Gold World News Flash |
- Former ECB Chief Economist Says ECB Is In Panic, As Czech President Warns The End Of Democracy Is Imminent
- Silver News For the Week
- Iran Accuses German Siemens Of Sabotaging Its Nuclear Plant As Turkey Sends Heavy Weapons To Syria Border
- Incredibly Important Developments In Gold & Silver
- Saturday (morning) Market Wrap for September 22, 2012
- Gold-Silver Ratio Declining As U.S. Dollar Collapses
- The Race to Debase Is On
- IceCap Asset Management: Three Days That Shook The World, And The Law Of Diminishing Returns
- First Look: Keiser Ethical Silver Website
- Futures position changes leave metals vulnerable, Norcini tells King World News
- "What's Next?": Simon Johnson Explains The Doomsday Cycle
- Yikes! Deutsche Bank recommends gold -- even a gold standard
- Call me a prophet of doom if you want, but Europe’s meltdown isn’t a recession – it’s a coming depression
- Incredibly Important Developments In Gold & Silver
- Why QE3 Won’t Jumpstart the Economy and What Would
- Gold Double Flash Crash
- Audacious Oligarchy: The Double Flash Crash In Gold - Sept 13, 2012
- This Past Week in Gold
- The Gold ‘Shadow Chart'
- Quantitative Easing Into Infinity
- If You Like QE3 But The Stock Market Makes You Nervous - Buy Gold!
- Inflation and Inflation Expectations Analysis
| Posted: 22 Sep 2012 11:18 PM PDT from Zero Hedge:
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| Posted: 22 Sep 2012 08:54 PM PDT It seems you can't turn your back on the Middle East for more than a few minutes without something going bump in the desert. Sure enough, a few shorts hours after we reported that the leader of Iran's Revolutionary Guards is certain war with Israel is coming, here comes Iran again with the stunning admission that none other than German industrial conglomerate, and occasional maker of nuclear power plants, Siemens was reponsible for "implanting tiny explosives inside equipment the Islamic Republic purchased for its disputed nuclear program. Prominent lawmaker Alaeddin Boroujerdi said Iranian security experts discovered the explosives and removed them before detonation, adding that authorities believe the booby-trapped equipment was sold to derail uranium enrichment efforts. "The equipment was supposed to explode after being put to work, in order to dismantle all our systems," he said. "But the wisdom of our experts thwarted the enemy conspiracy." Expert wisdom aside, what is stunning is not the ongoing attempts by everyone and the kitchen sink to terminally corrupt the Iranian nuclear power plant: after Stuxnet one would expect nothing less than every form of conventional and "new normal" espionage thrown into the pot to cripple the only peaceful argument Iran would have for demanding nuclear power, which by implication would mean that all ongoing nuclear pursuits are geared solely toward aggressive, military goals, of the type that demand immediate military retaliation by the democratic superpowers. No, what is stunning is the implicit admission that Germany's, and Europe's, largest electrical engineering company, has been not only quietly transacting with none other than world peace (as portrayed by the MSM) enemy #1, Iran, but instrumental in its nuclear program. Obviously it took a Stuxnet second before Siemens denied everything and then some. Via Reuters:
Oh well, Iran must have bought all those Siemens nuclear centrifuges, concrete dome and steam plant in near perfect condition on eBay from anonymous sellers (who accept PayPal and even credit cardsas long as the purchase does not have an Indonesian shipping address). Iran, however, isn't afraid of trowing Siemens into even deeper water, alleging not only breach of international embargos, but also masterful sabotaging of ones own product:
There is of course another possibility: that the shipping address of the mysterious and anonymous ebay seller was somewhere in Langley, VA:
Certifying that there is undoubtedly a Jason Bourne episode in the works over this entire incident is the following:
If anyone follows the game theory in this one, and has any idea who has not defected, or where the Nash equilibrium is at this point, please speak up. The rest of us just want the popcorn. And in far simpler plotlines, Reuters reports that Syria (which for those who have a 15 minutes attention span, was accused three months ago by everyone, and certainly Hillary Clinton, of offensively taking down a Turkish plane before it turned out to be a self-defensive move, at which point the entire false flag story promptly disappeared as it could no longer be pre-spun) is once again being provoked by NATO-member Turkey, which is now deploying heavy armored vehicles and weapons to the border with Syria. The spin this time around:
And on, and on, until the interminable foreplay finally ends, whenever one of the abovementioned democracies decides the quiet period is over, and the time for real GDP building (if only in a hard core Keynesian-cum-Krugman sense) once the ability to generate even one additional dollar in debt is no longer available, is upon us.
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| Incredibly Important Developments In Gold & Silver Posted: 22 Sep 2012 08:00 PM PDT from KingWorldNews:
Today King World News is reporting on incredibly important developments taking place in the gold and silver markets. Acclaimed commodity trader Dan Norcini told KWN that in the metals markets, "I don't recall seeing something like this over the last eleven years we've been in this bull market." Norcini has been stunningly accurate in his predictions of the movement of the gold and silver markets. Now the acclaimed trader discusses these incredibly important developments in both the gold and silver markets: "This week there was a big change in the (COT) swap dealers position, Eric. They added the equivalent of (roughly) 13,700 contracts worth of selling (in silver). That was a large amount of selling this week (by the swap dealers in silver). It changed their position quite quickly." Dan Norcini continues @ KingWorldNews.com
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| Saturday (morning) Market Wrap for September 22, 2012 Posted: 22 Sep 2012 07:24 PM PDT The Market was actually down a tiny bit this past week! Treasuries were up a bit but have looked anemic for nearly 5 months. Oil (Crude) took it on the chin by almost 6% and looks very Bearish. Gold hung in there but was flat. Read More...
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| Gold-Silver Ratio Declining As U.S. Dollar Collapses Posted: 22 Sep 2012 07:00 PM PDT by Jeb Handwerger, SilverBearCafe.com:
Since July we have alerted our readers to a breakout in gold and silver prices as we expected a risk on rally in commodities with the catalyst being QE3 combined with worldwide stimulus moves from Central Bankers. Since that time silver has soared 30% higher almost 10 straight weeks in a row as Bernanke announces a QE 3, 4, 5+? and record low interest rates until mid-2015. Silver has been outperforming gold over the past 10 weeks as investors are hoarding and buying poor man's gold to hedge against worldwide quantitative easing and pump-priming being implemented by Central Banks around the world to devalue their respective currencies. Read More @ SilverBearCafe.com
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| Posted: 22 Sep 2012 06:30 PM PDT by Chris Puplava, Financial Sense:
This week saw the third central bank step on the gas in an attempt to reflate their economy. We had the ECB and the Fed which announced open-ended QE (quantitative easing) programs, followed this week by Japan which extended its current QE program into 2013. In effect, global QE has now begun, stoking a reflationary fire as stocks, commodities, and other asset markets react to the fire being kindled by central banks around the globe. A simple look at the aggregate debt that will be maturing across the world's top debtor nations coupled with anemic economic growth rates made it abundantly clear global QE was coming as was highlighted earlier in the year (See Global QE is Coming: Let the Gold Mania Begin!). In that article, I pointed out that the sovereign debt maturity cycle kicks in to high gear starting this year where by the end of 2015 half of the entire outstanding debt of the world's top ten debtor nations needs to be rolled over, which comes out to more than $15 TRILLION DOLLARS! Mind you, that is $15 Trillion in just over two years, which will absolutely overwhelm current demand for sovereign debt. Thus, in come world central banks to the rescue. Read More @ financialsense.com
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| IceCap Asset Management: Three Days That Shook The World, And The Law Of Diminishing Returns Posted: 22 Sep 2012 05:01 PM PDT From Keith Dicker of Ice Cap Asset Management Three Days That Shook The World The Law Of Diminishing Returns While there are plenty of complex laws to keep lawyers happily billing forever, there is one law that is very simple and is never mentioned by those responsible for the good health of our global economy - the law of diminishing returns. This un-billable law becomes a nightmare for anyone trying to produce more of anything. It occurs when despite putting increasingly more effort into an activity, the desired outcome becomes less and less rewarding. Case in point, one just has to consider America's growth of borrowed money and the resulting growth in GDP over the last 50 years. Chart 1 shows that in the 1950s, America had to borrow just $1.36 to grow their economy by 1 extra dollar. That's not so bad until you consider that over the next 50 years America had to borrow more and more to produce less and less GDP. In fact, during the 2000s America had to borrow $5.76 to grow its economy by an extra buck – that's progress.
Now, we're sure that over the years all of this borrowed money was put to great use. After all, the future never comes so why worry about it. Unfortunately, the future is today and the "credit cliff" is quite steep (see chart 2). The debt reaper is knocking on the door and he wants his money back. There's just one minor problem – no one has the money to repay him.
No problem, the central banks & governments have plenty of money tools available to beat back any financial challenges presented by the debt reaper. To make you feel more uncomfortable, let's review the tricks in their money bag: Money tool # 1 = deficit spending. For years, the G7 countries have believed that spending more than you make, will create jobs and prosperity. To measure the success of this strategy, we invite you to hang out in Spain, Greece or Italy. Money tool # 2 = cut interest rates to 0%. All the really smart people in the World know that lower interest rates encourage people and companies to borrow more money and spend this money. To measure the success of this strategy, we invite you to hang out at the US Federal Reserve and help them count the $1.5 trillion in excess money held by the big banks. Money tool # 3 = when all else fails print money. Everyone knows by now the reason the Great Depression was great was because no one had the idea to print money to kick start the economy. To measure the success of this strategy, we definitely do not invite you to visit Japan. The Japanese have been printing money for over 10 years and that hasn't shaken their economy from its funk one bit. As we enter the always dangerous months of September and October, central bankers and governments just can't get their heads around the fact that their cherished money tools are not shaking the World. Never one to quit, someone somewhere muttered "we must do something" – and something they did. Day 1 – September 6, 2012 Up to this point, the European Central Bank (ECB) has provided over EUR 1 trillion in bailouts to banks and countries with two separate Long Term Refinancing Operation (LTRO) schemes. It was thought that these two initial financial bazookas would be enough to restore confidence, but it wasn't. Investors became bored with Greece and its 25th final bailout and now all the attention was turning to Spain. The rapid decline in Spain's real estate market was causing an even rapider decline in the health of Spanish banks. In fear of losing their life savings, people and companies were yanking billions of deposits out of the country. This bank run was serious stuff. So serious that investors began refusing to lend not only to the banks but to the Spanish government itself. And if Spain wasn't bad enough, Italy has the potential to be even worse. Yes, the dreaded contagion had started again and this time the hats had seemingly run out of rabbits. And then it happened. The ECB announced that they would provide unlimited amounts of Euros to any European country that required a bailout. But – because this is Europe, there was a small catch. Any country who wanted the money had to first formally apply. While this may sound a lot like "pretty please" it isn't. Unsurprisingly, Germans are growing tired of using their money to bailout it's southern European friends. Reluctantly, the Germans agreed to this latest save Europe scheme but only if the bailout contained conditions. Now, you can't really blame Germany for this requirement. After all, it was only a year earlier when Italy pulled the old switcheroo and reneged on its promise to raise their retirement age after receiving bailout money from Germany. Lesson learned. On hearing that the ECB would provide unlimited amounts of money over an unspecified time, markets naturally soared on the news. Hey – it's free money! How could you not like this? While you would assume this conditionality clause would be deemed fair everywhere else in the World – not so in Europe. Naturally, the Spanish and Italians have a beef – they were under the impression that money is always free, never wrapped tightly with any kind of strings. The Spanish government's fear (which will soon become reality) is that as soon as these non-Spanish accountants and bureaucrats discover how bad the finances really are, someone might actually lose their job, government car and government expense account. The irony of course, is that the mere announcement of the ECB's unlimited money for an unlimited time scheme has had the effect of pushing Spain (and Italy's) cost of borrowing down. No money or conditions have changed hands, yet markets are reacting as if it already has. This brings us to a stalemate - as long as Spain's cost of financing remains low, it will not formally request a bailout. However, we ask you not to fret and frown. As soon as Spanish interest rates shoot up again and thousands of protesters march in Madrid and Barcelona, Mr. Rajoy and his government will be forced to raise the white flag. What isn't known just yet, is what happens once the rest of the World discovers how bad Spain's finances really are. And of course, bailouts aside – none of these money tricks will have any impact on economic growth or job creation. Nevertheless, everyone in Europe slept well that night – at least for another six days anyway. Day 2 – September 12, 2012 It was all fine and dandy for the ECB to announce six days earlier that they would provide unlimited money to anyone who formally requests a bailout from Brussels. The ECB however, forgot to mention just one itty bitty tiny detail called Germany. After three years, the German public have started to become increasingly uncomfortable with giving their money away to Greece, Ireland and Portugal. As one would expect, eventually politicians hear their common man and actually exercise their duty of representation by government. When the announcement hit the news wires, the result was unsurprisingly "for" the ESM bailout fund (whew!) yet the decision also came with a twist, similar to the twisted twist delivered by the ECB a few days earlier. While the German high court stated that the ESM was not against the German constitution, it did set a cap on the maximum amount Germany would contribute to the fund – EUR 190 billion. This cap can be increased, but only if agreed to by a vote in the German parliament. And considering the taste for additional bailouts is not exactly being embraced by the voting population, this is a significant caveat. The significance behind this "capped" amount cannot be overstated, and it is only a matter of time before the French catch on to the fact that they've just been hoodwinked by the Germans. With Germany now capping their ESM bailout liabilities at EUR 190 billion, the question must now be asked "who picks up the slack?" While the good bankers in La Défense are cheering the latest run up in stock prices, the rest of the French population are about to be baguetted in the side of the head. Considering that France just decreased the retirement age, increased minimum wages while slapping a 75% tax on anyone earning greater than EUR 1 million, the likelihood of it eliminating its fiscal deficit and then reducing its debt are slim and none. Yet, with Germany now drawing a line in the bailout sand, France's commitments have suddenly increased significantly. The ESM bailout fund is structured so that if a country requests a bailout it no longer has to accept its share of liabilities. Considering this entire charade is being orchestrated to bailout Spain and then Italy – it directly results in France having to pick-up the tab not being absorbed by Germany. The numbers are staggering to say the least. Frances's ESM liability increases from EUR 143 billion to EUR 226 billion. From another perspective, France's ESM commitment will soon equal over 44% of the government's tax revenues for the year. While today, everyone in France is talking about Germany we're quite confident that at some point soon, everyone in France will be talking about France. Day 3 – September 13, 2012 With the Europeans clearly taking the lead in shaking the World, you knew it was only a matter of time before the Americans would take note. And why not – America continues to have the World's largest economy, the World's largest debt burden and the World's largest money printing machine. Since telegraphing its newest money printing intentions from Jackson Hole a few weeks earlier, the only surprise available from Ben Bernanke and the US Federal Reserve was how much money they would print. Guesstimates ranged from $250 billion up to $700 billion. No matter what happened, bankers everywhere had Bollinger Champaign sitting on ice. Never one to disappoint, Mr. Bernanke's announcement to print $40 billion a month until eternity was too much for even the talking heads to comprehend. America has now committed to printing money forever – or at least until the job market improves. This new approach by the Federal Reserve is interesting on several levels. First, previous goals of printing money was to bolster the housing market. It was believed that fixing the housing market would boost the economy out of its slump and save the day. Well, today millions of homes remain worth less than their mortgage and millions more sit in the shadows waiting to be sold. The only bolstering that happened was of the big banks' bank accounts. But that's ok. The Federal Reserve had another trick up its sleeve. Instead of targeting the housing market, it would instead target "wealth creation." "Wealth creation" is another academic, economic, and prehistoric belief that if everyone was wealthier, they would spend more money. And as we have all been told, spending your money is a guaranteed way to prosper. Unfortunately for the Federal Reserve, the old wealth creation thingy hasn't quite worked out either. And with two strikes in the count, there was nothing left for Ben Bernanke and the US Federal Reserve to do except close their eyes and swing for the fences. And swing they did and they will keep on swinging until something, anything, happens. Well, one thing is for sure – something will happen. As for what, we have little confidence it will involve a rebound in the economy or a rebound in new jobs – you need "real" not "manufactured" prosperity for this to happen. What will happen, will be a continued widening in the rift between financial markets and the economy. There is little doubt this new edition of money printing American style will bolster financial markets, the fact remains that the real economy in the US, Europe and Japan will not begin to recover until the central banks and the governments simply allow bad debt to be written off. At this rate, don't hold your breath as the bad debt scenario will not be allowed to happen anytime soon. Continue reading below:
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| First Look: Keiser Ethical Silver Website Posted: 22 Sep 2012 01:42 PM PDT Keiser Ethical Silver Rounds
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| Futures position changes leave metals vulnerable, Norcini tells King World News Posted: 22 Sep 2012 01:28 PM PDT 3:25p ET Saturday, September 22, 2012 Dear Friend of GATA and Gold: Futures market analyst Dan Norcini, interviewed today by King World News, analyzes the major changes in gold and silver futures market positions cited last night by Gene Arensberg of the Got Gold Report (http://www.gata.org/node/11764) and concludes that long positions have become much more vulnerable to stop running by the big traders. After many weeks of ascent, Norcini says, gold and silver are more likely to decline. An excerpt from the interview is posted at the King World News blog here: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/9/22_In... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy Platinum Intercepts Best Pt+Pd+Au Grades Yet Company Press Release VANCOUVER, British Columbia -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) announces more results of its 2012 drill program on the company's fully-owned Wellgreen platinum group metals, nickel, and copper project in southwestern Yukon Territory, Canada. Four surface holes and four underground holes all intercepted significant mineralized widths, ranging from 28.5 meters (WS12-201) and up to 459.5 metres (WS12-193). Highlights include WU12-540, which returned 8.9 metres of 5.36 grams per tonne platinum, palladium, and gold; 1.73 percent copper; and 1.01 percent nickel within 304.5 meters of 0.66 g/t platinum-palladium-gold, 0.20 percent copper, and 0.27 percent nickel. The surface drill program started in June and has completed 16 holes (assays pending for 12 holes) with two rigs now on site. The surface program continues to progress at a steady pace. Prophecy Chairman John Lee commented: "Wellgreen is a very large nickel, copper, and platinum group metals project with near-surface high-grade zones. High-grade intercepts will be incorporated into resource modeling and mine planning in the pre-feasibility study. We expect further positive drill results from Wellgreen shortly." Wellgreen features a low 2.59-to-1 strip ratio, is situated at an altitude of 1,300 meters, and is only 15 kilometers from the two-lane paved Alaska Highway. Those factors significantly minimize the project's indirect costs. For the complete company statement with full tabulation of the drilling results, please visit: http://prophecyplat.com/news_2012_sep11_prophecy_platinum_drill_results.... Join GATA here: Toronto Resource Investment Conference New Orleans Investment Conference * * * Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006: http://www.goldrush21.com/order.html Or by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT GoldMoney adds Toronto vaulting option In addition to its precious metals storage facilities in Hong Kong, Switzerland, and the United Kingdom, GoldMoney customers now can store their gold and silver in a high-security vault operated by Brink's in Toronto, Ontario, Canada. GoldMoney also has recently partnered with Rhenus Freight Logistics to offer another gold storage option in Switzerland. The Rhenus vault is in the secured zone of Zurich Airport and offers customers superb security as well as the ability to inspect their gold. Storage at the new vaults in Canada and Switzerland is available at GoldMoney's lowest fees. Customers can select their storage location when placing their buy order. GoldMoney customers can take delivery of any number of gold, silver, platinum, and palladium bars from any GoldMoney vault, as well as personally collect their bars stored in the Hong Kong, Switzerland, and U.K. vaults. It's easy to open an account, add funds, and liquidate your investment. For more information, visit: http://www.goldmoney.com/?gmrefcode=gata
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| "What's Next?": Simon Johnson Explains The Doomsday Cycle Posted: 22 Sep 2012 01:15 PM PDT Via Simon Johnson and Peter Boone - Originally posted at VoxEU, (Via CentrePiece magazine) There is a common problem underlying the economic troubles of Europe, Japan, and the US: the symbiotic relationship between politicians who heed narrow interests and the growth of a financial sector that has become increasingly opaque (Igan and Mishra 2011). Bailouts have encouraged reckless behaviour in the financial sector, which builds up further risks – and will lead to another round of shocks, collapses, and bailouts. This is what we have called the 'doomsday cycle' (Boone and Johnson 2010). The cycle turned in 2007-8 and was most dramatically manifest in the weeks and months that followed the fall of Lehman Brothers, the collapse of Iceland's banks and the botched 'rescue' of the big three Irish financial institutions.
The consequences have included sovereign debt restructuring by Greece, as well as continuing problems – and lending programmes by the IMF and the EU – for Greece, Ireland, and Portugal. Italy, Spain and other parts of the Eurozone remain under intense pressure. Yet in some circles, there is a sense that the countries of the Eurozone have put the worst of their problems behind them. Following a string of summits, it is argued, Europe is now more decisively on the path to a unified financial system backed by what will become the substance of a fiscal union. The doomsday cycle is indeed turning – and problems are undoubtedly heading towards Japan and the US: the current level of complacency among policymakers in those countries is alarming. But the next turn of the global cycle looks likely to hit Europe again and probably harder than before. The structure of the doomsday cycleIn the 1980s and 1990s, deep economic crises occurred primarily in middle- and low-income countries that were too small to have direct global effects. The crises we should fear today are in relatively rich countries that are big enough to reduce growth around the world. The problem is that the modern financial infrastructure makes it possible to borrow a great deal relative to the size of an economy – and far more than is sustainable relative to growth prospects. The expectation of bailouts has become built into the system, in terms of government and central bank support. But this expectation is also faulty because, at times, the claims on the system are more than can ultimately be paid.
It enables them to buy favour and win re-election. The problems will become apparent, they calculate, on someone else's watch. So repeated bailouts have become the expectation not the exception.
The complexity and scale of modern finance make it easy to hide what is going on. The regulated financial sector has little interest in speaking truth to authority; that would just undercut their business. Banks that are 'too big to fail' benefit from giant, hidden and very dangerous government subsidies. Yet despite repeated failures, many top officials pretend that 'the market' or 'smart regulators' can take care of this problem.
The issues are abstract and lack the personal drama that grabs headlines. The policy community does not understand the issues or becomes complicit in the schemes of politicians and big banks. The true costs of bailouts are disguised and not broadly understood. Millions of jobs are lost, lives ruined, fiscal balance sheets damaged – and for what, exactly? Over the past four centuries, financial development has strongly supported economic development. The market-based creation of new institutions and products encouraged savings by a broad cross-section of society, allowing capital to flow into more productive uses. But in recent decades, parts of our financial development have gone badly off-track – becoming much more a 'rent-seeking' mechanism that draws support from politicians because it facilitates irresponsible public policy.
There are three prominent candidates: Japan, the US, and the Eurozone. Japan's long march to collapseFigure 1 shows the path of Japan's ratio of debt to GDP over the last 30 years, including IMF forecasts to 2016. Figure 1
This is a worrying picture:
The average Japanese woman today has 1.39 children, far fewer than is needed to replace the elderly. This means that the total population is set to decline by 26% by 2050. Having peaked in the mid-1990s, the country's working age population will decline by a staggering 40% between 1995 and 2050. Naturally, many of the ageing Japanese have been saving for their retirement for decades. They deposit those funds in banks, buy government bonds, hold cash savings or buy Japanese equities.
With an ageing population and slower growth, the broad outlines of responsible policy are straightforward. Japan should become a big investor in countries with younger populations, providing the capital investment needed to generate growth. Those countries can then return the savings to the Japanese as they retire. Singapore's government does just that via one of the world's largest investment funds. Instead, for the last two decades, Japan's government has been running large deficits, borrowing and then spending the savings of the young. When the elderly finally demand their savings back in the form of pensions, the government will need to reduce its budget deficit of 8% of GDP and start running a sizeable budget surplus. Unless there is a sudden burst of romance and fertility, there will be far fewer Japanese taxpayers in the future to pay this debt. The government has not been willing to raise taxes in a timely manner to match its spending. The latest agreement is for a modest (5%) increase in the retail sales tax, which would only be fully implemented in 2015. Why would it do so in the future when the burden on the remaining workers will need to be ever larger? Japan is saved from immediate pressure by the fact that about 95% of its government debt is held by domestic residents. As long as these investors are satisfied with very low – or perhaps negative – real rates, this situation can continue. But sooner or later, Japan's dreadful fiscal mathematics will catch up with the government. There is no sign yet of a broad loss of confidence, but major shifts in market sentiment are not typically signalled in advance. America's reckless private financeIn the US, the symptoms are different. Figure 2 illustrates the US version of the doomsday cycle: the rise of total credit as a fraction of national income. Major players in the financial system have become too big to be allowed to fail – and consequently receive large subsidies. Figure 2
The latest crisis has led to the largest monetary and fiscal bailouts on record. The Congressional Budget Office estimates that the final fiscal impact of the crisis of 2007-8 will end up increasing debt relative to GDP by about 50 percentage points. This is the second largest debt shock in US history; measured in this way, only the Second World War cost more. (For more detail, see Johnson and Kwak 2012.) The alliance that leads to unsustainable finance here is simple: the US financial system earns large 'rents' (excess returns to labour and capital) from the implicit subsidies offered by taxpayers. These rents finance a massive system of lobbyists and campaign donations that ensures 'pro-bailout' politicians win elections regularly. Each time the US has a crisis, politicians and technocrats admit their errors and buttress regulators to ensure that 'it never happens again'. Yet still it happens, again and again. We are now on our third round of the so-called Basel international rules for banks, with the architects of each new reform admonishing the previous architects for their mistakes. There's no doubt that the US will someday soon be correcting Basel 3 and moving on to Basel 4, 5, 6 and more. The problem that the country faces is that with each crisis, the financial risks are getting larger. If continued in this manner, bailing out the system will eventually be unaffordable. When the US finally runs out of enough savers to buy the bonds needed to bail out the system, it will suffer the ultimate collapse. (For more detail, see Schularick and Taylor 2012.) Roughly half of all US federal debt is currently held by non-residents. So US fiscal policy remains viable only as long as the dollar is seen as the ultimate safe haven for investors. But what is the competition? Japan is not appealing today as a haven and it is unlikely to become more appealing in the near term. A great deal of the prospects for the US budget and growth therefore rest on what happens in the Eurozone. The Eurozone: Flawed dreamsThere is no sign that the Eurozone will emerge from crisis any time soon. The incentive structure of the Eurozone ensured that each country's financial sector clamoured to join it. The key feature that made it so attractive was the liquidity window at the ECB. For smaller countries, the ECB is a modern day Rumpelstiltskin. Rather than spinning straw into gold, the ECB converts unattractive government and bank-issued securities into highly liquid 'collateral' that can be readily swapped for cash from the ECB. This feature instantly made sovereign and bank bonds very attractive debt instruments. Knowing that the borrowers had essentially unlimited access to liquidity from the ECB, investors became willing lenders at low interest rates to all banks in the Eurozone. Given such attractive features, it is easy to understand why 17 countries mastered the political debate to join the Eurozone. It is also easy to understand how the system got abused and why it will be so difficult ever to make it 'safe'. If the Japanese can't control their public finances and if the US can't control its too-big-to-fail banks, the added complexity of merging 17 regulators and 17 national governments into a system where someone else can be made responsible for bailing out the intransigents seems a financial and regulatory nightmare. Such a system is sure to be crisis-prone. The Federal Reserve and the US federal government's attempt to provide bailouts when there is trouble in the US. But in Europe, the bailouts are only partial. No country has a 'lender of last resort' like the Federal Reserve or the Bank of Japan – so markets are now learning that large risk premia are needed to reflect default risk in troubled countries. Flexible exchange rates would undoubtedly make it easier to manage these crises. Devaluations instantly reduce wages and raise countries' competitiveness. If Greece had managed a large devaluation, it could probably have avoided much of the unemployment and social turmoil we see today. Instead, each troubled country in Europe now suffers when having to force down wages and prices during adjustment. This system poses great dangers to global financial stability. The Eurozone faces myriad problems, including insufficient bank capital, high levels of private and public debt, and the chronic inability of some member countries to grow. It is now common to hear policymakers blackmailing populations: unless the Eurozone survives, tragedy will result. And it is true that tragedy will result; we only need to look at the rise of complex derivatives and the dangers they pose were the Eurozone to dismantle. (For a broader discussion of Europe's problems, see Boone and Johnson 2011 and 2012.) Figure 3 illustrates the growth of euro-denominated interest rate derivatives, the notional value of which now totals more than 10 times the GDP of the Eurozone. Regulators commonly use net figures when they consider ultimate risk for banks and this makes sense under the usual circumstances of bankruptcy. But when a currency area breaks up, the practice of netting off contracts needs to change dramatically and banks will be facing far more risks than regulators and risk officers currently report. Figure 3
For example, if a German bank has a contract with a French bank and an opposite identical contract with a German pension fund, it can net those two contracts and report the ultimate risk as zero. (Of course there is counterparty risk, but under standard agreements, derivatives are cleared instantly at liquidation so the counterparty risks can be netted). But if investors start to believe that there will be new currencies in each country, then the two contracts in this example are no longer offsetting so they must not be netted. It is reasonable to think that after any demise of the euro, the contracts between two German counterparties will be converted into deutsche marks, while contracts with international partners will be disputed or maintained in a euro proxy. As a result, risk officers at banks should understand that if the Eurozone breaks up, all banks in Europe face enormous and unaccountable currency risk. Each of their 'euro' assets and liabilities needs to be examined to understand into which currency it would be converted. (For more discussion on redenomination issues, see Nordvig and Firoozye 2012.) The threat of future crisesThe tragedy of the Eurozone appears unavoidable, but it reflects far greater risks that will spread to Japan, the US, and other advanced economies. Through our financial systems, we have created enormous, complex financial structures that can inflict tragic consequences with failure and yet are inherently difficult to regulate and control. We are at the behest of our politicians and financial sectors to prevent them from creating dangers. Yet around the world, our political and financial systems have aligned to build these dangers rather than suppress them. The continuing crisis in the Eurozone merely buys time for Japan and the US. Investors are seeking refuge in these two countries only because the dangers are most imminent in the Eurozone. Will these countries take this time to fix their underlying fiscal and financial problems? That seems unlikely. The lesson from all these troubles is clear: the relatively recent rise of the institutions of complex financial markets, around the world, has permitted the growth of large, unsustainable finance. We rely on our political systems to check these dangers, but instead the politicians naturally develop symbiotic relationships that encourage irresponsible growth. The nature of 'irresponsible growth' is different in each country and region – but it is similarly unsustainable and it is still growing. There are more crises to come and they are likely to be worse than the last one.
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| Yikes! Deutsche Bank recommends gold -- even a gold standard Posted: 22 Sep 2012 01:14 PM PDT 3:18p ET Saturday, September 22, 2012 Dear Friend of GATA and Gold: In its editorial today the New York Sun expresses amazement at the gold-friendly report published this week by Deutsche Bank, one of the world's major banks. As the Sun notes, that report, written by Deustche Bank analysts Daniel Brebner and Xiao Fu, doesn't just recommend gold as a currency and investment, a form of "good money" far superior to the "bad money" issued by governments -- it also muses sympathetically about restoration of a gold standard for money. The Sun's editorial, "Germany Eyes Gold Standard," is posted at the newspaper's Internet site here: http://www.nysun.com/editorials/germany-eyes-gold-standard/87997/ The Deutsche Bank report itself quickly dismisses with contempt the "spurious" objection that "there isn't enough gold" to back currencies with. "The volume of gold is not important," the report says. "Instead it is the value that is ascribed to this gold that is important. A zero can easily be added to a paper bill to change its value; similarly it can be added to the value of an ounce of gold. Absolute values are in fact unimportant. ... Gold is infinitely divisible. Does it matter that a paper bill is backed by a gram or a kilogram of gold? Theoretically it shouldn't matter, in our view." ... Dispatch continues below ... ADVERTISEMENT GoldMoney adds Toronto vaulting option In addition to its precious metals storage facilities in Hong Kong, Switzerland, and the United Kingdom, GoldMoney customers now can store their gold and silver in a high-security vault operated by Brink's in Toronto, Ontario, Canada. GoldMoney also has recently partnered with Rhenus Freight Logistics to offer another gold storage option in Switzerland. The Rhenus vault is in the secured zone of Zurich Airport and offers customers superb security as well as the ability to inspect their gold. Storage at the new vaults in Canada and Switzerland is available at GoldMoney's lowest fees. Customers can select their storage location when placing their buy order. GoldMoney customers can take delivery of any number of gold, silver, platinum, and palladium bars from any GoldMoney vault, as well as personally collect their bars stored in the Hong Kong, Switzerland, and U.K. vaults. It's easy to open an account, add funds, and liquidate your investment. For more information, visit: http://www.goldmoney.com/?gmrefcode=gata As do so many of gold's friends, Brebner and Fu expect Western debt repudiation through inflation. "When one has accumulated too much debt," they write, "while the right thing to do is pay it back, the easiest thing to do is default and hope your creditor has a short memory. We believe the Western economies in general are biased toward the latter, whether they will admit it or not. We expect a soft default will likely be the preferable course of action -- a managed form of currency depreciation through various stages of 'quantitative easing' or successive bailouts by central banks of the banking system." While it doesn't mention the logical consequence of a surreptitious devaluation policy -- manipulation of the gold market to help disguise the policy -- the Deutsche Bank report on gold may be more intelligent and candid than anything yet produced about gold by any major bank. So you might want to read it before Brebner and Fu are fired or demoted to the bank's mail room and the bank demands return of all copies or, signifying the prescience of the authors, Deutsche Bank itself crumbles under bad debts repaid in bad money and is acquired by the Musical Heritage Surplus Club of Hong Kong, a subsidiary of the People's Bank of China. For the time being the report is posted at GATA's Internet site here: http://www.gata.org/files/DeutscheBankReport-09-18-2012.pdf CHRIS POWELL, Secretary/Treasurer Join GATA here: Toronto Resource Investment Conference New Orleans Investment Conference * * * Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006: http://www.goldrush21.com/order.html Or by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Prophecy Platinum Intercepts Best Pt+Pd+Au Grades Yet Company Press Release VANCOUVER, British Columbia -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) announces more results of its 2012 drill program on the company's fully-owned Wellgreen platinum group metals, nickel, and copper project in southwestern Yukon Territory, Canada. Four surface holes and four underground holes all intercepted significant mineralized widths, ranging from 28.5 meters (WS12-201) and up to 459.5 metres (WS12-193). Highlights include WU12-540, which returned 8.9 metres of 5.36 grams per tonne platinum, palladium, and gold; 1.73 percent copper; and 1.01 percent nickel within 304.5 meters of 0.66 g/t platinum-palladium-gold, 0.20 percent copper, and 0.27 percent nickel. The surface drill program started in June and has completed 16 holes (assays pending for 12 holes) with two rigs now on site. The surface program continues to progress at a steady pace. Prophecy Chairman John Lee commented: "Wellgreen is a very large nickel, copper, and platinum group metals project with near-surface high-grade zones. High-grade intercepts will be incorporated into resource modeling and mine planning in the pre-feasibility study. We expect further positive drill results from Wellgreen shortly." Wellgreen features a low 2.59-to-1 strip ratio, is situated at an altitude of 1,300 meters, and is only 15 kilometers from the two-lane paved Alaska Highway. Those factors significantly minimize the project's indirect costs. For the complete company statement with full tabulation of the drilling results, please visit: http://prophecyplat.com/news_2012_sep11_prophecy_platinum_drill_results....
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| Posted: 22 Sep 2012 01:14 PM PDT By Mitch Feierstein Those financial forecasters, like myself, who take a generally dark view of world affairs are known by a number of monikers: prophets of doom, killjoys, pessimists, Cassandras. And that last one is interesting. Cassandra, in ancient Greek myth, … Continue reading
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| Incredibly Important Developments In Gold & Silver Posted: 22 Sep 2012 12:37 PM PDT  Today King World News is reporting on incredibly important developments taking place in the gold and silver markets. Acclaimed commodity trader Dan Norcini told KWN that in the metals markets, "I don't recall seeing something like this over the last eleven years we've been in this bull market." Norcini has been stunningly accurate in his predictions of the movement of the gold and silver markets. Now the acclaimed trader discusses these incredibly important developments in both of these markets: "This week there was a big change in the (COT) swap dealers position, Eric. They added the equivalent of (roughly) 13,700 contracts worth of selling (in silver). That was a large amount of selling this week (by the swap dealers in silver). It changed their position quite quickly."
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| Why QE3 Won’t Jumpstart the Economy and What Would Posted: 22 Sep 2012 11:56 AM PDT The economy could use a good dose of “aggregate demand”—new spending money in the pockets of consumers—but QE3 won’t do it. Neither will it trigger the dreaded hyperinflation. In fact, it won’t do much at all. There are better alternatives. The Fed’s announcement on September 13, 2012, that it was embarking on a third round of quantitative easing has brought the “sound money” crew out in force, pumping out articles with frighting titles such as “QE3 Will Unleash’ Economic Horror’ On The Human Race.” The Fed calls QE an asset swap, swapping Fed-created dollars for other assets on the banks’ balance sheets. But critics call it “reckless money printing” and say it will inevitably produce hyperinflation. Too much money will be chasing too few goods, forcing prices up and the value of the dollar down.
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| Posted: 22 Sep 2012 11:31 AM PDT The 'Dr. Evil' strategy in two pictures. From Nanex Research: Trading was so furious in Gold, that the CME circuit breakers triggered and halted the futures contract for 5 seconds. First on the downside, then on the upside. This is the same circuit breaker that triggered only once in the eMini during market hours: that time was at the bottom of the flash crash on May 6, 2010.
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| Audacious Oligarchy: The Double Flash Crash In Gold - Sept 13, 2012 Posted: 22 Sep 2012 09:46 AM PDT | ||||
| Posted: 22 Sep 2012 09:45 AM PDT Summary: Long term - on major sell signal. Short term - on buy signals. Read More...
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| Posted: 22 Sep 2012 07:58 AM PDT By Jesse's Café Américain A "Cup and Handle" is a bullish continuation pattern in an uptrend. The greatest factor working against this current gold chart as a cup and handle is that it appears during a consolidation pattern in a broader uptrend. The 'cup' is best shaped as a "U" and the broader the [...]
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| Quantitative Easing Into Infinity Posted: 22 Sep 2012 02:00 AM PDT Economies continue to decline, indefinite quantitative easing, economies continue to struggle, Europe riots, everyone has the wrong opinion about Quantitative easing anyway, Gold to be worth more.
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| If You Like QE3 But The Stock Market Makes You Nervous - Buy Gold! Posted: 22 Sep 2012 01:53 AM PDT QE2 in 2010 and ‘Operation Twist’ in 2011 recovered the stock market from double-digit corrections that were underway at the time, and rescued investors from their extreme bearish sentiment each time. QE3 is underway and many are convinced that’s all that matters, that a repeat of stock market gains is a sure thing.
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| Inflation and Inflation Expectations Analysis Posted: 22 Sep 2012 01:48 AM PDT Since the Federal Reserve initiated its third round of quantitative easing (QE3) last week, critics have expressed concern that the policy would ultimately be inflationary. Investors also seemed to sense a higher risk in this area; gold and other commodities have rallied as portfolios seek to hedge against this outcome. In response, several Federal Reserve officials have been out defending the central bank’s action.
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If anyone thought the bad blood between Germany and the rest of the insolvent proletariat, aka the part of the Eurozone which is out of money (most of it), and which has been now confirmed 
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