Gold World News Flash

“Trade-Off”: A Study In Global Systemic Collapse
"Trade-Off": A Study In Global Systemic Collapse
The Fed's Next Move
Visualizing TBTF: The Hub And Spoke Representation Of Modern "Scale Free" Banking
What Happens IF the U.S. Dollar and/or the Euro Collapse? Got Gold?
Guest Post: Welcome To The Future
Feedback Friday
fraud: why the great recession
COMEX Swap Dealers Net Long Gold for Third Time Ever
And Now Back To Reality And The Impossible Earnings Season Stepfunction
Norcini, Arensberg note unusual bullish development in gold futures
An Absolutely Stunning Development In The Gold Market
Gold Mining Stocks Bargains Abound, But Buy With Care
Guest Post: Does Central-Bank Gold-Buying Signal The Top Is Near?
COMEX Swap Dealers Net Long Gold for Third Time Ever
This Past Week in Gold
Save Havens, Real and Imagined
Rob Kirby: Since 1994, the mythical Strong Dollar Policy had necessitated a two prong strategy: that of keeping rates low because weak currencies are typified by high interest rates; and the price of gold must be suppressed
John Schmidt–A Pool Pro’s Guide To Real Money 07-13-2012
Gold & Stock Markets Rally, But Troubles Continue in Europe

“Trade-Off”: A Study In Global Systemic Collapse

Posted: 14 Jul 2012 10:17 PM PDT

And now some bedtime reading for everyone who consistently has a nagging feeling that at any second the world is one short flap of a butterfly's wings away from complete systemic disintegration: according to David Korowicz of FEASTA, and his most recent paper: 'Trade-Off Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse." that just may be the case. Think of the attached 78-page paper as Nassim Taleb meets Edward Lorenz meets Malcom Gladwell meets Arthur Tansley meets Herman Muller meets Werner Heisenberg meets Hyman Minsky meets William Butler Yeats, and the resultant group spends all night drinking absinthe and smoking opium, while engaging in illegal debauchery in the 5th sub-basement of the Moulin Rouge circa 1890. To wit: "Something sets off an interrelated Eurozone crisis and banking crisis, a Spanish default say, which spreads panic and fear across other vulnerable Eurozone countries. This sets off a Minsky moment when overleveraged speculators in the banking and shadow banking system are forced to unwind positions into a one-sided (sellers only) market. The financial system contagion passes a tipping point where governments and central banks start to lose control and panic drives a (positive feedback) deepening and widening of the impact globally. In our tropic model of the globalised economy, the banking and monetary system keystone hub comes out of its equilibrium range, crosses a tipping point, and is driven away by positive feedbacks to some new state…. it is very clear that we have learned almost nothing general about risk management as a societal practice arising from the financial crisis. We have merely adopted a new consensus, with a questionable acknowledgement that we will not let this type of crisis happen again. However, the argument in this following report is that we are facing growing real-time, severe, civilisation transforming risks without any risk management."

Watch It NOW @ Zero Hedge.com

"Trade-Off": A Study In Global Systemic Collapse

Posted: 14 Jul 2012 09:00 PM PDT

Without further ado, we hand over the mic to the author:

This study considers the relationship between a global systemic banking, monetary and solvency crisis and its implications for the real-time flow of goods and services in the globalised economy. It outlines how contagion in the financial system could set off semi-autonomous contagion in supplychains globally, even where buyers and sellers are linked by solvency, sound money and bank intermediation. The cross-contagion between the financial system and trade/production networks is mutually reinforcing.

It is argued that in order to understand systemic risk in the globalised economy, account must be taken of how growing complexity (interconnectedness, interdependence and the speed of processes), the de-localisation of production and concentration within key pillars of the globalised economy have magnified global vulnerability and opened up the possibility of a rapid and large-scale collapse. 'Collapse' in this sense means the irreversible loss of socio-economic complexity which fundamentally transforms the nature of the economy. These crucial issues have not been recognised by policy-makers nor are they reflected in economic thinking or modelling.

As the globalised economy has become more complex and ever faster (for example, Just-in-Time logistics), the ability of the real economy to pick up and globally transmit supply-chain failure, and then contagion, has become greater and potentially more devastating in its impacts. In a more complex and interdependent economy, fewer failures are required to transmit cascading failure through socio-economic systems. In addition, we have normalised massive increases in the complex conditionality that underpins modern societies and our welfare. Thus we have problems seeing, never mind planning for such eventualities, while the risk of them occurring has increased significantly. The most powerful primary cause of such an event would be a large-scale financial shock initially centring on some of the most complex and trade central parts of the globalised economy.

The argument that a large-scale and globalised financial-banking-monetary crisis is likely arises from two sources. Firstly, from the outcome and management of credit over-expansion and global imbalances and the growing stresses in the Eurozone and global banking system. Secondly, from the manifest risk that we are at a peak in global oil production, and that affordable, real-time production will begin to decline in the next few years. In the latter case, the credit backing of fractional reserve banks, monetary systems and financial assets are fundamentally incompatible with energy constraints. It is argued that in the coming years there are multiple routes to a largescale breakdown in the global financial system, comprising systemic banking collapses, monetary system failure, credit and financial asset vaporization. This breakdown, however and whenever it comes, is likely to be fast and disorderly and could overwhelm society's ability to respond.

We consider one scenario to give a practical dimension to understanding supply-chain contagion: a break-up of the Euro and an intertwined systemic banking crisis. Simple argument and modelling will point to the likelihood of a food security crisis within days in the directly affected countries and an initially exponential spread of production failures across the world beginning within a week. This will reinforce and spread financial system contagion. It is also argued that the longer the crisis goes on, the greater the likelihood of its irreversibility. This could be in as little as three weeks. This study draws upon simple ideas drawn from ecology, systems dynamics, and the study of complex networks to frame the discussion of the globalised economy. Real-life events such as United Kingdom fuel blockades (2000) and the Japanese Tsunami (2011) are used to shed light on modern trade vulnerability.

Think of the attached 78-page paper as Nassim Taleb meets Edward Lorenz meets Malcom Gladwell meets Arthur Tansley meets Herman Muller meets Werner Heisenberg meets Hyman Minsky meets William Butler Yeats, and the resultant group spends all night drinking absinthe and smoking opium, while engaging in illegal debauchery in the 5th sub-basement of the Moulin Rouge circa 1890.

The final product is frightfully spot on and should be read by every person even remotely close to setting policy (which is why it won't be).

Another rather notable excerpt dealing with financial system supply-chain cross contagion:

Something sets off an interrelated Eurozone crisis and banking crisis, a Spanish default say, which spreads panic and fear across other vulnerable Eurozone countries. This sets off a Minsky moment when overleveraged speculators in the banking and shadow banking system are forced to unwind positions into a one-sided (sellers only) market. The financial system contagion passes a tipping point where governments and central banks start to lose control and panic drives a (positive feedback) deepening and widening of the impact globally. In our tropic model of the globalised economy, the banking and monetary system keystone hub comes out of its equilibrium range, crosses a tipping point, and is driven away by positive feedbacks to some new state.

This directly links to another keystone-hub, production flows. Failing banks, fears of currency re-issue, fears of further default, collapse in Letters of Credit, and growing panic directly quickly shut down trade in the most affected countries. As the week progresses factories close, communications are impaired, social stress and government panic increases. After a week almost all businesses are closed, there is a rising risk to critical infrastructure.

Almost immediately internal trade and imports stops in the most affected countries, and there is impairment in a growing number of other countries. Trade is impaired globally via a credit crunch. This undermines exports from some of the most trade-central countries, with some of the most efficient JIT dependencies in the world. This cuts inputs into the production and trade into countries that were initially weakly affected by direct financial contagion. Globally, the spread of trade contagion depends on complexity, centrality, and inventory times and once a critical threshold is passed spreads exponentially until the effect is damped by a large-scale global production collapse (implying another keystone-hub, economies of scale is driven out of equilibrium).

Trade contagion and its implications feed back into financial system contagion, helping drive further disintegration. The interacting and mutually destabilising effects of keystone-hubs coming out of equilibrium destroy the equilibrium of the globalised economy initiating a systemic collapse.

Growing risk displacement in an increasingly vulnerable system is increasing the risk of system failure. Once the financial system contagion crosses a particular threshold the de-stabilisation of the globalised economy will be exceedingly difficult to arrest; this point may be in as little as ten days. Once a major system collapse occurs, scale, hysteresis, entropy, loss of critical functions, recursion failure, and resource diversion is likely to ensure that the features associated with the previous dynamic state of the globalised economy can never be recovered.

The above explains why the central planners of this world, all of them well-aware of the implications of what has just been said, will literally fight to the death to prevent the global system from reacquire its balanced natural state, which for 30 years they have been pushing further and further away from in other to perpetuate as long as possible, an unstable status quo, which has benefited a disproprtionately smaller number of systemic participants, and has lead the system far beyond its tipping point level. Sadly, the system will eventually regain balance: that is what nature dictates. When it does, a politically correct way of saying what happens it that "the previous dynamic state of the globalised economy can never be recovered" while a less PC framing would be "all hell will break loose."

The author continues:

We have outlined how the risk of a major shock arising from decades of credit expansion and imbalances is growing. We have also seen that we could expect a similar shock from the effects of peak oil on the economy. What unifies both is a catastrophic collapse arising from a loss of confidence in debt, and the solvency of banks and governments. What would be unique is the scale of the shock and its ability to strike at the heart of the world's financial system. But the implications are not just within the financial and monetary system. They would immediately affect the trade in real goods and services. As our economies have become more complex, de-localised and high speed, the implications on supply-chains could be rapid and devastating.

There are three general points that are worth noting. Together they point to the likelihood that the crisis whenever it comes can be expected to be very large and society unprepared.

The first is temporal paralysis:

As financial and monetary systems become more unstable, the risks associated with doing anything significant to change or alter the course increase (see also the discussion of lock-in in the final section). In addition, the diversity of national actors, public opinion, institutional players and perceptions works against a coherent consensus on action. Therefore the temptation is to displace immediate risk by taking the minimal action to avert an imminent crisis. This increases systemic risk. Some steps in the evolving crisis might be handled, for example, a Greek default. However, each new iteration of the crisis is likely to be bigger and more complex than the one before, while the system is becomes ever less resilient.

A second issue is what might be called the reflexivity trap:

The actions taken to prevent a crisis, or preparations for dealing with the aftermath of a crisis, may help precipitate the crisis. Therefore to avoid precipitation, the preparation has to be low key and below the radar of the public and markets. This limits the extent and scope of preparation, increasing the risk of a chaotic and slow response.

The final point is about black swans & brittle systems:

The growing stress in our very complex globalised economy means it is much less resilient, see the discussion in section 3.1 and figure 2. Thus a small shock or an unpredictable event could set in train a chain of events that could push the globalised economy over a tipping point, and into a process of negative feedback and collapse.

One cannot predict how such a financial and monetary collapse will occur, or when. However, in this section we are considering a scenario, ideally one that in the light of what we know of the economic conditions sketched earlier seems at least reasonable. This scenario should be considered a warning, but also a more general guide to how supply-chain cross contagion might operate in any financial/ monetary collapse.

Everyone who is curious how the European endgame will (not may) plays out (especially all the bureaucrats at the ECB and the Bundesbank) should read what ensues. Because it is not pretty. Here is a snapshot:

Globally, monetary systems would become increasingly opaque. A lack of money, operational banks, currency re-issue, inflation and hyper-inflation expectations would become a reality in many advanced economies in and outside the Eurozone. Debt deflation would in its formal sense start to die-nobody would (even if they could) pay down debt, nor would there be any credit. Production would be increasingly shut down, while complex societies got a rapid lesson on the extent of system dependency.

The perception of continued socio-economic disintegration would alter behavioural responses such as trust radii and social discount rate.

Finally, financial system supply-chain cross-contagion is a re-enforcing negative feedback driving the globalised economy away from its stable state and into a new collapse one.

Granted the above is dubbed a worst-case outcome, but one which is inevitable unless authorities admit that it is a distinct possibility and actively prepare a contingency plan, which however in itself is somewhat self-defeating because as the Eurozone crisis has demonstrated the mere admission of reality is enough to propagate the system into a whole new level of unsustainability, and so on until the system cross a final threshold beyond which there is no salvageability. The author himself acknowledges this:

We do not like to think of ourselves as potentially irrational herd animals (that will be the Jones's). We seek narrative frameworks that purport to explain our good fortune, ideally in ways that flatter. Reinhardt and Rogoff called it the This Time It's Different syndrome as each age sought to deflect warnings by arguing we're smarter now, better organised, or living in a different world. Just as the sellers of an overpriced home will convince themselves that it was their interior decorating skills not an inflating bubble that got them the good deal.

Of course warnings may keep coming, and almost by definition, from the fringes. When assessing risks that challenge consensus, people are more likely to defer to authority, which generally sees itself as the representative of the consensus. Furthermore, as a species with strong attachments to group affirmation, being wrong in a consensus is often a safer option than being right but facing social shaming, or especially if found to be wrong later.

Far better to say: "Look, don't blame me, nobody saw this coming, even the experts got it wrong!"

But even if we can appreciate a warning, the inertia of the status quo generally ensures acting on such warnings is difficult. In general we chose the easiest path in the short-term, and the easiest path is the one we are familiar and adaptive with. We would rather put off a hard and high consequence decision now, even if it meant much higher consequences some time in the future. However, if each step on the path of least resistance is a step further from where we ideally should be, the risks associated with doing anything rise as the divergence is so much wider. Eventually one's bluff may be called, but not yet, and hopefully on somebody else's watch.

The consensus can often be correct and the marginal voices may be deluded. The point for the risk manager is to try and step through cognitive and social blind-spots by first recognising them. This is particularly true if the risks (probability times impact) considered are very high.

Unfortunately, it is very clear that we have learned almost nothing general about risk management as a societal practice arising from the financial crisis. We have merely adopted a new consensus, with a questionable acknowledgement that we will not let this type of crisis happen again. However, the argument in this following report is that we are facing growing real-time, severe, civilisation transforming risks without any risk management.

Which brings us to the conclusion:

We are locked into an unimaginably complex predicament and a system of dependency whose future seems at growing risk. To avoid catastrophe we must prepare for failure.

We are entering a time of great challenge and uncertainty, when the systems, ideas and stories that framed our lives in one world are torn apart, but before new stories and dependencies have had time to evolve. Our challenge is to let go, and go forth.

Our immediate concern is crisis and shock planning. It should now be clear that this is far more extensive than merely focussing on the financial system. It includes how we might move forward if a reversion to current conditions proves impossible. That is we also need transition planning and preparation. Even while subject to lock-in and the reflexivity trap, this will be most effective if it works from bottom-up as well as top-down.

Finally, neither wealth nor geography is a protection. Our evolved co-dependencies mean that we are all in this together.

Everyone who wishes to know what will happen unless everyone is aware of what may happen, should read the attached paper.

Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse (pdf)

The Fed's Next Move

Posted: 14 Jul 2012 08:30 PM PDT

by Michael Pento, 24hGold.com:

Spanish and Italian bond yields have now risen back up to the level they were before the EU Summit. We also learned recently that U.S. job growth remains anemic, producing just 80k net new jobs in June. The global manufacturing index dropped to 48.9, for the first time since 2009. And emerging market economies have seen their growth rates tumble, as the European economy sinks further into recession.

It isn't much of a surprise to learn that central banks in China, Britain, Europe and America have indicated that more money printing is just around the corner.

In fact, we have recently witnessed the People's Bank of China cut their one-year lending rate by 31 bps to 6 percent. The European Central Bank cut rates 25 bps, to .75 percent and dropped their deposit rate to 0 percent. And the Bank of England restarted their bond purchase program just two months after ending the previous program, which indicates the central bank will buy another 50 billion pounds of government debt.

Read More @ 24hGold.com

Visualizing TBTF: The Hub And Spoke Representation Of Modern "Scale Free" Banking

Posted: 14 Jul 2012 08:05 PM PDT

In a few moments we will post a critical analysis by David Korowicz, titled Trade-Off: Financial System Supply-Chain Cross- Contagion: a study in global systemic collapse, arguably one of the best big picture overviews of the New Normal in systemic complexity, which considers the "relationship between a global systemic banking, monetary and solvency crisis and its implications for the real-time flow of goods and services in the globalised economy" and specifically looks at how various "what if" scenarios can propagate through a Just In Time world in which virtually everything is connected, and in which even a modest breakdown in one daisy-chain can lead to uncontrolled systemic collapse via the trade pathways more than ever reliant on solvency, sound money and bank intermediation. In summary, Korowicz shows why we as a society, are now consistently on "the edge."

But before that we wanted to present schematically, and narratively, one of the more important topics of the past several years, namely the "scale-free" nature of modern banking, in which very few Hub financial institutions impact an exponentially increasing number of Spokes, a phenomenon which "opened up the possibility of 'too big to fail' and 'too big to save' banks, that is, a small group of banks that were 'hubs' of the global banking system. Upon this small number of super-connected banks stand the operations of lots of small ones." Of course, this phenomenon will not be news to anyone who has read either Taleb's works on "non-scalability" and Soros' philosophical ruminations on "reflexivity." Regardless, here it is in its full visual glory.

Korowicz describes the relationship map as follows:

The major banks hubs of the international financial network show high levels of connectivity and interdependence. The links are weighted to represent the strongest relations between banks. The colours represent different geographic areas, European Union (red), North America (blue), other countries (green).

He goes on:

Prior to the beginning of the financial crisis, risk management by regulators was focussed on individual banks. In addition it was common to hear how increased interconnection and integration between banks reduced systemic risk by dispersing individual bank risk over the whole system. The crisis prompted a wave of studies, drawing particularly upon ecology, emphasising how the structure between banks could increase systemic risk.

This included collective effects like herding, in which financial networks enabled imitative strategies in the search for yield, or transmitted collective euphoria or panic. They also showed how deregulation and connectivity had removed 'circuit-breakers' in financial systems such as the integration of retail banks into merchant banks trading on their own account. The effectiveness of fire-breaks and the vaccination of super-spreaders show how 'modularity' can inhibit contagion in natural systems. Indeed, the 'fire- break' of the nonfree traded Chinese Yuan probably stopped the 1997 Asian financial crisis from being far more serious.

Further the nature of the connections between banks was explored. Each bank was not connected at random to other banks, rather a very small number of large banks were highly connected with lots of other banks, who had few connections to each other. These arrangements are sometimes known as scale-free networks. Preferential attachment is a way of generating such scale-free networks - big banks have greater economies of scale and bargaining power, so can attract more business than their smaller rivals with better deals or market crowd-out, thus generating even greater economies of scale and so on.

For example, when the Federal Reserve Bank of New York commissioned a study of the structure of the inter-bank payment flows within the US Fedwire system they found remarkable levels of concentration. Looking at 7,000 transfers between 5,000 banks on an average day, they found 75% of payment flows involved less than 0.1% of the banks and 0.3% of linkages.

While this type of scale-free structure can reduce local risk, it can also help to displace and concentrate large-scale systemic risk. A random failure in a scale-free network is likely to affect a node of low connectivity, with small implications. However, the failure of a hub node has a disproportionate impact, especially if those hub nodes have high connectivity to each other. This concentration opened up the possibility of 'too big to fail' and 'too big to save' banks, that is, a small group of banks that were 'hubs' of the global banking system. Upon this small number of super-connected banks stand the operations of lots of small ones.

Thus we see the primary financial monetary keystone-hub with little or no redundancy, underpinned by a secondary banking system that comprises high, but not quite as high levels of concentrating hubs.

As a reminder, this is merely a tiny preamble into what will be a far more extensive overview of the complexities of the modern world in which finance, "sound money", economics, trade, and of course solvency are tightly woven into a fabric that defines our everyday lives, and in which the smallest shock has the potential to propagate through the system in unpredictable, Lorenzian patterns with massive avalanche-like follow through aftereffects.

What Happens IF the U.S. Dollar and/or the Euro Collapse? Got Gold?

Posted: 14 Jul 2012 07:44 PM PDT

Is it OK for gold to go down? Those invested in gold would prefer it doesn't, but a rational answer must be "Yes." Trees don't grow to the sky and few assets monotonically increase in value for lengthy periods. Gold is no different. It has had a remarkable 11-year run but is this run over? Is gold just another bubble?…. Words: 1122 So asks*Monty Pelerin ([url]www.economicnoise.com[/url]) in edited excerpts from his original article*. [INDENT]Lorimer Wilson, editor of [B][COLOR=#0000ff]www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor's Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.[/COLOR][/B] [/INDENT]Pelerin goes on to say, in part: Men tend to believe that things in motion will continue in the same direction. No law, rule or guarantee exists to support such beliefs. That is not the way the world actually works, despite our brain's tendenc...

Guest Post: Welcome To The Future

Posted: 14 Jul 2012 07:41 PM PDT

Submitted by NJBDeflator

Welcome To The Future

In May I wrote:

"The world econo-politocal paradigm is shifting, and it is shifting very rapidly due to the dire implications of a decade-long international financial crisis. We can no longer rely on what were sound economics to lower unemployment and dissolve developed nation hunger problems. We are entering the age of a world government, and an age of sovereign financial engineering, because these are the luxuries that political evolution have granted us. It is already clear that the US Federal Reserve, the ECB, and the IMF have been running the world economy over the past decade (Greenspan's low rates brought us in, Bernanke/ECB/IMF are working to get us out), but what is not so clear, is what their role will be in the coming years." [May 19, 2012]

In the US and Europe we have slowly come to the realization that traditional accommodative economic policies leave, and have left, the real economy limp. Wildly divided governments don't help, but beyond the fact that western decision making bodies are polarized, it is abundantly clear that the panacea for the global economy is not even on the table right now. The western world has been thrown into a bout of sovereign game theory, and by the constructs of game theory itself, one country will "win," while everyone else will lose to varying degrees. But that we are such a highly integrated global economy--the reason the whole world is heading towards recession right now--means that a solution must incorporate every economy around the world. The current game Europe is playing is bound to fail because if one country gets their way, others lose by definition.

There is an exception to this paradigm, though. And yes, you guessed it: it's China.


GDP growth rates since 1990. Source: World Bank via Google graphs.

Over the past two decades international GDP growth rates have essentially been flat, while that of China has nearly doubled. Global growth rates (sans Greece) took a nose dive in 2008 and rebounded in 2009; China's remained steady at 10%. Following the rebound in 2010, global GDP growth rates started falling rapidly, with many (European periphery) heading into recession territory. China is slowing at a much more controlled pace, and China's 2012Q2 GDP growth numbers came in at 7.6%, which is right in line with analysts' expectations and quells the notion of a Chinese "hard landing."

Unemployment paints a similar picture.

Unemployment rates since 1990. Source: World Bank via Google graphs.

There are many reasons for China's economic resilience: rapid urbanization, accelerated growth from foreign inflows that befall all emerging economies, and a strong export sector, to name a few. What seems to be the over-arching reason for China's strong ascent, though, is its government intervention: China's hybrid of proactive fiscal stimulus peppered with a rate cut and liquidity injection here and there has proven to be a winning combination for the world's second largest economy. This government intervention--which harkens back to the interventionist days of Mao--is very appropriate for China. Still classified by the CIA's World Factbook as a communist state, such government intervention is to be expected of China. What is odd, though, is that no one really plays the communist card when it comes to the Chinese economy. Americans are quick to the draw when a story of Chinese censorship hits international news wires, but withhold such judgement when it comes to economics. I think this is because China's big government is frankly working. They have taken their communist nature and applied it in the most pro-business, pro-economy, and pro-development way. This is why Americans can't say the c-word when it comes to the Chinese economy; we are jealous of the Chinese story, so much so that we fear the Chinese yuan overtaking the US dollar as the global reserve currency. China recently opening swap lines with BRICs and other trading partners ($100billion with Australia) does nothing to abate these fears and further illustrates a strong Chinese economy in years to come.

China is defining 21st century sovereign financial engineering, and it is working. Granted stories of extreme excess production of Chinese airports, apartment buildings, and shopping malls abound the media, but something tells me that China has an answer for that. If China is able to successfully engineer their way out of this financial crisis, we will see other sovereigns begin to engineer their economies (though it will never be called such a thing).

As a global economy we have clearly hit some sort of economic wall. The western world is trying to drill through it; China decided to build a ladder.

Feedback Friday

Posted: 14 Jul 2012 07:30 PM PDT

By Jeff Berwick, Dollar Vigilante:

A TRANSACTION TAX?

Hello from New Zealand, Jeff,
How about doing an article on a transaction tax where there are no deductions or exemptions? (It would replace all current taxes.)
A former governor of our reserve bank said a tax of $0.1% on the daily turnover in our banking system of around $30 billion would be sufficient to run the government. (New Zealand popopulation 4.5 million.)
Of course it would expose the money laundering of big business, the banks, the legal and accounting fraternities. (Who are the major contributors to the politicians re-election campaigns.)
A start has to be made somewhere and maybe France and Germany will be the ones.

Kind Regards,
Lou H., Christchurch, New Zealand

Jeff's Response:

Hi Lou,
What you are proposing is that theft be done at gunpoint, as opposed to the manner in which it is typically done these days. It's the equivalent of watching a man beat his two-year-old daughter brutally with a crowbar and walking over and suggesting he use a hammer because it'd get the job done faster and more efficiently. How about suggesting he not beat his daughter at all?

Read More @ DollarVigilante.com

fraud: why the great recession

Posted: 14 Jul 2012 06:30 PM PDT

by amagifilms, Silver Doctors:

Free markets are not to be blamed for the Great Recession. On the contrary, its origins rest upon the deep government and central bank intervention in the economy. Through fraudulent mechanisms, this causes recurrent boom and bust cycles: bad policies create phases of irrational exuberance, which are then followed by economic recessions, a result that every citizen ends up suffering from.
I think we live in a modern, technologically advanced Soviet Union actually. I think it's much more like that. The Central Bank controls everything now. The power has been centralized in the US & Europe at a Federal level.
There are no free markets anymore, just interventions. – Cheviot's Ned Naylor-Leyland.
Full Feature Film Below:

COMEX Swap Dealers Net Long Gold for Third Time Ever

Posted: 14 Jul 2012 05:30 PM PDT

from Got Gold Report:

HOUSTON — For only the third time in the six years of Commodity Futures Trading Commission (CFTC) disaggregated trader data, commercial futures traders the CFTC classes as Swap Dealers reported a net long position in gold futures on the COMEX bourse in New York.

Source: CFTC for COT data, Cash Market for gold. Chart covers the entire disaggregated COT dataset for Swap Dealer gold futures net positions excluding spreading contracts. A 2-year chart is shown below.

Continued…

Swap Dealers are commercial derivatives traders who primarily trade in the form of swaps in other markets and then hedge those sophisticated positions using futures contracts.

The CFTC requires all large traders to report their open positions as of the close on Tuesday each week and then releases that Commitments of Traders (COT) data to the public, usually the following Friday.

As of Tuesday, July 10, as gold closed on the Cash Market in New York at $1,567.16, Swap Dealer commercial traders reported holding 54,038 gold contracts long and 53,239 short for a combined net long position of 799 lots according to data released by the CFTC on July 13.

Read More @ GotGoldReport.com

And Now Back To Reality And The Impossible Earnings Season Stepfunction

Posted: 14 Jul 2012 03:10 PM PDT

Last week the S&P erased 6 days of consecutive losses in 30 minutes of trading on the back of news that JPMorgan lost at least 25% of its average annual Net Income in one epic trade, and stands to make far fewer profits in the future, even as the regulators are about to fire a whole lot of traders for mismarking hundreds of billions in CDS. This was somehow considered "good news." This being the "new normal" market, where nothing makes sense, and where EUR repatriation as a result of wholesale asset sales by European banks drives stocks higher, we were not too surprised. Sadly, even in the new normal, things eventually have to get back to normal. And that normal will come as corporate earnings are disclosed over not so much over the next 3 weeks, when 77% of the companies in the S&P report Q2 results, but in the 3rd quarter. Why the third quarter? Simple: as Goldman's David Kostin explains, "consensus now expects year/year EPS growth to accelerate from 0% in 2Q, to 3% in 3Q to 17% in 4Q." Sorry, but this is not going to happen, and as more and more companies preannounce on the back of the global slowdown which many has seeing US GDP down to 1.3% in Q2, and sliding further in Q3 absent some massive QE program out of the Fed, it is virtually guaranteed that the unchanged Earnings precedent that Q2 will set (and there is a very high probability that Q2 2012 will mark the first YoY drop in earnings since the unwind Great Financial Crisis) will continue into Q3 and likely Q4. Because, sadly there simply is no catalyst that will drive revenues higher, even as margin contraction was already set in.

All of this also means that the only possible driver of S&P growth in Q3 (of which we are already 2 weeks deep into) and Q4 will be multiple expansion. This, however too, will be a disappointment. Again from Kostin:

We believe P/E multiple expansion is unlikely in 2H. Headwinds include the fast-approaching Presidential election, associated policy uncertainty, and the looming "fiscal cliff" that everyone outside the beltway decries but no one in Washington, DC seems willing to seriously address.

Not to mention the debt ceiling which is still on track from making US landfall sometime in the next 3 months.

So while short covering rallies are fast and furious, corporations -that traditional deus ex to justify US "decoupling" - now have only one fate before them: disappointment.

Which leaves the Fed. Sadly, not even the extension of Twist can do anything about the biggest concern that banks are currently facing, namely the accelerated decline in reserves, as a result of the prepayment of Maiden Lane obligations and the gradual drop in FX swaps (at least until the next time Europe needs a Fed-based bail out that is). As can be seen in the chart below, Adjusted Reserves have tumbled to level not seen since December, and then May of 2011, both times when the market was about to turn over if not for global coordinated central bank intervention.

Full note from Goldman:

Our 2012 investment thesis for the US equity market has three pillars: a stagnating economy, static P/E multiple, and minimal earnings growth.

First, weak macro data and three proprietary Goldman Sachs indictors support our view of a lackluster economy. The Goldman Sachs Current Activity Indicator (CAI) shows the US economy growing at an annualized pace of just 1.3%. The three-month moving average of our Earnings Revision Leading Indicator (ERLI) diffusion index, a measure of 29 separate micro-driven industry data points, remains below trend at 41, consistent with a softening of our Global Leading Indicator (GLI). On the macro front, the June ISM report slipped to 49.7, the first sub-50 print in three years.

Second, we believe P/E multiple expansion is unlikely in 2H. Headwinds include the fast-approaching Presidential election, associated policy uncertainty, and the looming "fiscal cliff" that everyone outside the beltway decries but no one in Washington, DC seems willing to seriously address.

The third leg of our three part framework will come into clarity during the next several weeks as firms report 2Q results and offer guidance on business activity for the second-half of 2012. 80% of S&P 500 market cap will report between July 16th and August 3rd. Firms to watch next week include: BAC, C, GE, IBM, JNJ, KO, MSFT, PM, SLB, and VZ.

We expect a modest quarterly earnings miss. A shortfall in sales rather than margins will be the primary culprit. Firms will struggle to meet revenue forecasts given weak global demand and a strong US Dollar. Consensus margin expectations are already flat or negative in most sectors.

Bottom-up consensus currently forecasts flat year/year EPS growth, driven by a 4% increase in sales and a 40 bp fall in margins to 8.9%.

Five sectors are expected to post negative earnings growth in 2Q 2012 compared with 2Q 2011: Energy, Materials, Utilities, Consumer Discretionary and Consumer Staples. Analysts forecast Materials and Energy will both post year/year EPS declines of 12% reflecting the sharp fall in commodity prices during 2Q, with Brent plunging by 16% and copper dropping by 10%. In contrast, Industrials and Information Technology will report EPS growth of 7% and 11%, respectively. Apple (AAPL) will again be a standout performer with year/year sales and EPS growth of 32% and stable margins of 25.6%. Including AAPL, the Tech sector is forecast to deliver sales and EPS growth of 9% and 11%, respectively. Without AAPL, the sector will post revenue and EPS growth of 6% and 7%, respectively.

2Q results will affect the market's outlook for earnings in 2012 and 2013. Consensus now expects year/year EPS growth to accelerate from 0% in 2Q, to 3% in 3Q to 17% in 4Q. Consensus forecasts full-year EPS growth will double from 7% in 2012 to 14% in 2013. In contrast, we do not forecast a steep 4Q 2012 inflection and anticipate EPS growth climbing from 3% in 2012 to 7% in 2013.

Our full-year 2012 and 2013 S&P 500 EPS forecasts remain $100 and $106. Current bottom-up consensus equals $103 and $117. Consensus 2012 estimate has dropped from $107 in January and from $114 in August 2011.

Earnings season focus points: (1) domestic demand; (2) international weakness; (3) margins; and (4) losses from JP Morgan's CIO unit.

Our ERLI Diffusion Index suggests US micro data improved in June but the three-month moving average remains below trend at 41. In May, our diffusion index of micro driven, industry-level data points fell to 29, the lowest reading since April 2009 (a reading of 50 implies "trend" growth). However, data rebounded in June producing a slightly above trend reading of 53, with 23 of 29 industry variables increasing at a trend or better pace. Examples include hotel occupancy, rail car loadings, and NY/NJ port activity. If this trend persists, it implies that the micro data points which inform equity analysts' earnings projections may not be as poor on a near-term basis as an otherwise gloomy macro picture suggests. In contrast, our macro driven Global Leading Indicator of industrial production has been contracting at an accelerating rate for the last three months, which our research has shown augurs poorly for S&P 500 returns.

Margins will once again be source of scrutiny. Margins have stabilized at 8.9% for more than a year after having surged by 300 bp from a cyclical low of 5.9% in 2009. Differing margin forecasts explain 80% of the gap between our top-down EPS estimate and bottom-up consensus for 2012. Consensus expects margins to remain flat during the first three quarters of 2012 before rising sharply starting in 4Q and expanding to 10% by year end 2013. In contrast, we forecast margins will hover around 8.9% for the next two years.

JP Morgan CIO trading losses. This morning JPM reported 2Q EPS of $1.21, 59% above consensus expectations of $0.76. Of course, analysts had cut estimates by 38% since May after the bank disclosed large trading losses in its chief investment office. The JPM CIO losses of $4.4bn reduce 2Q 2012 EPS for the S&P 500 by $0.49. For the Financials sector, year/year EPS growth in 2Q is anticipated to be 8% including JPM and 12% without.

Norcini, Arensberg note unusual bullish development in gold futures

Posted: 14 Jul 2012 02:27 PM PDT

4:45p ET Saturday, July 14, 2012

Dear Friend of GATA and Gold:

Futures market analyst Dan Norcini and Gene Arensberg of the Got Gold Report today note an unusual and bullish development in the market. Norcini is interviewed at King World News here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/7/14_An...

Arensberg's commentary is at the Got Gold Report here:

http://www.gotgoldreport.com/2012/07/comex-swap-dealers-net-long-gold-fo...

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

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

From a Company Press Release
November 22, 2011

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

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

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

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

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

Join GATA here:

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http://www.cambridgehouse.com/event/toronto-resource-investment-conferen...

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Wednesday-Saturday, October 24-27, 2012
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Prophecy Platinum Announces Wellgreen Preliminary Economic Assessment:
38% Pre-Tax IRR, $3.0 Billion NPV, and a 37-Year Mine Life

Company Press Release

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) reports the results of an independent NI 43-101-compliant preliminary economic assessment for its fully owned Wellgreen nickel-copper-platinum group metals project in the Yukon Territory.

The independent assessment, prepared by Tetra Tech, evaluated a base case of an open-pit mine (with a mining rate of 111,500 tonnes per day), an on-site concentrator (with a milling rate of 32,000 tonnes per day), and an initial capital cost of $863 million. The project is expected to produce (in concentrate) 1.959 billion pounds of nickel, 2.058 billion pounds of copper, and 7.119 million ounces of platinum, palladium, and gold during a mine life of 37 years with an average strip ratio of 2.57.

The financial highlights of the preliminary economic assessment, shown in U.S. dollars, are as follows:

Payback period: 3.55 years
Initial capital investment: $863 million
IRR pre-tax (100% equity): 38 percent
NPV pre-tax (8% discount): $3 billion
Mine life: 37 years
Total mill feed: 405.3 million tonnes
Mill throughput: 32,000 tonnes per day

Prophecy Chairman John Lee says: "We are pleased with the preliminary economic assessment results. The numbers indicate that Wellgreen is one of most exciting mineral projects in the Yukon. The company is drilling to upgrade and expand the resource base. The infrastructure is excellent as the project is only 1,400 meters in altitude and 14 kilometers from the paved Alaska Highway, which leads to the Haines deep seaport. Discussions are under way with support from local stakeholders regarding permitting and logistics."

For the complete press release, please visit:

http://prophecyplat.com/news_2012_june18_prophecy_platinum_announces_res...

An Absolutely Stunning Development In The Gold Market

Posted: 14 Jul 2012 01:26 PM PDT

Today King World News is reporting on an absolutely stunning development in the gold market. Acclaimed commodity trader Dan Norcini told KWN, "The swap dealers, (which is) a category of relatively large traders and big banks, for the first time on my records, are actually net longs in the gold market." Norcini also noted, "Even back in 2008, at the height of the credit crisis, when there was a huge change of ownership in the gold market and traders were just jettisoning positions, the swap dealers never made it onto the net long side in the gold market."

But first, Bill Haynes, President and owner of CMI Gold & Silver, had this to say about what buyers are doing in the gold market: "Eric, in the 70s we talked about hyperinflation. We had 13% inflation. Paul Volcker, appointed by Jimmy Carter, called in when Ronald Reagan took office, and (Reagan) said, 'You put a stop to inflation!' Paul Volcker did it."

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

Gold Mining Stocks Bargains Abound, But Buy With Care

Posted: 14 Jul 2012 11:08 AM PDT

It may look as if almost any mining stock you see these days is a bargain just waiting to be plucked. While most stocks have seen major drops from their highs and some are showing significant price turns, others have more downside left and a few just won't make it to the next market peak. Ivan Lo, publisher of The Equedia Weekly Letter, takes both a macro view of market and economic conditions and then carefully studies the specifics of each stock he decides to follow or acquire. In this exclusive interview with The Gold Report, Lo talks about the critical factors that can separate a mega-winner from a rollback candidate and talks about some of his favorite names.

Guest Post: Does Central-Bank Gold-Buying Signal The Top Is Near?

Posted: 14 Jul 2012 09:01 AM PDT

Submitted by Jeff Clark of Casey Research

Does Central-Bank Gold-Buying Signal The Top Is Near?

Doug Casey told me in January, "The only thing that scares me is that central banks are buying a lot of gold; they're historically contrary indicators." When it comes to buying gold, central banks have such a poor timing record that they're frequently joked about as a contrary indicator.

Recently, they have been buying, quite literally, tonnes of it. Consider the following:

Net central-bank purchases in 2011 exceeded 455 tonnes. This was only the second increase since 1988 (the first in 2010) and the largest since 1964.
Turkey has added over 123 tonnes since last October, buying 29.7 tonnes in April alone.
Mexico has purchased over 100 tonnes since February 2011.
The Philippines added 32 tonnes in March, its second-largest monthly purchase ever. Largely under the radar is the fact that it's buying some of its local production.
Russia continues buying, adding 15.5 tonnes in May. Its total reserves now stand at 911.3 tonnes, the highest level since 1993.
Thailand has raised its holdings by more than 80% since mid-2010.
South Korea has bought 40 tonnes since May 2009, an increase of 180%.
The World Gold Council (WGC) reported that central-bank purchases totaled 80.8 tonnes in Q1 2012, about 7% of global demand.
Over the past 12 months, net purchases have averaged almost 20% of total annual supply.

Here's the picture of what has transpired since the financial crisis hit in late 2008.

(Click on image to enlarge)

Central banks have added a net of 1,290 tonnes since the fourth quarter of 2008. This total excludes China and other nations that don't regularly report their activity, as well as countries that have been surreptitiously buying their own production.

That's a lot of gold buying. One has to wonder whether so much buying may in fact signal a top for gold. After all, a number of prominent analysts have claimed for some time that gold is in a bubble and that it's all downhill from here.

Not so fast. Like many mainstream reports, looking at the short-term picture usually leads to erroneous conclusions. Let's put central-bank purchases into historical perspective.

(Click on image to enlarge)

In spite of the recent activity, world central-bank holdings are far below what they were in 1980. Clearly, a few years of net buying does not a bubble make.

The difference is greater than you might realize. Consider that since 1980…

The global population has grown 55%
Worldwide gold supply has grown 120%
Foreign-exchange holdings have increased 650% since 1995, and now total $10.4 trillion.

It seems rather obvious that a lot more "catch-up" buying is needed before we start talking about a top for gold on this basis.

Meanwhile, we think the trend of central-bank gold buying will continue. It's not hard to see why: central bankers around the world know what it must ultimately mean to run the printing presses the way the US has since 2008, even if price inflation is not immediately obvious. It's no surprise that they want to hedge their bets, moving more reserves into something with actual value... something that can't be debased with a few keystrokes. The US dollar has been the world's reserve currency since WWII, and that's beginning to change – the movement into gold is just one facet of that change.

The entire world may indeed be beginning to understand that it's operating on a fiat currency system backed by nothing. At the same time, the sovereign debt crisis in the Eurozone is intensifying, and some countries have succeeded in inflating their currencies faster than the Fed has inflated the USD. It doesn't take Nostradamus to read this writing on the wall… and while the world's central bankers can lie to the public, they themselves know how bad things are.

In fact, the WGC is so confident that central banks will continue to buy gold that it's changed its reporting structure: it's added "official sector purchases" as a new element of gold demand, while eliminating "official sector sales" as a negative supply factor.

Of course, gold will someday top, and Doug Casey believes a bubble in gold and related equities is highly likely at some point, courtesy of the trillions more currency units governments will create in a desperate (and ultimately unsuccessful) attempt to stave off the Greater Depression.

But we're nowhere near that point. There's a long way to go before we start legitimately using the "B word" (bubble) or "S word" (sell).

In the meantime, I suggest using the "B word" (buy) or "A word" (accumulate) to make your decisions about gold.

COMEX Swap Dealers Net Long Gold for Third Time Ever

Posted: 14 Jul 2012 08:44 AM PDT

HOUSTON -- For only the third time in the six years of Commodity Futures Trading Commission (CFTC) disaggregated trader data, commercial futures traders the CFTC classes as Swap Dealers reported a net long position in gold futures on the COMEX bourse in New York.

Continued...

Swap Dealers are commercial derivatives traders who primarily trade in the form of swaps in other markets and then hedge those sophisticated positions using futures contracts.

Seven reporting weeks ago, on May 22, the normally net short Swap Dealers edged briefly into long territory, reporting 82 COMEX 100-ounce contracts net long then, with gold near $1,568.

The only other time the Swap Dealer commercial traders reported a net long position in gold futures occurred last year for four weeks in October, shortly after gold hit an all time nominal high near $1,923 an ounce but had corrected violently more than 13%. The high net long position occurred on October 18, 2011, when the Swap Dealers reported a net long gold futures position of 8,731 lots – with gold then near $1,657. – Gene Arensberg (Got Gold Report)

This Past Week in Gold

Posted: 14 Jul 2012 08:11 AM PDT

Summary: Long term - on major sell signal. Short term - on mixed signals. Read More...

Save Havens, Real and Imagined

Posted: 14 Jul 2012 07:00 AM PDT

Dave Gonigam – July 14, 2012

Nothing like ending a week with a monster rally for no obvious reason. Mainstream financial media didn't even try to explain it away. The more they chalk it up to hopes of "QE3" at the Federal Reserve's Aug. 1 meeting, the more their credibility, already in tatters, is reduced to mere threads.

On the other hand, it's way too soon to say 204 Dow points mark a decisive turn in the broad market. But if it is, our technicians did a fine job of anticipating it. Let's get right to this week's 5 Things You Need to Know.

Wrist-slitting time for "Street" professionals. Two data points followed by Greg Guenthner and Jonas Elmerraji looked worse this week than they did in 2008-09 — when the S&P bottomed at the evil 666 level. One of these measures is at its lowest since the 1997 Asian crisis, while the other is the lowest in its 15-year history. Greg and Jonas say it adds up to "another potential bullish sign for stocks."

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Until the next stock rally begins, investors are pulling a shoulder muscle reaching for safety. Thirty-year U.S. Treasuries pulled record-low yields at auction this week. And according to income specialist Jim Nelson, two IPOs this spring reveal how desperate investors are for "safety." Jim believes they're looking for safety in all the wrong places.

Who needs a broad market rally to profit from stocks? Chris Mayer has pinpointed several sectors due to prosper even if the major indexes stagnate or fall. In Europe, the "biggest fire sale in history" that he identified early this year has gotten only bigger. And he sees three trends working in favor of the U.S. and Canada. Chris identifies four pockets of opportunity you don't want to overlook now.

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China's grabbing gold with both hands — again. Once again the Middle Kingdom has registered a staggering year-over-year increase in gold imports via Hong Kong — growing sixfold. The narrative doesn't tell the whole story, however. For that, you need the chart.

Gold is (still) nowhere near bubble territory. The latest annual report from Erste Group Research finds gold is still "underowned." That is, the metal makes up a tiny sliver of the world's financial assets. It doesn't matter whom you're talking about — retail investors, institutions, central banks — gold holdings amount to a few specks in a sea of dodgy paper. Especially when compared with historical highs over the last century.

If you're looking to accumulate physical bullion, but it sounds too difficult or time-consuming, we've discovered an ideal solution. Setting up your account takes only 10 minutes… and it's free. The website interface is the easiest we've ever encountered; this is truly the simplest way to buy, store and sell precious metals. The transaction and storage fees are reasonable. And the people behind the effort are top-notch folks we've known for years.

We're now 48 hours away from making this revolutionary new service available to you. Keep an eye on your email inbox Monday morning at 9:00 a.m. EDT for complete details.

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P.S. If your inbox is perpetually stuffed, here's the subject line you want to look for Monday morning: "Urgent: A Precious Metal Breakthrough You Can't Afford to Ignore."

Rob Kirby: Since 1994, the mythical Strong Dollar Policy had necessitated a two prong strategy: that of keeping rates low because weak currencies are typified by high interest rates; and the price of gold must be suppressed

Posted: 14 Jul 2012 06:47 AM PDT

Libor Rigging: The Tip of the Iceberg

John Schmidt–A Pool Pro’s Guide To Real Money 07-13-2012

Posted: 13 Jul 2012 04:25 PM PDT

www.FinancialSurvivalNetwork.com presents

John Schmidt has been shooting pool since he turned 18. He won the US Pool Open in 2006. He's known as Mr. 400, having sunk 400 balls in a row, without a miss. He believes in learning from the masters and he carries that attitude through when it comes to investing and preserving his wealth in precious metals. Initially, his fellow competitors scoffed at the notion of a fiat currency collapse. But as the world gets closer and closer to this cataclysmic event, more of his colleagues have accepted his wisdom. John's got a great story and a winning attitude.

Go to www.FinancialSurvivalNetwork.com for the latest info on the economy and precious metals markets.

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

Gold & Stock Markets Rally, But Troubles Continue in Europe

Posted: 13 Jul 2012 04:04 PM PDT

With gold surging $20, and stock markets rallying around the world, today King World News interviewed 25 year veteran Caesar Bryan. Gabelli & Company has over $31 billion under management and Caesar Bryan has managed the gold fund since its inception in 1994. Here is what Ceasar had to say regarding what is happening around the globe: "There are still huge challenges because there is simply too much debt, and of course the medicine that's being prescribed is to cut government spending in a very weak economic environment. The Spanish, just yesterday, an approximately $60 billion euro further budget cut over the next two years, from 2012 through 2014."