US Debt Compared To GDP

This is a downright scary graph. It took the economy 20 years to recover from the Great Depression. At that time we were the largest creditor nation in the world. Today our debt is much greater and we are the largest debtor nation in the world.

I don't see how anyone can think we are coming out of this thing anytime soon.

Bottom line: Those who fail to learn from history are doomed to repeat its mistakes. Flee from paper assets and buy gold. When the house of cards falls, gold will be the only money. Then you can brag to your friends that you bought it at $900/ounce.

Gold Holds Its Ground In Temporary Stock Recovery

Couldn't have said it better myself!


from Rick Ackerman
With the stock market giddy as ever yesterday, gold held up surprisingly well. The June Comex contract was off just slightly even though Dow Industrials tacked on 128 points. Ordinarily, with the broad averages in a moderate short-squeeze, we would have expected bullion futures to give up more of the gains they’d achieved on Friday. In a bigger picture gold looks even more impressive, since it has fallen by only six percent while the Dow has risen 24 percent since the bear rally began on March 6.

The inverse correlation between gold and the stock market has become so pronounced lately that a nimble trader could practically arbitrage one against the other tick-for-tick. Why should gold and stocks be moving in opposite directions these days? The reason is simple: Gold has at last come to reflect anxiety about the true state of the global economy, and there are times like now when that anxiety momentarily abates. Gold bugs can only sit patiently on the sidelines, amusing themselves with the high and low comedy that will always accompany bull traps like this one.

Getting back to gold, we are impressed with the way it has absorbed the body blows of stock market rallies such as yesterday’s. We should also note that the June Comex contract has stubbornly refused to pull back to an 845.20 target that has been our minimum downside projection since mid-March. We still think that number will be hit before gold can base for another serious shot at $1000, but the already bullish outlook for the intermediate- and long-term would brighten further on a thrust that surpasses 911.80. That would turn the hourly chart bullish — the moreso if it were to occur with the backdrop of a hellish decline in the broad averages. There is so much silly thinking and egregiously misplaced optimism in this bear rally that the next leg down is likely to be a real humdinger.

A Day Late and a Dollar Short

This morning's edited commentary from Rick Ackerman

"Here’s the headline from Saturday morning’s Boulder Camera that pushed Colorado’s big snowstorm off the front page: City Mulls Millions in Cuts. Uh-oh. Could it have been just a few short weeks ago that we were reading about how Boulder’s budget was well under control?

The story then was that the city was going to have to watch expenditures more closely than usual because of the severity of the economic downturn. Now, though, they’re talking about shutting down the recreation centers, fire stations, libraries and who knows what else. There’s also the dreaded possibility of “special tax districts” that would raise money to support services and amenities that most taxpayers must have thought they were already paying for in-full.

Could this happen where you live? We hope not, but if Boulder can be blindsided by this kind of news, it could happen anywhere. The town has never struck us as an out-of-control spender, as have other cities in which he have lived, including San Francisco and New York, and budgeting at the state level has always seemed relatively conservative.

SINCE A SIGNIFICANT PORTION OF THE CITY'S REVENUE COMES FROM BUSINESS TAXES, shoppers and diners probably bear some of the blame for cutting back on frills."

end article

When businesses close, tax revenues drop and public services are cut.

My mother lives in Charlotte, NC and she told me this morning that two malls there are in bankruptcy, and a large Mitusubishi dealership just closed.

The newest and largest mall we have here in Columbia, SC, Columbiana Mall, just filed for bankruptcy as well.

Conclusion
Wall Street firms, through their mouthpiece CNBC, are trying to convince investors that we have already hit bottom and things are about to turn around.

DON'T BUY IT!

They know it's a lie and their personal accounts are out of the market. My gold supplier, who's firm is located in the Wall Street district, tells me that he is routinely having Wall Street investment firm CEOs and CFOs buy gold from him.

Follow the smart money and get out of paper.

"But gold is too high at $900 an ounce," you respond.

"Compared to what?" I ask. "Compared to $250 an ounce it was ten years ago, or compared to the $10,000 an ounce it is going to once it is all gone and you can't buy any more?"

The best time to buy gold is when you have the money. Better a year too early than a day too late.

A House For An Ounce Of Gold - Followup

Banks Are "Walking" Away From Foreclosures?
Banks follow the lead of homeowners

A lot of U.S. investment funds flowed out of stocks during the 2000-2002 bear market, and, in turn, flowed in to various forms of real estate. Even so, the manic expansion of the real estate bubble that began in the early 2000s actually had a far bigger source of liquidity -- namely, the "global pool of capital" comprised of sovereign wealth funds, pension funds, hedge funds, etc., which are held and managed in various places around the world.

By way of reminder, that global pool was in the range of $70 trillion, give or take. That may be an incomprehensible sum of money, yet each one of the fund managers who swam in this collective pool wanted what most investors want: A reasonable return without too much risk. Problem was, the 2000-2002 bear market in stocks helped drive rates down to record lows; a "reasonable" return was hard to come by.

That's why mortgage-backed securities looked so good at the time. Through securitization, risk was spread broadly enough to appear insignificant. Mortgage rates were comparatively high enough to appear irresistible. Mortgage lenders had access to so much liquidity that by 2006-2007, no income no assets was no problem -- you could get a mortgage anyway.

So let's cut to the chase: The mortgage catastrophe will be two years old this summer. Today's news sorely disappointed anyone who thinks the trend in housing deflation is slowing down: the latest Case-Shiller Index shows that home prices nationally were 19% lower in January 2009 vs. the previous January. This index includes the 20 largest U.S. markets; three of those markets (Phoenix, Las Vegas, San Francisco) saw year-over-year declines of around one-third or more.

In related news, according to a New York Times headline, "Banks Starting to Walk Away on Foreclosures."

Your read that right. In walking away from foreclosures, banks are doing more than following the lead of many homeowners: they're walking away for the same basic reason. Whereas some homeowners walk when their mortgage exceeds the home's value, some banks now walk when the home is worth less than the costs of foreclosure. It's a simple cost/benefit analysis.

Simple supply and demand will dictate lower and lower bid prices for homes auctioned off by the banks. Once the market is over-saturated, five thousand dollars for a hundred thousand dollar house is now, no longer considered an impossibility.

G-20 Meeting

Excerpts from G20: US$ Funeral, US Failed Debtor
by Jim Willie

"The global forces toward deep change have never been greater. Thus a turning point. Creditors have the option of simply refusing to purchase any more USTreasury Bond debt. To a great extent, that is what is occurring right now. The US responded last week, as its Federal Reserve announced $1050 billion in monetized USTreasury Bond and USAgency Mortgage Bond purchases. At least $1 trillion will be printed for monetized bond purpose each and every quarter from here onward, as is my forecast. The USGovt will destroy the credibility of the USDollar, but at least offer lifeblood to the crippled USEconomy, at the cost of upcoming price inflation. The United Kingdom has no such privilege. They suffered an important Gilt Bond failed auction last week, one which brought great embarrassment upon them."

Increasing inflation leads to decreasing value of the dollar and increasing value of gold.

"Last week, China was highlighted at turning the global USDollar tables. They have begun to displace the US$ within their domestic banking system, in favor of the Chinese yuan. Actually, they will soon be issuing Chinese Govt debt securities denominated in yuan currency. Doing so involves wave after wave of conversion of USTBond securities into cash, then conversion further in to Yuan Debt securities, which still need a new name. How about Dragon Bonds for a name??? The Chinese will then wear and presumably use the great currency boot, since all economies that wish to purchase Chinese products must purchase Chinese Govt bonds!!!

Creditor nations demand a more solid reliable global reserve currency, or currencies. They demand some hard asset component to the new reserve currency to be installed, like one backed by a basket that includes at least gold and crude oil. This would be sufficient to lift the gold price substantially, far above its current range, and far higher than a mere $1000 per ounce. The Chinese are the clear spearhead, uninhibited by US threats. The crowning blow against the USDollar supremacy will come when Persian Gulf nations install a new hard asset currency. At that time, one quarter of the world will pay for crude oil in a hard asset currency with a gold component. That is a spike in the heart for the USDollar founded in a unipolar world. The G20 Meeting intends to make the statement that the unipolar world is dead on the financial stage. That is their agenda. The US agenda is to preserve the system through reform."

Increased demand in gold leads to increased price.

"Foreign creditors harbor growing gold accounts and wish for price structures to properly reflect their value."

This is a huge statement! As Asians and Arabs continue to accumulate gold, they are growing increasingly annoyed with the US stranglehold on gold's price. At some point, the Western banking establishment will have to let the price of gold float. That is the day gold will skyrocket into the thousands of dollars per ounce.

"The gold price has been quiet for a month. An old adage of technical chart analysis claims the longer a price consolidates, the greater will be its move when it breaks out of its defined (if not managed) range. The gold price is forming the Right Side Handle to a reversal pattern shaped as a Cup & Handle. Strength is being built for the upward assault. Its top is 980-1000, and its bottom is 710-725. Its target is in the 1250-1300 range, stated before and still in effect as a target. The entire G20 Meeting is negative for the USDollar and positive for gold."

Short term, don't panic if gold drops to $700. Long term, I'd be shocked if we didn't see gold at $1300 this fall.

I also heard through the gold dealer grapevine that a former President of the World Bank is purchasing gold in his personal account.

Now that's what I call a bullish signal, so don't let this current dip in price get you down.


Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com.

China And The Dollar

The Chinese have a problem. Their economy is dependent upon exports to the US. Those exports are paid for with dollars. The mass amounts of dollars that are held by the Chinese are known as "reserves." With the US printing more and more dollars out of thin air, this has the effect of making those reserves worth less and less.

Reserves can be held in dollars, euros, gold etc. But, when the time comes to spend those reserves, they will have to be converted BACK to whatever currency it is they want to spend.

And therein lies the problem.

China holds HUGE amounts of dollars. If they try to swap these dollars for something else, the rest of the world will catch wind of it, and the dollar will tank. That is the last thing the Chinese want, as a falling dollar erodes the value of their dollar reserves as well.

On the other end of the exchange lies the same problem. If the Chinese begin selling dollars and buying gold, not only will the dollar fall, but gold will rise, making them pay more and more for the gold.

So what is the solution?

The following article from Elliott Wave International entitled, US Dollar,Yuan and the New Reserve Currency lays out their strategy.


There has been a lot of talk lately about replacing the U.S. dollar as the world's reserve currency. Read these thoughts on this and another hot subject -- China's dependence on the dollar -- by Chris Carolan, the editor of Elliott Wave International's Sunday-Tuesday-Thursday Asian-Pacific Short Term Update. (Excerpted from the recent APSTU issues.)

...the Chinese have announced that they would like the world to establish a reserve currency alternative to the dollar, perhaps under the auspices of the IMF. The U.S. has responded (through Paul Volcker) that the Chinese have created their own predicament by not allowing the yuan to float higher. But we believe that the larger trends to watch are the inevitable leadership role that the Asian-Pacific markets will play in the next bull market as they have access to cheaper capital than the debt-stressed West.

We think that people who focus on the alleged Chinese problem of holding too many dollars miss the point. In the long run, they can reduce their new dollar positions, while the U.S. government is, through their recent actions especially, committing themselves to issuing greater and greater amounts of dollar debt. The Chinese can (and may) push themselves away from the table, but the U.S. does not have the luxury of that freedom.

The yuan, whose exchange rate is controlled, seems to be pushing higher within the boundaries of its restricted trading. [This] chart shows the dollar falling relative to the yuan.

Chart

How will the Chinese cut their exposure to the dollar over time? News accounts tend to focus on one big event, such as the possibility of a new reserve currency to replace the dollar. But in all likelihood, the Chinese will be making a series of moves, each one gaining them a little bit of insulation from the dollar. If they can protect one hundred billion (US$) here and another one hundred billion there, pretty soon they will have cut their dollar exposure significantly.

We highlighted one such action in our recent discussion of China’s move into owning more resources as a way of diversifying out of the dollar. Now comes news of China executing more currency swaps, where they trade yuan for a local currency, thereby allowing that trading partner to use the yuan in future trade with China. These swaps then remove the need for dollars as an intermediary exchange between trading partners. The Chinese have signed six such swap agreements since November totaling $95 billion. The latest swap agreement is with Argentina.

Step by incremental step, the Chinese are solving their dollar problem, or at least ameliorating it. Those looking for that one big news event to signal the dollar’s irrelevance may be missing the trend, though such an event may still occur further out in time.

Miscellaneous Correspondence

Below are reprinted a couple of email replies from recent correspondences with customers.

_____________________________________________________________


QUESTION: If hyper-inflation does happen, what is the probability (in your opinion obviously) that the currency scenario that you told me about would take place?

REPLY: There is inflation and then hyper inflation. Hyper inflation is where the price of a load of bread doubles every hour. Google hyper-inflation and Germany or hyper-inflation and Argentina and read some of the stories.

The point of all of this is: No one knows what or when any of this will happen. We can however be certain that it will. When? I’d say between tomorrow and 10 years from now, max.

If I had a 401k and I knew it was happening tomorrow, I would tell them I had cancer and was gonna die and that my wife lost her job and my kid needs surgery, and I need my 401k money under the hardship provision. If that didn’t work, I’d quit my job to get it and put it all in gold.



QUESTION: I would love to get that money but I'm sure they would require documented proof of cancer, kids...etc. Do you really feel that strongly that I should quit my job because if things continue to get worse, I would think that I would be in about as good a place as I could be with a Fortune 300 company. I mean, I know no company is immune, but you know what I mean. You gotta admit, that is some pretty heavy duty advice. I'm not doubting you. I'm just saying....

REPLY: The caveat is this “If I had a 401k and IF I KNEW it was happening tomorrow,”

IF I knew it was happening tomorrow then I sure would quit if that is what it took to get my hands on the money, cause if you got 10, 20, 50k in gold, you wont need a job. But if you got no money and lose your job, you’re toast.

In hindsight, if the Enron employees had it to do over again, I am sure they would have chosen to do the same thing.

IF IF IF IF YOU KNEW. Trouble is, we don't know so I am not telling you to quit your job. I am giving you two extremes. You have to determine where you feel comfortable. I would absolutely NOT quit your job right now to get this money, but I sure would lie to the system to get MY money out if I felt it was all about to go belly up.

That is the point I am trying to make to everybody. You don’t know that IT IS going to happen tomorrow, but you don’t know IT WON'T. So wouldn’t it make sense to do that with at least a portion of that money just to be safe?


____________________________________________________________


QUESTION: Explain to me again why a person would be in the drivers seat if they had a substantial amount of gold if hyper-inflation, Amero, and all that takes place. If gold is $920(for ex), wouldn't they convert that from $ to Amero as well?

MY REPLY: Yes, they would. But at that time, what would gold be worth in terms of dollars? $10,000/ounce? What would be the conversion rate for the dollar? 2 to 1? 5 to 1? 10 to 1? 100 to 1?

So, by way of example, I have 100k in gold and you have 100k in the bank/stocks/bonds, whatever.

The crap hits the fan and the dollar tanks. Gold would almost certainly go up in a scenario like that. Let’s be REAL conservative. Gold goes to $2000. Because the dollar has collapsed, the govt decides that you will only get 1 Amero for 2 dollars.

You now have $50,000 in Ameros. I sell my gold for Ameros and I still have $100,000 in Ameros. I beat you 2 to 1.

Now, let me tell you what I think is MORE likely.

Gold goes to 10k and the Amero is a 5 to 1 conversion ratio. Your 100k buys you $20,000 in Ameros. My gold goes to $1 million and I sell it for $200,000 Ameros. I beat you 10 to 1.


__________________________________________________________



QUESTION: Where can I read up on you comment that the Federal Reserve is not a government organization?

ANSWER:

Good short video on the Fed
http://www.youtube.com/watch?v=ZWKlz2Z4Nlo

Who owns the Fed? About 1 minute
http://www.youtube.com/watch?v=bLCHWhmyn8w&feature=related

Edward Griffin’s Audio Presentation on the history of the Federal Reserve – lengthy but downloadable
http://www.manarin.com/wfdata/files/Creature.wma

Good video on the Fed
http://www.bigeye.com/griffin.htm

Excellent educational video on how money, banking and the Federal Reserve works ; 41 minutes
http://www.brasschecktv.com/page/585.html

Federal Reserve Educational Archive
http://www.bigeye.com/federalreserve.htm

JFK Speech on the government behind the government
http://www.youtube.com/watch?v=_WSGwnz7XpY&feature=related

1981 movie similar to what is going on today, right down to gold and the dollar collapse
http://www.youtube.com/watch?v=iQ-IPb8AOZE&feature=related

Your 401(k) Is At Risk

This is the latest from Rick Ackerman. Good stuff.


"To be clear, let us note that hyper-inflation seems entirely possible, even if mere inflation does not. Hyperinflation will arrive when The Government decides that fiscal stimulus alone cannot ever get us out of debt, given the vast sums of debt that need to be inflated away. No, only a hyperinflation could do the job, albeit at a price that presently seems much too high. Creditors and savers would be wiped out, life insurance policies would become worthless, pension funds would be devastated, and all of the institutional conduits of lending, including the bond markets, would cease to function for a generation.

If you think the decisions Mr. Obama is making now are tough, wait till he figures out that America’s multi-trillion-dollar boondoggle is barely causing a ripple in the economy, much less the kind of boom that would make our debts manageable."

I have been saying for a while that the insurance and mutual fund industries will be the next to fall. If I am right, you better do whatever you can to get out of those 401ks and IRAs and convert them to gold.