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Fractional Reserve Banking Made Easy

September 30, 2009 by · Leave a Comment 

By Terence Gillespie, GoldSeek

The paper bills in our wallet are not money. And they are not Notes as in “Federal Reserve Note” written on the top of the bill. They are actually just Tokens. Federal Reserve Tokens, if you like, is what should be written on top of the bills. They are not redeemable for anything other than themselves. And they represent only one thing: Your belief in their value. Hopefully, your belief extends to the next person you try to give them to.

The only real use for them is paying your taxes to either the state or federal government. You can be sure, however, that both will stop accepting them as payment even for taxes if you and I stop believing in the paper bills.

Paper money, or fiat, was originally accepted because you could redeem the paper for gold upon request. When people got used to the paper they felt more and more comfortable and were less likely to redeem it for their gold. They knew that they could redeem it at any time and the paper is lighter, more convenient and can be denominated in much smaller increments so that everyday transactions are made more practical.

By the time the gold imparts this trust to the paper the people storing the gold start using it for other purposes. The primary other purpose is to start using the gold as someone else’s money in addition to yours. When that happens the banker has now, in effect, doubled the amount of gold in his vault and is only in trouble if you decide to reclaim your gold. By that time many more people are storing their gold with the banker and he found that only a small percentage of people ever reclaimed their gold.

Now, at this point in the story nothing wrong has happened as long as:

  • You are told that your gold deposit is being lent out.
  • You are paid for storing your gold.
  • Your are not charged under the guise of a storage fee because the gold is no longer being stored by the banker.
  • There is a 1-to-1 relationship between the gold you lent the banker and the gold the banker has lent out.

Read more….

Red October

September 30, 2009 by · Leave a Comment 

By Larry LaBorde, GoldSeek

Get ready for next month.  I always find myself approaching October with a little trepidation.  As soon as all those 3rd quarter earnings (or lack thereof) start coming in we could be in for quite a shock.  It just seems that surprises of the worst kind show up in the stock market in Octobers past (especially the most recent one).

It doesn’t take much searching for one to start to question the “green shoots” recovery.  Over at John William’s web site (www.shadowstats.com) the unemployment numbers are over 20% and climbing.  The Baltic dry index certainly does not show a recovery in world wide shipping.  Finally the S&P 500 p/e ratios are higher than before the dot com bubble in 1999 (and this in spite of all the stimulus money thrown into the economy).

With all this news what is a boy to do other than head for the bunker with bullets, bullion and beans?  Of course I do not think this is TEOTWAWKI.  Life will go on and the world will keep spinning.  But what to do about this dread in the pit of my stomach as I get nearer and nearer to turning another page on the calendar – to the dreaded investors month of OCTOBER?

Perhaps it is time to take a little defensive action.  Nothing as drastic as the 4 – B’s listed above mind you.  Here are my simple recommendations:

1. Move up those stop losses.  If you do not use stop losses then shame on you.  Tighten them up.  Maybe as close as 90% to 95% of your stock’s present market value.  Sure you might get stopped out on a small dip before a big run up but how many of you are wishing you had done so last October?  If the market continues to run up then keep moving the stop loss orders upward.  If it drops hard and fast you can thank me later.  The market just seems a little toppy to me but what do I know?

Read more….

International Forecaster September 2009 (#9) – Gold, Silver, Economy + More

September 30, 2009 by · Leave a Comment 

By Bob Chapman, GoldSeek


The G-20 Pittsburg Summit ended last Friday. Their official statements made for some novel and interesting reading.

We were informed that the group could by working together could manage a transition to a more balanced pattern of global growth. Tending to domestic demand as private savings increase. It is obvious to us this cannot work. We are seeing increased savings and decreased consumption. The IMF as well agrees with these policies. We cannot recall that the IMF has made a correct decision over the past 50 years. The group gushed forth the same platitudes we’ve heard for years. The shared understanding and deepened dialogue that produces no solutions, only more power and wealth for the entrenched elite.

We were treated to the never-ending story of rising living standards in emerging markets and developing countries as North American and European economies go into the economic and financial tank. This is to be achieved by balancing current accounts and the support of continued free trade. This would, of course, would be aided by the lack of tariffs and the continued use of slave labor from the third and second worlds as transnational conglomerates get richer by parking their profits in tax havens.

There would be centralized monetary policy and price fixing along with structural reforms to implant more socialistic policies. These policies would end sovereignty, as we have known it.

Needless to say magically members with sustained, significant external deficits will end them and foster savings. We wonder if they ever considered that if everyone saves less buying will be done. There was the call to increase investment, but why would corporations do that in the reality of decreased demand, 67% of capacity utilization and massive idle capacity worldwide, particularly in China. These policies would dramatically affect China whose world exports have already fallen 40%.

If this is the result of this 2-day sideshow it accomplished nothing and little will change. It is just more smoke and mirrors.

Read more….

Smoking Guns & Monetary Power

September 30, 2009 by · Leave a Comment 

By Adrian Ash, GoldSeek

“The transcending value seen in the Dollar has lost its foundation…”

A SHORT SERIES of secret memos, published and dissected at ZeroHedge, provide the “smoking gun” of gold-market manipulation. Apparently.

And given this little slew of dusty archive-digging – throwing up three documents from 1968 to 1975, each one declassified within thirty years – then ”If over 40 years ago the Fed and the members of the gold ‘Pool’ were openly intervening in the gold market, one can only imagine what the situation is now…”

Go on, just imagine. Because imagination is what you’ll need if you’re going to nail type-written notes from before the Moon Landings as primary, original-source evidence that the United States’ official gold reserves – variously sold, lent, swapped or simply given away since the early 1990s – have been mobilized to suppress prices, pushing gold down from $250 an ounce a decade ago to, ummm, more than $1000 today.

These memos fret about shrinking gold reserves and the world’s gold-driven money supply…Britain’s failed deflation policy of the late ’60s…whether South Africa will sell its new mine supply on the open market…German border taxes…and the “gold-like” qualities of the proposed Special Drawing Right (SDR). Such prehistory matters, yes. But it’s a world away from demonstrating what newcomers to gold today may mistake for good cause to steer clear.

The little history these scattered notes sketch does echo today, however faintly. Are central banks buying gold at market prices – then France, now Beijing through via its domestic gold output? How to replace the abiding monetary standard – then gold, now the Dollar? And like the Fed memos reviewed on blogs elsewherethis year, the notes republished by ZeroHedge certainly prove one thing, at least:

Just how awkward gold became long before the collapse of the Bretton Woods monetary system. Bluntly put, it was a pain in the arse – and not only for Washington.

Read more….

Commodity Currencies Rebound Versus the Dollar

September 30, 2009 by · Leave a Comment 

The Daily Reckoning

Well… Instead of a “turn around Tuesday”, we’re seeing a whiplash Wednesday! And for once the Big Dog (euro) (EUR) didn’t lead the other little dogs (currencies) off the porch to chase the dollar down the street!

No… This time it was the currencies of Australia (AUD) and New Zealand (NZD) that led the charge versus the dollar. The euro has taken up the charge since opening the doors to a new day of trading in Europe, so… It looks like it’s a “take the dollar to the woodshed” day.

OK… Let’s start first with the goings on yesterday and then build to a big crescendo! Yeah, right, like I can do that! HA! Anyway.

As a reminder, yesterday we had the Russian rate cut, and the Japanese Finance Minister giving the dollar a boost… We then saw some data that at first glance seemed to be good, but a quick look under the hood told the markets otherwise… Home Prices fell in July versus June, but are still down 13.3% versus last year… And consumer confidence surprised everyone by falling this month. It was expected to gain. So… As the day went on, it just didn’t look like the US data would be strong enough to cause dollar selling.

But then, overnight, we had a strong retail sales report in Australia, and a strong Business Confidence report in New Zealand, and the “global recovery thoughts” were back on! Yesterday morning, the Russian rate cut said “step back on the thoughts for a global recovery”… And then overnight, the reports from Australia and New Zealand said, “step forward on the thoughts for a global recovery”!

And so it is… We end the month – and quarter – with the dollar on the losing end versus many currencies. This marks the second consecutive quarter of dollar losses… Does that sound like a trend to anyone? To me, I do not consider this to be a “new trend”, but instead, simply a return to the underlying weak dollar trend that went dormant for six months while the world sorted out the financial meltdown.

This is where, when I go out on the road and speak to people, I say that trends are not One Way Streets… There can be volatility within the trend. And thus this explains the six months from August of 2008 trough February of 2009… For most people that got into diversification using currencies and precious metals, they saw it for what it was, and simply battened down the hatches, and looked for deep discounts to add to their diversification… For some people – who got in for all the wrong reasons, and never thought about diversification – they panicked and sold out at losses… For those that battened down the hatches, they were rewarded with this latest six-month move… And that’s all I’m going to say about that!

The boys and girls over at the IMF are trying really hard to keep the currencies in check and not let this become another rout on the dollar. The IMF issued a statement saying that there are still risks in the global recovery… Unfortunately for the IMF, nobody is listening to them, judging from the dollar selling I’ve seen since I came in this morning!

Hey! I don’t give the French much credit for anything… But I did see last night that they are cutting taxes on business! WOW! What a novel idea! And one that I think would behoove the current US administration to follow… This is really a great way to get real traction in the economy… Give businesses more room to breathe, and they will hire people, expand capital purchases, etc. Good show!

The Aussie retail sales report for August climbed 0.9%, erasing the -0.9% loss in July! This report plays well with the recovery story and the thoughts that the Reserve Bank of Australia (RBA) will raise rates before year-end.

New Zealand saw their Employment Confidence Index climb to 103 last quarter from 96.1 the previous three months… The report showed that 32.2% of companies surveyed expected sales and profits to rise over the next 12 months… I know that doesn’t sound like a resounding vote of confidence, but the previous number was 26%… So that’s quite a jump!

Of these two, I expect The RBA to lead with the rate hikes, while the Reserve Bank of New Zealand (RBNZ) will drag its feet… They don’t need the kiwi to start rising aggressively, as exporters in New Zealand are having a tough time right now, with kiwi as strong as it is!

Whenever the commodity currencies of Australia and New Zealand have good performances versus the dollar, the other commodity currencies get to play along… So that means the performances of Canada (CAD), South Africa (ZAR), Norway (NOK), and Brazil (BRL) have been good.

There is some risk in the currency markets today, though… First, we have some data due, and second we have Fed Vice Chairman Donald Kohn, and European Central Bank (ECB) President, Trichet, due to speak today… Could this be more central bank parlance for propping up the dollar, that is seen as being on the skids again this morning? I think it just might… Especially if Kohn doesn’t mention that the Fed is going to keep rates at near zero for some time to come. If we don’t hear that… Then I think the “con” is on to prop up the dollar.

But don’t let that bother you too much… These guys can only affect the currencies for short periods of time with their verbal jawboning… After that, they need to walk the walk with coordinated intervention, if they’re going to talk the talk!

Speaking of the data… We’ll see the color of the second quarter GDP and the wild and wacky ADP employment change reports… The Chicago PMI (manufacturing for that region) will also show its colors… All of these are expected to show improvement in the US economy… And, if the trading pattern remains in place… Any signs of improvement in the US economy normally result in more dollar weakness!

So… In the end, the data inducing dollar weakness, might be offset by the central bank jawboning… In which case, we’ll spend the day in a tight trading range for sure! But what happens if Kohn and Trichet don’t support the dollar in their speeches? Then it will all be up to the data!

This morning, Canada will print their latest GDP report… The forecasts are for a very weak report… I’m going to go out on a limb and say that I expect Canada’s GDP to surprise on the up-side… If so, the loonie would look to add to gains it already has booked this morning versus the dollar.

With the commodity currencies on the rise this morning, gold has returned to $1,000! Gold remained below $1,000 for about five days, in which there were ample opportunities to buy the dips below $1,000.

And… As we close out the month and quarter, the Russian rate cut is all but forgotten about, which is exactly how I told you it would play out… The global recovery theme is back with a vengeance!

You know… We wouldn’t be having these discussions about dollar weakness every day, if the budget deficits weren’t piling up on top of other deficits… Hey! Remember when I used to take the previous administration to the woodshed for piling up $450 billion dollar budget deficits? Well, that certainly seems to be but a drop in the bucket of the nearly $2 trillion budget deficit that will post this year, and the forecast for $9 trillion more in the next nine years.

That all leads me to this… We need to express to our representatives in Washington DC that it is very important, and that they should focus their attention on this first and foremost! I doubt that we’ll ever get there again, but wouldn’t that be nice for our grandkids? I just don’t understand why we go around spending money on this that and the other thing, and don’t ever stop to think about the immoral things we are doing to our future generations… I guess I mean to say that the “we” I’m talking about is not you and me! It’s the knuckleheads in DC… That is, other than Ron Paul, who seems to be the only person there who understands all this deficit spending.

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Commodity Currencies Rebound Versus the Dollar

More articles from The Daily Reckoning….

Inflation is Our Future

September 30, 2009 by · Leave a Comment 

The Daily Reckoning

On one hand, the deflationists are claiming that given the extremely high debt levels in the West, further inflation is impossible. On the other side of the argument, many proponents of inflation are calling for Zimbabwe style hyperinflation. In this business, everyone is entitled to their opinion; however it is my contention that we will get neither deflation nor hyperinflation. If my assessment is correct, once business activity picks up, our world will have to deal with high inflation.

Although I have great sympathy for the deflation crowd, given the reckless attitude of the central bankers and their ability to create debt-based money, I do not believe deflation (contraction in the supply of money and total debt) is very likely.

For sure, in this post-bubble environment, American consumer debt continues to contract, but this is being more than offset by the expansion in federal debt. Over the past year alone, federal debt in America has surged from US$9.645 trillion to US$11.813 trillion. In other words, during the past twelve months, American federal debt has risen by a shocking 24.47% and it now stands at 83.52% of GDP! Now, given the ability of the American establishment to essentially create dollars out of thin air, I have no doubt in my mind that it be able to inflate the economy. However, this will come at a huge cost and the victim will be the American currency.

In fact, the recent weakness in the US dollar is a sign that central-bank sponsored inflation has started to dominate the private-sector debt contraction in the West. Furthermore, over the past few weeks, various governments have issued US dollar-denominated debt and this suggests that the carry-trade is back in vogue. In a startling move, Germany recently announced that it plans to borrow money in US dollars!

Now, given the ongoing federal debt inflation, debasement of paper currencies, sky-high budget deficits and competitive currency devaluations, the macro-economic environment has never been better for precious metals. Yet, both gold and silver continue to frustrate the bulls by staying below the record-highs recorded in spring 2008.

So, what is going on here? Have we already seen the end of the precious metals bull-market or are we about to witness an explosive rally? Before I attempt to answer this question, I want to make it clear that even though gold failed to better its all-time high during last autumn’s panic, it was the only asset, (apart from US Treasuries) which stayed relatively firm. And looking at the various markets today, gold is the only asset that is flirting with its all-time high. So, whether you like it or not, gold deserves some credit for fulfilling its role as a safe haven.

Now, unlike some of the die-hard gold bugs, I don’t believe that gold is the ultimate asset to own at all times. Without a doubt, there have been times in history when gold has proven to be a lousy investment. For instance, between 1980 and 2001, the nominal price of the yellow metal fell by an astonishing 70%. This horrible price action spawned an entire generation who grew up hating gold and up until a few years ago, the vast majority considered gold a barbaric relic.

However, during other periods in history, when macro-economic uncertainty was high and inflationary expectations were running out of control, gold turned out to be a fantastic asset to own.

If my take on the macro-economic situation is valid, then we are in such a period now and gold must form a part of every investment portfolio.

You may remember that over the past year, central banks have injected trillions of dollars into the banking system and it is only a matter of time before inflationary expectations start spiraling out of control. Up until now, this ‘stimulus’ money hasn’t permeated through the economy in the West but once money velocity picks up, prices will start rising and the investment community will become very concerned about inflation. When the deflation scare abates and people start protecting the purchasing power of their savings, capital will start to flow towards precious metals.

Long-term clients and subscribers will recall that about two years ago, I highlighted gold’s tendency to rocket higher every other year. Figure 1 captures this trend perfectly and you can see that since the outset, gold’s bull-market has been punctuated by lengthy consolidations and the yellow metal has surged to a new high every alternate year.

Figure 1: Is gold about to shine?

So, if gold remains in a bull-market and its trend consistency is intact, its price should surge over the following months. Conversely, if the price of gold fails to climb above its all-time high before year-end, it should start to ring alarm bells as this would open up the possibility that the bull-market may be over. Remember, certainty does not exist in the investment world and savvy investors should remain open to all outcomes.

Now, given the uncertainty in the world today and the ticking inflationary time-bomb, my view is that gold will soon embark on its north-bound journey. So, I suggest that investors hold on to gold and the related mining companies which will probably continue to perform well until next spring.

As far as silver is concerned, it has always been a high-beta play on the direction of gold. If the next up leg in gold’s bull-market materialises, the price of silver will also head towards the heavens. Accordingly, investors may also want to allocate a portion of their investment portfolio to silver bullion and silver producing companies.


Puru Saxena
for The Daily Reckoning

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Inflation is Our Future

More articles from The Daily Reckoning….

Unemployment Propaganda tries to “justify” High Unemployment

September 30, 2009 by · Leave a Comment 

In totalitarian regimes, the propaganda-machine (i.e. the media) is a vital tool in pacifying the population – since the populations of such societies are denied the “release valve” of ridding themselves of an unpopular government through elections.

I have pointed out in a number of commentaries that the United States “two-party democracy” has, in fact become a two-party dictatorship. There is plenty of evidence to support such a conclusion. To begin with, rampant “gerrymandering” (by both parties) has created a majority of political districts which are essentially fiefdoms – where one party or the other has a permanent grip on power, irrespective of whom they run as a candidate. Thus, in most U.S. electoral districts, “elections” are nothing but a pointless charade.

More recently, there was clear collusion between the two parties in hiding the severity of the Bush budget-deficits from the American people. The Bush regime literally only reported half of the increase in the national debt with its (supposed) “official deficits” – and never once in eight years did the “opposition party” (the Democrats) report these lies to the American people (see “Obama continues peddling fantasy deficit numbers”).

Further reinforcing this conclusion, when the Obama regime took power, they retained more personnel from the Bush regime than any other U.S. government in recent memory – despite the massive unpopularity of the Bush government, and the woeful incompetence of virtually all branches of that government. Despite his mantra of “change, change, change”, virtually all of the “changes” promised by Obama have been watered-down, or scrapped completely.

The only significant policy currently being pursued by his government which would not have occurred under a Republican government is the much-hyped Obama health-care “reform”. Even if some legislation eventually makes it through Congress, the convoluted mixture of private insurance and government-sponsored coverage is hardly the “socialist” system decried by Republican fear-mongers. Instead it is a watered-down bureaucratic morass, whose only redeeming quality is that it will reduce the number of U.S. residents without medical coverage.

Read more….

The Road to Zimbabwe

September 30, 2009 by · Leave a Comment 

Bullion Vault

Just how can the Fed mop up the excess liquidity its pumped into the banks…?

SPRINKLED ACROSS the official talk about efforts to end the current recession, you’ll hear assurances – notably from Federal Reserve chairman Ben Bernanke – that when the economy does revive, it won’t be allowed to blast off into runaway inflation, writes Terry Coxon, editor of The Casey Report.

The Fed, we’re being promised, will prevent such a launch by reabsorbing the hundreds of billions of Dollars of excess liquidity it recently created to halt the credit crisis.

Delivering on those assurances won’t be easy. There is no reliable, real-time guide to how much cash the economy needs, so deciding when to drain excess reserves from the banking system (by selling off T-bills or other Fed assets) and judging how rapidly to do the draining will be largely guesswork. And the consequences of guessing wrong will be unforgiving. Drain too fast, and the recovery stalls. Drain too slowly and price inflation comes charging out of the chute.

Figuring out how much cash is just right for the economy has always been the Fed’s central puzzle. And until late last year, coming up with a workably close answer, day after day, was the only thing the Fed really needed to focus on. Executing its decisions was easy. Since it could create money, the Fed had unlimited power to expand liquidity by buying Treasury securities (or anything else). And since it owned a mountain of Treasuries built up from past purchases ($480 billion as of last September), it had the power to drain liquidity by selling from its holdings.

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Endless Stimulus and $2000 Gold

September 30, 2009 by · Leave a Comment 

Bullion Vault

Monetary chaos will follow the current stimulus…

SELF-AVOWED “old rock hound” Byron King earned his bachelor’s degree in geology at Harvard, and then worked as a geologist in the exploration and production division of a major oil company, says The Gold Report.

After “earning his wings” in the US Navy and the US Naval Reserve, logging more than 1,000 hours of flight time in tactical jet aircraft and recording 128 aircraft carrier landings, Byron practiced law in Pittsburgh before becoming a prolific author and popular investment speaker.

Now a core contributor to Agora Financial’s Daily ReckoningWhiskey and Gunpowder and Penny Sleuth, he also edits the Energy and Scarcity Investor andOutstanding Investments newsletters.

Here he speaks to The Gold Report about the “bottomless pit” of stimulus spending and why he sees $2,000-per-ounce gold on the not-too-distant horizon…

The Gold Report: We’ve seen quite a rebound in the markets since we spoke in May, and governments across the world have begun releasing some positive economic news. Are we out of the recession as Bernanke has told us?

Byron King: I don’t agree with that all. It’s like at the funeral home where they put really good makeup on the corpse and people walk in and say, “Oh, he looks so good.” Then you think to yourself, “Wait a minute. If he looks so good, why is he dead?” That’s where we are now, I think, with our economy. We’re still in the recession, it has been well-masked.

Let me digress and say that yes, the stock market rebounded. The “sell in May, go away” thing didn’t work this year. So if you stayed in the market, you probably benefited very well from the market recovery. But it was a recovery not rooted in fundamentals. Part of it is that we’ve had a banking recovery, too. But that was because of massive infusions of new liquidity out of the Federal Reserve and the Treasury Department into the financial sector. That’s not the prescription for long-term health.

As with someone really sick in the hospital, the problem isn’t putting him on life support; the problem is getting him off the respirator. Now the question is how to stop hemorrhaging public money into the system, and in fact, begin pulling some of it back out.

Read more….

2009 US Lincoln Coin and Chronicles Set Added to Mint Store

September 30, 2009 by · Leave a Comment 

2009 US Lincoln Coin and Chronicles The highly anticipated 2009 US Lincoln Coin and Chronicles Set was added Monday to the US Mint’s Online Store in preparation for its Noon (Eastern Time) launch on October 15, 2009.


Read the rest of 2009 US Lincoln Coin and Chronicles Set Added to Mint Store (468 words)

© Darrin Lee Unser for Silver Coins Today, 2009. |
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