By Richard Daughty, GoldSeek

The Money Morning newsletter bills itself as “Essential investment news & insight from MoneyWeek.com” which makes me suspicious right away because of all the times I have been lied to over the years by people telling me that something is “essential”, which it seldom is, and it usually turns out to be a code word for, “It’s gonna cost ya, buddy!”

Like today, for example, when I am told that it is “essential” that I curtail my frenzied buying of gold, silver and oil this month so that one of the whining kids can go to the doctor (or dentist, I forget which) for some real or imagined discomfort, ache, pain, open wound, bloody discharge, festering sore, oozing abscess or gangrenous limb, like I am made out of money or something.

Normally, I would explain, with the patience of a saint, for the thousandth time, how the Federal Reserve is creating waaaaAAAAAaaaay too much money and credit so that the federal government can borrow and spend waaaaAAAAaaaay too much money, which is this selfsame “waaaaAAAAAaaaay too much money and credit” created by the Federal Reserve in the first place, which is a kind of strange circular logic, I admit, but which I think only serves to prove the bizarre, incestuous nature of the whole thing, but without any bodily fluids being exchanged.

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By John Mauldin, GoldSeek

This week we do some review on a very important topic, the velocity of money. If we don’t understand the basics, it is hard to make sense of the hash that our world economy is in, much less understand where we are headed.

But before we jump into that, I want to let my Conversations subscribers know that we have posted a recent conversation with two hedge-fund managers, Kyle Bass of Hayman Advisors [and his staff] here in Dallas and Hugh Hendry of the Eclectica Fund in London. Our discussions centered on what we all think has the potential to be the next Greece, but on a far more serious level. It was a fascinating time.

Then next Wednesday we will post a Conversation I had with George Friedman of Stratfor fame, and then the following Wednesday a Conversation that I just completed with Dr. Ken Rogoff and Dr. Carmen Reinhart, the authors of This Time Is Different.

For new readers, Conversations with John Mauldin is my one subscription service. While this letter will always be free, we have created a way for you to “listen in” on my conversations with some of my friends, many of whom you will recognize and some whom you will want to know after you hear our conversations. Basically, I will call one or two friends each month and, just as we do at dinner or at meetings, we will talk about the issues of the day, with back and forth, give and take, and friendly debate. I think you will find it very enlightening and thought-provoking and a real contribution to your education as an investor.

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By Bob Chapman, GoldSeek

US MARKETS

The dramatic and costly undertow of deflation continues unabated, as government via fiscal policy and the Federal Reserve, by creating money and credit out of thin air, proceed to overpower this deflation with massive inflation.

Unbeknownst to most the Fed and the Treasury have been maintaining this program for the past several years, accompanied by most major countries, all of which have taken the path of least resistance rather than address the underlying problems.

The current stage of problems had to be addressed 2-1/2 years ago in what has become known as a credit crisis. This continuing crisis has been accompanied by 22-1/8% current unemployment that has resulted in a perpetual fall in tax revenues and a resultant enlargement of government deficits. We might add that this condition is being experienced by many countries worldwide, which followed America’s leadership into this terrible financial and economic morass. These policies have led to massive sovereign debt policies, a hangover of the policies of 1933 and 1971.

The financial system in America is on the edge of default. A recent poll found that 92% of those surveyed wanted to unseat their current representative or Senator in Washington and only 21% believed that government enjoyed the consent of the governed. It’s very obvious people are not happy with the political, economic and financial situation presently. Eighty percent believe that government is enmeshed in partisan infighting. Not only between parties, but within parties as well. Politicians are very aware of these numbers and are frantic to get reelected. The public has recoiled in disgust. People are demanding that the power of government be curbed. People are sick and tired of paid off corrupt politicians, more than half of whom have been in office for more than ten years.

It is not healthy for a nation to have $3.3 trillion in Treasury bonds held by foreigners. China holds about $900 billion and Japan about $800 billion. We also understand that hedge funds and others also are fronting both countries, so the figures are not really reflective in their total positions. These nations for the most part are rolling their positions, but have not injected new capital into US Treasuries. That is why the Fed had to fund 80% of new Treasury debt last year.

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By R. D. Bradshaw, GoldSeek

The gold-plated, tungsten-filled bars story hasn’t gone away.  Not only has it continued to pop up in various gold and hard-money, investment-advisory letters; but even the populous press publishers, like the American Free Press and Rense.com, have found it expedient to publish material on it as well.

Recently, rense.com had it in an article on “More Tungsten Fake Gold Bars Found” (from Coin Update News of Mar 2, 2010, by Patrick Heller).  This one said that W. C. Heraeus (a metals refinery in Hanau, Germany) found a tungsten, gold-plated, 500-gram bar it received from a bank.  A Heraeus employee was suspicious of the bar.  To check out his suspicions, he cut it in two.  It was found to be tungsten with a gold plate.  I would just add here that the find involved a 500-gram bar (reportedly 16.0755 troy ounces?) and not a 400-ounce bar.  There is a considerable difference between the two.

The Coin news report repeated the rumor of fake, gold-plated, tungsten bars allegedly found in the Chinese central bank.  The Coin story concluded that “there has been almost a total blackout on news coverage of this story.”  Well, this charge can’t be laid to gold investor news sources and letters as numerous attempts continue to be made with regularity to try to validate and legitimize the original story that cropped up last fall in the vein of an alleged 1.3 to 1.5 million 400-ounce bars produced in the US to flood/fool various nations in the world.

The Take at Analysis-News.com

Www.analysis-news.com eventually weighed in on the question with some material on it on Dec 3, 2010 in the Goldsmiths 116, as published bywww.goldseek.com, and in an article on Gold Plated Tungsten Bars, Yes or No?, as published by www.safehaven.com and www.marketoracle.co.uk.  Once more, I feel compelled to weigh-in on the question because I fear the real issues are not being addressed and people are still being grossly misled.

The original story that first came to me was a sensational story that if true it would have rocked the whole political and economic structure of not only theUnited States but many other countries in the world.  It was a fantastic story on the surface which would whet the appetite of gold and hard money publishers as well as the populist press.  Frankly, I took it at once as a questionable rumor following another questionable rumor from the same source that some big gold buyer on COMEX had tried to take delivery on a futures contract and COMEX/short sellers could not deliver.  I took both of these stories as being unsubstantiated, far-out rumors which I believed could lead to misinformation among honest people.

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By Brady Willett, GoldSeek

On March 20, 2007 China’s Central Bank governor, Zhou Zianochuan, had this to say about China’s burgeoning reserves:

“Many people say that foreign exchange reserves in China are (already) large enough…We do not intend to go further and accumulate reserves” Zhou Xiaochuan

The above comments were made when China had a $1.2 trillion stockpile in foreign exchange reserves. Over the last 32-months this figure has almostdoubled to $2.399 trillion (as of December 2009). The lesson, if otherwise unclear, is that China’s policy ‘intentions’ are not necessary synonymous with policy actions.

China Says Buy Gold (on weakness)

Those that thought China was going to dump U.S. Treasuries and buy all the gold on the planet were disappointed by recent comments from Yi Gang, head of the State Administration of Foreign Exchange (SAFE).  But for those in the know Yi’s words simply meant more of the same:

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By Adrian Ash, GoldSeek

London Gold Market Report

THE PRICE OF WHOLESALE gold bullion ticked higher early Thursday for Dollar investors, but slipped further for Sterling and Euro buyers as world stock markets again held flat together with commodities.

Government bonds fell, pushing the yield offered by 10-year UK gilts up to a 2-week high of 4.14%.

Ten-year US Treasuries offered 3.74% p.a., more than three-and-half percentage points above the yield offered by short-term debt.

“With a US rate hike likely within the next six months, gold may be in for a tough time if it does not find some direction shortly,” reckons one London dealer in a note.

“There are lot of buy orders below $1100,” counters Pradeep Unni, senior analyst at Richcomm Global Services in Dubai, speaking to Reuters.

“If we don’t find any clarity with respect to Greece and neighboring nations, gold will continue to fight bearish pressure.”

Greek public services were once again closed by a national strike on Thursday. Typically moving together against the Dollar, gold and the Euro in fact split apart when the Greek budget crisis first broke at the start of Feb.

Initially seeing Dollar-gold prices rise while the Euro/Dollar exchange rate fell, gold now stands flat from the start of March, while the Euro has added 2¢ to $1.3650.

On a rolling one-month basis, the daily correlation of gold and the Euro – averaging a strong +0.51 over the last decade – fell this week to minus 0.35, its most negative reading since March 2009.

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By CAPTAINHOOK, GoldSeek

It’s a battle between the bull and the bear – fear and greed – inflation and deflation – in the stock market. Of course when it comes to this sentiment the same can be said about all markets, which is what makes them markets in the end, however stocks are close to people’s hearts because of widespread participation these days. Today however, because so much of the money in the market is being handled by ‘other people’, being brokers or hedge funds, the concepts of fear and greed are not what they were, with the public now largely oblivious or numbed to the awareness they should have when it comes to their financial futures. What’s more, because of this an unscrupulous financial services industry has become completely corrupted beyond repair, which will be their (and our) undoing in the end.

And although change may appear to be coming in this regard, with the public apparently waking up in all sorts of ways these days, the sad part of it is it won’t matter for most, because they are already over-indebted, with no way out. And it’s the debt people should be worried about, as it’s the usury that’s the core problem, that being the public’s willingness to allow the various levels of parasites to continue feeding on them. The masses are caught in their generally inflated lifestyles however, with far too many living over their heads on this credit, hoping to stave off the pain associated with bankruptcy – just like the government. Unlike the public however, the government has accelerated the rate at which it is taking on debt to counter the deflationary forces of a slowing consumer, increasing both the size and frequency of its Treasury auctions.

So, if you think that all of a sudden the government is miraculously going to become fiscally responsible with all this talk of fiscal restraint and deficit reduction being put forth by the administration, please, give your head a shake. And the same is true when you hear nonsense like this coming out of the Fed as well, where even though the M’s are contracting at the moment, one cannot forget this is after it just finished printing more money in two years than in its entire history prior to this, along with leaving free reserves in the banks at historic extremes that appear to even make Easy Al nervous based on some of his morerecent comments. The problem here, which is why the bureaucracy is so worried, is if the banks were ever to begin lending these reserves, the resulting price inflation would spoil the party. This is because although the economy would benefit, interest rates would also likely rise despite efforts to the contrary, and a bloated credit based economy would collapse in spite the best laid plans.

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China Cautious on Gold Buying

By Aaron Back, The Wall Street Journal

BEIJING — China’s chief foreign-exchange regulator suggested the country’s appetite for further gold purchases may be limited and offered soothing words about China’s role as an investor in U.S. Treasurys.

“Gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold,” said Yi Gang, director of China’s State Administration of Foreign Exchange. He said gold doesn’t offer good long-term returns due to price swings.

China rarely reveals its thinking on its investment of its foreign-exchange reserves, which at $2.4 trillion is the world’s largest. The issue of China’s gold holdings has been highlighted since the global financial crisis as the dollar’s movements have prompted academics and officials outside SAFE to recommend more diversification of China’s reserves from U.S. Treasurys.

Mr. Yi, speaking at a news conference during the National People’s Congress, the annual legislative session, said that while China’s gold reserves, at 1,054 metric tons, are the fifth-largest in the world, the holdings, at current prices, are only a small part of its foreign-exchange reserves. Based on data on holdings at the end of last year, gold represented about 1.6% of China’s foreign-exchange reserves at current market prices.

Amid continuing jitters about Beijing’s appetite for U.S. debt, Mr. Yi also said that China holding Treasurys can be mutually beneficial for China and the U.S.

China buys and sells U.S. Treasurys on a daily basis and Beijing doesn’t want such trading to be politicized, Mr. Yi said. He reiterated that China will be a “responsible investor” in Treasurys.

Mr. Yi said the past 30 years have shown that the return on gold hasn’t been great and given China’s heft as a gold buyer, any move Beijing makes to purchase the precious metal would “certainly” increase gold prices.

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By John Mauldin, GoldSeek

We are in an era of accelerating change, moving toward a future that will be profoundly different from the past we grew up in. But what will the nature of that change be? What will the future look like? For the last 7 days I have been in an executive program designed by Singularity University (www.singularityu.org) to give some insight into that complex question. We looked at a number of technological fields, lectured by experts assembled to give us some idea as to where current research is and to where it is going. We visited some of the cutting-edge companies here in Silicon Valley.

Just as interesting, I got to visit with 44 of my fellow information seekers from 15 countries and extremely diverse backgrounds, along with a dozen college students, as well as the faculty. The group ranged from very successful entrepreneurs to academics to relatively high-level government workers to starry-eyed young people just starting out. There were a lot more applicants than could be accommodated, and the staff did a good job of choosing a group of people who all “brought something to the table” besides their entry fee of $15,000. The days were typically 14-15 hours, and there was a lot of discussion amongst us on the topics of the day.

This week we depart from my usual letter on finance and economics so I can report on a few of the ideas I came across. Some truly grabbed my interest, some confirmed my thinking, and others quite frankly either disappointed or alarmed me. This will not be my normal narrative, but rather short observations cribbed from my notes and thoughts. As I am on (yet again) a plane to San Antonio for a speech tomorrow morning, there will not be the usual links; and in some cases I must confess I made notes without writing down the name of the speaker. Mea culpa. So, sit back and let me share what has been a great week. (And I suspect that a few of you will be happy that we are ignoring Greece for at least one week!)

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By Bob Chapman, GoldSeek

US MARKETS

Sovereign debt hangs like an albatross around the necks of too many countries. There are 17 medium-size to large countries that are close to, or are bankrupt. Many are being kept solvent by using two sets of books and by marking to model. As you know we expect these bankruptcies to take place by the end of 2011. That will be accomplished at meetings such as we saw in the 1970s at the Smithsonian, the Plaza Accord of 1985 and the Louvre Accord of 1987. There will be a realignment of currencies.

America, like many other nations is mired in an inflationary depression, and even if the economy were to return to where tax revenues accelerated, we would still have a deficit of 6% to 8% of GDP. In order to have real recovery we need a public debt to GDP ratio of 3%. The problem is government refuses to cut deficit spending. Such policies curtail investment and lasting productivity growth. An economy cannot long endure a government that represents 24% of GDP. In the late 1960s we had government spending at 20% of GDP. There was a run on our gold dollar backing and on 8/15/71 gold backing had to be abandoned. Thus, you can see how difficult today’s problems are. In fact during the depression it was only 10%. As you can see what we have today is a monstrous situation. Government is destroying our country and worse yet our debt can never possibly be repaid. A federal deficit of 10% of GDP cannot long be tolerated. Quantitative easing is supposed to end this month. If it is not foreigners will probably totally stop buying dollar denominated assets. That means more Fed secret buying, more monetization and more inflation to accompany the M3 increase of 29.5% in money and credit. Those actions surely will put pressure on America’s AAA credit rating. America has joined the ranks of nearly bankrupt or bankrupt nations. America’s finances are a giant fraud and over the next two years it will be plain for all to see.

The three best plays investment wise is to be long gold and silver related assets and to be short the general stock market, as well as bonds. Over the past two years the treasury and the Fed have spent $12.7 trillion and are liable for $23.7 trillion, so says our inspector general. Things are not getting better they are getting worse. What does government do after the stimulus and quantitative easy ends? If they do more of the same the problem will just worsen. They have no permanent solution. They are like a ship without a rudder in a stormy sea and the rocks are not far away.

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