True Fiscal Insanity: Creating Money to Buy Government Debt

By Richard Daughty, GoldSeek

I knew that something was amiss when I woke up and the house was quiet. Having the benefit of seeing a lot of movies where things were “too quiet”, I instantly knew that things being “too quiet!” meant that Indians were going to be attacking, or the Japanese attacking, or the Germans attacking, sometimes government goons rushing the place, or zombies, or the police. I dunno who, but you get the point.

Grabbing the bare necessities (a couple of pistols, a few Uzi submachine guns, a rocket-propelled grenade launcher and a lot of spare ammunition) I rolled off the bed onto the floor with the idea of scuttling into the closet to cringe in a defensive posture, bristling with weapons, making my enemies stop and think before killing me, giving me, I figure, a additional three more seconds to live!

Unfortunately, all those armaments were heavy, and it was pretty stupid of me to carry so much weight, now that I think about it, and I fell on the floor with a big clanking noise.

Still, nothing!

Then I saw why: it wasn’t attackers at all! The family had cleared out because my Mogambo Machine To Measure Magical Money (MMTMMM) was going nuts, banging and beeping, and clanging and cleeping, which is not even a real word, which only shows you how freaked out I still am when I instantly saw why: Federal Reserve Credit (the magical “money out of thin air” of story and song, which the gold standard would prevent), jumped a massive $31 billion last week – $31 billion in One Freaking Week (OFW)! – taking the total to a record $2.264 trillion.

The banks, for their part, can take this new credit that has appeared, as if by magic, on their books, and loan out Huge Freaking Multiples (HFM) of this $31 billion, according to the Fed’s preposterously-low required fractional-reserve ratio which is (and has been for almost two full decades) almost a zillion-to-one, which (multiplying a zillion times $31 billion) is slightly more than, as I understand it, a freaking gazillion.

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Gold Stock Fractal Dreamin’ – On the Threshold

By Adam Brochert, GoldSeek

Looking for repetitive patterns, or fractals, in markets is something I enjoy. I know I need another hobby, but knowing what’s happened in the past and what is possible based on historical precedents can help one to make speculative decisions and anticipate future movements. Sometimes it works, sometimes it doesn’t…

I still think we are in for a VERY strong move in Gold mining stocks to the upside. I still believe a valid construct for analyzing what may come next is the 2001-2002 time frame. If so, we are on the threshold of that big move I am dreaming of as someone who is all in on both Gold and Gold stocks at this point (as well as a little silver and some silver miner exposure). Now hope don’t make it so and isn’t a very good investment strategy, to be sure. But thefundamentals are there and are as strong as they have been during this entire secular bull market based on the “real” price of Gold (i.e. Gold price divided by a basket of commodities).

Anyhoo, here’s an 11 year weekly log scale chart of the $HUI Gold mining index divided by the price of Gold ($HUI:$GOLD) to show where I think we are:

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The Multiplication of Money

By John Mauldin, GoldSeek

The economy grew in the fourth quarter by 5.9%, the most in years. The adjusted monetary base is exploding. Bank reserves are literally through the roof. The Fed is flooding money into the system in an effort to get banks to lend. An historically normal response by banks (to increase lending) would have been massively inflationary, causing the Fed to stomp on the brakes. Despite raising the almost meaningless discount rate (as who uses it?), this week Ben Bernanke assured Congress of an easy monetary policy, with rates remaining low for a long time. Many ask, how can this not be inflationary?

This week we look at some fundamentals of money supply and the economy. If you understand this, you won’t get misled by people selling investments, telling you to buy this or that based on some chart that shows whatever they are selling to be what you absolutely have to have to protect your portfolio and/or make massive profits. And we touch on a few odds and ends. And yes, I can’t resist, a few more thoughts on Greece. It will make for an interesting letter, as I’m writing on a plane to San Jose. And it will print a bit longer than usual, because there are a lot of charts.

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International Forecaster February 2010 (#8) – Gold, Silver, Economy + More

By Bob Chapman, GoldSeek

US MARKETS

The Brotherhood of Darkness is in full retreat due to exposure of their evil machinations via the Internet and via alternative radio, television and shortwave broadcasts.  They are rushing headlong to destruction, making mistakes as they accelerate their plans to implement world government.  Within the next six months, the gold and silver cartels will be broken as physical demand overwhelms physical supply, and as the COMEX, LME, GLD, SLV and various private mints, and their multi-level scams in paper certificates, shares, OTC derivatives and futures contracts are exposed and shown to be almost totally naked.  We see gold reaching a high of $1,600 dollars per ounce during the first half of 2010, and $2,000+ during the second half, based solely on a flight to quality and a need to hedge against inflation.  If the various ongoing scams are exposed at any time during 2010, as we predict they will be, then really the sky is the limit.  We also see inflation elevating throughout 2010 due to ongoing profligate fiscal spending, ongoing bailouts and a new half trillion to one trillion stimulus package which will be arranged by our legislative and executive branches, as well as rampant Fed monetization to keep fueling stimulus packages, currency swaps and treasury and agency bond manipulations.  The national debt ceiling has been raised recently to accommodate all of this bogus Keynesian tomfoolery by delaying the seating of our new Tea Party Senator Brown from Massachusetts in true Nazi thug-ocracy fashion.

We ask, who on earth will now buy our bonds as our multi-trillion dollar Obama-ordained deficits run America into a state of bankruptcy?  Certainly not the Chinese, who are no longer buying our “worthless paper.”  They are now buying Canadian bonds and gold.  Certainly not the Russians, because they know exactly where the dollar and America are headed (i.e. where Russia was not too long ago – in total collapse).  Certainly not the US lapdog Japan, at least not since the Obama administration and the largely US government-owned car companies orchestrated a wildly exaggerated attack on Japanese auto quality.  And certainly not the Middle East, who are already swimming in treasuries and who want to start their own currency so they can finally break the dollar pegs that are driving them into inflationary hell.  Who does that leave then, you might ask?

We’ll tell you who that leaves.  The Fed, panic-stricken stock investors and the US public, that’s who!  The Fed will continue to feed money to foreign banks via currency swaps, this time in secret, and will continue to feed leveraged funds into secret Fed-supported off-shore hedge funds to invest in treasuries and agencies.  Then you will see the PPT plunge the stock markets periodically to push money out of those markets into US treasuries.  The problem there is, that although investors may buy short-term treasuries because they can’t think of anything else on the spot, they are going to be looking for other venues, like gold, silver and commodities, both because the US economy and dollar are going to be looking rather sickly, and because rising interest rates due to an increase in perceived risks is going to destroy bond values.  They will hold the bonds while the blood-letting is ongoing to take advantage of the increase in bond prices, but then they are going to have to find another location for their assets in short order when that blood-letting stops, and that means gold and silver.  After the stock markets around the world have been bled down to whatever level the PPT is told to bring the markets down to by our shadow government, guess who’s next?  That’s right, the American people and their pensions, 401(k)’s and IRA’s.       You will be offered the option to buy an annuity from an insurance company, who will fund it’s obligations under that annuity, with, well, you guessed it, US treasury bonds.  After the government gets its foot in the door with voluntary annuities, you can be sure that mandatory annuities are next.  The only problem with these proposed annuities, beside abysmal rates of return, is that after the USgovernment goes bankrupt, the US treasuries will be worthless and the insurance companies will be unable to deliver on their annuities, leading them into bankruptcy and further government takeover, and leaving you with a big goose egg for retirement income.  That is where we are headed unless you take action to stop them.

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Silver Supply-Crisis Looms

I have spent a considerable amount of time discussing how a supply-crunch is looming in the gold market. With retail investment demand soaring, and central banks switching from large, net-sellers to large net-buyers, the world’s gold-shortage will continue to intensify – despite the fact that nearly every ounce of gold ever mined still exists (in some form) around the world. Of course, countless thousands of tons of this gold is incorporated into some of the world’s most-revered artifacts and religious symbols – and thus (for all intents and purposes) it is gone forever.

Meanwhile, mine production has remained essentially flat – despite a quadrupling of the price of gold over the last decade. While there has been a slight hiccup in supply in 2009, it is difficult to see this as a sign of a changing trend – given that with the exception of China, production of gold for all the world’s major gold-producers has been flat or falling.

This comes in a world with both rapid population-growth and rapid income-growth in many of the world’s “developing economies”. This is of huge significance to the precious metals markets since a) these economies represent the majority of the world’s population; and b) they are cultures with strong, historical attachments to precious metals. With both population-growth and income-growth exceeding the increase in supply of precious metals, these rare commodities are literally becoming more precious every day.

As I have also discussed, the supply/demand dynamics of the silver market are vastly different from the gold market. It is those differences which guarantee that the looming spike in the price of silver will be several multiples greater than the increase in the price of gold.

Regular readers are familiar with the two, key differences between the gold market and the silver market. First, silver is the world’s most-versatile metal. It has been the source of more new patents than for any other metal. This has resulted in many market-neanderthals mistakenly concluding that silver is an “industrial metal”, not a precious metal.

There can be no absolutely no doubt that silver is a precious metal, in every respect. It has the same malleability and aesthetic appeal of all other “precious metals”, which is why it has been widely used (equally with gold) for jewelry, and as the best “money” our species has ever devised (see “What is Money?”). This has been the case for nearly 5,000 years.

It is because of the vast uses for silver in a nearly infinite number of current and future industrial applications that the second, different dynamic exists in the silver market: most of the world’s refined silver has been effectively “consumed” – and is gone forever.

Because silver is so truly “precious”, in many of silver’s industrial uses it is used in trace-amounts. In such tiny quantities, there is no practical/economic way to recycle this silver. It is because of the enormous industrial demand for silver that decades of price-fixing by the anti-gold cabal of Western bankers has had a much greater impact on the silver market than the gold market.

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Silver Prices End Higher Through Final Three Weeks in February

Silver prices ended on stronger notes through the final three weeks of February after having tumbled nearly 20% during the three prior weeks, and by more than $1 in the first week of the month alone.

Despite gold declining slightly over the past week, silver — which often follows the yellow metal — was higher in both New York and London with respective weekly gains of 0.7% and 1.1%.

 

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Read the rest of Silver Prices End Higher Through Final Three Weeks in February (571 words)

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CME to change Comex gold, silver settlement procedure

The Wall Street Journal

NEW YORK — CME Group Inc. will switch the procedure for settling Comex gold and silver futures to a method based on average price and volume rather than a specific price point, the exchange said Monday.

As of Friday, staff will settle the most-actively traded month of each contract at the volume-weighted average price — which skews toward more heavily traded lots — of outright trades on the CME Globex electronic trading platform. This is a change from the current method of settlement, where the lead contract month for gold and silver are settled to the midpoint of Globex trades during the settlement time range.

The settlement time periods are 1:29 p.m. ET-1:30 p.m. for gold and 1:24 p.m.-1:25 p.m. for silver.

If there are no outright trades during the settlement periods, the settlement price will be the best bid or offer in the expiring contract at the close of the market that is closest to the last traded price.

If there is no bid or offer in the expiring contract at that time, the settlement price will be implied from the bid/offer in the active spread at the close of the market, at the price that is closest to the last outright trade price in the expiring contract.

Contract months other than the active month will be settled by staff in conjunction with market participants based on spread relationships on CME Globex and the trading floor.

The greatest weight will be given to spreads traded in larger volumes later in the trading day, either on the trading floor or on CME Globex. In the absence of trading activity, spread bids/offers actively represented either on the floor or Globex will determine the settlements.

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Ron Paul faces anti-incumbent challenges in primary for renomination

Paul Burned by Tea Party Blowback

By Alex Isenstadt, Politico.com

U.S. Rep. Ron Paul, the libertarian-oriented Republican whose 2008 presidential run provided kindling for the Tea Party movement, suddenly finds himself dealing with the blowback: a handful of Tea Party-inspired candidates are seeking to dislodge him in Tuesday’s Texas Republican primary.

It’s an unusual turn of events for a veteran congressman who has reached stardom in conservative populist circles and who just last week emerged as the victor of the presidential straw poll at the Conservative Political Action Conference.

Yet despite his solid anti-establishment credentials and non-conformist views, Paul finds himself under siege from three Republicans who are embracing many of the themes that have defined Paul’s career. At the heart of the resistance is the notion that the 10-term Paul has gone Washington, abandoning his constituents as he pursues his white whale—the presidency.

“To be honest, I was surprised when these guys started coming out of the woodwork,” said Fort Bend County GOP Chairman Rick Miller. “They’re trying to tap into the idea that it’s time for a new face. It’s a sign of the times. It’s what’s happening in our country.”

Paul remains the favorite in the race but the opposition clearly has him looking over his shoulder.

In a January email alert titled “They’ve Turned Their Attack Dogs Loose On Me!,” Paul warns that both parties are “doing everything they can to make sure I am defeated.”

“These candidates include three Republicans in my own primary on March 2,” he wrote, “and they will stop at nothing to tear down and destroy all we have worked for.”

Richard Murray, a University of Houston political scientist, said strong anti-incumbent winds are buffeting even members like Paul who have never been embraced by the political establishment.

“You’ve got this throw the bums out factor, and it doesn’t matter if they have an R, a D, or an L next to their name,” he said.

As they crisscross the small towns that encompass outer edge of Houston and the Gulf Coast, Paul’s foes are also branding him as more interested in running for president than serving the residents of the 14th Congressional District.

“Where are you, Congressman Paul?” reads the website of Tim Graney, a small business owner who is one of the Republicans running against Paul. At a debate last week, John Gay, another Paul challenger, took a shot at the congressman’s national political organization, Campaign for Liberty: “I applaud Dr. Paul for what he’s done and I want him to retire and do the things that he likes to do and run the foundations that he’s started.”

“He’s not doing the job of the U.S. House. He should be here in the district listening to us,” Graney said in an interview this week. “At the end of the day, his Campaign for Liberty is a good cause, but he shouldn’t be doing that on our time.”

Gerald Wall, a chemical worker who is also challenging Paul, echoed their criticisms.

“The problem with Ron Paul is that he doesn’t spend any time representing his people,” he said. “Everyone knows that if we elect him to Congress he will spend one month in Congress and 18 months running for president.”

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Central bank report tells South Korea to prepare for dollar’s fade

South Korean Central Bank: Dollar Status May Fade over Time

From Reuters

SEOUL, South Korea — The U.S. dollar will likely remain the world’s leading reserve currency for the next five to 10 years but may lose its edge over a longer period, a South Korean central bank report published on Sunday said.

The world could see multiple reserve currencies sharing the leading status 20 to 30 years from now, due to weakening confidence towards the dollar and the rising influence of other currencies such as the euro and yuan, it said.

“The global monetary order is expected to enter into a multi-currency system with currencies such as the dollar, euro, and yuan competing to become the leading reserve currency,” the Bank of Korea report said.

It said the weight of dollar assets in global foreign reserves had already fallen to 61.6 percent by the end of September 2009 from more than 80 percent in 1977, whereas the euro has risen to 27.7 percent from 17.9 percent in 1999.

It is rare for the Bank of Korea, which manages the world’s sixth-biggest foreign reserves, to publish a report commenting on such a sensitive topic, although the authors said the paper did not necessarily represent the central bank’s stance.

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Great Basin Gold: Production Poised for Profit

Marco G. submits:

Introduction – Development Transitioning Into Production

Great Basin Gold (GBG) is a development stage gold junior bringing two Gold mines in disparate parts of the world into significant production this year. The first mine, Hollister, is a high grade epithermal vein type deposit in the Carlin Trend in Nevada. The second mine, Burnstone, is a new development mining a shallow uplifted segment of the Gold-laden conglomerates of the Kimberly Reef structure in Balfour, South Africa. Great Basin has overcome economic and technical challenges to bring these mining developments close to production. As the company turns the corner to profitability, the investment world may pay attention and support the share price higher.

Situation Analysis – Two Mines Coming Into Production

Pre-production Investing

Great Basin Gold has endured and survived the difficult path of bringing a mining prospect into production. In the mining world, out of hundreds of prospective properties, only a select few overcome the myriad obstacles to become a producing mine. This difficult task of successful mine development is multiplied by two, as GBG is bringing two different complex mining projects into fruition. For a detailed look by the author at GBG’s two mining properties see “Great Basin Gold – Jump to Mid-Tier Producer”.

Low Risk/Highest Reward Investing Prior to Production

As detailed in the classic mine development article, “The Second Best Time to Buy a Mining Stock”, investing in a mining stock as “it is being readied to go into production provides some of the lowest risk/highest reward mining industry investment opportunities.” See the Classic Model of Production Startup chart following. GBG is between Step #6 of Development/Construction and Step #7 of Production Startup.

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