Gold World News Flash

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• Is the U.S. Selling Gold Reserves?
• International Forecaster September 2010 (#2) - Gold, Silver, Economy + More
• Can Gold Continue it’s Ride Up or is a Correction Inevitable?
• Today’s Most Important Price Points in Gold – Part II
• Reality Economics
• How Gold-As-Money Can Prevent Mob Rule
• GLD Sham....WOW!
• Gold Remains Glued To $1200
• Gold Meltdown or Mania – Batten Down the Hatches
• Why Gold Stocks are Certain to Go Higher
• Is Now a Good Time to Buy Gold?
• The IMF Suggests a Trade
• Social Security Trust Fund's Labor Day Bombshell
• It's Time to Devalue the Dollar Against Gold: Jim Rickards
• Trader Dan Interviewed On King World News
• EU austerity policies risk civil war in Greece, warns top German economist Dr Sinn
• Oil Tumbles as Speculative Interest Drops, Gold Curbed by Quiet Confidence
• EU austerity polices risk civil war in Greece, warns top German economist Dr Sinn
• An Exception in Equities - September 1, 2010
• Gold/Bonds Ratio Chart From Trader Dan
• Jim?s Mailbox
• BC Mining Renaissance Continues with Historic Revenue Agreement
• Gold Rolling Over…Finally?
• Gold-Mining Margins
• Future Gold Hysteria: Richard Russell
• All This "Dead Cash" Is Disguising Crazy Cheap Stocks
• LGMR: Gold & Silver Fall on US Jobs Data, But "Wealth Insurance"
• The QE Case for Gold and Silver
• The QE Case for Gold and Silver
• Video: Recycling computers to extract gold, silver, and copper.
• Guest Post: Moving into Bonds - From Frying Pan to Fire
• Recent Problems in the Dutch Pension Sector
• Control The Masses: Venezuela Introduces Cuba-like Food Card
• Can Gold Continue it's Ride Up or is a Correction Inevitable?
• Will Americans Pay to Bailout Yet Another Foreign Bank ... in Afghanistan?
• Dylan Grice On Ignoring The Economists' Perpetuation Of The Illusion Of Control, And Instead Focusing On What We Do Know
• SSTF - Steve Goss’s Bombshell – What Could it Mean?
• A 7 Million Increase In US Population Results In A Labor Force... Decline? Why The US Has Really Lost 11.2 Million Jobs This Recession
• This Past Week in Gold
• Obama Must Create 230,000 Jobs A Month Until The End Of His Second Term For Return To Breakeven - Charting The New "7 Year Itch" Normal
• The Recovery Road Less Traveled
• More Grim News for Aspiring Retirees
• Dan Norcini joins weekly precious metals review at King World News

Is the U.S. Selling Gold Reserves? Posted: 06 Sep 2010 01:00 PM PDT We always have to remember that the Chinese are inscrutable. The Chinese government is very careful not to say any more than is necessary on anything. It's also very useful to have people, supposedly close to government makes statements that may appear to be government policy. Many of the statements come from people helping to lay a smokescreen for the true picture, or to get a reaction, like tossing a stone into a bush to see what flies out.

International Forecaster September 2010 (#2) - Gold, Silver, Economy + More Posted: 06 Sep 2010 04:00 AM PDT In a futile attempt to keep the economic and financial system afloat, QE2 is underway. It began in early June as banks changed the rules for awarding loans. There efforts over the past few months have only met with moderate success. Banks had cut back lending by some 25% over the past 16 months mainly to small and medium-sized companies.

Can Gold Continue it’s Ride Up or is a Correction Inevitable? Posted: 06 Sep 2010 03:05 AM PDT Economically, at least on the surface, things seem to be looking up for Europe. But keep in mind that economies can be like icebergs with lethal, unseen parts below the surface, like one common currency for very different economies. We fear that the Eurozone will arrive at the same juncture again in about three years when they must pay interest on their current debt plus the one trillion in bailout dollars and repay the maturing debt.

Today’s Most Important Price Points in Gold – Part II Posted: 06 Sep 2010 03:00 AM PDT On April 30th of this year I wrote an article entitled "Today's Most Important Price Points in Gold." This is a follow up to that article. Before presenting an updated version, there are a few key points worth review. Feel free to Google the report or check this websites archives: (At some sites it was called "The most important price point in gold."

Reality Economics Posted: 06 Sep 2010 02:00 AM PDT As a culture, we like our reality on television, but seem to oppose it in economics. For more than two years now, and even longer depending on your dating scheme, the federal government has waged war on the reality of the incredible Fed-fueled bubble that developed in housing with spillover effects on the rest of economic life.

How Gold-As-Money Can Prevent Mob Rule Posted: 05 Sep 2010 07:00 PM PDT Ellen Kelleher, writing for The Financial Times, opens her article with how Baird & Co., in their warehouses in London, purify gold by heating it to molten form to make "medallions, bars, and rings," which sounds like a lot of heavy, hot, back-breaking, dangerous work to me, as if the word "work" was not bad enough by itself with the terrifying adjectives.

GLD Sham....WOW! Posted: 05 Sep 2010 06:01 PM PDT Ahhh, the curves life throws at you sometimes still amaze me! I'd worked all summer in anticipation of taking a two week vacation...now. I was set to sail through the fabled Northwest Passage on a luxury icebreaker but six hours to the northern "port, if you can call it that, of Kugluktuk the ship ran aground on a large uncharted rock.

Gold Remains Glued To $1200 Posted: 04 Sep 2010 07:31 PM PDT Joe Weisenthal It's been a long time since gold appeared to be moving in one sharp direction or another, and almost every time we check it, it's right near $1200. Everyone expects the markets to make a mad dash in one way or another after the Fed announcement, and gold will probably be no [...]

Gold Meltdown or Mania – Batten Down the Hatches Posted: 04 Sep 2010 07:31 PM PDT by Louis James, Senior Editor, Casey's International Speculator As Doug Casey said recently, we expect things to come unglued soon. With the ongoing madness in Europe, it seems to me that things are starting to look visibly less well glued already. In contemplating the possibility of another stock market meltdown, [...]

Why Gold Stocks are Certain to Go Higher Posted: 04 Sep 2010 07:31 PM PDT By Jordan Roy-Byrne, CMT Certain may not be the best word to use in a post-bubble world. Is anything truly certain? Ok maybe not. If you don't like certain then lets replace it with "highly probable." So why is it highly probable that gold stocks will go higher? Let me digress for a moment. [...]

Is Now a Good Time to Buy Gold? Posted: 04 Sep 2010 07:31 PM PDT By Jeff Clark, Senior Editor, Casey's Gold & Resource Report While we're convinced gold and gold stocks are destined for much higher levels, buying when prices are low can mean the difference between a double or triple and a ten-bagger… a week in Malibu vs. a week in [...]

The IMF Suggests a Trade Posted: 04 Sep 2010 07:10 PM PDT Jeff Miller submits: Remember the sovereign debt issue from a few months ago? It was supposed to be like cockroaches. Greece was to be like Bear Stearns. The dominoes would start falling. The facile analogies came day after day. Complete Story »

Social Security Trust Fund's Labor Day Bombshell Posted: 04 Sep 2010 06:42 PM PDT Bruce Krasting submits: I have written often on the status of SS. I also have some understanding of illegal aliens working in the US. I have sponsored four over the course of many years. I don’t hire them. But I pay many companies that do. The employers know they are illegal, but the workers have SS cards (fake) and so long as the PR taxes are collected no one seems to care. These two interests of mine dovetail. SS has been collecting money from illegal aliens for years. They will keep the money they have collected and they will not pay out any benefits (except fraud) in the future. So this money is “free”. I have often wondered how big the numbers on this are. Now we know. The numbers are enormous. Without the Free Money coming in from illegal aliens SS would look much different than we "think" it does. Complete Story »

It's Time to Devalue the Dollar Against Gold: Jim Rickards Posted: 04 Sep 2010 06:10 PM PDT Well, we got the obligatory job numbers hit on the gold price. But the sell-off actually started at 8:00 a.m. sharp... and at 8:30 a.m. on the button the bids got pulled... and the price fell $11 in just a few minutes to its low of the day at $1,237.10 spot. The price recovered quickly... and by noon, the gold price had gained back almost all its losses on the day... but got sold off a bit going into the New York close. Gold's New York high of $1,252.10 spot was at 8:00 a.m. Eastern time. Silver's sell off was barely noticeable, with its low [$19.46 spot] coming at the same time as gold... a few minutes after 8:30 a.m. Eastern time. From its low, gold pretty much traded sideways... but the second that London trading closed for the weekend, a buyer of substance showed up... and in no time at all, silver was up 35 cents. Then, once floor trading was through for the weekend, silver went on to set its high price of the day at $19.97 spot. Whoever the buyer was, the...

Trader Dan Interviewed On King World News Posted: 04 Sep 2010 06:10 PM PDT View the original post at jsmineset.com... September 04, 2010 11:46 AM Dear CIGAs, Eric King of KingWorldNews.com has interviewed our very own Trader Dan Norcini on the Commitment of Traders report and the Gold market as a whole. Click the link below, scroll down and click the "Listen To MP3" button on the left. Click here to visit KingWorldNews.com and listen to the interview…...

EU austerity policies risk civil war in Greece, warns top German economist Dr Sinn Posted: 04 Sep 2010 06:10 PM PDT September 03, 2010 07:21 AM - Greece's austerity measures cannot prevent default and could lead to a breakdown of the political order, says top German economist. Read the full article at the Telegraph......

Oil Tumbles as Speculative Interest Drops, Gold Curbed by Quiet Confidence Posted: 04 Sep 2010 06:10 PM PDT courtesy of DailyFX.com September 03, 2010 12:01 PM Neither oil nor gold would benefit from the carry through of risk appetite trends through the week’s close. With speculative interests fully drained for the extended holiday weekend, will traders rouse enough momentum to carry critical breakouts next week? North American Commodity Update Commodities - Energy Speculative Confidence in Crude Tumbles According to COT Data Crude Oil (LS Nymex) - $74.34 // -$0.68 // -0.91% US-based oil would see its impressive bullish reversal hit a wall Friday despite a steady climb in risk appetite seen across other speculative-based asset classes. The first decline for crude in three days would develop on the same day that the S&P 500 rallied for a fourth consecutive session and tested levels not seen since August 11th. Investor confidence was bolstered by the big-ticket release of the monthly US employment statistics. And, though the data’s promise is suspect; the prevailing...

EU austerity polices risk civil war in Greece, warns top German economist Dr Sinn Posted: 04 Sep 2010 06:10 PM PDT September 03, 2010 07:21 AM - Greece's austerity measures cannot prevent default and will lead to a break-down of the political order if continued, says top German economist. Read the full article at the Telegraph......

An Exception in Equities - September 1, 2010 Posted: 04 Sep 2010 06:10 PM PDT Conversations With Casey September 1, 2010 | Visit Online Version | www.CaseyResearch.com • About Casey • Forward this email • New? Free sign up for Conversations With Casey • CaseyResearch.com (Doug Casey, interviewed by The Gold Report) Editor's Note: Just recently, our friends at The Gold Report interviewed Doug on his thoughts about the precious metals bull market, how high gold will go, his views on gold stocks, and much more. Some of what he says below is not new to longtime readers, but we think his comments on gold investments being a potential exception to the rule for what's coming are well worth bringing to your attention. * * * The Gold Report: Doug, at a recent conference you said that the U.S. ought to default on its national debt now. Why that rather than letting it play o...

Gold/Bonds Ratio Chart From Trader Dan Posted: 04 Sep 2010 06:10 PM PDT View the original post at jsmineset.com... September 03, 2010 06:06 AM Dear CIGAs, Click chart to enlarge today's Gold/Bond ratio chart in PDF format with commentary from Trader Dan Norcini ...

Jim?s Mailbox Posted: 04 Sep 2010 06:10 PM PDT View the original post at jsmineset.com... September 03, 2010 11:14 AM Jim, There is no way for the spinmeisters to spin this. CIGA UD Dear CIGA UD, It is not even amazing anymore in how the media handles economic statistics. Everything is MOPEd away. Regards, Jim Pending Home Sales Reconfirm The Housing Market is Crashing Michael David White | Sep. 3, 2010, 9:30 AM Record low levels of demand continue to haunt the U.S. housing market with July pending home sales re-confirming previous crash-level readings. More Gloves About To Come Off For Gold Stocks CIGA Eric Individual gold stocks and gold stock indices are beginning to break out of long-term consolidations without much attention. The heavily followed Amex gold bug index sits above important resistance at 479.35. The gloves will come off quickly over price once the computers and hedgies start buying en mass after technical confirmation. The setup of "three taps and out" is nearly complete. Amex Gold B...

BC Mining Renaissance Continues with Historic Revenue Agreement Posted: 04 Sep 2010 06:10 PM PDT Source: Jeb Handwerger for The Gold Report 09/03/2010 Gold Stock Trades Editor Jeb Handwerger joins The Gold Report for a look at the mining renaissance currently taking place in British Columbia. With the BC government now playing a more active role in bridging the conflicting needs of opposing sides, Jeb sees diminishing poverty, crime and unemployment levels in the province that generates close to $8 billion a year. "This is a historic first," he says, "BC's government sharing its wealth with the natives." Jeb also offers up some names in the space that are poised to grow alongside BC's rising economy in this Gold Report exclusive. Mining investors interested in the future of mining in British Columbia should be excited about the revenue-sharing agreement forged with the local aboriginal communities surrounding these mines. This agreement will take a lot of pressure off the mining companies who, up until now, have negotiated directly with indigenous nations. The...

Gold Rolling Over…Finally? Posted: 04 Sep 2010 06:10 PM PDT courtesy of DailyFX.com September 03, 2010 06:37 AM 240 Minute Bars Prepared by Jamie Saettele Gold is making its way lower in an impulsive fashion. The first 5 wave decline ended following a terminal thrust from a triangle. The rally is in 2 equal legs, common for corrections, and may be complete (finally)....

Gold-Mining Margins Posted: 04 Sep 2010 06:10 PM PDT Scott Wright September 3, 2010 2479 Words Gold mining is a tough business. In the quest to meet growing global demand these miners are constantly barraged with challenge after challenge. They are attacked by environmentalists, targets of governmental meddling, purveyors of a science that is not exact, and must always fight to renew their finite resources. Gold miners are also at the mercy of fluctuating gold prices. Prices can be radically different from when a mine initially commences development to when it pours its first gold years later. Even on a month-to-month or week-to-week basis, miners can see material differences in their revenues based on what prices are doing. But thankfully, this blitz of opposing forces proves worthwhile in a ...

Future Gold Hysteria: Richard Russell Posted: 04 Sep 2010 06:10 PM PDT Gold lost all its small Far East gains beginning at the London a.m. gold fix yesterday morning [10:30 a.m. local time/5:30 a.m. Eastern time]. But from that point, gold climbed slowly... hitting its high of the day [$1,254.50 spot] around 9:30 a.m. in New York... before dropping to its New York low price [$1,245.70 spot] at the London p.m. gold fix at 10:00 a.m. Eastern... 3:00 p.m. local time in London. Gold tested the $1,253 spot level several times during the rest of the trading day [including once in electronic trading]... but got turned back at every attempt. Here's the New York market on its own. It shows a lot more detail of what goes on in the only gold market that really matters. Silver developed an upward price bias by 3:00 p.m. Hong Kong time during their Thursday afternoon trading session. Seven hours later, at 9:00 a.m. in New York, silver spiked up a further 15 cents to $19.65 spot... and, after meandering around a bit, closed a...

All This "Dead Cash" Is Disguising Crazy Cheap Stocks Posted: 04 Sep 2010 06:10 PM PDT By Dr. Steve Sjuggerud Friday, September 3, 2010 Who's got the cash these days? Nobody here in Florida… Every other homeowner (one in two) is "underwater" here – their property is worth less than their mortgage. And one out of four Florida homeowners is currently delinquent on his mortgage payments. Nobody in government has the cash, either… From the local level to the national level, governments are more indebted than ever. So who's got the cash? It's Corporate America… Microsoft tops the list, with $31 billion in net cash (cash minus debt). Google isn't far behind at $31 billion. Cisco and Apple are next, with $24 billion to $25 billion in net cash. Intel deserves an honorable mention, with $16 billion in net cash. The thing is, this "dead cash" makes these tech giants look more expensive than they really are… Big-name tech stocks are cheap today. They're as cheap as they've been since the late 1980s, based on their forward pric...

LGMR: Gold & Silver Fall on US Jobs Data, But "Wealth Insurance" Posted: 04 Sep 2010 06:10 PM PDT London Gold Market Report from Adrian Ash BullionVault 09:00 ET, Fri 3 Sept. Gold & Silver Fall on US Jobs Data, But "Wealth Insurance" Needed as "Double-Dip Recession" More Likely THE PRICE OF GOLD and silver fell hard for Euro and Dollar investors Friday lunchtime in London, with gold unwinding this week's 1.2% gains as world stock and commodity markets jumped in response to new US jobs data. August's Non-Farm Payrolls surprised analysts with a headline drop for August of 54,000 – half the losses expected – plus stronger-than-forecast growth in private-sector hiring, up by 67,000. "The private sector has net created a total of 622,000 jobs since last November," noted Deutsche Bank analysts ahead of Friday's announcement. "This is still fairly low compared to the 8.459 million private jobs lost during the previous two years." Overall, the US unemployment rate crept up to 9.6%, with average earnings rising more slowly than expected from a year earlier. ...

The QE Case for Gold and Silver Posted: 04 Sep 2010 05:59 PM PDT Ashraf Laidi submits: The case for metals remains not that of outright inflation but that of central banks' prolonged liquidity drives. Currencies will gain/fall versus one another, but fresh asset purchases will maintain gold and silver ahead. Rising metals remained the consistent play over the past 2 months, supporting my near-term gold outlook for $1270/oz and $1,330 by Q4. Meanwhile, Silver finally breaks the $19.80 ceiling to attain its highest level since March 2008. Unlike gold, silver has yet break its 2008 record high of $21.35/oz. Players are gauging this level with high interest. Each time gold's rise hits the headlines, it steals the limelight from its cheaper cousin, silver. But as the charts show below, silver has not only followed closely on the rallies, but usually outperformed gold during the general advances in metals, as shown via the falling Gold/Silver ratio. Complete Story »

The QE Case for Gold and Silver Posted: 04 Sep 2010 05:59 PM PDT Ashraf Laidi submits: The case for metals remains not that of outright inflation but that of central banks' prolonged liquidity drives. Currencies will gain/fall versus one another, but fresh asset purchases will maintain gold and silver ahead. Rising metals remained the consistent play over the past 2 months, supporting my near-term gold outlook for $1270/oz and $1,330 by Q4. Meanwhile, Silver finally breaks the $19.80 ceiling to attain its highest level since March 2008. Unlike gold, silver has yet break its 2008 record high of $21.35/oz. Players are gauging this level with high interest. Each time gold's rise hits the headlines, it steals the limelight from its cheaper cousin, silver. But as the charts show below, silver has not only followed closely on the rallies, but usually outperformed gold during the general advances in metals, as shown via the falling Gold/Silver ratio. Complete Story »

Video: Recycling computers to extract gold, silver, and copper. Posted: 04 Sep 2010 03:09 PM PDT

Guest Post: Moving into Bonds - From Frying Pan to Fire Posted: 04 Sep 2010 12:55 PM PDT Submitted by David Galland and Kevin Brekke at Casey Research The other day, I came across an article that said, while individuals may be moving their money out of equities, they have been moving into bond funds – and in a big way. It’s called jumping from the frying fan into the fire. Based on my experience as a co-founder of a mutual fund group, I can tell you that if there is one sure thing in this world, it’s that when investors rush en masse into an investment category, it is invariably at almost exactly the wrong time to do so. Is that the case with today’s rush into bonds? To shed some light on that point, Casey Research Switzerland-based editor Kevin Brekke volunteered to look into the correlation between bond flows and performance. Here’s his report… Thinking About Bonds By Kevin Brekke With the great bond stampede that began in 2009 continuing, giving rise to the very real possibility of a bond bubble, we decided to check the relationship between bond returns and bond fund inflows to see if there might be a correlation. Take a look at this chart: (1) Measured as the year-over-year change in the Citigroup Broad Investment Grade Bond Index. (2) Plotted as the three-month moving average of net new cash flow as a percentage of previous month-end assets. The data exclude flows to high-yield bond funds. As suspected, the rise and fall in total return from bond funds is accompanied by an influx or exodus of bond investors. Data to construct the chart were taken from the Investment Company Institute’s (ICI) 2010 Fact Book where they state,  In 2009, investors added a record $376 billion to their bond fund holdings, up substantially from the $28 billion pace of net investment in the previous year. Traditionally, cash flow into bond funds is highly correlated with the performance of bonds. The U.S. interest rate environment typically has played a prominent role in the demand for bond funds. Movements in short- and long-term interest rates can significantly impact the returns offered by these types of funds and, in turn, influence retail and institutional investor demand for bond funds.”  ICI continues by noting that secular and demographic trends have tempered the appetite for equities. An aging population tends to become risk averse, and the Baby Boomers are entering retirement and seeking a safer alternative to the stock market. This occurrence is clearly shown on the right side of the chart. Following the stock market crash in 2008, investors exited stocks and bonds as general panic prevailed. As investor calm returned, a tidal wave of new money flowed into bond funds, turning 2009 into a record year. And the popularity of bond funds continues. So far this year, investors have funneled $200 billion in new money into bond funds. 2009 was also a record year for total assets and net new capital in bond funds from retirement accounts. That is the view through the macro lens. Switching to a wide-angle lens gives one pause. We can’t help but draw similarities to the housing bubble that began inflating at the start of the new century. As home prices started escalating, they drew the attention of a growing pool of investors. And soon this becomes a self-reinforcing phenomenon; higher prices attract greater numbers of investors that drive prices higher. Likewise for bonds. Bond returns are rising because bond returns are rising. Got it? We have entered the terminal phase of a bond bull market ushered in thirty years ago by Paul Volcker, who drove interest rates over 20%. With 30-year U.S. government paper now under 4%, the easy profits have been made and the low-hanging fruit consumed. Investors today are shimmying out on a very tall and thin branch in search of higher “total return.” The snapping of the branch – sending investors big losses – may not be imminent, but it is inevitable. As we at Casey Research have discussed and warned about often, the fiscal misadventures of the U.S. government will have their consequences. And one of the first victims will be bond investors as interest rates are forced higher, much higher, to attract buyers, particularly foreign buyers. When this happens, the total return on bond funds will be smashed. The sad and pathetic irony: to escape the beatings endured in the stock markets, millions have sought safety in bonds. The punishment is not over. We are afraid an awful lot of investors will be left asking, “What was I thinking?”

Recent Problems in the Dutch Pension Sector Posted: 04 Sep 2010 11:53 AM PDT Via Pension Pulse. Below is a guest commentary by Martin van Dalen, a portfolio manager in the investment department of the Dutch Social Security Organization:   Recent problems in the Dutch pension sector   I’m very grateful to Leo Kolivakis’ invitation to write this guest post.   Over here, in the Netherlands, the pension sector has a bit of a problem.   First, the structure of the Dutch pension system. There’s a nationwide (compulsory) retirement system, paid on a pay-as-you-go basis (out of the first two income tax brackets), providing a pension at 65 at the same level as the national minimum wage (that is, for a married or non-married couple, single persons get about 70%), calculated over a period of 50 years. (For every year you haven’t been a resident, 2% is deducted.) The starting age of 65 is likely to be moved to 66 (from 2020) and 67 (from 2025), but those plans were temporarily shelved when the Dutch government collapsed. Whether the next government will manage to get this done is uncertain; we’re still trying to form a government.   The second pillar is quite large: about 600 pension funds, (theoretically) fully funded, providing pensions to probably over 90% of non-self-employed workers. Mostly defined benefit, although the share of defined contribution is rising. By now generally based on the average wage during the period of employment, hopefully indexed for inflation. Pension rights are accrued, and contributions paid, on the income over the income provided by the first pillar pension. If all goes well, and one doesn’t have too many breaks in one’s career, one might expect a total of 60% to 70% of one’s average income. Since the income tax rates for retired persons are much lower, the net income might be about 80% of one’s average income (again, hopefully indexed). The total assets of the second-pillar pension schemes at the end of 2009 were € 741 billion.   The third pillar (for self-employed persons and for others who have gaps in their pension career) is run by insurance companies.   The pension sector is regulated by De Nederlandsche Bank, the Dutch central bank. Further on, referred to as “DNB”.     By international standards, the Dutch system is considered to be quite good. (See Ambachtsheer, K.P.,  Pension revolution: A Solution to the Pensions Crisis, 2007, and the Melbourne Mercer Global Pension Index, updated 14 October 2009, at http://www.mercer.com/referencecontent.htm?idContent=1359260 .)   So everybody thought their pension was quite safe. One typically gets an annual statement from one’s pension fund (“Uniform Pensioenoverzicht”), consisting of several pages filled with numbers. I expect that most people didn’t spend more than five minutes in studying it. However, the next statement might be scrutinised more closely, as I will try to explain.    Pension funds have to report on their coverage ratio on a quarterly basis. And this is where the problems start. As I need not explain to the reader, it’s basically a simple matter: you have the current value of the investments on the one hand, and the present value of the expected outflows, based on actuarial assumptions, on the other hand. Divide the first number by the second number.   The big question is of course which discount rate should be used. DNB has prescribed a yieldcurve, period. I understand it’s a zero-coupon curve derived from the Dutch government bond yieldcurve. But whatever it is, it’s the one that pension funds are required to use when reporting their coverage ratio. It’s published monthly on DNB’s website at http://www.statistics.dnb.nl/popup.cgi?/statistics/excel/t1.3nm.xls .   Their policy on the resulting coverage ratios is quite clear: &iddot;        Less than 100%: you’ve got a problem, you have to submit a recovery plan outlining how you are going to get back to at least 100%. &iddot;        100% - 105%: no indexation of pensions and accrued pension rights allowed. &iddot;        105% - 125%: only partial indexation allowed. &iddot;        125% - 145%: full indexation allowed. &iddot;        Over 145%: compensation of previous missed indexation allowed.   (These percentages apply to the average pension fund, in term of asset mix and demographic composition.)   I need hardly point out to the reader that coverage ratios have fallen dramatically over the last few years. See http://commons.wikimedia.org/wiki/File:Coverage_ratio_Dutch_pension_funds.png for a graph, made from data found on the DNB website. (The data for 2010Q2 have not yet been released.)   Neither do I have to explain to the reader that this drop is to a large extent the result of the drop on yields on Dutch government bonds. (The other part is of course the not-too-spectacular yield on investments during the last years.) Of course, this is to a large extent the result of the crisis in Euroland public finance: yields of Greek, Portuguese and Spanish government bonds have risen dramatically, yields of Bunds have dropped to historically low levels. And the Netherlands are seen, by the international investor community, as a sort of province of Germany, economically speaking. To a fairly large extent, they have a point: Germany is our largest trading partner, for instance. Dutch government bonds move, well, not exactly in lockstep, but in a fairly narrow band: about 20 to 30 basis points above Bunds, give or take a few basis points.   For Dutch public finances, this is obviously a blessing: we’re not the safe haven that Bunds are perceived to be, but pretty nearly so. Dutch pension funds, however, are now faced with the opposite effect: these low yields work against them.   A week or two ago, DNB issued a statement to the effect that 12 to 14 pension funds had such a low coverage ratio that they should cut their current pensions and their accrued pension rights by, depending on the fund in question, 1% to as much as 14%, starting as soon as January 1, 2011. DNB was barred by law from saying which pension funds were involved, but since then, the names of all of them have surfaced. All in all, about 700.000 people would be facing cuts (total of current pension recipients, current contributors and past contributors), on a nationwide total of about 8 million people who are involved in a pension scheme (plus their dependants). (The number of 8 million people is a back-of-the-envelope calculation by a senior official of a large Dutch social security organisation who I asked for a guesstimate.)   Some of these funds are quite small (in some cases I don’t understand why they haven’t merged with a larger one), but one of them, PME, is a fairly large one. One of the largest, in fact, right behind the “big boys” ABP (public sector and education) and PZW (healthcare). 700.000 people out of 8 million means that nearly 10% of the Dutch should brace themselves for bad news. It’s understandable that this has caused a pretty big row.   Cutting nominal entitlements has never happened before, at least, not since World War II. (Not getting your pensions or future pensions indexed is, obviously, also a way of cutting them, but it attracts less attention that way.)   As was to be expected, the pension funds have shown little inclination to do as they have been told. Some of the things they have said, thus far:   &iddot;        DNB made this demand out of the blue, without first telling us that they would do so, and informed the press at the same time. They should have been more polite. We’re not going to accede to their demand until they repeat their request in a polite way. (The Dutch, whatever their social status or position, do not take kindly to being told what to do. Ask any Dutch police officer for examples.) &iddot;        We have agreed with the trade unions and employers’ associations to wait until 2012 before taking any steps, so DNB has to accept this agreement. (The fact that DNB, or for that matter the Minister of Social Affairs, has legal powers of itself is not seen as being relevant in any way. This is entirely normal in the Netherlands. It is impossible to exercise authority without the consent of the governed, especially in matters pertaining to labour.) &iddot;        This is the result of something beyond our control, i.e. the behaviour of international financial markets, so we cannot be held responsible in any way. &iddot;        This is the result of DNB prescribing this yieldcurve, so it’s entirely DNB’s fault. &iddot;        The mere fact that DNB has said this, means that a lot of people are very upset, for which DNB is wholly to blame. The only way to restore confidence in the Dutch pension system is for DNB to retract its statement immediately. &iddot;        As this problem has been created by the government yield curve, it’s up to the government to solve it: please send us the required umpteen billion euro’s immediately. &iddot;        The present yield curve is historically low, which means it will rise in the future. Using a historically low rate means being too pessimistic. It would be desirable to use an average over a number of years. (This position has been taken by ABP pension fund in articles in several Dutch newspapers.) &iddot;        This is not simply a matter of cutting everybody’s claims by x%. We have to decide on whose claims to cut by which percentage, to spread the pain in a just manner. If we have to cut at all. This will take time. &iddot;        This is a very complex problem, whichever way you look at it. Let’s not start cutting claims in undue haste, but let’s make an in-depth study of the entire matter.     Please excuse the levity. I have allowed myself some leeway in paraphrasing the arguments put forward, as, I think, befits a blogger.;) I hasten to add that I am well aware that the boards of the pension funds concerned will be extremely uncomfortable. Their position is not to be envied…   In the meantime, the yields on Dutch government bonds are reaching new lows almost every day. This means that a favourite way of handling complex problems –hoping they will disappear in some mysterious way without any painful steps having been necessary- is unlikely to work.   The Dutch parliament is currently debating the matter, along the familiar lines of “how could this happen” and “who is to be blamed”.   My two cents:   On the one hand:     There is something funny about the DNB yieldcurve. It currently tops at about 20 years at 3.60%, but is significantly lower for later years: 3.10% at the end of the curve. That’s counterintuitive, to say the least. Furthermore, I’ve told that the observations used in construing this curve stop at the end of the Dutch government yield curve, i.e., at this moment 32 years, the NETHER 3.75 01/14/42 being the longest Dutch government bond, not counting a number of completely illiquid perpetual loans. Anything beyond that, up to 2070, is done by just extending the last set of observations. Now, this means that any fluctuations or distortions at the end are compounded in the calculations. A difference few basis points might not seem much, but raised to the power of 60…   On the other hand:   The purpose of this present-value calculation is to arrive at an answer to the question “how much should we invest today in order to be able to pay this stream of outgoing cashflows?”. This means that realistic assumptions as to future yields on this investments should be used, or the whole exercise is pointless. (I have read that U.S. pension funds are allowed to use yields of 8% or more in their calculations. If this is correct, I think this is a disaster waiting to happen, but that is another matter.)   Assuming one wants pension funds to invest in a safe way, without too much downside risk, this means, in my humble opinion, that one should use a yield curve that contains a large component of government bond yields, so to speak. (DNB does not tell pension funds which asset-mix they should use, but does apply “buffer requirements” for assets other than government bonds. The 125% mentioned above applies to a “standard asset mix” containing, roughly, 60% bonds, 30% equities and 10% anything else. Or thereabouts.)   If this means that in the present situation one arrives at an uncomfortably high number (of the present value of the future claims), that’s only a reflection of the reality.   If this means that current pensions and current claims have to be cut, so be it. (And I am quite aware that cutting someone’s pension by, say, 20 to 50 euro’s per month will be quite painful in a large number of cases.)   But if we don’t do that now, we are in effect spending money we don’t have. Which means that future generations will have to foot the bill, one way or another.

Control The Masses: Venezuela Introduces Cuba-like Food Card Posted: 04 Sep 2010 11:45 AM PDT Presented by President Hugo Chávez as an instrument to make shopping for groceries easier, the ``Good Life Card'' is making various segments of the population wary because they see it as a furtive attempt to introduce a rationing card similar to the one in Cuba. The measure could easily become a mechanism to control the population, according to civil society groups. ``We see that in short-term this could become a rationing card probably similar to the one used in Cuba,'' Roberto León Parilli, president of the National Association of Users and Consumers, told El Nuevo Herald. ``It would use more advanced technological means [than those used in Cuba], but when they tell you where to buy and what the limits of what you can buy are, they are conditioning your purchases.'' Chávez said Tuesday that the card could be used to buy groceries at the government chain of markets and supplies. ``I have called it a Good Life Card so far,'' Chávez said in a brief statement made on the government television channel. ``It's a card for you to purchase what you are going to take and they keep deducting. It's to buy what you need, not to promote communism, but to buy what just what you need.'' Former director of Venezuela's Central Bank, Domingo Maza Zavala, said this could become a rationing card that would limit your purchases in light of the country's recurring problems with supplies. ``If the intention is to beat inflation, they should find a good source of supply for the entire market and not only for centers that are part of social chains,'' he said. ``To do that, you need to encourage local production with the help of the private sector, since they cannot do it by themselves. The government cannot become the ultimate food distributor.'' More Here. This posting includes an audio/video/photo media file: Download Now

Can Gold Continue it's Ride Up or is a Correction Inevitable? Posted: 04 Sep 2010 11:08 AM PDT Economically, at least on the surface, things seem to be looking up for Europe. But keep in mind that economies can be like icebergs with lethal, unseen parts below the surface, like one common currency for very different economies. Read More...

Will Americans Pay to Bailout Yet Another Foreign Bank ... in Afghanistan? Posted: 04 Sep 2010 10:04 AM PDT → Washington’s Blog As I have repeatedly pointed out, American taxpayers have been bailing out foreign banks for years. For example, I noted in May: As the Wall Street Journal points out, the Federal Reserve might open up its "swap lines" again to bail out the Europeans: The Fed is considering whether to reopen a lending program put in place during the financial crisis in which it shipped dollars overseas through foreign central banks like the European Central Bank, Swiss National Bank and Bank of England. *** At a crescendo in the crisis in December 2008, the Fed had shipped $583 billion overseas in the form of these swaps. As the BBC's Robert Peston writes: There is talk of the ECB providing some kind of one year repo facility (where government bonds are swapped for 12-month loans) in collaboration with the US Federal Reserve. See this for more information on swap lines. Indeed, the Federal Reserve has been helping to bail out foreign central banks and private banks for years. For example, $40 billion in bailout money given to AIG went to foreign banks. Indeed, even AIG's former chief said that the government used AIG "to funnel money to other Institutions, including foreign banks". As the Telegraph wrote in September 2008: The Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can't access America's frozen credit markets. Congressman Grayson said that the Fed secretly "stuffed" half a trillion dollars in foreign pockets. (Of course, the Fed won't tell Congress or the TARP overseer - let alone the American people - who got the cash). And as I pointed out the same month: A Fact Sheet from the U.S. Treasury says: Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets. An article from today in Politico explains "In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night." Of course, even much of the bailout money which went to American banks ended up being shuttled abroad. As I wrote in March 2009: Moreover, bailout money that went to Citigroup was loaned to Dubai, bailout money that went to Bank of America China was invested in China, and bailout money given to JP Morgan was invested in India. And the government is in the process of providing billions more - along with trillions more in guarantees of worthless assets - to sovereign wealth funds and hedge funds. So not only are Americans bailing out our own too big to fail banks, but we're bailing out foreign mega-banks as well. Even though bailing out Europe might make sense if America was flush with cash, things are different now. As Congressmen Kucinich and Filner wrote last June: Our country and this body cannot afford to spend American tax payer dollars to bail out private European banks. In addition, the U.S. is - of course - also contributing tens of billions of dollars towards the Greek bailout through its contributions to the International Monetary Fund. Some allege that the U.S. will secretly help bailout of all of Europe. See this and this. As Tyler Durden pointed out last week, the IMF has now abandoned any cap on the bailouts it gives, and the U.S. is the larger funder of the IMF. Now, the New York Times says that the U.S. is going to bail out Afghanistan's biggest bank: Details of the deal, including how much each government would contribute, were still being worked out on Saturday between the Central Bank of Afghanistan and the United States Treasury Department, officials said... Top officials at Kabul Bank and a senior leader at the Central Bank declined to comment publicly on the proposed bailout, which was still being negotiated. However a manager at the Central Bank and a senior American official confirmed what the American official called an "intervention." Not surprisingly, there have been numerous allegations of corruption at the Kabul Bank. Update: The New York Times has updated their story with comments from U.S. Treasury officials insisting that no American money will be used to recapitalize the Kabul Bank: "No American taxpayer funds will be used to support Kabul Bank," said Jenni LeCompte, a Treasury Department spokeswoman. Of course, the IMF, World Bank or foreign country could funnel the bailout moneys and then the U.S. could print more money to "repay" them later. Accounting shenanigans and under-the-table deals can work wonders to hide the truth from angry American serfs taxpayers.

Dylan Grice On Ignoring The Economists' Perpetuation Of The Illusion Of Control, And Instead Focusing On What We Do Know Posted: 04 Sep 2010 09:00 AM PDT In his most recent Popular Delusions piece, SocGen's brilliant Dylan Grice once again rightfully demolishes the shamanic rituals of the "alternate universe" theory, better known as economics, ridicules economists for the hack priests of financial paganism they are, and concludes what may be the key principle of modern cynical thought: "Some have said that the key risk investors face today is of ‘policy error’. But isn’t that always the key risk? Financial history is one long series of ‘policy errors’ and while policy makers labour under the delusion that they know the unknowable it will remain so. All investors can do is try to see the funny side, and focus on things we can know." Incidentally, focusing on the funny side is precisely what Zero Hedge has been doing for just over a year and a half (much to the dismay of our ever growing detactors and critics). Add some intelligence to the discourse, and one gets in 18 months more actual policy changes (Fed Audit, the end of Goldman Prop (a topic we were digging into long before Volcker was resurrected from the dead), banning Flash trading, inquiry into High Frequency Trading and daily market manipulation), more than others who in lengthy, rambling, somnolent, rants and essays have achieved in decades. Since mixing humor and "focusing on what we know" is all we know, we will continue doing it, until we succeed in terminally discrediting the most worthless voodoo "science" ever conceived by man - economics, and overturning its one most destructive construct - the central bank and the implicit central planning that goes side by side. But in the meantime, here is Dylan's most recent fusion of humor and scathing condemnation of the idiots who will gladly destroy the US economy in their pursuit of a theory which is proven to be more and more flawed, fake and destructive with each passing day. Dylan on the basis of the illusion of control: The pedestrian ‘push’ buttons at New York’s intersections don’t actually work. They were deactivated in the 1970s when computer-controlled automatic traffic signals were installed but left in place because removing them is too costly. Apparently most ‘close door’ buttons in lifts don’t work either. But give us a button and we’ll press it, not because the button works but because the sense of being in control makes us feel good (when subjects are crammed into a lift for example, those closest to the controls show lower stress levels). Feeling in control doesn’t mean that we are in control, but who cares? As Slartibartfast said in Hitchiker’s Guide to the Galaxy, “I’d rather be happy than right!” Slartibartfast would have been a splendid economist. Squabbling amongst themselves in the press - when fiscal retrenchment should proceed; where monetary policy should go from here; how to avoid deflation; etc – they use loaded words such as “optimal”, “equilibrium” and “calibration”, language which gives the impression of learned discussion between experts who understand their subject matter. In fact, the overwhelming evidence of regular financial calamity (which has unambiguously increased as central banks have gained influence, see chart below) clearly demonstrates that they do not. But that doesn’t deter our brightest economists from happily believing their own propaganda. They really think they’re in control! Let them press their buttons. Let them believe they know the unknowable if, like Slartibartfast, it makes them happy. Frankly, there’s not much we can do, other than allow the occasional giggle and avoid making the same mistake of failing to accept that some things just can’t be known. Our effort and energy should focus on what can be. On the creation of ad hoc theories to explain a constantly changing reality, on their endless inability to predict even one day into the future, and on covering up that economists are really just the most insecure, unintelligent, overrated hacks ever produced by Ivy League universities. A famous MIT economist earnestly warns on a prominent website that “the US may be near a liquidity trap” where monetary policy may no longer be ‘effective’ (whatever that means: effective at what, inflating bubbles?) Fear not though, and let the trumpets sound out, for our macroeconomists are riding to the rescue “ … the ineffectiveness of monetary policy can be turned on its head by using money creation to finance fiscal policy stimulus – such as a large but temporary cut in sales taxes. To avoid future problems, the Treasury could commit to transfer resources back to the Fed when the economy is back to full employment.” This is a brilliant solution … it’s smart … it might even be sexy. But there’s one glitch - how do we know when we’re at full employment? Didn’t the Irish think they were at sustainable and full employment in 2007, only to discover that they had been dangerously overheating? Not to worry, another report on my desk warns against premature austerity. To give its argument added weight it quotes Keynes: “The boom, not the slump is the right time for austerity.” The authors are concerned that mistimed government retrenchment might cause more unemployment than necessary. Who would argue with such sentiments? Who wants to see high unemployment? But how will they know when the economy is booming? Knowing when it collapses is easy enough: spikes in unemployment hurt; market panics hurt … but booms? Like full employment; how do we know when we’re there? During the boom, Ben Bernanke didn’t know it was a boom and dismissed the very notion of a US housing bubble. During the boom, the clever economists at the helm, who today diagnose the economy’s ills and confidently suggest its remedies, said then that the cycle had been tamed, that leverage which was once dangerous was now prudent. During the boom, the UK’s Chancellor boasted that he’d “put an end to boom and bust.” During the boom, the few lone voices pointing out the dangers of the credit inflation were dismissed as “perma bears” During the boom, everyone thought the boom was normal, leading us to where we are today. There was certainly no talk of ‘austerity.’ ...On what we don't know (or at least what we should admit to those reading us, we have no clue). And yes, this is directed solely at Paul Krugman, and all the other prize Keynesianites of the world. Never mind. Keynesian poster boy and Nobel prize winner Paul Krugman gushes over Richard Koo’s conclusion that even though Japan’s level of nominal GDP today is lower than it was in 1992, the nearly two decades of fiscal stimulus was the most successful in history, for without it Japan would have experienced a much worse decline! Conclusion? We need more fiscal stimulus to get the economy back to ‘full employment’… forget for now that no one has, has ever had, or is ever likely to have any accurate idea of where ‘full employment’ is: macroeconomists are now basing policy recommendations on intrinsically speculative and unprovable counterfactuals! I understand the intuition, but he can’t know that Japan’s stimulus has improved the lot of its people, or indeed what the full consequences of the stimulus are. I could go on … the FT reported on 1 September (see Greece debt default seen as ‘unlikley’ – FT.com) the IMF estimates of the UK and US’s “fiscal space” and the conclusion that they can increase their debt by another 50% of GDP without a crisis. I hope they’re right, but their guess is as good as my cat’s. There just is no “trigger” beyond which debt crises happen (chart above) and we have no idea how much “fiscal space” governments have until they have none ... ...On what we do know, or what we should do with the things we have some control over...and not just a Keynesian illusion thereof: But what can we do? Chuckle, and focus on doing homework in areas where we at least have a chance of knowing. We know, for example, that scarcity is developing in certain commodity markets and that China’s age of self sufficiency in things like coal and grain is probably over. We know that historically when a large producer has turned to world markets those markets have become vulnerable to violent upward spikes. We also know that wars have frequently been fought over scarce resources and that China now has more fighter ships than the US. We know that the developed economies’ demography is set to decline and that while we’re not sure what the effect will be, that Japan’s experience isn’t encouraging. We know that overstretched government balance sheets have historically posed an inflation risk but that bond yields are at levels rarely seen in the past few centuries, let alone decades. We know that entry valuations determine long-run returns and so bonds are likely to be an appalling investment here. We also know that while equities still aren’t cheap in an absolute sense they’re as cheap as they’ve been since the crash of 2008, so there are bound to be opportunities within these markets for providing decent long-run returns (see chart below). And we know that as we’re exploring the many (hopefully) profitable areas in the coming months, the Slartibartfasts will be in their fool’s paradise, pressing their buttons and in their own tragi-comic way, adding to the richness of the whole experience. And people wonder why we don't offer wholsale policy suggestions - indeed, what is the point when the entire house of cards is doomed by daily gyrations as the entire market and all investors can't focus their attention on anything more than a few seconds into the future, even as the reality behind the flashing stock tickers is turning darker with each passing day... Just sit back, relax, and watch the show as it unfolds. It will be hilarious from start to (imminent) finish.

SSTF - Steve Goss’s Bombshell – What Could it Mean? Posted: 04 Sep 2010 08:38 AM PDT I have written often on the status of SS. I also have some understanding of illegal aliens working in the US. I have sponsored four over the course of many years. I don’t hire them. But I pay many companies that do. The employers know they are illegal, but the workers have SS cards (fake) and so long as the PR taxes are collected no one seems to care. These two interests of mine dovetail. SS has been collecting money from illegal aliens for years. They will keep the money they have collected and they will not pay out any benefits (except fraud) in the future. So this money is “free”. I have often wondered how big the numbers on this are. Now we know. The numbers are enormous. Without the Free Money coming in from illegal aliens SS would look much different than we "think" it does. The WaPo had an article on this today. They had hard numbers (sort of) in the article. I was absolutely stunned that the source of this information was Steve Goss, the chief actuary of the SSTF. Some thoughts/numbers: -Steve Goss does not reveal information of this significance unless he has a political agenda of his own, or he was told to. I am of the opinion that it was the latter and the WaPo/Goss story was a way for the Administration to get the illegal alien issue spun in a different light. Because of high unemployment the illegal story is getting traction and anger is boiling. What is happening in Arizona is the tip of an anti-immigration movement that is brewing in America. This is not healthy for society. Police profiling is not the American way. Except in 2010. -This information is an unmitigated disaster for SS. It comes a month after the release to Congress of their annual report that suggested that things had actually improved for SS over the past 12 months. The report did not highlight the fact that over $300b of assets held by the Fund were in fact contributions from illegal aliens. As much as 13% of the Funds holdings are tainted. Without this funny money the Fund would today be running substantial deficits. That red ink would force major changes in both payouts and taxes. -Goss provided a range of the cumulative impact to SS of $120-240b (as of 2007). He said that the overstatement was $12b in 2007. Those numbers do no not add up in my opinion. We know that the illegal population exploded from 2000 on. If the excess payroll income was only $12b in 2007, then it had to be a much smaller number ten-years earlier. There is no way it could add up to Goss’s minimum number of $120b. I think that when Goss was suggesting that the cumulative impact was 120-240b he was implying that the range of impact for 2007 would have been $12-24 billion. Goss said that as many as 67% of all illegals are working with either a phony SS card or one that was no longer valid. Take this information together with a Pew report that put the number of illegal workers today at 11.1mm. This implies that there are 7,400,000 illegal workers contributing to SS. Most of this income is regular weekly pay. The average number for this in the US is $30K. About $100 per day. That comes to a total payroll of $225 billion! The SS tax on this is 12.4%, or $27b in just 2010. This analysis is how Goss got to the $240b 2007 topside estimate. Add three years to that at $25b a year plus interest on the whole nut and you get ~$350b. I won’t (now) go into the longer-term impacts to SS of having overstated its surplus by $350b. That number is 13.5% of the assets of the Fund. I will say that this is a sea change event for how we look at SS. All prior analysis and all future expectations must now be revisited. I assure you that the results after excluding the illegal taxes will be will prove to be a major blow to the solvency of the Fund. It will change the debate on SS. It is that significant. Mr. Goss on this: "If for example we had not had other-than-legal immigrants in the country over the past, then these numbers suggest that we would have entered persistent shortfall of tax revenue to cover [payouts] starting [in] 2009, or six years earlier than estimated under the 2010 Trustees Report." -We know that the actuaries at the Fund have been aware of the magnitude of this issue for a very long time. The question I have is, “What did they do about it?” We need to understand what this means in terms of anticipated future benefit payments. There are two possibilities: (1) The Fund knew the money was from illegal workers but chose to close their eyes. For the purposes of calculating future liabilities they assumed that everyone, including the illegal workers, would someday get benefits. But they won’t. This would imply that the future liabilities of the Fund are much smaller than has been projected. This “good” news would have to be offset with the reality that the “true” assets of the fund are significantly overstated. (2) The Fund knew all along that the benefits that are associated with these illegal receipts are never going to be paid and therefore it has reduced the liabilities associated with this to some degree. This would essentially make a fraud of all of the SS accounting. I doubt (hope) that this is not the case. To restate both assets and liabilities would create a very big credibility gap for SS. I have said repeated that nothing happens in D.C. by chance. That every nuance must be looked at closely. They all have meaning. In my opinion the WaPo article shines a very bright light on SS. They have been knowingly overstating assets and financial conditions for years. What possible motive could be behind this Labor Day weekend bombshell? My guess: The Administration will use the Goss revelation to prove to the American people that illegal workers have made a major contribution to the US economy via the taxes they paid to SS. This will be done to blunt the growing tide of ire among those who actually live here. There could be another chapter to this story. It could be the ticket whereby some illegals get legal. The cost for a Green Card would be that the applicant would have to (among other things) agree to give up their rights to any future SS benefits based on prior contributions made to SS. They would be entitled to benefits based solely on what they were taxed in future years. Any previous contributions (both employer and worker) would be given up as a penalty. This thinking would set up the possibility for two extraordinary outcomes. (I) If SS eliminated the future liabilities associated with the estimated $320b of excess contributions and they were allowed to keep those tainted contributions SS would be transformed overnight to an overfunded position of significant proportions. It would be so significant that the Fund could reduce the current 12.4% PR tax by 20-30% for the next three to four years. That would have a meaningful impact on the economy. (II) America would get paid $350b (P+I) for allowing a significant number of workers to become legal. Many would still gripe. But the tradeoff of a partial tax holiday for 150mm workers and their employers would shut down much of the opposition. The Administration needs a win-win on the economy and immigration. Steve Goss at the Trust Fund may have given them the opportunity to do that. Stay tuned. It does not get much weirder than this. Just a question. Has SS been aiding and abetting illegal workers? They have taken in over $300b. They understood what they were doing. Without the SS "wink and a nod" employers could not have hired them. Who’s abusing whom?

A 7 Million Increase In US Population Results In A Labor Force... Decline? Why The US Has Really Lost 11.2 Million Jobs This Recession Posted: 04 Sep 2010 06:36 AM PDT One of the most peculiar observations of this depression started in December 2007 is that while the total US population has increased by 6.8 million from 303.3 million to just over 310 million in July 2010, over the same 32 month period, the civilian labor force has declined from 153.9 million to 153.6 million. This makes zero sense, as all those aging into working age, or immigrating into the US need to find some job or some other paid activity (either legally or illegally). But let's assume that due to discouragement with economic conditions people simply refuse to look for jobs. The reality is that eventually all those people will come storming into the job market, once the economy recovers sufficiently. Which is why we make an estimate of what the "fair value" of the civilian labor pool is based on the historical average participation rate of 50.4% (as a percentage of total population). Backing into the cumulative population growth by this estimate, means that as of July 2010, the labor force has really grown by 3.4 million, once the one-time adjustment of a "recession" is eliminated (and after all that's what all modern economist claim right - that recessions are merely one-time blips on the road to perpetual Keynesian growth). In other words, the cumulative differential between the labor force as reported, and as calculated has hit an all time record of 3.7 million: this is a number that has to be added to the 7.6 million directly tabulated unemployed to get a sense of just how many jobs have been lost assuming a reversion to the mean for the US economy. In other words, after eliminating the statistical voodoo of the BEA and the Census Bureau, the US has lost just over 11.2 million jobs since the start of the recession. Chart 1: we demonstrate the cumulative change in the population of the US, the cumulative change in the as reported and the as calculated labor force, and the difference between the two (thick black line). Chart 2: Cumulative job losses since December 2007, based on Establishment Survey estimates and adjusted for Labor Force "Catch Up"

This Past Week in Gold Posted: 04 Sep 2010 05:55 AM PDT This past week in gold By Jack Chan at www.simplyprofits.org 09/04/2010 GLD – on buy signal. SLV – on buy signal. GDX – on buy signal. XGD.TO – on buy signal. Summary Long term – on major buy signal. Short term – on buy signals. We continue to hold our core positions, and add to positions upon new set ups. Disclosure We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion. We also provide coverage to the major indexes and oil sector. End of update

Obama Must Create 230,000 Jobs A Month Until The End Of His Second Term For Return To Breakeven - Charting The New "7 Year Itch" Normal Posted: 04 Sep 2010 04:36 AM PDT Recently there has been a surge in cherry picked employment charts highlighting that the Obama administration has done a great job in rescuing the economy. The premise goes: after dropping to as much as 700K+ jobs lost per month, the administration has managed to pull off a miraculous recovery and now we are riding on a wave of 8 consecutive "private jobs" beats in a row. This argument is so shallow we won't even bother with it. Perhaps the "economists" who espouse this theory will be so kind in their next iteration of their charts to overlay the monthly US debt issuance side by side with the jobs number. Because you see if you drown the economy in unrepayable debt, while using transfer payments to fund the digging of trenches by every man, woman and child who makes up the labor pool, then yes - you may get 0%, or even negative, unemployment overnight. Will it bankrupt the country (even faster)? Why, of course. But whoever said those who discuss politics subjectively ever care about the long-term implications of reality. So in the vein of sharing pretty charts, here is one: we show job losses since the beginning of the Recession (excluding for the impact of census hiring), juxtaposed to the natural growth rate of the Labor Pool (and not the artificial one, which according to the BLS is the same now as it was a year ago). We discover that i) 7.6 Million absolute jobs have been lost since the beginning of the Recession; ii) that a record 10.5 Million jobs (and you won't find this statistic anywhere), have been lost when factoring in for the natural growth of the Labor Pool of 90-100K a month (we use the lower estimate, which also happens to be the CBO's estimate), and that iii) assuming we expect to return to the jobs baseline level as of December 2007 (or an unemployment rate of 5%) by the end of Obama's second term (and we make the big assumption there will be a second term), Obama needs to create 230,000 jobs each and every month consecutively from September through November 2016 in order for the total jobs lost to be put back into the labor force, and that iv) an optimistic (if more realistic) projection of jobs returning to the work force means the return the baseline will occur in 2019, some 7 years after the start of the last recession. The point of these observations is not to cast political blame on either party: we are in this predicament due to the combined stupidity, corruption and greed of both parties. The question is how do we get out of here. And unfortunately for all those hoping that a return to a normal, baseline past is possible, please forget it (i.e., the New Normal is really real), at least for the next 7 years. This also means that any charting, technical analysis and other "reversion to the mean" approaches of forecasting the future will all end up sorely lacking and misrepresenting the final outcome. Chart 1: a simple baseline chart that shows where we were, where we are, and where we are going, with the assumption of recovering all labor force growth-adjusted jobs losses from December 2007 through the end of Obama's second term. The conclusion: the economy needs 229,300 jobs per mont (incidentally, for the simplistic read on the labor force which does not account for demographic changes, which economists tend to conveniently forget all too often, a 230K jobs pick up a month, means a recoupment of baseline jobs lost in June of 2013). Chart 2: We demonstrate that the cumulative jobs lost since December 2007, are in fact materially greater when adjusting for a realistic change in the labor force, instead of that presented by the administration, which naively expect people to believe that the labor force in August 2010 (154,110) was lower than that in August 2009 (154,426). That in the meantime the US population grew by 2.5 million seems to make no difference to the administration. Which only means that sooner or later this labor force participation will catch up to the numbers. Either way, we factor for it, and assume that the labor force was growing by 90K every month since the start of the recession, and add the cumulative differential to the jobs lost. The result: in the 33 months through August, the US has lost not 7.6 million jobs, but 10.5 million: a stunning 38% delta. Obviously, all these projections are unrealistic. So let's take them down to some version of reality... even if it is Bank of America's. We take the most optimistic Wall Street projetions we could find - traditionally those belong to Bank of America's Ethan Harris. In a note released to clients, Harris discusses his revised jobs forecast: Under the weaker growth trajectory we are now penciling in: Private payrolls manage tepid monthly gains of just 25,000 through the end of 2010. As the growth recession fades in the second half of 2011, gains in private payroll employment should accelerate. We expect average monthly gains of 125,000 in the fourth quarter of 2011. Therefore, for most of 2010 and 2011, employment growth is not expected to keep up with the rise in the labor force, which means the unemployment rate heads north. We expect a steady increase to 10.1% by the second quarter with a slow fall slightly below 10.0% by the end of 2011. So let's adjusted the chart using Bank of America's projections, which assumesa gradual increase in the unemployment rate to 10% by Q3 2010 and a decline since then. We chart these projections on the chart below. According to this adjusted case, the payroll number will never return to the December 2007 baseline for the duration of Obama's term, even if one assumes 200K job pick ups beginning in January 2012 and continuing every month thereafter (as we have done). In November 2016 we forecast an unemployment rate of 5.7% using these assumptions. They are presented visually below: And just to demonstrate what the recession will look like assuming even this quite optimstic assumption, here is the famous post WW2 recession comparison chart adjusted for an expansion of the depression (let's not split hairs here) labor force, that started in December 2007: it is shaping up to be 7 years before the jobs lost finally are put back into the system. And that's for those optimistically inclined. So before everyone gets all political on who has done a more bang up job of destroying the economy, perhaps both sides can explain how they each got the US to a point where even wildly optimstic projections assume that the length of the most recent economic slowdown will take 85 months to resolve (and, in all reality, far, far longer).

The Recovery Road Less Traveled Posted: 04 Sep 2010 04:00 AM PDT With his toes in the sand and the cool waters of the Atlantic Ocean lapping gently at his feet, your editor can fairly say we have reached the end of our little Daily Reckoning Coast-to-Coast Correction Tour. So where to now for your Ho-Ho-hopping correspondent? Ahh, more on that below. First, some more important considerations… When we began our journey, one month, a dozen states and a few thousand miles ago, we had in mind one primary objective: to get a first-hand look at what was really going on in the world's largest economy. How are honest, hard-working folk coping with the slow, state-sponsored collapse of their empire? What, in other words, does a Great Correction look like, up close and personal? Recall that when we started our trip, it was not yet known that home sales across the United States had fallen to a record low, as they did in July after the expiration of the Fed's $8,000 homebuyer's bribe…ahem, tax credit. Equity markets were still to suffer their worst August in almost a decade. The FDIC had not yet added 53 more banks to its "problem list," bringing the total number to 859 distressed institutions, the highest number since 1993. And, according to Friday's jobs report from the BLS (which, signaling that things are "not recovering at a slower pace," was actually seen as a positive sign by the markets) a full 54,000 more people were drawing regular paychecks. Unemployment rose to 9.6% on Friday. Economics, as we never tire of reminding our Fellow Reckoners, is an imperfect science, more liquid than solid, more gaseous than liquid. Federal stooges may rope statistics to the rack, stretching and contorting them until their joints pop and they agree to comply with whatever theory suits the day, but reality becomes ever more difficult to distort as the situation grows increasingly dire for millions of Americans every day. It's why so many people scratch their heads when the news comes on every night. There's a clear disconnect between what they see on the television and what they experience in their own lives. The evening news has, in effect, become the new "non-reality television." One of the many benefits of being "on the road" is that one has little time to pay attention to the regular news. We are reminded once again of the inimitable Mark Twain's words: "If you don't read the newspaper, you're uninformed. If you read the newspaper, you're misinformed." Talking heads and TV neckties cast aside, your editor employed a fittingly non-scientific method by which to discern the health – or non-health – of the economy: we talked to people. We'd like to think that the average Joe (and Josephine) is a whole lot smarter than his government gives him credit for. Even if he can't connect the dots…even if they don't speak in econo-lingua, he sure knows something "just ain't right." "I'm a small business owner," an Alabama B&B owner-operator told us, "so I'm really struggling here. I voted for this administration…but now I'm not so sure. We had a plan, my husband and I. And now, with our healthcare costs rising, with the state of the economy such as it is and with the government handing all our money to their pals on Wall Street…well, we've had to really reassess the feasibility of those goals." In an issue titled The War on Small Business, our mates over at The 5-Minute Forecast published some interesting figures earlier in the week, hoping to shed some light on just how vital small businesses are to the wider economy. "To help set the stage," wrote The 5, "let's look at some important stats from the Small Business Administration (SBA). Small businesses: Represent 99.7% of all employer[s] Employ just over half of all private-sector employees Pay 44% of total U.S. private payroll Have generated 64% of net new jobs over the past 15 years Create more than half of the nonfarm private gross domestic product (GDP) Hire 40% of high-tech workers (such as scientists, engineers and computer programmers) Are 52% home-based and 2% franchises Made up 97.3% of all identified exporters and produced 30.2% of the known export value in FY 2007. Small firms produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large-firm patents to be among the 1% most cited." Of course, it's not only small businesses that are under assault. Workers around the country hum a similar sad tune… From an auto-repairman in Tuscaloosa, Alabama… "People ain't buying new cars anymore, not since that Cash for Clunkers program finished. Now they're just trying to keep what they got going as long as they can…This place got hit pretty hard, all in. The Mercedes plant, just in town, shut down half their operations, laid of some twelve hundred workers or so. In a place like this, that's a heckuva lotta people…" From a board member of a Houston-based energy company… "A few months ago, it would have been difficult to imagine a bigger disaster than the oil leak itself…then the federal government got involved. It's likely that the actions they've taken will have a more lasting, more devastating effect than the spill ever could have had on its own…" From a restaurant owner in Savannah, Georgia… "People just aren't coming in the way they used to, not these past couple of years, anyway. Things are bad. Folks are worried." From a bartender in Delray Beach, Florida… "Over the last year, well, it's just slow…and getting steadily slower." Across the nation, Big Government is doing all it can to prevent any real, honest progress from taking hold. What the central planners can't seem to grasp is that, in the same way a teenager must suffer and, in turn, learn from his own mistakes, sometimes an economy must take a few steps backward before it can stride forward again with the renewed confidence and wisdom only experience can bring. The Fed's "protect growth at all costs" policy either misses or ignores this point entirely. Either way, the result is the same. Mistakes are not corrected. Incompetence is rewarded with bailouts, not punished by bankruptcies. Bad debts are piled up, not paid down. Instead, they are left to form the bedrock of future building site collapses. "We don't know how many mistakes there were," Bill Bonner, our Reckoner-in-Chief admitted this week. "We don't know how far GDP SHOULD go down. And we don't know what would have happened if willing buyers and sellers had been allowed to sort themselves out in the age-old ways – by panic, default, bankruptcy, restructuring, and reconstruction. "We don't know," continued Bill. "We'll never know. But there is no reason to think we'd be any worse off if we'd found out a year ago. A 12% drop in GDP might have been just what we needed. We could be on the road to prosperity now, rather than looking at another 5 to 15 years of stagnation, decline, and desperation." Joseph Shumpeter coined the phrase "creative destruction" to describe the selective, evolutionary process of a naturally correcting marketplace. The weak must be allowed to fail if there is going to be room for the strong to succeed. The powers that be obviously misunderstood the concept, choosing instead to simply destroy the opportunity for creation. As far as the Coast to Coast Correction goes, real recovery begins only where Recovery Act signs stop. Joel Bowman for The Daily Reckoning The Recovery Road Less Traveled originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

More Grim News for Aspiring Retirees Posted: 04 Sep 2010 03:34 AM PDT As if Americans don't have enough to worry about, U.S. News offers up this story about how they are woefully unprepared for their golden years. To make matters worse, the survey results likely understate the problem across the U.S. population as a whole because, as I read the report(.pdf), respondents were limited to larger companies with retirement plans and excluded the many small  businesses where individuals are on their own. Workers Fear Savings Won't Last in Retirement Most workers are worried that their retirement savings won't last the rest of their life. Only 40 percent of current workers say they will have enough money to finance a 25-year of retirement, according to a new Towers Watson survey of 3,099 full time employees in the private sector. Just 62 percent of the survey respondents think their retirement savings will last even 15 years. "Despite some signs of an economic recovery, many employees remain apprehensive about the future of their retirement," says Kevin Wagner, a senior retirement consultant at Towers Watson. "The financial crisis hit employees hard and eroded both their savings and confidence in being able to retire comfortably." Employees with a traditional pension are considerably more likely to feel satisfied with their financial situation than those with only a 401(k) plan. Over half (52 percent) of workers with a traditional pension are confident that they will have enough resources for a comfortable 25-year retirement, compared to a third (34 percent) of employees with a 401(k) or similar type of retirement account. Understandably, there is growing fear that traditional pension plans will not be able to deliver on their promises and, at some point, the same will be true for government workers. Also, see 5 Ways to Calm Your Retirement Fears and pay particular attention to items 2 and 3 that, in my view, are key - Increase your financial planning knowledge and Start changing your lifestyle now. More emphasis on understanding spending – not just retirement income – would have been nice, but this is a good start for most people.

Dan Norcini joins weekly precious metals review at King World News Posted: 04 Sep 2010 03:05 AM PDT 11a ET Saturday, September 4, 2010 Dear Friend of GATA and Gold (and Silver): GATA's old friend Dan Norcini, market analyst for Jim Sinclair's JSMineSet.com, today joins the weekly precious metals review at King World News, along with Bill Haynes of CNI Gold and Silver in Phoenix. Eric King interviews them here: http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/... CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, Plans Aggressive Exploration of Elizabeth Gold Property On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia. Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013." For complete information on Sona Resources Corp. please visit: www.SonaResources.com A Canadian gold opportunity ready for growth Join GATA here: Toronto Resource Investment Conference Saturday-Sunday, September 25-26, 2010 Metro Toronto Convention Center, Toronto, Ontario, Canada http://www.cambridgeconferences.com/index.php/toronto-resource-investmen... The Silver Summit Thursday-Friday, October 21-22, 2010 Davenport Hotel, Spokane, Washington http://www.silversummit.com/ New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/redirect.php?page=index.html&source_... * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php

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