Archive - Sep 19, 2010

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Fiat paper currencies are still running a frenzied race to the bottom. Politicians of both parties see the only way to win elections is to inflate. Reserves everywhere are playing out, and top producer Barrick Gold (ABX) isn’t opening a new mine at 15,000 feet in the Andes because it likes the fresh air. The output of gold has fallen by 12% annually for the past decade, compared to a doubling of production costs to $500/ounce. Almost all short term money market alternatives globally are yielding close to zero, meaning that the opportunity cost of owning the gold is nil. No pause to catch its breath until we hit $1,300. (GLD), (ABX), (UGL), (RGLD), (AEM), (GBG).

Bill Buckler Discusses The Last Price Standing Of "True Money", Answers The Only Question Relevant To Gold Bugs

Bill Buckler, publisher of The Privateer Report, has released one of the most scathing critiques of paper money we have read to date: "Before it can be exchanged, wealth must be created. Wealth cannot be created out of thin air. By definition, an economic good is “scarce”. If it were not, there would be no such thing as economics or exchange. Neither would be necessary because no effort or choice in the face of alternatives would be required in order to provide the GOODS which further our lives. Before we can talk about money and the VITAL role it performs, we must stress this point. Money is NOT wealth, it is the means by which wealth is exchanged amongst those who produce it. Paper money is not suited to this function." So what is the only rational investment in times in which money's role is so often confused by pretty much everyone? "Ninety-seven percent of all existing Treasury debt has been created since August 15, 1971! Ninety-three percent of it has been created since Mr Volcker “saved” the paper Dollar in late 1979! Please note that the gain in Treasuries and the loss in the US Dollar almost exactly cancel out. Please note also that even the biggest gain in these paper markets fades into insignificance against Gold’s rise."And here is the answer all the "gold bugs" have been waiting for: "The paper money “price” of Gold will last as long as the attempt to make paper money “work” lasts. In the end, Gold will no longer have a “price” because it has reverted to its role as MONEY. Whenever and wherever that happens, that nation can return to the production of wealth - rather than “money."

China-Japan Tensions Escalate, As China Breaks Off High Level Contacts, Japanese Flag Burned In Protest

On the anniversary of the 1931 Japanese invasion of China, tensions between the world's second and third largest economies are escalating. The Associated Press reports that late Sunday, China broke off high-level government contacts with Japan "over the extended detention of a fishing boat captain arrested near disputed islands. The rare move pushed already tense relations to a new low, and showed China's willingness to play hardball with its Asian rival on issues of territorial integrity." The latest straw on the camel's back was the detention of a Chinese fishing boat and its captain, after it hit two Japanese Coast Guard boats in the East China Sea, a territory claimed by both countries, as previously reported by Zero Hedge.Furthermore, " the captain's detention for further questioning — pending a decision
about whether to press charges — has inflamed ever-present anti-Japanese
sentiment in China." China reaction has been swift and merciless, proving just great the ego of the now second largest economy, and largest holder of US debt, has become: "Beijing has suspended ministerial and provincial-level contacts,
halted talks on aviation issues and postponed a meeting to discuss
coal." Also, attached pictures of Japanese flag burning can not instill much confidence in Sino-Japanese relations stabilizing any time soon.

Presenting Capital-Based Macroeconomics, An Overview Of The Austrian School And The Business Cycle

The recent surge in the prominence of Austrian economics is no surprise: with Hayek's Road to Serfdom recently becoming Amazon's most popular book, it is more than evident that more and more Americans are, if not converting away from Keynesianism (because it truly is far more a religion, and a flawed one at that, than an economic theory - after all any 'theory' that has been disproved as many times as John M. Keynes' mutated Frankenstein monster would have long been set to rest on the trash heap of failed social inventions) then certainly looking at far more plausible alternatives. Of which the Austrian school of economics is certainly one. For all those who are still confused about the far more rational and sensible approach of Austrian theory and Capital-based macroeconomics, the attached 50 minute presentation by Robert Garrison is a must watch.

Eric King Interviews Eric Sprott, Art Cashin

A couple of insightful interviews, brought to you by King World News. In the first one Art Cashin goes off on a astrological tangent, discussing how the autumnal equinox may or may not impact the critical 1,130 resistance level. According to the cocktail napkins things may get heated... or not. In other words prepare for a market that may surge... or plunge. Elsewhere, Eric King discusses the drop in the NAV premium on the PHYS (quite relevant in light of the recent second follow on offering for the physical gold ETF), gold common stocks, and the imminent rush for M&A in gold small and mid cap companies. Indeed, all that borbadment about cash on the sidelines in other sectors leading to a renaissance in acquisitions is more than relevant for the gold sector: look for some material moves higher as expectations of consolidation in the precious metal space spread like wildfire through the market.

Guest Post: Preserve and Protect: The Jaws Of Death

The United States is facing both a structural and demand problem - it is not the cyclical recessionary business cycle or the fallout of a credit supply crisis which the Washington spin would have you believe. It is my opinion that the Washington political machine is being forced to take this position, because it simply does not know what to do about the real dilemma associated with the implications of the massive structural debt and deficits facing the US. This is a politically dangerous predicament because the reality is we are on the cusp of an imminent and significant collapse in the standard of living for most Americans.

ECB Stepped In To Rescue Ireland

Another sovereign bankruptcy, another stick save by the ECB. The FT has confirmed Friday's rumors that it was just the ECB's intervention that prevented domino number two - Ireland - from toppling, and taking with it all of Europe. "The European Central Bank intervened to stabilise the Irish bond markets on Friday after a report by a leading UK bank triggered investor fears that the country might turn to the international community for a multibillion-euro bail-out." As readers will recall, the half a percent spike in Irish bond yields was precipitated by a Barclays report that the IMF would be needed to rescue the Emerald Isle, coupled with confirmation that the Irish government was negotiating with AIB bondholders about an imminent bankruptcy. At least now it is doubtless that domino #2 is now on a ventilator, in the critical condition ward, and should Doctor ECB's attention be diverted elsewhere, say to quell riotous mutiny in Greece, that the house of cards will finally fall.