The BullionBuzz eNewsletter - May 11, 2010

"...the fiscal year 2010 deficit in the United States alone would purchase, at today’s price, 30% of the gold ever mined since the beginning of civilization."

-- Stewart Dougherty

CHART OF THE WEEK

www.leap2020.eu/GEAB-N-44-is-available-Global-systemic-crisis-USA-UK-The-explosive-duo-of-the-second-half-of-2010-Summer-2010-The-Bank_a4531.html

"...since the size of sovereign debt needed corresponds with the start of the expiry, beginning this year, of a mountain of US private debt (commercial real estate and LBO due for refinancing, amounting to 4.2 trillion USD of private debt expiring in the United States between now and 2014 (averaging one trillion USD a year). Purely by chance, it is the same amount as new global sovereign debt issuance for 2010 alone, of which almost half is by the US Federal Government. Adding to that the financing needs of the other economic players (households, businesses, local authorities), the United States must find nearly 5 trillion USD in 2010 to avoid running dry."

New Feature: VIDEO OF THE WEEK

Ascent of Money

Niall Ferguson

GOLD

Solari Report – GLD and SLV: Disclosure in the Precious Metals Puzzle Palace

Catherine Austin Fitts & Carolyn Betts

Upon realizing that the disclosure precious metals ETFs were providing to investors was inadequate, Fitts compiled this report to enable investors to examine the issues, and make it easier to understand and price these securities. Topics covered include: Exchange Traded Funds; GLD and SLV; Securities Law Regulation and Disclosure Obligations; Commodities and Commodities Futures Markets and their Regulation; Questions Regarding Risk Issues; and Summary. In conclusion, she notes that as the prices of commodities rise, securities vehicles that invest in hard assets through the commodities markets will reflect an increasing portion of US retirement savings and global capital. Investors deserve a clear picture of what they are buying in order to make informed decisions about purchases and pricing; currently, the disclosures regarding GLD and SLV are inadequate. At best, these ETFs are simply a bank deposit priced at spot without the benefit of government deposit insurance. At worst, they are vehicles by which investors provide the banking community with the resources to control and manipulate the precious metals market without adequate compensation. Many of the ETF risks are disclosed in their prospectuses or online, but the complexity of the structure and other factors make much of it too complex at best and misleading at worst. The CFTC should look into: limiting the positions of large banks in the gold and silver futures markets; the use of ETFs for channeling capital to the commodities markets; lack of proper disclosure; complexity of the vehicles being created; and whether affiliates of market markers should be permitted to serve as custodians. The SEC should perform a review of material omissions in the disclosure of GLD and SLV with a view to protecting investors. Regulation between commodities and securities markets must be aligned before the large banks shift billions, if not trillions, of dollars of retirement savings and personal wealth through the regulatory cracks.

http://solari.com/archive/Precious_Metals_Puzzle_Palace/

The Dollar Rally is Hugely Bullish for Precious Metals

Stewart Dougherty

It is generally believed that the US dollar and gold have an inverse price relationship, but this is a false and misleading concept designed to deceive the public about the true nature of honest money. Soon, however, this and other market fallacies will be exposed as the global sovereign debt crisis leads to fiat currency destruction. Meanwhile, the dollar is enjoying a rally thanks to the euro’s troubles, which have been caused by Europe’s desperate fiscal problems. The Greek people’s response to their country’s predicament reveals their limited understanding about the nature of the crisis; this isn’t surprising because citizens worldwide have been deliberately misled when it comes to government spending, budgeting and virtually all other fiscal matters of state. They are also ignorant of how the financial elite, like Goldman Sachs, has plundered the West and sucked its economies dry. So for the moment, the dollar represents a ‘flight to safety’, a ludicrous notion given that the US is the most indebted nation in the world. It is now impossible for the US to pay its debts or contingent liabilities unless it hyperinflates the dollar into worthlessness. So why is ‘Big Money’ flooding into the risky dollar? Because it has the dubious distinction of being the “least bad” currency at the present time. This strategy reflects desperation, and is a short-term fix that indicates a lack of perceived options. But as Big Money considers its options, it will realize that precious metals in general, and gold and silver in particular, represent a huge opportunity.  Big Money won’t want ETFs; it will turn to the real thing, physical, realizing that any price less than $5,000 per ounce for gold and $300 per ounce for silver is cheap. The current dollar rally proves without question that enormous sums are money are running to safety; when Big Money wakes up to the lack of viable options, and sees the opportunity precious metals represent, a torrent of money will flood into the sector.

www.bmgbullion.com/document/701

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MONEY

Europe Prepares Nuclear Response to Save Monetary Union

Ambrose Evans-Pritchard

“It is an absolute general mobilization: we have decided to give the Eurozone a veritable economic government,” said French president Nicolas Sarkozy last week. “Today we have an attack on the whole of the Eurozone. This is a systemic crisis: the response must be systemic. When the markets open on Monday morning we will be ready to defend the euro.” Faced with the imminent disintegration of monetary union, Europe’s leaders have created an EU debt union, authorizing the European Central Bank to step in immediately to stabilize the Eurozone bond markets. Such an accord profoundly alters the character of the EU; this new agency is a Treasury in all but name, managing an EU fiscal union where liabilities become shared; in effect, a European state. No EMU country will be allowed to default, whatever the moral hazard. For now, the world has avoided a financial cataclysm that would have been as serious and far-reaching as the collapse of Lehman Brothers, AIG, Fannie and Freddie in September 2008, and perhaps worse. But there is a difference between quantitative easing and use of this policy to soak up the debt of governments dependent on external finance to cover structural deficits. Evans-Pritchard predicts a Japan-style slide into deflationary perma-slump, although the panic response to that down the road may well be to crank up the printing presses. In the meantime, a group of professors has already filed a case at Germany's Constitutional Court, claiming that the Greek bail-out is illegal and that the EMU is degenerating into a zone of monetary disorder. While each component makes sense in its own narrow terms, he writes, the EU policy as a whole is madness for a currency union.

www.telegraph.co.uk/finance/financetopics/financialcrisis/7702335/Europe-prepares-nuclear-response-to-save-monetary-union.html

ECONOMY

Inflation and Bailouts go Hand in Hand

Greg Hunter

“Pick a financial fire and you can be sure the US government will hose it down with gallons of money.  AIG, General Motors, Chrysler, insolvent states, FDIC, Fannie, Freddie and all the banks are just a few of the blazes Uncle Sam has sprayed money on,” writes Hunter. Now, the Fed is printing $105 billion, ostensibly to help Greece, but more probably to aid US banking giants who have a large exposure to debt in the troubled region. The money printing cannot stop because the bailouts are never ending, meaning that rampant inflation is a certainty. John Williams of shadowstats.com thinks the inflation picture looks ‘dire and definite’, and that gold remains the best long-term hedge, along with silver and some currencies. He is not a fan of the US equity markets. Williams believes there are mounting systemic risks; the Greek debacle could be just the start of an upcoming Eurozone crisis and an early warning of worse to come – a global systemic crisis. “I keep trying to find ways to explain the scope of what is going on in the world financial markets to friends and readers of this site,” writes Hunter. “I told an acquaintance at dinner last night the money printing going on ‘has never happened on this scale in human history.’  The guy just looked at me and said that he thought it was a good idea to invest in municipal bonds! How are broke cities and states going to pay the interest, let alone the principal, back. If the cities and states are bailed out, massive inflation will render the bonds worthless or near worthless. People just do not understand the calamity that is upon us, but what do you expect when the mainstream media keeps broadcasting that we are in a ‘recovery.’ I do not know exactly how this is going to end, but for the unprepared, it will end badly.”

http://usawatchdog.com/inflation-and-bailouts-go-hand-in-hand/

Global Deflation, Global Inflation & Australia’s Gold Tax Grab

Daniel Amerman

Last week, the financial world was rocked. Around the world stock markets fell with an almost 2% one-day drop in equity values across 23 developed nations, and a 5.2% fall in three days. The S&P500 hit a two-month low in the US. The euro plunged against the dollar for two straight days, reaching a 14-month low. The financial crisis claimed three lives in Greece as a result of fires set during the nation’s paralyzing general strike, even while German newspapers roiled with anger over the European Central Bank’s inflationary rule changes intended to help finance the Greek bailout. Australia implemented exorbitant mining tax hikes, apparently to keep investors from reaping too many of the benefits of the gold that rightfully belongs to all Australians. The world is changing rapidly, but it is not descending into unpredictable chaos. Instead, there are three separate but intertwined economic themes that will dominate the coming years: falling investment value, monetary inflation and rising taxes. Investment values have been falling around the world, a phenomenon that will likely continue as pervasive asset deflation in purchasing power terms takes hold. Global monetary inflation will simultaneously be another powerful force, for plunging asset values do not prop up the purchasing power of currencies. Rising tax rates will have particular effects on many precious metals investment strategies. Investors who do not understand these three broad forces are likely to see little more than chaos, and they face an oncoming series of negative surprises that will systematically destroy much of their net worth. Through anticipating these forces and understanding how they interconnect, informed investors gain an opportunity to not only protect what they have, but to turn that understanding into substantially increased wealth.

http://danielamerman.com/articles/Global05.htm

Is Sovereign Debt Crisis Contained to Subprime?

Peter Schiff

Most Americans assume that the strength of the dollar and the credit worthiness of their government will prevent Greek-style meltdown from happening in the US. Schiff believes these protections are illusory. Once again, the vast majority fails to see a crisis in the making, even as it stares them in the face. Just as market observers in 2007 thought the credit crisis would be confined to the subprime mortgage market, analysts now claim that sovereign debt problems are confined to Greece, Spain, Portugal, Italy and Ireland. They were wrong in 2007; they are wrong now. Schiff discusses the similarities between the housing boom and bust and the Greek situation, and why it could be argued that the US is already in worse financial shape than Greece. And while the US is able to print dollars with abandon, just because it can inflate does not mean it can escape the consequences of its actions. One way or another, the piper must be paid. Either benefits will be cut or the real value of those benefits will be reduced. In fact, it is precisely because problems can be inflated away that they now loom so large. With no one forced to make the hard choices, the easy way out is all too alluring. When creditors ultimately decide to curtail loans to America, US interest rates will spike, and the choices will be even more difficult than those now facing Greece. Given the short maturity of the national debt, a jump in short-term rates would either result in default or massive austerity. If the US rejects those choices and opts for money printing instead, runaway inflation will ensue and produce an even greater austerity. Those who believe the Fed will keep rates low, or that inflation will not flare up as long as unemployment remains high, are as foolish as those who claimed that the mortgage market was sound because national real estate prices could never fall.

www.financialsense.com/fsu/editorials/schiff/2010/0507.html