Gold World News Flash

More traders notice gold's regularly counterintuitive behavior
Will gold regain its safe haven status in 2012?
Business School Curricula Today Lacks Real Critical Knowledge to Survive the Global Economic Crisis
How Safe Are Central Banks? UBS Worries The Eurozone Is Different
Pento: US to Default, Crushing Dollar & Creating Gold Explosion
An Important Note On How SIPC Protects You
What the Next Decade Holds for Commodities
Got Gold Report – Signs of Life
People quietly moving their money and themselves out of the US
Financial Tyranny: Defeating the Greatest Cover-Up of All Time
Are We Really Going To Bomb Iran?
Long-Term Charts for a Long-Term Weekend
World Food Association Has Enormous Amounts of Gold Bullion
Michael Pento: US to Default, Crushing Dollar & Creating Gold Explosion
Stocks Open Down As EURJPY Hits Fresh 11-Year Low
Barron, Haynes, Norcini, and Rickards at King World News
New York Sun: Secrets of the Fed
Proof of coordinated manipulation in the paper bullion market
More traders notice gold's regularly counterintuitive behavior
The 50 Year Gold & Silver Plan - Walter Burien
Oil, Dollar Hegemony and Islam
Revisiting Our Proposal for an Overnight Gold Fund
The cause of this recession? Economic pundits ignoring history's voice
Money & Markets – Week of 1.15.12
Precious Metals – Week of 1.15.12
The US Government Is Bankrupt

More traders notice gold's regularly counterintuitive behavior

Posted: 16 Jan 2012 06:26 AM PST

Drawing on GATA board member Adrian Douglas' statistical study from August 2010 ("The Gold Market Isn't 'Fixed,' It's Rigged," http://www.gata.org/node/8918), Sam and Bob Kirtley of SK Options Trading in Wellington, New Zealand, yesterday mused at length once again about the likely success of a gold trading fund that exploited the peculiar behavior of the gold market -- rising when the sun sets on London and New York and falling when traders in those cities go back to work.

Will gold regain its safe haven status in 2012?

Posted: 16 Jan 2012 06:15 AM PST

Last year was an eventful one for the gold market. The yellow metal was up 10 percent in 2011 for its 11th consecutive annual gain. But despite making an all-time high on Sept. 5 at $1,900/oz. gold finished the year down 18 percent from that high. Gold entered a bear market in late 2011 which was confirmed by gold's closing below its historically significant 30-week moving average. This doesn't happen very often which indicates the technical significance of the event. The last time gold violated its 30-week MA was in 2008 during the credit crisis and it hasn't happened since then as you can see in the following chart.

Business School Curricula Today Lacks Real Critical Knowledge to Survive the Global Economic Crisis

Posted: 15 Jan 2012 07:48 PM PST

"College isn't the place to go for ideas" – Helen Keller

"It is possible to store the mind with a million facts and still be entirely uneducated." – Alec Bourne.

"I have never let my schooling interfere with my education." – Mark Twain

In Part 3 of my critical thinking and education series, I am posting a video from Charlotte Iserbyt, the Senior Policy Advisor in the Office of Educational Research and Improvement (OERI), U.S. Department of Education, during the tenure of Ronald Reagan, and author of "The Deliberate Dumbing Down of America", as the substantive portion of this commentary. Ms. Iserbyt's father and grandfather were members of the Skull & Bones secret society and as Senior Policy Advisor of the OERI, Ms. Iserbty had access to an abundance of secretive minutes from past educational policy meetings that revealed the true intention of the Rockefeller and Carnegie funded global education system. Whether or not you believe everything Ms. Iserbyt has to say, her pedigree makes the interview a definite worthwhile listen despite its length and is sure to make you reconsider your views about institutional academics.

I encourage everyone to carve out the time sometime in the future to watch and listen to the entire interview below.

We, at SmartKnowledgeU, have long stated that business school curricula promotes and instills zero knowledge critical to understanding how capital markets truly operate and how to create wealth. For this reason, we have often stated that "Delaying a College Education in this Economy is the Right Choice." If we were responsible for building a nation's business educational curricula, here are just some of the topics we would consider mandatory, none of which are taught in business schools today, and all of which are part of the SmartKnowledgeU Wealth Secrets educational online course:

A History Of Central Banks and Their Motives;
How Money is Created, How the Monetary System Operates, & The True Definition of Money;
The Real Definition of Inflation
How to Properly Interpret "Official" Government Key Economic Indicators;
How to Interpret Publicly Released Corporate Earnings Statements;
How Bankers Have Shaped World Thought Through Academia & Media;
Understanding Fractional Reserve Banking;
Understanding Austrian v Keynesian Economics;
The Real Story Behind the Efficient Market Hypothesis & Diversification Strategies;
The Monetary History & Investment Value of Silver; and
The Monetary History & Investment Value of Gold

You may find Part I & Part II of this SmartKnowledgeU series on Education & Critical Thinking below:

Part I: Lack of Critical Thinking is Key to the Corrupt Status Quo Maintaining Their Power

Part II: The Hidden Dark Agenda of Public Education

About the author: JS Kim is the Founder and Chief Investment Strategist for SmartKnowledgeU, a fiercely independent investment research and consulting firm with a mission of helping to stomp out Wall Street fraud and to reinstitute sound monetary principles and sound money worldwide. We sincerely appreciate all of you that continue to "like" our Facebook fan page and "follow us" on Twitter. Through these mediums, we will keep all of you aware of some major campaigns we will be launching in early 2012 to raise global awareness of monetary truth and our proposed solutions to institute sound money that CAN serve as a viable and implementable solution to the financial ills heaped upon us by the global banking cartel.

How Safe Are Central Banks? UBS Worries The Eurozone Is Different

Posted: 15 Jan 2012 05:34 PM PST

With Fed officials a laughing stock (both inside and outside the realm of FOMC minutes), Bank of Japan officials ever-watching eyes, and ECB officials in both self-congratulatory (Draghi) and worryingly concerned on downgrades (Nowotny), the world's central bankers appear, if nothing else, convinced that all can be solved with the printing of some paper (and perhaps a measure of harsh words for those naughty spendaholic politicians). The dramatic rise in central bank balance sheets and just-as-dramatic fall in asset quality constraints for collateral are just two of the items that UBS's economist Larry Hatheway considers as he asks (and answers) the critical question of just how safe are central banks. As he sees bloated balance sheets relative to capital and the impact when 'stuff happens', he discusses why the Eurozone is different (no central fiscal authority backstopping it) and notes it is less the fear of large losses interfering with liquidity provision directly but the more massive (and explicit) intrusion of politics into the 'independent' heart of central banking that creates the most angst. While he worries for the end of central bank independence (most specifically in Europe), we remind ourselves that the tooth fairy and santa don't have citizen-suppressing printing presses.

UBS Macro Strategy: How safe are central banks?

Central banks have adopted ever-more unconventional policies since the financial crisis erupted in 2007. Chiefly, their extraordinary responses have taken the following forms.

First, the Fed and the Bank of England have purchased government securities, 'quasi' government securities (e.g., eligible mortgage-backed securities in the US) or credit instruments on a scale not seen (outside of Japan) during the post-war era. Even the ECB has dabbled in bond-buying via its securities market program. Second, all three central banks have acted as large-scale lenders of last resort to banks. Since 2008, that designation includes investment banks that have acquired banking licenses, at least in the US. Finally, in their capacity as liquidity providers to the financial sector several central banks— among them the ECB and some of the national central banks within the Eurozone—have significantly lowered eligible collateral standards for banks seeking funding.

All that activity makes some folks nervous. In particular, two questions arise. First, could a central bank go bust and precipitate a liquidity crisis? Second, if a central bank gets into trouble, who stands behind it?

Below, we explore both questions. We conclude that, for the most part, fears of central bank insolvency leading to a collapse of liquidity and failure of the payments system are wide of the mark. But it is possible to imagine a central bank suffering large losses, enough to wipe out its capital and hence warrant recapitalization.

That's where matters get complicated and potentially problematic. Recapitalization by the fiscal authority—where it exists—may require legislation, which introduces politics and potential delays into the picture. So even in the US or the UK, where national governments backstop the central bank, the politics of 'bailing out' the Federal Reserve or the Bank of England could become messy, potentially leading to a period of elevated market uncertainty.

But the greater challenge resides in the Eurozone. No central fiscal authority exists to backstop the ECB. And some of the ECB shareholders—the 27 national central banks of the EU—might also themselves become financially stressed in a scenario where the ECB faces large losses.

In the end, investors might conclude that given the unimaginable alternatives, EU national governments would step in to recapitalize the ECB and, where necessary, their national central banks. But the history of the Eurozone crisis has not offered many reassuring examples about the speed and effectiveness of Eurozone political decision-making. In terms of crisis management, the lesson from Europe thus far has been that, indeed, crisis precedes management. Investors could be forgiven for wondering whether central bank recapitalization might not require a crisis first.

Why disorderly central bank default is unlikely

Central banks can become insolvent. Infrequently they do. But it is unusual for their losses, per se, to impair the functioning of the financial system. Indeed, losses at central banks are not the same things as losses among ordinary banks.

For one, central banks aren't forced to mark-to-market their holdings or to provision against changes in the probability of credit losses. Dodgy assets can be held at par until losses materialize or until maturity.

But the most crucial distinction is that central banks borrow with the money they (and they alone) print. That money is fiat—irredeemable in anything but itself. To fund its Treasury or mortgage-backed securities purchases in recent years, for instance, the Fed merely credited banks' accounts at the Fed with the dollars it printed (electronically, of course).

That makes the central bank unique. Its creditors cannot change the terms on which it borrows. As a result, the capital position of central banks is all-but irrelevant—it neither affects the central bank's cost of funds, nor its ability to fund itself.

The privileged position of issuing fiat money enables central banks to operate with skinny capital. The Fed's capital is $50bn—not much when compared to a balance sheet over $2.5 trillion. Were it a bank, on the other hand, the Fed's capital ratio of less than 2% would have already landed it in bankruptcy court. Moreover, central banks can tolerate write-downs. In part, that is because they don't require capital to borrow. But equally, it is because they are moneymaking machines in a different sense as well—they make fat profits (known as seigniorage). Central banks enjoy unparalleled net interest margin (borrowing at near-zero interest rates [Central banks will incur borrowing costs to the extent they pay interest on reserves, but those 'borrowing rates' are typically very low—much lower than the yield on the assets they hold and much lower than any private sector financial intermediary could hope to attain.], while investing in much higher yielding government or credit securities). Last year, for example, the Fed earned $76.9bn in profit, more than its total capital base.

Typically, central banks return all but a small fraction of their earnings to the government. In bad times, however, those earnings could be used to offset realized losses, bolstering the capital of the central bank.

But the key point is this one—even if the central bank incurred sufficiently large losses to create a negative equity position, that outcome would not change its ability to borrow via securities purchases. In short, even negative equity (technical insolvency) would not prevent a central bank from performing its customary open market operations nor its lender of last resort function.[Some observers have noted that the ECB's low seigniorage revenues do not provide the same 'earnings-based' capital cushion available to other central banks. But the essential point is that capital does not determine the central bank's ability to perform its mandated functions.] So when does a central bank actually go bust? The answer is when it cannot make payments, which would be the case if the central bank borrowed in foreign currency (i.e., money which it cannot 'print'). That is not the case for the Fed, BoE or ECB—the liabilities of all three central banks are almost exclusively in their own currency.[In the event a country exits the Eurozone, its central bank would issue new national fiat currency, effectively re-denominating its liabilities.]

So if central bank capital is all but irrelevant, why have it? Alternatively, why worry if it is eroded by losses?

The answer may be, in part, optics.[The statutes of central banks may also require it.] No one, not even a central banker, wants negative net worth. But more subtly, it is also undesirable to incentivize central banks to maximize seigniorage (i.e., to earn their capital). After all, given a fixed net interest margin, maximizing seigniorage is about boosting assets 'under management'. In turn, that requires creating excess money, which raises the risk of inflation. So the preferred public policy is to endow central banks with capital rather than to compel them, however infrequently, to earn it. Lastly, the source of central bank capital—the national government—acts a subtle yet powerful reminder that the central bank is not utterly independent, but ultimately is answerable to the taxpayer.

The Eurozone is different

That's why recapitalization is probable if a central bank suffers large enough losses to wipe out its capital.

So who recapitalizes the central bank? And why is the Eurozone different?

Insofar as central banks are a part of government [Technically and historically, this is not quite right. Central banks historically may have public-private roots. The Fed is a quasigovernmental organization and, as noted earlier, the ECB shareholders are the 27 national central banks of the EU. But insofar as they deliver public goods (a medium of exchange and, hopefully, price stability) and because they have (near) monopoly issuance of money, they are commonly assumed to be part of government.], the taxpayer ultimately stands behind them, at least where a central (federal) government exists. In the event necessary, it is widely assumed that the Treasury (or a European Finance Ministry) would recapitalize its national central bank.

Yet the act of doing so is a fiscal transfer, making it subject to legislative approval. It isn't far-fetched, therefore, to imagine that if a central bank required a capital infusion, politics would intrude. To be sure, even if recapitalization were held up by politics, the central bank could perform its mandated duties, as previously noted. But political intervention could have other unsettling byproducts, such as de jure or de facto restrictions on the central bank's operational independence (or even its revocation altogether).

The Eurozone is a special case because there is no central (or federal) government that stands ready to recapitalize the ECB. Moreover, some of the ECB shareholders (the national central banks) might find themselves in a pinch at the same time that the ECB needs a capital top-up. That's because some Eurozone national central banks have similar or worse 'risk asset' exposures than the ECB. For example, via the Emergency Liquidity Assistance (ELA) facility, several national central banks have extended considerable collateralized lending to banks in their countries, reportedly accepting even weaker collateral than the ECB has in its own operations. Accordingly, it is possible that a series of Eurozone sovereign or banking defaults could simultaneously erode the capital position of the ECB and those of some of its shareholding national central banks. That outcome would imply that central bank recapitalization would have to be led by a subset of creditor countries (i.e., Germany). That's potentially a problem—recent history reminds us that Europe's creditors have a proclivity for prevarication where asymmetric bailouts are involved.

Summary and conclusions

Central banks have taken on more risk in recent years. That's been necessary and highly desirable during the most severe financial crisis since the 1930s, followed by the 'great recession'. One shudders to think of the consequences of the alternative—'Austrian' central bankers running the show.

Yet the actions of central bankers in recent years may yet have undesired consequences. Central banks have claimed to have exercised prudence in demanding sufficient collateral and adjusting 'haircuts' to the value of collateral. But with central bank balance sheets swollen relative to their capital and a second recession underway in Europe, credit losses could mount. Stuff happens.

To emphasize, the risk is not that large central bank losses would impair the ability of the monetary authorities to provide liquidity, conduct open market operations, target policy rates, or safeguard the payments system. Rather, in the event that losses wipe out too much of their capital, the chief risk becomes the intrusion of politics into central banking. It might even bring about the end of independent central banks.

Food for thought indeed as EFSF structural support is worn away by ratings agency downgrades (requiring perhaps explicit central bank support and lower collateral standards), ESM subordination concerns pressures existing sovereign bond holders to unwind/hedge exposure (requiring non-economical buyers of last resort), and increasingly complex agency relationships as ponzi-bonds are swapped into and out of national and super-national central banks.

Pento: US to Default, Crushing Dollar & Creating Gold Explosion

Posted: 15 Jan 2012 04:15 PM PST

With investors nervous about the price of gold, today Michael Pento, of Pento Portfolio Strategies, writes for King World News to warn about a coming US default and subsequent gold explosion. Pento had this to say about the situation: "If you ask most investors what is the main driver for the price of gold they are likely you tell you that it's the direction of the U.S. dollar. Therefore, the only due diligence most investors perform is a perfunctory glance at the Dollar Index (DXY). While it is true that the purchasing power of the dollar is a key metric to judge the direction of gold prices, the DXY will only tell you what the dollar is doing against a basket of 6 other flawed fiat currencies."

This posting includes an audio/video/photo media file: Download Now

An Important Note On How SIPC Protects You

Posted: 15 Jan 2012 04:08 PM PST

Jim Sinclair's Mineset Dear Friends, There is an axiom that must be remembered under today's strange financial circumstances with top financial management by sociopaths. The guarantee is no better than the guarantor. Hi Jim, Regarding Jeff Berwick's article, "Who Really Owns Your Gold Stocks?," it is important for JSMineset readers to understand the limitations of SIPC protection. Page four of the booklet "How SIPC Protects You" says, "Customers of a failed brokerage firm get back all securities (such as stocks and bonds) that already are registered in their name or are in the process of being registered." I asked SIPC specifically if securities held in "street name" are considered to be registered in the name of the customer and thus eligible for complete protection. SIPC replied: "In a liquidation proceeding under the Securities Investor Protection Act ("SIPA"), customers of a failed brokerage firm first get back all securities that are alre...

What the Next Decade Holds for Commodities

Posted: 15 Jan 2012 03:44 PM PST

By Frank Holmes CEO and Chief Investment Officer U.S. Global Investors What a decade! A rapidly urbanizing global population driven by tremendous growth in emerging markets has sent commodities on quite a run over the past 10 years. If you annualize the returns since 2002, you find that all 14 commodities are in positive territory. A precious metal was the best performer but it’s probably not the one you were thinking of. With an impressive 20 percent annualized return, silver is king of the commodity space over the past decade with gold (19 percent annualized) and copper (18 percent annualized) following closely behind. Notably, all commodities except natural gas outperformed the S&P 500 Index 10-year annualized return of 2.92 percent. Last year did not seem reflective of the decade-long cl...

Got Gold Report – Signs of Life

Posted: 15 Jan 2012 03:40 PM PST

Signs of life emerge in the smaller, less liquid and more speculative junior miners and explorers, but in a tepid, tentative, post-tax-loss-selling relief bounce sort of way – so far. Similar to the bounce in early 2009 in many ways.

Gold and silver turn in bounces more or less where expected.

Commitments of futures traders continue to be bullish from a contrarian point of view.

Our favorite soon-to-be-low-cost-gold-producer knocked on its too-cheap back foot by the delay of a necessary permit, a non-fatal disappointment, possibly setting up the last good buying op for it.

Most, but not all, indicators are favorable for gold, silver and North American mining/resource-related companies as the world gets sick and tired of hearing about European debt, Greek default and fiscal restructuring pain. Traders/investors growing more and more numb to dire and menacing news.

HOUSTON (Got Gold Report) – Since the last full Got Gold Report both gold and silver have seemingly found their 2012 footing, putting in bounces more or less in line with our expectations. Well, actually gold fetched up above our hoped-for reentry target, but we admit to having a buy-only-if-cheap attitude there. For the week gold logged a $22.37 (1.4%) advance for a last trade of $1,638.68 (USD Cash Market).

As Vultures (Got Gold Report Subscribers) already know, we have adopted the notion that gold is currently inside a giant, months-long pennant formation – still digesting its fear-assisted parabolic interim pinnacle of $1,923 last September. Most technicians will agree that pennant formations are often continuation patterns that resolve in the direction of the prevailing trend more than not.

Silver added $1.01 or 3.5% this week to close at $29.71 in New York. We regard silver as also being in a huge consolidation, a giant "flag" formation that has been in play since its near $50 parabolic surge in April of 2011. As the very simple chart below depicts, our view is that silver has recently been contracting in a bullish falling wedge pattern inside that great flag formation. (A consolidation inside a larger consolidation as part of silver's digestion of the new higher plateau.) As everyone knows by now, silver bounced precisely in line with its September panic spike nadir (about $26.15), which happens to coincide with where it found support last January, 2011. (Brown dashed line.) Therefore $26 has once again proven it is an important support zone for the second most popular precious metal.

The support bounce is pretty interesting to us (Vultures know why), but perhaps just as interesting is that from our simple-Simon trading point of view, silver made a run at a breakout of that falling wedge on Thursday, January 12, touching $30.62 briefly before running into a Euro-centric negative news loop and a profit taking, just ahead of a 3-day-weekend-"Give Back Friday."

Like pennants, flags are contra-trend consolidations or digestion periods that often, but not always, resolve in the direction of the prevailing trend. Although flags are normally thought of as more short-term animals, we do indeed believe they are appropriate to consider in longer-term events inside great secular bull markets.

We use much larger, easier to read charts that we share with Vultures on the subscriber pages, and that is where we comment weekly in dialog boxes directly inside those big graphs. It is our preferred way to communicate and we plan to do more of that and less of 'this' in 2012. It is just more efficient to do so. Just below is a much reduced example of one of those very large linked graphs - the 3-year weekly gold graph. The graph normally fills a computer screen and then some, by the way.

Note that even in this greatly reduced format, the giant pennant formation idea we have championed is quite visible. Perhaps less visible is a budding breakout attempt of a declining wedge inside that giant pennant, which just got underway this past week.

We have to be somewhat impressed that gold and silver advanced despite continued Orwellian strength in the U.S. dollar this past week. Note the comments in the graph.

The U.S. dollar is imperfect; it is far from a satisfactory, stable and confidence inspiring, well-backed medium of exchange, but for the time being, at least, the greenback is where people gravitate to in a time of crisis. That is even if the dollar is merely a waypoint on the road to something else for scared European wealth. The U.S. dollar is deep, liquid and accepted worldwide, for now. But gold is rapidly gaining acceptance and confidence as an alternate "currency" to fiat money.

Come to think of it, the "dollar-gold-exchange-rate" pretty much confirms that notion, does it not? As fiat currencies everywhere have been in an accelerated competitive debasement phase, since about, oh, say 2005, haven't we seen the major fiat currencies all losing purchasing power at a blistering pace? Isn't that the same thing as gold gaining in purchasing power relative to those debt-based paper promises?

Just below is a graph of the Euro Index in terms of gold metal for reference. When most people think of currency fluctuations they think in terms of one fiat currency versus another. This graph shows the "value" of Euros to "buy" the one "currency" that cannot be printed and abused by politicians and central banks. Quietly, but surely, gold is taking over the lead role as the ultimate reserve "currency" on Earth.

Decades of an experiment where the world's leaders were entrusted with the responsibility of maintaining their currencies without the burden of being tied to gold – without gold being the "currency policeman" proves at least one thing. That governments will not act responsibly in the monetary realm without an "enforcer" to govern them. In the 41 years since August, 1971, when President Nixon severed the last feeble ties of the world's reserve currency, the U.S. dollar, to real gold metal, governments have gone hog-wild, making government-give-away promises to their voters, borrowing to pay for them, racking up deep oceans of sovereign debt in the absence of that currency policeman. Debts that cannot be repaid in today's value currencies, at spending levels that cannot be sustained in any currency.

We are involved in the slow-but-accelerating-motion involuntary global restoration of sound money, which 'smart money' figured out quite some time ago. Given the size and depth of that 'ocean of irresponsibility,' and given that there are really few alternatives for the world's wealth to seek safe haven, we conclude that there is little chance that 2012 will be a year where confidence in fiat currencies increases and confidence in gold decreases. To the contrary, we are more likely still in Act I of this Greek Tragedy, in Intermission, about ready for the curtain to open for Act II.

***

Vultures (Got Gold Report Subscribers) will find much more about the gold and silver markets in our technical charts located on the password-protected subscriber pages. For this particular GGR we plan to focus on some of the indicators we track for gold, silver and the small miners and explorers we love to 'game.' We believe it is a time for cautious optimism, as we do indeed see a few tentative signs of life beginning to show.

With that brief introduction, let's pause here and move directly into the full Got Gold Report.

Got Gold Report

First things first, the Got Gold Report – the full report – is published ad hoc, as conditions change, usually about biweekly, but at least 18 times per year. Between full GGR reports we communicate more regularly on the GGR web log, which is always free and open to the public, or in our COT Flash reports, via email Special Notes and Vulture Bargain Hunter (VB Updates) reserved exclusively for subscribers. COT Flash reports appear on off weeks for the Got Gold Report when there are what we consider important changes in the commitments of traders reports which cannot wait until the next full report. VB Update offerings appear ad hoc (usually monthly) as there are developments we feel merit comment for and in the resource company issues we track closely. Email Special Notes are used sparingly, but are used to communicate issues we deem important between other offerings.

Our aim is to briefly summarize our positioning for the gold and silver markets, and to highlight a few of the dozens of indicators, ratios and graphs we keep in constant touch with. Vultures, after logging in, please see the commentary in our numerous technical charts located in their own section of the password-protected subscriber pages. We update most of the Got Gold Report linked charts each week (some holidays excepted), placing our commentary in dialog boxes in the charts themselves. Changes to the linked charts are almost always completed by 6:00 pm ET on Sunday evening (except when Monday is a holiday) and occasionally during the week as events unfold.

To continue reading, please log in or click here to subscribe to a Got Gold Report Membership.

People quietly moving their money and themselves out of the US

Posted: 15 Jan 2012 03:39 PM PST

Could you imagine paying someone to lend him money? In a normal world...if I lend you money, I want something in return. It costs money to borrow money. Can you imagine a world where I'm so desperate to lend you money that I'm willing to pay you to do it? That's the paranormal world we're living in today. Pretty unbelievable, but now it's just happened in Germany. The government auctioned off 2.9 billion euros in six-month notes.

The yields were negative. The investors paid the government to lend them their own money. This in the era of the eurozone debt crisis where people appear more concerned with the return of their money than a return on their money. But in the US, we've gotten used to this right? With the Federal Reserve keeping interest rates near zero...for speculators that means free money to go speculate...for savers, that's meant losing money to inflation as it sits in the bank.

Or if you're loaning the US government money, the interest rates have been so low, again, you're losing money to inflation. Add to this, uncertainty over bankruptcies of insolvent banks, the staggering 15 trillion dollar US debt, a government with no credible plan to tackle it, and bills signed into law that allow indefinite military detention of American citizens, and that's why a lot of the investors we talk to tell us, behind the scenes that they are looking to get the heck out of dodge. Read more....

This posting includes an audio/video/photo media file: Download Now

Financial Tyranny: Defeating the Greatest Cover-Up of All Time

Posted: 15 Jan 2012 02:53 PM PST

[Ed. Note: Many have dismissed the following as mis-info or dis-info, and frankly we've had our doubts. But given the recent mysterious deaths-by-fire of investigator David Hutlzer and his eight year old son Mackie on January 6th, our suspicions have been piqued.]

by David Wilcock, DivineCosmos.com

A 122-nation alliance is backing a lawsuit that could free the Earth from financial tyranny. This investigation reveals who the perpetrators are and what we can do to solve the problem.

JUST IN THE NICK OF TIME

2012 has begun as a year of rampant paranoia and hopelessness on the Internet and throughout mainstream media.

The economy appears to be in a dire predicament — ready to go over a cliff into an abyss few can even allow themselves to consider.

The Euro has been teetering on the brink of total collapse. A frantic bailout of the entire European Union, proposed by the Federal Reserve, has done very little to relieve the fears of the public.

On December 19th, 2011, Britain announced they will refuse to participate in this bailout — showing how tense and uncertain the situation really is.

Simultaneously, very aggressive and blatant moves are being made to start World War III in the Middle East — with imminent, ever-increasing threats from Israel and the United States to attack Iran.

Since 9/11, Americans and much of the Western world have been led to believe that the biggest enemy they face is terrorism from Islamic extremists. Nonetheless, there is now overwhelming, undeniable evidence that the true enemy… is within.

Read More @ DivineCosmos.com

Are We Really Going To Bomb Iran?

Posted: 15 Jan 2012 02:14 PM PST

Just based on national balance sheets, 2012 will be somewhere between challenging and catastrophic. But debt and deficits might be the least of our near-term problems if Jim Rickards is right. In his latest King World News interview, he lays out a compelling case for yet another war:

Iran will not be allowed to have a nuclear weapon. They're going down that path, and this is coming to a head sooner rather than later. They don't want to give up the program, so all the bargaining is a pretense. They go through the motions of negotiations but it's all to stall for time.

The Obama administration has woken up to the fact that it's time to get serious. Things are moving very quickly. Israel has integrated itself into the US and European command and there are joint US/Israel exercises; the pieces have begun to move on the chessboard.

For Israel this is existential. If Iran gets nuclear weapons they've said they'll burn Israel to the ground. So it's not just a strategic rebalancing, it's life or death. The US wants to go in first [for a variety of reasons], but there's residual distrust. How do the Israelis know that the US won't reach an accommodation with Iran and leave Israel holding the bag? All the information I have is that the US is going to do it. We'll take out their air force and command/control system, and suppress their missiles.

It is not in the US interest to see China cut off from Iranian oil, so we've cut a deal with Saudi Arabia to make up the difference. The Chinese care about the oil, not who's selling it. Russia is more interested in selling weapons, so they're approaching it as an arms dealer, selling weapons to replace the ones we destroy. They're also the biggest oil exporter and win financially if oil goes up.

This will be done with air power, sea power, financial warfare, sabotage, special operations. It's already going on: Iran's nuclear scientists are being assassinated, financial sanctions on Iranian banks are being dialed up. The Iranian currency has plunged and inflation is soaring. This is financial warfare; the cyber warfare has been well-advertised.

The Iranians do have a few tricks up their sleeves, including submarines and speedboats. There will be casualties and the US will lose at least one vessel. Still, it'll go fairly quickly and the US is counting on the Iranian people to rise up against the regime once the war begins.

It'll take oil to $200 and gold past $2,000. We'll see a general flight to safety and quality and a lot of volatility in the stock market.

Some thoughts
Rickards is analyzing and predicting, not advocating, so don't blame the messenger. His scenario is consistent with what Israeli leaders have been saying for years and more recently with the movement of US warships to the region. Something big does seem to be coming.

For more details see this excellent report by Chris Martenson.

In one sense this latest war is, if not right, at least understandable. A fight is clearly brewing and the US wants to both protect a valued ally and keep the oil flowing.* But in another sense it's absurd. Multiple simultaneous wars are for solvent superpowers with sound currencies and flexible finances, and the US no longer qualifies. Our military is overextended and exhausted and this year Washington will borrow its defense budget from China, add another trillion to the official national debt and maybe three trillion to unfunded liabilities and other off-balance-sheet but very real obligations.

Austrian economics — and common sense — teach that the more leveraged the system the less able it is to withstand external shocks. And war in the Middle East sending oil to $200 would be the mother of all external shocks.

$8-a-gallon gas would be like a gigantic tax increase, shifting the global economy back into reverse and preventing the peripheral Euro-zone countries, Japan and the US from getting their borrowing under control. Who will buy the extra trillion or so dollars of sovereign debt? The world's central banks, obviously, so the printing presses will run flat-out for the rest of the decade.

The secondary effects are harder to predict but far scarier. The global financial system is hiding trillions of dollars of bad loans and nearly a quadrillion dollars of derivatives, which is another way of saying the developed world's biggest banks are ready to evaporate. Will the Fed and ECB be able to stop that avalanche when it comes? Who knows? It looks like we're back at square one in the inflation/deflation argument.

* In response to some well-founded criticism (thanks guys), a reference in this paragraph to "crazies with nuclear weapons" was replaced with something less offensive and hopefully more accurate.

Long-Term Charts for a Long-Term Weekend

Posted: 15 Jan 2012 02:03 PM PST

from TFMetalsReport.com:

First of all, I want to thank everyone for their condolences and well wishes for my pal, Sweetness. He's had a tough go of it recently and every bit of encouragement helps.

With the U.S. markets closed tomorrow, we all have to be on the lookout for some Cartel Craziness between now and Tuesday morning. The Jackals have been utilizing some of these three-day weekends recently to wreak havoc on our precious metals so be on the lookout for all types of shenanigans, especially in light of the European credit downgrades that were announced late Friday.

Let's head straight to the weekly charts. First up, as usual, is gold. Note that gold remains firmly entrenched in its long-term UP channel. This is the trend that began at the onset of QE back in 2008 and it continues to this day. Knowing this, can you see why I hold fools such as Gartman in such low regard? To proclaim "the bull market in gold is over" when gold is still so clearly in its channel is either complete foolishness or stupidity. Into which camp Gartman and his ilk fall, I'll let you decide.

Read More @ TFMetalsReport.com

World Food Association Has Enormous Amounts of Gold Bullion

Posted: 15 Jan 2012 02:02 PM PST

[Ed. Note: Thanks to our pal ACB for bringing this interesting story to our attention. One must wonder what the real story is here. "Recently, an investor donated five tons of gold bullion to the company," the article states. ]

from PRWeb.com:

[This is a picture of their actual gold holdings.]

World Food Association has a massive amount of Gold Bullion. The Company has been trading future crop rights in exchange for Bullion. World Food has exclusive rights to the Gold Bullion. World Food is currently selling the gold in Zurich, Switzerland to qualified parties.

World Food Organization has recently finalized a contract for fifty tons of gold bullion trading. World Food Association Organization has long been in the business of gold trading. However this contract is significant because World Food now represents the interest of some of the largest gold bullion traders worldwide. World Food founded the company Agrigolden LTD. to support its excavation of gold from Ghana, Mali, Togo and Cameroon. The normal capacity for World Food has been limited to 200 kilograms of Dore bars monthly from more than 300 mines throughout West Africa.

Mr. Henry Ford, Public Relations manager for World Food Organization and a Director of Agrigolden Ltd., stated, "Often times novice gold brokers speak of trading huge amounts of gold but have absolutely no experience in the gold markets. It takes excavating two-three tons of earth to mine one ounce of gold and people that state they have 3,000 kilograms of raw dust, Dore bars and mined gold just isn't feasible." Mr. Ford went on to say, "Any company that represents they can buy or sell Gold for greater than 3% to non-registered company is usually advertising a false claim. Gold is not hard to sell. Any person or company can sell at full market value minus 1% so there simply is not need to offer such discounts."

Read More @ PRWeb.com

Michael Pento: US to Default, Crushing Dollar & Creating Gold Explosion

Posted: 15 Jan 2012 01:53 PM PST

from King World News:

Michael Pento continues: Read More @ KingWorldNews.com

Stocks Open Down As EURJPY Hits Fresh 11-Year Low

Posted: 15 Jan 2012 12:05 PM PST

Following EURUSD's modestly weak opening (though managing to hold above Friday's lows and inching higher), EURJPY has pushed to fresh new 11-year lows (and JGB yields at one-year lows). Asian equities are trading notably lower with Japan's Nikkei down 1.6% in early going (coming back a little now) and South Korea's Kospi down 1.1% so far. ES (the e-mini S&P 500 futures contract) opened lower, tried to get back up to Friday's close, failed and is now down around 6pts (at 1285) - still shy of where broad risk assets (CONTEXT) would expect - around 1280 for now - though AUD strength (housing data not totally dire), JPY weakness (government comments on the flatness expected in Japan's recovery) and Treasuries not open is maintaining some support for stock futures so far. The economically-sensitive commodities are leaking lower with Silver having given back its earlier gains and Copper down 0.75%, Oil is holding near $99 and Gold is down a smidge (and more stable than the rest) at -0.23% ($1635).

JPY is underperforming and AUD outperforming as EUR stabilizes modestly. The rotation from JPY to EUR as carry-currency of choice continues we suspect and the macro news is not helping tonight either.

Credit markets are only open in Asia and JGBs are rallying - back to one-year lows (as corporate credit indices leak wider ITRX AUS +5bps, ITRX Japan +4bps, ITRX Asia +7bps). US equity futures are losing ground from the after-hours ramp on Friday and CONTEXT (our broad risk asset proxy) is pulling lower (though stabilizing) as carry FX is down( though EURJPY vs AUDJPY is more balanced) and commodities are weighing modestly. With Treasuries not open, we will likely see correlation drop a little as the credit stabilizer is not there, though post Europe's close on Friday, ES and CONTEXT have been increasingly correlated.

Charts: Bloomberg and Capital Context

Barron, Haynes, Norcini, and Rickards at King World News

Posted: 15 Jan 2012 07:08 AM PST

3:07p ET Sunday, January 15, 2012

Dear Friend of GATA and Gold (and Silver):

Mining entrepreneur Keith Barron tells King World News that there's no bubble in gold because the public isn't buying but he thinks that one big order for real metal could blow up the paper markets. An excerpt from the interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/13_Ba...

Also at King World News, Bill Haynes of CMI Gold and Silver and futures market analyst Dan Norcini provide the weekly precious metals review via audio here:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/1/14_KWN_W...

And full audio of the most recent KWN interview with geopolitical analyst James G. Rickards has been posted and shouldn't be missed. It's here:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/1/14_Jim_R...

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

ADVERTISEMENT

Be Part of a Chance to Discover
Multi-Million-Ounce Gold and Silver Deposits in Canada

Northaven Resources Corp. (TSX-V:NTV) is advancing five gold and silver projects in highly prospective and politically stable British Columbia, Canada.

Check out the exploration program on our Allco gold/silver project :

-- A large (13,000 hectare) property, covering more than 15 square kilometers of a regional mineralized trend just 3km from a recently announced 1.2-million-ounce gold and 15-million-ounce silver deposit.

-- The property hosts historic high-grade silver workings and many mineral showings as well as former mines at the property's northern and southern boundaries.

-- A deep-penetrating airborne geophysics survey has just been completed on the entire property and neighboring deposits and its results are eagerly awaited.

To learn more about the Allco property or Northaven's other gold and silver projects, please visit:

http://www.northavenresources.com

Or call Northaven CEO Allen Leschert at 604-696-3600.

Join GATA here:

Vancouver Resource Investment Conference
Sunday-Monday, January 22-23, 2012
Vancouver Convention Centre West
Vancouver, British Columbia, Canada

http://cambridgehouse.com/conference-details/vancouver-resource-investme...

California Investment Conference
Saturday-Sunday, February 11-12, 2012
Hyatt Grand Champions Resort
Indian Wells, California, USA

http://cambridgehouse.com/conference-details/california-investment-confe...

Support GATA by purchasing a silver commemorative coin:

https://www.amsterdamgold.eu/gata/index.asp?BiD=12

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

http://www.goldrush21.com/

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

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Golden Phoenix Receives Inferred Gold Resource Estimate
For Santa Rosa Mine in Panama: 669,000 Oz. Gold, 2.1 Million Oz. Silver

Company Press Release
January 3, 2012

Golden Phoenix Minerals Inc. (OTC: GPXM) reports that on behalf of Golden Phoenix Panama S.A., the joint venture entity that owns and operates the Santa Rosa gold mine in Panama, it has received from SRK Consulting (U.S.) an initial resource estimate for Mina Santa Rosa.

The Santa Rosa project is a volcanic-hosted epithermal gold-silver deposit previously operated as an open pit-heap leach operation. Production ceased in 1999 in part because of low gold prices.

SRK Consulting reports an in-situ inferred resource at the former Santa Rosa and ADLM pits totaling 23.1 million metric tonnes at 0.90 grams/tonne gold, for a contained 669,000 ounces of gold at a 0.30 g/t gold cutoff. The resource also contains an average grade of 2.87 g/t silver for a contained 2.1 million ounces of silver.

John Bolanos, Golden Phoenix's vice president of exploration, remarks: "In addition to SRK's inferred resource estimate of 669,000 contained ounces of
gold, the Santa Rosa project has an additional unspecified volume of mineralized material on former heap leach pads throughout the property. We expect to begin assessing this additional material in the near future."

For the company's full statement, including a table detailing the resources at Santa Rose, please visit:

http://goldenphoenix.us/press-release/golden-phoenix-receives-initial-ni...

New York Sun: Secrets of the Fed

Posted: 15 Jan 2012 06:03 AM PST

2p ET Sunday, January 15, 2012

Dear Friend of GATA and Gold:

The Federal Reserve should simply shut up, The New York Sun editorializes today, and be judged by its performance rather than its words, such as those of the transcripts of the Federal Open Market Committee, made public five years late. But of course the Fed will be neither shutting up nor coming clean -- allowing access to any meaningful documentation, and certainly not on a contemporaneous basis, as GATA's recent federal lawsuit demonstrated (http://www.gata.org/node/9917) -- because it sees propagandizing the markets as a big part of its market-manipulating work. The Sun's editorial is headlined "Secrets of the Fed" and it's posted here:

http://www.nysun.com/editorials/secrets-of-the-fed/87654/

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

ADVERTISEMENT

Prophecy Drills 384.9 Meters Grading 0.623 g/t PGM+Au,
0.3% Ni, 0.15% Cu (0.45% NiEq) From Surface At Yukon Wellgreen Project

Company Press Release
Thursday, December 8, 2011

VANCOUVER, British Columbia -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) has announced the final drill results from 2011 drilling at the company's fully owned Wellgreen platinum group metals, nickel, and copper project in the Yukon Territory.

Borehole WS11-192 intercepted 384.9 meters of 0.45 percent nickel equivalent starting from 9.45 meters depth. Included in this greater interval of continuous mineralization is a platinum group metals-rich zone with a combined platinum-palladium-gold grade of 1.358 grams per ton over 19.23 meters (nickel equivalent 0.74%).

The final drilling results for 2011 have shown the Wellgreen Central-East and Central-West deposits to be one contiguous body, whereby there is good potential to broaden significantly the Central-West resource base, which currently contributes only about a quarter of the current 43-101 compliant resource at Wellgreen. Overall the drilling program met with good success in expanding the resource to the east and south. The long drill intercepts suggest the deposit remains very much open in those directions.

For the complete drilling results and the full company statement, please visit:

http://prophecyplat.com/news_2011_dec08_prophecy_platinum_wellgreen_dril...

Join GATA here:

Vancouver Resource Investment Conference
Sunday-Monday, January 22-23, 2012
Vancouver Convention Centre West
Vancouver, British Columbia, Canada

http://cambridgehouse.com/conference-details/vancouver-resource-investme...

California Investment Conference
Saturday-Sunday, February 11-12, 2012
Hyatt Grand Champions Resort
Indian Wells, California, USA

http://cambridgehouse.com/conference-details/california-investment-confe...

Support GATA by purchasing gold and silver commemorative coins:

https://www.amsterdamgold.eu/gata/index.asp?BiD=12

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

http://www.goldrush21.com/

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

ADVERTISEMENT

Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

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

http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf

Proof of coordinated manipulation in the paper bullion market

Posted: 15 Jan 2012 05:36 AM PST

Overnight Long/Intraday Short Gold Fund More Than Doubles In Just Over A Year: Generates 43% Annualized Return

More traders notice gold's regularly counterintuitive behavior

Posted: 15 Jan 2012 05:34 AM PST

1:30p ET Sunday, January 15, 2012

Dear Friend of GATA and Gold:

"The more gold rises overnight in essentially Asian markets," Douglas wrote a year and a half ago, "the more it is sold down into the PM fix. This was exactly the modus operandum of the London Gold Pool but now it is being done covertly."

The Kirtleys comment: "A hypothetical gold investment fund starting with $100 million in 2001, and using it to buy gold at the AM fix and sell it at the PM fix, would now be left with just $31 million, almost a 70 percent loss in just under 10 years. Over the same time period gold prices have risen over 590 percent. From this we can infer that in fact it was possible to make money shorting gold every day for the last decade or so. If a hedge fund or even an individual trader were to have sold gold at the AM fix and covered that short position at the PM fix, for each day of this terrific bull-market run in gold, that fund would have almost tripled its starting capital."

GATA's explanation for this is well known. If those who deny the possibility of gold market manipulation have an explanation for it apart from mere coincidence, we'd love to hear it.

The Kirtleys' commentary is headlined "Revisiting Our Proposal for an Overnight Gold Fund" and it's posted at their other Internet site, Silver-Prices.net, here:

http://www.silver-prices.net/home/revisiting-our-proposal-for-an-overnig...

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

The 50 Year Gold & Silver Plan - Walter Burien

Posted: 15 Jan 2012 04:24 AM PST

Dr Deagle Show - Walter Burien - The 50 Year Gold...

[[ This is a content summary only. Visit my website http://goldbasics.blogspot.com for full Content ]]

This posting includes an audio/video/photo media file: Download Now

Oil, Dollar Hegemony and Islam

Posted: 15 Jan 2012 04:00 AM PST

Francis A. Boyle writes: Little has changed in the imperialist tendencies of American foreign policy since the founding of the United States of America in seventeen eighty-nine. The fledgling United States opened the nineteenth century by stealing the continent of North America from the Indians, while in the process ethnically cleansing them and then finally deporting the pitiful few survivors by means of death marches (a la Bataan) to Bantustans, which in America we call reservations, as in instance of America's manifest destiny to rule the world.

Revisiting Our Proposal for an Overnight Gold Fund

Posted: 15 Jan 2012 03:42 AM PST

In August 2010 we wrote an article entitled “Proposing An Overnight Gold Fund” in which we explored the potential for launching a fund that held long positions in gold overnight and was short gold during the day. We pointed out that “a hedge fund starting in 2001 with $100m, with the strategy of being long gold from the PM to AM fix, and short gold from the AM to PM fix...would be worth $2.16billion today, before any fees and expenses.” We have been monitoring this trading strategy since then and therefore would like to take this opportunity to update readers on its astonishing progress.

The cause of this recession? Economic pundits ignoring history's voice

Posted: 15 Jan 2012 03:02 AM PST

As long as factional interests like bankers or economists override common sense, there will be another crash
The Queen, reported the Daily Mail, was wearing a speckled cream suit and matching hat. Her Majesty was at the London School of Economics, listening to a professor, Luis Garicano, talk about the credit crunch. "It's awful," she said suddenly. "Why did nobody see it coming?"

For three years I have pondered the Queen's question, and the answer. (LSE was institutionally flummoxed; a year later, it gave her a waffly reply, that "everyone thought they were doing the right thing," and that "wishful thinking was combined with hubris".) It resurfaced last Tuesday with the publication of the Financial Services Authority report into its own conduct of the 2008 collapse of RBS and the attendant chaos. It is like expecting the Cosa Nostra to investigate the mafia. We are all sinners, ruminated the FSA, and need forgiveness, but no one was really to blame. It is a rough old world. Read more.....

This posting includes an audio/video/photo media file: Download Now

Money & Markets – Week of 1.15.12

Posted: 15 Jan 2012 03:00 AM PST

Jamie's Fightin' Words JPMorgan Chief Slams Feds After 23% profit Drop
The New York Post (15 Jan 12)

Der Verkauf Ist Verboten – Germany Considers Ban On Sovereign Bond Sales
Zero Hedge (14 Jan 12)

The $U.S. Dollar Centric Derivatives Complex: Progenitor of Parasitic, Ponzi Price-Fixing
[...]

Precious Metals – Week of 1.15.12

Posted: 15 Jan 2012 02:45 AM PST

Steve St. Angelo: Silver Coin Production in U.S., Canada Exceeds Mine Output
GATA (14 Jan 12)

The US Government Is Bankrupt

Posted: 15 Jan 2012 01:28 AM PST

Everyone knows that the US government is bankrupt and has been for many years. But I thought it might be instructive to see what its current cash-flow situation actually is. At least insofar as it's possible to get a clear picture.

As you know, the so-called Super Committee recently tried to come up with a plan to cut the deficit by $1.5 trillion and failed completely. To anyone who understands the nature of the political process, the failure was, of course, as predictable as it was shameful. What's even more shameful, though, is that the sought-after $1.5 trillion cut wasn't meant to apply to the annual budget but to the total budget of the next 10 years – a fact that is rarely mentioned.

Now whenever the chattering classes talk about cuts, it's always about cuts over the course of 10 years. Which is a dodge, partly because most of the supposed cuts will be scheduled for the end of the period, but also because new programs, new emergencies and hidden contingencies will creep in to offset any announced cuts. So the numbers below aren't a worst case; they're the rosiest possible scenario. People have thought I was joking when, asked how bad the Greater Depression was going to be, I answered that it would be worse than even I thought it would be. But I haven't been joking.

To sum up the situation, given its financial condition and the political forces working to worsen it, the US government is facing a completely impossible and irremediable situation. I'm going to try to illustrate that here. But because I'm a perpetual optimist, not a gloom-and-doomer, I'm also going to give you solutions to the purely financial problems – albeit with some good news and some bad news. The good news is, there actually are solutions. The bad news is that there is zero chance that any of them will be put into effect.

The problems are one hundred percent caused by the US government, not by bankers, brokers or the real estate industry – although they have been complicit. Recall what government is: an organization with a monopoly of force within a certain geographical area. Its purpose is, ostensibly, to protect the inhabitants of its bailiwick from the initiation of force. That implies three functions: an army to protect against aggressors coming from outside of its borders; police to protect citizens from aggressors inside its borders; and a court system to allow citizens to adjudicate disputes without resorting to force. Assuming you're going to have a government, it's important to limit it strictly, lest it get completely out of control – it's got a monopoly of force, after all – and overwhelm the society it's supposed to protect.

Here I want you to distinguish government from society. They are not only two totally different things, but are potentially antithetical to each other. This is because the essence of government is force, not voluntary cooperation. Everything that people think the government provides (beyond some forms of protection) is really provided by society or with resources the government has taken from society. It's critical to understand this, or you won't see the slippery slope the US is now sliding on.

Is there any chance that the US government can reform and go back to a sustainable basis at this point? I'd say no. Its descent started in earnest with the Spanish-American War in 1898, when it acquired its first foreign possessions (Cuba, the Philippines, Puerto Rico, etc). It accelerated with the advent of the income tax and the Federal Reserve in 1913. It accelerated further with World War I, when the government took over the economy for 18 months. The New Deal and World War II made the state into a permanent major feature in the average American's life. The Great Society made free food, housing and medical care a feature. The final elimination of any link of the dollar to gold in 1971 ensured ever-increasing levels of currency inflation. The Cold War and a series of undeclared wars (Korea, Viet Nam, Afghanistan and Iraq) cemented the military in place as a permanent focus of the government. And since 9/11, the curve has gone hyperbolic with the War on Terror. It's been said that war is the health of the state. We have lots more war on the way, and that will expand the state's spending. But the Greater Depression will be an even bigger drain, and it will likely destroy the middle class as an unwelcome bonus.

In all that time, from 1898 to today, there have been no substantial retrenchments of the US government, and the situation is getting worse, on a hyperbolic curve. Trends in motion tend to stay in motion until a genuine crisis changes them, and this trend has been gaining momentum for over a century.

Let's divide people into three classes – rich, poor and middle class. Rich people are going to be okay. They can bribe the politicians to change the laws, hire the lawyers to interpret the laws, the accountants to limit their liabilities, advisors to help them profit from distortions and travel agents to get them out of Dodge. They may get eaten later, but for the moment, don't worry about them.

The poor don't have much to lose, and the government is going to keep throwing benefits at them to keep them happy. That's a shame because it cements them to the bottom as poor people – but that's a topic for another day.

The real danger is to the middle class, and it's a serious matter because the US is a middle-class society. These are people who try to produce more than they consume and save the difference in order to grow wealthier. That formula has worked well up to now – but almost everybody saves dollars. What happens, however, if the dollars are destroyed? It means that most of what they saved disappears, and most of the middle class will disappear with it, at least for that generation. They'll be very unhappy, and they'll be up for some serious changes. I'll come back to those later.

Continue

Save Your ASSets First

Monday, January 16, 2012

Gold World News Flash

Gold World News Flash

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