Black Hole of Debt

Gold and Silver Manipulation

http://seekingalpha.com/article/112535-the-manipulation-of-gold-and-silver-prices

China disses Dollar

Monday, December 29, 2008

Chinese central bank: "The US dollar is unlikely to be stable next year"
by Eric deCarbonnel

BBC reports that China will allow freer yuan trades:

(emphasis mine) [my comment]


China to allow freer yuan trades

China has said it is to allow some trade with its neighbours to be settled with its currency, the yuan.

The pilot scheme was announced in a package of measures designed to help exporters hit by the global downturn.

It means if the two parties to a trade have yuan available, they need not enter world exchange markets to pay.

Most of China's foreign trade is settled in US dollars or the euro, leaving exporters vulnerable to exchange rate fluctuations.

The yuan is not yet a freely convertible currency. [Keyword here is yet.]

Officials did not say when the trial scheme would start.

When it does, the yuan could be used to settle trade between parts of eastern China (Guangdong and the Yangtze River delta) and the territories of Hong Kong and Macau, and between south-west China (Guangxi and Yunnan) and the Asean group of countries (Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam). [that is a pretty vast area for yuan trade settlements to be extended to.]

Spreading yuan

Analysts told Chinese media that the yuan was already being used in some South East Asian countries and that China was happy to see such use extended.

They also agreed that the measure was intended to help companies cope with the global financial meltdown [domestic Chinese exporters are worried about inking trade deals in a currency that might becomes worthless by the time they deliver the goods], even though buying and selling the currency requires the presentation of legitimate trade documents to banks.

The latest measure follows Beijing's announcement earlier this month of a 30-point directive in which it vowed to "support the development of yuan business in Hong Kong" and expand the use of the currency to settle trade with neighboring countries.

Central bank governor Zhou Xiaochuan was quoted by the South China Morning Post as saying: "The US dollar is unlikely to be stable next year and later. [Yikes, this is the most worrying thing I have heard yet. I see only two ways to interpret this quote:

a) Zhou thinks the dollar is going to become unstable because China is going to cut back on dollar purchases.
b) Zhou thinks the dollar's problems are so big that China won't be able to do anything about it.

I personally believe it is a combination of the two.]

"And the likelihood of the United States issuing more money in the near future adds to the depreciation risk in US-dollar-denominated assets [China is worried about its massive holdings of US assets.] and trade settlements [Chinese exporters are worried about inking deals in a rapidly depreciating currency]."

He also reportedly said that Guangxi, a province in southern China, had already been settling trade with Vietnam in yuan for some time. [the fact that Chinese exporters are insisting on payments in yuan should be very worrying for the US. They wouldn't be doing this if they still trusted the dollar.]

Spurs to spend

A document released after a meeting of China's State Council on Wednesday announced more measures to stimulate domestic consumption. [Measures to stimulate domestic consumption should be very worrying to the US. It is evidence that China is moving away from its reliance on exports for economic growths towards a more consumer driven economic model. A shift away from promoting exports is also a shift away of financing our deficit.]

These include subsidies to rural households for the purchase of household appliances and other goods, and the setting up of new stores and distribution centres in rural areas.

The document called for the renovation of urban food markets, the provision of more variety of goods on sale, the setting up of more second-hand markets, incentives for distribution companies to merge and consolidate, and support of small and medium-sized enterprises.

The state news agency Xinhua said the government intended to raise export tax rebates for high-technology products, to encourage foreign investment, extend customs and inspections services, lower inspection fee for exports and strengthen trade relations in emerging markets.

Analysts said the ideas, though vague, indicated growing concern among China's policy makers about the domestic impact of the current global financial turmoil.

Powered by exports, China's economy has grown by double digits in recent years.

In November, official figures showed a 2.2 percent drop in exports, the first decline in more than seven years. [China's incentive to finance our trade deficit declines with its exports.]

My reaction: Did I mention now was a good time to buy gold?

US Treasuries -Who Holds?

According to the US Treasury/Federal Reserve Board, as of September 2008 US government debt was held by the following countries.

The biggest three owners of US Treasury bonds are:

1. China - $585 billion
2. Japan - $573 Billion
3. United Kingdom - $338 billion

In this light the announcement that was made today in the English language official organ of the Communist party, the China Daily, is particularly thought provoking. "China’s increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis…”

This follows an announcement made about 2 weeks ago by the head of China’s sovereign wealth fund to the effect that the current high value for the US dollar might not continue.

Perhaps the Chinese are sending a warning that might be attended to.

Walter Williams on FED Money Printing

Counterfeiting Versus Monetary Policy
By WALTER E. WILLIAMS | Posted Monday, December 22, 2008 4:20 PM PT

Congress is on a spending binge. With all the calls for bailouts, economic stimulus and other assorted handouts, there is a real risk of inflation in our future. If we do have a rapid inflation, it's likely that Congress, as they did in the financial meltdown, will blame it on everybody except itself.

Before Congress begins to shirk its responsibility, let's understand what inflation is.

Several prices rising are not inflation. Only when prices across the board rise is there inflation. But just as in the case of diseases, describing a symptom does not necessarily tell us the cause. That is the same with inflation; it is a symptom of something else.

Nobel laureate and noted monetary theorist Milton Friedman explained, "Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output." Put another way, inflation results from an increase in the supply of money relative to the demand for money.

That being the case, who is responsible for inflation? It's not you or I because if we privately increased the supply of money to finance profligate spending, we would be charged with counterfeiting and go to prison.

The Federal Reserve Bank, our central bank, is the only entity legally permitted to increase the supply of money, to finance Congress' profligate spending. The Federal Reserve Bank is supposed to be independent, but it typically accommodates the wishes of Congress and the White House.

Central banks are villains in most countries; ours is just not as bad as others. In 1946, Hungary's central bank gave it the world's highest inflation rate. Prices doubled every 16 hours, creating an annual inflation rate of 13 quadrillion percent.

Last October, Zimbabwe's central bank produced history's second highest rate of inflation. Prices doubled every 25 hours, giving it an annual inflation rate of 80 billion percent.

By comparison, Germany's inflation rate, which brought about the social disruption responsible for Hitler's rise to power, was a mere 30,000% that saw prices doubling every four days.

You say, "Williams, that couldn't happen here." Except during the Revolutionary War and the War of 1861, our inflation has never exceeded 20%, but keep in mind that any hyperinflation was once 20%.

Knowing the dangers posed by central banks, we might ask whether our country needs the Federal Reserve Bank. Whenever I'm told we need this or that government program, I always ask what we did before.

It turns out that we did without a central bank from 1836, when President Andrew Jackson closed the Second Bank of the United States, to 1913 when the Federal Reserve Act was written. During that interval, we prospered and became one of the world's major economic powers.

The justifications for the Federal Reserve Act of 1913 was to prevent bank failure and maintain price stability.

Simple before and after analysis demonstrates that the Federal Reserve Bank has been a failure.

In the century before the Federal Reserve Act, wholesale prices fell by 6%; in the century after they rose by 1,300%.

Maximum bank failures in one year before 1913 were 496 and afterward 4,400.

During the 1930s, inept money supply management by the Federal Reserve Bank was partially responsible for the depth and duration of the Great Depression.

It is not wise for us to permit a few people on the Federal Reserve Board to have life and death power over our economy.

My recommendation for reducing some of that power is to repeal legal tender laws and eliminate all taxes on gold, silver and platinum transactions.

That way there would be money substitutes and the government money monopoly would be reduced, as would be the ability to tax — some people would say steal from — us through inflation.

Williams is a syndicated columnist and professor of economics at George Mason University.

The Fedsters Belong in Jail

Peter Schiff, Get out of the Dollar Now

Ride the Titanic All the Way Down

Treasury Won’t Ease Mandatory 401(k) Withdrawal Rules for 2008


By Jeff Plungis

Dec. 19 (Bloomberg) -- The U.S. Treasury Department won’t change rules on mandatory withdrawals from 401(k) plans for 2008, forcing many retirees to draw down accounts after large stock-market losses.

Congress approved legislation Dec. 11 that will defer required distributions in 2009, but it didn’t address retirees who have had to take distributions this year, when the Standard & Poor’s 500 Index has lost 35 percent. Account holders over the age of 70 and a half are required to take a minimum withdrawal based on Internal Revenue Service tables.

President George W. Bush is expected to sign the legislation into law, Treasury Assistant Secretary for Legislative Affairs Kevin Fromer wrote in a Dec. 17 letter to Rep. George Miller, a California Democrat and chairman of the House Education and Labor Committee. The Treasury Department and Internal Revenue Service determined any further change “should not be undertaken,” Fromer said, because implementation would be “complicated and confusing for individuals and plan sponsors.”

Congress thought the Treasury Department would address 2008 distributions through regulation, Education and Labor Committee spokesman Aaron Albright said in a statement. Lawmakers will work with the administration of President-elect Barack Obama on other ways to provide “permanent relief,” he said.

“We are disappointed that the Treasury Department declined to act,” Albright said. Congress acted with the “understanding that Treasury was actively working on a solution for this tax year.”

Merrill Lynch Sees Inflation not Deflation as Problem

As you can see from the article below, Merrill Lynch shares our view about central banks sowing the seeds of inflation with their money printing. They are not concerned about deflation. They see it as only a very short term phenomena, and nothing be concerned about.

Timothy Bond who wrote this is one of the great economists on China and Asia. I have followed his work for years, and he has been correct. He says inflation is the problem not deflation. Deep interest rate cuts will continue in Asia and they will cause “deflation to be swept away by a flood of policy stimulus.” He goes on to say “In fact, we share the concern that central banks could over do it, sowing the seeds of future inflation.”


Asia has swapped an inflation scare for a deflation scare in the space of just a few months.

Price levels are falling almost everywhere. Four countries (China, Hong Kong, Taiwan, and Thailand) could see year-on-year deflation by early 2009.

What’s our view? We think deflation will temporarily raise its head, then be swept away by a flood of policy stimulus. In fact, we share the concern that central banks could overdo it, sowing the seeds of future inflation.

Still, deflation is the clear and present threat right now. Heading it off requires more “deep” rate cuts by Asian central banks, in our view. For this reason, we think the rally in domestic bond markets could continue through early 2009.
—TJ Bond

Asian snapshot: China—Cut 2009E GDP growth forecast to 8.0%

The global economy, especially international trade, has been hitting a wall since mid-September and will have to take several months to bottom out from this severe demand shock. For China, the world’s second-largest exporter, the sudden contraction of external demand is beyond our original expectation, and we believe it’s warranted to lower our 2009E GDP growth forecast from 8.6% to 8.0% albeit our optimistic view on the effectiveness of China’s fiscal stimulus plan.

What to watch: Singapore and Taiwan

As investors work through the next lfew months of data, we think they should revisit our view on the “heart attack” and the cycle. We expected terrible data in 4Q08 (this is happening), followed by a bounce-back in early 2009…and then business as usual, meaning a bread-and-butter deterioration in Asian data through mid-2009 as the fundamental slowdown continues to unfold. The December data should remain in “heart attack” mode. We believe key activity data from Singapore and Taiwan next week should further validate this thesis.

As the downturn deepens, we expect Taiwan export orders—a key lead indicator of China’s trade—to contract 15.5% y-o-y in November, following a 5.6% decline in the previous month. Separately, we project Singapore’s November industrial production to contract 14% y-o-y (down 12.6% y-o-y in October) in view of the poor trade data. This suggests another negative GDP reading for Singapore.

PAY RAISE FOR CONGRESS! JUST IN TIME

With economy in shambles, Congress gets a raise
By Jordy Yager

A crumbling economy, more than 2 million constituents who have lost their jobs this year, and congressional demands of CEOs to work for free did not convince lawmakers to freeze their own pay.

Instead, they will get a $4,700 pay increase, amounting to an additional $2.5 million that taxpayers will spend on congressional salaries, and watchdog groups are not happy about it.


“As lawmakers make a big show of forcing auto executives to accept just $1 a year in salary, they are quietly raiding the vault for their own personal gain,” said Daniel O’Connell, chairman of The Senior Citizens League (TSCL), a non-partisan group. “This money would be much better spent helping the millions of seniors who are living below the poverty line and struggling to keep their heat on this winter.”

However, at 2.8 percent, the automatic raise that lawmakers receive is only half as large as the 2009 cost of living adjustment of Social Security recipients.

Still, Steve Ellis, vice president of the budget watchdog Taxpayers for Common Sense, said Congress should have taken the rare step of freezing its pay, as lawmakers did in 2000.

“Look at the way the economy is and how most people aren’t counting on a holiday bonus or a pay raise — they’re just happy to have gainful employment,” said Ellis. “But you have the lawmakers who are set up and ready to get their next installment of a pay raise and go happily along their way.”

Member raises are often characterized as examples of wasteful spending, especially when many constituents and businesses in members’ districts are in financial despair.

Rep. Harry Mitchell, a first-term Democrat from Arizona, sponsored legislation earlier this year that would have prevented the automatic pay adjustments from kicking in for members next year. But the bill, which attracted 34 cosponsors, failed to make it out of committee.

“They don’t even go through the front door. They have it set up so that it’s wired so that you actually have to undo the pay raise rather than vote for a pay raise,” Ellis said.

Freezing congressional salaries is hardly a new idea on Capitol Hill.

Lawmakers have floated similar proposals in every year dating back to 1995, and long before that. Though the concept of forgoing a raise has attracted some support from more senior members, it is most popular with freshman lawmakers, who are often most vulnerable.

In 2006, after the Republican-led Senate rejected an increase to the minimum wage, Democrats, who had just come to power in the House with a slew of freshmen, vowed to block their own pay raise until the wage increase was passed. The minimum wage was eventually increased and lawmakers received their automatic pay hike.

In the beginning days of 1789, Congress was paid only $6 a day, which would be about $75 daily by modern standards. But by 1965 members were receiving $30,000 a year, which is the modern equivalent of about $195,000.

Currently the average lawmaker makes $169,300 a year, with leadership making slightly more. House Speaker Nancy Pelosi (D-Calif.) makes $217,400, while the minority and majority leaders in the House and Senate make $188,100.

Ellis said that while freezing the pay increase would be a step in the right direction, it would be better to have it set up so that members would have to take action, and vote, for a pay raise and deal with the consequences, rather than get one automatically.

“It is probably never going to be politically popular to raise Congress’s salary,” he said. “I don’t think you’re going to find taxpayers saying, ‘Yeah I think I should pay my congressman more’.”

Bailouts, Beck & Socialism LOL-->>

Social Security Ponzi Scheme, too

Jim Rogers is Selling ALL $$

California Towns Bankrupt

DECEMBER 18, 2008 More California Towns Face Bankruptcy Article

»By BOBBY WHITE
RIO VISTA, Calif. -- California may soon have more bankrupt towns on its hands.
The city of Vallejo, Calif., gained national attention earlier this year by filing for Chapter 9 bankruptcy protection. Now, two neighbors are fighting to avoid the same fate, as the state's economic crisis spreads.
Isleton and Rio Vista, small towns roughly 50 miles northeast of San Francisco, say they have begun consulting with bankruptcy lawyers as they draw up plans to deal with their mounting budget crises. The towns' leaders say they hope to avoid bankruptcy, but concede the move may eventually be their only option.
"We're strapped for cash and by the end of March or early April we may not have enough money to pay for payroll," says Hector De La Rosa, Rio Vista's city manager.
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A Rio Vista, Calif., street is empty after construction was halted at a housing development last month.
California's troubled towns can't expect much help from the state. A state board voted Wednesday to shut off $3.8 billion in financing to hundreds of infrastructure projects to preserve cash, as the nation's most populous state struggles under a budget deficit that officials say could balloon to more than $40 billion over the next two years.
"California's fiscal house is burning down," State Treasurer Bill Lockyer said in a statement.
The plights of Isleton and Rio Vista highlight the difficulties small California municipalities face as revenue falls. Vallejo, just a few miles west of the two towns, filed for bankruptcy in May after its tax revenue sank with the economy, while wages and benefits for police and other services rose. Vallejo instantly became the nightmare scenario for towns across the state facing a similar toxic mix of foreclosures, debts, pension obligations and the inability to raise money on bond markets.
California also makes it hard for municipalities to quickly raise taxes to cover shortfalls: In most instances, state law requires them to place increases in utility rates and taxes before voters for their approval.
Rio Vista began to see the trouble last year, when property-tax revenue began to falter. The city lacks revenue sources such as big-box retailers and depends heavily on two auto dealerships for sales-tax revenue, Mr. De La Rosa says. But the dealerships have hit hard times.
Rio Vista has cut a third of its city workers and slashed its recreation budget to $29,000 from about $250,000. The city is looking into selling more than 100 acres of its land for revenue. Since July 2007, Rio Vista has cut $1 million from its $7 million budget but still faces an $800,000 shortfall. "The fact we are a small town makes it more difficult to handle this slide we are on," says Rio Vista Mayor Jan Vick. "We don't have that much to cut."
In September, Rio Vista contacted law firm Orrick, Herrington & Sutcliffe, which handled the Vallejo bankruptcy, and requested guidance, says former Mayor Eddie Woodruff.
The thought of bankruptcy doesn't sit well with some residents. "When I first heard the council was considering bankruptcy, I was all for it," says Howard Lamothe, owner of Foster's Bighorn restaurant, whose family has lived here for seven generations. "But after I learned about what it means and how it affects business and service, I changed my mind," he says. "I can't support that."
John Knox, a partner at Orrick Herrington, says he expects to see several more municipal bankruptcies in California next year. But "there is no capacity at the state level to write a check to aid our financially burdened local governments," says Marie Ann O'Malley, a policy analyst with the state's Legislative Analysts Office, a nonpartisan financial and policy-advisory agency.
The state's Pooled Money Investment Board Wednesday halted the flow of money to highway, prison and schools projects, among others, until June, so the state can pay for public safety, health care and other crucial services for as long as Sacramento lawmakers remain stalemated over how to close the budget gap.
Ms. O'Malley says that distressed cities could turn to county governments to take over some services. But with many counties also hurting financially, that option is limited. Another option: Cities could dissolve themselves, she says. But dissolution also involves county officials taking over city services and orchestrating a recovery, and lenders would still be left holding the bag for debts.
Isleton's city manager, Bruce Pope, says the town owes $950,000 for an assortment of services including trash pickup and electricity. With Isleton's operating budget of about $1 million, interest on unpaid bills could overpower the city's budget, he says.
Some county leaders are pressuring Mr. Pope to dissolve Isleton. But the town, with about 1,000 residents, doesn't have the money to cover the fees to do so, he says.
—Jim Carlton contributed to this article.

Ukraine's Currency Crashes.. PopulationPanics

Panic as Ukraine's currency plummets
by Eric deCarbonnel

unian.net reports panic as Ukraine's currency plummets:

(emphasis mine)

[15.12.2008 09:33]
Panic as Ukraine's currency plummets

The national currency of Ukraine, whose pro-West government wants to join the European Union, has almost halved in value in the last six months, prompting panic amongst its heavily indebted population.

The sudden fall in the hryvnia has sent Ukrainians rushing to exchange booths to change local money for hard currency, in scenes that recalled the hyperinflation suffered by the country in the early 1990s.

Not only do Ukrainian consumers have to pay back loans taken out in more prosperous times but many will also have to pay them back in dollars.

The hryvnia (UAH) was on Friday trading at 7.49 UAH against the dollar compared with 5.05 UAH at the beginning of the year and 4.84 UAH in July.

The National Bank of Ukraine has allowed the hryvnia to trade freely in line with the conditions of a 16.4-billion-dollar (12.8 billion euro) IMF loan aimed at helping the country through the financial crisis.

The hyrvnia -- a currency introduced in 1996 and named after money used in ancient Kiev -- has endured the ignominy of suffering one of the worst devaluations, along with the Icelandic krona, in the global financial crisis.

"I consider myself a cultivated gentleman. But at the moment I`m thinking of taking petrol and a lighter and setting the National Bank of Ukraine on fire," said Egor Sobolev, a journalist who owes 60,000 dollars for his flat.

"We are paid in hryvnia and for the moment our family budget allows us to make monthly payments of 1,000 dollars, but if the hyrvnia falls to 10 or 15 to the dollar the Bank has a big chance of going up in flames!"

As of December 1, Ukrainian consumers had notched up debts of 235.5 billion hryvnia (31 billion dollars) some 70 percent of which (176 billion hryvnia or 23 billion dollars) has been taken out in foreign currency.

Dollars and euros were almost impossible to buy in banks and exchange offices in Ukraine in November as people flocked to trade their hyrvnia for stronger currencies.

The growth in hryvnia-denominated bank deposits was replaced in October by an outflow amounting to 10 percent of investments.

The panic reached a peak earlier this month when a newspaper reported that all dollar bank savings could be converted into hryvnias, a rumour vehemently denied by the authorities.

"Savers can only feel that they have been duped and have reason to be scared of similar surprises in the future," said the Dzerkalo Tyjnia weekly.

"Who is going to answer for for the devastation of entire layers of Ukrainian society?"

President Viktor Yuschchenko oversaw the currency`s introduction when he was working as head of the central bank in the 1990s.

Ukraine has been among the countries hardest hit by financial turmoil as the plunging price of steel, the country`s main export, has exacerbated a credit crunch and a sharp fall in stock prices.

Underlining the country`s difficulties, Ukrainian industrial production is in freefall, crashing 15.2 percent in November compared to the previous month and 28.6 percent compared to November 2007.

Metals output in November was 23.5 percent lower than in October and a whopping 48.8 percent lower than the same figure for November 2007.

Out of the three major economies of the former Soviet Union -- Kazakhstan, Russia and Ukraine -- Ukraine is to see the sharpest slowdown, analysts at UBS said in a bleak research note.

"Ukraine will see the sharpest slowdown among the three countries despite support from the IMF. Its currency will have to devalue given that it has the worst net international asset position," the UBS analysts said.

But they added that with the conditions of the IMF loan there is a "good chance" that Ukraine might finally start implementing the reforms that it had put off for 10 years.

My reaction: Another currency bites the dust. With Ukraine and Iceland, the total for failed currencies stands at two: the Krona and the hryvnia. The dollar and pound will soon join that list.


There are two points I am now wondering about:

1) How much will dollar's collapse help already failed currencies like the dollar? (probalby a little)

2) With "industrial production is in freefall" in Ukraine and other nations, could we end up seeing shortages of goods? (I think yes)

Dollar Tankin , Golds Rollin

Today’s action in nearly every single market that trades can best be described by one phrase – “It’s all about the Fed”. Their decision to basically print as much money as needed to liquefy the financial system is a signal that the Dollar be damned as far as they are concerned. They will create as many of those little green things as they feel is necessary to free up the logjam in the credit markets. The Forex markets wasted no time whatsoever in administering a sound “arse whooping” to the greenback as it has utterly collapsed. We have been saying at this site for years now that the Fed would burn the dollar to the ground rather than allowing the stock market and the general economy to slump into a depression. That prediction has been vindicated I think it is safe to say. It really did not take a rocket scientist to figure this out; one merely had to read Chairman Bernanke’s own writings where the strategy is laid bare for anyone who wanted to see it. The only question in my mind at this point is exactly how fast the monetary authorities are prepared to let the dollar fall since it is no longer a matter of “IF” it will fall – they want it down. No one is going to want the dollar to drop off the face of the earth – what they ideally want is a “controlled descent” if such a thing is possible now that any fundamental support beneath the dollar has been eliminated.

When you throw in the fact that the incoming administration has made it clear that their intent is to create a government works project modeled after the New Deal of the 1930’s, the whole thing has an eerie, surreal feeling as if we have been here before. Budget deficits into the future as far as the eye can see coupled with free money being thrown into the system is a recipe for the demise of the Dollar. All this translates to much higher gold prices especially with the absolutely pathetic yields that investors can now hope to obtain on US Treasuries.

The mining shares are higher today building on yesterday’s impressive late session power move higher. The 100 day moving average is below the HUI’s session low with the last barrier up near the 200 day moving average around the 350 level. That same moving average comes in near the 148 level for the XAU. It too is trading above the 100 day moving average with the 10, 20, 40 and 50 day all now moving up. The charts are clearly in a bullish technical posture. On the weekly HUI chart, prices have moved above the 38.2% Fibonacci retracement level off the early 2008 peak and the October low. A key test will be the 50% level near 334. A close above that and the shorts are cooked. I am interested in seeing where support emerges on any dips in price. The fact that this move is coming so late in the month and year is noteworthy as generally this is a period in which liquidity tends to dry up and most investors do not commit to anything of size as far as positions go. They are generally reducing positions and getting ready to take off until the new year. That alone tells me that this is not an ordinary move; rather a great deal of distress is taking place and emotions are very strong.

Back at the paper gold market known as the Comex – open interest is indeed rising – a bullish technical signal but the rather small extent of that rise is a sign that a great deal of short covering has been occurring. The jump in open interest in the very distant months is a sign that the spreaders are also at work. With open interest still at very low levels and all of the technicals now generating bullish signals and upside momentum, the room for a very large build in speculative long positions is quite ample.

Bonds are moving vertically, a sure sign that a market is in a parabolic blow off run. That market is a giant bubble but only the very brave or very, very quick will be able to get in front of it. When it pops, and it will, great will be its fall. In the meantime, the trend is higher as the many traders are simply buying the long end with flattening trades and could care less how high they push it.

Back to gold – deliveries for December gold have been continuing with 500 contracts still left open in the December. Those of you who have been taking delivery - nice work – those of you who are financially able and wish to secure more physical gold – how about joining the effort to level the playing field against the bullion banks. Do not leave the gold in the warehouses if you stand for delivery. Physically remove it.

Technically gold has run all the way to the technically significant level near $880. If it can clear this level and shrug off the selling that we saw come in today near there, it will be at $900 the next day. With the huge move in the dollar the last few days, it would not be unexpected to see a bit of a pause in the Forex arena which might stir some short term longs to book a few profits in the gold. Then again, one can just look over at the bond market and see a market which really is not pausing a helluva lot. The psychological damage that was inflicted on Dollar bulls by the Fed’s decision yesterday was simply enormous. The nearest I can come to describing the experience that the Dollar bulls went through would be to defenders inside a castle learning that their reserves intended for reinforcement had just thrown open the huge gates from the inside and laid down a red carpet with the words, “Welcome” inscribed on it.

Those of you who are interested can take a look at the CCI index. If it can get back above the 370 level on two consecutive closes, the commodity complex might have bottomed as a whole.

Toronto Exchange Glitch, Computers again?

Computer glitch shuts down Toronto Stock Exchange

Dec 17 02:45 PM US/Eastern
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Traders at the Toronto Stock Exchange monitor the day's acti...


Technical woes on Wednesday halted trading at the Toronto Stock Exchange, North America's third largest stock market, and no timeline has been announced for its reopening.
All trading was suspended "due to technical issues with data feeds," said a statement on the exchange's website.

"Because the data feeds provide information to investors to guide their trading decisions, trading was halted to ensure market integrity," it said.

The data feeds provide real-time data for stocks such as quotes and corporate actions on both the Toronto Stock Exchange and its junior TSX Venture Exchange, which was also closed.

The Fed .. Handmaiden for Tyranny

Fed Out of Bullets

U.S. Stocks Fall on Concern Fed Is Running Out of Ammunition


By Elizabeth Stanton

Dec. 17 (Bloomberg) -- U.S. stocks fell and the Standard & Poor’s 500 Index retreated from a five-week high on concern the Federal Reserve has few tools left to combat the recession after cutting its benchmark interest rate to as low as zero.

Morgan Stanley lost 4.8 percent after its $2.2 billion fourth-quarter loss was worse than analysts estimated as investment-banking fees dwindled. Citigroup Inc. and JPMorgan Chase & Co. declined more than 2 percent. Apple Inc. slid 6 percent after the maker of the iPhone said Chief Executive Officer Steve Jobs won’t speak at the Macworld Expo, spurring concern that the leader’s health is deteriorating.

“Following interest-rate cuts you always see an initial reaction and then you get back to your senses,” said Joost Van Leenders, strategist at Fortis Investments in Amsterdam, which oversees $305 billion. “All the structural indicators, such as the economic cycle and profit outlook, remain negative.”

The S&P 500 lost 0.8 percent to 906.36 at 9:49 a.m. in New York. The Dow Jones Industrial Average slipped 60.05 points, or 0.7 percent, to 8,864.09. The Russell 2000 Index of small U.S. companies retreated 0.3 percent.

The S&P 500 declined after a 5.1 percent rally yesterday spurred by the Fed’s rate cut and its plan to use “all available tools” to revive the economy. The central bank’s decision came after simultaneous recessions in the U.S., Europe and Japan dragged the S&P 500 down almost 45 percent from its 2007 record.

Europe’s Dow Jones Stoxx 600 Index slid 0.7 percent, as BNP Paribas SA tumbled as much as 19 percent after saying losses at its securities unit since October more than wiped out the division’s profit for the first three quarters of the year.

Morgan Stanley Earnings

Morgan Stanley retreated 77 cents to $15.36. The loss of $2.24 a share compared with a deficit of $3.61 a share in the same period a year earlier. The average estimate of 16 analysts surveyed by Bloomberg was for a 34-cent loss, with no estimates exceeding $1.15. Goldman Sachs slipped 0.7 percent to $75.44. The shares rallied 14 percent yesterday after the company posted a quarterly loss, its first since going public in 1999, that was narrower than analysts estimated.

The Wall Street that Morgan Stanley and Goldman Sachs dominated for decades vanished in September, when Lehman Brothers Holdings Inc. went bankrupt and Merrill Lynch & Co. sold itself to Bank of America Corp. Goldman Sachs and Morgan Stanley took $10 billion each from the U.S. government.

Apple Downgraded

Apple lost $5.73 to $89.71. Oppenheimer & Co. analyst Yair Reiner downgraded Apple to “perform” from “outperform,” saying it’s “past time” for Apple to disclose the state of Jobs’ health or outline a plan for a successor. Apple also said that the company will no longer participate in the MacWorld show after next month’s event.

Nike Inc. added 1.5 percent to $49.90. The world’s largest athletic-shoe maker is due to report second-quarter earnings today. The median analyst estimate in a Bloomberg survey calls for per-share profit of 77 cents excluding items.

Adobe Systems Inc. jumped 5.6 percent to $23.56. The world’s biggest maker of graphic-design programs said it earned 60 cents a share, excluding some items, in the fourth quarter. That beat the 57-cent average estimate in a Bloomberg survey of analysts.

Fed Rally

Yesterday’s advance in the S&P 500 was its biggest on a Fed rate-decision day since 1994, when the central bank began announcing its target on the same day the decision was made, according to Bespoke Investment Group LLC. The rally put the index above its average level during the past 50 days for the first time since September.

The Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent. The Fed said in its statement that the recession is likely to warrant exceptionally low levels of the federal funds rate “for some time.”

The statement noted that the Fed has already announced it will purchase agency debt and mortgage-backed securities, and said the central bank is ready to expand the program. Policy makers continue to weigh the potential benefits of buying longer-term Treasury securities, the statement said.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net;

Bush Sacrificed Principles for Economy

US President George W. Bush said in an interview Tuesday he was forced to sacrifice free market principles to save the economy from "collapse."
"I've abandoned free-market principles to save the free-market system," Bush told CNN television, saying he had made the decision "to make sure the economy doesn't collapse."

Bush's comments reflect an extraordinary departure from his longtime advocacy for an unfettered free market, as his administration has orchestrated unprecedented government intervention in the face of a dire financial crisis.

"I am sorry we're having to do it," Bush said.

But Bush said government action was necessary to ease the effects of the crisis, offering perhaps his most dire assessment yet of the country's economy.

"I feel a sense of obligation to my successor to make sure there is not a, you know, a huge economic crisis. Look, we're in a crisis now. I mean, this is -- we're in a huge recession, but I don't want to make it even worse."

At a G20 summit last month in Washington, Bush resisted some proposals for global financial regulation and argued free market principles still held true despite the global economic downturn.

And administration officials have also referred to the primacy of the free market when discussing a possible government bailout for the troubled US auto industry.

In the interview, Bush said that a "disorganized bankruptcy" of the carmakers could create "enormous" economic difficulties.

But the US president has yet to announce how his administration will proceed amid calls from Detroit automakers and Democrats for a bailout drawing on funds set aside for financial firms.

Sign of the Times

Peter Schiff Today

US is being cut off from All Supplies!!

1/3 of Hedge Funds-Wipeout!

By Tom Cahill

Dec. 15 (Bloomberg) -- Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money.

“The failure rate is going to go up, the closure rate is going up, and the merger rate is going up,” IGS Chief Executive Officer John Godden said in an interview in London. “It’s going to be a 30 percent wipe out.”

The number of hedge funds more than tripled in the last decade to a record 10,233 at the end of June, according to Chicago-based Hedge Fund Research Inc. That number will likely tumble after funds dropped 18 percent in the year through November, the worst year since HFR started its Fund Weighted Composite Index in 1990.

IGS will team up with Grisons Peak, a financial advisory firm to start Alternative Investment Management Banking, a firm that will advise hedge fund managers on mergers. Godden and Paul Sullivan, a partner at Grisons Peak, will oversee the venture, with each firm contributing three to four employees. The firm aims to advise on six to eight transactions next year.

Hedge funds typically charge a 2 percent management fee and keep 20 percent of profits, while funds-of-hedge-funds typically charge 1 percent and 10 percent of profits. Profits are usually based on high-water marks that could take years to reach again.

Many funds may have been “cavalier” about actually charging management fees, giving rebates to large investors or distributors on the expectation the fund manager would more than make up the shortfall through performance fees, said Godden.

‘Crowded Space’

Prime brokers, the banks that provide loans and handle fund administration, are cutting off firms they don’t expect to be profitable clients, Godden added. Hedge funds will need to manage at least $300 million in assets, up from $100 million a year ago to stay in business, Sullivan said.

Funds of hedge funds, in particular, are likely to combine, Godden added. There are roughly three funds-of-funds for every single hedge fund, up from one to seven in 2001, according HFR.

“And even one to seven was too many,” said Godden. “It’s a very, very crowded space with way too much overlap. The only thing that would threaten it was a change to the economic environment which is what we’ve got.”

Godden and Sullivan said they expect more transactions such as fund-of-fund Pacific Alternative Asset Management Co.’s decision this month to hire the investment team of KBC Alpha Asset Management, adding $700 million in client assets to the $9 billion it already oversaw.

Athens Burns

Garbage Paper, Junk Dollars & Hyperinflation

This incisive article by Peter Shann takes us from the shock of the creation of more dollars than ever anticipated being ploughed into both financial and industrial concerns to the mechanics of how hyperinflation is created and why it is now unavoidable. All of this was caused by the implosion of the huge mountain of garbage paper, over the counter derivatives.

In terms of forward discounting markets, this could be marketwise tomorrow.

Farming is a credit-based business that has for months been discussed not in terms of farming products, but rather in the sense of its impact on demand in the market for critical products to the farming process. Primary focus has been aimed at South America but applies everywhere.

Grains and meats, as all edibles, certainly qualify as necessities to life. Electricity, heating oil, housing, and medicine are part of what is necessary for life, itself.

Dislocations in supply are easiest to understand when viewing today’s decision to support Motors from the US Treasury. There is still no clear answer if the suppliers to Motors are willing to do business as usual in terms of delivering goods for payment 45 days later. It seems as if supplier will not be happy with this traditional manner of doing business. It may be like beer suppliers to a questionable credit that is “cash on hand,” or no beer.

So here are two examples that will be repeated many times but in the same way as we move faster and faster toward the unseen CONSEQUENCES of a broader and ass backwards approach to the business of government and commerce. That is best understood as when you reward non-production and punish production. The result is ALWAYS non-production.

You would assume that extremely difficult business conditions would be accompanied by an oversupply of all kinds of goods and services, but hard logic and history prove otherwise.

Simply stated, both on the micro and macro level, the present credit lockup and lack of confidence between lender and borrower, between supplier and consumer, and eventually between international suppliers and the currency of the world’s major manufacturer of currency will be the process of why the present unprecedented air bombing of cash (US dollars) will result in hyperinflation as unprecedented as is its cause.

Do some introspection. Does a supply of essential goods seem attractive to you? If the answer is YES here are the mechanics of what you have intuitively understood

Read the following slowly with your major focus on the steps numbered one through ten.

We will name this Peter’s Formula, the natural outcome of Jim’s Formula.

Jim

The roots of hyperinflation
I have written the following because I do not think the dangers of hyperinflation and currency collapse are understood;
Peter Shann

The most widely accepted view is that hyperinflation and monetary collapse results from governments introducing large amounts of fiat money into the economy, Wikipedia comments;

"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run"

This explanation is superficial and doesn’t provide answers as to why governments would in the first instance "massively and rapidly increase the amount of money" nor why they would.

feel compelled to continue with this as inflation increases by factors of thousands of percent and in some extreme instances print banknote in denominations of 100,000,000,000,000 currency units, it also fails to explain why newly issued money is not primarily invested in asset class goods or why goods that can easily be replicated, as can most essential consumables, be often subject to the greatest price inflation.

A prerequisite of hyperinflation and monetary collapse is that a disruption in the availability of essential goods occurs, today this could happen as a result of past reliance on expanding credit and fiat money temporally facilitating dependency on low cost imported goods many of which now feed primary needs leading to a commensurate loss of home production capacity with an inherent delay to the medium-term should such reengagement with manufacture become necessary as it would in the event of off shore suppliers losing confidence in reciprocal worth of monetary instruments offered in exchange for goods, and or shortage of essential goods may arise as a result of natural correction occurring, by way of example from the collapse of speculation driven credit markets and or as a result of collateral damage to the production cycle caused by inappropriate governmental action in further increasing money and credit supplies in attempt to drive a spontaneously occurring and necessary correction back in the direction of instability and in so doing distorting essential work ethics and disincentivising investment in the production cycle,

In my view the most probable sequence of events resulting in hyperinflation and monetary collapse is as follows:

1. A broad based shortage of goods that are thought essential develops and this is not relieved in time to satisfy demand.

2. Consumers trying to acquire essential goods that they believe are in short supply become fearful and are prepared to pay increasingly higher prices and stockpile these goods further increasing shortages and accelerating prices as a sellers market develops.

3. Prices rise for essential goods in short supply as an increasing proportion of the money supply circulates in these goods, also with increasing velocity and as most of these goods are consumables with high turnover upward re pricing quickly occurs.

4. The proportion of available money circulating in goods that are perceived as essential increases and the demand for less essential goods diminishes I.e essentials become disproportionately more expensive than the norm against non essential goods displacing money towards the goods most in demand further fuelling inflation,

5. The shortage of essential goods accelerates as manufactures increasingly focus on short term survival, longer term risk is avoided and investment in the production cycle is reduced accelerating 1.

6. The normal balance of demand for all goods increasingly prefers those goods required to satisfy primary needs and people engaged in making and supplying less immediately essential or non essential goods become unemployed who then pressures governments accelerating condition 9.

7. Eventually goods not immediately required but non the less essential are needed and rapidly increase in price as they also become in short supply.

8. Consumers with least money first find it increasingly difficult to secure essential goods, become frightened and are forced to allocate greater proportions of their money on essential goods and demand greater income,

9. The demand for money forced by need and fear becomes irresistible so governments feel insecure and provide increasing amounts of fiat new money,

10. Consumers first to spend the new money see some value but soon as this new money is distributed and its value is lost, the velocity of money also accelerates as people rapidly exchange money for goods, wealth is seen as best protected when stored as goods rather than cash further increasing price and reinforcing condition 9,


--------------------------------------------------------------------------------

Article printed from Welcome To Jim Sinclair’s MineSet: http://jsmineset.com

Money Madness

Fed Wants to Cut out US

Dec. 10 (Bloomberg) -- The Federal Reserve explored the idea of issuing its own debt in discussions with Congress as the central bank sought ways of coping with a balance sheet that has more than doubled in the past year.

The Fed began examining the issue after Treasury officials scaled back their funding assistance for the central bank in the last two months, a person briefed by a government official said on condition of anonymity. Another person informed of the matter said at least one discussion was held with Congress, which would need to pass a law to provide the authority to sell bonds.

The Treasury, which has a legal limit on the amount of debt in can sell, abandoned new issues of bills to finance the Fed in mid-November. Since then, incoming President Barack Obama has picked New York Fed President Timothy Geithner for Treasury secretary, making coordination between the agencies more likely, analysts said.

Debt issuance would offer the Fed a funding source other than creating money. The central bank’s emergency lending programs in the past year have swelled its balance sheet, forcing it to create a surplus of reserves at commercial banks.

“The creation of excess reserves is the least desirable form of central bank balance-sheet expansion during periods when bank balance sheets are a critical to bottleneck to financial flows,” said Lou Crandall, chief economist at Wrightson ICAP LLC. “You have your choice then: Either the Fed can issue liabilities to the general public, or you can issue Treasury liabilities. The preferred option is Treasuries.”

Assets Climb

Assets on the Fed’s balance sheet have more than doubled over the past year, reaching $2.14 trillion on Dec. 3, and may increase more as the Fed buys up to $600 billion of housing- finance debt and securities.

The Wall Street Journal reported the Fed’s discussions with Congress earlier.

The interest-rate setting Federal Open Market Committee meets Dec. 15-16, when officials are set to discuss how to boost the economy beyond lowering rates. The FOMC has already cut the benchmark rate to 1 percent, limiting the scope for further cuts.

Policy makers’ plans would involve financing even more cash injections into the economy either through pumping up bank reserves or possibly through some form of debt issuance. The debt idea is still at a preliminary stage, one of the people said.

Until November, Fed officials were able to access financial markets through U.S. Treasury issues of special-purpose bills. The Treasury placed the cash on deposit on the Fed. The Treasury announced Nov. 17 that the “balance in the Treasury Supplemental Financing Account will decrease in coming weeks” to “preserve flexibility in the conduct of debt management.”

Surplus Reserves

The Treasury’s move prompted Fed officials to begin discussions on alternatives. Meanwhile, the central bank relied on the banking system, creating excess reserves, which affect the balance-sheet capacity of private lenders. Excess reserves in banks jumped to $559 billion at the end of November from $1.7 billion a year earlier.

The flood of cash has interfered with the Fed’s ability to keep the overnight lending rate between banks close to the target set by the FOMC. The average daily federal funds rate yesterday was 0.13 percent.

Gold , Take Delivery

There is a great shift in the gold market that is being consistently leaned against by the Gold Banks. You can be sure they will be back to rip us all off. Please do me and yourselves a great favour: No matter where you are on this planet if you can afford a 100 ounce bar buy the nearby month gold on the Comex, take delivery then remove the delivered gold from the warehouse.

CIGA JB Slear will walk with you the entire way if you want the complexity transmuted into simplicity.

Fear triggers gold shortage, drives US treasury yields below zero
The investor search for a safe places to store wealth as the financial crisis shakes faith in the system has caused extraordinary moves in global markets over recent days, driving the yield on 3-month US Treasuries below zero and causing a rush for physical holdings of gold.
By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, December 10, 2008

"It is sheer unmitigated fear. Even institutions are looking for mattresses to put their money under until the end of the year," said Marc Ostwald, a bond expert at Insinger de Beaufort.

The rush for the safety of US Treasury debt is playing havoc with America’s $7 trillion "repo" market used to manage liquidity. Fund managers are hoovering up any safe asset they can find because they do not know what the world will look like in January when normal business picks up again. Three-month bills fell to minus 0.01 percent on Tuesday, implying that funds are paying the US government for protection.

"You know the US Treasury will give you your money back, but your bank might not be there," said Paul Ashworth, US economist for Capital Economics.

The gold markets have also been in turmoil. Traders say it has become extremely hard to buy the physical metal in the form of bars or coins. The market has moved into "backwardation" for the first time, meaning that futures contracts are now priced more cheaply than actual bullion prices.

It appears that hedge funds in distress are being forced to cash in profits on gold futures to cover losses elsewhere or to meet redemptions by clients. But smaller retail investors — and perhaps some big players — are buying bullion in record volumes to store in vaults.

The latest data from the World Gold Council shows that demand for coins, bars, and exchange-traded funds (ETFs) doubled in the third quarter to 382 tonnes compared to a year earlier. This matches the entire set of gold auctions by the Bank of England between 1999 and 2002.

Peter Schiff Down Under

Gold, $1650,$3,000 to $5,000 ?

I completely agree that a study of similar historical periods argues strongly for an equity rally. Those rallies in the past have had one year legs but for the moment we must wait to see what transpires.

I am cautious about being bearish on equities right now. Models of 1873 and 1929 show humdinger rallies during the worst of these periods.

The most likely time for a rally to occur is when Obama starts the nation's two trillion fiscal stimulus which will trigger the $8.5 trillion bailout of the system, starting an inflation few people can imagine.

No lender will fail to loan on a government contract that probably guarantees payment.

Over time this fiscal stimulus will be famous for only one thing - triggering hyperinflation.

Gold's rally then can be quite long term, as in more than three years.

Gold will trade at $1,650 but I am sure even that number could be very low. Reasonable people are saying $3,000 to $5,000.

Base metals are not staying as low as they are now in a hyper-inflationary environment.

Gold as honest money will lead everything.

When the fiscal stimulus fails to establish a sustainable recovery, it will have pulled the trigger for hyper-inflation. This is a currency event, not an economic event.

Regards,
Jim Sinclair

Jim Sinclair's Take on Negative Treasury Rates

Citigroup says gold could rise above $2,000 next year as world unravels
Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.
By Ambrose Evans-Pritchard
Last Updated: 7:29AM GMT 27 Nov 2008

An employee of Tanaka Kikinzoku Jewelry K.K. displays a gold bar at the company’s store in Tokyo Photo: Reuters

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

"They are throwing the kitchen sink at this," said Tom Fitzpatrick, the bank’s chief technical strategist.

"The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

Walter Williams on History

How about a few civics questions? Name the three branches of government. If you answered the executive, legislative and judicial, you are more informed than 50 percent of Americans. The Delaware-based Intercollegiate Studies Institute (ISI) recently released the results of their national survey titled "Our Fading Heritage: Americans Fail a Basic Test on Their History and Institutions." The survey questions were not rocket science.

Only 21 percent of survey respondents knew that the phrase "government of the people, by the people, for the people." comes from President Abraham Lincoln's Gettysburg Address. Almost 40 percent incorrectly believe the Constitution gives the president the power to declare war. Only 27 percent know the Bill of Rights expressly prohibits establishing an official religion for the United States. Remarkably, close to 25 percent of Americans believe that Congress shares its foreign policy powers with the United Nations.

Among the total of 33 questions asked, others included: "Who is the commander in chief of the U S. military?” "Name two countries that were our enemies during World War II." "Under our Constitution, some powers belong to the federal government. What is one power of the federal government?" Of the 2,508 nationwide samples of Americans taking ISI's civic literacy test, 71 percent failed; the average score on the test was 49 percent.

ISI findings about cultural illiteracy and academic incompetence are nothing new. A 1990 Gallup survey for the National Endowment of the Humanities, given to a representative sample of 700 college seniors, found that 25 percent did not know that Columbus landed in the Western Hemisphere before the year 1500; 42 percent could not place the Civil War in the correct half-century; and 31 percent thought Reconstruction came after World War II.

In 1993, a Department of Education survey found that among college graduates 50 percent of whites and more than 80 percent of blacks couldn't state in writing the argument made in a newspaper column; 56 percent could not calculate the right tip; 57 percent could not figure out how much change they should get back after putting down $3.00 to pay for a 60-cent bowl of soup and a $1.95 sandwich, and over 90 percent could not use a calculator to find the cost of carpeting a room.
But not to worry. A 1999 survey taken by the American Council of Trustees and Alumni of seniors at the nation's top 55 liberal-arts colleges and universities found that 98 percent could identify rap artist Snoop Dogg and Beavis and Butt-Head, but only 34 percent knew George Washington was the general at the battle of Yorktown.

With limited thinking abilities and knowledge of our heritage, we Americans set ourselves up as easy prey for charlatans, hustlers and quacks. If we don't know the constitutional limits placed on Congress and the White House, politicians can do just about anything they wish to control our lives, from deciding what kind of light bulbs we can use to whether the government can take over our health care system or bailout failing businesses. We just think Congress can do anything upon which they can get a majority vote.

The Intercollegiate Studies Institute has one finding that I find both a bit perplexing but encouraging. Roughly 70 percent of Americans, even those who failed the test, agreed that our history, culture and institutions are important and should be taught to our college students. They might even agree with Thomas Jefferson who warned, "If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be."

Auto Nationalization

By GREG HITT
WASHINGTON -- Congress and the White House inched toward a financial rescue of the Big Three auto makers, negotiating legislation that would give the U.S. government a substantial ownership stake in the industry and a central role in its restructuring.
Under terms of the draft legislation, which continued to evolve Monday evening, the government would receive warrants for stock equivalent to at least 20% of the loans any company receives. The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government's $700 billion rescue of the financial industry.
More
Hourly Workers Fared Better as GM Plant ClosedMany Car-Parts Makers Could Go UnderAutos Blog: Summary of Bailout Bill In the case of General Motors Corp., such a move could give the government a large stake in the company and may hurt existing shareholders. GM is seeking about $10 billion in short-term loans and has a market capitalization of about $3 billion. The legislation didn't specify what kind of stock the government would take, leaving open the option it could be preferred, common, voting or nonvoting.
Assuming congressional Democrats and the White House come to agreement on the plan, the car industry would be the latest to submit to strict government scrutiny in return for a bailout, joining most prominently the banking sector.
The auto industry would undergo a restructuring process akin to bankruptcy reorganization, only with fewer rigors and with the government, not a judge, in control, and with many associated political complications.
The program would be overseen by an official, tapped by President George W. Bush, whom congressional aides and lawmakers describe as an "auto czar." This person would act as a kind of trustee with authority to bring together labor, management, creditors and parts suppliers to negotiate a restructuring plan. He or she also would be able to review any transaction or contract valued at more than $25 million.
"We call this the barbershop," said House Speaker Nancy Pelosi, a California Democrat. "Everybody's getting a haircut here, in terms of the conditions of the bill," she said, noting the likely impact on labor, bondholders, shareholders, car dealers, suppliers and executives. "The management itself has to take a big haircut on all of this."
View Full Image

Reuters
House Speaker Nancy Pelosi, with House Financial Services Committee Chairman Barney Frank, discusses auto-bailout negotiations.
Senior congressional Democrats and top Bush aides wrestled late Monday with final details of the package, which the White House would prefer were even tougher on the car makers. GM, Ford Motor Co. and Chrysler LLC have asked for a total of $34 billion to weather the downturn in the economy and steep slump in vehicle sales. GM and Chrysler say they need a cash infusion before the end of December to avoid shutting down.
The White House has been pressing for a compromise package but gave a chilly reception to the latest overture by Democrats. White House officials suggested the package isn't rigorous enough, people familiar with the matter said, and would open the door for companies that aren't financially viable to receive long-term financing.
"We'll continue to work with members on both sides of the aisle to achieve legislation that protects the good-faith investment by taxpayers," said White House spokeswoman Dana Perino.
The latest version of the bill would extend to the companies billions of dollars in short-term financing. These bridge loans are expected to total about $15 billion, enough to carry the auto makers through next March.
Any deal would have to be ratified by Congress. Support there remains tepid and opposition remains high, especially among Republicans in the Senate, who can block the bill through a filibuster.
A handful of Republican senators have said they are willing to help the industry, but it isn't clear how many will swing behind legislation this week. Senate Minority Leader Mitch McConnell (R., Ky.) said the rescue must be financed out of existing funds and include strong taxpayer protections. Mr. McConnell stopped short of endorsing the bill Monday, but did note the auto industry is "an important source of jobs throughout America, including my own state of Kentucky."
Democratic leaders hope to push a bill through Congress this week, with the Senate likely moving first. "Congress is trying to save Detroit," said Senate Majority Leader Harry Reid (D., Nev.). "If senators are willing to work together...we can pass legislation."
In a statement, GM noted the "extraordinary action" that both the auto makers and Congress will be taking. "As part of our plan, we will abide by the conditions proposed in the bill and will continue our restructuring with great urgency," the company said, urging passage of the bill.
Chrysler said it looks "forward to working with Congress and this administration, and the next administration, and to completing our restructuring in an orderly fashion."
Ford, which has said it is in better health than its peers, said it wouldn't seek a short-term loan. It threw its support behind the effort to aid the other two, saying "a failure of one of our competitors could affect us all."
As in bankruptcy court, the legislation tries to establish a process under which the auto makers would negotiate with creditors. The companies would be expected to modify contracts with bondholders and unions. The threat looming under the proposed program would be an actual bankruptcy filing -- which the trustee could prompt by withdrawing the loans -- something auto makers have argued could lead to their liquidation as buyers flee.
Some congressional officials are floating the idea that Kenneth Feinberg, the lawyer who oversaw the 9/11 victims' compensation fund, should be considered for "car czar." The decision is ultimately up to the president.
One danger for auto makers is exposing the industry to congressional meddling as it attempts to build a new business model. The legislation, among other things, would bar the companies from participating in legal challenges to state laws designed to impose limits on greenhouse-gas emissions. The White House opposes that provision, congressional aides said.
The big three would have to analyze whether excess production capacity could be used to make trains and buses for public transit authorities. Also, in a slap, the legislation would require companies to sell or cancel lease agreements for private jets. The Detroit chief executives raised the ire of lawmakers in November by arriving in Washington on their own planes.
If the car companies don't make satisfactory progress toward fixing their long-term problems by the end of March, the auto czar could submit to Congress a plan "and request legislative implementation," according to the draft bill.
The short-term loans would be financed out of an existing $25 billion program created to help the industry meet fuel-economy standards. Under the terms of the bill, the loans would mature in seven years. For the first five years the companies would pay a 5% interest rate; after that, a 9% rate would be levied, the bill says.
The bill doesn't specify what would happen to a company's existing management. GM Chief Executive Rick Wagoner has come under pressure from top lawmakers to step down. He was defended Monday vigorously by GM Vice Chairman Bob Lutz, who said in an interview that Mr. Wagoner has "total support of the board of directors" and shrugged off criticism from lawmakers.
"To blame the American automobile executives for this frankly is ridiculous," Mr. Lutz said, suggesting an unforseen downturn in the economy and housing market are the culprits. "How were we supposed to forecast this when the government doesn't forecast it and the financial institutions couldn't?"
In a sign of how messy the reorganization could become, the United Auto Workers union is seeking to attach strings to any concessions it makes for the Big Three. Marc McQuillen, president of UAW Local 2404 in Charlotte, N.C., said the union is looking for an equity stake in GM and likely a seat on the company's board. UAW officials in Detroit couldn't be reached for comment

Stealing Bread, Capital Crime? Sinclair Editorial

Posted: Dec 07 2008 By: Jim Sinclair Post Edited: December 7, 2008 at 3:31 pm

Filed under: General Editorial

Dear Friends,

Let’s put on our practical thinking hats. I am inviting opinions from both our academic reader as well as those that believe answers are more accurate when derived by the “follow the money” concept.

The Fed says and statistics support that the majority of the $8.5 trillion in funds injected into the economy in many ways was to protect the US financial community. This has given comfort to the establishment intellectuals that there is no inflationary implication as a result of this massage and unprecedented liquidity injections.




Follow the money approach

The US Federal Reserve made $8.5 trillion available to Wall Street and other entities with OTC derivatives in their inventory. These “assets” have the potential for causing bankruptcy.

It is claimed that the majority of these funds will not have an inflationary impact because of the huge amount of T bills, bonds and note sales that will offset the inherent liquidity injections.

The main buyer of the Treasury instrument issued was China.

China sold US Agencies and as a courtesy bought US treasuries, claiming no negative impact on US financial plans.

The inviting question is who got sterilized? Sterilization impacts the entity that buys the T-bills.

The conclusion then is that it is China, not the USA that received the sterilization process tool. The Chinese, being no fools, offset this process by selling US Agency instruments.

It follows that the USA got the liquidity but not the sterilization, leaving all those funds locked and loaded to fulfill Dr. Milton Friedman’s accurate statement that inflation is monetary, not demand-pull or cost- push motivated.

The Fed figures say sterilized, but it is totally false when the “follow the money process” is utilized to understand the action.

China however did remain relatively dollar neutral as the product of selling agencies to buy T-bills.

Therefore the final answer is that $8.5 trillion that is unspecialized has been injected into the US monetary system.




Where is the Beef?

When the Fed buys OTC derivatives say from AIG, Fanny and Freddie and guarantees them against loss or keeps them on their balance sheet, the Fed becomes the principal counterparty as the loser to each OTC held or guaranteed.

It is reasonable then to assume that a non-performing OTC derivative instrument becomes a performing asset as long as it is held or guaranteed by the US Federal Reserve. The Fed would need to be responsible for the obligations of the losing counterparty to the special performance obligation.

If these defunct instruments are now functional it is reasonable to assume that bailout entities were losers in the specific performance contracts known as OTC derivatives. There has to be one or a daisy chain of winners out there of $8.5 trillion, either paid out or held as a full value position


Who are they?

Now let’s look at the assumption that the $8.5 trillion is not a factor because the intellectuals state that all it does is fill a black hole of losses.

You own a junior gold that has been under attack by naked and pool short sellers. Mr. Oliver has done the work of god to make cold calls to major stockholders (discovered in required filings) informing them of his opinion that the entity is overpriced at zero.

I now come to your house informing you that I feel sorry for you and hold the naked and pool short seller in contempt, therefore here is a check for the difference between your cost and the present market value.

Does that fill a black hole of losses or put you back in business? It puts you back in business with your wealth factor reestablished.


What intervention factor will start the flow of the absolutely unsterilized $8.5 trillion dollars of liquidly into the business section?

The answer is significant FISCAL STIMULATION through Quantitative Easing (aka wild-ass money printing) will trigger the dollar’s death by inflation of the currency unit. When road, schools, special education, music, athletic, teacher’s salaries, the no child left back, road building and local infrastructure building providers are granted Federal contracts with Federal guarantees of borrowing, they go to the bank. What bank against a Federal fiscal stimulus contract or guarantee will fail to lend up to 90% of the required funds?

That will open the barn door of liquidity.

This is followed by inflation then hyperinflation (a currency event not an economic event) in the midst of a recession so deep it threatens to be the second Great Depression.

The dollar declines below .72 and gold moves above $1024 on its way to $1650. What would make Alf Field’s technical projection of the price of gold at $3000, $5000 or even $10,000 correct?

The answer to that question is also easy: $8.5 trillion in government bailouts and direct cash injections as fiscal stimulus while quantitative easing throws money in the street for people to pick up (Bernanke and the famous Electronic Helicopter Money Drop Defalcation fighting speech will do the trick).

Obama will be cheered as saving the US economy for at least one year while the equity markets gets its 1930 rally for a year.

Keep in mind that the grease of the wheels of the equity market has been and always will be LIQUIDITY for a short to medium term rally.


Weekend Events

Republic Windows and Door Corporation got a surprise on Friday when it furloughed all its workers as a result of Bank of America calling their cash flow, plant and equipment based loan.

This morning and all weekend the employees are marching around the facility demanding their severance pay and reimbursement for vacation days earned after only a 3-day notice.

The Federal Warrant Act demands employees get 60 day notices or get paid for 60 days pay when furloughed.

The workers are after Bank of America and the assets of the firm to meet their legal demand.

As a side note the company does not have the funds for severance payment or its contribution to employee’s health insurance.

Most employees’ health insurance was up for renewal now.

The Bank of America was asked to extend the company loans for severance and health insurance. Their reply was “you have to be kidding.”


Christmas Shoppers Publicly Warned

The warning was given not to rob Christmas presents for their children in this difficult business condition.

To assume that present day workers will quietly go to soup kitchens or live as hobos is madness.

Soon stealing a loaf of bread for your family will be a capital crime.

Respectfully yours,
Jim

Dec 6, Iceland Protest

Washington Jobcuts Needed -535

It Hurts... Laugh

Corporate Reality



CEO — Chief Embezzlement Officer
CFO — Corporate Fraud Officer
BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING — The art of buying low and selling lower.
P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.
BROKER — What my broker has made me.
STANDARD & POOR — Your life in a nutshell.
STOCK ANALYST — Idiot who just downgraded your stock.
STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.
FINANCIAL PLANNER — A guy whose phone has been disconnected.
MARKET CORRECTION — The day after you buy stocks.
CASH FLOW — The movement your money makes as it disappears down the toilet.
YAHOO — What you yell after selling it to some poor sucker for $240 per share.
WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.
PROFIT — An archaic word no longer in use.

Party Like there's no Tomorrow

The hedge fund dealers partied at a New York nightclub like there was no tomorrow -- which for some was probably true.

Swilling martinis and vodkas, they filled Manhattan's white, tent-themed Nikki Beach to bursting. Waiters, trays of tapas held high in the air, became stranded, wedged into crowds swaying to music under pink lights.

About 650 guests attended the event late Wednesday, a third more than organizers expected.

Yet with hedge funds in freefall, this was more funeral wake than celebration.

"The industry is down 20 percent. It's by far the worst environment we've ever seen and we'll see a lot of funds going out of business," said Evan Rapoport, co-founder of HedgeCo Networks, which services hedge funds and organized the party.

The evening was billed as a networking session. Sometimes that meant angling for a particularly special deal.

"A lot of people are looking for a job," said Nicole Alexander from Ovation Group, a corporate travel company.

"There is no stigma now because so many people have lost jobs," she said. "The joke is that the new status symbol, instead of a Porsche or Ferrari, is having health insurance and a desk."


Job losses across Wall Street are forecast by New York state accountants to hit 48,000 by the end of next year.

Hedge funds, which have long prided themselves on their resilience, are reeling.

A new study by Morgan Stanley predicts assets under hedge fund management globally will drop to 900 billion dollars by the end of 2009, half the peak valuation earlier this year.

And as clients run for the exits, growing numbers of hedge funds have imposed emergency blocks on the ability to withdraw money.

To admirers, hedge fund traders are risk-taking, profit-hauling buccaneers who can afford to bet big because they deal only with big players.

Detractors say hedge funds embody under-regulated, over-leveraged and greed-driven business practices responsible for the US financial crisis.

Either way, the sense is that these masters of the universe, as Tom Wolfe christened traders in the novel "Bonfire of the Vanities," won't party much longer.

"They're masking their fear," said a heavy set equities broker at Nikki Beach, who asked not to be identified, as he surveyed his colleagues, drink in hand.

"The gig's over and they're in denial. A lot of people are going to be in shock."

"It's been a tough year," said Mitchel Manoff, CEO of hedge fund Corinthian Partners. "The hedge fund community says they can make money in all markets. This year, though, they haven't."

Of course, there are profits to make, even in hard times.


Nikhil Khandelwal, who raises money at ThornWood Capital, gleefully described his company's ability to charge clients sharply increased interest on loans that banks now refuse.

"It's a sad reality but we make money when others lose it," he said, not sounding sad.

Khandelwal, wearing a pin stripe suit, had no sympathy for those in the mayhem. "You come to a hedge fund to make excessive money, so you know the risks."

Hedge fund brokerages face pressure from Washington following Barack Obama's victory in an election where the need for greater regulation was a constant theme.

Rapoport said the crisis is already forcing hedge funds to reform and he expects the industry to reemerge smaller, yet healthier and unburdened by highly leveraged debt.

"It will be ripped down and built up, but the build-up will be much stronger," he said. Once the effects of over-leveraging are "cleared out, that should be a real positive."

Steve Tosi, a trader at Magna Securities, agreed.

He noted that Obama's chief of staff Rahm Emanuel himself worked two and a half highly lucrative years in the finance sector and received hedge fund campaign donations.

Hedge funds "play it very well politically," Tosi said. "Will they be over-regulated? Will they be told they're bad, that they make too much money? Will Obama say that? I don't think that will happen."

UN Warns about Dollar

By Harvey Morris in New York

Published: December 1 2008 08:48 | Last updated: December 1 2008 08:48

The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.

In their annual report on the world economy published on Monday, the economists said the dollar’s sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.

The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.

“Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession,” the report said.

Publication of the annual survey by the UN’s Department of Economic and Social Affairs, its trade organisation Unctad and UN regional bodies, was brought forward by a month in the light of the financial crisis. It was launched in Doha to coincide with the UN-sponsored development financing conference in the Qatari capital.

The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US’s external debt had risen to new heights that could provoke a dollar collapse.

The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.

Rob Vos, a Dutch economist who heads the UN’s policy and analysis division and who is responsible for the annual economic review, said the global economic pain could be eased if governments co-ordinated a spate of stimulus packages that were already under way.

“There has been a sea change in attitudes in favour of intervention and concerted action,” he told the Financial Times. He welcomed statements from US president-elect Barack Obama’s transition team in support of spending on infrastructure.

CNN Censors Peter Schiff ?

Hyperinflation Starts with Deflation

by Eric deCarbonnel

The Daily Paul reports about hyperinflation during a deflationary slump:

(emphasis mine)

Confused About Hyperinflation? It Always Happens During A Deflationary Slump!
Posted December 2nd, 2008 by Republicae

There seems to be some confusion about Hyperinflation. Do you know that in 95% of all historic cases of hyperinflation it begins during either a deflationary depression or deep deflationary recession? The other 5% is brought about by political stupidity as in Zimbabwe.

Hyperinflation operates in a very different way than regular inflation.

THE MOST DANGEROUS PERIOD FOR HYPERINFLATION IS DURING A DEFLATIONARY RECESSION OR DEPRESSION...NOT DURING AN INFLATIONARY RECOVERY

Regular inflation does not lead to hyperinflation, deflation leads to hyperinflation, primarily because the people are beat down by the deflation depression or recession and they being to lose confidence in the government and the money and because the central banks will always over respond to the deflationary slump...as we are now seeing with perhaps the most dangerous move the FED can make and that is quantitative easing, or direct fiat liquidity injections.

It seems counterintuitive, and perhaps that is the problem some people are having in trying to understand just how hyperinflation occurs.

Now, I fully realize that some are under the impression that hyperinflation can only occur when the money supply is rapidly moving through the economy, that is definitely true of plain inflation, but not of hyperinflation since it is a horse of a very different color.

The fact is that the normal velocity of money has very little to do with hyperinflation as it does with regular inflation where the velocity of money is converts the expanded money supply into inflation.

As I said, hyperinflation is primarily a psychological event and happens when masses of people lose confidence in both their government and the monetary system. Yes, it does have to do with the money supply also, but it is primarily the effect of people simply losing faith in the system. Such a loss of faith can happen and usually does happen during deflationary periods, not in periods of economic booms or even economic recoveries. So, hyperinflation is both a monetary event and a socio-political event. Every single example in history, all the way back to Rome, will show that hyperinflation always begins during a deflationary period and is a combination of a rapid increase in the money supply with a rather rapid loss of confidence in the system. Check it out for yourself.
So, hyperinflation, as I have said a hundred times on the DP never happens during an upturn in the economy.

Some seem to think that the money supply has to be filtering through the economy for it to happen, but history proves that is not the case with hyperinflation, only inflation. It is a mistake to believe that the normal deflationary/inflationary forces are at work when hyperinflation takes hold of an economy, they are not the primary force behind hyperinflation.

At the moment, there are absolutely huge amounts of fiat funds being infused into the economic system, which, if we were in a recovery would automatically translate into high inflation, but the danger is that hyperinflation could very easily take charge as the public continues to lose a great deal of confidence in the government and the monetary system. Another interesting fact about hyperinflation is that it always seems to involve some type of quantitative easing by the governing powers, now, for the first time the FED is using the policy of quantitative easing in this country.

The reason that hyperinflation and quantitative easing are so linked together is because with quantitative easing there is a direct infusion of money into the economic system by the central banks instead of using the fractional reserve system and the monetizing of debt. Many are screaming about debt monetization, well guess what…they are skipping that process now in favor of quantitative easing and there in is the danger for hyperinflation. Quantitative easing also skips the market process normally associated with the creation and velocity of money.

There are several other companies, or sectors of the economy that are lining up at the quantitative easing trough, GE, along with the Big Three are all sticking out their hands for this direct lending bailouts, many are trying to figure out just how to ask for the money now, they are working the system. Even the banks have now consolidated themselves into institutions with the tagline:"TOO BIG TO FAIL". The type of credit that is involved with quantitative easing always, without exception, carries a major consequence with it, especially when the FED is basically “printing” this money without going through the usual monetization process. The dollar will suffer, at the moment it is only slightly rallying because of the actions taken by the FED with TARP and other handout programs but that will stop as we continue on this destructive path. The fact is that there will be nothing to help the dollar from drastic depreciation, the carry trade won’t help, nor will any attempts to draw in more credit from overseas.

My reaction: I was wondering how long it would be before our government started printing money to finance our deficit spending. I was also wondering how this money printing would be sold to the public. Now I know the answers to both questions: the time is now, and the name is quantitative easing. Hyperinflation is absolutely 100% guarranteed.


While on the subjet of quantitative easing, I would like to point out that the US is not Japan! Quantitative easing here is suicide for two reason:

1) We are the world's reserve currency! Japan could use quantitative easing without worrying about foreign central banks dumping the yen, because the majority of the world's central banks are long the dolar, not the yen. If the US starts using quantitative easing, it will lose its status as the world reserve currency and central banks will bail on the dollar, causing hyperinflation.

2) US fundamentals are toxic! Japan was a nation of savers with a trade surplus when it used quantitative easing. In contrast, today the US is buried under a mountain of debt while running enormous trade deficits. Quantitative easing will break currency pegs, forcing nation like China to stop financing our debts. The reason quantitative easing breaks currency pegs is that nations like China would need to print so much money to offset the dollar's devaluation that it would destroy their own currencies.

I repeat: now is the time to be in gold or silver.