Friday, October 24, 2008



And then there's this... From Ed Steer: Gold's peak price came at 3:00 a.m. Thursday morning New York time...while the thinly traded Hong Kong market was open...and less than half an hour before the London open. This time gold got sold off on the London a.m. fix. There was a spike bottom a few dollars below the $700 mark at 9:00 a.m. in New York. From there, gold rose quickly to about $726 right through the London p.m. fix...before running into the 'usual suspects' at the London close. There was huge price volatility yesterday, with inter-day price swings of $20 or $30...unheard of only months ago. Then there's silver. The silver low came at precisely the same time as gold' surprise there. Silver really took off at the London p.m. gold fix. Its high for the day occurred at the London close. Then either JPMorgan or HSBC, USA hammered the price. Thursday was a hugely volatile day for silver too. I'm not really sure what to read into one day's worth of trading. Normally this kind of price volatility occurs at major tops and bottoms, but with '2 or 3' US bullion banks supervising PM prices while the world's financial system implodes many times faster than the world's central banks can print money, it's really hard to make a call. Since today is Friday...and anything can, and probably will, happen...I'd rather reserve judgment until my Saturday rant. The gold open interest for Wednesday fell 3,546 contracts to 315,926 contracts...which is 45% off its highs. The gold price (which is being caused by spec long liquidation on the Comex) is collapsing in the face of record investment demand. As for silver, it's o.i. actually rose 57 contracts...which is unbelievable since the price got smoked between Tuesday's and Wednesday's close! This mystery won't be solved until next Friday...Halloween...when the relevant information from Wednesday will be in the COT report. Today's report will be out at 3:30 Eastern time and I'll have it for you on Saturday. Not a lot of gold news today except what you saw in the price action. I see that Dennis Gartman is back into the gold market going long 'one unit' of gold. The last time he went long, it lasted a couple of hours. The usual NY commentator said..."On recent form, whatever stops set in this trade (Gartman) will make a short-term low in the gold price." Let's see how he makes out this time. GLD liquidated about 8 tonnes of gold yesterday and the SLV remained unchanged...again. To show you how bad things really are, here's a graph of the Baltic Exchange Dry Index. I've been watching it every day for the last couple of weeks, but decided to post it today, because it has now fallen over 90% since its peak six months ago. That should tell you a lot about world trade. (SEE CHART POSTED ABOVE) I have three stories today. The first one is from France, where "French president Nicolas Sarkozy has pledged "massive" state intervention to support his country's industry...defiantly ignoring European Union competition rules in the biggest shift in ideology in 40 years." The proposal received a chilly welcome in Berlin. The story is linked here. The situation in Russia is said to be even more dire...where the next article says that "Russia's financial crisis is escalating with lightning speed." This story, like the previous one, is from The Telegraph in London. The headline reads "Russian default risk tops Iceland as crisis deepens" and the link is here. The third story is also out of London. Rob Mackinlay of Financial Express, a financial information service, has taken detailed note of GATA's work in his report "Gold Conspiracy: Can You Afford to Ignore It?" There's lots of disagreement about that in the story as well, which is linked here. (GT sez: Notice in the next paragraph that more and more people are saying they can't keep up with the speed of the actions going on) Up to this point in this deflationary implosion, I thought I had a pretty decent handle on how things were unfolding. But as I read the above three stories yesterday, I began to realize that events are now moving so rapidly world-wide, that it's impossible for any one person, country, or government "leader" to either comprehend the situation...or do anything about it even if they could. That goes for the banking and monetary system as well. This has become a self-reinforcing negative feedback loop that's quickly spiraling down to total destruction in all directions. As I hit the send button to my editor, I note that the US dollar is screaming to the upside, the Nikkei closed down 812 points, European markets are down hard...and the S&P futures are as ugly as they can get. Seat belts fastened and crash helmets on! See you tomorrow.

FROM CASEY RESEARCH'S DAILY EMAIL (FREE) Gold conspiracy: can you afford to ignore it? By Rob Mackinlay In London, the “man on the street” appears to be running a similar strategy to some hedge fund managers: buying physical gold and holding it, whatever the price.


CREDIT TO thefedreserve on the MW threads for this info This is a list of recessions that have affected the United States. A recession is defined by NBER, and is not necessarily two quarters of negative GDP growth. From 1945-2007 NBER has identified 10 recessions, their average duration was 10 months (Peak to Trough). Most of the recessions listed here have affected economies on a worldwide scale; some of them are the Great Depression, the late 1980s recession, and the early 2000s recession. Recessions in one country are often grouped together with recessions in other countries that are related, and they commonly share a focal point as the cause of the recession. Note that before detailed economic statistics began to be gathered in the nineteenth century, it was difficult to tell when recessions occurred. In spite of this, it is possible to estimate when economic recessions began because they were typically caused by external actions on the economic system such as wars and variations in the weather. Panic of 1797 Panic of 1819 Panic of 1837 Panic of 1857 Panic of 1873 Panic of 1893 Panic of 1907 Recession of 1918 Great Depression 1 Recession of 1937 Recession of 1957 Recession of 1973 Recession of 1980 Recession of 1990 Recession of 2001 Great Depression 11 <<<< (GT sez: Does this refer to 2011?)


CREDIT TO MrketWtcher ON THE MW THREADS FOR THE INFO CIRCUIT-BREAKER LEVELS FOR FOURTH-QUARTER 2008 ALL TIMES EASTERN In the event of a 1100-POINT decline in the DJIA (10 percent): Before 2 p.m. 1-HOUR HALT 2-2:30 p.m. 30-MIN. HALT After 2:30 p.m. NO HALT In the event of a 2200-POINT decline in the DJIA (20 percent): Before 1 p.m. 2-HOUR HALT 1-2 p.m. 1-HOUR HALT After 2 p.m. MARKET CLOSES In the event of a 3350-POINT decline in the DJIA (30 percent), regardless of the time, MARKET CLOSES for the day.


GT sez: You didn't think I was kidding about this when I said this awhile back, did you?{A02D915A-E3DB-4E24-AAC7-E5F8EA18DA75} Harsh reality Commentary: The real tragedy of this financial crisis is that people will die By Thomas Kostigen, MarketWatch Last update: 8:25 p.m. EDT Oct. 23, 2008 SANTA MONICA, Calif. (MarketWatch) -- The harsh reality of the economic fallout isn't that Joe the plumber can't buy his business or that people's retirement funds are being lost or that unemployment is rising; the harsh reality is that people will die.

Thursday, October 23, 2008


If you aren't reading CULTUREOFLIFENEWS.COM EVERY DAY, you aren't learning what you need to learn. She is way smarter than you are. Don't try to figure this mess out by yourself. Take advantage of the FREE GIFT Elaine gives you of the volumes of info she gives you FOR FREE...EVERY DAY! SHE IS BRILLIANT and speaks THE TRUTH in precise terms. EVERYTHING she says is 100% FACTUAL TRUTH. USE IT!

LATEST BOB CHAPMAN ARTICLE 10/22/08 (GT sez: Bob Chapman gives the clearest explanations of this mess as it unfolds. If you don't read his articles, you will deserve what you get in the end.) Wall street insiders reformulate the profit model, outsider stock market players to be vaporized, new Fed facilities being created on a daily basis, new super-entities created in mergers and acquisitions, post bailout, to be vaporized by derivatives death star, dry derivatives setup for Lehman insiders to get a big payout, suppressing gold only encourages treasuries, no longer such thing as a secure retirement EXCERPT: "So everyone is running for the perceived security of US treasuries. The carry traders, institutional investors, professional and amateur individual investors, hedge funds, sovereign wealth funds, mutual funds, money market funds, holders of US agencies, you name it. Any foreigners who want to purchase treasuries must buy dollars, and that is the major support we are seeing in the current dollar rally. This is not a very good scenario for our economy and it will only get worse as real estate, credit-crunch, derivative and consumer spending debacles grow ever more fearsome. Meanwhile, the advance of the dollar keeps steady downward pressure on gold, which is JOB ONE at the Fed. For many months now, this is what we have described as stock markets coming down with "yellow fever," meaning that the stock markets look sickly because they are being sacrificed to push money into treasuries, thereby supporting the dollar and suppressing gold. Also, by suppressing gold through various means, they are discouraging gold and encouraging treasuries as the safe-haven of choice. This keeps money pumping into treasuries, thus supporting the dollar, and the value of treasury bonds and other debt tied to treasury rates. Remember, the bond markets are the seat of Illuminist power, and they are about to crumble at any moment, thus paving the way for the worst bear market in bonds in our nation's history. That is because, unfortunately for the elitists, this increased demand for treasuries drives their rate of return down to extremely low levels to the point where no one will want them anymore because they know that real inflation is in double digits and is about to get much worse as the bailout dollars flood the world economy with worthless paper. By driving money into treasuries and by supporting the dollar, the elitists are trying in vain to delay the destruction of the bond markets."





And then there's this... From Ed Steer: Wednesday was a day of almost continuous speculative long liquidation on the Comex...especially in it made a new low price for the move yesterday. This quiet downward trend was maintained almost without a break through the entire 24-hour period. Any attempt at a rally ran into quiet (but firm) resistance. As the spec longs in the Non-Commercial and Non-Reportable category of the COT pitched their long positions, the '2 or less' US bullion banks covered every short they could...and probably went long themselves when the opportunity arose. Volume on the Comex yesterday was quite a bit heavier in gold than it was in silver. Here's the the 3-year gold chart. Never in its history has the gold price been this far below its 200-day moving average. It's not a pretty picture. (SEE CHART POSTED ABOVE) As for had a rather bumpy day in New York pricewise, but the results would have been the same...more spec long liquidation and more short covering by the US bullion banks. However, it would not have been as much as gold, because silver would have to break through to a new low (below US$9.00/oz.) for that to happen. How much liquidation there was yesterday will be hinted at when the open interest numbers become available later this morning. Open interest declines for Tuesday's activity are as o.i. down 1,426 contracts and silver down 1,126. These numbers should be in tomorrow's COT. One thing I forgot about was options expiry in silver. Although November isn't a big delivery month for either metal, silver options expiry is October 28th...and first day notice for November delivery will be the 31st...Hallowe'en. Despite the horrendous drops in price for gold and silver yesterday...or the entire week for that matter...there were no changes in inventory levels in either the SLV or GLD. This is the third day in a row that the SLV has posted no changes...and only a few minor drops in the GLD. It will be interesting to see how long this trend lasts. In other news, I see that Norilsk Nickel is 'open to offers' for its 55.4% stake in the Stillwater platinum and palladium mine. Norilsk paid US$257 million for it back in 2003. It will be interesting to see what it ultimately sells for...if it sells at all. Now for my first 'story'. As you are aware, the Fed and the Treasury Department have been making up trillions of US dollars out of thin air over the last several months in order to keep up the liquidity in the world's banking system...which is a whole different issue than solvency. The boys over at The Nightly Business Report at PBS put their heads together and came up with this hilarious ad for the US Treasury Department. It's entitled "No credit? No assets? No problem at the U.S. Treasury!" The link is here: My second story is from CBS out of San Francisco. It's about the construction of the new George W. Bush Presidential Library. However, if 'Proposition R' is passed on November 4th...that won't be the only landmark named in Dubya's honour. Would you believe the "George W. Bush Sewage Plant?" I couldn't make up a story like this if I tried. The story (tee hee!)...entitled "San Francisco Votes To Give Dubya a Dubious Honor" linked here: A great deal of intelligence can be invested in ignorance when the need for illusion is deep. - Saul Bellow This historic commodity sell off (spec long liquidation on the Comex/CME) has plumbed new depths. At today's prices, there are virtually no metals that can be mined without losing big money on every ounce or pound that's dug out of the ground. This can't last...and won't. It's only the timing of the turnaround that is hard to know. However, just about every technical indicator that I've seen this week, shows that we are more oversold now than at any point in decades...if not longer. Oversold (and overbought) conditions at historic extremes such as these have only lasted for a very brief period of time...then reversed violently. Let's see if that scenario is in the cards this time.

Wednesday, October 22, 2008


Bank of America Credit-Card Unit Loses $373 Million (Update1) By David Mildenberg Oct. 21 (Bloomberg) -- Bank of America Corp., the largest U.S. consumer bank, lost money in its credit-card unit for the first time since its January 2006 purchase of MBNA Corp. as more borrowers missed payments amid the slowing economy. Card services, which includes unsecured loans, lost $373 million in the third quarter, compared with a profit of $1.04 billion in the same period last year, the Charlotte, North Carolina-based company said today in a regulatory filing. Defaults on cards, consumer loans and home mortgages contributed to a 47 percent decline in operating profit at the consumer and small-business division. Bank of America provided more details on its third-quarter results today, two weeks after reporting a 68 percent decline in profit. Those earnings, released early as the bank announced plans to raise $10 billion by selling common shares, were worse than analysts expected. The world's biggest financial companies have disclosed $661 billion in losses and raised $634 billion in fresh capital.


(GT sez: You all better read this carefully. This spells it out because the Guv'mint isn't going to do one goddam thing Karl suggests. THEY WILL DO THE OPPOSITE and burn the fucking country down!) You only think the Stock Market has been smashed. Just wait until you see what will come next. See, Treasury has only two options here: 1. If they issue all in the short end of the curve (as they're doing now) they flatten the banks, as the entire point of a bank is to borrow in the short-term market and lend in the long term. When you compress the yield curve you destroy their capacity to make money off their ordinary business model. 2. If they issue in the long end of the curve (e.g. 10s and 30s) then the long end will skyrocket in yield. Anyone remember 18% mortgages? They could reappear. This, of course, will destroy what's left of the housing and consumer credit markets. Now sure, The Fed can start printing money like mad and buy all these Ts, making their balance sheet expand like a balloon - or a bubble. And Bernanke, yesterday in his testimony, claimed that this didn't constitute "printing money" or "inflating the money supply." He may be technically correct but in practice he's lying through his teeth, and unfortunately Congress is both too uninformed to call him on it and lacks the balls to stop him (which they can do through the threat of, if not actual, legislation.) His production of money in exchange for Treasuries is nothing more than a sham sterilization action. He thinks this will go unnoticed by the markets, because he's swapping a dollar for an "illiquid" asset. The problem is that this is only monetarily neutral if the asset is actually worth a dollar. If it is in fact worth 50 cents then he printed the other 50 cents, and devalued every other dollar in the world by the same amount. The claim, of course, is that these assets are in fact "money good" but illiquid. I call bullshit on that claim. FOR ENTIRE ARTICLE:


Posted On: Wednesday, October 22, 2008, 1:07:00 PM EST Insurance On Sale Author: Jim Sinclair Dear Friends, Gold is a currency that you will see perform as the currency of choice. There is no doubt we are headed into a planetary Weimar experience to some degree. Dollars are being created faster now than in any other period in history. The Fed and treasury are guaranteeing everything from money market funds to large corporate entities in one way or another. The first valuation of worthless OTC derivatives via a public sale of these at .0875 to .02 cents shocked anyone with a brain. Now the downturn in business is hitting financial entities and shortly litigation will smoke whatever is left. The FDIC is already yelling for additional and significant funding from congress as their capital contracts on every Friday’s bailout. People expect things to return to normal in 2010. That is a fairy tale. The Fed has only started creating money for bailouts. You saw what happened when they stepped away from Lehman. If you say you didn't look out the window. All these bailouts and Federal guarantees on credit items constitute a white wash on a falling economic structure going out of control and soon. The out of control point of major planetary dislocation is between 14 and 89 days from now. INSURANCE ON SALE Gold is the only viable insurance. The US dollar is not viable insurance because there is simply too much of it and that amount is growing every day. That makes the US dollar untrustworthy. Gold is the only viable insurance. Clearly equities are not. Gold is the only viable insurance. US Treasury bills are not because the yelling at all the rating agencies in Washington today just might get US credit downgraded. General commodities have been viable, but by nature they are too wild and from now on will be selective until Pakistan implodes and Weimar appears Banks cannot offer insurance as they are in the main bankrupt. Insurance companies cannot offer you sound insurance. Money market funds are not insurance, making gold the only viable insurance. Retirement programs are no longer insurance. Jobs are no longer insurance as companies are run by lawyers and accountants. Equity in your home is not insurance because it simply does not exist. Your family is no longer insurance because they have the same problems you do. The assumption your kids will take care of you in your old age is not viable insurance no matter what you think. Gold has no liability attached to it and is therefore the only viable insurance. Gold is universally exchangeable, making it the only viable insurance. Gold has historically performed perfectly in maintaining buying power, making it the only viable insurance. Gold is the only viable insurance because it is Honest Money. Since gold is the only viable insurance and because everyone needs it, gold will trade at levels of at least $1200 and $1650. I could go on but gold is all there is that will protect you from the White Wash being applied by the Fed and Treasury on a structure that is in fact in a free fall. I am not the least concerned about gold and believe you should not be either as long as you have no margin and understand what gold really is: a currency and an insurance policy. There is no other viable insurance in this most unusual situation. Please review the Formula as the US Federal Budget is going ballistic as the TIC report contracts like a turtle into its shell. Jim’s Formula: September 1, 2006 1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets. 2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations. 3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red. 4. The formula economically is inherent in #2 which is lower economic activity equals lower profits. 5. Lower profits leads to lower Federal Tax revenues. 6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government. 7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit. 8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit). 9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms. 10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall. 11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions. 12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension. Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral. I heard all this "slow business" as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now. Respectfully yours, Jim

JoeSixPack. me Go to the website to access the following links: A Letter to America Take Back The Fed Financial Blackmail? Letter to Ron Paul A Letter to America From Joe Six-Pack October 2008 To My Fellow Americans: I write to you on this very historic occasion in the history of our great country- the United States of America. I am Joe Six-Pack, a typical American man. As I write, the entire world's financial system has collapsed- that's right collapsed, not "on the edge of a melt-down", nor "a close call". It is not working as we speak. The only thing calming nerves in the recent week (October 11) is the promise of trillions of dollars (worldwide) to "rescue" it. Hopefully the calm will be maintained for a while. I think the "plan" is to maintain the calm until at least the election. The underlying problem is derivatives. Yes it is related to the housing bubble, but it eclipses the housing bubble. The derivatives bubble itself is 1/2 to 1 $Quadrillion dollars (estimates vary)- one quadrillion is $1,000,000,000,000,000: $ 1000 Trillion, or $1 Million Billion. Yes this is a unimaginable number, and that is the size of the gambling casino that has frozen up. The housing bubble at best is $15 trillion dollars. I think Aex Stanczyk, an investment advisor, said it best when he described a huge elephant tottering out of control, and little Ben Bernanke and Henry Paulson running around its feet saying in little voices, 'ummm... Mr. elephant, please don't step on that, oh...don't step on that...". I will not try and explain what derivatives are now, but clearly it is a big part of the current financial problem. Go to Take BackThe Fed , or Financial Blackmail, and watch the Senate hearing on the role of derivatives in the current crisis (October 14). It is a giant gambling casino. Many who gambled on, for instance, mortgage backed securities HAD NO INTEREST IN THEM AT ALL. They just wanted to bet that they would fail! Yes, it is a giant side bet ponzi scheme. And do you know what? The idiots in Washington want US to bail them out! This is credit default swaps (CDS) you may have heard about in recent weeks- JP Morgan, Bear Stearns (remember them?), AIG and others. CDS are around $62 trillion themselves. Folks, this is the scary part. Joe Six-Pack has been expecting this to happen for over 15 years. I believed that someday derivatives would get out of hand and cause a huge financial collapse. I am not the only one of course. There were economists who worried about derivatives. This is not to say I am smarter or anything like that, but rather to say, that a typical guy apparently understood what was happening, while apparently many if not most of the experts did not (or were too busy profiting from it). But here is the scariest part- neither John McCain nor Barak Obama seemed to have even a clue that this was the issue! John McCain, not a month ago said "the fundamentals are sound"! Yet Joe Six-Pack, not a presidential candidate was waiting for it to happen! I am sorry, but we have a real disconnect here. We have two candidates who DO NOT HAVE a clue about the magnitude of the problem (maybe by now they are getting briefed), and we are supposed to look to them to solve this problem? This is scary! I am talking straight to you here. Joe Six-Pack is saying this is potentially one of the most severe financial collapses in history let alone the last 80 years. In no time in history have they created a $1 QUADRILLION derivatives bubble then had it collapse (let alone even created one of any size). We have no idea how to fix it, yet, the idiots in Washinton DC are going to try and save the GAMBLING CASINO! And they are going to do it at our expense! Joe Six-Pack proposed back in MARCH of this year that we either fully nationalize the Fed, put it into bankruptcy, and create a new currency, or minimally at least just create the new currency. Please read and support Take Back The Fed. This is fully Constitutional, and has been done a number of times in our nations history. Joe Six-Pack has also tried to warn against allowing Congress being blackmailed into accepting the bail-out (oh, excuse, me "rescue") package. Folks this is going to devastate our nation, completely. This derivatives bubble completely eclipses the real economy, and these idiots are going to attempt to save it for their Wall Street buddies? Please visit and support Financial Blackmail. I do not expect everyone to have known about derivatives, nor understood their dangers, but I do expect a potential president to have a definite grasp on this. We currently have two candidates with no apparent knowledge of what is actually happening. Even worse is if all along they DID know about it , and did not warn us. Then one wonders what their motives are? Joe Six-Pack started siv0 in January this year to try and warn the public. What did John McCain and Barak Obama do to warn Americans about the collapse? Personally, being Catholic, and more generally Christian, I cannot support Barak Obama even if I wanted to due to his strong support for abortion (and yes, all niceties aside, he does SUPPORT abortion, he is PRO-ABORTION, remember, I am Joe Six-Pack). John McCain is an honorable man, but I believe he will support the Wall Street crowd (same with Barak Obama in my view), and neither appear to have even a clue as to what is actually happening. This is completely unacceptable. We need a president who knew what was happening, communicated it, and thus has a reasonable chance of making the right moves to fix it. I know of only one current candidate in a major party with these qualities- it is Ron Paul, a Republican Congressman from Texas. Mr. Paul already introduced legislation (HR 2755) to abolish the Fed! He did this back in July 2007! Mr. Paul has been laughed at, kept out of debates, and largely ignored by the media. Why? BEACUSE HE KNEW THE TRUTH. Joe Six-Pack was really not that interested in supporting Mr. Paul in 2007. I heard about him. I concluded that he was a moral man, and had some good ideas, and thought him worth considering. That was about it. But as the financial collapse unwound, I started to realize that he was THE ONLY CANDIDATE who understood and communicated the truth of what is happening to the public. I am not sure he has all the right solutions, but we are electing him President, not dictator. And I am confident he will work to restore the constitution (to whatever degree a president can). Joe Six-Pack currently supports Ron Paul. I realize he is not the Republican Party's chosen candidate, but he is mine at this point. You may say, "he does not have a chance". Joe Six-Pack replies: In ordinary circumstances he does not stand a chance. We are not in ordinary circumstances. We are in a historically unprecedented financial collapse, and very few people even know what is actually happening- certainly not McCain or Obama. Ron Paul does. And, yes it matters. We cannot have another dim man surrounded by "smart" people. Depending on what happens in the next weeks before the election, public perception about who should be president could change substantially. If more unprecedented failures occur, and more panics ensue (even with the trillions of dollars being pumped into the dollar based system), then all Americans may come to realize that we have two fluff figures, two empty shirts vying for leadership of our country. These are two men who have spent too much time in politics and not enough understanding what was happening. I do respect both men to some degree, but on the most critical issue of our or any time in US history, they frankly have no clue. And if they do understand what is happening, but did not communicate it to us, it is even worse. When the delegates meet to cast the final votes for president, frankly there is a small chance that they may say, 'we, as Americans, cannot elect one of these clueless leaders to lead our country'. And if they change their votes, it is perfectly Constitutional. Everyone talks about the wisdom of our country's fathers. Well one wise thing they did was to take the final vote out of the popular realm. They purposely enacted a system of delegates. What if there were obvious election fraud detected? What if the winning candidate was determined to have commited a heinous crime? What if America WOKE UP and realized that the candidates were party and media created empty shirts? So, what can the average American (Joe and Joanna Six-Pack) do? I say: 1. Support Ron Paul, and let him and the Republican party know you do. 2. Write Ron Paul in on the ballot 3. Contact the delegates and be sure they know you support Ron Paul. Be sure they are fully aware that they can change their votes. 4. If you want to vote Independent, vote Libertarian or some other conservative party likely to have delegates who will pick Ron Paul (some states have a winner takes all rule, be sure you know how your state operates) when most likely your candidate loses. Folks, whether you are Republican, Democratic, or another political party, I believe this is the only hope for this country. We need a leader who understands what is actually happening, and has communicated it, and even taken actions towards solving it (i.e., HR2755). So far Ron Paul is the only candidate who has these qualities. Joe Six-Pack October 18. 2008 © 2008 Conceptula LLC.


When the alarm went off this morning, I looked at the computer screen on my laptop and just rolled over and went back to sleep. If gold can't even rally overnight in countries where they KNOW what gold's value is, then we are all totally fucked! Right now gold continues dropping lower and lower like someone just simply pulled the plug out of the bathtub. Never in my wildest imaginings could I have ever thought that this scenario would take place. But with the world's peoples so dumbed down by TV, Big Macs, and gladiator sports events, it appears Rome 2 has been recreated, only to be torn down. I am equally appalled at Jim Sinclair's recent posts in which he berates some in his audience for being angry at him. WHAT DID YOU EXPECT JIM? You gave them your goddam phone number! You attempted to be their psychiatrist (when you had some time to fritter away in a useless task like that!) Then when they start losing their meager assets because in all your experience and wisdom this market starts tanking, they GET ANGRY at you? Apparently Jim doesn't know people at all. If he thought people wouldn't misplace their anger on a specific target who posed as their all knowing saviour, instead of some amorphous concept like THE GUV'MINT that our civics books all persuaded us to believe would never betray us. HAHAHAHAHAHAHAHAHA! Well, Sinclair is exactly right in his long term prediction of where gold is going... Just as correct as I am in saying that I'm not going to live forever. It's just in the shorter term that he and his very able buddy Kenny Adams could/should have been giving us more detailed info on the day to day happenings in these PM markets. There are no GURUs folks... YOU ARE ON YOUR OWN! Learn what you can from the mistakes of others, and pray that the gods will give you a break when you make exchanges with other humans for the things you need to survive in some degree of comfort and human dignity...but don't BET heavily on it.

Tuesday, October 21, 2008

The United States, Europe and Bretton Woods II

STRATFOR CHARGES A BUNDLE FOR THIS INFO... READ AND LEARN. I DIDN'T KNOW IF YOU WOULD BE ABLE TO ACCESS THIS LINK FOR THE ENTIRE ARTICLE, SO I PRINTED IT OUT FOR YOU...USE IT! The United States, Europe and Bretton Woods II October 20, 2008 | 2200 GMT By George Friedman and Peter Zeihan French President Nicolas Sarkozy and U.S. President George W. Bush met Oct. 18 to discuss the possibility of a global financial summit. The meeting ended with an American offer to host a global summit in December modeled on the 1944 Bretton Woods system that founded the modern economic system. Related Special Topic Page * Political Economy and the Financial Crisis The Bretton Woods framework is one of the more misunderstood developments in human history. The conventional wisdom is that Bretton Woods crafted the modern international economic architecture, lashing the trading and currency systems to the gold standard to achieve global stability. To a certain degree, that is true. But the form that Bretton Woods took in the public mind is only a veneer. The real implications and meaning of Bretton Woods are a different story altogether. Conventional Wisdom: The Depression and Bretton Woods The origin of Bretton Woods lies in the Great Depression. As economic output dropped in the 1930s, governments worldwide adopted a swathe of protectionist, populist policies — import tariffs were particularly in vogue — that enervated international trade. In order to maintain employment, governments and firms alike encouraged ongoing production of goods even though mutual tariff walls prevented the sale of those goods abroad. As a result, prices for these goods dropped and deflation set in. Soon firms found that the prices they could reasonably charge for their goods had dropped below the costs of producing them. The reduction in profitability led to layoffs, which reduced demand for products in general, further reducing prices. Firms went out of business en masse, workers in the millions lost their jobs, demand withered, and prices followed suit. An effort designed originally to protect jobs (the tariffs) resulted in a deep, self-reinforcing deflationary spiral, and the variety of measures adopted to combat it — the New Deal included — could not seem to right the system. Economically, World War II was a godsend. The military effort generated demand for goods and labor. The goods part is pretty straightforward, but the labor issue is what really allowed the global economy to turn the corner. Obviously, the war effort required more workers to craft goods, whether bars of soap or aircraft carriers, but “workers” were also called upon to serve as soldiers. The war removed tens of millions of men from the labor force, shipping them off to — economically speaking — nonproductive endeavors. Sustained demand for goods combined with labor shortages raised prices, and as expectations for inflation rather than deflation set in, consumers became more willing to spend their money for fear it would be worth less in the future. The deflationary spiral was broken; supply and demand came back into balance. Policymakers of the time realized that the prosecution of the war had suspended the depression, but few were confident that the war had actually ended the conditions that made the depression possible. So in July 1944, 730 representatives from 44 different countries converged on a small ski village in New Hampshire to cobble together a system that would prevent additional depressions and — were one to occur — come up with a means of ending it shy of depending upon a world war. When all was said and done, the delegates agreed to a system of exchangeable currencies and broadly open rules of trade. The system would be based on the gold standard to prevent currency fluctuations, and a pair of institutions — what would become known as the International Monetary Fund (IMF) and the World Bank — would serve as guardians of the system’s financial and fiduciary particulars. The conventional wisdom is that Bretton Woods worked for a time, but that since the entire system was linked to gold, the limited availability of gold put an upper limit on what the new system could handle. As postwar economic activity expanded — but the supply of gold did not — that problem became so mammoth that the United States abandoned the gold standard in 1971. Most point to that period as the end of the Bretton Woods system. In fact, we are still using Bretton Woods, and while nothing that has been discussed to this point is wrong exactly, it is only part of the story. A Deeper Understanding: World War II and Bretton Woods Think back to July 1944. The Normandy invasion was in its first month. The United Kingdom served as the staging ground, but with London exhausted, its military commitment to the operation was modest. While the tide of the war had clearly turned, there was much slogging ahead. It had become apparent that launching the invasion of Europe — much less sustaining it — was impossible without large-scale U.S. involvement. Similarly, the balance of forces on the Eastern Front radically favored the Soviets. While the particulars were, of course, open to debate, no one was so idealistic to think that after suffering at Nazi hands, the Soviets were simply going to withdraw from territory captured on their way to Berlin. The shape of the Cold War was already beginning to unfold. Between the United States and the Soviet Union, the rest of the modern world — namely, Europe — was going to either experience Soviet occupation or become a U.S. protectorate. At the core of that realization were twin challenges. For the Europeans, any hope they had of rebuilding was totally dependent upon U.S. willingness to remain engaged. Issues of Soviet attack aside, the war had decimated Europe, and the damage was only becoming worse with each inch of Nazi territory the Americans or Soviets conquered. The Continental states — and even the United Kingdom — were not simply economically spent and indebted but were, to be perfectly blunt, destitute. This was not World War I, where most of the fighting had occurred along a single series of trenches. This was blitzkrieg and saturation bombings, which left the Continent in ruins, and there was almost nothing left from which to rebuild. Simply avoiding mass starvation would be a challenge, and any rebuilding effort would be utterly dependent upon U.S. financing. The Europeans were willing to accept nearly whatever was on offer. For the United States, the issue was one of seizing a historic opportunity. Historically, the United States thought of the United Kingdom and France — with their maritime traditions — as more of a threat to U.S. interests than the largely land-based Soviet Union and Germany. Even World War I did not fully dispel this concern. (Japan, for its part, was always viewed as a hostile power.) The United States entered World War II late and the war did not occur on U.S. soil. So — uniquely among all the world’s major powers of the day — U.S. infrastructure and industrial capacity would emerge from the war larger (far, far larger) than when it entered. With its traditional rivals either already greatly weakened or well on their way to being so, the United States had the opportunity to set itself up as the core of the new order. In this, the United States faced the challenges of defending against the Soviet Union. The United States could not occupy Western Europe as it expected the Soviets to occupy Eastern Europe; it lacked the troops and was on the wrong side of the ocean. The United States had to have not just the participation of the Western Europeans in holding back the Soviet tide, it needed the Europeans to defer to American political and military demands — and to do so willingly. Considering the desperation and destitution of the Europeans, and the unprecedented and unparalleled U.S. economic strength, economic carrots were the obvious way to go. Put another way, Bretton Woods was part of a broader American effort to extend the wartime alliance — sans the Soviets — beyond Germany’s surrender. After all wars, there is the hope that alliances that have defeated a common enemy will continue to function to administer and maintain the peace. This happened at the Congress of Vienna and Versailles as well. Bretton Woods was more than an attempt to shape the global economic system, it was an effort to grow a military alliance into a broader U.S.-led and -dominated bloc to counter the Soviets. At Bretton Woods, the United States made itself the core of the new system, agreeing to become the trading partner of first and last resort. The United States would allow Europe near tariff-free access to its markets, and turn a blind eye to Europe’s own tariffs so long as they did not become too egregious — something that at least in part flew in the face of the Great Depression’s lessons. The sale of European goods in the United States would help Europe develop economically, and, in exchange, the United States would receive deference on political and military matters: NATO — the ultimate hedge against Soviet invasion — was born. The “free world” alliance would not consist of a series of equal states. Instead, it would consist of the United States and everyone else. The “everyone else” included shattered European economies, their impoverished colonies, independent successor states and so on. The truth was that Bretton Woods was less a compact of equals than a framework for economic relations within an unequal alliance against the Soviet Union. The foundation of Bretton Woods was American economic power — and the American interest in strengthening the economies of the rest of the world to immunize them from communism and build the containment of the Soviet Union. Almost immediately after the war, the United States began acting in ways that indicated that Bretton Woods was not — for itself at least — an economic program. When loans to fund Western Europe’s redevelopment failed to stimulate growth, those loans became grants, aka the Marshall Plan. Shortly thereafter, the United States — certainly to its economic loss — almost absentmindedly extended the benefits of Bretton Woods to any state involved on the American side of the Cold War, with Japan, South Korea and Taiwan signing up as its most enthusiastic participants. And fast-forwarding to when the world went off of the gold standard and Bretton Woods supposedly died, gold was actually replaced by the U.S. dollar. Far from dying, the political/military understanding that underpinned Bretton Woods had only become more entrenched. Whereas before, the greatest limiter was on the availability of gold, now it became — and remains — the whim of the U.S. government’s monetary authorities. Toward Bretton Woods II For many of the states that will be attending what is already being dubbed Bretton Woods II, having this American centrality as such a key pillar of the system is the core of the problem. The fundamental principle of Bretton Woods was national sovereignty within a framework of relationships, ultimately guaranteed not just by American political power but by American economic power. Bretton Woods was not so much a system as a reality. American economic power dwarfed the rest of the noncommunist world, and guaranteed the stability of the international financial system. What the September financial crisis has shown is not that the basic financial system has changed, but what happens when the guarantor of the financial system itself undergoes a crisis. When the economic bubble in Japan — the world’s second-largest economy — burst in 1990-1991, it did not infect the rest of the world. Neither did the East Asian crisis in 1997, nor the ruble crisis of 1998. A crisis in France or the United Kingdom would similarly remain a local one. But a crisis in the U.S. economy becomes global. The fundamental reality of Bretton Woods remains unchanged: The U.S. economy remains the largest, and dysfunctions there affect the world. That is the reality of the international system, and that is ultimately what the French call for a new Bretton Woods is about. There has been talk of a meeting at which the United States gives up its place as the world’s reserve currency and primacy of the economic system. That is not what this meeting will be about, and certainly not what the French are after. The use of the dollar as world reserve currency is not based on an aggrandizing fiat, but the reality that the dollar alone has a global presence and trust. The euro, after all, is only a decade old, and is not backed either by sovereign taxing powers or by a central bank with vast authority. The European Central Bank (ECB) certainly steadies the European financial system, but it is the sovereign countries that define economic policies. As we have seen in the recent crisis, the ECB actually lacks the authority to regulate Europe’s banks. Relying on a currency that is not in the hands of a sovereign taxing power, but dependent on the political will of (so far) 15 countries with very different interests, does not make for a reliable reserve currency. The Europeans are not looking to challenge the reality of American power, they are looking to increase the degree to which the rest of the world can influence the dynamics of the American economy, with an eye toward limiting the ability of the Americans to accidentally destabilize the international financial system again. The French in particular look at the current crisis as the result of a failure in the U.S. regulatory system. And the Europeans certainly have a point. If fault is to be pinned, it is on the United States for letting the problem grow and grow until it triggered a liquidity crisis. The Bretton Woods institutions — specifically the IMF, which is supposed to serve the role of financial lighthouse and crisis manager — proved irrelevant to the problems the world is currently passing through. Indeed, all multinational institutions failed or, more precisely, have little to do with the financial system that was operating in 2008. The 64-year-old Bretton Woods agreement simply didn’t have anything to do with the current reality. Ultimately, the Europeans would like to see a shift in focus in the world of international economic interactions from strengthening the international trading system to controlling the international financial system. In practical terms, they want an oversight body that can guarantee that there won’t be a repeat of the current crisis. This would involve everything from regulations on accounting methods, to restrictions on what can and cannot be traded and by whom (offshore financial havens and hedge funds would definitely find their worlds circumscribed), to frameworks for global interventions. The net effect would be to create an international bureaucracy to oversee global financial markets. Fundamentally, the Europeans are not simply hoping to modernize Bretton Woods, but instead to Europeanize the American financial markets. This is ultimately not a financial question, but a political one. The French are trying to flip Bretton Woods from a system where the United States is the buttress of the international system to a situation where the United States remains the buttress but is more constrained by the broader international system. The European view is that this will help everybody. The American position is not yet framed and won’t be until the new president is in office. But it will be a very tough sell. For one, at its core the American problem is “simply” a liquidity freeze and one that is already thawing. Europe’s and East Asia’s recessions are bound to be deeper and longer lasting. So the United States is sure — no matter who takes over in January — to be less than keen about revamps of international processes in general. Far more important, any international system that oversees aspects of American finance would, by definition, not be under full American control, but under some sort of quasi-Brussels-like organization. And no American president is going to engage gleefully on that sort of topic. Unless something else is on offer. Bretton Woods was ultimately about the United States trading access to its economic might for political and military deference. The reality of American economic might remains. The question, then, is simple: What will the Europeans bring to the table with which to bargain? 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FROM GATA ARTICLE APRIL 19, 2008 LOTS OF INFO ON SUPPRESSION OF THE GOLD PRICE AND GOVT INTERVENTION Chris Powell: There are no markets anymore, just interventions


BE SURE TO READ THE ENTIRE ARTICLE AS WELL AS LOOK AT THE CHARTS. EXCERPT: At this time of "unlimited" dollar creation we need to take to heart the words of Warren Buffett's father, Howard Buffett, while serving as a Congressman from Omaha. In a now famous speech in 1947, Rep. Howard Buffett said: "When the people's right to restrain public spending by demanding gold coin was taken away from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected...The gold standard acted as a silent watchdog to prevent unlimited public spending." The gold standard is long gone so it no longer acts as a "silent watchdog to prevent unlimited public spending". Because it is no longer prevented, unlimited public spending is what we are now getting. In addition to the countless ways the federal government spends - or wastes, as many would no doubt add - the dollars flowing through its accounts, it is now spending unlimited dollars to bail out banks worldwide, a reality which I think makes clear the dollar's bleak future.


Gary North's REALITY CHECK Gold's price: The Federal debt: To subscribe to this letter: Issue 799 October 21, 2008 GOLD IN 2009: UP, DOWN, OR SIDEWAYS? For the overwhelming majority of people in the world, this question is irrelevant. Except for India, in which gold jewelry is given by parents to daughters at the time of their marriage, almost no one owns gold. In the United States, the percentage of Americans who own half a dozen gold coins is probably under two percent. The United States has approximately 100 million households. I doubt that two million households own over half a dozen gold coins. The reason why I say this with confidence is simple: there are very few stores in the United States that actively sell bullion gold coins. We are talking a few dozen that have over 1,000 clients. Two million households have not ordered coins from them. Whatever the number, it is so small as to be irrelevant politically. The number of people who are committed to gold philosophically as a way to hedge against the expansion of the Federal government is so small as to count for no votes at all in Congress. There are professional commodity traders who may be long gold, but they are as happy about being short gold when the price of gold is falling. They are not committed to gold as anything more than as a means of increasing the number of dollars that they own. GOLD'S ROLE IN YOUR NET WORTH Before considering the question of which way the price of gold is headed, you would be wise to consider carefully just how important gold is in your economic future. Here is a way to estimate the importance of gold in your plans. First, what is the monetary value of the gold that you presently own or are considering purchasing? Second what is your annual income? Third, do you expect the consumer price level to double over the next 12 months? If it doubles over the next 12 months, this would mean an increase in prices of about 7% to 8%. That would be a substantial increase in the rate of price inflation. It would affect your family's budget considerably. Fourth, if the price of gold doubles in the next 12 months, would your holdings of gold offset, after taxes and commissions, the decline of purchasing power in your overall budget? Put another way, would your profits in gold in dollars (on paper), denominated in United States dollars, offset the loss that your family would suffer from an increase of the price level by 7% or 8%? Fifth, if gold's price were to double every year, at some point the increase in the price of gold would offset the losses you sustain through price inflation. But gold is not going to double every year, year in and year out, unless the price level itself is rising by much more than 7% to 8% per annum. By looking very carefully at your budget, and by comparing the effect of price inflation on your real income after taxes and inflation, you will probably discover that gold's price has only marginal impact on your net worth. It could double in price, or it could fall in price by 50%, but the impact on your net worth, let alone your lifestyle, would be marginal. Unless you have a net worth of half a million dollars or more, with 20% to 50% of your net worth is in gold, a change in the price of gold is not going to have a significant impact on your net worth or lifestyle. Nevertheless, people who have bought gold are almost obsessive about the price of gold. If they ever sat down and went through the exercise that I have just recommended, they would discover that the increase or decrease in the price of gold has very little effect on their immediate prospects. Long-term, owning gold is important. But then the short- term price moves are marginal. Yet a lot of gold owners are obsessive about a $100 move, especially if they bought at the peak. This is not true of old-timers who own gold coins. They do not sell when gold falls. This is one reason why gold and silver coins command a premium over the bullion price. Why is this the case? Why do people get obsessive about the price of gold? GOLD AND ECONOMIC FREEDOM I think it is because they have a vague understanding of the loss of freedom in their lives, but they do not really believe we are headed for a world in which millions of Americans will suffer major losses of freedom and wealth. They think it will get worse, but they don't really think it will be a disaster. So, they are concerned about the price of gold as a confirmation of their belief that freedom is declining. But they are not ready to make the changes in their lives -- job, geography, income, lifestyle -- that they ought to be making if freedom really is in long-term decline. They want a simple personal fix for what is a long-term, complex problem. The kinds of people who buy gold coins are people who recognize that our freedom is declining, and declining rapidly, in the United States. It is also declining all over Europe. They buy gold coins almost as a philosophical statement against this loss of freedom around them. They purchase gold almost as a right of passage out of conventional society. They are declaring to themselves that they are concerned about the decline of freedom. Gold is therefore a legitimate purchase. We need affirmations in our lives that remind us that we are facing a crisis in Western civilization. But we should not be naive about the nature of this ritual purchase of gold. These people are different from those who buy gold mining shares. Mining share buyers are speculators who want to win big, but who are willing to lose big if gold falls (as it has). If you had your choice of cutting the Federal deficit by 50% next year or seeing the price of gold double, which would you choose? If, year after year, the spending of the Federal government would decline by 10%, would you regard this as a benefit to you personally greater than an increase of the price of gold by 20%? I think most people who buy gold coins would prefer to see the shrinking of the Federal government rather than an increase in the price of gold. What they are most concerned about is their loss of freedom. If, as a nation, we could regain the economic freedom that has been confiscated from us by politicians and bureaucrats over the last 25 years, we would be far richer in the next 25 years then if the price of gold increased by 20% per annum. Maybe this is not true about somebody age 30 who owns $200,000 in gold in a portfolio worth (say) $300,000, but it is true for most people who have bought some gold coins as a way to hedge against inflation. Before you worry about whether the price of gold will double next year or fall by 50%, consider carefully the kind of economy that would cause gold to double. Is this the kind of economy you really want to live in? I think most readers would say no. They would rather have no gold and see freedom restored to the economy. Now, let us consider the question at hand: Is the price of gold as denominated in dollars likely to rise, fall, or stay approximately the same in 2009? RECESSION AND GOLD We are entering a recession. Some people, probably the majority, think this recession is going to be comparable to the recession of 2001. I think they are incorrect. Pessimists may think it will be as serious as the recession of 1991. Extreme pessimists think that it will be comparable to the recessions of 1981 and 1982. I am one of these. A tiny percentage of people think that the next recession will be comparable to the Great Depression of the 1930's. For a number of reasons, I do not think this is likely. It is much more likely to become mass inflation than mass depression. In a time of recession, people run out of money to meet their monthly expenses. They have to sell assets in order to pay their bills. Today, most Americans do not imagine that for the next three years, they will be in a recession. I think it is likely that this recession will last at least 18 months. It is possible that it could last longer. One of the economists I respect most believes that it will be comparable to the recession of 1873. If it is, this recession could last three years or longer. In the midst of a declining economy, in which annual raises are rare and unemployment is rising, people will begin to save money. They will put their money in whatever is familiar and safe. For most people, this will be the local bank. It may be a money market fund. It will probably not be in gold. Gold is primarily an inflation hedge. It is also a monetary crisis hedge. But, in times of a tight economy, such as 1975 or 1981 and 82, the prices of the precious metals fall. This is because people cease to buy the precious metals because what they are after is liquidity. They want to have savings in an account where they can write a check to meet a monthly bill. They don't want to speculate with their money. They are too afraid of the economy to indulge in speculation. This is why the stock market falls. This is why the housing market will continue to fall. To imagine that gold and silver will somehow resist the effects of the recession is to imagine that other factors will intervene that will offset the normal effect of a recession on people's investment portfolios. In a recession, people want immediate access to their money. They are worried about what is going on around them, and they see money as a way of hedging themselves against unforeseen disasters, one of the major disasters but they worry about is getting fired. They worry about a loss of income. So, they tend to invest in very safe, very liquid, FDIC-protected bank accounts. I don't blame them. We are entering a major recession. It is likely to go on much longer than the traditional 11 months that have marked the recessions since World War II. During the final stage of this recession, people will begin to lose hope. They will give up on almost every investment that they own, other than a bank account. They will be hard-pressed to meet their monthly payments. People who own gold can hold out longer than people who don't, not because they own gold, but because they are generally thrifty people who hold other assets besides gold. They will cash in these other assets first, but if the recession extends a year longer than they think is likely six months from now, they will eventually be forced to raise capital in order to pay the bills. One way to raise capital is to sell gold. GOLD AS A HEDGE Gold has been an inflation hedge during those periods in which the inflation was not predicted by most investors. Gold was not an inflation hedge from 1980 until 2001. Gold fell from $850 an ounce to $256 an ounce in this 21-year period. Silver fell from $50 an ounce to $4 an ounce. Yet consumer prices doubled. It was better to own gold than silver during this period, but it was best not to own either in heavy percentages. It was better to own the stock market. It was better to own long-term bonds. This changed after 2001. Will we see an unexpected increase in the rate of price inflation over the next year? This depends on whether the Federal Reserve will continue to increase the monetary base at the extraordinarily high rate, or anything like the higher rate, that it has expanded over the last month. Take a look at this chart: The rate of monetary inflation over the last six weeks has been over 130% per annum. I don't think this will continue. I think the reason why the Federal Reserve persuaded the Treasury to persuade Congress to bail out the banks was so that the Federal Reserve System would not have to buy the banks lousy assets with the newly inflated money. Because the Treasury Department is going to wind up bailing out the financial system, as well as the mortgage market, through Freddie Mac and Fannie Mae, the Federal Reserve can back off from the panic level expansion of the money supply which it has followed over the last six weeks. In the past, the Federal Reserve has not only ceased creating money in a time of a recession, it has actually contracted money at almost the same rate for approximately the same time period. It is not just a very typical spike. It is a vertical spike followed by a spike down, then up. If the Federal Reserve follows this traditional approach, and if it somehow is able to restore the rate of monetary expansion that prevailed from the month Bernanke took over as chairman (February 2006) through August 2008, then we will not see extensive price inflation over the next 12 months. We will see an accelerating recession instead. We are in uncharted waters. It is not clear to me whether the Federal Reserve will actually contract the monetary base over the next few months. This is what it should do, but it may choose not to. But it will choose to decrease the rate of monetary expansion that has prevailed over the last six weeks. Of this, I am confident. The reason why I am confident is simple: if the Federal Reserve System does not reverse this rate of inflation, the United States will move into mass inflation, with triple-digit increases in the price level. The Federal Reserve System is not going to take this chance. So, I am of the opinion that during the first six months of 2009, the rate of price inflation will not exceed the rate of price inflation which has prevailed over the last year. The effects of the recession will force down retail prices. This will lead to price discounting by retailers. What we have seen in the price of oil since July is representative of what happens during a recession. The price of oil is much more volatile to changes in demand, but the general direction of prices in a recession is comparable to what we have seen in the price of oil over the last few months: down. When consumers begin to save, and they cease to maintain their old spending habits, which depended heavily on borrowing based on the equity in their homes, we are going to see retailers in big trouble. When retailers get in big trouble, they cut costs, lower prices, and hunker down. This is what we will see over the next six months. This is why I think there is greater pressure downward on the price of gold at the present time than there is upward pressure on the price of gold, if all we are discussing is recession versus inflation. But there is more to it than this. In times of monetary turmoil, people buy gold because they do not trust any of the currencies. They do not trust the ability of large institutions to meet their obligations, as denominated in dollars, because of disruptions in the financial markets. Under such conditions, gold can move up very fast. We have seen this over the last two months. The possibility of increasing disruptions in the international financial markets is rising. President Bush would not have called a meeting, which is called a summit, to be held sometime after the elections on November 4, if there were not major stresses in the financial system. As these stresses become public, more investors will buy gold bullion through conventional markets. This may be short-term money, but I expect to see these kinds of increases over the next year. As we have also seen, after the crisis is dealt with officially by governments, and the panic subsides, the price of gold falls back to where it had been before the panic move. People buy when it moves up. They do not buy when it is lower. This is typical. It is difficult to buy gold and silver eagle coins today. The United States Mint has ceased producing many of these coins. There has been no explanation, but the easiest explanation is that the physical ability of the meant to stamp out enough coins, and replace the stamps as they wear out, has declined under what is now a kind of mini gold rush in the United States. People buy coins because they cannot afford to purchase huge bars of gold or large bars of silver. The little man participates primarily by purchasing coins. There is greater demand for coins than there is for bullion. Therefore, there is a delay in delivery of coins, and there is a substantial premium above the spot price of gold for the coins. This is because there are multiple markets for the purchase of precious metals. They vary in price considerably. Then there is the question of war. This is remote, but it is a reality. The possibility that the Israeli Air Force will strike the suspected nuclear facilities in Iran may be a low possibility, but it is a possibility. If this were to happen, I think is likely that Iran would sink one or more oil tankers in the Strait of Hormuz. If this were to happen, insurance rates would skyrocket overnight, and Persian Gulf states would have difficulty exporting all of their oil to the West. Oil could go over $300 a barrel very fast. If gold goes over $300 a barrel, I expect gold to go well over $1000 an ounce. WHICH PRESSURE IS STRONGER? I think the pressure on the down side from the recession is going to be greater over the next year than the pressure on the upside from monetary inflation, which leads to price inflation. The Federal Reserve certainly can prove me wrong on this point. This is why I recommend that people monitor weekly the statistics on the adjusted monetary base. The adjusted monetary base is the one monetary statistic that the Federal Reserve influences directly. It is the best indicator of existing Federal Reserve policy I recommend that you go to my website,, and go to the department called Federal Reserve Charts. Here, you can monitor the adjusted monetary base. You can also monitor other important statistics. This is part of the free section of my website. The most important thing you can do to protect yourself against the recession is to increase the amount of time that you spend increasing the value of your services to your employer. This may have to be done on your own time. I talk about this on my site in the department called Fireproof Your Job. My main point is this: what happens to your productivity during the coming recession is more important to you financially and psychologically than what happens to the price of gold. In the allocation of your money, you may choose to buy more gold coins to head yourself against long-term inflation by the Federal Reserve. But in terms of the value of your time, this is best spent on improving your productivity. Most people prefer to talk about an investment that will somehow save them, despite the economy's effects on their careers and their futures. Why? Because buying something is a lot easier than investing many hours extra a week in increasing your productivity in your job. So, people do what is convenient. They do not do what is rational. I am saying that what is most rational strategy is to pay greater attention to the perceived value of your services to your employer then it is to spend time reading about gold. But people prefer to read about gold if they have bought gold, so I have written this report. CONCLUSION My impression of the world economy over the next year is that the recession will be the dominant factor, not price inflation. Price inflation will eventually make itself felt in the economy, but what will really be felt over the next year is the contraction of the economy due to worldwide recession. People will be most afraid about their income and about the safety of their jobs than they will be afraid about an increase in the price level. This is why, in the long run, I believe that there will be significant increases in the price level. Governments will inflate. But, for the moment, people are more afraid about recession than they are about inflation. This is also true of central bankers. They are afraid of the collapse of the financial system. So, they are focused on the financial markets rather than the precious metals markets. What central bankers do is extremely important. Pay attention to what they are doing, not just what they are saying. I think it is wise to buy gold coins when you can get them. At present, they are difficult purchase. You should adopt a program of steadily buying gold coins, month by month, as part of your overall savings program. This is a safe way to buy gold. But, for most people, just being able to pay the monthly bills is going to be regarded as a blessing. Cutting your budget by 10% is more important than buying gold coins at the present time. Getting in control of your expenditures is crucial. Buying gold coins is a good idea, but it is not as crucial as getting control of your family budget. Assume that your income will drop over the next year. If you're in sales, you had better expect a drop of 25% or greater. Deal with this first. Then worry about gold.

FROM CASEY RESEARCH'S DAILY EMAIL (FREE) And then there's this... From Ed Steer: In early Monday morning gold trading in the Far East, the price did exactly what one would started climbing steadily. But, as one would also expect, someone was there to make sure that the rally didn't get out of hand to the upside. Gold and silver prices showed every sign of going parabolic shortly after Hong Kong a not-for-profit seller showed up. The top for gold was in during the usual time period...between 2:00 a.m. NY time and the opening of the London gold market. Gold followed the same pattern as Friday...selling off all day until London closed. Silver was similar, but began to recover in price after the London p.m. gold fix. Gold open interest on Friday fell a respectable 5,382 contracts...and silver o.i. slid another 2,067 contracts...which is more than respectable. The JPMorgan/HSBC USA really are getting blood out of a stone. This down-side price pressure on gold and silver can't...and won't...last much longer.


TODAY'S REPORT: Retail chain index No good news for present holders of PAPER GOLD this morning as gold is getting hit hard again, and the Dollar has moved up as high as .8400 plus a bit. Other markets haven't moved as drastically. Oil, Bonds, Dow all trading similar to yesterday. I can't think of anything that would have moved these two markets as drastically as this except for massive INTERVENTION by Central Banks, and the PPT. If you have any brains or common sense left, you certainly know that this is only a TEMPORARY condition caused solely by Guv'mint Intervention that can interrupt the NORMAL course of ECONOMIC FUNDAMENTALS. There is an enormous amount of fiat money in the pipeline that is backing up behind this very weak dam of sticks and twigs that the "powers" have erected to delay the FLOOD from washing over us all in the near future. Time to get out from in front of that dam and run to higher ground with GOLD which you can purchase (at a premium, because not everyone is stupid!) if you can find some. Keep the larger perspective in view to keep your sanity and just keep re-inforcing your own little castle with supplies and weapons as you will soon need them.

Monday, October 20, 2008


The Bagman Cometh Obama Embraces War Criminal's Endorsement By Chris Floyd (GT sez: one of the most brilliant writers of our time) " is not too much of a stretch to say that Colin Powell is more responsible for the mass murder spree in Iraq than any other person except George W. Bush, who gave the actual order for the hit. For it was Powell who "made the sale" for the Bush Faction's deceitful warmongering campaign, with his infamous February 2003 presentation to the UN, laying out the false evidence about Iraq's non-existent weapons of mass destruction. After that farrago of artfully delivered lies, the American Establishment – urged on by the fawning, bloodthirsty commentariat – lined up solidly behind the war. After all, if Colin Powell – so "reasonable," so "honorable," so "honest" and "bipartisan" – stood foursquare behind the Bush case for war, then it must be ironclad." "This was, again, the logic of courtiers, with little connection to reality. Powell's reputation as a wise, moderate, impartial statesman – the very thing that made him the most effective shill for the war crime in Iraq – was itself almost entirely a fiction. By the time he made his shameless UN appearance, Powell had already spent almost four decades as a bagman – and frontman – for some of the most vicious and ugly elements in American politics and government. From the My Lai massacre to Iran-Contra, from Washington's long and murderous collusion with Saddam to its long and murderous campaigns to remove him, Powell has been instrumental in perpetrating or covering up atrocities and abominations on a gigantic scale. [For details, see Robert Parry's investigation, "The Truth About Colin Powell."] Since his departure from the Administration – after staying on long enough to see Bush reconfirmed in power – Powell and his legion of apologists have peddled the myth that he was "stabbed in the back" in his UN presentation: given a false bill of goods with assurances they were true, misled and manipulated by incompetent intelligence analysts and Machiavellian White House insiders, etc., etc. Such stories may help Powell sleep better at night, and they have certainly helped rehabilitate his fictional reputation to the extent that his endorsement is once more considered a worthy prize. But they suffer from one small defect: they are blatantly false." AND... The Truth About Colin Powell by Robert Parry


Is America Fascist? By Sherwood Ross October 20, 2008 " USA today is the world’s runaway leader in “militarism.” Forty-three percent of all U.S. tax dollars in 2007 went to feed the war machine, as the Pentagon believes security depends on operating more than 700 military bases in 130 countries overseas in addition to 1,000 at home. Bush has escalated its budget so that USA now spends nearly as much on arms as all the rest of the world combined. Uncle Sam is also the No. 1 private arms peddler to the world. By contrast, Iran, portrayed by the White House as a menace to the Middle East, has an annual military budget that is 1/100th of the Pentagon’s outlay." "Americans need to keep in mind that worse than anything President Bush has inflicted upon his own citizenry is what his wars of aggression have inflicted on innocent humanity abroad. A million dead Iraqis can’t give a damn by what terminology you describe the United States. If the American people allow their government to make criminal wars to deprive innocent foreigners of their lives and liberties they do not deserve to enjoy either at home.


The Daily Reckoning PRESENTS: It’s a good thing Ben Bernanke is an expert on Milton Friedman’s theories about the Great Depression. During such difficult economic times, we need the kind of leaders who are willing to print as much money as humanly possible in order to avoid another such catastrophe – hyperinflation be damned! The Mogambo Guru expounds... THEATRE OF THE FISCALLY ABSURD by The Mogambo Guru I think it is true “Theatre of the Absurd” that Ben Bernanke, chairman of the Federal Reserve, paid direct homage to Milton Friedman and one of Milton Friedman’s theories, namely that the Great Depression could have been avoided if the Fed had plowed enough money into the economy, by thanking Mr. Friedman, and admitting that the Federal Reserve had made a mistake in the ’30s, and vowing that the Fed would never again make that mistake. Well, now we have the results of that philosophy, as indicated by the essay “Monetary Stalinism in Washington” by Hossein Askari and Noureddine Krichene and posted at They write, “Monetary policy as practiced by the US Federal Reserve for the past decade is but a form of financial Stalinism, forcing ridiculously low or negative real interest rates, with catastrophic results that are now plaguing the world”, such as “pushing housing, food, and energy prices to prohibitive levels, and triggering food and energy riots in vulnerable countries. It has undermined the dollar and made the US highly dependent on foreign financing.” They note that Friedman’s theory, and the one that Ben Bernanke has sworn to cling to, is “that if the Fed had injected sufficient liquidity during 1929-1932, it would have prevented thousands banks failing and taking everything else down with them. Therefore, Bernanke is determined not to let that mistake happen again. Consequently, his response to the financial crisis has been a blind and aggressive monetary policy in [the] form of negative interest rates, massive liquidity injection, and massive bailouts, but that they won’t make that mistake again.” As to the chances of that succeeding, they write, “It would appear that Bernanke has read a great deal about the Great Depression of 1929-1933 and perhaps very little, or nothing, about the German hyperinflation of 1920-1923”, or even, in real time today, how about the horror of Zimbabwe! Hahaha! Does Bernanke think that monetary inflation produces price inflation everywhere except here in the USA? Hahaha! I don’t remember Mr. Friedman saying that! The funny part is that Milton Friedman is also the guy who said that inflation is “always and everywhere a monetary phenomenon”, meaning that higher prices follow an expansion in the money supply. However, the careful observer will notice that Bernanke is not mentioning this inconvenient fact, since he is busily colluding with the Treasury Secretary and other central bankers around the world to generate horrific inflation through massive expansions of the money supply that will cause untold misery for billions of people so that they can, in some laughable comedy of low-IQ desperation, ameliorate their tragic incompetence and ludicrous economic theories. The funny thing, say Askari and Krichene, is that with a fiat currency and the ability to create immense increases in the money supply, “The US economy in 2007 had no resemblance to either the institutional setting of the Great Depression or to the immense role and expansionary stance of fiscal policy. Namely, today, there are institutions that can prevent bank runs, such as the Federal Deposit Insurance Corporation, and the federal and state governments (both relatively far bigger than 1929) are running large deficits that should preclude a deep recession, especially if they adopt appropriate policies”, which is to try and buy their way out by printing money and having the government buy everything in sight, which will fail, and will result in “high inflation and rising unemployment.” In short, “There is no basis for making sound financial or economic forecasts. No rational entrepreneur can undertake investment plans under such uncertainties. Foreign investors are scared of inflation and a depreciating dollar and are rushing to gold and safer currencies. It is at best a wait and see attitude.” I am perplexed that I don’t see how foreign investors are “rushing to gold” while maintaining a “wait and see” attitude. But then, there are many, many things I don’t understand, mostly about social graces or why children are so damned clingy, but the one thing I actually DO understand is that this economic bailout stupidity will end badly for everybody that does not have gold and silver, because if there were a way for a government to successfully and painlessly buy its way out of massive indebtedness, then some overly-indebted government before now would have thought of it, too, as they all did the exact same damned thing, and they were all ruined by it, although they tried everything. Except the one thing that would have fixed everything; immediately adopting a gold-standard money, which is eternal, which is why people who own gold and silver will have a sort of financial immortality, too. Unfortunately, some other things never change, either, in that government morons and greedy bankers are eternal, too! Hahaha! We’re so freaking doomed! Until next time, The Mogambo Guru for The Daily Reckoning


Excellent description of how this calamity began and how it is unfolding. Don't miss listening to this one Credit to FLARPH for this link:


TODAY'S REPORT: Leading indicators The usual pattern, gold up overnight, now selling off as it enters NY. Dollar is up, Euro is selling off, Bonds in the 112s, Dow Index rallying after and overnight sell off, Oil moving down to the 73s from high of 74.50 Nobody seems to have much of a clue yet of both how we got in the mess as they all point to symptoms of the cause rather than the cause: Monetary inflation, and the creation of worthless derivatives made possible by the easy credit provided by Alan Greenspan, which is simply another form of monetary inflation. Please notice that you can now post your comments to any of my posts on this blog as well as continue to post comments at TALKBACKTOGOLDTRADER.BLOGSPOT.COM I have also allowed FIVE DAYS of previous posts to be available on the Main Page so you can more easily scroll to the most recent postings. This should make the articles posted more accessible and less hassle to find.

Sunday, October 19, 2008


No More Investment Banks Turn Them Into Public Utilities By Mike Whitney "If you made it past the credit crisis, you are not making it past the economic carnage." Meredith A. Whitney, market analyst at Oppenheimer & Company October 18, 2008



Posted On: Sunday, October 19, 2008, 12:10:00 AM EST The Bullion Market Versus The Paper Gold Market - An Explanation Author: Jim Sinclair Dear Friends, 1. It is axiomatic that the most leveraged gold market most often (95 percent of the time) sets the price of any cash market. First derivatives (listed futures) commands price. 2. This remains true as long as the COMEX warehouse of gold is NOT meaningfully depleted by long gold contracts by taking delivery from the exchange warehouse. 3. As long as an exchange maintains a warehouse that historically overwhelms historical demand for delivery the first derivative, The COMEX listed gold future, will be the primary cause of price. 4. Taking delivery from the COMEX warehouse is not an easy process as the system is designed not to violate your contract but to be a world-class pain in the ass. 5. The COMEX requires re-assays, assuming you wish to re-deliver. This then places another raving pain in the ass in your way. 6. The COMEX market is effectively an international 24-hour market as there is no location where you cannot buy or sell a COMEX clone. 7. Cash bullion gold as opposed to the semi cash markets that non-USA banks trade is the only totally private means of buying and selling gold. 8. As currency problems increase, first the knowledgeable public such as you clean out the coin market. 9. This is the first time that the international coin markets have been cleaned out everywhere. This did not happen globally in the 70s. 10. Large gold bars are still available in major markets but the backup inventory is getting low. 11. As long as the COMEX warehouse remains adequate and large bars still are available, the paper market, the leveraged COMEX market, will rule the price. 12. Only with a decline in COMEX warehouse inventories and a run down in large bar supplies of the cash market will the cash bullion market command the price of the COMEX futures market. 13. It was not the buying by the Hunts that caused silver to move above $30 into the $50 area, but rather the universal belief that they would take delivery, which would deplete or exceeded the COMEX warehouse supply. 14. The War between paper gold and bullion gold is a war to determine which will take command of the price of gold, nothing more, nothing less. There will be no two markets trading at different prices. All this battle is about is IF the bullion gold market is going to take the lead in making the singular price away from the traditional axiom that the most leveraged market makes the price. I believe the bullion, in these most unique conditions, will command the one gold price making it hard to impossible to manipulate the gold price via the paper gold market, as is the practice every day.


Payback's A Bitch By David Michael Green The number of sacrificial victims to the fragile ego of one George Walker Bush is astonishing to contemplate. It's staggering to imagine that one individual's personal childhood inadequacies could wreak so much havoc on an entire planet, but indeed they have.


Toxic Waste Buyout to Fuel Hyperinflation Latest Issue: October 18th, 2008: expect another round of losses after this round wears off, Taxpayers to get a good fleecing, Paulson was lying all along about economy fundamentals, We are sliding towards a global economic depression, Paulson bailout plan was just a plundering and extortion of taxpayers to benefit bankster fraudsters.