Gold World News Flash

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• A Direct Comparison Between Gold, Silver, Platinum and Copper
• Too Big to Fail: Student debt hits a trillion
• The plan to Collapse and Control the Planet
• Gold Traders Await Direction
• James Dines - Paper Money Addicts, Major Uptrends & Anarchy
• The Big Lies Regarding Precious Metals Miners
• Silver Update 5/03/12 Pass/Fail
• Michael Pettis Revisits 12 Predictions On China
• China's SHFE to start Silver Futures from May 10
• Gold is one of Portugal’s fastest growing exports
• Guest Post: Gold Standard for All, From Nuts to Paul Krugman
• Paul vs Paul Video
• Things Just Got Interesting
• The Federal Reserve is the Squid of Squids, it is the Vampire Squid of Vampire Squids
• 40 days and 40 nights of the quietest gold market since the crisis began…
• Precious Metals: Don’t Want To Play Anymore?
• The Unabridged And Illustrated Federal Budget For Dummies - Part 1: Spending
• The Fed and the ECB’s Hands Are Politically Tied... Bye Bye Market Props
• Record deposits at the ECB/lower PMI in China/lackluster auction at Spain
• Which Will Do Better in 2012: Gold Bullion or Gold Stocks?
• Gold Price Dropped $19.20 to Close Comex $1,634.20 Mustn't Fall Below $1,600
• The problem here may lie not with the gold bugs but with those who work so hard to isolate them.
• Fabulous Mogambo Essay (FME)
• Jim Grant: "The Federal Reserve Is The Vampire Squid Of Vampire Squids"
• We may witness a singularity: Hugo Salinas Price
• Ben Bernanke vs. Gold
• Kerry Lutz Interviewed by Andrew Horowitz, The Disciplined Investor--03.May.2012
• A Price Target for Gold if the Dow Has Reached Its Top
• The Real Debate On Gold And Money
• Gold Seeker Closing Report: Gold and Silver Fall With Stocks and Oil

A Direct Comparison Between Gold, Silver, Platinum and Copper Posted: 03 May 2012 06:14 PM PDT In this article I would like to take a fresh look at physical gold, silver, platinum and copper regarding their respective versatility of use, durability, fungibility, store of value, liquidity and aesthetics with the hope that, for both old and new investors, my analysis will yield a new perspective on precious metals (including copper). Words: 878 So says Krassen Ratchev in edited excerpts from*his original*article**as posted on [url]www.SeekingAlpha.com[/url]. [INDENT]Lorimer Wilson, editor of [B][COLOR=#0000ff]www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor's Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.[/COLOR][/B] [/INDENT]Ratchev goes on to say, in part: Physical Properties Comparison Table 1 below shows the physical properties of gold, silver, platinum and copper: Physical PropertyGoldSilverPlatinumCopperDensity (g/cm3)19.3010.4921.458...

Too Big to Fail: Student debt hits a trillion Posted: 03 May 2012 05:07 PM PDT Recently, we undertook what we understand is the first major effort to understand the size of the private student loan market. This market went through the same boom and bust cycle we saw play out in markets for mortgages and other credit products. Our initial findings on the size of the private student loan market are sobering. When we add in the outstanding debt in the federal student loan program, it appears that outstanding student loan debt hit the trillion dollar mark several months ago – much larger than estimates from other recent reports. It seems that this market is too big to fail. Unlike other consumer credit products, student debt keeps growing at a steady clip. Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us. Read more..... This posting includes an audio/video/photo media file: Download Now

The plan to Collapse and Control the Planet Posted: 03 May 2012 04:30 PM PDT from crabbydogtrix :

Gold Traders Await Direction Posted: 03 May 2012 04:22 PM PDT courtesy of DailyFX.com May 03, 2012 03:03 PM Daily Bars Prepared by Jamie Saettele, CMT Gold has returned to its range but support comes in from the trendline that extends off of the 4/4 and 4/23 lows at about 1630. Last week’s hold above the 4/4 low suggests that gold has been forming a bullish base since mid-March. Exceeding the April high would put bulls in control towards the trendline above 1700 (that line extends off of the September 2011 and February 2012 highs). Ideas:...

James Dines - Paper Money Addicts, Major Uptrends & Anarchy Posted: 03 May 2012 04:08 PM PDT With continued uncertainty in global markets, today King World News interviewed legendary James Dines, author of The Dines Letter. Dines told KWN the world will see a "Coming Great Depression." He also discussed whether gold and silver remain in 'Super Major Uptrends.' Here is what Dines had to say about what is taking place: "All nations are now suppressing their own interest rates.  People who are looking for income either have to buy the higher yielding risky bonds or buy stocks.  So, government's low interest rate policies are forcing investors to take more risks." This posting includes an audio/video/photo media file: Download Now

The Big Lies Regarding Precious Metals Miners Posted: 03 May 2012 03:15 PM PDT by Jeff Nielson, Bullion Bulls Canada: The talking-heads in the mainstream media spend so much of their time talking out of both sides of their mouths that they have clearly become oblivious to the extent of that double-talk. This is the only rational explanation as to the insistence of the mainstream media in repeating the same self-contradictions. In this case I'm referring to media double-talk regarding their reporting on the precious metals sector, and most particularly their totally perverse coverage of the precious metals miners. The contradictions should be obvious to any/all investors who watch this sector closely. On the one hand we have the media endlessly bashing these miners as "under-performers". Despite the (supposedly) "high" bullion prices we've seen in recent years just look at the charts, shriek these bashers. Yes, when we look at the results from our (totally manipulated) markets, it is clear that (mysteriously) these miners are in the midst of their second Depression in five years – in the middle of one of the longest, strongest bull markets in history. Of course the myopic media notices nothing unusual about that. Read More @ BullionBullsCanada.com

Silver Update 5/03/12 Pass/Fail Posted: 03 May 2012 02:13 PM PDT from BrotherJohnF:

Michael Pettis Revisits 12 Predictions On China Posted: 03 May 2012 02:11 PM PDT Via Michael Pettis of China Financial Markets, In 2006 I started making a number of predictions based on what I thought was the necessary and logical development of China's growth model. Some of these predictions seemed fairly outlandish, especially to China analysts – Chinese and foreign – who had very little knowledge of economic history or other developing countries, but many of them so far have turned out quite well. As more and more analysts are beginning to understand the constraints of the Chinese growth model I think it might be useful to list some of these predictions to get a sense of what might be still to come.? Perhaps my bet with The Economist has caused me to throw caution to the winds, since a smart economist never makes his predictions explicit, but here they are: 1.       China will be the last major economy to emerge from the global crisis. My basic argument was that the global crisis was caused by the necessary reversal of the great trade and capital imbalances of the past decade, and a country can only be said to have emerged from the crisis when those underlying imbalances had been resolved.   Since China's contribution to the global imbalances has been its excessively high savings rate, China could not emerge from the crisis until the high savings rate had been reduced to a more reasonable level. Since 2007-08, of course, the opposite has happened, as Beijing has exacerbated its domestic imbalances in order to keep growth rates high. But without infinite debt capacity this cannot go on. I think it is pretty clear that over the next few years China will be forced to address and reverse the high savings rate, and it will only be after this happens that China can be said to have emerged from the crisis. This may take a decade or more.   2.       Chinese consumption will continue to stagnate or decline as a share of GDP until the growth model is abandoned. By "abandoning" the model I mean that transfers from the household sector to subsidize rapid growth must be eliminated and reversed.   This is really a continuation of the first prediction. It is too early to say, but 2012 may be the first year in which consumption growth will outpace GDP growth, but only if GDP growth turns out to be much lower than expected – say below 7%. As long as GDP growth rates exceed 7%, there can be no real rebalancing of consumption.   3.       Although there were many factors that explained both rapidly rising GDP and the contracting consumption share, financial repression would eventually be recognized to be the key factor. It took many years to make this point, but it has become pretty clear to everyone that financial repression is at the heart of China's problem. This may explain Premier Wen's recent and rather shocking attack on the banks, although in my opinion it will still be at least another year or two, if ever, before we see any real liberalization of interest rates.   Remember that the more debt there is, the harder it is to raise interest rates, and the longer we take to raise interest rates, the more debt we run up. In the end I suspect that financial repression will be eliminated not by an increase in nominal rates but rather by a decline in GDP growth (remember that the size of the financial repression tax is a function of the difference between nominal GDP growth and the nominal lending rate).   4.       Investment is being misallocated on a massive scale and this was not due to any special Chinese characteristic but was rather a fundamental requirement of the way the system operated. Although there are still some economists who disagree that investment is being massively wasted, I think this is so well understood by now that there is no need to belabor the point.  People respond to incentives, and for the last decade or longer there has been a strong incentive to keep investment levels high regardless of their returns.  It would be surprising if this did not result in a lot of wasted spending.   5.       Debt is rising at an unsustainable pace and debt levels will become unsustainable well before the end of the decade. This follows from the above point – if investment is debt funded and if it is being wasted, then by definition debt must be increasing at an unsustainable pace – i.e. faster than debt-servicing abilities.   In the past three years this warning about rising debt has become much more widely accepted, especially since Victor Shih started counting local government debt in late 2009. There is still some disagreement on the sustainability of debt, with some analysts, like Arthur Kroeber of Dragonomics and the guys at The Economist, saying that China doesn't have a serious debt or over-investment problem. I suspect nonetheless that in another year or two no one will doubt that the Chinese growth model tends towards unsustainable debt and that we are rapidly reaching the limit.   6.       When specific debt problems are indentified, resolute attempts by Beijing to resolve them would be warmly welcomed by analysts but wholly irrelevant – because the problem of debt was systemic, not specific. This follows from the above. The issue is not that specific borrowers may run into debt problems. It is that the run-up in debt is systemic and cannot be prevented as long as China maintains the existing growth model.? If there is rapid GDP growth, say anything above 6% or 7%, debt within the system must be rising at an unsustainable pace.   7.       Privatization, a topic all but forbidden in polite company, would become a very hot topic of conversation by 2013-14. I have discussed why in several of the more recent blog entries.   8.       As some policymakers gradually became aware of the problem with the growth model and the risk of crisis, a fundamental political split would emerge between those that demanded rapid reform and those that wanted to maintain control of resources. The problem is that continuing the growth model will lead to a debt crisis, but abandoning the model will lead to much slower growth, and especially to much slower growth in the accumulation of state sector assets. This is politically very difficult for many to accept and will lead to more political conflicts over the next few years.   9.       Chinese government debt will continue to balloon through the rest of this decade. Privatization is the best way to effect the transfer of wealth from the state sector to the private sector, and would be especially efficient if privatization proceeds were used to extinguish debt, but for the reasons discussed above it will be extremely difficult to do it. This means that debt build-up and the state absorption of private sector debt will continue for many years.   10.    If the transition is not mismanaged, average Chinese GDP growth rates will drop to 3% for the 2010-20 decade. As my bet with The Economist suggests, this is one prediction that is still an outlier. The Economist(and many others) still believe that Chinese growth will make it the largest economy in the world before the end of the decade, but much slower growth is what rebalancing requires and it is hard to make the numbers work at growth levels much above 3%. By the way if I am wrong and Chinese growth this decade is materially higher than 3%, my prediction is that the "lost decade" of much lower growth stretch out over two decades.   11.    If China rebalances correctly, then much slower GDP growth rates will be accompanied by only slightly slower growth rates in household income. In that case there need be no social instability. The political risk comes from instability at the top, not at the bottom.  Factional disputes, in other words, haven't ended with the Chongqing affair.  They will persist.   12.    Non-food commodity prices are set to collapse over the next three to four years. "Collapse" is not too strong a word. China's share of global demand for such commodities as iron, cement, copper, etc. is completely disproportionate to its size and almost wholly a function of its very high growth in investment. As investment growth drops sharply, as it must, global demand for non-food commodities will plummet.   This is an abbreviated version of the newsletter that went out two weeks ago.  Academics, journalists, and government and NGO officials who want to subscribe to the newsletter should write to me at chinfinpettis@yahoo.com, stating your affiliation, please.  Investors who want to buy a subscription should write to me, also at that address.

China's SHFE to start Silver Futures from May 10 Posted: 03 May 2012 02:04 PM PDT from Bullion Street: SHANGHAI: China's Shanghai Futures Exchange set May 10 as the date to launch trading of the silver futures contract. According to Huo Ruirong, deputy general manager of the bourse, the SHFE will not trade contracts for silver futures like lead or coke futures, but trade small futures contracts favorable for medium to small investors. Lot size of silver futures is 15 kg, with the minimum trading margin 7% of contract value. Daily limits are stipulated 5% of settlement prices of the previous trading day, and the last trading date is the 15th of the delivery month (postponed for legal holidays). Read More @ BullionStreet.com

Gold is one of Portugal’s fastest growing exports Posted: 03 May 2012 01:45 PM PDT from INÊS LOPES, Algarve Resident: Portugal's gold exports soared 147% in February and March, representing €133 million in sales outside the country, when compared to same period last year… …The export of this precious metal has recorded considerable growth in the last four years, a phenomenon that can be explained by the financial crisis and rising gold prices… …In Portugal, scrap gold dealers seem to pop up like mushrooms overnight, a phenomenon that is explained by the price of gold rising when the economy is doing poorly, turning the precious metal into an attractive investment. In 2011, four gold buying stores opened in Portugal a day. With the ongoing financial crisis taking its toll on families, many individuals are selling unused silver and gold jewellery, some of great historical value, as a quick way to make some easy money. Read More @ Algarve Resident

Guest Post: Gold Standard for All, From Nuts to Paul Krugman Posted: 03 May 2012 01:10 PM PDT Via Amity Shlaes' Bloomberg News Column, Nut cases. That's what they are. And if you take an interest in them, you are a nut case, too. That's the consensus among credentialed economists who describe advocates of a return to the monetary regime known as the gold standard. In fact, the economic pack will marginalize you as a weirdo faster than you can say "Jacques Rueff," if you even raise the topic of monetary policy in relation to gold. An example of such marginalizing appears in a recent issue of the Atlantic magazine. Author Adam Ozimek lists four rules upon which economists overwhelmingly agree. Right away, that puts readers on guard; they don't want to be the only one to disagree with eminences. The first rule Ozimek offers is that free trade benefits economies. So obvious. That makes the penalty for disagreement higher. Then you read down to the final principle: "The gold standard is a terrible idea." By putting the proposition in such strong terms, the author raises the penalty for disagreeing. If you don't subscribe to this view, you risk both being classed as the kind of genuine nut case who believes in protectionism, and enduring the disdain of other economists -- "all economists," as the Atlantic headline writer summarized it. But "all economists" is not the same as "all economies." The record of gold's performance in all economies over the past century is not all "terrible." Especially not in relation to areas that concern us today: growth, inflation or the frequency of bank crises. The problem here may lie not with the gold bugs but with those who work so hard to isolate them. Gold's Real Record Conveniently enough, the gold record happens to have been assembled recently by a highly credentialed team at the Bank of England. In a December 2011 bank report, the authors Oliver Bush, Katie Farrant and Michelle Wright review three eras: the period of a traditional gold standard (1870-1913); the period of a gold-standard variant, the Bretton Woods gold-exchange standard (1948 to 1972); and a period of flexible exchange rates (1972-2008). The report then looks at annual real growth per capita worldwide, over many nations. Such growth, they find, was stronger in the recent non-gold-standard modern period, averaging an annual increase of 1.8 percent per capita, than in the classical gold-standard period before 1913, when real per- capita gross domestic product increased 1.3 percent annually. Give a point to the gold disdainers. But the authors also find that in the gold exchange standard years of 1948 to 1972 the world averaged annual per- capita growth of 2.8 percent, higher than the recent gold-free era. The gold exchange standard is a variant of the gold standard. That outcome doesn't tell you we must go back to the gold exchange standard yesterday. But it does suggest that figuring out how the standard worked might prove a worthy, or at least not a ridiculous, endeavor. Gold shone in other ways. In a gold-standard regime, money is backed by gold, so it's impossible, or at least more difficult, for governments to inflate. Naturally the gold standard and Bretton Woods years therefore enjoyed lower rates of inflation compared with the most recent era. The gold standard endures a reputation for causing more banking crises than other monetary regimes. The Bank of England paper suggests gold stabilizes banks: The incidence of banking crises in the non-gold-standard period is higher than the incidence in the two gold periods. "Overall the gold standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives," wrote Bush, Farrant and Wright. Stable Markets Markets and countries enjoyed relative stability in gold- standard years, and capital in those years flowed to worthy growth-generating projects. The main sacrifice in gold regimes that the authors identify is that governments lose authority to micromanage domestic economies. But given governments' records, that may not be such a bad thing, either. It all suggests that contempt for old gold hands such as Congressman Ron Paul of Texas might not be warranted. And that it might be interesting to peruse the numerous gold-related currency plans outside the door of the academic salon. Plenty of people, many former bankers, think it is time to pass laws returning the U.S. to some version, strong or weak, of the gold standard. Lewis Lehrman, financier and founder of the Gilder-Lehrman Institute, which focuses on history, recently published a plan to take the world back to gold, "The True Gold Standard." Charles Kadlec, another former Wall Streeter, co-wrote his own proposal, "The 21st Century Gold Standard," with Ralph Benko. The case for gold as a mandatory metric for the Federal Reserve in setting interest rates is made in new legislation offered by Congressman Kevin Brady, another Republican from Texas. Dozens of state legislatures are introducing their own gold- or silver-related currency legislation. One reason people slap the nut-case label on others with impunity is that for the past 30 or 40 years most economic education has systematically excluded the gold standard and its exponents from the classroom. It's easy to call something your professors never respected the work of a nut case. But it's also worthwhile to ask why the professors white out the gold standard from the books. Perhaps it is because the systems they raved about in their dissertations, systems of flexible exchange rates, subsequently underperformed. This inconsistency in their own modeling is of course hard to acknowledge. Recently Bloomberg Television drew enormous attention when co-anchor Trish Regan moderated a debate between Ron Paul and Paul Krugman, the Nobel prize-winning New York Times columnist. Krugman's Nostalgia Krugman sought to hold the middle ground, noting that all he sought, through his recommendation that federal debt rise to 130 percent of gross domestic product, was a return to the kind of America in which his parents lived. The professor treated the congressman's remarks as unscholarly; in a blog post afterward, Krugman wrote "everything Paul said about growth after World War II was wrong." But Krugman too has some sorting through to do. The years when his parents lived were gold years, the Bretton Woods gold exchange standard, a time when the federal government, except in world war, would never had considered raising debt to 130 percent of the economy, as Krugman suggested in the debate. If we are going to speak of consensus, let's not forget one that is truly universal: Our economic system stands a good chance of breakdown in coming years. The only way to limit damage from such a breakdown is to ready ourselves to choose other models by learning about them now. Not to do so would be nuts.

Paul vs Paul Video Posted: 03 May 2012 01:06 PM PDT We finally had an opportunity to view the video below pitting the Hon. Ron Paul "against" Paul Krugman and considered it interesting enough to share.  Again we shall let the video speak for itself, except to say that it is progress that this debate has been elevated to a national forum.       Source: YouTube http://www.youtube.com/watch?feature=player_detailpage&v=OZddaCAGkN8

Things Just Got Interesting Posted: 03 May 2012 01:05 PM PDT Reminder of things to come from the Telegraph UK archives... Russia backs return to Gold Standard to solve financial crisis... Russia has become the first major country to call for a partial restoration of the Gold Standard to uphold discipline in the world financial system.... Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week... A long-time friend and colleague had told me early last week that someone he knows who lives in Switzerland said that the financial circles had been buzzing with a rumor that the BRICs were going to unveil a new currency trading/clearing system that would enable the world to conduct commercial trade without using the dollar or the nefarious SWIFT system. Looks like there may be some truth to that rumor - here's the article:  LINK I want to point out and correct one egregiously incorrect statement in the article.  The author avers that the dollar inflation caused by the Viet Nam War and the Great Society social welfare programs forced Nixon to "close" the gold window. Actually what happened was that the Bretton Woods Agreement created a gold-backed system in which the United States could only issue debt to the extent that it had gold to back the amount of debt outstanding. Foreign sovereign creditors had the option of redeeming their debt claims for gold at the Fed "window."  Eventually it became obvious to those paying attention - i.e. Charles De Gaullle - that the U.S. had issued debt well in excess of its gold holdings.  The French began to redeem their Treasury notes for gold.  When it was rumored that the Swiss were going to start doing the same, it became necessary for Nixon to close the gold window or risk a run on the U.S. gold "bank" and being exposed for violating Bretton Woods by issuing more debt there was gold in Ft. Knox to back it. The rest, as they say, is history.  Many of us have been arguing that eventually the Chinese/Russians/etc would eventually reassert a gold standard.  When this happens the dollar price of gold will do a space launch and the standard of living in this country - for those who don't have any gold and silver - will decline to 3rd World standards...

The Federal Reserve is the Squid of Squids, it is the Vampire Squid of Vampire Squids Posted: 03 May 2012 01:01 PM PDT Move over Goldman. Jim Grant in this MUST WATCH Bloomberg interview says that the Federal Reserve is the squid of squids, it is the vampire squid of vampire squids. from The Silver Doctors:

40 days and 40 nights of the quietest gold market since the crisis began… Posted: 03 May 2012 12:58 PM PDT Submitted by Ben Traynor | BullionVault - HOW COMMON is it for Gold Prices to be this range bound? asks Ben Traynor atBullionVault. At Wednesday afternoon's London Gold Fix, Dollar Gold Prices were $1648 an ounce. This marked the fortieth trading day in a row that gold fixed between $1600 and $1700. The last PM Fix outside this range was on March 5 [...] This posting includes an audio/video/photo media file: Download Now

Precious Metals: Don’t Want To Play Anymore? Posted: 03 May 2012 12:47 PM PDT What always follows a consolidation? A Rally! By Dudley Pierce Baker Gold Seek: We suspect that many precious metals investors are saying, "We don't want to play anymore!" and our reply is, "You want to quit right now, right at the bottom of this cycle? You must be crazy – crazy with a capital C!" True, this is a very challenging market environment for resource shares, but we know what the ultimate outcome will be: higher share prices. The only question is "when" and our opinion is that we are very close in time (within days or a week or two at most) of being able to say that the lows are behind us. Let me explain. Unfortunately, most resource investors, especially those new to this sector, are greatly disillusioned, have little staying power and are just scared to death. Who can blame them? They have spent all of their psychological capital and the theme of the day for them is, "How low can they go?" Sure, we understand why investors are upset watching their portfolio go down, virtually day after day, but this current depressed environment is the seed for making investors wealthy. The buying opportunities are everywhere. As the expression goes, to make money you need to 'buy low and sell high'. Read More @ GoldSeek.com

The Unabridged And Illustrated Federal Budget For Dummies - Part 1: Spending Posted: 03 May 2012 12:42 PM PDT In a four-part series, on the premise that a picture paints a thousand words, we present, via The Heritage Foundation, everything you wanted to know about the Federal Budget - In Charts. We start with Federal Spending - which is at record levels and is still growing, threatening economic freedom. Federal Spending per Household Is Skyrocketing The federal government is spending more per household than ever before. Since 1965, spending per household has grown by 152 percent, from $11,900 in 1965 to $30,015 in 2012. From 2012 to 2022, it is projected to rise to $34,602—a 15 percent increase.   Federal Spending Exceeds Federal Revenue by More than $1 Trillion Since 1965, spending has risen constantly. While federal revenues are recovering from the recent recession, spending is growing sharply, resulting in four consecutive years of deficits exceeding $1 trillion.   Federal Spending Grew Nearly 12 Times Faster than Median Income When federal spending grows faster than Americans' paychecks, the burden of government on taxpayers becomes greater. Over the past four decades, median-income Americans' earnings have risen only 24 percent, while spending has increased 288 percent.   What if Families Handled Finances Like the Federal Government Does? In 2010, median family income was $51,360. If a typical family followed the federal government's lead, it would spend $73,319 and put 30 cents of every dollar spent on a credit card. This family would have racked up $325,781 in credit card debt—like a mortgage, only without the house. What credit card company would continue lending money to this family?   Mandatory Spending Has Increased Nearly Six Times Faster than Discretionary Spending Mandatory spending— primarily entitlements and interest—is set on budgetary autopilot, growing without congressional debate. It has increased almost six times faster than discretionary spending, including defense, which is the part of federal spending subject to annual budgets.   Runaway Spending, Not Inadequate Tax Revenue, Is Responsible for Future Deficits The main driver behind long-term deficits is government spending, not low revenue. While revenue will surpass its historical average of 18.1 percent of GDP by 2018, spending remains above its historical average of 20.2 percent, reaching 22.1 percent by 2022, even after $2.1 trillion in spending cuts in the Budget Control Act.   Medicare and Other Entitlements Are Crowding Out Spending on Defense Ever-increasing entitlement spending is putting pressure on key spending priorities, such as national defense, a core constitutional function of government. Defense spending has declined significantly over time, even when the wars in Iraq and Afghanistan are included, as spending on the three major entitlements—Social Security, Medicare, and Medicaid—has more than tripled.   National Defense Spending Would Plummet Under Obama's Budget President Obama's lean defense strategy would create a hollow force and exacerbate today's readiness crisis. Decreases in funding for the core defense program mean losing capabilities that are crucial for the military to fulfill its constitutional duty to provide for the common defense.   Budget Control Act Sequestration Would Hit Defense Hardest The Budget Control Act's $1.2 trillion automatic sequestration cuts, out of $46.3 trillion in total spending, would impose draconian cuts on defense (on top of an estimated $407 billion in cuts from its spending caps). This would slash the defense budget and jeopardize the U.S. military's ability to defend the nation. Entitlement spending—the biggest part of the budget— would scarcely be touched by comparison.   Obama Budget Would Make Defense the Lowest Budget Priority President Obama's budget would lower defense spending below other major budget priorities, forcing cuts to personnel levels and weakening military readiness. By 2018, the U.S. would spend more on interest on the debt than on protecting the country.   More than Half of All Federal Spending Will Be on Entitlement Programs in 2012 Medicare, Medicaid, and Social Security—along with other entitlements such as food stamps, unemployment, and housing assistance— make up 62 percent of all federal spending. In contrast, spending on foreign aid represents about 1 percent.   Total Welfare Spending Is Rising Despite Attempts at Reform Total means-tested welfare spending (cash, food, housing, medical care, and social services to the poor) has increased more than 17-fold since the beginning of Lyndon Johnson's War on Poverty in 1964. Though the current trend is unsustainable, the Obama Administration would increase future welfare spending rather than enact true policy reforms.   More than 70 Percent of Federal Spending Goes to Dependence Programs Government dependence is driving budget deficits and federal debt. More than 70 percent of federal spending goes to 47 government dependence programs, including housing, farm subsidies, and the three largest entitlements, Medicare, Medicaid, and Social Security.   Cut Spending, Fix the Debt, and Restore Prosperity By rapidly lowering total federal spending, Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity would balance the budget by 2021 and keep it balanced permanently, without raising taxes.   Source: The Heritage Foundation

The Fed and the ECB’s Hands Are Politically Tied... Bye Bye Market Props Posted: 03 May 2012 12:41 PM PDT   The following is an excerpt from my latest client letter.   As many of you know, my primary forecast regarding Europe is that the EU will be broken up and/or collapse within the coming months.   The reasons for this are political, financial, and monetary in nature. In bullet form they are:   France is about to elect a hard core Socialist. This will greatly alter political dynamics in the EU and will weaken Germany’s push for austerity.   Spain’s stock market and banking system are on the verge of collapse. The markets are flashing major warning signs here both in terms of technical developments in the markets as well as Spanish sovereign bond market yields.   The ECB’s interventions in the European banking system are now politically toxic (the markets punish those banks relying on the ECB for aid) as well as monetarily impotent (the positive effects of spending hundreds of billions of Euros are only lasting a month at most).   The US Federal Reserve’s Operation Twist 2 Program ends in June. Currently there are not new monetary programs planned at the Fed and it is unlikely they will launch anything before the US Presidential election in November (unless forced to by a Crisis).   In simple terms, we have a confluence of negative factors hitting this month and the next. Now, nothing in the political or financial worlds is static and we could see any number of changes made to the above items (for instance, France’s soon to be President Francois Hollande might backtrack on some of his more aggressive socialist policies).   Having said that, while individual changes to the above items might temporarily delay the collapse I’ve forecast, said collapse is coming and will hit before the year-end.   The reason for this is that we have reached the End Game for Central Bank intervention: the time during which Central Bank interventions either result in negative consequences that far outweigh their positive benefits (inflation/ increases in the cost of living vs. a rise in “good” asset prices such as stocks) or have negligible impacts.   We’ve already assessed the first one of these items in numerous past issues of articles. The most obvious example of this was the Fed’s QE 2 program which spent $600 billion, resulted in at most three months of upturned economic data for the US, but also sent food prices to all time highs inciting revolutions and riots around the globe.   Indeed, as noted previously on these pages, as far back as May 2011, Fed Chairman Ben Bernanke explicitly stated that QE was less “attractive” as a monetary option:   Q. Since both housing and unemployment have not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman, Waco, Tex.   Mr. Bernanke: “Going forward, we’ll have to continue to make judgments about whether additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual mandate, that we do have to worry about both the rate of growth but also the inflation rate…   “The trade-offs are getting — are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. And in my view, if we’re going to have success in creating a long-run, sustainable recovery with lots of job growth, we’ve got to keep inflation under control. So we’ve got to look at both of those — both parts of the mandate as we — as we choose policy”   http://economix.blogs.nytimes.com/2011/04/28/how-bernanke-answered-your-questions/   This is critical as it indicates that the Fed, despite all of its verbal interventions and posturing, is aware that its monetary interventions are having negative consequences that outweigh their benefits.   The same is occurring in Europe where the relationship between Germany and the ECB is deteriorating as the former finds its push for austerity counteracted by the latter’s monetary profligacy. Indeed, Germany is now facing its most dreaded consequence of the ECB’s money printing: inflation.               German unions turn up volume on pay rise demands   German labor leaders urged May Day demonstrators on Tuesday to fight for big pay rises after a decade of restraint that had seen wages in crisis-hit southern Euro zone nations soar.   The head of the powerful IG-Metall union, demanding a 6.5 percent rise, described an offer of 3 percent over 14 months as a farce...   "If we don't have a result (from talks) by Pentecost, then there will be a strike ballot and strike," said Berthold Huber, referring to the May 27/28 holiday…   IG Metall, with a membership of 3.6 million, (Graham’s note: about 4% of German population) held warning strikes at the weekend and is planning more for Wednesday in Germany's industrial heartland of North Rhine-Westphalia…   There are signs German policymakers are already starting to worry about inflation, although it continues anchored around two percent. Last week, Economy Minister Philipp Roesler said the European Central Bank should refocus on price stability.   http://www.reuters.com/article/2012/05/01/us-germany-mayday-idUSBRE8400VU20120501   Remember, the core driving force in European policy-making is politics. Angela Merkel faces re-election in 2013. If inflation is already becoming a political issue in Germany now (though data shows that inflation actually slowed in April) Merkel is going to be highly incentivized to get it under control by appearing even more pro-austerity/ anti-monetization (more on this later). And if things get truly ugly she could even publicly threaten to pull out the Euro.   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.

Record deposits at the ECB/lower PMI in China/lackluster auction at Spain Posted: 03 May 2012 12:40 PM PDT by Harvey Organ, HarveyOrgan.Blogspot.ca: Gold and silver shares were rising as the bankers are covering their shorts. Gold and silver should have a good day tomorrow. Today we witnessed a record amount of Euros redeposited back into the ECB as Northern periphery European nations refuse to rollover sovereign debt of the Southern periphery. Euros are simply not being lent by the banks because they are bust. However the large balances of bonds held by Spanish banks of its sovereign host and Italian banks which host Italy's sovereign debt certainly sets up a big bang when these two nations default. They will need to rescue not only the sovereigns in a big way, but the banks and the pensions of its citizens together with Spanish and Italian depositors at host banks. Today we witnessed the Chancellor of England state that England will not sign the Basel III accords setting up a showdown there. The PMI numbers from China were abysmal highlighting that this nation is in recession. The PMI numbers from England were not any better. The Spanish auction for the 5 year bond did not go over too well today as yields rose by a full one percentage point. At these levels, Spain cannot sustain itself with higher interest costs. Read More @ HarveyOrgan.Blogspot.ca

Which Will Do Better in 2012: Gold Bullion or Gold Stocks? Posted: 03 May 2012 12:12 PM PDT One of the big debates of 2011 was whether the performance discrepancy between physical gold prices and gold equities was going to diverge back to normal. As you may recall, gold equities grossly underperformed gold bullion throughout 2011. For most of the year, gold prices traded anywhere between 15 to 40 percent higher than their equity counterparts. [How will 2012 end up? Here are my views.] Words:*700 So says Amine Bouchentouf ([url]www.HardAssetsinvestor.com[/url])in edited excerpts from his original article*. [INDENT]Lorimer Wilson, editor of [B]www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor's Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.[/B] [/INDENT]*Bouchentouf goes on to say, in part: Diverging Performance As 2011 closed, the market experienced a gaping difference between gold stocks and physical gold. Specifically, while gold bullio...

Gold Price Dropped $19.20 to Close Comex $1,634.20 Mustn't Fall Below $1,600 Posted: 03 May 2012 12:07 PM PDT Gold Price Close Today : 1634.20 Change : (19.20) or -1.16% Silver Price Close Today : 2995.90 Change : 63.3 cents or -2.07% Gold Silver Ratio Today : 54.548 Change : 0.501 or 0.93% Silver Gold Ratio Today : 0.01833 Change : -0.000170 or -0.92% Platinum Price Close Today : 1532.30 Change : -28.20 or -1.81% Palladium Price Close Today : 660.40 Change : -6.75 or -1.01% S&P 500 : 1,391.57 Change : -10.74 or -0.77% Dow In GOLD$ : $167.06 Change : $ 1.18 or 0.71% Dow in GOLD oz : 8.081 Change : 0.057 or 0.71% Dow in SILVER oz : 440.82 Change : 7.10 or 1.64% Dow Industrial : 13,206.59 Change : -61.98 or -0.47% US Dollar Index : 79.21 Change : 0.016 or 0.02% It was one more bruising day for the silver and GOLD PRICE. Gold dropped $19.20 (1.16%) to close Comex at $1,634.20. That close came near the low of today's range, $1,649.30 - 1,631.16. The GOLD PRICE breaking $1,625 would suck a lot of heart out of the market, but the crucial line in the sand is $1,600. Look here at this: Bad as GOLD fell today, it did not fall again beneath the upper boundary of that Falling Wedge y'all are probably tired of hearing about. If it does, it could fall all the way to the lower boundary , now about $1,580. SILVER hurt more than gold today. It dropped 63.3 cents (2.07%) to close Comex at the Wal-Mart price of 2995.9c. That's the second trip in a month to 3000c. One more and silver falls through. The SILVER PRICE DID fall through the upper line of its falling wedge, which argues for a drop to 2950 cents. On the other hand (I sound like an economist) today's close marks a double bottom for silver, and we'll have to see whether that holds. Some time soon will come a bottom. Just about the time even I was getting down a wonderful person called today to remind me that I had sold her silver and gold in 1998. Her $5,000 spent then would bring about $32,000 right now. The bull market has not ended, and more of those gains will come. In a burst of Pharisaical arrogance unmatched by the entire history of the Soviet Politburo or the Ancien Regime, the European Central Bank met in Spain today rather than its usual German, "to be better known and closer to the citizens." To Spain, which is in recession and has a 24% unemployment (admitted, at least) and 50% unemployment among young people, ECB El Presidente Mario "Apparatchik of the Big Banks" Draghi said they (and the other governments) ought to get a grip on their "bloated budgets." This resembles cutting a man's legs off, then ridiculing him because he cannot run very fast. Somewhere, some latter-day Madame is knitting, knitting. Écoutez! The click of the needles. STOCKS today looked -- well, how can I say it nicely?-- right sick today, having completed a head and shoulders top on the five day market. Dow closed today down 61.98 (0.47%) to 13,206.59. A break below 13,180 starts an avalanche. S&P500 lost its grip on the morale-critical 1400 level to close down 10.74 (0.77%) at 1,391.57. Yes, I know the entire stock-selling world is chortling over higher prices, but watch out. Look for a sharp rally, followed by a collapse. CURRENCIES today trod water. Nothing there to talk about, except it's interesting that the euro FELL on news the ECB would not lower interest rates. Interesting because keeping interest rates higher should send the currency's price up, not down. But what do I know? I'm the guy who looks for the pigs and goats when anybody talks about "stock." Argentum et aurum comparenda sunt -- -- Gold and silver must be bought. - Franklin Sanders, The Moneychanger The-MoneyChanger.com 888-218-9226 10:00am-5:00pm CST, Monday-Friday © 2012, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down. WARNING AND DISCLAIMER. Be advised and warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures. NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps. NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced. NOR do I recommend buying gold and silver on margin or with debt. What DO I recommend? Physical gold and silver coins and bars in your own hands. One final warning: NEVER insert a 747 Jumbo Jet up your nose. No, I don't.

The problem here may lie not with the gold bugs but with those who work so hard to isolate them. Posted: 03 May 2012 11:17 AM PDT Gold Standard for All, From Nuts to Paul Krugman

Fabulous Mogambo Essay (FME) Posted: 03 May 2012 10:32 AM PDT I recently had a revelation of sorts, distilled from my merely noticing what happens when passing by my neighbors, out on their stupid lawns, playing with their stupid kids, or washing their stupid cars, or just doing something stupid. I am sure that you wonder how I can tell that they are stupid.  Easy. I've been telling them to buy gold, silver and oil, for so long, and to such little effect, even in the face of such enormous gains accruing to those who followed such Fabulous Mogambo Advice (FMA), that one can only conclude that they are stupid or deaf. And I know they are not deaf because when I helpfully say to them "Hey, you drooling moron! Buy gold, silver and oil stocks or kiss your stupid, ugly butt goodbye!", where by "ugly" I mean "big", they always reply, all huffy, "Who are you calling a drooling moron, you moron?", thus proving that they can, indeed, hear. Anyway, being the friendly, peach-of-a-helpful guy that I am, as I pass by them in my snazzy Mogambo-Mobile, I always honk the horn several times to get their attention, and then we exchange the usual pleasantries, usually along the lines of them saying to me "Shut up that stupid horn, you dumb Mogambo bastard!", with me responding by cheerfully reminding them of their many, many errors, delivered along the lines of "I told you that your economic hell was going to happen, you lowlife cretin of a moron, because the Federal Reserve is creating so much excess money and credit!" If I don't think that they are near enough to actually hit my car with anything, I can go slow enough to manage to throw in a little free history lesson for them, too, as in "And if you had bought gold, silver and oil when I told you to, then maybe you would be wealthy by this time, instead of just being older, uglier, fatter and (as far as I can tell) even stupider now than you were when you were too damned stupid to buy gold, silver and oil like I told you to, way back when, which was, QED, pretty damned stupid of you, and a complete waste of my Precious Mogambo Time (PMT)!" They, of course, voice their displeasure at my reminding them of what imbeciles they are, mostly by engaging in making crude gestures, shouting rude profanities and flinging pet excrement at me, all of which are low-class behaviors that you would naturally expect from morons that are so, as previously postulated, stupid. To be accurate, and just to set the record straight, my idiot neighbors only act hateful and cruel because they foolishly think that I am NOT carrying some kind of weapon that might "accidentally" fire, usually in the direction of somebody being hateful and/or cruel to me, and who is, obviously, asking to have their middle finger shot clean off. But as to stupidity, if you want a frustrating afternoon, trying explaining the simple idea that the continual creation of a larger money supply leads to price inflation, even though Milton Friedman famously said -- long enough ago that they should have heard of it by now! -- that "Price inflation is always and everywhere a monetary phenomenon." So, I honk my horn at these boneheads, and I disdainfully huff in my haughty condescension that they deserve what they get for ignoring Friedman, and ignoring the enormous increases in the money supply created by the evil Federal Reserve, a lot of which was used to buy the $5 trillion of new Treasury debt issued by the evil Obama spendthrift administration in the last 3 years!. So, I mean, you would think that some, or at least one, of these proletariat halfwit neighbors of mine would have been impressed with Friedman's profound economic truism, especially considering the fact that nobody has disproved it yet! Nor has anyone even found any time in history where such increases in the money supply did NOT produce inflation in prices, which of course hurts the poor by making things cost more. As to the economy today, in case you are wondering on the edge of your seat what will happen, pull your chair up here closer to me so that you can look deep, deep into my eyes, and thus be impressed by my Awesome Mogambo Sincerity (AMS).   Perhaps then you will understand the terrible enormity of what is happening because the evil Federal Reserve created, and is still creating, so much excess money and credit for the last 25 years, and maybe that explains why the soundtrack to this Fabulous Mogambo Essay (FME) sounds so spooky and foreboding, a sonic mishmash with crashing, clashing horns making your skin crawl at the horrible dissonance, but not quite able to disguise the sound of ravenous wolves and government-employees unions approaching, one to eat you, and the other to eat your wallet. If you don't hear the soundtrack on your computers, it is bad news for those of us who are both paranoid and have no idea how computers or soundtracks work.  I figure that it means that the government is censoring me, crushing me under its hob-nailed boot heel, to keep me from giving you the vital, VITAL advice to buy gold, silver and oil as protection (and enormous wealth-generation!) against the raging price inflation that will rain down upon us because of the foul Federal Reserve. In fact, the vital, VITAL information to buy gold, silver and oil, distilled, as it is, from thousands of years of history, is so important (as indicated by the repeated use of the word "vital" over and over, which I use to make myself feel important) that I expect secret government agents to take action against the spread of this Immortal Mogambo Message (IMM) at any second.

Jim Grant: "The Federal Reserve Is The Vampire Squid Of Vampire Squids" Posted: 03 May 2012 10:19 AM PDT Munch's "The Scream" may be all the rage today, but to Jim Grant, in his latest interview on Bloomberg TV, the record price paid for the painting is not so much a manifestation of modern art as one of modern currency: "This is the flight into things from paper" . Thus begins the latest polemic by the Grant's Interest Rate Observer author whose topic is as so often happens, the Federal Reserve (for his latest definitive expostulation on why the Fed should be disbanded and why a gold standard should return, delivered from the heart of Liberty 33 itself, read here). The world in which we invest is a world of immense wall to wall manipulations by our friends in Washington. And people get off on Goldman Sachs because it has done this and this, it is pulling wires... The Federal Reserve is the giant squid of squids, it is the vampire squid of vampire squids." He continues: "They - the vampire squids - have manipulated virtually every single price and valuation in the capital markets. People ought to recognize when they invest that one of the unspoken risks is the risk that this hall of mirrors, this Barnum and Bailey world that the Fed has created for us is going to vanish one day because they will not be able to hold it any more... It's not as if there is nothing to do in investing, but one must always keep in mind that the valuations that we see, that the prices that we watch flicker across the tape are prices that are fundamentally manipulated by these well-intended, dangerous people in Washington called the Federal Reserve". And to think that 3 short years ago Grant would have been branded a loony, tin-foil hat wearing gold bug, while now it has become trendy for hedge fund managers to bash the Fed with impunity. It is all downhill from here.

We may witness a singularity: Hugo Salinas Price Posted: 03 May 2012 10:08 AM PDT Hugo Salinas Price | Mexican Association for Silver - The gold price: the reds against the blues I do not have a crystal ball to tell me the future, nor do I have any special input from insider sources to inform me of what is going on; as a gold-bug I read what all the other [...] This posting includes an audio/video/photo media file: Download Now

Ben Bernanke vs. Gold Posted: 03 May 2012 09:35 AM PDT On March 20, 2012 Ben Bernanke lectured students at George Washington University on the value of central banking and the "volatile" system it replaced, the classical gold standard.  Here is my video response to some of his claims about gold. On the Money: Ben Bernanke vs. Gold

Kerry Lutz Interviewed by Andrew Horowitz, The Disciplined Investor--03.May.2012 Posted: 03 May 2012 09:16 AM PDT www.FinancialSurvivalNetwork.com presents: Today I appeared on Andrew Horowitz's show, The Disciplined Investor. We discussed survival investing, which I define as allocating your assets in a way that will protect your wealth in the event of a dollar collapse or the event when major inflation besets the world financial system. While Andrew isn't a big fan of precious metals, especially silver, he did see some logic in acquiring assets that could potentially protect us again major systemic disruptions. While I wouldn't classify myself as an extreme financial-prepper, I would say my confidence, in the ability of men like the Ben Bernank and Tiny Timmy Geithner to look out for my economic well being, has been greatly shaken.  After being forced to bailout the Too Big To Fails, I have come to the belief government is not only the problem, but it can never be the solution to the problems that it's already created. Rather, the likelihood of a global financial cataclysm increases by the day; and the gold and silver, along with certain commodities, may well be the only things left standing. So if that makes me a financial-prepper, so be it. It's a risk that I'm more than willing to take.  Go to www.FinancialSurvivalNetwork.com for the latest info on the Economy, Markets and Precious Metals. This posting includes an audio/video/photo media file: Download Now

A Price Target for Gold if the Dow Has Reached Its Top Posted: 03 May 2012 08:45 AM PDT Personally, I think equities are going to head much higher. There are two main reasons for this: With 7.6 trillion USD in bond payments on government bonds due this year, I believe we will increasingly see capital run ... Read More...

The Real Debate On Gold And Money Posted: 03 May 2012 08:44 AM PDT Submitted by Jeff Snider, President and CIO of Atlantic Capital Management The Real Debate On Gold And Money Monetary adjustments, heavy as they have been in these past four years, will remain a permanent part of our economic landscape so long as central banks remain committed to their current course.  Now that the annual excitation of economists and their dreams of recovery are waning, and the "unexpected" decline in the economy has returned right on schedule, the discussion needs to turn toward those monetary interventions.  I have had many discussions with clients and members of the general public on the topic of the gold standard over the past few years, especially in the past several weeks as Chairman Bernanke deliberately broadcasts his specific problems with it from the perspective of a central banker tasked with "saving" the economy.  Even getting past the glaze of apparent anachronism, largely that something so archaic seems utterly incompatible with our modern electronic society, the persistent, and otherwise extremely healthy, mistrust of banks prevents a further discussion of how the gold standard really works.  For those that actually know the US paper dollar was primarily issued by banks prior to 1913 in the form of deposit claims on "reserve" assets, it is simply asserted that the principle of "universal currency" issued by the government, with its full faith and credit backing it, is a better fit, a more complete system befitting our digital age.  This simple line of thinking confuses the needs for clearing money imbalances with money itself, more than anything, but it also misses the central transformation of the 20th century. If the greatest trick the devil ever pulled was convincing the world he didn't exist, the greatest trick our central bank ever pulled was convincing the world we couldn't live without it.  For most of that past twenty years, that PR campaign has been centered on the Great "Moderation", so called because it apparently represented the full embodiment of economic management – a period of unparalleled prosperity, a Golden Age of soft economic central planning.  Give the central bank enough "flexibility" and it will produce unmatched economic and financial satisfaction.  In 2012, as the illusion and luster of the Great Moderation fades into the realization of the unthinkably high cost by which it was all purchased, soft central planning is no longer unchallenged by general apathy.  Into that breach the topic of "flexibility" flows, a battle that has profound implications for the future, especially the longer term.  Chairman Bernanke wants at least to maintain his flexibility, preferring to expand it as much as possible.  But as we face continued and mysterious economic headwinds that are fully unexpected by the sophisticated and elegant math of economic practitioners, engaged observers who otherwise were content with that central bank apathy awake to the possibility that flexibility for the Federal Reserve comes at the price of individual flexibility.  More power for Chairman Bernanke necessarily means less power for you and me. If the topic of the Great Moderation is open for re-examination as nothing more than asset inflation disguising recklessness and poorly conceived and constructed theory (often shockingly simplistic, it is hard to believe sometimes that the mathematical models that rule the economic world encompass so many simple assumptions and just ignore any other parameters that cannot be statistically fit into them), the idea of central bank/universal currency should also be addressed.  The Great Moderation itself (the asset bubbles, credit production and, above all, interest rate targeting) would never have been possible without central bankers controlling not only the supply of money, but also its very definition. A gold standard in whatever form represents a decentralized paradigm of monetary control, the true expression of the free-est marketplace.  You may argue that such a paradigm is ultimately economic suicide, a pro-cyclical monetary drag on economic affairs during dislocations, but you cannot argue that the ultimate decision for that drag lies with individual persons, not central bankers.  A true gold standard, one where banks may only issue "dollars" that are convertible into some specified physical quantity of gold, means that control of the money supply rests entirely within the willingness of individual economic actors to exchange real money (gold) for paper dollars (currency).  That is the ultimate monetary power. An individual bank operating under this paradigm would actually care about public perceptions of its risk profile and ability to successfully carry out its role as an intermediary of credit.  Since the stock of money is exogenously controlled by the general public, individual banks would actually compete with each other to maintain some real standard (as opposed to an ephemeral accounting notion) of sanity and reserve, so much so that the very idea of intentional complexity and opacity would be harmful to its own prospects.  Profits are driven by the careful elucidation of true intermediation since the scarcity of reserves reinforces the public's general skepticism of the potential for banking mischief.  As is often the case with banks as businesses, the alignment of a bank's ultimate goal (profits) with depositors' collective desires for safekeeping rarely coincide.  A bank seeks to grow its profits through some degree of informed speculation (the very definition of intermediation), taking on some degree of financial risk that without a doubt exceeds the level of risk a depositor would deem appropriate.  So the dance within the financial system of deposits of real money is one where the bank will always try to push the boundary of "appropriate", and depositors will restrain that boundary through marginal withdrawals of real money. If the bank expands its boundary too far, the amount of deposits that flee exceeds the ability of the bank to replace them, meaning bankruptcy.  In the true gold standard system, there are no alternatives to this course – it is the brutal realization of market discipline.  Market discipline, for its part, systemically keeps other banks in check as a reminder to remain aware of the exogenous level of appropriate credit creation.  Scarcity enforces a true standard of credit creation, ultimately set by the (admittedly imperfect) perceptions of individuals as they carry out actions in the real economy. The great trick, then, was the transformation of the banking system, first away from real reserves, and then the displacement of the marginal authority of depositors altogether.  As early as 1865 in the United States, in Jay Cooke's pamphlet, elite opinion first sought to equalize precious metals and government bonds as bank reserves, which was eventually realized.  Then came physical Federal Reserve Notes, backed by tax collection powers rather than scarce real money.  Then came ledger money and the rise of accounting – the beginnings of a cashless society.  The slow transformation of the monetary system, and central bank realization of a level of flexibility on par with economic control was finished with the adoption of equity capital rules (Basel) and the supremacy of interbank wholesale money markets.  Depositors were shoved out of the monetary equation, and with them, the primary considerations for and ties to the real economy. In our current central bank standard, particularly as central banks adhere to both interest rate targeting and monetary elasticity, the level of deposits of "money" (whatever that means today) has little bearing on a bank's survivability, at least anything approaching a systemic counterbalance.  Sure, IndyMac failed because $1 billion in deposits of digital dollars were adjusted off its accounting ledger (especially after Senator Schumer's letter), but IndyMac's real restraint was financial collateral.  That has many implications (as we have observed the growing shortage of collateral for funding operations), but it also means that the ultimate source and arbiter of bank funding is not deposits. As long as a bank can pledge some kind of financial collateral with a central bank, that bank will remain in business, regardless of how its depositors (the public) feel about its recklessness.  Indeed, most of the credit production accomplished during the past thirty years (encompassing the whole of the Great Moderation) was done by banks that have no depositors whatsoever.  The Great Moderation would be more appropriately called the Great Financialization, where securities overtook the role of "reserves", and central banks committed to unlimited funding of those reserves (to achieve a specified interest rate target, meaning a zero or near-zero interest rate target can lead to the possibility of unlimited reserve creation, but, again, the effective restraint being the supply of "quality" collateral, as defined by central banks themselves).  Under these terms, it is easy to see why Chairman Bernanke decries the role of a gold standard.  The current interest rate targeting/quality collateral reserve standard is almost completely at his whim.  In practical application, the only restraint on his control of the money supply is the political willingness of governments to issue debt.  Yet, far from being the opposite of the rigid gold standard, we see instead rigidity reappear in other places. The unending string of bailouts of systemically "important" institutions is the prime example of this new rigidity.  The fact that there even exists the notion of systemically important institutions belies the fact that the "flexible" system has improved at all upon the gold standard.  The myth has been propagated that it was the gold standard in the early 1930's that transmitted the monetary collapse throughout the world, a conduit for the collapse in money to transmit into the global real economy.  Even if we accept that explanation and interpretation, how is the current state of affairs any different?  In 2008, the systemically important banks transmitted the same kind of monetary contagion far and wide through the rigidity and weaknesses of the same interbank money markets that were supposed to be such a marked improvement.  Even in the nearly four years since that time, central bankers are still wrestling with bypassing their own interbank creations due to persistent dysfunction, with the system rigidly locked in a perpetual state of crisis.  This more than suggests that not only does rigidity remain in the system, it continues to grow worse, hardly an improvement on the gold standard (and the gold standard in the 1920's was nothing like the classical gold standard, it was a gold exchange standard that permitted central bank sterilization, the first widespread uses of central bank flexibility). Part of this new strain of rigidity stems from a stark perversion of the meaning of intermediation.  During the Great Financialization, the banking system itself transformed from its traditional method of increasing the productivity of money and the general pool of savings into a system of transmitting monetary policies regardless of market conditions.  Instead of reactive to marketplaces, the banking system would subsume and set markets on orders from central planners.  Owing to the growing acceptance of the rational expectations theory, central banks began to view credit and credit producers as tools of psychological manipulation.  It was the simultaneous application of both increasing the stock of money and enticing monetary actors to increase its circulation that led to the supposed golden age of central banks.  Debt-fueled consumption and the "wealth" effect were the realized supremacy of all the economic theories that worship at the altar of aggregate demand. Unfortunately, as a tool of central banks, with the promise of liquidity and uninterrupted profit expansion, banks began to lose and discard the idea of intermediation altogether.  The whole of financial innovation during this period was not directed toward real economy productivity nor even monetary productivity, it was directed toward maximizing the new rigid rules of the monetary regime.  Banks, instead of worrying about various obligors' ability to repay loans, instead set themselves to creating profits regardless of any ability to repay.  Accounting rules were invented (gain-on-sale being the most notorious), as were new methods of attracting these new bank reserves for the sake of attracting new bank reserves.  Quality collateral could be synthesized out of nothing; the real economy was not even needed (see synthetic CDO's and interest rate swaps).  Essentially, central bank flexibility has bastardized intermediation, as liquidity and scale became the sole determinants of financial profitability.  Traditional depository banks could no longer compete, as was designed.  So long as aggregate demand was meeting some mathematical target, central bank planners cared little about this growing process of de-intermediation.  Banks, for their part, only cared about buying and holding whatever obligation got them funding, even if that obligation would be deemed unworthy under regular means of intermediation.  This de-intermediation of banks applies not only to the current circumstance of hundreds of billions of PIIGS debt issued in the past few years, it equally applied to subprime mortgages that were packaged and securitized, forming the initial basis of the financial-collateral-as-bank-reserves monetary pyramid.  The repo market and interbank wholesale markets reached their apex in the 2000's, but made their first marginal impacts as early as the 1970's.  Even by the mid-1980's, repos were causing problems, as bad repo trades led to the first few failures of what would become the S&L crisis. The question of the gold standard is a question of what kind of banking system do we desire.  Do we accept a bank-first approach to the economy, where we also accept the central bank dogma that the banking system and the real economy are one and inseparable?  If we view the banking system through the lens of true capitalism, the bank-first approach reverses the accepted notion that intermediation exists as a tool for increasing productivity and production in the real economy.  That scarcely describes the system we have right now, or have had for forty-five years (particularly the last twenty-five), where banks exist to serve themselves, where financial firms scarcely pay lip service to aligning their goals with their liability-holders (or clients).  Nor is it compatible with the basic, simple idea of productivity:  those with bad ideas are eliminated.  Instead, intermediation now means those with every bad idea possible are given funding because profits have little to do with real economic success.  The financial economy really has become a game that simply seeks to transfer "money" from one perception to another.  How it goes about that transference, nobody really cares anymore as long as some type, any type, of economic activity appears at the margins. Given the dramatic rise of derivative contracts, especially synthetic bond creation through interest rate swaps, the banking system at the top really doesn't even need the real economy to function on any scale.  In fact, in this system of unlimited reserves and central bank flexibility, the real economy has become a hindrance to the banking system's all-consuming quest for profit and growth.  Intermediation in the real economy is far less attractive, on a profitability basis, than pure financial speculation with the blank check of digital dollars conferred by the definition of modern bank money:  financial collateral.  Italy can guarantee the debt of banks that it itself depends on for "money", all so those same banks can access the ECB and serve as a means to transfer that "money" back to Italy.  This is not intermediation, and it has, right now, subsumed the whole of the bloated financial economy. Until QE 2.0, 99.999% of the public (including 99.999% of economists) would never have guessed it was collateral and accounting notions of balance sheet equity, both of which are eminently fudge-able at will, that actually governed the global banking system.  That kind of flexibility, which brought about the overgrown financial economy and this pitiful diminishment of intermediation, is an anathema to a free economy and polity.  The decentralized opinions of markets, the collective will of individual acts of free expression and movement, have been sacrificed unto the deity of the philosopher kings of elite opinion.  Our intellectual betters can scarcely be expected to allow the uneducated common man to chart the collective economic course, let alone define the rules of the game.  Markets no longer serve as a roadmap to the effective and efficient use of scarce real resources, they are tools of psychological manipulation to fulfill the religion of aggregate demand, soft central planning's answer to the five-year plan.  It all started the moment the gold standard was softened, conferring the ability of central banks to redefine money unto themselves.  What was the ultimate monetary authority in the hands of the people was redefined into the hands of elite opinion.  Flexibility can only visit one side of that equation. The collective will of the people is certainly far from perfect.  There is no question that the public succumbs to irrational fear and prejudice, and that power that rests in the hands of the temporarily unwise leads to real problems, but in a nominal system of freemen we would certainly be far wiser to maintain decentralized control and instead exerting our considerable collective efforts to mitigating the inevitable fits of irrationality.  But even those fits of irrationality perform a vital function, a process intentionally disabled by central bank flexibility.  Fear and prejudice that leads to financial distress, and even economic distress, is a self-correction mechanism of the real economy to clear out bad ideas and bad growth (any and all economic activity is not preferable, the real economy absolutely needs the right mix of economic activity to prosper in the long run).  Creative destruction is just as much a part of free market capitalism as decentralized authority, and creative destruction has been circumvented and disabled numerous times by the illusion of prosperity that is this bank-first, credit-first monetary system. With that in mind, the question of exogenous money and central bank flexibility comes down to a simple question:  would you rather have had 2008 in 1990 or 2008?  Or, even better, 1971?  At what point would it have been best to reinstate exogenous money creation and let creative destruction carry out its vital function?  Politicians would have protested and Fed Chairmen would have vociferously decried their lack of flexibility, but we would have been better off maintaining our own flexibility by exercising the ultimate measure of monetary control.  We were in far better shape long ago to weather this storm of imbalance before the economy was distorted away from its productive foundation (described by real money) into a consumptive economy (run on figments of political flexibility and expedience).  The transformation and distortion in the real economy that took hold in the late 1970's, "perfected" in the 1990's, was based entirely within the philosophy of money. That is the final judgment of monetary standards.  Chairman Bernanke decries the gold standard, but his institution's record is far worse.  Not only in terms of alternate standards (the current system is just as rigid and susceptible to global contagion, if not more so) but the utter corruption that the financial economy system has undergone strongly disfavors central bank supremacy.  Some of that damage will likely be permanent; at the very least it will damage the real economy for generations as we attempt to unwind financial incentives that placed unproductive speculation at the forefront, far above incentives for productive work.  Investors' expectations, for example, even after twelve years of a bear market, remain elevated by an asset price system devoid of true price discovery.  Far too many people still seek the easy lure of asset inflation, and that destruction of patience and care in the investment class will be a drag on the whole system for a long time.  More than a generation's (possibly as many as three) worth of knowledge and competence has been displaced by easy money.  I fail to see how any of this is better than a gold standard.  Gold is, again, far from perfect, but, in the end analysis, it may be the least objectionable. The definition of money is really a political consideration.  The slow relegation of monetary power to the Federal Reserve is a concentration of economic authority that is wholly incompatible with a free market, free society.  To paraphrase Abraham Lincoln, our economic system cannot remain both free and centrally planned, a market economy divided against itself cannot stand - we must become all one thing or all the other.  There are no perfect answers; there are only hard choices to make.  Perhaps that is the most loathsome and destructive aspect of the current standard of central bank flexibility, an aspect that I believe renders full judgment in favor of restoring decentralized power.  Central banks and their economic dogma essentially try to convince the public that there are no hard choices.  The entire welfare society system that this central bank regime was created to serve is built on that notion, that wealth is easily conjured and transferred, if only money could prove as flexible as the diktats of imposed political will.  Nothing so far in human history has been so thoroughly and unambiguously repudiated by the empirical evidence of human history itself.  By exposing that lie we can put to rest the notion that the real economy cannot function without the financial economy.  This bank-first approach to monetary policy is just a mislabeled effort to maintain and expand the current strain of central planning; there is no mistake about which direction central banks want to take if we are, indeed, fated to become all one thing. The discussion of the gold standard is nothing more than politics of eliminating the PhD class' flexibility.  In that respect, I care little about the mechanics of whatever means is used to impart central bank confinement.  It could be nothing more than a narrowly defined, transparently monitored and completely predictable restriction on the growth of bank reserves.  It could be a gold price rule.  Whatever means might effectively remove "discretion" from the vocabulary of central bankers should be included in all discussions.  Given an extremely limited role, central banks can actually be useful, particularly if they are reduced to nothing more than rigid clearinghouses of fiscal and financial imbalances (no, the ECB is not performing this job particularly well at the moment since it is busy trying to keep the monetarist side of the economic house from ruin and discredit).  Gold, itself has a definable tradition, a tradition that is readily accepted in many parts of the world, so it may yet be ahead of the game in that regard – certainly not what Chairman Bernanke had in mind when he derided precious metals' "tradition" in front of Congress last year.  In the ultimate fit of irony, perhaps it would be most fitting that owing solely to that tradition gold restores the proper balance of flexibility in the monetary system and the financial economy.  Less flexibility for Bernanke will mean more for you and me.  This restraint will finally define the devilish allure of the seemingly easy answers and illusory prosperity of central banks and conventional economics as nothing more than anesthesia.  However, once you turn over ultimate monetary authority to the central bank and give them the flexibility to define money, as we are finding out, it is far more difficult to recover it.  To paraphrase Rahm Emanuel, we should not waste the re-occurrence of crisis to take it all back.

Gold Seeker Closing Report: Gold and Silver Fall With Stocks and Oil Posted: 03 May 2012 08:17 AM PDT Gold fell to as low as $1630.90 by about 1PM EST before it bounced back higher in late trade, but it still ended with a loss of 1%. Silver slipped to as low as $29.87 and ended with a loss of 1.5%.

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