Part 2

Richard Russell: Everything you need to know about gold in three sentences

Thursday, July 08, 2010
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From Richard Russell in Dow Theory Letters:

...As I've said a thousand times, Fed Chief Bernanke will absolutely not accept deflation...

Shrewd gold-accumulators are well aware of [this]. As the deflationary and deleveraging forces press on the US economy, the Bernanke Fed is ready to devalue the US dollar in its ("whatever it takes") battle to hold back deflation.

Let's boil the whole thing down to three sentences.

(1)The Fed will not tolerate the growing forces of deflation.

(2) To combat the deflationary forces, the Fed will devalue the dollar by printing trillions more of Federal fiat money.

(3) Once it is realized that the Fed is on the path to devalue the dollar, there will be a panic to buy and own gold.

Crux Note: Learn more about the excellent Dow Theory Letters here.

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Time And Time Again

Posted: Jul 08 2010 By: Jim Sinclair Post Edited: July 8, 2010 at 9:22 pm

Filed under: General Editorial

Dear Friends,

Gold is headed to $1650 and beyond. All your concerns in retrospect will be seen to have been concerns caused by manufactured noise.

Time and time again you have seen this. Time and time again gold will not be stopped.

Nothing has changed. Nothing has been rescued. The can that is being kicked daily down the path is going to turn around and bite the kickers.

Gold is the only insurance.

Regards,
Jim

Federal Budget Deficit Hits $1 Trillion For 1st 9 Months Of FY’10

WASHINGTON -(Dow Jones)- The federal budget deficit for the first nine months of the 2010 fiscal year was just over $1 trillion, the Congressional Budget Office reported Wednesday.

The shortfall, reflecting $2.6 trillion in outlays for the first three quarters and $1.6 trillion in receipts, narrowed slightly compared with the same point in fiscal 2009.

Receipts were 0.5% higher for the period compared to the first three quarters of 2009, CBO said in its monthly budget review.

The rise in revenues was a result of increased corporate tax collections, due to improving economic conditions, and a shift by the Federal Reserve to higher- yielding investments.

But individual income and payroll tax receipts were down 4% over the nine- month period, suggesting that wages and salaries have not improved to the extent that corporate profits have.

More…

“Myths” Paul Krugman Does Not Want To Talk About

Posted: Jul 08 2010 By: Greg Hunter Post Edited: July 8, 2010 at 8:56 pm

Filed under: USAWatchdog.com

Jim Sinclair’s Commentary

Gold is headed to and through $1650. Greg Hunter points out a major and present reason why.

Dear CIGAs,

I have been telling you for months there is going to be a double dip in the economy. Nobel Prize Winning economist Paul Krugman also thinks the economy is so bad we need to keep on stimulating the economy. In a New York Times Op-Ed piece last week, Krugman said, “. . . somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.” In short, cut backs, or austerity, is not what the economy needs right now. (Click here for the complete NYT Op-Ed from Krugman.)

In a nutshell, Mr. Krugman thinks America will do no harm in the short term if the U.S. government prints money to prop up the economy until it can stand on its own. He thinks it is a myth to believe in “invisible bond vigilantes” who financially attack countries with sky high debt. Krugman wrote, “Bond vigilantes are investors who pull the plug on governments they perceive as unable or unwilling to pay their debts. Now there’s no question that countries can suffer crises of confidence (see Greece, debt of). But what the advocates of austerity claim is that (a) the bond vigilantes are about to attack America, and (b) spending anything more on stimulus will set them off. What reason do we have to believe that any of this is true? Yes, America has long-run budget problems, but what we do on stimulus over the next couple of years has almost no bearing on our ability to deal with these long-run problems.”

What evidence does Krugman give that America can keep printing money until things get better? Interest rates on government debt are staying low. For example, the 10 year Treasury is paying around 3%. Krugman said, “Far from fleeing U.S. government debt, investors evidently see it as their safest bet in a stumbling economy. Yet the advocates of austerity still assure us that bond vigilantes will attack any day now if we don’t slash spending immediately.”

What Krugman glosses over is the government has spent trillions keeping rates down and the economy going. The Fed has bought at least $1.25 trillion in mortgage backed securities with money printed out of thin air. There has been “quantitative easing” (code for money printing) to the tune of at least $300 billion to buy, what else, government debt. Congress has raised the debt ceiling to more than $14 trillion. That helped fund an $862 billion stimulus plan and a $700 billion TARP bailout for the banks. (Part of TARP has been paid back, but taxpayers are still owed around $296 billion.) Now, the Fed is considering ways to head off another plunge in the economy. A recent Telegraph UK story said, “Fed watchers say Mr. Bernanke and his close allies at the Board in Washingtonare worried by signs that the US recovery is running out of steam. . . .Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed’s balance sheet from $2.4 trillion . . .to uncharted levels of $5 trillion.” (Click here for the complete Telegraph UK story.)

There is also evidence the government is buying its own debt from hedge fund manager Eric Sprott. In December of 2009, Sprott took a hard look at who was buying Treasuries. Sprott discovered a sector the Treasury Department calls “Households” that bought $528 billion in government debt by the third quarter of 2009. The Sprott report said, “We must admit that we were surprised to discover that “Households” had bought so many Treasuries in 2009. They bought 35 times more government debt than they did in 2008. Given the financial condition of the average household in 2009, this makes little sense to us. With unemployment and foreclosures skyrocketing, who could afford to increase treasury investments to such a large degree? . . . -who is the Household Sector? They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.” (Click here for the Sprott report.)

In June of 2010, according to a CNN story, “Households” held nearly $800 billion in Treasuries. This “phantom” buying has people like Eric Sprott thinking, “It makes us wonder if it’s all just a Ponzi scheme.” Are “Households” and the world really flocking to the safety of Treasuries? Or is the Fed becoming a buyer of last resort? I think it is probably both. When the government buys its own debt, it creates false demand and artificially depresses interest rates.

The idea that interest rates are being magically held down by extreme demand for our ballooning debt is the real myth. Krugman fails to recognize any downside of all this money printing. Maybe he has fallen victim to his own prejudices. As Krugman says in the beginning of his Op-Ed piece, “Much of what Serious People believe rests on prejudices, not analysis. And these prejudices are subject to fads and fashions.

Milton Freidman, another Nobel Prize winner in economics, summed up the result of a loose monetary policy in his famous quote, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” If the country takes the path Mr. Krugman is suggesting, we might not have a double dip in the economy, but we will have some very big inflation because you just can’t have it both ways.

Link to full article…

25 Signs of Expectations for an Economic Collapse in 2010

Michael T. Snyder

Bad economic signs are everywhere: consumer confidence is plummeting, banks are hoarding cash, financial experts are bearish and almost everyone is buying gold. The G20 nations have all pledged to dramatically cut government spending in an effort to control debt, so worries about a double-dip recession are escalating. A full-fledged economic collapse this year is possible, but it seems more likely that we will sink into another recession that could deepen into a depression heading into 2011. A sampling of the 25 signs that tell Snyder extreme economic stress lies dead ahead: the declining Consumer Confidence Index; banks hoarding cash in preparation for the next financial crisis; the Societe Generale’s forecast of $1,430 gold; the New York Times’ prediction of a third Depression; Moody’s comment regarding an ‘uncomfortably high probability’ of the US slipping back into recession; the US Department of Agriculture’s forecast of 43 million Americans on food stamps in 2011; George Soros’ claim that a European recession in the coming months is almost inevitable; Fed Chairman Bernanke’s public announcement that the US unemployment rate is likely to remain high for some time; the National League of Cities warning that large numbers of US cities will be facing horrible economic conditions over the next couple of years; debates at the Fed about what to do in the event of a double-dip recession; sales of new homes in the US at the lowest level ever recorded; 46 US states facing a Greek-style financial crisis. What to do about all this? Start preparing for difficult times: get out of debt, reduce expenses, develop additional income streams, store food and supplies. Don’t wait until the storm hits, start preparing immediately. The signs that we are headed towards an economic nightmare are all around us.