Race To Debase - 2012 Q3 - Fiat Currencies vs Gold & Silver

GoldSilver.com

Welcome back to the Worldwide Fiat Currency Race to Debase!

Gold has recently touched new all time highs in terms of euros, Swiss francs, and Brazilian real.
Below you will find a report on 75 different fiat currencies vs gold and silver from around the globe.  
Note how they have ALL lost value to gold and silver thus far in 2012.  
With recent announcements of even further central bank monetary easing policies (QE3, Japan, Brazil, etc.) we fully expect the current gold bull market and silver bull market revaluation trend to not only continue, but to quicken moving forward. 
Be sure to also click here and see how fiat currencies have performed against gold and silver over the last 12+ years.
   

Base Currency vs 1 Gold Ounce	1-Jan-12	30-Sep-12	% Gold +/- 2012 Q3
Afghanistan Afghanis	75,531	89,681	18.7%
Albania Leke	168,101	192,130	14.3%
Algeria Dinars	117,439	140,418	19.6%
Argentina Pesos	6,725	8,324	23.8%
Australia Dollars	1,531	1,708	11.6%
Bahamas Dollars	1,563	1,773	13.5%
Bahrain Dinars	589	669	13.5%
Bangladesh Taka	127,834	144,798	13.3%
Barbados Dollars	3,126	3,547	13.5%
Bermuda Dollars	1,563	1,773	13.5%
Brazil Reais	2,911	3,592	23.4%
Bulgaria Leva	2,362	2,691	13.9%
CFA BEAC Francs	791,233	904,853	14.4%
Canada Dollars	1,597	1,744	9.2%
Chile Pesos	811,978	840,821	3.6%
China Yuan Renminbi	9,839	11,147	13.3%
Colombia Pesos	3,029,385	3,192,957	5.4%
CFP Franc	143,941	164,611	14.4%
Base Currency vs 1 Gold Ounce	1-Jan-12	30-Sep-12	% Gold +/- 2012 Q3
Costa Rica Colones	788,922	873,382	10.7%
Croatia Kuna	9,094	10,259	12.8%
Czech Republic Koruna	30,882	34,666	12.3%
Denmark Kroner	8,960	10,284	14.8%
Dominican Republic Pesos	60,181	69,694	15.8%
East Caribbean Dollars	4,221	4,788	13.5%
Egypt Pounds	9,424	10,813	14.7%
Euro	1,206	1,379	14.4%
Fiji Dollars	2,846	3,141	10.4%
Hong Kong Dollars	12,143	13,751	13.2%
Hungary Forint	379,759	393,615	3.6%
IMF Special Drawing Rights	1,018	1,153	13.2%
Iceland Kronur	191,361	219,299	14.6%
India Rupees	82,941	93,721	13.0%
Indonesia Rupiahs	14,177,770	16,962,571	19.6%
Iran Rials	17,390,044	21,751,503	25.1%
Iraq Dinars	1,828,104	2,066,011	13.0%
Israel New Shekels	5,970	6,951	16.4%
Jamaica Dollars	133,727	158,395	18.4%
Base Currency vs 1 Gold Ounce	1-Jan-12	30-Sep-12	% Gold +/- 2012 Q3
Japan Yen	120,542	138,299	14.7%
Jordan Dinars	1,109	1,252	12.9%
Kenya Shillings	132,790	151,182	13.9%
Kuwait Dinars	435	498	14.4%
Lebanon Pounds	2,350,978	2,663,647	13.3%
Malaysia Ringgits	4,954	5,425	9.5%
Mauritius Rupees	45,175	54,159	19.9%
Mexico Pesos	21,802	22,813	4.6%
Morocco Dirhams	13,404	15,254	13.8%
New Zealand Dollars	2,010	2,137	6.3%
Norway Kroner	9,345	10,156	8.7%
Oman Rials	602	681	13.2%
Pakistan Rupees	140,605	168,273	19.7%
Peru Nuevos Soles	4,215	4,607	9.3%
Philippines Pesos	68,466	74,039	8.1%
Poland Zloty	5,374	5,681	5.7%
Qatar Riyals	5,692	6,457	13.4%
Romania New Lei	5,210	6,264	20.2%
Russia Rubles	50,021	55,332	10.6%
Base Currency vs 1 Gold Ounce	1-Jan-12	30-Sep-12	% Gold +/- 2012 Q3
Saudi Arabia Riyals	5,862	6,648	13.4%
Singapore Dollars	2,027	2,177	7.4%
South Africa Rand	12,630	14,739	16.7%
South Korea Won	1,810,284	1,970,780	8.9%
Sri Lanka Rupees	180,278	229,522	27.3%
Sudan Pounds	4,176	7,826	87.4%
Sweden Kronor	10,794	11,644	7.9%
Switzerland Francs	1,467	1,666	13.6%
Taiwan New Dollars	47,324	51,938	9.7%
Thailand Baht	49,310	54,674	10.9%
Trinidad and Tobago Dollars	9,926	11,390	14.8%
Tunisia Dinars	2,339	2,790	19.3%
Turkey Lira	2,957	3,187	7.8%
United Arab Emirates Dirhams	5,742	6,514	13.4%
United Kingdom Pounds	1,007	1,097	9.0%
United States Dollars	1,563	1,773	13.5%
Venezuela Bolivares Fuertes	6,722	7,626	13.5%
Vietnam Dong	32,873,044	36,999,792	12.6%
Zambia Kwacha	7,995,512	8,918,429	11.5%

Gold is Good Money - Dr. Ron Paul, U.S. Congressman

goldseek.com

Last year the Chairman of the Federal Reserve told me that gold is not money, a position which central banks, governments, and mainstream economists have claimed is the consensus for decades. But lately there have been some high-profile defections from that consensus. As Forbes recently reported, the president of the Bundesbank (Germany's central bank) and two highly-respected analysts at Deutsche Bank have praised gold as good money.

Why is gold good money? Because it possesses all the monetary properties that the market demands: it is divisible, portable, recognizable and, most importantly, scarce - making it a stable store of value. It is all things the market needs good money to be and has been recognized as such throughout history. Gold rose to nearly $1800 an ounce after the Fed's most recent round of quantitative easing because the people know that gold is money when fiat money fails.

Central bankers recognize this too, even if they officially deny it. Some analysts have speculated that the International Monetary Fund's real clout is due to its large holdings of gold. And central banks around the world have increased their gold holdings over the last year, especially in emerging market economies trying to protect themselves from the collapse of Western fiat currencies.

Fiat money is not good money because it can be issued without limit and therefore cannot act as a stable store of value. A fiat monetary system gives complete discretion to those who run the printing press, allowing governments to spend money without having to suffer the political consequences of raising taxes. Fiat money benefits those who create it and receive it first, enriching government and its cronies. And the negative effects of fiat money are disguised so that people do not realize that money the Fed creates today is the reason for the busts, rising prices and unemployment, and diminished standard of living tomorrow.

This is why it is so important to allow people the freedom to choose stable money. Earlier this Congress I introduced the Free Competition in Currency Act (H.R. 1098) to permit people to use gold as money again. By eliminating taxes on gold and other precious metals and repealing legal tender laws, people are given the option between using good money or fiat money. If the government persists in debasing the dollar – as money monopolists have always done – then the people would be able to protect themselves by using alternatives such as gold that are both sound and stable.

As the fiat money pyramid crumbles, gold retains its luster. Rather than being the barbarous relic Keynesians have tried to lead us to believe it is, gold is, as the Bundesbank president put it, "a timeless classic." The defamation of gold wrought by central banks and governments is because gold exposes the devaluation of fiat currencies and the flawed policies of government. Governments hate gold because the people cannot be fooled by it.

THE BUBBLE - A chronological re-ordering of the events and arguments of the bubble

thebubblefilm.com

Who Caused it. Who Called it. What’s Next.

Coming in Fall 2012, The Bubble asks the experts who predicted the current recession, “What happened and why?” Diving deep into the true causes of the financial crisis, renowned economists, investors and business leaders explain what America is facing if we don't learn from our past mistakes. The film poses the question: “Is the economy really improving or are we just blowing up another Bubble?”

A chronological re-ordering of the events and arguments of THE BUBBLE

PART 1: THE CAUSES

The Federal Reserve and Interest Rates


Low interest rates from the Federal Reserve enticed people to borrow savings that did not exist. Both the government and the artificially lowered interest rate diverted resources into housing, creating a bubble that would inevitably burst.
· Increased home prices encouraged home owners to borrow money based on their real estate price and accumulate more debt.
· When the market responded by forcing interest rates back up, these bubble projects failed. People realized they could not afford this lifestyle.


Government Guarantees

· Fannie Mae and Freddie Mac were Government Sponsored Enterprises that subsidize and guarantee home mortgages. Their liabilities were implicitly guaranteed by the government, who nationalized them in September of 2008.

· Banks frequently underwrote bad mortgages and sold them on secondary markets created by Fannie Mae and Freddie Mac.

· Commercial bank deposits are guaranteed by the FDIC, a highly leveraged government program that allows banks to take more risks.

· The Greenspan Put was the widespread belief in the market that Alan Greenspan would intervene to bail out the financial sector whenever threatened. This was based on his reaction to the Savings & Loan Crisis, the bailout of the Mexican Peso in the 90’s, the bailout of LTCM, the liquidity approaching Y2k, and his actions forcing the interest rate down to 1% for a full year after September 11th. This was later replaced with the even larger Bernanke Put.

Government Home Ownership Policies

· The mortgage income tax deduction artificially stimulated the real estate market and led to larger home purchases.

· The Basel regulations allowed banks to be more leveraged if they held mortgage loans and even more leveraged if they held mortgage backed securities.

· Presidents Clinton, Bush, and Obama have all attempted to decrease the down payment needed to buy homes.

Nontraditional Mortgages

· Includes both subprime loans (low credit score) and alt-a loans. (low down payment, adjustable rate, no doc)

· By 2008, half of all mortgages were nontraditional mortgages.

· Fannie Mae and Freddie Mac owned more nontraditional mortgages than the entire private sector.



Affordable Housing

· The Department of Housing & urban Development required Fannie and Freddie to allocate 50% of mortgages to individuals that were at or below the median income in their communities.

· The Community Reinvestment Act required mortgage lenders to fulfill a quota for low and moderate income home buyers in certain communities. Although it was expanded in the 1990’s, the role in the housing bubble was minor.

PART 2: PAST CRISES

Panic of 1920

· The Depression of 1920 was worse than the first year of the Great Depression. Production fell 21%, GDP dropped 24% and unemployment went from 4% to 11.7%.

· The Federal Government cut spending in half from 1920 to 1922 and did not enact a stimulus policy.

· The Depression ended in the summer of 1921 and unemployment dropped to 6.7% in 1922 and 2.4% in 1923.

The Great Depression

· Nominal GDP was down 46% during the Great Depression.

· Both Herbert Hoover and Franklin Delano Roosevelt increased government spending while implementing wage and price controls, along with tariffs.

· The Great Depression lasted a decade and the economy did not recover until World War II was over.

Inflation In The 1970s

· America rapidly increased the money supply and abandoned the gold standard in 1971.

· The economy suffered a downturn and prices increased dramatically. The cost of oil alone went from $3 to $30 a barrel.

· To fight inflation, Federal Reserve chairman Paul Volcker allowed interest rates to rise, by slowing down money creation. This lowered price inflation from 13.5% at its peak to 3.2% in 1983.

· The high unemployment and high inflation of the 1970s was predicted by the Austrians, while the Keynesian school of economics believed that combination to be impossible.

PART 3: Response To The Current Crisis

Interest Rate Cuts

· The Federal Reserve has consistently lowered interest rates throughout the crisis.

· They have now pushed interest rates down to zero.


Bailouts

· Bear Stearns creditors were bailed out on March 14th, 2008, despite their investment bank being leveraged 35.5:1.

· Fannie Mae and Freddie Mac were taken over by the government in September of 2008. This confirmed that their debt was guaranteed by the government. Treasury Secretary Paulson claimed in July 2008 that the companies were adequately capitalized despite only having $83 billion for $5 trillion in obligations.

· Although Lehman Brothers was allowed to fail, the rest of the financial sector was bailed out by the Federal Reserve, the Treasury department, and Congress.

· When Congress did not bail out the auto companies, President Bush did.

Stimulus Spending

· In February of 2008, following uncertainty in the Subprime mortgage market, George W. Bush signed a stimulus bill for over $152 billion dollars, attempting to get people to spend again.

· To support the housing market, George W. Bush signed the economic recovery act of 2008 which added $800 billion to the national debt.

· Following the bankruptcy of Washington Mutual and the bailout of AIG, George W. Bush signed the Trouble Asset Recovery Program which authorized the Treasury to buy up to $700 billion in bad assets.

· Due to the slow moving economy, newly elected President Obama continued George W. Bush’s spending spree by signing a $862 billion dollar stimulus bill.

PART 4: What America is Facing

Education Bubble

· Student loan debt’s version of Fannie Mae is called Sallie Mae.

· Student loans have spiked over a trillion dollars, more than all the car loans in the country combined.

· Graduates are finding they cannot pay back their loans with or without a job.

Coming Price Inflation

· Prices will dramatically rise due to the money created in response to the housing crash.

· Increased prices will lower the standard of living in the country.

· The devalued dollar resulting from inflation will wipe out savings for millions of Americans, particularly in the lower and middle classes.


National Debt Bubble

· The national debt approaching $16 trillion dollars is not sustainable.

· Foreign countries will stop buying Treasury bonds and interest rates will rise.

· Rising interest rates and deficits as far as the eye can see will lead to interest payments consuming the entire budget.

· America will be forced to cut spending.

Unfunded Liabilities Bubble

· The unfunded liabilities from Social Security and Medicare are as high as $119 Trillion Dollars.

· With the already high national debt, the federal government cannot absorb these added costs.

· Both Social Security and Medicare will be forced into bankruptcy. Defense will have to be cut.

Raw footage of Ron Paul interview from The Bubble film

The Bubble is a feature length documentary that ask those who predicted the greatest recession since the Great Depression, why did it happen and what are we facing? The documentary is an adaptation of Tom Woods' New York Times bestseller Meltdown. Filmmaker Jimmy Morrison is releasing each interview in full for free before the film's release.

thebubblefilm.com

Big Changes Are Coming, But The World Will Not End

by Robert Fitzwilson

source : KingWorldNews.com

40 year veteran, Robert Fitzwilson, wrote the following piece exclusively for King World News. Fitzwilson, who is founder of The Portola Group, warned, “Changes are coming, but it doesn’t mean the world will come to an end. But financial regime changes do result in a massive transfer of wealth from those who own paper assets, to those that own real assets.”
“Reflecting upon the news and the current state of affairs, it is striking how events are playing out according to script, as history and strategists have predicted. In the beginning of our journey, it was focused on discovery, historical context and understanding as to what had changed about markets, governments and people. The answer is almost everything if one looks just at our lifetimes.
On the other hand, nothing has really changed if one takes a longer view. One of our favorite sayings is, “The only thing new is the history you have not read”....
“We can vouch for that. After a review of much of the last 2,600 years, we have concluded that we are not the historic anomaly that we surmised at the beginning of the journey. In fact, we are simply repeating the same cycles and mistakes that all of our ancestors have made before us. Every culture throughout history has done exactly what we are doing now. The only difference is that this time it involves the entire planet.
As we read history, paper money was not designed to be an asset. It was an intermediary between sellers of goods and services. A seller might not have an immediate purchase in mind, so receiving a paper receipt that could be redeemed at a later time, and even at another location, was both efficient and much safer than receiving payment in gold or silver. The return trip from Rome to London was perilous under normal circumstances, let alone if one was returning with precious metals.
In our era, these receipts have taken many forms. Even the cash in our pockets is a derivative. In technical terms, it is a zero-coupon, perpetual obligation of the issuing government. In essence, the writing on the paper currency is promising “somebody owes you something, someday”.
The post-WWII monetary system began at Bretton Woods, New Hampshire. It began to unravel in the middle of the 1960s, but the mortal blow was struck by President Nixon with the suspension of dollar/gold convertibility. It has certainly been a long “suspension”.
Almost every ugly chart relating to the growth of debt and money can trace it’s roots to 1971. The evidence is incontrovertible. The value of the ancient form of receipts has been sliding ever since. The slide has not been linear over that 40-year period, but it certainly went into free-fall 12 years or so ago.
In the past, rulers created money out of something considered to hold value, often gold and silver. Seignorage was the right of kings to make a profit on that money. Unlimited seignorage was impossible as supplies of gold and silver came and went, and it was expensive to mint the coins.
With the use of paper and now electrons to create money, we now have unlimited seignorage. Money is created out of nothing, and you can see how it has been abused in the post-1971 charts. The abuse is accelerating on a massive, global scale. Cash and other derivatives have replaced our markets. Profits were to be made on creating and trading derivatives, not providing real goods and services. The real aspects of our economies continue to function, but the derivatives dwarf the size of the real global economy.
Much has been written about the historic confluence of our population growth coming together with the exponential endpoint of our resources. The same can be said for our money. Our resources are finite. The ability of our planet to sustain a population is finite.
We are now witnessing the exhaustion of our savings and real assets and our ability to sustain an exponential growth in money and derivatives. Unlimited derivates are hitting the proverbial brick wall, and their collapse will destroy everything based upon them, it is just history. This cycle has been repeated time and time again.
We also believe that we are approaching the end of a wonderful 200-year period in human history, driven by the industrial and technological revolutions. The exponential usage of resources and our population growth began almost precisely 200 years ago. If we combine this resource endgame with various groups which are desperate to maintain power or inflict it on others, it is a very toxic historical “soup”.
As to the resolution of what comes next, it is impossible to say. There are too many moving parts, or ‘Black Swans’ as people say. All we can do is to pay careful attention to events as they unfold, looking for clues as to how this mess will play out.
For our portfolios, the message is clear. Get out of paper assets that can be destroyed by the unlimited seignorage, and convert them into real assets. The end of the fiat money system will come swiftly, and perhaps overnight. It cannot be too far off at this point.
Changes are coming, but it doesn’t mean the world will come to an end. But financial regime changes do result in a massive transfer of wealth from those who own paper assets, to those that own real assets. Historically, gold and silver are traditional safe havens.
Despite what we read, the physical supply of these metals is becoming diminished for a variety of reasons. Waiting too long to purchase them could result in the inability to do so or certainly being forced to buy at much higher prices.”

Raw footage of Jim Rogers interview - The Bubble film

The Bubble is a feature length documentary that ask those who predicted the greatest recession since the Great Depression, why did it happen and what are we facing? The documentary is an adaptation of Tom Woods' New York Times bestseller Meltdown. Filmmaker Jimmy Morrison is releasing each interview in full for free before the film's release.

Gold Could Easily Double From These Levels

By Caesar Bryan from kingworldnews.com

 “The balance sheets of the major central banks, over the last several years, have gone from just over $2 trillion, to almost $10 trillion.  We’re talking here about the Fed, ECB, BoE, and the BOJ.”

“Most of that increase has been in the last few years, since the financial crisis.  We are clearly not at the end of this, and you could argue that the rate of increase is actually accelerating.  I don’t believe that has been properly reflected in the gold market yet.

The gold market breached $1,000 in the beginning of 2008, fell toward the $700 level after the Lehman crisis, and then went back over $1,000 in 2009.  Since that time we have had a dramatic increase, a more than doubling of the balance sheets of just those four central banks....

“The underlying price of gold hasn’t even kept up with the increase in the balance sheets of the central banks.  So there is no question that gold is undervalued today.   As these central banks continue to expand their balance sheets, the upside for gold is very significant.

It’s not as if investors are overweight in gold.  On the contrary, central banks and private investors have a very tiny exposure to gold.  So should there be a discussion about changes to the financial architecture, with a role for gold being part of that new architecture, then gold would go much higher.  Gold could easily double from here.

Gold has had a decent move over the past couple of months, but you have to remember that gold already traded near $2,000 in the summer of 2011.  Meanwhile, money printing at central banks continues unabated.  The Fed has already said they are going to do this mortgage-backed asset purchase scheme, but if the economy does not respond, they are prepared to do more. 

The European situation is different, but the result seems to be very similar.  We have unsustainably high interest rates in the periphery of Europe, and the ECB is going to purchase those peripheral bond markets until rates come down and those countries can finance themselves.

The political will in Europe to maintain the euro is very strong.  To maintain the euro necessitates these dramatic moves.  So it is crystal clear that in an environment of subdued economic growth, central banks are going to remain very active, and this will act as an accelerant for gold going forward.”

 “The gold equities continue to be inexpensive, and unloved, despite their recent performance.  There is excellent potential, in a high gold price environment, for gold equities to put in a very powerful performance.  The bottom line is they are still incredibly cheap at these levels.”

A Faltering Global Economy, Neo-Keynesians & $15,000 Gold

by kingworldnews.com  Jean-Marie Eveillard

Today legendary value investor Jean-Marie Eveillard told King World News, “There are people who have figured out that in view of the enormous amount of money printing, which has taken place over the past three or four years, a price of $15,000 an ounce for gold would not be absurd.”

Eveillard, who oversees $60 billion, also said, “I’m not sure they are right, because I have not studied how they came to that conclusion, but I think what is true is there has been gigantic money printing, which will of course help the price of gold.”

Here is what Eveillard had to say: “The global economy seems to be weakening. It’s weakening in the US, Europe, China, in Asia, and this is in spite of the stimulus. Asia is suffering because Japan continues to do poorly. Again, this weakness is apparent despite the fact that Neo-Keynesian policies are in place. There is enormous fiscal stimulus associated with gigantic budget deficits.”

 

“There is considerable monetary stimulus associated with the Fed and now the ECB, with the ECB deciding in an ‘unlimited way’ they would print money.  So this weakness is a puzzle for policymakers.  It’s a sign that the economies in the developed world are not responding to the Neo-Keynesian remedies.

First, the Keynesian policies are somewhat dubious, but number two, after a major financial crisis, it’s always very difficult for the economies to recover....

 

“In view of the fact that the Neo-Keynesian policies continue to be in place almost everywhere, and as long as there is no change in those policies, I think gold still has considerable upside.

There are people who have figured out that in view of the enormous amount of money printing which has taken place over the past three or four years, a price of $15,000 an ounce for gold would not be absurd. 

I’m not sure they are right, because I have not studied how they came to that conclusion, but I think what is true is there has been gigantic money printing, which will of course help the price of gold.

I would also add that I think the mining shares, of course it was impossible to determine the timing, but they had been lagging the price of bullion for so long, and in such a major way, that we knew at some point they had to outperform.  It’s quite possible that a week and a half ago we got to that point.

The move in the mining shares surprised some market observers because they thought they could pick the bottom.  Going forward, I think investors should own a proper balance of undervalued equities, gold, and cash.  Gold is appropriate today for the obvious reason we have discussed, but they should also own undervalued equities because to some extent they are also real assets.”

 

Interest Rates Are Prices

by Ron Paul - Daily Paul

 

One of the most enduring myths in the United States is that this country has a free market, when in reality, the market is merely the structural shell of formerly free institutions. Government pulls the strings behind the scenes. No better illustration of this can be found than in the Federal Reserve's manipulation of interest rates.

The Fed has interfered with the proper function of interest rates for decades, but perhaps never as boldly as it has in the past few years through its policies of quantitative easing. In Chairman Bernanke's most recent press conference he stated that the Fed wishes not only to drive down rates on Treasury debt, but also rates on mortgages, corporate bonds, and other important interest rates. Markets greeted this statement enthusiastically, as this means trillions more newly-created dollars flowing directly to Wall Street.

Because the interest rate is the price of money, manipulation of interest rates has the same effect in the market for loanable funds as price controls have in markets for goods and services. Since demand for funds has increased, but the supply is not being increased, the only way to match the shortfall is to continue to create new credit. But this process cannot continue indefinitely. At some point the capital projects funded by the new credit are completed. Houses must be sold, mines must begin to produce ore, factories must begin to operate and produce consumer goods.

But because consumption patterns have either remained unchanged or have become more present-oriented, by the time these new capital projects are finished and begin to produce, the producers find no market for their goods. Because the coordination between savings and consumption was severed through the artificial lowering of the interest rate, both savers and borrowers have been signaled into unsustainable patterns of economic activity. Resources that would have been used in productive endeavors under a regime of market-determined interest rates are instead shuttled into endeavors that only after the fact are determined to be unprofitable. In order to return to a functioning economy, those resources which have been malinvested need to be liquidated and shifted into sectors in which they can be put to productive use.

Another effect of the injections of credit into the system is that prices rise. More money chasing the same amount of goods results in a rise in prices. Wall Street and the banking system gain the use of the new credit before prices rise. Main Street, however, sees the prices rise before they are able to take advantage of the newly-created credit. The purchasing power of the dollar is eroded and the standard of living of the American people drops.

We live today not in a free market economic system but in a "mixed economy", marked by an uneasy mixture of corporatism; vestiges of free market capitalism; and outright central planning in some sectors. Each infusion of credit by the Fed distorts the structure of the economy, damages the important role that interest rates play in the market, and erodes the purchasing power of the dollar. Fed policymakers view themselves as wise gurus managing the economy, yet every action they take results in economic distortion and devastation.

Unless Congress gets serious about reining in the Federal Reserve and putting an end to its manipulation, the economic distortions the Fed has caused will not be liquidated; they will become more entrenched, keeping true economic recovery out of our grasp and sowing the seeds for future crisis.

source : www.24hgold.com

Animal spirits

by Alasdair Macleod - Finance And Economics.org

The BBC is running a three-part series on notable economists, starting with Keynes. There were a number of errors made, but I shall ignore those and address two Keynesian fallacies. The first was that Keynes correctly anticipated the economic and political consequences of the Versailles Treaty, which inflicted punitive reparations on Germany: this was true. It was bizarrely extrapolated to the current situation, concluding that Germany must reduce its prosperity and economic power to a level closer to that of the other Eurozone countries in the interests of economic balance.

The second point was that Keynes described unexpected changes in economic behaviour as "animal spirits". Mervyn King, Governor of the Bank of England no less, said on the programme that it was the best explanation for the Banking crisis five years ago. To describe such an event in those terms is not an explanation and exposes a yawning gap in King’s knowledge.

"Animal spirits" amount to the failure of Keynesians to explain a basic phenomenon of human action. The origin of the phrase, if the programme is to be believed, comes from Keynes’s unsuccessful attempts to predict stock market prices. We have all been there: we invent a fool-proof trading system only to see it fail in practice. "Animal spirits" is a substitute for understanding that it is impossible to predict tomorrow’s prices with certainty, whether they be of financial assets or of goods.

Prices change for one of two reasons. Either there is a change in the value of the goods being exchanged for money, or there is a change in the value of the money used. The Banking crisis to which King referred was about a sudden change in the value of money.

Before the crisis, banks were willing to lend, and consumers were willing to borrow to buy. The prerequisite was continually expanding credit, a process that was bound to end sometime. And when it did, the consequence of a change in the availability of money was an increase in its value to the consumer, and the result was a fall in prices. "Animal spirits" is an attempt to summarise this effect without understanding it.

Left alone, prices would have adjusted to new lower levels. Government action was focused on stopping this happening, by introducing schemes such as car scrappage, or cash-for-clunkers, to encourage demand. At the same time central banks flooded the banking system with money to stop its value rising. Prices were therefore prevented from adjusting to the bursting of the credit bubble. This Keynesian solution has another fallacy at its heart, clearly stated by the experts, including King, on the programme. They believe that production has to be subsidised in order to keep unemployment down. If people remain employed, they will spend, and that gets the economy back on track. This analysis is incorrect: as we have seen, the problem is prices, not production.

The order of events does not start with production, it starts with consumption. If prices are too high, because of a change in the value of money, then they must fall if consumers are to be tempted. The fall in prices exposes over-valued productive capacity. It is an adjustment that must occur, and no amount of subsidy and money-printing to address "animal spirits" can change that. And the sooner it happens, the sooner an economy gets back on track.

Originally published on www.goldmoney.com

The Fed is Trapped, Gold is the Exit

By Darryl Robert Schoon - Survive the Crisis

 

47% of US investors dependent on the Fed believe they are victimized by government, who believe they are entitled to enough liquidity to profit when risk is laid-off onto others, to society, to you-name-it… On September 13th, the Fed announced QE3, a policy of open-ended bond purchases which would add $1 trillion annually to the Fed’s balance sheet. The Fed’s decision to provide liquidity ad infinitum, i.e. QE etc, was framed in reasonable and carefully chosen language: …These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative…


The measured wording gave the Fed sufficient cover to mask its increasingly desperate condition, i.e. how to keep its fatally-wounded credit and debt ponzi-scheme functioning while searching for a solution that doesn’t exist.

CAPITALISM’S CONSTANTLY COMPOUNDING DEBT IS THE DEVIL’S WHIP OF GROWTH

In capitalist economies, capital, i.e. money, is introduced by central banks into the economy in the form of loans; and because interest constantly compounds, economies must constantly expand in order to pay down and/or service those loans. This is why economists in capitalist systems are obsessed with growth. Capitalism is, in actuality, a smoke and mirrors shell game where credit and debt have been substituted for money; and, as long as capitalism expands no one is the wiser because the fraud is so subtle. Capitalism, however, is no longer expanding. It is contracting. Capitalism reached its peak in 2008 when Greenspan’s historic credit bubble burst. What investors believed was a finely-tuned balancing act between credit and debt orchestrated by Fed Chairman Alan Greenspan turned out instead to be a speculative bubble fed by Easy Al’s easy credit from the Fed’s 24/7 discount window. While Greenspan presided over the greatest credit expansion in the history of capitalism, Greenspan also presided over two of its largest speculative bubbles—the 1996-2000 dot.com bubble and 2002-2007 US real estate bubble. Greenspan would later refer to evidence of these bubbles as ‘froth’; to those who lost homes and fortunes, it was blood.

read more here : http://www.24hgold.com

Fed Easing Only Helped Stocks, Not Economy

Macro Analytics - FEDEREAL RESERVE - Flawed Premise - Mistaken Role

The Federal Reserve and its Monetary Malpractice is at the core of the American Dream becoming a myth for the vast majority of Americans. Jobs, disposable income and financial security are all under pressure, as the Federal Reserve continues its historic monetary gamble on unproven policies of Quantitative Easing and ZIRP.

Charles Hugh Smith and Gordon T Long discuss how a flawed premise and the mistaken role for this private-public institution is leading to moral hazard, unintended consequences and dysfunctional financial markets. They argue that there is sufficient proof to now call into question the historic role of the Federal Reserve .

This two part series also examines who is winning, who is losing and where it is likely to lead. The facts laid out in this series should be a concern to all Americans who care for their country and the future for their children.

Fed Virtually Funding the Entire US Deficit: Lindsey

By: Justin Menza

The latest round of extraordinary Federal Reserve stimulus is risky and leaves little room to maneuver should another crisis hit, economist Lawrence Lindsey told CNBC’s “Squawk Box” on Wednesday.

Lindsey said that with the Fed purchasing at least $40 billion a month in mortgage debt through QE3, “they are buying the entire deficit.” (Read more: Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates.)

“I have no problem doing extraordinary things in extraordinary times,” said Lindsey, a former White House economic advisor under former president George W. Bush who now runs his own consulting firm.

Lindsay said he agreed with the Fed’s first two rounds of quantitative easing. Now, with the economy now growing closer to its trend rate, “doing something that’s really out of the ordinary is risking things.”

He added, “If this becomes the new ordinary, it’s hard to imagine the Fed’s maneuvering room” should another crisis hit. (Read More: Why Fed Policy Just Like the NFL Refs: El-Erian.)

The central bank's recently announced bid to stimulate the economy has also taken the pressure off politicians to deal with the U.S. fiscal cliff, Lindsay argued, which could result in destabilizing tax hikes and spending cuts automatically taking effect early next year.

“The Fed, maybe because it can't do otherwise, has told the Congress: 'We're going to buy your bonds no matter what,'” Lindsey said. “I think that's keeping the pressure off the president, off the Congress.”

The effective of QE3 on interest rates may also keep Congress from reining in borrowing.

“If the (Fed) chairman’s estimates of the effectiveness of QE3 on interest rates come true, we’re going to be down to an average cost of borrowing for the government of 0.6 of a percentage point,” Lindsey said. “Why would any Congress not borrow and spend if they could borrow at 60 basis points?” 

source : www.cnbc.com

Spain is turning into the new Greece, and Mariano Rajoy has himself to blame

When the economic situation is bad (the country’s GDP estimates fell again on Wednesday) there’s nothing like a dose of political mismanagement to give things a good hard shove towards the same abyss that Athens disappeared into sometime in the middle of last year.

It’s only September but the scenes from Madrid in recent days prompted me to revisit the annual predictions in which we indulge every January. At the start of the year, as we looked forward to another 12 months of experimental eurozone economics, not to mention politics, with renewed austerity measures and another euro treaty, this column said: “None of this has been tested at the ballot box and I predict a year of popular political protest across the eurozone, some of which will turn violent, prompting shocking scenes as governments use force to regain order.”

You can’t let a gun off slowly, but Spanish prime minister Mariano Rajoy has been openly flirting with the idea of seeking a bail-out from the European Central Bank in recent days but only if capital market investors forced Spain into it by sending yields on Spanish government debt higher.

In the land of bull fighting, he has waved the proverbial red rag. Lo and behold, Spanish bond yields duly shot up again on Wednesday to 6pc, pricing Spain out of the markets and forcing him closer to going cap in hand to Frankfurt, assuming the ECB bail-out is actually real as opposed to an empty promise. This, in turn, will undermine his political credibility at home which the riots in Madrid and secession fever in Catalonia reveal is already suffering.

It reminds me of John Major’s government in 1992 and a determined Norman Lamont giving George Soros any excuse to bet against the pound and test just how determined the Treasury really was about defending sterling.

source : www.telegraph.co.uk

The Fed is the Great Enabler

by Steve Saville  We've speculated in TSI commentaries that unwavering devotion to bad economic theory (a type of stupidity) is the most likely reason for the Fed's introduction of a new inflation program at this time. There are other plausible explanations, but in general terms it boils down to this: the Fed is either stupid, or evil, or stupid and evil. There is no fourth possibility that makes any sense. It is either evil enough to inflate the currency in an effort to help banks (or the re-election chances of Obama*) even though it knows that doing so will harm the overall economy; or it is stupid enough to believe that the economy can be helped by creating money out of nothing and distorting the price signals upon which an efficient market relies; or it is evil enough and stupid enough to believe that it can transfer wealth to the banks and simultaneously create a net benefit for the overall economy. We'll go with evil and stupid. The timing of the new policy was probably determined by the deteriorating employment situation, but the Fed may well be trying to kill multiple birds with a single stone. In any case, regardless of the reasoning behind the Fed's latest policy move, the Fed exists primarily to enable growth in the government and secondarily to enable growth in the banking industry. Growth in government is enabled because a government with a captive central bank will never run short of money, irrespective of how big its deficits become and how far into debt it goes. Growth in the banking industry is enabled because the central bank's unlimited power to create new bank reserves means that banks need never run short of reserves, irrespective of how reckless they are in their lending and borrowing. It is clear from the following chart that the Fed has succeeded in its primary objective. The chart shows spending by the US federal government as a percentage of GDP from 1880 through to 2012. In 1880 the federal government spent about 3% of GDP. In 1913, the year the Federal Reserve came into existence, the federal government also spent about 3% of GDP. In other words, as a percentage of GDP there was no growth in the US federal government during the 33 years prior to the inauguration of the Federal Reserve. An ultra-long-term upward trend then began. Ignoring the war-related spikes during the late-1910s and the first half of the 1940s, there has been steady growth in the US federal government from 1913 through to the present. Currently, US federal government spending equates to about 24% of GDP. This means that since the birth of the Federal Reserve the cumulative increase in the size of the US federal government is about 700% greater than the cumulative increase in US GDP. Chart Source: www.usgovernmentspending.com Would a Republican victory in this year's US Presidential election reverse the upward trend in the size of the federal government? If history is a guide, the answer is no. In fact, over the past thirty years the size of the US federal government, as indicated by federal government spending as a percentage of GDP, increased by more during Republican administrations than during Democratic administrations. The Republicans often talk a good game (they pay lip service to smaller government), but in practice they are usually just as bad as or worse than their Democratic counterparts. One of the main reasons is that the Republicans are generally in favour of boosting the amount of money spent on the military. An increase in military spending is always politically easy to accomplish because most Americans are proud of their armed forces, but of the main areas of US government spending the most unproductive is the military. We are certainly not in favour of government spending on public works programs in an effort to create jobs, but it would be much better for the government to spend money building a bridge in the US than blowing up a bridge in the Middle East. So, a Romney-Ryan victory in November would probably change the composition of the federal budget, but believing that it would result in a smaller government is an example of the triumph of hope over experience. Regardless of who wins in November, it's a good bet that the US federal government will be a bigger part of the economy four years from now than it is today. And as always, the government growth will be enabled by the Federal Reserve. The extent of the Fed's success in achieving its secondary objective (enabling growth in the banking industry) is less easy to establish. This is because the big banks periodically go way too far and blow themselves up. The Fed then bails them out, either immediately and directly via the injection of new money or gradually and indirectly by manipulating the yield curve and altering regulations, but the periodic blow-ups mean that there hasn't been a consistent ultra-long-term upward trend in the banking industry relative to the overall economy. The US financial sector's performance has been lumpy, although it has still managed to grow from about 3.5% of GDP at the introduction of the Fed to about 8% of GDP today. The bottom line is that we can speculate about why the Fed introduced a new inflation program at this particular time, but in the grand scheme of things it doesn't matter. A specific policy move by the Fed will generally be a reaction to recent economic data and short-term considerations, but the Fed doesn't exist for the purpose of fine-tuning the economy (although the current Fed chairman and governors may well be politically naive enough and economically illiterate enough to believe that it does). It is a tool that facilitates the growth of the government and the banking industry. *In last week's Interim Update we outlined our reasons for thinking that the Fed did not act with the aim of boosting Obama's re-election chances. We also said that in the unlikely event that it did act for this reason, the move could backfire. An informal Facebook survey conducted by the Federal Reserve Bank of San Francisco underlines the possibility that the Fed's move could hinder rather than help the Obama campaign. As noted in a WSJ blog entry on 17th September, the Facebook survey indicated an overwhelmingly negative public response to QE3. Steve Saville source :www.24hgold.com/

Pierre Lassonde - Gold & Central Banks Fearful Of A Depression

Lassonde is arguably the greatest company builder in the history of the mining sector. He is past President of Newmont Mining, past Chairman of the World Gold Council and current Chairman of Franco Nevada. Lassonde is one of the wealthiest, most respected individuals in the resource world, so we take his warning very seriously.

But first, Lassonde had a great deal to say about the gold market: “I was very surprised in the summer that gold didn’t break the $1,500 level. I say that because Europe is really going into a recession, and I felt the lows were going to be breaking the $1,500 (level). But you know what saved the gold market? The central banks.”

“The central banks came in and bought almost 150 tons of gold in June and July, and the gold market never looked back. It was very stable, and it built from there. From here on in it’s very simple, when you look at the Federal Reserve, with QE3, when you look at the ECB with their OMT, it should be OMG, for ‘Oh My Gold,’ because they are essentially going to be monetizing Spanish and Italian debts.

When you look at the Japanese Central Bank, they just announced their own QE3 program. It’s essentially all of the central banks around the world printing money. So what do you think gold is going to do?....

“It’s going to keep on going up.

Don’t be surprised to see $2,000 gold in the next six months. I would not be surprised at all. Ultimately, my view is that we are looking at a 15 to 20-year bull market in hard assets. Mostly (in) gold, if we want to be specific. We are in year 12, so we still have quite a few years to go.

I do believe that every one of those bull markets has had a mid-cycle recession. I think that when you look at the metals index, not when you look at gold, but when you look at the metals index, we have entered that mid-cycle recession.

Iron ore-prices are down from $180 to $85. You look at just about every metal and the whole index is down. The only metals and commodities that have held up better than expected are copper and oil. That being said, I think we are in a mid-cycle recession. So we are going to have to be a bit more patient in terms of what do we expect over the next year or two from a level of around $2,000 (for gold).

So I think for the next 12 months one will have to be patient. The gold price is well supported. The central banks are there. They are buying. When you talk about the worldwide slowdown, the central banks are worried about a depression, and that’s why they are printing all of that money.

The long-run, we all know it, it’s going to come back to bite them. The way it will come back to bite them is through inflation. When you start to see inflation starting to get imbedded in food prices, wage increases, that will be the start of the final bull run in gold.”

source : kingworldnews.com

BofA Sees Fed Assets Surpassing $5 Trillion By End Of 2014... Leading To $3350 Gold And $190 Crude

by Tyler Durden

Yesterday, when we first presented our calculation of what the Fed's balance sheet would look like through the end of 2013, some were confused why we assumed that the Fed would continue monetizing the long-end beyond the end of 2012. Simple: in its statement, the FOMC said that "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability." Therefore, the only question is by what point the labor market would have improved sufficiently to satisfy the Fed with its "improvement" (all else equal, which however - and here's looking at you inflation - will not be). Conservatively, we assumed that it would take at the lest until December 2014 for unemployment to cross the Fed's "all clear threshold." As it turns out we were optimistic. Bank of America's Priya Misra has just released an analysis which is identical to ours in all other respects, except for when the latest QE version would end. BofA's take: "We do not believe there will be “substantial” improvement in the labor market for the next 1.5-2 years and foresee the Fed buying Treasuries after the end of Operation Twist." What does this mean for total Fed purchases? Again, simple. Add $1 trillion to the Zero Hedge total of $4TRN. In other words, Bank of America just predicted at least 2 years and change of constant monetization, which would send the Fed's balance sheet to grand total of just over $5,000,000,000,000 as the Fed adds another $2.2 trillion MBS and Treasury notional to the current total of $2.8 trillion.

In other words, for once we actually were shockingly optimistic on the US economy. Assuming BofA is correct, and it probably is, this is how the Fed's balance sheet will look like for the next 2 years:

Or, in terms of US GDP, the Fed's balance sheet will have "LBOed" just shy of 30% of all US goods and services.

It gets worse:

Since the Fed is effectively becoming the marginal player in both the MBS and Treasury markets, a very relevant question is how much private market debt is left to sell. Short answer: not much. According to BofA's calculation, the Fed will own more than 33% of the entire mortgage market by 2014.

That's half the story.

On the Treasury side, in just over 2 years, "Fed ownership across the 6y-30y portion Treasury curve is likely to reach about 50% by end of 2013 and an average of 65% by end of 2014." You read that right: in just over 2 years, the Federal Reserve will hold two thirds of the entire bond market with a maturity over 5 years (which by then will be part of the Fed's ZIRP commitment, yield 0% and essentially be equivalent to cash).

No wonder that David Rosenberg is worried that the Fed will soon run out of securities to buy (well, there are always equities of course, but the Fed will not monetize those until some time in 2015 when hyperinflation is raging).

And speaking of hyperinflation (and our earlier note that nothing "else is equal") the real question is if indeed the Fed will own $5 trillion in "assets" in 27.5 months, what does that mean for gold and crude? The answer is plotted below:

In case it is unclear, the answer is:
$3350 gold
$190 oil.

Luckily the Fed has already factored all these soaring input costs (and "alternative money" prices) in its models, and there is nothing to worry about. Lest we forget, the Fed can crush inflation cold in 15 minutes cold... somehow. Even when unwinding its balance sheet would mean sacrificing 30% of US GDP and, let's be honest about it, civil war.

* * *

That's it in a nutshell. Those who are interested in the nuances of the BofA analysis, which is a replica of our own, can read on below:

The Fed Bazooka

Given our growth forecast, we expect the Fed to follow up the expiration of Operation Twist with an open-ended outright Treasury purchase plan at the December meeting. We expect the pace could be between $45 billion (which would be equal to the current size of Twist) and $60 billion/month for two years [in 10 year equivalents]. We expect a long program given the slow improvement in the labor market as well as the Fed’s focus on a “substantial and sustained improvement” in the employment situation.

Table 2 compares different asset purchase programs by the Fed in terms of the net notional and duration take-out. Were the Fed to engage in renewed Treasury purchases post the end of Twist (in the same maturity distribution), this could easily become one of the largest programs in terms on monthly 10y equivalent demand from the Fed. Note that even MBS buying takes duration out of private hands, which would put downward pressure on rates

Mortgages: Fed buys most of monthly issuance

We estimate that Fed purchases will take out about 60% of monthly MBS production. However, our mortgage strategists note that historically the Fed has concentrated its buying in 30y conventionals. For example, in August the Fed bought $23bn of conventional 30s, $2.5bn of conventional 15s and $3bn of GNs. This compares with gross issuance at $122bn, which is split into $88bn in conventionals ($66bn in 30s, $22bn in 15s) and $34bn in GNs. In other words, the Fed has concentrated 80% of its purchases among conventional 30y. A similar pattern would suggest that the Fed would buy an additional $30bn in this sector, which could end up being almost 90% of all issuance in conventional 30y. This explains the significant tightening in the mortgage basis, and would argue for the Fed to buy some other sectors as well.

In terms of outstandings, we expect the Fed to end up owning more than 33% of the total market by the end of 2014, which is also significant since many mortgage investors tend to reinvest paydowns. These investors would need to be persuaded to sell MBS to the Fed, which would require tighter spreads.

Treasuries: Fed will own a 45-50% in the long end in a year

Given our growth forecast, we expect the Fed to follow up the expiration of Operation Twist with an open-ended outright Treasury purchase plan at the December meeting. We estimate further what the potential ownership of the Fed could look like in the Treasury market over the course of the next two years. We assume that: 1) Purchase sizes are in the same distribution as Twist, sans the sales; 2) Treasury coupon auction sizes remain constant; and, 3) The Fed does not change the 70% per issue maximum SOMA limit.

Table 3 and Table 4 simulate the Treasury universe during the course of 2013 and 2014. Fed ownership across the 6y-30y portion Treasury curve is likely to reach about 50% by end of 2013 and an average of 65% by end of 2014. Given the current issuance schedule, we believe it is very likely that the Fed changes its purchase buckets through the next round of Treasury purchases. In particular, the Fed will begin to run out of issues in the 8y-10y bucket and will be forced to buy newly issued 10y notes should they choose to maintain the same distribution. We believe this is unlikely, and that the Fed is likely to redistribute its purchases and possibly include the 5y portion of the curve to provide some room.

Five Years Since The Great Financial Crisis: "No Growth, No Deleveraging"

Submitted by Tyler Durden

One of the populist buzzwords of the past 5 years, particularly in Europe, has been "austerity", which as we have said for the roughly the same past 5 years, is simply a synonym for "deleveraging" but one which carries just the right amount of negative connotations, and is used by crafty politicians to shift blame from their own failure to enact proper policy (which over the past 30 years has merely meant to borrow growth from future political cycles, aka, issue debt) onto a "technical" word conceived by Ph.D.-clad economists, who too, are looking for a passive victim on which to project their failure of enacting a voodoo economic theory. There is one problem with all of the above. As we have also been saying for the past five years, the austerity deleveraging myth is one big lie. We are setting the record straight below with facts and figures. We would be delighted if some politician, somewhere, could disprove these facts, which essentially imply that the world is now in a global recession, having experienced no growth as the recent 100% contractionary PMI print of all major economies confirms, yet without any country actually having implemented austerity, pardon deleveraging to have at least a modest justification for this failure of growth.

Finally, this article proves that the European chorus screaming for "growth" when everyone knows it demands merely more of the same drug - debt - is 100% wrong, and that while the underlying causes of "growth" are there, the only thing missing are the symptoms. DB's Jim Reid provides the charts and facts:

Figure 37 shows the combined Debt to GDP of the EU-12 (excluding Luxembourg), the US, UK, Japan and Australia. This debt includes Governments, Financials, Corporates and Households. Ireland’s small economy and large financial system (domestic and foreign), ensures an outsized reading which we cut off in the chart.

Figure 38 then shows; 1) how this ratio has changed from the end of 2007 to the end of 2011; 2) what the trend was in the 1-year to the end of 2011 to see momentum; and 3) where the ratio is from the peak point. The data is represented in percentage point moves.

As can be seen, only the US and Australia have seen their overall economy Debt to GDP fall since the end of 2007 and for both these the fall is negligible. The US has gone from around 348% to 345% on this measure. From the peak the US has fallen from the 366% seen in 2009 and the 353% seen in 2010 but few other countries are seeing their debt/gdp ratio move in the right direction. Many are currently at their peak overall economy wide leverage number and as already discussed when looked at from the start of the crisis all but the US and Australia have seen this ratio rise. Interestingly as we’ll see below Australia and the US have still seen debt rise but Nominal GDP has risen by a higher amount, thus helping them see leverage ratios decline slightly. It shows how important growth and inflation are if you want to delever.

Deleveraging problems from both the debt and growth side

The deleveraging problem comes from both sides. As we saw in Figure 36 in the previous section, growth has struggled to eclipse its peak levels across a number of countries with only inflation allowing many to surpass their peak activity levels. In terms of debt, Figure 39 shows the growth of an index of economy wide liabilities from our DW sample rebased at 100 at the end of 2007. We have gone back as far as the full data starts for each country.

Figure 40 then shows a simple un-weighted average and median of this basket and shows that debt is still increasing in the developed world.

Figure 41 then looks at the numbers for each country again from the end of 2007 to Q1 2012, since the end of 2010 and also from the peak. Debt hasn't started to turn down anywhere in the Developed World since the end of 2007. As already discussed, those that have seen their debt/GDP ratios stabilise (e.g. US and Australia) have required some nominal GDP growth.

So debt is still climbing in most countries. Clearly the splits are changing with more emphasis on public over private debt but there's little evidence that the DM deleveraging trend has started yet.

Given such an unparalleled run up in debt over the last few years and decades, will we be able to de-lever naturally and without defaults? If we can find a higher pace of growth and inflation than debt accumulation then we can. But can every country succeed? The reality is that we would make a strong argument suggesting that the high debt burdens are actually holding growth back thus ensuring a problem of circularity. As a minimum it likely ensures that these economies remain fragile and vulnerable to shocks for many years to come.

So in aggregate the DM post-GFC world can be characterised by a “No Growth, No Deleveraging” mantra and one where we are still in a similar situation to where we were five years ago.

source : www.zerohedge.com

BofA Makes The Case For $3,000 Gold

Everyone loves gold these days. Deutsche Bank sees $2000 gold soon. And Citi says it could go to $2500 in six months.

BofA, too: the firm recently initiated a $2,400 target price for the shiny yellow metal since the Fed's announcement of open-ended bond buying.

However, BofA analyst Stephen Suttmeier thinks there's a case to be made that gold goes even higher than the bank's official call.

In a note to clients today, Suttmeier writes:

The secular bull case for Gold $3000

We remain secular bulls on gold. Key chart and uptrend supports between $1600 and $1400 have held and we have viewed $1550-1500 as a good area to buy gold. The breakout above the year-long downtrend line completes the correction within the longer-term uptrend and targets resistances at $1800 and $1925. But, the secular bull market for gold points to a stronger rally to $2050-2300 and up to $3000 longer-term. The top of the rising channel from mid 2005 is near $2375 and reaches the $3000 area by early 2014. Key channel supports are in the $1600 and $1400 areas and rise ~$25/month. The chart below shows the secular bull market for gold.

Here is the chart Suttmeier is looking at:

BofA Merrill Lynch

source : www.businessinsider.com