At the beginning of this month, the G20 met in France to try to find a way to solve the European sovereign debt crisis. It ended with world leaders in disarray over a way to come up with a solution. At first blush, it appears that nothing of any importance came of the meeting of the 20 leading economies of the world, but that is not the case. It was widely reported the G20 came up with the idea that Germany might put up its gold reserves to back a bailout fund called the European Financial Stability Facility or EFSF. Of course, Germany, with its more than 3,400 tonnes of gold (number 2 in the world), quickly shot that idea down. End of story? Quite the contrary–the gold story is just beginning to get interesting.
You see, the G20 did something accidentally that was very important, and that was confirm that gold has a place in the monetary system, especially in times of extreme turmoil. Why doesn’t the EU use sovereign bonds to back the EFSF? They are considered a store of value and are held as reserves in many European banks. The simple answer is the world is waking up to the fact that debt can’t back up debt. Europe finds itself in a tough spot, and the leaders there know it. Reuters reported Monday, German Chancellor Angela Merkel said, “Europe is in one of its toughest, perhaps the toughest hour since World War Two,” she told her Christian Democrats, saying she feared Europe would fail if the euro failed and vowing to do anything to stop this from happening.” (Click here for the complete Reuters story.) Well, anything but put Germany’s gold up as collateral. Maybe Chancellor Merkel will be the next leader to exit the European stage? Who knows, but what I do know is that gold is once again going to become an important part of the world monetary system.
In a new book called “Currency Wars,” Wall Street insider Jim Rickards examines how countries try to get out of financial trouble by devaluing their currencies. Rickards says, “Today, as yesterday, countries are attempting to devalue their way out of trouble. Following the strategy of beggar-thy- neighbor, the U.S., Europe, China and Japan all want to weaken their currencies. The flaw in the tactic should be clear. “Not everyone could cheapen at once,” Rickards writes. “The circle still could not be squared.” (Click here to read a book review by Bloomberg.) Rickards predicts the U.S. dollar’s future is not bright, and if there were a “catastrophic collapse of investor confidence,” the dollar’s buying power could suffer suddenly and dramatically in a global sell off.
Gold would be the big beneficiary if the dollar declined, and Rickards’ top price for gold per ounce is–wait for it–$44,552! That price is the absolute highest possibility. Rickards and others predict that in the next few years, America will go back on some sort of gold standard. Meaning, the dollar will be backed by gold, but Rickards has stated on many occasions that there probably will not be a100% gold backed U.S. dollar. Instead, Rickards contends it will be more in the neighborhood of 40%. If that is the case, then gold would be $17,821 per ounce using Rickards numbers. It appears gold prices are going much higher.
Jim Sinclair’s Commentary
John Williams’ excellent subscription service, available at www.shawdowstats.com says:
- GAAP-Based 2011 Federal Deficit Likely Within Five- to Seven-Trillion Dollar Range
- Effects of High Oil Prices Still Spreading in Broad Economy
- October‚s Annual Inflation: 3.5% (CPI-U), 3.9% (CPI-W), 11.1% (SGS)
- Real Retail Sales and Industrial Production Gained in October But the Series Share Inflation-Adjustment Issues
This is a really sad commentary on the plight of the American homeowner.
The American Dream has turned into the American Nightmare.
CIGA Black Swan
Mortgage rates lowest in decades, but few qualify By DEREK KRAVITZ – AP Economics Writer | AP – Thu, Sep 8, 2011
WASHINGTON (AP) — Mortgage rates have reached their lowest levels in six decades, making this the best time in most Americans’ lives to buy or refinance a home. For people who qualify, today’s rates could save thousands of dollars a year.
Yet most people can’t take advantage. Half of would-be buyers say they’ll never save enough for the 20 percent down payment now usually required. And shrunken home values have erased much of the equity people need to refinance.
"Low rates are great, but the real issue is that the pool of people who can get a loan or refinance is small," said Greg McBride, Bankrate.com’s senior financial analyst.
This week, the average rate on a 30-year fixed mortgage fell to 4.12 percent. It’s the lowest for a 30-year fixed loan since mortgage buyer Freddie Mac began tracking rates in 1971. The last time rates were cheaper was in 1951, when most long-term home loans lasted just 20 or 25 years.
For first time, nations mull Greek exit from euro
If Greece goes, others are certain to follow. European politicians have begun to alter their discussions and tactics to allow weaker members to exit the Euro zone. The market (wolf pack) will likely force the weaker members to return to their own currencies much sooner than expected. Any decay in the EU membership increase the odds of economic isolationism (restrictive trade practices) returning to Europe.
Headline: For first time, nations mull Greek exit from euro
LONDON (AP) — Maybe it’s not the Hotel California after all.
Ever since the idea of the euro currency really took off in the late 1980s, it has been accepted wisdom that entry was forever. But now, with no less than the leaders of France and Germany conceding that Greece could leave the euro, everyone is scrambling to figure out exactly what would happen.
The stakes couldn’t be higher: many economists say it could plunge the global economy into another crisis on the scale of what ensued following the collapse of U.S. investment bank Lehman Brothers in 2008. Others say it would spell the beginning of the end of the dream of building a unified Europe from the ashes of World War II.
Yet some are saying it’s the least bad of all possible outcomes, part of the only remedy available for a currency whose design flaws have led to three countries requiring rescue. The crisis is now threatening Italy — the eurozone’s third-biggest economy — and is showing alarming signs of infecting France — its second-biggest.
Kyle Bass Un-Edited: "Buying Gold Is Just Buying A Put Against The Idiocy Of The Political Cycle. It's That Simple!"
If the abridged summary from BBC's Hardtalk interview with Kyle Bass that we published yesterday was not enough for those seeking sense, truth, and direction, then (as promised) the full 24'30" interview will quench that desire. Reflecting on the similarities of his subprime perspective, he provides a crucial context for the debt-laden world of sovereign debt that he is now hedging. Shrugging off the somewhat snarky 'nefarious short-sellers' angle of questioning (and insuring the uninsured prod), he simply and elegantly points out how massively asymmetric the European sovereign debt bet was, how the asymmetry in Europe has largely disappeared now, and all the asymmetry now lies in Japan. From the 14-minute mark, Bass describes the demographic disaster, destroys the savings myth of the land of the rising sun, and brings into focus how Italy's rapid demise should be a forewarning for the debt-servicing needs of Japan. Ending up on the Fed's printing and the need for guns and gold, there's a little here for everyone!
"Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple"
If a Blythe falls in the woods, does anyone care?
Currency control efforts worry Argentines
Guess How Many Americans Don't Have Enough Saved To Cover A $1,000 Emergency?
Fed Surveys: Economy in Worse Shape Than Feared, Recession Odds Spike to 50%
Complete, and Ongoing List of U.S. Retail Stores Closing in 2011 Calendar Year.
US Companies Feeling Impact of European Crisis.
Europe's Woes Pose New Peril to Recovery in the US
Buffett: European Concerns, US Housing Woes Linger
Gold Demand Doubles Amid Economic Gloom