And Scene: Q2 GDP 1.3%, Gold Surging On Imminent QE3 Resumption

A simply unprecedented miss in Q2 GDP well below the consensus range, with the official number printing at 1.3%, giving it upside room for revisions in case QE3 does not pass, although at this point it is more than obvious that this number is goalseeked to give Bernanke the carte blanche to start more easing any second. This number follows an epic revision to prior data, with Q1 plunging from 1.9% to 0.4%. The GDP internals were simply appalling: Personal Consumption tumbled from 2.1% to 0.1%, on expectations of 0.8%! The US consumer is dead despite not paying mortgage payments. Lastly, US PCE Core printed at 2.1% on expectations of 2.3%. As we have been expecting since December, the US is on the verge of a triple dip recession within the bigger depression. With a deadlocked Congress, the Fed has no option but to do another monetary stimulus as seen by the surge of gold to near record highs on the data in the $1.625 range and the implosion in the USDCHF to fresh all time lows.

Charting Q1 GDP Pre And Post The 80% Downward Revision

It's a good thing the BEA has two revisions to its GDP data or else someone would think that the government is purposefully fudging data. Below is a comparison between the Final Q1 GDP, which was released on June 24, and today's epic Q1 re-revision. From 1.9% to 0.4% in one easy Qe3 enabling step.

IMF Chief Warns America on “Exorbitant Privilege”, Brings Back Flashbacks To de Gaulle And The London Gold Pool

New IMF Chief Christine Lagarde has warned overnight that the global reserve currency status of the dollar is at risk due to the “worrisome” US debt debate. Failure by the United States to raise the debt ceiling would likely lead to a decline in the U.S. dollar and raise "doubts" among those using it as a reserve currency, Lagarde said. "One of the consequences could be a decline of the dollar as a reserve currency and a dent in people's confidence in the dollar." The U.S. currency has had an “exorbitant privilege because it was the reserve currency that most central banks had,” Lagarde said in an interview on PBS’s “Newshour” yesterday. “If there was a dent in this exorbitant privilege and the confidence that most people have towards the dollar, it would probably entail a decline of the dollar relative to other currencies.” The use of the “exorbitant privilege” phrase by the former French finance minister is important and not an accident. It echoes the former French President, Charles de Gaulle’s comment regarding the dollar being “America’s exorbitant privilege” at a landmark press conference in 1965 that led to the end of the London gold pool or government cartel which attempted to keep the gold price fixed at $35 per ounce.

Contagion Spreads To Sleepy Denmark, As CDS Surges By 20% Overnight

When one things of Europe's default contagion, one traditionally thinks of the Club Ded countries along the Mediterranean. It may be time to change that after Denmark's CDS has surged by nearly 20% overnight, from 74 to 88, and by over a third since June 7, making it the worst performing government in the past month. The reason for this is that the country, which unlike other European nations, has allowed its insolvent banks to actually fail without masking their poor state. This in turn prompted S&P to come out with a report yesterday that as many as 15 more banks could default. In its report, S&P said that "In our base-case assumption, we estimate the gross loss due to additional bank failures to be Danish krona (DKK) 6 billion-DKK12 billion over a given three-year period. If the losses are larger than we expect, we would have to reassess our ratings on individual Danish banks, based on the impact of the fallout on each. Eleven banks have failed in Denmark since 2008. Although the banks were small by international standards, it is nevertheless an unusually high number for a developed market where bank defaults are generally rare events and extraordinary government support mostly averts losses to senior creditors. While the Danish regulatory authorities accept the concept of systemically important institutions, they have so far given no formal indication of which institutions fall under this definition. In our opinion, the banks we rate would be considered systemically important and therefore may receive extraordinary government support, beyond that defined in the country's established bank resolution scheme." So according to the rating agency any country that dares to avoid the Paulson-Summers TBTF doctrine is in prompt need of annihilation if we read this right. Either way, this latest black swan means that the crisis is creeping ever closer to German, which now has to fund two insolvency fronts: a southern and a north one. And when S&P finally puts France on downgrade review, the time to panic will have come and gone.

Political Crisis Contagion: Zapatero To Dissolve Government On September 26

Who says only America has a major political crisis that threatens to destroy the country. Following earlier press reports that Spanish PM Zapatero would dissolve government on September 26 in order to have a new general election on November 20, which were summarily denied by the government immediately, it only took about 20 minutes for Zapatero to make a TV appearance and admit that there will indeed be early elections. And judging by the recent surge in popular protests a government overthrow appears certain, which means that Spain's entire role in the Euro bailout mechanisms will transfer from asset to a liability (which is great for German leadership aspirations for a Fourth Reich in which the fate of the entire Eurozone depends on its, and not the ECB's every whim, broader population be damned), and that Spain can kiss future austerity plans goodbye. The immediate result, though, was another major move in the EURUSD, which tumbled by another 60 pips following overnight news of Spain's downgrade review by Moody's. Overall, the EURUSD moved from a high of 1.4360 on the Boehner news all the way down to 1.4230. Our heartfelt condolences to all FX traders. In addition the Spain - Bund spread is 348, +7 the highest in two weeks, while the Italy Bund spread moved higher by +13 at 332, matching last week's record high. Bailout #3 beckons, only this time the EFSF will be a cool two trillion.

Frontrunning: July 29

Amid Debt Battle, More Americans Say Economy Getting Worse (Gallup)
Treasury Faces Pressure to Detail Backup Plan (WSJ)
Debt-Increase Dispute Tests Boehner’s Power (Bloomberg)
U.S. Economic Growth Probably Slowed (Bloomberg)
IMF Board Holds Informal Board Meeting On EU's Greek Financing Deal (WSJ)
Why are we in this debt fix? It’s the elderly, stupid (WaPo)
France Seeks Rapid Adoption of Greek Bail-Out (FT)

IMF: Turning Crises Into Opportunity

Friday, July 29, 2011 – by Staff Report

Christine Lagarde
IMF's Lagarde Says Clock Ticking for U.S., European Policy Makers on Debt ... Christine Lagarde (left), the new head of the International Monetary Fund, urged U.S. policy makers to quickly agree on a fiscal plan and avoid default, while warning Europeans that they are also under pressure to implement their own measures to alleviate the debt crisis. ... The former French finance minister hinted that she may seek more money for the IMF. The decision by the group of 20 nations in 2009 to triple IMF resources "was exactly the right move," she said. "The question is do we still have the level of resources that is now needed and appropriate to address the crises?" – Bloomberg
Dominant Social Theme: With a little more money the IMF can fix all.
Free-Market Analysis: We have been predicting in these humble pages that the current crises sweeping through the world's financial marts would be used to galvanize support for an even greater consolidation of globalist power. And now, here comes Christine Lagarde, speaking at the Council on Foreign Relations, warning not only America's "wise leaders" to get their financial house in order, but also the Europeans too. She truly speaks to all nations with a very authoritarian voice.
Lagarde is wasting no time in positioning the IMF as the ultimate provider of wisdom and understanding – the ideal institution to help lead the world forward. As she winds her way through her performance, we envision a crowd of CFR attendee's swooning to-and-fro in gleeful unison, machinating how to advance the new world order. Oh how much more pleasant she is at this than DSK! (Sarcasm off.)
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Gold and Silver Beyond the Limit

Friday, July 29, 2011 – by Peter Schiff

Peter Schiff
Perhaps the debt ceiling should be renamed the "national debt target," for it seems Washington is always trying to reach it. One could say it's their only reliable, time-tested achievement. And without fail, upon reaching their national debt target, they promptly extend it further in order to discover how quickly it can once again be attained!
While I have little doubt that the ceiling will be raised, my readers have been curious as to the implications for gold in each of the debt and "default" scenarios possible after August 2nd. This month, I'll outline how each outcome could affect the price of gold and silver.
Bearish Gold Case #1: Debt Ceiling Not Raised - Enough Cuts Made to Avert Default
My readers know that this scenario is actually what the US government should do. The debt ceiling should not be increased and massive cuts must be made. We know this outcome is extremely unlikely - it would require not only a resolute steadfastness to sound money, but also a 180-degree change of philosophical beliefs by the majority of Congress (and the American public) overnight.
Yet in our fantasy world, if this did occur, it would be bearish for gold.
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Ron Paul: If Debt Is the Problem, Why Do You Want More of It?

Friday, July 29, 2011 – by RonPaul2008dotcom 

Ron Paul

In this non-telepromted address to the US Congress, Rep. Ron Paul succinctly lays out the true nature of America's economic problems and why raising the debt ceiling is foolish and will solve nothing.
Dr. Paul began his address as follows, " Mr. Speaker, the Congress is concerned about the debt. The people are concerned about the debt. The markets are concerned about the debt. The world is concerned about the debt."
Dr. Paul continues stating, "To increase the national debt is just another type of default and that is what we are going through. We are engaged in a very difficult and bad way of defaulting and that is through the destruction of the currency. Today we have an inflation rate of 9% and that is defaulting. So if a government can default and print money, if they can get a 50% inflation rate over time, then they can cut that debt in half. That is the goal. That is what's happening. And that is very, very serious. ...
"Just in these last 3 years the dollar has been devalued 50% against gold. ... So we are defaulting. ... I see the only solution is to cut spending. Now the reason we don't cut spending is because one side loves entitlements and the other side loves war. ... This default won't be because we won't send out the checks. We will send out the checks. It will be defaulted on because people will get their money back or their social security checks and it won't buy anything. That is much much worse than facing the fact that we not raise the debt limit and work our way out of this."

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