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Arcan Resources Ltd. Is Stock You Need To Consider
Europe, Facebook Could Cause Sell-Off Next Week
Buy Britain’s Gold Back
Whales in the gold market
This past week in gold
Bob Chapman : I do not recommend Gold & Silver ETFs
Currency collapse dynamics
Gold: The World's Friend for 5,000 Years
Jim Rogers: Buy Gold, Silver Before ‘More Turmoil’ Jolts the Globe
Gold: The World's Friend for 5,000 Years - Frank Holmes
Gold Standards and the Real Bills doctrine in US Monetary Policy (Timberlake)
European Socialists And Communists Voted For More Handouts
How The U.S. Dollar Will Be Replaced
Beijing Sets its Sights on Central Europe
Gold Higher as France Refutes EU Fiscal Pact
Gold-Stock Capitulation
John Brynjolffson 5/16
The costs of a Gold Standard
The Decoy of the Falling Dollar Revisited
The Golden Thorn In The Flesh, Part 2
John Hathaway Declares Gold Bottom
Royal Gold's Management Presents at Bank of America Merrill Lynch Global Metals, Mining &amp; Steel Conference (Transcript)
Chris Waltzek Interviews: President / CEO of Northern Gold Mining, Martin Shefsky & Arch Crawford
SilverFuturist: Silver during bank runs
The Case for Austerity: Keynesianism, Pharaoh and the Frogs
The Facebook IPO: The Last Great Wall Street Party

Arcan Resources Ltd. Is Stock You Need To Consider

Posted: 19 May 2012 04:44 AM PDT

By Stockmarketopedia:

If you feel the stock markets are approaching bottom and you are actively buying stocks, we do not want to tell our readers how to buy stocks but strongly suggest you take a look at Arcan Resources Ltd. (ARNBF.PK) as we feel it is a must buy oil stock.

This oil stock is a $250 million dollar market cap stock with a 90% light oil weighting. This oil stock has over 400 net horizontal locations in the Swan Hills area of Alberta with over 170 net sections of land. Arcan believes waterfloods can increase oil recovery factor to 40% or 400,000 bbls/well. The stock provides great exposure to light oil and tremendous upside, so if you are currently stock trading the North American stock markets, we strongly suggest you take a look at this stock.

Haywood Securities Inc. has a target price of $8.25 for this hot oil stock which

Complete Story »

Europe, Facebook Could Cause Sell-Off Next Week

Posted: 19 May 2012 04:13 AM PDT

By Colin Lokey:

As I predicted on May 10, stocks suffered their worst decline of the year last week with the Dow, S&P, and Nasdaq falling 3.5%, 4.3%, and 5.3% respectively for the week. Several factors contributed to the decline, not the least of which was the rising tide of fear regarding the European debt crisis.

Last week, investors witnessed a modern-day bank run in Greece when reports indicated Greek depositors pulled nearly $1 billion from local banks recently. The panic was triggered when talks to form a coalition government in Greece collapsed and new elections were announced -- the fear is that the new elections will bring the anti-austerity party to power and cause the whole bailout to collapse. The yield on Greek 10-year notes spiked over 200bps on the week bringing the yield on the 'new' bonds to within shouting distance of where it was prior to the debt swap. Things

Complete Story »

Buy Britain’s Gold Back

Posted: 19 May 2012 03:44 AM PDT

Posted MAY 16 2012 by JAN SKOYLES in FEATURED COMMENTARY, GOLD BULLION, ORIGINAL COMMENTARY

Great Britain was once the proud leader of the Classical Gold Standard. A global commercial and economic power, she operated on the gold standard from 1717.

The Standard allowed the free movement of capital which in turn financed and expanded trade. Twenty per-cent of the growth in global trade seen between 1880 and 1910 can be attributed to the stability of the gold standard.

The British people had faith in their money, its value, and the banks they kept it in. How far we have digressed from that confident nation.

The Great War and central banking promptly put an end to the loving relationship we Brits once had with gold. Our governments and central bankers decided over a few short years that we would be better off without our gold money.

Gradually over time we have lost our link to, and our faith in, gold; only to replace it with a faith in governments and the money which they print at their will.

The ultimate defamation to our historical appreciation of gold occurred between 1999 and 2002 when Gordon Brown sold 395 tonnes of Britain's gold, at the lowest price for 20 years.

Now it is time to bring it back and reinstate our faith in gold. We need to 'Buy Britain's Gold Back'.

Britain's Gold Sales

The motivation behind the gold sales was, according to the Treasury, risk reduction. They believed that with 50% of the net foreign currency reserves invested in gold, the exposure to the single asset was too great.

The proceeds of the gold sales were spent on purchasing further foreign currency assets for our reserves; the split of the assets purchased was broadly 40 per cent dollars, 40 per cent euros and 20 per cent yen.

An average price of $275.60 an ounce was achieved in the gold sales. Since that time gold's price has increased six-fold. In contrast the values of the dollar, yen and euro have each dropped significantly thanks to inflation and poor monetary policies.

Gold holdings abroad

Was the Bank of England right to allow the gold sales?

The World Gold Council reported last year that central bank buying in the market was highest since 1964, with purchases of 440 tonnes. This is thanks to a lack of sales by Central Bank Gold Agreement (CBGA) signatories and efforts by central banks in emerging markets to diversify their foreign exchange holdings (in an opposite manner to that done by the UK Treasury).

'With the two dominant reserve currencies beset with issues, interest in gold as the one currency free from the impact of government policy and intervention, has been spurred. The trend in central bank buying is expected to continue given the lack of decisive action in dealing with the underlying issues both in Europe and in the US, as well as low relative allocations to gold among emerging markets.' – The World Gold Council.

Central Banks are rebalancing their assets in favour of gold.

Gold holdings per country

According to World Gold Council the UK holds 310.3 tonnes of gold. This represents just 17.6% of our reserves; in the US and Germany their gold reserves represent 77% and 74% of their foreign reserves respectively.

The UK has the 17^th largest gold holdings by tonnage. But, we drop to 34^th out of 98 countries for gold reserves per capita. Had our gold not been sold then we would sit more securely at 22^nd.

Our gold holdings per capita are 26 times less than Switzerland's and 6 times less than the island of Aruba. No other major EU country has less gold per capita than us.

What about private gold investment?

In other countries, private investors' love for gold is well documented.

In 2011 India and China accounted for over half of total gold demand. The people of India privately hold more gold than US and Europe central banks combined. In 2011 Indians bought 500 tonnes of gold jewellery and 366 tonnes of bullion.

Germany and Switzerland are Europe's largest holders of gold per capita and this looks set to continue; in 2011 they accounted for the majority of Europe's seventh annual gain in gold imports in 2011.

Perhaps it is time we started thinking along the same lines?

What are the benefits of gold?

Some investors see gold as a useless asset which just sits idle in a vault. It does not pay dividends. It is not a 'productive' investment.

According to the BBC's Robert Peston, the Treasury under Brown became fixated on the idea of selling the gold; 'they hated what they perceived as the intrinsic laziness of gold. It simply sat in the vaults gleaming but earning no interest. They wanted assets that appeared to earn their keep, by generating interest payments. They also hoped and believed that rampant global inflation was a thing of the past, and that the days of gold's soar away success would never recur.'

But as Mark Twain advised, you should be concerned first with 'the return of your money', before 'the return on your money'?

After Japan, the UK is now the most indebted leading economy. It is estimated that it will take at least a decade for UK private-debt burdens to return to levels seen before the Credit Crunch. The banking sector is the largest component of debt in the UK; the sector in whose custody we place our savings.

Fears of inflation are not a thing of the past. We recently learnt that UK inflation, measured by the CPI, currently sits at 3.5%. This is blamed on rising commodity prices, core inflation, which discounts rising energy, food, tobacco and alcohol prices, sits at 2.5%.

The RPI which is a better reflection of our everyday consumption has, according to Simon Rose, increase by 53% since the Monetary Policy Committee was formed in 1997. Mr Rose finds a sliced white loaf cost £0.52 fifteen years ago, but today it costs £1.23.

Inflation is eroding the value of our cash.

Inflation is a tax on the hard working people of Britain. It punishes savers, punishes those who earn or have money.

The Sunday Times reported recently that we need a savings account to pay 4.38% to beat tax and CPI inflation. This is an increase of 0.13% in the last month alone. £41.8 billion a year is confiscated from pensioners and savers as a result of negative interest rates. The Centre for Economic and Business Research estimate the bank rate will stay this way until 2016.

So, how can we secure our savings with the same satisfaction and guarantee felt by previous generations? Perhaps we need to look to our heritage, as the once global economic leader, and remember an important lesson about gold. Many other nations are already doing this, as they strive to protect themselves and come out on top of this financial crisis.

Build your own reserves

A 2002 report from HM Treasury outlined why gold is held in foreign reserves:

1. The war-chest argument – gold is seen as the ultimate asset to hold in an emergency and in the past has often appreciated in value in times of financial instability or uncertainty;

The government are so concerned about this 'emergency' that they set up a compensation fund, the FSCS, to pay out up to £85,000 to those whose money is lost in the banking system. Do we really want to store our wealth in a system where this is a possibility?

2. The ultimate store of value, inflation hedge and medium of exchange. Gold has traditionally kept its value against inflation and has always been accepted as a medium of exchange between countries;

This is something which we mention time and time again. Since 1967, the British pound has lost 90% of its purchasing power. This devaluation is mainly down to the inflationary practices of government's monetary policies.

In the first quarter of 2012 the British pound was down 3.5% against gold is both an inflation hedge and a store of value. Unfortunately our Treasury was too short-sighted to see this and as a result has loaded us up with depreciating and questionable national currencies.

3. No default risk – gold is 'nobody's liability' and so cannot be frozen, repudiated or defaulted on;

An excellent point made by Her Majesty's Treasury, but unfortunately one which works against them. And one which is serves the strongest argument for keeping your money out of the bank.

As the FSCS state themselves, since it was set up in 2001 they have 'paid out £26 billion in compensation and helped more than 4.5 million'. All of those individuals needed helping because of counter-party risk, because banks and other financial organisations losing their money.

If the Bank of England had kept our gold we would be better insured against the risk of the financial system.

4. Gold's historical role in the international monetary system as the ultimate backing for domestic paper money.

Gold is 'The ultimate backing for paper money'. Paper money is just that; paper. It is worth little compared to the money which once put the 'Great' in Great Britain. It is no longer backed by anything real, all that backs it is the confidence we have in the Bank of England. The same central bank that failed to predict the tech bubble, the housing bubble, and the Credit Crunch.

Previous governments may have lost some of our security we don't have to be the victims. With Britain more vulnerable it's time for us to take matters into our own hands.

Whilst the government are asleep at the watch, let's buy some gold bullion to secure our future. Let's buy back Britain's lost gold ourselves. For each taxpayer the UK Treasury sold 13.2 grammes of gold. Each person who buys their share of the gold is buying their own little piece of financial security and acting as their own central bank. When you own physical allocated gold, it is yours, no-else may sell it or loan it. Your asset is not dependent on any party's performance, your investment is 'no-one else's liability'.

Let's Buy Britain's Gold Back; for our security, for our independence, for Britain.

Buy Britain's Gold Back.

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Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.

TAGS: Central Banks, Gold bullion, Gold Investment, Gold prices CATEGORIES: Featured commentary, Gold bullion, Original commentary

About the Author

Jan SkoylesJan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working at Cheviot Asset Management in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from university Jan joined The Real Asset Co research desk and now contributes to the Cobden Centre, The Commentator, The Renegade Economist and Market Oracle.

Whales in the gold market

Posted: 19 May 2012 03:41 AM PDT

Posted MAY 18 2012 by WILL BANCROFT in GOLD BULLION, ORIGINAL COMMENTARY S

Last April gold investment analysts where excited to see a new institutional player enter the gold market. The University of Texas Investment Management Co. took delivery of nearly $1bn of gold bullion into a New York vault. The reason gold analysts were so interested was because large institutional players had been largely absent from their market and their huge purchasing power had therefore not had its potentially significant positive effect on thegold price.

The gold purchase by America's second largest academic endowment was noted in case it was the start of a trend. Nonetheless, continued institutional bids into the gold market did not follow in great enough numbers to identify a compelling trend. Apart from last summer's run to over $1,900/ounce, the gold price has not hinted at notably increased institutional buying of gold. Gold investors were left waiting and wanting.

However, the Financial Times reported some interesting news for those monitoring such a trend yesterday.

Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Initially, the fund aims to keep about 1.5 per cent of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer (CIO) Yoshisuke Kiguchi, who said he was diversifying into gold to "escape sovereign risk".

Pension funds and gold bullion

Traditionally pension funds have ignored gold due to their focus on yields. Japan is the world's second largest pension market, and this move by Okayama Metal & Machinery is worth paying close attention to. Such a move into non-yielding assets becomes more palatable in a world of negative real interest rates where institutional investors are paying for the 'privilege' of holding government paper.

The fund's aforementioned CIO appears to have talked his investment committee into a long term wider view of asset allocation. Mr Kiguchi had made the case that a lack of yield needed to be balanced against currency and default risk. Loose monetary policies and the durability of fiat currencies seemed to be on his mind when he commented: "from a very long-term point of view, gold may be one of the safe currencies".

This point about long term asset allocation is one that has been articulately made previously by Ben Davies ofHinde Capital. Mr Davies and Hinde Capital have also been observers of Japan's potential in the gold market, and according to the FT, this potential may be morphing from latent demand into patent demand.

Mizuho Trust & Banking, a unit of Mizuho Financial Group, has begun to offer investment schemes allowing smaller pension funds to invest in gold… While few fund managers are counting on a crash in core assets such as Japanese government bonds, said Takahiro Morita, head of the Tokyo arm of the World Gold Council, a producers' association, they were increasingly receptive to the idea that gold could act as a buffer against shocks. "Last year's tsunami and the eurozone debt crisis shows that it was wise to expect the unexpected," he said… Nomura, Japan's biggest wealth manager, added a gold option to its monthly survey of 1,000 randomly selected retail investors in February. Every month since, gold has been ranked the third-most desirable addition to portfolios, well ahead of competing assets such as investment trusts, bonds or foreign securities.

Succinctly explaining recent performance across asset classes, Yoshio Kuno, Japan head of Newedge, the futures broker, argued that "If you look at assets over the past couple of decades, equity has been a loser, while fixed income offers tiny coupons. Gold is becoming an acceptable currency substitute."

This news and sentiment out of Japan suggests further evidence of declining trust in fiat currencies to us, but is a wider trend of growing institutional demand for gold appearing?

Whales and the gold market

Recent SEC filings, reported by ZeroHedge, show other institutions participating in the gold market. Most of these names are familiar to gold market observers but some of them appear to be increasing their participation whilst others are new buyers.

Eton Park Capital, Paulson and Co., PIMCO, Soros Fund Management, and the Teacher Retirement System of Texas all bought shares of the world's largest gold exchange traded fund (ETF), known by its ticker of GLD, in the first quarter of 2012.

Within this Soros quadrupled his gold investment position compared to the previous quarter, PIMCO and the Teacher Retirement System of Texas were also net buyers, whilst Eric Mindich's Eton Park Capital was a new buyer with a purchase of 739,117 shares, having held no position in GLD at the end of 2011.

Large buyers need liquid gold products

It is also worth noting the size of some of this participation. Investment by Okayama Metal & Machinery of $500m and Eton Park Capital of $110m is larger enough for these buyers to need a highly liquid gold investment solution.

Institutions that need to invest in regulated securities tend to look towards the largest ETFs, like GLD, as only these products are liquid enough to handle their buying and selling without inordinately affecting the price. This can be especially relevant for some pension funds that may be unable to take delivery of physical bullion as the University of Texas Investment Management Co. and David Einhorn's hedge fund, Greenlight Capital, did.

Eric Sprott's Physical Gold Trust and the Central Fund of Canada might be a structurally superior means of achieving gold, or precious metals ownership, but at the time of writing the Sprott Trust's Net Asset Value (NAV) was less than $2.2bn and the Central Fund's NAV was less than $4.8bn. This is compared to GLD's current NAV of $63.5bn. Whales sized gold buyers need deeper liquidity and, regardless about opinions as to its suitability for gold investment, GLD has it.

Whilst the above institutional action in the gold market might not point to a firm trend of hot institutional activity it is worth paying attention to. Trends have to start somewhere, and whilst gold is not significantly held by institutions generally, the motivating concerns mentioned by Okayama Metal & Machinery's CIO might be held more widely across the industry.

The move into gold by Okayama Metal & Machinery should be looked at in the same light as the University of Texas Investment Management Co.'s gold investment last year. For now we just hear a slow dripping sound as financial glaciers melt and capital begins to look for more secure homes and better collateral.

Central banks and pension funds buying gold bullion. Invest in gold like a professional in minutes…

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TAGS: Gold bullion, Gold Investment, Gold prices, Silver bullion CATEGORIES: Gold bullion, Original commentary

About the Author

Will BancroftAside from being COO, Will also contributes to The Real Asset Company's Research Desk. His passion for financial markets and investment led him to develop a keen interest in monetary economics, gold and silver. Will's views are sought by and appear on sites such as Seeking Alpha, Market Oracle, Stockopedia, Resource Investor, and Commodity Online. Will holds a BSc Econ Politics from Cardiff University.

This past week in gold

Posted: 19 May 2012 03:37 AM PDT

GLD – on sell signal.
SLV – on sell signal.

GDX – on sell signal.
XGD.TO – on sell signal.
CEF – on sell signal.
Long term readers may recall this chart of support and resistance from years past.
Gold stocks are now at major support and a counter trend rally can begin anytime, which is tradable if risks are manageable.

Summary
Long term – on major sell signal.
Short term – on sell signals.
Both long and short term on sell signals and cycle is down but at levels of previous bottoms. A multi week corrective rally can start anytime and tradable if risks are manageable.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.

End of update

Bob Chapman : I do not recommend Gold & Silver ETFs

Posted: 19 May 2012 01:12 AM PDT

Bob Chapman : While I do recommend a few gold stocks, I do not buy stocks. I...

[[ This is a content summary only. Visit my blog http://www.bobchapman.blogspot.com for the full Story ]]

Currency collapse dynamics

Posted: 19 May 2012 01:00 AM PDT

The reason we accept paper money as a store of value is habit. This habit has its origins in history, when banks took our gold as deposit and issued paper receipts for it. The gold has gone, but the ...

Gold: The World's Friend for 5,000 Years

Posted: 19 May 2012 12:08 AM PDT

¤ Yesterday in Gold and Silver

Gold did nothing in Far East trading on their Friday. Then about half an hour after London opened, a smallish rally began that added about twenty dollars onto the gold price...and took it up to around the $1,595 spot level by 11:00 a.m. British Summer Time.

From that point it did next to nothing...although there was a feeble rally in the direction of the $1,600 mark that ran out of gas before 11:00 a.m. in New York. After that it was pretty quiet price-wise.

Gold's low price tick was around $1,568 spot just over an hour before London opened...and the high [1,598.80 spot] came around 10:40 a.m. Eastern. Gold closed Friday trading at $1,592.10 spot...up $17.80 on the day. Net volume was down from Wednesday and Thursday, but still pretty chunky at 145,000 contracts.

Silver traded quietly as well in the Far East year, with the low on Friday occurring the same time as gold's...about an hour before the London open. But from that low, silver rallied pretty steadily until the same 11:00 a.m. time in London, before trading quietly lower until about 9:00 a.m. in New York. Then a rally of some substance began that took silver to just above the $29.00 spot price mark by 10:40 a.m. before either the buyer disappeared, or a willing seller showed up.

The silver price sagged a bit from there going into the close, but finished the Friday trading session at $28.72 spot...up 67 cents. Silver's late afternoon Far East low appeared to be around $27.75 spot...and the high, which came at 10:40 a.m. in New York, was $29.05 spot. Net volume, 43,000 contracts, was only a thousand contracts less than Thursday's volume.

It appeared to me that both gold and silver wanted to go higher during their rally in New York yesterday morning, but a seller showed up before these two metals broke through $1,600 and $29 spot respectively.

The dollar index opened around 81.50 on Friday morning in the Far East...and then climbed 25 basis points to its high of the day about fifteen minutes before the 8:00 a.m. London open. From there it went into a long, slow decline...and the dollar index closed 65 basis off its high...and down 40 basis points from its Thursday close.

I could be wrong about the dollar index. The ino.com chart above shows that it closed at 81.09...but the actual closing number reported said it closed at 81.29...down only 20 basis points, not 40. So you can pick the number that suits you.

The gold stocks gapped up and stayed up until gold hit its high around 11:40 a.m. Eastern. Then, mysteriously, the gold stocks got sold off in four different bouts of selling that are easily visible on the chart below. Every time the selling ended, the rally began anew. The HUI went from up about 3.5%...to close up only 0.80%.

With the odd exception, the silver stocks did poorly yesterday as well...especially considering how well the metal performed. Like the gold stocks, they did superbly right up until about 11:00 a.m. Eastern...and then they too got sold down hard as well. Nick Laird's Silver Sentiment Index closed up a tiny 0.27%.

(Click on image to enlarge)

But having checked the chart of yesterday's DOW action, the decline in the HUI and SSI were almost a carbon copy of the general sell-off on Wall Street yesterday. The metal itself was a safe place to be...but not the stocks. And it's hard to tell whether that was normal market action, or by design. John Embry and others are of the firm belief that the precious metal shares are being managed as well...and a cursory inspection of the 3-year chart of the HUI, XAU or SSI certainly lends credence to that argument.

The CME's Daily Delivery Report showed that 19 gold and 11 silver contracts were posted for delivery on Tuesday.

There were additions to both GLD and SLV on Friday. GLD added 135,909 troy ounces of gold...and an authorized participant added another big chunk of silver. This time it was 970,442 troy ounces. Considering how terrible the silver price action was for most of the week, the SLV managed to add 5.9 million ounces to its holdings during that time period. Ted thinks that it's all related to the SLV's considerable short position...and I agree.

The U.S. Mint reported selling 130,000 silver eagles yesterday...and nothing else.

Over at the Comex-approved depositories on Thursday, they reported receiving 606,536 ounces of silver...and shipped 1,207,963 ounces out the door. The link to that action is here.

Well, the Commitment of Traders Report showed reductions in the Commercial net short positions in both silver and gold...but I must admit that the silver number was a disappointment considering the price action during the reporting period.

In silver, the Commercial net short position declined by only 1,991 contracts...and is now down to 15,908 contracts, or 79.54 million ounces. That's very close to the lows set back in late December of 2011...which were probably equaled or exceeded on the final spike down on Wednesday afternoon just after the close of Comex trading.

As of the Tuesday cut-off, the '1-4' largest traders holding Comex short positions were short 131.3 million ounces of silver, with JPMorgan holding the lion's share of that position. The '5-8' largest traders are short an additional 37.1 million ounces.

Once the market-neutral spread trades are removed from the Non-commercial category, the four largest short holders in silver are short 28.4% of the entire Comex futures market in silver. The five through eight traders bring that percentage up to 36.4%. And if one digs into the Disaggregated COT Report, there are even more spread trades that can be removed, so in actual fact, the percentages are even higher than I've stated. Eight traders out of hundreds, if not thousands of Comex futures contract holders in silver, have a short-side corner on the market.

I ain't making this up. These are the government's own numbers.

In gold, the improvement was far more substantial, as the Commercial net short position in gold declined by 12,538 contracts, or 1.25 million ounces. This brings the Commercial net short position down to 13.9 million ounces.

The '1-4' largest short holder in Comex gold futures are short 9.54 million ounces...and the '5-8' largest short holders are short an additional 4.90 million ounces. In total the '1-8' largest shorts in Comex gold are short 14.44 million ounces.

The four largest short holders in gold now hold the lowest short position that they've held in five years...so these guys were serious about covering during this latest engineered price decline.

Without doubt the Commercial net short position in both gold and silver improved right up to the lows set on Wednesday. What has happened since then is another matter. I didn't have time to talk to Ted Butler about these numbers yesterday, so I'm looking forward to reading what he has to say in his weekend review later today...and I'll steal what I can for Tuesday's column.

Here's the "Days of World Production to Cover Short Positions" of the four and eight largest short holders in all Comex-traded commodities. The four precious metals hold the top four spots...and have for as long as I can remember...and I can remember quite a bit. This chart is basically a graph of the '1-4' and '5-8' traders that I talk about in the COT report above...except Nick Laird does it for all physical commodities traded on the Comex.

And, for the first time that I can remember, the short positions held in gold by the 'big 4' and 'big 8' are actually less than those held in platinum. But the platinum and palladium markets are microscopic in size compared to silver and gold, so I wouldn't read much into that.

(Click on image to enlarge)

The Central Bank of the Russian Federation updated their website with their April numbers...and they showed that they did not purchase any gold during the month...and their official holding still stand at 28.8 million troy ounces. Here's Nick Laird's updated chart below...for which I thank him.

(Click on image to enlarge)

The next chart is courtesy of Australian reader Wesley Legrand. Based on Wednesday's close, the Athens Stock Exchange General Index is down 89.7% from the October 2007 peak...and I'm sure it's down over 90% as of yesterday's close.

Being the weekend column, I have a lot of stories for you today...and I hope you can find the time over the weekend to read through all of them.

As I mentioned in yesterday's column, the world's economic, financial and monetary systems are floating off the rails with no hope of survival.

The Physical Gold Market - From the Weak to the Strong. Governments Frightened of Panic Liquidation Event: Eric Sprott. The Gold and Silver Liquidation is Over: Ben Davies

¤ Critical Reads

Only market manipulation props up Facebook IPO at first day's close

Facebook's life as a public company got off to a faltering start as technology glitches delayed the opening of trading and underwriters had to intervene to prevent its shares falling below the $38 issue price set on Thursday.

The stumbles, however, did not stop the company from celebrating the successful conclusion of the third largest initial public offering in US history on Friday. The $16 billion it raised trails only Visa's IPO in 2009 and a GM share issue in 2010.

Facebook's closely-watched Wall Street debut defied predictions of a spike in first-day trading and contrasted with the scene at its Menlo Park campus just two hours earlier, when founder Mark Zuckerberg pressed the Nasdaq opening bell and employees exchanged high-fives and hugs.

No surprises here, dear reader...and Doug Noland has more to say about it in his Credit Bubble Bulletin a bit further down. This story appeared in the Financial Times yesterday...and is posted in the clear in this GATA release...and the link to this worthwhile read is here.

View full GSD edition

Treasury Sells Inflation Notes at Record Low Negative Yield

The U.S. sold $13 billion of 10-year inflation-indexed notes at a record negative yield with investors willing to pay a premium to guard against the threats of rising consumer prices and Europe's worsening debt crisis.

The Treasury Inflation Protected Securities were sold at a so-called high yield of negative 0.391 percent, the third consecutive auction where investors paid the government to hold their money. TIPS pay interest at lower rates than regular Treasuries on a principal amount that's adjusted based on the Labor Department's consumer price index.

While yields on Treasuries due in 10 years or less are below the pace of inflation, demand is at record highs for U.S. government debt amid competition for a dwindling supply of the safest assets. The International Monetary Fund said last month that the amount of global assets that investors consider "safe" will shrink by $9 trillion by 2016.

This Bloomberg story was posted on their website early Thursday afternoon...and I thank West Virginia reader Elliot Simon for sending it along. The link is here.

View full GSD edition

Morgan's trading losses rip off public because of ZIRP, Rickards says

Interviewed yesterday by CNBC, geopolitical analyst James G. Rickards said JPMorganChase CEO Jamie Dimon should resign as "a point of honor" over the firm's huge recent trading losses in London. Rickards argues that the losses essentially rip off the public insofar as Morgan is a beneficiary of the monstrous transfer of wealth from savers to banks that has been implemented under the Federal Reserve's zero interest rate policy.

I borrowed the title and the introductory paragraph from a GATA release yesterday. This must watch 6:35 minute video clip was posted on the CNBC website on Thursday afternoon...and is linked here. You could tell that Rickards was not a happy camper!

View full GSD edition

Fed's Bullard: Break Up JPMorgan, Other Big Banks

Another Federal Reserve policymaker on Thursday called for the break-up of big banks like JPMorgan Chase & Co., saying that firm's recent large trading loss underscores the difficulty of regulating such banks and the dangers they pose.

"This is why you want these companies to have plenty of capital," St. Louis Fed President James Bullard said in response to questions after a speech to a Rotary Club. "I would back my colleague (Dallas Fed President) Richard Fisher in saying that we should split up the largest banks."

Bullard's comments echo those of Fisher, who advocates breaking up the five largest U.S. financial institutions. Fisher said in the wake of revelations that JPMorgan had reported $2 billion in losses due to derivatives trades that he is worried that the biggest banks do not have adequate risk management.

Bullard told reporters that his call for breaking up big banks includes JPMorgan.

This story was posted over at the moneynews.com website on Thursday afternoon...and is another offering from Elliot Simon. The link is here.

View full GSD edition

The Jig is Up: Doug Noland...Credit Bubble Bulletin

Working at my desk today was somewhat surreal. Global risk markets were closing out a dreadful week. Newswires were full of disconcerting articles – J.P. Morgan, Greece, Spain, Italy, China, etc. Meanwhile, CNBC was in the midst of blanket coverage of the Facebook initial public offering. Mark Zuckerberg rang the bell to open Nasdaq trading, while helicopters provided live video of the employee gathering at Facebook's Menlo Park headquarters. Insiders are now worth billions, the "average" employee millions. Even U2's Bono pocketed $1.2bn (with a "B"). I noted above how I see J.P. Morgan's predicament as a microcosm of global financial woes. Well, it is difficult for me today not to see Facebook as emblematic of the incredible transfer of wealth associated with Credit Bubbles. It's almost as if this historic Bubble has been waiting to end with just such an exclamation point.

Yesterday's edition of the Credit Bubble Bulletin from Doug Noland was posted on the prudentbear.com Internet site yesterday evening...and is an absolute must read. I thank reader U.D. for sending it our way...and the link is here.

View full GSD edition

Crisis of Confidence Fears of Bank Runs Mount in Southern Europe

Following the downgrade of 16 Spanish banks by Moody's, the focus in the euro crisis is back on the banking sector. Greeks are withdrawing hundreds of millions from their accounts, with reports that the same is happening in Spain. Experts are calling on the European Central Bank to step in and prevent full-scale bank runs.

The final wake-up call came from Moody's. On Thursday evening, the US rating agency downgraded 16 Spanish banks in one fell swoop, some of them by three notches. On Monday, the agency had already downgraded 26 Italian banks -- including major institutions such as UniCredit and Intesa Sanpaolo. The outlook for all the institutions involved is negative, Moody's said.

These are drastic steps, but they are hardly excessive. The European sovereign debt crisis long ago also became a banking crisis. The fate of the affected countries

Jim Rogers: Buy Gold, Silver Before ‘More Turmoil’ Jolts the Globe

Posted: 19 May 2012 12:08 AM PDT

Jim Rogers: Buy Gold, Silver Before 'More Turmoil' Jolts the Globe

Roiling capital markets aren't going to calm any time soon so investors would be better off putting their money in hard assets like gold, silver and agricultural commodities, says international investor Jim Rogers.

Greece is teetering on the brink of default, while the debt crisis appears to be spreading to Spain, as evidenced by a Moody's decision to cut ratings on 16 banks there.

"The world's got serious problems facing it, I don't particularly like saying it, but it's true," Rogers told CNBC.com.

"Unfortunately there will be more debt and currency turmoil to come."

Gold: The World's Friend for 5,000 Years - Frank Holmes

Posted: 19 May 2012 12:08 AM PDT

Gold: The World's Friend for 5,000 Years - Frank Holmes

While gold may not go up vertically from here—as frequent readers know, the yellow metal historically has fallen in June and July—with the extraordinary events occurring in Europe, I believe investors will soon "friend" gold once more. As we wait for the central banks around the world to act, I encourage investors to consider dollar-cost averaging. It's a way to stay invested, and more importantly, to avoid making emotional investment decisions.

Gold Standards and the Real Bills doctrine in US Monetary Policy (Timberlake)

Posted: 18 May 2012 11:30 PM PDT

EconJournal

European Socialists And Communists Voted For More Handouts

Posted: 18 May 2012 09:13 PM PDT

"Greek voters flocked to anti-bailout parties, throwing doubt on whether the two main parties can form a government strong enough to implement spending cuts to ensure the flow of bailout funds. According to projections based on partially counted ballots on state-run NET TV, Pasok and New Democracy would fall one short of the 151 seats needed to win a majority."

Strategists say the worst (Euro selling) may be over. The median of 48 estimates in a Bloomberg survey is for the Euro to trade at $1.30 by year-end. It will buy 106 Yen, a separate survey showed. 'In a weakening global environment, countries that can cut rates will do so and their currencies can fall,' Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said in a telephone interview on May 1. 'Europe is an economy with a currency that isn't expensive, with not much scope or appetite for cuts."

"Traders drove the Euro higher on May 3, before it ended little changed, as the ECB kept rates on hold and President Mario Draghi said policy makers didn't discuss a cut. It depreciated 0.1% the past three months based on Bloomberg Correlation-Weighted Indexes, which track 10 developed- market currencies, while Australia's dollar dropped -4.6%, the Yen -2.4%, Sweden's Krona fell -1.2% and New Zealand's dollar -3.6%."

"At least eight European leaders have either resigned or, lost elections since the start of the debt crisis as austerity measures contributed to the region's economic slowdown. Dutch Prime Minister Mark Rutte faces elections in September after his coalition government collapsed last month amid a dispute over spending cuts."

"International Monetary Fund Managing Director Christine Lagarde said April 19 in Washington that Europe is the "epicenter" of risks to global growth. The economy of the nations that share the Euro will probably contract -0.3% in 2012 after expanding by +1.4% in 2011, the IMF said April 17. The Washington-based lender predicted world growth would slow to 3.5% from 3.9% last year."

"Europe will remain "a potential source of adverse shocks for some time," Reserve Bank of Australia Governor Glenn Stevens said on May 1 as policy makers reduced their benchmark by 50 basis points, or 0.50 percentage point, to 3.75%. The bigger-than-forecast cut drove the so-called Aussie down as much as -1.35% against the Euro, the biggest intraday drop since November. Support for the Euro may wane should the U.S. recovery gather pace, reducing odds the Federal Reserve will undertake a third round of stimulus weakening the dollar."

"The Euro may also weaken if Europe's economy slows enough to cause policy makers to cut their refinancing rate. 'The ECB is facing a lot of pressure to ease,' Guillermo Felices, head of European currency strategy at Barclays Plc in London, said in an interview on May 1. 'Eventually they will have to ease given the pressures on the economy.' He sees a decline in the Euro to $1.20 in the next year."

"The backlash against austerity measures is growing. Spain's largest unions led marches involving thousands of protesters in 55 cities April 29. Riots have broken out in Greece in response to government cuts in pensions and wages."

"Europe's common currency is getting support as surveys signal that Germany's GDP, the region's largest, will expand for a third consecutive year. That may prompt the ECB to keep borrowing costs unchanged as it seeks to tame inflation that's been above its target of just below 2% since December, 2010. 'There isn't really going to be a rate cut in the euro zone,' Christoph Kind, head of asset allocation at Frankfurt- based Frankfurt Trust, which manages about $20 billion, said on May 2. 'This makes it at least a little bit attractive against other currencies like the Australian dollar." -Lukanyo Mnyanda & Liz Capo McCormick 5-7-12 Bloomberg.net

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How The U.S. Dollar Will Be Replaced

Posted: 18 May 2012 07:47 PM PDT

After being immersed in the world of alternative economic analysis for several years, it sometimes becomes easy to forget that most people do not track forex markets, or debt to GDP ratio, or true unemployment, or hunch over IMF white-papers highlighting subsections which expose the trappings of the globalist ideology...

Read

Beijing Sets its Sights on Central Europe

Posted: 18 May 2012 07:39 PM PDT

In recent months, China has begun to invest more heavily in Central and Eastern Europe. The new initiative reflects both Beijing's desire to develop beyond the production of cheap goods and its goal of establishing a presence in the European market for those products. The investments could also deepen political ties with countries like Poland and its neighbors...

Read

Gold Higher as France Refutes EU Fiscal Pact

Posted: 18 May 2012 05:01 PM PDT

Gold-Stock Capitulation

Posted: 18 May 2012 04:56 PM PDT

John Brynjolffson 5/16

Posted: 18 May 2012 04:46 PM PDT

John Brynjolfsson discusses Gold and how it will be impacted in the short and long term by the ongoing crisis in Europe as well as potential policy responses from the Fed and ECB.

John Brynjolfsson, CFA, is the founder & managing director of Armored Wolf. He oversees all investment activity at Armored Wolf. He is an expert in the area of managing alternative real assets; and his experience includes commodities, global inflation-linked bonds, event-linked catastrophe bonds, asset allocation and risk management.

A popular and provocative communicator, Mr. Brynjolfsson is a frequent guest on CNBC, Bloomberg TV and PBS's Wealth Track; has been quoted in The New York Times and the Wall Street Journal and featured in Fortune; is a member of industry advisory committees; and has testified before the House Financial Services Committee as an expert on catastrophic risk transfer.

Mr. Brynjolfsson is co-author of Inflation-Protection Bonds and co-editor of The Handbook of Inflation-Indexed Bonds. He has 19 years of investment experience and holds a bachelor's degree in physics and mathematics from Columbia College and a master's degree in finance and economics from the MIT Sloan School of Management.

The costs of a Gold Standard

Posted: 18 May 2012 04:45 PM PDT

Mises.org

The Decoy of the Falling Dollar Revisited

Posted: 18 May 2012 04:00 PM PDT

The Golden Thorn In The Flesh, Part 2

Posted: 18 May 2012 04:00 PM PDT

Gold University

John Hathaway Declares Gold Bottom

Posted: 18 May 2012 12:34 PM PDT

John Hathaway is the head of Tocqueville Gold Fund and one of the more solid analysts in the precious metals sector of the market. He predicts that gold has bottomed: I think we're at the end of a correction that resulted from the peak last summer. It was overcooked, kind of hyperventilated hysteria over the

Royal Gold's Management Presents at Bank of America Merrill Lynch Global Metals, Mining &amp; Steel Conference (Transcript)

Posted: 18 May 2012 11:42 AM PDT

Royal Gold, Inc. (RGLD)

Bank of America Merrill Lynch Global Metals, Mining & Steel Conference Call

May 16, 2012 4:45 pm ET

Executives

Stefan L. Wenger – Chief Financial Officer

Analysts

Michael Jalonen – Bank of America/Merrill Lynch

Presentation

Michael Jalonen – Bank of America/Merrill Lynch

And continuing on in the royalty environment, very happy to have Royal Gold. Joining us from Royal Gold is, like Franco-Nevada involved more in the precious metals, gold streams and royalties. Presenting from Royal Gold is Stefan Wenger, who is the CFO and he has been in this position since 2006, but was been with Royal Gold since 2003. And Stefan Wenger without further ado, I'll past it on to yourself.

Stefan L. Wenger

Well, good afternoon and I'd like to thank the Bank of America/Merrill Lynch for having us here at the conference today. And Mike thanks for the very nice introduction. Before

Complete Story »

Chris Waltzek Interviews: President / CEO of Northern Gold Mining, Martin Shefsky & Arch Crawford

Posted: 18 May 2012 11:39 AM PDT

May 18, 2012 20,000 Global Listeners Toll Free Hotline - Q&A: 1-800-507-6531 Featured Guests: President / CEO of Northern Gold Mining, Martin Shefsky & Arch...

GREATEST INVESTMENT INFO ON THE WEB!!!

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SilverFuturist: Silver during bank runs

Posted: 18 May 2012 10:51 AM PDT

silverfuturist: Silver during bank runs
from silverfuturist:

~TVR

The Case for Austerity: Keynesianism, Pharaoh and the Frogs

Posted: 18 May 2012 10:00 AM PDT

The Keynesians and declared anti-Keynesians have joined hands in order to promote an intensely Keynesian error: European fiscal austerity as a negative factor. One contributor in Forbes refers to austerity as a death spiral.

The word "austerity," beginning with the Greek government's debt crisis two years ago, has been used by the financial media in one sense, and only one sense: reductions in spending by national governments. The word is not used with respect to the economy as a whole.

More than this: the word has been used to explain the contracting economies of Europe. The reductions in government spending are said to have caused the contracting economies. This explanation is based on textbook Keynesianism.

Keynesians call for increased government spending. This is the heart of Keynesianism. Keynesianism rests on a mantra: "Government spending overcomes recessions." All else is peripheral: monetary inflation, graduated taxation, and free trade. These peripheral issues will always be sacrificed to the supreme economic premise: "Government spending overcomes recessions."

This is where every analysis of Keynesianism should begin. Any economic doctrine, any economic policy, any proposed solution to the present crisis should be assessed in terms of the mantra. Anything that does not begin and end with the mantra is not Keynesianism. Anything that does, is.

It is a mark of the supreme triumph of any ideology when the self-professed critics of the ideology adopt both its conclusions and its rhetoric, and do so unknowingly. This means that the promoters of the ideology have set the terms of public discourse. It is very difficult to replace an ideology or worldview, once its promoters have established the terms of discourse.

It can be done, of course. But to do this, the promoters of a rival outlook must expose both the errors of the existing system and the implicit agreement of its supposed critics. This wins no friends among the hapless troops who think they are scoring significant victories by arguing against peripheral aspects of the enemy ideology, while accepting its central presuppositions and main policy prescriptions lock, stock, and barrel. They have been taken in hook, line, and sinker.

Pharaoh and the Frogs

A recent example of a well-meaning but conceptually confused anti-Keynesian was published in Forbes. It had a powerful headline: "Keynesianism Is the New Black Death." It suggested that the great tragedy of Europe today is "austerity."

As I have already said, the financial media universally define austerity as cuts in government spending. I have never seen the word used in any other way over the last two years. Any author who uses the word in any other way owes it to his readers to explain this new usage. The Forbes article offered no such distinction or alternative definition. I therefore take it at its word: austerity.

If austerity is the great evil, then the implication is inescapable: that which restores government spending and therefore overcomes austerity is positive.

This reminds me of the Pharaoh who decided not to let the Israelites journey for a week to sacrifice to God. Moses and Aaron then attempted to persuade him by way of a series of plagues. One of them was frogs. The land filled up with frogs. Everywhere anyone walked, he stepped on frogs.

The court magicians had to do something about this. They responded by a public display of the power of their magic that matched what Moses and Aaron could do. "And the magicians did so with their enchantments, and brought up frogs upon the land of Egypt" (Exodus 8:7).

Somehow, I imagine Pharaoh screaming at them: "No, no, you blockheads: not more frogs! Fewer frogs!" But the text does not record this.

The solution to the frogs of European recession is not increased government spending. Rather, it is the opposite: reduced government spending. In short, the solution is greater austerity.

Austrianism's Mantra

The Austrian economists also have a mantra: "Reduced taxation increases liberty." Liberty is necessary for economic growth.

If a contemporary government cannot reduce taxes without going bankrupt, then it must cut spending if it chooses not to go bankrupt.

Europe's national governments are all going bankrupt. Japan's is, too. So is America's. The solution is to cut taxes and cut spending even more.

"Not more government spending. Less government spending!"

"Not larger government deficits. Reduced government deficits!"

"Not higher taxes. Lower taxes!"

"Not more fiat money. Reduced fiat money!"

In short: "Let my people go!"

With this in mind, let us examine an article that argues that austerity is the great threat to Europe's prosperity.

A Death Spiral?

The article begins with a survey of European politics. It points out that voters are tossing out politicians in nation after nation. Sarkozy was number eight over the last year. Why is this happening? Here is the proposed answer:

The voters of Spain, Greece, France, etc., understand that their governing elites have pushed their economies into austerity death spirals, and they have been expressing their unhappiness at the ballot box.

The more fundamental question is this: Why did these elites push their respective economies into this supposed death spiral? Why would faithful Keynesian elites do such a thing?

Let us not be naive. The West has been run at the top by Keynesian elites, or politicians holding Keynesian ideas, ever since 1930 – six years before Keynes offered his unreadable justification of politicians' policies: "The General Theory of Employment, Interest, and Money."

The Keynesian central bank pushed Europe's economies into a boom, 2001 to 2007. The voters loved it. Interest rates were low. There was lots of money to buy houses. The economies of the south – "Club Med" – were booming. So was the honorary member of Club Med: Ireland. Ireland's property values quadrupled. It was all going to last forever. The elites – especially the economists – issued no warnings, except for Austrian economists, who were dismissed, as always, as dinosaurs.

Then came the bust phase. What the European Central Bank did before 2007 – inflate – it has done more aggressively ever since 2008. Governments ran even larger deficits. They all implemented Keynesian stimuli. This did not work. Europe is falling back into a recession.

In the spring of 2010, investors in northern Europe caught on to the fact that Club Med residents could not compete economically. They kept running deficits with the North. Those easy-going populations were living on money borrowed from the North. So were their governments. They had no intention of ever paying back these loans.

Any why not? This is what Keynesianism teaches. Government loans will not be paid off. Ever. Government debt will grow. So will prosperity.

Two years ago, Greece's Socialist Party found out just how far in the debt hole the government was. Interest rates then started to rise in PIIGS nations. PIIGS governments were trapped. They could not run ever-larger deficits, because the cost of loans were rising.

That was when the reality of Keynesianism hit: deficits do matter. Money is not free. Debts must be rolled over at market interest rates. The horror!

That was when governments in the South started cutting back on spending. Not much, you understand. The deficits are still unprecedented: above 6% of GDP.

Keynesians labelled this "austerity."

It is not austerity. It is deficit spending on a massive scale. Austerity is where national governments run surpluses and use excess revenues to pay down the national debt.

There has not been austerity in Europe since approximately 1914.

The gold coin standard enforced austerity, 1815 to 1914. That was its chief function and its great service to mankind. It kept the West's governments austere. This enabled the private sector to dine at an ever-expanding feast.

Keynesians hate the gold coin standard. That is because they believe that high government spending is the basis of high consumer spending, and consumer spending – not private thrift – is the foundation of prosperity.

The public, which prefers consumer spending to the austerity of thrift, cheers on the politics of Keynesianism. Deficits without end, borrowing without pain, growth without ceasing: Keynesians promise, and voters believe.

But the day of reckoning arrived in 2010. The free money got expensive. The party did not stop, but some of the guests were sent home, to join young adults, who have sat and watched TV, because there are no jobs.

The public feels betrayed. Voters believed in the Keynesian dream, which was articulated by the original Keynesian, who said, "If thou be the son of God, command that these stones be turned into bread" (Matthew 4:3). When the target of this challenge refused to rise to the bait, the Keynesian went looking for other takers. In the second half of the twentieth century, he found them. Lots of them. Millions of them. Politicians promised to accomplish the feat. Voters applauded.

But times have changed, the article tells us.

Unfortunately for Europe and the world right now, there are no pro-growth candidates and/or parties on the Continent to offer relief from the austerity programs that are grinding their economies to dust. With no one to vote for, all that European electorates have been able to do is to vote against. They have sought to register their protest by defeating incumbents.

The incumbents over-promised. They had long told the voters that deficits don't matter. Deficits did not matter for as long as banks in northern Europe kept lending to PIIGS at rates associated with German frugality. But then came reality.

Europe as a whole is in recession, and Greece, Spain, and Portugal are in depressions. What are the people supposed to do if the economic chefs on both the political Left and the political Right are offering the same poisonous "austerity" menu?

Balanced budgets remain mirages a far as the eye can see. Token spending cuts, which are made in the name of reducing deficits to about 3% of GDP in ten years, are part of a "poisonous austerity menu." Put in a more familiar terminology, there are too many stones and not enough bread. The voters will not tolerate this.

The reason why there are no economic chefs promoting growth is simple: somebody has to bankroll the growth of government spending. Who will that be? Who wants to trust PIIGS? The louder the voters scream about austerity, the fewer the number of lenders, meaning lenders at rates under 10%.

Plague!

The article eventually gets to the point.

So, what happened in Europe? The short answer is, "plague". The Black Death of the 14th century was caused by the Yersinia pestis bacterium, which was spread by rats. Today's plague is the result of Keynesianism, which is being spread by the economics departments of major universities and The New York Times. Unfortunately, unlike Yersinia pestis, Keynesianism does not respond to antibiotics.

How does the article define Keynesianism? Erroneously. It says that Keynesians favour tax increases and spending cuts.

Austerity, as currently being practiced in Europe, is based upon the Keynesian belief that tax increases and government spending cuts have the same effect upon both the government deficit and the economy. In fact, the most virulent strains of Keynesianism cause people to believe that raising top marginal tax rates and increasing government spending can actually boost GDP, because "the rich" have a higher "marginal propensity to save" than do the recipients of government handouts.

Franҫois Hollande, the winner in France, is a Keynesian. He believes that raising France's top marginal tax rate to 75% while hiring 60,000 more unionized teachers will make things better.

Excuse me? What does an avowed socialist politician have to do with Keynesianism? Keynesianism is what Paul Krugman proclaims, which is greater deficit spending, plus sufficient central bank money expansion to finance this expansion.

Which Keynesian economist or politician has come out forthrightly for spending cuts, i.e., austerity? Austrian economists have. Ron Paul has. This is why Austrians and Ron Paul have been marginalized by the Keynesian media as cranks.

To a leader whose mind is infected by Keynesianism, it makes sense to try to close a budget deficit with a combination of tax increases and spending cuts, with the balance between them determined by some combination of political considerations and "fairness".

There are many politicians in Europe who have imposed taxes on the rich. The voters have cheered them on, as always. The voters are outraged by the spending cuts. Spending cuts reduce the flow of funds to government bureaucrats and welfare state clients. This is why Greek union members riot.

Traditional Keynesianism calls for increased spending, more borrowing, and – if private lenders demand high rates of interest – monetary expansion by the central bank to purchase government debt. The article wisely rejects monetization. But it does not call for a gold coin standard. Rather, it defends the euro.

As damaging as tax increases are to an economy, monetary depredation is worse. Only a Keynesian could think that replacing the euro with a new drachma could be a solution for Greece. The result would be a new currency backed by the full faith and credit of a government in which no one has faith and to which no one will extend credit.

In reality, the collapse of the Greek economy would not even wait for the introduction of the new currency. It would not be possible to keep preparations for a new drachma a secret, and even rumours of such a move would be enough to create a cataclysmic run on the Greek banking system. Capital, and people with capital, would flee.

The article suffers from an illusion: that the euro is not just another medium for inflation, that it is anything more than drachmas for Keynesians.

The Keynesian political hierarchy imposed the euro on the voters in 1999. The elite's spokesmen have decried the departure of Greece from the eurozone. The unelected Greek technocrats, like technocrats all over Europe, were either former Goldman Sachs employees or wanna-be's. They are now being tossed out by the voters. The voters are populists and socialists. They are fellow travelers of Keynesians only in the boom phase of the Keynesian welfare state. When the bills come due, they revert to locally issued fiat money, taxation of the rich, trade unionism, and increased government spending.

Conclusion

Keynesianism is in a death spiral. So is populist socialism. So is fiat money fascism. They are all in death spirals because they all reject this premise: "Lower taxes increase liberty."

Liberty will prevail. This is an eschatological affirmation. One of the ways that it will prevail is through the bankruptcy of the Keynesian social order: high taxation, high regulation, high deficit spending, and high inflation.

Let's put government on a diet. Let's have austerity where it belongs: government spending.

That is what Europe's voters do not want. That is what they are going to get.

"Not less austerity. More austerity!"

Regards,

Gary North

for The Daily Reckoning Australia

This article originally appeared in Whiskey and Gunpowder

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