books

January 26, 2011

Thursday, January 20, 2011

Libertarian chair "sort of" commends Obama's Cuba decision

WASHINGTON - Mark Hinkle, Chairman of the Libertarian Party, sort of commends President Obama for his decision to just barely ease travel restrictions and restrictions on sending private financial assistance to the people suffering under the socialist government of Cuba.

Hinkle said, "The president has shown less-than-tremendous courage here. I suppose it's a tiny positive step that our government will permit Americans to send $500 to a Cuban every three months. And churches will be allowed to arrange trips to Cuba, as long as they jump through a lot of bureaucratic hoops first.

"However, it's such a small improvement in such an awful policy, that I'm not sure the president really deserves a compliment.

"It's absurd that the U.S. government prohibits travel and trade with Cuba. In addition to being an unjust violation of Americans' rights, it's bone-headed policy. If the goal was to topple the Castro regime, then the policy has been a spectacular failure. The embargo has probably strengthened, not weakened, the Castro dictatorship.

"Libertarians call for unrestricted access to travel to Cuba and complete freedom for Americans to engage in economic activity there.

"Unrestricted access to the world markets will help Cubans lift themselves out of their disastrous socialist economy. Libertarians know that free trade and free travel are a fast-track ticket to prosperity.

"Next time, Mr. President, try to do something a little more impressive."

The Libertarian Party platform says the following on free trade and migration:

3.4 Free Trade and Migration

We support the removal of governmental impediments to free trade. Political freedom and escape from tyranny demand that individuals not be unreasonably constrained by government in the crossing of political boundaries. Economic freedom demands the unrestricted movement of human as well as financial capital across national borders. However, we support control over the entry into our country of foreign nationals who pose a credible threat to security, health or property.

For more information, or to arrange an interview, call LP Executive Director Wes Benedict at 202-333-0008 ext. 222.

The LP is America's third-largest political party, founded in 1971. The Libertarian Party stands for free markets, civil liberties, and peace. You can find more information on the Libertarian Party at our website.

Monday, January 17, 2011

Why the World Is Financially Doomed in Four Charts

The global economy is doomed to implosion, and here are four charts which explain why.

Though the complexities may appear endless, the global economy's coming implosion is really fairly easy to understand: here are four charts which do the heavy lifting. It boils down to these basics:

1. When money is dear and difficult to borrow, then productivity and capital accumulation are encouraged, speculation, malinvestment and debt-based consumption are discouraged.

2. When money is "free" (zero-interest rate policy) and liquidity is unlimited, then the opposite conditions hold: speculation in risk assets, malinvestment and debt-based consumption are all encouraged, and productivity and capital accumulation are heavily discouraged.

3. When debts exceed the value of the underlying assets, the only way out of the Tyranny of Debt is to write off the debt on both the borrower and lender's balance sheets, wiping out their capital via liquidation and bankruptcy.

read  more

Friday, January 14, 2011

Jim Rogers, Marc Faber and Richard Russell agree

Thursday, January 13, 2011

Predictions 2011: Jim Rogers, Marc Faber and Richard Russell agree

What do Jim Rogers, Marc Faber and Richard Russell have in common? All three men possess a gift for analyzing financial markets independently and cautiously, and do so with decades of experience. Each man sells nothing but what’s on his mind—the best kind of advice to cautious investors.

All three expect 2011 to be a troublesome year, with the growing possibility of unpleasant surprises, turmoil and wealth destruction.
Starting with Rogers, the commodities market prodigy of the famed Quantum Fund: he expects all real assets to enjoy a tailwind of inflation as central banks worldwide bailout banks, businesses and sovereign nations with as much fiat currency as required to forestall default.

“We’re going to, I think, see some of the highest prices we’ve ever seen in many commodities in 2011,”

read more

Monday, January 10, 2011

ANOTHER CITY GOES: Chowchilla, Calif. Defaults On Bond

Central California's Women's Facility in Chowchilla

Image: wikimedia commons

Chowchilla, Calif. has failed to make its January payment on a bond issued to make expensive renovations to its city hall.

We warned you on Tuesday that city was on the brink and could foreshadow similar cases across the country.

Now Chowchilla has crossed the line.

The 11,000-person town got into this situation through a massive collapse in home prices and bad fiscal management, not least of which was an $8 million city hall project. Earlier this year the city posted a technical default by depleting its bond reserve fund to make a payment.

Read more:

Banks Lose Pivotal Foreclosure Case in Massachusetts High Court

US Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts.

“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote.

read more

Friday, January 7, 2011

Food Riots Commence As The Fed's Loose Money Policy Leads To First Violence Of 2011

Submitted by Tyler Durden on 01/06/2011 12:38 -0500

We were only partially serious when we predicted that following the just released FAO data confirming food prices have just hit an all time high, we were expecting food riots to ensue imminently. Alas, as all too often happens these days, we were right.

read more

Thursday, January 6, 2011

The New Gold Rush

by Nick Barisheff - Bullion Management Services
Published : January 05th, 2011

As confidence in global currencies wanes, the world's appetite for gold will increase.

As we embark on 2011, gold continues to climb and investors are questioning its future price direction. Is gold in a bubble? Have the price gains of the last decade-which beat out stocks, bonds and several other favored asset classes- peaked? Did today's investors miss the opportunity to buy?

Since 2002, we have responded to these questions daily, as gold climbed from $275 an ounce to over $1,400. Unfortunately, most people see gold as just another dollar-based asset class to be evaluated using the same metrics as stocks and bonds, and commodities like corn and coffee. But in order to understand the benefits of buying and holding physical gold, investors must go beyond conventional economic wisdom and understand causes rather than symptoms. They need to be able to interpret the message gold is sending.

Gold has its own rules, which explain its price performance and form the foundation of what we call "the gold mindset." This is completely different from the debt-based mindset that has prevailed since 1971, when President Nixon removed the U.S. dollar-the world's reserve currency-from its international peg with gold. Eliminating the gold standard has resulted in anywhere from $14 trillion to $200 trillion of debt for the U.S., which now relies on a phenomenon called "Quantitative Easing" (QE) for economic survival. QE, or money printing, has triggered global currency devaluations and protectionism worries.
In this piece, we will examine four of gold's most important rules; the irreversible trends affecting the gold price; and how the consequences of these trends will push gold higher in 2011 and beyond.

The Golden Rules

Rule 1: Gold is money, not a commodity. Gold trades on the currency desks of the major banks and brokerage houses, not the commodity desks. Central banks have always regarded gold as money, yet many investors today view it as an ordinary commodity, like pork bellies. Because none of the world's currencies are backed by gold, it has become the anti-currency-the money of last resort impervious to Wall Street games, Main Street's over-consumption or QE-happy Keynesians. In 2009, gold officially became money once again when central banks around the world, including those of China, India and Russia, became net buyers for the first time in nearly 20 years. We believe that central banks are preparing for a return to some form of the gold standard.

Rule 2: Gold does not rise: currencies lose purchasing power against gold. Milton Friedman-the renowned American economist-stated: "Nations are not ruined by one act of violence, but gradually and in an almost imperceptible manner, by the depreciating of their circulating currency, through excessive quantity." That is bad news for the U.S., Canada, Britain, the Eurozone and Japan. Their currencies have lost more than 70% of their purchasing power against gold during the past 10 years. When we begin asking: "How many ounces of gold will this cost?" rather than, "How many dollars will this cost?" The shift in perspective is eye-opening.

Gold is a stable economic measure and a reliable standard by which to measure real inflation. Governments manipulate inflation figures to keep the official Consumer Price Index (CPI) artificially low, since the slightest rise can translate into billions of dollars in government-indexed pension payments to the growing number of baby boomer retirees. Today, instead of using a fixed basket of goods that represents a certain standard of living, methods such as substitution, hedonic adjustments (for estimating demand or value) and geometric weighting, are used to understate the CPI.

For instance, John Williams of www.shadowstats.com, calculates the CPI using the original methodology. His figures show that real inflation is already at 8.5% and climbing. Since the CPI has an inverse relationship with Gross Domestic Product (GDP), understating the CPI automatically overstates GDP.

Rule 3: Gold has intrinsic value. Gold has intrinsic value because it is difficult to find, to mine and to refine. In Roman times, an ounce of gold would buy a good suit of clothes; today, the same applies. In his book, "The Golden Constant," Prof. Roy Jastram demonstrated that gold's purchasing power remained remarkably stable between the years of 1560 and 2007.

Rule 4: Gold is a wealth-preserving asset, not a wealth-accumulating asset. We buy and hold gold bullion to preserve wealth. We may speculate in gold stocks, exchange-traded funds, futures and options to increase wealth, but gold bullion ownership best serves the purpose of wealth preservation. This has been the case for thousands of years and will continue to be so unless governments discover a way to produce gold out of thin air, as they do fiat currencies.

Three Irreversible Trends

Since gold appears to be rising because of currency debasement (a term derived from the Roman Empire's practice of hollowing out gold coins and filling them with base metals), we need to consider whether governments will continue to spend and whether inflation will continue to rise. Three irreversible trends indicate that this pattern will persist for years to come. They are the aging population, outsourcing and peak oil.

The world's population is getting older, and most countries offer government-funded social programs designed to help retirees enjoy their golden years. However, an aging population means rising health care costs along with declining tax revenues. This is an unsustainable situation. In Europe, there has been rioting in the streets, as people protest retirement age hikes and cuts to benefits and services.

North American companies now outsource whatever they can with no regard for employees or communities; only the bottom line matters. It is far cheaper to hire someone in China-at 80 cents per hour with no benefits-than it is to hire someone in America-at $20 per hour, plus benefits. Without government protectionism, shareholder pressure ensures that this trend is irreversible. Without jobs, people cannot pay taxes or buy goods.

Finally, we have the serious issue of peak oil, which threatens to destroy the global economy, heavily dependent on cheap fossil fuel. Peak discovery has already occurred and we are fast approaching peak production of reasonably priced oil. Switching over to more expensive oil or to alternative fuels will have a negative impact on global GDP. This irreversible trend will fuel inflation for years to come.

The Consequences

These macro trends will result in:
lower GDP, systemic unemployment, lower tax revenues, increased money supply, more government debt, rising inflation ,declining currency value and higher gold prices.

Increased government debt and money printing to service the interest on this debt are direct consequences of these three trends. Since 1971, U.S. debt has soared to $13.96 trillion from $776 billion. Boston University economist Laurence Kotlikoff disagrees with that number; he believes true U.S. debt is $200 trillion, or a staggering 840% of GDP.

As investors lose confidence in currencies, the world's appetite for the relatively small amount of available gold will increase. There is an estimated $200 trillion in financial assets worldwide, not including real estate and derivatives. When demand for gold as a safe haven increases, there will be a transition from the $200 trillion financial assets market, to the $3 trillion gold market-much of which is owned by central banks and the world's wealthiest families, and not for sale at any price.

Future: Too Much Money Chasing Too Little Gold

The Chinese government is encouraging its citizens to invest 5% of their savings in bullion. Central banks in China, India and Russia are scrambling to increase reserves. Investment funds and banking institutions globally are turning to gold for insurance. Meanwhile, gold discoveries are down and production costs are rising. Clearly, competition for available gold will become fierce.

Where will the price of gold go?

In 2011, if gold repeats its average five-year increase of 19%, it will climb to $1,785 per ounce. If gold repeats 2010's projected performance in 2011, it could reach $2,010 per ounce. If the U.S. Federal Reserve unleashes more QE, gold's price will be much higher.

Today, gold is telling us that it can protect our wealth as it has successfully done for thousands of years. In such uncertain times, it is comforting to know that bullion ownership allows for sovereignty over personal economic destiny, and can change the way we view and experience economic reality.

Nick Barisheff

Bullion Management Group

2011 – The year when money starts to die

by Alisdair Macleod


Between 1716 and 1720, John Law tried to rescue the French government from bankruptcy with a scheme that came to be called “The Mississippi Bubble”. His strategy was to set up two entities: a bank whose purpose was to issue paper money, and a company whose primary but undeclared function was to refinance government debt. Law realised that he had to confiscate all gold and silver other than smaller quantities, and force French citizens to pay their taxes and buy shares in the Mississippi Company, only with the bank’s newly issued notes. These were the three essential elements of his scheme.[i]

This is precisely what central banks in the US, Europe, Japan and the UK are doing today. They are rigging the markets by buying government debt at artificially high prices with freshly created paper money, having previously excluded gold and silver from any role as legal tender. The following quote from John Law, could equally be attributed to a central banker of today: “An abundance of money which would lower the interest rate to two per cent would, in reducing the financing costs of the debts and public offices etc. relieve the King.” This is quantitative easing, pure and simple, and John Law had fully anticipated modern central banking. Law’s scheme ended in disaster and as a precedent for today’s central banking this should worry us greatly.

Many of us recognise the government debt bubble, which ensures that today’s rulers are relieved by the artificially low cost of their debt. But most of us are unaware of the other bubble, that of the value of money, which is also held up at artificially high levels. The money bubble is inflating primarily in quantity rather than price, making it easier to deceive the public. There is also a fundamental difference from the usual bubbles, which end with a collapse while money’s value is unaffected: in this dual bubble both debt and money will eventually collapse together; the former as nominal yields rise and the latter being reflected in rising precious metal prices.

In Law’s time, it was made illegal to hold more than a minimal quantity of gold and silver coinage. Today the central banks have had a different approach, removing gold and silver from circulation altogether. Naturally, central banks have also convinced themselves that precious metals are now redundant, fully replaced by paper money, so they have carelessly reduced their own holdings to suppress prices. At the same time commercial banks offering gold and silver accounts have developed large uncovered liabilities with their customers through their fractional banking practices. Through these uncovered, undeclared positions, the strategy of depressing bullion prices has become dangerously dependant on confidence remaining in both the central banks and the banking system.

We can expect the collapse in money values to be reflected in gold and silver prices rather than other paper currencies, and the warning signs are now upon us. Bullion has been climbing in value for a decade, and in 2010 buyers found it regularly difficult to get physical metal delivered to them by the banks. It is becoming clear that the ability of the central banks to keep a lid on bullion prices is at last coming to an end.

And it is not just bullion prices getting out of control. In the last three months the yield on government debt has risen in spite of fresh rounds of monetary inflation. Markets are now becoming wary of future currency issuance to support the government bond markets, and they are beginning to question risk, rather than value stability. We are learning how it must have felt in Paris in the early months of 1720, when the Mississippi Company share price, as proxy for government debt, began to fall. And if the last few months of 2010 marked the beginning of the end for today’s government bonds, this new year of 2011 will mark the beginning of the end for paper money. The two bubbles are now fully interdependent.

This is why we might call 2011 the year money starts to die. The central banks are beginning to lose control over bubbles one and two, and also bullion. The destruction of private sector savings has coincided with expanding budget deficits so the expansion of the money bubble will have to continue to contain the situation, because there is no alternative. As monetary inflation translates into price inflation, government bond yields will rise again, developing into a self-feeding loop of government bond prices and currency purchasing-powers falling, as the prices of commodities and raw materials rise further. This process is already underway.

Rising price inflation should lead to rising interest rates, which will be unwelcome to the bubble inflators. Higher interest rates will wreck what is left of government finances, and lead to substantial losses for the banking system as well, due to the impact on the economy and asset prices. Suddenly, there will be negative feedback loops everywhere. That is what John Law discovered through the summer of 1720, and it is safer to expect history to repeat itself than not.

This time, the implosion of government debt and paper currency values will not be confined to the destructive popping of the Mississippi bubble. The bubbles today are global and taken together are far bigger. The values of specie are greatly suppressed today[ii], which was not the case in John Law’s time. The adjustment, when it comes, should be far sharper, even catastrophic as a result, and the loss of confidence sudden. It will confound those who trust in a mechanistic link between the quantity of money and the general price level. It will wreck the Keynesians’ cherished experiment with expanding deficits as a means of economic regeneration. It will destroy the central banks. It will be a poor consolation that these last two consequences will at least be a pyrrhic good.

Now, the New Year, reviving old desires, the thoughtful soul to solitude retires. It is the time for investment strategists to dream their forecasts, which are invariably optimistic. But there is only one question to ask of these soothsayers, and that is the fate of the two bubbles, and the suppression of gold and silver prices. Will it all unravel in 2011?

Maybe, but if money does not actually die this year, this is the year money starts to die.

5 January 2011

Wednesday, January 5, 2011

Recipe for a Successful 2011

by Ron Paul

The year 2011 brings in a host of opportunities and challenges to America. Will we accelerate toward economic insolvency by continuing the policies that have created this crisis, or will a new Congress elected on the energy of the Tea Party movement find the courage to change course?

With the new Republican majority in the House I will have the opportunity as a subcommittee chairman to take a careful look at our domestic monetary policy. I am excited by the prospect of real oversight of the Federal Reserve, but I also hope to focus on the important ways in which our foreign policy and monetary policy are related. Just last week the Financial Times reported that the limited oversight of the Federal Reserve allowed by the passage of a watered-down version of my Audit the Fed bill revealed that approximately 55 percent of the loans made available under the largest Federal Reserve bailout program, the Term Auction Facility, went to foreign banks! This is but one example of the real cost to Americans of maintaining its empire overseas, and it cries out for more transparency and oversight.

This is why it is key for us to understand that our foreign policy and current economic crisis go hand in hand. Some have promised to lead us back to fiscal responsibility while asserting that any reduction in our foreign and military spending is off the table. They would like us to believe that we should not only continue spending as much on the military as the rest of the world combined, but they actually call for an even more aggressive US policy abroad. They believe we should continue to bomb Pakistan, Yemen, Afghanistan, and elsewhere; that we must impose even more crippling sanctions on countries like Iran while moving steadily on to yet another Middle East war that is not in our interest. They represent the failed policies of the past and they would like to lead us down a dead-end street. We must resist the temptation of their neo-con inspired scare-mongering.

There will be much work for us to do in the next year and in the next Congress. We need look no further than the grossly unconstitutional and immoral policies of the Transportation Security Administration – demanding that we either be irradiated or fondled to travel in our own country – to see that those who would deprive us of our civil liberties on the empty promise of full security will not be giving up easily. We must continue standing up to them and we must not compromise. We must not allow the out-of-control Department of Homeland Security to impose an East German-like police state in the US, where neighbors are encouraged by big brother or big sister to inform on their neighbors. We must not accept that government authorities should hector us via television screens as we go about our private lives like we are living in Orwell’s 1984.

I am optimistic that the incoming Members of Congress understand the importance of what they have been entrusted with by the American people. But I do hope that those who elected them will watch their actions -- and their votes in Congress – carefully. An early indication will be the upcoming vote on re-authorization of the anti-American PATRIOT Act. Defeat once and for all of this police-state legislation will be a great way to start 2011 and the 112th Congress. We must move ahead with confidence. Our numbers are growing. Happy New Year!

Tuesday, January 4, 2011

The Outlook for 2011

by James Turk


January 3, 2011 – It is that time of the year again to record my expectations and outlook for the year ahead. But before looking at 2011, as always I first re-visit what I was expecting for this past year in order to evaluate whether my forecasts were close to the mark.

My forecasts for 2010 were driven by my expectation that paper assets would continue the well-established trend that began with the outbreak of financial trouble in 2007. It has been my ongoing expectation that paper assets in general and currencies in particular will become increasingly suspect, and therefore decline in value. We remain in a financial and monetary bust, and I had already noted in my forecast for the year before that “the bust will not end in 2009”. My point was that financial assets would continue to fall out of favor. So I recommended to “avoid the dollar and other national currencies as well as the paper issued by governments. Given the huge deficits they are incurring and their refusal to make the hard decision to cut spending, a sovereign debt default in 2010 has to be considered a realistic possibility.”

That macro call was pretty accurate given what happened to Greece and then Ireland. Even though neither country actually defaulted because of the EU and ECB engineered bailouts that papered over these two countries’ horrific financial position, they in effect defaulted. More importantly, this macro call set the theme for my basic recommendation for the year: “So the best strategy for 2010 is to continue accumulating the precious metals, and if you are so inclined to take the investment risk, the mining stocks as well.” Let’s look now more closely at the specifics of this recommendation.

1) Gold began 2010 at $1,095. The low for the year was $1,052.20 on February 5th, and based on the spot Comex closing price, the high of $1,421.10 was reached on December 31st. I said: “Gold will reach $2000 per ounce ($64.30 per goldgram) some time during 2010. Gold will not fall back below $1000. In fact, it is likely that a floor has been put under the market around $1050, the price at which India made its recent gold purchase from the IMF, though I don’t expect gold to fall below $1080. Like 2009, the low point for gold will probably occur early in this year’s first quarter.”

My forecast on the low was reasonably accurate, both in terms of timing (which was spot-on) and price. We never got near to my $2,000 forecast high price, but I was accurate in the sense that gold would be in an uptrend for the year. In the absence of a “huge short squeeze [that] could send gold to that price in a matter of weeks”, I said to expect “a continuous demand for physical metal will put gold in a steady climb throughout the year.”

It is worth noting my expectation that a driver moving gold higher would be “the growing demand for physical metal in preference to paper-gold.” This demand preference for physical metal was indeed a major theme in 2010, as people everywhere became increasingly aware of the huge preponderance of paper promises to deliver gold compared to the stock of physical gold available for delivery.

2) It may seem somewhat hard to believe now, but silver began 2010 at $16.82. Perhaps even harder to believe – given that silver is now over $30 – is its low price of $14.82, which like gold was also reached on February 5th. In my forecast for this year I said: “Silver will eventually exceed its $50 per ounce all-time record achieved in January 1980. Will it happen in 2010? It is I think only a 20% probability, but that is high enough for me to mention it. We need to start thinking about silver hurdling above $50. If it doesn’t happen in 2010, this important event – which is unimaginable to many – will I expect happen in 2011.”

A $50 silver price isn’t so unimaginable any more, but as is obvious, I was making a 2-year forecast. So we need to see what the silver price does in 2011 before judging that forecast’s accuracy. Nevertheless, given the accuracy in calling for an uptrend as well as the general magnitude of the price forecast I was making, I think we can say my forecast was accurate enough. The same can be said for the gold/silver ratio.

Here is what I said to expect: “The gold/silver ratio will drop to 45, and perhaps make a new multi-year low around 40.” The ratio is presently at 46.0, its low for the year. It began the year at 65.1, so it was an accurate call.

3) Just like my forecast for the price of gold, I was too optimistic about the potential for the mining stocks. “The XAU Index in 2010 will break above its record high of 206.37. Also, the mining stocks will outperform gold, so that the XAU Index returns to more reasonable levels of valuation above 6 goldgrams. My upside target for the XAU Index for 2010 is 300…”

The XAU Index began the year at 168.25, and reached its low price of 146.42 on February 4th. It did indeed make a new record high price, though it only managed to climb to 228.76, well below my 300 target. But I did get it right though in that the XAU Index finally did better than gold itself. The XAU rose 34.7% in 2010 compared to 29.8% for gold.

The above calls on balance were pretty good, even if I was overly optimistic about the upside targets I forecast for gold and the mining shares. But did I miss anything in 2010 by a wide mark?

Well, some might argue that I was wrong with my forecast that the “US dollar is on the edge of hyperinflation.” I did go on to more fully explain that comment by saying that “The Federal Reserve in the year ahead will therefore continue to purchase government debt and turn it into currency, which will eventually – and probably in 2010 – cause the US dollar to begin hyperinflating.” So were my forecast and comments really off the mark?

After all, look at what is happening to the prices of goods and services. As I see it, the dollar is indeed beginning to hyperinflate. Let’s consider some basic facts here, starting with the most obvious one that the Federal Reserve is buying US government debt and turning it into currency exactly as I forecast.

The Federal Reserve calls it “quantitative easing” instead of what it really should be called, which is “money printing”. It is not money printing in the sense that more paper-currency is being created. Rather it is the creation of deposit-currency, i.e., money that circulates as currency through the banking system, which is being conjured up out of thin air. Here are some basic facts to consider when determining whether or not hyperinflation is beginning:

1) Crude oil began the year at $79 per barrel; it is now over $90.

2) The CRB Continuing Commodity Index has risen from 484 to 624 presently, which is a record high that surpasses the so-called “commodity bubble” that occurred in the summer of 2008 before the Lehman Brothers collapse.

3) Most importantly, as the inflationary signs all around us have become increasingly apparent as 2010 wore on, the yield on the 10-year T-note over the past few months has climbed from 2.4% to nearly 3.5%, despite the QE2 announcement by the Federal Reserve saying that it would be buying $600 billion of US government debt.

So maybe the dollar really was “on the edge of hyperinflation” in 2010. Maybe general perceptions about what is really happening to the dollar are moving more slowly than the reality of the dollar’s actual descent toward hyperinflation.

In summary, I think my forecasts for 2010 were on-the-mark. They captured the major trend of the precious metals and the mining stocks. They were accurate in warning about the risk of sovereign debts, while recommending staying away from the dollar and paper assets in general. Importantly, I don’t expect these trends to change in 2011, except one point is noteworthy. The speed at which these trends are moving will noticeably accelerate, particularly in the first half of the year.

Here is what I expect for the year ahead. I would first like to describe the general scenario I expect to unfold in 2011.

The demand for physical metal will be the major driver of the gold and silver price, and the accumulation of the precious metals will become an increasingly important portfolio strategy. This demand is a continuation of the trend already in place, but will heighten in the months ahead.

Growing nervousness about the worth of government paper in particular and more generally, about the reliability of financial promises, will lead to a stampede out of currency-based assets. These include government paper, corporate paper and bank deposits. This money will move into tangible assets – particularly the precious metals – and near-tangible assets, e.g., the stocks of mining companies and other commodity producers. In this environment commodity prices will soar.

Crude oil will climb back to challenge its all-time high approaching $150 per barrel. Copper is headed for $6 in 2011, and basically all commodity prices across the board will climb as the US dollar moves ever closer to the hyperinflationary abyss. Record high soybean prices above $18 are likely before this year’s planting season begins. New records in corn and other agricultural commodities can also be expected.

The US government is already insolvent, but carries on like a zombie. Not for much longer though. The direct federal debt (ignoring the tens of trillions of its contingent liabilities) is $14 trillion, an increase of nearly $5 trillion in three years. A 1% rise in interest rates adds $140 billion to the federal government’s deficit. That $140 billion is more than 5% of annual government revenue.

The unspoken reason for the Federal Reserve’s QE policy is that the US government cannot afford higher interest rates. The financial consequences are straightforward. Higher interest rates will increase the US government’s borrowing costs, thereby raising its annual deficit, causing it to borrow even more money and therefore pay even greater amounts to meet its annual interest costs, with the result being yet a bigger deficit.

Clearly, what I am describing is a financial death spiral that always leads to hyperinflation when the debtor is a profligate, out-of-control spender with the ability to create money out of thin air, which all governments now do. Rather than cutting back spending to borrow at amounts the market is willing to lend to it, a government on a hyperinflationary path keeps spending and borrowing. The central bank steps in and turns that government debt into currency, which explains exactly the essential nature of QE.

The important point I am making is that the US government is already far down the road that leads to hyperinflation. This approaching hyperinflation will be the dominant theme for markets in 2011, and everyone has to adjust their portfolio strategy for this event. In short, the US dollar will be destroyed by hyperinflation – an eventuality that will become increasingly obvious in 2011 – unless things change right away. I see no inclination of any change coming, so I think it is possible that hyperinflation and a collapse of the dollar could occur by the end of 2011.

1) Gold will reach $2000 per ounce ($64.30 per goldgram) in the first half of 2011. Look for gold to exceed $1,800 by the end of Q1. The low for the year will be made in January, probably in the first week. Thereafter, look for gold to continue the hyperbolic uptrend it is already tracking.

2) Silver will reach $50 per ounce, probably in Q1 2011. It will then take a breather by moving sideways, trading in a range between $50-$38. It will do so in order to consolidate its tremendous gains, which if my $50 target is reached will be a more than three-fold increase in price from the year’s low of $14.82 in 2010.

3) The gold/silver ratio will continue its downtrend. It will break below 40 during Q1 as silver soars in a massive short squeeze. The ratio is likely to reach 30 during 2011, and I do not expect it to climb back above 52.

4) This year will be a great one for the mining stocks, which have been out of favor all decade long. The bear market in mining stocks began with the collapse in Bre-X back in 1997, and it ended with the collapse of Lehman Brothers, when the juniors were totally decimated and even the best mining stocks were selling at unbelievable values. Consequently, I expect the XAU Index will exceed 300, and I expect most of that gain to occur in the first half of 2011.

5) I expect another “Lehman Brothers” event in the first half of 2011. It might be a bank, but it could just as easily be a government. However, if another Lehman-like event occurs, the response by gold and the mining stocks will be completely different than 2008; this time they will rise, not fall. The event this time will be a ‘failure’, not a ‘collapse’ like Lehman. The Lehman collapse resulted in a rush by countless overleveraged debtors to get liquid. The failure I expect in 2011 will have a different result. There will be a rush to safety, meaning the avoidance of counterparty risk. The best way to avoid counterparty risk is to own gold and silver. The second best way is to own the shares of top quality commodity producers.

Note that the above forecasts focus on the first half of 2011. I have done that purposefully because the second half can go either of two very different ways.

To explain, the serial bailouts of banks and countries over the past couple of years will I expect come to a head within the next few months, i.e., in the first half of 2011. Governments and central banks will hit a wall when the market for government paper collapses. Look for more failed auctions like the ones we saw last year in the UK and China as well as with the ECB.

The trigger point for this collapse will probably occur when Spain, Belgium and/or Italy all come to the EU and ECB at more or less the same time for a bailout. In other words, the ongoing serial bailouts of adding more debt cannot go on forever, just like the unlimited borrowing by the US government cannot go on forever. This financial recklessness will end in the first half of 2011. The question is what comes next.

Unfortunately, that part cannot be forecast. It is unpredictable because the outcome depends upon something that goes beyond numbers derived from balance sheets or supply/demand statistics. It depends on what the politicians do. Will they go the right way or the wrong way?

The right way would be to reverse the bad policies they have been pursuing. Any society built around a free market and protected by a rule of law that secures the right to private property needs sound money. It can’t survive on fiat currency. It doesn’t need bailouts that add yet more financial obligations on an already overburdened middle class.

The wrong way would be more of the same, particularly more government debt and monetization of that debt by central banks. When faced in the first half of 2011 with a financial and monetary blow-up that will make the Lehman Brothers collapse look like a cakewalk, policymakers might finally see the light and be motivated to change. We can always hope. Or they could make matters even worse by imposing capital controls and Draconian measures like higher taxes, closing markets, forcing pension funds to buy worthless debt and probably dozens of other terrible things that governments may call remedies but really are desperate acts that damage our capitalist society.

Personally, I am not optimistic that governments will do the right thing. The reason is captured in a quote in The Telegraph by Germany’s chancellor, Angela Merkel. I am not picking on her, but am highlighting her quote because I think it accurately captures what all politicians are thinking today. Commenting that the eurozone was “facing an exceptionally serious situation”, she went on to say “the primacy of politics over markets must be enforced.”

Ponder that comment for a moment. That is very scary talk. She is in effect saying that markets be damned because politics are more important, even though it is the free market and not government that creates the wealth that raises mankind’s standard of living.

It is this kind of talk that leads to government actions that damage the market process, and when that happens, the economy is destroyed and society as a whole then suffers. If you doubt this outcome, I recommend reading Fiat Money Inflation in France by Andrew Dickson White, a classic and one of my favorite books. Written a century ago, White examines the impact on France from the monetary collapse during and after the French Revolution.

So my recommendation for 2011 is the same as it was for this past year, and in fact is the same as it has been all decade. Continue accumulating the precious metals, and if you are so inclined to take the investment risk, the mining stocks as well. Focus on owning tangible assets that make sense – gold, silver, useful commodities and the shares of well-run companies that produce these things. Avoid the dollar and other currencies. Avoid all government paper, and if you own a corporate bond, make sure it is convertible into equity.

Become self-reliant, and most importantly, do not rely on any government. Learn from those who were not prepared for Katrina. Even though they lived in a hurricane zone, they thought they could rely on the government to help them, but everyone who ended up in the Superdome looking for help suffered as a result. A financial Katrina is coming, and I think it will hit in the first half of 2011. It will be an unprecedented crisis because the US government is tapped out and the serial bailouts of governments and banks worldwide are coming to a head.

As a result, government policies that have led to monetary debasement for decades are going to accelerate in 2011. Be ready for it. If governments continue to follow the wrong policies and make the wrong decisions when confronting some critical moments in the months immediately ahead, then the sky is the limit for gold and silver as national currencies hyperinflate and approach a total collapse. Consequently, everyone needs physical gold and physical silver now more than ever.

Monday, January 3, 2011

Hyperinflation will drive gold to unthinkable heights


by Egon von Greyerz

We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less.

So the world financial system is a house of cards where each instrument’s false value is artificially supported by another instrument’s false value. The fuse of the world financial market time bomb has been lit. There is no longer a question of IF it will happen but only WHEN and HOW. The world lives in blissful ignorance of this. Stockmarkets remain strong and investors worldwide have piled into government bonds in a perceived flight to safety. Due to a century of money creation (and in particular since the 1970s) by governments and by the fractal banking system, investors believe that stocks, bonds and property can only go up. Understanding risk and sound investment principles has not been necessary in these casino markets with guaranteed payouts for anyone who plays the game. Maximum leverage and derivatives have in the last 10-15 years driven markets to unfathomable risk levels, with massive rewards for the participants.

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