Spot Gold On June 1, 2010: $2000.00

Jefferson's Secretary of the Treasury, reduce the public debt to $45 million by 1811, and by 1835 the national debt had been fully repaid. Following the war with Mexico, the national debt rose again to $65 million, and it reached $2.7 billion, or about 30 per cent of national income, by the end of the Civil War. By the beginning of the First World War it had been reduced again to about 10 per cent of national income but rose again to 30 percent during that war, and to $260 billion, or about 120 percent in the course of the Second World War. It was reduced to below 40 per cent in the 1960s but had risen to over 60 per cent by 1982 and by the end of 2008, it had reached $10.3 trillion, or about 60 per cent of GDP. [15] and is expected to rise to 112 per cent of GDP in 2014[16].

Among the influences upon sovereign spread is the size of the national debt as a proportion of GDP. As that proportion rises, a point is eventually reached at which more money is required for debt repayment than the government can raise from taxation. At that point, the only alternative to a default is repayment with money created for the purpose by the central bank [22]. Money creation aside, default is the inevitable long-term outcome if national debt persistently grows as a percentage of GDP . That is known as the debt trap (which is further discussed in the article on fiscal policy).

Thus, even if debt has cost advantages over taxation as a means of financing government expenditure, perceived default risks arising from the debt trap impose a limit upon its employment. An additional limiting factor is the confidence of international investors in the probity of the issuing government, since they can raise the default risk by demanding compensating interest rate increases.

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I knew that net government revenues from taxes for '09 versus '08 were pretty brutal, but I recently looked back to '07. In October'07 the U.S. government received net $150 billion in taxes. In '08 it was something like $133 billion and in '09 they got $110 billion. That's at least three years in a row of contraction in tax revenues. --web

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Such a development is highly costly. As Friedrich August von Hayek put it: "… the chief harm which inflation causes … [is] that it gives the whole structure of the economy a distorted, lopsided character which sooner or later makes a more extensive unemployment inevitable."[3] And: "Inflation at first merely produces conditions in which more people make profits (…). In order for inflation to retain its initial stimulating effect, it would have to continue at a rate always faster than expected."[4] It might therefore not take any wonder that central banks, in a desperate attempt to keep the economies going, try their best to increase money and credit supply further via record low interest rates.

Admittedly, the economic mainstream believes that a low interest rate policy is helpful for stimulating output and employment: lower borrowing costs are widely expected to translate into higher investment, job creation and, ultimately, growth. However, such an outcome is far from clear. In fact, a cheap monetary policy might not reach its goals but end up achieving quite the opposite of what it is intended to do.

What is often overlooked is that a low-yield environment reduces the economic incentive to adjust scarce resources to new circumstances. An artificially low interest rate can thus be expected to water down the need to bring about product and process innovations, a crucial ingredient for sustained growth. Low borrowing costs prevent the market exit of relatively inefficient suppliers, whereas it becomes harder for higher performers to gain market share, cementing inefficient market structures. Finally, there is a danger that a low interest rate policy encourages only low yield investment, which, should interest rates rise, would become unprofitable, causing a further business cycle crisis.

Rising indebtedness within the economy, coupled with disappointingly slow economic growth, could provoke public pressure on the central banks' low-rate policies. If central bankers do not see the need, nor have the courage, to pursue a pre-emptive policy – that is, raising rates towards more neutral levels before any crisis unfolds – the cheap money policies will remain in place, in the hope that an economic improvement or a rise in inflation provides adequate ammunition to embark upon a restrictive monetary policy. However, if central banks wait too long, there is a risk that the rise in indebtedness will seriously undermine the consensus for a stable money policy: a rising number of borrowers may hope to find relief as higher inflation devalues their real debt.

An "unwanted" debt trap is actually a result of a monetary policy which does not follow rules but bases its decisions on discretion. This is the Zeitgeist monetary policy that has been nurtured in the last decade: policy makers have increasingly focused their policy actions on immediate developments (cyclical swings), rather than seeking to preserve general conditions (maintaining long-term price stability). Under such a regime, sooner or later a central bank is likely to fall victim to its previous mistakes: the bank would be forced to adjust money supply to attune for the damage already done. One unwanted result of such enforced action would inevitably be a debt trap.

This situation can largely be attributed to policy makers' neglect of money and credit expansion factors, which influence prices in the medium- to long-term but not in the short run. The marked increase in indebtedness in the western industrialised countries, especially as a result of the major central banks' cheap money policy, should have convinced policy makers to change course already. However, it is worrying that central banks show no sign of returning to a more "normal rate policy", as evidenced by the still record low long-term (real) capital market yields. This might well be taken as an indication that markets could believe that central banks are already caught in a kind of debt trap.

http://mises.org/story/1771

Supposedly the only adult chaperones in the room, the keepers of the punch bowl, have instead backed up a tanker truck full of vodka, unrolled the hose and are leaving the valve wide open.

A peck at pickled peckers for one's children's friends the chickens.

I have been waiting since the 11th for Zerohedge to talk about this article:

http://www.telegraph.co.uk/finance/newsbysector/industry/mining/6546579/...

Why would anyone want to buy Gold Shares instead of physical gold? Aren't you buying something that doesn't exit? Isn't it the same as all those chopped up mortgages where a dozen or more people own the same confetti piece? Who gets the gold when everyone rushes in to sell?

Marla,

2000$ is quite an ambitious target. The big bull moves starting fall 2005 and summer 2007 were some 60% outbreak to top. Assuming that now is a similar situation would make for a nice run but not 2000$ in June 2010. To get there and stay there in a short time a stronger driver is needed, say a COMEX default or the bankruptcy of a bullion bank that is short gold. A central bank panicking to get rid of Dollars and buying gold would do it too.
All those events are not very likely in a short period of time.

$2000-$2500 if they do a good job holding the Matrix together

Much much higher if they slip up

Speculators are not gamblers. We buy on the dips, (as do the central bank plays) it is not in our interest to create a "panic-buy" environment. To suggest Gold at $2000 by June is the equivalent of betting on armageddon. Gold will continue to go up, as the technicals show, but if it gets ahead of itself, it will shorted in the futures and profits will be made. Remember, buy and hold physical gold for a rainy day (or extreme event), but trade paper gold to make money.

I'm still expecting a significant USD rally when the bear market rally ends.

And the Dow bearish rising wedge lines on the daily chart are converging ...

http://www.zerohedge.com/forum/market-outlook-0

Well--if we can stumble along like we are until June,I doubt it will be over 2000 and might be below 1000--

But--we have that always looming currency crises hanging over us and should Central Bankers,be forced into the gold markets,to stabalize one or more major currency's from collapsing--then all bets are off,as to price--

2000 "could" be--way below the June price--

I think that most of the people that are thinking gold will go to 2000 bucks in six months are engaging in some serious wishful thinking.

Even at the current rates of inflation, it's not like the dollar will lose half of its value in six months.

Couple that with the fact that everybody and their mom is buying gold, and the fact that it's the moron-du-jour retail trade of the year, seems to almost bode to be bearish to me.  GLENN BECK says to buy gold.  That guy's a fuggin moron.  Right there should be common sense that the market is already pretty well saturated.

I know that my words will be looked down upon with great vengeance and furious anger by the gold fanboys on this board... but 2000 bucks in six months?  Get real!

To be truly Boolean: while employing $2K for one end of an anticipated golden barbell ya gotta complete the logical string by throwing up a $666 if not a $500 on the other side.

That way we can effectively gauge just how pronounced the skew between each competing string will be after at least a few thousand votes on each end.  Eat your heart out Frank Luntz.

I say Gold will hold on and march to 2000 in 6 weeks or so. It depends on everything else continuing to be "better than expected."

Mining companies are extracting less gold per ore. In fact I think some mining companies are getting out. There is only so much gold to go around and all want it.

Silver is going to take off and run.

I dont have a position in anything. Just paying debts as fast as possible so that when the full horror of cap trade, health reform GPS Road/Kilometer taxes etc (Proposed Euro tax .07 USD = 21 dollars each week for 300 miles for a total of about ... 1000 dollars a year for a newer car.

What goes up must come down. Expecting trouble as holders of paper gold shares evaporate without actual physical gold. Going to be interesting.