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Sunday, August 28, 2011

Gold World News Flash

Gold World News Flash

Shameless Riggings

Posted: 27 Aug 2011 04:02 PM PDT

www.preciousmetalstockreview.com August 27, 2011 It was another week of watching and sitting for the swing trading portfolio. We still haven’t put on a swing trade lately but we’ve been watching our dividend stocks and mining portfolio and I’m thinking about adding a few new miners to our stable in the next few weeks. It was a pretty non-eventful week for markets but a very eventful one for gold and silver as the manipulation was more blatant than I recall seeing before. The CME is obviously run by the large precious metals short and if you seriously don’t think so then perhaps you should be careful leaving the house. Raising margins on futures 2 days before options expiry had the obvious and desired effect of smashing the price lower quickly only to see a quick recovery. I couldn’t imagine a dirtier bunch of scumbags to run across in an alley. Do they seriously have no shame whatsoever? I lo...


Russia's central bank will offer loans only if backed by gold

Posted: 27 Aug 2011 03:40 PM PDT

MOSCOW, Aug 26 (Reuters) – Russia's central bank will offer gold-backed loans for up to 90 days at an interest rate of 7 percent, it said in a statement on Friday, expanding its lending facilities for dealing with any future liquidity crunch in the banking system. The gold-backed lending was approved by the board of [...]


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Gold "The Worlds Currency"

Posted: 27 Aug 2011 02:00 PM PDT

Mish


Guest Post: Storm Pennants Are Flying In Stocks And The Dollar

Posted: 27 Aug 2011 12:38 PM PDT

Submitted by Charles Hugh Smith from Of Two Minds

Storm Pennants Are Flying In Stocks and the Dollar

If we look only at charts and ignore the "news," we see storm pennants are flying in both the stock market and the U.S. dollar.

The stock market is wearing a T-shirt that reads, "I broke a downtrend and all I got was this lousy pennant." Having just returned from nine glorious days camping in Washington State, I have no idea what "news" has effected the markets ("news" in quotes because the news is managed for its PR effect--the real news is what has been suppressed lest it undermine the Status Quo's carefully cultivated propaganda campaign), and so I have marked up the chart of the Dow Jones Industrial Average (DJIA) and the U.S. dollar without the "benefit" of the news flow.

What pops out is a big fat pennant in both charts. Pennants can be continuation patterns--mere way points in a continuing up or down trend--or they can indicate points of trend reversals.

The key feature of a pennant is the compression of price into a narrowing channel, as the relative indecision of buyers and sellers alike causes price to fluctuate less and less.

At the apex of the pennant (note the triangle shape), the irresolution is resolved, usually in a big way up or down.


If we look at the indicators in the chart of the Dow Industrials (Indoos), we note that the oversold conditions have been worked off, and a very bullish divergence in the MACD indicator (and a positive cross in MACD) has yielded up a meager pennant rather than a clear breakout or trend reversal.

Even if you discount the "death cross" of the 50-day moving average (MA) dropping below the 200-day MA, a declining 50-day MA does not suggest a Bullish resolution to the pennant.

That intersection of the 50-day and 200-day MAs offers up a tempting target for market Bulls. What should worry Bulls is that these positive moves in the indicators have yielded up such modest results--a pennant that is a week or two away from a potentially major break up or down.

As for the dollar, the pennant may well be a sign of strength, as the Federal Reserve has been trying mightily to push the USD to a new low while propping up the euro at 1.44.

The basic reason is that a weakening dollar is the primary engine of U.S. corporate profits, as I explained in About Those Permanently Rising Corporate Profits... (August 12, 2011). If the Fed is unable to suppress the dollar via propping up the euro, then the entire stock market rally built on a falling dollar will collapse is a heap, shattering Wall Street's PR of permanently rising corporate profits.


As noted in that entry, the euro and the dollar (as measured by the DXY index of weighted currencies) are on a see-saw; if the euro breaks down as a result of the eurozone's irreversable structural dilemmas, then the dollar will strengthen and the Fed's master plan of pushing stocks up via a weakening dollar will have failed.

We have no idea how much treasure is being thrown into the fire to maintain the euro at 1.44 to the dollar, and that is the "news" which we must not be allowed to know, lest the extreme vulnerability of the eurozone financial Status Quo and the global rally were reflected in the foreign exchange and stock markets.

Being completely out of the news cycle is a blessing, in more ways than one: not only is one's mind untwisted by propaganda passing as "news," one is free to look at charts without the carefully designed biases implicit in the "news."

Wikileaks Reveals Early Chinese Warning Of Domestic Asset Bubbles, Overcapacity, Bashing Of "Copy And Paste" Educational System

Posted: 27 Aug 2011 12:16 PM PDT

Wikileaks' threat to expose Bank of America came and went, and yet all it took for the bank to implode was reality, a little time, and an independent media. That said, Wikileaks has not yet been completely relegated to the compost heap of one time fads. In a blast submission of several thousand cables, Julian Assange tries to regain his one time star status. While we have to go through the bulk, one that caught our attention was a cable from the US delegation in Chengdu, China, where a counsel met with a local representative of the World Bank's International Finance Corporation, for some candid one on one. While the bulk of the exposition, which took place in December of 2009,  is not surprising, there are some frank admissions about the emergence of a Chinese bubble, long before the topic was mainstream (and only fringe investors would consider it), observation that urban housing prices are "here to stay for the coming few years as they are an unavoidable, long-term aspect of the nationwide, structural shift in the population from rural area to urban centers", the realization that the solar industry is plagued by overcapacity and due for a restructuring (many "solar" longs would have been delighted to know this well in advance of the recent decimation in the Chinese solar stock space), but most notable is the Chinese admission that "China will remain a "poor country" for years to come, and can expect to emerge as a "respectable mid-level" country only in another 10-20 years" in order to grow its service sector from the current 30-40% of the economy to a US-comparable 75%, many structural shifts will have to take place. And while such shifts "are already happening to some extent in places like the Pearl River Delta", and "Chinese companies increasingly setting up factories overseas" the biggest impediment is China's "terrible educational system" which "promotes copying and pasting over creative and independent thought." Explaining further, "the normal process undertaken by students when writing as essentially collecting sentences from various sources without any original thinking.  He compared the writing ability of a typical Chinese Phd as paling in comparison to his "unskilled" staff during his decade of work with the IFC in Africa." Well, if China's education system is worse than that of the US, we can probable stop worrying about the dollar relinquishing its reserve status. On the other hand, we would be the first to point out that China, which does not admit defeat, is probably in the early stages of the next bubble: that of importing teachers, educators, professors and generally Ivy League Ph.D.'s. Which is great: take as many as you want. The average tenured Ivy League (not to mention MIT and NYU) professor has already done enough damage to the US - it is only fair that they destroy China next.

From Wikileaks

UNCLAS SECTION 01 OF 03 CHENGDU 000005
 
SENSITIVE
SIPDIS
 
STATE FOR EAP/CM
 
E.O. 12958: N/A
TAGS: ECON EIND EFIN PGOV CH
SUBJECT: WORLD BANK'S IFC ON ASSET BUBBLES, HOUSING COSTS, ECONOMIC RESTRUCTURING, AND THE CHINESE EDUCATION SYSTEM
 
REF: A) 09 CHENGDU 271, B) 09 CHENGDU 310, C) 09 BEIJING 665
 
CHENGDU 00000005  001.2 OF 003
 
1. (U) This cable contains sensitive but unclassified information - not for distribution on the Internet.
 
2. (SBU) Summary: The head of the World Bank's International Finance Corporation (IFC) office in Chengdu, a PRC national with a patriotic bent, acknowledged that China faces possible asset bubbles, but was confident that China's "strong and technocratic" government would intervene effectively if the signals of overheating became too severe.  Rapidly rising urban housing prices are here to stay for the coming few years, he believes, as they are an unavoidable, long-term aspect of the nationwide, structural shift in the population from rural area to urban centers.  The IFC is trying to push Beijing to address the lack of affordable housing for moderate income households.

China does have overcapacity in several industries, but the emphasis on mega-projects by local politicians, many of whom are engineers, will make reducing overcapacity more difficult.  Over the next 10-20 years, China will need to restructure its economy so that it has a significantly higher share of knowledge-based services, especially research and development.  However China's "terrible" educational system, which promotes copying and pasting over creative and independent thought, is the largest impediment the country faces on this front, our IFC contact said.  End summary.
 
Asset Bubbles: "Signs Are There", But Government Intervention Will Address

3. (SBU) In a December 17 meeting with Consul General, the head of IFC's Chengdu office, Lai Jinchang, discussed the question of whether stimulus policies have created asset bubbles in the Chinese economy.  Lai noted the "staggering" amount of credit the government injected into the economy in 2009, contrasting the estimates of around 9.3 - 9.4 trillion RMB (USD 1.3 - 1.4 trillion) with the "normal" annual figure of less than 4 trillion (USD 588 billion).  This has certainly caused inflationary pressures - he particularly noted increased prices in iron and steel, petroleum products, electricity, water, edible oil, and produce.  However, Lai, perhaps in part out of patriotism and bureaucratic survival instincts, made the ambivalent prognosis that, although "The signs of an asset bubble are there," the economy was not yet experiencing "genuine" asset bubbles.
 
4. (SBU) Overall, Lai said he was not worried about the possible emergence of asset bubbles because of the Chinese government's capacity to track the situation and take timely and effective action.  If credit needs to be further reigned, the government will just set a new quota and make it happen.  In particular, he highlighted the December Communist Party of China (CPC) Economic Work Conference, where participants emphasized the need for some cooling down of credit.  He also noted the Central Bank of China's public stance on moderating credit in the coming year.

Lai assessed the basic economic policy stance going into 2010 as unchanged, continuing to emphasize a favorable monetary policy, but with the size of the credit expansion significantly reduced.
 
Overcapacity in Number of Industries:  Local Politicians Contribute to the Problem
 
5. (SBU) Asked about the European Chamber of Commerce in China's recent report on overcapacity in China, Lai said he had not yet read the report, but agreed that overcapacity was a problem in a number of industries.  He highlighted the bio-energy, wind and solar industries in particular, noting that they had grown rapidly in recent years as a result of a surfeit of subsidies, and would likely face a period of restructuring.  He also expected the industries targeted in the central government's ten-industry stimulus plans (Ref C) to develop overcapacity.

6. (SBU) Regardless of concerns about national overcapacity, local politicians, such as in inland provinces of Southwest China, will continue to rely on investment in large projects to boost local GDP and further their own prestige, Lai said.  He agreed that Leshan in Sichuan, where the city is planning three billion USD investment in transportation and industrial infrastructure (see Ref B) may be such a case.  "They are mostly engineers so they understand mega-projects, but they don't understand the law," Lai stressed, further explaining that he views most Chinese leaders as lacking an understanding of institution building.  However, he said, the emphasis on large projects to boost GDP figures is "not all bad."  After all, "they have been doing it for decades" and there have clearly been some benefits.
 
Inflated Housing Costs: Here to Stay as Urbanization Continues; Moderate Income Households Most Severely Affected
 
7. (SBU) While housing prices have certainly seen some increase, this is not a major issue in cities such as Chengdu, Lai felt, as prices generally remain within reason.  Discussing the Beijing and Shanghai markets, he described the housing prices as "a little scary" and in many cases "totally out of reach" for the vast majority of Chinese citizens.  Nevertheless, investment in the hotter housing markets - for those who can afford it -- will likely remain secure for a while to come, he predicted. Although purchase prices often far outstrip realistic rental incomes, the capital gains on most housing purchases will continue to make the purchases worthwhile.  The apparent excess of new empty apartment buildings in urban areas, along with price increases, was not necessarily irrational, Lai asserted.

Rather, he believed these trends to be driven by the long-term process of urbanizing the Chinese population - a process that still has years to go.  Separately, Lai asserted that one problem with including housing prices in China's Consumer Price Index (CPI) is that the commercial housing market was immature and just over a decade old (so that the data was not yet reliable enough for its inclusion in the CPI).
 
8. (SBU) Overall, he said, the current housing market in China is still manageable for middle and high income households.  Low income households are also managing as they have access to government housing programs whereby they can rent low-cost homes.  However, moderate income households - with incomes too high to qualify for low-income housing but falling short of the middle class -- are falling through the cracks.  The IFC is trying to push the government to address this problem, with a focus primarily on incentivizing commercial developers to build moderately priced housing for this market.  To this end, Lai believes the government should conditionally support developers by providing lower priced land and government subsidies.  In addition, he emphasized the need for mortgage insurance, and more broadly for capital market development in order to broaden mortgage access.
 
Toward a "Respectable" Mid-Level Economy in 10-20 Years: China Must Shift to Become a Knowledge - and Service-Based Economy
 
9. (SBU) China will remain a "poor country" for years to come, and can expect to emerge as a "respectable mid-level" country only in another 10-20 years, Lai said.  Successful development over this period will require a structural shift so that Chinese companies' share of the intangible elements of economic output increase significantly.  China's share of the research and development, services, and marketing remains low, he emphasized.  He stressed that the service sector accounts for only 30-40 percent of the economy at present, in contrast to the US at 75 percent, and Europe at 70 percent.  In the coming years, China needs to affect a shift to increase the service sector to at least 60 percent.
 
10. (SBU) The necessary structural shifts are already happening to some extent in places like the Pearl River Delta, Lai noted, highlighting a transition there from industries requiring low-tech labor, to those that are increasingly skills-based. Citing historical shifts in other Asian economies such as South Korea, he also foresaw Chinese companies increasingly setting up factories overseas, utilizing local labor with Chinese management.  As the Chinese economy shifted to become more knowledge-based, and as Chinese companies increased their overseas presence, the constituency for IPR protection would also expand, he believed.

"Terrible" Education System Is Main Impediment
 
11. (SBU) However, Lai identified China's "terrible" educational system as presenting a serious impediment toward achieving a shift to a more knowledge-based economy.  The current system promotes copying and pasting over creative and independent thought.  Lai said that the system rewards students for thinking "within a framework" in order to get the grade.  He described the normal process undertaken by students when writing as essentially collecting sentences from various sources without any original thinking.  He compared the writing ability of a typical Chinese Phd as paling in comparison to his "unskilled" staff during his decade of work with the IFC in Africa.

BROWN

Wikileaks Reveals Early Chinese Warning Of Domestic Asset Bubbles, Overcapacity, Bashing Of "Copy And Paste" Educational System

Posted: 27 Aug 2011 12:16 PM PDT


Wikileaks' threat to expose Bank of America came and went, and yet all it took for the bank to implode was reality, a little time, and an independent media. That said, Wikileaks has not yet been completely relegated to the compost heap of one time fads. In a blast submission of several thousand cables, Julian Assange tries to regain his one time star status. While we have to go through the bulk, one that caught our attention was a cable from the US delegation in Chengdu, China, where a counsel met with a local representative of the World Bank's International Finance Corporation, for some candid one on one. While the bulk of the exposition, which took place in December of 2009,  is not surprising, there are some frank admissions about the emergence of a Chinese bubble, long before the topic was mainstream (and only fringe investors would consider it), observation that urban housing prices are "here to stay for the coming few years as they are an unavoidable, long-term aspect of the nationwide, structural shift in the population from rural area to urban centers", the realization that the solar industry is plagued by overcapacity and due for a restructuring (many "solar" longs would have been delighted to know this well in advance of the recent decimation in the Chinese solar stock space), but most notable is the Chinese admission that "China will remain a "poor country" for years to come, and can expect to emerge as a "respectable mid-level" country only in another 10-20 years" in order to grow its service sector from the current 30-40% of the economy to a US-comparable 75%, many structural shifts will have to take place. And while such shifts "are already happening to some extent in places like the Pearl River Delta", and "Chinese companies increasingly setting up factories overseas" the biggest impediment is China's "terrible educational system" which "promotes copying and pasting over creative and independent thought." Explaining further, "the normal process undertaken by students when writing as essentially collecting sentences from various sources without any original thinking.  He compared the writing ability of a typical Chinese Phd as paling in comparison to his "unskilled" staff during his decade of work with the IFC in Africa." Well, if China's education system is worse than that of the US, we can probable stop worrying about the dollar relinquishing its reserve status. On the other hand, we would be the first to point out that China, which does not admit defeat, is probably in the early stages of the next bubble: that of importing teachers, educators, professors and generally Ivy League Ph.D.'s. Which is great: take as many as you want. The average tenured Ivy League (not to mention MIT and NYU) professor has already done enough damage to the US - it is only fair that they destroy China next.

From Wikileaks

UNCLAS SECTION 01 OF 03 CHENGDU 000005
 
SENSITIVE
SIPDIS
 
STATE FOR EAP/CM
 
E.O. 12958: N/A
TAGS: ECON EIND EFIN PGOV CH
SUBJECT: WORLD BANK'S IFC ON ASSET BUBBLES, HOUSING COSTS, ECONOMIC RESTRUCTURING, AND THE CHINESE EDUCATION SYSTEM
 
REF: A) 09 CHENGDU 271, B) 09 CHENGDU 310, C) 09 BEIJING 665
 
CHENGDU 00000005  001.2 OF 003
 
1. (U) This cable contains sensitive but unclassified information - not for distribution on the Internet.
 
2. (SBU) Summary: The head of the World Bank's International Finance Corporation (IFC) office in Chengdu, a PRC national with a patriotic bent, acknowledged that China faces possible asset bubbles, but was confident that China's "strong and technocratic" government would intervene effectively if the signals of overheating became too severe.  Rapidly rising urban housing prices are here to stay for the coming few years, he believes, as they are an unavoidable, long-term aspect of the nationwide, structural shift in the population from rural area to urban centers.  The IFC is trying to push Beijing to address the lack of affordable housing for moderate income households.

China does have overcapacity in several industries, but the emphasis on mega-projects by local politicians, many of whom are engineers, will make reducing overcapacity more difficult.  Over the next 10-20 years, China will need to restructure its economy so that it has a significantly higher share of knowledge-based services, especially research and development.  However China's "terrible" educational system, which promotes copying and pasting over creative and independent thought, is the largest impediment the country faces on this front, our IFC contact said.  End summary.
 
Asset Bubbles: "Signs Are There", But Government Intervention Will Address

3. (SBU) In a December 17 meeting with Consul General, the head of IFC's Chengdu office, Lai Jinchang, discussed the question of whether stimulus policies have created asset bubbles in the Chinese economy.  Lai noted the "staggering" amount of credit the government injected into the economy in 2009, contrasting the estimates of around 9.3 - 9.4 trillion RMB (USD 1.3 - 1.4 trillion) with the "normal" annual figure of less than 4 trillion (USD 588 billion).  This has certainly caused inflationary pressures - he particularly noted increased prices in iron and steel, petroleum products, electricity, water, edible oil, and produce.  However, Lai, perhaps in part out of patriotism and bureaucratic survival instincts, made the ambivalent prognosis that, although "The signs of an asset bubble are there," the economy was not yet experiencing "genuine" asset bubbles.
 
4. (SBU) Overall, Lai said he was not worried about the possible emergence of asset bubbles because of the Chinese government's capacity to track the situation and take timely and effective action.  If credit needs to be further reigned, the government will just set a new quota and make it happen.  In particular, he highlighted the December Communist Party of China (CPC) Economic Work Conference, where participants emphasized the need for some cooling down of credit.  He also noted the Central Bank of China's public stance on moderating credit in the coming year.

Lai assessed the basic economic policy stance going into 2010 as unchanged, continuing to emphasize a favorable monetary policy, but with the size of the credit expansion significantly reduced.
 
Overcapacity in Number of Industries:  Local Politicians Contribute to the Problem
 
5. (SBU) Asked about the European Chamber of Commerce in China's recent report on overcapacity in China, Lai said he had not yet read the report, but agreed that overcapacity was a problem in a number of industries.  He highlighted the bio-energy, wind and solar industries in particular, noting that they had grown rapidly in recent years as a result of a surfeit of subsidies, and would likely face a period of restructuring.  He also expected the industries targeted in the central government's ten-industry stimulus plans (Ref C) to develop overcapacity.

6. (SBU) Regardless of concerns about national overcapacity, local politicians, such as in inland provinces of Southwest China, will continue to rely on investment in large projects to boost local GDP and further their own prestige, Lai said.  He agreed that Leshan in Sichuan, where the city is planning three billion USD investment in transportation and industrial infrastructure (see Ref B) may be such a case.  "They are mostly engineers so they understand mega-projects, but they don't understand the law," Lai stressed, further explaining that he views most Chinese leaders as lacking an understanding of institution building.  However, he said, the emphasis on large projects to boost GDP figures is "not all bad."  After all, "they have been doing it for decades" and there have clearly been some benefits.
 
Inflated Housing Costs: Here to Stay as Urbanization Continues; Moderate Income Households Most Severely Affected
 
7. (SBU) While housing prices have certainly seen some increase, this is not a major issue in cities such as Chengdu, Lai felt, as prices generally remain within reason.  Discussing the Beijing and Shanghai markets, he described the housing prices as "a little scary" and in many cases "totally out of reach" for the vast majority of Chinese citizens.  Nevertheless, investment in the hotter housing markets - for those who can afford it -- will likely remain secure for a while to come, he predicted. Although purchase prices often far outstrip realistic rental incomes, the capital gains on most housing purchases will continue to make the purchases worthwhile.  The apparent excess of new empty apartment buildings in urban areas, along with price increases, was not necessarily irrational, Lai asserted.

Rather, he believed these trends to be driven by the long-term process of urbanizing the Chinese population - a process that still has years to go.  Separately, Lai asserted that one problem with including housing prices in China's Consumer Price Index (CPI) is that the commercial housing market was immature and just over a decade old (so that the data was not yet reliable enough for its inclusion in the CPI).
 
8. (SBU) Overall, he said, the current housing market in China is still manageable for middle and high income households.  Low income households are also managing as they have access to government housing programs whereby they can rent low-cost homes.  However, moderate income households - with incomes too high to qualify for low-income housing but falling short of the middle class -- are falling through the cracks.  The IFC is trying to push the government to address this problem, with a focus primarily on incentivizing commercial developers to build moderately priced housing for this market.  To this end, Lai believes the government should conditionally support developers by providing lower priced land and government subsidies.  In addition, he emphasized the need for mortgage insurance, and more broadly for capital market development in order to broaden mortgage access.
 
Toward a "Respectable" Mid-Level Economy in 10-20 Years: China Must Shift to Become a Knowledge - and Service-Based Economy
 
9. (SBU) China will remain a "poor country" for years to come, and can expect to emerge as a "respectable mid-level" country only in another 10-20 years, Lai said.  Successful development over this period will require a structural shift so that Chinese companies' share of the intangible elements of economic output increase significantly.  China's share of the research and development, services, and marketing remains low, he emphasized.  He stressed that the service sector accounts for only 30-40 percent of the economy at present, in contrast to the US at 75 percent, and Europe at 70 percent.  In the coming years, China needs to affect a shift to increase the service sector to at least 60 percent.
 
10. (SBU) The necessary structural shifts are already happening to some extent in places like the Pearl River Delta, Lai noted, highlighting a transition there from industries requiring low-tech labor, to those that are increasingly skills-based. Citing historical shifts in other Asian economies such as South Korea, he also foresaw Chinese companies increasingly setting up factories overseas, utilizing local labor with Chinese management.  As the Chinese economy shifted to become more knowledge-based, and as Chinese companies increased their overseas presence, the constituency for IPR protection would also expand, he believed.

"Terrible" Education System Is Main Impediment
 
11. (SBU) However, Lai identified China's "terrible" educational system as presenting a serious impediment toward achieving a shift to a more knowledge-based economy.  The current system promotes copying and pasting over creative and independent thought.  Lai said that the system rewards students for thinking "within a framework" in order to get the grade.  He described the normal process undertaken by students when writing as essentially collecting sentences from various sources without any original thinking.  He compared the writing ability of a typical Chinese Phd as paling in comparison to his "unskilled" staff during his decade of work with the IFC in Africa.

BROWN

Valuation Gap Makes Gold Miners Attractive But All Miners Aren’t Created Equal

Posted: 27 Aug 2011 11:32 AM PDT

By Frank Holmes CEO and Chief Investment Officer U.S. Global Investors Goldwatchers were reminded gold’s volatility works in both directions this week, with prices falling more than $100 an ounce in just one day. We forecasted the selloff last week, explaining a 10 percent correction would be a non-event. Once again the CME Group hiked the exchange’s margin requirements for gold investment to shake out overleveraged speculation. This is a positive for long-term investors. One market trend that seems to be attracting more and more attention is the large performance gap between gold bullion and gold stocks. The price of gold bullion has increased roughly 28 percent in 2011, while the S&P/TSX Gold Index was down 1 percent as of Monday. This shouldn’t come as news for subscribers to these weekly alerts; we first discussed this opportunity back on June 17: Will Gold Equity Investors Strike Gold? A report this week from BMO Capital Markets offered one reas...


No Asset - Not Even Gold - Goes Straight Up

Posted: 27 Aug 2011 11:25 AM PDT

Recently Doug Short looked at a number of bubbles and came to the conclusion that gold does not fit the profile of most bubbles. However, that does not mean that gold cannot experience moves that might be called microbubbles. After a sharp run-up August, gold has returned to the trend line established between early July and early August. This is shown in the following graph from the 5 Min. Forecast. Other trend lines can be drawn. For example, even after the recent dramatic pullback, gold remains above the strong uptrend defined by Erik McCurdy in April. In the following graph from Yahoo we see six-month and one-year trend lines: Five-year and ten-year trend lines are drawn on a graph provided by Advisor Perspectives - dshort.com. So before someone convinces you that the gold bull market is over, you should make sure what reference they refer to. The trend lines with different time frames define different values for the market. The current trend line levels for ...


US Vows to Stop All Aid If Palestinians Seek Statehood

Posted: 27 Aug 2011 10:32 AM PDT

From Antiwar. com By Jason Ditz According to a statement detailing the content of the meeting, US Consul General for Jerusalem Daniel Rubinstein informed the Palestinian Authority today that any effort to upgrade themselves to full statehood at the United Nations will result in a loss of all US aid. Rubinstein, who was meeting with [...]


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Drug war sparks exodus of affluent Mexicans

Posted: 27 Aug 2011 10:27 AM PDT

From The Washington Post SAN ANTONIO — For years, national security experts have warned that Mexico's drug violence could send a wave of refugees fleeing to the United States. Now, the refugees are arriving — and they are driving BMWs and snapping up half-million-dollar homes. Tens of thousands of well-off Mexicans have moved north of [...]


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How To Get a Second Chance to Buy Gold at $1,700

Posted: 27 Aug 2011 10:09 AM PDT

Did you miss out on buying Gold when it was at $1,700? In this article, we will describe a way to get a second chance to Buy Gold at $1,700! Read More...



Weekly wrap and full audio of Davies and Lassonde interviews at King World News

Posted: 27 Aug 2011 09:44 AM PDT

5:43p ET Saturday, August 27, 2011

Dear Friend of GATA and Gold:

Gold's stunning comeback this week from the recent smashdown is the topic of the weekly precious metals review at King World News, with comments by Bill Haynes of CMI Gold and Silver and futures market analyst Dan Norcini:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/8/27_KWN_W...

Also at King World News, full audio of the recent interview with Hinde Capital CEO Ben Davies has been posted here:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/8/27_Ben_D...

And full audio of the recent interview with mining entrepreneur Pierre Lassonde has been posted here:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/8/27_Ben_D...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf


Join GATA here:

Toronto Resource Investment Conference
Thursday-Friday, September 15-16, 2011
Sheraton Toronto Centre

http://cambridgehouse.com/conference-details/toronto-resource-investment...

The Silver Summit
Thursday-Friday, October 20-21, 2011
Davenport Hotel, Spokane, Washington

http://cambridgehouse.com/conference-details/the-silver-summit-2011/48

New Orleans Investment Conference
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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.
"
Lehrman says: Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

To read more and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:

http://www.thegoldstandardnow.org/gata

There is one key difference between 2008 and 2011

Posted: 27 Aug 2011 09:24 AM PDT

It May Be 2008 All Over Again, But There Is One Key Difference A Race In Opposite Directions: How scary is it? The best illustration comes from the $US Gold price. The "price" of longer-term US Treasury debt has risen … Continue reading →


It May Be 2008 All Over Again, But There Is One Key Difference

Posted: 27 Aug 2011 08:57 AM PDT

The financial press has been inundated with articles comparing what is happening in global markets now to events in the latter part of 2008. Sure enough, the surge in Treasurys from 100 to 143 in the last two months of 2008 following the Lehman bankruptcy is most comparable to the move in the same security from 122 to 140 in the two months since the beginning of July 2011. What is disturbing is that the bulk of this move has happened after the August 2 debt deal, and after the announcement of QE2.5 or "ZIRP through mid-2013" by the Fed on August 9. Additionally, stocks have also traded in a pattern very reminiscent to what happened during the first round of the Great Financial Crisis, but the lock up in capital market liquidity, especially in Europe, may be the most obvious parallel between the two time periods. That said, there is one key difference between 2008 and 2011. Bill Buckler, in the latest edition of his Privateer, demonstrates what it is...

A Race In Opposite Directions:

 

How scary is it? The best illustration comes from the $US Gold price. The "price" of longer-term US Treasury debt has risen by 14.75 percent since the beginning of July. Over the same period, the $US price of Gold has risen from $US 1482 to its August 19 spot future close of $US 1852. That's a rise of $US 370 or 25 percent. Yet US Treasury debt and Gold are polar opposites in any sane evaluation of the financial system. Treasury debt is the foundation of the global monetary system. Gold is the pariah of the global monetary system and has been locked out of it in any official form for four decades.

 

With all the comparisons to the events of 2008 which have been appearing in the mainstream financial media, this comparison has been all but totally overlooked. Cast your mind back to the carnage of late 2008. During that period, almost everything was sold off. While it is true that Gold did not fall nearly as far as did most of its fellow "commodities", it is nonetheless a fact that in the two months between mid September and mid November 2008, Gold fell from about $US 920 to $US 700. That's about 24 percent.

 

There were two financial assets which boomed in late 2008. One was Treasury debt, the other was the US Dollar. While Gold and everything else was falling out of bed, the trade-weighted US Dollar index - the USDX - soared 21 percent from 73 to 88.2 between early August and late November 2008.

 

Compare that to what is happening now. Treasuries are soaring but the US Dollar is, at best, flat. And Gold in terms of EVERY major paper currency has gone ballistic. This time, things do look different.

Silver! Final Warning!

Posted: 27 Aug 2011 08:04 AM PDT

9,173 Ounces Of Gold Transferred From HSBC To JP Morgan Gold Vaults Overnight

Posted: 27 Aug 2011 07:19 AM PDT

JPM needs all the gold it can get. But a paltry 9,173 ounces?


Jim's Mailbox

Posted: 27 Aug 2011 07:13 AM PDT

Breaking the Chain of Control In Gold CIGA Eric

The trend controllers have been knocked to the ropes by overwhelming market forces in the leveraged paper markets. The tactic of selling (shorting) advances and buying (covering) declines to control trend has unexpectedly reversed. This suggests the chains of control have been broken in gold.

Continue reading Jim's Mailbox

Word Cloud Of Trichet's Disappointing Jackson Hole Speech: "Inflation" Mentions: 10; "Deflation" And "Gold": Zero

Posted: 27 Aug 2011 07:07 AM PDT

Anyone hoping that Trichet would pick up the baton from Bernanke and proceed to commit legacy suicide a few months ahead of retirement by announcing a move toward monetary easing (after all, that's what the off balance sheet SPV CDO EFSF is for) during today's Jackson's Hole speech will be disappointed. In his vague prepared remarks, Trichet focused on "technical progress" as the growth catalyst that will get Europe out of its current encounter with financial quick sand: needless to say, the market will not be pleased that the future of market gains is in the hands of a few iPad apps. He proceeded to share the following pearl of philosophical brilliance: "Alertness against savings and trade imbalances across the global economy is a fundamental concern. Such imbalances – if unchecked or conveniently rationalized away – make our entire, inter-connected economies more fragile and more risk prone. We have seen how rapidly negative financial impulses can transmit through the global economy and pull down economic activity. Alertness means alertness." Oh, we get it now. Add this to the earlier Lagarde comments, and the NYSE may be wise to declare a market holiday on Monday, as is increasingly expected.

In other news, in the 3,982 word speech, there were ten instances of the word "inflation", zero of "easing"... and zero of "deflation." Oddly enough, "gold" also received no mention.

Word cloud:

Full speech:

Achieving maximum long-term growth

Speech by Jean-Claude Trichet, President of the ECB at the Jackson Hole Economic Symposium Panel: Setting priorities for long-term growth Jackson Hole, U.S.A., 27 August 2011

The title of our panel today is Setting Priorities for Long-Term Growth. Given all of our recent struggles to regain our reference growth paths, it may strike some as something of a luxury to think about the long run; central bankers and policy makers have had to devote unprecedented attention to higher-frequency economic developments. Many new lessons have been learned; many policy and institutional innovations have been introduced.

The recent financial crisis has produced a large and persistent downturn in our economies; a downturn, moreover, that threatens our long-run growth potential. It is therefore entirely natural that policy makers do not lose sight of the prerequisites for stable sustainable growth.

This is especially so for most of the advanced economies, including the euro area, characterized (as it has been in recent decades) by declining potential growth rates. In the face of any economic predicament, one should ask oneself two questions – what got us here, and what can get us out? In the wider case of sustainable growth for the euro area, what matters is a commitment to structural reforms and sound macroeconomic policies. In the case of the financial matters, a robust macro prudential and supervisory framework is key. I will address both these issues in my coming remarks.

Likewise, some may consider it unusual to solicit views on matters of long-run growth from the President of a central bank. After all, pick up just about any growth-theory textbook and you'll find few references to inflation and fewer still to monetary policy. Monetary policy is fundamentally viewed as neutral over the long run.

And indeed, inflation is ultimately a monetary phenomenon. Growth, in turn, is ultimately a real one reflecting, in particular, technology, education and training, capital accumulation, institutional quality.

Nonetheless, monetary-policy institutions can play and have played a fundamental role in supporting long-run, sustainable growth. In many ways, I see a parallel between the theory and practise of monetary-policy making and the shaping of modern growth analysis which emphasises the role of sound/proper institutions.

That achieving high and sustainable growth matters, however, is easy to motivate. On the subject of growth differences across countries, Lucas (1988) memorably wrote: The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.

I. WHAT DRIVES GROWTH IN THE LONG RUN?

So let's start to think: what does drive growth in the long run? In fact, growth theory – much like central banking – has come a long way. As everyone knows, Solow's work in the late '50s produced two startling insights. [1] First, that smooth factor substitutability could rid us of the Harrod-Domar boom-bust cycle. This, in fact, paved the way for a proper analysis of sustainable growth. [2] His second insight was that growth was driven not only by factor accumulation but also by technological progress.

Fundamentally, technological progress and innovation are, over the long run, the prime drivers of economic growth and also important reasons for differences in international economic performance, even though demographic differences are also very relevant. Higher growth rates of technical innovation raise output and can lower the non-inflationary rate of unemployment.

But what is technical change? Cracking open the Solovian black box of technical progress has taken us from theories of learning-by-doing, to the impact of R&D on product variety and quality. The latter theories being underpinned by Paul Romer's reflection on the fact that ideas are fundamentally non rival. [3] This concept, by the way, was not really new. The famous letter of Thomas Jefferson to Isaac McPherson expressed it very clearly in 1813. [4] The bottom line in all of this is that knowledge spillover between open, dynamic economies could benefit everyone. Not surprisingly, these new developments in growth theory came replete with policy prescriptions.

A more recent but allied literature suggested the following: how close an economy is to the technological frontier and whether its institutions facilitate convergence to that frontier are vital considerations. [5] In effect, a laggard country gains by implementing (or jumping to) frontier technologies. [6] But an economy near the frontier – or with an appetite to define that frontier – should increasingly favour innovation over imitation.

Like many close to European policy [7], I find this an attractive framework. Indeed, following World War II, the European economies were remarkably catching up in productivity and technological terms and today are leaders in many fields, in particular as concerns the embedding of technological innovation in manufacturing processes. [8] Yet, there is still an enormous potential to tap, to reform our economies and boost their growth potential and job creation. [9]

II. GROWTH PATTERNS IN THE EURO AREA AND US

Debates about the US versus the euro area have become common place in recent years. To my mind, though, such debates often fall short of a careful, nuanced analysis required. Some international comparisons are indeed informative and yield important insights. Others – given lack of harmonized data, data concept or data unit – are more suspect. The crisis, though, has taught us that growth is only meaningful if it is sustainable and balanced. Growth that is not sustainable but follows boom-bust cycles, carries enormous costs in terms of economic well-being. These costs go far beyond pure GDP numbers; the deepest of these costs is that they, in some cases, put a strain on the fabric of our societies. For that reason alone, sustainability is a key qualification to associate to growth. The second key term is the balance of growth, both in domestic and external terms. Domestically balanced growth implies a broadly acceptable distribution of economic well-being within societies in terms of income and wealth as well as the avoidance of misalignments especially of asset prices; and externally balanced implies the need to avoid excessive international disequilibria.

Since the introduction of the single currency in 1999, the euro area has experienced a per-capita growth rate that, at around 1% a year, is comparable to that in the United States (1.1%). This is the first fact that is often overlooked in international comparisons. In such comparisons, we often look at headline growth numbers; yet, demographics are very different. Adjusted for population growth, there has been virtually no difference between US and euro area growth over the first decade since the introduction of the single currency. The euro area, though, has created more jobs: 14 million compared with 8 million in the US. Further, over recent decades differences in country and state dispersion rates of growth and inflation in the euro area and US are remarkably similar. On employment, moreover, it will be interesting to compare our different evolutions in the coming years. What we all want to avoid is excessively volatile employment where human capital is all too easily lost and inequality deepens.

Table 1 shows a detailed comparison of the euro area with the US over recent decades. This makes the standard growth accounting of contributions into employment and labour productivity. Labour productivity itself can be further decomposed into changes in labour composition, Information and Communication technologies (ICT) and non-ICT usage per hour and (residual) TFP growth. The interest in the distinction between ICT and non-ICT reflects recent evidence that the ICT sector has been strongest where most growth has emerged across the world economy.

Looking over the contributions, we note a significant difference in labour productivity (1.7 for EU13 vs. 2.9 for US). The main drivers in this comparison of labour productivity are ICT capital services per hour (0.4 vs. 1.0) and, perhaps more significantly from our standpoint, economy-wide TFP (0.5 vs. 1.1). Although having said that, there turns out to be quite some heterogeneity among countries,

Moreover, see Table 2 analysing the sectoral decomposition of TFP growth. TFP in the production of goods is slightly larger in the euro area than in the US. Rather, the higher overall TFP growth in the US is driven by stronger TFP growth in services, in particular in distributive trade (0.2 vs 0.5). [10] Although, in passing, we should remember that productivity and technical improvements in Services are plagued by measurement difficulties.

But of course TFP numbers always represent a rough metric. [11] The TFP residual will be contaminated by measurement errors, erroneous assumptions about market structure, or the nature and existence of the aggregative production function. The residual will also be a catch-all of neglected factor utilization, factor quality improvements over time, statistical complications associated in calculating factor rewards (appropriate tax and depreciation allowance for capital income etc).

But the wider perspective is: (1) the services and distributive sector is now a dominant and growing part of the euro area economy's output (around 60%) and employment share; (2) the Service sector typically more regulated and thus less flexible to changes and open to innovation [12] although certainly recently there has been progress in the deregulation of network industries and progress through the new Services directive; (3) evidence is mixed but the Service sector in general is often thought to have inherently lower productivity and employment generation mechanisms relative to the more open manufacturing sector.

III. Diversity within the United States and the euro area

Allow me, next, to take a closer look at the developments both across US states and euro area Member States.

For the euro area it is very common to look at the level of its constituent countries and focus on the diversity among individual states, because a number of economic policy choices that affect productivity are national.

For the US, this exercise is rarely done. It is often conjectured that relevant policies are federal, and therefore by definition uniform at the level of the federation; and that, as a consequence, differences at the state level play much less a role. In essence, it is therefore often assumed that the US economy would be significantly more homogeneous than the economy of the euro area.

Looking more closely at the regional dispersion across US regions and euro area economies does not confirm this. In fact, the dispersion of many of the key indicators is surprisingly similar.

Let me share with you some findings from our analysis that we started some months ago and begin with inflation. [13] Before the crisis, the dispersion of HICP inflation in euro area countries had remained broadly stable since the late 1990s, at a level similar to the 14 US Metropolitan Statistical Areas. [14] During the crisis we saw a temporary increase in inflation dispersion in the euro area but this has been reversed over the past 12 months. (Chart 1.)

The picture is similar for the dispersion of GDP growth. Before the crisis the dispersion of growth rates was around 2%, in both the euro area and the United States. Dispersion rose somewhat during the crisis in both currency areas but remained broadly in line with pre-crisis patterns overall. [15] (Chart 2.)

Going one step further, investigation of the sources of this growth dispersion in the US and euro area economies reveals parallels even in the root causes of dispersion in economic performance and productivity. On the one hand, both currency areas comprise regions that experienced a significant boom and bust cycle over the past decade. On the other hand, both also contain regions that are facing significant structural challenges of a more long-term nature.

In the United States, for example, Nevada, Arizona, Florida and California experienced increases in house prices that outpaced the national average by a wide margin. The steep house price increases accompanied above average growth in these states. This could probably be explained, at least in part, by the impulse that these states received from the housing-related sectors such as construction, which saw its share in terms of value added increase at the national level during the years of the housing boom. In the crisis, the sharp fall in house prices in Florida and the south-western US states turned boom into bust. These states experienced the harshest recession among the US states. [16]

Similarly, in the euro area some countries experienced asymmetric boom-and-bust cycles. Several euro area countries had higher than average growth in the pre-crisis years. In Ireland and Spain particularly, strong growth was accompanied by strong increases in housing prices.

At the same time, other US states, particularly the former manufacturing powerhouses in the "Great Lakes" region, have seen a long episode of below average growth. Below average performance of the region – and particularly weaker growth rates in the states of Michigan and Ohio – are related to strong reliance on manufacturing. Structural shifts in the US economy towards services have gradually reduced the value added of manufacturing relative to GDP, with implications for areas with a high concentration of companies in manufacturing industries other than information and communications technology. During the crisis, GDP growth in the ''Great Lakes'' region, which was below average before the crisis, remained below average.

Similarly, other countries in Europe – Portugal, for example – have experienced growth persistently below the euro area average for the past decade due to structural rigidities that are now being addressed.

Just a few years ago, the low-growth group of countries included Germany – labelled the "sick man of Europe" at that time. Yet Germany is now an example of how big the dividends of reform can be if structural adjustment is made a strategic priority and implemented with sufficient patience.

The effect of the crisis on the different euro area economies follows a similar pattern to those of comparable US states. The countries in the euro area that have been hit hardest are those in which either large asset-bubble driven imbalances unwound or structural problems were left unaddressed before the crisis. Those countries that have yet to implement more far reaching structural reforms also have relatively low growth prospects after the crisis. These relatively low growth rates are linked to a deterioration of competitiveness, driven, for example, by persistent above average unit labour costs.

Precisely as regards the evolution of unit labour costs, that are so important for growth, dispersion both ahead of the crisis and during the crisis was quite similar in the euro area and the United States. (Chart 3.)

At the same time, it is worth noting that both currency areas include regions with persistently above or below average unit labour cost growth. Again leaving aside the countries to join the euro area most recently, here, Greece, Portugal and Ireland, in particular, had progressively lost competitiveness vis-à-vis their main trading partners in the euro area. They are now engaging in catching-up, adjustment strategies. Germany, which had lost competitiveness in the reunification process, by contrast, has been able to restore this competitiveness over the same period of time. (Chart 4.)

Similar persistent losses and gains in unit labour costs are also observed in the United States. Taking a look at the upper and lower bound of the spectrum of US states over the same period as the euro area reveals that some states have experienced large or persistent increases in unit labour costs, currently exceeding the national average by as much as 20%. Other states have been improving their labour cost competitiveness vis-à-vis the national average over the past decade. (Charts 5,6 and 7.) In summary, there are strong indications that economic diversity in the euro area and the United States has not been significantly very different over the past 12 years.

The observation that very large, continental economies of the size of the US or of Europe are probably necessarily diverse should not be reason for complacency. The fact that advanced economies of the size of more than 300 million people have a tendency to be significantly diverse calls for a solid economic governance framework and explains why the ECB Governing Council has been so vocal in this ground since the inception of the euro area.

And this inherent diversity of advanced economies of large size is an additional reason to resolutely engage in the structural reforms that would permit to accelerate the completion of the European single market in all sectors, and to enhance the growth potential of each individual European economy and of the euro area as a whole.

IV. Setting Priorities for Long-Run Growth

Let us get back to our central theme - Setting Priorities for Long-Run Growth. Let me make some suggestions – three to be precise. A first, and overwhelming, priority – notably for the euro area – is the vigorous implementation of structural reforms . A second, but by no means unrelated priority, is the continued attention to external and internal imbalances . A final priority is greater flexibility on the part of policy institutions. Let's take them one by one, with a particular emphasis on the euro area.

First, structural reforms. We earlier noted the primacy of institutions in modern growth theory. Sound institutions are essential to encourage a flexible, cutting-edge, knowledge-based economy. There is substantial evidence from industry-level studies on regulation as well from firm-level studies on the dynamics of firm performance that confirm the need for such a conducive environment to generate productivity growth. [17]

Douglas North defined institutions as … the rules of the game in a society … the humanly devised constraints that shape human interaction.

Word Cloud Of Trichet's Disappointing Jackson Hole Speech: "Inflation" Mentions: 10; "Deflation" And "Gold": Zero

Posted: 27 Aug 2011 07:07 AM PDT


Anyone hoping that Trichet would pick up the baton from Bernanke and proceed to commit legacy suicide a few months ahead of retirement by announcing a move toward monetary easing (after all, that's what the off balance sheet SPV CDO EFSF is for) during today's Jackson's Hole speech will be disappointed. In his vague prepared remarks, Trichet focused on "technical progress" as the growth catalyst that will get Europe out of its current encounter with financial quick sand: needless to say, the market will not be pleased that the future of market gains is in the hands of a few iPad apps. He proceeded to share the following pearl of philosophical brilliance: "Alertness against savings and trade imbalances across the global economy is a fundamental concern. Such imbalances – if unchecked or conveniently rationalized away – make our entire, inter-connected economies more fragile and more risk prone. We have seen how rapidly negative financial impulses can transmit through the global economy and pull down economic activity. Alertness means alertness." Oh, we get it now. Add this to the earlier Lagarde comments, and the NYSE may be wise to declare a market holiday on Monday, as is increasingly expected.

In other news, in the 3,982 word speech, there were ten instances of the word "inflation", zero of "easing"... and zero of "deflation." Oddly enough, "gold" also received no mention.

Word cloud:

Full speech:

Achieving maximum long-term growth

Speech by Jean-Claude Trichet, President of the ECB at the Jackson Hole Economic Symposium Panel: Setting priorities for long-term growth Jackson Hole, U.S.A., 27 August 2011

The title of our panel today is Setting Priorities for Long-Term Growth. Given all of our recent struggles to regain our reference growth paths, it may strike some as something of a luxury to think about the long run; central bankers and policy makers have had to devote unprecedented attention to higher-frequency economic developments. Many new lessons have been learned; many policy and institutional innovations have been introduced.

The recent financial crisis has produced a large and persistent downturn in our economies; a downturn, moreover, that threatens our long-run growth potential. It is therefore entirely natural that policy makers do not lose sight of the prerequisites for stable sustainable growth.

This is especially so for most of the advanced economies, including the euro area, characterized (as it has been in recent decades) by declining potential growth rates. In the face of any economic predicament, one should ask oneself two questions – what got us here, and what can get us out? In the wider case of sustainable growth for the euro area, what matters is a commitment to structural reforms and sound macroeconomic policies. In the case of the financial matters, a robust macro prudential and supervisory framework is key. I will address both these issues in my coming remarks.

Likewise, some may consider it unusual to solicit views on matters of long-run growth from the President of a central bank. After all, pick up just about any growth-theory textbook and you'll find few references to inflation and fewer still to monetary policy. Monetary policy is fundamentally viewed as neutral over the long run.

And indeed, inflation is ultimately a monetary phenomenon. Growth, in turn, is ultimately a real one reflecting, in particular, technology, education and training, capital accumulation, institutional quality.

Nonetheless, monetary-policy institutions can play and have played a fundamental role in supporting long-run, sustainable growth. In many ways, I see a parallel between the theory and practise of monetary-policy making and the shaping of modern growth analysis which emphasises the role of sound/proper institutions.

That achieving high and sustainable growth matters, however, is easy to motivate. On the subject of growth differences across countries, Lucas (1988) memorably wrote: The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.

I. WHAT DRIVES GROWTH IN THE LONG RUN?

So let's start to think: what does drive growth in the long run? In fact, growth theory – much like central banking – has come a long way. As everyone knows, Solow's work in the late '50s produced two startling insights. [1] First, that smooth factor substitutability could rid us of the Harrod-Domar boom-bust cycle. This, in fact, paved the way for a proper analysis of sustainable growth. [2] His second insight was that growth was driven not only by factor accumulation but also by technological progress.

Fundamentally, technological progress and innovation are, over the long run, the prime drivers of economic growth and also important reasons for differences in international economic performance, even though demographic differences are also very relevant. Higher growth rates of technical innovation raise output and can lower the non-inflationary rate of unemployment.

But what is technical change? Cracking open the Solovian black box of technical progress has taken us from theories of learning-by-doing, to the impact of R&D on product variety and quality. The latter theories being underpinned by Paul Romer's reflection on the fact that ideas are fundamentally non rival. [3] This concept, by the way, was not really new. The famous letter of Thomas Jefferson to Isaac McPherson expressed it very clearly in 1813. [4] The bottom line in all of this is that knowledge spillover between open, dynamic economies could benefit everyone. Not surprisingly, these new developments in growth theory came replete with policy prescriptions.

A more recent but allied literature suggested the following: how close an economy is to the technological frontier and whether its institutions facilitate convergence to that frontier are vital considerations. [5] In effect, a laggard country gains by implementing (or jumping to) frontier technologies. [6] But an economy near the frontier – or with an appetite to define that frontier – should increasingly favour innovation over imitation.

Like many close to European policy [7], I find this an attractive framework. Indeed, following World War II, the European economies were remarkably catching up in productivity and technological terms and today are leaders in many fields, in particular as concerns the embedding of technological innovation in manufacturing processes. [8] Yet, there is still an enormous potential to tap, to reform our economies and boost their growth potential and job creation. [9]

II. GROWTH PATTERNS IN THE EURO AREA AND US

Debates about the US versus the euro area have become common place in recent years. To my mind, though, such debates often fall short of a careful, nuanced analysis required. Some international comparisons are indeed informative and yield important insights. Others – given lack of harmonized data, data concept or data unit – are more suspect. The crisis, though, has taught us that growth is only meaningful if it is sustainable and balanced. Growth that is not sustainable but follows boom-bust cycles, carries enormous costs in terms of economic well-being. These costs go far beyond pure GDP numbers; the deepest of these costs is that they, in some cases, put a strain on the fabric of our societies. For that reason alone, sustainability is a key qualification to associate to growth. The second key term is the balance of growth, both in domestic and external terms. Domestically balanced growth implies a broadly acceptable distribution of economic well-being within societies in terms of income and wealth as well as the avoidance of misalignments especially of asset prices; and externally balanced implies the need to avoid excessive international disequilibria.

Since the introduction of the single currency in 1999, the euro area has experienced a per-capita growth rate that, at around 1% a year, is comparable to that in the United States (1.1%). This is the first fact that is often overlooked in international comparisons. In such comparisons, we often look at headline growth numbers; yet, demographics are very different. Adjusted for population growth, there has been virtually no difference between US and euro area growth over the first decade since the introduction of the single currency. The euro area, though, has created more jobs: 14 million compared with 8 million in the US. Further, over recent decades differences in country and state dispersion rates of growth and inflation in the euro area and US are remarkably similar. On employment, moreover, it will be interesting to compare our different evolutions in the coming years. What we all want to avoid is excessively volatile employment where human capital is all too easily lost and inequality deepens.

Table 1 shows a detailed comparison of the euro area with the US over recent decades. This makes the standard growth accounting of contributions into employment and labour productivity. Labour productivity itself can be further decomposed into changes in labour composition, Information and Communication technologies (ICT) and non-ICT usage per hour and (residual) TFP growth. The interest in the distinction between ICT and non-ICT reflects recent evidence that the ICT sector has been strongest where most growth has emerged across the world economy.

Looking over the contributions, we note a significant difference in labour productivity (1.7 for EU13 vs. 2.9 for US). The main drivers in this comparison of labour productivity are ICT capital services per hour (0.4 vs. 1.0) and, perhaps more significantly from our standpoint, economy-wide TFP (0.5 vs. 1.1). Although having said that, there turns out to be quite some heterogeneity among countries,

Moreover, see Table 2 analysing the sectoral decomposition of TFP growth. TFP in the production of goods is slightly larger in the euro area than in the US. Rather, the higher overall TFP growth in the US is driven by stronger TFP growth in services, in particular in distributive trade (0.2 vs 0.5). [10] Although, in passing, we should remember that productivity and technical improvements in Services are plagued by measurement difficulties.

But of course TFP numbers always represent a rough metric. [11] The TFP residual will be contaminated by measurement errors, erroneous assumptions about market structure, or the nature and existence of the aggregative production function. The residual will also be a catch-all of neglected factor utilization, factor quality improvements over time, statistical complications associated in calculating factor rewards (appropriate tax and depreciation allowance for capital income etc).

But the wider perspective is: (1) the services and distributive sector is now a dominant and growing part of the euro area economy's output (around 60%) and employment share; (2) the Service sector typically more regulated and thus less flexible to changes and open to innovation [12] although certainly recently there has been progress in the deregulation of network industries and progress through the new Services directive; (3) evidence is mixed but the Service sector in general is often thought to have inherently lower productivity and employment generation mechanisms relative to the more open manufacturing sector.

III. Diversity within the United States and the euro area

Allow me, next, to take a closer look at the developments both across US states and euro area Member States.

For the euro area it is very common to look at the level of its constituent countries and focus on the diversity among individual states, because a number of economic policy choices that affect productivity are national.

For the US, this exercise is rarely done. It is often conjectured that relevant policies are federal, and therefore by definition uniform at the level of the federation; and that, as a consequence, differences at the state level play much less a role. In essence, it is therefore often assumed that the US economy would be significantly more homogeneous than the economy of the euro area.

Looking more closely at the regional dispersion across US regions and euro area economies does not confirm this. In fact, the dispersion of many of the key indicators is surprisingly similar.

Let me share with you some findings from our analysis that we started some months ago and begin with inflation. [13] Before the crisis, the dispersion of HICP inflation in euro area countries had remained broadly stable since the late 1990s, at a level similar to the 14 US Metropolitan Statistical Areas. [14] During the crisis we saw a temporary increase in inflation dispersion in the euro area but this has been reversed over the past 12 months. (Chart 1.)

The picture is similar for the dispersion of GDP growth. Before the crisis the dispersion of growth rates was around 2%, in both the euro area and the United States. Dispersion rose somewhat during the crisis in both currency areas but remained broadly in line with pre-crisis patterns overall. [15] (Chart 2.)

Going one step further, investigation of the sources of this growth dispersion in the US and euro area economies reveals parallels even in the root causes of dispersion in economic performance and productivity. On the one hand, both currency areas comprise regions that experienced a significant boom and bust cycle over the past decade. On the other hand, both also contain regions that are facing significant structural challenges of a more long-term nature.

In the United States, for example, Nevada, Arizona, Florida and California experienced increases in house prices that outpaced the national average by a wide margin. The steep house price increases accompanied above average growth in these states. This could probably be explained, at least in part, by the impulse that these states received from the housing-related sectors such as construction, which saw its share in terms of value added increase at the national level during the years of the housing boom. In the crisis, the sharp fall in house prices in Florida and the south-western US states turned boom into bust. These states experienced the harshest recession among the US states. [16]

Similarly, in the euro area some countries experienced asymmetric boom-and-bust cycles. Several euro area countries had higher than average growth in the pre-crisis years. In Ireland and Spain particularly, strong growth was accompanied by strong increases in housing prices.

At the same time, other US states, particularly the former manufacturing powerhouses in the "Great Lakes" region, have seen a long episode of below average growth. Below average performance of the region – and particularly weaker growth rates in the states of Michigan and Ohio – are related to strong reliance on manufacturing. Structural shifts in the US economy towards services have gradually reduced the value added of manufacturing relative to GDP, with implications for areas with a high concentration of companies in manufacturing industries other than information and communications technology. During the crisis, GDP growth in the ''Great Lakes'' region, which was below average before the crisis, remained below average.

Similarly, other countries in Europe – Portugal, for example – have experienced growth persistently below the euro area average for the past decade due to structural rigidities that are now being addressed.

Just a few years ago, the low-growth group of countries included Germany – labelled the "sick man of Europe" at that time. Yet Germany is now an example of how big the dividends of reform can be if structural adjustment is made a strategic priority and implemented with sufficient patience.

The effect of the crisis on the different euro area economies follows a similar pattern to those of comparable US states. The countries in the euro area that have been hit hardest are those in which either large asset-bubble driven imbalances unwound or structural problems were left unaddressed before the crisis. Those countries that have yet to implement more far reaching structural reforms also have relatively low growth prospects after the crisis. These relatively low growth rates are linked to a deterioration of competitiveness, driven, for example, by persistent above average unit labour costs.

Precisely as regards the evolution of unit labour costs, that are so important for growth, dispersion both ahead of the crisis and during the crisis was quite similar in the euro area and the United States. (Chart 3.)

At the same time, it is worth noting that both currency areas include regions with persistently above or below average unit labour cost growth. Again leaving aside the countries to join the euro area most recently, here, Greece, Portugal and Ireland, in particular, had progressively lost competitiveness vis-à-vis their main trading partners in the euro area. They are now engaging in catching-up, adjustment strategies. Germany, which had lost competitiveness in the reunification process, by contrast, has been able to restore this competitiveness over the same period of time. (Chart 4.)

Similar persistent losses and gains in unit labour costs are also observed in the United States. Taking a look at the upper and lower bound of the spectrum of US states over the same period as the euro area reveals that some states have experienced large or persistent increases in unit labour costs, currently exceeding the national average by as much as 20%. Other states have been improving their labour cost competitiveness vis-à-vis the national average over the past decade. (Charts 5,6 and 7.) In summary, there are strong indications that economic diversity in the euro area and the United States has not been significantly very different over the past 12 years.

The observation that very large, continental economies of the size of the US or of Europe are probably necessarily diverse should not be reason for complacency. The fact that advanced economies of the size of more than 300 million people have a tendency to be significantly diverse calls for a solid economic governance framework and explains why the ECB Governing Council has been so vocal in this ground since the inception of the euro area.

And this inherent diversity of advanced economies of large size is an additional reason to resolutely engage in the structural reforms that would permit to accelerate the completion of the European single market in all sectors, and to enhance the growth potential of each individual European economy and of the euro area as a whole.

IV. Setting Priorities for Long-Run Growth

Let us get back to our central theme - Setting Priorities for Long-Run Growth. Let me make some suggestions – three to be precise. A first, and overwhelming, priority – notably for the euro area – is the vigorous implementation of structural reforms . A second, but by no means unrelated priority, is the continued attention to external and internal imbalances . A final priority is greater flexibility on the part of policy institutions. Let's take them one by one, with a particular emphasis on the euro area.

First, structural reforms. We earlier noted the primacy of institutions in modern growth theory. Sound institutions are essential to encourage a flexible, cutting-edge, knowledge-based economy. There is substantial evidence from industry-level studies on regulation as well from firm-level studies on the dynamics of firm performance that confirm the need for such a conducive environment to generate productivity growth. [17]

Douglas North defined institutions as … the rules of the game in a society … the humanly devised constraints that shape human interaction. [18] And being "humanly devised constraints" (rather than exogenous geographical or climactic constraints),


Silver: Final Warning

Posted: 27 Aug 2011 07:07 AM PDT

Contingency Plans For the Dollar Collapse

Posted: 27 Aug 2011 06:53 AM PDT

"If you're on the Titanic, someboday asks the question, do we need life boats? Maybe we should think about this."

A Monetary Maze From Which There Is No Easy Escape

Posted: 27 Aug 2011 06:51 AM PDT

by Bob Chapman, The International Forecaster:

It has been almost three years since the Federal Reserve took its interest rates to 1% and most recently to zero. This allows member banks to borrow money at no cost. The Fed lends to large banks with little or no control, so that these banks, some of which are owners of the Fed, can really do as they please. The Fed even lends at zero and re-borrows from these banks at a higher level, guaranteeing the banks a riskless profit. Those profits would have gone to the US Treasury and the American taxpayer. These profits for the most part are the result of the creation of money and credit by the Fed. The banks are so overjoyed regarding the results that the Fed has told them that it will keep the current policy for at least the next two years. The banks as a result are making big speculative profits to offset their gigantic losses, while at the same time the economy falls deeper into inflationary depression. This is the tyranny of our almost 100 year old privately owned banking system. The unbridled use of money and credit has led America into a monetary maze from which there is no easy escape. This is what happens when the Fed can create money and credit at will with no gold backing to control such issuance. What the Federal Reserve has done is deprive you of a sound money system. In this endeavor the Fed has deprived you of your liberty and freedom by destroying your wealth and savings via the inflation, which has been the guaranteed result of these actions by those who believe they are the masters of the universe. Once gold backing was removed from the US dollar on August 15, 1971 the old policies were over and the new policies, the results of which we see today, had begun. During the intervening period the price of gold rose from $35.00 an ounce in US dollar terms to its recent $1,900 price. The gain was a reflection of the loss of value of the dollar over those some 40 years. We predicted these results in the early 1960s, but very few were listening. Millions are listening today. The Federal Reserve, Wall Street and banking have been able to perpetuate what they have because of mass ignorance of our monetary system, even by well-educated citizens. This kind of indifference is what brings about the structure that spells failure for our present system. Americans refuse to reduce spending and expanding credit. They believed that the system could go on endlessly. They are in the process now of finding out that could not be the end result.

Read More @ TheInternationalForecaster.com

Trade With China and India Will Not Collapse America's Economy

Posted: 27 Aug 2011 06:07 AM PDT

For over half a century, I have read warnings that free trade is a threat to America. The freer it gets, the more we are told that slave labor in Asia is threatening the workers of America. We hear calls for fair trade. Who is to decide what is fair trade? Congress. Ah, yes: Congress. The source of fairness if ever there was one. No special interests there, putting their PAC-filled fingers on the balance scale of justice.


Pierre Lassonde: “$ 2,500 Gold by Year End”

Posted: 27 Aug 2011 05:49 AM PDT

[Ed. Note: In this can't-miss interview Pierre Lassonde the founder of my favorite gold & silver mining company New Gold, explains why he believes gold is poised to hit $2,500/ounce by year's end and why the mining shares are set to explode many multiples higher. ~SGT]

King World News has just released an interview with Pierre Lassonde: Chairman of Franco-Nevada.

He is one of the living legends in the mining and resource world with over 35 years of experience. Pierre is the current Chairman of Franco-Nevada and Co-Founded Franco-Nevada Mining Corporation with Seymour Schulich in 1982 and over a 20 year period, provided shareholders with a 36% annualized rate of return. He was able to build up and successfully merge Franco Nevada into Newmont Mining in what was essentially a depression in the mining sector. It was the worst of times, but somehow in the midst of those horrific industry conditions Pierre and everyone associated with him thrived. Pierre then became President of Newmont Mining Corporation from 2002 to 2006.

You can listen to the interview HERE. (On the left side of the page, half way down, click on the small purple logo that reads, "Listen to MP3 – CLICK HERE")

"I Am Jim Rogers And I Support Ron Paul"

Posted: 27 Aug 2011 05:24 AM PDT

Ron Paul has another illustrious supporter - Jim Rogers. The Quantum fund co-founder, who has been spot on about pretty much everything for the past 3 years (see Roubini Versus Rogers Is Right Debate for 2010: Investor Jim Rogers thinks gold will double to at least $2,000 an ounce. Economist Nouriel Roubini says that's "utter nonsense." As these well-known market personalities duke it out, they're doing us a favor by highlighting a critical debate: Which is the bigger threat -- inflation or deflation?), not to mention gold (to the amusement of such Keynesian soundbites recorded for posterity as the following: "Maybe it will reach $1,100 or so but $1,500 or $2,000 is nonsense"), and especially inflation (perhaps the only thing that will prompt a chuckle out of Gadaffi and Mubarak these days is someone telling them that their multi-decade reigns are over due to hyperdeflation and plunging food prices), was caught on tape voicing his endorsement of the only sane person who can possibly do something for this country. "In this election if Ron Paul gets anywhere near the nomination I would certainly support him. He is the only one that I've seen in American politics that seems to have a clue about what's going on." Zero Hedge agrees on all counts.

h/t Boiler Room

"I Am Jim Rogers And I Support Ron Paul"

Posted: 27 Aug 2011 05:24 AM PDT


Ron Paul has another illustrious supporter - Jim Rogers. The Quantum fund co-founder, who has been spot on about pretty much everything for the past 3 years (see Roubini Versus Rogers Is Right Debate for 2010: Investor Jim Rogers thinks gold will double to at least $2,000 an ounce. Economist Nouriel Roubini says that's "utter nonsense." As these well-known market personalities duke it out, they're doing us a favor by highlighting a critical debate: Which is the bigger threat -- inflation or deflation?), not to mention gold (to the amusement of such Keynesian soundbites recorded for posterity as the following: "Maybe it will reach $1,100 or so but $1,500 or $2,000 is nonsense"), and especially inflation (perhaps the only thing that will prompt a chuckle out of Gadaffi and Mubarak these days is someone telling them that their multi-decade reigns are over due to hyperdeflation and plunging food prices), was caught on tape voicing his endorsement of the only sane person who can possibly do something for this country. "In this election if Ron Paul gets anywhere near the nomination I would certainly support him. He is the only one that I've seen in American politics that seems to have a clue about what's going on." Zero Hedge agrees on all counts.

h/t Boiler Room

Economic Growth Stalls amidst Debt Crisis, Austerity

Posted: 27 Aug 2011 05:22 AM PDT

Andre Damon


A new batch of economic figures released this week confirms a renewed economic downturn, amidst an intensified assault on jobs and living conditions internationally. The Organization for Economic Cooperation and Development (OECD) said the gross domestic product of its member countries grew by only 0.2 percent in the second quarter of this year, dropping from 0.3 percent in the first quarter. Growth has slowed for four consecutive quarters, hitting the lowest level in two years.

In the United States, Bank of America announced thousands of layoffs earlier this month. The company has come under renewed pressure, with its shares falling more than 40 percent since the beginning of the year. In what appears to be an emergency effort to shore up the bank, Warren Buffett, the multibillionaire financier, said Thursday he would buy $5 billion of newly issued Bank of America stock. The move echoes a similar action on the part of Buffett in 2008, when he invested in Goldman Sachs and General Electric at the height of the financial crash. Such a move, motivated by the overriding concern of the Obama administration to defend the wealth of the financial aristocracy, would do no more to resolve the crisis than previous such measures. On the contrary, it would only further undermine the credibility of the dollar, intensify national divisions, and set the stage for even greater attacks on the working class.

Ben Davies: Monetary Blunders & How it Will Impact Gold

Posted: 27 Aug 2011 05:12 AM PDT

from King World News:

In this piece exclusively for the King World News blog, Ben Davies, CEO of Hinde Capital, gives KWN readers his take on Bretton Woods II, the Swiss factor and much more. In Davies' brand new interview he also discusses unprecedented demand for gold around the world and many other key factors influencing the gold market.

Der Kniefall der Schweiz – Switzerland Drops to its Knees
by Ben Davies, CEO of Hinde Capital

Read More @ KingWorldNews.com

Gold and Silver: A Cure for Panic and Anxiety

Posted: 27 Aug 2011 05:05 AM PDT

by George Maniere, Investing Advice By George:

There is something going on in the United States. I can't quite put my finger on it but there seems to be a change in the attitude of the people. There is a pervasive sense of panic that has permeated every part of our society. I think that our citizens have come to the realization that we have come to a point that unless there are drastic actions taken by our leaders, our great nation is in for a systemic failure. I base this feeling I have on watching the tape and noticing a pattern of heavy selloffs, large purchases of gold and silver, a constant bombardment from the media that we are in serious trouble with the amount of debt we have amassed, growing unemployment, low wage menial jobs and big banks teetering on the brink. To emphasize my point on the banks we need look no further than Bank of America's CEO Brian Moynihan saying that the bank was well capitalized and then selling Warren Buffet 5 billion dollars of preferred shares of stock. "Something ain't right in Kansas, Dorothy!"

Read More @ InvestingAdviceByGeorge.Blogspot.com

This Past Week in Gold

Posted: 27 Aug 2011 04:51 AM PDT

Summary: Long term - on major buy signal. Short term - on mixed signals. We have set ups this week but risks are higher than normal with market conditions being unstable. Trade at your own discretion. Read More...



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