Gold World News Flash |
- Mining CEO McEwen cites GATA's work on Bloomberg TV
- A Gold Standard?
- Check Out This Interactive Map & Information on the 22 Countries of Eastern Europe
- The Truth About the Spanish Banking System That 99% of Analysts Fail to Grasp
- Guest Post: Gold's Value Today
- Escape from the US Dollar: Russia and China create $4 billion investment fund
- Greeks boycotted paying energy bills, now they're getting a bailout. (Now they understand how the game is played).
- Gold Bull's Long Term Trendline - The Indispensable Chart
- First Real Greek Bailout: Electricity
- The Office of Unintended Consequences
- USAGOLD-TV Video
- Guest Post: Wealth Inequality – Spitznagel Gets It, Krugman Doesn’t
- Are You a Gold Guru? Take This Quiz & Find Out
- Mad Cow Futures and Silver Fundamentals
- Dismal Gold and Silver Market Sentiment — Just What Dr. Bernanke Ordered
- Invest in Africa Gold Stocks Now
- Snoozing is Losing
- Europe's Other "Union" Is Ending
- Gold COT (CFTC - Commitment of Traders) for Period 4/18-4/24
- Silver COT (CFTC - Commitment of Traders) for Period 4/18-4/24
- This Past Week in Gold
- Silver in a Depopulated World: How a New World Order of 1.5 Billion People Might Affect the Silver Price
- Comex Silver Inventories - Bullion Banks To the Rescue
- What is good for the corn market is good for gold
- Raw Silver Analysis: How Much Silver Do we Actually Have Above Ground Vs. Gold?
- Who Pays More For Your Gold, A Pawn Shop Or Jewelry Store?
- Silver Doc: Gold To Silver Ratio Could Hit 5 to 1
- Spain's Collapse Is No Little Thing
- How Much Money Do You Need to Realistically Recreate Scrooge McDuck's ‘Gold Coin Swim’?
| Mining CEO McEwen cites GATA's work on Bloomberg TV Posted: 29 Apr 2012 04:00 AM PDT In its struggle against the gold price suppression scheme and surreptitious market rigging by governments generally, GATA long has failed to win support from major gold and silver mining companies, despite our frequent solicitation, perhaps because mining companies are so vulnerable to the scheme's instigators -- governments, which control mining licenses, royalty requirements, and environmental regulations -- and to the scheme's agents and profiteers -- big investment houses, which control mine finance, mining being the most capital-intensive industry.
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| Posted: 29 Apr 2012 03:00 AM PDT There are times, my friends Michael Lewitt and Dr. Lacy Hunt agreed today at lunch, when the study of economics is best informed by a sound knowledge of history. Indeed, Michael's son wants to follow his father into the finance world, and Michael is starting him off in history. I have spent hours listening to Lacy stroll through economic history, detailing the path of economic thought from Fisher to Kindleberger to Minsky. The last few days have been one of those times when I realized how much I don't know and how much more there is to learn.
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| Check Out This Interactive Map & Information on the 22 Countries of Eastern Europe Posted: 28 Apr 2012 02:55 PM PDT Below is an interactive map of the 22 countries that make up Eastern Europe providing a snapshot of, and interesting facts about, each of the counties. If you want a fast and interesting geography lesson then this is it! *So says an introduction to the interactive map (see [COLOR=#0000ff]here)*from U.S. Global Investors ([url]www.usfunds.com[/url])[/COLOR] which www.munKNEE.com (Your Key to making Money!) is proud to present in its ongoing endeavour to bring its readers the most informative articles/infographics in as concise a manner as possible . This paragraph must be included in any article re-posting to avoid copyright infringement. The introduction goes on to say: The Eastern European region is filled with many unique cultures and histories. Since the collapse of the Soviet Union some 30 years ago, the countries of this region have labored, struggled and fought to establish their own political and economic identities. The region is resource-rich but in need of the necessary in...
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| The Truth About the Spanish Banking System That 99% of Analysts Fail to Grasp Posted: 28 Apr 2012 02:25 PM PDT
Spain is a catastrophe on such a level that few analysts even grasp it.
Indeed, to fully understand just why Spain is such a catastrophe, we need to understand Spain in the context of both the EU and the global financial system.
The headline economic data points for Spain are the following:
On the surface, Spain’s debt load and deficits aren’t too bad. So we have to ask ourselves, “Why is unemployment so high and why are Spanish ten year bills approaching the dreaded 7%?” (the level at which Greece and Portugal began requesting bailouts).
The answer to these questions lies within the dirty details of Spain’s economic “boom” of the 2000s as well as its banking system.
For starters, the Spanish economic boom was a housing bubble fueled by Spain lowering its interest rates in order to enter the EU, not organic economic growth.
Moreover, Spain’s wasn’t just any old housing bubble; it was a mountain of a property bubble (blue line below) that made the US’s (gray line below) look like a small hill in comparison.
In the US during the boom years, it was common to hear of people quitting their day jobs to go into real estate. In Spain the boom was so dramatic that students actually dropped out of school to work in the real estate sector (hence the sky high unemployment rates for Spanish youth).
Spanish students weren’t the only ones going into real estate. Between 2000 and 2008, the Spanish population grew from 40 million to 45 million (a whopping 12%) as immigrants flocked to the country to get in on the boom. In fact, from 1999 to 2007, the Spanish economy accounted for more than ONE THIRD of all employment growth in the EU.
This is Spain, with a population of just 46 million, accounting for OVER ONE THIRD of the employment growth for a region of 490 million people.
This, in of itself, set Spain up for a housing bust/ banking Crisis worse than that which the US faced/continues to face. Indeed, even the headline banking data points for Spain are staggeringly bad:
As bad as these numbers are, they greatly underestimate just how ugly Spain’s banking system is. The reason for this is due to the structure of the Spanish banking industry.
Spain’s banking system is split into two tiers: the large banks (Santander, BBVA) and the smaller, more territorial cajas.
The caja system dates back to the 19th century. Cajas at that time were meant to be almost akin to village or rural financial centers. As a result of this, the Spanish country is virtually saturated with them: there is approximately one caja branch for every 1,900 people in Spain. In comparison there is one bank branch for every 3,130 people in the US and one bank branch for every 6,200 people in the UK.
Now comes the bad part…
Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.
As one would expect, during the Spanish property boom, the cajas went nuts lending to property developers. They also found a second rapidly growing group of borrowers in the form of Spanish young adults who took advantage of new low interest rates to start buying property (prior to the housing boom, traditionally Spanish young adults lived with their parents until marriage).
In simple terms, from 2000 to 2007, the cajas were essentially an unregulated banking system that leant out money to anyone who wanted to build or buy property in Spain.
Things only got worse after the Spanish property bubble peaked in 2007. At a time when the larger Spanish banks such as Santander and BBVA read the writing on the wall and began slowing the pace of their mortgage lending, the cajas went “all in” on the housing market, offering loans to pretty much anyone with a pulse.
To give you an idea of how out of control things got in Spain, consider that in 1998, Spanish Mortgage Debt to GDP ratio was just 23% or so. By 2009 it had more than tripled to nearly 70% of GDP. By way of contrast, over the same time period, the US Mortgage Debt to GDP ratio rose from 50% to 90%. Like I wrote before, Spain’s property bubble dwarfed the US’s in relative terms.
The cajas went so crazy lending money post-2007 that by 2009 they owned 56% of all Spanish mortgages. Put another way, over HALF of the Spanish housing bubble was funded by an unregulated banking system that was lending to anyone with a pulse who could sign a contract.
Indeed, these banks became so garbage laden that a full 20% of their assets were comprised of loan payments being made by property developers. Mind, you, I’m not referring to the loans themselves (the mortgages); I’m referring to loan payments: the money developers were sending in to the banks.
To try and put this into perspective, imagine if Bank of America suddenly announced that 20% of its “assets” were payments being sent in by borrowers to cover mortgage debts. Not Treasuries, not mortgages, not loans… but payments being sent in to the bank on loans and mortgages.
This is the REAL problem with Spain’s banking system. It’s saturated with subprime and sub-subprime loans that were made during one of the biggest housing bubbles in the last 30 years.
Indeed, to give you an idea of how bad things are with the cajas, consider that in February 2011 the Spanish Government implemented legislation demanding all Spanish banks have equity equal to 8% of their “risk-weighted assets.” Those banks that failed to meet this requirement had to either merge with larger banks or face partial nationalization.
The deadline for meeting this capital request was September 2011. Between February 2011 and September 2011, the number of cajas has in Spain has dropped from 45 to 17.
Put another way, over 60% of cajas could not meet the capital requirements of having equity equal to just 8% of their risk-weighted assets. As a result, 28 toxic caja balance sheets have been merged with other (likely equally troubled) banks or have been shifted onto the public’s balance sheet via partial nationalization.
On that note, I fully believe the EU in its current form is in its final chapters. Whether it’s through Spain imploding or Germany ultimately pulling out of the Euro, we’ve now reached the point of no return: the problems facing the EU (Spain and Italy) are too large to be bailed out. There simply aren’t any funds or entities large enough to handle these issues.
So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.
This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com
Good Investing!
Graham Summers
PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.
And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com
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| Guest Post: Gold's Value Today Posted: 28 Apr 2012 02:14 PM PDT Via John Aziz of Azizonomics,
Way back in 2009, I remember fielding all manner of questions from people wanting to invest in gold, having seen it spike from its turn-of-the-millennium slump, and worried about the state of the wider financial economy. A whole swathe of those were from people wanting to invest in exchange traded funds (ETFs). I always and without exception slammed the notion of a gold ETF as being outstandingly awful, and solely for investors who didn't really understand the modern case for gold — those who believed that gold was a "commodity" with the potential to "do well" in the coming years. People who wanted to push dollars in, and get more dollars out some years later. 2009 was the year when gold ETFs really broke into the mass consciousness:
Yet by 2011 the market had collapsed: people were buying much, much larger quantities of physical bullion and coins, but the popularity of ETFs had greatly slumped. This is even clearer when the ETF market is expressed as a percentage of the physical market. While in 2009 ETFs looked poised to overtake the market in physical bullion and coins, by 2011 they constituted merely a tenth of the physical market:
So what does this say about gold? I think it is shouting and screaming one thing: the people are slowly and subtly waking up to gold's true role. Gold is not just a store of value; it is not just a unit of account; and it is not just a medium of exchange. It is all of those things, but so are dollars, yen and renminbei. Physical precious metals (but especially gold) are the only liquid assets with negligible counter-party risk. What is counter-party risk? As I wrote in December:
Or as Zhang Jianhua of the People's Bank of China put it:
So the key difference between physical metal and an ETF product is that an ETF product has counter-party risk. Its custodian could pull a Corzine and run off with your assets. They could be swallowed up by another shadow banking or derivatives collapse. And some ETFs are not even holding any gold at all; they may just be taking your money and buying futures. Unless you read all of the small-print, and then have the ability to comprehensively audit the custodian, you just don't know. With gold in your vault or your basement you know what you're getting. There are other risks, of course — the largest being robbery, alongside the small danger of being sold fake (tungsten-lined) bullion. But the hyper-fragility of the modern banking system, the debt overhang, and the speculative and arbitrage bubbles don't threaten to wipe you out. Paper was only ever as good as the person making the promise. But increasingly in this hyper-connected world, paper is only ever as good as the people who owe money to the person making the promise. As we saw in 2008, the innovations of shadow banking and the derivatives system intermesh the balance sheets of companies to a never-before-seen extent. This often means that one failure (like that of Lehman brothers) can trigger a cascade that threatens the entire system. If you're lucky you'll get a government bailout, or a payout from a bankruptcy court, but there's no guarantee of that. Physical gold sits undaunted, solid as a rock, retaining its purchasing power, immune to counter-party risk. I think more and more investors — as well as central banks, particularly the People's Bank of China — are comprehending that reality and demanding the real deal.
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| Escape from the US Dollar: Russia and China create $4 billion investment fund Posted: 28 Apr 2012 02:11 PM PDT
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| Posted: 28 Apr 2012 01:46 PM PDT Greece gives emergency cash to avert energy meltdown
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| Gold Bull's Long Term Trendline - The Indispensable Chart Posted: 28 Apr 2012 12:45 PM PDT |
| First Real Greek Bailout: Electricity Posted: 28 Apr 2012 12:35 PM PDT While Greece has had its fair-share of EURs funneled to it and through it over the course of the last year or two, it appears they have now created their first 'internal' bailout as things go from bad to worse. As Athens News reports, Greece will provide EUR250mm in emergency funds to its ailing electricity providers to prevent a California-style energy crisis. This liquidity injection to the country's power utlities was yet another unintended consequence of government intervention action. An increasing number of consumers stopped paying their electricity bills following the TROIKA's Greek government's infliction of EUR1.7bn property taxation via the electricity providers. The main power utility PPC had a liquidity hole blown through it as non-payments mounted and while regulators claimed the system needed at least EUR350mm to stay afloat, the government has agreed to allow PPC to hold EUR250mm of the property tax it has collected on behalf of the state until June 30 - by which time, it is hoped the utility will have managed to secure other lending facilities. Quite an incredible move - to force the electricity provider to gather the property taxes - and while this attempt clearly failed we suspect the next move will be food-and-water-rationing without proof of tax payment.
Greece gives emergency cash to avert energy meltdown
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| The Office of Unintended Consequences Posted: 28 Apr 2012 11:52 AM PDT As many of you already know, I have always appreciated the analysis of James Grant. He not only knows how to analyze an economic scenario, any economic scenario, he also knows how to turn a phrase – a potent combination. By some means, and I don't know how it came to be, he was asked to address the New York Federal Reserve and offer his critique of the institution. The link provided below yields the result. Grant is Ron Paul's choice to become head of the Federal Reserve should Paul ever become president of the United States – an occasion that seems increasingly removed from the realm of possibility, though one cannot rule out the possibility of a third party run. In this speech, Grant mentions a couple of the changes he would make if he were to become chairman of the Fed. The one proposal that sticks in the mind is that he would establish the Fed's first Office of Unintended Consequences – and what a busy place it would be. I was interested to see James Sinclair's assessment of Fed policy since the 2008 financial crisis in his interview with Futures magazine. In it he said that we should not blame chairman Ben Bernanke for flooding the economy with money in the wake of the events of late 2008, early 2009. "Anybody who says Bernanke is a dope or didn't react properly is a fool. He did what he had to do," says Sinclair. I go along with him on that, but just the same, our collective economic futures might be the first casualty to be dragged before Grant's Office of Unintended Consequences. People are surprised when I tell them I could live with or without a gold standard. What Greece, Spain and the rest are experiencing right now is akin to what would happen to the United States if it were to return to the true gold standard. Iceland has its own currency and with it printing rights – something of which it has availed itself. Greece does not. Iceland is coming back. Greece is sinking further. As long as individuals can own gold and put themselves on the gold standard, so to speak, that is all most of us really need. After all, it's not like waving a magic golden wand: Put the country on the gold standard and all our problems vanish. Now there is much talk of a return to the gold standard, and most people say that this should make me feel vindicated. At the same time, though I believe the standard has its advantages, it also has its drawbacks. As for the printing of paper money, like most other outcomes, it too has its unintended consequences – read inflation – even if you dress the policy up, as Grant puts it, "under the frosted-glass term 'quantitative easing.'" In lieu of printing money when the situation calls for it, we are likely to experience an economic depression should the economy go to pieces. We live in an imperfect world, full of unintended, and totally unforeseen consequences — even by the greatest minds among us. Isaac Newton, one of the greatest scientists to ever live, lost the equivalent of $1 million when the South Seas bubble burst in 1720. John Maynard Keynes, the leading economist of his times and advisor to prime ministers and presidents, lost a fortune in the crash of '29. There are other examples, but I will stop with the two. Perhaps that is why I remained a gold broker and advocate most of my adult life. My advocacy however does not stretch to the political realm. It stays strictly at the level of individual action. In short, I believe the best remedy for our periodic plunges into economic misery, be they inflationary or deflationary, comes in the form of gold coins and bullion – the most reliable palliative to the human economic condition. At any rate, here is the link to James Grant's extraordinary speech titled "Piece of My Mind." Mr. Grant advocates the gold standard. My apologies if it has been posted before. ____________ Address your comments, questions and analysis to: For further posting to this page. I look forward to hearing from you. MK
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| Posted: 28 Apr 2012 10:14 AM PDT I just finished watching the latest USAGOLD-TV Video Roundtable and it offers something very special to our current and prospective clientele: A look at current events from the gold perspective and that is something you cannot readily find elsewhere. This video makes the case that we might very well be at a watershed for the price after a long period of consolidation. This year, we might be in for some fireworks later this spring and during the usually quiet summer months. Find out why here . . . . . . MK
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| Guest Post: Wealth Inequality – Spitznagel Gets It, Krugman Doesn’t Posted: 28 Apr 2012 09:42 AM PDT Submitted by Pater Tenebrarum of Acting Man Wealth Inequality – Spitznagel Gets It, Krugman Doesn't We wrote an article on wealth and income inequality on July 1 2011, in which we criticized a speech by Fed governing board member Sarah Bloom Raskin. In her speech she bemoaned the growing wealth and income gap in the US, indicating that more government intervention was needed to close it. We started out by asking: why should it even matter how wealth is distributed as long as everybody partakes of the fruits of the free market? Should not those who serve consumers better than others be entitled to earn more? Are they not taking risks? Who cares if income and wealth are unequally distributed as long as everybody's living standard increases? Most readers are probably aware of these arguments, so there is no need to rehash them here. The point we finally made was that the reason people were worried – besides envy, that is – was that the great mass of people has not seen its economic lot improve for a long time period. The time period during which the real income of the middle class and the poorer strata among the citizenry began to stagnate curiously coincided with the abandonment of the gold exchange standard and the unfettered growth in money and credit that followed on its heels. So the question that suggested itself was: perhaps the Fed itself is at fault? This is what we concluded, but not merely from the empirical data, as supportive as they are of this particular case. It follows logically that whenever an inflationary policy is pursued, the richest citizens will profit from it, while the poorest will lose ground. Inflation is effectively a reverse redistribution scheme from the poor to the rich. This is so because the wealth of the rich is largely parked in assets the prices of which tend to rise disproportionally due to the inflationary policy. Moreover, they have easier access to credit and thus can get 'first dibs' on newly created money. By the time this money has percolated through the economy and reaches the wage earners and the poor, prices have already risen and they will be confronted with the fact that their purchasing power has declined. We concluded it was hypocritical of a Fed board member to decry the situation while not even once mentioning the critical role her institution played in bringing it about. Moreover, her proposed solution, while not spelled out in detail, amounted implicitly to a recommendation to the government to go down the path of socialist redistribution. You have to hand it to the WSJ – eventually it sometimes catches up to 'acting man'. :) Well known hedge fund manager Mark Spitznagel has published an editorial in the WSJ last week, in which he basically makes our argument all over again – only for a bigger audience. He writes:
(emphasis added) Very well put – this is precisely what happens. Money is not 'neutral' – the uneven spreading of inflation guarantees that there are winners and losers. It is obvious that the financial elite is foremost among the winners. The so-called '99%' meanwhile are losing out and the lower they are in the income strata, the more they tend to proportionally lose. Spitznagel concludes:
(emphasis added) Note here that as a hedge fund manager, Spitznagel himself is among the privileged who are in a position to profit from the Fed's largesse. Of course he would probably prefer to invest an environment of sound money, as the constant second-guessing of what the bureaucrats might do next is actually distracting investors from what they should really do, namely appraise the individual fundamental merits of various investment alternatives. As we often point out, these days investing is instead all about the 'macro' environment – which is to say much valuable time and effort must be spent on deciphering and dealing with the effects of interventionism. Naturally, whenever someone attacks the policies of an institution that keeps hundreds of macro-economists in bread, it doesn't take long for the the counter-attacks to be launched. This time Paul Krugman took it upon himself to defend the money printers, revealing his utter ignorance in the process. Krugman tried to deflect Spitznagel's arguments from his perch at the NYT in an article entitled 'Plutocrats and Printing Presses'. As we have pointed out in the past, Krugman is either willfully ignoring and misrepresenting the arguments of Austrian economists, or he simply doesn't understand them. Looking at his past critiques of the Austrian school, it seems rather obvious he hasn't even read any of the works associated with it, so he is actually in no position to pen a serious critique. The Austrians are generally in a better position when it comes to criticizing Krugman, since most of them had to endure large doses of Keynesianism at university. Krugman made a tactical mistake though: by coming to the defense of the Fed's bank bailouts and its money printing, he apparently managed to incense his own fan base (see the comments section below his screed). He writes:
So a winner of the Nobel prize in economics requires the testimony of Joe Weisenthal and someone from the 'Next New Deal' blog (which as the name implies is in favor of an FDR style command economy) to buttress his arguments? And proof that 'QE' is happening over the 'howls of protest from the financial industry' is provided by a lack of editorials in the WSJ demanding a higher 'inflation target'? It is difficult to reply to this nonsense mainly because it is so utterly dumb. One almost doesn't know where to begin, but let us just 'count the ways' by mentioning two small factoids: without the Fed's interventions, many of the stalwarts of the financial industry would no longer be with us. They would have gone bankrupt in 2008-9 and their assets would now be in the hands of better stewards of capital. Yeah, they sure 'howled in protest' when they were presented with that gift horse. Secondly, the true broad money supply in the US has increased from $5.3 trillion to $8.424 trillion between January of 2008 and February of 2012. This is a money supply inflation of roughly 60% in four years. There are simply no WSJ editorials clamoring for 'more inflation' required, even if one believes in the inflationist snake oil peddled by the likes of Krugman. The people supporting the policy are probably eager not draw too much attention to what has actually happened thus far on the inflation front. Having exonerated (in his mind) the financial elite and the 'plutocrats' with the help of Mr Weisenthal's testimony – whose stance is (mis)informed by none other than Paul Krugman himself (i.e., Krugman actually uses his own testimony through a relay station) - Krugman continues:
(emphasis added) First of all it should be noted that in his typical demagogic fashion, Krugman does not even address the argument Spitznagel made. He always does that – he really would be great as a leader of a Marxist debating society, as he has their techniques down pat. He simply ignores what his opponents say, and then proceeds to erect straw men which he thinks can be easily knocked down. Well, let's look at his voodoo economics claims (how on earth did this guy get a Nobel prize in economics? If ever you needed proof that the prize has become a contrary indicator, Krugman provides it in spades). First of all, you will notice that he fails to mention how exactly the Fed comes into a position to 'buy stuff'. It does that by printing money from thin air, which is actually the central point of Spitznagel's critique. Let's just ignore it! Then he claims that one can not prove that the Fed 'overpays' for the assets it buys. This is the functional equivalent of claiming that increasing the money supply has no effect whatsoever on prices. How can an economist make such a claim? Not to forget, the reason why the Fed makes these purchases consists – in its own words – of its desire to depress interest rates! In reality, the entire price structure of the economy is revolutionized when the amount of fiduciary media is increased and interest rates are artificially suppressed by the monetary authority. Lastly, the banks and other financial players the Fed buys assets from are not led by complete dummies. They naturally front-run the Fed every time – there is in other words a clearly discernible feedback loop between the Fed's activities and the prices of the financial assets it buys. As to Wicksell's definition of the natural interest rate, it reads verbatim:
There is not one word there about 'full employment'. As to the Austrian definition of the natural interest rate, it is simply the rate of societal time preference. In other words, the time preferences of all market participants as expressed in the discount of future gods versus present goods represent the natural interest rate. If we actually wanted to establish what the natural interest rate is, we would indeed have to abolish the Fed as well as introduce 100% reserve banking, so as to forestall the issuance of fiduciary media. It is actually downright comical that we have a central economic planning agency that is allegedly trying to 'mimic' the natural interest rate when we could obtain it very easily by simply abolishing the planners and rigorously enforcing property rights. Following his faux re-defintion of the natural interest rate, Krugman continues – n.b., while still completely ignoring the arguments Spitznagel made:
(emphasis added) This is why we are so bold to accuse Kugman of using voodoo economics. Readers may be aware that the current interest rate is 'zero'. The Fed wants us to pretend that the cost of capital is zilch. Krugman now claims that the 'natural interest rate' – by his definition – should actually be below zero. In other words, what he is saying is that if the market were left to its own devices, the time preferences of economic actors would be completely reversed, so that future goods would be considered to be worth more than present goods at the moment. This is such abject nonsense it truly defies belief. Oh yes, and giving the banks money at no cost is therefore 'not a give-away to the banks'. You would think no-one could actually make stuff like this up, but there it is. Economist William Anderson has given Krugman the nickname 'Krugpot'. Now you know why. Krugman then expands on why the bankers really just hate to get money for absolutely free:
First of all, the buying of long term assets to compress the yield curve spread is a relatively recent policy ('Operation Twist') and it is in fact not directly inflationary such as 'QE' was, as the Fed is not printing new money but merely exchanging short term bills for long term bonds. Its balance sheet has stopped growing when 'QE2' ended. However, we note that the expansion of the money supply has continued well beyond the end of 'QE2'. There are several reasons for this – the most important are: the fractionally reserved commercial banks have actually begun to expand money and credit on their own again (with their current reserve base they could in theory create about $15 trillion in new money if we were to generously assume a required reserve ratio of 10%. In reality they could create far more money, as de facto, required reserves are close to zero, mainly on account of sweeps). Secondly, dollars have fled from the crisis stricken euro area and have been deposited with US banks – in short, some of the dollars that were overseas have 'come home', while the Fed and the ECB are acting in tandem to replace the dollars lost in Europe with freshly printed ones via their dollar swap window. Thirdly, there has been a rule change that has forced banks to acknowledge the existence of funds that have previously been regularly swept offshore overnight – in short, the money supply data now contain evidence of past inflation that was previously hidden by this practice. The claim that bankers are 'angry' at getting money at zero percent from the Fed is exactly as ludicrous as it sounds. Even with the yield spread now smaller, the banks are stuffing a lot of money into treasuries to 'ride the curve'. They simply lever these traded as much as they can. It's a trade in which they figure they cannot lose. Take for instance a two year and a one year note. The two year note now yield 27 basis points, the one year note yields 17 basis points. If one buys a two year note today, it will become a one year note one year hence. Given the Fed's 'guarantee' of a zero federal funds rate until 2014, this implies a certain capital gain plus the 27 basis points in interest. Lever the trade 100:1 and you're actually making serious money. Yes, the bankers just hate it! We must however also note here that the assertion we have made above (namely that 'it's a trade in which they cannot lose') should be qualified by 'it's a trade in which they cannot lose as long as faith in the central bank administered fiat money system doesn't suddenly crumble'.
The two year note yield vs. the one year note yield. 'Riding the curve' with leveraged trades remains highly profitable as long as this spread is positive.
Krugman then continues to parade his ignorance as follows:
(emphasis added) Countless seniors, widows and orphans would vehemently disagree with Mr. Krugman. There are currently about $6.3 trillion in savings deposit and about $730 billion in small time deposits. Via anecdotes, we keep hearing about senior citizens who feel they have no choice but to divert savings into the extremely risky stock market as they can no longer count on their interest income to sustain them. For Krugman (who himself is among the '1%') to wave all these people away as though they didn't exist is quite callous. As a good Keynesian he probably is all for 'euthanizing the rentiers', even if he doesn't spell it out here. As to social security income being 'indexed for inflation': yes, indexed to the government's 'official' inflation data, which have been contorted in countless 'reforms' precisely to keep these expenses as low as possible by pretending that the price effects of the inflationary policy are far smaller than they actually are. He also ignores the fact that the basket of goods contained in the 'CPI' typically does not reflect the expenses that are most important for the majority of the middle class, the majority of retirees and the poor. Rich people don't care if the price of vegetables and fruit doubles and they don't care whether gasoline costs $2 per gallon or $4. Retirees living on social security, the middle class and the poor definitely do care about these prices and are hurt by them in spite of the laughable 'indexing' of social security payouts to 'inflation' (inflation as in the change of the 'general price level' as calculated by the government). Krugman then closes his defense of inflationism with a for him typical demagogic flourish, only it really backfires in this case:
(emphasis added) There you have it! The Fed's inflationary policy is really 'victimizing' the 1% and the financial elite! It is 'Orwellian' to say otherwise! Krugman is apparently completely unaware of the irony of this final sentence. To summarize: Krugmann fails to address even a single one of the arguments forwarded by Spitznagel. This is no surprise, as he has often demonstrated he does not even understand the arguments of the Austrians and moreover has frequently shown that his style of debate consists largely of attempts to knock down straw men. After appraising us of his economic ignorance (see the idea that time preferences can actually 'go negative' implied by his argument on the natural interest rate above), he finally closes a truly Orwellian screed by claiming that everybody who is critical of the Fed and the financial elite is guilty of being 'Orwellian'. As we often say, you really couldn't make this up.
Self-appointed 'liberal conscience' guardian Paul Krugman: now he's suddenly springing to the defense of the financial elite and the '1%' in his misguided mission to defend central economic planning.
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| Are You a Gold Guru? Take This Quiz & Find Out Posted: 28 Apr 2012 08:50 AM PDT You know it's shiny, it's rare and it's the standard against which all good things are measured but how much do you really know about gold? Take the 2.0 edition of our interactive quiz to test your knowledge of gold history, geography and politics…. So says an introduction to the*quiz from U.S. Global Investors ([url]www.usfunds.com[/url]) which www.munKNEE.com (Your Key to making Money!) is proud to present in its ongoing endeavour to bring its readers the most informative articles/infographics in as concise a manner as possible . This paragraph must be included in any article re-posting to avoid copyright infringement. Test your knowledge with this interactive quiz. [INDENT][COLOR=#ff0000][B]Automatic Delivery Available! If you enjoy this site and would like to have every article sent to you then [COLOR=#ff0000]go HERE and sign up to receive Your Daily Intelligence Report[/COLOR]. We provide an easy “unsubscribe” feature should you decide to opt out at any time.[...
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| Mad Cow Futures and Silver Fundamentals Posted: 28 Apr 2012 08:47 AM PDT The U.S. Department of Agriculture recently confirmed the country’s fourth known case of Bovine Spongiform Encephalopathy or BSE, which is popularly known as Mad Cow Disease. The highly publicized BSE case was discovered during a random test of a dairy cow carcass that was located at an animal rendering facility owned by Baker Commodities Inc., a business which removes dead animals from farms for processing into animal byproducts.
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| Dismal Gold and Silver Market Sentiment — Just What Dr. Bernanke Ordered Posted: 28 Apr 2012 08:46 AM PDT Since the dramatic drops the silver market saw in May and September of last year, prices in the precious metals market have been suffering from an excess of negative sentiment. This adverse perception is weighing on metal prices and keeping investor demand at bay. Furthermore, although investors have continued to buy physical silver, the overall quantity being purchased has declined significantly, resulting in reduced support for the metal’s price.
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| Invest in Africa Gold Stocks Now Posted: 28 Apr 2012 08:43 AM PDT Last year, Africa was the region that witnessed the strongest growth in gold-mining operations. In an exclusive interview with The Gold Report,Nana Sangmuah, managing director of research with Toronto-based Clarus Securities, expects that trend to continue and suggests some immediate smart investments in Ghana, Mali, Liberia and the Democratic Republic of the Congo. The Gold Report: Gold consultancy GFMS, which is now owned by Thomson Reuters, recently published its 2012 Gold Survey. GFMS predicts that before the end of 2012, the yellow metal will likely reach above its all-time nominal high of $1,920/ounce (oz) in September 2011. The catalysts include inflation concerns and sovereign debt problems in Europe, especially Spain. What are your thoughts on these predictions and conclusions?
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| Posted: 28 Apr 2012 08:29 AM PDT Gold and silver bullion prices are gradually moving toward an improved bullish posture. As indicated earlier, more work remains with gold needing to exceed and hold $1680 and silver $32.50, as a first step. However, there are still major issues with gold/silver stocks, their current pricing and the extraordinary low valuations. Gold and silver prices are the primary driver of stock values together with at least ten other considerations as described here. Similar conditions occurred in 2000 and late 2008 that resulted in a significant profitable event for those with vision. The Bonanza Project - Vaults of Value On April 15th, I asked my good friend, Dan Norcini, to review the Bonanza Project, its details and materials. He felt it was an excellent idea and added some valuable inputs. "The Bonanza Project – Vaults of Value" was subsequently published but generated lots of yawns, snoozing and boredom. In my view, this is the 3rd major low risk opportunity since 2000 in the current...
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| Europe's Other "Union" Is Ending Posted: 28 Apr 2012 08:11 AM PDT Almost a year ago, we observed the first crack in that other fundamental core of the European "union" experiment - the Schengen visa-free and customs-union zone. We wrote: "While Europe may have sold its soul to the [monetary union] devil over the past decade it still retained its beating heart - the concept that served at the core of the European Union: the so-called customs union, or a mobile, borderless workforce. Alas, the heart has just entered ventricular fibrillation, as for the first time, a country, Denmark, has taken what appears to be the first step toward defecting from Europe's 60 year old experiment of intimate, and sometimes, forceful unification. As EUBusiness reports: "Denmark will reintroduce controls at its intra-EU borders with Germany and Sweden, Finance Minister Claus Hjort Frederiksen said Wednesday following an agreement between the government and the far-right. "We have reached agreement on reintroducing customs inspections at Denmark's borders as soon as possible," Hjort Frederiksen told reporters." It was also then that we predicted the inevitable rise of the right (as demonstrated most vividly a week ago in the French presidential election) in Europe and its implications on the cohesiveness of the transnational European state:
This was in May 2011, and looking back at the Denmark case, we would call it the beginning of the end. A week ago, Spiegel had a very poignant follow up on this story, which unfortunately will have a sad ending:
And the Spiegel punchline:
Yet while the Spiegel story discussed some indefinite event in the future as the first catalyst of the "temporary" unwind of Schengen, we now know just what it is. From the Associated Press:
Once again, the official version:
Ah yes, because there have never been high level summits in Spain before that needed border closing to protect the participants from "riotous elements." Here is the real reason - Spanish unemployment:
What today's news of out Spain means is that just like French discontent with economic policies is starting to have direct consequences in the form of a rapid shift to the right, so Spain is now too beginning to shut its borders to all those other visa-free traveling Europeans who are "poaching" jobs from the locals. Whether or not they are, is irrelevant (and as we showed yesterday, even when threatening job influx is a moot point - recall that Mexicans are now emigrating from the US - US companies opt to hire foreigners over locals in a 3 to 1 ratio). What is relevant is that very soon more and more political leaders who are helpless to do anything to prevent their economic collapse under the rigidity of a monetary regime that benefits one at the expense of all else, will proceed to close their borders to free European travel, then the European customs unions will fall, and then finally Europe will be nothing but a loose collection of countries that hate not only each other but the minorities that dwell within, all in one big agenda to scapegoating someone else for the failure of the world's most destructive economic experiment. Sadly this won't be the first time that Europe has had a continent-wide effort at isolating and blaming someone "else" for all the world's problems. In the meantime, we suggest readers save a copy of this "map" of what Europe was supposed to be. As a memento. Because the current iteration of peak-Europe is coming to a rapid end as more and more "votes of no confidence" in Europe reverberate from countries near and far.
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| Gold COT (CFTC - Commitment of Traders) for Period 4/18-4/24 Posted: 28 Apr 2012 07:53 AM PDT Commercials bought 3,264 longs and covered a whopping -5,590 2,669 shorts to end the week with 58.83% of all open interest and now stand as a group at 16,723,700 ounces net short, a decrease of close to -1,000,000 net short ... Read More...
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| Silver COT (CFTC - Commitment of Traders) for Period 4/18-4/24 Posted: 28 Apr 2012 07:52 AM PDT Commercials added 3,821 long contracts and covered 323 shorts to end the week with 48.66% of all open interest -111,765,000 ounces net short, a huge decrease of over 20,000 ounces. Read More...
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| Posted: 28 Apr 2012 07:39 AM PDT Summary: Long term - on major sell signal. Short term - on mixed signals. Gold cycle has bottomed and a multi week rally should start soon. We trade according to current configs and set ups. Read More...
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| Posted: 28 Apr 2012 05:56 AM PDT from Silver Vigilante:
A meme which runs through the minds of men and women, just as popular as household celebrities like Brad Pitt and Madonna, maintains that overpopulation and wear on the earth will from here-on-out turn to a wasteland the teeming rain forests and athirst deserts and render all life on earth at odds with survival itself. Paul Ehrlich, according to The Guardian, is "the world's most renowned population analyst." In an interview with the publication, Ehrlich recently championed a mass reduction in how many humans live on earth. He also then called for the egalitarian society of Communist cultures, saying natural resources should be redistributed from rich to the poor. Read More @ SilverVigilante.com
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| Comex Silver Inventories - Bullion Banks To the Rescue Posted: 28 Apr 2012 05:55 AM PDT |
| What is good for the corn market is good for gold Posted: 28 Apr 2012 05:41 AM PDT I came across an interesting article buried in this morning's weekend edition of the Wall Street Journal that I thought I would pass along. It had to do with an announcement that China had just completed the sixth largest single purchase of corn from American farmers in history — 1.44 million tonnes. Corn Friday jumped 4.6% on the news to $6.53 a bushel on the Chicago Board of Trade. According to the article, the U.S. Department of Agriculture reports recent sales of 2.84 million metric tonnes of corn by China, or "unknown buyers." The CRB, a general index of commodities, was up over 2% on the week. Over the past several months, gold's rangebound behavior has been blamed, among other things, on an economic slowdown in China which would in turn affect its appetite for commodities. This corn purchase is one of the first signs that China's loss of appetite for commodities might have been overstated. It could be too why gold suddenly decided to go higher last week even though the news from the Federal Reserve was not overly gold friendly. In this case, what is good for the corn market might very well be good for the gold market. MK
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| Raw Silver Analysis: How Much Silver Do we Actually Have Above Ground Vs. Gold? Posted: 28 Apr 2012 05:12 AM PDT |
| Who Pays More For Your Gold, A Pawn Shop Or Jewelry Store? Posted: 28 Apr 2012 04:07 AM PDT from Courant.com:
In mid-February, TBL shuttled around Greater Hartford with two gold coins and a Tiffany silver bowl — a stash valued between $1,100 and $1,200 — and received offers as low as $704 and as high as $1,006. The best of the dozen offers was not from a jewelry store or coin shop or an in-between gold-and-diamond exchange. It was from the Pawn Queen, Sandy Meier, whose shop on the Berlin Turnpike in Wethersfield welcomes visitors with cutie-pie mannequins wearing tiaras and Pawn Queen T-shirts.
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| Silver Doc: Gold To Silver Ratio Could Hit 5 to 1 Posted: 28 Apr 2012 04:03 AM PDT |
| Spain's Collapse Is No Little Thing Posted: 28 Apr 2012 03:31 AM PDT from The Daily Bell:
Dominant Social Theme: It's just a downgrade. Spain will bounce back. Free-Market Analysis: Is Spain beginning to collapse and, perhaps, the EU with it?
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| How Much Money Do You Need to Realistically Recreate Scrooge McDuck's ‘Gold Coin Swim’? Posted: 28 Apr 2012 03:18 AM PDT by Matt Powers, Thebillfold.com:
After executing smart mortgage derivatives and diversifying high yield stocks, cash should start flowing freely, leaving the smart investor with even more questions, like "how do I protect my municipal bonds?" and, "should I invest in a C-Share or blend fund?" and, "how much money do I need to create giant floes of gold in a private vault and dive into it like Scrooge McDuck?"
In most money circles (insider tip: "money circles" is a term used by only the most elite investors), wealth is measured exclusively by how closely one can recreate this famed animation. It has come to represent success in America and anything less than doing the backstroke amongst a sea of Earth's rarest metal should be considered an abject failure. A main problem of this measure, however, is that there is no agreed-upon Scrooge McDuck quantity of gold. In order to give the young investor a goal to shoot for, and to clear up this age-old question once and for all, the following is a precise judgment of exactly how money you need to be successful.
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"If I were reincarnated, I would wish to be returned to Earth as a killer virus to lower human population levels" -Prince Phillip, Duke of Edinburgh
Want to gamble on the value of your gold jewelry, coins or silver? Then skip the research and take it to a local pawn shop or jewelry store for a quick payoff.
S&P cuts Spain's credit rating by two notches to BBB+ … Standard & Poor's cut Spain's 
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