saveyourassetsfirst3 |
- Marc Faber Changes Outlook for Gold
- Gold data hints at possible market upswing
- Financial Collapse At Hand: When is “Sooner or Later”?
- Bernanke's Bluff
- Eric Sprott talks with Silver Doctors
- Euro/Dollar Outlook For Week Of June 11-15
- Is This The End Of The Commodities Super-Cycle?
- Paper gold shorts......
- Insiders Sold These 5 Surging Stocks Last Week, And 2 Other Noteworthy Buys And Sells
- Book Review: 'Why Nations Fail'
- Eric Sprott: key developments in the physical gold market
- Spain officially asks for a bailout/Italy in the wings/Gold and silver rebound from a brutal raid/
- Noteworthy Insider Buys And Sells Last Week In The Financial Sector
- Trustee Sees Customers Trampled at MF Global
- Iceland economy grows at fastest pace in four years
- Brodsky and Quaintance: Solution is Asset Monetization, Starting With Gold Revaluation
- Silver Update: Keynesian Kooks – 6.8.12
- Noteworthy Insider Selling In These 4 Rising Consumer Stocks, And 4 Other Sells And 2 Buys
- 3 High Yield Large Cap Stocks With Strong Earnings Trends
- The mystery of the Gold Certificates
- Interview with The Street
- The End Is Not Near, It Is Here and Now’ – Gold Legend Jim Sinclair
- Gold Bears "Wrong" About Dollar as Spain Raises Debt, China Cuts Both Rates & Euro Exposure
- Silver : the faboulous story of Cobalt, Ontario
- Tainted Research
- Peter Schiff Testimony before Congress on Mortgage Loan Guarantees
| Marc Faber Changes Outlook for Gold Posted: 09 Jun 2012 05:13 AM PDT
from beaconequity.com: After months of suggesting that the gold price could move down to the $1,200 level, editor of the Gloom Boom Doom Report, Marc Faber, now believes the gold market has reach the bottom range of its cycle lows. "I'm not sure that Gold will not make a new high this year, but I think we've bottomed out and some gold mining shares have become very very inexpensive compared to the reserves they have," Faber toldBloomberg Television this week. "And I think that in the current environment where it is clear that the worse the economy becomes the more the money printers will be at work, that to own a currency whose supply can not be increased at the will of some clowns that occupy the central banks is a desirable investment," he added. In a Jan. 17 interview with Fox Business, Faber was unconvinced the rebound from the steep correction of 20.7 percent to $1,523.90 on Dec. 29 was over. According to him, the spectacular and seasonally unusual summer rally of 2011, which took gold to $1,923.70 on Sept. 6, up 32.4% from the low of $1,452.60 set on May 5 (a 132 percent compounded annual rate), hadn't flushed out all of the remaining weak hands. "Well, I like it [gold], yes, but I think the correction is not over yet," he said. "I think, we had a big correction from the peak September 6 when gold hit $1,921. We went down to around $1,522 at the end of December. Now we've rebounded above $1,600. I think we can have another leg down." In the months of April and May, Faber held firm about his fear of another leg down for gold, suggesting that, to be safe, investors should dollar-cost average into building a gold position for the next leg up in the ongoing bull market in precious metals. Keep on reading @ beaconequity.com |
| Gold data hints at possible market upswing Posted: 09 Jun 2012 05:01 AM PDT
from goldmoney.com: With eurozone troubles taking yet another turn for the worse, China's economy struggling, and US jobs data showing the American economy is again heading in the wrong direction, gold has at last started to make some interesting moves. While it is often a mistake to directly link the price of gold to specific macro-economic events, the coincidence is notable. If one can rank news in order of importance, the announcement that China imported 101.78 tonnes of gold through Hong Kong in April, a substantial increase, is at least a tangible fact. Furthermore, news that Iran has escalated her imports through Turkey could also prove to be significant, given she has no access to foreign exchange markets, and gold is presumably being used as currency. However, translating this into higher prices is not a done deal, because the valuation of paper currencies with no right of conversion into commodity money is purely subjective. This is why gold moves independently from most monetary developments, and if it does so it is often because of underlying market positions, rather than facts as reported by the press. With this in mind, I have put together the chart below to show the net positions of the swap dealers and producers and merchants. The context for these two categories is obviously open interest in the market, and the market price of gold. Keep on reading @ goldmoney.com |
| Financial Collapse At Hand: When is “Sooner or Later”? Posted: 09 Jun 2012 05:00 AM PDT
from marketoracle.co.uk: Ever since the beginning of the financial crisis and Quantitative Easing, the question has been before us: How can the Federal Reserve maintain zero interest rates for banks and negative real interest rates for savers and bond holders when the US government is adding $1.5 trillion to the national debt every year via its budget deficits? Not long ago the Fed announced that it was going to continue this policy for another 2 or 3 years. Indeed, the Fed is locked into the policy. Without the artificially low interest rates, the debt service on the national debt would be so large that it would raise questions about the US Treasury's credit rating and the viability of the dollar, and the trillions of dollars in Interest Rate Swaps and other derivatives would come unglued. In other words, financial deregulation leading to Wall Street's gambles, the US government's decision to bail out the banks and to keep them afloat, and the Federal Reserve's zero interest rate policy have put the economic future of the US and its currency in an untenable and dangerous position. It will not be possible to continue to flood the bond markets with $1.5 trillion in new issues each year when the interest rate on the bonds is less than the rate of inflation. Everyone who purchases a Treasury bond is purchasing a depreciating asset. Moreover, the capital risk of investing in Treasuries is very high. The low interest rate means that the price paid for the bond is very high. A rise in interest rates, which must come sooner or later, will collapse the price of the bonds and inflict capital losses on bond holders, both domestic and foreign. Keep on reading @ marketoracle.co.uk |
| Posted: 09 Jun 2012 04:59 AM PDT
from caseyresearch.com: In April of 2011, writing in The Casey Report, I warned readers of a pending shift in the Fed's accommodative monetary policy. My view at the time was that the shift would result in a rebound in the dollar, which was in a state of near collapse at the time. Should the Fed not end its quantitative easing on schedule in June, but rather roll straight into a new round of easing (QE3), it will send an unequivocal signal to the market that the dollar is to be sacrificed for political expediency. At which point the waterfall collapse in the world's reserve currency could very well occur and any potential Treasury bond buyers – outside of the Fed, that is – will begin demanding higher interest rates. Those demands will have to be met, because the day that the Fed is effectively the sole buyer of Treasury debt will be the day the dollar dies. Should the Fed step away from the auctions starting in June (and maybe, for propaganda points, in May), then the interest rate picture becomes a bit less clear. Will non-Fed buyers step into the $50 billion or so monthly gap left by the Fed's exit? Or will they demand higher interest rates, setting off the death spiral in the process? While it can only be conjecture at this point, I think the end of the Fed's monetization will not cause an immediate spike in rates. For four reasons: The dollar's precipitous slide will suggest to traders and institutional market participants that it's overdue for a rebound. A perfectly logical conclusion, given that should the dollar continue on its current steep downward trajectory, its days will be quickly numbered. As that is the sort of monumental event that happens only every few generations, most big money players will discount the demise of the dollar as a credible scenario, and so many will come back to Treasuries to play the bounce. There are few alternatives to the U.S. Treasury market when it comes to parking big money. Even the relatively small amount of money now flowing into gold has sent it to nominal record highs – can you imagine what would (and ultimately, will) happen to the price if $500 billion tried to flow quickly into precious metals? Keep on reading @ caseyresearch.com |
| Eric Sprott talks with Silver Doctors Posted: 09 Jun 2012 04:55 AM PDT The Doc sat down with Sprott Asset Management's Eric Sprott this weekend to discuss the European debt contagion, the latest gold and silver massacre, the massive rush into physical metals, and his outlook on gold and silver for the rest of 2012 and beyond. from silverdoctors: In Part 2, Eric discusses the bond managers coming into the gold market, gold rehypothecation, his outlook for gold and silver, and much more! ~TVR |
| Euro/Dollar Outlook For Week Of June 11-15 Posted: 09 Jun 2012 04:42 AM PDT Euro/dollar recovered nicely as leaders finally seemed to wake up and encounter the Spanish crisis. Can this hope continue for another week, before the Greek elections? The upcoming week consists of important inflation and industrial output indicators. Here is an outlook for the upcoming events and an updated technical analysis for EUR/USD. Spain is expected to receive only 40-80 billion euros, dedicated for the banking system without any requirements for austerity. This could be cheered by the markets, but probably for a short time, as Spain will require much more money, and its drop from the list of countries providing bailout funds raises the pressure on all the others. The ECB, which is the single most powerful factor, hasn't offered any help. Is it waiting for politicians to move first? This is part of the hope in the markets for now. es for more money dropping from the US are Complete Story » |
| Is This The End Of The Commodities Super-Cycle? Posted: 09 Jun 2012 04:38 AM PDT By MetalMiner: By Stuart Burns The end of the commodities super-cycle has been predicted before — but could this time really be different? Many thought the collapse in prices after the Lehman Brothers crisis was the end of the boom that started earlier in the decade, but prices bounced swiftly back, some to near-record or even record highs. Two factors have driven the volatility and significance of commodity prices in recent years. First, one country has become a disproportionately large consumer, tying the fortunes of nearly all commodities to that country — no prizes for guessing which one. China accounts for as much as half the world's demand for some commodities, such as iron ore. It has the power to shape almost single-handedly the direction of the commodities super-cycle, and by extension the price of iron ore and others. The other factor is the value of commodities. As an FT article points Complete Story » |
| Posted: 09 Jun 2012 03:24 AM PDT Monkey Shines Jesse's Café Américain What happened yesterday in the gold market was very interesting. One full hour before Bernanke's testimony, the bullion banks started selling. Over the next 4 hours, the bullion banks sold the equivalent of 515 metric tons of paper gold. This was in just 4 hours, and again, the selling started one hour before Bernanke's testimony... The real question here is, how could an entity begin selling such a massive amount of paper gold when there hadn't been any news? (starting to sell before Bernanke's testimony)... The bullion banks are ringing the register at both ends, while trying to extricate themselves from their short positions in the paper market. They are attempting to do this before transparency comes in to the market. They do not want a situation where the aggressive hedge funds actually get evidence that these bullion banks are naked short. They are concerned that if it is discovered they are naked short gold and silver, those hedge funds will aggressively target those banks. This is what happened to JP Morgan, recently, when the London Whale got caught. As soon as Jamie Dimon was forced to admit a $2 billion loss, the sharks realized they were vulnerable and came in to attack. That has greatly magnified the size JP Morgan's loss. The last thing powerful entities want to see is for this to occur in the gold and silver markets." - King World News One has to consider information such as this as input to be compared to other things, since we cannot directly view what the unidentified source is specifically seeing. However, having watched the tape in real time and looked at the changes in Open Interest, it seems to be a credible description of what happened. It also tracks closely with my own view of the game which we are in. So as a further word of caution, if you cannot bear irrational volatility, do not trade the paper gold and silver markets. Take your positions according to your investment plans and then sit and wait. I am perhaps not so sanguine that an end to the manipulation will come anytime soon as the London Trader seems to imply. Or perhaps this is just how I interpret what he says. While Bart Chilton and the CFTC promise change and reform, it seems unlikely to happen anytime soon, at least before the national elections. Still, one never knows. Change is in the wind. jessescrossroadscafe.blogspot.com http://www.silverbearcafe.com/private/06.12/shines.html |
| Insiders Sold These 5 Surging Stocks Last Week, And 2 Other Noteworthy Buys And Sells Posted: 09 Jun 2012 03:10 AM PDT By Ganaxi Small Cap Movers: Insiders made noteworthy buys and sells in many stocks last week, the bulk of which were covered in our prior articles on the basic materials sector, energy sector, healthcare sector, technology sector, consumer and retail sectors and the financial sector. In this article, we detail one noteworthy buy and six noteworthy sells last week, mostly in sectors not covered in the prior articles mentioned above, including the industrial, transportation and utility sectors. These were selected based on a review of over 1,600 separate SEC Form 4 (insider trading) filings last week, as part of our daily and weekly coverage of insider trades. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock (for more info on how to interpret insider trades, Complete Story » |
| Book Review: 'Why Nations Fail' Posted: 09 Jun 2012 02:00 AM PDT |
| Eric Sprott: key developments in the physical gold market Posted: 09 Jun 2012 01:15 AM PDT By Eric Sprott & Shree Kargutkar June 8, 2012 There have been key developments in the physical gold market over the last few weeks which we feel are worth highlighting: 1) The Chinese gold imports from Hong Kong in April, 2012 surged almost 1300% on a YoY basis. Total gross imports for the month of April were 103.6 tonnes and the net imports were 66.3 tonnes1. It is not the data for April alone which has caught our eye. There has been a stunning increase of gold imports through Hong Kong for export into China over the past 2 years. Between May 2010 and April 2011, China imported a net 66 tonnes of physical gold through Hong Kong. Between May 2011 and April 2012, that number jumped to 489 tonnes. This represents an increase of 640%. HONG KONG GOLD EXPORTS TO CHINA (KG)  Source: Census and Statistics Department of Hong Kong 2) Central banks from around the world bought over 70 tonnes of gold in April, 2012. Data from the IMF showed developing countries such as the Philippines, Turkey, Mexico and Sri Lanka were significant buyers of gold as prices dipped2. 3) Iran purchased $1.2B worth of gold in April, 2012 through Turkey. As the developed nations continue devaluing their currency at the expense of developing nations, countries such as Iran, China and Mexico are forced to look at alternative stores of value3. 4) After twenty years of lackluster returns and stagnant bond yields, Japanese pension funds have finally discovered the value of investing in gold. The $500M Okayama Metal and Machinery pension fund placed 1.5% of its assets into gold bullion-backed ETFs in April in order to "escape sovereign risk"4. 5) Bill Gross writes5, "Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year-old global monetary system. […] As they (investors) question the value of much of the $200 trillion which comprises our current system, they move marginally elsewhere - to real assets such as land, gold and tangible things, or to cash and a figurative mattress where at least their money is readily accessible". Is the bond king recommending gold? YES, YES YES! 6) The Gold Mining ETF, GDX, has seen strong inflows in the past 3 months. The number of units outstanding have increased from 162.5M6 to roughly 187M7 between March 1, 2012 and May 31, 2012. This represents an increase in assets of almost $1.2B in a span of 3 months. It is worth pointing out that for a majority of this three months period, GDX, and by extension the gold mining companies were experiencing significant declines in their market values. We believe there has been a material change in the gold investing landscape. The HUI, which is the Gold Bugs Index, is now up over 20% from its lows since May 16th, 2012. The slide in gold equities seems to be subsiding as a foundation for a strong move upwards is set. New buyers, represented by the Chinese, central banks, Japanese pension funds and the Iranians, bought almost 140 tonnes of gold in April alone. To put this into perspective, the annual gold production is approximately 2600 tonnes8. China and Russia produce around 500 tonnes of gold annually, which never makes it to the open market. This leaves about 2100 tonnes of gold production annually for the rest of the world. When buyers representing 140 tonnes of new demand enter a market which only has 175 tonnes of monthly supply, we are left wondering about two things: 1) In a balanced market, where is the source of supply to the new buyers going to come from? 2) How can a new buyer of size get into the gold market, which is already balanced, without significantly impacting the price of gold? The answer is fairly obvious. When demand outstrips supply, prices move higher. These significant macro changes in the supplydemand dynamic of the gold market should propel the price of gold to new highs. http://www.sprott.com/market-insight...-june-8,-2012/ |
| Spain officially asks for a bailout/Italy in the wings/Gold and silver rebound from a brutal raid/ Posted: 09 Jun 2012 12:48 AM PDT This posting includes an audio/video/photo media file: Download Now |
| Noteworthy Insider Buys And Sells Last Week In The Financial Sector Posted: 08 Jun 2012 11:47 PM PDT By Ganaxi Small Cap Movers: Insiders made noteworthy buys (see definition below) in three financial sector stocks (including REITs) last week (June 4 to 8, 2012), and sold three others. These, along with insider buys and sells last week in other sectors and groups (discussed in previous articles on the basic materials sector, energy sector, healthcare sector, technology sector, and consumer and retail sectors) were selected based on a review of over 1,600 separate SEC Form 4 (insider trading) filings last week, as part of our daily and weekly coverage of insider trades. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock (for more info on how to interpret insider trades, please refer to our instablog discussion on insider trading): Equity Residential (EQR): EQR, founded Complete Story » |
| Trustee Sees Customers Trampled at MF Global Posted: 08 Jun 2012 11:30 PM PDT  If the collapse of the commodities brokerage firm MF Global were a murder mystery, the revelation that $1.6 billion of customer money had disappeared would be the equivalent of finding the corpse. Who did it? And given that customer assets, by law, must be segregated from a firm's assets and operations, how could it have happened? This week, MF Global's liquidation trustee, James W. Giddens, went a long way toward solving the mystery in a 181-page account of MF Global's decline and fall. |
| Iceland economy grows at fastest pace in four years Posted: 08 Jun 2012 11:30 PM PDT  Iceland's economy expanded in the first quarter at its fastest pace since its near-meltdown, powered by a surge in exports, tourism and domestic consumption. Gross domestic product (GDP) grew 2.4 percent quarter-on-quarter in the first three months of the year to put annual economic growth at 4.5 percent in the period, the highest since the first quarter of 2008, data from the statistics office showed on Friday. "It shows that the economy is growing rather rapidly, at least in an international comparison, at the moment," Islandsbanki Chief Economist Ingolfur Bender said. "The increase is broad-based, driven by consumption, investment and exports." |
| Brodsky and Quaintance: Solution is Asset Monetization, Starting With Gold Revaluation Posted: 08 Jun 2012 11:30 PM PDT ¤ Yesterday in Gold and SilverOnce trading began in the Far East on Friday morning, the gold price began to drift slowly lower. But shortly after 11:00 a.m. Hong Kong time the bid disappeared...and in less than five minutes, gold was down over twenty bucks, with the low of the day just under the $1,560 spot mark. From there it traded more or less sideways until shortly after 9:00 a.m. in London. It then began to move higher...and continued to rally until just after the close of Comex trading in New York. The gold price then gained a few more dollars going into the close of electronic trading...and finished the Friday trading session almost on its high of the day. The actual high of the day, as reported by Kitco, was $1,596.30 spot. Gold closed at $1,594.70 spot...up $6.20 from Thursday's close. Net volume was a more subdued [but still quite high] 151,000 contracts.
Silver's price path was pretty much the same as gold's. The big difference was that silver's low [a bit below $28 spot] came shortly after 9:00 a.m. in London...and not six hours earlier in the Hong Kong market like gold's low. The subsequent quiet rally lasted well into the electronic market in New York, but got sold off a hair shortly before the 5:15 p.m. Eastern close. Silver's high price tick in the New York electronic session was $28.73 spot. Silver finished the trading day at $28.53 spot, down 6 cents from Thursday. Net volume was pretty decent at about 35,000 contracts.
The dollar index rally that began life at 81.92 at 9:30 a.m. on Thursday morning, ran out of gas at 82.89 at 9:30 Friday morning...a twenty-four hour rally of about 97 basis points. The index then rolled over...and by the close of trading, it had shed 38 basis points from its high tick...and closed the day up 26 basis points. If you can find any correlation between the dollar index and the gold and silver price action during the Friday trading session, I'd love to hear about it.
Gold was down less than ten bucks when the New York equity markets opened...and the gold stocks gapped down a bit more than two percent. But by 10:00 a.m. the stocks were back in the black...and stayed there for most of the rest of the day. The HUI finished up 0.64%.
Considering the fact that silver didn't do as well as gold, the shares did OK...and Nick Laird's Silver Sentiment Index closed up 0.98%.
(Click on image to enlarge) The CME's Daily Delivery Report showed that 36 gold and 3 silver contracts were posted for delivery on Tuesday. There were no reported changes in either GLD or SLV on Friday. But the U.S. Mint had a decent sales report yesterday. They sold a whopping 10,000 ounces of gold eagles...1,000 one-ounce 24K gold buffaloes...along with 448,000 silver eagles. Month-to-date the mint has sold 10,500 ounces of gold eagles...1,500 one-ounce 24K gold buffaloes...and 738,000 silver eagles. At the mint so far this month, silver is outselling gold a bit over 63 to 1. There was no activity in silver over at the Comex-approved depositories on Thursday. The Commitment of Traders Report in silver showed that the Commercial net short position increased by a rather small 2,191 contracts, which is not an overly large amount. The main reason for that is because silver did not rally very much compared to the big rally in the gold price two Friday's ago. Reader E.F. pointed out that the small commercial traders...Ted Butler's raptors..."have the highest net long position since October 28, 2008 when silver was $9.09 per ounce." That's an amazing fact. We'll find out soon enough if they know something that we don't. Of course, it was an entirely different story for gold. The big Friday, June 1st rally was met by a large deterioration in the Commercial net short position. It increased by 25,413 contracts...but a lot of that amount was the small commercial traders [the raptors] selling their long positions for a profit. As reader E.F. also pointed out, the raptors went from net long gold, to now being net short gold. Of course everything that was reported in yesterday's COT report has changed during the last three trading days of the week...so the numbers above really don't have any meaning anymore and, without doubt, a new COT report that included those three days would put gold and silver back at, or below, the lows of mid-May and late December. It always seems like we're waiting around for the next COT report...and this time is no exception. We also got the new Bank Participation Report for June...and the data in it is extracted from yesterday's Commitment of Traders Report. For this one day every month we can compare apples to apples. In silver, 4 U.S. banks increased their Comex short position from 16,681 contracts in May to 18,885 contracts in June. I would bet serious money that JPMorgan and HSBC hold almost all of that short position...about 98%...with JPMorgan holding most of that 98%. There are 12 non-U.S. banks that hold Comex contracts in the June Report. In the May report they were net short 1,352 Comex silver contracts. In the June report they were net long 1,212 Comex contracts...a swing of 2,564 contracts. What we have are two U.S. banks that are net short about 18,000 Comex silver contracts between them...and 12 non-U.S. banks that are net long 2,564 Comex contracts, or about 214 contracts apiece. A back-of-the-envelope calculation using data from the COT Report shows that JPM and HSBC are short 19% of the entire Comex silver market on a net basis. What is so hard to understand about this? This is a short-side corner in the silver market. In gold, 4 U.S. banks went from net short 67,765 Comex gold contracts in May, to net short 70,300 Comex contracts in June...an increase of about 2,500 contracts. There are 19 non-U.S. banks that were net short 41,519 Comex gold contracts in May...and that increased to 44,841 Comex contracts in June. The 4 U.S. banks above are net short about 17,575 Comex gold contracts apiece...if they were divided up equally between them, which they certainly aren't in real life. The 19 non-U.S. banks are net short about 2,360 Comex contracts apiece, if divided up equally. The 4 U.S. banks are short 17.9% of the entire Comex gold market on a net basis. As far as the foreign banks are concerned, their Comex positions in silver appear immaterial...and for most of them they are. I can pretty much guarantee that of all the foreign banks involved in the precious metals market, only a tiny handful hold the vast majority of the Comex contracts that are shown above. They would include The Bank of Nova Scotia, Deutsche Bank and maybe one or two others. They would certainly all be included in the '1-4' and '5-8' largest traders in the weekly COT Report. Here's a graph that Nick Laird sent me last evening. It's his "Total PMs Pool"...and despite the price declines that began with the drive-by shooting on May 1, 2011...the precious metals held in visible storage are still going strong.
(Click on image to enlarge) Here's a neat chart that confirms what I said in this column yesterday. But did the precious metals prices decline naturally, or did they get a really good shove? It's your call. I thank Washington state reader S.A. for sending it to me.
I have the usual number of stories...and I've been saving some for Saturday because of either their size or content, so I hope you have time to go through them all over what's left of the weekend. It's not much of stretch to say that the next few weeks and months could bring some sort of ugly Apocalyptic resolution. A golden idea to save (or doom) the euro. Felix de la Cova: The real cost of not owning gold. Gold Alert: Sprott Asset Management. Tear up your paper money. ¤ Critical ReadsSubscribeOne Very Brave NY Judge Has Overruled The President And A Ton Of Powerful LawmakersOn May 16 U.S. District Judge Katherine Forrest upheld her decision to block the controversial indefinite detention provisions in the National Defense Authorization Act (NDAA) of 2012, and the Obama Administration made a request for a more detailed explanation. The defendants — Barack Obama, Leon Panetta, John McCain, John Boehner, Harry Reid, Nancy Pelosi, Mitch McConnell and Eric Cantor — argued that the order only stopped the government from indefinitely detaining the journalists and activists who brought the lawsuit. But Judge Forrest has now clarified the injunction in a 8-page memorandum released Wednesday so as to "leave no doubt" that U.S. citizens cannot be indefinitely detained without due process. This story was posted on the businessinsider.com website late yesterday evening...and I thank Roy Stephens for his first offering of the day. The link is here.  US Banks Face $60 Billion Capital ShortfallThe 19 largest US banks are at least $50 billion short of meeting new capital requirements under the Basel III accords, according to rules proposed by the Federal Reserve. The biggest among them would probably need billions of dollars more by the 2019 deadline to comply fully with the rules. Smaller US lenders are about $10 billion short of the requirements, the Fed said on Thursday. The Fed's proposals, which will be phased in from next year, are part of a larger package implementing the Basel III accords in the US. This Financial Times story from yesterday was picked up by CNBC...and I thank West Virginia reader Elliot Simon for sending it. The link is here.  Trustee Sees Customers Trampled at MF GlobalIf the collapse of the commodities brokerage firm MF Global were a murder mystery, the revelation that $1.6 billion of customer money had disappeared would be the equivalent of finding the corpse. Who did it? And given that customer assets, by law, must be segregated from a firm's assets and operations, how could it have happened? This week, MF Global's liquidation trustee, James W. Giddens, went a long way toward solving the mystery in a 181-page account of MF Global's decline and fall. This story was posted on The New York Times Internet site yesterday...and I thank reader Phil Barlett for sharing it with us. The link is here.  Pavlovian: Doug Noland, Credit Bubble BulletinThe view that this week provided only the opening policy response salvo is anything but unjustified. If things proceed in Europe (and globally) as I fear, we can expect the ECB to cut rates and implement additional liquidity measures, as the Fed moves forward with additional quantitative easing. The Chinese, Indians, Brazilians and others will stimulate in hope of sustaining faltering booms. And I expect all of these measures to have little, if any, constructive impact on deepening global Credit and economic crises. At the same time, the impact on financial markets is less clear. Even NYC taxi drivers are confident that policy measures are sure to bolster the markets. To what extent will the sophisticated operators now use generous market accommodation to head for the exits? It's traditionally been referred to as "distribution." Think Facebook IPO. As always, Doug's CBB posted over at the prudentbear.com website, is a must read in times such as this...and this week's commentary is no exception. As always, I thank reader U.D. for sending it along...and the link is here.  Hyperinflation 2012: John WilliamsHere is John Williams, of shadowstats.com fame, with his 75-page annual report, which is now published in the clear six months after he posted it on his Internet site for his paying subscribers. This should keep you off the streets for a while...and I thank Australian reader Wesley Legrand for bringing it to my attention...and now to yours. The link to the pdf file is here.  Iceland economy grows at fastest pace in four yearsIceland's economy expanded in the first quarter at its fastest pace since its near-meltdown, powered by a surge in exports, tourism and domestic consumption. Gross domestic product (GDP) grew 2.4 percent quarter-on-quarter in the first three months of the year to put annual economic growth at 4.5 percent in the period, the highest since the first quarter of 2008, data from the statistics office showed on Friday. "It shows that the economy is growing rather rapidly, at least in an international comparison, at the moment," Islandsbanki Chief Economist Ingolfur Bender said. "The increase is broad-based, driven by consumption, investment and exports." This rather short Reuters story was filed from Stockholm late yesterday morning...and I thank reader 'David in California' for sending it. The link is here.  Debt crisis: EC plot to use competition rules to close down eurozone banksThe European Commission is threatening to use EU competition rules to close down the failing Greek, Spanish and Portuguese banks that have pushed the eurozone into a new crisis, with Greece's ATEbank the first in its sights. EU state-aid rules, designed to stop government subsidies distorting competition, give the commission sweeping powers to impose restructuring conditions on bank bailouts or even to block the rescue. Over the past two years, the rules have been interpreted generously to allow government bank bailouts to go ahead in return for commitments to restructure failing financial institutions but the mood in Brussels has hardened since the initial credit crunch of 2009. "We are moving into a new phase with Greece, Portugal and Spain," an EU official told Reuters. "Some banks are going to be squeezed. Some are going to be closed down." This story was posted in The Telegraph early in their afternoon yesterday...and I thank Roy Stephens for his second offering of the day. The link is here. |
| Silver Update: Keynesian Kooks – 6.8.12 Posted: 08 Jun 2012 09:14 PM PDT brotherjohnf: Silver Update 6/8/12 Keynesian Kooks
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| Noteworthy Insider Selling In These 4 Rising Consumer Stocks, And 4 Other Sells And 2 Buys Posted: 08 Jun 2012 07:42 PM PDT By Ganaxi Small Cap Movers: Insiders made noteworthy buys in two consumer and retail sector stocks this past week (June 4 to 8, 2012), and sold eight others. These, along with insider buys and sells last week in other sectors and groups (discussed in prior articles on the basic materials sector, energy sector, healthcare sector, and technology sector) were selected based on a review of over 1,600 separate SEC Form 4 (insider trading) filings last week, as part of our daily and weekly coverage of insider trades. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock: Autozone Inc. (AZO): AZO is a leading operator of over 4,800 retail auto parts stores nationwide and in Mexico and Puerto Rico, offering automotive parts and accessories that focus Complete Story » |
| 3 High Yield Large Cap Stocks With Strong Earnings Trends Posted: 08 Jun 2012 06:47 PM PDT By ZetaKap: Do you prefer investing in stocks with high dividend yields over 5%? Today, we focus on companies with sustainable yields, backed by strong earnings trends. We only screened for those with 'Buy' or better analyst ratings. We hope you find our list interesting. Return on Assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment. The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one Complete Story » |
| The mystery of the Gold Certificates Posted: 08 Jun 2012 06:41 PM PDT
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| Posted: 08 Jun 2012 06:07 PM PDT During my recent trip to New York I did a short interview with The Street, see here. Was over there for the Euro Pacific Capital Global Investment Conference. Peter Schiff did about an hour talk at the start, pretty much covering the stuff in his new book The Real Crash, all without notes. Got a chance for a short chat with him but forgot to get him to sign the book. Doh. Also managed to catch up with a few Depository clients. Always good to get feedback and I got a few tough questions thrown at me as well. I haven't met a client I don't get along with, I think its because us gold holders all have the same concerns, values and outlook on how economic life should be organised (or should I say not organised).  |
| The End Is Not Near, It Is Here and Now’ – Gold Legend Jim Sinclair Posted: 08 Jun 2012 05:25 PM PDT |
| Gold Bears "Wrong" About Dollar as Spain Raises Debt, China Cuts Both Rates & Euro Exposure Posted: 08 Jun 2012 05:15 PM PDT |
| Silver : the faboulous story of Cobalt, Ontario Posted: 08 Jun 2012 05:00 PM PDT Mining.Ca |
| Posted: 08 Jun 2012 04:00 PM PDT Gold University |
| Peter Schiff Testimony before Congress on Mortgage Loan Guarantees Posted: 08 Jun 2012 02:19 PM PDT Peter Schiff edits down his (and other's) testimony to a mere half hour. The setup for the video reads: "Does Washington have the American taxpayers' interests as their top priority? Watch as lobbyists drown out your voice and Peter fights the tide."
Source: Peter Schiff of EuroPacific Capital via YouTube http://www.youtube.com/watch?feature=player_embedded&v=UvMGHzB37lo Memo from Peter Schiff (June 8, 2012) Dear Friends, Yesterday, for the second time in less than a year, I was invited to Washington to testify in front of a Congressional Committee that was contemplating regulatory moves to aid the struggling economy. This time around it was the House Subcommittee on Insurance, Housing and Community Opportunity that asked for my views on Federal Housing Administration's (FHA) policy in the apartment lending market. Although this is a fairly narrow issue, I told them the same thing I did last year when I testified about job creation: government programs don't solve problems, they just create new ones. While I thank the Committee for inviting me, I believe the congressmen may have gotten more than they bargained for. I can apologize for shaking up what would have otherwise been a sleepy and forgettable proceeding, but I won't apologize for trying to inject respect for the Constitution and free market capitalism into a venue that has been doing its best to destroy both. I have edited down the more than 2 hour hearing into a package of slightly more than 30 minutes. This includes all of my testimony and some of the more noteworthy exchanges I had with the congressmen. The seven other people who testified besides me all represented the many interest groups who benefit from FHA loans. I represented only the interests of U.S. taxpayers, a group that congressmen usually don't hear from when considering legislation.
Peter Schiff Goes To Washington - Round 2
When taking heat from these surprised and offended congressmen, I can't help but think back to the reaction I received when I went down to the Occupy Wall Street protest last year. For those of you who missed that exchange, take a look: Peter Schiff Speaks to Occupy Wall Street. Both venues were dominated by people who knew very little about how capitalism actually works or how the United States rose to economic dominance in the first place. While such ignorance can be excused from scruffy protesters, we should expect more from our elected officials. This video should give all Americans a better idea of how insulated Congress is from the American taxpayers who are being asked to pay for the government's spending and borrowing. If you share my concerns, share this video with a friend. Viral videos have a singular power to influence the national conversation. Let's get it started. Below, I have included the written testimony that I submitted before my appearance. House Financial Services Committee June 7, 2012 - Subcommittee on Insurance, Housing and Community Opportunity - Hearing on FHA Multi-family Programs Testimony of Peter D. Schiff, economist, author and financial expert Chairman Biggert, Ranking Member Gutierrez and members of the Committee, thank you inviting me here to testify today. My name is Peter Schiff, and I own Euro Pacific Capital, a privately held stock brokerage firm. I am more widely known to the general public as an economist, author, speaker and advocate of the free enterprise system. Unlike many of my co-panelists I do not come here representing a specific coalition or group that has an interest in promoting the multi-family sector. I am here to represent the interests of the common U.S. taxpayer who will have to make good any liabilities incurred by the Federal government and who will have to live with the consequences of distortive government policies (as we all have been doing co conspicuously in recent years). I also assume that I have been invited for my track record in forecasting problems in the housing market. A good deal of my reputation was established in 2007 and 2008 when my prior predictions regarding the dangers confronting the housing and credit market were spectacularly realized. There can be no question that if a hearing similar to this had been convened in 2006 to consider federal home mortgage policies, a roomful of qualified experts would have insisted that no crisis was then evident in the mortgage market. And so I can only thank this committee for its circumspection in this instance. I have absolutely no objection to the idea that a healthy rental housing market is needed in this country, especially for those lower income individuals who depend on inexpensive housing options. However, I believe that market forces are sufficient by themselves. In general, free markets are the most efficient mechanism to ensure that market demands are met with the most cost effective options. However, as the housing market has been the subject of an inordinate amount of regulation and market distorting tax and subsidy policies over the years, it has developed in ways that don't conform to the economic realities of our citizenry. In particular the construction and maintenance of rental units has been stunted by Federal policies have greatly favored home purchasers over renters. The Federal Housing Authority and the Government Sponsored Entities of Fannie Mae and Freddie Mac, have undertaken herculean efforts to remove the credit risks associated with home mortgage lending. At the same time the tax code is replete with advantages for home owners, most notably the home mortgage tax deduction, that are not available to renters. In addition, the current policy of the Federal Reserve is to keep interest rates as low as possible, specifically to stimulate home purchases. Taken together, these factors have exaggerated the economic benefits of home ownership and have drawn excessive amounts of investment capital into the sector. Put simply, we are dedicated more resources to the single family home ownership market than we would if government had not decided to make home ownership a priority. As a result, financing for multi-family rental units have suffered. Renting simply offers few of the regulatory advantages than owning does. So the country has not developed as many units as would have been the case had the government refrained from interfering with the country's housing decisions. As it stands now, Americans have extremely low savings rates. The average American family now only has $7,000 worth of savings, which would not be nearly enough to afford a 20% down payment on the average American house. This would mean that the vast majority of Americans should be renters and not owners. Normally, these simple facts would attract investment capital to build affordable rental properties. Critics of the free market like to argue that investors will ignore the needs of the poor as the profits are not significant enough to entice development. There is little in capitalism to support this position. Great riches can be made by serving the needs of low income people. Just ask Sam Walton. Wal-Mart became successful by specifically targeting its inventory and pricing to low to moderate income consumers. Wal-Mart was able to expand, prosper, and attract investment capital without government guarantees or incentives. Such would also be the case in the low income housing market if government had not siphoned away investment capital. If there is demand, a supply will be produced. A paucity of rental units relative to demand is all the incentive that industry needs. But as is usual for government, legislators are now looking to ameliorate the pernicious effects of one set of distortive policies with another layer of regulations. This Committee may be looking to balance a playing field that never should have been tilted in the first place. By insuring a greater quantity of loans to developers of multi-family apartment properties, it is hoped that investment capital can be more willingly targeted to the market. However, hoping to micro manage capital flows always create a raft of unintended consequences. Legislators also rarely consider the unintended consequences of their actions. Credit in the United States is a limited commodity. Money loaned for one purpose in unavailable to be lent for other purposes. Through its effort to take the risks out of home lending, the FHA has directed more credit into the real estate market that would otherwise been the case. That means these funds were not available to be lent to other enterprises which may have put the capital to work in areas that may have been more needed in the economy. I think capital should flow to where it's needed most. Market determined interest rates are the factors that control these flows. The FHA short circuits these signals and harms our economy. It's time that the FHA itself becomes short-circuited. As a reminder to this Committee to proceed with caution and awareness, I submit as testimony portions of my newly released book, The Real Crash- America's Coming Bankruptcy that relate to how government policies created the housing bubble in the last decade, and how those policies continue to prevent a true turnaround in the market today. I hope with benefit of this hindsight, this Committee would abandon its instinct to over involve government in another area of the housing market and instead look to withdraw itself from areas that it has already devastated. Government Creates the Housing Bubble Through Bad Policy Excerpts from Chapter Two of: The Real Crash - America's Coming Bankruptcy: How to Save Yourself and Your Country (St. Martin's Press, 2012) Politicians in both parties decided that government should promote home ownership. Democrats focused on helping poor people own homes by making mortgages easier to get. Republicans spoke of an "ownership society" that would promote personal responsibility. Bankers and realtors, two of the most powerful interest groups in Washington, both agreed, and they helpfully pointed out ways the government could subsidize mortgages. The biggest subsidy for buying a home is the tax deduction for mortgage interest. If you rent your home, none of your rent is deductible. If you buy your home outright, your costs are not tax deductible. But if you borrow in order to buy your house, all of the mortgage interest - which is a majority of the monthly payment for many homeowners - is tax deductible. This is the single biggest tax break most people get, and it's a huge reason to buy a home - especially one that costs a lot. If you borrow $250,000 for a 30-year mortgage at 6 percent, your monthly payments will be about $1,500. About $1,250 of that is interest. In the first year, you'd pay almost $15,000 in interest, and thus be able to reduce your taxable income by $15,000. In seven years, you will have paid $100,000 in interest, saving at least $25,000 on taxes. Also, you can deduct the interest on your second home. The only limit is that you can only deduct the interest on $1 million worth of mortgage. This is a huge mortgage subsidy. Even though it's just a tax deduction, it's still a subsidy, because it distorts the market in favor of homeownership (more precisely, leveraged homeownership). Another reason the mortgage deduction counts a subsidy: other taxpayers pay for it, at least indirectly. According to official estimates, the deduction reduces federal revenue by about $100 billion per year. Total revenue from individual income taxes is just above $1 trillion. So, if Congress abolished this deduction, and instead lowered all tax rates across the board, we could cut everyone's taxes by nearly 10 percent. Put another way, almost 10 percent of your tax dollars go to benefit leveraged home-ownership by Americans. Even if you're one of those homeowners getting the deduction, there's a chance you're still losing out on net. It's important to remember that subsidizing something doesn't just benefit the people buying it. In fact, it often benefits the sellers more. In the case of mortgage subsidies, there are plenty of "sellers" who benefit. First is the homeowner who sold you the home. Decreasing the monthly cost of owning a home also drives up the price of buying a home. After all, you're not the only one with access to the mortgage-interest deduction. The deduction boosts demand, thus boosting price. As a result of the home mortgage deduction, homebuyers end up paying more for their home. So while they get to deduct their interest payments, those payments are much higher due to the price effects of the deduction. Take away the excess demand generated by the deduction, and home prices would fall. True, mortgage interest would no longer be deductible, but the payments would be much lower. Most homebuyers would be better off without the deduction. The real beneficiary of the deduction is the seller, who sells his house at an inflated price. Of course if he uses the proceeds to trade up to an even larger house, he losses out as well. The only winners are those who sell and rent, trade down to less expensive houses - or professional homebuilders, who sell houses for a living. Realtors also profit. Greater demand for buying a home means more homes bought, meaning more commissions. Also, higher demand means higher home prices, meaning higher commissions. Lenders also profit from the home mortgage interest deduction, which encourages people to not only to buy, and thus take out mortgages, but to take out bigger mortgages than they otherwise would. The combined influence of realtors and lenders insured the home mortgage interest deduction. The story of the deduction goes back to 1913. When the income tax was created, all interest - including personal loans and business borrowing - was tax deductible. After credit cards became ubiquitous in the 1980s, Congress ended this deduction, but thanks to the lobbying of the realtors and mortgage lenders, mortgage interest was spared, and it remained deductible. Home ownership gets other special tax breaks, with one big one driving the idea of a home as an investment: the capital gains exclusion. Most investments you might make - say, you start a business, or invest in stock - are subject to capital gains taxes. Your home is not. If you live in your home for two years, you can sell it and earn up to $500,000 in profit on tax free. This is another huge subsidy to homeownership as compared to other investments, and it encouraged serial home flipping during the bubble years. Fannie and Freddie: 'one of the great success stories of all time' The greatest drivers of the housing bubble, after the Federal Reserve, were the Government Sponsored Enterprises Fannie Mae and Freddie Mac, who were supposed to make housing more affordable, but who ended up creating a housing bubble instead. In 2004, if you asked the average Washington politician about Fannie and Freddie, you would have been told that these GSEs were sound, essential, and independent of government. In 2007, as the housing and mortgage crisis became apparent, that same politician would have said that Fannie and Freddie were doing just fine, and they wouldn't need a bailout. Come late 2008, those very same politicians were crying that taxpayers needed to bail out both. In 2004, when Alan Greenspan came before the Senate Banking Committee, the issue of the GSEs came up. Senator Chris Dodd, the largest Congressional recipient of housing related campaign contributions said of them, "I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time." In July 2008, after the New York Times reported that the federal government might have to take over Fannie and Freddie, stocks of both GSEs fell nearly 50 percent. Dodd chastised the sellers and those of us saying Fannie and Freddie were bankrupt. "There is no reason for the kind of reaction we're getting. These fundamentals are sound. These institutions are sound. The have adequate capital. They have access to that capital. And this is a reason for people to have confidence in these GSEs-in Fannie and Freddie." In the end, Fannie and Freddie collapsed, and rather than let them fail, the government bailed them out and took them over. When you think of the 2008-2009 economic crisis, some words might come to mind: mortgaged-backed securities, housing bubble, subprime mortgages, cronyism, moral hazard, derivatives. When you think of these words, you should think of Fannie Mae and Freddie Mac. Franklin Roosevelt created the Federal National Mortgage Association during the Great Depression in order to stimulate home buying ("FNMA" became "Fannie Mae). In 1968, Congress privatized Fannie, and a couple of years later, created a competing agency, the Federal Home Loan Mortgage Corporation, or Freddie Mac. What these agencies do is to buy mortgages from lenders. You can imagine how this opens up the mortgage market. Without someone buying up mortgages, a bank is somewhat limited in how many loans it can make - after all, even with fractional reserve banking and loose reserve requirements, your loans still need to be backed up by some amount of assets. The problem with Fannie and Freddie is that they knew that while their profits were real - and huge - there risk was not real. More precisely, the politically connected bigwigs who ran the halls at these GSEs knew that if their companies ever lost money, the taxpayers would bail them out. This government guarantee was not explicit, but implicit. Of course, Fannie's biggest boosters denied there was any guarantee. Barney Frank, in 2003, famously said: "There is no guarantee. There's no explicit guarantee. There's no implicit guarantee. There's no wink-and-nod guarantee. Invest and you're on your own. Nobody who invests in them should come looking to me for a nickel. Nor anyone else in the federal government." Fannie Mae officials also fiercely denied they enjoyed any subsidy. But they did. Fannie Mae was able to borrow at lower interest rates, because lenders realized that taxpayers would bail them out. Near-zero borrowing costs had two detrimental effects. First, it allowed Fannie and Freddie to buy up massive amounts of riskier mortgages. Second, it made it impossible for anyone to compete with these GSEs.. So, the net effect of Fannie and Freddie was to drive down lending standards and interest rates. Had there been no government subsidized secondary mortgage market, selling mortgages would have been harder for banks, and lending standards and interest rates would have been higher. This was exactly the point. Fannie was in "The American Dream Business," they would say. Their job was get people to buy homes they who otherwise wouldn't buy homes, and to make everyone pay more. Some like to point out that subprime was the real problem and that Fannie and Freddie did not guarantee subprime loans. While that is technically true, they were the biggest buyers of these loans in the secondary market. In fact, without their lavish appetites far fewer subprime loans would have been originated. Not only did their demand help fuel originations, but it helped legitimize the investment merit of the securities. Because the private sector originated subprime loans without any official government backing, many like to blame capitalism, or more specially Wall Street greed, for the problem. However, take the Fed and Fannie and Freddie out of the picture, and subprime would have been a trivial part of the mortgage market. Fannie Mae and Freddie Mac were the most important players in driving the Fed's excess capital into housing, but other policies helped, too. The Community Reinvestment Act was one. The CRA has changed plenty over its 30 years, but the general thrust was always the same: it empowered federal regulators to pressure banks to make more loans to low-income people. George W. Bush pushed his "ownership society," too. Bush spoke at a church in Atlanta in 2002 about "the American Dream," meaning homeownership. The President named some of the new homeowners he had just met and said, "What we've got to do is to figure out how to make sure these stories are repeated over and over and over again in America." To this end, he proposed the "American Dream Downpayment Act" to help folks buy homes even if they couldn't afford downpayments. The law, passed in 2003, provided grants of up to $10,000 to cover downpayment, closing costs, and some home repair for first time homebuyers of below-average means. Of course, the tax preferences above drove the housing market, too. Housing prices soared. At the same time, the American dream was hijacked. Instead of referring to the upward mobility made possible by American capitalism, it was redefined to mean getting rich just by buying a house and extracting equity as it magically appreciated. Come 2006 and 2007, the housing bubble popped. At first, pundits said it was just a little crisis in subprime mortgages. It wasn't. I won't go through the entire story of what happened in the housing and credit markets in 2006 through 2009, but it was a replay (on a much larger scale) of the popping of the dot-com bubble. When bubbles are built upon foundations of massive leverage, the bust brings real destruction. On the smallest level, consider the guy who took out an adjustable rate mortgage in 2005 to buy a big house with a very small down payment. When his home value drops 30%, it's not only his on-paper net worth that suffers. His rate adjusts in 2010, and he can't refinance because his house is underwater. If he sells his house, he won't be able to get enough money to cover his outstanding mortgage and the bank will take all his savings. Banks took a huge hit when everyone realized that the trillions investors and banks had spent on mortgage-backed securities were worth a fraction of what they were supposedly worth. All the financial institutions that had been providing credit to the economy were suddenly in trouble, and couldn't lend like they used to. Those businesses that depended on credit for their day-to-day operations were in trouble. Never was this on display as clearly as 2008. In March, the Fed bailed out failed bank Bear Stearns. In July, Congress passed housing bailouts. In early September, the federal government took outright ownership of Fannie and Freddie (since then, according to Congressional Budget Office numbers, taxpayers have poured $310 billion into the two GSEs). In mid-September, the Federal Reserve, with no authorization from Congress, created brand new Enron-like special-purpose entities to buy an 80 percent stake in insurance giant AIG. This was an attempt to bail out a collapsing financial sector. It wasn't enough. Most important, though, was the way the string of bailouts fit the government pattern: prevent the economy from correcting itself. Once again, rather than let an inefficient allocation of resources shake itself out, politicians and central bankers decided that the right cure for a drinking binge was "the hair of the dog that bit you." That is, when confronted with a crisis caused by government-created moral hazard, cheap money, and central planning, Washington responded with more moral hazard, even cheaper money, and heightened central planning. Corporate welfare and business subsidies have always been around, but the Bush and Obama administration gave government a role more central in the economy than it have ever played. The government owned insurance companies, mortgage companies, automakers, and more. Washington was giving handouts to power companies, banks, small businesses, big businesses, manufacturers, and every type of business imaginable. Government had become a venture capitalist, an insurer, and even an owner of the private sector. If the private sector - even with prodding from Washington - wasn't going to step up and prevent a downturn, the government would. It was just one more step down the same path. When the dot-com bubble popped, they replaced it with a housing bubble. When the housing bubble popped, they replaced it with a government bubble. The greater problem is that while we at least have something to show for the first two bubbles, a few good Internet companies and some pretty nice McMansions, no such benefits will remain when the government bubble pops. Peter Schiff |
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